CNN asks, "What is behind Nigeria fuel protests?" and explains the context (see also above):
On January 1 2012, Nigeria, Africa's largest oil producer, ended oil subsidies that had kept gasoline prices artificially low.CNN provides an answer to the question that it posed:
The cost of a liter of gasoline shot up from 65 naira (40 cents) to at least 141 naira (86 cents) virtually overnight.
Furious Nigerians have since taken to the streets, staging 'Occupy Nigeria' protests and mass demonstrations across the country.
Nigerians are angry because they believe the government has introduced the plan without any regard to how it will affect the cost of living in the country.In 2010, India tried to reduce its liquid fuel subsidies, and with similar consequences. It sees inevitable that the Nigerian government will have to go back on the price increases. People do not want higher priced energy, even if reducing subsidies makes good economic sense. Another way must be found.
They say they are already experiencing undue hardship as a result of the move, which they say has already affected the cost of transport, food, medicine, rent and school fees.
Feyi Fawehinmi, an accountant and analyst, told CNN the government's abrupt move was like having a "tooth pulled without a plier."
"When you have so much poverty, a lot of business and lives have been built on petrol being at N65, which is not exactly cheap, even at subsidized rates. People are just not moving out of poverty quickly in Nigeria. There is an economic case but this is not something that can be quantified economically," he said.
"The government cannot tell how many businesses will be ruined or even how many people will die," Fawehinmi continued. "The impact will be so wide-ranging. There should have been a plan to remove this in a sensible way, not in this crude manner." he said.
Many Nigerians see the subsidy, which gives them the cheapest gas price in the region, as the only benefit of being an oil producing country. Most live in grinding poverty and on less than $2 a day. There is little infrastructure, high unemployment and only intermittent electric power.
6 comments:
"People do not want higher priced energy, even if reducing subsidies makes good economic sense. "
And yet, people in this country are putting up with subsidies taken out of their pockets to give to solar and wind energy. And electric autos. The price of electricity coming from the Cape Wind project in Massachusetts will be 100% over todays' costs, minus 5% our Attorney General managed to 'take back.' Thanks for nothing.
Maybe the phrase "good economic sense" is not quite what was meant here, or the idea needs to be expanded to include anticipated positive and negative economic effects on the population.
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The lesson here is that production and/or consumption subsidies are hard to stop once in place and a constituency develops for their continuation. The resulting misallocation of resources is harmful to a nation's wealth, as we have seen in the housing bubble and are seeing now in the higher education bubble.
You may recall stories in the old soviet union where farmers fed bread to pigs because the subsidized price was lower than the cost of the grain!
The sad thing is that subsidies while reducing price invariably increase cost. A society that consumes more wealth than it consumes is on a road to an unpleasant destination.
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Subsidies for wind, solar, and electric vehicles are generally not seen by consumers unless they benefit directly as is the case with the $7500 “discount” for electric vehicles or some tax credit for solar installations or other energy-savings purchases that show up as a tax savings when completing one’s return using TurboTax or some other tax preparation package. Thanks to the silly way we’re incurring deficits at the federal level, folks in general don’t feel the pain that should come from the generous subsidies. At some point we all will, but we’re whizzing away so much money on all sorts of stuff that we’ll be hard-pressed to detect the particular pang that wasteful past energy subsidies have caused.
In contrast, the cost of filling the fuel tank of the vehicle that’s essential to your livelihood is a noticeable and frequent reminder of the cost of living, with every increase requiring a cutback elsewhere. While American’s have become accustomed to the rollercoaster ride of gasoline and diesel prices over the past decades, only those who travel regularly via surface routes are aware of the considerable price differences among the states and major urban areas within the states attributable to local taxes and EPA clean air mandates that require so-called “boutique fuel blends” for specific areas. Most folks are unaware of the latter but are quite sensitive to increases in fuel taxes and generally resist them, bearing a grudge that they’ll seek to avenge at the next election.
The trick then for politicians is to conceal the cost of subsidies and mandates through legislation that spreads the cost across the populace. Requirements that utilities generate specific percentages of their output via renewable sources like wind and solar are in that sense ideal. Why? The costs are spread across the rate base in a way that does not show up as an itemized item on the monthly bill and the state’s public utility commission allows the utility to charge a rate that guarantees its profitability. Everybody is either ignorant or happy, the ideal outcome for politicians.
"It sees inevitable that the Nigerian government will have to go back on the price increases."
It's not inevitable. There were riots in Iran, but the Iranians largely stood their ground. Petrol subsidies were and remain slashed.
I recall reading somewhere that the price in Nigeria was far lower than across its borders, so the possibly natural instinct to give the population a cheap dividend on their oil in fact became a smuggler's paradise, and the dividend accrued to smugglers and neighbours.
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