Petroleum Subsidy Removal: a grand illusion or a trust rebuilding exercise?

December 27, 2011 § 4 Comments

Kenneth Amaeshi

The recent live debate on the proposed subsidy removal on Channels television focused on the question “Removal of Petroleum Subsidy: In whose Interest?”  I watched the debate with keen interest, and must congratulate the organisers for such an initiative, which demonstrates an emerging democratic culture in Nigeria and the critical role of the media in that process. I thought it was a very balanced debate between the government team represented by Okonjo-Iweala (Minister of Finance), Deziani Alison-Madueke (Minister of Petroleum Resources), and Sanusi Lamido Sanusi (Governor of the Central Bank) and the people’s team represented by Olisa Agbakoba (Lawyer and Human Rights Activist), Isa Aremu (Labour Economist), Ben Bruce (Media Entrepreneur), and Femi Falana (Human Rights Lawyer).

The government team made and defended the case for the removal of subsidy. From my understanding of their position, they mainly based their arguments for the subsidy removal on the optimism that it would make financial resources available for other infrastructural and development initiatives; and spur both local and foreign investors to invest in the Nigerian economy. The government team defended its corner vociferously, latching on one neoclassical economics tenet or the other – ranging from the forces of demand and supply to rent-seeking behaviours created by inefficiencies in the system. One thing the government team excelled at was to accentuate their free-market ideology and its accompanying   economic principles, while undermining the institutional requirements necessary for effective subsidy removal. For them, it was relatively easy to separate the effectiveness of the subsidy removal from its institutional context. And that, in my opinion, weakened their argument.

Economic thinking and scholarship have evolved to recognise the role of institutions in shaping economic policies. A branch of economics known as institutional economics, which scholars further developed in the late 20th century, was primarily established as a response to this recognition. This view has led to the understanding that there are multiple versions of economic capitalism informed by differences in institutional contexts, historical antecedents, and systemic configuration. For example, there are variations between the European style of capitalism, which is often referred to as stakeholder capitalism because of it consensual approach and close state-market interaction, and the shareholder capitalism of North America driven by arms length free-market ideology. In addition, there is an evolving Sino-capitalism from China characterised by heavy State involvement in the governance of markets.

These different forms of capitalist systems, which reflect the diversity and historicity of societies, are meant to internalise local realities and bring some customisation and domestication to economic policies. Unfortunately, this form of economic customisation is often missing when it comes to economic planning and implementation in Africa, especially when led by hyper neo-liberal economic actors such as the World Bank and the IMF. And that’s why most of the economic policies they champion in the continent have continued to perform abysmally. The implementation challenges of the structural adjustment programme of the mid 1980s, for example, were a classical case in hand, which necessitated the 2002 World Development Report on Building Institutions for Markets.

Empirical evidence from institutional economics suggests that the main socio-economic problems in Nigeria are traceable to poor governance, weak institutional context, and lack of institutional trust. As a result, Nigerians who have suffered repeatedly under successive brutal regimes and have been disappointed many times by kleptocratic governments will find it difficult to believe a word of what the government of the day says.  This is a necessary context for the appreciation of the subsidy debate. Going by the tenets of institutional economics, before any subsidy removal, the government needs to win the hearts and minds of the people through tangible actions – including containing its own prominent financial extravagancy and profligate Epicureanism. To acknowledge that the government is over-bloated and do nothing about it, as a necessary first step, appears to me as a miscalculated judgment and a further manifestation of the old behaviour, which the people detest. For once bitten, twice shy.

But it does not end there. Poor governance and weak institutional context are recipes for creating successful markets for corruption. Corruption, as one of the deadly socio-economic ‘diseases’, has continued to threaten and diminish quality of life in Nigeria.  Pretending that the removal of the subsidy would work, without first addressing the issue of corruption in Nigeria, is one of the best examples of grand illusion of our time. It is nothing but an ostentatious belief that a basket will one day hold water. In other words, despite the rhetoric that subsidy removal is about helping the poor in the country, it only appears that the government is much more prepared to spend resources and time on the symptoms rather than the main problems of corruption orchestrated and perpetrated by cabals, who are by no means hidden from the glaring gaze of the government and its agents. Claiming that the subsidy removal is the best option, for now, is simply playing the ostrich. It is akin to building a castle on faulty foundations with the misplaced hope that all would be well after few further structures have been built on it. The argument of the government team sounded very much like this very erroneous conception of reality.

