Jan 21st 2012 | ABUJA | from the print edition of the Economist
The president loses his nerve and brings back a controversial subsidy
Few countries waste public money more wantonly than Nigeria . Supposedly to help the poor, the government long sold fuel at half the price it pays on international markets. The biggest beneficiaries were local wholesalers who—illegally, but with impunity—sold the subsidised fuel on to neighbouring countries at full price, leaving an $8 billion hole in the treasury every year.
All this in Africa ’s biggest oil producer, which must import 85% of its fuel because it has no decent refineries.
Abolishing fuel subsidies would seem sensible and worthy of public support. The savings could pay for new roads, hospitals and schools. Smashing the fuel mafia would also help the fight against graft. Thousands of officials are paid off by fuel-sellers. The ringleaders manipulate elections with the proceeds to keep friendly officials in power.
So it was a bold move by President Goodluck Jonathan to stop subsidising fuel on January 1st—perhaps even bolder than he had reckoned.
Millions of Nigerians promptly rose up in revolt, even though they had much to gain in the longer term. Ten people died in nationwide protests and hundreds were injured. The army had to be called onto the streets. A general strike paralysed the economy. Oil workers threatened to shut down wells—and the government’s access to cash.
The impact of the subsidy cut on ordinary Nigerians was certainly harsh. Most do not own cars or generators. Businesses quickly passed on higher fuel prices. Bus fares and food prices almost doubled, reflecting the increase in transport costs.
Many protesters voiced doubts whether savings would be ploughed back into new infrastructure as promised. Their scepticism is understandable, given the government’s general record of wastefulness. In the end the protesters prevailed.
After little more than two weeks the president partly reversed himself. He announced a new subsidy that will lower the fuel price per litre from 140 naira ($0.86) to 97 naira, though the move, he claimed, would be temporary. He vowed to persist with deregulation of the oil sector.
The trade unions suspended their strikes. Protesters have gone home for the moment. The president has bought himself some time and may still win his battle with the fuel mafia. Anti-corruption investigators have carried out new raids. But less than a year into his second term, hopes that Mr Jonathan will spur an economic revival and push through an array of reforms are dimming.
Unless he finds ways of compensating citizens for higher prices, he may never be able to cut wasteful subsidies fully.
He needs to make the bureaucracy more effective, so that it can credibly claim to invest the money saved.
Or he has to give all Nigerians access to bank accounts, so they can transfer cash directly without the money being stolen. Both are far off.