Economic, social consequencies of Tinubu’s subsidy removal (I)

The removal of oil subsidies by President Tinubu in 2023 has ignited a heated discussion regarding its economic and social consequences in Nigeria. Former Vice President Atiku Abubakar, presidential candidate of the African Democratic Congress, has suggested restoring the subsidies if elected, arguing that the money should have been allocated towards poverty reduction, children's education, and other developmental initiatives.

However, presidential spokesman Bayo Onanuga countered that restoring subsidies could lead to hidden costs, reduced spending on social services, and currency devaluation.

The debate on subsidies has gained momentum as Nigerians prepare for the 2027 presidential elections, offering a chance for citizens to critically evaluate the impact of subsidy removal on the economy. Subsidies are defined as financial assistance provided by a government or organization to lower costs, maintain affordable prices, and support public objectives such as agriculture, healthcare, infrastructure, transportation, education, and housing.

President Tinubu justified the removal of subsidies by citing the corruption, inefficiency, and waste associated with the subsidy regime. The passage of the Petroleum Industry Act deregulated Nigeria's oil and gas industry, rendering the subsidy regime irrelevant according to the administration. However, critics argue that subsidies are not merely economic measures but also social safety nets that promote economic and social harmony among various societal classes.

In contrast, many countries around the world, including China, America, the European Union, and Japan, maintain subsidies in various sectors. These nations consider subsidies as economic realities and necessities rather than heresies. A withdrawal of subsidies in these countries would have severe consequences for their respective industries and economies.

In economic theory, subsidies are integrated into the entire economic framework, including cost, labor, supply, demand, and distribution. They are not applied holistically across the entire economic value chain.

Critics assert that the removal of subsidies should have been evaluated for its potential benefits in stimulating production and creating opportunities for the youth. By allocating savings from the subsidy removal to productive industrial ventures and social regenerating projects, Nigeria could potentially mitigate the pain associated with the change.