Fallacies of the subsidy removal narrative

The subsidy removal narrative is anchored on three overarching premises. The first premise is that as the price of petroleum products in Nigeria is way too cheap and uncompetitive against what obtains in neighbouring this serves as an incentive for the smuggling of the products across the border by people who stand to reap huge profits.

We often hear proponents of this narrative say that by keeping the price of petroleum products low through subsidies, we are in effect subsidising the price of petroleum in neighbouring countries to our economic detriment.

The second premise canvassed to support the subsidy removal narrative is that subsidies really do not benefit the average man but those well-connected fat cats in the industry who engage in all kinds of sharp practices.

Again the peg in this argument is that the intermediaries in the petroleum products supply chain take advantage of the government’s benevolent policy of subsidising the importation of petroleum products for the benefit of Nigerian people to fleece the Nigerian government of billions if not trillions of naira cumulatively over the years.

The third premise is that spending such a massive amount of money in sustaining the subsidy regime which gets frittered invariably robs the government of the funds to provide for such basic services as education, health and transportation. If even half of the stupendous money spent on oil subsidy was channelled to those areas, Nigerians will benefit more so the argument goes.

Although these arguments make some sense, altogether they do not provide a convincing premise for the withdrawal of subsidies.

Take the issue of smuggling of products across our borders to neighbouring countries for example. Yes, it is true that the availability of products at low prices provides an incentive for smuggling. But if the government is aware of this economic sabotage and knows the culprits why not identify them and bring them to justice? The smuggling of petroleum products across the border can only be on a massive scale which cannot be beyond the government to tackle.

Again I am not sold totally on the idea that higher prices are the only incentive for smuggling the products across the border. The main incentive is the need to access foreign exchange in a convertible currency. In this case, the cheaper prices of oil here in Nigeria act as a spark to smuggle the product into the neighbouring countries where they are sold in a convertible currency the CFA. The proceeds are then used to purchase and smuggle products mostly contraband back into Nigeria. The convertible currency is then sold at favourable rates at the lucrative Nigerian foreign exchange market.

The arguments that the government needed to divert the monies paid as subsidies and divert them into the social services sector smacks of condescending paternalisation of the issue. Have governments over the years in Nigeria not been removing subsidies in education and health services too? How then can we expect the same government which has been removing subsidies in these critical areas to spend money on them? Our universities and hospitals are what they are today mainly because the subsidies that they enjoyed in turning out first-class graduates have been pared off; can anybody in all honesty believe that any government in Nigeria will come to restore the sort of subsidies that the education sector used to enjoy in Nigeria?

In the whole subsidy removal conundrum, the government has a vicarious responsibility to own up to the entire process and not cherry-pick which one to apply and which not to. It is the government’s responsibility to provide subsidies as a necessary social mitigating measure to maintain social equilibrium and peace for development and growth. It is not a whimsical favour granted to the people. Equally, it is its responsibility to protect and secure the subsidy regime from its abusers by identifying and sanctioning them.

Government cannot claim not to be in the know of the criminally elaborate and lucrative round-tripping taking place in the subsidy regime and those responsible. And either way, if it did or did not, the government stands accused of negligence, criminal ignorance and even complicity. By abruptly withdrawing the subsidies without putting palliatives in place and investigating, and identifying the administration of the subsidy regime including punishing those it glibly and vaguely mentioned as culprits Nigerians will justifiably continue to question the rationale behind the action.

My concluding remarks on this issue are that rather than withdrawing subsidies under the dubious and indefensible argument that petroleum products are cheap and thus provide an incentive for smuggling the products to neighbouring countries where the prices are higher, the government should see the situation as an opportunity to go the whole hog and devise a comprehensive platform of economic engagement with our neighbours.

Under this arrangement, let Nigeria undertake to provide them with the products formally instead of through smugglers. Let Nigeria calibrate the subsidies based on mutually negotiated currency and goods exchanged between us and them. Because of the convertibility of their currency, our neighbours could serve as offshore trade and currency centres. Let us not be under any illusions; every country, especially the developed ones like America, Britain, Germany, Japan, China and the like subsidises their local and foreign trade. We could use our subsidies to springboard our local and foreign economic development.

In short, it is time to enter into a properly structured customs union between Nigeria and its neighbours who are our first point of economic and strategic interest. That way we can begin to properly plan to diversify our economic future using our resources and comparative advantages. This will put paid to having to rely on the economic prescriptions of outside interests which are not necessarily to our advantage no matter how they are presented. We should have the courage to ask them why for instance Nigeria should withdraw subsidies when they are swimming in it. We should be able to discern that asking our governments to take such steps is to delegitimise them in the reckoning of the people and to dislocate our economic aspirations to their advantage in the main, not ours leading to avoidable societal convulsions.

With our vast human and material resources we have no business allowing others to think for us about our economic options and priorities, especially those who hardly practice what they preach to others.

Gadu can be reached via [email protected] or 08035355706 (texts only)