Fuel subsidy removal: Implement social protection measures to mitigate impact on populace — NACCIMA urges FG

By Omolola Dede Adeyanju

The President,  National Chamber for Commerce, Industry and Mines Association (NACCIMA), Dele Kelvin Oye has written to the federal government on implications and suggestions on the current economic reform.

According to the proposal, “The June 2023 edition of the ‘Nigeria Development Update’ of the World Bank revealed that Nigeria has one of the highest inflation rates, that pushed an estimated four million people into poverty between January and May 2023. The inflation has risen to a 17-year high, and has been driven by a number of factors, such as CBN funding of budget deficit, previous multiple exchange rates, devaluation, and trade restrictions. The report further stated that about 7.1 million poor Nigerians would become poor if the Federal Government failed to compensate or provide palliatives for them, following the removal of fuel subsidy. Based on these projections, the number of poor Nigerians will rise to 100.9 million if the government fails to compensate vulnerable citizens for fuel subsidy removal.

”Since there were so many fiscal and monetary policies distortions accumulated in the past, it is normal that the new reforms would be accompanied wide some negative side effects. While NACCIMA agrees that the removal of the oil subsidy and foreign exchange management reforms at the Central Bank of Nigeria (CBN) are crucial measures to begin to rebuild fiscal and monetary spaces for restoration of macroeconomic stability; the immediate impact is however causing increase in prices, which is adversely affecting poor and economically insecure Nigerian households. Consequently, many households are currently resorting to coping mechanisms, such as: not sending children to school; not going to the health facilities to seek preventative healthcare or; cutting back on nutritious dietary choices. These among other consequences justified the need for adequate palliatives to shield Nigerian households from the initial price impacts of the subsidy reform.

”In achieving the Opportunities in the Economic Reforms, It is the position of NACCIMA that the inevitable critical reform agenda of the current administration to address macroeconomic imbalances, equally provides a window of opportunity towards a transformative impact on the lives of Nigerians (individuals and corporate; so that the economy can re-establish a solid foundation for sustainable and inclusive economic growth.

”Certain specific, critical measures to build on the critical reforms include: restoring macroeconomic stability by increasing non-oil revenue; reducing inflation through a sequenced and coordinated mix of trade, monetary and fiscal policies, and completing them with  foreign exchange reform; expanding social protection to protect the poor and most vulnerable, and developing and communicating how, as fiscal space recovers, resources will be redirected over time to meet urgent development challenges affecting the country.

”In order to implement such a comprehensive reform package, NACCIMA proposes a range of complementary measures, including a new social compact to protect the most vulnerable in the public and private sectors of the economy so as to maximize the collective impact on growth, job creation, and poverty reduction are necessary.”

The President noted that a national awareness campaign is essential for gaining public understanding and support for the elimination of petroleum subsidies as well as other preform programs.

“Such sensitisation should transparently communicate the rationale for the removal, the potential economic gains, and the government’s strategy to alleviate the immediate hardships faced by the poor and vulnerable, thereby helping to anticipate the type of backlash and protests observed during previous attempts to remove subsidies.”

He stated, “However, an important key to gaining the public’s trust in the government reform agenda is for the government to be transparent and accountable for the money saved by removing subsidies. The government must equally assure Nigerians that the end of subsidies is not merely a matter of policy; but a necessary step towards a more sustainable and prosperous future. This can be accomplished by demonstrating that the funds previously allocated to petroleum subsidies are now invested in directly beneficial public goods and services such as healthcare, education and infrastructure. In doing this, the government should collaborate with multiple stakeholders, such as labour unions and civil society organizations; as they exert considerable influence over public opinion, and their endorsement of subsidy elimination, among other programs could significantly contribute to its adoption by the public.

“Clearly there is the need for further oil sector reform to increase local production and reduce Nigeria’s reliance on imported refined petroleum This could contribute to the long-term stability of petroleum prices, mitigating the economic impact of the subsidy elimination. The recent opening of Dangote Refinery, the world’s largest single-train refinery, is a promising development, although it may not have an immediate impact on prices of fuel in Nigeria.

“In addition, the government should consider implementing social protection measures to mitigate the impact of the subsidy elimination on the vulnerable. These may include cash transfers, essential goods and services subsidies and job creation initiatives. With the petrol subsidy removal among other reforms, the government is expected to achieve fiscal savings of approximately N2 trillion in 2023, equivalent to 0.9 per cent of GDP. These savings are expected to reach over N11 trillion by the end of 2025. Therefore, compensating palliatives from such savings will be necessary to help shield the vulnerable in the economy (public,  private and individuals).”

He added, “NACCIMA believes that the removal of fuel subsidies in Nigeria is an urgent and crucial move towards economic sustainability and prosperity. However, it must be managed through a holistic approach that includes public awareness campaigns, stakeholder engagement, sector reform, and social protection initiatives. This reform is a unique opportunity to free the country from the economic burden of the fuel subsidy regime and embark on a path towards a brighter and more prosperous future. In addition, implementing appropriate palliative measures will help to cushion the possible negative effects of the reforms and stimulate growth in the economy.

“To this end, the Federal Government should engage with the NACCIMA and other private sector organizations in developing a comprehensive plan to support businesses and mitigate the effects of the current economic challenges.”