With federal government’s plan to halt the costly petrol subsidy by June 2023, experts have long foretold that with Nigeria’s revenue constantly dwindling, it is only a matter of time before subsidy is ditched.Many of these experts have been consistent in maintaining that the trillions of naira spent by the country on fuel subsidy can be deployed to other creative sectors of the Nigerian economy, particularly education.
The fear over subsidy removal has always been the impact it will have on Nigerians. This has always been a source of friction between the government and labour unions.
The government has often sought to soft-pedal on the issue. However, it appears that the removal of subsidy is only a question of time. The huge sums going into the payment of subsidies every year can be taken to other sectors of the economy so that with time Nigeria can grow into an economy that is strong enough to survive shocks of any nature.
The World Bank has repeatedly warned that Nigeria’s huge subsidy bill poses an existential crisis to the country and its more than two hundred million citizens or many years now, while Nigeria has continued to disappear behind a thicket of debts, not enough has been done by successive administrations to make the country self-sustaining. The net result of this, experts contend, is a country almost brought to its knees, one which is broke and broken.
According to the Nigeria Extractive Industries Transparency Initiative (NEITI) the sum of N13.7 trillion ($74.386 billion) was spent on fuel subsidy) in 15 years.
Executive secretary of NEITI, Orji Ogbonnaya Orji, made this revelation during the House of Representatives ad-hoc committee investigation on fuel subsidy regime between 2013 and 2022.
According to the document presented to the House committee, a breakdown of the subsidy payments showed that it was N351 billion in 2005, N219.72 billion in 2006, N236.64 billion in 2007; 360.18 billion in 2008, 1.98.11 billion in 2009 and N416.45 billion in 2010. In 2011 it was N1.9 trillion, N690 billion in 2012, N495 billion in 2013, N482 billion in 2014, N316.70 billion in 2015, N99 billion in 2016, N141.63 billion in 2017, N722.30 billion in 2018, N578.07 billion in 2019 and finally N134 billion in 2020.
Only recently, the minister of finance, budget and national planning, Zainab Ahmed, had in her presentation of the 2023-2025 Medium Term Expenditure Framework and Fiscal Strategy Paper disclosed that the federal government was projected to spend the sum of N6.7 trillion on petrol subsidy payments in 2023. The disclosure unsurprisingly drew a lot of flaks from Nigerians.
As far back as the 1970s the Federal Government of Nigeria has been in the business of subsidising fuel consumption for its citizens. While the perennial scheme has directly mitigated hardship on the masses, it has indirectly inflicted poverty on the masses in the long-run. Fuel subsidy has denied Nigerians critical infrastructure that could have spurred economic growth over the decades. Today, Nigeria suffers acute infrastructure deficit.
For example, Nigeria is in critical deficit of rail infrastructure, not just for human transportation, but also for freight services. A functioning freight would drastically reduce the cost of goods and services, thus helping to curb inflation, create employment and spur economic growth. Rail transportation accounts for less than 1 per cent of the transportation service in Nigeria.
To put the futility of fuel subsidy in Nigeria into perspective, the immediate past minister of transportation, Rotimi Amaechi had said Nigeria needs $33 billion to connect every city in Nigeria by rail. Over the last twelve years, Nigeria has subsidized fuel by more than twice that amount and counting, based on investigation by NATIONAL ECONOMY.
Had Nigeria not been in the business of subsidising fuel just over the past twelve years, there would have been enough fund link the country by rail, with much to spare to invest in road infrastructure, power, as well as social infrastructure such as education and health care.
Train services would decongest Nigeria’s roads and reduce the pressure on them, thus reducing the rate of maintenance.
For example, Fidet Okhiria, managing director of the Nigerian Railway Corporation, said the Lagos-Ibadan railway project will “bring a great boost to our economy in the sense that it is linked to the port. The value of commercial activities in Apapa has basically gone down because of the traffic problem.”
He continued, “Let’s say just three trains from Apapa in a day, and we are talking about removing close to a hundred trucks from the congestion in Apapa. While trucks will still be busy, they will be going to the train station in Ibadan or Kano, and still get their work done. So the train will be a great relief to the road users, and in terms of timely delivery of either finished products or raw materials to industry.”
