http://www.businessday.co.za/articles/Content.aspx?id=160937


There are good reasons to believe Goodluck Jonathan is trying to make a break from the past. He has surrounded himself with internationally renowned economists and bankers whose reputations rest on their performance.

THE issue of the fuel subsidy in Nigeria exemplifies everything that is wrong with this giant economy operating well below its potential. It reflects years of neglect of state refineries; it underlines the irony of being Africa’s biggest oil producer but also a major importer of refined fuel; it highlights the undermining of the economy by cartels; and it shows the lip service paid by the state to development.

President Goodluck Jonathan created pandemonium with his recent announcement that the historical subsidy, currently worth $7bn a year, would be removed in January next year as part of the government’s deregulation of the downstream oil sector. There was an immediate surge of hostility to the announcement right from the grassroots to the lower house of the legislature, which voted against the scheme at a sitting last week, saying it would lead to more financial hardship for Nigerians.

Economists have predicted a rapid rise in inflation and a ripple effect throughout the economy, while the unions are threatening mass action. The fuel price at the pump is about 65 naira a litre (R3,25/l ) against the current real cost of R6,95. But Jonathan has so far stood firm, to the extent of producing a four-year medium-term budget that does not include an allocation for the subsidy, which amounts to 30% of total expenditure. Supported by the head of his economic team, Finance Minister Ngozi Okonjo- Iweala, he maintains the subsidy is swallowing up funds in recurrent expenditure that could be used to build a future for the country.

The subsidy issue has been around for decades, with successive leaders trying to raise the cost of fuel but retreating in the face of widespread resistance. Nigerians maintain cheap fuel is the only benefit they get from being an oil-producing country, given that little oil money filters down into the broader economy because of years of government corruption.

The scale of Nigeria’s economic dysfunction is shown by the fact that despite it producing more than two- million barrels of oil a day, it imports almost its entire refined fuel requirement. Some of this is being siphoned off into neighbouring countries whose own unsubsidised fuel is almost three times the price of that in Nigeria.

Three of the country’s four refineries are defunct, with a fourth operating at about half of its capacity. Most point to corruption as the basis of the problem — billions of dollars earmarked for rehabilitation of the refineries have disappeared over the years.

But there is a more sinister reason — the entrenched interests of a host of unnamed people, who make huge profits from exploiting the subsidy.

In an attempt to prove good faith in its attempts to clean up the downstream sector, the government last week released details of the scheme’s beneficiaries. It listed more than 100 companies, many of which are owned by Nigeria’s richest people. They include Oando , which owns fuel stations across Nigeria and is headed by local heavyweight Wale Tinubu; Conoil, owned by Glo mobile phone billionaire Mike Adenuga; Forte Oil, owned by magnate Femi Otedola; and Integrated Oil & Gas, owned by a retired m inister. Some on the list were not fuel distributors at all, exposing fraud in the scheme.

Jonathan has outlined projects that the money will be invested in, such as infrastructure (including the refineries), urban mass-transit schemes and vocational training. But Nigerians, whose default setting is to suspect corruption in anything linked to the government, have heard all this before, from the hated military dictators and the democrats that followed them.

Newspaper reports last week said the president may overrule the legislature’s objections to the subsidy removal by executive fiat.

There are good reasons to believe Jonathan is trying to make a break from the past. He has surrounded himself with internationally renowned economists and bankers whose reputations rest on their performance.

But he has inherited a poisoned chalice. The tough decisions that should have been taken by his predecessors have coalesced in his presidency and now the impatience for change makes it difficult to implement long-term plans.

Jonathan is at a turning point. His future may rest on how he handles this thorny issue.

• Games is an independent consultant on African business.