A subsidy is a form of financial assistance provided by the government or another organization to help alleviate the financial burden.
In the context of fuel, a subsidy is typically used to keep the price of fuel low for customers. The Nigerian government provides subsidies to help keep the cost of fuel affordable for its citizens. The subsidy is a program, a policy that is acknowledged by the government across the world; it is not peculiar to Nigeria; it is a relief; it is a program that is meant to relieve the populace of unnecessary hardship that is coming out of an economic policy.
The subsidy is global, it is universal, and it is practiced by governments around the world. It is important to note that there are many subsidies going on in the social, economic, and political lives of every nation. The origin of fuel subsidies can be traced back as far as the Babangida regime in the 1980s; some might argue that they started during the Obasanjo regime in the early 2000s.
The fuel subsidy removal saga during President Tinubu’s regime started on May 29, 2023, as he stated in his inaugural address.
Subsidies affect all aspects of people’s lives; it is not only about fuel or petroleum. For example, there is a subsidy on electricity in Nigeria. The government usually comes on board to provide subsidies for different aspects of the socio-economic lives of the people. It is a way of cushioning the economic impact of a particular program, policy, or activity on the people. For example, if Nigerians are asked to pay for their electricity bill, the cost might be very high, but the electricity subsidy plays a vital role. The government subsidizes it and pays part of the money for people to be relieved. It will help in assisting the citizens, thereby limiting the hardships of the populace.
Another important consideration is that, if these products are produced in Nigeria, Nigerians shouldn’t be buying them for the same amount that other people in the world are. Nigerians who are indigenous to the area where the oil is being explored and exported should have an economic advantage over those who are not blessed with these sorts of mineral resources. The Nigerian government will always say that the international market should not affect the international prices of petroleum and that the prices should not be the ones Nigerians are buying. which granted the issue of fuel subsidy; that is, when oil is produced in Nigeria, it is not refined in Nigeria, showing that the international prices will be sold at the local level (market).
As a result of this, the government knows that if they apply the international price, it shows that Nigerians will be buying the same price as Americans and others. This is why the government came up with the idea of subsidy removal. It is to cushion the hardship, reduce the hardship on the populace, and let the populace have a huge amount of money in their pockets.
There has been an allegation that Nigeria as a country is subsidizing the petroleum that has been consumed in various neighbouring countries in West Africa and that the suppliers and importers of this petroleum surcharge the government by collecting more money on the subsidy. For example, the amount of oil that is imported is not refined in Nigeria. At a point in time, it marked the increase in hardship and the increase in the price of fuel in Nigeria because it was not refined in Nigeria but exported to the international market to be refined. It shows that it will be imported back to the amount that has been stipulated on the international market.
The oil exporters will now assert that they have large reserves of oil that was imported into Nigeria, and the government will pay subsidies to them. Most of the barrels will be sold to neighboring countries at higher prices, bringing a large amount of money to the pockets of the oil importers. That was the argument of the government. They were claiming more than what Nigerians consume; that is, they claim that they will sell a portion of their oil to those countries, and the importers claim it from the government. The oil importers smuggle these petroleum products to neighbouring countries like Togo and the Benin Republic that have no crude oil. They claimed the subsidy from the government, and the government felt that the populace was not deriving the impact of that subsidy.
The main reason or factor was corruption, which can also be referred to as an element of corruption. The fuel importers decided that they wouldn’t subsidize petroleum anymore, that the government would stop the provision of petroleum, that the petroleum should be brought to Nigeria and sold according to the international market, and then the government would subsidize transportation.
I had the opportunity to interview Dr. Boge Faruq, an economic historian, at Lagos State University. Dr. Boge shared his insights on the recent fuel subsidy crises and their implications for the country’s economy. He emphasized the impact of the fuel subsidy and lasting solutions. In his words, “The impact of the stoppage of fuel subsidies is very serious.”. When you stop subsidizing fuel, it shows that there will be a fallout impact on the economy because when the price of petroleum increases, the price of transportation will increase. This intends to have a fallout effect on the entire economy because transportation is the engine by which products move from the producer to the consumer. Everyone will be affected, and every aspect of the economy will be affected too, if there is an increase in the price of petroleum.
The government may have a genuine reason for stopping the fuel subsidy because they want to stop the avenues for corruption. The government intends to stop corruption by blocking the exploitation of the economy through fuel subsidies.
Subsidy removal in Nigeria allowed the importers to enrich themselves at the expense of the Nigerian government and populace.
The fallout effect is that the price of fuel will continue to be in line with the international market, and that will affect every aspect of the socio-economic life of the people.
There is hardly anything that hasn’t increased due to the increase in transportation and other aspects like food and the basic needs of individuals. One of the impacts is galloping inflation, in the sense that the price of goods keeps changing daily, which is very much ongoing in Nigeria.
To look at the genuineness of the government, we can say that the government has taken the right measures to stop the fuel subsidy, but it is bringing another economic challenge. It shows that what we need to do, in the first instance, is to produce what we eat and eat what we produce. If we have a means of stopping the massive importation of virtually everything into Nigeria, it will go a long way in cushioning the inflationary rate in Nigeria. If we begin to produce and refine our oil, it shows that we can control what we are consuming, which will facilitate more money at our foreign reserve instead of importing from the international market or system.
This will, in one way, cushion the effect of the subsidy removal. For example, it is not to say that once the refinery in Nigeria starts working, we will not have an increase in the price of petroleum, but more money will be in circulation because it will still be determined by the international market. After all, those who are in charge of the business are private entities, and they want to make profits. If you are not buying from them with good money, they will have the liberty to export it to the international market, and they want to sell according to the details of the international market. It is in this way that the production of fuel locally will not be a significant factor that will put an end to the increase in the price of fuel, but if you take a look at it, it will ensure that greater money gets to the purse of the government, and if money is in the purse of the government, it shows more money will be pumped into the economy and people will have more than enough. More money will be in circulation, which is a positive aspect of refining our oil in our locality and removing the fuel subsidy.
One possible solution to the economic challenges caused by the fuel subsidy is to gradually phase them out. This would allow the government to reduce its spending on subsidies and use that money for other priorities,, such as infrastructure or social programs. Gradually phasing out the subsidies would also allow the market to adjust to higher fuel prices over time, to assist in minimizing the negative economic impact.
Another possible solution to the challenges of fuel subsidies in Nigeria is to invest in other areas of the economy that can help offset the cost of fuel. For example, the government should invest in public transportation systems to reduce the country’s reliance on private vehicles and the associated fuel costs.
Suleiman Nafisat Opemipo is a student of the Department of History and International Studies, Lagos State University, Lagos, Nigeria. She can be reached on: firstname.lastname@example.org