Similar rail projects in the works, including Ibadan-Kano, Port Harcourt-Maiduguri and Port Harcourt-Calabar standard-gauge lines, should deliver significant growth to the struggling economy.
Similarly, eliminating fuel subsidies would have given the federal government leverage to fix Nigeria’s dilapidated roads.
A highway network can be likened to the human cardiovascular system. Good pavement and minimal construction zones keep a local economy moving, healthy and growing, but potholes and slow-moving construction projects are like plaque – they render regional commerce sclerotic.
This stands to reason. If a state or municipality is pockmarked by rough pavement, it is going to take longer to deliver goods in and out of the region. Delivery vehicles will be damaged more often (flat tires, bent tire rims, broken axels, etc.) and need more repairs.
Labour and fuel costs increase when traffic moves slowly – due simply to bad conditions, or lane closures during extended resurfacing projects – causing drivers and their passengers to endure more time per trip.
$65 billion saved over the last twelve years would have also helped to alleviate Nigeria’s acute power deficit. Nigeria needs at least 50,000 gigawatts of power to meet its domestic need. However, the country, at the best of times distributes 10 per cent of that, 5,000 gigawatts.
It is worthy of note that judging from the experience of the Souapiti Dam being constructed in Guinea by the Chinese government, the construction of a typical 750 megawatts dam costs about $1 billion. By implication, $8 billion could build eight standard dams with the capacity to produce 6,000 gigawatts of electricity, which would more than double the power from Nigeria’s national grid currently.
From a social standpoint, Nigeria’s public tertiary institutions had been on strike for the past eight months over perennial issues that would cost less than $2 billion to resolve. The same goes for public primary and secondary education.
Nigeria’s health sector is likely to enjoy the highest budget allocation ever for the 2023 fiscal year. But that is hardly enough for a country whose health system is suffering an infrastructure deficit, as well as losing her well-trained medical personnel to foreign lands on a daily basis.
The World Bank said increasing fuel subsidy puts the Nigerian economy at a high risk as subsidy payments could significantly impact public finance and pose debt sustainability concerns. The bank added that the increasing fuel subsidy poses a high risk to the country’s economic growth, despite the increase in oil prices.
Professor of energy law, Adeleke University, Tayo Bello said Nigeria cannot survive with the fuel subsidy regime. He said the country requires a strong leader who would have the boldness to remove subsidy and save the country as the current subsidy regime is milking the country dry. He said the only way Nigeria’s fortunes can be returned to prosperity is by removing the black hole of the subsidy regime.
Chief executive officer, Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, said Nigeria’s fiscal space is weak, the fiscal headroom is severely limited, yet expenditure has been ballooning. The natural outcome is the surging fiscal deficit, mounting debts, and growing debt service burden.
He stated that, “The soaring crude oil price, rather than being a blessing, is now a curse because of the escalating fuel subsidy pressure on the finances of the government. Sadly, the growth of recurrent spending is not abating.
“The massive oil theft and the security vulnerabilities in the oil-producing areas are making it difficult for us to take advantage of the spiking oil price. We cannot even meet our OPEC production quota.
“The situation has been compounded by the massive importation of petroleum products because of the collapse of our refineries. A huge chunk of our foreign exchange earnings is committed to fuel importation, putting pressure on our foreign exchange reserves, and exporting premium jobs to other countries. These challenges of the fiscal crisis are largely self-inflicted.”
Vice chairman, Hicap Securities, David Adonri, described fuel subsidy as a wasteful policy that fuels consumption and corruption. He said that the negative impact of mounting fuel subsidies, low oil revenue due to underproduction, rising inflation, and huge debt servicing may force FGN into serious financial distress.
He said, “Fuel subsidy has remained an albatross hanging over the Nigerian economy for several years. From an economic point of view, it is a wasteful policy that fuels consumption and corruption. However, the economy has for long been pampered by it, so its sudden removal can be injurious. When Dangote mega refinery comes on stream and the entire petroleum industry is deregulated, fuel subsidy may be eliminated naturally.”
