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The leading contenders in Nigeria’s presidential election face a defining question: should the fuel subsidy be restored to ease the burden of rising energy costs?
President Bola Tinubu, who is seeking a second term in January, has repeatedly defended his decision to scrap a years-long subsidy program in 2023 to avoid wasteful spending and invest in infrastructure development. But his government’s introduction of a short-term petrol price discount this month to counter rising costs driven by the Iran war has reignited the debate as to whether a subsidy would make a more lasting return.
Tinubu’s main rivals say they plan to restore some form of consumer support if elected and have accused the president of panicking in the face of pressure to account for his decision, with polls opening in less than 100 days. SBM Intelligence, a Lagos-based advisory firm, found in a survey published in September that more than two-thirds of voters want the government to reinstate a fuel subsidy of some kind. Insecurity, which has worsened around the country, is also set to figure as a major point of contention.
The revived subsidy debate is shaping just about every conversation concerning the coming vote in Africa’s biggest democracy. Tinubu and his 17 challengers are hitting the campaign trail to sway voters whose collective purchasing power has weakened sharply in the last three years, in large part due to the five-fold rise in fuel prices in that period which has driven inflation and spawned a cost-of-living crisis. Its resurgence reflects Nigeria’s history as the continent’s top oil producer and exporter that has consistently failed to convert its energy riches into broad-based prosperity.
For years, the vast majority of the crude oil produced in the country was exported because none of the government’s domestic refineries were fully functional. Imported refined products were then subsidized by payments from the state-oil company NNPC, enabling a multibillion-dollar largesse that grew into an increasingly opaque and corrupt scheme, according to government fact-finders and international observers. It was also costly: The program’s $10 billion in 2022 exceeded the combined budget for healthcare and education.
Tinubu has largely not faced widespread protests or strong political opposition since ending the subsidy. He has told Nigerians that his policy approach is shifting from offering “emergency treatment” — ostensibly to fix the faulty foundations of the economy he inherited — to enabling shared prosperity.
But in Atiku Abubakar and Peter Obi, he faces familiar challengers who are eager to make the coming election a referendum on the impact of energy costs. “Bola made life expensive. I will work to make life affordable again,” Atiku said in a campaign video last week. Obi, the other heavyweight in the race, pledged to judge his leadership by metrics that would show Nigerians “eating better, living better, and escaping poverty.”
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The sharp rise in energy costs that followed Tinubu’s subsidy removal led several businesses to shutter or reconsider operations in Nigeria. But while many questioned the absence of safety net measures to cushion the impact of Tinubu’s so-called shock therapy, the International Monetary Fund praised the subsidy removal, as did several economists. An IMF official last week cautioned Nigeria to avoid the temptation of reinstating a subsidy for political reasons.
The Dangote refinery in Lagos, which started supplying fuel in Nigeria two years ago, provides about 70% of Nigeria’s domestic fuel needs. But the country still imports refined fuels. Both Dangote — which buys more than a third of its crude from international suppliers — and fuel importers are vulnerable to global oil price shocks.
The potential for further escalation in the Iran war, underscored by recent Iran-backed Houthi attacks on Saudi Arabia, raises the question of how long Nigeria is prepared to extend the price cap that is initially planned to be in place for 30-days. “I think it’s highly likely that this gets extended, at least through the elections into Q1,” said Ikemesit Effiong, a partner at SBM.
BMI, a subsidiary of Fitch Group, expects the price cap to amount to up to 0.4% of Nigeria’s gross domestic product by the second quarter of next year.
Alexander’s view
Nigeria’s subsidy debates are divisive because the program — once seen by many Nigerians as the only benefit they got from the state — has swallowed historically mammoth sums and is inextricably associated with corruption and state capture by a cabal of favored oil traders.
Many analysts say Nigeria’s fuel subsidy burdened public finances and encouraged adverse behaviors like fuel smuggling. Together with changes that allowed the naira currency to float freely by market forces, Tinubu’s subsidy removal helped to improve Nigeria’s fiscal stability and strengthen reserves.
But trialling a short-term fuel price cap points to a government reckoning with the pain it has inflicted. “The removal of the fuel subsidy has been economically necessary, but socially painful,” Jervin Nadioo, an analyst at Oxford Economics Africa, told me. He believes Tinubu is “well positioned to secure re-election” but growing public frustration over living costs suggests that an improved economic picture has not translated into sufficient relief for households.
Stop-gaps and sweeteners may sway some voters towards Tinubu in January. But it is more likely that the difficulties of the last three years have already hardened views about the candidates.
Room for Disagreement
The battle for political advantage ahead of elections should not obscure a reasonable expectation that governments can intervene to soften the pain of citizens, said Vahyala Kwaga, country head for Nigeria at policy research group BudgIT.
“Anything that can alleviate the hardship that the masses suffered from the day it was announced that the subsidy is gone is certainly welcome,” Kwaga said. Ultimately, though, his concern is with transparency and accountability: “Who is going to be held responsible if the subsidy doesn’t work?”
Notable
- Nigeria’s savings from the fuel subsidy removal have largely been absorbed by higher debt-servicing costs and increased government spending, finance minister Taiwo Oyedele said in July.