Nigeria Matters

A Look at the dis-economies of fuel subsidy removal

Over the last few days, Nigeria has found herself in a very unique conundrum, a situation that calls for reflections especially on the part of the Nigerian leadership. The removal of fuel subsidy by President Jonathan on the first day of this new year has really taken Nigerians by surprise, likewise the responses of Nigerians to this perpetual removal have equally surprise the Nigeria authorities so far. No one ever thought that divers Nigerians across religious and cultural divides will forget their perceive differences and responses to this subsidy removal the way they did over the last one week. Equally, few observers thought Jonathan will stood his ground this far, looking at the public perception of him as some one who is very soft and easily given to external pressure, which many currently belief is what made him to pass the removal in the first place. Nigerians from Lagos, Ibadan Ilorin, Kaduna, to Kano have response with various degrees of energy and temperaments even before the nation wide strike the Nigerian Labour congress (NLC) embarked on Monday. On the part of government various arguments have been put forward as the reason behind subsidy removal which mainly centered on economic reasons as there is little in the way of political justification for this hike. Even the economic justifications being put forward by the supporters of the removal can be shelved away if one take into consideration one major tools of economic analysis; the elementary level scale of preference which emphasize doing things in accordance to their importance in time of need: as at now Nigeria need the war against corruption more than removal of fuel subsidy.

All austerity measures are regressive in nature no matter the economic arguments put forward to justify them. No economic argument can justify increasing the price of a very dear and strategic commodity like fuel by over hundred percent at one time; even the countries we are citing as an example did not increase their own by over hundred at a time, instead they do it at intervals, by something like 25, 30, and for some few 45%. In term of enjoyment of fuel subsidy Nigeria is not unique in the world, according to an estimates by Morgan Stanley, almost half the world population enjoy some kind of fuel subsidy. In Oil exporters like Venezuela, Saudi Arabia, Iran, and Malaysia people still enjoy some of the highest oil subsidy in the world, more than what we were enjoying before the present increase. Even in countries that are not known around the world as oil exporters their people are enjoying some kind of oil subsidies, example here include China, India, and Taiwan. In the United States itself, despite the fact that they are richer and economically stronger than us its people enjoy some subsidy (especially when measure in term of purchasing power parity and cost comparisons), fuel price in the US is still lower than what obtain in UK and Germany. Why remove fuel subsidy and leave other subsidies that only the rich enjoy such as access to lucrative jobs and contracts, foreign education and health care, and easier access to our collective treasure?

The harmful effects of this removal of subsidy from petrol pump price have been under emphasized by this government talking only of the positive side of the policy. For example, one of the likely effects of this policy in the short run is to increase unemployment as some big and small businesses will definitely layoff to adjust to the changing cost of fuel. Economic growth in the short run may likely also be affected as industry and businesses adjust to this changing circumstance, and the continuous labour strike and occupy Nigeria protest begin to have it effect on the economy. Inflation is bound to rise a bit higher in the economy as price of good and service move to adjust to changing price of fuel, this will transmit it effect to the foreign exchange market as the value of Naira will depreciate further in response to rising inflation. As inflation rises and value of Naira depreciate interest charges by lenders (Banks) in the economy is bound to increase making nonsense of Sanusi’s policy of reducing interest rate and cost of running banks. All the purported benefits that is to be realized by CBN cashless policy will be outweigh by the resultant increase in cost to come from this subsidy removal. The price of food items to which most of poor people’s income is going is bound to skyrocket, this together with soaring transportation bills is going to make the life of Nigerian poor more miserable. Though , Nigeria is neither officially a social state nor a welfare state, the current fuel price increase is going to do a lasting damage to the little that remain of government assistance to the poor man on the street.

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