Nigeria’s new President may have accomplished what previous regimes in the West African nation have failed to over the past two decades. In an audacious move, President Bola Ahmed Tinubu, who won the hotly contested February 2023 Presidential elections — although under disputed circumstances — announced the removal of the country’s subsidy on petroleum products in his inaugural address at Eagle Square, in the Federal Capital Territory, Abuja. Tinubu, 71, of the ruling All Progressive Congress (APC), declared that the subsidy regime “has increasingly favored the rich more than the poor. Subsidy can no longer justify its ever-increasing costs in the wake of drying resources.”
Almost immediately, petrol prices shot up by about 156% from 195 Naira ($0.27) to 540 Naira ($.77) per liter, while the country descended into chaos as motorists and citizens raced to the nearest gas stations in anticipation of even more price increases. By the next day, throngs of stranded workers and school children gathered at bus stops in Lagos and other cities, as many could not afford bus fares. Two weeks later, the effects of this policy still linger as the poorest-paid workers and operators of the country’s massive informal sector now walk long distances to and from work while a situation of semi-paralysis exists across the country. A civil servant, Joy Olanipekun, told Inkstick, “Our salaries haven’t increased, yet the transport cost has increased. The government should help us out.”
In a scramble to cool the tension, two sub-national governments, namely Kwara and Edo States, announced a reduction in work days for state employees from five to three days. Several other states are finalizing emergency plans. But as a labor movement leader, Comrade Rufus Olusesan opined, these measures “are inadequate to prevent workers’ living standards from nose-diving.” Olusesan is the president of the Precision Electrical and Related Equipment Senior Staff Association, an affiliate of the Trade Union Congress — one of the two union federations in the country. The biggest federation, the Nigeria Labour Congress, responded to the end of the fuel subsidy almost immediately with a call for an “indefinite general strike” arguing that the 2023 budget “made provisions for the funding of the subsidy regime on PMS [Petroleum Motor Spirit] till the end of June 2023. It is unfair for the government to knowingly take action that will inflict pain on the populace and workers without putting adequate safeguards in place.” The strike threat immediately triggered a flurry of meetings and consultations which has so far succeeded in the suspension of the strike. In exchange for keeping the peace, the trade unions are demanding, among other things, an increase of the minimum wage from N30,000 ( $42) to N200,000 ($285) monthly, to cushion the effect of the policy.
Except for acknowledging that the unions’ demands are “not impracticable,” Dele Alake, a member of the government delegation at a meeting with the unions, could not say if the Federal Government would meet the demands or not. A new meeting has been fixed for June 19 to “establish the framework and timeline” for the implementation of the demands. However, unless the trade unions and the government manage to cobble together a deal by then, there is no guarantee that a showdown is completely ruled out. At the moment, the Nigeria Labour Congress is challenging an interim order issued by the National Industrial Court against the labor federation which played a role in stopping it from going ahead with the strike. “We Will No Longer Respect ‘Frivolous’ Ex parte Orders” the President of the Nigeria Labour Congress, Joe Ajaero, fumed in a recent statement.
Oil Curse
The fuel subsidy has existed in Nigeria since 1977 following the promulgation of the Price Control Act. It is the price the oil-producing African giant pays for the inefficiency of its ruling elite, which has resulted in the country’s failure to refine oil locally. Nigeria has long been Africa’s largest oil producer, and until 2021 was the sixth largest exporter in the world. (Last year the country’s oil production dropped and Nigeria produced about 1.5 million barrels of crude oil per day in 2021, nearly a 37% decline from its production average in 2012.) Yet the country continues to boast an estimated 37.1 billion barrels of proven crude oil reserve. Four government-owned refineries, namely Warri Refinery and Petrochemical Company; Old Port Harcourt Refinery; New Port Harcourt Refinery and Petrochemical Company; and Kaduna Refinery and Petrochemical Company, three of which were built in the 70s when the country was flush with the new oil windfall, have been left to decay for decades. Over $19 billion has been spent on repairing them with no result. Consequently, Nigeria has to send its crude oil to be refined abroad and the end products are then sent back and resold to the country. By the time the refined products make their long journey back to Nigeria, they are much more expensive, with the added costs of refinement, freight, storage, and shipping, plus the exchange rates back and forth. Finished petrol products would be out of reach for the average Nigerian. The subsidy, then, is an annual sum the government set aside to try to keep petrol pump prices within reach of normal Nigerians.
“The level of opacity and the amount of sleaze that is involved is breathtaking.”
