Still on fuel subsidy in Nigeria
The general issue of perennial scarcity of petrol in the country appeared to have been permanently resolved on May 11, 2016, when the federal government introduced a new pricing regime that increased the pump price of petrol from N86 per litre to N145 per litre. […]
The general issue of perennial scarcity of petrol in the country appeared to have been permanently resolved on May 11, 2016, when the federal government introduced a new pricing regime that increased the pump price of petrol from N86 per litre to N145 per litre.
Fast forwarding to December 2017 till February 2018, the issue of scarcity and fuel subsidy seems to take worse turn with long queues at filing stations and increased fares on public transportation due to scarcity.
The Nigerian economy seems to be synonymous with fuel scarcity. It does not seem to matter which regime is in charge, every couple of years, or in some cases months, the problem of fuel scarcity rears its ugly head.
Every regime follows the typical playbook in dealing with the scarcity: sympathize with Nigerians and talk about how they shouldn’t be wasting useful hours queuing for fuel; talk about how marketers, smugglers, and various middlemen are sabotaging the economy for their own selfish interests; promise to revamp the refineries; pay off marketers so they can settle their debts, import new products and flood the market with fuel, with the hopes that it makes the scarcity go away. In all this we often forget to ask ourselves a simple question: Is fuel scarcity the problem or is it just a symptom of the problem?
First, we should clarify exactly why we have fuel scarcity. Ironically, it can be explained by simple elementary economics. Assume you start from a scenario where everything is fine. Fuel is being supplied at a certain price, and people are buying at that price, and as the economists say, the markets clear. That is, everyone who wants to buy fuel can buy fuel at that price, and suppliers are selling fuel at that price with no problems and everyone is happy.
But then time passes, and things change. Maybe the price of crude oil doubles. Or the domestic currency depreciates by 50 percent making the cost of importing fuel go up. Or people decide that they all want to travel for the holidays and suddenly all want to buy more fuel.
In a properly functioning economy, the price of fuel would simply go up, incentivizing marketers, or suppliers, to keep supplying fuel and forcing buyers to cut back and reorganize their plans and use less fuel. In a properly functioning economy, when the fundamentals change, the prices change as well. Everyone adjusts, and life goes on.
The result of that desire to keep prices fixed in the face of changing fundamentals is that they have been forced to pay a subsidy; the government says it doesn’t officially pay a subsidy but its cash cow, the NNPC, pays on its behalf.
The long-term solution is for the government to simply stop fixing prices. Let markets work and let prices be set by buyers and sellers like every other commodity. Prices will go up and down like everything else. People rarely bother about small increases in prices even if it happens frequently.
It’s the large overnight increases that gets the blood boiling. Functioning markets will ensure that we get rid of the scarcity once and for all and that we stop the reckless subsidy spending. It’s also time that we, as a country, stop repeating the lie that the fuel price fixing is about helping the poor. We all know it’s about politics. It’s always about politics.
Rahma Oladosu, Gidado Idris Road, Wuye District Abuja [email protected]