Friday, January 20, 2012

Fuel Subsidy: Success or Failure? UPDATED

The way Baobab tells the story, Pres. Jonathan caved. He "bowed to pressure" and "buckled." I'm not so sure.

Consider that previous governments have also tried to remove the fuel subsidy and had no successes to show for it. Jonathan accomplished what his predecessors couldn't, a cut in the subsidy by 40-50% and an agreement that further cuts would be sought in the future. UPDATE: yet it has persisted despite the decreases from previous governments. Jonathan's subsidy reduction is the largest in nominal terms, but is only the fourth largest in percentage terms. The very short-lived Shonekan presidency increased the price of fuel 614% compared to Jonathan's request for 110%. More information here.

In my first reaction and in many people's, the government ought to have done things little by little, gradually reducing the subsidy so people had time to react and respond, and could see that (if) he was genuine in channeling the money to health, education, roads, electricity, and other public goods.

But there is a real political economy argument to be made for asking for the full subsidy in the hopes of getting half. People are no doubt happier and more docile today about a price of N97 per liter than they would have been had the government simply announced N97 on January 1.

Baobab could have just as easily said that the opposition buckled because they had demanded removal of all the subsidy and gave up the strike with a 50% increase in the price of fuel. If Pres. Jonathan succeeds in obtaining further reductions, he will have done exactly what I and others asked, gradually phasing them out.

UPDATE: Having found the above source, I am much less impressed about a 50% increase since it is the smallest decrease on record. What I would like to know is what the non-subsidized prices were during those other regimes, though, which Sobowale does not report.

No comments:

Post a Comment