Mitigating the impact of removing fuel subsidies: lessons from African countries and past administrations.

by MMC
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Fuel subsidies have always been a recurring topic of discussion in Nigeria, Africa’s largest economy. And each reason for discussion oscillates between its high cost or the project of total elimination. As before, this topical issue recently sparked reactions from Nigerians, following the government’s announcement of an $800 million loan from the World Bank to expand its national social program in anticipation of the extravagant removal of fuel subsidies. Many have criticized this decision, mainly because it is an excessive expense that will have no real-time impact. In addition to the fund’s inability to cover less than half of the 133 million For multidimensionally poor Nigerians, previous similar cash distributions have proven abortive in the country, generating little confidence in the credibility of such a process.

Nigeria plans to remove its fuel subsidies by June as paying for them has become unsustainable for its struggling economy. The country is up to your neck in debt, the removal of fuel subsidies is therefore inevitable. But challenges are expected, particularly for the new government. So far, different administrations have attempted to eliminate the subsidies, but given that it is a politically sensitive issue, each attempt has been met with outcry. For example, in 2012, the federal government more than doubled the price of fuel, from ₦65 to ₦145 per liter, in order to remove subsidies on refined petroleum products. But this led to widespread protests and a 10-day nationwide strike that ended when the government partially reversed the increase by reducing the price to ₦97 (US$0.61) per liter.

Given the President-elect’s budget allocation and campaign promise, fuel subsidies will be eliminated under his administration. However, energy experts said the situation and indications prevailing in the country could make this almost impossible. They said its removal would cause hardship for Nigerians, most of whom already live above the poverty line, and the government has done almost nothing to prepare the nation for the new removal regime.

What can Nigeria do better to easily remove subsidies?

One thing is certain: for the transition to subsidy removal to be smooth, the mechanisms intended to stem the harmful effects of subsidy removal will not proceed as usual, largely because the country finds itself currently at an economic and political tipping point. It is important to note that the objective of all approved compensation measures should be focused on mitigating the impact of the removal of fuel subsidies on poor and vulnerable groups, regardless of their political affiliation, ethnic origin, religion, gender or any other prejudice.

Nigeria is not the first country on the continent to face challenges related to the removal of fuel subsidies. Several African countries have implemented fuel subsidies in the past and, like Nigeria, their removal has been controversial. But there are lessons of success to be learned in some countries and in other previous Nigerian administrations.

One of the key steps the government can take before subsidies are removed is the introduction of travel and public transport vouchers. Indeed, the instant shock of the removal of subsidies will likely manifest itself in an increase in the prices of public and informal transport. Transport operators in Nigeria rely heavily on petrol and diesel to power their vehicles and an increase in the price of fuel will be passed on to passengers in the form of higher fares. By extension, this has a knock-on effect on the prices of goods and services, as transportation costs constitute a significant component of the cost of goods.

When Mozambique moved to remove fuel subsidies between 2010 and 2012, the government widely distributed transport vouchers to reduce the impact of the reform process on citizens such as workers, students and individuals. elderly. This helped reduce the cost of mobility which would have been expensive for this group of people. This is a credible measure that the Nigerian government should consider adopting for the welfare of its people.

Likewise, the Nigerian government should invest in public transportation, as previous administrations had done. For example, in response to the 2003 protests, former President Olusegun Obasanjo negotiated a deal with the Nigeria Labor Congress (NLC) and its allies whereby the federal government would give N100 million to each state, which each state had to pay in return an equivalent sum. An additional N200 million to provide loans to reputable public transport companies.

Under the regime of President Goodluck Jonathan, more than 16 billion Naira Funds from the Grant Reinvestment and Empowerment Program (SURE-P) were released for the Public Transportation Revolving Fund (PMTF) which provided vehicles for public transportation. However, the funds were allegedly squandered. Interventions like this, if managed well, can significantly reduce the difficulties faced by citizens, while encouraging more sustainable and environmentally friendly modes of transport.

Additionally, among its responses to high fuel prices in Namibia between 2007 and 2008, the government introduced zero-rated VAT on basic foods, tax cuts for food importers and a food distribution program subsidized for the rural poor. The Nigerian government can implement price controls on essential commodities such as food, medicines and other basic necessities, to prevent inflation and ensure that prices remain affordable for low-income households. income.

Generally speaking, in order not to feel the consequences of the removal of fuel subsidies, fuel consumption must be reduced. Kenya has taken this path to the point of removing its subsidies by embarking on rural electrification. Investments in energy access programs can help reduce reliance on traditionally subsidized fuels. But even though it’s a long-term consideration, it’s advisable to start early. The government can promote the adoption of renewable energy sources such as solar, wind and hydroelectric power. This would reduce the country’s dependence on imported fuels and provide an alternative energy source for households and businesses.

The issue of removing fuel subsidies is a complex issue that requires careful consideration and planning to minimize negative impacts on poor and vulnerable groups. As Nigeria prepares to remove its costly but popular fuel subsidies, it must learn from the successes and failures of other countries that have undergone similar processes. With proper planning and implementation, removing fuel subsidies in Nigeria can lead to a more sustainable and economically viable future for the country.

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