The Fuel Subsidy Removal Protests for Dummies

On the first day of the indefinite general strike organised by a coalition between two of the largest unions in Nigeria – the TUC and the NLC – and a cluster of smaller unions and social media-based activists and organisations, some external observers have expressed surprise at the intensity of resistance the “Occupy Nigeria” campaign has mounted against the removal of the fuel subsidy on January 1st and the size of the mass demonstrations taking place. From an outside perspective, it might seem like a dust-devil has been whipped up without why in the desert.  In case there’s still any confusion, allow me to explain why there is so much anger and resistance.

The answer begins with a question: would it be acceptable to citizens of affluent countries that the price of petrol doubles overnight without any warning? Perhaps Jeffrey Sachs would be alone in his view, or perhaps he only prescribes a certain type of medicine for African countries. Perhaps the view from Sachs' brain is that Africans can get by on generic drugs long past their sell-by date.

Aside from Sachs' development fantasies, the lived reality of citizens of the Nigerian state is that it provides little or no security, no infrastructure, no education and no employment opportunities (apart from mostly McJobs in the civil service).  Everywhere in Nigeria, the basic elements of civilised existence have to be taken care of house-by-house, compound-by-compound.  You must sink your own borehole for water, buy, install and fuel a generator for power, hire security guards to keep the wolves from the door, pay school fees to ensure your kids get a half-decent education because the public school system is in perpetual meltdown. And to earn enough money to get through the day, you must hustle.

The breakdown of a standard tax and political representation based social contract between citizens and the state in Nigeria is almost entirely a result of the past few decades of the so-called ‘resource curse’.  Earning billions of dollars each year from crude exports, the Nigerian government has no need to rely on tax from individuals or local companies; tax and royalty payments from the international oil companies (as well as historically, loans from international financial institutions) have been sufficient to fund the annual budget at all levels of government.  For the past few decades, cheap fuel has therefore been the only form of social contract between ordinary Nigerians and the state and the principle lever to control inflation during times of rising oil prices.  With most Nigerians subsisting on US$2 or less, subsidised fuel has also been a survival mechanism, making life only just bearable.

It was therefore highly surprising to Nigerians to find out that the fuel subsidy had been removed on January 1st and that the price regulating body under the Nigerian National Petroleum Corporation (NNPC) – the PPPRA – had more than doubled the price of petrol overnight.  No one had been given warning.  The expectation was that the subsidy would be removed at the earliest in April.  The strong suspicion is that following on from Christine Lagarde’s visit to Nigeria in late December, the government had accelerated its plans.  From the views of key government figures, it’s easy to see how Nigeria acceded to IMF pressure with little or no resistance.  The Finance Minister, Ngozi Okonjo-Iweala, has repeatedly stated that removing the fuel subsidy would only hurt the affluent car-owning population, forgetting how central the price of fuel is to almost every basic aspect of life here.   Meanwhile, the Governor of the Central Bank, Sanusi Lamido Sanusi, has stated that removal of the subsidy would only have a short-term inflationary effect.  With opinions like this, the IMF was walking into an open door.

Given the state of the global economy, it is little surprise that the IMF is in favour of insisting on reducing debt wherever it can.  However, the IMF also appears to be suffering from institutional amnesia; what is happening in Nigeria is in some respects a re-run of the Structural Adjustment Programme in the 1980s, and President Ibrahim Babangida’s short-term attempts to resist austerity measures.  As we will recall, “IBB” ended up creating his own austerity package, which was more severe than that proposed by the IMF.  The Nigerian economy quickly tanked, resulting in mass suffering among Nigerians.  Fundamentalist strains of evangelical Christianity mushroomed forth from the barren earth.  Unlike the World Bank, which is increasingly taking political-economy factors seriously in its analysis and its programmes, even today the IMF and its high-priesthood consultants views the world from the numerical altar of macro-economics.  The technocratic nature of the IMF means that the organisation is in fact programmed to forget the past.

During the recent fuel subsidy debate on local Nigerian TV station Channels, Mrs Okonjo-Iweala was keen to state what she referred to as ‘facts’.  At no point has anyone in the executive effectively challenged former Petroleum Minister Tam David-West’s querying of whether there is a subsidy in the first place, or whether the landing cost of imported fuel has been artificially padded.  Given the findings of the recent KPMG report into the NNPC, it seems that facts about the oil sector in Nigeria are thin on the ground.

