Rethink subsidy removal

Editorial

Thanks to its inherently volatile nature, Nigerians have understandably been apprehensive about the latest recovery in global oil prices; and what this bodes for the fuel consumer, in terms of the pump price of petrol. Only last week, crude prices surged pass the US$ 65 per barrel mark, the highest in nearly two years, stoking fears of imminent hikes in domestic pump prices.

With fuel queues suddenly springing up in parts of the country, especially in the Federal Capital City, Abuja, Oyo and Yobe states, where petrol prices reportedly went for as high as N400 per litre, as against the ruling price of N162, it didn’t take the typically discerning Nigerian to appreciate that another cycle of fuel price hike, a la subsidy removal, was imminent – never mind the attempt by the Nigerian National Petroleum Corporation (NNPC) to paper over the underlying cause of the scarcity and its inevitable foreboding.

Assuring Nigerians that the corporation has enough stock of petrol to last the country for 40 days, the corporation’s spokesman, Kennie Obateru, says the corporation ”was not contemplating any rise in the price of petrol in March, in order not to jeopardize ongoing engagements with organized Labour and other stakeholders, on an acceptable framework that will not expose the ordinary Nigerian to any hardship.”

To be sure, that statement, if it is any reassuring, did not rule out future increases in fuel prices in the event that the Federal Government has not only announced a cessation of the subsidy regime but also ensured that no provision was made for it in the 2021 Budget. That we are back to the foundational issues on the subject so soon, after the sector is supposed to have been deregulated, not only underscores how little progress has been recorded but also how unsettled things have remained.

Be that as it may, we must commend the government, at least for keeping the pumps wet until the fuel-price-hike-induced panic buying, that we saw in the past week, abated.  It is to its credit that long queues for fuel is almost becoming past tense.  Everything should be done for it not to stage a come-back.

The citizens may long have moved past long fuel queues; and thought less subsidy (to remove or to retain), which remains at the core of the cyclic hiccups. Still, the Federal Government’s should come to terms with the subsidy equation.  Like a constantly moving target, the equation has been nigh impossible to track, let alone solve.  But that is mainly on account of the two separate but related variables of oil prices and exchange rate volatilities. This twain, over which the Federal Government has absolutely no control, has unfortunately remained the Nigerian albatross.

Today, we are talking of $65 per barrel oil price.  What happens should oil prices hit, say $100? Where is the guarantee that the exchange rate at nearly N400 to the US dollar – an exogenous factor but which, as we have seen, is a huge factor in fuel price determination – will remain the same?

Besides, we are in a period of steeply declining real incomes, record unemployment levels and prohibitive costs of doing business. The economy is only beginning to crawl out of a recession. Also, social protection for the poor is low, if at all present; and the transportation infrastructure remains largely rudimentary.

With all of these shaky fundamentals, would a fuel price hike now – never mind the justification – not further plunge Nigeria down the ladder of immiseration?

As against the traditionally doctrinaire approach, what the current situation compels is pragmatism. Clearly, what the nation’s economic peculiarities dictates the government should tread carefully on subsidy removal.  Particularly at this time, that might prove too hard a pill to swallow.  In fact, the attendant social costs, and socio-economic dislocations, might be incalculable if not well handled.

The best way to go in the circumstance is to put the subsidy removal on hold, perhaps until such a time when the Dangote refineries come on stream.  That should birth a new template of local refining, which holds the key to market-determined lower pump pricing, without a resort to subsidy and corruption that is its bane.