Recently, among the many stories making the media rounds in Nigeria and Diaspora is the expressed intend by the current Jonathan administration to gradually phase out the subsidy on fuel over a period of four years. Expectedly, there has been, and continues to be, reactions for and against this plan. All the arguments put forward by both sides are quite genuine, with some noted economists even expressing doubt as to the existence of a subsidy on gasoline to begin with.
The administration's primary reason for this decision is that if fuel in Nigeria is subjected to market prices, based on supply and demand, the excess revenue generated -an estimated, mouth-watering N600 billion annually - could be channeled to other underdeveloped sectors of the Nigerian economy. This, in itself, is enough reason for many skeptics to change their minds in favor the the administration's proposal.
Personally, I do not have an opinion, pro or con, on most economic debates; experience has taught me that most economists who take stands on one side of an issue always end up eating their words, not because their projections and predictions would have been wrong, but because market and other forces not factored in during these projections conspired to do them in. I prefer to offer opinions based on both the economic system existent in that environment, and the prevailing circumstances under which such systems operate. Nigeria operates what I call a socio-capitalist economic system based on a 70/30 ratio - government offering to provide 70 percent of the people's needs while the private sector picks up the remaining 30 percent. Unfortunately, governments have consistently failed to deliver their 70%. Also, I believe that economics, like politics, is local; therefore, the only effective economic model is one that is suitable to the environment and under the current circumstance. With this in mind, whatever model that works in Europe may not work in Africa, Asia, or Central America.
Now, as to whether the Jonathan administration should do away with fuel subsidies, it depends on what the end-result is expected to be. A couple of months ago I read an opinion paper by a Nigerian here in the US supporting the removal of such subsidies because, according to him, it only benefits the rich who already have the means to pay for fuel at any price. This claim got me thinking. Nigeria, against all expectations, remains a Third World country of over 155 million people; 10% of the population is affluent enough not to care about fuel prices, but there is the other 90% who depend on public transportation to carry out their daily business and personal activities. This same lower 90% rely on the upper 10% to provide and make available the public transportation system that enabled them achieve their daily objectives and contribute to the national economy's growth. If the government removes the subsidy on fuel, the ability of this poor majority to sustain themselves will be severely hamstrung. This will render a devastating blow to the nations small businesses and hurt the citizens' entrepreneural spirit. So, in my opinion, because the rich also benefits is not enough reason to remove the subsidy.
Now, how about government's projection of a N600 billion annual increase in revenue? It would have been a good argument if Nigerian governments have a history of providing what the people needs. Economically and developmentally, Nigeria dropped off the path of progress in 1978, and it is not because of lack of funds; it is because the nation's leaders incorporated corruption into the nation's moral fiber. Yes, it may be a mono-product economy, but that product is still an international cash cow, and Nigeria has it in abundance. Govenment's argument could also have been credible if it could point to one problem it had solved for its citizens in the past 30 years. After 51 years of independence, steady power, clean water, good roads, rail system, functional sea and air ports, healthcare, and security all still remain an illusion. Everything the country inherited from the colonial era is in ruins. The manufacturing sector is operating at 35% capacity; the agricultural sector at about 54%; there has not been a single oil refinery built in 0ver 30 years, and not a single city in Nigeria could boast of an efficient sewage system in this 21st century. So, how do government expect the citizens to believe that revenue generated from removal of subsidy will be used to provide these amenities? The Nigerian people are not that stupid to believe such nonsense.
Yes, removing subsidies on anything is good for buoying government coffers, but the US, China, India, Brazil, and Russia have reasons why, against all expert advise, they have kept some level of subsidy on the products they have comparative advantage. In Nigeria, the only thing the people can claim as benefit from their government is the subsidy on fuel, and removing it will be economically catastrophic.