Sutflute & Young Paperboyz respond to the current situation in Nigeria.

What is it with government economists that encourages them to recommend "solutions" that almost always place the burden on the shoulders of those who can least afford it?

Since the start of the financial crisis in 2008 the US government has more or less allowed everyone but the already wealthy, especially the banking community, to feel the pain of a crisis caused, for the most part, by the banking community.

Right now, various governments across Europe are cutting back on government spending at a time when the business sector is reluctant to spend money and is still busy laying people off. So far the indications are that these cuts will end up doing the opposite of what the governments' want, and the pain will be mostly felt, not by the wealthy but, by people who weren't responsible for the mess that led the governments to implement these cuts.

And in Nigeria the government's decision to remove fuel subsidies caused petrol prices to more than double overnight, from 65 Naira ($0.40; £0.26) to at least 140 Naira per litre, sparking nationwide strikes and mass protests that are also taking place in the diaspora (more videos here and here; follow and have your say on Twitter at #fuelsubsidy, #occupyNigeria and @occupynigeria).



BACKGROUND
Nigeria is one of the world's biggest oil-exporting countries, producing 2.4m barrels of crude oil a day. However, almost all of it is shipped to the United States (to which it is one of the biggest suppliers), Europe and Asia. And, indignity of all indignities, Nigeria has to import refined products like petrol and diesel at high prices because decades of mismanagement have left its own refineries in a state of disrepair.

Despite being an oil-rich country, most Nigerians live on less than $2 USD a day and haven't felt any of the benefits of living in an oil-rich state, besides cheap fuel. So, to keep prices low, the government subsidised this imported fuel. Thus fuel prices were capped at 65 Naira per litre ($0.40; £0.26) but, by the law of unintended consequences, the cap meant that the Nigerian government ended up subsidising the West African region as a whole because some of the petroleum products intended for the Nigerian market ended up in the rest of West Africa where fuel prices were two to three times higher.

Furthermore, the subsidy made it difficult for private investors to get excited about going into the refinery business because they knew they would not be able to match the 65 Naira per litre Nigerians were used to paying.

So the subsidy had to go. The warning came in December when the government released a list of the people who benefit most from the subsidy, which included some of the country's richest people - the owners of fuel-importing firms. Then on the 1st of January the country's fuel regulator announced the immediate end of the subsidy. The government expects this to save the country $8bn USD a year, and the idea is to invest the savings in improving the country's transport infrastructure, power-generation, education and health. It wants to promote domestic production because these are necessary steps towards development and industrialisation.

The IMF has long urged Nigeria to remove the subsidy, so it supports the move. That, if nothing else, would and should make even the most gullible suspicious because since when has the IMF's approval of anything been in Nigeria's interest, or in the interest of any African country at all?

Anyway, the consequence of the removal of the subsidy was the immediate doubling of petrol to about 140 Naira a litre. Not surprisingly, the country erupted in protests and mass strikes.

The government was expecting the eruption of fury, and the president, Goodluck Jonathan, in an address to the country said, "If I were in your shoes at this moment, I probably would have reacted in the same manner as some of our compatriots, or hold the same critical views about government. But we must act in the public interest, no matter how tough, for the pains of today cannot be compared to the benefits of tomorrow. Either we deregulate and survive economically, or we continue with a subsidy regime that will continue to undermine our economy and potential for growth, and face serious consequences”

 


INJUSTICE
The protests aren't really about the removal per se, but about distrust and injustice.

1. Distrust: Government spokespeople say the benefits of these savings will be evident within 6 months, and the longer term structural benefits within 2 - 3 years, but most Nigerians don't believe this. This lack of trust is not without reason: it's an open secret that in the past high-placed government officials have embezzled billions of the country's money ($440bn between 1960 and 1999 is one estimate). Nigeria's Economic and Financial Crimes Commission (EFCC) has had a number of successes in  prosecuting former high ranking officials and recovering a few of the billions stashed abroad, but what's been recovered is a small fraction of what was lost.

2. Injustice: the subsidy was removed in one go, and with the burden falling on those who can least afford it. $3.50 a gallon in a country where the majority live on less than $2 USD a day!

As Seun Kuti, the son of afrobeat musician and vocal anti-government critic Fela Kuti, said "I'm not talking economics here, I'm just talking common sense. You cannot charge $1 a litre when the [majority of the] population lives on less than a dollar a day."

89% of the national wealth belongs to the less than 1% of Nigerians, so this fuel increase which is expected to lead to the rise in the cost of living (food, transport, rent, etc.) will be felt a heck of a lot more by the >$2 USD-a-day majority than by the the owners of fuel-importing firms. Nigeria already had one of the highest inequality rates in the world and the removal of the subsidy will only make that worse.

It is particularly galling for Nigerians because this effect of the removal of the fuel subsidy will neither be felt by the president nor by any of the other members of parliament who maintain the subsidy had to be removed in one go or else. The president promised to cut the basic salaries of all members of the federal government by 25%. But this does not include members of parliament and of local and state governments, whose salaries make up a large portion of government spending. So the president and top government officials really aren't leading by example and people know this.

Nigeria's presidential democracy is one of the most expensive in the world. Ghana has a more stable democracy and its economy is growing faster than Nigeria's, but its lawmakers earn one-tenth of what their colleagues in Nigeria's House of Representatives take home. A Nigerian senator's basic annual salary ($198,400) is higher than that of a US senator ($174,000) and more than double that of a UK Member of Parliament (£64,766). And that's without the allowances that can take a Nigerian senators annual take home pay to $1.7 million.

The present Nigerian lawmakers have taken home approximately $2.6 billion in salaries and other perks in the space of 4 years. Since the big reason for halting the subsidy is fuel, that sum could apparently build four new refineries and rehabilitate the existing four.

As always those who make the decisions feel no pain while those who can least afford it get it in the neck. Injustice much? The protests continue, the federal government's budget proposal is up for approval in the coming days, and Jonathan has made clear he will not back down. Let's see how this one plays out.

Our favourite from MyWeku's collection of photographs depicting the humorous way Nigerians are responding to the hike in fuel prices.