By SHUAIB, Muhammad Bashir

Introduction

The economy of Nigeria has been under subsidy for so many years. The subsidy covers fuel, electricity, education, and foreign exchange due to the 1977 Price Control Act. Though the concept of subsidy appears well-intentioned, corruption and mismanagement have been associated with its administration in Nigeria. Most of the products under subsidy, including diesel and kerosene, were deregulated several years ago, but subsidy on petroleum motor spirit (PMS) remains a significant challenge for Nigeria’s economic managers. As today marks the 64th Independence Day of Nigeria, it is necessary to reflect on the subsidy removal if it is a necessary reform or economic burden. Thus, this essay body is therefore divided into four sections that discuss the economic landscape of Nigeria about subsidy removal.

Fuel Subsidy Removal, Government’s Position

The economy of Nigeria has been struggling with various kinds of challenges, including high debt burdens, an inflation rate of over 22%, and always depreciating naira, which has lately crossed over N1500 to a dollar. The above factors have acquired greater dimensions with the added element of fuel scarcity and dwindling crude oil production arising out of theft and underinvestment in the sector. The administration of President Bola Ahmed Tinubu, therefore, came on board with an agenda of “Renewed Hope” aimed at the attainment of a 6% annual GDP growth rate and tackled head-on the many thorny economic issues.
The announcement of the withdrawal of fuel subsidies was framed in the context of an unsustainable fiscal burden that the subsidy imposed on the government. The estimated amount spent by the Nigerian government on fuel subsidies between 2005 and 2023, for instance, was put at a colossal sum of N21 trillion, hence highly overstretching public finances. Removing such subsidies will allow the administration to shift resources to other more productive areas and help reduce the fiscal burden that is placed on the government.

Fuel subsidy removal: rationale and justification

The subsidy was seen to be unsustainable as it took up a huge chunk of the national budget and needed to be cut so the money could be allocated to vital sectors like education, health, and infrastructural development. Also, as far as market efficiency is concerned, the government opening to the fuel prices moving in tune with market conditions was supposed to attract competition and higher investment in the petroleum sector. This will lead to the better allocation of resources while eliminating or curtailing the widespread corruption that seemed entrenched in the management of subsidies. Going further, the removal of subsidies was also used to relate it to the goal of a single foreign exchange rate; such a policy was aimed at stabilising the naira and cutting distortions in the economy. It is this unifying of several multiple exchange rates under one that contributed to the economic instability that the current administration wanted to achieve.

The debate: necessary reform or economic burden?

The fuel subsidy removal is a very divisive issue, wherein some argue the reform is essential to the economic recuperation of Nigeria and long-term economic growth. However, I wish to emphasise the economic burden placed on the populace. The subsidy removal has led to a surge in fuel prices, hence increased transport costs, which has, in turn, contributed to an increase in commodity prices across the board. Inflation of such a nature hits the poor hardest since they spend most of their income on basic commodities.
Although there may have been some long-term dividends from the removal of subsidies, the immediate effects have been devastating. Petrol prices jumped from about N238.11 to N557 per litre and recently over N800, which represents an amazing increase of over 200%. With the rise in the price of fuel, transportation costs skyrocketed to as high as a nearly 300% increase in some places, further worsening an already high inflation rate and increasing the cost of living for the average Nigerian. Therefore, most households can barely cope with the increase in essential goods and services. The World Bank estimates that as this trend of economic growth continues, the number of Nigerians that would be pushed into multidimensional poverty may increase by an additional 4 million to the already high 133 million living in poverty.
The removal of fuel subsidies in Nigeria has, to a greater extent, caused economic headaches among the citizens and the national economy as a whole. The continuous rise in the price of petrol is contributing further to inflation rates of more than 34% as of mid-2024, according to NBS Nigeria. Such inflation has badly hit the cost of living, in which food items have gone up considerably, pushing food inflation to almost 41%.
With this sudden increase of about 300% in transportation costs, the increased operational cost translated into higher goods and services prices for small businesses. Many of them could not put up with it, leading to the closure of businesses and, consequently, the loss of jobs, further increasing unemployment rates. According to estimates by the World Bank, an additional 4 million Nigerians could slip into multidimensional poverty, compounding the existing crisis where over 133 million are already affected. Meanwhile, social unrest has also escalated, as protesters have taken to the streets in outrage over rising costs and the bitterness of apparent governmental apathy. Thus, a hasty and abrupt removal of subsidies without mitigating nets severely raised public dissatisfaction and is now a threat to stability.

Long-Term Considerations and Future Outlook

Looking ahead, the success of the fuel subsidy removal depends on several factors, including investment in refineries, diversification of the economy, and public communication and engagement. The Nigerian government has to ensure rehabilitation and building of refineries as one of its priorities so that the dependency on imported fuel is reduced and, overall, the fuel prices come to a stable state. This would further translate into higher employment opportunities and spur economic growth. Also, the removal of fuel subsidies will finally have to be complemented by diversifying the Nigerian economy from oil. Nigeria needs to explore new areas of generating revenue, like agriculture, technology, and other renewable energy sources, with which it will be able to reduce dependence on oil. Additionally, the government should explain to the people why it needs to remove the subsidies and what benefits it is trying to seek from this action in the long run while ensuring several measures like palliative distribution, an increase in minimum wages, and market price regulation are on stability. Transparency and communication alongside relief schemes for the masses could build trust and ensure less discontent among the citizens.

Conclusion

The withdrawal of subsidies in Nigeria represents quite a bold move in the direction of economic reform. While the policy targeted long-term economic reform, the immediate consequences brought huge suffering to the populace and economy, thus presenting an economic burden due to the lack of strategic measures by the government. It is going to be the government’s response to those challenges that will make this policy an economic detriment or a necessary reform. This no-go area is one in which Nigeria must delicately balance fiscal responsibility with social equity as an imperative for the attainment of economic growth that is both sustainable and encompasses improvement in standards of living.