N1,350/liter: Nigeria’s 30-day fuel cut revives the subsidy debate
Nigeria will sell petrol at cost through NNPC stations for 30 days, with public transporters first in line, as pump prices hover near N1,400 a liter. Finance Minister Taiwo Oyedele announced the step on Thursday in Abuja, according to Punch and Channels Television. He said it is a margin discount, not a subsidy. The Presidency later confirmed the measure has President Bola Tinubu’s backing. NNPC Retail will drop its profit margin for the period. If landing cost is N1,300 a liter, the product sells at N1,300, the Presidency said. Priority goes to commercial vehicles nationwide. “We are offering a discount on petrol dispensed by NNPC Limited for the next 30 days in the first instance with priority for public transporters nationwide.” The minister said. Oyedele was explicit. “It’s not a subsidy; government is just saying we sell to you at cost.” The old petrol subsidy ended on 29 May 2023. A second tool is a negotiated N1,350 ceiling on ex-gantry or landing cost, reviewed monthly and published. When costs exceed that ceiling, refiners and importers carry the gap and recover it later if crude or the naira eases. He called this price modulation, not price control. His stated logic: N1,400 today and N1,400 tomorrow beats N1,500 today and N1,300 tomorrow, because sharp fare rises rarely reverse fully. NNPC had already cut pump prices by N5 the same morning. Lagos and Rivers stood at N1,355; Abuja at N1,370; Yobe at N1,435. Oyedele said petrol had moved from about N830 a liter toward an average of N1,400 after crude rose from roughly $70 a barrel. The government has also waived taxes and duties on petrol, a relief he valued at more than N3.3 trillion through 30 September 2026. The package sits inside 10 measures, including forward crude sales to domestic refiners once previously committed barrels free up. Labour is not waiting. The Nigeria Labour Congress on Wednesday gave the government two weeks from Friday to cut petrol toward 2024 wage-era levels and reopen minimum-wage talks. Opposition groups were sharper. The Nigeria Democratic Congress (NDC) and the Obidient Movement called the 30-day window tokenism and an election-season subsidy by the back door. Dangote Refinery had raised its ex-gantry price in September, then cut it by N25, forcing NNPC to reprice. Marketers still fear private-depot costs will keep retail sticky. The open question is arithmetic. A forgone margin for 30 days is cheaper than the old subsidy, but a hard N1,350 ceiling only works if importers can truly recover later.
Monetary policy on point, but fiscal measures remain insufficient
A year after his appointment as the governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso has come the same conclusions as many of his predecessors – Nigeria’s successful monetary policy is dependent on appropriate fiscal policies, measures, and programmes. For instance, in his presentation after the monetary policy committee in September, the governor said: “Members (monetary policy committee) therefore reiterated the need to work in close collaboration with the fiscal authority to address the current upward pressure on energy prices. The MPC noted the continued growth in money supply, recognizing the need to curtail excess liquidity in the system as well address foreign exchange demand pressure. Members were also concerned about the growing level of fiscal deficit but acknowledge the commitment of the fiscal authority not to resort to monetary financing through ways and means. Furthermore, members observed a strong correlation between FAAC releases and liquidity levels in the banking system as well as its impact on exchange rate.” From this statement, it is not only clear that current macroeconomic stability measures of the Bank are hindered by fiscal policy measures but that there is a lingering mindset in the government at all levels that the solution to all problems is to spend. This mindset is also responsible for the poor choices made when it comes to expenditure. While energy prices are rising following the removal of subsidies, it been exacerbated on the back of the volatility and weakness of the exchange rate that arises from pressures from FAAC releases. Fig. 1. Changes in fuel prices showing dramatic changes since June 2023. As also shared above, the growth in money supply and excess liquidity in the financial system, exerting pressures on prices and exchange rate, also originates from fiscal expenditures. The governor also expressed concern over the growth in deficit financing of the budget. After his appointment in September 2023, Yemi Cardoso has set to do three major things – fight the twin elements of macroeconomic instability in exchange rates weakness and volatility, and inflation, strengthen the country’s financial system, and clean the rot in the apex bank in relation to lose monetary policy arising from development banking. By suspending all development banking measures, the governor has cut the over N10 trillion liquidity through credit subsidies, and strengthening the banking system through the ongoing new capital requirements. However, establishing macroeconomic stability remains a tough challenge. Notwithstanding, the Bank, under Cardoso’s leadership, has grown the country’s external reserves by nearly 20 percent since September 2023, with reserves up from the US $33 billion in 2023 to US $39 billion in September 2024. The macroeconomic instability challenge is also a common theme in the analysis provided by all monetary committee members in their statements released last week. It is on the basis of this that all members of the MPC voted to raise the monetary policy rate by 50 basis points from 26.5 percent to 27.25 percent except Philip Ikeazor, the deputy governor in charge of financial stability, according to the personal statements released by the Bank last week, To see the changes in the Nigeria’s debt dynamics since the Q1 2024, ThinkBusiness Africa checked the debt data releases on the debt management office (DMO) website. It observed that the latest data for Q2 2024 has not been released. It thus means that for this first in this decade, the subsequent quarter has elapsed without the releases of the latest debt data for the previous quarter. If this persists, doubts will begin to set in about whether the government is hiding the latest data of deficits and debts or seeking to manipulate the level of deficits and debts as done under President Muhammadu Buhari when the government hid the data on ways and means until the twilight days of his administration. Since June 2019, all debt data releases were done in the middle of the following quarter.
