23 April 2019

Nigeria: Economists Back Call to Remove Fuel Subsidy

Abuja — The Nigerian Association of Energy Economists (NAEE) has expressed its support for the recent call on Nigeria by the International Monetary Fund (IMF), to end the practice of petrol subsidy.

The association argued that fuel subsidy only benefits the elites in the country.

The NAEE also stated that Nigeria's continuous structuring of its national budget around oil prices and production benchmarks were inimical to economic development, adding that as long as the country has no control over global oil price movements, budgeting with such benchmarks would remain unstable.

Speaking to journalists in Abuja at the annual conference of the association, NAEE's outgoing President, Prof. Wumi Iledare, explained that Nigeria cannot continue with the practice of subsiding petrol.

Iledare maintained that the practice was wasteful and often done to the detriment of other key sectors of the country such as infrastructure, health and education. He claimed Nigeria's petrol subsidy expenditure in 2018 was way more than what was budgeted for education, health and defence in the same year.

According to him: "The benefits of petroleum subsidy is far less than the cost of petroleum subsidy. Anytime a government has a policy, there is need for it to be reviewed to see whether the benefits that come from the policy is more than the cost, and all you need to do is look around: the roads are bad, schools are bad, hospitals and infrastructure are bad or not there.

"I have not added it together but do a check, when you look at the budget for health, education and defence (they) are not up to the petroleum subsidy in 2018. Is it not time for the government to look at it?"

While the IMF recently advised Nigeria to stop subsidy on petrol, the World Bank had earlier in a report disclosed that within the past year, Nigeria spent N731 billion subsiding petrol consumption.

The report had also stated that most of the petrol volume Nigeria spent money subsidising in 2018 were inflated as daily consumption rose to 54 million litres per day (ml/d) from 40ml/d in 2017, ostensibly due partly to out-smuggling to neighbouring countries.

Iledare, however buttressed this saying: "Do you know what a litre of petrol is in Ghana? It is one dollar equivalent, and you have porous countries around you (Nigeria) which you are not even protecting.

"And, you don't even have the actual amount of petrol because you are subsiding what you bring in and not what you actually consume. Government must review this."

He said he understood the government may be scared of a public uproar if it decides to end petrol subsidy, but urged the government to go ahead because according to him, the most recipients of the scheme were elites that could afford petrol at market-based prices.

"I understand the social unrest is scary but it will be for a while especially if there is enough public education on the subsidy. We are losing the capacity that we have because we are actually giving the elites who are capable of paying for their petrol to drive their car, at a giveaway price," added Iledare.

On structuring the national budget around oil price benchmarks, he explained that the combination of pricing and production volumes to calculate the oil revenue expected to fund the budget was wrong and unwise.

"One of it, which is price is highly unstable and that means you base your budget over the year on a price that in three months will change and that is why you see every year we scramble. We have budgeted on price that we have no control.

"Government sources of revenue for project in any part of the world is taxation, and that means paying your taxes demonstrates you are a citizen. Government has no other source of money except taxes and when they want to invest, they take dividends, but the moment you start taking your money from the gross revenue that you have without thinking about putting something back to build the equity is when you have depleted reserves," he explained.

"Woolly thinking is when you have policies that have no thread, and that is why when one government comes, it abandons things that are not intellectually debatable and reinvent the wheel.

"As per regional sentiment, is there any policy in Nigeria that is not regional-based depending on which region of the country the person governing comes from? Politicians cannot solve professional problems using sentiments," he stated.

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