Subsidy: What it is and why Governments Subsidize Costs of Things
Petrol Subsidy in Nigeria, why Nigerian Government subsidize fuel Price, why it should be removed and how to reduce the discomfort the removal will cause
The word ‘Subsidy’ is one of the words you might have heard a lot. You may know what it means. The word became very popular in 2012. Do you remember Newspapers’ Reports on the planned removal by former President Goodluck Jonathan of Petrol Subsidy in 2012 that led to large protests across Nigeria?
Here is what the word mean and some things you need to know about it.
Meaning of ‘Subsidy’
The word ‘Subsidy’ is derived (got from) the word ‘subsidize.’ ‘Subsidy’ means money that is paid by a Government or an Organization to reduce the costs of services or of producing goods so that their prices can be kept low.
To ‘subsidize’ somebody or something means giving money to somebody or an Organization to help pay for something. Another way to use ‘subsidize’ is ‘give subsidy’ to.
Why Governments Subsidize the Costs of Things
Let's say the cost of producing a litre of fuel is N200, government can give the producer/seller N60 as subsidy on each litre of fuel. This means that instead of paying N200 (which government thinks a consumer cannot afford) for a litre of fuel, a consumer will pay N140.
The N60 paid by government is the subsidy. Governments subsidize the costs of Things because they believe people cannot afford the real cost of producing those things. This is the reason why Nigerian Government subsidize fuel Price. Nigerian Government have been saying they need to remove subsidy i.e. stop subsidizing the price of fuel because of corruption.
Sincerely, government needs to remove fuel subsidy. This means the cost of fuel will increase. That means the cost of many things will go up because fuel is used to produce many things that people use/consume. The increase in the cost of things is called inflation. Inflation usually cause discomfort for people because they have to spend more.
The truth is, Government have to remove the subsidy because some people make money illegally from it.
What Government can do to cushion (reduce) the negative effects of Subsidy Removal
Build New Refineries and allow People to build their own refineries.
When there are refineries, competition among those that own the refineries will make them to reduce price of fuel.
Provide financial and other forms of support to people so that they can cope with cost of living.
Above all, regulate and monitor activities to prevent abuse, mismanagement and exploitation.
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