Has Its Removal Made Nigeria Better?

Nigeria's fuel subsidy story is one of the most complicated chapters in the country's economic history. What began as a policy intended to protect Nigerians from the shock of high petroleum prices gradually became a huge fiscal burden, a source of controversy, an incentive for smuggling and arbitrage, and—according to numerous audits and investigations—a system vulnerable to abuse.

Yet the removal of subsidy under President Bola Ahmed Tinubu in May 2023 created another painful reality: petrol prices rose sharply, transportation became expensive, food prices followed, businesses faced higher operating costs, and millions of Nigerians found their purchasing power severely weakened.

The central question, therefore, is not simply "Was subsidy good or bad?"

The more important question is:

What did Nigeria do with the enormous resources committed to subsidy, and what has the country done with the savings since subsidy was removed?

WHEN DID NIGERIA START PAYING FUEL SUBSIDY?

There is sometimes confusion about the exact beginning of Nigeria's petrol subsidy regime.

According to the International Monetary Fund, Nigeria's modern fuel subsidy was introduced in 1977 as a temporary fiscal response to an oil-price spike. Instead of disappearing after the immediate crisis, however, the policy was retained by successive governments.

The logic was understandable.

Nigeria was an oil-producing country. Government believed that Nigerians should enjoy petroleum products at prices below international market prices. Cheap petrol was expected to reduce transportation costs, support agriculture and manufacturing, protect household incomes and prevent the international price of crude oil from immediately translating into unbearable domestic fuel prices.

The problem was that a policy designed as temporary gradually became permanent.

And when a temporary intervention becomes permanent, it eventually becomes an entitlement that governments find politically difficult to remove.

By the 2000s, the subsidy had become deeply embedded in Nigeria's political economy.

For example, IMF data estimated that Nigeria's implicit domestic petroleum subsidy was about ₦209 billion in 2001, equivalent to about 3.9 percent of GDP at the time.

The subsidy became particularly expensive whenever international crude prices rose or the naira weakened.

WHY DID GOVERNMENTS CONTINUE PAYING THE SUBSIDY?

There were several reasons.

1. To protect Nigerians from high fuel prices

Petrol is not an ordinary commodity in Nigeria.

It affects almost everything.

A rise in petrol prices affects:

Transportation
Food distribution
Farming
Electricity generation by businesses and households
Manufacturing
Construction
Logistics
Public transportation
School fees and household expenses
Prices of virtually every commodity

Therefore, keeping petrol cheap appeared politically attractive.

2. To maintain political stability

Successive governments discovered that Nigerians strongly resisted fuel-price increases.

In July 2000, a fuel-price increase was reversed after nationwide protests and a successful general strike.

The same pattern appeared repeatedly.

In January 2012, President Goodluck Jonathan's administration attempted a major subsidy removal, raising petrol from about ₦65 to ₦145 per litre. The resulting nationwide protests and strike forced the government to partially reverse the decision, eventually reducing the price to ₦97.

This demonstrated something important:

Fuel subsidy was not merely an economic policy. It had become a political institution.

WAS CONTINUOUS SUBSIDY GOOD FOR NIGERIA?

In the beginning, there was a reasonable social argument for it.

But over time, the disadvantages became enormous.

The World Bank estimated that between 2019 and 2022, Nigeria's petrol subsidy cost the country more than ₦8.6 trillion. It also concluded that the subsidy did not primarily benefit the poor and created incentives for large-scale black-market activity and fuel smuggling.

In 2022 alone, the subsidy cost approximately 2.2 percent of GDP and represented 32.4 percent of total government revenues, according to the World Bank. The amount was greater than Nigeria's combined budgetary allocations to health, education and social protection.

That should make every Nigerian ask:

If trillions of naira were spent subsidising petrol, what could that money have done if invested productively?

Imagine ₦8.6 trillion being invested substantially in:

Hospitals
Primary healthcare centres
Schools
Universities
Roads
Railways
Electricity
Water supply
Security
Agriculture
Industrial development
Youth employment
Public transportation

The opportunity cost was enormous.

DID SUBSIDY BECOME A CONDUIT FOR CORRUPTION?

This is one of the most controversial questions.

It would be wrong to say that every naira spent on subsidy was stolen. Subsidy genuinely reduced the amount Nigerians paid at the pump.

However, the system created enormous opportunities for corruption, manipulation, fraud, smuggling and opaque financial arrangements.

The World Bank described the subsidy as opaque, fiscally unsustainable and socially unfair. It also noted that Nigeria's low petrol price created powerful incentives to smuggle subsidised fuel into neighbouring countries.

There was another structural problem.

Nigeria was paying to import refined petroleum while simultaneously exporting crude oil.

In other words:

Crude oil went out. Refined petrol came back.

That is a painful contradiction for an oil-producing country.

The IMF explained that Nigeria's regulated petroleum system created distortions in which domestic crude allocations, imports and regulated prices produced incentives for trading rather than efficient domestic refining.

