Subsidy or no subsidy has been an issue that had tore the leadership of Nigeria to shreds having witness the citizen right fighter, the NLC split into groups with some associating themselves to the removal of subsidy while the other remains adamant and former NLC president, Adam Oshiomole booed during the Lagos Town Hall meeting between government officials and stakeholders.
The case of economy development cannot be tactically manipulated by share emotion on what should be or not, it is a decision of what is needed in other to achieve an economic viable Nigeria.
CBN Governor, Sanusi Lamido Sanusi, in his explanation on the need for removal of fuel subsidy said 30% of Nigeria total budget services fuel subsidy to the tune of about N1.6 trillion annually while total federal government recoup still need an additional loan of N200 billion to complete the annual subsidy.
Indeed, fuel subsidy simply empowers foreign manpower in term of continuous importation of foreign goods to our market that not only consumes government savings but also local production.
Looking at these points (among others), it is a matter of time before the economy to collapse under the weight of debt, rotten infrastructure, undeveloped economy etc.
Already, one of the issue facing the country presently is not about the weight of fuel subsidy, it is about the share amount of capital project which had been left undone for years. The present government thus tackling these issues headlong at the same time requires not just gross capital but colossal funding.
Fallout of the inadequate of fund for project presently present itself in the image of Lekki-Epe toll gate resulting from the PPP agreement between the Lagos state government and the private sector. Lack of fund had brought in another dimension which is alien to many Nigerians.
Why subsidy?
Subsidy in different sector from the government is a way government intervening in the economy to favor it sovereign.
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Subsidy is applicable to every sectors of the government and may necessarily do not mean government pump funds into these sector. Again, it should be noted that the impending collapse of the Nigerian economy is just a case of demand more than supply and nothing more. What are these demands and how can we address the shortfall?
Dependency theorists stressed how markets favored industrialized countries, which received raw materials cheaply from the developing world. In addition, industrialized countries owned the technology that developing countries needed and had the economic power to admit exports from developing countries.
According to the dependency theorists, developing countries could only grow behind protective trade barriers that kept out exports from the industrialized world. To this, we can agree that removal of fuel subsidy is a right decision but not enough, if the shift in dependency on developed country is to be removed, there is need to effect from more demand to less demand, for removal of fuel subsidy - refineries should be working.
Removal of fuel subsidy will not only increased inflation but also the prices of all the important manufactures into which petroleum enters, among them chemical fertilizers, plastics, synthetic fibers, pharmaceutical products among others. These product, remember, affects the agricultural sector, manufacturing sector textile sector in particular.
While subsidy removal had a positive turn around in some countries who had toil the part outlined by the federal government, need cushion effect which act as roll-back mechanism, in the case of Nigeria, is yet to be in place.
In the 1990s, subsidies to Berlin by the East and West German government ended, forcing the city to make extensive cuts in its operating budget. Public service jobs were trimmed, and the cost of social services increased. This led to angry protest and general strike. It also affects students and lecturers as school fees increases while there was severe pay cut for the former. Today, all these are history as Germany is among the leading financial bailout country today for many Europeans countries in economy turmoil.
that dollar imports would be restricted drastically and that American securities held by the Dutch would be requisitioned. The Labor Party in the Netherlands, to which Lieftinck belonged, aimed at expanding state intervention, but the finance minister took steps to cut governmental employees to a minimum and to reduce governmental operations and expenditures. In addition, he advocated the expansion and modernization of the productive apparatus of the country, thereby increasing industrial and agricultural exports. Opposition developed to the planned economy of the government, particularly to the governmental import and export bureaus, and to the continuation of rationing. Consideration was given to a reduction of the tax burden on business by allowing business organizations to depreciate their plant and equipment on a replacement basis, rather than on the basis of the original purchase price.
These sectors in particular had been subsidized (zero import duties on equipments imported in agricultural sector). Total removal of fuel subsidy invariably means a tornado effect where increased in price on chemical fertilizers kills the needed advantages the agricultural sector would have benefit from zero import duties.
These higher prices also reduce purchasing power in much the same manner as would a severe new tax as a result of general increase in prices of commodities. Reduced purchasing power in turn depresses sales of consumer items, resulting in layoffs of factory and sales personnel. The entire procedure has a spiraling effect in all sectors of the economy.
A good example of the above analysis is the textile industry whose fuel was deregulated without adequate electricity supply. With Fmr President, Olusegun Obasanjo’s increment on import duties (imported textile materials), blacklisting of textile importation from other countries, the textile industry still collapsed.
Much as this article tends to focus on the technical analysis on the removal of fuel subsidy, it should be noted that government current expenditure is taking toll on the national economy itself. Just months ago, Sanusi Lamido Sanusi engaged the National Assembly on war of words on reduction of the expenses after he accused then NA of responsible for 25% spending of the total budget.
Effort geared at reducing pressure on foreign exchange due it huge demand should be looked into. If the forces of stress on foreign exchange result in cumulative effects on the price of good traded, especially, imported petroleum product, cost of importation will lower if the dollar exchange rate to naira reduces.
Faced with economy hardship caused by the WWII, Netherlands Finance Minister Pieter Lieftinck announced early in 1948 strenuous efforts to move toward a free internal economy. Subsidies were halved, and at the same time prices on coal, textiles, and many food items were adjusted upward. The government estimated that these measures increased the cost of living for the working classes by about 2 per cent, which would be offset by corresponding wage increases. This action would not result in bringing Dutch prices in line with prices in Belgium and Luxembourg nor remove the threat to the latter countries that their commodities would be drained into the Netherlands when all the barriers among the economies of the Benelux countries were removed
The move, though unpopular at that time there was a deficit was reduced by over half for the year. This was considered a remarkable achievement and was accomplished primarily by the reduction of expenditures in all departments.
If this is anything to go by, 30% on fuel subsidy, 25% on NA, and some other subsidy being planned for other sector in government preparation on shifting subsidy from capital to manufacturing, it is impediment for government to cost it own cost. Need i say that the N1billion food expenses tag for the country's 1st citizen is a far cry to what the government is preaching to the people? If really, we want a change in Nigeria that involve sacrifice, the leaders should be a good example for us to follow.
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