Nigerian Petroleum Subsidy

Posted November 7th, 2011 by

Nigerian Fuel SubsidyA subsidy (also known as a subvention) is an assistance paid to a business or economic sector. Most subsidies are made by the government to producers or distributors in an industry to prevent the decline of that industry (e.g., as a result of continuous unprofitable operations) or an increase in the prices of its products or simply to encourage it to hire more labor (as in the case of a wage subsidy). Examples are subsidies to encourage the sale of exports; subsidies on some foods to keep down the cost of living, especially in urban areas; and subsidies to encourage the expansion of farm production and achieve self-reliance in food production.

Subsidies can be regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs.

Financial assistance in the form of a subsidy may come from one’s government, but the term subsidy may also refer to assistance granted by others, such as individuals or non- governmental institutions.

The subject of this piece is too familiar to the generality of Nigerian public since mid 1980s to date. That is to say, the issue of removal of subsidy from the prices of petroleum products consumed in Nigeria is not new; about 30 years since 1982 when President Shehu Shagari introduced the first set of austerity measures to address the then worsening economic situation faced by the Nigerian economy under his leadership.

The Petroleum Subsidy Problem
The issue of petroleum subsidy has been at the front burner of public discourse for some time now following the decision of the present Nigerian administration to deal with the contentious issue of the petroleum subsidy once and for all.

The problem is the obvious reluctance of successive governments to tackle the fundamental problem that has made a commodity that is supposed to be a blessing to us, to now become a source of pain and anguish to all. The issue of petroleum subsidy removal has been a recurring rhetoric even before I was born. The mere fact that this issue still continues to agitate the public space for about two decades without a sign of abating is an indictment on the Nigerian leadership, past and present. More so, in the face of the harsh economic realities, unemployment, poverty and insecurity, removing subsidy would appear a hard sell for organized labour and the general public.

The benefits of subsidy removal and deregulation of the downstream sector are numerous and well researched. For Nigeria to vigorously pursue its developmental and transformational agenda there is need to increase the budgetary vote for capital expenditure against recurrent expenditure. The present situation where recurrent expenditure gulps up a huge portion of the entire budget makes mockery of our quest to move the country towards economic prosperity. Deregulation of the downstream sector will engender private sector participation and investment. This will in turn provide massive employment for our teeming skilled youth just as it happened in the telecom industry.

Possible solution
According to the Managing Director of the Nigerian Liquefied Natural Gas (NLNG) Engineer Chime Ibenechie, the Nigerian government spent $350 million monthly on the petroleum subsidy, which is really affecting the development of the nation’s economy. One of the possible solutions to this problem is for the Nigerian government to consider allocating money to renewable energy sources which will reduce the demand on petroleum and other natural gases.

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