“More expensive than the subsidy” – is FGN’s 5,000 N transport subsidy dead on arrival?

Zainab Ahmed, Minister of Finance, Budget and National Planning, said on Tuesday that the federal government would remove fuel subsidies by 2022 and replace them with a 5,000 naira subsidy for the poorest Nigerians. According to her, around tens of millions of Nigerians would benefit from the transport subsidy.

In the wake of the revelation, Nigerians online and offline have weighed in on the policy, raising a number of reservations about the policy, which is expected to take off between February and June 2022.

While some say politics is inevitable, given the fiscal situation of Nigerian states, others differ, pointing out that Nigeria is an oil producing country and shouldn’t have to pay so much for gasoline.

TheCable reported on Wednesday that Nigeria had the third lowest price at the gasoline pump in Africa, after Angola and Algeria. This position strengthens the argument for maintaining oil subsidies – if other oil-producing states do, Nigeria can keep the subsidies as well.

On the other hand, some Nigerians believe that the removal of subsidies is long overdue. This school of thought claims Nigeria is at least 10 years behind the party. They see subsidies as unsustainable, inefficient and responsible for the lack of competition in the oil sector.

However, much of the two schools of thought do not fully believe in giving transport subsidies of 5,000 naira to the poorest Nigerians. Some say the subsidy will be more expensive than the current fuel subsidy and would have an even more serious impact on the state’s finances.

TheCable has taken a look at everything we know about this policy to draw informed conclusions about the subsidy removal and replacement plan.

MORE EXPENSIVE THAN A SUBSIDY?

Zainab Ahmed answers questions at NDU launch event

You may have seen statements online suggesting that 5,000 N for 40 million Nigerians per month equates to 2,400 billion N, which is more than the existing subsidies of around 1,800 billion N per year. Mathematically, this is correct. But from what we know about politics, that’s not exactly the case.

Speaking at the launch of the Nigeria Development Update (NDU) organized by the World Bank, the finance minister said the number of beneficiaries would vary between 30 million and 40 million.

In her opening speech, she said: “Before the target date of mid-2022 for the complete elimination of fuel subsidies, we are working with our partners on measures to cushion the potential negative impact of the elimination of fuel subsidies. subsidies on the most vulnerable to the poorest 40% of the population.

“One such measure would be to institute a monthly transport subsidy in the form of a cash transfer of 5,000 naira to between 30 and 40 million deserving Nigerians.”

For 30 million Nigerians, the cost of maintaining this subsidy per year will be 1.8 trillion naira, which is as bad as the subsidy payment itself. From what the minister said at the outset, the cost of subsidies is worse. This is what motivates the argument in favor of maintaining the subsidies.

However, the minister also told the roundtable that the grant may not reach the 40 million Nigerians, suggesting that the final figures will depend on the resources available. This means that far less than a trillion naira could possibly be spent on implementing the policy.

TIME: FEBRUARY OR JUNE 2022?

Another challenge with the project is the timeline; questions abound on the exact date of the launch of this project. According to the law on the petroleum industry, the subsidies should be removed by February 2022. But according to the 2022 budget, the subsidies will be paid until June 2022.

Two contradictory laws? Not exactly. When the PIB was signed by President Muhammadu Buhari, the President set up an implementation committee to execute the PIA within a year.

The committee, in agreement with the Ministry of Finance, Budget and National Planning, left room for grants until June 2022, but the removal could take place as early as February to save the government from grant funds.

Will December, January and February be enough to convince Nigerians to cut subsidies? Time will tell us.

HOW WILL THE 40M NIGERIANS BE SELECTED?

Beneficiaries would be identified as they were with other SIPs under the Buhari government, but payments will not be made physically like this

Yes, this is a recurring question. But according to the minister, the selection process will build on the existing conditional cash transfer registry used by the vice president’s office to administer payments to poor and vulnerable Nigerians in the past.

The minister said the government will work with state governments and non-governmental organizations (NGOs) to ensure that the people who get the grant are the people who actually receive the funds.

DEATH ON ARRIVAL?

The World Bank recommended that Nigeria “implement a targeted large-scale (covering 25% to 50% of the population) and time-bound cash transfer program to mitigate the impacts of high inflation and the abolition of PMS subsidies.

He also called on the government to “redirect the savings made through the PMS grant to finance primary health, basic education and rural connectivity projects” with the country.

The bank estimates that subsidy savings could reach 3 trillion naira per year. If this is the reality, then Nigeria can proceed with the cash transfers and still have some money to fund primary health, basic education and rural connectivity projects.

However, according to 2019 figures, the subsidy savings will be less than 2,000 billion naira, while 5,000 to 40 million Nigerians will amount to 2.4 trillion naira. At this rate, there will be no savings for other projects recommended by the bank.

Dead on arrival? Much will depend on the final implementation plans.

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