By Victor Oyegoke

Mitigating Negative Effects of the Subsidy Removal Policy and Alleviating Poverty in Nigeria using Instrumentality of the Sustainable Cooperative Business Model

If President Bola Ahmed Tinubu-Led government really wants to reduce poverty and ready to lift the People at the Bottom of the Pyramid (PBoP) from their low level to the middle class, most especially at the grassroots, semi-urban, and urban areas; then he must not neglect this proposal from an Expert on the subject matter of using the Cooperative Business Model that have proven to be effective and sustainable in socio-economic development around the world and noted for ending poverty, hunger, providing quality education, healthcare, fighting inequality, combating climate change, providing decent jobs and creating employments among others as affirmed by the United Nations (UN) and its agencies globally.

Introduction of Cooperative Business Model

The sustainable Cooperative Business Model is a great way to mitigate the immediate sufferings and pains of fuel subsidy removal, as well as alleviate poverty in Nigeria at the long-term. The subsidy removal policy, which of course has its own long-term gains and positive impacts on the nation’s economy with no doubt, has had negative effects on the economy chief amongst is the inflationary pressures we do experience each time PMS pump price increases in Nigeria that usually affects the purchasing power of citizens, their standard and cost of living which has made it more difficult for the masses, especially those in the informal sector not to be able to afford basic necessities.

What is Cooperative? Cooperatives are people-centered enterprises, owned by their members and controlled by them to meet their economic, social and cultural needs and aspirations. They are enterprises based on ethics, values, and principles. Through self-help and empowerment, reinvesting in their communities and concern for the well-being of people and the world in which we live, cooperatives nurture a long-term vision for sustainable economic growth, social development and environmental responsibility.

What makes the Sustainable Cooperative Business Model well suited to address this challenge? The first clear relation is at the very root of the definition provided by the International Co-operative Alliance (ICA) the global body for the cooperative movement, which defines a cooperative as ‘’an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise.’’

On the other hand, the key component implicit is that in their very DNA, Cooperative as a Business entity meet a diversified set of needs, which go beyond profit generation or shareholder return. The wide range of needs identified, whilst not specifically clarifying an environmental aim in this case, continue to acknowledge that people, in order to voluntarily achieve well-being, require more than simple economic well-being. The emphasis on the commonalities suggests that one’s need does not necessarily lead to the detriment of another, and links strongly to the cooperative value of solidarity.

This tested and trusted sustainable model can therefore, help mitigate the sufferings and pains of the subsidy removal and also assist to alleviate poverty in the long run by providing people with transportation, agricultural inputs, consumer goods, access to credit, training, and other resources that they need to start their own micro and small enterprises.

The best way and form that the government can organize and develop the informal sectors to be semi-formal and formal in a way is via encouraging these informal sectors player to become part of the Cooperative Eco-system which is well organized and more structured and coordinated in Nigeria as a Social and Economic enterprises.

Cooperative Intervention Program (CIP)

The way to use instrumentality of the Sustainable Cooperative Business Model to mitigate and alleviate this monster challenge bedeviling our nation at this period is by the government creating an Intervention Scheme to address the pressing issue, to be known and called the Cooperative Intervention Program (CIP) – The Federal Government in collaboration with State and Local Governments partners the Cooperative Movement in collaboration with the Department of Cooperatives, begin set up specialized Cooperative Organizations that focus on providing people with transportation, agricultural inputs, access to credit, consumer goods, education, training, and information. If these are properly done with the assistance of professionals and experts on the subject matter and not purely politicians then, we can see the multiplier effects within the next four years.

These specialized Cooperative Organizations (Mostly Existing and, or Newly Formed) can provide Means of Transportation Services both on Land and Water at affordable rates via Bus Mass Transits and Boats for Mass ferries. Agricultural Inputs & Supplies in form of; improved seeds & seedlings, fertilizer, modern farming equipment, livestock etc. They can provide Access to Credit by giving loans to people who would not otherwise be able to get them from traditional banks. Also, they can make available original Consumer goods to the masses at a reasonable price. More so, Cooperatives that provides consultancy services, training and information that people need to start their own businesses. These cooperatives can provide consultancy, education and training in areas such as formation, marketing, finance, and management. They can also provide access to other resources such as other innovative technologies that can enhance operations, micro business equipment and supplies for the masses.

Today, as I write, the Cooperative Movement in Nigeria are organizations spread across the 36 States and the Federal Capital Territory – Abuja with over thirty million individual cooperative members (Male 42% & Female 58% with active Age Range from 25yrs – 65yrs) in more than three hundred thousand cooperative societies turning over a trillion naira annually, adding meaningfully to the GDP of the nation. In addition to this, over a million youths are currently taking cooperative courses in tertiary institutions spread across Nigeria – at the Colleges, Polytechnics and Universities levels – while others could be found in out-of-school youth cooperative societies throughout the country.

With the above available stats, this is a subsector of the economy that needed to be tapped into, activate and explore by our governments at all levels for the mutual benefits of all her citizenry to cushion the effects of the current situation and reduce poverty.

The key objectives of advocating and praying the government buy into the Cooperative Intervention Program (CIP) is to provide a lasting solution to the socio-economic hardship the masses is facing due to the removal of the fuel subsidy regime in Nigeria. And to make provision on a long-term basis, a sustainable means of reducing poverty and come up with strategic components to alleviate poverty in Nigeria. Lastly, to expand gainful employment opportunities, wealth creation and enhance sustainable economic growth and development of the nation.

