FridayNovember 26, 2021 / 12:21 PM / by CSL Research / Header ImageCredit:  Premium Times 

The Minister of Finance, Budget and National Planning, Zainab Ahmed, on November24^th, 2021 after the FEC meeting spoke more on the proposedN5,000 monthly transportation grant the federal government plans to give poorNigerians after the removal of fuel subsidy in June 2022. According to theminister, the allowance would last for a duration of 12 months. The Senatehowever noted that the 2022 appropriation bill under consideration by thelegislature does not make provision for the N5, 000 monthly transportationstipend for 40 million Nigerians.

Former President Goodluck Jonathan attempted to remove subsidies inJanuary 2012, which led to demonstrations and strikes across the country(occupy Naija). Jonathan was subsequently forced to reapply some subsidy(although not the full amount) to assuage Nigerians' anger. In response to thecries of Nigerians for accountability, on 13 February 2012, Goodluck EbeleJonathan, set up a Subsidy Reinvestment Programme (SURE-P) to reinvest whateverthe federal government will get from subsidy removal into programmes andactivities that will be beneficial to the masses. However, after a few years ofthe programme, no meaningful progress was made towards alleviating youthunemployment in Nigeria. Former chairman of the SURE-P, Christopher Kolade,after his resignation noted that he resigned his position in 2013 because theSURE-P operations were becoming tainted with corruption and politics, therebylosing its credibility.

Again, the then Minister of State for Petroleum Resources, Dr. IbeKachikwu, had stated that the federal government will begin a gradualwithdrawal of the fuel subsidy in 2016. Dr. Kachikwu said the subsidy put atover N1tn (US$2.4bn) in 2015 was no longer sustainable. In 2020, opportunely, asteep decline in global crude prices triggered by the pandemic completely wipedout the subsidy via significantly lower landing costs, paving the way for areduction in the pump price of petrol in mid-March and paved the way for talksof deregulation once again. The recovery in global crude-oil prices has onceagain brought the subsidy conversation to the forefront and the PPRA revisedthe pump price of petrol higher several times between June and November 2020.So far, in 2021, crude oil prices have continued to rise, implying an increasein the landing cost of PMS. As of September 2021, the government was reportedto have spent about N864 billion in subsidy payment.

The removal of the subsidy is a critical free-marketreform, in our view, and we believe it is beneficial to the economy and togovernment finances, though it will almost certainly put pressure on consumersand small businesses. We, however, believe there remains some political risk inimplementing the change. The subsidy on petroleum is widely seen as a form ofsocial security in a country where health and social security provision isnon-existent. Thus, we believe the July 2022 commencement date for the planmight not come to fruition. 2022 is a pre-election year and the government maybe forced to retain the subsidy to avoid any clash with the populace. Again, inour view, the plan to provide monthly grant of N5,000 will not in any wayprovide the needed cushion compared with the expected increase in petrol price.Also, it appears almost impossible to effectively execute the plan givenNigeria's poor population data and we believe it will go the way of theSURE-Project.

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