Home » Articles, Columnists, Jideofor Adibe, PhD, NNP Columnists » The Politics of de-subsidisation – By Dr. Jideofor Adibe

The Politics of de-subsidisation – By Dr. Jideofor Adibe

By Dr. Jideofor Adibe, London, UK – October 25, 2011 – The plan by the federal government to remove fuel subsidies, effective from January 2012, is the latest in the seemingly endless stream of controversial policies that has been flowing from, and unwittingly increasingly defining the Jonathan regime. According to the supporters of de-subsidisation, subsidising the prices of finished petroleum products costs the government some N500 billion annually. Removal of the subsidies will purportedly help the regime to save some “N1.2tn, part of which can be deployed into providing safety nets for poor segments of the society to ameliorate the effects of the subsidy removal”, according to a letter to the National Assembly by the President conveying his administration’s Medium Term Expenditure Framework (MTEF) and a N4.8tn budget for the 2012 fiscal year. Estimates vary on how de-subsidisation will affect the price of petroleum products.  After de-subsidisation, the price of a litre of petrol, which currently sells at N65, is estimated to sell at between N120 and N150.  

Several issues are raised by the current round of de-subsidisation politics.

One, Dr Ngozi Iweala, the Finance Minister and Co-ordinating Minister of the Economy, has by virtue of her elevation as the de facto Prime Minister in charge of the economy and her pedigree in the World Bank become the new face of the de-subsidisation lobby. This has provided a convenient cover for some politicians to distance themselves from the de-subsidisation lobby without appearing to be opposing the President.  For instance in a report on October 10, 2011 aptly entitled: ‘Fuel subsidy: National Assembly, Okonjo-Iweala on collision course,’ the Punch reported that “members of the National Assembly, especially Senators, were not satisfied with the MTEF and Okonjo-Iweala’s alleged insistence that it would only take the removal of fuel subsidy for the framework to be successful.” The paper further reported that “even before the letter was submitted, the lawmakers were not happy with the minister’s utterances which the legislators believed meant that her positions on economic policies should be final.”

It may be sheer happenstance but the truth is that Dr Okonjo-Iweala’s return as Finance Minister and de facto Prime Minister also coincided with a period of more strident push by the government for both the removal of fuel subsidy and the devaluation of the Naira. Dr Okonjo Iweala, as most people know, has worked most of her adult life in the World Bank, where she rose to become one of its Managing Directors. The World Bank and its sister institution the International Monetary Fund are notorious for their brand of economics for the developing world, which almost always hinges on the removal of subsidies and the devaluation or flotation of the exchange rate regime. In the 1980s and early 1990s, such policies, encapsulated in the structural adjustment programmes (SAPs), which were forced on African countries by these two institutions, contributed in ruining African economies and reversing the developmental gains recorded since independence. Remarkably many people who were against Dr Okonjo Iweala’s appointment as Finance Minister hinged their opposition on fears that her economic prognoses may be a simple rehash, by reflex, of the discredited economic desiderata of the two Bretton Woods institutions.

Two, the proposal to remove fuel subsidies did not originate with the Jonathan administration. It dates back to the Babangida regime and has since become more or less a tool of blackmail by every subsequent regime. The ‘game’ is often played this way: the regime in power proposes to remove fuel subsidies, all of it in one go, making a mountain of how much it costs the government, and how the money saved from such removal would be used to transform the country into an el Dorado on earth. Organised labour and civil society come out fighting against the proposed removal. The government hardens its stance and organised labour and civil society also harden theirs.  Some political, religious and traditional rulers are recruited to play the good cops by pleading for dialogue between the two contending sides. A dialogue subsequently ensues, which results in subsidy being removed by say 30 percent, enabling labour and civil society leaders to claim some victory and the regime to achieve its original aim. This pattern has now become too predictable.

Three, when the government talks about how much it spends in subsidising petroleum products, it conveniently forgets that subsidies, in one form or the other, are facts of life in several countries across the world. The United States for instance currently pays around $20 billion per year to farmers in direct subsidies as “farm income stabilisation”. These subsidies had their origins in the US Farm bills, which date back to the economic turmoil of the Great Depression of the 1920s. Since then a tradition of government support to farmers has been maintained. It is in fact estimated that for every dollar U.S. farmers earn, 62 cents come from some form of government subsidy. The estimated total subsidies to US farmers in 2009 from all levels of government were $180.8 billion.

Subsidy regime is also very strong in Europe. For instance the Common Agricultural Policy (CAP), a system of European Union subsidies, represented 48 percent of the EU’s budget of €49.8 billion in 2006.  In 2010, the EU spent €57 billion on agricultural development, of which €39 billion was spent on direct subsidies. China has several export subsidies. So the whole talk about how much subsidies cost the government is, in my own opinion, simply bunkum. It is like moaning about how much you spend to keep your children healthy and happy.

Four, by emphasising on the quantum of money to be saved from de-subsidisation, the government wrongly implies that lack of money is the cause of the current problems facing the country.  But if lack of money is really the problem, what impact has the money we purportedly saved from exiting the sovereign debts owed to the London and Paris Clubs made on the material circumstances of the average Nigerian? Has any ordinary Nigerian really felt the impact of the billions of Naira allegedly recovered from politicians by the EFCC and ICPC?   Our fundamental problem, in my opinion, is the lack of the vision thing, and being repeatedly saddled with leaders who are either not prepared for the job or are incapable of thinking outside the established dogmas and wrong policies that have failed in the past. As part of the social contract in every country, the citizens must have something to show for giving up their right to self help and giving loyalty to a central authority. Without anything substantial from the government to justify itself in the eyes of the people, many citizens will willy-nilly begin to withdraw from the state and transfer their loyalty to any primordial identity where they feel they can best negotiate the meaning of their existence.

Five, it may be necessary to interrogate the claims by the de-subsidisation lobby that petrol is too cheap in the country. The truth is that at N65 per litre, it is actually not, especially given the per capita income.  In the UAE and Saudi Arabia for instance, where per capita income is several times higher than what you have in Nigeria, a litre of petrol sells for  around 1AED (N45) and SRO 0.45 (N18) respectively. In these countries, the citizens additionally enjoy their God-given natural wealth in several other ways. As one of the largest oil producing and exporting countries in the world, in which way does citizen Okeke, Musa or Banjo feel the impact of the wealth that crude oil brings to the country? 

Six, it is tempting to speculate on how the regime will cope with the legitimacy crisis that is gradually engulfing the administration from all corners as one controversial policy feeds into the other amid pervasive insecurity and rising poverty. There appears to be an increasing loss of faith in the ability of the regime to guarantee the security of life and property;  there is an unprecedented  crisis in our nation building project,  organised labour is up in arms over the non-implementation of the Minimum Wage; the Academic Staff Union of Universities have already gone on  one week warning strike over the regime’s apparent refusal to honour an agreement it reached with it and the level of unemployment is unprecedented in our history. Amid all these, the regime is pushing for a single- term tenure of seven years contrary to popular sentiments and at a time it is very deeply distrusted.  It will be interesting to see how the regime will manage this escalating crisis of legitimacy.

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