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A couple of days ago I read a speech which was given by His Royal Highness, Sanusi Lamido Sanusi, Emir of Kano. It was about the government’s energy subsidies, particularly for fuel and electricity. His arguments need no introduction as we have heard them countless times before. Every naira spent on fuel subsidies is a naira not spent on education. Every naira spent on electricity subsidies is a naira not spent on healthcare. And you know what we should be spending money on. Needless to say, I agree with him. But something struck me as missing from the whole debate about subsidies. We know that in general the rich and middle class benefit the most but are there spatial differences in the benefits as well?
Think of this from a fuel subsidy perspective in the context of where fuel is actually consumed. Some states with a lot of economic activity and higher fuel consumption per person should be benefiting more than states with lower fuel consumption per person. If the average person in state X uses 50 litres of fuel a week, they are benefiting more from the subsidy than in state Y where the average person used only 20 litres of fuel per week.
On the other hand, the costs of the fuel subsidy are not borne based on the amount of fuel consumed but based on the revenue allocation formula. Recall the subsidies, or under-recovery, are currently paid by the NNPC before it hits the federation account. So, all the tiers of government are indirectly paying for it. If N1tn is spent on fuel subsidies by the NNPC for instance then the states and LGAs are missing out on roughly N473.2bn that they would have shared if there were no subsidies. Shared according to … Read More...