Zikora Ibeh
However, like all good initiatives, “the subsidy regime soon became a conduit pipe for corruption” says Zikora Ibeh. Ibeh is a Policy and Research officer with Corporate Accountability and Public Participation Africa — a civic group that specializes in exposing corporate abuses of natural resources in Africa. “The level of opacity and the amount of sleaze that is involved is breathtaking. First, there is no agreement on how many liters of petrol Nigerians consume per day. The figure varies from 30 million to 75 million liters depending on who you ask. This disparity provides an open field for inventory padding and other sharp practices. Secondly, fuel importers often divert vessels conveying petrol products to neighboring countries but end up being paid for undelivered goods,” she added. In April 2012, an inquiry by the National Assembly revealed massive fraud in the subsidy program to the tune of $6.8 billion over a period of two years. According to a report, a total of 15 fuel importers collected more than $300 million without importing any fuel, and massive redundant transfers indicated false claims to the subsidy.
Yet without the subsidy, some worry the country of 220 million would have faced a social crisis provoked by high petrol prices. Due to the failure of the privatized power sector, millions of households and industries rely on noisy and environmental-polluting petrol-powered generators for electricity. This makes the question of subsidy removal a touchy one for the country’s poor who are torn between awareness of the massive corruption and sleaze surrounding the opaque subsidy program and the fact that it is the only barrier to having the full consequence of the global cost of petrol bear down on their low income. “I admit that the decision will impose extra burden on the masses of our people. I feel your pain,” Tinubu pleaded in a news broadcast on June 12, to mark the country’s “Democracy Day.” Over 133 million Nigerians, 63% of the population, are living in multidimensional poverty. Although the country’s statistics office stopped calculating unemployment figures in 2020, estimates by the global consulting firm KPMG, show that Nigeria’s unemployment rate will reach 41% this year.
Trust Issues
For some time now, the International Monetary Fund and World Bank have mounted pressure on the Nigerian state to cut the subsidy and instead redirect the money to socially-beneficial projects. In April, Nigeria secured an $800 million World Bank facility to disburse cash transfers to about 50 million Nigerians, who would be affected by the cut. The argument is that much of the subsidy benefits the oil marketers and the rich who can afford to own more than one vehicle and yet pay very little for petrol. A report published by Chapel Hill Denham shows that “households in the bottom 40% of Nigeria’s income distribution account for less than 3.0% of all white product purchases. For proper context, 75% of all petrol products sold in Nigeria is consumed by private firms, public transportation services, government agencies, and other business entities”. The report also estimates that 15.64 million liters of petrol are smuggled out of Nigeria daily. Because subsidized Nigerian petroleum products are cheaper, retailing on average 3.7 times those of its neighbors, this has given smugglers “unfair possibilities for arbitrage,” the report added.
As Nigeria’s fiscal landscape worsened with dwindling public finances and rising public debt, removing the subsidy became an urgent task. According to data from the formerly state-owned Nigeria National Petroleum Company Limited, Nigeria spent a whopping $10 billion on the subsidy last year. Similarly, the Executive Secretary of Nigeria Extractive Industries Transparency Initiative, Ogbonnaya Orji, revealed that Nigeria expended over 13 trillion Naira ($74 billion) on fuel subsidies between 2005 and 2021 a figure which in relative terms is equivalent to “Nigeria’s entire budget for health, education, agriculture, and defense in the last five years, and almost the capital expenditure for 10 years between 2011‑2020.” However each time previous regimes tried to remove the subsidy, they met a wall of resistance with protests and general strikes. A crucial reason why Nigeria’s citizens often resist the removal of the subsidy is the existence of a lack of trust in the government’s promises to re-invest the money in socially-beneficial palliatives. A recent survey by Edelman Intelligence, an independent research arm of the Edelman global network, shows that the government is the least trusted institution in Nigeria.
Each time previous regimes tried to remove the subsidy, they met a wall of resistance with protests and general strikes.
While the new President has made similar promises, “he will have to do more in concrete terms to prove that he means well otherwise he risks a mighty storm of opposition coalescing against him at a stage” Ibeh warned. This is especially the case considering that his is the least popular government since democracy was restored in 1999. President Tinubu was elected by 8.7 million votes out of over 87 million registered voters. The last time a Nigerian President made a similar audacious move to cut the fuel subsidy was in January 2012. In response, a mass uprising involving millions rapidly developed on the streets. It was Nigeria’s version of the Arab Spring and it nearly collapsed the regime of President Jonathan. “Unless President Tinubu does as he has promised to do, he may still face the anger of the people” she added.
