…Subsidy removal’s economic necessity —Keyamo

By Babajide Komolafe, Peter Egwuatu, Udeme Akpan & Olayinka Ajayi

The widespread opposition to the planned N5,000 transport grant in lieu of fuel subsidy removal intensified over the weekend with business leaders advocating investment in critical infrastructure like transport, health and education  as a better way of reducing the expected inflationary impact of the policy on the masses.

Last week, the Federal Government announced plans to remove fuel subsidy and palliative of N5,000 month transport grant to 40 million poor Nigerians.

The proposed palliative, translates to N2.4 trillion annually, and 231 per cent higher  than the N725 billion average annual subsidy payment by the FG between 2016 and 2019.

Responding to Vanguard enquiries, Minister of Finance, Zainab Ahmed, said that the proposed palliative will be implemented over a period of between not exceeding 12 months.

However,  the proposed palliative was greeted with widespread opposition from the Senate, Nigeria Labour Congress, NLC, Trade Union Congress and other critical segments of the society.

Also opposing the proposed N5,000 transport grant, business leaders in separate interviews with  Vanguard said that the most effective way of reducing the impact of higher prices that will result from the removal of subsidy, is to reallocate the savings to investment in critical infrastructure like transport, health and education that have direct impact on common Nigerians.

The business leaders include the President, Lagos Chamber of Commerce, Industry (LCCI), Mrs.  Toki Mabogunje, Managing Director, 11PLC, Adetunji Oyebanji, Bismarck Rewane led  Financial Derivatives Company (FDC) Limited, Vice Executive Chairman, High Cap Securities Limited, Mr  David Adonri, the National President, Oil and Gas Service Providers Association, OGSPAN, Mazi Colman Obasi and Dr Muda Yusuf, Chief Executive Officer,Centre for the Promotion of Private Enterprise (CPPE), and former Director General, LCCI.

Advocating investment in transport infrastructure as against the N5,000 monthly transport grant to poor Nigerians, LCCI President, Mrs.  Toki Mabogunje, said: “We are delighted to hear about the proposed removal of fuel subsidy after a long-drawn delay.

“Beyond the fundamentals that have formed the basis of arguments by major stakeholders, we recommend a corresponding investment in transport infrastructure to ease movement, create more transport choices, and thereby reduce the cost of transportation and logistics.”

Muda  Yusuf said that while the N5,000 palliative is not a bad idea,  enduring reforms that ease transport cost is preferable. He however cautioned against hasty implementation to avoid the  risk of a social and political backlash could be quite high.

He said: “I believe that there is a need to creatively manage the transition from the current pricing regime to a fully deregulated arrangement.

It is a tricky issue which could pose a serious challenge to the government if not tactically managed.

“The reality is that the sentiments among the citizenry are not favourable to the deregulation of petroleum product pricing or petroleum subsidy removal. Even some elites are curiously not persuaded on the justification for the subsidy removal.

“If the policy transition is not properly managed, the risk of a social and political backlash could be quite high.

“No doubt there is a sound economic and business case in favour of fuel subsidy removal. But the social and political contexts are equally critical.

“Certainly, the subsidy is not sustainable, which is why there is a need to accelerate engagement with the relevant stakeholders to come up with a policy transition strategy that is sustainable, realistic and pragmatic.

“The conversation should not only be economic, but also social and political.”

On the proposal on cash transfer to the vulnerable segments of the society, Yusuf said it is not a bad idea.

“It is essentially a transitional policy to mitigate immediate shocks. It also has a symbolic significance. But we need to be sure of the integrity of the database that contains the 40 million people.

“This should be validated by key stakeholders including the labour unions and the civil society groups.

It is important as well to validate the inclusiveness of the database.

“Meanwhile, more enduring reforms would have to take place to ease transportation costs, build domestic petroleum refining capacity, and attract more investors into the downstream petroleum sector,” he stated

On their part, analysts at Bismarck Rewane led FDC, averred that the removal of fuel subsidy will help to reduce deficit spending of the FG, it  would  however lead to higher logistics costs and further stoke inflationary pressures.

They, however, averred that the N5,000 palliative bare scratches the surface in reducing the inflationary impact of the policy on consumers, and instead the FG should channel the freed up funds to critical infrastructure projects sectors of the economy that have direct impact on the common Nigerian.

They said: “The federal government’s decision to phase down fuel subsidies by 2022 elicits both relief and worry. The GMD of the state oil company, NNPC has stated that the removal of subsidies will push the pump price of petrol to between N320/ltr and N340/ltr. This would lead to higher logistics costs and further stoke inflationary pressures.

“We expect subsidy removal to increase government revenue and narrow the fiscal deficit. It is however important that the freed up funds are channeled to critical infrastructure projects sectors of the economy that have direct impact on the common Nigerian (transport, education and health system).”

Similarly, Immediate past chairman of MOMAN, who is also the Managing Director, 11PLC, Adetunji Oyebanji,  said: “I have been advocating the removal of fuel subsidy because it is not benefiting the ordinary man rather the elite who drive cars. So I was pleased with the planned removal.

“Also, the idea of disbursing N5, 000 to Nigerians is not sustainable and cannot be adequately monitored. What is the difference between what was and currently suggested.

“It would rather make sense to put such funds into supporting primary school students with books and feeding as well as fees. That would encourage and grow the education sector and its citizens in the long run. Also, the federal government can inject such fund to the transport buses so that Nigerians can pay low fare on the BRT buses.”

On his part,  Vice Executive Chairman, High Cap Securities Limited, Mr  David Adonri, stressed  that the proposed palliative does not make sense in view of the increases in prices of goods and services resulting from the removal of fuel subsidy, adding that the FG should first fully deregulate  the petroleum industry.

He said: ” Doubling the price of petrol will reverse the decline in inflation rate. It can cause riots. Hope it’s not preparatory to commencement of Dangote Refinery. ”

Meanwhile, the Minister for State for Labour and Employment, Festus Keyamo, SAN, insisted yesterday that the removal of subsidy  by President Muhammadu Buhari’s administration would rather affect the rich that are being paid more that the presumed poor masses.

Speaking on Channels Television’s ‘Today’s Politics’ programme yesterday,  Keyamo said the issue of subsidy removal  was an economic necessity.

He said:  “What we have now is not subsidy but under recovery. The issue of removal of subsidy is an economic necessity but a huge political problem. The government finds itself between the devil and the deep blue sea. But it is an economic necessity.

”Anytime it comes up, persons that have grievance against the government would then converge to make the country ungovernable. Government always finds it difficult to navigate itself on the issue of subsidy but then, the reality facing us in 2006 under Obasanjo and 2018, the statistics tells us that we’ve spent N10 trillion in this country subsidizing and in 2019 and 2020, we spent another N3 trillion which is about $7billion again on subsidy.”

“ As we speak, we are doing N200 to N250 billion within a month. Put this side by side with what we need to fix infrastructure in this country, that is the money we need to fix bad roads, poor hospitals, power supply, the rails, these are the money we need.

Asked on the N5000 transport palliative,  he said: “ is within months or one year that is about N2.4trillion. It is just to give a transitional period for Nigerians to absolve the shock. But everybody agrees  that subsidy must go.

”People think that it is the poor masses that would get the end of the stick. No! it is actually the rich and powerful that would get the end of the stick because they are the one that are being paid not the masses. The masses need good roads , hospitals so that their children would not die, they need power supply. The rich buy diesel the poor cannot”