Bringing down the subsidy wall
BudgIT Nigeria and Leveraging Transparency to Reduce Corruption (LTRC) partner on many research projects that seek to improve governance and increase citizen participation in Nigeria’s extractives sector.”
Earlier this year, a dramatic headline was splashed across the Nigerian paper, The Punch: “Petrol landing cost is N232, subsidy rises to N5,58bn daily.”
For those readers who don’t live in Nigeria, that’s about US$13.6 million every day that the Nigerian government spends to keep the price of petrol down for ordinary citizens. It’s an extraordinary amount, but even more extraordinary if you follow the news about the country’s fuel subsidies.
That’s because the subsidies were ostensibly removed in 2020 when oil prices plummeted and the Nigerian government was trying to procure loans from the IMF. Or — at least — that’s what the government said it did. Elsewhere, the media reports that the Petroleum Industry Bill that would abolish subsidies has yet to be passed, which means the subsidies are still law.
So, which is it? Is there a subsidy or not? Is the government still propping up the price of fuel to stave off riots or is it indeed eliminating the “under-recovery” process (subsidy by another name) to comply with the requirements of its international creditors?
Reality is exceedingly complex and frustratingly opaque. And, if you’re a student of corruption, you might start to ask: who is benefiting? And not only from the subsidies themselves, but who is benefiting from the opacity around them?
Your cynicism would be well-placed. Fuel subsidies in Nigeria are widely considered to be rife with corruption. Recently, Nigeria’s former minister of finance disclosed that she uncovered $2.5 billion in fraudulent claims from oil marketers linked to the subsidy program during her tenure. After blocking them, she says she faced threats to her life.
It’s true that, at least in 2012, there was widespread support for the continuation of fuel subsidies as policy. Then-President Goodluck Jonathan’s move to more than double the pump price was quickly rescinded after mass protests filled the streets of major Nigerian cities.
Since then, there is some evidence that public opinion could be shifting. And it’s also true the pandemic and contemporaneous drop in oil prices left Nigeria hurting financially and the promise of big loans from the IMF should have, at least in theory, prompted some re-evaluation of the subsidies’ value. These two facts together imply that some powerful forces may be keeping the Nigerian government devoted to its policy of under-recovery to prop up fuel prices.
So, what are those forces? And we, as action-researchers of corruption, ask ourselves: can they be persuaded to change their minds to help push the government in a new direction?
Results for Development’s research for the Leveraging Transparency to Reduce Corruption (LTRC) program suggests that one roadblock to reform is citizens’ widespread misunderstanding of the subsidies. Rightly so — as we’ve just pointed out, they’re confusing by design.
For example, in a 2018 survey of Nigerians, the majority believed that the subsidies increased the cost of petrol rather than lowered it. The same survey found individuals were highly skeptical that the government would reallocate money saved by fuel subsidy reduction to the citizens’ benefit. One potential reason: the failure of a 2012 program designed to divert savings from partial reform of fuel subsidies to infrastructure and social safety net programs. It was canceled in 2015 and is widely viewed to be a failure.
So, how can we enroll citizens as champions of reform?
Enrolling citizens as champions of reform will be critical if policy changes are to benefit them and prove durable. To this end, LTRC seeks to provide evidence to help answer key questions like:
- What sources of information do individuals seek to understand fuel subsidies and how does this shape their viewpoints?
- What methods of communicating about fuel subsidy reform best communicate information to citizens and effectively shape their viewpoints?
- What makes people skeptical of the redistribution of the fuel subsidies? What do people believe is keeping the government from allocating funds to programs they prioritize?
- How do people weigh the value of a fuel subsidy against the investment of money in another sector? What determines these values?
To start to answer these, we’re working with Ujeengo Nigeria to survey some of the biggest skeptics of reform: members of organized labor and unions. Particularly those working in the petroleum or transportation sectors feel they could lose a lot if subsidies were scrapped. Better understanding their viewpoints will provide valuable insight into how reform should be structured and communicated, and how to ensure it results in better outcomes for them.
Later this year, we aim to share our findings with a diverse set of stakeholders and subject-matter experts to inform a collaborative research agenda and to ensure our work serves to advance policy reform, not just study it.
Uncovering the people behind the curtain may not be a realistic goal for our program. But understanding how and why citizens and stakeholder groups support the continuation of the subsidies is squarely within our mission. Given the strong economic arguments against the subsidies, enrolling citizens as champions of reform will be critical to overhauling a system marked by abuse and opacity.
This post was authored by Engr. Adejoke Akinbode, an extractive lead and senior program officer at BudgIT Nigeria; Erin K. Fletcher, an economist at R4D; Laura Keen, a former program officer at R4D;and Iniobong Usen, a senior research and policy analyst at BudgIT Nigeria.