Nigeria: Why Buhari’s Plan To Replace Subsidies With A Transport Subsidy May Be Misleading
The government will effectively withhold one grant only to pay for another, and there is no guarantee that it will keep its promise.
For years, the Nigerian government has been treading on eggshells in its efforts to end the fuel subsidy payment.
Often caught between cutting costs and public anger, and using cheaper fuel to maintain approval ratings, the government has repeatedly adopted the latter despite the promises not at.
Those who support the policy say it helps lower the cost of living and supports millions of Nigerians who live below the poverty line. Yet critics such as the International Monetary Fund argue that the subsidies are an unsustainable drain on public resources needed for critical development projects.
Diesel and kerosene prices have been largely deregulated and retail prices at gas stations vary according to market forces, but the price of gasoline is regulated. Nigerians typically use gasoline to power their vehicles, tricycles and motorcycles, and with an erratic power supply they still struggle with, millions of people depend on gasoline to power their generators.
Between 2006 and 2018, Nigeria spent about 10,000 billion naira in grants, a study supported by the UK government has estimated – more than health, education or defense budgets.
The Nigerian National Petroleum Corporation (NNPC) said Nigeria has already spent over 816 billion naira in the first seven months of this year by subsidizing the cost of gasoline.
End the grant to pay the grant?
Building on the new oil industry law, the Nigerian government is now aiming for mid-2022 to completely remove fuel subsidies and move to a market-based pricing model.
Washington based The IMF advised the government to distribute “well-targeted social assistance … to cushion any negative impact on the poor, especially in light of continued high inflation.”
To achieve this, the government has said it will pay “Poor citizens” N5000 monthly in the form of transport subsidies.
Finance Minister Zainab Ahmed said that subject to the availability of resources and support from state governments, aid will target between 20 million and 40 million Nigerians who constitute the poorest population in the country. The program is expected to last six or 12 months, she said.
“Ahead of the target date of mid-2022 for the complete elimination of fuel subsidies, we are working with our partners on measures to cushion the potential negative impact of the removal of subsidies on the most vulnerable 40% of the population. . “, said Ms Ahmed.
“One such measure would be to institute a monthly transport subsidy in the form of a cash transfer of 5,000 naira to between 30 and 40 million deserving Nigerians,” she added.
When the numbers are factored in, the plan looks bogus and appears to be a typical government design to mislead citizens.
First, even for a six-month year, the transport grant option is quite expensive. Paying 40 million N5000 people per year will cost the country N2.4 trillion, around 15% of Nigeria’s total budget in 2020.
On the other hand, if the subsidies were maintained, the government would spend much less. Judging by that of Mrs. Ahmed estimate that the grant “Costs up to 150 billion naira” per month, the gasoline subsidy is estimated to be around 1.8 trillion naira per year.
The subsidy option effectively means that the government, even temporarily, will abandon a subsidy payment only for a more expensive payment in one year, its borrowing is expected to exceed 6 trillion naira. Some have described this as a miscalculation.
Those who support the idea of the subsidy argue that in a country where four in 10 – a ratio as high as nine in 10 in some states – live on less than N377 on a daily basis, the monthly subsidies would greatly increase their purchasing power.
Yet the government will not save for development projects anyway – the central reason for its pressure to end subsidies.
Second, the government’s spending style does not support its claim to engage in projects that truly serve the interests of the general population.
While Ms. Ahmed has repeatedly asserted that Nigeria has a problem of revenue, not expenditure, Nigeria continues to to lead a great government despite the increase in its debt. The cost of personnel has continued to increase each year despite the government failing to recruit significantly. In 2022, the government hopes to spend 350 billion naira more on personnel costs and 167 billion naira more on overheads than in 2021.
Overhead costs (costs related to administration) total 792.4 billion naira for 2022, meaning that overhead spending will increase by more than a quarter in the coming year if the legislature approves the supply bill. The National Assembly has approved 3.76 trillion naira for personnel costs this year and the government wants 4.11 trillion naira for this purpose in 2022.
The combined overhead and staff costs proposed for next year are N4.9 trillion, 8.9% more than Nigeria’s total budget of N4.5 trillion for 2015. These two categories It also exceeds the cash that Africa’s largest economy intends to spend on development projects in 2022, estimated at N 4.89 billion.
In 2022, President Muhammadu Buhari’s office will spend 1.6 billion naira on new vehicles – the fourth largest of all government offices. Since coming to power six years ago, the president’s office has spent 5 billion naira on vehicles – enough to build 500 health centers at 10 million naira each. He spent billions more on food, uniforms, travel, a huge presidential air fleet, the president’s hospital and more.
The government can argue otherwise, but there can be no assurance that subsidy savings will not be misused to fund routine public administration that does not benefit citizens.
Also, despite the assurance Ms Ahmed gave to lawmakers last week that “the government will ensure that payments are made to legitimate beneficiaries using biometric verification numbers, national ID cards and bank account numbers », The absence of a verifiable database of potential beneficiaries. questions the effectiveness of cash distribution and raises suspicions of financial mismanagement.
As an example, some have cited the lack of transparency that has surrounded social investment programs like Tradermoni and conditional cash transfers, which have Cost billions of naira.
It will also be difficult to measure whether the government has paid up to 20 million or 40 million people as it claims. In addition, the government’s warning about “resource availability” also makes it potentially difficult to keep its word if payments are not made.
“These payments are not sustainable because they are just another consumer subsidy that is by no means productive,” SBM Intelligence senior partner Cheta Nwanze told Bloomberg.
“I would have preferred such subsidies to go to small businesses so that they can grow and reduce our rather high unemployment rate,” he added.
Potential increase in the price of gasoline at the pump
Oil prices in all West African countries (except Guinea Bissau and Gambia, which were not listed) are more than double those in Nigeria, according to energy and power data tracker, the world price of oil.
The price change is due to various taxes and subsidies for the product, the tracker said.
When the subsidies are removed, the price at the pump will likely reach N344 per liter, said Melee Kyari, group general manager of the Nigerian National Petroleum Corporation, noted.
Each increase in the price at the pump often affects transport tariffs as well as food prices. Asking Nigerians to pay more for gasoline is always a political risk.
The Jonathan administration fell into opposition hands in 2012 when it cut subsidies. The backlash that followed was one of President Buhari’s 2015 All Progressives Congress political salvos to oust former President Jonathan.
Next year, around the time the grant deadline is expected to end, Nigerians will prepare to elect at least 30 state governors and a successor to Mr Buhari.
This has led some to view transportation subsidies as a populist strategy by Mr Buhari’s CPA to woo voters in the 2023 general election.