Removing Nigeria’s Oil Subsidy

Ayokunde Abogan, MPA

Nigeria is well known for its vast natural and human resources. It has the largest population in Africa (the 10^th largest population globally) and its crude oil resources gives it a respectable 6^th position in the world in terms of its export levels in the global oil market. Despite the country’s wealth, it has been difficult to leverage these resources to reduce the high levels of youth unemployment and poverty in country. While oil revenues represent only 14 percent of Nigeria’s GDP, it accounts for 98% of export earnings and close to 90% of the federal government’s revenue according to World Bank estimates in 2009. A significant proportion, about 31.4% of the country’s GDP is connected to exports and this is largely driven by its vast crude oil resources.

In essence, my country is primarily dependent on its oil resources for a lot of things. Although the economy is very much diversified with the burgeoning financial services, entertainment and telecommunications sectors moving up the ranks to take their respective places in the overall economy, the country’s vast agriculture and manufacturing sectors are crumbling. Government bias, mismanagement and inconceivable policies have all made it impossible to grow both sectors. This is further compounded by high electricity costs, dilapidated transportation networks, high business costs and political instability arising from religious and ethnic violence.




The "Occupy Nigeria" Logo

 

A couple of my classmates have asked me about my thoughts regarding the removal of these fuel subsidies. Although I supported the government’s policy to remove it, I questioned the way this policy was hurriedly implemented. I supported it because this subsidy was costing the country about $7 billion every year. This is a lot of money that the government can spend on revamping our lagging educational system and improve our decaying infrastructural framework. Our health services systems are lacking needed funds to improve health interventions and delivery while the youths in the country are largely unemployed. Social welfare for the impoverished will go a long way to reduce the high levels of income inequality in my country.

However, I don’t support the way the entire fuel subsidy was removed without any recourse as to how the citizenry will mitigate the impact of any shocks to their incomes and overall well-being. Rather, this subsidy ought to have been removed gradually. Nevertheless, any promises by the federal government to devote the proceeds of this fuel subsidy to tangible investments is something all Nigerians would wish for due to the crass levels of patronage and corruption. Government subsidies for diesel fuel and kerosene that were removed in the past have yet to translate into any meaningful investments in the country apart from the small number of people who have lined their pockets with the country’s wealth.




Fuel prices before the oil subsidy was eliminated was N65 per litre. Prices rose to as much as N140 when the subsidy was removed.

 



Occupy Nigeria protestor in Lagos, Nigeria

 

To speak about this madness called “fuel subsidy” requires a walk down memory lane. However, let me start by saying a country like Nigeria, which is also the largest crude oil exporter in the African continent, imports fuel into the country. Aaaah, yes, I know this makes no sense. Unfortunately, it does. Nigeria has four national refineries that are barely functional because of the country’s poor planning and maintenance culture, and even more, our refining plants are ageing while the pipelines linking these plants have lacked adequate investments and they are terribly unreliable to support uninterrupted domestic production. Thus, Nigeria is forced to refine its crude oil resources outside its borders and then it imports the refined products, mostly from European suppliers, to satisfy the energy needs of its large population.

Estimates according to the Nigerian oil and gas industry reveal that the country imports about 85 percent of its fuel needs, while the country subsidizes these imported products to ensure that fuel prices at the pump is around half of the market rate to its citizens. In 2010, Nigeria spent 1.20 trillion naira (about $6.7 billion) to import fuel into the country. Sadly, a system ingrained in corruption makes it very difficult to know how these large amounts of money are accounted for in Nigeria’s budgetary processes. Worse, the bill all Nigerians have hoped will fix the country’s oil sector is yet to be passed.

Although things have calmed because the government had to reverse its stand, on the fuel subsidy, when the country was teetering on the brink of political and economic catastrophe, I still think that the fuel subsidy is nothing more than an opportunity for some people in the country to enrich themselves, while the country is continually lagging behind its peers both in the African continent and globally. Yes, Nigerians, including me, have benefitted from these subsidized fuel prices but the question should be: for how long are we going to keep on subsidizing fuel prices in Nigeria? Nigeria has a lot of potential and it has always frustrated me that a country which prides itself as the “Giant of Africa” cannot get its act together. The issue is Nigerians cannot trust its government to do anything meaningful while the government is finding it very difficult to address the challenges faced by average Nigerians.




Nigerians' view about the relationship between the Nigerian government and its citizens.

 

I have always wondered what it will take to fix my country and get it on a path to economic success. This is the reason why I decided to come to the Woodrow Wilson School to get a better sense of what to do to address development challenges and economic growth cases like Nigeria’s, that don’t create enough employment opportunities for their citizens but only makes the rich richer while the poor continue to suffer in order to meet their daily needs. I am happy to take suggestions from people who care about the success of my country however, as the adage goes, “heaven helps those who help themselves.” Nigeria needs all hands on deck to move it forward and I think this is a responsibility of all including my fellow compatriots.

Call me elitist or dumb, I will still support the removal of this government fuel subsidy if this issue rears its ugly head again. However, this time, it is important to use better tools that will ease the impact of subsidies particularly on wallets of poor and middle-income Nigerians. Still, I imagine it might be the right path to reduce the current challenges in Nigeria’s oil sector, and a significant step towards measurable progress on good governance and development. I don’t usually agree with Jeffrey Sachs on a lot of development issues but I am forced to concur that the “oil subsidy benefits the rich more than the poor and that the subsidy, when removed, [should] be used in targeted investments that serve the poor and more meaningful social investments.”




Occupy Nigeria in Lagos. The economy of the country was virtually at a standstill while the protests went on for eight days

 



Occupy Nigeria in London. Nigerians in diaspora also joined their family and friends in Nigeria to protest the actions of the Federal government.