Understanding Nigeria’s Fuel Subsidy Removal

Posted on May 13, 2016

The President’s decision to reallocate funds once earmarked for the fuel subsidy and commit these to other more socially productive services and undertakings was a difficult decision. It was also a necessary one. Politically, it would have been easy for the president to sit back and let the subsidy remain in place, yet in the art of governance, the easiest policy is rarely the best one. As originally envisioned, subsidy formed a basic part of the social contract between the people and government. It was a benefit all were to enjoy. Yet, because past governments were not for and of the people, the true meaning and objective of the subsidy policy became lost.

Over the years, the operation of the measure was distorted to where it no longer functioned for the benefit of the masses but for the undue enrichment of a small club of businessmen, some legitimate in their work, some not. Instead of remaining a positive aspect of the social contract, subsidy was transformed into an opaque haven of intrigue and malfeasance. It was turned into a shadowy process from which the unscrupulous extracted large sums of money without providing the services and products duly paid for. Fake businessmen became true billionaires over night as if by supernatural force. They paraded themselves as such. Meanwhile, the rest of the nation, the innocent people, where left to face erratic supply and were made to groan in the misery of long fuel queues and the high costs and loss of time attendant to this situation.

To allow this unfairness to continue would have been a breach of the promise made by this government to the people. While we all have an emotional and sympathetic attachment to the ideals upon which subsidy was founded, we all must recognise that the institution was hijacked years ago. Instead of a bonus to the masses, it became a factory of corrupt enrichment, so imbued with trickery deceit and theft, it stopped serving the interests of the people. It became a weapon of profiteering. The machinery of the subsidy had become so polluted that it was no longer feasible to talk about reforming it. Either it had to cease or we would have to surrender to the corruption now inherent in it.

This administration entered office with a mandate of CHANGE. The government could not forever sit back and allow this dire inequity to continue, less it forfeit the essence of its mandate. We all want fuel at a cheaper price. Under subsidy, we got the right price but not the fuel. Meanwhile, some were getting rich on the common man’s predicament. They were laughing to the bank while the rest of Nigeria waited on the petrol line. This is not the way to democratic development. It is a recipe for creating a class of economic predators that would feed off the people and in time gain such power and wealth that they would seek to buy and control, if not own, government as well.

President Buhari has with this decision put an abrupt and just end to the assault against our economy and political system. He has made a courageous and prudent decision. It is time to end fuel subsidy and begin to subsidise the true needs of the people. To Mr. President, I say congratulations for having the courage to remove subsidy. The president has taken this tough decision in the interest of the present and future generations of Nigerians. For some time, I have been a proponent of this action. I believed the ending of subsidy was the only sure way to put to sleep the myriad demons that had invaded the subsidy process, sucking the blood of Nigeria, swallowing much of our needed money. The rentiers will no longer be able to make free money at our common expense. They will no longer be laughing to the bank while you languish on endless fuel queues.

Nigeria has taken the historic step needed to create a competitive environment that that will eliminate smuggling, provide incentives for private refineries and attract foreign investments in the downstream sector and create employment. Instead of just shipping off oil and having the more expensive finished products sent back to us, Nigeria will move closer to realising its potential to become the plastic centre of the continent by manufacturing numerous by products. Nothing can stop Nigeria from being the net exporter of fertiliser from the bye products of the oil industry. I am hopeful but also realistic about this measure. I am also mindful of the situation of our people. This change will mean higher fuel costs in generally, and I would be lying if I said this will cause no pain or dislocation. However, it will lead to better supply and end the hidden substantial costs associated with long waits and delays for fuel. The days and hours of waiting for fuel will be a thing of the past. In a perfect setting, I wish we could have sanitised the subsidy regime and thus continued with it.

However, I believe that President Buhari correctly understood that there are to many malefactors and flaws in system for that hell to be turned into heaven. Better that we remove it. But I believe he is removing it not for the austere purpose of saving money but for the nobler purpose of putting those same funds to fairer, more equitable use in order that government might better serve those of us who are truly in utmost need. Now that the subsidy is being phased-out, we should simultaneously phase in social programmes benefiting the poorest and most vulnerable among us. Programmes such as transportation grants, school feeding, improved basic medical care and coverage for the poor, and potable water projects are profound social objectives that can be funded with the money that was once going to rentiers and speculators. This way we can use government funds to ensure that fruits go to the hungry, not the already well fed. Thus, I ask everyone to take a step back to coolly and objectively assess what has been decided. We must not make the mistake of allowing our political and sympathetic attachment to subsidy blind us to the hard fact that the purpose and benefits of subsidy had long ago been taken from the common man to reside in the purse of an elite few.

We cannot persist in this imbalance and think it will help us to develop. Instead, it is better to end subsidy and use the funds to establish well-targeted anti-poverty programmes that actually assist the people in need. True, this measure will increase fuel cost in the immediate term, and government must be vigilant to ensure that market forces are allowed to work properly and bring about a fair balance between supply, demand and longer-term favourable pricing. Collusion and manipulation of the market must never be allowed.

If government sets the system fairly, it will ensure better supply and with it economic certainty. Over the longer term, it will boost investment that can spur employment across several sectors. Perhaps more importantly, it will liberate money that government can now use to lower the social costs of living for our brothers and sisters who really need the help. While this may not be perfect, it is a much better deal than the one the subsidy offered us.

Originally published by Vanguard.