The Paradox of Petroleum Price Subsidy in Nigeria

This short article is meant to contribute to the various arguments on the subsidy that Nigerian government has been paying to petroleum marketers to offset 'supposedly' high market price of the product so that the final consumers will only pay the 'regulated' price as fixed by the government.

Economically, subsidy should be one of the fiscal measures to correct market failure and stabilise the economy. In Nigeria, the reality seems the other way, hence my captive use of 'paradox'. Over years, Nigerians in the bottom of economy pyramid have not really benefited from the so called palliative for affordable petrol. The largesse of the welfare subsidy is largely enjoyed by the 'rich and the corrupt'. No doubt the benefit has become a pain. What a paradox of subsidy!

The current government is taking bull by the horn by putting immediate stop to this subsidy paradox and leave its pricing to the free market to dictate. what do you think are the immediate implications for businesses and the average poor Nigerians? Who do you think could likely lose out and who are likely to gain in this dilemma of sudden shock of presidential pronouncement?

My takes below may be as good as yours!

There may be a sort of discipline on the purchase of petrol by those who have fleets of cars and multiple needs for the product (generators, etc). I wonder what austerity measures would be placed in a company/government establishment that gives its CEO/directors minimum of 3 cars (1, official, 1 spouse, 1 running for children). It is also glaring that the current inflation would further inflate prices of necessities, following new prices of petroleum products being announced by NNPC Ltd. Transport cost, food prices, energy cost, etc., will definitely soar beyond the reach of average poor Nigerians.

We cannot escape labour agitations for commensurate increase in salary to compensate for the increase in fuel price in addition to the quest for palliatives by labour unions. If these requests are not well attended to, it may lead to protests, strikes and unrest nationwide,thus loss of revenues in both private and public sectors.

There would also be some consequential effects of higher operational costs in some businesses, largely on personnel welfare costs and some costs of local materials input and logistics. No gainsaying that businesses in the country would have some of their cost of sales and general admin costs increase, thus suppressing profitability if they couldn't pass cost increases to the consumers through their product prices.

The Gainers and the Losers? In my view, government and the oil marketers may not lose. The oil marketers will continue their unbridled profiteering through hostile pricing that would continue to impoverish the average consumers. Government will channel the subsidy to projects that may not be productive and the transparency on spending the subsidy would continue to elude us.

There is likelihood of job losses where some businesses may resort to cost cutting, restructuring or close-down of plants, offices, etc, thus adding to the worsening record of unemployment in the country. Employable young people would continue to suffer.

Lastly, the current inflation that was majorly impacted by the cash crunch problems of last year, would be exacerbated and people would be made poorer than envisaged.

What are your take?