The time is approaching once again where the think pieces emerge, and the clips go into heavy rotation on social media. You know what time it is, it’s Subsidy Time. Every now and then the issue comes up like the proverbial bad penny, and the question is always the same: What could we be doing as a country with the money we spend on petrol subsidies? The figures get trotted out, and they are, frankly, staggering. According to some figures, Nigeria spent $3 billion on petrol subsidies in 2018. Some say Nigeria spends ₦2.4 billion per day (~ $7 million) on petrol subsidies. The Emir of Kano, the erudite Sanusi II, and one-time Governor of the Central Bank of Nigeria, has asked why we are so obsessed with cheap petrol in Nigeria and questioned our national priorities (or lack thereof). The subsidy is unsustainable, the critics cry. The truth of the matter is, they’re right. But, like so many things in this world, they are also wrong.
They are wrong because while Nigeria is paying out billions of dollars on fuel subsidies belongs in the Oxford Dictionary under “Insanity”, they’re not asking the real question. The problem isn’t the “what” of the subsidy per se or even the “what else”, but rather the problem is the “why” of the subsidy. Why does this oil-producing country, with an estimated 35 billion barrels of crude oil reserves, spend so much money on petrol? And to answer that question, you’re going to find yourself asking why a lot.
Why are the country’s refineries not working?
Why have successive governments in this strategically positioned country not increased refining capacity to enable exports of refined products?
Why have governments removed the subsidy in one year, only for other governments to tell the nation they too are removing the subsidy?
As an example, the Abacha regime announced the total removal of the subsidy in 1994, and Khalifa created the Petroleum Trust Fund (PTF) headed by a certain retired general called Muhammadu Buhari, to build infrastructure around the country with the supposed savings. The PTF embarked on a contract-awarding spree, constructing roads and bridges all over the country, and donating buildings and buses to schools and universities. So, imagine everyone’s surprise when General Abdulsalami Abubakar announced that he too was removing the subsidy in 1998.
Why then did President Obasanjo remove the subsidy 6 times while he was in office?
Why were we paying a subsidy on petrol imports at a time when although the pump price of petrol was ₦65 per litre, the actual landing cost of a litre of petrol was under ₦35?
Why did the number of licensed petrol importers increase from under 25 to over 120 under President Jonathan before he, too, removed the subsidy in 2012?
Why did the subsidy payments balloon by 300% in 2011 when NNPC data indicated that consumption had only increased by 15%?
Why couldn’t the Ministers of Finance and Petroleum explain how the reported subsidy overrun had been paid for without recourse to the National Assembly?
Why did the Minister of Finance order the Customs Service to cease inspections of petrol imports and simply stamp whatever import certificate was presented to it?
Why did we discover that several firms were simply bringing empty cargo vessels and claiming subsidy payments, and nothing ever came of these revelations?
The thing is, under the current government, we are actually paying a subsidy on petrol imports for the first time in several years, but this has more to do with the disastrous forex policy of the Buhari administration which created a massive crash in the value of the Naira, rather than other extraneous factors. In fact, the price of crude oil has dipped precipitously in recent years, which means that the cost of a litre of petrol should have come down instead of going up.
In normal parts of the world, you export what you have and import what you don’t have or can’t produce locally. Nigeria is perhaps the only country on the planet that exports what it has and imports what it has and can produce locally.
So, when they trot out these tired arguments about how much the subsidy costs and what else we should be doing with the money, agree with them. Then ask them why a subsidy that has been removed several times is always available to be removed again. Why we cannot fix our existing refineries or build new ones, even though Niger (which has little crude oil) successfully built a refinery in under four years. Why it is that they always want to talk about the price of petrol in other West African countries, but not other OPEC countries. Why, having identified these West African countries as potential markets for Nigerian petroleum, we are not exporting petrol to them.
The numerous “subsidy removals” over the years demonstrate that when an administration and its cohorts are seeking higher revenues, they reach for the tested and trusted subsidy removal playbook. The think pieces emerge, the panels show up, the straw men with their multiple gas-guzzling SUVs are paraded before the media. The Driver Re-educators will emerge to tell us about the use of air-conditioning and throttle massaging. And the reasonable men will come before the cameras and their twitter handles to tell the country that this simply cannot go on, but with the subsidy gone, roads and bridges will be constructed, and Initiative X will be created with some of the savings, to ease the burden on the poor.
So, you then come to an even more fundamental question regarding the subsidy, the one even Emir Sanusi for all his erudition, wouldn’t touch with a 10-foot pole: cui bono?
You see, when you drill down to it, what is being subsidised isn’t really the cost of importing petrol. It is the corruption, fraud, and incompetence of the Nigerian ruling class.
- Cheta Nwanze is Lead Partner at SBM Intel.