On Tuesday October 4th 2011, President Goodluck Jonathan informed the National Assembly of his intention to phase out fuel subsidies under his Medium Term Fiscal Framework covering the period 2012 to 2015. The President says the removal of the subsidy will free more than N1.3 trillion, which will be invested by government to ensure faster national economic development. The announcement has predictably met with a full-blown condemnation from its traditional opposition, which is just about everyone outside the administration of President Jonathan. In the next few weeks, dire consequences will be promised by labour, the political opposition, organized public opinion, the media, students and market women. Old arguments in favour of the subsidy removal policy will be dusted-up and presented to a sceptical nation, and the administration will attempt to push through with the removal, even with resistance from all corners, including the National Assembly. In the end, no side will win. Whether the administration succeeds or fails, it would have exposed the nation to the real damage that decades of macro-economic mismanagement has done to our lives. Its own solution may actually make the problem worse. Its opponents’ case is also weak, and whether they succeed in getting the administration to back away or not, it will not have won any real victory over the manner the Nigerian economy is being managed.
The battle over the fuel subsidy did not start with President Jonathan’s administration, but it appears that he has decided to bite the bullet. The case the President is making is not new either. In simple terms, the case for the removal is that fuel subsidy is a virtual source of waste, inefficiency and corruption. It ties down huge resources which will otherwise be more productively utilized in developing critical economic and social infrastructure. It benefits a cartel which has cornered the import of products, and not the public. It encourages inefficiencies in the utilisation of resources, and discourages initiatives towards industrial development around petroleum products. It creates a false illusion that it keeps the cost of living relatively low. It has politicised ordinary market-determined adjustments in the price of petroleum products, and has polluted government-labour relations over the years, more than even ASUU’s regular grievances. It is an albatross on the neck of the nation which must be removed, even at the cost of some economic, but transient inconveniences. This is the best time to do it, and since it makes economic sense in every respect, there will be no going back.
The opposition to the removal of fuel subsidy has been successfully led, so far, by organized labour. Its own arguments are also well rehearsed. Subsidy is a major economic tool for managing a developing economy which is blessed with crude reserves, which Nigerians should enjoy as a matter of right because God gave it them. They are also, as a matter of right, entitled to it because without it, life will be unbearably expensive. While it accepts that the subsidy has been abused by a corrupt cartel and government, it blames government for this abuse, and not the subsidy. Why, they argue, shouldn’t government remove the abuse and corruption around the subsidy, and achieve both lower costs for the subsidy, and a more transparent system? They argue that removal of subsidies must be contingent on a whole battery of major economic initiatives and reforms, which include substantial concessions to low-income workers to cushion the effects of the removal; massive expenditure on road, rail and marine transport infrastructure and guarantees that internal refinery capacities will function to eliminate the drawbacks around an import – driven sector. These demands will make the removal of subsidies virtually impossible to achieve, pure and simple. If government had the resources for these extensive investments in infrastructure and social policy, why remove the subsidies in the first place?
So this new battle in the old war around removal of fuel subsidies is not likely to put anything new on the table; except perhaps the argument that its success is part of the requirements for the success of President Jonathan’s transformation agenda. The adversaries around the issue will engage each other in another bitter round of skirmishes, the same skirmishes which saw Obasanjo step back from his contemplated fuel removal in spite of his much stronger clout than Jonathan’s; and the same skirmishes which the late ‘Yar Adua did not even contemplate after getting his fingers burnt over a small increase in pump prices. The public will go through another agony; the same public in whose interests both sides have taken to the trenches.
If President Jonathan intends to dig in during this battle, he should expect a very bruising fight. The circumstances and context in which he plans to introduce the phased removal of the subsidy which will raise pump prices ultimately from N65 to about N145 could not have been more hostile. The Federal and State governments have just lost a damaging moral battle over the payment of N18, 000 minimum wage, against the background of a widely-publicised, difficult-to-believe take home pay of elected officials which they legislated for themselves. There is talk of a radical review of electricity tariffs, which will almost certainly materialise. The devaluation of the Naira is being contemplated in the light of dwindling foreign reserves and oil revenues. State Governors are up in arms the over the Sovereign Wealth Fund, and are running from pillar to post showing everyone who cares to listen how the minimum wage will cripple their efforts to do anything else but pay salaries of state employees. Political opposition will make much capital out of public sentiments against the removal, and will draw further attention to the fact that while President Jonathan’s administration has broken no new economic grounds since it came to power, it wants to visit a most cruel policy on poor Nigerians who are already desperately on the margins of survival. The media will dig up the history of the subsidy removal controversy and its links with the IMF, and may even link the current Minister of Finance with the issue. Other critics will draw attention to the very high cost of diesel and kerosene as outcomes of subsidy removals, and will, in addition, remind the nation that in spite of deregulation, these two products are still expensive and controlled by cartels.
So, all in all, President Jonathan would appear to have entered the water when the sharks are most hungry. He will unite all his opposition against him in this battle. The bottom line is that Nigerians simply have no faith or trust in the leadership’s ability and capacity to remove subsidy and invest it elsewhere for the greater good. This, really, is what the whole controversy is about. President Jonathan’s track record in terms of engaging the Nigerian public on sensitive or complex issues is a very poor one. There is no evidence that much work will be done to reduce the hostility around the planned subsidy removal, or educate more Nigerians to appreciate its benefits. Most educated Nigerians understand that the fuel subsidy has largely created billionaires; even if it also created the illusion that Nigerians get what they consider their own oil cheaper than most people in the world. But even this educated group are weary of the integrity of the administration, and question whether the removed subsidy will not end up in other private accounts. The manner State Governors are resisting the otherwise good idea behind the setting up of the Sovereign Wealth Fund on grounds that they suspect it will be abused is a reminder that corruption has eaten so deeply into our psyche and our affairs that nothing is beyond suspicion.
There are very good reasons why the fuel subsidy policy should be re-examined. Much of what is claimed to be paid on behalf of Nigerians as subsidy is merely swindled. It can be saved and invested in other sectors, but Nigerians will feel the effect in the short term. The parasitic layer which makes trillions of Naira would have been eliminated, though. But a number of things need to be done first. The administration must convince Nigerians that it is in our own interest to make short-term sacrifices for longer – term gains. Second, Nigerians would want firm assurances that corrupt government officials and elected leaders will not pocket the savings from the removed subsidies. Third, real palliatives do need to be put in place to reduce the pains particularly among those most vulnerable groups: the urban poor and rural peasants. Finally, the administration will need to engage opponents of the removal in a genuine and comprehensive dialogue on the issue.
It is doubtful if President Jonathan will do all these things. Which means Nigeria
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