Fuel subsidy removal and its social discontent in Nigeria

When in 1973, the Military Government of General Yakubu Gowon set up the Petroleum Equalization Fund, the objective was to ensure stability and uniformity in the prices of petroleum products that is consumed in the country, regardless of the cost differential in transportation of the product from the refineries to the various depots and thereon to the filling stations.

This was to be a short gap method since we had no functional rail way and efficient inland water transport system in the country.

There were such point to point cost called bridging cost and other charges that were added before the price got to the final consumer.

Drivers and unions

The easy money and mark ups that were added to those who were involved became so attractive that the business men involved in haulage of the product as well as the drivers and unions in this sector became so powerful that they could hold the nation to ransom at will.

They frustrated every attempt to develop or revive the rail transport or develop the inland water transport system. Nigerians never paid attention to the activities of the PEF and it was business as usual for all those that were connected with the movement of petroleum products within the country.

This was the  era of the oil boom and the country was awash with petrodollar. This was the genesis of local subsidy on petroleum products in Nigeria. Prof. Pat Utomi whose father worked with British Petroleum then told Vanguard Features,VF, that, “as a child, I could recall that there was no uniformity in the prices of fuel in the country.”

Subsidies were some form of government intervention to absorb social costs for governance, or cushion the effect of its inability or inefficiencies of its agencies to perform their roles to the citizens. Subsidies were also attempt by the state to protect the weak and vulnerable from the buffeting dynamics of free market.

Dysfunctional capacity

The dysfunctional capacity of the state and the apparatus of the state to maximise its capacity to perform its role or minimise leakages associated with such state interventions creates the impression that subsidy is anti social and economic progress.

But the author of the book entitled: The Global Economic recession and the Human Condition: The African Perspective, According to Uchenna  Chinaka, “the concept of subsidy is not unique to Nigeria, because farmers in Europe and America enjoy subsidies to date.

Big corporate organisations in America and Europe were given massive bailouts in 2008/2009 by the leaders of G-20 who feared that allowing such companies to go under was going to worsen their economic recovery plan.”

Subsidy was an essential component of the economic theory of John Maynard Keynes which was a product of the post first World War recovery thinking of the need for the visible hand of government to regulate the forces of supply and demand from allocation of resources in the classical sense as propounded by the likes of Adam Smith and classical economists.

Things fall apart: With the global recession of the 1980s and emergence of Neo-Liberal policies in Europe and America,  repudiated the idea of having the hand of government in economic because it bred corruption and inefficiencies but aboveall,distorts the operations of the market forces which rewards resourcefulness, ingenuity  and enterprise and suffers no fools.

Notable among the changes in economic direction came from what is referred to as the Washington consensus where government was counseled to withdraw their hands from socio – economic issues. Under the Washington consensus, national governments were to become small and less intrusive in economic matters.

As a matter of fact, governments were expected to withdraw from intervening in economic matters but rather create the enabling environment that will encourage the private sector to play leading role in the economic regeneration of their countries, governments were to be pro-business while labour unions are weakened.

Governments were to commercialise social services and privatise ailing public enterprises, liberalise economic activities and encourage competition. The new thrust of economic direction was to see the abolition of all kinds of social and economic subsidies which creates distortion in a free market environment.

Recalling that the introduction of Structural Adjustment Programme (SAP) during the military regime of General Ibrahim Babangida in the 80s, compounded the economic woes of the nation, Nigeria began to witness gradual loss of sovereignty in its capacity to think and act freely on its economic destiny because it became heavily indebted to the western nations who used the instrumentality of the Breton woods institutions, the World Bank and IMF to push forward economic policies that were inimical to human conditions in Africa and developing countries whose earning powers was affected by the collapse of the commodity prices.

By 1987 when the World Bank and IMF found a listening eye in the regime of Military administration of General Ibrahim Babangida, the issue of removal of subsidies in Nigeria’s import substation industries, removal of subsidies on all products that enjoyed such regime was endangered.

