The recent decision by President Bola Tinubu to remove fuel subsidy has reignited discussions on this recurrent issue, as petroleum plays a central role in Nigeria’s economy. While some argue against fuel subsidies from a neoliberal perspective, the de-subsidisation policy in the Nigerian context is anti-people. Here is why.
For starters, subsidies are a necessary tool to mitigate the impact of inflationary pressures on the population. Fuel subsidy is beneficial to the poor as well as small- and medium-scale enterprises (SMEs) in Nigeria. Many studies and lived experiences have shown that fuel subsidy removal increases poverty and pushes the poor below the subsistence level. In light of the prevailing epileptic electricity supply in Nigeria, many SMEs which depend on fuel-powered generating sets, struggle or completely collapse as energy costs soar.
Overall, the impacts of the fuel subsidy removal on the welfare of households are two-fold. First, it leads to higher prices for fuels consumed for cooking, heating, lighting, and personal/public transportation. Second, fuel subsidy removal exerts a ripple effect on the cost of other goods and services consumed by households as higher fuel costs are reflected in increased production costs and consumer prices. The resultant inflationary pressures on the cost of living of many poor Nigerians have been further exacerbated by the national minimum wage which stands at a miserable ₦30,000 (approximately US$65) per month. This is even more troubling given that Nigerian federal lawmakers receive much higher salaries than their counterparts in economically more developed countries and key less-developed nations. Thus, fuel subsidy removal without a corresponding increase in the salaries of workers and an improvement in their standard of living is an express invitation to chaos.
Further, fuel subsidy removal in Nigeria is ill-timed because the necessary mechanisms for cushioning the untoward effects of the policy on the people have not been formulated and/or implemented. Essentially, the concept of fuel subsidy was introduced and maintained due to the collapse of the state-owned refineries in the 1990s, which is a result of the negligence of the Nigerian neo-colonial state. As the only oil-producing country without functional refineries, Nigeria subsidises imported fuel due to its inability to build new refineries or adequately maintain existing ones to meet the energy needs of Nigerians. Even the yet-to-be-fully completed Dangote Refinery cannot be relied upon to ensure energy security at competitive and affordable rates in Nigeria. Therefore, removing fuel subsidy when the existing state refineries have not been refurbished to meet Nigeria’s domestic energy needs is nothing short of a deliberate policy to impoverish the poor and vulnerable Nigerians.
One of the compelling arguments for fuel subsidy removal is that subsidy serves as a conduit for massive corruption. Hence, the interventionist measure is constantly demonised with its removal being widely propagated as the panacea for the alleged corruption in the sector. Granted, there is massive corruption in the subsidy programme. Nonetheless, there is nothing inherent in the subsidy regime in Nigeria that makes it prone to corruption. Just like every other human endeavour, corruption is incidental to subsidies and can be eliminated if the relevant state actors are committed to it. Discontinuing fuel subsidy in Nigeria because it is enmeshed in corruption is analogous to throwing the baby out with the bathwater. More fundamentally, it questions the capacity of the Nigerian state to boldly confront and deal with economic fraudsters and saboteurs whose predatory inclinations account for the wobbling state of Nigeria’s political economy.
Furthermore, the argument that public transportation should be subsidised instead of fuel is oversimplified. This is because the public transportation sector accounts for only a fraction of the total energy consumption in the country. How can the multitude of small and medium-sized enterprises and households whose survival in the Nigerian business environment relies on low-cost energy supply manage to sustain themselves? Subsidising public transportation in Nigeria, apart from being unsustainable, cannot effectively alleviate the rampant inflationary pressures on living costs or address the prevailing macroeconomic instability in the country. Whether the envisioned transportation subsidy is directed towards the so-called 10 million poor households containing about 50 million Nigerians as a post-subsidy removal palliative or allocated to select public transportation companies, the measure will at best serve as a stop-gap initiative without a broad-based capacity to rescue the vast majority of Nigerians who live in multidimensional poverty.
Pushing back against the directives of Bretton Woods institutions
What many may not realise is that de-subsidisation policies in Africa are often driven by neo-colonial and neoliberal economic expansion agendas promoted by institutions like the World Bank and the International Monetary Fund (IMF). As part of the post-Washington Consensus regime, these institutions are at the forefront of the de-subsidisation policies in Nigeria and across Africa. Similar to the Structural Adjustment Programmes of the 1980s, which were inspired by the Bretton Woods institutions, the removal of fuel subsidies is a conditionality imposed on the Nigerian government to access loan facilities from these institutions. In August 2022, the Nigerian government signed a loan agreement with the World Bank, securing US$800 million for post-fuel subsidy removal palliatives for the poor. However, this loan came with the usual conditionalities, including the removal of fuel subsidies (leading to fuel price increases), higher natural gas prices, electricity tariff hikes, currency devaluation, privatisation of state-owned enterprises, increased taxes (including value-added tax), and the reorganisation of government institutions. Also, evidence shows that the mid-2023 subsidy removal date in Nigeria was a mutual agreement between the Nigerian government and the IMF. The IMF, advocating for bold fiscal reforms, sees fuel subsidies as a major contributor to the Nigerian government’s fiscal deficit, despite other factors such as illegal oil bunkering, pipeline vandalism, and militancy in the Niger Delta affecting oil production.
Contrary to the neoliberal anti-welfare stance of the World Bank and the IMF, responsible governments often subsidise the production and consumption of essential commodities, including fossil fuels and agricultural products, for their citizens. Subsidy programmes are prevalent worldwide and cover a range of items such as fertilisers, wheat, grains, cotton, milk, rice, peanuts, sugar, tobacco, oilseeds, fisheries, meat products, and petroleum. Agricultural subsidies are commonly used in various countries, including Western nations, to support farmers’ incomes, manage the supply of agricultural products, and influence their cost and availability. According to the IMF working paper on global fossil fuel subsidies, global subsidies allocated approximately US$540 billion to farmers each year between 2013 and 2018. In the United States, for example, the 2002 Farm Security and Rural Investment Act designates around US$16.5 billion annually for agricultural subsidies. Additionally, the ongoing Russia-Ukraine conflict led President Joe Biden and state governors in the United States to provide tax relief to oil companies in order to reduce petrol prices. In Europe, Germany recently committed nearly €100 billion to reduce energy bills for the first four months of 2023, with €56 billion allocated for gas and district heating, and €43 billion for electricity. Furthermore, the 2022 report from the International Energy Agency highlights a record increase of over US$1 trillion in subsidies for fuel consumption worldwide, particularly in fossil fuel-exporting countries. These examples demonstrate that countries around the world, including in Europe and North America, are dedicated to alleviating the hardships faced by their citizens through subsidy programmes.
Clearly, subsidy is a well-known interventionist measure adopted by every responsible government across the world. In Nigeria, the removal of the oil subsidy should be pursued with utmost caution because the touted benefits of fuel de-subsidisation are yet to be seen in diesel, kerosene and aviation fuel which are not subsidised. Hence, any measure that doesn’t include fixing Nigeria’s decrepit refineries and building new ones in order to guarantee affordable energy security in the country should be reconsidered.