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November 14, 2011

Nigerian President Defends Cutting $7.5 Billion Fuel Subsidy

Nigeria says it is ending a $7.5 billion consumer fuel subsidy because it can better spend that money on infrastructure and social programs. 

Nigerian President Goodluck Jonathan is moving to end a long-standing subsidy that keeps petroleum prices here an artificially low 40 cents per liter.

Raising consumer prices is never popular, but the president enjoys the support of foreign donors, many bankers and Nigeria's powerful state governors.  He says the action is vital to the country's economic future because continuing the subsidy means that Africa's largest oil producer will find itself importing fuel from Cameroon, Ghana, Chad and Niger.

“In the quest for a better society, we may have to take decisions which would, at inception, be unpleasant in some cases. But we must face the reality, be honest with ourselves and ensure that we do our best for our country at all times,” said Jonathan.

Representative Dakuku Peterside chairs the House Committee on Petroleum Resources.  He says the money saved from the subsidy will benefit Nigerians by increasing spending on roads, health care and power generation.

“It makes business sense to me that the subsidies are removed. It might not look popular today, but over time our people will appreciate that it makes a lot of economic sense. If you look at the statistics, ultimately it will benefit the common man," noted Peterside.

Proponents of dropping the subsidy say it mostly benefits the small group of fuel traders to whom it is paid. Because Nigeria refines less than one-third of the petroleum it consumes, those dealers control the importation of fuel to keep prices at the pump at 65 Naira per liter.

Borno State Senator Mohammed Ali Ndume says profiteering by fuel traders must be stopped, but not at the expense of Nigerian consumers.

“I agree with the government that right now it is a window of corruption that benefits the cabal, as they call it.  But we are saying government should be responsible.  Get those people and deal with them.  You can't just transfer responsibility of corruption and mismanagement by a few individuals to Nigerians," said Ndume. "That is wrong."

Economist Prince Ohini says removing the fuel subsidy is right in theory, but here is wrong in practice because of Nigeria's long history of corruption and mismanagement.

“The long-term effect of it is going to be beneficial for me and you as citizens of this country. But using Nigeria as a case study I will not support it because our government is not sincere.  When you remove this money, who will use it?  Removing it is enriching the bank accounts of those at the top," Ohini said. "And leaving the ordinary ones to suffer.”

At a time when trade unions have just won a hard-fought increase in the minimum wage, businessman Andrew Adebisi says ending the fuel subsidy will push up consumer prices across the board, erasing the gains of higher wages.

“If the fuel subsidy is removed, it is going to be of great effect to my business and every other business person around the nation," Adebisi said. "Definitely the fuel of transportation will increase.  And, if the fuel of moving goods from one point to another is increased, you will definitely have an increase in every other commodity around the country.  And, as a result, business will become very expensive.”

Teacher Nelson Aguda says Nigerians would be more willing to live without subsidized fuel if they felt their government was doing more to help them.

“Since I was born in this country, I have never seen any price that has gone up coming down.  It can never be maintained in this country because our leaders are very, very greedy.  I use fuel to generate my generator, my lights.  And, when such thing is removed it means that the liter of fuel might go to 150 [Naira].  How then do I get light with my family?” he asked.

Senator Ndume says the fuel subsidy is one of the few things that benefit all Nigerians, especially in places where the federal government has little impact on people's lives.

“There are some villages where there are no hospitals, there are no roads, there is no police, no government presence.  The only government presence is that in such small villages you have small grinding machines that grind their corn, which uses the petroleum.  They have motorcycles that transport them to the urban areas.  There are pick-up vehicles that take their farm products from the villages," Ndume explained. "It is the only thing that the masses are benefiting.”

President Jonathan says he will not back down from ending the fuel subsidy.  He is moving to improve the public perception of the decision by shifting responsibility for the communication strategy from the finance ministry to the petroleum resources ministry.