Page 4 - DMEA Week 48 2021

DMEA COMMENTARY DMEA

Nigeria faces obstacles to

removal of PMS subsidy

Abuja’s plan to eliminate gasoline price supports has drawn criticism
from labour groups and questions from legislators and business leaders

AFRICA NIGERIA’S government said last week that it (NNPC) reported in its most recent audited
intended to eliminate its long-standing policy of financial statement that it had earned after-tax
subsidising the price of gasoline, known locally profits of NGN287bn ($700mn) on revenues of
WHAT: as premium motor spirit (PMS), next year. NGN3.718 trillion ($9.07bn) in 2020.
Finance Minister Zainab Finance Minister Zainab Ahmed made an In any event, the subsidy has already proved
Ahmed says gasoline announcement to this effect on November 23, on to be costly. According to a study commis-
subsidies will be halted the same day that the World Bank published the sioned by the British government, Abuja spent
in mid-2022. latest edition of its Nigeria Development Update NGN10 trillion ($24.4bn) on the gasoline sub-
(NDU) report. She stated that Abuja intended sidy between 2006 and 2018, and according to
WHY: to eliminate the PMS subsidy completely as of NNPC, it spent more than NGN816bn ($1.99bn)
The price supports mid-2022 and said the government would work just in the first seven months of 2021.
have been a financial to mitigate the impact of higher gasoline prices
burden on the Nigerian on impoverished Nigerians. One of the measures Opposition from labour groups
government. being contemplated, she said, is the payment of Despite these heavy costs, there have been calls
a NGN5,000 ($12.20) per month travel grant to to keep the subsidy in place.
WHAT NEXT: the country’s poorest citizens, which number One such call came from Nigeria’s Trade
The process of policy 20-40mn, for a period of up to 12 months. Union Congress (TUC), which argued that the
change is likely to prove Ahmed’s announcement has drawn mixed decision to eliminate gasoline price supports
slower and more chaotic reactions, with some Nigerians rejecting it was premature. Abuja should not have taken
than Abuja would like. outright and others hailing it but focusing on this step, since it is still in negotiations with rep-
the financial aspect of how to help the poorest resentatives of labour unions on the elimination
Nigerians weather the transition. This essay will of the subsidy, representatives of TUC said last
examine various public figures’ statements on week.
the matter. A second labour group, the Nigerian Labour
Congress (NLC), was even more critical. In a
The subsidy burden statement dated November 24, NLC President
The removal of state support for domestic gaso- Ayuba Wabba described Abuja’s approach to the
line prices is likely to draw applause from inter- issue as misguided, declaring that the problem
national financial institutions (IFIs). was primarily the result of Nigeria’s dependence
Both the International Monetary Fund (IMF) on imported petroleum products, despite its
and the World Bank have been pressing Nigeria own large oil reserves. He proclaimed that NLC
to eliminate the subsidy for years, on the grounds would continue to back the subsidy and reject
that it is burdensome and a drain on government deregulation unless the government abandoned
revenues. The World Bank repeated this rec- its “import-driven” fuel market policies and
ommendation on November 23, saying that it offered more support to the domestic refining
hoped the West African country would take this sector.
step within three to six months. In the meantime, Wabba argued, abandoning
Ahmed, for her part, reported that the gov- PMS price supports will have the negative effect
ernment’s most recent revenue count showed of furthering inflation. “The contemplation by
that Abuja was spending NGN243bn (nearly government to increase the price of petrol by
$593mn) per month on fuel subsidies. If subsidy more than 200% is a perfect recipe for an aggra-
payments remain at this level, Abuja will have to vated pile of hyperinflation and astronomical
spend nearly NGN3 trillion ($7.32bn) per year increase in the price of goods and services,” he
to keep PMS prices artificially low, she said. said in the statement.
At this rate, she added, most of the money
that the national oil company (NOC) remits to Questions about funding, timing
the government will have to be used for subsi- The plans announced by Ahmed also drew
dies. She did not offer any specific figures, but objections in the Senate, the upper house of
state-owned Nigerian National Petroleum Corp. Nigeria’s National Assembly, but for different

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