The federal government also began to commercialise energy and power sector the telecom sector. All of these came with huge social cost in terms of loss of jobs loss of earning power through devaluation of the national currency, and all other social discontents that arose through loss of capacity to earn.

Deregulation debate: This background is important to understand the anger and social discontent associated with the regime of removal of subsidy on petroleum product. Since 1987 the argument about deregulating the downstream sector of the petroleum industry has been enmeshed in deceits and subterfuge by the ruling elites According to Professor Pat. Utomi, “what Nigerians have witnessed in the downstream sector of the economy has been anything but deregulation of the sector or removal of the local subsidy as enthroned by the Petroleum Equalisation Fund, but a periodic petrol tax and manipulation of the prices of petroleum products by the ruling elite that have found a way of taxing Nigerians to be able to sustain their own luxury and comfort.

Between 1978 to 2012, the country, has witnessed periodic price increases in petroleum products in the name of removal of subsidies and deregulation of the down stream sector.

Just like other economic policies that have emanated from the World Bank and the IMF, the current policy seems to have originated out of the pressures from the International Monetary Fund (IMF), which do not take to heart the interests of the Underdeveloped or Developing World when prescribing ‘bitter economic piles’ to debtor nations The position of the Nigeria Labour Congress (NLC) coincided with stern warnings from the governor of Edo State, Comrade Adams Oshiomhole who said it was a bitter pill from the World Bank and the International Monetary Fund (IMF) being forced down the throat of Nigerians.

The governor, who delivered a paper titled, “Democracy and Burden of Development”,  at the 2011 annual public lecture of the Federated Correspondents’ Chapel (FCC) of the Nigeria Union of Journalists (NUJ), Bayelsa State chapter, said, “the adoption of economic policies of international monetary bodies, including currency devaluation, removal of price controls and fuel subsidy, cuts in public spending on social
programmes would inhibit human and capital development of Nigerians.”

Adverse consequences

With the exception of those in government, virtually all segment of the Nigerian society that have seen the failure of SAP and its adverse consequences on Nigerians and trhe economy, have kicked against the idea of continued adoption of World Bank/ IMF panaceas as the only solutions to our economic problem.

Chinaka said “if the IMF and the World Bank were that efficient as we thought why have they failed to cure Greece, Iceland, Ireland, Spain, Portugal. Why is the Occupy movement directing its anger against capitalism?

They have come with heavy influence of the Breton woods institutions. But Prof. Pat Utomi said there was nothing wrong in listening to the policy prescriptions of IMF and World banks but it was left for the leadership to broaden the base of its consultation and inclusiveness in use of the local experts as was the case with Malaysia and Indonesia when they were confronted with difficult choices to make for their economic developments just like Nigeria.

The leadership of the trade unions in the country have continued to insist that the unending fuel price increases have always exacerbated social discontent resulting from Inflation also leads to erosion in the real value of incomes.

High rate unemployment which would increase because the businesses, which would find it difficult to meet their energy cost, would fold up leading to sacking of workers, about 46 million people (60% of the labor force which are currently unemployed. and weak economy and high level of corruption, which the Minister for Petroleum Mrs Deziani Madueke claimed that the civilian administration lacks the will power to contain, grinding poverty and other related crimes.

Citizens dividends

Studies have shown that since 2003, the federal government has “invested N1.02 trillion in the Poverty Eradication Fund (PEF) between 1999 and 2002,” yet the country according to the United Nations Human development index is ranked 126th   among thepoorest country in the world.

Prof Pat Utomi argues like other notable economists that if the government has been mailing out coupons of the proceeds from the sale of petroleum as is the case with Norway, Alsaka in US and Albarta in Canada, Nigerians would have been better of Statistics shown that if Nigeria has a population of 200million and the sum of N1.trillion is shared among them they would receive nothing less than N50, 000, 000 and poverty would be reduced.