Abdullahi Zakariya, a 40-year-old motorcyclist working in Kwara, has one wife and three children. The firstborn is Salami Abdullahi, a 400-level student in the English department at Usmanu Danfodiyo University, Sokoto, and his younger brothers are still in secondary school. Before the increase in fuel subsidy, his father had been struggling to pay for foodstuffs, transportation and school fees for Salami. However, his father had to obtain a loan from the bank to pay the school fees and accommodation fees due to the increase in fees.
When the subsidy was removed from petrol, lives became more difficult for him due to low patronage and the soaring prices of food, transportation, and the cost of living in general. Before, Salami used to receive N5,000 as a monthly stipend. But when the price of two mudus of rice goes up to N5,000, this significantly affects his studies. Most of the time, he cannot concentrate on lectures or even study due to hunger. The increased price of paper also makes it difficult to execute his final year research projects. This agony is being faced by millions of Nigerians and students across tertiary institutions due to the increase in fuel subsidies.
Fuel subsidy has been a polemical issue in Nigeria for decades. The government has been spending billions of dollars yearly to keep petrol prices artificially low. This led to the government borrowing heavily to finance the subsidy, increasing the country’s deficit. President Bola Tinubu removed the fuel subsidy on May 29, 2023, during his inauguration speech, citing budgetary concerns. Tinubu noted that the fuel subsidy had to end because the country could not maintain it. He added that the trillions of naira spent yearly to sustain the subsidy were meant to improve the healthcare and transportation sector, schools, housing, national security, among others. The subsidy, introduced in the 1970s, had kept fuel prices cheap for decades but had become increasingly expensive, costing the government $10 billion last year.
However, the removal of fuel subsidies has led to a significant increase in the cost of living in Nigeria, with the prices of basic goods and services skyrocketing. Consumer prices in March 2021 rose by 18.17% from a year earlier, the highest inflation level since January 2017 when the economy was in a recession. Since May 2020, inflation has risen by more than five percentage points, building on a steady rise since August 2019. The World Bank forecasts that by the end of the year, Nigeria’s inflation will be the fifth-highest in sub-Saharan Africa, behind only Zimbabwe, Zambia, South Sudan, and Angola.
Fuel subsidies cost the government over 400 billion naira (around $867 million) monthly, according to figures from the state-owned oil firm Nigerian National Petroleum Corporation (NNPC). The removal of fuel subsidies would free up financial resources for other sectors of the economy, incentivize domestic refineries to produce more petroleum products, reduce Nigeria’s dependence on imported fuel, increase employment, channel funds for the development of critical public infrastructure, reduce the budget deficit, and generate a budget surplus in the near future, reduce government borrowing, curb corruption associated with fuel subsidy payments, increase competition, and improve efficiency in the downstream sector.
Since the removal of subsidies and the increase in the dollars to naira rate have led to the increase in the cost of living, and this removal is impacting poor Nigerians. Drivers, market women, civil servants, students, and business owners are suffering from the removal of fuel subsidies because almost everything has increased beyond expectations.
The government announced a N5 billion palliative for each state of the federation, including the federal capital territory (FCT), to cushion the impact of the removal of the petrol subsidy. The federal government has also obtained an $800 million relief package from the World Bank to cushion the effects of subsidy removal. The government has disbursed only N2 billion of N5 billion subsidy removal palliative to states. The Infrastructure Bank has also earmarked N13 billion to support Federal Government palliatives on subsidy removal through the provision of transportation systems to cushion the effects of the hardship faced by Nigerians.
However, the bitter truth is that these funds are not reaching the people affected by these fuel subsidies, as state governments are likely to embezzle funds. In some states, what reaches some old women is a cup of rice, which cannot be enough for them to even eat in a day.
This removal of fuel subsidies has decreased economic growth in the short term, increased inflation, increased poverty, increased fuel smuggling, increased crime, increased the prices of petroleum products, and led to job losses in the informal sector.
The removal of subsidies has caused a consistent increase in fuel prices, which affects the cost of living, as people pay more for their daily commutes, electricity, and cooking gas. Inter-state and intercity transport costs have skyrocketed, affecting many students who need to return to school early. The transport that cost 10,000 naira before has increased to 20,000 naira due to subsidy removal, which affects the daily commute to work, school, or markets. People are forced to allocate more of their income to transportation, leaving less for other essential needs.
The removal of subsidies has come, and it’s crucial to find ways to adapt to this change. The path forward to address the removal of subsidies and the resulting increase in the cost of living in Nigeria involves a combination of short-term and long-term strategies.
One approach is to phase out subsidies gradually rather than abruptly, which can alleviate the hardships faced by the people. This gradual process would enable citizens and businesses to adjust to the new pricing structure over time. It may involve regular, predictable increases in fuel prices until subsidies are completely eliminated. Furthermore, it should include provisions for targeted social welfare and favorable policies for vulnerable populations, such as students, market women, civil servants, through direct cash transfers to low-income households, subsidies on essential commodities, and skill development initiatives to empower individuals to seek alternative sources of income. However, to accomplish this successfully, there’s a need for transparency and anti-corruption measures to ensure that funds reach the vulnerable citizens and prevent the misappropriation of funds intended for the benefit of the people. Public awareness and educational campaigns should be organized to make citizens aware of the reasons behind this removal and the government’s schemes and policies designed to mitigate its impact.
Investment in renewable energy sources like hydroelectric power, solar, and wind is also essential. This diversification reduces the overreliance on fossil fuels and mitigates the impact of global oil price fluctuations. It fosters the development of a sustainable and environmentally friendly energy sector. Reducing energy consumption and diversifying the economy by supporting non-oil sectors like agriculture, manufacturing, and services is another crucial aspect. A diversified economy can provide alternative sources of income and reduce the nation’s vulnerability to oil price fluctuations.
Additionally, implementing policies that promote economic diversification and job creation is paramount. This includes supporting small and medium-sized enterprises (SMEs) and encouraging entrepreneurship. Job creation can boost people’s income and reduce the overall impact of rising living costs. It’s vital to prioritize investments in key sectors like education, healthcare, and infrastructure. Efficient allocation of resources can enhance the standard of living.
For citizens, utilizing public transport is a great and affordable alternative to personally driving. This option can lead to significant savings on fuel expenses. Buses, tricycles (commonly known as keke), trains, and other forms of public transport are generally more cost-effective than individual car usage.
Moreover, employing rechargeable fans, bulbs, and torchlights can significantly reduce fuel consumption, as they only require a minimal amount of electricity or solar power to operate.
Maintaining fewer vehicles and investing in inverters, especially in a country like Nigeria where electricity is not reliable and fuel costs continue to rise, is advisable. Buying supplies in bulk instead of small quantities can also be beneficial. Increased investment in renewable energy will not only contribute to a sustainable future but also create job opportunities and stimulate economic growth.
Lastly, carpooling is a way for Nigeria to move forward. This allows people to share transportation costs with others heading in the same direction, making it a great way to save money, especially if you have a long commute and need to take several buses before reaching your destination, especially with the increased fuel prices. These proposed solutions can go a long way in mitigating the effects of the fuel subsidy removal on Nigerians.