Everyone is a loser in Nigeria's fuel subsidy cut and partial restoration

In spite of being Africa's largest oil producer, Nigeria's oil refineries do not work because of poor maintenance and sabotage.

Motorists queue for fuel at a Lagos filling station. AFP PHOTO/Pius Utomi Ekpei

Nigerians do not expect much from their government. Nor do they get it.

They use their own generators for electricity, sink boreholes if they want fresh water, and hire security guards to keep out the bad guys.

It is no surprise, therefore, that scrapping one of the few state-provided perks - the fuel subsidy - caused such outrage in Africa's most populous nation. The subsidy, which was cut this month with little warning, meant the price of petrol doubled from 45 US cents a litre to at least 94 cents a litre.

Given most Nigerians live off less than $2 (Dh7.34) a day, the loss of the subsidy was a severe blow to many ordinary Nigerians.

It was an even bigger blow to the criminal groups within the government-controlled oil industry who profit from the subsidy by smuggling cheap oil abroad.

People took to the streets in their tens of thousands in a series of rolling protests.Goodluck Jonathan, the president, reintroduced a partial subsidy last week, pegging petrol at 60 cents a litre. This is still a lot more than the previously subsidised level and is unlikely to mollify the protesters for long.

"Everybody has lost," says Bismarck Rewane of the consultancy Financial Derivatives, based in Lagos. "The cost of administering the subsidy is higher than the subsidy and that is still there. So is the abuse and corruption."

As events play out in Nigeria, they will be closely watched elsewhere in Africa. Fuel subsidies across the continent have long been a sop to the poor. They were, in effect, a plaster that patched over the lack of public services and helped to keep restive populations quiet. They also provided a lucrative income to connected businessmen who managed fuel imports and exports.

In Nigeria the costs associated with importing fuel, such as transport, is borne not by the importer, but by the government. Critics say account padding is rife among importers, adding millions of dollars to the government's annual fuel bill. Smuggling fuel across the border had also become a profitable source of income for some - as a result of the subsidy cut, fuel prices in Benin and Cameroon have rocketed.

Despite being Africa's largest oil producer, Nigeria's refineries do not work because of poor maintenance and sabotage. Some suspect the criminal elements among the importers are behind the sabotage. The country has signed a $25 billion deal with China to build three refineries, but these are still at the planning stage.

Economists agree the subsidies must go, as the IMF had urged for years. But it is the way they were stripped out, with little warning or any attempt to soften the blow, that has caused outrage.

Mozambique removed fuel subsidies last year, but opted to do so over six months, with no single increase being greater than 10 per cent. Subsidised bus passes were introduced to allow workers to continue travelling to and from work.

The passes, valid for state-owned buses, allowed the government to effectively assist the poor directly, without giving middle men a chance to line their wallets in the process.

Ghana, Guinea and Chad, among others, have also cut back on fuel-subsidies. Cameroon plans to do so this year and hopes to save an annual $600 million. Uganda is tentatively moving towards cutting more than $200m in annual electricity subsidies, a move analysts expect will spark widespread protests.

The hope is the money saved will be used for services such as health, education and energy. The IMF estimates Nigeria was paying more than $6bn a year in subsidies. In contrast, education is budgeted to receive only $2.4bn this year.

But it is hardly surprising many in Africa are unwilling to take the good intentions of their governments on faith. Nigeria has a long history of murky leadership that uses the national treasury as a personal ATM.

Generators will still be heard chugging across Lagos; clean water will still be a household endeavour and the police will man roadblocks only to shakedown commuters.

Without the subsidy, Mr Jonathan's neglected election pledge to improve service delivery is looking even more threadbare.

* with Reuters