Nigeria’s economic operators differ on subsidy removal

Peter Egwuatu, Franklyin Alli
& Michael Eboh

02 January 2011, Sweetcrude, LAGOS — Economic operators are divided over the removal of oil subsidy by the Nigerian Government. While some welcome the development, others have rejected it.

Chairman, Advancement for Rights of Nigerian Shareholders, Dr. Farouk Umar, said: “I just pray that Nigerians should accept it. I have been against it before now but since government in their wisdom believes it will benefit majority of Nigerians then we should give them the benefit of doubt and watch whether they will use the proceeds from fuel subsidy to enhance provision of infrastructure and the general well-being of the people.

General Secretary, Zonal Shareholders Association Coordinating Committee, Mrs Oludewa Thorpe said: “We shouldn’t have been talking about subsidy by now. The subsidy ought to be removed because the big people are enjoying more than the common people.

“So I am in full support of the removal of the oil subsidy so that investors can build refineries that will eventually make competition keener and invariably bring down the price of petrol.

National Coordinator, Proactive Shareholders Association of Nigeria (PROSAN), Mr. Taiwo Oderinde, said: “The government has no direction. How can they come up with the idea of removing petrol subsidy now that President Goodluck Jonathan is talking of transforming the economy?

The removal means we will be buying petroleum products at higher prices and this will lead to higher cost of goods and services. So all this will lead to total hardship to Nigerians.”

Mr. Sunny Nwosu, National Coordinator, Independent Shareholders Association of Nigeria (ISAN) said: “If the government refused to remove subsidy from petroleum products, the business of refinery would not be profitable for operators. The removal will encourage competition in the petroleum sector which will in the long run reduce the price of petrol.

Subsidising petrol prices is a waste of resources and so removal of subsidy should save money that should be used for infrastructural development.

Market operators

Kayode Tinuoye, Senior Research Analyst, Afrinvest West Africa Limited, said: “The immediate impact of the proposed removal of fuel subsidies will be a sharp increase in prices of imported fuel as landing costs would now play a crucial role in price setting of petroleum products. This could potentially raise production costs for manufacturing companies. We would likely see a squeeze in margins which could lead to price adjustments in many cases.

“This is because a sizeable chunk of manufacturing costs in Nigeria relates to power and other energy related expenses. Further, domestic fuel costs will become highly correlated with global oil prices.”

Also speaking, Mr. Seye Adetunmbi, Chief Responsibility Officer, Value Investing Nigeria Limited, said: “The short-term effect may make the already impoverished masses worse off, likewise the already tasked and challenged manufacturing sector and may cause hike in inflation. “The extent which this short-term challenges may go or endure will depend on the judicious and prudent use and application of the money saved from the removed subsidy.

“In essence, it should be a bold step in the right direction towards impacting the economy positively in the long run, provided there will be probity in the public sector when the resources are channeled to salvage the infrastructural problems facing the nation.”

On his part, Mr. David Adonri, Managing Director, Lambeth Trust and Investment Company Limited, said: “It is a welcome development that the Federal Government of Nigeria has finally summoned the political will and remove petroleum subsidy.

Also reacting, the Director General, Lagos Chamber of Commerce and Industry, LCCI, Mr. Muda Yusuf, said: “The chamber has not taken an official position because there is no time to meet and deliberate on the issue, due to the public holidays. The chamber believes the removal would have both short-term and medium term effect on the economy and the welfare of Nigerians.

“On the short-term, the removal will have adverse effect on the economy as the prices of goods and services will skyrocket, and inflation will erode the purchasing power of the masses; in the medium-term, the economy will be much better for it as the removal will attract investors to the oil and gas sector.

The removal is inevitable; it is a short –term sacrifice, and the sacrifice is worth it.”

Similarly, Dr. Simon Okolo, a former NACCIMA chief, said, “Government should have addressed infrastructures deficit before removing the subsidy. Government should have engage in massive infrastructural development across the country, in repairs and construction of road network, the rail system, expansion of electric power generating capacity, repairs and reconstruction of petroleum products pipeline network and depots to improve and ensure effective distribution of petroleum products.

The above will help the people fathom the pangs of deregulation even as the government must ensure that appropriate palliative measures are put in place to cushion the immediate harsh impacts of the deregulation on the masses. I urged Nigerians to start adjusting to the pains of deregulation of petroleum product.”

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