The subsidy system therefore became a complicated chain involving:

Crude allocation → NNPC → importation → marketers → subsidy claims → government deductions → Federation revenue.

The more complicated a system becomes, the more difficult it becomes for ordinary citizens to know exactly what they are paying for.

That is why transparency is so important.

WHAT HAPPENED TO NIGERIA'S REFINERIES?

Perhaps the greatest irony of the Nigerian petroleum story is this:

Nigeria produces crude oil but spent decades importing refined petrol.

Nigeria's major state-owned refineries include:

Port Harcourt Refinery
Warri Refinery
Kaduna Refinery

At various points, these refineries operated below capacity or stopped production entirely.

NEITI found that between January 2015 and September 2016, the average utilisation of Nigeria's refineries was only 8.55 percent. In seven of those 22 months, the refineries recorded zero crude processing.

The reasons included prolonged turnaround maintenance problems and pipeline vandalism.

But this raises a bigger question:

How can a country spend billions maintaining refineries that continue to fail?

NEITI's 2021 report is particularly disturbing. It found that none of the refineries was operational in 2021 despite approximately ₦200 billion spent on refinery rehabilitation during 2020 and 2021. NEITI recommended a special investigation and value-for-money assessment.

This is where Nigerians are justified in asking difficult questions.

Was the problem merely technical?

Was it poor management?

Was it political interference?

Was there procurement abuse?

Was there institutional incompetence?

Or was the system deliberately allowed to remain inefficient because too many powerful interests benefited from the importation and distribution of petroleum products?

These questions deserve answers based on evidence, audits and investigations—not political speculation.

HOW DID THE REFINERIES BECOME A "CASH COW"?

A refinery that does not refine crude cannot generate its intended economic value.

Yet the system around it can still generate contracts.

There can be:

Maintenance contracts
Consultancy contracts
Equipment procurement
Turnaround maintenance contracts
Pipeline contracts
Security contracts
Import contracts
Storage contracts
Transportation contracts

If oversight is weak, a failing public asset can paradoxically become more financially attractive to contractors and intermediaries than a functioning one.

That is the danger of institutional failure.

A refinery that works efficiently may require fewer emergency contracts.

A refinery that repeatedly breaks down can continuously generate expenditure.

This does not mean that every refinery rehabilitation contract was fraudulent. It means that repeated expenditure without corresponding productive results demands extraordinary scrutiny.

PRESIDENT TINUBU AND THE END OF THE SUBSIDY ERA

On May 29, 2023, President Bola Ahmed Tinubu announced that the fuel subsidy regime had effectively come to an end.

The decision was economically significant.

The government argued that Nigeria could no longer afford to spend enormous amounts of public resources subsidising petrol while facing severe fiscal pressures.

The World Bank supported the fundamental direction of the reform, describing subsidy removal as a critical step toward restoring fiscal space and macroeconomic stability. It projected fiscal savings of approximately ₦2 trillion in 2023 and more than ₦11 trillion by the end of 2025.

But there was an enormous problem:

The government removed the subsidy faster than many Nigerians could adjust to the consequences.

Petrol prices rose dramatically.

The World Bank estimated that retail gasoline prices increased by an average of 163 percent following the reforms.

And because petrol is embedded in almost every part of Nigeria's economy, the consequences travelled rapidly.

THE DISADVANTAGES OF SUBSIDY REMOVAL

Subsidy removal has economic advantages, but the short-term social consequences have been severe.

1. Transportation became extremely expensive

A commercial driver pays more for petrol.

The driver therefore increases fares.

The worker pays more to get to work.

The student pays more to get to school.

The trader pays more to transport goods.

The farmer pays more to move agricultural produce.

The entire economy feels the increase.

2. Food prices increased

Food does not move by itself.

Tomatoes, onions, rice, maize, beans, vegetables, livestock and other commodities have to be transported.

When transportation costs rise, the cost of moving food from farms to markets rises.

Therefore:

Fuel price increase → transport increase → distribution cost increase → food price increase.

This is one reason why ordinary Nigerians experienced subsidy removal not as an abstract fiscal reform but as something they could physically feel in the market.

3. Small businesses suffered

Many Nigerian businesses depend on petrol-powered generators.

When petrol becomes significantly more expensive, their cost of production rises.

A barbing salon.

A tailoring shop.

A restaurant.

A welding workshop.

A water business.

A small factory.

A telecommunications mast.

A cold-room business.

All can experience higher operating costs.

The business owner eventually has two choices:

Increase prices or close down.

4. Purchasing power collapsed

Suppose a worker earns ₦150,000 per month.

If transport, food, electricity, rent and other basic expenses rise dramatically while the salary remains almost unchanged, the worker is effectively poorer—even though nominal income has not fallen.

That is the tragedy of inflation.

Your salary may remain ₦150,000, but your ₦150,000 no longer buys what it used to buy.

