THE INCISIVE ANALYSIS OF SUBSIDY REMOVAL; WHY IT IS A BREATHE OF FRESH AIR FOR NIGERIANS. With an estimated 37.2 billion barrels of proven oil reserves, Nigeria is one of the world’s largest oil producers. However, the country’s mineral riches have not resulted in a significant improvement in the quality of life for the majority of Nigeria’s citizens, 54 percent of whom live below the national poverty line. In 2010, Nigeria […]
With an estimated 37.2 billion barrels of proven oil reserves, Nigeria is one of the world’s largest oil producers.
However, the country’s mineral riches have not resulted in a significant improvement in the quality of life for the majority of Nigeria’s citizens, 54 percent of whom live below the national poverty line. In 2010, Nigeria earned $59 billion from oil exports.
Therefore, Nigeria does not lack the resources to reach its development goals, rather its resources have been utilized inefficiently. THE INCISIVE ANALYSIS OF SUBSIDY REMOVAL
Subsidies exist because the government fixes the price of gasoline for consumers below the international price and uses government resources to pay for the difference.
They were first introduced in Nigeria in the 1970s as a response to the oil price shock in 1973.
However, despite numerous attempts at reform, Nigeria has never successfully removed gasoline subsidies, in large part due to strong popular opposition to reform. Such subsidies come at a great cost: spending on other development objectives is lower; the distribution of resources to the state governments is reduced; the vast majority of the subsidy goes to better off Nigerians; and cheaper gasoline encourages greater pollution, congestion, and climate change.
Fuel subsidy means that a fraction of the price that consumers are supposed to pay to enjoy the use of petroleum products is paid by the government to ease the price burden.
The Nigerian government removed part of this subsidy claiming that prices paid by Nigerians to use petroleum products are less than what they should pay particularly when benchmarked against the prices in the international market and will provide the necessary impetus for the Nigerian economy to find its rhythm.
The government proposes to remove all subsidies in fuel arguing that such subsidy removal savings can be better invested in refineries, roads, and major infrastructural projects which in the long-term will ensure sustainable business development and wealth generation for her citizens.
Both the government and marketers have justified the decision to increase the pump price of petrol, explaining that the decision took into consideration developments at the international oil market where prices of oil have been recording recoveries.
It is important to understand that the fuel subsidy has come here to stay as it will do more good than harm.
Before the subsidy’s removal, the pump price of fuel was N65 ($0.40) per liter, against a landing cost of N139 in 2012. The government, therefore, contributed an N73 subsidy, for an annual total of N1.2trillion ($7.6billion), or 2.6 percent of the country’s GDP. In effect since 1973, the subsidy was regarded by a majority of Nigerians as one of the few benefits they enjoyed as citizens of an oil-producing country.
With the removal of subsidy, it would automatically correct the distortions it created in the market such as products arbitrage and smuggling, while also providing the needed impetus for the NNPC to establish retail outlets in neighboring countries.
The regulators are not there to curtail the price or fix the price and that does not happen anywhere in the world, but what people do is that there is no exploitation of ordinary people and again the forces of demand and supply will take care of itself even when we have fixed price at a high rate, for instance, people run to NNPC filling stations today because the fuel integrity is real.
We should support production and not consumption and as long as we support consumption, we will continue to have issues of housing, resources and we believe over time, it will be to the benefit of this country.
If implemented correctly, the subsidy funds could lead to major organizational gains. Moreover, the removal of the fuel subsidy – if successfully implemented – creates the space for Nigeria to finally develop refinery capacity, and consequently increase its potential revenue from the oil sector and create jobs. Civil society organizations should take this opportunity to fully engage in the debate on how best to redirect the funding from the subsidy program.
In turn, the Nigerian government must communicate its plans and actions transparently to the people.
They want to know that the government has a credible plan and the challenge will arise when oil prices rebound amidst the call for the government to quickly implement post-subsidy programs.
Some form of social protection must be launched immediately to protect the most vulnerable. This could include measures to reduce the cost of public transportation in the near term.
Credit> Sectorwatch.ng: THE INCISIVE ANALYSIS OF SUBSIDY REMOVAL