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Nigeria: Abstraction of Petrol Subsidy and Its Attendant Socio-economic Effects on the Giant of Africa

Jul 3, 2023
      By Precious Oghenerukevwe Odokoji

Over the years, as research has shown, government subsidies to various sectors of production have efficaciously advanced Nigeria’s economy. However, what then happens on the long-run, if care is not taken, when a subsidy is removed or reduced to a considerably unreasonable extent? It can collapse the economy and produce knock-on effects on the people, since they have long become so used to it. But first, what is subsidy?
Etymologically, ‘subsidy’ is derived from the Anglo-French and Latin roots, ‘subsidie’ and ‘subsidium’ respectively, which means aid or assistance. Subsidy, therefore, is a specified amount of money granted by the State or a benevolent public body to help an industry or business in their economic activities; so as to keep the price of their commodity or service low, for easy affordability of the public. It aims at financially supporting the (major) sectoral components of the economy: the key parts of the national infrastructure.

Historically, the highest subsidy which the Nigerian Federal Government has granted to any productive sector of the economy is that to the oil industry; popularly known as fuel subsidy. Fuel subsidy is the economic aid granted to the oil industry by the Federal Government in order to reduce the price of Premium Motor Spirit, PMS, on the consumers. Its history dates back to the 1970s [sic] when it was initially implemented in reaction to the 1973 oil price shock; which caused a global spike in oil prices. It was formally established through a directive that was later approved in 1977, since the country is the 7th largest crude oil producer in the world with significant oil reserves; and was also aimed at mitigating the stupefying impacts of price fluctuations on Nigerians’ cost of living.

The approval and implementation of the fuel subsidy in Nigeria had been economically beneficial to Nigerians, especially the poor populace, and the economy in the abstract. It had decreased the price which consumers had to pay and increased the price which producers received for the consumption and production of PMS, respectively. It had also helped to mitigate poverty and provide to a great extent, a considerably good standard of living for the people as they spend less and consume more.

However, it is not to say that it had all been a bed of roses. Amidst the striking economic benefits of the oil subsidy in Nigeria, it had also created some drastic consequences on the Nigerian economy and even the nation at large. The fuel subsidy regime faced several challenges. First, it has adversely crippled Nigeria’s economy, due to the enormous amounts of money being spent on it from time to time. The Nigerian National Petroleum Corporation Limited (NNPCL) announced on Friday, 17th February, 2023, that Nigeria was spending over #400 billion naira monthly on petroleum subsidy. Hence, is it not very obvious that fuel subsidy, in the words of President Tinubu, is indeed ‘an elephant that is going to bring Nigeria to its knees’? Blueprint Newspapers also observed that:

