Nigeria to scrap fuel subsidies

By Simon Allison 6 October 2011

We knew that President Goodluck Jonathan’s first budget proposal was going to be different. After all, his crack economic team is headed up by former World Bank managing director Ngozi Okonjo-Iweala, and is advised by Africa’s richest man, Aliko Dangote – neither of whom are known for taking any nonsense. But scrapping fuel subsidies? That’s not different, just crazy; unless they’ve got something else up their sleeves. By SIMON ALLISON.

It makes sound economic sense to scrap Nigeria’s fuel subsidies, as proposed in the three year budget plan submitted to Nigeria’s parliament on Tuesday (which needs to be approved). Subsidies are highly flawed economic instruments at the best of times, and this one was costing Nigeria’s government 1.2 trillion (R62 billion) naira per year, accounting for more than a quarter of its total budget. That’s a lot of budget, and there’s plenty of things the government could and should be doing with that money: infrastructure, health, education, etc.

But politically, it’s a charged issue. Nigeria’s an oil-producing nation, and should by most logic be rich. It’s not, but at least its citizens can see a link between the oil the country produces and the prices at the petrol pumps. Now that link will be removed, and Nigerians will understandably start to wonder exactly where all that oil money is going. And many simply won’t be able to afford the higher prices. Even an increase in the minimum wage to 18,000 naira (R938) per month – which is one of Jonathan’s flagship policies – won’t be enough to make petrol affordable at full price.

It’s a bold, controversial move from Okonjo-Iweala and the economic team. They must have something up their sleeves to show Nigerians that they’re using the saved fuel subsidy money appropriately, otherwise this is an extremely dangerous move that could threaten the popularity of Jonathan’s government and the stability of the country as a whole. DM

Read more:

  • Nigeria to end fuel subsidies on Nigeria’s Business Day.



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