‘Subsidy removal will unlock N7tr’

Yusuf, in a chat with The Nation, yesterday, explained that removing the subsidy has enormous potential benefits.

“First, there is the revenue effect. The removal would unlock about N7 trillion into the federation account. This would reduce fiscal deficit, and ultimately ease the burden of mounting debt.

“Second, is the investment effect. It is extremely difficult to attract private investment into our petroleum downstream sector because of the unsustainable subsidy regime. The removal will remove 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.

“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.

“Increase in investment would translate into more jobs in the petroleum downstream sector.

“Smuggling of petroleum products across the borders will come to an end with a market pricing of refined products,” Yusuf said.

However, the economist warned that government should put in place palliatives that will reduce the effect subsidy removal will have on the people. This, he canvassed, should be segmented.

“Palliatives should be segmented into immediate, short term and medium term deliverables.’’

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 percent of the outlets] as subsidy stations while all others will sell at deregulated prices for a transition period of one year; introduction of subsidized public transportation schemes across the country and reduction in import duties on intermediate products for food related production to moderate food inflation.

“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 government to ease logistics of fuel distribution across the country as well as domestic freight costs,” Yusuf said.