Nigeria’s fuel subsidy policy has long been a contentious issue. Subsidy on key commodities such as petrol, kerosene, and diesel introduced to buffer the impact of rising global oil prices has been the cornerstone of the Nigerian government dating back to the 1970s oil boom.
Ironically, Nigeria, which is ranked as the 11th country with the largest oil resources, and Africa’s second crude oil producer, relies on imported Premium Motor Spirit (PMS). The PMS subsidies have been a huge drain on the country’s resources. In 2022, according to official statistics, the petrol subsidy in Nigeria accounted for over N4 trillion. Rather than providing a respite for the poor, these subsidies fattened the profit margins of the rich. In fact, Nigeria’s neighbours, rent seekers and the rich, benefitted more from the subsidies than the poor. Soon after the subsidy removal announcement and the adjustment of PMS prices in Nigeria, the retail prices of refined petroleum products in the neighbouring countries shot up.
Worsening corruption, pollution, and climate change were the other byproducts of the fuel subsidy. These subsidies also came at huge cost, widening budget deficits and inflating government debt. Nigeria’s debt service as a percentage of revenue was estimated to be 102% in 2022 and is likely to go up to 160% of revenue by 2027. PMS fuel subsidies also ate into the budget allocations for the development of critical sectors such as infrastructure, health, and education.
Removal of the subsidy to revive the economy was the topmost electoral promise of President Bola Tinubu. True to his words, on 29 May, in his inaugural speech after winning the elections, President Bola Tinubu announced that Nigeria’s fuel subsidies would be scrapped. The announcement of the new President was welcomed by multilateral agencies and Rating agencies like Fitch and Moody’s but created a lot of furores within the country. After the announcement, petrol prices, surged by almost 200 per cent across the country triggering all round inflation.
In his recent Democracy Day address on June 12, Tinubu admitted that the decision to withdraw the petrol subsidy will create hardships for the people as also for the small businesses and millions of households who rely on petrol generators for power. The spiralling petrol prices and transport costs have already angered the citizens. But the decision was inevitable for the long-term benefits for the country and its people, he said. The expensive and unaffordable PMS subsidy had to be eliminated to pave the way for investment in critical sectors like education, transport and health care, that will improve the lives of millions of Nigerians.
There are diverse views about the consequence of the long-debated subsidy removal. On the positive side, it is expected to free up funds for improving infrastructure, education, power supply, healthcare and other public utilities that will improve the quality of lives. On the flip side, it will further impoverish Nigerians, a country where almost half of the population lives below the poverty line.
Policy experts have urged the Nigerian government to carefully study the economic, social, and political impacts of the decision to remove subsidies. The success of the move no doubt, rests on the strong political will and commitment of the Federal Government, coupled with robust coordination with the States. Experts also warn that the foreign exchange reforms, and bridging the gap between the official and parallel exchange rate will be preconditions for the successful functioning of the reform.
How President Bola Ahmed Tinubu Administration will keep its promise to successfully stamp out the fuel subsidy permanently is yet to unfold. No doubt, the President has tough tasks ahead such as managing the challenges in transition, channelising investments into critical sectors and pacifying the frustrations of the people. It is hoped that the pain will be short-term and the ailing Nigerian economy will revive and stand tall as a bold model for other African nations that are struggling under the burden of subsidies.
