Friday, 25 November 2011





To formulate an appropriate policy response to the Federal Governments announced policy to end the imported fuel subsidy in 2012.

Fiscal Policy Background

The fuel subsidy issue is part of a wider debate. The government is piloted by those wedded to neo-classical economic conservatism that believes federal government deficit reduction and budget cutting to move toward budgetary balance or surplus is the supreme virtue.  They are backed with tomes of wrong-minded economic literature.  On the other hand, the vast majority of civil society opposes the measure but does not really have the economic arguments to refute the claims of the conservatives.

It is important that this difference in perspectives not be ignored. It must be highlighted. The issue of the fuel subsidy should be used to draw a clear distinction between progressive economics and conservative ways.  The progressives must advocate the primary objective of fiscal policy is the sustainable full employment of people and resources. If that required federal deficit spending, so be it. After all, as long as the deficit is in naira, the federal government  does not have a solvency problem as it issues the currency.

Must use this issue as an important symbol to educate the people and civil society to a different stream of economic thought. This will help draw an important and real substantive distinction between the parties.

An Alternative Policy Approach .

There are two grounds that the government is using to support the removal. One is that the subsidy helps a few well-off suppliers only. The second is that it is too expensive and the government will go broke. It is not beneficial to challenge the first assertion. However, the assertion about insolvency is obviously a scare tactic that should be refuted.

If government wants to remove the subsidy in order to end the windfall to the elite, that principle cannot be challenged.  However, government should have in place plans to transfer the funds that would have been used for the subsidy into social services that help the general public.

To accomplish this “progressive social transfer” it is important that there be a fact finding to ascertain exactly how much is the subsidy and how has it been implemented.

1. Need to support open public hearing and disclosure into these major aspects of the subsidy.

2. Based on the findings, should enunciate a progressive social transfer plan which would entail the following use of the funds previously earmarked for the fuel subsidy. (because the actual figures of the subsidy are nebulous, this paper uses percentages for the below list of potential programs)

a. Increase funding allocation of the States. Since removal of the subsidy creates “savings” these should be shared with the states, particularly given the wage increase and the unsettled issue of the SWF. 20 percent of the funds should be allocated for this.

b. Establish an infrastructural fund or bank:  This could be devoted to developing heavy gauge rail systems for cargo and passenger use, port modernization and public mass transportation.   Some of the projects to be public-private but this does not have to be the preferred route. 15 percent.

c.  Create a National Water Project:  Formulate a program under the existing Ministry that endeavors to bring potable water to every community above a certain population. Alternatively or additionally, the program can also look at a national network of small scale irrigation projects and water catchments, particularly in the north, to help farmers and families.  15 percent.

d. Subsidize Minimal Health Care: Government should provide free treatment for malaria and common water-borne diseases like typhoid to the indigent. Given the climate controlled environments and home amenities of the well-off, these diseases are becoming poor people’s diseases. 15 percent.

e. Develop a School Feeding program:  Development of a school lunch program would increase school attendance, child mental and physical development as well as stimulate consumption and demand that will cause increased agricultural production.  15 percent    

 f.  Modernize Tertiary and Secondary Education:  This would help retool and refurbish secondary schools , vocational schools, polytechs, universities, etc so that we can improve our collapsing educational structures which are not preparing youth for the challenges of today’s world.  15 percent

g Tackle the Refinery problem: This is more of a political issue than a technical one.  Would recommend the establishment of a team of Nigerian and international experts to develop a plan to revive and modernize the refineries.  5 percent.

1.Mass Transit- government should fund a massive mass transit system that will involve a national rail system and road network . A  commitment and detailed plan of execution needs to be developed, funded and implemented fully.

If Nigeria could sustain the subsidy for decades, it can sustain this level of social funding for a like period.  If so, such initiatives would change the face of the country all for the better.


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