On Monday, May 29, 2023, during his inaugural speech, President Bola Ahmed Tinubu of Nigeria announced his administration’s intention to eliminate petroleum subsidies.

The president stated that the funds previously allocated to subsidies would be redirected to some developmental projects in the education sectors.

He said that there would no longer be a petroleum subsidy regime as it was not included in the current 2023 budget that he reviewed. The budget had provisions for fuel subsidy until June. President Tinubu stated that the funds previously allocated for subsidies would be redirected towards public infrastructure, education, healthcare, and job creation, aiming to benefit the majority of the population rather than favoring the wealthy.

However, President Bola Tinubu’s decision to remove petrol subsidies has prompted various reactions.

Reactions

The Nigeria Labour Congress (NLC), while criticizing the announcement, expressed skepticism, claiming that the president was merely testing the waters and lacked the determination to follow through.

Omoyele Sowore, the presidential candidate of the African Action Congress (AAC), also voiced his concerns about the fuel subsidy removal announcement.

Responding to a message sent by i-News Nigeria, Sowore wrote, “My position on fuel subsidy removal is clear. I am diametrically opposed to starving the masses of our people just to keep enriching the thieving class!”

Also sharing his views via his Twitter handle, Sowore highlighted that the announcement had already resulted in fuel scarcity and price inflation throughout Nigeria.

“Asiwaju Bola Ahmed Tinubu @officialABAT thoughtless fuel subsidy removal announcement has already triggered fuel scarcity and price gouging all over Nigeria. This is why Nigerians must understand that nothing good will come out of the Nigerian Elite-in and out- of power.”

Sowore wrote, “This is why Nigerians must understand that nothing good will come out the Nigerian Elite-in and out- of power. They’re always after you. They don’t care about you!”

The AAC presidential candidate stated further that “Subsidy is the only thing the poor masses benefit from the crude oil,” adding that, “the only subsidy I will remove is the one the crooks in government are benefitting.”

In the past, the presidential candidate of the People’s Democratic Party (PDP), Atiku Abubakar, had already outlined his intention to remove petroleum subsidies during his address at the Lagos Business School 2022 alumni day. Atiku, who had chaired the fuel subsidy removal committee in the past, emphasized his commitment to continuing the subsidy removal process and redirecting the funds back into the economy.

Atiku further addressed economic issues and outlined his recovery plan for Nigeria if elected president, including engagement with creditors to seek debt forgiveness or cancellation and proposing a flexible payment plan to manage local debt.

“I recall how we removed phase 1 and phase 2 of the fuel subsidy.

“I will continue from where we stopped, remove fuel subsidy totally and channel the subsidy funds back into the economy. In other words, it’s just a fraud,” Atiku said.

He added that “If you are talking about foreign debt, we have done it before; I will engage our creditors and ask for debt forgiveness or cancellation like we did before. Coming to local debt, if we stabilise the economy, we will borrow less, and propose a flexible payment plan.”

During his election campaign, Peter Obi, the presidential candidate of the Labour Party (LP), made a commitment to eliminate the subsidy if elected, as had been planned by the incumbent administration led by President Muhammadu Buhari.

Obi emphasized that the federal government’s payment of fuel subsidy was slated to conclude by June 30, 2023. He made this statement during a live appearance on Channels Television’s The People’s Townhall in Abuja, stating, they have already removed it. That’s what has been done.”

He further assured the audience that he would promptly eliminate the subsidy, as he had previously stated his belief that subsidy was a form of organized crime and would not tolerate its continuation for even one more day.

Obi shed light on the misconceptions surrounding the subsidy, asserting, “What they are telling you is not the reality. Half of what is being mentioned is not subsidy. The first issue is our excessive consumption that surpasses our actual needs. We have the same population as Pakistan, yet they consume less than 50 percent of what we consume.”

He added, “Therefore, I will eliminate the first half of the subsidy and provide those individuals with the essential resource they should be consuming, which is water. This way, we can save money.”

Furthermore, Obi acknowledged that Nigeria is currently burdened with debts and emphasized the importance of utilizing funds for critical social development concerns. He highlighted that the country needs the financial resources to invest in vital social development issues.

Additionally, Adewole Adebayo, the presidential candidate of the Social Democratic Party (SDP), criticized the announcement, considering it untidy and ill-timed. Adebayo argued that the suspension of such a macroeconomic policy should have been communicated through alternative measures to mitigate the impact on the people before implementing it.

