Fuel subsidy: What did Nigeria gain?

Nigeria removed the fuel subsidy, expecting economic benefits, but the consequences have been severe for the country and its people. Atiku Abubakar, a potential presidential candidate, is advocating for the reinstatement of the subsidy, arguing that the government failed to account for the gains from its removal and that corruption, controls, refining capacity, and energy costs were not addressed before the subsidy was removed.

Critics, such as President Bola Tinubu, argue that the removal of the fuel subsidy was necessary for fiscal sustainability and development, stating that removing it would free resources for productive investment. However, the question at hand is not just whether a subsidy should exist, but whether Nigeria was right to remove it without first addressing the underlying issues that made the system expensive.

The World Bank found that Nigeria spent over N8.6 trillion on fuel subsidies between 2019 and 2022, benefiting better-off consumers more than poorer Nigerians and creating incentives for smuggling.

The issue is not just about subsidy, but about corruption, controls, refining capacity, and energy costs. A production subsidy, if implemented, should have clear rules, independent audits, and full disclosure, benefitting domestic refineries, not creating another pool of money for rent seekers. The real problem is the cost of energy, which impacts various sectors of the economy, including transport, food, and industrial production.

The objective should be to make energy cheaper, not just petrol, through more domestic refining, reliable crude supply, better power, and lower logistics costs.