Home Analysis Governor’s subsidy removal demand will impoverish workers

Governor’s subsidy removal demand will impoverish workers

by Business News Report

By Omoh Gabriel
The call by state governors that the federal government should remove fuel subsidy and increase the allocation from the federation account to states in order to enable them pay the new minimum wage to say the least is uncalled for. The call is for the very wrong reason. Yes, there is need for government to remove subsidy in order to deal with the inefficiency and economic rent embedded in the distribution of fuel in the country.
Such funds realized should be invested in social infrastructure that will aid economic efficiency in the country. Investing the proceeds of the subsidy in the payment of salaries of workers in the states would amount to deception and throwing good money into the drain.
What the state governor should be targeting at this point in time is how to increase production and make more goods and services available to the populace. Governors must learn that it is time for them to put on a thinking cap and begin the process of engineering a revolution in internally generated revenue for their survival.
If in 2011, subsidy is removed to pay the increase in minimum wage, in the years to come how will the states cope with the payment of future wage increases? Removing subsidy to pay salaries and wages of servile servants will inflate the economy to the point that even the so called workers the concerned state governments want to help will be worse off. Petrol is not like other commodities that have easy substitute that the average Nigerian can do away with. When they do not buy directly, the spiral effect of an increase have direct impact on them.

A 5 per cent rise in petrol, will bring about close to 20 per cent increase in the cost of living of the citizenry. Such an increase will affect cost of production, transportation, whose operators will pass the cost to the final consumers. This of course will naturally result in the general increase in the prices of goods and services in the country.
Workers will naturally feel pauparised and impoverished which will trigger another round of demand for increase in wages. If however the money is spent on building infrastructure that aid production, there will be increased investment in the economy, increase production of goods and services, increase in agricultural output, which will result in decline in prices of these goods and services that will make them affordable to all. The general welfare of workers as well as that of the generality of Nigerians will be enhanced. This is elementary economics which states governors needed to be schooled.
Already the Central Bank hands are full with battles against inflation. At the June meeting of the Bank’s monetary policy it raised interest rate. From what is happening many experts are now of the opinion that any rate cut in interest rate is far very unlikely due to the pressure to hike petrol price. Analysts also say that a hike will not lead to any significant pressure on the inflation rate.
At the current interest rate industries, small and medium scale enterprises can not borrow from the banking system which is inimical to economic growth. Yet Nigeria plans to become one of the leading twenty economies by 2020. Good dream of course.
The reality steering the country in the face is because many Nigerian politicians at federal, state, and local government levels cannot see beyond the veil of money they imagine that a given volume of money entails a given real wealth hence they loot in billions and hold same in cash abroad. As a result, they do not perceive in any consequential sense the difference between the value that money can give now if deployed for the general good of the people and what value it will generate in the future. This is why there is rising unemployment, decaying infrastructure in the country, drop in capacity utilisation in industries, falling agricultural output, rising inflation, loss in the value of the naira, and a host of other economic malaise.
Nigerian politicians mistake a high rate of growth of money income as entailing a high rate of growth of real income, even though this is not the case at all, and even though they had direct experience of it not being the case by the rate of inflation they had endured in the past.
What else explains the fact the with higher earnings from crude oil export, the country appears to be getting poorer and funding seemingly inadequate and governments have to run on huge deficit budget. The various levels of government in the country to say the least can not in short see beyond the veil of money across time, just as Keynes had argued they could not do so in any single period.
CBN Governor Sanusi understanding this concept cautioned that if the CBN had made a commitment to exchange rate stability, there was a cost in moving away from that position. Consequently, if the Committee felt that the observed inflation level was not sustainable, then they must find an intelligent way to adjust.
He emphasised that it was difficult to justify exchange rate depreciation where prices were high and the country was an import dependent economy. Sanusi pointed to clear indications that a moderation in inflation was almost an aberration alluding to the global increase in energy and food prices and Nigeria’s vulnerability as an import dependent nation that also imported oil.
If the various governments started factoring in inflation effects on the value chain when making higher demands for revenue allocations and expectations, then obviously there could be a stable inflation-unemployment trade-off.

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