…energy prices, inflation rate, and transportation fares will increase – KPMG
…unemployment, insecurity will rise – Expert
Despite the current challenge of a major increase in petrol price, stakeholders have emphasised the potential long-term benefits of removing fuel subsidy.
During an advocacy dialogue forum organised by the Chartered Institute of Bankers of Nigeria, CIBN via its Centre For Financial Studies last week, economic experts and officials of the institute analysed the potential benefits of the downstream petroleum sector.
Themed, “Fuel Subsidy Removal: Opportunities for Individuals, Businesses, and the Way Forward,’’ various economic professors and business leaders took turns to give insights into a post-deregulation business and economic environment.
Subsidy removal benefits
According to the President/Chairman of Council, CIBN, Dr. Ken Opara, some individuals and companies perceive subsidy removal as a disaster, but the institute views it as an opportunity.
He said, “Of course, there will be challenges, but what we make of it and the opportunities it presents is essential. It is important to note that from 2016 to 2023, Nigeria has spent over N11.7trn on fuel subsidy. Taking this into perspective, in 2022 alone, Nigeria spent N4.3trn on subsidy. This fact represents over 15 percent of the import figure of the country and almost 25 per cent of the budget of 2022, no country can continue running this way.”
The Head of the Department of Economics, University of Ibadan, Professor Adeola Adenikinju, highlighted how deregulation would improve the business climate and the economy.
The don said Nigeria needed to keep to a formula-based approach for determining fuel prices in the short term while expediting actions in respect of putting in place a vibrant domestic refining industry.
He said, “The current practice of using trucks to move fuels from Lagos to different parts of the country has destroyed our roads, led to the deaths of innocent Nigerians, and destruction of properties.
“In addition, smuggling of fuels to neighbouring countries will no longer be profitable as prices of fuel across the region will closely align. Nigeria will no longer subsidise fuel consumption across the neighbouring countries and provide a source of revenues for their governments through taxes imposed on fuels smuggled from Nigeria.”
According to Adenikinju, the government should sell its refineries to the private sector or run them like private companies.
“Nigeria will no longer spend N13bn every month on refineries that are not producing and inefficient, and would have saved over $19bn spent on TAM of refineries in the past eight years.”
He noted that the removal of subsidies would encourage efficiency in fuel consumption, and promote the switch to green energy in the energy consumption mix of Nigeria.
Meanwhile, Partner and Chief Economist at KPMG Nigeria, Dr. Yemi Kale, said the net benefits of the subsidy removal were positive, but noted that there would be disruptions arising from a direct increase in energy prices, inflation rate, and transportation fares.
He said, “This disruption has an indirect impact on the increase in food prices and consumer demand. This is so because their purchasing power is weakened; consumer demand also shrinks unless the government provides some kind of relief to cushion the effect.
“In addition, households would begin to cut their expenditures, leading to businesses recording decreases in demand amid rising costs of operation increases. This is particularly going to affect the Micro-Small and Medium-sized Enterprises, and this would eventually birth lay-offs, hence increasing unemployment rate and insecurities.”
For the Chief Executive Officer, Cowry Asset Management Company Limited, Johnson Chukwu, there are people at the end of the chain who do not have a social safety net, nor the laxity for any kind of adjustment because of their income level.
For such people, he believes the government needs to provide some relief.
The Director. CBN Centre for Economics and Finance at Ahmadu Bello University, Mohammed Haruna, advised the government to examine the policies and regulatory frameworks that bother on the consequence of the subsidy removal, and how it would open up growth opportunities.
He said, “Over time, the government should have a monitoring and evaluation framework that would ensure whatever changes that are coming within the policy framework are sustained.
“Government should not just come up with policies, particularly for the small-scale business, they (businesses) should also be able to access such facilities, as this would be able to enhance their livelihood.”
A professor of Energy and Electricity Law, University of Lagos, Yemi Oke, urged for more players to be brought on board with the commencement of operations by Dangote Refinery.
Experts allege corruption
But the Founder and Chief Consultant of B. Adedipe Associates Ltd, Dr Biodun Adedipe, highlighted how corrupt the subsidy regime was.
He said, “In economic theory, the essence of subsidy is to correct market failures (inefficient allocation of resources) or externalities, with the ultimate aim of achieving greater efficiency.
“It is either to ensure effective use of the resource or service in question (avoiding waste) or to enhance the value delivered.”
Adedipe noted that the petroleum sector had been overregulated and inefficiently regulated, noting that most activities were fraught with fraud and corruption.
He said, “Inefficiency and unsafe business practices were rife. What could have been legitimate subsidy benefits due to Nigerian taxpayers being inadvertently transferred to citizens of neighbouring West African countries? Most of the new investments in the downstream sector were not by responsible investors, but by those that wanted to take advantage of the strange opportunities, the target beneficiaries of fuel subsidy did not receive it.
“NNPC Ltd as an importer of refined products is tantamount to dirty deregulation. The erstwhile Petroleum Equalisation Fund was a market aberration that enabled corruption. The erstwhile pricing template and mechanism had in-built inefficiency and manipulation tendency/ In addition, the daily allocation of 450,000 barrels per day of crude oil for domestic refining/consumption completely obliterates and puts a lie to a subsidy.”
The Co-founder of Falcon Corporation Ltd, Audrey Joe-Ezigbo, asserted that corruption needed to be dealt with.
She said, “We have to be sure that the monies saved from the subsidy removal are channelled into the appropriate activities. However, businesses need to redesign their models and create efficiencies in the systems, while also trusting the government to do its own part.
“There is going to be a need for public-private partnerships, especially when it comes to infrastructure enablers that have to be put in place.”Follow us on social media