John Campbell

Africa in Transition

Campbell tracks political and security developments across sub-Saharan Africa.

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Nigeria’s Fuel Subsidy Is More than Economics

by John Campbell
December 20, 2011

Nigerian workers in protest in Lagos March 21, 2001. (George Esiri/Courtesy Reuters)

Nigeria has long subsidized fuel for its citizens. The cost of the subsidy is high, and economists and the international financial institutions have argued for many years that it significantly distorts the economy. Since the establishment of civilian government in 1999, consecutive presidents have sought to reduce or eliminate the subsidy. But such efforts have been scaled back or abandoned because of deep popular opposition. On occasion, proposals for curtailing the subsidy has led to strikes and serious riots in urban areas, such as Lagos.

In the budget for the coming year, President Goodluck Jonathan has left out the fuel subsidy—thereby abolishing it. Predictably, the house of representatives has demanded that the subsidy be returned to the budget. In the senate, some members are arguing that the budget is too high for the military and security services. The implication seems to be that if it were reduced, money might be found to continue to subsidize fuel. In any event, the debate is not yet over.

With Boko Haram in the North, the prospect of renewed militant activity in the Delta, and lack of security in Plateau state, why has the government decided to tackle a reform as difficult and contentious as the fuel subsidy now? The answer appears to be the prospect that the government could be short of money. Jonathan said that the fuel subsidy cost the government N1.2 trillion this year.

Eliminating or reducing the fuel subsidy –which covers kerosene as well as gas and oil—would have a ripple effect throughout the entire economy. Prices for a wide range of goods beyond fuel would likely increase. Outside Lagos and Abuja most of the population is impoverished, and reduction or elimination of the subsidy will have serious consequences for those individuals. Further, there is a moral dimension. The fuel subsidy is the principal way ordinary Nigerians benefit from the country’s oil wealth. The Roman Catholic archbishop of Abuja and former head of the Christian Association of Nigeria observes that the subsidy is a tiny resource transfer to the Nigerian people, who otherwise receive little or nothing from the current political economy. It is, therefore, morally justified, “no matter what the World Bank says.” (Notably, the most recent statement from the World Bank says that Nigeria should focus on fuel supply, not necessarily the fuel subsidy.)

Given such considerations, it is likely that the Nigerian federal government will seek to reduce, rather than eliminate, the fuel subsidy. If it does so, the challenge will be find a point that helps the government’s bottom line without driving people into the streets.

Post a Comment 8 Comments

  • Posted by sam oloni

    Removing the subsidy is good,but total deregulation of the sector is better by allowing anyone who has the financial ability to import petroleum product without passing undue cost to the citizenry such as we have now,that the we are made to pay the interest on loan obtain for the importation of the product,with this I say subsidy do not,but exist to pay political patronage to their cronies,if the govt open up the system we will buy petrol less than 65naira.

  • Posted by nonso

    true, removing fuel subsidy has effects just like every other economic policy. what differs is the gravity amidst others. the idea is very good if and only if the power sector reform will merge with the triple effect of removing subsidy, if and only if the budget of infrastructural and capital development will be carried out. if people will be employed because they applied, contested, and passed the interview. by employing people rightly and rightfully the wealth of the Nation will not be in the hands of the few and their relations. in that way all Nigerians will benefit from the wealth of the Nation.
    we cannot channel all our resources to tackling boko haram. ensuring that our economic base or foundation is strong is also important. we should not forget that the members of boko haram so far captured have not revealed any good qualification among them. analyzing the boko haram you will find out that it is mostly caused by unemployment, lack of proper and sound education, under civilization and other social imbalance. when jobs are created and people employed you can now weigh your qualification, dependence, hope, dreams against dying for non sense simply because you are told you will be rewarded by allah. you will be able to ask yourself does it mean my sponsor does not want the same reward. in developed countries people commit developed crimes. in underdeveloped countries people commit underdeveloped crimes. If not, why will i die simply because our leader wants to be heard for a reason i don’t even know or which is baseless. Nigeria lets think and reason rightly. lets learn to look at policies with the aim of improving on it and not condeming it outrightly without recourse. the present administration is trying even when i have directly gained by way of employment but not withstanding i know they are doing their best. so lets join them in our various capacities and interests to move Nigeria forward. thank you

  • Posted by Gavin Bond

    Will my comments ever be published?

  • Posted by yunusa tijani

    Nigerians should be aware that the fuel subsidy had been removed since the budget denied it.may God help from our leaders, there are not representig us.

  • Posted by Zainab

    There are so many reasons why this policy direction is deeply unpopular and controversial but I will focus on just two angles:

    First of all, if the government claims it is short of money and would need funds to be freed up from removing fuel subsidy, how come it hasn’t made any concerted effort to reduce waste and leakages in recurrent expenditure, especially salaries and allowances accruing to the executive at all three tiers of government? If the reason for removing subsidy is to prevent an elite class/cabal of Nigerians from benefiting at the expense of the masses, why is the government not making ANY attempt at making this cabal face the full wrath of the law and stopping their criminal activities?

    Secondly, let’s assume all the reasons the government gave for removing fuel subsidy are 100% valid, the government’s approach towards publicizing and implementing this policy from the get-go has created this unnecessary tension and controversy. The government hardly made any attempt to consult with stakeholders: oil workers/companies, civil society and ordinary Nigerians before announcing it’s decision; it has hardly released any coherent policy document clearly outlining the steps to be taken in implementing this policy, the reasons for doing so, the macro-economic impacts, the inevitable inflationary pressures on the economy, the short-term, medium-term and long-term effects, a timeline of rehabilitation of existing refineries and so on. This policy started out as rumours before the government finally owned up to it. Many Nigerians are still uninformed about this issue and the few that are got their information from other sources and not the government. This are some of the issues I raised in “The Unanswered Questions on Fuel Subsidy Removal” on: http://wp.me/p1iVSi-6c

    All this controversy could have been easily avoided if the government had been more tactical in its political communication and engagement with Nigerians over this issue.

  • Posted by Iyowuna Kalio

    Sincerely the President means well for Nigeria by removing Oil subsidy. Unemployment of the youth is unbearable, our roads are bad most of our factories are relocating to other climes, Something must be done.

    Nigeria is supplying the entire West Africa fuel, no thanks to the smugglers and others who smile to the banks, whilst ordinary Nigerians wallow in poverty. Paying an approprite price for petrol will make carting our fuel across the borders unprofitable and free government from using a third of our national budget to fund subsidizing West Africa and beyound.

    Initially it will be painful but as the telecom industry where telephone lines cost as much as =N=50,000 at the begining as more investors entered the business they are begging Nigerians to buy telephone lines for =N=100 today. The fuel price will crash to an all time low later.

    If Nigeria must develop to build her own cars, planes, bridges and roads, ships and machineries like other nations we must support our President.

    The government must also tackle the issue of corruption seroiusely. No person has gone to prison for corruption. Have the courage to send corrupt Nigerians to long term prison sentences, have the courage to send political trouble makers amongst the elites to long term prison sentences and remember to provide jobs and cushion the effects of this hardship on Nigerians.

    It is a healthy development that Nigerians are free to have their say. No more unnecessary assasinations for mere disagreements. Lets support the government to move the nation forward, but we must be vigilant to demand accountability from our leaders.

  • Posted by Gizzle

    Why cant you repair our refineries

  • Posted by Andrew ugama

    The government should do the right thing the fuel subsidy is creating a big war in some urban area please the president should do some thing about the fuel subsidy . The youths need employment .gradutes are crying fr work high rates of school fess in unversity hard to get addmission in our country today is affect the poor people today the president should do about these

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