The points made by the government for the subsidy removal are only tangential to their arguments and could be met without necessarily going down the route of subsidy removal.  In the first instance, the government can find money to meet its infrastructural and development needs by plugging the existing holes and leakages in the system and trimming itself, if it claims to be competent. Latching on to subsidy removal as an easy prey seems intellectually lacklustre and politically lazy. President Jonathan should read the handwriting on the wall and respect the intelligence of the masses. The people are not as dull and passive as the government may want to believe. The people have been hard pressed for so long, which would prompt any reasonable person to conjecture that Nigeria is teetering on the edge at this moment and a cost shift in the name of subsidy removal could send the country over the cliff. The lessons from the Arab Spring are still very much fresh in the minds of people. On the other hand, to suggest that the rent-seekers are the main problem and yet do nothing about arresting, prosecuting, and punishing them if found guilty, is a million dollar question begging for a credible and trustworthy answer from a government that is struggling to win the people’s trust. It won’t be surprising if Nigerians would wait long for an answer since these rent-seekers appear to have some strong god-fathers behind them and probably in power.

Finally, the claim that foreign investors will come to Nigeria only if the subsidy is removed is bogus. There is no sound research behind this claim, and the government could do better than this. Most foreign investors ask for good and benevolent investment climate, which includes good governance, respect for the rule of law, security, and protection of property. Nigerians do not need soothsayers to know that these are clear areas where successive governments have continued to fail them. The current boko haram debacle, if uncurbed, will do more harm to the drive for foreign investments than any subsidy could. Thinking that the subsidy removal will do the magic is preposterous. Removing the subsidy without, first strengthening our governance institutions will rather attract dangerous foreign investors to exploit and repatriate our resources to their home countries. These are not the type of foreign investors we want in Nigeria. Encouraging such would be the height of economic un-patriotism. The telecoms sector, which is often celebrated as a success story, is still struggling with its institutional challenges and massive capital flight. We should set our house in order, first, by enhancing our governance institutions as we try to attract foreign and local investors. The government should be sincere to the people, at least for once by doing the first things, first!

Dr Amaeshi holds a PhD in Political Economy and International Business. He teaches Strategy and International Business at the University of Edinburgh, UK; and is the Founder of Nigerian Thought Leadership Forum

§ 4 Responses to Petroleum Subsidy Removal: a grand illusion or a trust rebuilding exercise?

  • Stanley Egbelu Chukwudirim says:

    In fact, after watching the debate, I came to a final conclusion that the so-called leaders of this great nation have never & do not have the interests of the governed at heart!! Their arguments only showed further their inability and failure to lead us out of this monster called corruption. Look aroud you and you’ll see the evidences! The state of insecurity in the nation has become something Nigerians must learn to live with! Series of bombs letting off everywhere in the northern part. Churches and worshippers being exterminated, and yet, the government seems not to care a bit. What more can I say? It’s disheartening! These issues can throw one into a state of lachrymoseism!

  • […] Petroleum Subsidy Removal: a grand illusion or a trust rebuilding exercise? By Kenneth Amaeshi […]

  • Dan says:

    Fine argument Kenneth. I’ve always said this whole subsidy to infrastructure line is so stupid. The government can’t properly manage the current funds under its care and it’s claiming to be able to transfer the fuel subsidy funds to infrastructure. We’re not that stupid. Of course we know it’s going to be embezzled. And then we’ll have another EFCC drama that leads nowhere. These guys are pushing their luck too far.
    Yes fuel subsidy can’t go on forever, but until we strengthen our institutions and minimize corruption, no one should dare talk about fuel subsidy removal.

  • Nosike G. says:

    It is a known fact that the amount touted as being spent on the fuel subsidy is much higher than the real amount that should be spent on subsidy. An honest government would have first strived to plug the leakages from the fraudulent subsidy claims. This will have itself resulted in ennormous savings for the planned infrastructural development, especially the construction of functional refineries in the country. After this, two things could result. 1. The government might just realise that it is really not spending too much on the subsidy, or; 2. The functional refineries will ensure that the removal of subsidy has no (severe) negative impact on the citizens. The removal of fuel subsidy is a deliberate ploy by the government to bestow untold hardship on Nigerians, while the politicians continue to stack up their foreign accounts. Every Nigerian should vehemently resist this. Subsidy by definition entails ameliorating the sufferings of the masses. And that is what good governance is all about.

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