How should Nigeria remove its fuel subsidy?

Sep 27, 2022|Noelle Okwedy

How should Nigeria remove its petrol subsidy?

Abruptly and all at once, like the ripping of a band-aid? Or would a slow and steady phased removal over time be better?

Key takeaways:

Nigeria’s petrol subsidy has become a burden on the government’s finances, and President Buhari has announced plans to remove it by June 2023.
But how does a successful subsidy reform look? Indonesia’s 2003 and 2005 attempts provide contrasting lessons on subsidy reform.
Proper communication, distribution of social benefits and people’s trust in the government are key to preventing a repeat of 2012’s subsidy reform attempt.

There’s no better time than now to have this conversation because Nigeria’s petrol subsidy has become the government’s white elephant—they can’t seem to get rid of it. The subsidy’s cost has outweighed its usefulness. For instance, last year, the poorest 20% of the Nigerian population only received 3% of the entire subsidy bill for 2021, showing that the poor, who need it the most, aren’t even benefitting. The subsidy has become a significant burden on the government’s finances as they may be up to ₦6 trillion this year, compared to ₦1.5 trillion in 2021.

It’s now a campaign promise from presidential aspirants, but there hasn’t been any mention of how they will remove the subsidy. It is possible aspirants don’t know how difficult it is to remove subsidies, especially as the public’s need for the subsidy is heightened due to the terrible economic hardship most Nigerians currently face. Even though it is true that wealthy Nigerians benefit the most from the subsidy, this doesn’t mean people who aren’t rich don’t benefit. Removing the petrol subsidy will affect public transportation, electricity costs, businesses, and private individuals, increasing the pressure on Nigerians’ incomes.

This is why successive governments keep passing along the subsidy removal buck. Ex-President Goodluck Jonathan removed the subsidy in 2012, resulting in massive national and international protests under the “Occupy Nigeria” movement. A few months later, the government reinstated the subsidy. President Buhari has announced that the subsidy will leave with him as he exits Aso Rock in June 2023. Hopefully, the new president doesn’t succumb to pressure to return to the subsidy.

We look forward to June 2023 for the removal of a petrol subsidy that has lasted 50 years. But how should the Nigerian government implement a subsidy reform?

Given our 2012 experience with a sudden removal, most people would prefer a phased subsidy removal. So, what does this look like in practice? To answer, we will look at examples from another country with a more turbulent subsidy removal path than Nigeria’s.