ECONOMY 360: Tinubu, Trust and the Fuel Subsidy Tightrope

When millions of Nigerians trooped out en masse in January 2012 to protest fuel subsidy removal by the Goodluck Jonathan administration, not a few analysts opined at the time that the missing link in the conversation was trust—and perhaps knowledge.

At the time, many Nigerians didn’t really understand the issues around subsidy. And given the opacity and sleaze surrounding the subsidy arrangement itself, those who did understand it just didn’t trust the government to do the right thing. There were many others who opposed the policy not on the basis of any altruistic concern but due to crude politics. In any case, over these years, I have seen many people change their positions on subsidies in the light of new developments and insights.

But in all, the one thing events of the years between January 2012 and June 2023 have shown is that the social contract between government and citizens is quite weak, and this fuels suspicion and weakens government’s ability to gain the peoples’ trust on such a sensitive policy issue. Yet with the humongous amounts that go into fuel subsidy, and the ripple effect of its removal on the lives of the ordinary man on the street, building trust based on mutual understanding between the leader(s) and the people is important in pushing the policy through.

In 2012, a report in the Brookings Institution—a nonprofit public policy organization based in Washington, DC— said that in 2011 alone, Nigeria’s fuel subsidy cost the country an estimated $8 billion. Principally because of the opacity in the industry, it was a messy affair at the time as there were contradictory figures from different agencies of government. For, in the heat of the January 2012 controversies, the Central Bank of Nigeria put the amount spent on subsidizing fuel in 2011 at N1.7 trillion, contradicting previous figures that pegged the amount spent at N1.3 trillion. The cost for the following year, 2012, was equally controversial.

More worrisome is the fact that between then and now, the subsidy payments have ballooned. A newspaper report recently put Nigeria’s spending on its fuel subsidy regime in the last 18 years at about N21.7 trillion, based on figures sourced from NEITI.

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For instance, in the 2023 budget, the Nigerian government budgeted N3.36 trillion on petrol subsidy for six months ending in June. That’s roughly N560 billion every month. Earlier in 2022, the Federal Government appropriated N4 trillion for petrol subsidy. Sadly, on the flipside, N826.9 billion was allocated to the health sector within the same year.

In the face of mounting concerns around debts, rising budget deficits being plugged with the (grossly abused) CBN’s Way and Means facility, poor revenue, and global economic uncertainties, it’s clear that subsidy remains a threat to the fiscal survival of the nation. In 2022, Nigeria spent roughly 96.3 percent of its revenue on debt servicing, up from 83.2 percent in 2021. Today, the subsidy regime is even more threatening because unlike in the past, the government can barely effect payments as at when due.

Last year, the Debt Management Office announced that Nigeria priced a $1.25 billion Eurobond issue at 8.375% as the nation sought to raise cash to fund petrol subsidy in the face of limited oil revenue. The immediate past minister of finance, Zainab Ahmed, told Reuters at the time of Nigeria’s plan to tap 2 billion euros ($2.2 billion) of the money it raised in a eurobond sale the previous year and target more local borrowing in 2022 to help fund petrol subsidies. A few days ago, NNPCL’s Mele Kyari made the point about the nation’s fiscal condition a bit clearer when he announced that the Nigerian government could no longer afford to pay for fuel subsidy. In the same interview, he said the NNPC was owed 2.8 trillion naira ($6.1 billion) in outstanding subsidy payments by the government.

So in effect, as far as we know today, there isn’t really any “savings” to realize from subsidy removal in the real sense of the word, as we are simply borrowing to consume subsidised fuel.

In the immediate, the negative implication is that many Nigerians will feel—and are indeed feeling—the shock and pains of the removal. With inflation at 22.2%, food inflation at well over 24%, and unemployment at a conservative rate of 33.3%, there is hunger and anger in the land already. In the absence of adequate power supply and effective public transport system in our cities, the mystery of millions of multi-dimensionally poor Nigerians who depend on petrol to access these basic facilities is better imagined in the short to medium terms. Already, the cost of transport has jumped between 100% and 150% in many cities across Nigeria in the past few days. It’s only a matter of weeks before the cost is transferred to the prices of other essential goods and services, including food.

Yet subsidy removal remains an inevitable analgesic that the nation can barely avoid if it wants to survive fiscally. What then are the possible points of convergence—in ideas, thoughts and expectations—between the leadership and the citizenry?

First off, the administration of President Bola Tinubu appears lucky because there seems to be an elite consensus on the inevitability of subsidy removal in recent years. This, methinks, is evident in the reluctance that many Nigerians have shown in terms of impulsive opposition to the idea since Mr Tinubu’s speech breathed life into it on Monday. One major reason for this is that all of the three leading candidates in the last elections—APC’S Bola Tinubu; LP’s Peter Obi; and PDP’s Atiku Abubakar—agreed that fuel subsidy had to go. Of course it’s plausible that the modes of implementation would differ.

Although I may be wrong, my suspicion is that Mr Tinubu’s “Subsidy is gone” rhetoric that sparked reactions on Monday was a gaffe—even though there were plans on ground to end the subsidy regime. But because of the sensitivity of the subject, his handlers (and maybe NNPCL too) would probably look back now and realise that it was a “desirable gaffe”—one that eased, if partly, the tension and uncertainties that come with the management of such sensitive issue at the initial stage of implementation. The challenge is that by starting in such a seemingly abrupt manner, the shocks would be severe on the citizens, especially in the absence of adequate measures and “palliatives” put in place to cushion the ripple effect of the policy.

And so beyond the pronouncement, the government must provide immediate measures to cushion the effects on the citizens through subsidised public transportation. Attention must also be directed at easing supply chain disruption for food, with improved security in rural (agrarian) areas. With minimum wage at N30,000, before now, food and transport already gulp a significant portion of our peoples’ earnings. Priority must equally be given to investment in health, power, and education, among other key areas of human capital development. The idea of providing direct support (I am reluctant to call it “palliative”… remember Covid-19 Palliatives?!) to the most vulnerable is also important, but it must be done under a most transparent, inclusive and accountable system that is built on public trust, wide consultation, and consensus among diverse stakeholders.

Finally, in the light of reports that the NLC and other labour groups are staging protests next week, I’d argue again that navigating the fuel subsidy tightrope requires building trust, particularly on the part of stakeholders and poor citizens who bear the brunt of the policy. In a society like ours where the social contract is largely broken, that’s a very delicate concern. With reported cases of sleaze and rapacious acquisition of wealth among the ruling and ruining elites, the government would have to demonstrate beyond reasonable doubt that it can be trusted that the subsidy removal decision is being made in the interest of the people. More importantly, since it is invariably telling the people to make sacrifices (by letting go of perhaps the only “dividends” of democracy they enjoy), it must also demonstrate its capacity to also make sacrifices before it can be trusted.

With about 63% of the population voting against him in the last election, Mr Tinubu comes to the arena with relatively weak public support. And so he needs to demonstrate that capacity that he means well for the people before he can be trusted by the people.

READ ALSO: Fuel Subsidy is gone — Tinubu declares

A starting point could be the need for the government to show that it is committed to reducing the cost of governance and eliminating waste of public resources. The 800-page Oronsaye report that recommended the abolition and or merger of certain key institutions could be a starting point. Similarly, deepening the implementation of the PIA in the petroleum sector and establishing clarity about the nation’s opaque fuel consumption pattern under the subsidy regime could also engender trust. For, in order to successfully drive the subsidy removal step (and other policies) through, more than anything, the government needs to gain the people’s trust.

Tick, tock, tick…