19 December 2012

Nigeria: Need for Targeted Subsidy


In Nigeria, subsidy has become an exercise steeped in corruption. But subsidy is good if well targeted. The chief executive officer of Nigerian Bank for Agriculture, Alhaji Mohammed Santuraki, said recently in an interview that less than 11 percent of the subsidy on agriculture gets to the real farmers.

It is worse in the oil sector where almost nothing gets to the consumers.

The subsidy protests of January this year opened the eyes of Nigerians to the rip-off in that sector. Nigerians were told that close to N2.6 trillion was wasted on supposed subsidy.

Again, there is nothing bad in subsidising critical sectors of the economy that impact directly on the life of the average citizen. The challenge we have is being able to target subsidy so that it gets to the beneficiaries. The problem with subsidy in the two sectors mentioned is that it has become an instrument for political patronage. Being a big time politician or political financier is all that is required for one to be a middleman and be in a position to dictate the flow of subsidy fund.

Elsewhere in the world, such as the United States of America and Europe, government subsidises certain critical areas and they make sure that it gets to the intended beneficiaries.

We argue that subsidy must not necessarily come in cash form. Putting in place a sustainable value chain can be considered as subsidy. For instance, in the agricultural sector, construction and maintenance of functional dams to make possible all-season farming, access roads to the farms to ease the process of evacuating produce, government buying up excess produce at current prices and/or providing storage facilities can all be subsidy of some sort because the farmer is assured of the vital infrastructure as well as market for his produce and revenue will enhance his business.

In the oil sector, it is our opinion that all the talk of subsidy would have been unnecessary if the refineries were all working to installed capacity. If the oil majors and some private sector operators were compelled to take active part in the downstream sector, there would not have been any argument about subsidy: because there would not have been any need to import petroleum products in the first place.

For the real sector of the economy, stability of key infrastructure like power supply, water, roads and government policies can also be some sort of subsidy to be transmitted to the final consumer in the form of affordable prices of goods and services.

We, therefore, insist that the subsidy policy as presently packaged is wasteful and breeds monumental corruption. It is attractive only to politicians who see it as their own slice of the national cake. A transformation of the nation's infrastructure and the refineries will go a long way in making the process smoother, more cost effective and efficient with the average citizen getting the real feel of it.

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