The Unbearable Stubbornness of Fuel Subsidies. A flashback to 2012. A veiled warning/advice/ reminder to Nigerians. Part 2

  
The government of Nigeria spends about $8 billion a year on fuel subsidies. Getting rid of this financial burden would be an “important first step” in stabilizing the country’s finances, according to a 2009 International Monetary Fund report. The IMF and other global financial institutions are opposed to fuel subsidies in general because the biggest benefits do not go to the poor, but to the owners of large cars and big generators.
To look only at the absolute size of the benefit, however, misses a major point. For the poor, the fraction of their income that goes to pay for fuel is much greater than it is for those who own the big cars and generators. As such, it’s the poor who feel the elimination of subsidies the most, and it was the poor who rioted in Lagos.
  Of course, erasing an $8-billion drain from Nigeria’s balance sheet would allow the government to spend money on badly needed public projects, and that is precisely how the government explained its move. But to the poor – whether rural or urban – the subsidy is one of the only benefits they glean from their nation’s strategic oil wealth. Corruption has stolen most of the other benefits: Nigeria’s roads are cratered with potholes; many live without access to clean drinking water; and electricity is unreliable where access to the grid even exists. Why should they believe the money the government would save by not subsidizing fuel would actually pay for infrastructure, when so much of Nigeria’s wealth simply disappears down the black hole of corruption?
More generally, taking away ingrained fuel subsidies from a developing country is like taking a crutch away from a cripple. After years of subsidies, Nigerians are completely reliant on cheap gasoline, from nationwide economic systems all the way down to personal needs. Even if taking away the crutch is the only way to force a patient to use his injured leg, it is nevertheless going to make him hopping mad (pun intended) because it will hurt like hell.
Don’t blame Nigeria for trying: failed attempts to remove fuel subsidies are written in the histories of many oil-producing nations. In Bolivia, protestors burned photos of President Evo Morales and vandalized government buildings in late 2010 after he tried to cut fuel subsidies; Mr. Morales backed down within days. In 1989, Venezuelans incited days of riots in which hundreds of people died, to protest a rise in fuel prices. Now, even though he has openly criticized his country’s subsidy program, President Hugo Chavez presides over one of the most generous fuel subsidies in the world.
  The examples go on. In Jordan, widespread demonstrations forced the government to rescind its proposal to eliminate fuel subsidies. In Indonesia, a 30% increase in fuel prices led to bloody riots, even though the government sweetened the shift with direct cash-support programs for the poor. Such tactics can work: Iran has eliminated its fuel subsidies but cushioned the blow with cash payments of roughly $45 a month. Other Middle Eastern countries stuck paying fuel subsidies they can barely afford, such as Egypt, are looking at Iran’s plan as a model.
Most situations are more complicated than they first appear, and such is certainly the case with Nigeria’s fuel subsidy riots. The country is also facing a surge in religious violence: at least 85 people have been killed in bomb and gun attacks since Christmas Day. An Islamic group named Boko Haram is behind the attacks and is targeting the country’s Christians, who primarily live in the north. The group’s name translated from the Hausa language means “Western education is a sin.”
These attacks are threatening to fracture the country’s sensitive north-south, Muslin-Christian divide, a religious fault line that has sparked sectarian violence responsible for killing hundreds of thousands in the past. While sectarian stresses rise, the fuel-subsidy protests provided an outlet for Nigerians, emboldened by the Arab Spring, to vent their grievances against a deeply corrupt ruling class and an incompetent government.
Whether Nigeria – a dynamic but troubled country encompassing a wide range of ethnic and religious groups – can hold together is becoming a pressing question not only for Nigerians but also for the world. It would be devastating to see Nigeria descend back into the sectarian violence that killed a million people between 1967 and 1970. On a more banal level, another civil war would almost certainly disrupt the country’s oil machine, a possibility that is adding yet another premium to current oil prices. Of the 2.2 million barrels of oil produced in Nigeria every day, 1.9 million are exported; 800,000 of them are sent to the United States. It is yet another example of how relying on oil produced in unstable countries on the other side of the world is not a recipe for US energy security.
  So here’s to hoping against hope that Nigeria’s leaders can dig themselves out from the pressing weight of sectarian divisions, endemic corruption, and massive infrastructure needs and keep their country together. Just one piece of advice: leave the fuel subsidies alone.