Nigeria: The pain of (oil) subsidy and the joy of its removal .

For a long time, I have thought that the subsidy was unnecessary and a financial black hole. More accurately I think most government subsidies, especially when the government is involved as a producer/supplier, is wasteful.

Such subsidies discourage true competition which would normally bring prices to their true market value. Without healthy competition, the industry could easily slip into costly mediocrity: under production, poor consumer experience, and exploitative pricing.

We have seen this play out in government owned corporations. Think of NITEL, NEPA (PHCN), the rice ‘industry’ and the biggest one, NNPC and Co.

In all these cases, were there issues of under production? Did people feel undeserved and overcharged?

I advocate that instead of paying subsidies to industry players, invest that money in developing the competitive capabilities of the industry, and make the market open for all. For example, rather than pay subsidies to oil marketers, invest the money in getting our refineries and distribution channels up to speed and secured, and then buy reserve fuel. This is the pathway employed in the United States that has now given birth to the shale oil ‘revolution’ as well as their new status as an oil exporter. We all can see what has followed. The global market for crude oil is changed!

Subsidy regimes in Nigeria have not led to greater productivity, better consumer experience or fair pricing. Neither has it created more jobs in the long run nor secured existing ones. Instead, we see scarcity, high prices, and expensive underemployment of our treasury.

The irony of the situation is that in spite of these subsidies, we still get to pay the amount we would have paid in the initial stage of opening up the market. This is why I welcome this administration decision to end the subsidy regime.

I read the government paper on its decision to fully revoke oil subsidy. It said (paraphrase) that Nigerians have been buying PMS in the range of N150 to N250; the government projects that with a little adjustment here and there including subsidy removal, we would not buy PMS at a price higher than N145.

I think the N145 ceiling is quite high, however. The oil company called Bovas, has enjoyed a lot of free social media advert and commendation because it has consistently sold PMS at N86, or thereabout, even when a majority of the big and popular oil stations sell theirs starting from N100.

Companies like Bovas would feed the competitive nature of a market where subsidy is eliminated. What’s more? They can even become standard setting in the industry. Removal of subsidies eventually brings out the best in our market arrangements: efficient supply, excellent consumer experience, and fair pricing. The industry would shed off insincere ‘investors’, which in turn would open up space for the industry’s expansion.

Of course there would be some who would come out to oppose the reforms perhaps because they belong in the opposition party, or they are a part of the inept establishment that has fed off the subsidy regime, or they have the letters, ‘NLC’, scribbled on their banner. These three share at least one thing in common: their intentional blindness when it comes to formulating and following sustainable economic and business strategies for our collective good. I hope they find repentance this time around.

Let me reemphasize the point that no subsidy regime in Nigeria has ever led to sustainable profit and expansion, improved consumer experience and market equilibrium. Instead, we have always seen a retrogression into misappropriation, diversion, poor service, and outright exploitation of the end users. We would positively and sustainably transform our economic landscape and all else that is hinged on it including our politics by doing away with subsidy regimes and adopting intelligent investment strategies.


About Johnson Boyede

Johnson Boyede, B.Sc in International Relations. He wrote 'Addressing terrorism in Nigeria and possible spill over into West Africa' for his Long Essay. He contributes scholarly writings to an open facebook group, 'League of Diplomats'. He agrees and runs with the opinion of Paul Romer that, "Knowledge is a non-rival nature and only partly excludable... In an open society, knowledge's non-rival nature means that a piece of new information can be used over and over again, by different people, in varying contexts and to make new good piece of knowledge will live several lifetimes, undergo different iterations and be put to ever more unique purposes."
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