During the Economic Outlook webinar organized by Nairametrics on Saturday, February 4, economic experts discussed the issue of fuel subsidy removal and how the policy could resolve challenges in the country’s oil industry.
Lead Partner at SBM Intelligence, Cheta Nwanze, said that the fuel subsidy has to be removed. However, he doesn’t think it will happen. He provided reasons for his stance:
- “I think there are too many entrenched interests that will prevent the removal from happening. Nigerians are too addicted to cheap petrol and one thing that we need to understand is that you don’t throw an addiction out of the window, you beg it to go downstairs one step at a time.
- “What would work is a phased removal of the subsidy over the four-year cycle of the next administration. If the administration can be committed to it and can get the right messaging so Nigerians will understand, and above all, be transparent about where the savings go to. Unless we have that convergence of factors, we will still be sitting here in four years saying the same thing.”
According to Mr Nwanze, if the government decides to go cold turkey on the fuel subsidy removal, there will be pushback and social unrest.
On her part, Chief Commercial Officer at Mixta Africa, Rolake Akinkugbe-Filani said she does not think the fuel subsidy removal will happen in June 2023 and that the new administration will not be able to take and implement that monumental decision in the space of a month. She said:
- “I don’t think fuel subsidy is going to be a panacea for the woes that the country’s downstream oil sector is facing. One of those big woes is infrastructure. Look at our road network and how the infrastructure for the transportation of petroleum products is laid out in the country. There are some major bottlenecks around the country that need to be solved.”
A multi-pronged approach: Mrs Filani advocated for full liberalization of Nigeria’s oil market which could drive competition and improve service delivery. She also highlighted the fact that the country needs to stabilize its foreign exchange rates and monetary policy. According to her, resolving the issues in the oil sector must take a multi-pronged approach. As earlier cited by Mr Nwanze, she also said entrenched interests have also contributed to the challenges which fuel subsidies cannot eliminate.
She recommended that Nigeria needs a diverse energy mix as a solution, which needs to come hard and fast. She also said diesel prices (an average of N800 per litre as, of January 2023) are a reason for the shift of some businesses to renewable energy. She further acknowledged that some businesses will still be powered by diesel, however, stakeholders should be looking at how to reduce that number by enabling steady growth of renewable energy-powered commercial and industry (C&I).
According to Mrs Filani, as the country is looking at how to manage the fall-out from fuel subsidy removal, it should also consider looking at increased investments in renewable energy as well as infrastructure networks to ease petroleum products distribution to reduce transportation costs which factor into distribution.
Mr Nwanze said the country’s oil industry was at that point where crude oil theft had become rooted and it will take a lot of political will to eliminate the challenge. According to him, the oil sector would not be able to make significant profits if the challenge persists. For him, it all boils down to state capacity and determining if the Nigerian state is in control of its entire territory.
Renewable energy sector: Mr Nwanze pointed out that the Western world has an emotional commitment to renewables that is not going away any time soon. This has led to a rise in electric mobility in the region.
However, in Nigeria, there are solid critical minerals needed for the advancement of renewable energy systems, but, the system does not encourage the processing of these minerals. So, the country misses out on the value such minerals have as contributing factors to the energy transition.
He called for the need for Nigeria to start adding value to her natural resources or miss out on the value other countries are getting for processing minerals. According to him, if the status quo remains, we will continue to see the wealth which does trickle down to every Nigerian, and we will keep having social unrest.
For the record: Chief Economist at Pricewaterhouse Cooper Nigeria, Dr Andrew Nevin said that the fuel subsidy regime is opaque and does not benefit the people at the bottom of the pyramid. He stated further that the fuel subsidy regime is only beneficial to a small number of Nigerians at the expense of the larger population.