“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.'”
In a country like Nigeria, the decision to remove the petrol subsidy should not have been solely centered around economic rationality. Energy security, particularly in the form of affordable petrol and gasoline, plays a crucial role in driving economic growth and development. However, the repercussions of such a decision extend far beyond the realm of economics. The removal of the subsidy, while economically justifiable in some respects, is poised to trigger inflation, increase the cost of living, hinder business operations, escalate poverty, and potentially stall economic prosperity.
The move to eliminate the petrol subsidy is reminiscent of a delicate chemistry experiment. The economic rationale behind the decision may seem compelling, especially when viewed through the lens of fiscal responsibility. It promises to reduce the burden on the nation’s treasury, allowing for the reallocation of funds toward other pressing needs, such as infrastructure and education. In theory, this should promote economic growth.
However, when we shift our focus from the economic laboratory to the real world, the repercussions of such a decision become glaringly apparent. To better understand the potential fallout, we can draw a lesson from Germany’s recent deliberations. The German Economy Minister, Robert Habeck, has championed an energy subsidy scheme, recognizing the detrimental impact that soaring energy prices can have on industries. He warns that without state support, Germany’s industry may wither away, as companies seek solace in countries with lower energy prices, such as France or the United States.
The German proposal includes tax cuts for energy-intensive industries and the expansion of existing subsidies to alleviate the costs imposed by the EU’s emission-trading system. While these ideas are controversial, as they may be seen as undermining fair competition within the EU’s single market, they reflect the acknowledgment that energy prices can significantly affect a nation’s economic landscape.
Nigeria is not exempt from these dynamics. Removing the petrol subsidy may appear economically prudent on paper, but the practical implications could be dire. Such a decision would inevitably lead to inflation, elevate the cost of living, burden businesses with higher operational costs, exacerbate poverty, and potentially derail the nation’s economic prosperity.
Inflation, the silent predator, emerges as a grave concern when subsidies are lifted. Renowned economist Milton Friedman once noted, “Inflation is the one form of taxation that can be imposed without legislation.” With the removal of the subsidy, the prices of essential goods and services, including transportation, will skyrocket. This, in turn, will drive up the general price level, leaving ordinary Nigerians to grapple with reduced purchasing power.
The cost of living, already a source of concern for many Nigerians, is set to rise. The economist John Kenneth Galbraith aptly stated, “The only function of economic forecasting is to make astrology look respectable.” In Nigeria, it’s not a matter of forecasting but rather a matter of acknowledging the harsh realities that will unfold as a result of this decision. The cost of basic necessities like food, healthcare, and education will become increasingly burdensome, placing additional strains on the already stretched family budgets.
Moreover, the cost of doing business in Nigeria will surge, creating a formidable obstacle to economic growth. Nigerian businesses, both small and large, are already grappling with numerous challenges, including erratic power supply, inadequate infrastructure, and a burdensome regulatory environment. Removing the petrol subsidy would be akin to adding fuel to an already raging fire, as the increased energy costs would cascade through the supply chain, making goods and services more expensive and hindering competitiveness.
Furthermore, the decision to remove the petrol subsidy has the potential to push more Nigerians below the poverty line. According to World Bank estimates, Nigeria is home to over 80 million people living in extreme poverty. These individuals subsist on less than $1.90 per day. The sudden rise in living costs and the increasing vulnerability of businesses may lead to job losses and decreased income for the already impoverished, thereby widening the chasm of inequality.
As the British economist John Maynard Keynes once wisely said, “In the long run, we are all dead.” The long-term consequences of this decision should not be underestimated. While removing the petrol subsidy may appear to offer short-term economic gains, it threatens the nation’s long-term economic prosperity. It is imperative to strike a balance between immediate fiscal responsibility and the broader social and economic implications of such a move.
Nigeria’s socio-economic landscape is a delicate ecosystem, where one decision ripples through every aspect of life. It’s not just about numbers on a balance sheet; it’s about the livelihoods of millions of Nigerians. Nigerian Nobel laureate Wole Soyinka once remarked, “A tiger does not proclaim his tigritude; he pounces.” In this case, Nigeria’s policymakers must tread cautiously, for the repercussions of their actions may indeed be felt with the ferocity of a tiger’s pounce.
The removal of the petrol subsidy, while economically rational, does not account for the intricate interplay of factors that shape the Nigerian experience. It is not merely an economic experiment; it is a policy that will directly impact the lives of ordinary Nigerians. As we dissect the decision, it becomes evident that economic rationality alone cannot provide the answers to the complex challenges that lie ahead.
It is, therefore, imperative that Nigeria’s leaders consider not just the economic implications of their decisions but also the human cost. As the influential economist Amartya Sen has emphasized, development should be viewed as the expansion of the real freedoms that people enjoy. It is not enough to focus solely on the fiscal bottom line; true development encompasses the well-being of the populace.
The petrol subsidy, despite its economic burden, has served as a lifeline for many Nigerians, particularly those in vulnerable economic positions. The removal of this subsidy, as advocated by President Bola Tinubu, necessitates a comprehensive strategy to mitigate the adverse effects. In the words of renowned economist Joseph Stiglitz, “The neoliberal experiment – lower taxes on the rich, deregulation, privatization – has been a spectacular failure.”
A comprehensive approach to subsidy removal should encompass targeted social safety nets, investment in alternative energy sources, and structural reforms aimed at reducing the cost of governance. Only by addressing the human cost and implementing these measures can Nigeria navigate the turbulent waters of subsidy removal while safeguarding the well-being of its citizens.
In conclusion, the decision to remove the petrol subsidy in Nigeria should not have been centered solely around economic rationality. While the economic argument for removal may appear compelling, the consequences extend far beyond the balance sheet. The ripple effect of subsidy removal will manifest as inflation, an increased cost of living, higher business operational costs, heightened poverty, and a potential hindrance to economic prosperity.
As Nigeria grapples with this pivotal decision, the words of the renowned economist John Maynard Keynes serve as a stark reminder, “In the long run, we are all dead.” It is crucial to strike a balance between fiscal responsibility and the broader social and economic implications of this decision. Nigeria’s leaders must consider the human cost and adopt a comprehensive approach to subsidy removal, one that safeguards the well-being of its citizens while pursuing sustainable economic growth.