Nigeria’s oil wealth and the burden of subsidy removal

How can a nation as richly endowed with oil as Nigeria remain so vulnerable to the price of the very resource from which it should derive prosperity?

Nigeria’s tragedy lies in the contradiction between the abundance beneath its soil and the scarcity experienced by its people. That contradiction becomes even more troubling when public resources are treated as opportunities for private gain rather than as a trust held for the benefit of citizens. The problem is not simply a lack of resources; it is the failure to translate the country’s wealth into broad-based prosperity through responsible leadership and sound economic management.

The debate over whether governments should subsidise essential goods and services is hardly new. Subsidies take different forms: governments may support consumers by keeping prices below market levels, assist producers to reduce their costs, grant tax concessions or support strategic industries. The fundamental question is whether such interventions serve a legitimate public purpose and whether their benefits justify their costs.

Opponents of subsidies argue that they impose heavy costs on public finances, encourage waste and divert resources from essential services. Supporters, however, contend that subsidies can protect vulnerable households’ purchasing power and help contain the cost of essential goods and services. Fuel prices, in particular, have consequences far beyond the filling station. Higher transport costs can raise the prices of food and other necessities, increase production costs and place additional pressure on businesses and households.

The argument that governments can support strategic sectors has international precedent. The Organisation for Economic Co-operation and Development (OECD) reported that agricultural support across 54 countries averaged $842 billion annually during 2022–2024. Such support takes different forms, including direct payments and market-price measures. This does not mean every subsidy is justified, but it demonstrates that governments routinely intervene where they consider the public or strategic interest sufficient to warrant it.

Nigeria’s own experience illustrates the scale and complexity of the fuel-subsidy debate. For years, successive governments maintained the arrangement despite its substantial fiscal cost, concerns about its administration and persistent questions about who benefited most. The central question is not merely how much was spent, but why such expenditure did not translate into a more visible improvement in the lives of ordinary Nigerians.

On May 29, 2023, President Bola Tinubu announced the end of the petrol subsidy in his inaugural address. Subsequent fuel-price adjustments, alongside foreign-exchange reforms that contributed to the depreciation of the naira, exposed households and businesses to severe cost pressures. In December 2023, the World Bank reported that retail petrol prices had increased by an average of 163 per cent  following the reforms. It also stressed the need for complementary measures to protect poor and vulnerable households.

The consequences extend well beyond motorists. Transport operators face higher operating costs; farmers and traders contend with more expensive logistics; manufacturers face rising production expenses; and households must devote more of their incomes to everyday necessities. These pressures weaken purchasing power and make it harder for businesses to sustain production and employment.

The central issue, therefore, is not merely whether the old subsidy arrangement was financially sustainable. It is whether the transition was accompanied by adequate, timely and transparent measures to protect citizens from its immediate consequences.

This question becomes even more compelling when Nigeria’s position as a major oil-producing country is considered. Nigeria belongs to OPEC alongside countries such as Saudi Arabia, Kuwait, Iran, Iraq and Libya. Some of these countries maintain extensive energy-price support arrangements, although the forms and scale of their interventions differ. Their experiences cannot simply be transplanted to Nigeria, but they demonstrate that oil-producing nations make different choices about how the benefits and costs of their energy resources are distributed.

Nigeria must confront its own circumstances. Where public transportation is inadequate, electricity supply remains unreliable, unemployment protection is limited and healthcare is often beyond the reach of ordinary households, a sharp increase in fuel prices can have far-reaching effects. Citizens who lack affordable alternatives are particularly exposed.

None of this means that fuel subsidies must be maintained indefinitely, regardless of their cost, effectiveness or susceptibility to abuse. A poorly designed subsidy can consume resources that might otherwise fund schools, hospitals, infrastructure and targeted assistance to the poor. But removing a subsidy does not, by itself, guarantee that these benefits will materialise. The savings must be transparently accounted for, responsibly managed and directed towards clearly identified public needs.

The government must therefore demonstrate, with credible evidence, how the resources released by subsidy reform are being used. Social-protection programmes must reach their intended beneficiaries, while investment in public transportation, electricity, healthcare and domestic productive capacity must provide citizens with realistic alternatives to rising costs.

Ultimately, Nigeria’s challenge is one of public trust. A nation’s natural wealth should not be measured only by the resources extracted from its soil, but also by the extent to which those resources improve the lives of its people. Economic reform may sometimes be necessary, but its legitimacy depends not only on the savings it generates or the stability it promises. It must also be judged by who bears its immediate costs, who receives its eventual benefits and whether the public can hold those in authority accountable.

For Nigeria, the task is not simply to remove a subsidy. It is to ensure that the sacrifices demanded of citizens contribute to a more productive, equitable and accountable society. Without that assurance, the promise of reform will remain difficult to reconcile with the daily reality of hardship experienced by the people in whose name it is undertaken.