Fuel Subsidy and Palliatives

KEYNOTE ADDRESS BY DR. OTIVE IGBUZOR, FOUNDING EXECUTIVE DIRECTOR OF THE AFRICAN CENTRE FOR LEADERSHIP, STRATEGY & DEVELOPMENT (CENTRE LSD) AT THE STRATEGY MEETING OF CSO LEADERS   INTERVENTION ON PETROL SUBSIDY REMOVAL AND PALLIATIVE BY FEDERAL GOVERNMENT OF NIGERIA (FGN) ORGANISED BY PARTNERSHIP TO ENGAGE, REFORM AND LEARN (PERL) FROM 1ST -2ND AUGUST, 2023 AT REIZ CONTINENTAL HOTEL, ABUJA.

Protocols

Let me join the Partnership to Engage, Reform and Learn (PERL) and the Open Government Partnership (OGP) Secretariat to welcome you to this strategy meeting on Petrol Subsidy removal and Palliatives by the Federal Government of Nigeria. 

In this keynote address, I will give an overview of the fuel subsidy and palliatives proposed by the Federal Government, the criticism that has trailed it and what the Federal Government should do. But first, I will underscore the importance of democracy and the challenges facing Nigeria. 

1.    BACKGROUND

The question of how to develop society has occupied the attention of scholars and citizens over the centuries. Various systems have been experimented including autocracy, monarchy and democracy. But from experience, it has been recognized all over the world that democracy is the best form of government. Autocracy characterized by one individual making all important decisions and oligarchy which puts the government in the hands of an elite are less desirable when compared to democracy.[1] Democracy is so important in the world today that it has become the driving force of development making many scholars to draw a nexus between democracy and development.[2] Although different people put emphasis on different issues which they consider to be crucial to democracy, majority of people agree that liberal democracy contains some basic principles which include citizen participation; equality; political tolerance; accountability; transparency; regular, free and fair elections, economic freedom; control of the abuse of power; bill of rights; accepting the result of elections; human rights; multi-party system and the rule of law. But the challenge especially for the working people is that it has been recognized that liberal democracy is facing a crisis of legitimacy and declining confidence in political leaders and institutions necessitating the need for democratic renewal through increasing citizen participation.[3]

The 1999 Constitution of the Federal Republic of Nigeria (as amended) in chapter two provides under the fundamental objectives and directive principles of state policy that the government should be based on the principles of democracy and social justice and declared that sovereignty belongs to the people and that the security and welfare of the people shall be the primary purpose of government. It further declared that the participation of the people in the government shall be ensured. In chapter 16, section 2, the constitution declares that the government shall direct its policy towards ensuring the promotion of a planned and balanced economic development; that the material resources of the nation are harnessed and distributed as best as possible to serve the common good; that the economic system is not operated in such a manner as to permit the concentration of wealth or the means of production and exchange in the hands of few individuals or of a group and that suitable and adequate shelter, suitable and adequate food, reasonable minimum living wage, old age care and pensions, and unemployment, sick benefits and the welfare of the disabled are provided for all citizens. The constitution further provides in section 17, subsection 3 that the government shall direct its policy towards ensuring that all citizens,  without discrimination on any group whatsoever, have the opportunity for securing adequate means of livelihood as well as adequate opportunity to secure suitable employment; that conditions of work are just and humane, and that there are adequate facilities for leisure and for social, religious and cultural life; that the health, safety and welfare of all persons in employment are safeguarded and not endangered or abused; that there are adequate medical and health facilities for all persons: that there is equal pay for equal work without discrimination on account of sex, or on any other ground whatsoever; that children, young persons and the aged are protected against any exploitation whatsoever, and against moral and material neglect; that provision is made for public assistance in deserving cases or other conditions of need; and the evolution and promotion of family life is encouraged. Furthermore, the constitution provides that the government shall direct its policy towards ensuring that there are equal and adequate educational opportunities for all including the promotion of Science and Technology; provision of free, compulsory and universal primary education; free secondary education; free university education and free adult literacy programme as and when practicable. It should be noted that the constitution provides clearly in section 13 that “it shall be the duty and responsibility of all organs of government, and of all authorities and person exercising legislative, executive or judicial powers, to conform to, observe and apply the provisions of this chapter of the constitution”

 But in reality, for a variety of reasons, some governments serve purposes that are inimical to citizens and society. In many countries, there is elite capture making the laws, institutions, policies and processes to serve the interests of a few.   

