During the inauguration of Nigeria’s recently elected President, President Bola Ahmed Tinubu on Monday, he announced the immediate removal of subsidies from the national budget as no provision was made for it by the previous administration. According to the president, “subsidy is gone”.
Subsidy removal has been a controversial topic in the nation through various administrations as the discussion often circulates around contemplations on whether or not it should have been taken off the budget and how it should be approached.
Since the announcement, fuelling stations have allegedly already began to hoard fuel within their stations and sell at higher prices which has caused a slight commotion with the state.
Director of the Centre of Economic Policies Analysis and Research (CEPAR) at the University of Lagos, Professor Ndubuisi Nwokoma, shared detailed understanding on how the administration should have approached the matter.
In an interview with ARISE NEWS on Tuesday, the professor agreed that, sooner or later, the removal of subsidies from fuel prices in the nation would have taken place as it was inevitable. However, he expressed his concern over the “big bang” approach to it’s removal as he stated that this would have short term consequences to the detriment of the ordinary people.
“At face value, yes I think that is the best thing to do but I think a more pragmatic approach could have been taken to address this lingering issue. It has been lingering for a long time and there have been many discussions and seminars by the Nigerian economic society and other bodies of how to handle this fuel subsidy issue. Yes government should get out of this fuel subsidy trap but the approach… I have a problem with the big bang approach. Because it has a lot of implications in the short term for the economy.
“The consequences are actually very very serious. It’s going to be highly inflationary. In my view, what could have happened was to remove the subsidy in a more planned approach. Maybe it should have been removed by phasing it.”
“Secondly the fact that the previous president did not budget for subsidy does not mean you should just drop it into the band wagon.”
He described the lack of subsidy provision by just concluded the Buhari administration as a “trap” he wishes the president hadn’t walked into.
“If you’re coming as a new president, and you have a trap or template set for you you don’t just walk into it. You may need to remove the subsidy but not just walk into it.”
President Tinubu has stated that revenue previously directed towards maintaining subsidies would now go into other sectors such as infrastructure and security of the nation. In discussions on the removal of subsidy, it has severally been advised that certain provisions be made before removal of subsidies could even have been considered. Such provisions include food inflation reduction, alternative sources of transportation and social investment plans.
According to Prof. Nwokoma, “Before now there’s been this talk about enhancing domestic refining capacity before you begin to embark on this and thank God we have the Dangote refinery coming on stream. We have heard all this before in the military era when government said we are going to remove pump price of our fuel and the deploy proceeds into infrastructure but this is not the first time we are hearing that. It’s been said over and over by the government of Obasanjo, by government of Jonathan. It is not a new thing. When it comes to see those things implemented, it is lacking. What government could have done was to have waited a bit. Let us see the Dangote refinery start bringing out local products and let us begin to gradually know that we can manage the consequences.
“When you allow the prices to go up, and you begin to moderated the consequences there’s this lag effect in transmission. Now that it has been done, government need to start providing cushions for the ordinary person.”
The president made promise to increase the nations Gross Domestic Product by 6% before the year ends so as to balance out effects of the subsidies so as to gather more revenue.
Professor Ndubuisi who is a professor of financial economics at the University of Lagos has stated that for this to happen, there is a need to address dislocations and hindrances in economic supply chains by fixing insecurity and harmonization of exchange rate. He also called for the curb of oil theft and improvement of enhanced productions, travel safety and agriculture which are factors that contribute to these hindrances.
He made it clear that for the President’s Plan to increase GDP by 6% in short time to work, if these factors are not taken care of instantly, then it would require a “miracle”.
“If this subsidy issue boomerangs and affects both production and supply chain, then it will be difficult for you to achieve the 6% GDP growth rate.”