THE issue of the fuel subsidy in Nigeria exemplifies everything that is wrong with this giant economy operating well below its gross national product. 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. The PPRA created pandemonium with his recent announcement that the historical subsidy, currently worth $7bn a year, has been removed as part of the government’s deregulation of the downstream sector of the Oil and Gas Industry.
Within 5hours from the announcement of subsidy removal
Economists prediction of a rapid rise in inflation and a ripple effect throughout the economy has been confirmed, while the unions are threatening mass action. The PMS price at the pump which used to be 65 naira a litre has surged to 141 naira a litre.

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 a great removal from the economic loop.
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 2.2- million barrels of oil a day, it imports almost its entire refined fuel requirement while over 400 thousand bbls of crude earmarked for local refining is yet to be properly accounted for. Some of the imported PMS is being siphoned off into neighbouring countries whose own unsubsidised fuel is almost three times the price of that in Nigeria.

Everyone point to corruption as the basis of the problem — billions of dollars earmarked for rehabilitation of the refineries have been entering "voice mail".

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

In an attempt to prove good faith in its attempts to clean up the downstream sector, the government last month released details of the scheme’s beneficiaries. It listed more than 100 companies, many of which are owned by Nigeria’s richest people.

Jonathan has outlined projects that the money will be invested in, such as infrastructure (including the refineries), urban mass-transit schemes, You win Initiative 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.

There are good reasons to believe Jonathan is trying to make a break from the past. He has surrounded himself with internationally renowned economists intellectuals 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 and sludge into his presidency and now the impatience for change makes it difficult to implement long-term plans.

Nigeria is at a turning point, should Nigerians trust Government to make do their promise to re inject funds from subsidy back into the economy as capital investment to stimulate economic multiplier effect. Lets wait and see.