On September 14, 2024, I had the privilege of chairing a crucial Policy and Governance Forum Roundtable on the theme: “Nigeria and the Fuel Price Conundrum: Mitigating the Risks to Macroeconomic Stability.”
This conversation comes when our economy faces profound challenges related to fuel pricing and its widespread implications. Nigeria’s economy heavily relies on oil and, to a lesser extent, gas for energy. However, the country has failed to maximise the benefits of oil wealth due to corruption, mismanagement, and overdependence on oil at the expense of other potential avenues for development.
The fuel price crisis, especially after the “Subsidy is Gone” declaration by President Bola Ahmed Tinubu (PBAT), affects all aspects of our socio-economic fabric – from inflation and cost of living to government revenue, foreign exchange rate/reserves and fiscal policy. At the core of these challenges lies the question: How does Nigeria manage the volatility of global oil prices, considering they are dollar-based while mitigating the adverse impacts on the domestic economy?
The Roundtable aimed to (i) provide historical perspectives on fuel subsidy removal in Nigeria, (ii) address salient questions about subsidy removal, (iii) provide expert analysis on fuel pricing, (iv) establish the nexus between fuel price and market prices (inflation, exchange rates, interest rates); (v) discuss the implications of Dangote Refinery on fuel price, (vi) provide insights into peer countries and (vii) recommend guardrails for mitigating the risks of fuel price hikes to macroeconomic stability.
As a political economist, I felt these objectives were incomplete without addressing Nigeria’s leadership deficit and the corruption pandemic, especially the mismanagement within the oil sector. As such, I noted these crucial points at the onset of the meeting.
Subsidies
I started by noting that leaders – whether politicians, academicians, or journalists – have often misused the term “subsidy” to serve their interests. Globally, subsidies have been used as a policy tool in agriculture, energy, and other sectors to cushion the price volatilities citizens face. The decision to subsidise depends on society’s varying interests and power dynamics.
In 2022, global fuel subsidies amounted to about $7 trillion, or 7.1 percent of global gross domestic product (GDP), and up by about 18.3 percent from the previous year, according to an International Monetary Fund (IMF) working paper published in August 2024. China contributed the most ($2.2 trillion), followed by the United States ($757 billion), Russia ($421 billion), India ($346 billion) and Japan ($310 billion).
In Nigeria, Femi Falana (SAN) argued that “THE REAL SUBSIDIES ARE NOT FOR THE POOR BUT FOR THE RICH” and listed 22 examples where government actions and inactions amounted to subsidies benefitting the wealthy while inflicting avoidable hardship on the poor.
According to Falana, “Globally, subsidies, whether for food, transportation, energy or housing, are part of good governance. So, the issue is not subsidies but who benefits from them. In Nigeria, subsidies are primarily of the rich, by the rich and for the rich.”
Incumbent President Bola Ahmed Tinubu, who harshly criticised former President Goodluck Jonathan’s 2012 plan to gradually remove fuel subsidies, ironically, did the same in 2023, despite failing to implement the reforms he previously advocated including the need to address corruption and improve infrastructure to avoid unnecessary suffering of the people.
Fuel Prices and Exchange Rates
Nigeria imports most of its refined petroleum products, making it highly sensitive to changes in global crude oil prices. The weakening of the naira against foreign currencies, particularly the United States dollar, has increased import costs and fuelled inflation.
Corruption has exacerbated fuel price inflation. For instance, on Turnaround Maintenance (TAM) of Nigeria’s four moribund refineries, billions of dollars have been spent without significant production increases. A 2023 report by Reuters shows that Nigeria spent more than N11.35 trillion ($25 billion) on fixing three moribund refineries in the past 10 years. Corruption in fuel distribution, including over-invoicing and cross-border diversion, worsens the situation.
The interplay between Dangote Refinery, Nigerian National Petroleum Company Limited (NNPCL), and the government reflects broader tensions. While Dangote’s Refinery could reduce refined fuel importation, its impact on pricing and the government’s subsidy stance remains a critical and unresolved issue. The outcome may likely play a key role in shaping the dynamics in Nigeria’s oil sector and by extension, the standard of living of Nigerians.
The Panelists
The lead speaker at the Roundtable, professor of economics, Muhammad Sagagi, an expert in trade and industrialisation policy, was joined by Dr. Ifueko Omoigui Okauru, a former leader at Federal Inland Revenue Service (FIRS), Mr. Kelvin Ayebaefie Emmanuel, an energy expert, and Dr. Tope Fasua, an economist, former presidential aspirant, and currently, a special adviser to the Nigerian president on economic affairs, in the Office of the Vice President.
–Dr Badejo, author of a best-seller on politics in Kenya, was a former deputy special representative of the UN Secretary-General for Somalia and currently a legal practitioner and Professor of Political Science and International Relations at Chrisland University, Abeokuta. Nigeria.
