President Tinubu, Change Gear On Subsidy Right Away

I would like to advise President Bola Ahmed Tinubu and his economic advisers he seems to be lending listening ears to that without massive Compressed Natural Gas (CNG) roll-out, within the next two weeks, the subsidy policy will fail. And the CNG will have to be subsidized for the economy to be rejigged.

The now-mainstream thought about the removal of gas subsidies as championed by Western Economists talks of how much will be saved by countries ($10bn for Nigeria), but conveniently forgets how much the country loses in internal trade as living costs rise sharply.

Austerity measures blow away small businesses and obliterate the middle class, leaving out the big corporate class who can survive removal of energy subsidies.

The problem, though, is that major corporations are always optimized to minimize costs (labour especially) and maximize profits. Their primary goal is not to create more jobs, but to provide the highest possible margins to their shareholders.

Petrol isn’t only used by vehicles in Nigeria, but by millions of businesses as their primary source of energy. That is why its cost affects everything. Millions of businesses in Nigeria are contracting, as customers faced with higher living costs are cutting significantly on spending.

A petrol attendant told me that instead of 3000-4000 litres sold weekly, they barely sell 500 litres now.

Whatever we think we’ll gain by saving subsidy costs, we’ll lose way much more in a contracting economy.

And, to be honest, Nigeria’s subsidy payments specifically ballooned extra-ordinarily in the election year of 2011. By 2012, the Faruk Lawan led-committee exposed deliberate inflation of subsidy payments and clear over-invoicing, indicting around 49 firms.

Nigeria can survive a subsidy regime. It cannot survive a bloated subsidy regime. The deliberate loopholes in the whole scheme should be identified and blocked.

Nigeria is not the only country with energy subsidies. Ecuador, Bolivia, Indonesia for example had to bring back subsidies in the face of rising living costs and public protests.

Faced with vociferous opposition, due to sharply rising living costs, Saudi Arabia had to cap its energy prices in 2021, reintroducing fuel subsidies.

Germany, the biggest economy in Europe and paragon of Clean Energy, faced with sharply rising energy prices due to the Russia-Ukraine War, resorted to reactivating its coal plants to keep energy costs lower, despite their initial said commitment to international climate agreements.

If it is about politics, none of Obi or Atiku’s “phased subsidy removal” schemes will work. None. 

Nigerians with their income bracket, simply cannot afford “market forces” paying N617 per litre, almost the same as US at $3 per gallon while those in US earn 30 times more than those in Nigeria.

Someone said subsidies have become a cancer, and so we need chemotherapy. Perhaps, we should be targeting cancer cells and inducing apoptosis to be healed, instead of chemotherapy that kills both good and bad cells. You cannot take someone through chemotherapy and wonder why he lost weight.

The economy is losing weight sharply. Either petrol or natural gas, Nigeria will have to choose one fossil energy source to subsidize to encourage manufacturing and trade.

There are advisers in BAT’s team who have alternative approaches to what is going on. He should listen to them.

–Yusuf writes from Lagos.