Nigeria’s federal government will remove a controversial fuel subsidy scheme and replace it with transport grants of 5000 naira ($12.20) each to nearly 40 million poor people every month.
Speaking at the launch of the World Bank Nigeria Development Update (NDU) on Tuesday, Minister of Finance, Budget and National Planning Zainab Ahmed, said the transport grant will target 30 to 40 million Nigerians who occupy the lowest ladder in society.
Every year, the Nigerian government spends billions of dollars on payment of subsidy on petroleum products. It has however repeatedly tried to cut off the payment in favor of market-determined prices.
It argues that the huge amount would be used to fund critical projects, a position backed by the International Monetary Fund (IMF). But the move is highly unpopular with large chunks of the public.
“The subsidies regime in the [oil] sector remains unsustainable and economically disingenuous,” Ahmed said.
“Ahead of the target date of mid-2022 for the complete elimination of fuel subsidies, we are working with our partners on measures to cushion potential negative impact of the removal of the subsidies on the most vulnerable at the bottom 40% of the population.
“One of such measures would be to institute a monthly transport subsidy in the form of cash transfer of 5,000 naira to between 30 – 40 million deserving Nigerians.”
Whilst there is consensus among policymakers and economists that the removal of fuel suvsidies may address key economic situations in the country, especially with regards to increasing external reserves and boosting local oil refineries, as well as job creation, concerns mount over the cash transfer initiative.
Corruption is rife in Nigeria and there are already transparency issues on existing cash transfers to poor people. The government has not provided clarity on how Nigerians would validate who has received the money or not. It also unclear if the money would be paid directly to bank accounts considering most of the poor do not have access to formal banking systems.
There is also growing fears that the cash transfer initiative could end up becoming a means to bribe voters in favor of the current government ahead of the 2023 General Elections. Such a similar development trailed the TraderMoni initiative ahead of the 2019 elections that saw President Muhammadu Buhari win re-election.
Executive Director, CISLAC, Auwal Ibrahim Musa (Rafsanjani), noted that the transport grant is a terrible move to contemplate, particularly, at this crucial time of post-COVID recovery, when the increasing cost of governance underpinned by high personnel and overhead costs are weighing down on the federation purse.
“It is, thus, really worrisome that we are doing away with subsidy by incurring a recurring annual net cost of N2.4 trillion (if N5,000 is disbursed to 40 million ‘poor’ people monthly as proposed) not to mention the overhead cost that will be incurred in the administration of these funds,” he said.
Rafsanjani insisted that similar measures have failed, stressing that the new plan will not be different as it seems impulsive and lacks sincerity of purpose.
According to him, Nigerians have witnessed the inefficiency and lack of transparency that trailed interventions like the Nigeria Incentive-based Risk Sharing System for Agricultural Lending (NIRSAL), Microfinance Bank SME/Household loan, which is still under review as well as the COVID-19 palliatives, just to mention a few.
Director, Centre for Democracy and Development (CDD), Idayat Hassan, also, does not believe that the move will alleviate the suffering of Nigerians. According to her, the cost of fuel, food and services are already up while salaries remain the same.
“The mode of sharing the $5.8billion will be a problem and almost all Nigerians require a subsidy. I wonder how these will play out but it’s not clearly thought out. I am particularly worried that Nigerians currently feel they receive nothing from their government and hopefully this increase does not alienate them further.”