By Mujib Dada-Kadri, Esq

The works of Professor Joseph E. Stiglitz, a Nobel laureate in economics and former World Bank Chief on “deficits” and “austerity” remain the most interesting to me. He said “Decreasing growth is causing the deficit, not the other way around. I think that austerity approach is going to lead to high levels of unemployment that will be politically unacceptable and make deficits get worse”. Paul Krugman, another fine Economic intellectual of the 21st century had consistently lashed out at “pro-austerity” and “anti-big government” ideologues. It gets more interesting when you relate all these positions to the troubling economic realties of Nigeria particularly the reality of fuel subsidy.

Federal Government of Nigeria has spent N13.7 trillion ($74.386 billion) expended on fuel subsidy in 15 years (2005 -2020), the Nigeria Extractive Industries Transparency Initiative (NEITI) revealed. It became more unbearable as the subsidy gulped N4.93 trillion in 2022 and expected to gulp more in 2023, an expected “avalanche” that might trap the country in catastrophic budgetary deficits.

Interestingly, the newly elected President, Bola Ahmed Tinubu who had shown to be more of “Keynesian Idealist” in his previous articles declared in his inaugural speech his readiness to remove Nigeria’s fuel subsidy totally in line with the desires of the previous administration and many industry experts. The total removal is expected to totally liberalize the oil downstream sector and allow market forces take the lead.

However, industry experts, pro-austerity ideologues, free market intellectuals, labour union leaders and other compatriots have not solved the puzzle on how Nigeria should manage the social and economic costs of total removal of fuel subsidy vis-a-vis impending fiscal crisis. For proper perspective, the following details should be examined, Nigeria has one of the lowest minimum wages in Africa lower than that of Senegal, Nigeria has one of the lowest consuming powers in the world making it one of the poorest in the world, Nigeria’s inflation rate (Q1)is 22%, the country suffers from infrastructural deficits worth over N30 trillion, Nigeria’s unemployment rate is 33.3% according to “Trading Economics” report for April, 2023 making it the highest in Africa and local/global data has proven that rise in fossil fuel costs contributes to rise of inflation. We have to examine the economic costs and risks of managing possibly 25% or 30% inflation rate after the total removal which will likely be fought with double digit interest rate. So, how do we chest these problems without incurring more losses bigger than fiscal deficits?. Albeit, IMF loan of $800m offered to Nigeria to serve as safety net investment for poorer families seems more confusing, why should IMF that had warned severally against unsustainable loans being spent on recurrent expenditures grant Nigeria “cushion loan” to be spent as cash transfers to the poorest citizens?, Can $800m loan be enough for over 50million very poor Nigerians compared to $6 billion investment of Egypt on social welfare which has more GDP per Capita?, will the IMF loan be sufficient for the social and economic costs to be incurred?.

Fundamentally, Nigeria’s political elites have failed to examine the foundational problems and prioritize the solutions necessary for fuel subsidy and have always suggested “easy answers to complex problems”. Imagine an oil producing country that of over 40 years without a definite record/data of daily fuel consumption and crude export records marred in frauds. In 4 years, we have increased fuel consumption by over 60% coupled with conflicting figures being provided by oil-related agencies. The first solution should start with total overhauling of Nigeria’s state owned oil company (NNPC) and definite audit of daily fuel consumption. Rushing to totally remove the fuel subsidy when the foundational problem persists and more devastating economic consequences stare at us is a “naive and insensitive solution”. Oil producing countries such as Saudi Arabia, Egypt, Qatar etc still maintain fossil fuel subsidies but have managed to ease the fiscal burdens by reducing the fuel subsidies gradually and neglecting to “totally remove” the fuel subsidies. Egypt which has more GDP per Capita and infrastructures than Nigeria has refused to totally remove fuel subsidies and in easing reactions to part removal has invested hugely on social welfare and food subsidies. In EU countries, Fossil fuel subsidies have remained largely the same over the past 10 years around 55 billion to 58 billion euros (about $62 billion to $65 billion) per year, EU energy reports confirmed. European Union countries also earmarked 681 billion euros in energy crisis spending to protect European consumers, Reuters reported.

The most pragmatic strategy for the new administration of President Bola Ahmed Tinubu is similar to his “Keynesian model” which is encouraging expansionary monetary policy when the purchasing power is weak to stimulate economic growth. Averting fiscal catastrophe is by being “fiscally prudent and creative” but not being “fiscally insensitive”. I will advise that the Federal Government to do the following; partly remove the fuel subsidy minimally to achieve “fiscal balance” and invest the money in gas infrastructural expansion, deepen reforms of the fuel subsidy regime by ensuring consumption/production audits, de-politicize NNPC governance structure by using NLNG state owned model, resist blind adoption of market principles on the downstream oil sector, encourage pipeline infrastructural expansion to supply fuel to West African countries at “commercial price” to curb fuel smuggling and lastly revive state owned refineries to complement private owned refineries which will enable total removal of fuel subsidies in the future or allow sustainable fuel subsidy regime.

Mujib Dada-Kadri is a lawyer and policy analyst, he wrote from Abuja.

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