The ache of fuel subsidy removal still throbs fresh across all socio-economic joints in Nigeria as the country celebrates Democracy Day on June 12. Many are angry at the suddenness of the decision, and almost everyone is scrambling to adjust their budgets and lifestyle accordingly.
While millions of Nigerians witnessed or observed the inauguration of President Bola Ahmed Tinubu, they will probably not remember any part of the ceremony, except for the mic-drop announcement that “petrol subsidy is gone.”
Despite the anger and displeasure directed at the government, millions of Nigerians still have no substantive idea what the ‘fuel subsidy’ removal issue is all about. Join us in this brief exposé on what has quickly become the most important topic of national discourse.
WHAT IS FUEL SUBSIDY?
Fuel subsidy is a government policy that provides financial support to oil importers and marketers to offset the difference in the high cost of production, thereby keeping fuel prices lower than the market rate.
- Nigeria operates on what many would refer to as a subsidised economy. Subsidies were first introduced in the country in the 70s following the Oil Price shock of 1973, which resulted in a global rise in oil prices. In 1977, it was institutionalised under the Price Control Act.
- In 2000, the Obasanjo administration introduced the payment of subsidy on Premium Motor Spirit, otherwise known as petrol. The removal of subsidies on petroleum products started with diesel in 2003, followed by the deregulation of kerosene in 2016. Subsidy on Premium Motor Spirit (PMS) remained a sensitive issue due to corruption and mismanagement in the sector.
- Most Nigerians are not aware that the government has been subsidising fuel since the ’70s.
- According to the Nigeria Extractive Industries Transparency Initiative (NEITI), subsidies have benefited upper-income households the most. Among the five income groups in Nigeria, the richest 20 percent consumes 75 per cent of petrol in the country, while the poorest 20 per cent consumes just 1 percent of the product.
- According to NNPC Limited, out of the over 103 million litres of fuel consumed daily, at least 58 million litres were being smuggled out to other West African countries.
- Nigeria ranks among the countries with the fewest vehicles per capita, with 0.05 vehicles per person or 50 vehicles per 1000 Nigerians.
- During the election campaign leading up to the 2023 general elections, a large majority of the populace, including all the presidential candidates, agreed that the subsidy must go.
- As of May 30, 2023, the subsidy on petrol was removed, and pump prices skyrocketed from ₦195 to between ₦448 and ₦540 across the country, with some states seeing prices as high as ₦600 per litre.
- Over the past 18 years, the Nigerian government has spent over $30 billion on fuel subsidies.
- In 2022 alone, the Buhari administration borrowed ₦1 trillion to finance fuel subsidies. Between 2016 and 2023, the Buhari administration spent $26 billion on petrol subsidies.
- The World Bank report on Nigeria reveals that 96.3 per cent of the country’s revenue was directed to servicing its debts in 2022.
- Nigeria’s local and foreign debt was capped at $167 billion at the end of Buhari’s administration and is projected to increase significantly by the end of 2023.
INITIAL EFFECTS OF SUBSIDY REMOVAL
- Transportation costs were immediately impacted by the removal of fuel subsidies, which subsequently raised costs across the value chain of essential goods, leading to increased prices.
- Low-income households are the first to feel the brunt of the subsidy removal, as evidenced by the immediate rise in transportation costs and increased prices for essential goods.
- Most Nigerian businesses and industries generate their power, making them heavily reliant on fuel. The removal of fuel subsidies has driven up their operational and production costs and consequently affected their profitability.
REALITIES GOING FORWARD
President Bola Tinubu has done what his predecessors were not strong-willed enough to do: he has removed one of the stakes that have been bleeding the nation dry.
To cauterise this gaping wound, the government and the people must bear through the agony of healing with firm resolution and the resilience that defines our beloved nation.
This year’s Democracy Day should mark the start of something new in this democratic project: a government that communicates and engages with its citizenry.
Nigerians expect to see the following short-term interventions from the government to cushion the effect of the subsidy removal:
- Targeted social welfare programs and accountable support measures
- Minimum wage increase and employment generation initiatives
- Improved public transport infrastructure and subsidised fare programs
- Subsidies for specific consumer groups
- Support for small and medium-scale businesses
The removal of the subsidy is not the end for all of us. It is the beginning of recovery many generations due.