A necessary ‘sacrifice’: Nigeria ends almost 50 years of fuel subsidies

Issued on: 14/06/2023 – 18:50

Nigerians are being asked to tighten their belts while they wait for better days. Two weeks after announcing the abolition of state fuel subsidies – causing petrol, transport and food prices to soar – President Bola Tinubu asked his compatriots to be patient. 

“I assure you that your sacrifice shall not be in vain,” he said in an address marking Democracy Day on June 12, a public holiday established to commemorate the restoration of democracy in the country. “The government I lead will repay you through massive investment in transportation infrastructure, education, regular power supply, healthcare and other public utilities,” he said. 

Even though Nigerians, nearly half of whom live below the poverty line, expected the end of the subsidies, it was a blow nonetheless. Tinubu announced as soon as he took office on May 29 that he would end the programme, which was costing the state billions of euros and forcing it into debt to keep petrol prices artificially low.  

“All the main candidates made this campaign promise in the last presidential election. They felt that the system of fuel subsidies was no longer tenable and had destroyed the country’s economy,” explained political scientist Dele Babalola, a researcher at Canterbury Christ Church University in the UK.

The price of social peace   

Whether to continue subsidising fuel has been part of the public debate since the early 1980s, as public spending on the sector continues to rise even while oil production falls due to chronic under-investment in infrastructure and widespread smuggling.  

The Nigerian National Petroleum Corporation (NNPC) spent nearly €10 billion euros on import subsidies in 2022. The government, which is supposed to reimburse the company for the loss of revenue, can no longer keep up and now owes it €5.7 billion euros. 

“The reality is that from today the government can no longer afford to pay for fuel subsidies as a nation,” NNPC director Mele Kyari told reporters on May 30.  

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“The problem stems in particular from the fact that Nigeria does not have sufficient refining capacity and exports its crude oil only to buy it back in the form of refined products,” said Babalola, emphasising the urgency of government investment in the country’s ageing oil infrastructure. 

Fuel subsidies remain very popular with Nigerians, who see access to cheap petrol as one of the few benefits they derived when large quantities of oil were discovered in Nigeria in the 1970s, making it – at one point – the wealthiest country in Africa. 

Subsidies were introduced in the 1970s in response to the first oil crisis before president Olusegun Obasanjo’s military government formalised them by enacting the Price Control Act of 1977.  

Both civilian and military governments over the years have tried to axe the act over its exorbitant costs and problems with subsidy fraud but have ended up backing down following public outcry.  

Several weeks of strikes and violent demonstrations, which left seven people dead and many others injured, erupted in 2012, forcing then president Goodluck Jonathan to abandon an attempt to end the subsidies. 

Nigeria adopted the Petroleum Industry Act to deregulate the market in 2021 and, in theory, put an end to subsidies. However, former president Muhammadu Buhari’s government continued to fund the subsidies, keeping prices low for consumers. 

“Consensus” on ending subsidies 

Since Tinubu’s announcement, fuel prices in Nigeria have tripled, adding to the pressure on a population already burdened by inflation of around 20%, sporadic petrol shortages and constant power cuts. 

While ending the subsidies, which was recommended by the World Bank and IMF, was seen as necessary to promote development in Africa’s most populous country, critics believe that the government has not done enough to limit the impact on the poorest.  

“The Nigerian authorities must urgently put in place measures to protect the rights of people most affected by the removal of fuel subsidies and prioritise addressing widespread hunger, higher unemployment and the rapidly falling standard of living,” said Amnesty International in a statement.  

“Subsidy removal must happen but it requires tact. You have to figure out how to handle food inflation, provide alternative means of transport and ramp up social investment under a well-structured social investment programme,” said entrepreneur Oluseun Onigbinde in an interview with the Nigerian online newspaper Premium Times.  

For the time being, Tinubu has not made any additional announcements about social issues or fuel subsidies, apart from signing a law granting zero-interest student loans, based on household income.  

Despite the lack of government action on softening the blow, no mass demonstrations are planned for now and the unions – which are demanding pay rises – announced Monday they were suspending strike actions indefinitely while they hold further talks with the government.  

“There is a consensus in Nigeria on this issue. It is no longer possible to give cash to the entire population because of problems associated with corruption,” said Babalola. “Nigerians feel that if ending subsidies will make it possible to really improve education, the health system and transport … then it will all be worth it in the end.” 

This article is a translation of the original in French.