- Nigerians consume 70 million litres of fuel per day
- Government subsidy payments have been thwarted by allegations of corruption
- Proceeds from fuel subsidies can be diverted to other sectors of the economy
- The government may find it difficult to keep its side of the bargain
Mixed reactions trailed President Tinubu’s speech as he boldly proclaimed that “there is no provision for fuel subsidy in the national budget.” He stated this on Monday, May 29, 2023, during his inauguration as the 16th President of the Federal Republic of Nigeria.
In what seems like a rhythmical manner, queues resurfaced at various petrol stations throughout the country as PMS prices more than doubled. According to Nigeria’s National Bureau of Statistics (NBS), a litre of PMS was sold for N254 in April. However, with President Tinubu’s proclamation, the same now goes for as high as N500.
Tinubu believed that funds from removing fuel subsidies could be channelled into infrastructure development and other neglected sectors, ultimately driving the nation’s economy.
Nigeria’s Fuel Subsidy in Retrospect
Fuel subsidy was first introduced in Nigeria in the 1970s; this was done to cushion the effect of the 1973 world oil price shocks, where oil prices increased by almost 300%.
Although subsidy allows citizens to buy gasoline cheaper than what could have been obtained in the international market, the government bears the payment burden. In a research brief of the International Centre for Tax and Development (ICTD) dated March 2020, the Nigerian government spent a whopping $3.9 billion on subsidies. At that time, this amount is almost twice the nation’s health budget.
The enormous amount spent on subsidies might have been a major concern for the government, but the citizens would not want to spend exorbitantly procuring fuel. It is also worth considering that previous administrations have been increasing the price of gasoline.
It started in 1992 with the Ibrahim Babangida administration, when a litre of fuel was raised from 15.3 kobo to 20 kobo. During Ernest Shonekan’s regime in 1993, fuel price soared to 5 nairas (N5) per litre, while Goodluck Jonathan, in 2012, increased the price to N141. However, after the country’s labour union protest, he was forced to reduce it to N97.
On May 11, 2016, the immediate former President, Muhammadu Buhari, announced that the government would no longer pay subsidies on oil and further increased the price to N145. Nigerians are fed up with the continuous increase in the price of fuel of the different government administrations under the pretence of removing fuel subsidies.
Generally, Nigerians are of three main opinions concerning the removal of fuel subsidies;
- Some believed that the government could save enormous amounts of money, which could be diverted to other areas of national growth. However, critics will argue this, judging by the government’s disposition of not fulfilling their side of the bargain. The only question such critics ask is, “What has the government done with previous fuel subsidy removal?”
- Some people believed there might be ongoing looting of Nigeria’s treasury under the auspices of paying for subsidies. Hence, only the removal of subsidies can solve the problem.
- Others believe that the fuel subsidy problem will keep recurring as Nigeria remains an importer of refined petroleum products. They are not far from the truth because Nigeria’s refineries have been deplorable.
Dangote Refinery Set to Change the Narrative
Despite the fact that Nigeria is Africa’s largest crude oil producer, no administration focused on building or re-furbishing the country’s refineries.
However, the narrative may be about to change as Africa’s richest man, Aliko Dangote’s refinery, sets to begin operation this month. Although, the citizens have been concerned about whether or not the refinery will be able to supply all the refined products needed in the country.
The firm is optimistic and believes it will supply 100 % of what Nigerians need. On the government’s part, the refinery will save the country from scarce forex. Bashir Ahmad, the aide to the immediate past President, Muhammadu Buhari, said this before the Dangote Refinery inauguration “Efforts by the Federal Government to make Nigeria self-sufficient in local refining of crude oil to save the scarce foreign exchange used in the importation of petroleum products have received a boost as the 650,000 barrels per day Dangote Refinery, the world’s largest single-terrain refinery, is set…..”
There may be no cause for alarm for pessimistic Nigerians as the firm stated that their facility has been designed to “process a large variety of crudes including many of the African crudes, some of the Middle Eastern crudes and the US Light Tight Oil.” Factually, the refinery is expected to produce about a million litre of kerosene and 20 million litres of petrol daily; this is in addition to 16 million litres of diesel and a million litre of JetA1, which will be in surplus.
The Government’s Consideration
Besides the fact that the Dangote Refinery has brought hope to the nation, critics may need to think like the government. The subsidy may have been marginally sustainable because of the steady oil price in the previous administration. But still, those administrations, at one time or the other, have partially removed subsidies.
The fact that oil prices fluctuate may be catastrophic to the oil-dependent nation; it is a burden for the government to finance a deficit. The country’s debt profile is expected to reach an all-time high of N77 trillion ($167 billion) before the end of June. The government must pay this debt without overburdening the citizens with excessive taxes.
Before the advent of Dangote Refinery, Nigeria had been refining oil in Europe, and the refined products were imported back to the country. This process contributes to the high cost of petroleum products; the government have had to shoulder the high cost by subsidizing the price for the citizen.
Absolute fuel subsidy removal may be one of the government’s best tactics for sustaining the nation’s economy.
Previous governments have either devalued the naira or borrowed from the International Monetary Fund (IMF), but this has left the nation in pittance; it has to stop.
The People’s Worries
The United Nations reported that about 133 million of the 200 million Nigerian population lives in multidimensional poverty. Their main concern for the populace is that the removal of fuel subsidies will cause general inflation. The high cost of commodities without a concomitant income increase will reduce Nigerians’ purchasing power. More people will be brought down to the poverty level while the government may relegate its responsibilities.
Besides inflation and low income, the citizens are worried that the cost of governance is too high and should be adjusted. Oluseun Onigbinde, the director of BudgIT, a non-profit organization, wrote in his tweet of May 29 that “You can’t remove fuel subsidy without offering to reduce the waste in government. You can’t be living large while the citizens bear the higher cost of living. You are the leader. You show examples and earn trust.”
Surely, Onigbinde isn’t far from the truth; cutting government personnel expenditure may make the government earn the people’s trust.
It is imperative to note that no one can predict the extent of damage or help that fuel subsidy removal will have on Nigerians and Nigeria’s economy. However, the citizen should anticipate a general increase in the price of goods and services while hoping that money garnered from fuel subsidy removal be diverted to the proper channel of the economy.
Additionally, the government might need to adjust its ravenous expenditure and find ways to cushion the commodity price increase that follows fuel subsidy removal.