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Graffiti… Much ado about subsidies

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By Pat Utomi …

Language humor always gets me going. The TV series Mind your Language was a hit with me, therefore one of my favourite Language jokes is of an ‘Americana’ fellow from Owerri who returning from New York greeted his grandmother with full compliments of a Bronx accent: Grandma How are you doing (‘ow-r-u-dooin’).

Poor Grandma, assuming he was speaking the dialect, responded: edu rum nga nduru (I am still sitting where I was sitting). She had assumed he asked How are you sitting? On the matter of fuel subsidy in Nigeria I feel like the grandmother: edu rum nga nduru.

Those who have sat in my classes know that like most business teachers I am quick to state upfront, that there are no right or wrong answers, as in case study discussions. As such; what mattered was the rigor in arriving at a decision.

Clearly there are many ways to skin the Christmas Ram. Some use boiling water to get the skin clean of hair, others hold it over the naked fire until the hair is burnt up. Surely there are many tracks to the village market of subsidy and optimal utilization of a finite and wasting asset we have been gifted with, called petroleum.

As a business teacher one of my refrains is that there is no such thing as the one and only right answer. We can arrive same destination through different highways. But as JK Rowling reminds in her Harry Porter stories, we are the choices we make. When choice is not marked by rigor the outcomes tend to be suboptimal, and sometimes defeating of purpose.

In this case, of subsidies, the question must be why subsidy, what are the benefits, what were the challenges in its implementation and what are future costs and benefits of continuing such a strategy of enhancing well-being, as the purpose of government is optimal enhancement of the wellbeing of the people.

My views were and remain that whatever the object of subsidy, it had been converted into a scam that has hurt more, the poor people and encouraged inappropriate consumption by the more well off while lining the pockets of scammers. Those views remain. Evidence of this firm stance can be found in interview I gave on Sunrise Morning on Channels Television during that January 2012 protest of subsidy induced petrol price hike, and course of action in response. That has not shifted at all.

When someone recently suggested my views on petroleum subsidy may have shifted, I could not but remember the Owerri grandmother. Edurum nga nduru. My views on the matter have not shifted. What is the difference between being prominent in occupy Falomo ‘when subsidy was the excuse for fuel price increase; and saying “subsidies”, as we call the phenomenon, are distorting markets and prices, and taking away resources for government investment in the well-being of citizens.

Why do governments turn to subsidies. It could be to reduce the burden of high prices so the people can have access to a product or service that improves their welfare, which a market price would make improbable. It could be to boost production so jobs can be created. Still, subsidies could be designed to bridge regional challenges as with cross subsidization, a good example of which would be bridging in distribution of petrol across Nigeria.

My experience is that subsidies, which bring the welfare benefits that the goals that bring them about seek, also have costs. Whether they should continue, generally then depend on a cost- benefit analysis. Sometimes the costs come in the form of abuses that subsidies can unwittingly promote. In the case of Nigeria, a major part of that cost comes from a rent seeking culture which, in a time of impunity, encouraged leakages in which between 2011 and 2012 subsidy’s costs went up by several hundred billion Naira when prices of PMS in the international markets hardly moved.

It is clear that the projection of improved benefit for lower price is a phantom. All over Nigeria only Lagos and Abuja seemed to have those subsidy prices to go the people. Lately, even Lagos has slipped, as stations in Ajah and some other parts have been verbally advertising prices #20 more for each litre and selling only to those willing to pay those prices.

Yet the subsidy excuse takes away from market conditions that create competition that force down prices. If we remember the early days of GSM when prices were up, and per second billing was thought improbable. Then the oligopoly was broadened as Glo came along, and Etisalat followed. Per second billing suddenly became possible. Prices also fell to Earth from the stratosphere.

My problem with our petroleum subsidy regime is not just that the presumed benefits are being scammed off and a few individuals are amassing wealth from the scam, but that no clear goal, after which the regime stops, is insight. Yet many government services are lost for the drain of the subsidy. Arguments, have been put forward that the regime should stay in place until the refineries are fixed or more refineries built in the country. As I have pointed out, there is no absolutely right or wrong answer.

Read also: Graffiti… The challenge of change

I not only desire a quick fixing of the refineries I would like to encourage a regime that sees our coastline dotted with refineries and little, if any crude oil, exported. This would no doubt not only result in more value to Nigeria; as one hundred dollars of crude export could readily be three thousand dollars in income, if we processed; but would increase supply to the point that domestic prices cannot but fall.

The real question is how long we can allow the hemorrhaging in the name of subsidy, which does not result in benefits that reach the people, to continue. Surely those who profit from this, inappropriately, will be further incentivized to sabotage the system for continued immoral gain.

As I wrote down these thoughts I watched an NTA report on long queues at petrol stations in Abuja. The anchor then switched to neighboring Nassarawa state where the lines did not exist. The difference, they were paying more. What was even unjust is that some of the marketers were taking delivery, collecting subsidy money for what they collected, and further marking up what arrived at the filling stations. They were making out like bandits at the expense of economic development, and the poor fellows trying to commute.

Surely a more disciplined government with less leakages reduces the cost of subsidies, but in the end it just short changes everyone, especially if it is not geared at improving production and reducing the demand beyond need, for it. Our middle class drive around far more unproductively that their South African colleagues became the price of PMS. These are the reasons I vote for the market to be used to force down prices instead on that, edurum nga nduru.

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0 Comments

  1. Isaac Lebari

    August 9, 2015 at 12:27 pm

    So much long grammar for simple matter.
    Item costs N100. Subsidy is 10% = N10.
    Gov’t. should pay N10 on every N100.
    If suppliers requests more than N10 or do not deliver product, gov’t. should invoke necessary action such as legal action or outright cancellation of suppliers contract and engagement of new & reputable supplier.
    For all your University Degree + Big Grammar + Business Acumen + Pomposity why can’t you see a spade for what it is? It took me less than 3 sentences to explain what subsidy is and how it CAN WORK! Nigeria is well and truly finished if it is numpties like you that are put in charge of its affairs.
    Nigerians benefit next to nothing for being part of this country. Failures of govt. old and new have left the vast majority impoverished. We provide our own roads, water (bore-hole) and electricity (generator). All the tax we pay go into sustaining the vampiric govts.
    A certain amount of our crude oil used to be set aside for local refining and consumption. But now that seems too much to give to hapless Nigerians. Now we look like that very bad joke where a farmer brings home yams from his farm only for him to buy it as pounded yam from his wife!
    I don’t blame you. I blame the media for granting audience to riffraffs like you to spew your ignorance on the populace.

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