Subsidy is Gone: What next

President Bola Ahmed Tinubu's pronouncement that the fuel subsidy is gone has ignited intense debates and discussions. While this move may generate concerns about increased fuel prices and its impact on the poor and vulnerable, it also presents an opportunity for the nation to have a holistic discussion on the sustainability of the government continuing to subsidise PMS and its effect on our economy. My argument on the subsidy has always been that imposing a price ceiling that is below the equilibrium price of a commodity in order to achieve a 'fairer' outcome is a recipe for disaster. Fuel need not be sold at the same price all over the country. Remove the price ceiling, license more people to bring in and retail fuel (as many that have the resources and are willing to play in that sector), eliminate all forms of subsidy, sell off government refineries, and give more people licenses to build more refineries. With this approach, competition will force down the prices as the frontier of efficiency continues to shift within the industry leading to competitive convergence. People will see the need to invest in refining locally. This is common sense. It worked in the telecoms sector. It will work in the oil and gas sector too

This then gives the government an opportunity to redirect the nation's resources towards sustainable development. Rather than viewing the subsidy removal as a mere policy change, we should see it as a catalyst for investing in efficient transportation infrastructure and establishing robust social safety nets to benefit all Nigerians. The reality is that as hard as it sounds, paying subsidies on fuel is no longer sustainable and it is time we do away with it. The conversation however should focus on what government priorities should be to lessen the impact of subsidy removal on the citizens. I will attempt to share my thoughts on a few things that might be of help in the subsequent paragraphs of this writeup.

Enhancing Transportation Infrastructure:

One of the primary benefits of redirecting funds from fuel subsidies is the opportunity to invest in modernizing and expanding Nigeria's transportation infrastructure. Inadequate road networks, congested traffic, and insufficient public transport systems mar the current state of transportation in the country. By reallocating the funds previously spent on fuel subsidies, the government can invest in:

Road Construction and Maintenance: The country is faced with an acute shortage of motorable roads. According to the IMF, Nigeria’s infrastructure stock of 25% of GDP remains far below the 70% international benchmark. This implies that Nigeria’s public capital stock per head is lower than the global average, a situation that has constrained the growth in GDP and hindered private sector investment. This deficit manifests in various forms, from lack of all-weather roads, lack of access to clean water, housing deficit and epileptic power supply. For example, according to the African Development Bank, the total road network in Nigeria is 197,000km out of which a paltry 18% is paved. 67% of the total road network which is rural access road are in bad shape thereby depriving the mainly agrarian rural communities of access to the market and keeping the dwellers poor. This lack of basic infrastructure drives the indiscriminate rural-urban migration thereby promoting the proliferation of slums in our cities. Allocating substantial resources to construct new roads and maintain existing ones will alleviate congestion, reduce travel time, and enhance road safety. Well-maintained roads are vital for economic growth, attracting investments, and improving Nigerians' overall quality of life.

Mass Transit Systems: Establishing efficient mass transit systems, such as bus rapid transit (BRT) networks and light rail systems, can revolutionize urban mobility. These systems will provide affordable, reliable, and environmentally friendly transportation options, easing the burden on individual car owners and reducing traffic congestion.

Intermodal Connectivity: Developing integrated transportation networks that connect various modes of transport, such as railways, seaports, and airports, will facilitate the movement of goods and people across the country. Intermodal connectivity will bolster trade, encourage investments, and foster regional integration.

Creating Social Safety Nets:

Recognizing the potential impact of fuel subsidy removal on the poor and vulnerable, it is crucial to establish robust social safety nets that provide targeted support. These safety nets should focus on the following:

1. Direct Cash Transfers: Implementing a well-designed and transparent cash transfer program will directly assist the most economically disadvantaged Nigerians. This will ensure that they can afford basic necessities and cope with any initial increase in fuel prices.
2. Subsidized Public Transport: Subsidizing public transport fares for low-income individuals will make transportation more affordable and accessible. This measure will enable them to travel to work, educational institutions, healthcare facilities, and other essential services without facing exorbitant costs.
3. Education and Skill Development: Investing in education and skill development programs for vulnerable populations will equip them with the necessary tools to participate in the growing economy. Empowering individuals through education and vocational training will open doors to better employment opportunities and upward mobility.
4. Health Insurance Coverage: Expanding health insurance coverage for the poor and vulnerable will ensure that they have access to quality healthcare services. This safety net measure will mitigate the impact of increased fuel costs on their overall well-being and provide a sense of security.

Conclusion: Removing fuel subsidies can be a difficult decision for any government, as it often invites criticism and concerns about the impact on the most vulnerable segments of society. However, by embracing this opportunity as a catalyst for change, Nigeria can redirect its resources towards building efficient transportation infrastructure and establishing social safety nets. These initiatives will foster economic growth, enhance the quality of life, and uplift the less privileged. It is time to view this policy shift as an investment in a brighter future for all Nigerians, ensuring sustainable development and inclusive progress.