The defence offered by the Finance Minister during that same debate is that the savings from removal of the subsidy would be spent on a palliative capital-spending programme – the Subsidy Re-investment and Empowerment Programme (SURE).  Nigerians have raised a number of critical objections to this proposal and the timing of subsidy removal. 

Firstly, given the glut of money in state coffers in the past few years and the lack of any successful infrastructural development (for instance in power and transport), there is little guarantee that the SURE programme would be implemented or successful, rather than go the way of all initiatives in the past.  The government of Nigeria has not been able to significantly raise the amount of power generated, nor has it been able to achieve the low-tech objective of revamping the dilapidated railway network, still less has it been able to improve standards in public education and healthcare.  What then would be different about the SURE programme?

Secondly, while most Nigerians are probably not ideologically opposed to subsidy removal (and targeting the corrupt ‘cabal’ of fuel importers who benefit from the subsidy), they are utterly opposed to the timing, given the insecurity in the land raised by Islamic militancy in the North and the potential for renewed militancy in response in the Niger Delta.  A phased subsidy withdrawal, as has happened elsewhere, would have been the preferred approach.

Thirdly, the idea that removing the subsidy equates to ‘deregulation’ and the equivalent private sector boom as witnessed in the past decade in the telecoms sector is highly suspect to most.  For the downstream oil sector to be deregulated, there has to be new legislation in place.  The Petroleum Industry Bill, which separates the functions of a national oil company, regulation and policy-making, would need to become law.  We have been waiting since the previous minister of petroleum for the PIB to be passed.  At present, the NNPC is the epicentre of corruption in the oil sector in Nigeria, and has to broken up into its constituent parts for the private sector to be given space to grow its role.  In addition, Nigerians would want to see a much higher percentage of crude oil refined locally, rather than the current reliance on imported fuel, to ensure a favourable local pricing policy that does not depend on state subsidy.  Without any of these key deregulatory building blocks in place, removal of the ‘subsidy’ now is simply terrible timing and does not inspire confidence among a people who long ago lost their faith in government.

Finally, if savings are urgently required from the annual government budget, most Nigerians would argue that the first place to cut costs is that of the price of running government itself.  As the Governor of the Central Bank pointed out last year, the National Assembly consumes 25% of the Federal overheads budget; the cost of running the President’s office has been widely publicised in recent weeks (including a billion naira food bill).  It is rare to see a member of the executive - down to director-generals of government agencies most Nigerians have never heard of - travelling without a sizeable convoy of expensive cars.  Nigerian government delegations to international conferences and gatherings are often by far the largest, with a supersized retinue of special advisors, assistants and staff for the first-wife in attendance, there to collect their allowance and have access to shopping opportunities overseas.

As it is, most Nigerians are poor, and will simply not be able to survive with any comfort on US$2 a day and a doubling of living costs.  That the government of Nigeria didn’t foresee the massive level of resistance happening today is quite bewildering. It shows a complete disconnect and disregard for Nigerians.  However, where there is the greatest danger, there is greatest hope.  Nigerians have never been so united in years – last week, in the unofficially renamed Liberation Square in Kano, Christians guarded the space as their Muslim co-protestors prayed.  In return, last Sunday, Muslims guarded Churches as others prayed inside. 

What we are witnessing with Occupy Nigeria is a generational transfer, as young, social-media enabled activists gradually take over the baton from unionist stalwarts.  Nigeria's young population is increasingly letting go of the deferential attitude of their parents generation.  In the south at least, young Nigerians are beginning to ask questions of the religious leadership that has been complicit with the status-quo.  At long last, there is accountability pressure building up in the system.

In the short term, following on from the next few days of protest and shut-down, it’s hard to imagine anything other than a policy reversal, and a planned withdrawal being announced, in step with a clear programme of projects that must be delivered before any further withdrawal of subsidy is implemented (citizens monitoring a re-drafted SURE programme for instance).  Even at this very late stage, President Goodluck could become a hero of the process.  Come what may, underlying events this week a deeper shift is at work: a new generation of Nigerians well versed in events to the north in Tunisia, Egypt and Libya is demanding that the terms of the social contract in Nigeria are re-written, in favour of increased accountability in political leadership.