PRESIDENT Bola Tinubu will go down in history as the first Nigerian leader to trigger a national crisis in his very first hour in office. Amid the current asphyxiating socioeconomic climate, his impetuous “subsidy is gone!” declaration at his inauguration immediately triggered panic buying of petrol, whose pump prices rose by over 250 per cent, and instant increases in food and transportation costs. Labour unions are threatening a general strike, apprehension is widespread, and tensions have risen higher in the country.
The subsidy stoppage, one month ahead of schedule, reopened the debate on the controversial issue, delighted the organised private sector and the Bretton Woods institutions, while the government its shock therapy signposts a better economic future for the country. But on the streets, at the markets and other public places, among workers and small business operators, responses range from despair, and anguish to anger.
While there is no dispute that at an advertised N4 trillion in just six months, the subsidy regime is unsustainable and should be stopped, the debate over when, how, and other measures that should accompany its removal were never resolved.
In a turbulent, disarticulated economy, where the informal sector is approximated at 57.7 per cent by the London-based World Economics, and 65 per cent by other estimates, the impact of petrol price increases and the attendant inflation may upturn the assumptions and projections of the government. Managing the fallout may also tax the ability and resources of the economy.
Already, the impact has hit the middle class and the most vulnerable households rather hard. With prices per litre ranging from N488 to N700 per litre in most cities and as high as N800 to N1,000 in some hinterland areas, transportation fares and food prices have correspondingly spiked.
Subsidy removal is coming at a particularly tough period. The preceding Muhammadu Buhari administration had already concluded to end subsidies, providing for them in the 2023 budget only till the end of June. Poverty ravages 63 per cent of the populace; KPMG, a global consultancy, projects the jobless rate to rise from 37.7 per cent in 2022 to 40.6 per cent this year, and 43 per cent in 2024. The country is on edge after a divisive presidential election, which Tinubu won by just 37 per cent of the popular vote.
Praised by supporters, the gamble is expected to deliver positive outcomes, including significant savings, easing the pressure on lean public revenues 96 per cent of which is currently spent on debt servicing, free funds for lending to the real sector by banks, and for infrastructure, social services, and investment by the government, as well as facilitate the return of private marketers to petrol importation.
Tinubu has followed up with an order stopping the opaque and corrupt crude oil swap arrangement under which the Nigerian National Petroleum Company exchanges crude shipments for refined petrol; imports are now to be paid for strictly by cash. This is a right step and early reports indicate a drastic drop in petrol supplied compared to the suspiciously high figures the NNPC has been claiming over the years, and on which it has been paying itself subsidy without oversight.
While the stoppage of the subsidy is inevitable, The PUNCH believes a phased withdrawal amid a slew of bold steps, reforms, culminating in the delivery of substantial domestic refining and eventual total removal would have been a safer option.
Nevertheless, the government should unravel the mysteries around petrol imports; the actual volumes imported, and the veracity of NNPC’s claimed “under-recoveries.” Many questions its claimed figures. Next, remove the state oil company from importing petrol altogether and allow only private operators to import and retail.
The subsidy in its present shape is a monstrous symptom; the cancer is the inability to refine crude to finished petroleum products locally. Unless this is addressed and very quickly too, the disease will persist.
Yes, the 650,000 barrels per day Dangote Refinery should provide some succour when it comes on stream. But here, questions arise. A private enterprise whose cost and loans have risen to over $19 billion, may need to export to earn foreign currency to repay foreign creditors. It cannot reach its full capacity immediately, say experts. Also, the NNPC has warned Nigerians not to expect lower pricing from Dangote. The refusal to privatise the four moribund state refineries and the uncertainty of the ongoing Port Harcourt Refinery rehabilitation, going by past failures, may hand Dangote a monopoly.
Tinubu should just as boldly privatise the refineries within six months. He should remove the NNPC completely from downstream; wholesale, retail, and importation. Instead, strengthen, fund, and professionalise the regulatory agencies and personnel and allow the private sector to get the job done.
The plan to borrow another $800 million from the World Bank for distribution to the poor is inadequate and unworkable. Such a sum would deliver better, long-lasting outcomes if channelled into low-interest credit to SMEs, two million of which have collapsed in the last two decades. Only under the Sani Abacha military junta (1993-1998) with its Petroleum Trust Fund was any saving from price increases channelled into tangible interventions.
Tinubu should initiate policies to revitalise the economy, create jobs and alleviate poverty. Contrary to the repeated falsehood, the subsidy actually benefits the poor. In Nigeria, petrol prices impact all goods and services, beginning with transportation costs, and food prices.
A global consultancy, PwC, recommends raising the minimum wage, tax incentives, reforming the foreign exchange market, and fully deregulating the downstream oil sector to kick-start the economy.
Tinubu has hinted at a minimum wage increase, and his determination to merge the multiple exchange rates. He should act fast.
Other measures he should also implement include compelling all federal agencies to patronise Nigerian-made goods, promote SMEs, and launch an emergency programme on electricity supply.
Having taken this promised gamble, Tinubu must work strenuously to save the economy and initiate policies stimulating many private sector-led refinery ventures to engender competition and make Nigeria a regional and global refining hub.
