By Abdulfatah Babatunde
“Fuel subsidy is gone,” Asiwaju Bola Ahmed Tinubu told a packed crowd at Eagle Square, Abuja, the venue of his inauguration as Nigeria’s newest President, about 21 months ago. Minutes after that pronouncement, the paradigm shift in the nation’s economic landscape was never the same again.
President Tinubu used the inaugural address to announce a major policy announcement to ease pressure on government finances. He said the decades-long subsidy on petroleum products was being scrapped.
As we lip towards the second anniversary of the Tinubu administration, I feel it appropriate to take a deep dive into how the removal of fuel subsidies is reshaping Nigeria’s Economy and Society”
The End of an Era
For decades, fuel subsidies were a cornerstone of Nigeria’s economic policy, aimed at keeping petrol prices artificially low for consumers. However, in May 2023, President Bola Tinubu announced the removal of these subsidies, marking a seismic shift in the country’s economic landscape.
The decision, long recommended by international organizations like the International Monetary Fund (IMF) and the World Bank, was met with both applause and apprehension.
Why Subsidies Were Removed
According to the Nigeria Extractive Industries Transparency Initiative (NEITI), fuel subsidies cost Nigeria an estimated $10 billion annually. This massive expenditure drains public funds, leaving little for critical sectors like healthcare, education, and infrastructure.
The government argued that the subsidy regime was unsustainable, riddled with corruption, and disproportionately benefited wealthy elites and smugglers who exploited the system.
Immediate Impact on Fuel Prices
Removing subsidies led to an immediate spike in petrol prices, which soared from around ₦185 per litre to over ₦500 per litre. From mid-2024, the pump price of petrol skyrocketed again to cross N1,000 per litre. At the moment, the prices have slightly plummeted to between N925 and N945 per litre.
This sharp increase sent shockwaves through the economy. This is as transportation costs surged and the prices of goods and services followed suit. For millions of Nigerians already grappling with inflation, the hike was a heavy blow.
Transportation and Commuting Challenges
Public transportation operators were among the first to feel the pinch. Bus fares in cities like Lagos, Abuja and Port Harcourt doubled or even tripled. This forced many commuters to walk long distances or reduce their travel.
The increased cost of transportation also disrupted supply chains, leading to delays and higher prices for essential goods.
Inflationary Pressures
Nigeria’s inflation rate, which stood at 22.41% in May 2023, climbed further to 25.8 per cent by August 2023, according to the National Bureau of Statistics (NBS). The removal of subsidies exacerbated the situation, as higher fuel costs trickled down to food prices, housing, and other essentials. For low-income households, the impact was particularly severe.
Social Unrest and Protests
The subsidy removal sparked widespread protests across the country. The leadership of Labour Unions, including the Nigeria Labour Congress (NLC), organised protests. They demanded palliative measures to cushion the effect on citizens. While the government promised relief, many Nigerians felt the measures were insufficient and poorly implemented.
Government’s Palliative Measures
In response to the backlash, the federal government announced a series of palliatives, including a ₦500 billion intervention fund to support small businesses and vulnerable households. Additionally, state governments received allocations to distribute food items and cash transfers. However, critics argued that these measures were inadequate and poorly targeted, leaving many Nigerians without relief.
Impact on Small Businesses
Small and medium-sized enterprises (SMEs), which form the backbone of Nigeria’s economy, were hit hard by the subsidy removal. Many businesses reported a sharp decline in sales as consumers cut back on spending.
For instance, a survey revealed that 60 per cent of SMEs experienced a drop in revenue. This was within the first three months of the policy change. The Lagos Chamber of Commerce and Industry (LCCI), conducted the survey.
Shift to Alternative Energy Sources
One unintended consequence of the subsidy removal has been a growing interest in alternative energy sources. Solar power, in particular, has gained traction as households and businesses seek to reduce their reliance on petrol-powered generators.
Companies like Lumos and Daystar Power recorded a surge in demand for solar solutions, signalling a potential shift toward renewable energy.
Impact on the Oil and Gas Sector
The subsidy removal has also had significant implications for Nigeria’s oil and gas sector. With petrol prices now determined by market forces, private investors have shown renewed interest in building refineries and improving distribution networks.
Analysts expect that the Dangote Refinery will play a key role in reducing Nigeria’s dependence on imported fuel. The refinery began operations in 2023.
Increased Government Revenue
One of the primary benefits of subsidy removal is the increase in government revenue. According to the Finance Ministry, the government saved over ₦1 trillion in the first six months after the policy change.
One expects that the federal government would channel these funds into critical infrastructure projects and social programmes. Although, concerns remain about transparency and accountability.
Impact on Poverty Levels
Despite the potential long-term benefits, the subsidy removal has exacerbated poverty in the short term. The World Bank estimates that an additional seven million Nigerians could fall into poverty due to the policy change. For a country where 63% of the population already lives in multidimensional poverty, this is a worrying trend.
Urban vs. Rural Divide
The impact of the subsidy removal has been uneven, with rural areas bearing the brunt of the hardship. In cities, public transportation and alternative energy options provide some relief. However, in rural areas, where access to infrastructure is limited, the hike in fuel prices has been devastating. Farmers, in particular, have struggled with the increased cost of transporting goods to markets.
Political Ramifications
The subsidy removal has also had political implications. While some analysts praised the government for taking a bold step toward economic reform, others criticised the timing and implementation of the policy. With general elections looming, the decision could influence voter sentiment, particularly among low-income Nigerians who feel disproportionately affected.
Global Comparisons
Nigeria is not the first country to remove fuel subsidies. Nations like Indonesia and Egypt have undertaken similar reforms, with mixed results. In Indonesia, the removal of subsidies in 2015 led to long-term economic benefits but caused significant short-term pain. Nigeria’s experience mirrors this pattern, highlighting the challenges of balancing immediate social costs with long-term economic gains.
The Role of Corruption
Corruption has long plagued Nigeria’s subsidy regime, with reports of ghost subsidies and inflated claims by fuel importers. The removal of subsidies is seen as a step toward curbing these malpractices. Experts, however, caution that without robust oversight, the savings from the policy change could be misappropriated.
Long-Term Economic Prospects
Economists argue that removing fuel subsidies, while painful in the short term, could pave the way for a more sustainable economic future. By freeing up resources for infrastructure and social programmes, the policy has the potential to stimulate growth.
It can also reduce Nigeria’s reliance on oil revenues. However, this will require careful planning and execution.
Public Perception and Trust
Trust in government remains a significant challenge. Many Nigerians view the subsidy removal as another example of policies that prioritize economic metrics over human welfare. Rebuilding public trust will require not only effective communication but also tangible improvements in living standards.
The Road Ahead
As Nigeria navigates the aftermath of the subsidy removal; the focus must shift to mitigating the short-term pain while maximising the long-term benefits. This will require targeted social interventions, investment in alternative energy and efforts to diversify the economy away from oil.
A New Chapter for Nigeria
The removal of fuel subsidies marks a turning point in Nigeria’s economic history. While the road ahead is fraught with challenges, it also offers opportunities to build a more resilient and inclusive economy.
For a nation often described as a sleeping giant, this could be the wake-up call to unlock its full potential. (TNZ)
Babatunde is the CEO of RABIMAK Media & Allied Consult, Publisher of TheNewsZenith Online
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