6 Socio-economic benefits of Nigeria's fuel subsidy removal

June 16, 2023

Nigeria is literally a hard place to live, and now there is the fuel subsidy removal. Suffering of citizens may already have been multiplied tenfold. The increase in fuel price brings on increase in fares, food, basic items like clothing.

When Nigeria’s government announced fuel subsidy removal in 2011, the nation became too hot for people in power, sparking the protest tagged “Occupy Nigeria”. That protest was recorded as one of the biggest outcries by Nigerians.

It was, however, because people did not exactly understand why they had to be put under pressure to pay more for fuel. And in turn, basic amenities; not especially when minimum wage was at an amount any adult Nigerian could cry over. And, not when communication between government and the people was almost non-existent – it is still the same. basically

Now, people know better, sort of, even though that number is small. But those ones can communicate why the fuel subsidy needed to be phased out at some point, and the earlier, the better.

President Bola Tinubu announced the removal of fuel subsidy on May 29, 2023, when he gave his inaugural speech. Though, the subsidy was not in the 2023 budget, and the deadline for the removal had been extended to June 2023.

What was said about the fuel subsidy removal?

“Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed stated that the 2023 Fiscal Framework and Appropriation Act, as well as the Petroleum Industry Act (PIA) have made the provision that the government should exit fuel subsidy by June 2023. The committee is to work out a road map for the removal of the subsidy. No change in the overall policy direction regarding the petrol subsidy is envisaged by June 2023,” a statement by her Special Adviser on Media and Communications, Yunusa Tanko Abdullahi read.

Abdullahi quoted the minister further as saying that the National Economic Council (NEC) agreed to form an expanded committee that will be looking at the process for the removal of the subsidy, including determining the exact time, as well as the measures that need to be taken to provide support to the poor and the vulnerable.

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But you know how promises are usually made and hardly kept, unless we remain optimistic. We should remain optimistic now that a new administration has taken over.

Indeed, fuel subsidy removal has been a topic of extensive debate and deliberation in Nigeria. For decades, the government has implemented fuel subsidies with the intention of cushioning the impact of high fuel prices on its citizens. However, aside from the hardships. the removal of fuel subsidies brings forth numerous benefits that can positively impact the Nigerian socio-economic space. Let’s do a list.

1. Economic advancement

One of the primary benefits of fuel subsidy removal is the economic advancement it can bring to Nigeria. Subsidies place a considerable financial burden on the government, diverting resources that could be allocated to critical sectors such as education, healthcare, and infrastructure development. By eliminating subsidies, the government can redirect these funds towards initiatives that create sustainable economic growth, jobs, and improved social well-being.

Already, President Bola Tinubu has asked the NEC, led by the Vice President, Kashim Shettima, to devise an approach and begin the process of working on interventions to mitigate the impact of subsidy removal on the Nigerians.

2. Budgetary responsibility

Fuel subsidies often strain the country’s fiscal health, leading to budget deficits and increased borrowing. By removing subsidies, the government can reduce its financial obligations, enhance fiscal responsibility, and create a more sustainable economic environment. This fiscal prudence can instill confidence in investors, both domestic and foreign, leading to increased investments, economic stability, and long-term growth.

3. Market efficiency

Fuel subsidies distort market dynamics and impede the development of a robust energy sector. Removal of subsidies promotes market efficiency by allowing market forces to determine fuel prices based on supply and demand. This enables the development of a competitive and transparent market, encourages private sector participation, and attracts investments in refining capacity, distribution infrastructure, and alternative energy sources.

4. Reduction of corruption

The fuel subsidy system has long been plagued by corruption and inefficiency. Removing subsidies minimizes tendencies for corrupt practices, such as smuggling, illegal diversion, and fraudulent claims. Transparent and market-driven pricing systems reduce level of bribery and promote accountability. This enables resources to be directed towards sectors that benefit the Nigerian population such as healthcare, education, transport etc.

5. Environmental stability

Fuel subsidies contribute to increased fuel consumption and hinder efforts to mitigate climate change. Subsidy removal encourages energy conservation, promotes the adoption of cleaner energy sources, and incentivizes the development of renewable energy alternatives. Such measures contribute to a more sustainable and environmentally friendly future for Nigeria.

6. Encouraging local refining capacity

Fuel subsidy removal creates a favourable environment for the growth of local refining capacity. Without subsidies distorting the market, it becomes economically viable for investors to establish and expand refineries within Nigeria. This not only reduces reliance on fuel imports but also creates job opportunities and enhances the country’s energy capacity.

While the removal of fuel subsidies may initially result in short-term price increases, the long-term benefit for Nigeria outweighs the immediate challenges. By embracing subsidy removal, Nigeria can unlock larger economic potential and create a brighter future for its citizens.

We look ahead as the government implements action plans designed to mitigate the suffering of its citizenry.

6 Socio-economic benefits of Nigeria's fuel subsidy removal