Subsidy Removal: Shutting down the Nigerian economy?

By Marcel Okeke

In Economic sciences, certain phenomena are described as cyclical—meaning that they happen periodically (at times, predictably); for example: unemployment. In line with this pattern, exactly this time in 2020, the global economy (including Nigeria’s) was practically shut down due to the (then) raging COVID-19 pandemic, when worldwide supply chain virtually screeched to a halt. This bizarre occurrence seems to be ‘cyclically’ taking place in Nigeria this time courtesy of the removal of fuel subsidy by the new Federal administration in the country. It is no longer news that one of the key highlights of the inaugural address of the new President, Senator Bola Ahmed Tinubu was the pronouncement that “fuel subsidy is gone.”

Since May 29, 2023 when that Presidential ‘fiat’ was announced, the Nigerian economy has been shutting down gradually. Without a doubt, the fuel subsidy withdrawal translated to the spontaneous scarcity or unavailability of the Premium Motor Spirit (PMS), leading to the immediate astronomical rise in the cost of transportation, food items, drugs, rents, etc. As a sequel, practically all filling stations locked down their business premises across the country; those that braved it to remain open, sold fuel (PMS) at three to four hundred per cent of the price per litre before the Presidential ‘decree.’ Consequent upon this, virtually all commercial transport vehicles rushed to every available fuel station to join endless petrol queues to buy the ‘essential commodity.’ This development has almost grounded or shut down commercial transport business in many cities across the country; Lagos, for example!

Similarly, most private car owners (including this writer), for days on end, have had their vehicles left in very long queues around fuel stations—just in the hope that they could find petrol to buy at any price even in the wee hours of the day! And like the dreaded COVID-19 time, most private car owners, civil/public servants have either been trekking to their places of work or stayed back home. Truancy is now the order of the day; and nobody punishes anybody for lateness or absence from work: because the common cause—fuel scarcity—very high cost of transportation, is biting everyone. In the past few days, a number of state governments have officially reduced their (working) week days from five to three days—all in the effort to cushion the pains of the sudden and arbitrary fuel subsidy removal on the citizenry.

Speaking in this regard, Edo State Governor, Godwin Obaseki, said the three-days-work week “is part of the measures to ameliorate the sufferings faced by the people due to the federal government’s subsidy removal policy.” The Governor said: “as a proactive government, we have since taken the step to increase the minimum wage paid to workers…from the approved N30,000 to N40,000, the highest in the country.” Obaseki said: “we know the hardship that has been caused by this policy which has radically increased the cost of transportation, eating deep into the wages of workers in the State. The Edo State government is therefore hereby reducing the number of work days that civil and public servants will have to commute to their workplaces from five days a week to three…till further notice.”

Again, like during the COVID-19 pandemic, Mr Obaseki told his people that “workers will now work from home two days a week.” Kwara State Government has since been on the same page with Edo State. A statement by the Press Secretary to the Kwara State Governor, Rafiu Ajakaye said: “to reduce the impact of the subsidy removal on their salaries, the governor approved an immediate reduction in work days for state civil servants to three days from five days.” The statement further said: “…civil service authorities are expected to release further guidance on the measure, including how it affects health workers and teachers.”

In the past couple of days, a few other states have joined Edo and Kwara states in the reduction of number of days of work per week for their civil/public servants and offering of ‘palliatives.’ In Ogun State, for instance, the governor, Dapo Abiodun, in a meeting with labour leaders said: “we have noted that the price of petrol is now N500…,” stressing that “there is a relationship between the cost of PMS and transportation, and between the cost of transportation and the cost of goods and services.” The governor said: “since the announcement, I have been concerned about the multiplier effects as it would affect workers going to and from work and how it would affect their responsibilities and wellbeing.” The meeting ended up with an agreement with the labour leaders on “options of palliatives that would make life bearable to the people.”

Ultimately, all these initiatives and palliatives translate to further lowering of productivity of the civil service in several states—and cumulatively all over Nigeria. Even before now, low productivity, truancy, absenteeism have been the bane of the civil service; fuel subsidy removal and its aftermath have provided readymade reason for the virtual shutting down of the civil service. This trend, obviously fast-spreading to many sub-nationals, amounts to stifling the growth and development of the economy. Concomitants of all these are drastic drop in the standard of living of the people; rising misery level; soaring inflation—all being accentuated by hydra-headed monster that is insecurity in the land.

Incidentally, while the civil services are practically shutting down nationwide, businesses and households are not faring any better. It is no longer news that Nigeria is a “Generator Economy”—where all economic agents depend more on fuelling their private power generating sets than on public power supply. In truth, businesses run on budgets and projections, the sudden astronomical spike in the prices of fuel (even according to the NNPCL’s new price template) has actually made nonsense of such budgets. For many businesses across the country, the ‘essential commodity’ (fuel) is not available or not affordable anymore in line with their corporate viability and sustainability strategy. In other words, buying fuel at the ‘going price’ of between N500 and N1000 per litre (perhaps from ‘black markets’) no longer makes business sense.

The import of all these is that many businesses have shut down (quietly), even if temporarily, to see how the petrol subsidy conundrum pans out. Some have stepped down their level of capacity utilization; and some are already ‘shedding weight’: that is, staff retrenchment or rationalization. Again, all these would translate to drop in national productivity; and ultimately to sharp decline in Gross Domestic Product (GDP) that has already dropped from 3.5 per cent in the last quarter 2022 to 2.3 per cent in first quarter 2023. This emerging scenario, to a very large extent, fuels the ‘japa’ phenomenon—many unemployed or retrenched workers (especially, youths) are desperately fleeing the country in droves—almost at all costs.

With all these ripples from the fuel subsidy removal, what the various tiers of government are doing now—consultations, palliatives, threats and propaganda—amount to mere ‘backward integration.’ As organised labour and other critical stakeholders have said: subsidy removal without functional local refineries in the country is faulty, insensitive and unsustainable. In the circumstance, therefore, the Federal government must fast-track the process of re-streaming the nation’s moribund refineries and/or provide some other options, including subsidy removal by instalments. The economy must not be allowed to get further asphyxiated!

• Mr. Okeke, an Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, is a National Daily Columnist. He can be reached via: [email protected]