A twist has been introduced into the narratives about Nigeria’s growing poverty rate what with the claim by the Nigerian National Petroleum Company (NNPC) Limited that fuel subsidy payment is to blame for the parlous state of the economy, reports Ibrahim Apekhade Yusuf
Is there a nexus between payment of subsidy and rising cases of poverty in Nigeria?
Well, this is one of narratives being pushed forward by the Nigerian National Petroleum Company (NNPC) Limited, which claimed that the humongous fuel subsidy payment is responsible for the rising poverty rate in Nigeria, where 133 million citizens are multidimensionally poor.
While addressing a motley crowd, the senior business advisor to Mele Kyari, the Group Chief Executive Officer (GCEO) of NNPC, Lawal Musa, the payment of subsidy has prevented the government from providing multiple road networks, well-equipped health centres and stable electricity supply in Nigeria.
Musa explained at an event organised for the National Association of Nigerian Students (NANS) in Abuja that the N4.8 trillion spent on petrol subsidy annually could be invested into real estate, building 500,000 new houses.
He also stated in reports on Friday that the fund could be disbursed to skill up two million Nigerian students, construct 7,500 kilometers of road network at the cost of N400 million per kilometre.
Other investments he said the government could use the funds for are building 37 well-equipped 120-bed tertiary health centres at N32 billion per hospital annually, as well as building and equipping 2,400 hospitals in 774 local government areas.
Musa said these were the benefits of deregulating the oil industry or removing fuel subsidies. He also stated that additional 27,000 megawatts of electricity could also be generated with the subsidy money.
He further stated that: “Nigeria is the largest producer of crude oil in Africa, possessing 28 percent of Africa’s reserve, with petroleum contributing significantly to the country’s economy.”
The benefits derived have over the years been eroded due to the amount paid on subsidy, a regime [that] has been fuelling the vicious circle of poverty in the country,” he added.
Meanwhile, President Muhammadu Buhari has said that oil subsidies will be discontinued this year.
The President stated this while delivering his speech on the presentation of the 2023 budget proposal before a joint session of the national assembly.
Tagged “Budget of fiscal sustainability and transition”, the 2023 budget size was N19.76 trillion.
President Buhari also told the National Assembly that the government alone cannot continue to find tertiary institutions.
Drawing reference from the practice in some other climes, Buhari said that the government will adopt other measures to properly fund education in Nigeria.
Meanwhile, the Senate President, Ahmad Lawan, has urged the Executive to ensure that the 2023 budget of fiscal stability and transition is used to complete a lot of ongoing projects across the country.
Lawan said, “This administration has been consistent in ensuring the delivery of landmark infrastructure across the country.
“The last three budgets have made generous provisions for different projects.
“While some have been completed, work on others is ongoing at high paces. “The 2023 Budget should therefore focus on completing a lot more.”
In the view of Adewale Josiah, a public affairs analyst, an unconfirmed report revealed that Buhari paid over N100 trillion from 2015 till date, a development which only gave vent to the notion that subsidy payment is a drainpipe on the economy.
While noting that Nigerians can’t get it wrong in 2023, the decay in government is sickening and corruption has eaten deep into the fabric of governance. “Setting out policy agenda for incoming administration has never worked in most part of the world and particularly in Nigeria. Nigerian politicians at different levels have always used this tactic to pass the buck when they have no interest in carrying out a policy or project,” Josiah stressed.
Josiah wanted to end the fuel subsidy but lacked the balls. “Thank God he was defeated. He tried to end fuel subsidies when he raised petrol prices as a prelude to doing so and Buhari, Tinubu, Oshiomhole, Keyamo and others held huge marches in Abuja and Lagos called ‘Occupy Nigeria’ which crippled Jonathan’s government for two weeks.” Echoing similar sentiments, a somentaor who simply gave his name as Akanbi said, Buhari vindicated Jonathan and has helped Nigerians to identify key parameters in choosing their leaders henceforth. “Anybody that survives this government will live to see a land flowing with milk and honey indeed. Buhari has forced the north never to trust anyone without test even if the person is their tribe.”
It may be recalled that the Nigeria Bureau of Statistics had reported that over 63% of persons living within Nigeria (133 million people) are multidimensional poor.
The National MPI is 0.257, indicating that poor people in Nigeria experience just over one-quarter of all possible deprivations. 65% of the poor (86 million people) live in the North, while 35% (nearly 47 million) live in the South.
