Removal of fuel subsidies in Nigeria: good policy, lousy implementation

by Jan 11, 2012

The recent riots over the removal of fuel subsidies should not have surprised Nigerian politicians. The policy to remove the subsidies was good but the delivery was lousy. Nigeria as a relatively poor country cannot afford to subsidise consumption to all and sundry. The current subsidy is wasteful, goes to all consumers, many of whom do not need or deserve it and much of it goes to consumers in neighbouring countries.

If Nigeria must subsidise fuel, it should be directed at the productive sectors and the most vulnerable consumers. This means subsidies should be directed at agriculture and industry and low income consumers. Targeting the productive sector will lead to development, jobs and exports. The problem as we all know is that it will be hard to police and may go against the World Trade Organisation rules. But, it can be done as many countries have done to develop their agriculture and manufacturing sectors. Subsidising low income consumers will be very difficulty and costly in a country where records of such groups are unreliable and where corruption is rife (the World Audit Corruption ranked Nigeria 108 out of 180 countries, with 1 being the least corrupt).

The alternative policies that would have prevented the riots are difficult to implement but would set the country on the road to proper development. Firstly, policymakers should ensure that there is constant uninterrupted power. Nigeria is the only major oil producer without constant uninterrupted power supply. If the government had implemented such a policy there would have been no riots. It has oil, gas and the river Niger. This policy would not only benefit consumers but is essential for the productive sectors. The government would be seen to be sincere if in removing subsidies it also reduces the huge amounts it pays its politicians and civil servants. At the moment, a huge and unsustainable proportion of the country’s resources go towards the salaries of federal and state politicians and officials. The government would also need to make a concerted effort to minimize corruption. The public would be more willing to accept reduction in their living standards, which is what happens when the subsidies are removed, if all members of society share in this reduction in income. Savings must also be directed at improving the country’s infrastructure, namely, the electricity grid, roads, railways, telephones and water supply. This will improve the investment climate and create jobs. Finally, the government needs to implement a public relations exercise over a long time prior to implementing the policy, explaining why it needs to remove the subsidy. This will get the public to accept the policy but also undercut the arguments of politicians who merely want to use it for selfish political motives.

In conclusion, while the removal of subsidies is good for the country, the government has failed to sway the public because of lack of joined-up policies and poor public relations. The public would have been swayed if it had addressed the power outages. It would have helped if it had stated and been seen to use the savings for tangible investment in the productive sectors and the infrastructure. It would have helped if sacrifices were being made by all members of society. Finally, it would have helped enormously, if there had been proper debate and efforts made to explain in great detail why there is need to remove subsidies, in particular, that funds saved would be used for development. Indeed the policy could have been an opportunity for Nigeria to utilize the immense potential of this African giant, but in a democratic society, the nation needs to be convinced of the merits of such action.