Oil subsidy: a welcome idea?

GLOBALLY speaking, Subsidy in its true sense is a welcome idea.

  In fact, it is defined in economics as money paid by government or an organisation to reduce the cost of producing goods so that their prices can be kept low. It seeks to reduce the market price of an item below the cost of production. Government intervenes to support desirable activities to keep the prices of staple low; maintain the income of producers of critical or strategic products; induce investment while reducing unemployment.

  Everywhere, subsidy is supposed to be a cushion to enhance the welfare and well-being of the people. It is an acceptable practice the world-over.

  For example, during winter in Germany in the mid 80s, it was a common phenomenon that when the price of oil increased astronomically because of some major adjustments by OPEC. Many companies would have just gone under but government quickly intervened with a serious subsidy package. Among other things, industry workers who were 'pulling gburu' were made to work two days a week (eight days a month) for full month's pay. That is subsidy.

  If all American farmers were to be allowed to produce at their optimum levels, food would be surplus and totally useless everywhere. The American government has had the practice over the years of paying some selected farmers to stay at home, not producing anything during the year. That is subsidy.

  In these places, the subsidy scheme is well managed and it gets to the target population – the poor. But in Nigeria, the exact opposite is the case: the real beneficiaries are not the poor but the middlemen and the rent seekers, contrary to the argument usually advanced and which has been at the heart of subsidy's continuation, that it is pro-poor.

  The subsidy regime in Nigeria reminds us of two issues – first, subsidy would have been absolutely unnecessary if we were doing our own refining in Nigeria. Secondly, the subsidy regime has been fraught with fraud and dishonesty.

  Between 2006 and 2014, Nigeria paid over N7.5 trillion as subsidy claims. Yet, we are still where we are – the subsidised products are not available and where they are available, they sell for prices much higher than the unsubsidised products. Put differently, we have been subsidizing fraud because we have found it ridiculously impossible to monitor the oil markets who have made fools of our managers of the economy.