As the federal government on Monday backtracked on its earlier plans to remove subsidy on petroleum products, Chief Consultant at B. Adedipe Associates Limited, Dr. Biodun Adedipe, has given insights on what it will take Nigeria to finally resolve the subsidy controversy.
The fuel subsidy started as part of efforts by the government to fix the price of gasoline for consumers below the international price by using the government resources to pay for the difference. Over the years, the oil subsidy has become a major talking point as several administrations have attempted to remove or reduce the subsidy payments.
The administration of President Muhammadu Buhari is the latest to deliberate on the possible removal of fuel subsidy. Recall that the Minister of Finance, Budget, and National Planning, Zainab Ahmed, had in November 2021 announced that Nigeria will remove fuel subsidies by 2022 and replace them with an N5000-a-month transportation grant to the poorest Nigerians.
Like every other time in history, Nigerians protested against the impending move, leading to the Monday declaration by the Minister of State for Petroleum Resources, Timipre Sylva, that the federal government has put on hold plans to remove subsidy this year.
Speaking on the subject, Adedipe, a renowned economist noted that the removal of oil subsidy is the best decision to make in order to build the economy of the country.
According to him, Nigeria is spending a lot of its earnings and reserves on importing oil, thereby affecting the value of Naira and shooting up the exchange rate.
He explained that high demands for dollar as a medium of payment for goods and services is affecting the value of the country’s currency. He urged the government of the country to find a lasting solution to refineries of the country, saying that if Nigeria stops importing refined crude oil, there will be enough reserves for the government to develop the country.
The economist made this known during his address as a guest speaker at the ‘Economic Outlook For 2022’ event organised by Full Gospel Business Men’s Fellowship, Ikeja, monitored by The New Diplomat, Monday.
In his words, “If no subsidies are removed, what will happen. We have gathered the data on the history of oil subsidy removal since 1966. That is the year we have been removing oil subsidy in Nigeria, since the year 1966. We kept on removing subsidy, using the same argument that is flat, at times we say the cost price of petrol in Nigeria is cheaper than a bottle of coke, or say it is cheaper than the price they sell for in the neighbouring West African countries or no, it is cheaper than the price it goes for in the OPEC countries.
“We continue to bring all manner of the reasons, but the real bottom line of it is that we have been importing refined oil we consum in Nigeria. In the early 80s to the 90s, what dominated our imports were non-oil goods and services. By the time we got to 2000, coming till date, what now dominate our import is a combination of both oil and non-oil goods and services. So, the pattern of our imports has changed. So you cannot therefore but experience continuous depreciation of the Naira, talking about the exchange value of the Naira.
“And, I want to remind us that demand for US Dollar as a major trading currency for Nigeria is derived, which means people don’t demand dollar for the sake of holding it as a currency but they demand for it, either because they have some foreign goods to buy or services to pay for or in the extreme, which is now happening that people now want to take safety in their environment where your domestic currency is persistently losing value.
“Of course, lending rate in Nigeria this year, we expect to remain double digit, then there will be continue pressure because of relentless imports and shrinking capacity to pay foreign bill will likely force the CBN to devalue the Naira. But if the narrative changes, especially with information we have that Dangote refinery will go into operation by the third quarter of this year. And if that happens, that means a portion of our reserves and earnings that we spend in importing refined petroleum products, will no longer need to import them.
“Another advantage is that since Dangote refinery is in Nigeria, it would make sense that if we don’t want to talk about subsidy again, we should sell crude oil to Dangote refinery in Naira. If we sell the crude oil to him in Naira that means there’s no basis for us to continue to use the international benchmark for the price of crude oil, which have been a problem with managing that sector in Nigeria.” Adedipe said.
