Effect of Removal of Subsidy on Nigerian Economy – Akingboye Ayodele Joseph

HOW REMOVAL OF SUBSIDIES OF PETROLEUM PRODUCTS WILL AFFECT THE NIGERIAN ECONOMY. BY AKINGBOYE AYODELE JOSEPH.

Akingboye Ayodele Joseph
Akingboye Ayodele Joseph

In Nigeria, issues of subsidies removal and fuel scarcity had been a source of panic to most Nigerians as removal of subsidies will lead to higher cost of production, hence increase in cost of living.

In time past, Nigerian ex-president, Gudluck Ebele Jonathan made attempt to remove fuel subsidies but Nigerians saw what could come after it and kicked against it, yet he was able to re-invest the some of the funds generated from partial removal of fuel subsidies into some other sectors through a programme called SURE-P. Partial or total removal of subsidies shouldn’t be a problem to a well functioning economy if not that Nigerian economy has not grown to such stage.

In time past, Nigerian government had been so much interested in the welfare of Nigerians which had being the major reason for the government to have embarked on subsidizing products and services. Nigerian government had been generous and in the process interfere into too many things.

The cost of subsidizing products such as petrol is enough to drive some other sectors in the economy towards full development. Despite the benefit attached to removal of subsidies, Nigerian economy has not matured to the level where petroleum products’ subsidies can be completely removed.

Moreover, in terms of provision or consumption of energy, Nigeria depend on petroleum products as main source of energy therefore, removal of subsidies on such products will lead to increase in price of such products and hence decrease in energy consumption.

Higher energy consumption is needed to drive Nigerian economy to maturity. Unstable energy consumption patterns and other factors have resulted in the volatility and instability of the Nigerian economy as prices of oil affect prices other products and services in the country.

Whenever there is an increase in the price of petrol, the prices of other products and services increase because petrol is the leading source of energy in the productive sector.

For now, total removal of subsidies on petrol cannot work out effectively because the negative effect is more than the positive effect, as the removal of subsidies will lead to increase in general price level, making life of Nigerians to worsen off.

If price of petrol increases as a result removal of fuel subsidy, government will be relieved of the burden of spending funds that ought to be used to develop other sectors,its like mining gold from below the earth surface to fill up another pit, although, the taking care of welfare of Nigerians and reduction in cost production are the benefits attached to subsidy. Government need to develop the power sector and transport sector before completely removing fuel subsidy.

Government, should invest more in the power sector as this will reduce the dependence of most participants in productive sector on use of fuel for their productive activities so that when subsidy is removed,it will only have effect on the transport sector. If the power sector is fully developed, cost of production will be reduced and more investors will move into the country and Likewise, the number of indigenous investors will increase, hence an increase in national output.

The trade-off between electricity and fuel as sources of energy will determine how fast Nigerian economy will grow, develop or be stabilized. Reduction in sectoral dependence on petroleum products as source of energy will make more oil to be available for export and less to satisfy domestic consumption.

Nigerian government should also invest in the transport sector and also create opportunities and enabling environment in the sector before embarking on removal of fuel subsidies. Government should invest in the railway,road,air and water transports.

Government should invite more private investors into the sector as government alone cannot provide everything to make the sector function well. At aggregate level,reduction in price attached to transport reduces cost of production. As more buoyant participants enter the transport sector, there will be competition, hence reduction in cost of transport.

Government should ensure that most roads are in good shape so that there will be easy movement of vehicles. The railway line should cut across most states because it is cheaper and safer to travel or move goods by rail,therefore government should invest so much in the sector to boost the Nigerian economy. If this can be done, the effect of subsidies removal on the transport sector will not be too obvious.

Lastly, the need to finance the increment in the minimum wage, the burden resulting from fuel subsidy and also the need to develop other sectors might be the reasons government might be considering the removal of fuel subsidy but that doesn’t mean government should remove subsidy from oil now as Nigerian economy is built around oil as a source of revenue and source of energy for the productive sectors.

Removal of subsidy now will lead to reduction in national output, reduction in purchasing power of Naira, reduction in standard of living, collapse of small businesses, increase in crime and unemployment and also hardship resulting increase in general price level, therefore government should generate revenue through mining, sales of natural gas and exploration of other natural resources and also through taxing and development of a proper remittance mechanism.

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