2.    THE CHALLENGE OF NIGERIA

Nigeria as a country has been battered and urgently needs rebirth and building. Nigeria is ranked 163rd in the United Nations Human Development Index (HDI) out of 191 countries in 2021. Nigeria life expectancy is 52.7 years in 2021 (compare with 64.38 years in South Africa, 72.22 years in Egypt and 87.57 years in Japan). According to UNICEF, Nigeria has 18.5 million out of school children, the highest in the world.[4] The World’s Economist Intelligence Unit report which ranks the best and worst cities to live in the world indicated that Lagos in Nigeria is the third worst city to live in the World.[5] The other cities are Damascus, Syria (1); Tripoli, Libya (2); Dhaka, Bangladesh (4); Port Moresby, Papua New Guinea (5); Algiers, Algeria (6); Karachi, Pakistan (6); Harare, Zimbabwe (8) and Doula, Cameroun (9).  Poverty rate in Nigeria increased from 15 percent in 1960 to 28.1 percent in 1980 to 69.2 percent in 1997 to about 40 percent currently hosting the largest number of poor people in the world. 

It is instructive to note that by 2014, Nigeria ranked third in hosting the largest number of poor people in the world after India (first position) and China (second position).[6] But by 2018, Nigeria was declared as the world poverty capital with around 87 million people living in extreme poverty compared with India’s 73 million according to the World Poverty Clock. It is important to note that the population of Nigeria in 2018 was estimated to be about 195.9 million which is about 15 percent of the population of India (1.353 billion) and 14 percent of China (1.393 billion), yet it hosts the largest number of poor people in the world. The change was partly as a result of social protection policies implemented by China and India combined with enlightened leadership and pressure from below. According to the McKinsey Global Report, 2018, China lifted 713 million people and India 170 million people out of poverty between 1990 and 2013. They achieved this feat through inclusive, pro- poor growth; fiscal policies for wealth redistribution; employment generation; public service provision and social protection.[7] All of these underscores the importance of leadership and policies in nation building and national rebirth. The recent challenge occasioned by removal of petrol subsidy and the need for palliatives can be located in leadership and policy failures over the years. 

3.    FUEL SUBSIDY 

The history of fuel subsidy in Nigeria dates back to the 1970s. In 1977 following the promulgation of the Price Control Act, fuel subsidy became institutionalised, and it became illegal to sell some products (including Premium Motor Spirit or Petrol) above the regulated price. But subsidy payments continued to rise that it became impossible for government to pay. For example, it rose from N99 billion in 2016 to N141.6 billion in 2017 to N722 billion in 2018 and then decreased to N578 billion in 2019 and N134 billion in 2020. In 2021, the Federal Government appropriated N1.42 trillion and in 2022, it budgeted N4.3 trillion. In the 2023 budget, the government budgeted N3.6 trillion for petrol subsidy for six months period ending in June 2023. Meanwhile, by the provisions of the Petroleum Industry Act (PIA), Petrol subsidy was expected to cease by February, 2022. 

It is clear to all that the management of the subsidy was bedevilled with corruption, mismanagement and poor capacity of the State to enforce laws. In 2022, the Federal Government had to borrow N1 trillion to finance fuel subsidy for the year.[8] State capacity is weak, and government has been incapable of preventing smuggling across the borders. According to the Managing Director of NNPC Limited, the daily consumption of Premium Motor Spirit increased to 103 million litres per day and at least 58 million litres were being smuggled daily. These problems generated the elite consensus on the removal of petrol subsidy such that the three leading Presidential candidates at the 2023 elections (All Progressives Congress (APC), Peoples Democratic Party (PDP) and Labour Party (LP) all promised to remove petrol subsidy. When Asiwaju Bola Ahmed Tinubu was inaugurated on 29th May 2023, he announced the removal of the subsidy. 

