This two-part essay allows me to remind all those toying with the issues of subsidies who have deliberately refused to look back at the history of subsidies and how they started, or they are too young to understand why they started in the first place. The economy of Nigeria was very robust before and immediately after independence. Then came the military coups and the civil war. Subsequently, the leaders of the country were unable to justify the reasons for the coups and war, so the country needed a magnificent bribe in the form of subsidies such as free education, free healthcare, free power supply, free telecom, and free infrastructure. Considering the mismanagement of the population, which was over sixty million, and the need to compete with other oil-producing nations that offered so many things for free to her citizens, Nigeria had to adopt similar measures.
Most of these oil-producing nations were monarchies or one-party systems, speaking one language, not divided by religion, and with a controlled immigration system despite their small populations. In contrast, Nigeria was practicing an elementary political system, extremely expensive and fantastically corrupted. We speak over 300 languages, follow different religions, and have diverse cultures and traditions. We also had an open border arrangement system leading to the ECOWAS free movement protocol. Since we had cheap oil and other free amenities, we were fast developing, which attracted neighboring countries that started migrating to Nigeria.
In the early years after independence, Nigeria’s economy was characterized by its agricultural strength and burgeoning industrial sector. However, the discovery of oil in the late 1950s and its subsequent boom in the 1970s shifted the economic focus dramatically. The newfound oil wealth promised prosperity, but it also led to complacency and a dependency on oil revenues. During the 1970s, the government, buoyed by high oil prices, introduced various subsidies as part of a social contract to distribute the wealth among its citizens without accountability and good governance.
Subsidies were implemented to cushion the economic hardships caused by the civil war and to promote national unity. These subsidies included free education, free healthcare, subsidized power supply, subsidized the naira and extensive infrastructure projects. The idea was to provide immediate benefits to the populace and create a foundation for long-term development. However, these initiatives were funded through borrowed money, and this is where the problems began.
The initial economic boom allowed Nigeria to embark on ambitious projects. Car and motor assembly plants were established through joint ventures with East and West European countries, aiming for Nigeria to produce its own vehicles within 15 years. These plants were strategically located in Kaduna, Bauchi, Lagos, and Enugu, reflecting the government’s vision of industrial decentralization. However, these projects and the free services were built on borrowed money from international financial institutions like the World Bank, Paris Club, IMF, and London Club. Despite the loans being cheap, Nigeria failed to service them adequately. The oil wealth, which could have been used to diversify the economy and create sustainable revenue streams, was instead used to fund these subsidies. This led to a cycle of borrowing and debt accumulation.
By the 1980s, the global oil market saw a significant downturn, and Nigeria’s economy was hit hard. The revenue from oil, which had been the backbone of the economy, plummeted. The inability to service debts led to mounting interest and penalties, compounding the economic crisis. The subsidies, which were meant to be temporary measures, became permanent fixtures due to political pressures and public expectations. The economic mismanagement continued, leading to inflation, unemployment, and a decline in the quality of public services. Free education and healthcare systems, initially of lofty standards, deteriorated due to lack of funding. Infrastructure projects stalled, and the industrial sector failed to take off as expected. The once-promising economic outlook turned grim.
The dependency on oil revenues also stifled other sectors of the economy. Agriculture, which was once a major contributor to the GDP, suffered neglect. Manufacturing industries struggled to compete due to the inflated cost of imported raw materials and the lack of domestic production capabilities. The over-reliance on oil created a mono- economy, making Nigeria vulnerable to fluctuations in global oil prices.
During President Olusegun Obasanjo’s tenure, significant efforts were made to address the debt crisis. Alongside his finance minister, Dr. Ngozi Okonjo-Iweala, Obasanjo managed to negotiate debt rescheduling and achieve partial debt forgiveness. This move was pivotal in stabilizing Nigeria’s economy and restoring some level of fiscal discipline.
The reforms initiated during this period included privatizing certain state-owned enterprises, reducing government spending, and increasing transparency in financial transactions. These measures aimed to create a more sustainable economic model, reducing the dependency on oil revenues, and encouraging investment in other sectors. However, the challenges of subsidy removal or reduction remained. Each attempt to reduce subsidies met with public resistance. The subsidies, although a burden on the economy, had become politically sensitive issues. They were seen as the only tangible benefits citizens received from their government, making any reform politically risky. Today, the debate on subsidies in Nigeria continues. On one hand, subsidies are viewed as necessary to support the poor and ensure social stability. But they are seen as a significant drain on public resources, fostering corruption and inefficiency. The leaders of yesterday, many of whom are still in power today, have struggled to find a balance between these two perspectives.
To move forward, Nigeria must address the root causes of its economic challenges. This includes diversifying the economy away from oil dependency, improving governance, and reducing corruption. Investment in education, healthcare, and infrastructure should be strategic and sustainable, not reliant on fluctuating oil revenues or perpetual borrowing.
Good governance and effective policy implementation are crucial for the successful management of subsidies. The government must ensure that subsidies are targeted towards those who need them the most, and not misappropriated by elites or lost through corruption. Transparent and accountable systems must be put in place to monitor subsidy distribution and impact.
Furthermore, there should be a clear plan for gradually phasing out subsidies while simultaneously building social safety nets to protect the vulnerable. This could involve direct cash transfers, support for small and medium enterprises, and investment in renewable energy sources to reduce dependency on oil. Subsidy removal has significant social and political implications. The government must engage in comprehensive public awareness campaigns to educate citizens about the long-term benefits of subsidy reforms. Building trust between the government and the populace is essential to gain public support for such measures.
Moreover, political will is needed to resist the pressure from interest groups that benefit from the status quo. Leaders must prioritize the nation’s long-term economic health over short-term political gains. This requires a collaborative approach involving all stakeholders, including the private sector, civil society, and international partners.
Nigeria can learn from other countries that have successfully managed subsidy reforms. For instance, countries like Indonesia and Iran have implemented subsidy reforms with relative success by combining gradual subsidy removal with robust social protection programs. These examples show that with careful planning and execution, subsidy reforms can lead to economic stability and growth.
The history of subsidies in Nigeria is a complex tale of initial good intentions marred by economic mismanagement and political expediency. Subsidies, in theory, can provide significant benefits if well-managed and sustainable. However, in Nigeria’s case, they became a double-edged sword. They provided short-term relief and long-term pain, contributing to economic instability and mounting debt.
For subsidies to be a plus rather than a killer, Nigeria must undertake comprehensive economic reforms. This involves making tough political decisions, improving fiscal discipline, and fostering a culture of accountability. Only then can subsidies serve their intended purpose without compromising the country’s economic future. For this to work we must first review the past government and weigh it against the present.
To be continued.