7 Takeaways from Punch’s Editorial on Subsidy Removal

Simbo Olorunfemi

By Simbo Olorunfemi


Over the years, I have written quite a bit about the contentious issue of petrol subsidy, with the crux of my argument being that unless there is transparency on the part of the NNPC on the DSDP, its swap arrangement through which the crude oil allocated for domestic production/consumption is exchanged for refined products, I would neither be convinced about its argument on subsidy or under-recovery of costs nor agree that the figures put forward are convincing.


Of course, on the other side are those who had been consistent in their call for removal of subsidy, perhaps unconvinced by my argument that not only was NNPC not transparent, but also that the cost of petrol is a critical component in cost of living, especially for those at the bottom of the pyramid and cost of doing business, especially small businesses.


But here we are, now past the point of debate, from our side, that is. Subsidy is gone. As that is now the case, it has been interesting hearing those who had made argument for a removal by fiat, without ever speaking to the dislocations that it might trigger in the lives of the poor and vulnerable, and the economy as a whole, especially the informal sector, with grave implications for cost of transportation and food, now becoming advocates for the poor, suddenly remembering the impact this would have on them.


I find it also interesting that having identified the poor as disproportionately exposed, with possible grave implications for peace and security, viable solutions to cushion the adverse effects have been rather thin. Nothing to hold on to in the real sense of it. Those who had raised a storm against the idea by the previous administration of disbursement of palliative to the poor are now the same ones criticising the current administration for not applying anaesthesia before surgery.


I stumbled on the Editorial by The Punch, in yesterday’s edition of the paper, on managing subsidy removal. In a large part, it is rehash of the populist talk points around the issue, strong in rhetoric but weak in substance and practicality.


I have 7 takeaways from the Editorial, which I take the liberty to interrogate below:


  1. “In a turbulent, disarticulated economy, where the informal sector is approximated at 57.7 per cent by the London-based World Economics, and 65 per cent by other estimates, the impact of petrol price increases and the attendant inflation may upturn the assumptions and projections of the government. Managing the fallout may also tax the ability and resources of the economy.”


My thoughts:

I do not know what the assumptions and projections of government are and not too sure about the statistics, but I agree that ours is a largely informal sector-driven economy. I have argued that the informal sector is the unacknowledged backbone of our economy. Officialdom has struggled with what to do to catalyse that sector on a sustainable basis. It basically drives itself, which in an ironic manner, has made it imbue it with resilience. The impact of the petrol price increase will be huge on this sector. It remains to be seen if it would again find strength to be able to maintain its place as the hidden jewel of the Nigerian economy, grossly misunderstood, largely untapped.


  1. “While the stoppage of the subsidy is inevitable, The PUNCH believes a phased withdrawal amid a slew of bold steps, reforms, culminating in the delivery of substantial domestic refining and eventual total removal would have been a safer option.”


My thoughts:

The idea of a phased withdrawal, which I have heard some of those who had hitherto vociferously called for immediate removal of subsidy, make is more of an afterthought to me. What had been implemented over these years is a phased withdrawal. The argument for some time has been straightforward for many. It has been either for or against. While the view here echoes mine which is that of letting local refineries come on stream before removal, I don’t know what they have in mind as ‘bold steps’ and ‘reforms’. I think one bold step that has been taken is that of committing huge resources for the turnaround maintenance of the government-owned refineries, after all that had been spent in the past without results. Perhaps, a change of the management team at NNPCL will qualify as a bold step.


  1. “Nevertheless, the government should unravel the mysteries around petrol imports; the actual volumes imported, and the veracity of NNPC’s claimed “under-recoveries.” Many questions its claimed figures. Next, remove the state oil company from importing petrol altogether and allow only private operators to import and retail.”


