Last Monday, while addressing workers in Benin, Edo State capital, on the occasion of this year’s Workers’ Day, Mr Godwin Obaseki, Edo State governor, said that the federal and state governments may not be able to pay workers’ salaries beyond June unless the country either resorts to massive printing of money or removing fuel subsidy.
His words: “It would be a miracle for the Federal Government and state governments to pay salaries beyond June this year without resorting to massively printing of money or removing fuel subsidy. Either of these decisions will bring more hardship and pain to Nigerians, particularly workers.”
The statement by Governor Obaseki is similar to the one he made in April 2021 when he alleged that the Federal Government printed N60 billion to shore up the allocation shared by the three tiers of government for March 2021. Although this was initially dismissed by the Minister of Finance, Budget and National Planning, Zainab Ahmed, who said the FAAC allocation was revenue from different agencies of the government, the Central Bank of Nigeria (CBN) governor, Godwin Emefiele, later said there was nothing wrong with the CBN printing money and lending to government.
Mr Obaseki’s concern about the inability of federal and state governments to pay salaries beyond June if subsidy is not removed is hinged on the huge sums of money the Nigerian National Petroleum Corporation Limited (NNPCL) expends on subsidy monthly which has resulted in the decline of remittances by the organisation into the Federation Account.
Nigeria is in a dire strait because despite being an oil producing country, the bulk of the petrol consumed in the country is imported. With the nation’s high exchange rate regime, the cost of freight and other ancillary charges, the real pump price of Premium Motor Spirit (PMS) would be sky high. To cushion the effect of this on the citizens, the government has been subsidising the difference between the landing cost and regulated pump price of PMS.
With average daily consumption of PMS put at 68 million litres by the NNPCL, sustaining the subsidy regime has been at a very huge cost to the country.
According to the Nigeria Extractive Industries Transparency Initiative (NEITI), the country spent N13.7 trillion on fuel subsidy from 2005 to 2020. If the 2021 figure of N1.43 trillion, the 2022 amount of N4.39 trillion and the N3.36 trillion proposed for the first six months of 2023 are added to the figure provided by NEITI, it means the country spent a total of N22.88 trillion on fuel subsidy in 18 and a half years.
On the other hand, the nation’s debt profile has been spiralling. The debt has risen from N12.118 trillion in May 2015 to over N66.9 trillion with Ways and Means (borrowings from the CBN) standing at N22 trillion.
Given this scenario, the Federal Government said in 2022 that it would do away with fuel subsidy by the end of June 2023 in accordance with the Petroleum Industry Act.
While addressing the House of Representatives’ Ad Hoc Committee investigating petroleum products subsidy from 2013 to 2022, last year, Minister of Finance, Budget and National Planning, Zainab Ahmed, reiterated the Federal Government’s plan to end the subsidy regime.
She said the government had proposed a new date of June 2023 to end subsidy or under-recovery.
According to the minister, “This situation is not desirable and it is not sustainable. It is putting the country in a very serious, dire financial situation and we do hope that we will be able to exit this subsidy regime in the shortest possible time.”
However, at the end of the valedictory meeting of the National Economic Council (NEC) in April, the Minister of Finance, Budget and National Planning, Ahmed, told the country that the council had agreed that petrol subsidy should not be removed in June 2023 as earlier planned.
She said, “Council agreed that the timing of the removal of fuel subsidy should not be now but that we should continue with all of the preparatory work that needs to be done and that this preparatory (work) has to be done in consultation with the states and other key stakeholders including representatives of the incoming administration.
“Council agreed that the fuel subsidy must be removed earlier rather than later because it is not sustainable. We cannot afford it anymore. But we have to do it in such a way that the impact of the subsidy is as much as possible, mitigated on the lives of ordinary Nigerians.”
But this was later changed as the minister denied announcing the suspension of the subsidy.
In a statement by her Special Adviser on Media & Communications, Yunusa Tanko Abdullahi, the minister said, “Against the backdrop of the story in some media that the Federal Government has suspended the removal of petrol subsidy, the government has said that it has not suspended the removal, but has rather expanded the subsidy removal committee to include teams from the incoming administration and the state governors.”
Truth is, there is no easy way out of the subsidy conundrum for the country. It is damned if you do, damned if you don’t situation. This is because PMS subsidy removal would immediately result in a hike in prices of essential commodities which would aggravate the suffering of the masses and could pit the people as well as the labour unions against the government.
The Nigeria Labour Congress (NLC) has said that subsidy removal would set the country on fire as Nigerian masses and workers would not accept PMS price hike in the name of subsidy removal.
According to the NLC’s General Secretary, Emma Ugboaja, “It smirks of wickedness for us to be discussing subsidy as an issue rather than discussing production. We are discussing subsidy as an economic theory rather than discussing production.
“The energy and resources that people are putting into discussing subsidy show a lack of focus. It shows a lack of seriousness and a lack of appreciation of what governance should be.”
Speaking in a similar vein, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) said the planned subsidy removal could shut down businesses, especially the Small and Medium-Scale Enterprises (SMEs).
According to John Udeagbala, NACCIMA president, “NACCIMA and indeed the organised private sector of Nigeria are not against subsidy removal from fuel, however, we are concerned about the impacts of the subsidy removal on our businesses which are already burdened with so much economic pressures and difficulties, leading to the shutdown of many SMEs and more unemployment in the country.”
