Subsidy Removal as Panacea for Economic Prosperity

By Bayo Ogunmupe The most important lesson Covid19 pandemic has brought to the fore is the evil effects of subsidies on the Nigerian economy. After decades of corruptive spending, called petroleum subsidy by the Federal Government of Nigeria, it finally bade good bye to the ignoble policy, albeit unwillingly. The decision to jettison the policy, was due to the crisis precipitated by the slump in Nigeria's crude oil earnings. Though a most sagacious decision, petroleum and electricity subsidies were removed at a most inopportune time. The timing was wrong because it is in a period of corona virus pandemic when half of the adult population is unemployed. More so, the ruling party, the All Progressive Congress is contesting the governorships of Edo and Ondo states. The federal government has just given the opposition party the ammunition with which to win the election. But Nigeria, being a pre-literate society may not vote for the opposition which this unwise political decision portends. Subsidy removal ought to have been decided and executed last January, given the oil glut nigeria is experiencing then. In the circumstance, the subsidy removal ought to have been postponed till January 2021 in deference to the election. This government has left the economy primeval for too long, leaving the economy comatose since 2018. Though subsidy removal was inevitable, we commend President Mohammed Buhari for taking the courageous decision which every President had been loath to take for decades.Sadly subsidies have bred corruption and held us back from industrialization and economic prosperity. Such policies as petroleum and electricity subsidy, the creation of the National Youth Service Corps and a proliferation of ministries, departments and agencies have retarded Nigeria's growth. Such evil policies have rendered Nigeria unstable and insecure. For example, we know that political stability is a precondition to economic prosperity, according to their book 'Why Nations Fail', Daron Acemoglu and James Robinson, argue that politics and economics interact in causing poverty or creating prosperity. However, the authors put politics first because while economics creates prosperity, it is politics that determines which economic policy to adopt. Thus, we must avoid making mistakes through formulating bad policies. Nigeria's preference for loans as against private capital investments is holding us back in generating economic growth and prosperity. Using loans to generate development builds expensive infrastructure, excluding mechanisms to recover costs. lacking understanding of how to generate growth in a market economy, it strangulates thriving industries to death. Using loans to fund growth, militates against inclusive trade. It forces government to shut borders, imposing import substitution in an economy where it is cheaper to move a container from Indonesia to Lagos than it is to move goods from Apapa to Abeokuta. Earlier this year the federal government secured a facility from the World Bank. The $750 million loan was for the ailing power sector. The condition for the loan is that government must stop subsidizing power and ensure tariffs guarantee commercial returns. But government has spent over N380 billion on electricity subsidies in 2020 so far; after bailing out operators with the princely sum of N1.7 trillion since May 2015. Since 2015, government has been burning over N1 trillion yearly to subsidize petrol while defunding healthcare and education. It maintains a dizzying number of workers to manage the business of the importation of refined petrol. Yet it spends a fortune paying the bureaucracy managing the three petroleum refineries that are even unable to produce enough petrol to power their own generators. From February 2020, Covid19 forced the closure of factories and airlines, causing the demand for oil and gas to crash. Prices fell providing the opportunity to remove oil subsidy completely. Instead of walking away, government dithered to fix oil pump price, announcing the end of subsidies. Though subsidy is untenable today as it was in 2011; then, $9.3 billion was spent in subsidizing imported petrol. This represented about 30 percent of our expenditure; 40 percent of GDP and 118 percent of the capital budget. In comparison, education got $2.2 billion; health-$1.32 billion and works : infrastructure $680 million. Sadly the Buhari that was swept to power on the wave of popular discontent over corruption still kept corruption laden subsidies. So the decision, though poorly timed to abolish subsidies augurs well for economic justice and prosperity for Nigeria. However, in order that our shameless leaders may not slip back through the back door, the removal of subsidies must be backed by law. Also the policies of keeping the refineries should be abandoned. The refineries should be sold out. However, government should retain 30 percent ownership in the refineries in order to ensure they're not used against the nation. Buhari has just borrowed a leaf from President John Atta Mills of Ghana who bowed to the inevitable by removing subsidy, arguing with all humility tat "subsidizing fuel is not sustainable and removing it is the right thing to do, so we can sustain our fiscal consolidation." Hopefully, organized labour wont go on strike the way they seduced President Umaru Yar Adua to revoke the sale of 51 percent equity stakes in the Port Harcourt and Kaduna refineries to the Bluestar Consortium for the sum of $721 million. Thanks to the dastardly broken Nigerian economy that cannot continue the subsidy regime, the government has done the only rational thing left: doing away with the subsidy. However, there is one more subsidy that needs to go. This is the foreign exchange subsidy. It has now supplanted fuel subsidy. It is worse than fuel subsidy in that it only subsidizes the rich passport holders who enjoy the pleasures of medical tourism abroad. Now, it is the largest source of corruption and the pilfering of Nigeria's commonwealth.