BACKPAGE: Before removing petrol subsidies



Uba Group

Before the next government formally removes petrol subsidies, a few things must be put in place. The out-going government of President Muhammadu Buhari that announced gradual phasing out of the subsidy makes no provision for subsidy in the budget beyond mid-2023. In 2022, the Nigeria National Petroleum Company Limited reported that it spent a whopping $9.7 billion or N4.39 trillion on fuel subsidy.

The Federal Government made a N3.16 billion provision for subsidy in the 2023 budget. Because of this policy of the Federal Government, NNPCL could not make any significant contribution to the Federation Account where freebie remittances are made to the Federal Government, all state governments and all local government areas of the federation.

This failure left a gaping hole in the country’s public finance, at a time when the Federal Government was spending as high as 70 per cent of its revenues, from other sources, on debt servicing. Thus, in 2023, the deficit in Nigeria’s budget will be N10.78 trillion, roughly half of the N21.83 trillion budget. In January the employers’ cartel, Nigeria Employers Consultative Association, reported that by June 2023, Nigeria’s debt profile might rise as high as N77 trillion, if you add the N21.3 trillion Way & Means loan that the Federal Government obtained from the Central Bank of Nigeria.

Nigeria’s oil revenue is falling short of what it should be, by as much as $2.5 billion every month. This is because the country’s oil production consistently falls short of the 1.8 million barrels per day quota allocated to it by the international oil cartel, Organisation of Petroleum Ex porting Countries. An academic study by Ismail Soile and Xiaoyi Mu reports that the top 20 percent of Nigeria’s households enjoy twice as much of the benefits of fuel subsidy (for petrol and kerosene) as the bottom 20 per cent.

President Buhari made a provision for a measly N5000 monthly transport grant for the most economically vulnerable Nigerians. Many, who doubt that the grant is ever paid, insist that it is a red herring. Before now, the government of former President Goodluck Jonathan created the Nigeria Subsidy Reinvestment Programme, or SURE-P, with the intention of providing jobs, through internship programmes, for unemployed Nigerian youths.

It was a complete flop. Under this programme, the money that would have been earmarked for the fuel subsidy that was said to have been removed was reportedly spent on job provision, social safety nets and provision of critical infrastructure.

The pioneer chairman, probably venerable Dr. Christopher Kolade, resigned when the mess that some Nigerians within the system created was going to soil his hard-earned reputation that had been built over the years. No one could blame him for resigning.

If indeed, governance is to deliver the greatest good to the greatest number of Nigerians, and if Nigerians won’t be subjected to the kind of pain that Governor Godwin Emefiele of the Central Bank of Nigeria recently inflicted on them with the wrongly implemented cash redesign policy, the removal of fuel subsidy must be handled with patience, tact and intelligence. Nigerians have experienced economic recession two times in the life of the “fumbling and wobbling” Buhari administration.

Some argue that the Emefiele cash redesign mishap, which is more of a change of colour, has led to a famine. Because most market mammies, who sell foodstuffs and other home supplies, had no facility to receive payment by electronic money transfer, many Nigerians, who could not, therefore, buy the foodstuffs that they needed, practically went hungry. Nigerians that were most affected by this horrendous failure of governance were senior citizens, who had difficulty moving about and could not go out to queue for the obviously inadequate N5000, or even N3000, that some banks offered to pay to their depositors. Everyone knows that the immediate term effect of the removal of fuel subsidy is an inflationary ripple that will adversely affect every aspect of the Nigerian economy and the lives of the citizens.

Already inadequate incomes will become even more inadequate. And the already disappearing middle class will be speedily wiped out. As of December 2022, the inflation rate in Nigeria was 21.34 per cent. But by February 2023, it had risen to 21.91 per cent, from 21.82 per cent in January. On the other hand, food inflation, now styled “foodflation,” rose from 24.32 per cent in January, to 24.35 per cent in February 2023.

Because transportation is basic to every sector of the economy, no one will be able to avoid the effect of fuel subsidy. It will pretty much be like taxation and death that no single human being has been able to avoid. Vehicles –that include private cars, commuter buses and haulage trucks– that power today’s civilisation, run on petrol (or diesel) fuel. And petrol, as you know, is the blood that runs the motorised platform that carries the people, the produce and the manufacturers of modern economies.

One may need to add that the mini “I-better-pass-myneighbour” electricity generating set that is used at homes and by mom-and-pop shops that dot the economic landscape of most major towns and cities in Nigeria is powered by petrol fuel.

If you’ve read “The Sexual Wilderness,” an assessment of the sexual tendencies of the young and the restless, written by an American journalist, Vance Packard, you would have also read about the nexus between the au tomobile and modern cities, or modern societies in general. This outgoing government had serially resorted to raising the sundry tax rates to shore up its dwindling revenue, whose value is rapidly dwindling due to the high inflation rate and high foreign exchange rate.

Nigeria’s most strategic consumer goods, like food, drugs, building materials and petroleum products, are imported. It will become a huge disaster if the next government attempts to raise the taxes that Nigerians already pay at an average of 35 per cent of their earnings. Already, Nigerians are coping with as many as 50 different taxations.

The unimaginative Buhari government, not unlike the devil that is walking about, seeking whom it might devour, has been forever looking for ways to wrest the monies of Nigerians from them: In addition to raising Value Added Tax from 5 per cent to 7.5 per cent, the government attempted to appropriate uncollected dividends and deposits in dormant bank accounts of Nigerians.

It is, however, extremely welcome good news that the Federal Government has announced the removal or suspension of the 5 per cent VAT payable by Nigeria telecoms service subscribers for recharge card vouchers. In order to avoid, or significantly reduce, the pain that removal of fuel subsidy will cause to citizens, the government should ensure that government-owned and privately-owned refineries work optimally to meet the petroleum products demands of Nigerians.

Now that President Buhari has signed the constitutional amendment that transfers railway transportation from the Federal Legislative Exclusive List to the Concurrent Legislative List, the Federal Government should encourage both intra-state and inter-state railway lines. The biggest Kahuna must be an ambitious plan to ensure an adequate and steady supply of electricity to Nigerian homes and industries.


If this is accompanied by an equally ambitious agricultural and manufacturing Marshall Plan, Nigerians should arrive at their economic el dorado before the end of the first term of the government. The removal of fuel subsidies must be consistently accompanied by appropriate macroeconomic policies.