September 23, 2023

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Why Suspension of Subsidy Removal was Expected – Analyst

Gabriel Imomoh
Simon Ogaga

CEM ANALYSIS | On 15th February 2022, the Executive arm of the Federal Government sent a supplementary budget proposal to the National Assembly for consideration with the sum of N2.557 trillion earmarked for fuel subsidy payment in the amended 2022 budget.

Upon approval, this amount will be spent in addition to earlier budgetary allocation of N443 billion meant to accommodate subsidy from January to June mounting to 3 trillion to be spent to subsidize petroleum in 2022.

According to earlier announcement, Federal Government was going to implement the total removal of petroleum subsidy in June 2022. The whole nation was waiting for the actions and reactions that would unfold towards the whole exercise

While we were waiting for the actions and reactions, there was sudden u-turn, the government made reverse announcement postponing the implementation for another 18 months.

The Honorable Minister of Finance, Budget and Planning, Mrs Ahmed Zainab simply said the “timing is problematic”

Considering real issues and interests surrounding this subject, was this postponement expected? What is the motive behind this sudden reversal? From the submission of our Analysts and sampled public opinion by Continental Economy Magazine, this reversal was expected but with diverse reasons attributed

Out of the 15 respondents, only one did not expect it while 14 had expected that the government may not implement

5 respondents held strongly, in summary, that removing subsidy at this point will not favor the government in power who at this point need to concentrate on those policies and moves that will appeal to the emotions of Nigerians which is critical to winning the forthcoming elections.

Predictably, the nation was going to experience a repeat of 2012 uproar that accompanied the sudden removal of Subsidy by the Jonathan government. The Nigerian Labor Congress was ready to stage a show down having issued a notice of nationwide protest.

Representing those of these thought, An Analyst at Continental Economy Magazine and Senior Consultant at PearleGate Consult, Mr Gabriel Imomoh, expressed his view thus: “This decision, basically is politically motivated. It is understandable because this year, 2022 is an electioneering filled year with campaigns geared towards retaining power by the government of the day. Giving the sensitivity of the average Nigerian to adjustment in pricing of petroleum product, the government can be excused because they will want to retain power”.

[READ ALSO] Nigerian Inflation Edged Downward in January

It is historical that attempt by the Jonathan Administration to remove subsidy in 2012 coupled with the spate of insecurity at that time contributed to the factors that worked against his victory at the polls in 2015. In reality, the challenge with the timing according to the Minister, may not only be with regard to budgeting and planning but also with regard to strategizing and political atmospheric control.

More economically, Mr Simon Ogaga, an Economist, Analyst at Continental Economy Magazine and Investment Analyst at Lighthouse Capital Limited saw the action of the government as the decision following the unreadiness of the government, policy wise to implement such an important economy plan.

He said; ”This does not come as a surprise because the right economic environment in terms of policies that will cushion the effect of subsidy removal have not been put in place or implemented yet. To this end, the 18 months extension proposed by the Federal Government for subsidy removal may still not be realistic unless the government acts with speed.”

A few of the respondents insinuated underground high power instigation towards the u-turn by the government. Lack of trust for government and perceived corruption on the part of majority of Nigerians could be not be ruled out as someone simply said; “They know what they are doing, they are just maneuvering us”.

NNPC privatization and commercialization in the question

The Petroleum Industry Act expressly directed the full commercialization of the Nigerian National Petroleum Corporation (NNPC). The action by the government to continue to pay subsidy is seen as violation of the provision of the PIA

For Ogaga Simon, “The PIA is a proponent of commercialization, however, failure to implement the planned subsidy removal does not directly negate the purpose of the PIA because the PIA at this phase can still be said to be on paper awaiting full implementation, implying that subsidy removal is part of/will give impetus to the implementation of the PIA. Moreso, the PIA is inherent with clauses that promotes Public Private Partnership (PPP)”; he said.

Impact on the economy

The big question is, what is the short and long terms implication on the economy

The position of Dr. Daniel Ekhareafo of University of Benin in our last debate on the subject is strongly supported by Simon Ogaga. To him, the current economic dispositions make it inappropriate to remove subsidy at this time

“In the short Run, yes, given the fact that Nigerians are still struggling to overcome the myriad of economic challenges brought about by Covid-19 when juxtaposed with the high rate of inflation. Subsidy removal at this point is not timely as it will only exacerbate the economic challenges of Nigerians”; said Ogaga.

A general explanation is that petroleum is connected to all the sectors of the economy especially that power is near not existent and businesses rely majorly on petroleum to run their power generating set, any increase in fuel price will have a tremendous impact on prices and inflation will shoot beyond control. This is on the short run.

However, Some of our respondents were vehemently in support of the removal regardless the effect it will have on inflation. Their conclusion on one hand, is that, continued spending of trillions of Naira to subsidize price of petrol is not sustainable at all economically.

On the other hand, subsidy is one of the major transparency issues in the oil and gas sector. The way the government is handling or will handle it will settle down the transparency the Petroleum Industry Act is expected to bring in the petroleum industry.

For Gabriel Imomoh, all structures created to control pricing and activities in the industry by the government should be dismantled entirely and quickly also to allow the industry run freely just like every other industry in the economy.

At long last, the continuous payment of this huge amount will have to stop if the reformed oil industry will assume its true position. The questions are when and how.

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