Nigeria’s fuel subsidy has both beneficial and negative consequences for the economy. Fuel subsidies can, on the one hand, benefit consumers and companies in the short term by lowering the cost of transportation and energy. This can encourage investment, boost the economy, and lead to higher productivity.
The elements that impact gasoline prices globally differ from nation to nation. The cost of crude oil, the profits and costs of refining, distribution and marketing costs, and taxes all play a role in determining retail pricing for gasoline and other liquid fuels. However, there is a substantial variation in this pricing between nations. With the exception of the US, which, like Nigeria, subsidizes the rate for its citizens, prices are lower in less developed nations but higher in more developed nations.
The fuel subsidies in Nigeria have caused serious issues. They put a significant financial strain on the government and take money away from important public services like healthcare, education, and infrastructure building. Budget deficits and fiscal imbalances brought on by subsidies can result in inflation, higher borrowing costs, and general macroeconomic instability.
Additionally, fuel subsidies often skew market prices and prevent the optimal use of resources. They may lead to excessive fuel use, energy waste and be a barrier to the advancement of renewable energy sources. Additionally, subsidies provide opportunities for exploitation of the system for personal gain by individuals or organizations through rent-seeking and corruption.
The Case of OPEC
Nigeria, one of the 13 nations that make up OPEC, along with Algeria, Angola, Congo, Equatorial Guinea, Gabon, Iran, Iraq, Kuwait, Libya, Saudi Arabia, the United Arab Emirates (UAE), and Venezuela, has not yet experienced the advantages of being an oil exporting nation. This claim covers more than just the inconvenience brought on by the current fuel price. Additionally, it concerns the high cost of living, the dearth of social services, the state of the infrastructure, corruption, and political repression.
| Country | Subsidy | Price of Petrol (NGN) |
| Algeria | Yes | 155.696 |
| Angola | Yes | 140.566 |
| Congo | Yes | 569.763 |
| Equatorial Guinea | Yes | 639.537 |
| Gabon | No | 463.249 |
| Iran | Yes | 13.187 |
| Iraq | No | 263.931 |
| Kuwait | Yes | 157.647 |
| Libya | Yes | 14.467 |
| Nigeria | Yes | 264.290 |
| Saudi Arabia | Yes | 286.448 |
| United Arab Emirates (UAE) | No | 382.889 |
| Venezuela | Yes | 1.921 |
Nigeria is not where it used to be in 2012; even then, it struggled to keep everyone happy through fuel subsidy. The current state of the major macroeconomic indicators used in predictions, such as GDP, inflation, interest rates, oil and non-oil exports, and trade, is not conducive to undertaking the mission of subsidies.
Lai Mohammed, the minister of information, asserted in 2020 that the government spent a total of N10.4 trillion on fuel subsidies between 2006 and 2019, or an average of N743.8 billion each year. Experts such as Christine Lagarde, managing director of the International Monetary Fund, and Sanusi Lamido Sanusi, a former governor of the Central Bank of Nigeria, have in the past called for an end to the subsidy regime.
What the Experts Have Said
Many experts contend that Nigeria should gradually phase down fuel subsidies and introduce market-based energy pricing mechanisms in order to achieve sustainable economic growth. This would promote efficiency, draw capital to the energy sector, and free up government funds for pressing development requirements. To lessen the impact on vulnerable populations, however, the elimination of subsidies must be supported by social safety nets and focused support initiatives.
The IMF claims that subsidies have a significant price to pay but are meant to safeguard consumers by keeping prices low. Subsidies have significant fiscal costs, which increase taxes, borrow more money, or reduce spending.
They also encourage poor resource allocation, which slows economic progress, and pollution, which has a negative impact on the environment and increases the risk of early mortality from local air pollution. Particularly in Nigeria, subsidies are not well targeted at the poor (mostly benefiting higher-income households).
The Nigerian government was specifically pushed by the International Monetary Fund (IMF) to fulfill its pledge to end fuel subsidies by mid-2023. In spite of the fact that favorable oil prices and robust consumption have helped Nigeria’s economy recover from the output losses caused by the COVID-19 pandemic, the organization warned that the government’s fiscal deficit is expected to have grown even more in 2022, primarily because of high fuel subsidy costs.
A Citizen’s View
Subsidization is one of the few concrete methods for low-income citizens of a resource-rich nation like Nigeria to feel like they have a claim on a national resource. Subsidies for food and fuel keep a lid on deeper resentments in a setting where the government is typically viewed as oppressive, inept, and corrupt.
Protesters would take to the streets if Nigeria decided to eliminate hefty subsidies, which would cause the price of fuel to double overnight. In 2012, this was true. They will express their annoyance by criticizing not only rising fuel prices but also the ongoing decline in living standards.
Nigerian fuel subsidy may appear to be economically detrimental. However, it is politically expedient—a delicate equilibrium that the country has struggled to manage over the last several decades—with little success.
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