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Bid to end subsidy stirs protest in Nigeria

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Bid to end subsidy stirs protest in Nigeria

Unrest highlights problems of mismanagement and corruption
From Africa Renewal: 
Panos / George Osodi
Nigerians protested when the government abruptly announced an end to petrol subsidiesWith consumer prices already high, many Nigerians protested when the government abruptly announced an end to petrol subsidies, nearly doubling prices at the fuel pump.
Photograph: Panos / George Osodi

Nigerians have never been shy about public protest, even during the days of dictatorship. So when the government of President Goodluck Jonathan welcomed the country into 2012 by announcing the removal of a petrol subsidy — more than doubling costs at the fuel pump — the subsequent nationwide protests could have been anticipated.

With 37.2 billion barrels of proven oil reserves, Nigeria has the second-largest reserves in Africa (after Libya) and is the continent’s largest oil producer. Yet Nigeria is the only member of the Organization of Petroleum Exporting Countries that needs to import refined fuel, and often suffers scarcities. The ordinary Nigerian by no means feels rich: divided among nearly 160 million people, the gross domestic product (GDP) averages just $1,695 per person annually.

Prior to the subsidy’s removal, the pump price of fuel was 65 naira ($0.40) per litre, against a landing cost of N139. The government therefore contributed a N73 subsidy, for an annual total of N1,200 billion (US$7.6 billion), or 2.6 per cent of the country’s GDP. In effect since 1973, the subsidy was regarded by a majority of Nigerians as one of the few benefits they enjoyed as citizens of an oil-producing country.

It was therefore not surprising that on 9 January, a week after the announcement of the subsidy’s removal, industrial strikes and demonstrations spread nationwide. That reaction prompted the government to bring down the new petrol price from N141 to N97, still higher than the old price but retaining a partial subsidy.

Reform needed

Despite the widespread condemnation, most economists, both in Nigeria and abroad, believe that removal of the subsidy is a necessary step towards long-needed reform, since the country can no longer sustain the cost.

Political analyst Garba Sani points to the colossal sums spent on the subsidy, N3,700 billion ($23 billion) in 2006–2011 alone. As an oil-producing country, he adds, Nigeria should not be importing — and subsidizing — refined oil.

According to Professor Akin Iwayemi, an expert in energy, environment, infrastructure and development economics, government interference in the oil industry has prevented its being “run in a profitable manner.”

A report by Renaissance Capital, a leading investment bank that focuses on emerging markets, argues that removal of the fuel subsidy, combined with other reforms in the power sector, could increase global investors’ interest in the Nigerian market. Potentially, it suggests, Nigeria could become one of the world’s top “frontier markets.”

‘Just the spark’

With the experts’ positive view of the subsidy removal, why was there so much resistance among ordinary Nigerians? Because of years of anger and discontent with government performance, answers Denja Yaqub, the assistant general secretary of the Nigeria Labour Congress.

“All sectors have problems in Nigeria, so the subsidy removal was just the spark that Nigerians needed,” says Mr. Yaqub.

Many point to corruption. In 2011, Transparency International ranked Nigeria as among the 40 most corrupt nations in the world. The oil industry in particular is notoriously corrupt, notes Renaissance Capital.

Despite the promise of the transition from military rule to democracy in 1999, trust also remains a major problem, argues Mr. Sani. Those governing the country seem “incapable of addressing the social and economic injustices that they have inherited.”

Nigeria now has democratic structures, adds Mr. Yaqub, but corruption and mismanagement within the legislative bodies mean they do not adequately perform their democratic duties. “They are constitutionally set up to check each other, but they are all behaving the same way: corrupt, undemocratic, irresponsible and absolutely reckless.”

This corruption, unaccountability and lack of transparency have now been coupled with the government’s apparent inability to tackle increasing religious intolerance, including the attacks of the Islamist sect Boko Haram. All this contributed to the resistance the authorities met when they announced the removal of the fuel subsidy.

Importance of strategy

While President Jonathan may have had the best of intentions for Nigeria’s economic future, observers argue, his government lacked an effective implementation and communication strategy. Subsidy removal may have been the right move, but it was done in the wrong way, and at the wrong time: the country was still recovering from multiple bombings by Boko Haram on Christmas Day.

Mr. Sani argues that it would have been better to remove the subsidy in phases, while at the same time refurbishing the country’s four dilapidated oil refineries. Since 2000 the government has spent $1.78 billion on maintaining the four refineries, with very little to show for it. They operate at less than a quarter of capacity, and are 30 years behind modern standards. Some maintain that the money used on the fuel subsidy could have been better put to building new refineries and thus ending the need to import refined petroleum.

In addition, tackling corruption and mismanagement within the Nigerian National Petroleum Corporation would have helped make removal of the subsidy a more acceptable proposition to the populace.

“If they can simultaneously fight [corruption] as well as increase refinery capacity and withdraw the subsidy gradually,” says Mr. Sani, “the country would have then set up a solid foundation for a permanent removal of the subsidy, a permanent capability of domestic production and a more stable economy.”

According to Thomas Sterner, an expert in environmental economics, getting rid of corruption within the industry may not be easy because of the powerful interests involved. Urban elites directly benefit from the petrol subsidy, he argues, as do smugglers and oil companies such as Oando, which took in $1.4 billion from the subsidized fuel imports last year.

The next time the government contemplates removing the subsidy, it must be “more careful,” argues Mr. Sterner. “You need to have a strategy, and say, ‘We are moving the money immediately. We will use it on health or education or something else’.” That, he says, would make it harder for the beneficiaries of the status quo to say that removing the subsidy hurts the poor.

Democratic participation

Beyond the subsidy issue as such, political observers have recognized the significance of the mass demonstrations against its removal as an indicator of how far the country has come in terms of democratic participation.

Taiwo Obe, an editor, notes that while Nigerians also protested under the dictatorship, today there are fewer injuries, deaths and arrests. The media is also freer, he adds, with private broadcasters like Channels TV giving extensive coverage to the protests. Ordinary people too are better able to make their voices heard through social media platforms.

Perhaps most significant was the unity among the demonstrators, especially given the reports of increasing religious intolerance. “We all witnessed the fact that the north-south divide was not an issue,” observes Mr. Sani. “The Muslim-Christian divide was not an issue. Nothing was an issue other than the issue at hand. Muslims were protecting Christians in their churches, and Christians were protecting Muslims on Friday while they were praying.”

And in a sign that the government is moving towards a longer-term strategy to win public acceptance for the subsidy removal, President Jonathan inaugurated the Subsidy Reinvestment and Empowerment (SURE) programme in mid-February. The programme is intended to monitor the funds saved from the subsidy removal and manage their investment in public works projects that may generate 370,000 new jobs, especially jobs for women and youth.