Overall, the sustainable cooperative enterprises being a time tested and trusted Model is an excellent way to mitigate the immediate sufferings and pains of fuel subsidy removal, as well as alleviate poverty in Nigeria at the long run.

Subsidy Background Information

Our nation’s economy has been subsidized in various ways for many years through petroleum products, education, electricity, forex etc. It’s on record that the fuel subsidy regime began in the ‘70s by the then government to cushion the effect of rising global oil prices, and it became institutionalized in 1977 following the promulgation of the Price Control Act by the Olusegun Obasanjo military regime , which made it illegal for some products, including petrol, to be sold above the regulated prices.

Nigeria is one of Africa’s largest producers of crude oil, and it relies heavily on this resource for its economic growth. In addition, oil makes up much of Nigeria’s GDP and provides employment opportunities for many Nigerians. However, due to supply inadequacies from the country’s four refineries, her oil is refined in Europe and imported back to Nigeria, a process that contributes to its high costs. Those costs are shouldered mostly by the Nigerian government as subsidies to reduce the costs of fuel paid by the consumers. This PMS retail cost determines the costs of almost all goods and services in Nigeria. Hence, any increased in the PMS price it affects all other factors of production in the country.

What is Fuel Subsidy? Fuel subsidies are a form of government intervention to reduce the cost of fuel by providing direct financial support to licensed oil importing companies, and as such, subsidize the product to consumers. While the concept of subsidy itself is noble, its administration in Nigeria has been plagued with serious allegations of corruption and mismanagement. On an annual basis, a substantial portion of the national inflow is committed to funding the subsidy scheme. That figure has continued to rise astronomically due in part to the international price of crude, volume of petrol consumed, albeit debatable, and naira devaluation. The subsidy regime has grown to become a monster the nation cannot feed again.

Subsequent administrations since the return of democracy in 1999, had attempted to remove the subsidy totally but failed to do so because it is widely popular among citizens, many of whom consider it their major – or only – benefit from the federal government. It gradually became a heavy burden to the government as the cost of maintaining the subsidy increased over the years and it is no more sustainable. More so, to be administratively fixing the price of fuel by government in the name of subsidy cannot make the petroleum industry competitive and attractive to investment.

For Instance, it was said that between 2006 to date, it was estimated that, over 12 trillion naira had been spent to help subsidized imported petroleum products consumed by Nigerians. These funds have either come from the deficit budget or debited to the revenue purse of the government which comes with great opportunity costs to our nation’s infrastructural development and the overall wellbeing of the masses in Nigeria as the subsidy regime is further fueling the vicious circle of poverty in the country. Analysis of the opportunity costs of the subsidy spending far outweighs the direct benefits. Hence the tough policy decision for the total removal of fuel subsidy by the President Tinubu-led administration as pronounced in his inauguration speech on May 29th 2023.

The removal of fuel subsidy in Nigeria has been known to have some negative effects on the economy. Some of these effects include a sudden surge of inflation in the economy, making families experience increased pressure on disposable income, depicting their purchasing power, as we see increase in cost of transportation, rise in food stuff and consumable items, increase in cost of production and business services, and abuse of consumers that could lead to more Nigerians falling into poverty and all these may pose a serious challenge to government if not tactically managed.

No doubt there is a sound economic and business case in favor of the fuel subsidy removal. But the social and political contexts are equally critical. Certainly, the subsidy regime is not sustainable, which is why there is need to accelerate engagement with relevant stakeholders coming up with several policy transition strategy that is sustainable, realistic and pragmatic such as the Cooperative Intervention Program (CIP) such that we are proposing now as one of the major ways governments at various levels can support households during this period, else we might see more people fall below the poverty line.

What is Poverty? The term poverty refers to the state or condition in which people or communities lack the financial resources and essentials for a minimum standard of living. Poverty is a complex and multidimensional concept that can be defined in different ways. One of the simplest ways to define poverty is where the income level from employment is so low that basic human needs (i.e. food, clothing, shelter, water, health care, and education) can’t be met. People who live in poverty may also suffer from malnutrition, disease, illiteracy, and social exclusion. Poverty can affect individuals, families, and, or entire communities.

The 2022 Multidimensional Poverty Index (MPI) Survey by the National Bureau of Statistics (NBS) reveal that; 63% of persons living within Nigeria (133 million people) are multidimensionally poor. The National MPI is 0.257, indicating that poor people in Nigeria experience just over one-quarter of all possible deprivations.

It highlighted that 65% of the poor (86 million people) live in the North, while 35% (nearly 47 million) live in the South. Poverty levels across States vary significantly, with the incidence of multidimensional poverty ranging from a low of 27% in Ondo to a high of 91% in Sokoto.

The NBS MPI statistics above shows that the urgent need for an intervention, sustainable to cushion the effect of the subsidy removal and prevent more people from falling below poverty line and of course reduce poverty generally in Nigeria is paramount now at this period than ever. Hence, the need for advocating for the COOPERATIE INTERVENTION PROGRAM as a solution.

Victor Oyegoke is a seasoned Cooperative Economics & Management Expert; he is the Principal Consultant/CEO at Cooperative Support Services Ltd. Based in Lagos & Abuja and can be reached via WhatsApp on +234-0-802-4472-797 and on email on victor@coopsupport.coop