My thoughts:

I agree with The Punch that we need to unravel the mysteries around ‘NNPC’s claimed “under-recoveries.”’ But I do not see the point in the recommendation that NNPC be barred from importing petrol, leaving import and retail to only private operators. One, NNPC is in business, what will be the point restricting its operations. Two, we can’t possibly leave such a sensitive task to only private operators, for security and other reasons, especially with the bad experience with private operators in the past. NNPC has taken a strategic and wise move by taking a stake in the Dangote Refinery. It will leverage on being a stakeholder for a ready and steady line of supply of products to wet the market.


  1. “Tinubu should just as boldly privatise the refineries within six months. He should remove the NNPC completely from downstream; wholesale, retail, and importation. Instead, strengthen, fund, and professionalise the regulatory agencies and personnel and allow the private sector to get the job done.”


My thoughts:

Privatise the refineries within 6 months? To achieve what objective?

The same refineries with a combined capacity of 445,000bpsd whose rehabilitation contracts were awarded in 2021 for the sum of $2.7b and expected to start production from later this year?


With Dangote there, BUA being built and a load of modular refineries rolling of, the private end is adequately covered for now. Even if the refineries are to be considered for privatisation, that can’t possibly be within the first 6 months.


  1. “The plan to borrow another $800 million from the World Bank for distribution to the poor is inadequate and unworkable. Such a sum would deliver better, long-lasting outcomes if channelled into low-interest credit to SMEs, two million of which have collapsed in the last two decades. Only under the Sani Abacha military junta (1993-1998) with its Petroleum Trust Fund was any saving from price increases channelled into tangible interventions.”


My thoughts:

In one breath is the argument that the government is broke, then on the other hand is the call for more intervention. Some will argue against obtaining loans, then make the argument that what has been secured is inadequate. The question is, where is the money supposed to come from?


If the objective is to alleviate poverty at the very bottom, channelling money to SMEs, which has, in any case, become a cliche, cannot be an alternative. The way people dismiss the modalities and impact of direct disbursement of money to the poor (through the Social Investment programme) on the basis of assumptions and hearsay without interrogating the record is strange, but not surprising. Apparently, some don’t even know what it meant to alleviate, which is why they will dismiss certain amounts as too meagre.


I will rather us not use a loan for the purpose of poverty alleviation, but putting a part of the ‘savings’ from subsidy into the funding of SIP, which has been institutionalised and backed by law, is one I go with.


  1. “Tinubu should initiate policies to revitalise the economy, create jobs and alleviate poverty. Contrary to the repeated falsehood, the subsidy actually benefits the poor. In Nigeria, petrol prices impact all goods and services, beginning with transportation costs, and food prices.”


My thoughts:

“Contrary to the repeated falsehood, the subsidy actually benefits the poor.”

I am glad that this point was made. I am hopeful that President Tinubu will respond with policies and programmes to address the fallouts from the new price regime.


  1. “A global consultancy, PwC, recommends raising the minimum wage, tax incentives, reforming the foreign exchange market, and fully deregulating the downstream oil sector to kick-start the economy.


Tinubu has hinted at a minimum wage increase, and his determination to merge the multiple exchange rates. He should act fast.


Other measures he should also implement include compelling all federal agencies to patronise Nigerian-made goods, promote SMEs, and launch an emergency programme on electricity supply.


Having taken this promised gamble, Tinubu must work strenuously to save the economy and initiate policies stimulating many private sector-led refinery ventures to engender competition and make Nigeria a regional and global refining hub.”


My thoughts:

It is interesting to see that ‘The Punch’, which asks for a phased withdrawal of subsidy is at the same time endorsing the recommendation by PWC for a full deregulation of the downstream sector. Is the withdrawal of subsidy not an expression of full deregulation? What could they be asking for again?

Not much here that has not been done, already being done or has been slated to be done by the Tinubu administration.


In all, whatever one’s position on the removal of the ‘subsidy’ is, it would appear that the horse has already bolted, how to manage the impact, with the least possible disruptions is the challenge that now confronts us.

SimboOlorunfemi works for Hoofbeatdotcom, a Nigerian communications consultancy and publisher of Africa Enterprise. Email: Editor@enterpriseafrica.ng