In the run-up to the 2023 general elections, one of the hotly debated issues was the removal of fuel subsidy. Presidential candidates vowed to remove upon assuming office. Subsequently and in the presidential inauguration address on 29 May, 2023, President Bola Ahmed Tinubu, announced, "...fuel subsidy is gone."
He further stated that subsidy can no longer justify the ever-increasing cost of Petroleum Motor Spirit, PMS, and that the funds will be rechanneled into better investment in public infrastructure, education, health care and jobs.
The President's announcement led to a significant increase in petrol prices, causing a rise in the cost of living. The Nigeria Labour Congress initially threatened a nationwide strike, but after negotiations with the government, they withdrew their threat.
It is important to note that though the concept of fuel subsidy although inherently noble, its administration in Nigeria has been plagued with serious allegations of corruption and mismanagement. In the early 1990s, Nigeria's state-owned oil refineries struggled to meet demand, leading to crude oil export and costly refined petroleum imports subsidised by the government. Despite granting licenses for private refinery construction in 2000, none were built, as economists believed subsidies hindered investment returns amid low oil prices.
The government's reliance on the NNPC for subsidies led to reduced contributions to the federation account, causing budget deficits and inefficient energy consumption.
Before President Tinubu's inauguration, the Nigerian government spent ₦400 billion monthly subsidising petroleum imports, covering the difference between the projected market price and the pump price.
The subsidies were issued as direct or indirect payments to entities importing refined products. In 2022, the House of Representatives launched an investigation into the subsidy regime from 2017-2022. The government has not released the panel's findings but asserts that the subsidies favoured a few companies.
The Tinubu-led administration justifies fuel subsidy removal for infrastructure development and economic diversification, and also touts ending subsidies for environmental benefits, with potential CO2 emission reductions and alignment with climate goals.
While some commend the government on removal of an age-long scam, many Nigerians view it as a betrayal of electoral promises and a burden on the populace. The removal resulted in an unprecedented increase in petrol prices, exceeding N630 per litre, causing a ripple effect on various goods and services, contributing to an inflation rate above 27%.
The naira has depreciated against the dollar, aggravating economic challenges for vulnerable populations. Widespread dissatisfaction led to protests and strikes, with calls for policy reversal, reduced pump prices, increased minimum wage, electricity tariff review, and an end to corruption.
According to a 2023 survey by Statista, 73 percent of participants noted that the Nigerian federal government's removal of the fuel subsidy has "elevated their expenditures." Conversely, two percent indicated that this move resulted in "a decrease in their workdays."
Intriguingly, only five percent claimed that the decision had no effect on them. In all of this, the government has urged patience, emphasising long-term national benefits. However, it has become cautionary in Nigeria that government's promises, such as this, are taken with a pinch of salt, especially considering the nation's economic history.
Recently, it was reported that the Nigerian National Petroleum Company Limited and fuel marketers, represented by the Independent Petroleum Marketers Association of Nigeria, clashed over the removal of petrol subsidy amid the depreciation of the naira. Disagreements persisted, with oil marketers suggesting a higher market price of N1,200/litre, while NNPC insisted the government had ceased petrol subsidies. The conflicting positions highlight ongoing tensions in the petrol subsidy debate.
The Nigerian National Petroleum Company Limited (NNPC Ltd) has however refuted claims of a clash with oil marketers regarding fuel subsidy removal. The sole fuel importer, denied any clash, asserting that the Federal Government had already removed subsidies on petroleum products.
The appeals regarding the fuel subsidy removal suggest that labour unions may have failed to advocate for the most vulnerable segments of the population, negotiating mainly for federal workers. The fuel subsidy removal, a divisive issue, is supported by some analysts who argue it was unsustainable and benefiting the rich disproportionately. They emphasise the need for government reforms to mitigate the policy's impact. Opponents view the subsidy as a social contract and people's right, questioning the government's lack of consultation and transparency. The policy is perceived as a challenging development for the majority of Nigerians already grappling with economic recession and security issues. The arguments on both sides are acknowledged, but questions arise about the feasibility of savings in a deficit budget and the effectiveness of proposed palliatives.
On 31 July 2023, President Bola Ahmed Tinubu in a broadcast to the nation addressed Nigerians on the economic challenges, emphasizing the removal of the fuel subsidy to redirect funds for public welfare. The president, asserted that the subsidy, costing trillions annually, favored a select few and posed a threat to economic fairness and democratic governance. He highlighted the need to fight economic imbalances, multiple exchange rates, and illicit money accumulation.
The speech outlined measures to alleviate economic hardship, including intervention for businesses, manufacturing sector support, and initiatives for MSMEs and agriculture. He also acknowledged the "temporary" pains caused by the subsidy removal but also expressed optimism of a brighter future.
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As comforting as it is to know that plans are being made to ease the affairs of the populace, the effectiveness--as well as the actualization--of promised palliative measures are in doubt. The Federal Government of Nigeria has approved 5 billion NGN palliative funds of each state for the procurement of food items and fertilizers as part of moves to alleviate the sufferings associated with removal of fuel subsidy in the country. In addition, the FG in October 2023, promised to roll out 11,500 gas-powered buses (CNG buses) as part of measures to ease transportation challenges caused by removal of subsidy.
At this juncture, it is important to reiterate the opinions of seasoned economists on this subject; that for the removal of fuel subsidy to not plunge the economy deeper, careful and strategic policies and planning need to be in place, which mitigate the effect of the new cost of PMS which citizens--particularly low-income earners--will have to grapple with.
As such, if the FG intends to make the most out of subsidy removal, it is crucial that it gets it right with policies aimed at alleviating the impact of subsidy removal. Equally as important is the need for the FG to make good on its promises of this palliative measures.
Onafowokan, a public affairs analyst, wrote from Lagos.
