Exactly one year ago, Asiwaju Bola Ahmed Tinubu was sworn in as the President of the Federal Republic of Nigeria. To many, the highlight of President Bola Tinubu’s inauguration was the announcement of the removal of fuel subsidies which has changed the lives of Nigerians since. Everyone heard about the announcement, even those who don’t listen to the radio, watch television or read newspapers. The price of a litre of petrol surged from 189 Naira to around 500 Naira within the first few days. Everyone felt the impact immediately but some were hopeful that the removal would be cushioned by government policies and that the ‘market’ would apportion more earnings to everyone thereby leading to a plus for everyone but the situation so far says otherwise.
Why Subsidy Removal
In the defence of the new president, the outgoing president had already removed the fuel subsidy as there was no budgetary allocation for the year beyond June 30, 2023. However, making the announcement, no one cared whether he (Tinubu) indeed removed it or it has been ‘removed’ by the outgoing president as the effect is still the same.
The Debate
The debate of whether to remove fuel subsidies or not has been a national issue for quite a long time. In 2012, during the regime of former president Goodluck Jonathan, there was an attempt to remove fuel subsidies but the result was a massive protest tagged “Occupy Nigeria” sometimes alluded to have been incited by or supported by the current ruling party was then in fragments as the opposition. The then government had no choice but to rule out the proposition. During this period, the Jonathan-led administration only wanted to increase the pump price from 65 Naira to 141 Naira but the massive protests could not allow that. The price per litre of petrol was later set at 97 Naira after back and forth with the labour unions and other relevant parties.
It is argued that fuel subsidy empties the pulse of the federation. In eight years, Nigeria spent over 11 trillion Naira (11.4) to subsidise fuel for consumption. A further look into the amounts shows the cost of fuel subsidy increases year-on-year, from 316 billion Naira paid in 2015 to the 3.6 trillion Naira budgeted for the first six months of 2023. The amount spent on fuel subsidy in 2022 was 4.39 trillion Naira which was around 25% of the 2022 budget. This amount without doubt is mouthwatering and the negative impact it has on development cannot be overlooked. The removal of fuel subsidy was a ‘necessary evil.’
Just after the end of cheap fuel in Nigeria, there were reports of an increase in prices of fuel in neighbouring countries which shows the fuel meant for Nigerians was been taken away to other countries. According to data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigerians consumed a daily average of 69.54 million litres of petrol in May 2023 and a daily average of 49.84 million litres just a month later. Within a month, fuel consumption dropped 29.77% and 20.70 million litres is supposedly the amount of fuel smuggled out of the country. The amount paid as subsidy on every litre of fuel although varies from time to time is 202 Naira going by the figure claimed by the Group Chief Executive Officer of the Nigerian National Petroleum Engineering (NNPC) in February 2023 and this amounts to 4.194 billion Naira daily, 125.82 billion Naira monthly and 1.509 trillion annually.
The effects of subsidy removal on government revenue
Barely two months after the removal of the fuel subsidy, the federal government claimed the total distributable revenue increased from 789 billion Naira to 1.9 trillion Naira for the month of June. This statement was made by Mr Dele Alake, who was then the spokesperson to President Bola Ahmed Tinubu. Four months later, in November at a two-day retreat for the Federal Account Allocation Committee (FAAC) held at Asaba, Mr Okokon Udo, the Permanent Secretary of, the Federal Ministry of Finance who represented the Minister of Finance and Coordinating Minister for the Economy, Wale Edun said the removal of fuel subsidy has raised the federation revenue to an average of 1 trillion Naira in the four months proceeding the removal.
The government can be said to have achieved its aim of relieving the federation pulse as there is no money to spend on other aspects of the economy including infrastructure but what about the masses who have since fuel subsidy removal have been subjected to rising hardship?
The effects of subsidy removal on the masses
The effect of the fuel subsidy removal transcends beyond transport costs for most individuals as they believe the price of fuel affects every other commodity. However, their belief is not out of the blue as according to BudgIT, a 50% reduction in fuel subsidy can lead to an increment of up to 200% on the prices of transportation. This however does not only affect the cost of movement of people alone but it also affects the cost of production and the prices of goods which are transported and services that run on generators. Nigerians spend on average around 13% of their earnings on transportation and light.
Inflation has gone up from 22.41% in May 2023 to 33.69% in April 2024. The worst hit is Food Inflation which according to data provided by the Nigerian Bureau of Statistics, Nigeria’s food inflation rate has gone up 61.2% from 24.82% in May 2023 to 40.53% as of April 2024. 56.65% of household expenditure is on food and due to the rising inflation, many families can no longer buy enough foodstuff and this reflects at the end of the sellers. A foodstuff wholesaler, Mrs Adedokun Busari while lamenting the effects of fuel subsidy on her family and trade said “The subsidy removal affects us, foodstuff sellers, tremendously. The amount we use in trading keeps losing value every single day. When we get to market, the prices of commodities would have increased and this does not allow us to make profits off our trade. A bottle of groundnut oil a few days ago was 1,400 and today is 1,500.
Things are not easy at all.” While speaking about whether or not the subsidy should be returned, she said “If it is going to be easier on the masses, it should be returned because this is too hard and unbearable.” She is however optimistic that the prices will return to the pre-subsidy removal prices if the price of fuel comes down.
The masses should sacrifice even when those in government do not
Sacrificing for one’s country is the highest form of patriotism that can ever be practiced but what if such sacrifice only affects the poor? To the rulers, the removal of fuel subsidies is a sacrifice that must be done in other to move the country forward. This is the situation here as the Nigerian government has so far spent lavishly for state officials while the taxpayers suffer in the name of sacrifice. Ever since the announcement of fuel subsidy removal, the political elite has engaged in some frivolous spending despite outcry from the public. The federal government in the supplementary budget planned to spend 28 billion Naira on the “needs” of the state house.
Samuel Omofala is a Public Affairs Analyst.