From Noah Ebije, Kaduna
Mr Bernard Sule Akuh is a former banker with over 25 years working experience in the banking industry. He is currently a financial management consultant and business risk adviser in Abuja.
In this interview with Sunday Sun, the native of Kogi State, whose particular area of interest is focused on innovation and change management, proffered solutions and strategies the government could adopt to mitigate and cushion the effects of the hardship caused by the economic policies of the administration.
As a financial management expert, what are your thoughts on the economic policies of the President Bola Tinubu administration, particularly the removal of subsidies on petroleum products?
The removal of fuel subsidies in Nigeria naturally triggered a series of economic shifts, which had profound implications across various sectors. As the nation grapples with these changes, understanding the depth of these impacts is crucial for policymakers, businesses, and citizens alike.
What is the depth of these impacts you are talking about?
Definitely, the policy change brought deep repercussions, however, there are potential strategies to mitigate its effects. The immediate and most visible effect of the subsidy removal was the sharp increase in the price of petrol. Fuel prices skyrocketed, more than doubling in some areas. This rise sent shockwaves through the economy, as fuel is a critical input for various sectors. The transportation sector, in particular, felt the brunt of the hike, with the cost of public and private transport rising significantly. The increase had a domino effect on the economy, leading to higher prices for goods and services as businesses passed on the additional costs to consumers. In rural areas, where transportation costs are already high due to poor infrastructure, the impact was even more severe. Farmers and traders, who rely on fuel to transport their goods to markets, found themselves facing unprecedented costs, reducing their profit margins and threatening their livelihoods. As a direct consequence of rising fuel prices, inflation surged. The cost of transportation, a major component of production costs, rose steeply, leading to increased prices for basic commodities, including food and essential goods. Inflationary pressures further squeezed household budgets, with many Nigerians struggling to afford basic necessities. The official inflation rate reached double digits, with food inflation particularly alarming, exacerbating food insecurity in the country. The efforts of the Central Bank of Nigeria (CBN) to curb inflation through monetary policy faced challenges as the root cause lay in supply-side constraints rather than demand-driven factors. The overall economic environment became more volatile, with consumers and businesses alike facing uncertainty about future price levels. Businesses across Nigeria were hit hard by the increased operational costs following the subsidy removal. For industries dependent on fuel, such as manufacturing, agriculture, and logistics, the cost of production soared. Higher logistics and production expenses meant slimmer profit margins for companies, leading to tough decisions on cost-cutting measures. Many businesses, especially small and medium-sized enterprises (SMEs), were forced to reduce their workforce to stay afloat, contributing to rising unemployment rates. Others had to scale back operations, delay expansion plans, or pass on the additional costs to consumers, further fueling inflation.
What has been the impact on home front income especially among families?
The removal of fuel subsidies has significantly eroded disposable income for many Nigerians. With the cost of living rising rapidly, families are spending a larger portion of their income on essentials such as food, transportation, and energy, leaving little for savings or discretionary spending. This reduction in disposable income has had a cascading effect on the broader economy. Consumer spending, a key driver of economic growth, has slowed down, affecting sectors like retail, entertainment, and hospitality. The slowdown in demand has led to reduced business revenues, further compounding the economic challenges faced by companies across various industries.
How did the subsidy removal impact SMEs?
SMEs, particularly those in the agricultural sector, have been severely impacted by the fuel subsidy removal. These enterprises, which form the backbone of the Nigerian economy, are grappling with increased costs that threaten their sustainability and growth. In agriculture, for example, higher fuel costs have driven up the price of inputs such as fertilizers and transportation, making it more expensive to produce and distribute food. For SMEs in urban areas, the cost of logistics, energy, and raw materials has risen sharply, squeezing their profit margins. Many of these businesses, already operating on thin margins, now face the risk of closure if they are unable to adapt to the new cost environment. This could lead to significant job losses and a reduction in economic activity, particularly in sectors that are heavily reliant on SMEs.
Looking at the logistics and supply chain, the subsidy removal caused disruptions too. Transportation costs, a major component of the supply chain, increased, leading to higher prices for goods and delays in delivery. This has particularly affected the availability of perishable goods, such as fresh produce, where timely delivery is crucial. In addition, the increased cost of transportation has led to higher prices for goods at the retail level, further straining consumers’ purchasing power. Businesses that rely on imported goods have also faced challenges, as higher fuel costs have driven up the cost of shipping and customs clearance.
The disruption in supply chains has had a ripple effect throughout the economy, affecting everything from manufacturing to retail. Companies are struggling to maintain inventory levels, leading to stock outs and lost sales. In the long term, these disruptions could lead to reduced economic growth and a decline in the standard of living for many Nigerians.
How can effects of fuel subsidy removal be addressed and mitigated?
To mitigate the adverse effects of fuel subsidy removal, the government and private sector must explore several reversal strategies. These include: targeted subsidies and social welfare programmes for vulnerable populations to cushion the impact of rising fuel prices. This could include direct cash transfers, transportation vouchers, or subsidies for essential goods. Also supporting SMEs by providing financial support and incentives to help them cope with increased costs. This could include low-interest loans, grants, or tax breaks to help businesses stay afloat during the transition period. There should be infrastructure development by investing in infrastructure projects that reduce transportation costs, such as improving roads and expanding public transportation networks. This would help lower the cost of logistics and reduce the impact of fuel price increases. There should also be energy diversification to encourage the development of alternative energy sources to reduce dependence on petrol. This could include investments in renewable energy, such as solar and wind power as well as the promotion of electric vehicles. Government should adopt monetary and fiscal policies aimed at stabilizing the economy and controlling inflation. This could include measures to support the naira, reduce interest rates, and increase public investment in key sectors as well as public awareness campaigns to educate the public on energy conservation and efficiency measures to help reduce overall fuel consumption. This could include promoting carpooling, using public transportation, and adopting energy-efficient appliances.
What practical tips on reversal strategies can you proffer?
One, there should be stakeholder engagement by maintaining open communication channels to build consensus and ensure smooth implementation of reversal policies. And secondly, there should be data-driven decisions by using data and economic models to guide policy decisions and predict potential impacts of the reversal. There should also be efforts to clearly communicate the steps being taken and the expected benefits to the public, to manage expectations and reduce unrest as well as continuously monitor the economic and social impact of the reversal and be ready to make adjustments as needed to ensure positive outcomes.
The government should not also forget to ensure capacity building by strengthening institutional capacity to manage subsidy programmes effectively and prevent corruption and inefficiencies as well as seek technical and financial support from international partners to cushion the financial impact and implement structural reforms.
I believe that by adopting these strategies, Nigeria can mitigate the economic impact of fuel subsidy removal and build a more resilient and sustainable economy for the future.