Fuel Subsidy: We can’t have our cake and still eat it, KPMG explains

By Adewale Sanyaolu

As a fall out of the fuel subsidy removal, global financial services firm, KPMG has warned that Nigeria cannot have its cake and still eat it.

The firm in a 21 page document titled ‘Removing Nigeria’s PMS Fuel Subsidies: We Can’t Have Our Cake and Still Eat It,  argued that as a result of the crowding out effect of subsidies, public investment spending on infrastructure in Nigeria is a low at 1.7 per cent of GDP, compared to 2.3 per cent, 3.2 per cent and 6 per cent of GDP in Ghana, Egypt and Kenya.

‘‘Little wonder that access to electricity in Nigeria is 55.4 per cent, lower than 85.9 per cent in Ghana, and 100 per cent in Egypt.

With the PMS fuel subsidies, Nigeria simply will not have motorable roads, and the Federal and State Governments will ill afford investments in the electricity grid that continues to face mounting generation and distribution challenges,’’.

KPMG further maintained that the tragic reality is that Nigeria continues to spend more on PMS fuel subsidies at the expense of social protection, and infrastructure delivery while other countries that started out with Nigeria are moving ahead and Nigeria is lagging, primarily because of subsidies.

The firm advised that Nigeria must also eliminate its subsidies to enhance its debt management, adding that due to the increasing debt burden, Nigeria’s revenue receipts are being crowded out by its debt service obligations.

Going down memory, the KPMG report indicated that in 2016, Nigeria’s debt service as a percentage of revenue was 96.8 per cent, stressing that while this number decreased to 70.4 per cent in 2019, it increased to a projected 102 per cent in 2022.

‘’At this rate, Nigeria’s debt service obligations will increase to as high as 160 per cent of revenue by 2027.These and other considerations seem to have influenced the Government to adopt the “sudden death” approach to re-moving PMS subsidy without delay to address the country’s insufficient revenues, growing fiscal deficits, and crowding out effect on public investment spending,’’. The report explained that the argument is often made that the subsidies should remain because they are the only guaranteed economic benefit from the Government that benefits ordinary Nigerians,this KPMG said is untrue.

According to the firm,the rising PMS fuel subsidies, ironically, do not benefit the poor, as much as they do the more economically empowered groups in the population. Quoting statistics from the WorldBank, the poorest 40 per cent of Nigerians purchase just 3 per cent of all subsidized petrol, saying this means the subsidies benefit richer economic classes, and to some extent, the urban poor who rely heavily on PMS-fuelled transportation, much more than the rural poor populace.

‘‘This undermines the arguments of lobbyists for the PMS subsidy continuance, particularly as the rent seekers who exploit arbitrage opportunities to sell imported Nigerian PMS across the border to neighbouring countries,’’. Nigeria spent an average of $23 on every Nigerian on education, compared to $32 dollars in Mali,  $88in Ghana and $350 in South Africa. Nigeria’s average per capita education spend is about half the per capita Sub-Saharan African average. Nigeria simply cannot keep the subsidies and at the same time reduce its 14 million children of school attending ages that are out- of -school, particularly when 1 out of every 5 of the world’s out-of-school children are in Nigeria,’’.