NELFUND should support Nigeria’s professional needs and not certificates for the sake of it
There is a sense that every measure of what constitute reforms under President Bola Ahmed Tinubu seeks to deal with the metrics rather than the conditions. For instance, there have been two sets of broad changes made under his presidency. The first set is the market based economic changes of the removal of fuel subsidies during his inauguration speech and the liberalisation of the foreign exchange market two weeks after. Those two changes focused on the prices rather than the market conditions that drive the underlying prices. Rather than seek to understand and change the market conditions that deliver the unacceptable prices, the President had proceeded to change the prices and expected the market conditions to align. Of course, that did not happen. The other set of “reforms” is the different categories of financial support provided to different groups of people on the back of worsening economic crisis under his leadership. We now have a deepening and broadening of the social support programmes first introduced under President Muhammadu Buhari. In this case also, rather than focus on the underlying challenges around production and productivity, the president has focused on providing different forms of cash transfers which invariably chases the same amount of goods in the economy. However, there is something entirely new about the student loans support. The Nigeria Education Loan Fund (NELFUND) established last year with an initial N5 billion is a great initiative but requires reforms. The loan is expected to provide increasing access to higher education to those that cannot afford it. With a monthly allowance of N20k and payment of relevant tuition fees, it is expected that 1.2 million students will benefit in the first phase. So far, an estimated near 300,000 students have already applied. But access to higher education has never been a serious problem. Access to quality and relevant higher education is the national problem we face. As it is, the loans are used by any student that needs it, but this does not necessarily means that it is used by the student that really needs it. Since the loans are not means tested, it is not necessarily the most indigent that gets it. So, rather than focus on expanding access to just any course in any higher institution in the country, the resources should be used to support the professional needs of the country. Rather than focus on the financial handicaps of students, the loans are better off supporting the growth and expansion of the professional areas most needed by the country – medical, biological, and technological sciences. These are areas where Nigeria can most benefit in the medium and long ter, using the loans as incentives. It is time for Nigeria to move beyond elements of socialism and the democratisation of poverty. The scarce resources available for scholarships should be used to solve Nigeria’s problems and not for personal egos. Spending four years doing courses and attending universities classes that do not add anything serious to knowledge and skills should not be our priority but how to fill the enormous gaps in the fields of medicine, pharmacy, technology, labs science, electrical, civil, and other forms of engineering fields. These are those that require incentives to study those courses. Indeed, because of the length of some of these courses, the relative higher costs of studying them, and the perceived faint interests by the government in these areas, many intelligent and brilliant students avoid them. By also focusing on the excellence of students, irrespective of financial background, which the government is not able to judge in the applications anyway, the government will be providing incentives for excellence. In conclusion, Nigerians have always loved education. Though that has metamorphosed into the erroneous love for certificates, rather than knowledge. It has also led to the rapid increases in the number of universities without commensurate increase in knowledge and skills. A corollary of that is the many degrees in our universities that have no further implications than the certificates awarded. It is no wonder that the managing director of NELFUND, Akintunde Sawyerr believes the students should be further supported with job opportunities if they do not get one two years after their service year. NELFUND should not preoccupy itself with that. It should be about supporting the best students to be relevant to Nigeria’s economic growth and development. So, instead of providing across all kinds of courses in all kinds of higher institution, the fund should support Nigeria’s priorities and expected outcomes. I thank you.