He questioned if this was the promised renewed hope for Nigerians.

He said, “I don’t want to seem impatient or trigger happy in criticism of brandy new president Tinubu. But it is not a neat way to announce a cost driven macroeconomic policy of fuel subsidy removal by just dropping it in an inaugural speech. We need shock absorbers first. Renewed hope?”

Several Twitter users joined the conversation, acknowledging the need to eliminate fuel subsidy but emphasizing the importance of minimizing the harmful effects on the masses.

They called for clear alternative frameworks, stakeholder engagement, and assurance that the decision is in the best interest of the country. Concerns were raised about the absence of functional refineries and stable electricity, suggesting that addressing these issues should be prioritized alongside removing the subsidy. Some users questioned the role of the Dangote refinery and emphasized the need for government control rather than privatization to mitigate the impact of subsidy removal.

Baba Yusuf, Group CEO, Global Investment & Trade Company, tweeted that “The removal of fuel subsidy is a brilliant move by President Bola Tinubu, it underscores his surefootedness and demonstrates his political will to make things better.”

@ObiaguIkenne tweeted, “The same Tinubu who opposed subsidy removal in 2012 and even organised a carnival in Lagos in the name of protest against it is now removing it. What changed? Is he no more on the side of the masses? I laugh at your inconsistency.”

Another Twitter user, @Ollawaski, wrote, “For the records, Peter Obi’s template for fuel subsidy removal is totally different from what Tinubu has done. Trying to lump them up together is not just disingenuous but funny.

“Peter suggested 50% removal and introduction of concomitant measures to cushion the effects.”

What is a subsidy?

In the 1970s, Nigeria implemented subsidies in response to the 1973 Oil Price shock. This global event caused a significant increase in oil prices, which, if applied to Nigerians, would have imposed higher costs on them. Consequently, the government intervened by implementing local price regulations for energy products. To formalize this intervention, a decree was enacted in 1977, institutionalizing subsidies in Nigeria.

A subsidy is a form of assistance provided by the government to individuals, businesses, or institutions, which can take the form of direct cash payments or indirect tax breaks. Subsidies are typically granted to alleviate burdens and are often considered to serve the public interest by promoting social or economic policies.

Contrary to popular belief, the Nigerian government can subsidize various sectors beyond petroleum, including transportation, healthcare, food production, agriculture, fisheries and meat processing/packing, industry, finance, automobile and clothing, imports and exports, housing, and employment.

Benefits of subsidy removal

Different rationales exist for the provision of public subsidies, including economic, political, and socioeconomic development reasons. Development theory suggests that certain industries require protection from external competition to maximize domestic benefits.

1. Removing petroleum subsidies will encourage private sector participation in the importation of petroleum products, promoting a freer market, empowering Nigerians, and enabling the government to focus on other vital sectors of the economy.
2. It will ensure the consistent availability of petrol nationwide, eliminating diversion by marketers and benefiting all Nigerians.
3. By curbing the pursuit of excessive profits and acts of sabotage by a few players in the oil industry, the economy will experience positive effects.
4. Competition in the industry will be fostered, and market forces will eventually drive down the price of petrol, similar to the positive impact observed in the telecommunications sector.
5. Permanently eradicating queues at petrol stations across the country will liberate Nigerians from the enduring hardships caused by fuel scarcity, eliminating the need to spend hours waiting in lines.

Challenges associated with subsidy

Some economists argue that businesses should be subject to free market forces, determining their survival or failure. Subsidies, according to this perspective, sustain inefficient resource allocation and divert resources away from more productive uses.

In summary, the federal government is expected to eliminate the contentious fuel subsidy this month. This proposed action aligns with the government’s decision to deregulate the downstream sector of the oil industry in order to enhance performance.

However, it is crucial to address the potential difficulties that may arise from this decision and consider ways to alleviate their impact, particularly on the impoverished population.

It is important to acknowledge that Nigerians, particularly the lower-income masses, may encounter challenges such as increased prices of essential commodities, transportation fares, and housing rents. Therefore, the government should implement appropriate palliativeparliative measures to mitigate these effects.

Nigerians are encouraged to be patient and understanding with the new president. It is important for us to recognize that this decision has been made in the best interest of all citizens.