The Federal Government announced the monthly grant of N5000 to the most vulnerable Nigerians to cushion the effect of subsidy removal. This will be given to a maximum of 40 million Nigerians who make up the poorest wealth percentile.
Whereas the country spent 31.4% of its oil revenue on fuel subsidy in 10 years, it will spend 32.01% of its oil revenue on grants in 2022.
This announcement is one in the long line of subsidy debate. There has been a back-and-forth debate considering the vast amount used to subsidize Premium Motor Spirit (PMS).
Many clamors for the removal as the right step to the enormous amount spent on subsidy annually. Others opined on the effect it will have on the poor masses.
The country has spent 31.4% of its total oil revenue on fuel subsidies within the last ten years. The highest proportion was in 2011 where it spent 60.25% of the total oil revenue subsidizing the product. In all, N9.7 trillion has been spent on subsidies from N53.91 trillion generated in 10 years.
Thus the increasing cost of fuel subsidy informed the quest for its removal, freeing more funds for investments in other areas.
However, the effect of fuel subsidy removal on the poor masses has led to the government proposing an N5000 grant to the poor.
How Much will the Grant Cost?
From 2010 to half-year 2021, the country has generated N35.98 trillion of its proposed N50.72 trillion. This implies that the country generated 71.64% of its proposed oil revenue within the period. Thus, the country has an average oil revenue performance of 71.68% within the period.
The 2022 budget proposed a gross oil revenue of N10.47 trillion. Going by the 71.64 average oil revenue performance, it is expected to generate about N7.497 trillion.
An N5000 monthly grant to 40 million poor persons monthly in 2022 will sum up to N2.4 trillion by year-end. The country will spend 32.01% of its generated oil revenue on the proposed grant if approved.
Why Increasing Fuel Prices?
The price of petrol is determined mainly by crude oil prices. Crude oil cost remains a significant factor in defining how much petrol is sold internationally and locally.
The prices of crude oil in barrels are invariably affected by the supply of crude oil. If primary producers make it available, the prices tend to drop and vice versa.
The average price of crude oil fluctuated all through the year. This price tends to drop after four months of steady increase except for the last phase from August to October, where it had a three-month increase before a drop.
Is Nigeria Paying So Much for PMS?
There have been varying arguments justifying how Nigeria pays more for pump prices than other African countries.
However, this comparison fails to consider that those countries are not oil-producing. Thus, amongst the oil-producing countries in Africa, how much is the pump price of petrol compared to Nigeria?
Amongst the top 10 oil-producing countries in Africa, Nigeria charge the fifth-highest pump price for petrol. The top four are Gabon, Equatorial Guinea, South Africa, and Congo. Amongst the top four, only Gabon and Equatorial Guinea have subsidies removed. The pump price of petrol in Nigeria is even higher than in Sudan, where there is no subsidy.
However, what are the prevailing economic circumstances in these countries? Nigeria pays the sixth-highest amount as minimum wage amongst these countries in a hierarchy. Also, in the top six where Nigeria belongs, Gabon is the only country that has removed subsidies, and it offers the highest minimum wage to its citizens.
Nigeria stands eighth in the Purchasing Power Parity (PPP) ranking among these countries. The PPP compares the absolute purchasing power of a countries’ currency in different countries using specific goods. Also, only Gabon and Equatorial Guinea are the countries without subsidies and have higher PPP than Nigeria.
Thus looking at these indices, it can be seen that Nigeria, amongst other oil-producing countries, does not have the lowest pump prices for petrol.
Uneven Pump Prices Despite Subsidy Across the Country
Despite the amount of monies used to subsidize petrol over the years, there have been uneven petrol pump prices.
However, residents in Abia state bear most of the brunt as they are made to pay higher prices.
Recent data shows that Plateau state paid the highest pump price in October than other states.
Either Side of Same Coin
One of the challenges trailing subsidy was corruption and ineffective use of the funds. This created an undue burden on the country’s finances as a vast amount always goes down the drain without it being accounted for. It also accounts for the varying amount spent and NNPC’s inability to make a crucial turnover, costing the government revenue loss.
Replacing subsidy with a grant for a year still poses the same threat to government finances. It raises silent questions on how it will identify the poor amongst millions of poor Nigerian citizens—recalling similar controversy trailing disbursement of COVID-19 benefits.
Thus, the same managerial problem with a subsidy is likely to occur with the grant, replicating similar issues under a different scheme.
A Purposeful Approach Needed
An earlier Dataphyte report calls for robust innovation around the energy sector. The report hinges promises on the Petroleum Industry Bill (PIB), with its objective to revamp the industry. And it is further curtailing the losses of the oil corporation in the country.
Similarly, an IMF report advised that its crucial for a robust consultation and information campaign for the success of delicate issues. This will involve a cost-benefit analysis on the subsidy removal and grant replacement. And further, establish a clear path on how it would manage either freed subsidy funds or grants for the benefit of the general poor masses. This will clear up all misconceptions surrounding it.