It has become a huge burden on the nation’s economy; the cost of subsidising
petroleum products has been a major drain of government finances, leading to significant
fiscal deficits and a strain on the country’s budget. The subsidy regime has been plagued
by corruption and inefficiency, with a substantial portion of the funds intended for subsidy
payments being diverted or mismanaged by previous administration.
It can therefore be inferred from the foregoing that fuel subsidy has also encouraged extreme corruption and the amounts spent on subsidies is alarming when Nigeria cannot even finance its budget.
Thus, there have been calls for subsidy removal over the years, as a means to address these challenges. Proponents argue that it would help the government to redirect the funds saved towards critical infrastructural development such as education, health care and other social programmes and that subsidy distorts markets and discourage investments; while opponents raise concerns about its potential consternating impacts on the population, particularly the penurious and vulnerable segments of society.
Consequently, the newly sworn-in administration of President Asiwaju Bola Ahmed Tinubu deemed it fit to scrap the oil subsidy. This is why, on Monday, 29th May, 2023, in his inaugural address at the Eagles Square, Abuja; President Tinubu announced that fuel subsidy in Nigeria would be removed. ‘On fuel subsidy, unfortunately,’ said the President commiseratively, ‘the budget before I assumed office is that no provision is there for fuel subsidy. So, fuel subsidy is gone. Subsidy [fuel subsidy] can no longer justify its ever increasing cost in the wake of dying resource.’ He stated that Nigerians cannot continue acting as ‘Father Christmas’ to neighbouring countries; and that the 2023 budget do not have provision for fuel subsidy, which is his major reason for scrapping it. This has brought a great shock on the Nigerian populace as they fearfully excogitate on the afteremaths it would have on them. Nevertheless, the fuel subsidy removal has both adverse and beneficial consequences on the State. The benefits – plausible reasons for the removal – include the understated, below.
First, it will help to curb the greed for higher profits and sabotage by a few players in the oil industry; which will positively affect the economy. Secondly, it is a necessary step towards the nation’s economic development as it will help to curb the mismanagement of resources and reduce corruption.Thirdly, it will ensure the ready availability of petrol at all times, limiting marketers’ diversion and fuel hoarding. Before the subsidy removal, PMS used to be grossly inadequate in the country. Its present removal will, however, cause an about-face in the state of fuel availability. Moreover, it will lead to effective control of inflations since government’s unstable subsidies have been removed; thereby enhancing moderation of demand and supply. Moreso, it is confirmed that fuel subsidy benefits the rich, because they use the product more, and kills the Nigerian economy. Hence, its removal will help to free up more allocatory resources for other sectors of the economy; channelled to the provision of infrastructures such as roads, education, power, security, job creation and provision of basic amenities for the poor in the society.
That notwithstanding, fuel subsidy removal has produced numerous nefarious and deplorable effects on the Nigerian economy. Foremost and preeminent is the abrupt inflation in fuel prices leading to widespread panic-buying of fuel. Generally, the Nigerian populace had become so used to the usually subsidised price of buying fuel. Thus, it has received a severe public backlash, due to the usurious rise in the price of petrol all over the country, not long after the President’s speech. In my hometown, Orogun, it increased from 220 naira per litre to 500 naira; and so it varies with other places.This has critically disheartened and debilitated the entire populace as they cannot easily afford to purchase PMS at the currently increased prices.
Secondly, it has led to increased difficulties in land transportation, due to the unreasonable rise in price of PMS. This is a very negative contemporaneity. For instance, from the Faculty of Law, Oleh Campus of Delta State University, to Yanga Market in Oleh, which used to be 150 naira before, is now 250 naira. This has been an obstacle to people’s long distance movements.
Thirdly, fuel subsidy removal has discommoded education. Students like us in the fresher level of the Faculty of Law, Delta State University, Oleh Campus, find it pretty hard to receive constant lectures because most of our lecturers come from the Abraka Campus; and they find it not pretty easy to transport themselves to and fro, due to the high transportation cost. This has, unfortunately, led to retarded development in the academic life of the students; as it might have been in other tertiary institutions.
Furthermore, it has also resulted in the high cost of food as well as goods and services. I went to buy bread as usual from a customer’s shop, precisely two days after the fuel subsidy was removed; only to be told that the price of bread I used to buy for 1,200 naira, has increased to 1,400 naira. When I asked the seller the reason for this sudden change in price, she sighed and said, ‘The cost at which my suppliers transport my goods to my shop has become higher, and so I have to pay more than usual.’ Hence, there is increase in price of foodstuffs and other commodities.
Moreso, it has hindered the free flow and smooth running of businesses, especially peripatetic ones. I once saw a post recently on the WhatsApp status of a notable food vendor in my school area, GT’s Place, who does home delivery of foods; stating that their home delivery of foods would, henceforth, only hold from 6pm to 9pm due to the now unbearable cost of running the business. This has been the case with many other businesses and firms in the country.
In addition, subsidy removal on PMS has been the bane of drastic decline in household income (Ocheni, 2015). A family that earns for instance, 50,000 naira per month and usually spends over 30,000 naira on household expenses, saving 20,000 naira, now stands the risk of not even being able to cater fully for their needs, due to high cost of living. How then can such a family survive with such income decline and no savings?
Moreover, it has exacerbated penury in the country. Research has it that over 40.1% of Nigerians live below the poverty line: a major reason why it is rated as one of the poorest countries in the world; and this is too mortifying for Nigeria as the Giant of Africa. Thus, the removal of fuel subsidy which had been beneficial to the poor masses in their cheap procurement of PMS and other essential commodities, has now aggravated their level of pauperisation because they cannot afford the currently high living standard of the economy. Since the burden of the fuel subsidy removal is more saddled by the poor, their great suffering and poverty standard has increased.
What is more, the removal of subsidy on petrol, to an extent, can lead to deregulation on petroleum prices and other related products, thereby promoting indiscriminate increase in the price of essential commodities as well as deliberate exploitation of the masses by powerful workers in the oil sector and beyond.
Lastly, it can stimulate or increase structural violence in the society; fuel smuggling; pipeline vandalism; and protests such as ‘Occupy Nigeria’ which occurred in 2012, etcetera; as people may reckon that the government is unreactive to their necessities.
Ultimately, it should be clear from the foregoing that the reversion of the benefits of fuel subsidy had been the negative consequences of its removal, and vice versa. Nonetheless, it must be admitted that the fuel subsidy removal is a drastic measure, in the process of endeavouring to advance the economic status of the nation, to overwhelmingly engender and activate untold economic hardship and unforeseen sinister circumstances on the populace. In all, fellow compatriots, let us be moderately reserved and just pray that things get better. Who knows? There can still be an astonishing modification in the situation of things; albeit, we are just hoping; but then, all hope is not lost.
In contributive conclusion, I would say that the Petroleum Products Pricing Regulatory Agency (PPPRA) and the NNPCL that imports fuel in the country, should liaise with the Federal Government on how to leniently manage the unbearable situation and consequences of the sudden fuel subsidy removal in the country; so as to ensure that its foreseen positive effects would not be outstripped by its appalling fallouts. To be forewarned, they say, is to be forearmed. Hence, my homily is that all hands should be to the pump to salvage Nigeria from this economic downturn and its contemporary aftermaths.
Odokoji Precious Oghenerukevwe,
100 level undergraduate regular student,

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