Nigeria: Subsidy Removal and the N5000 Proposal

28 November 2021

The deregulation of the downstream oil sector has become inevitable. But the palliatives to cushion the impact must be well thought-out

The federal government will most likely remove its long-standing fuel subsidy in the coming year. It is a decision that has been forced out of its hands. The various levels of Nigeria's burgeoning bureaucracies are in a desperate bind on how to find the cash to meet recurrent obligations. In almost all states of the federation, primary school teachers in public schools as well as health workers and pensioners have gone for months without payment. The fear that the machinery of government at all levels could grind to a halt if the cash cannot be found quickly is growing by the day.

The slump in oil prices arising from Covid-19 coupled with a general disruption in economic activities has put severe pressure on government revenues. Nigeria is not alone in this. Governments around the world have found creative ways of addressing these dislocations through sound economic policies. But as things stand in Nigeria today, the last remaining cash cow is the massive subsidy on petroleum products. The optimistic projection is that its removal will enable the downstream sector of the oil industry operate more competitively and eventually manage the price regime to the advantage of the consumer. While that outcome remains speculative, the public is gripped by fear of the economic consequences of subsidy removal.

Predictably, the Nigerian Labour Congress (NLC) and its affiliates have threatened a showdown with government as they often do. But the greater fear would seem to be a spontaneous eruption of social unrest in a country where increasing poverty and inequality has aggravated a raging insecurity. A pent-up tension has lately given rise to more insecurity characterised by prison breaches and sustained banditry.

Perhaps in anticipation of the social and economic consequences of subsidy removal, the federal government has put out a strange proposal. It is planning to pay a monthly subsistence allowance of N5,000 each to about 40 million poorest Nigerians. It is not clear yet how these figures were arrived at. By a simple arithmetic, it seems that the money to be paid out as subsistence allowance is arguably higher than the net receipt from the subsidy removal. What then is the rationale for the subsidy removal?

To put it mildly, the proposal to pay out N5,000 to 40 million poorest Nigerians requires better homework. For a government that spends a frightening 98% of its revenues on debt servicing, the numbers simply do not add up. Besides, there are already considerable concerns about the transparency of many of the social alleviation schemes under the current administration. These include the School Feeding Programme, the 774,000 Special Public Works Programme, the Trader Moni, the Covid-19 Palliative fund. etc. The relevant agencies have remained rather opaque about the parameters, modes of payment, and beneficiaries of these programmes.

With these unresolved gaps around social alleviation schemes, there is a real fear that an arbitrary decision to dole out cash to such a large population of Nigerians without adequate statistical preparations and accountability parameters could lead to massive corruption. It is even more curious that there is no plan for any such money in the 2022 appropriation bill before the National Assembly.

Overall, the subsidy removal project and its implicit economic and social dislocations require more serious homework on the part of government than the current usual knee-jerk model. So far, we do not have an update on the progress with fixing the refineries even after the approval of billions of dollars for their repairs and rehabilitations.

The position of THISDAY is clear. From inception more than 26 years ago, we have been consistent in highlighting the fact that subsidy in the downstream sector of the petroleum sector is a by-word for waste and corruption. So, we wholeheartedly endorse any attempt to remove it. But a major economic decision with implications for the social wellbeing of most Nigerians should not be handled with levity. Creating another slush fund for some people to mismanage in the name of subsidy removal is not the way to go.

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