For years, the Nigerian government has walked on eggshells in its moves to end the payment of fuel subsidy.
Often trapped between cutting costs and sparking public anger, and using cheaper fuel to keep its approval ratings up, the government repeatedly adopted the latter despite promises not to.
Those in support of that policy say it helps lower the cost of living and supports millions of Nigerians who live below the poverty line. Still, critics such as the International Monetary Fund say subsidies constitute an unsustainable drain on public resources needed for critical developmental projects.
The prices of diesel and kerosene have been largely deregulated, and retail prices at filling stations vary based on market forces, but petrol price is regulated. Nigerians typically use petrol to power their vehicles, tricycles, and motorcycles, and with erratic power supply something they still grapple with, millions rely on gasoline to power their generator sets.
Between 2006 to 2018, Nigeria spent about N10 trillion on subsidies, a study supported by the British government estimated — more than the health, education or defense budgets.
The Nigerian National Petroleum Corporation (NNPC) said Nigeria has already spent over N816 billion in the first seven months of this year in subsidising the cost of petrol.
Ending subsidy to pay subsidy?
Propped by the newly passed Petroleum Industry Act, the Nigerian government has now set its sight on mid-2022 to fully remove fuel subsidy and move to a market-based pricing model.
Washington-based IMF advised the government to hand out “well-targeted social assistance… to cushion any negative impacts on the poor particularly in light of still elevated inflation.”
To achieve this, the government said it will pay “poor citizens” N5000 monthly as transport grants.
The finance minister, Zainab Ahmed, said subject to the availability of resources and support from state governments, the handouts will target between 20 to 40 million Nigerians who make up the country’s poorest population. The programme is expected to run for six or 12 months, she said.
“Ahead of the target date of mid-2022 for the complete elimination of fuel subsidies, we are working with our partners on measures to cushion potential negative impact of the removal of the subsidies on the most vulnerable at the bottom 40 per cent of the population,” Mrs Ahmed said.
“One of such measures would be to institute a monthly transport subsidy in the form of cash transfer of N5,000 to between 30–40 million deserving Nigerians,” she added.
When the numbers are considered, the plan appears bogus and seems a typical government design to mislead citizens.
First, even for a year of six months, the transport grant option is quite expensive. Paying 40 million people N5000 a year will cost the country N2.4 trillion, about 15 per cent of Nigeria’s total budget in 2020.
On the other hand, if subsidies are retained, the government would spend a lot less. Judging by Mrs Ahmed’s estimation that the subsidy “costs as much as N150 billion” monthly, petrol subsidy would stand at about N1.8 trillion a year.
The grant option effectively means the government, even if temporarily, will be jettisoning one subsidy payment only for a more expensive one in a year its borrowing is expected to top N6 trillion. Some have described this as a miscalculation.
Those in support of the grant idea argue that in a country where four in 10 — a ratio reaching nine in 10 in some states — live on less than N377 daily, the monthly grants would be a significant boost to their purchasing power.
Yet, either way, the government will not save for developmental projects — the reason at the centre of its push to end subsidy.
Second, the government’s spending style does not support its pretence about being committed to projects that truly serve the interest of the larger population.
While Mrs Ahmed has repeatedly argued that Nigeria has a revenue problem and not expenditure problem, Nigeria continues to run a big government despite its surging debt. Personnel cost has continued to rise yearly despite the government not conducting major recruitment. In 2022, the government hopes to spend N350 billion more on personnel costs and N167 billion more on overheads than in 2021.
Overhead (costs related to administration) totals N792.4 billion for 2022, meaning spending on overheads will surge by more than a quarter in the year ahead should the legislature go ahead to assent to the appropriation bill. The National Assembly approved N3.76 trillion for personnel costs this year and the government wants N4.11 trillion for that purpose in 2022.
The combined overhead and personnel expenses proposed for next year sum up to N4.9 trillion, 8.9 per cent higher than Nigeria’s entire budget of N4.5 trillion for 2015. Those two expenditure categories also exceed the cash Africa’s largest economy intends to commit to developmental projects in 2022, estimated at N4.89 trillion.
In 2022, President Muhammadu Buhari's office will spend a whopping N1.6 billion on new vehicles – the fourth largest by any government office. Since coming to power six years ago, the president’s office has spent N5 billion on vehicles – enough to build 500 health centres at N10 million each. It has spent billions more on food, uniforms, travels, a huge presidential air fleet, president’s hospital and more.
The government may argue otherwise, but there is no guarantee subsidy savings will not be misapplied to financing routine government administration that does not benefit citizens.
Also, despite Mrs Ahmed's assurance to lawmakers last week that, “The government will make sure that the payments go to the rightful recipients by using biometric verification numbers, national identity cards and bank account numbers”, the absence of a verifiable database of potential beneficiaries puts the efficiency of cash handout in doubt and raises the suspicion of financial mismanagement.
As a cue, some have cited the lack of transparency that has shrouded social investment programmes like Tradermoni and the conditional cash transfer, which have cost billions of naira.
It will also be difficult to measure if the government has paid up to 20 million or 40 million people as it claims. In addition, the government's caveat about "availability of resources" makes it also potentially difficult to hold it to its word if payments are not made.
“These payments are not sustainable because they are simply another consumption subsidy which are not productive in any way, '' a lead partner with SBM Intelligence, Cheta Nwanze, told Bloomberg.
“I would have preferred such grants to go to small businesses so they can expand and put a dent in our rather high unemployment rate,” he added.
Potential petrol pump price increase
Petrol prices in all West African countries (save Guinea Bissau and The Gambia, which were not listed) are more than double of those in Nigeria, according to energy and power data tracker, the global petrol price.
The price variation is due to various taxes and subsidies for the product, the tracker said.
When subsidy is removed, pump price is likely to reach N344 per litre, the group managing director of the Nigerian National Petroleum Corporation, Melee Kyari, said.
Every pump price increase often affects transport fare as well as food prices. So asking Nigerians to pay more for petrol is always a political risk.
The Jonathan administration served into the hands of the opposition in 2012 when it removed subsidies. The backlash that followed was one of President Buhari's All Progressives Congress's political salvos in 2015 to oust former President Jonathan.
Next year, about the time subsidies deadline is expected to end, Nigerians will be bracing to elect at least 30 state governors and a successor to Mr Buhari.
This has made some see the transport grants as a populist strategy for Mr Buhari's APC to woo voters in the 2023 general elections.