Time is now to remove fuel subsidy

The arguments in favour of fuel subsidy removal in Nigeria can no longer be ignored. Even the worst economic illiterate by now understands that the fuel subsidy regime is detrimental to our economic growth, and there is a consensus of opinions that there is no better time for the Nigerian government to scrap the subsidy than now when crude oil is trading at about $36 a barrel at the international market with no hope of a rebound in the near term.

At a time government revenues have nose-dived and the government plans to borrow to fund about 40 percent of its 2016 budget, we see the continued funding of an inefficient fuel subsidy as sheer profligacy and an economic waste. The opportunity cost to the economy is humongous.

Indeed, as one analyst has argued, the N413bn approved by the government in November as part subsidy payment to oil marketers amounts to over five times the combined capital allocation for 2015 for Health (N22.6bn); Education (N23.5bn); Power (N5.1bn); Works (N19.8bn); Transport (N3.9bn); and Lands and Housing (N1.6bn).

Furthermore, “The over N1 trillion that the previous administration spent annually on fuel subsidy, if invested instead in infrastructure development, would create in excess of 25,000 new jobs annually for our unemployed youths: they will be building our roads, hospitals, schools and power infrastructure and equipping our schools and hospitals. Surely, these are better choices than sharing the money between 130 or so oil marketers so that Abuja and Lagos residents can run their jeeps and generators.”

Again, in spite of a subsisting fuel subsidy regime, the product has in the past couple of months consistently sold for between N100 and N200 in many parts of the country, as against the regulated price of N87. The only exceptions are perhaps Abuja and Lagos. Even in these cities, the pump price of PMS has fluctuated between N87 and N150 depending on which part of the city you are.

Added to the above is the even greater problem of product unavailability. Irregular supply of petrol in the country has always put Nigerians through harrowing experiences. Productive time, sometimes running into several hours or even days, is wasted on queues at filling stations waiting endlessly for fuel that may never come. These sad experiences resurfaced again in the weeks before Christmas, putting individuals and businesses through another bout of sorrow and economic losses. As we write, the situation is yet to normalise in many places, with the product, where available, selling well above the regulated price.

In light of the foregoing, it is our considered view that the time has come for President Buhari, in the interest of all Nigerians and the economy, to reconsider his stand on the issue of subsidy.

We agree, as some analysts have argued, that removal of fuel subsidy would remove all inefficiencies in the supply chain and bring about competition and, therefore, stability in the market, apart from numerous other benefits to the economy. This is because “a market free of subsidy will ensure that supplies meet demand and that competition drives down prices”.

Furthermore, subsidy removal will open up vistas of opportunities as more refineries, petrochemical and fertiliser companies are built, leading to huge employment generation. This is because subsidy removal will certainly chase away the ‘briefcase’ oil marketers from the scene, ushering in the real players in the market who would prefer to build their own refineries rather than import refined products. At the same time, more international players could be attracted in the sector leading to expansion of the Nigerian market sphere of influence to West Africa sub-region.

No doubt, a time like this requires well-informed, strong and determined leadership, not one that panders to uninformed public opinion or bows to pressure from a labour union that is unable to put its own house in order. We expect President Buhari to rise to the occasion.