Together, they explored how Nigeria can learn from other countries while adapting global strategies to local realities.
The quality and expertise of the panelists and the general Nigerian participating audience, leaves one confused as to why it continues to appear as if there is a lack or limitation in terms of expertise and human resources in the management of Nigeria’s critical resources under this and some of the immediate past administrations. This is further dumb-founding when placed against the background of a president who had considered the Presidency an age-long ambition with sufficient experiences under his belt and more than enough time to prepare for the challenge. More so after the claims of super gurus from Lagos and the extra time it took to assemble a cabinet whose reforms and policies informed our current unlivable realities.
Reflections on the Road Ahead: Policy, Governance, and Economic Stability
The Roundtable concluded with a commitment to finding sustainable solutions for fuel pricing, exchange rate floatation, and macroeconomic stability. It was clarified that subsidies are universal tools integrated into social protection plans, but in Nigeria, corruption has turned them into tools that benefit the wealthy at the expense of the majority of Nigerians who live in abject poverty. Removal of fuel subsidies that touch the lives of every Nigerian directly should not have been the priority of the government before the cushioning reforms and infrastructure developments that Tinubu argued for in 2012 had been put in place.
The ease with which the Presidency changed the national anthem (a goal the president had been articulating well before he came into office) and procured a jumbo presidential plane as well as other profligate expenditures in a supplementary budgetary intervention, and the 2024 padded budgets clearly suggest there would have been a way to curb associated corruption and maintain the fuel subsidy regime well beyond May 29, 2023, if there was the political will. Furthermore, the president can independently issue Executive Orders to, if he has the will, reorder the subsidies enjoyed by the rich, including the over-pampered banking sector, to provide alternative in-flows on government finances.
Prof. Sagagi highlighted the deepening economic crisis and the disproportionate impact of subsidy removal on low-income people and micro/small businesses. Emmanuel and Ifueko echoed these concerns, calling for significant impact-driven reform at the highest levels of government, particularly within NNPCL. Fasua took a more optimistic view, arguing that Nigeria’s 64 years of independence are too short to conclude that the situation is irreparable.
Sagagi noted very clearly that the issue with the subsidy regime in Nigeria is not a technical problem, as it is made to appear, but it is a political one. The lead speaker, with many participants’ concurrence, unequivocally called on PBAT to review the fuel subsidy policy. He called for reforms to protect the most vulnerable while balancing economic growth.
Conclusion
The discussion emphasised the need for comprehensive reforms across multiple sectors in Nigeria, underpinned by strong political commitment. These reforms must prioritise addressing Nigeria’s leadership deficit, corruption pandemic, unfavourable external dynamics, and failure to build institutions. To address these is to give Nigeria the necessary chance to move towards development. Corruption has become pervasive, infecting all arms of government – the executive, legislative, and judicial branches, including the civil service and educational institutions; levels of governance – Federal, state, and local; as well as the three sectors (public, private, and social) of society. For emphasis, it is critical to focus on state and local government levels on the corruption pandemic. It is even more so necessary with direct federal allocations for local governance.
Studies have shown that governors, for instance, have been converting federal allocations into foreign currency, exacerbating Nigeria’s foreign exchange issues. Corruption also permeates the private sector, particularly the banking industry, as well as civil society and religious organisations. A widespread mobilisation, akin to the fight against COVID-19, is required to tackle this issue. Unfortunately, the current government has shown little interest in combating corruption, as evidenced by its inaction on repossessing past thefts, such as those in the Jim Obazee report on the Central Bank of Nigeria. Investigations into corrupt practices at the Ministry of Humanitarian Affairs and Poverty Alleviation and other areas remain stagnant.
Public pressure must be applied to force national and subnational governments to act. A critical area of focus should be revitalising public refineries to compete with the highly welcomed Dangote Refinery. The NNPCL leadership has failed to meet expectations, and the NNPCL Board should be held accountable. To recover from Nigeria’s economic collapse, the country must ramp up production in its refineries and expand industrial ventures, particularly agribusiness.
Finally, transparency in the pricing of petroleum products is highly desirable in the interactions between the NNPCL and the Dangote Refinery. The price at which the Dangote Refinery is selling to NNPCL should be openly disclosed by the Dangote Refinery even if the NNPCL were to want to continue in its opaque ways. If Dangote Refinery has the will to be transparent, the NNPCL is too small to intimidate it. The Dangote Refinery is too big to fail and must not be allowed to fail Nigerians.
Dr Badejo, author of a best-seller on politics in Kenya, was a former deputy special representative of the UN Secretary-General for Somalia and currently a legal practitioner and Professor of Political Science and International Relations at Chrisland University, Abeokuta.
