1. ALTERNATIVE SOLUTION TO THE
CONTROVERSIAL FUEL SUBSIDY REMOVAL
BY SEYI POPE(A MODERN ECONOMIST)
I have observed with great interest the drama that has ensued between the government and us the
people of Nigeria over the removal of fuel subsidy removal. Several people and loyalist have
condemned the removal of fuel subsidy and at the moment, there is a confrontation between the
people of Nigeria and the government.
I do not wish to join the various loyalists to challenge the government without proffering a way
out.
Undoubtedly, the government with / through his representative the Finance minister and the
petroleum minister as well as the CBN governor have failed to show or tell us, the people of
Nigeria the other alternative methods that they could used in getting funds so required for
developmental projects without making the people they govern worse off, a fundamental
principle in welfare economics.
I, Seyi Pope, an economics lecturer with a private institution of learning in Nigeria hereby
proffer two options- aside the fuel subsidy removal- which will not only make funds needed for
developmental project required by the government available but also revert back the petrol piece
to less than #65 per litre.
OPTION ONE
FOREIGN EXCHANGE PATHWAY
There are three major types of exchange rate system practice in the world namely;
1. Floating exchange rate system: In this system, the value of a currency is strictly determined by
the invisible forces of demand and supply with no government intervention. As such, between any two
given currencies, any one whose export in more than its import is expected to experience increase in value
which is called appreciation, and any one of the two currencies whose import is more than the export is
expected to experience a reduction in value otherwise called depreciation.
2. Fixed exchange rate system: In this system, the value of a currency against another is strictly
determined by the government and is fixed at a value perpetually.

2. 3. Dirty/ managed floating exchange rate system: This is the combination of both the fixed and the
floating exchange rate system. In this exchange system, the government set a range for the value of a
currency against another with both upper and lower limit. As long as the value of the currency is within
the set range, the forces of demand and supply are allowed to operate in determining the value the
currency would be, but as soon as the value get to or above/below either of the limits-upper or lower- the
government intervene by ensuring the return of the value of the currency.
The Nigerian government through the CBN practices the 3rd exchange rate system.
Suffice it to say that had the government practiced the 1st exchange rate system, the value of the naira
would have been higher than the dollar since our export is far greater than our import based on the BOP
figures released by the CBN in its statistical bulletin of 2011.and beyond.
However, either through the instrumentality of the forces of demand and supply through the floating
exchange rate system or through deliberate act of the government to revalue the naira, when the naira
appreciates/ revalued to #50/ $1 , the economic implication would be that, the landing cost of the petrol
would be #42.50k which is 85% the value of the dollar.
At this price, thegovernment would not have to pay any amount of money for subsidy and Nigerians
also would still be better off by then paying between #42:50k - #45 per litre of petrol. A whooping sum
of #22:50k would have been saved by the people on every litre of fuel bought with the multiplier effect of
further reduction on both the diesel, aviation fuel and the kerosene.
Indeed, this option is a win-win solution for both the government and the people of the
Federal Republic of Nigeria.
OPTION 2
LOCAL REFINERY PATHWAY
Suffice to say that the reason why the government of The Federal Republic of Nigeria is paying
subsidy on fuel is because they could not ensure that our local refineries operate at full capacity.
Therefore, if the government decides not to take the first option, then the government should be
prepared to pay subsidy on imported fuel till they could ensure that all the four local refineries
operate at full capacity. There-after, start refining locally which would automatically required no
importation and by extension result in no payment of subsidy whatsoever afterwards.
N.B: The second option would cost government as much money on subsidy till they could
complete the refineries. So the faster the government complete these refineries, the more fund
they could save and continue to safe for other developmental projects.
BENEFITS OF SELECTING OPTION 1
Below are just a few of the numerous benefits accruable to both the people of Nigerian and the
government as a result of government decision to select option 1:

3. 1. Faster and easier accumulation of assets and equipment for every small and medium scale
entrepreneur whose equipment and machineries used in production are purchased from
abroad.
2. Reduction in brain drain going on in Nigeria as people would have little or no incentive
for going abroad to work since the amount of money they could make abroad would not
be as enticing after conversion to naira as it is presently.
3. Reduction in cost of goods and services as both locally produced and imported goods
would experience a decline in price as the cost of production/ importation would be
reduced due to reduction in price of fuel and diesel.
4. Increased in general standard of living of Nigerians as a result of reduction in prices of
basic goods and services which would reduce the propensity to consume of the masses
and increase their propensity to safe, thereby leading to development.
5. Peace and tranquility.
6. Increase in employment generation as the reduction in cost of production is a major
inducement for Foreign Direct Investors who would not need to be begged to come in to
the country to establish firms etc.