NACCIMA then advised the government to fix the country’s refineries before considering subsidy removal.
That view is similar to that of the Nigeria Union of Petroleum and Natural Gas Workers and the Trade Union Congress (TUC) both of which say the best thing for the government to do is to fix the refineries rather than planning to remove subsidy.
But others believe the country would go deeper into debt if it fails to remove subsidy.
Speaking on the need to remove subsidy, President of the Lagos Chamber of Commerce and Industry (LCCI), Dr Michael Olawale-Cole, said, “Removal of fuel subsidies is, amongst others, expected to spur investments in domestic refining and petrochemicals and create a significant value chain for the various stakeholders.
“Though the planned removal of fuel subsidies may cause further northward movement of inflation in the short term, it is arguably one of the best economic decisions to reduce our unsustainable debts and widespread corruption in that sector.”
Similarly, chairman of the Major Oil Marketers Association of Nigeria (MOMAN), Mr Adetunji Oyebanji, said the association would support subsidy removal.
According to him, subsidy removal would allow operators the opportunity to recover their costs, adding that this would, in the long run, encourage investment and create jobs.
He added, “The Ministry of Petroleum Resources should also be telling Nigerians that we can no longer afford subsidy. If we keep it, the investment in infrastructure, health, education, etc., will not be possible. We are borrowing so much to finance our budget. It is unsustainable.”
Revenue problem
Although the subsidy imbroglio has caused the country to rack up debts, managers of the nation’s economy agree that Nigeria’s major challenge is revenue generation.
Zainab Ahmed, Finance Minister, while speaking at the Nigeria International Economic Partnership Forum in New York last year, said, “We do have a revenue problem.”
Similarly, Director-General of the Debt Management Office (DMO), Patience Oniha, said recently that the country has issues with revenue generation.
She said, “How much revenue is Nigeria generating? Statistics show that relative to other countries, Nigeria’s revenue is low. The World Bank’s World Economic Outlook for 2020 showed that Nigeria with a revenue to GDP ratio of 6.3 percent was ranked at 194 out of 196 countries covered.”
Commenting on this and the need for the incoming administration to think outside the box to generate revenue, Dr Ayo Abina, chairman of AACS, an international consulting and investment company, while agreeing that revenue is a major challenge for the country, said Nigeria could generate a minimum of $134.3 billion in a year.
The financial expert and former top banking executive, who said this during an interaction with the Nigerian Tribune, premised his submission on the earnings for 2022.
Abina said in addition to the $45.6 billion earned from oil receipts and $22 billion collected by the Federal Inland Revenue Service (FIRS), Nigeria could earn additional $53 billion by raising tax-to-GDP collection ratio to 15 percent without increasing taxes, save $9.7 billion by removing fuel subsidies and save $4 billion by tackling oil theft.
“These amount to $134.3 billion revenue. With this, we won’t need to borrow to finance our 2023 budget,” he said.
Expatiating on this, Abina said, “The Nigerian GDP is estimated at $500 billion, and driving that economy size should generate between 20 percent to 25 percent revenue. This assumes a minimum of about $100 billion to $125 billion in the economy as revenue yearly. The projected 2022 budget was N17.1 trillion ($36.7 billion), with N10.7 trillion ($23 billion) as revenue, and N6.4 trillin ($13.7 billion) projected to be financed through borrowing. In an ideal situation against the backdrop of the nation’s GDP, the budget could be financed without borrowings.”
Abina, who identified the six issues that the incoming administration has to focus on as revenue, fuel subsidy, realignment of exchange rate, oil theft, infrastructure and security, added: “According to the Federal Inland Revenue Service (FIRS), the agency collected $22 billion in tax revenue (a massive 56 percent increase year-on-year) in 2022. However, there could still be a capacity for another $53 billion (projecting a tax-to-GDP collection ratio of 15 percent) if the tax process is reviewed, with a deeper dive into waivers and concessions.
“According to OECD, Nigeria’s tax-to-GDP ratio of 5.5 percent in 2020 was lower than over 31 African countries, including Uganda (11 percent), Ghana (13.4 percent) and South Africa (25.2 percent). In the United States, it is 25.8 percent and 33.6 percent in the UK. There are a lot of improvements that can be achieved in collections without an increase in tax rates. Further, Nigerian National Petroleum Corporation (NNPC) reported that subsidies gulped almost $9.7 billion, and an estimated $4 billion was lost to oil theft in 2022. The National Bureau of Statistics (NBS) data puts oil sale receipts at $45.6 billion (N21 trillion) for the same year.”
Abina stated that an addition of these possible generated revenues would give a total of $134.3 billion.
“This is outside of revenue lost to multiple exchange rate regimes. This figure, run as an assumption against the 2023 budget of N21.8 trillion ($46 billion), would mean that the entire budget of the year can be fully funded without borrowing. This size of revenue opens an avenue for healthy borrowing, which could provide a needed increase in the spending-to-GDP ratio of the nation from 9.1 percent to about 35 percent or $175 billion.
“It would allow the nation to pay attention to its huge spending needs, and the consequent multiplier effect on possible double digit economic growth yearly, and further increase revenue generation. The US and UK spending-to-GDP ratio is put at about 34 percent and 40 percent, respectively.”
Abina added that paying attention to revenue generation and tackling these issues would help the country to overcome its economic challenges.
“There is more revenue in the economy based on the size of the current GDP,” he said.
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