4.    SUBSIDY PALLIATIVES 

With the removal of the subsidy, the price of premium motor spirit or petrol increased from N185 ($0.23) to N617 ($0.78). Immediately, the price of goods and services skyrocketed in the country leading to suffering and misery. The Federal Government announced a policy of payment of conditional cash transfer of eight thousand naira only ($10.08) monthly to twelve million poorest of the poor in the country but ordered a review after a few days because of criticism. The critics contended that the amount is too small to make any meaningful impact on the lives of the people and that what is necessary is to provide public transportation, power and building of infrastructure. 

5.    THE CASE FOR SOCIAL PROTECTION

The criticism is essentially from the elite who do not understand the depth and level of poverty in the country and what needs to be done to reduce or eradicate poverty. Social protection has been acknowledged across the world as a veritable way to reduce poverty.[9]  It is important to put back this policy on the political agenda for adoption. There is clearly a policy moment for Nigeria to implement the policy. There is convergence of policy problem, policy solution and politics.[10] The problem is real and there is some level of outrage. The solution is clear- social protection through conditional cash transfer. The politics is right as the party in power is anchored on social democracy and has implemented the largest social investment programme in Africa. But elite mindset and poor strategic communication is militating against its adoption. 

It is important to point out that part of the opposition to the adoption of the policy arises from implementation failures in the past. There is a register of the poor in the country that was used to disburse the conditional cash transfer in the past. But the method of compiling the register is not known to majority of citizens and those on the register are not known. In a country where corruption is endemic and the trust in government is low, everything must be done transparently to increase trust. Strategic communication of every process and stage on the implementation will be critical for success. 

6.    WHAT GOVERNMENT CAN DO

      I.         Adopt a Comprehensive Development Agenda for the Country:  Nigeria has been faced by recurrent challenges that previous administrations have tried to address without success. The problems include insecurity, mismanagement of the economy, decline in agriculture, inadequate power in spite of humongous resources pumped into the sector over the years, corruption in the oil and gas sector, poor transport system, falling standards of education, poor health care and progressive degeneration of governance and public services. Addressing these problems require leadership, ethical re-orientation, law and order, execution capacity, public service reform, open governance, restructuring and promotion of justice, equity and fairness.[11] To do this will require the adoption of a comprehensive development agenda for the country. The Federal Government should consider the Nigeria Agenda 2050 and amend for adoption. Piecemeal approach to dealing with the challenges will not help in the long run. 

    II.         Implement a Comprehensive Social Protection Programme for the Poor and vulnerable. Nigeria hosts the largest number of poor people in the world. All its programmes and policies should be geared towards reducing poverty and not for the benefit of the elite. 

  III.         The Federal Government should adopt a procedure for filtering policy ideas.  It is dangerous for a country to get policy ideas from only politically appointed advisers and Politicians. The policy process occupies a central position in the functioning of modern-day government. Public policies are developed by officials within institutions of government to address problems confronting citizens. It is through policies that government translate its political vision into programmes and actions to deliver the desired change. Policy can take different forms including non-intervention, regulation, licensing, grant and direct service delivery. The policy process involves the identification of the problems confronting society and agenda setting; formulation; adoption; implantation; implementation and evaluation. Some scholars have suggested that the process of policy formulation and the strategies of implantation affect the success of policy and programmes.[12] It has been recognized that the policy process is highly political and involves the exercise of power, conflict, negotiation, bargaining and compromise. In Nigeria, the Federal Government has enormous policy making powers in at least 98 areas with 68 of the areas being exclusive powers. Unfortunately, in Nigeria’s recent history, not much emphasis has been put on policy making, execution and evaluation. Instead, there has been huge attention of the Federal Executive Council (FEC) on contract rather than policies. It has been estimated that up to 90 percent of FEC decisions are about contracts. The end result is that as at 2011, there were 11,886 abandoned projects.[13] The neglect of policy making, execution and evaluation produced a situation where there is low institutional capacity to develop, execute and evaluate sound policies. However, the importance of sound policies in service delivery and socio-economic development cannot be over emphasized. Development theory and practice indicates that all the countries that have made significant progress in the last 30 years have relied on the willingness and ability to make sound policies. Examples include China, Chile, Brazil, India, Mauritius, Malaysia and Botswana. The Federal Government should therefore consider setting up a Presidential think tank. The government think tank will provide policy analysis to the Presidency, Senior Policy makers and help to develop communication strategies to inform the public on government policies. The idea of flying the kite and relying on public opinion as seen in the case of the Conditional Cash Transfer of eight thousand naira to the poor will be counterproductive.

