The Wisdom and Folly of the Fuel Subsidy Removal

Without doubt, it has been an unhappy New Year because the Federal Government’s gift to every single soul in the nation is a basket of hardship and sufferings vide the deregulation of the pump price of petrol. The announcement of the fuel subsidy removal by the PPPRA jolted the nation from the jubilation of entering the year 2012, even though the 2011 Christmas only a week before had been marred by bombings in various parts of the country.

Back in March 2011, when the nation pressed towards the April elections, I had managed to scribble a small book titled Fellow Nigerians, I Wish You Good Luck ( At a time when people were crazily and sentimentally entrenched in just the matter of who would win or won’t win the elections, I was more concerned about issues that would come up after the elections. I had looked ahead and concluded that given the size of the PDP in Nigeria, and the precedents of the previous elections, it was most likely that the PDP would win the presidential election. I knew Jonathan would win, and I decided to pitch my camp with him. So that, afterwards, I might have a platform to discuss in friendly terms with the president on the endemic problems of the nation.

One of the problems I considered in that small volume is the removal of the fuel subsidy. I knew that sooner or later it was going to come up, irrespective of who would become the president anyway. I compared the fuel subsidy to a bad tooth and related that personally I have had some of my bad teeth removed. My experience with bad teeth and the process of removing them informed my understanding that however decayed a tooth might be, the dental surgeon would not proceed to extract it without a prior administration of a local anesthesia. The keyword here is “PRIOR”.

On July 8th 2011, I sent two copies of that book to Dr. Goodluck Jonathan and advised him to pay particular attention to the issues about the economy and security as I discussed in the book. A month later, one of his aides replied that the president has taken “due cognizance” of what I sent to him and thanked me for it. Now, with the announced removal of the fuel subsidy, I really doubt if the response from the State House was completely truthful. You will bear me out that as at July 8th 2011, when I sent that letter and those books to Mr. President, the issue of the fuel subsidy removal was yet to become a publicly debated issue. My idea was very simple. I reckoned that if the government is sincerely spending US$8 billion on fuel subsidy every year, it means that it could afford to first inject an “economic anesthesia” worth at least US$6 billion into the economy before withdrawing the subsidy.

Sincerely, the fuel subsidy would necessarily be removed whether now or in the near future. The argument that Government would use the money saved from the subsidy to build infrastructure et cetera is good and sound. However, inasmuch as removing the subsidy would prevent Government from spending US$64 billion over the next 8 years on subsidizing the consumption of fuel, I felt that it would NOT be too much for Government to first use at least $6billion to cushion the impact on the nation BEFORE the subsidy on fuel would be removed. My suggestion was for a 3-phased removal over a 24-month period, and I suggested that a system to repair and maintain federal roads should first be put in place. I also suggested that a 15-000-bus mass transit system, which would be split between 3 companies at five thousand buses each, should be put in place before the fuel subsidy was completely withdrawn. The mass transit system I proposed was not just about fuel subsidy removal, though; it was also about simultaneously transforming another problem area of the Nigerian economic and social structure. Our public transportation systems are managed by substance-abusing thugs, and that needs to be changed. I wanted Government to treat the sickness, but alas they have treated just one of the symptoms.

In fact, I recommended that the government should first fix the lapses in managing the police force and the general administration of justice; overhaul the income tax management structure; create a Social Security Administration similar to that of the United States; and solve our identity and national information management issues; before withdrawing the subsidy on fuel. I stressed, particularly, that lack of transparency as well as inappropriate identity and tax management systems are the primary problems facing the country, which once solved would solve every other problem. I proposed a holistic approach to our national issues, but Government still focuses on addressing the superficial problems.

On where the government would get the US$6billion for “economic anaesthesia”, I proposed that Government should use a debt option by borrowing US$6billion this year against the US$8billion that would be saved next year, then using the borrowed US$6billion to put in place the cushioning efforts, while the fuel subsidy for this year still subsisted. In Economics, we were taught that all money is debt; it’s only a question of which side of the ledger you write the debt in. Even if Government borrows from its own Central Bank or external reserves, it can’t pay more than 20% interest. In all sincerity, Government can spend at least US$6billion to put in place the palliative measures first, and earmark that at 20% interest against next year’s fuel subsidy of US$8 Billion. The special spending would have had an expansionary effect on the economy before the shocks and impacts of the fuel subsidy would come in.

Now, Government has yanked off our “bad tooth” without injecting the anesthesia as advised. Mr. President’s office has successfully rubbished the advice of which I was told that “due cognizance” had been taken. Prices of everything will skyrocket, protests will follow, and workers’ unions will definitely go on strike. If the pressure mounts too high, Government will buck and suspend the deregulation process. Government would then have lost the trust of the masses, a trust it has barely earned. Well, wisdom will always be justified by her children. Government jumped to the final answer without taking pains to work through the premises. If this were a course work, I would in most exceptional kindness grant Government a 40% – E grade. Not at all impressive.


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