x Abu Dhabi, UAEFriday 19 January 2018

Nigeria sets bad example of how to cut subsidies

State subsidies on food or fuel are easier to get into than to get out of. Nigeria's latrst problem shows how not to proceed.

As if Nigeria didn't have enough problems, an abrupt decision to end fuel subsidies has generated a whole new set of protests. The lesson, not only for Nigeria's president Goodluck Jonathan but for political leaders everywhere, is that subsidies, while easy to begin, are perilously hard to end.

To be sure, Mr Jonathan has made his own bad luck by choosing the worst possible way to end petrol and kerosene subsidies: abruptly and totally, so that petrol prices jumped by 117 per cent at the first of the year; launching inflationary ripples all through the economy. Meanwhile he is also cutting top public-sector salaries (but not those of members of parliament). That would be a recipe for trouble in the most peaceful and well-run of countries. Nigeria is neither.

Producing over 2 million barrels of crude oil per day, Nigeria should have a useful sum available to share among its 155 million people. But the world's eighth-most-populous country is also one of the world's worst-run: corruption in high and low places, mismanagement of money, poor distribution of wealth, Muslim-Christian violence, ethnic strife, terrible public health standards, unstoppable urbanisation and over 3.3 million people with HIV and Aids.

The country's refineries are all in disrepair, which suits a few prosperous petrol importers just fine. Abolishing the subsidy is part of an economy drive Mr Jonathan calls essential. Unions, not buying this, plan a general strike starting today. But Nigeria's unions, too, are poorly-run; the strike is expected to be brief.

The only good thing about all this is that it has generated an alternative to the persistent Muslim-Christian violence in the country's north; some groups from the two communities have actually joined together to protest fuel prices, in a rare show of unity. Unfortunately nobody expects this to endure; the violent Islamist group Boko Haram will see to that.

Subsidies on food and fuel, though inefficient, are common in many countries. But now overstretched governments are finding it all but impossible to continue shielding consumers from market reality.

Ending or shrinking subsidies and otherwise liberating markets can make good sense. But to be politically palatable, such changes have to be gradual, announced well in advance, and must be fully explained and justified to the public. And they should always be accompanied by measures to protect the neediest.