Should Subsidy Removal Be All About Economics? -By Abdulrauf Aliyu

Few days ago, I watched the Minister for Finance and the GMD of NNPC try to justify the subsidy removal policy on a live National Television programme. I was thrilled, but not surprised by their comments, that Nigeria cannot longer underwrite subsidy payment, or what they just months ago refer to as under recovery given the economic fundamental that makes such policy inevitable. Their arguments made me remember an old joke that pokes fun at economists and it goes like this:

Three people were stranded on a desert island and had no food. One was a chemist, the second a physicist and the third an economist. A can of baked beans floated ashore. The chemist suggested that they rub two sticks together to start a fire which would then cause combustion to burst the can open. The physicist calculated a trajectory that would likely break the can open. The economist countered, “Assume we have a can opener.”

This joke says a lot about the recent policy decision of the PMB led administration, and the efforts of his team to convince Nigerians that subsidy removal is the best among all the policy options available to government to be able to develop critical infrastructures required to enhance the country’s economy’s performance. All their argument for subsidy removal is centered on simple elegance economic assumptions, without weighing the unintended consequences.

Back in the days as a graduate student of public policy, I was taught the basic concepts and assumptions required to make sound public policy choices. I was also taught that for any policy decision of government to gain popularity there is need for those involved in drawing such policies to appreciate the power of the people and involve them in the entire process. Several years down the line, I am surprised that most of those who find themselves in government view policy making process and decisions from a narrow point of economics – which they even have very little or no knowledge of its philosophical foundations.

Although, economics remains my first calling, and still imposes discipline on my policy thinking process, hence it is necessary and dare I say that I have learnt to make it a crucial part of my analysis skills repertoire – but it is not sufficient. Studying public policy however taught me that within the economic policy making space, politics plays a very messy role in public policy choices, but politics is harder to discern than the simple elegance of economic assumptions as a reason for total removal of subsidy. This does not however make politics less important than economics in the policy process.

That the duo of ZAINAB & MELE KYARI still justify subsidy removal policy from the narrow perspective of abstract economic theories and assumptions without considering its socio-political implications really baffle me. I would have expected them to have applied multi dimensional logics to argue their point. Doing this will have enabled the government they serve build different scenarios around the possible implications and consequences of the policy decisions and to determine whether the policy will be acceptable or was inclined to fail. It will have also helped citizens to analyze or critically evaluate the policy from several perspectives and if need be, make their inputs.

The point I am trying to make is that, within the Nigerian socio-economic and political context, petrol subsidy removal must happen, but at this moment, it is an irrational policy decision given the challenges of high cost of living, growing poverty and inequality as well as the perception of majority of Nigerians. As it is today, PMBs government has lost its social capital. Nigerians do not trust government and believe that their common wealth are used for the private gain of politicians or their private sector co-travelers. A cogent reason for the hushed cry for non-removal of subsidy by Nigerians is a valid. For years now, most of those who have held senior positions in government never disputed the fact that it is the inefficiency and incompetence of those in government to properly think through and refine the ‘subsidy’ or is it ‘under-recovery’ that made the policy fail. This means that subsidy, as it is today is the only benefit ordinary poor Nigerians gain or get from our insincere political leaders as a credible redistribution of common wealth.

The goal of this article is not to argue for or against the economic rationality of subsidy removal. Rather, to let us know that subsidy is not a one-size-fits-all policy prescription that can be explained with economic models or assumptions, given the existing structural rigidities in our economy, and because there is nothing in economic theory that unequivocally supports the policy. But since the government had already made up its mind to go ahead with the policy irrespective of the pains and untold hardship it will bring forth, one will have expected that the well-thought-out policies and programmes to help cushion the impact of the subsidy removal, rather than the proposed 5000-naira cash transfer or palliatives been proposed.

Finally, for those who may wish to play politics with this piece will only see one side of the story. Nigeria’s problem is not subsidy, rather it is canker of corruption, nepotism, failure of government, high level of incompetence of those holding political office among several others. What is important at this point in time is for the government to proactively tackle and all eliminate these problems because for now most low- and middle-income earning Nigerians are not ready or willing to pay for government’s inefficiency and incompetence.