Recently, in a think-tank of sorts ensconced within a WhatsApp group, the issue of petrol subsidies came into play. Clearly, in Nigeria today, the issue of petrol subsidies, whether they are needed or not, whether they exist or not, is a serious discourse set within the context of a struggling economy. When someone suggested addressing the subsidy issue by digitising purchases tied to NIN, I had an eureka moment with an idea that could be seen as silly and unimplementable or provide a solution to a serious socioeconomic challenge.
First, we need to agree on one thing. Petrol subsidies are ideally a bad thing, especially when consumption rather than production is being subsidised. Whereas since 2012, some of us have been in support of subsidy removal, some others have seen any thought of removing subsidies as wickedness and demanded that the government should stop smuggling of subsidised petrol to neighbouring countries rather than complaining about ballooning costs of maintaining the subsidies. The challenge with this pathway is that it is virtually impossible to stop smuggling when a significant arbitrage exists between the price of petrol in Nigeria and its neighbours. No country on earth can maintain subsidies within its borders without smuggling except its neighbours also have similar price levels (See Libya, Libya, Saudi Arabia, Middle East, South America, Asia). Smugglers would either use bribes to settle border control officials or turn to violence if an incorruptible official were in their way.
Having made a case for removal of subsidies, we recognise that entrenched economic weaknesses make energy unaffordable for many Nigerians, especially considering rampant poverty. So, the challenge is how to address the downsides of a subsidy regime without making life worse for Nigerians.
To provide a backdrop for my solution, we take a trip to Bonny Island in Rivers State where for about 20 years, Nigeria LNG and Shell have provided uninterrupted electricity supply to inhabitants of the island. Each month, residents get some free “electricity units”, say about 100 units. For truly “poor” families with very few appliances, this is enough for the month, but for those with the affluence to have large homes and lots of expensive appliances like air-conditioners, they have to buy additional “units”, because the basic provision is inadequate to meet their desired comfort level.
Now, how do we extend this idea to Nigeria’s petrol subsidy debacle? Imagine that the government undertakes an evaluation of the basic needs of Nigerians and determines that (for example) each Nigerian needs at least 20 litres of petrol a month to meet a certain lifestyle level. The difference between the monthly price of this amount of petrol without subsidy (unregulated) compared to a wished-for (regulated) price is then computed and is credited to a digital wallet (controlled by the Central Bank) tied to each person’s National Identity Number (NIN), with each person able to transfer funds to normal bank accounts. Those without cars would apply the “subsidy” towards paying for public transportation, while those who have personal cars or even have multiple cars would find the funds inadequate for a month, so they have to [rightly] spend more to live a more comfortable life.
With this modified subsidy arrangement in place, petrol stations would be free to sell at unregulated prices. Since there is no “cheap” petrol in Nigeria, there would be no incentive for anyone to smuggle petrol and no one needs to bribe our security officials or kill honest ones because no arbitrage opportunity exists. We would facilitate genuine cross-border trading of refined products without any damage to the Nigerian economy.
The government could take this a step further by fundamentally reorganising the public transportation system. Some level of pricing support will be needed periodically when global prices of crude oil spike up. This can be tempered by subsiding petrol purchased by transporters. However, the current arrangement with thugs running the road transport system would not allow for transparent and effective intervention. So, what if the government decides to get every bus or taxi driver registered, with their routes monitored by the respective Local Government Councils in which they are registered. The government also computes how much subsidy would be required for each route and credits digital wallets for each driver. For transport companies, suitable arrangements can also be put in place. To mitigate against fraud, every driver’s NIN can only be linked to one registered vehicle. An added benefit would be that the government would have a functional database linking cars and buses on the road to real humans.
Someone may point out that not all Nigerians have NIN and many parts of Nigeria neither have electricity supply nor internet. But then, the Central Bank does not need people to have electricity to be able to credit their digital wallets. And if INEC can register Nigerians in the most remote areas for elections and actually conduct elections in those areas, then internet and electricity is not an issue. With 104 million Nigerians registered as of December 2023, we can extrapolate that given the assumed population of Nigeria, it would be safe to say that by now, “most” Nigerians have NIN, even if this might just be say 51%. In fact, the minute Nigerians see that the government is going to directly credit them with subsidy funds, unregistered Nigerians would rush to get their NIN. In addition, not having banks in an area would not be an issue given that many Nigerians now have accounts with FinTechs like Opay, PalmPay or MoniePoint, etc., and agency banking arrangements via POS operators have made cash withdrawal possible even in interior places.
To be clear, this is just an idea which would need a lot of moulding and polishing, but I think it would be a much better route for Nigeria than the status quo. While this would be an immediate to medium term solution, in the long term, we need to do the hard work of economic restructuring to build a resilient, flourishing economy where citizens do not need handouts to afford energy. Over time, the government can drastically reduce its expense on subsidy payments by fixing public transportation infrastructure and electricity supply, which are two major drivers of petrol demand in Nigeria. We have a long walk to freedom; let’s start walking.
Image Credit: dataphyte.com
Jilomes 