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Subsidy and the politics of palliatives 18 Aug 2023

Nigeria is caught in the politics of choosing the appropriate palliatives to address the socioeconomic impacts of the abrupt removal of subsidy on Premium Motor Spirit (PMS). Before the presidential election of 25 February 2023, all the major presidential candidates had promised to remove subsidy on PMS but with variations on what comes before and after. There seems to be a national consensus against petrol subsidy. Although one can argue that the consensus is more elitist, and that those who are up in arms against fuel subsidy are elites who are insulated from the impacts of its removal in a country ravaged by poverty.

The economics that totally dismisses the utility of subsidy is not good public sector economics. There is a public interest in guaranteeing consumption of certain goods and services that are important to livelihood and sustained production. Subsidies are not inherently inefficient, but their administration could be. In the case of Nigeria, the corruption associated with government interventions, and the poor design and targeting of petrol subsidy make it unaffordable in the current fiscal circumstances. It may be that the administration of petrol subsidy in Nigeria makes compelling argument against it. The additional fact of a near financial bankruptcy of the Nigerian state creates the consensus against subsidy as it exists, not necessarily subsidy as a tool of antipoverty.

The real issue now is how to manage the palliatives designed to cushion the impacts of the subsidy removal. The most important starting point is to separate the impacts of the subsidy removal and other general issues of poverty in Nigeria. Obviously, the removal of subsidy in petrol aggravates poverty in its multidimensions. But we need to isolate and disaggregate the impacts of petrol subsidy to effectively mitigate it. The category of poverty in Nigeria is too broad to be used as the benchmark for effective intervention to mitigate the impact of the subsidy removal. We have chronic poverty; we have ultra-poverty; and we have multidimensional poverty. So, focusing generally on poverty may not be very useful in the specific case of petrol subsidy removal because the removal has diverse impacts on diverse categories of the poor.

That raises the question: who should be targeted with the palliative? First, the working poor are the most vulnerable as they will have less disposable income with the rising costs of PMS. The unemployed urban poor will also be impacted to a great degree. Then the rural poor whose greatest exposure to the impact may be indirect through rising cost of food and other essentials will also be impacted.

A palliative strategy that works will design different interventions for different categories of impacted community. For the working poor, palliatives may be in the form of increase in pay cheque and tax credits that restore their disposable income. This is easy to manage because of existing database that makes it easy to assess impact. A provision of public transport across the country to enable ease of movement at discounted costs will be an efficient form of targeted palliatives. This will also assist the urban unemployed poor. For rural poor whose greatest exposure will be mostly indirect, palliatives can be in the form of free access to healthcare, education, and such services. Government can also enhance their ability to buy essential foods. Well delivered cash transfer could achieve these objectives. But it is also more susceptible to corruption and politicisation.

Nigeria’s cash transfer regime fails some important legal requirements. First, there is no clear definition by law on who should be entitled to palliative. The use of public finance to support the wellbeing of some citizens needs clear statement of legal entitlement. In appropriating N500 billion for palliatives, the National Assembly ought to write in the law who is entitled to receive the cash transfer and the methodologies for establishing that class of citizens. It should not be left to administrative discretion.  This follows the constitution requirement that no public fund should be expended unless duly appropriated. Due appropriation requires that the legislature writes in the law the basis of establishing entitlement to the benefit. Besides, there is a constitutional requirement of equity and equal opportunity for all citizens in chapter 2 of the Constitution. Therefore, granting some citizens any entitlement that other citizens will not receive should follow a duly establish legal criteria. It does not matter that the palliative is appropriated or part of international development assistance.

The major problem with the administration of the proposed palliatives to cushion the effects of the removal of petrol subsidy is the difficulty in tracking its impacts on diverse social groups and directing mitigations to such groups in appropriate measures. The first aspect of this challenge is selecting the impacted groups. The second is delivering adequate and proportionate mitigation to each group. The third is ensuring that the mitigation is used to fill the hole that the subsidy removal has opened. Adverse social psychology may ensure that even if the desirable social group is targeted, and the amount of cash is adequate, the palliative may still be misused to undermine wellbeing and productivity. To address these challenges, we need clear laws that smartly clarifies who ought to benefit and shows how the benefit should be administered and evaluated from time to time.

Sam Amadi, PhD, a former Chairman of the Nigerian Electricity Regulatory Commission, is the Director of Abuja School of Social and Political Thoughts.