Politics of subsidies
Subsidies were sustained by the oil boom Nigeria enjoyed, thanks to the oil-shock caused by the Arab-Israeli conflict that saw global oil prices skyrocket. As part of the subsidy jamboree, public-sector workers received a big boost in their wages in 1975, under the “Udoji awards.”
Stephen Onyeiwu, Andrew Wells Robertson Professor of Economics, Allegheny College, while commenting on the history of fuel subsidies in Nigeria, he recalled that it began with the government routinely selling petrol to Nigerians at below cost. But most Nigerians were unaware that this was being done.
“Fuel subsidies became institutionalised in 1977, following the promulgation of the Price Control Act which made it illegal for some products (including petrol) to be sold above the regulated price. This law was introduced by the General Olusegun Obasanjo regime in order to cushion the effects of the global “Great Inflation” era of the 1970s, caused by a world-wide increase in energy prices. Between 2006-2018 Nigeria spent about 10 trillion Naira (or US$24.5 billion at the current official exchange rate of 411 Naira = US$1) on petroleum subsidies.”
In 2019 and 2020 about N3 trillion ($7 billion) was spent on subsidies. The number is expected to go up this year and next.
It means that Nigeria has spent over $30 billion on fuel subsidies over the past 16 years or so. In 2018, it spent 722 billion ($2.4 billion at that year’s official exchange rate of $1 = 306 Naira), but spent only $1.5 billion on health. Nigeria’s growing fuel subsidy may have contributed to the country’s health-financing gap.
In 1970, about 72% of the cost of a litre of petrol was paid by the government, but that figure fell to 43% in 2011. This means that Nigerians are increasingly bearing the burden of fuel price increases. This may explain why they vehemently oppose, through protests and disruption of traffic, attempts at reducing or eliminating subsidies. “The official reason for introducing oil subsidies was to minimise the impact of rising global oil prices on Nigerians. But other factors played an important role.
“The period 1970-1979 was an era of subsidies in Nigeria. Virtually everything in Nigeria was heavily subsidised – education, health, electricity, water supply, air travel and even provisions for “essential commodities” such as milk, sugar, rice, wheat and beverages.
In the 1970s, Nigerians coined the phrase “national cake,” to depict a phenomenon whereby they felt entitled to government largesse.
Subsidies were sustained by the oil boom Nigeria enjoyed, thanks to the oil-shock caused by the Arab-Israeli conflict that saw global oil prices skyrocket.
Various administrations have unsuccessfully tried to remove fuel subsidies since the transition to civilian rule in 1979.
President Shehu Shagari’s government – from 1979 to 1983 – increased the price of petrol in 1982, from 15.3 kobo a litre to 20 kobo. This happened without the government making reference to easing subsidies.
Then in 1986 President Ibrahim Babangida announced a partial removal of oil subsidies, which saw petrol price rise from 20 kobo to 39 kobo per litre. This followed his implementation of the Structural Adjustment Program as set out by the International Monetary Fund.
There was a huge uproar against the decision, which reached a crescendo when workers, students and civil society groups embarked on massive demonstrations across the country. Massive and sustained protests against Babangida’s economic policies played a big role in his hurried exit from power. The administrations that followed left subsidies in place.
Last year in June, President Muhammadu Buhari’s administration announced it was eliminating fuel subsidies. It said it had granted approval to the Petroleum Products Pricing Regulatory Agency to remove the price cap that was in place for petrol.
But by March of this year, the government announced it was keeping the pump price of petrol unchanged despite increasing crude costs. This effectively marked a return to subsidies.
“First, oil subsidies have survived when other subsidies have been removed because those benefiting from them are very powerful. They cut across a broad segment of the upper echelons of the government and political elites.
“A host of players benefit from subsidies by inflating figures for oil imports, and over-invoicing the government for the cost of imports. They have used their political connections and influence to scuttle attempts to remove them. These include politicians, high-ranking government officials, business tycoons, officials at the state-owned Nigerian National Petroleum Corporation, the Nigerian Ports Authority and Customs.
“A second reason is that Nigerians tend to use oil subsidy removal protests as a rallying point for many of their grouses against the government. This explains why the government prefers to borrow to finance the budget rather than scrap subsidies.
“Third, some politicians deliberately miscommunicate the economics around subsidies. They tell Nigerians that the government intends to divert funds meant for fuel subsidies to private coffers.
“Lastly, various administrations have not had the political will or courage to jettison the subsidies because of their failure to uplift Nigerians’ economic conditions. It would have been politically easier to remove fuel subsidies if the government had provided jobs, entrepreneurial opportunities, and other forms of economic empowerment.”
