Nigeria Rumblings - Equity crucial for fuel subsidy bl-premium-article-image

S. GOPIKRISHNA WARRIER Updated - November 15, 2017 at 09:20 PM.

It is estimated that fuel subsidy costs the Nigerian Government $ 8 billion a year.

Cheap fuel smuggled from Nigeria being sold in a beach in Togo. — S. Gopikrishna Warrier

Serendipity is written into his name, and the way in which he became the head of one of Africa's strongest nations strengthened the belief among Nigerians that President Goodluck Jonathan was born to be fortunate. But Jonathan had to face the anger of his people when he decided to reduce the subsidy on petrol recently. He faced strikes across cities and watered down his decision after six days of protest on January 16.

For Indians accustomed to paying Rs 70 for a litre of petrol, the price of fuel in Nigeria would look extremely low. Before the Nigerian Government reduced the subsidies, the retail price for fuel was 65 naira (the equivalent of Rs 20) per litre. In one shot, the price went up to 140 naira (Rs 43) and subsequently reduced to 97 naira (Rs 30).

The Nigerian public, however, believes that cheap petrol is the only benefit they get from being an oil-producing country, while all the rest of the returns are cornered by the rich and the powerful. Jonathan disturbed this applecart.

SUBSIDY COSTS

The rumblings were heard much before the actual quake, not only in Nigeria, but also in the neighbouring countries. Stories regarding the impending hike in fuel prices were rife when this writer was leaving Cotonou in Benin after a 30-month assignment.

Cotonou, the largest city in Benin, is less than an hour's drive from the Nigerian border, and much of the city's economy is dependent on business with Nigeria. Many Nigerians who live and work in Cotonou routinely drive across the border to fill the tanks in their cars. By the close of 2011, they returned with stories that their cross-border visits would become dearer in future.

The reduction in fuel subsidy was part of President Jonathan's election campaign to improve the Nigerian economy in terms of its public debt and foreign exchange reserve. It is estimated that the fuel subsidy costs the Nigerian Government US$ 8 billion a year.

As the third largest economy in Africa and home to 152 million people, the decision to reduce subsidy and increase fuel prices had a strong impact on the Nigerian economy. The International Monetary Fund (IMF), in its World Outlook Economic Database, notes that in 2010 Nigeria registered a nominal GDP of US$ 216.80 billion. This was marginally lesser than Egypt's GDP of US$ 218.46 billion, and substantially lower than South Africa's US$ 357.25 billion.

According to the Forbes magazine, the richest African in 2011 was a Nigerian. With access to US$ 10 billion, Aliko Dangote commands an empire with interests in cement, transport and some other commodities.

ECONOMY'S WORKING

For an Indian, the way the Nigerian economy works is similar to how it works in India. There is a market for almost any produce, product or service. Like his Indian counterpart, the Nigerian businessman is willing to seize opportunities, is hardworking and enterprising, negotiates hard, and won't shy away from taking shortcuts if required.

Nigeria is not only a thriving economy of its own but also the driver for the economies in the West and Central-African region. Benin's economy, for instance, is pulled by its next-door neighbour. When you look at the long row of trailer-trucks lining to unload goods from Cotonou port, it is clear that most of it is headed across the border for Nigeria. The much-smaller Benin, with a population less than 9 million, obviously doesn't need, and cannot pay for and consume, all that which lands on its shores.

Similarly, much of the thousands of used cars offloaded in Cotonou every month from roll-on, roll-off ships sailing from the US and Europe are bought by Nigerian customers.

The border between Benin and Nigeria is equally porous both ways. While products from the Cotonou port pass to Nigeria, cars with custom-built double tanks transport cheaper petrol to Benin. This is sold through a parallel distribution and marketing system, which at the retail end is operated by small family-owned petty shops.

Petrol from the parallel retail network is attractive to Benin customers, since it sells much cheaper than what is sold in established fuel pumps. In mid-December, the parallel petrol was sold at 375 Franc CFA (the equivalent of Rs 37.5 per litre), whereas in the pumps, the price was Rs 57.5 per litre. Inadvertently, the Nigerian Government was not only subsidising the growth of its economy, but also those in the neighbourhood.

GDP COMPARISON

However, the comparison of the Nigerian economy with that of South Africa and Egypt ends when per capita GDP is considered. Amongst the three, the IMF figures put South Africa at the highest, with a per capita income of US$ 5,635. It is ranked 7th in terms of per capita GDP in Africa. Egypt, at the 16th position, had a per capita income of US$ 2,450 in 2009, and though only two slots below in the 18th position, Nigeria's per capita income was less than half at US$ 1,089.

For a country that produced 2.22 million barrels of oil per day, which is 2.62 per cent of the global total, the per capita income is low. And this is the tragedy of oil in Nigeria. According to the Economist magazine, despite the high production, the country imports most of its refined fuel, since it hasn't invested in domestic capacity.

Successive governments also haven't done something substantial for the development of the communities in the Niger River Delta region from where the oil is extracted. To make matters much worse for those living in the delta, their land and water have been polluted due to decades of poorly-managed extraction. An August 2011 report by the United Nations Environment Programme states that cleaning up the pollution and achieving sustainable development in some parts of Ogoniland in the delta can take up to 25 and 30 years.

Even if President Jonathan continues with his efforts at reducing the oil subsidy as he has stated, he has to ensure that the money from oil reaches the people equitably. Otherwise, there could be more trouble in Nigeria in the future.

(The author is a freelance journalist who has worked in international and national environment and development sectors.)

Published on February 3, 2012 15:40