  IV.         The Federal Government should immediately set up a process for increasing the minimum wage. The current minimum wage of thirty thousand naira is not a living wage. 

    V.         The Federal Government should continue with the social investment programme but ensure transparency and accountability. The register of the poor should be made open for public scrutiny. The payment process should be transparent. The Conditional Cash Transfer should be supported with training on agriculture and entrepreneurship to graduate the recipients out of poverty. This has been done by development partners and CSOs in Nigeria and past programmes of the government. The idea of social protection is noble and a veritable way to reduce poverty. The challenge has been corruption, opacity and poor targeting in the programme which can be corrected. 

  VI.         The Federal Government should partner with Development Partners and CSOs working on Social Protection. There is sufficient experience across the world and in Nigeria to learn from in the implementation of social protection measures in Nigeria. 

7.    CONCLUSION

It is well recognised that the security and welfare of the people shall be the primary purpose of government. But for a variety of reasons, governments serve purposes that are inimical to citizens and society. The challenge in Nigeria is huge. Nigeria hosts the largest number of poor people in the world. The fuel subsidy removed by President Bola Ahmed Tinubu on 29th May 2023 has increased suffering and misery. But there are clear policy prescriptions that can alleviate the suffering of the poor and vulnerable through social protection and palliatives. The Federal Government should adopt a comprehensive agenda for the country; implement a comprehensive social protection programme for the poor and vulnerable; adopt a procedure for filtering policy ideas and consider setting up a Presidential think tank; increase the minimum wage; continue with the social investment programme but ensure transparency and accountability and partner with development partners and CSOs working on social protection. 

REFERENCES 

[1] Janda, K, Berry, J. M. and Goldman, J (1999), The Challenge of Democracy
[2] Igbuzor, O. (2005), Perspectives on Democracy and Development. Lagos, Joe-Tolalu & Asociates.
[3] Bentley, T. (2005), Everyday Democracy: Why we get the Politicians we deserve. London, Demos.
[4] www.africanews.com 13th May, 2022 and Daily Trust, 25th Jan, 2022.
[5] The 9 Worst Cities to live in the World www.independent.co.uk
[6] Jim Yong Kim (2014), Nigeria, third on World Poverty Index-World bank Presidentv in Vanguard 11th April, 2014.
[7] Nino-Zarazau, M. and Addison, T. (2012), Redefining Poverty in China and India. Japan, United Nations University.
[8] Price Water House Coppers (2023)
[9] Ortiz, Isabel, Valerie Schmit and Loveleen De (2019) (Eds), 100 Years of Social Protection: The Road to Universal Social Protection Systems and Floors. Vol 1:50 Country Cases. International Labour Organisation (ILO).
[10] Kingdon, John (1995), Agendas, Alternatives and Public Policies. New York, Haper Collins.
[11] Igbuzor, O (2023), Agenda for the Incoming Administration in The Gurdian Newspapers, 13th April, 2023.
[12] Institute of Strategic Management Nigeria
[13] Igbuzor, O (2015), Nigeria: Public Administration Reforms and the Emergence of Buhari. Lagos, Joe-Tolalu & Associates.