Tackling poverty in multiple dimensions
Nigeria aspires to lift 100 million people out of poverty by 2030. Prior to the COVID-19 crisis, around 4 in 10 Nigerians were living in extreme poverty, based purely on a monetary measure.
Using the same population estimates as the 2018/19 Nigeria Living Standards Survey, this means that more than 80 million Nigerians were living in poverty before the pandemic, even without data from Borno state where the survey could not be fully carried out.
However, projections suggest that the combined effects of the COVID-19 crisis and natural population growth could leave 100 million people living below the national poverty line by 2022, rationalising the government’s ambitious poverty reduction aspirations. Since Nigeria is home to the largest number of poor people in Sub-Saharan Africa—the world’s poorest region—lifting Nigerians out of poverty is vital for “moving the needle” and reducing global poverty.
Yet poverty is increasingly being understood as a multidimen sional phenomenon. Even households who are not monetarily poor may still be unable to send their children to school or may have members who are malnourished.
In participatory studies, poor people themselves say that non-monetary factors—including food security, housing, health, education, and security—matter directly for their wellbeing. Since not all of these factors can be accessed in the market, measuring monetary income or consumption alone may not be enough.
Human capital, housing, and basic infrastructure are also key correlates of monetary poverty. Multidimensional poverty indicators, including the Global Multidimensional Poverty Index produced by the United Nations Development Programme and the Oxford Poverty and Human Development Initiative, have thus arisen; the World Bank has its own Multidimensional Poverty Measure (MPM) that captures dimensions of education and basic infrastructure alongside monetary poverty.
So, what picture of poverty does the multidimensional approach paint in Nigeria? According to the MPM, as many as 47.3% of Nigerians—some 98 million people—live in multidimensional poverty.
This is more than the entire population of the Democratic Republic of the Congo. As such, Nigeria is the largest contributor to multidimensional poverty in Sub-Saharan Africa, the region experiencing the highest levels of deprivations in multidimensional poverty. Meeting regional and global targets on non-monetary poverty—as well as monetary poverty—therefore hinges on Nigeria.
Within Nigeria, the distribution of monetary and multidimensional poverty is spatially unequal, so poverty reduction strategies need to be carefully targeted. Both monetary and multidimensional poverty are largely concentrated in Nigeria’s northern states. Moreover, the north-south gap in terms of education and basic infrastructure does not appear to be closing substantially over time.
As is the case globally, multidimensional poverty significantly exceeds monetary poverty across Nigeria: about 16.0% of those who are multidimensionally poor in the north and 21.4% of those who are multidimensionally poor in the south are not classified as monetarily poor.
Estimates exclude Borno. Multidimensional poverty defined according to the World Bank Poverty and Shared Prosperity Report 2020. Monetary poverty calculated using the 1.90 USD 2011 PPP per person per day poverty line.
Targeting overlaps in dimensions of poverty
Yet, since many households are deprived across multiple indicators, targeting poverty-reducing policies also relies on knowing how much different dimensions of poverty overlap: the extent of these overlaps varies substantially across Nigeria. When overlaps are small, different interventions—be they for education, infrastructure, or monetary consumption—need different targeting strategies.
However, when overlaps are large, different interventions can target essentially the same households. Indeed, in some countries, conditional cash transfer policies—such as Prospera in Mexico or Bolsa Família in Brazil—explicitly try to address multiple dimensions of poverty for the same households at the same time. In Nigeria, the largest overlaps between monetary and non-monetary poverty arise in northern Nigeria, as well as in rural areas. This echoes the global finding that different dimensions of poverty overlap more in poorer regions, and especially in Sub-Saharan Africa.
According to Jonathan Lain, an Economist, there are more concerns about the rate of poverty bedeviling Nigeria.
“Poverty rate is far worse in Nigeria than the above statistics. Monetary policies could work if this cash is being given to individuals in need or not those at the corridors of power because it will still end in their pocket.”
According to analysts, every year, the Nigerian government runs huge budget deficits that could have been avoided if money budgeted for oil subsidies was allocated to other critical projects.
Subsidies should be used to spur investment in activities that raise the productive capacities of an economy (such as education, health, entrepreneurship, and infrastructure). They should be targeted at strategic sectors of the economy. They should not be used to finance non-durable consumption items like petrol.
Oil subsidies are inequitable, as they transfer the national wealth to those who own several cars and add little or no value to the national economy.
Removing fuel subsidies would also be good for the environment and safety on Nigerian roads. When motorists pay the full economic price for petrol, they will drive less, emit less pollution and reduce the incidence of road accidents.
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