Festus Akanbi draws a link between the opposition to the federal government’s template for the disbursement of the World Bank’s $800 million grant and the flawed implementation of previous social intervention programmes of the outgoing administration
There are indications that the outgoing administration’s face-saving effort to woo Nigerians ahead of the planned removal of subsidy may have backfired as the organised labour and other trade associations lead the opposition against $800million World Bank largesse, insisting that Nigerians have little or nothing to show for previous social intervention programmes of this administration.
Despite the assurance given by the outgoing government, some economic watchers still believe there is a reason for Nigerians to fret over the way the government is approaching the issue of subsidy removal. They argued that aside from the hardship it would bring to Nigerians, most of whom already live beyond the poverty line, the government has done almost nothing to prepare the nation for the new regime of removal.
This is besides indications that the $800 million World Bank facility, aimed at cushioning the effects of the planned subsidy removal, would raise Nigeria’s projected debt stock of $171 billion by a further 0.47 per cent.
This development, analysts say, will further raise the sinking fund for refinancing and servicing of the debt stock from 29 per cent scheduled in the 2023 appropriation act, to 43.8 per cent for the 2024 financial year.
It is equally projected that the price of petrol may rise by as much as 401 per cent if marketers are importing and 297 per cent of the Dangote Refinery starts functioning before June 2023.
There is another set of analysts who maintained that the impression given by the government was that of a caring administration seeking to lessen the pains associated with a higher cost of petrol after the removal of the subsidy. This, they said, explained why the $ 800 million grant from the multilateral institution is being targeted at the poor segment of society, using the template of its social intervention programmes, which had come under serious criticism in the past.
Targeting Vulnerable Nigerians
Minister of Finance, Budget, and National Planning, Zainab Ahmed had, recently announced that Nigeria secured an $800 million grant from the World Bank as part of its subsidy palliatives measures ahead of the removal of a costly fuel subsidy by June.
“The first tranche of funding from the Washington-based lender will enable us to give cash transfers to the most vulnerable in our society that have now been registered in a national social register,” Ahmed said.
According to the minister, the palliatives would be targeting 50 million vulnerable Nigerians or 10 million households. Ahmed added that engagements are ongoing with the newly established Presidential Transition Council (PTC) and the incoming administration to drive the palliative programme, which includes the need for buses among various considerations.
Mistrust of Past Interventions
However, several groups have opposed the World Bank’s largesse because of the huge mistrust between the government and the people, especially as it is feared that judging from experience with similar interventions, modalities for the selection of the 10 million households would not be transparent.
Analysts pointed out that the federal government had in the past enjoyed low-interest-rate loans and grants from the World Bank through the International Development Association(IDA) and International Bank for Reconstruction and Development (IBRD), saying the method of the deployment of such is responsible for the current level of mistrust.
The questions being raised by the government’s critics also border on the sincerity of an outgoing administration that has been accused of frittering similar opportunities in the past.
Critics recalled that of the $104 million released to Nigeria’s social investment programme in the August-September 2018 and September-October 2019 payment cycle, $27,099,028 was from the International Development Association (IDA) credit.
The programmes through which the funds were disbursed include the N-Power, Government Enterprise and Empowerment Programme (GEEP), National Home-Grown School Feeding Programme (NHGSFP), and Trader Moni programme.
And given the ripples generated by the flawed management of the programmes, analysts said one cannot be surprised that organised labour is now raising its voice against the new grant.
In July 2022, the Human Rights Writers Association of Nigeria (HURIWA) described the $ 1 billion annual allocation for the National Social Investment Programme of the federal government as “the single biggest fraud in Africa.”
“The National Social Investment Programme, which includes the School-Feeding Programme, is the perhaps, the biggest fraud scheme in the whole of Africa,” HURIWA said.
In January, the Director-General of the DMO, Patience Oniha, said that Nigeria’s total debt stock rose to N44.06 trillion as of the end of September 2022, largely reflecting the weakness of the local unit, Naira. Already, there are fears that the next administration may inherit a total public debt stock of about N77 trillion.
All-Encompassing Plans
However, economists argued that rather than relying on handouts to the poorest of society, the government can come up with a medium to the long-term plan. This is the position of the Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf in his response to THISDAY inquiry last week.
Yusuf, who insisted that there is nothing wrong with the implementation of palliatives programmes especially as Nigeria prepares for subsidy removal, however, maintained that there must be palliatives that should be segmented into immediate, short term and medium-term deliverables.
According to him, “Immediate and short-term options include wage review in public service, electronic cash transfers to the vulnerable groups in our society, designation of few retail outlets (maybe 10% of the outlets) as subsidy stations while all others will sell at deregulated prices for a transition period of one year. Others include the introduction of subsidised public transportation schemes across the country and a reduction in import duties on intermediate products for food-related production to moderate food inflation.”
Just like the arguments advanced by the labour, the CPPE chief raised the need to ensure crude oil is locally refined before as a precursor to the total removal of fuel subsidy.
He said: “In the medium to long term, there should be accelerated efforts to upscale domestic refining capacity, driven by private investments; accelerated investments in rail transportation by the government to ease logistics of fuel distribution across the country as well as domestic freight costs.”
Nigeria-World Bank Deal
The financing agreement is between Nigeria and the International Development Association (IDA), a part of the World Bank that helps the world’s poorest countries. The amount is part of a sum considered to be “concessional financing.”
According to the United States Agency for International Development, concessional loans, or soft loans, have more generous terms than market loans. They include below-market interest rates, grace periods in which the loan recipient is not required to make debt payments for several years, or a combination of low-interest rates and grace periods.
According to the agreement, the project aims to provide cash transfers to poor and vulnerable people in both rural and urban areas in Nigeria, in response to economic shocks, for at least two years.
The project also aims to strengthen the delivery system of the safety net programme, through the use of digital technologies, expansion of coverage, and improvement of efficiency.
The repayment will be made in installments, with payments due on January 15 and July 15 each year. The first payment is due on January 15, 2027, and the last payment is due on July 15, 2051. The loan must be repaid in U.S. dollars, the agreement showed.
Counting the Gains of Subsidy Removal
As Nigerians await the federal government’s pronouncement signalling the end of fuel subsidy, the CPPE CEO believed the time had come to begin to dwell on gains instead of dissipating energy on arguments that won’t add value to the Nigerian situation. He explained that fuel subsidy removal has enormous potential benefits.
According to Yusuf, “First, there is the revenue effect. The removal would unlock about N7 trillion into the federation account. This would reduce the fiscal deficit, and ultimately ease the burden of mounting debt.
“Second, is the investment effect. Currently, It is extremely difficult to attract private investment into our petroleum downstream sector because of the unsustainable subsidy regime and the stifling regulatory environment. The subsidy removal will eliminate the distortions and stimulate investment. We would see more private investments in petroleum refineries, petrochemicals, and fertiliser plants. Post subsidy regime would also unlock investments in pipelines, storage facilities, transportation, and retail outlets. We would see the export of refined petroleum products petrochemicals and fertiliser as private capital comes into the space. Quality jobs will be created.
“There is a foreign exchange effect. This would result from the import substitution as petroleum products importation progressively decline. This would conserve foreign exchange and boost our external reserves,” he said.
Yusuf is optimistic that the increase in investment would translate into more jobs in the petroleum downstream sector, adding that the smuggling of petroleum products across the borders will come to an end with a market pricing of refined products.
Last modified: April 16, 2023