The World Bank reported inflation rising to 33.7 percent by April 2024, highlighting the severe pressure on household purchasing power.

WAS TINUBU WRONG TO REMOVE THE SUBSIDY?

The answer is more complicated than yes or no.

From a fiscal perspective, maintaining the old subsidy indefinitely was extremely difficult to justify.

The World Bank found that subsidy expenditure had become enormous relative to government revenue and had not primarily benefited poor Nigerians.

So the argument for reform was strong.

But a correct economic diagnosis does not automatically guarantee a correct implementation.

This is where the Tinubu administration deserves serious scrutiny.

Removing subsidy should have been accompanied by stronger measures to protect vulnerable Nigerians.

For example:

Mass public transportation
CNG conversion at scale
Targeted cash transfers
Food security programmes
Wage adjustments
Stronger minimum-wage implementation
Affordable electricity
Support for small businesses
Agricultural production incentives
Affordable healthcare
Better public schools
Serious reduction in government waste

The World Bank itself stressed the importance of compensatory measures to prevent poor households from being pushed into poverty.

HAS NIGERIA BECOME BETTER AFTER SUBSIDY REMOVAL?

The honest answer is:

At the macroeconomic level, there are signs of improvement. At the household level, many Nigerians have not yet felt a corresponding improvement in their standard of living.

That distinction is extremely important.

The World Bank reported that the reforms contributed to improved fiscal health, modest growth and rising foreign-exchange reserves.

But these improvements do not automatically mean that the average Nigerian is living better.

A government can improve:

Foreign reserves
Fiscal balance
Debt management
Government revenue
Investor confidence

while ordinary citizens continue to struggle with:

Food prices
Rent
Transportation
Electricity
Healthcare
School fees
Unemployment
Business costs

This is the difference between macroeconomic stability and household welfare.

THE BIGGER QUESTION: WHERE ARE THE SAVINGS?

This may ultimately be the most important question of the entire subsidy debate.

If subsidy previously consumed trillions of naira and that burden has been removed, Nigerians have every right to ask:

Where is the money going?

If the savings are real, Nigerians should see them in:

Better roads

A farmer should be able to transport produce cheaply.

Better railways

People should have affordable alternatives to road transportation.

Better public transportation

The poor should not be forced to depend entirely on petrol-powered vehicles.

Better electricity

Businesses should not have to spend enormous amounts on generators.

Better healthcare

People should not have to sell property to treat basic illnesses.

Better education

Children should receive quality education regardless of their parents' income.

Better security

Economic development cannot happen where insecurity destroys businesses and agricultural production.

Better social protection

The poorest citizens need targeted assistance during difficult transitions.

THE DANGER OF REPLACING ONE PROBLEM WITH ANOTHER

There is a legitimate concern that Nigeria could remove fuel subsidy but fail to reform government expenditure.

That would create a dangerous situation.

Previously:

Government spent enormous sums subsidising petrol.

After removal:

Government saves subsidy money but spends the savings elsewhere without producing equivalent public benefits.

If that happens, ordinary Nigerians suffer twice.

They lose the benefit of cheap petrol and fail to receive the development benefits that were supposed to come from subsidy savings.

This concern has become particularly relevant because Nigeria's Finance Minister said in July 2026 that savings from subsidy removal and foreign-exchange reforms had largely been absorbed by higher debt-servicing obligations and increased government spending.

That statement deserves serious public debate.

WHAT SHOULD NIGERIA DO NOW?

The debate should move beyond:

"Subsidy good."

"Subsidy bad."

The real debate should be:

What replaces the subsidy?

If government will no longer subsidise petrol, it must subsidise productive capacity, not consumption.

Instead of spending trillions keeping petrol artificially cheap, Nigeria should invest in:

Public transportation.

Railway infrastructure.

CNG and other cheaper energy alternatives.

Domestic refining.

Electricity generation and distribution.

Agriculture.

Manufacturing.

Mass employment.

Healthcare.

Education.

Social protection.

DANGOTE REFINERY: A POSSIBLE TURNING POINT

Nigeria's private refining capacity offers an important opportunity.

The Dangote refinery has a stated capacity of 650,000 barrels per day and began production in 2024. Its development offers Nigeria the possibility of reducing dependence on imported refined petroleum products.

But the refinery alone cannot solve Nigeria's economic problems.

Nigeria still needs:

Reliable crude supply
Competitive pricing
Efficient pipelines
Transparent regulation
Multiple refinery operators
Competition
Reliable electricity
Efficient transportation
Stable exchange-rate policies

The objective should not merely be to replace one monopoly with another.

The objective should be a competitive and efficient petroleum market that ultimately benefits Nigerian consumers.

SO, HAS THE COMMON MAN BENEFITED?

For many ordinary Nigerians, the answer today is difficult to hear:

Not sufficiently.

A policy can be economically necessary and still be socially painful.

The average Nigerian does not measure economic reform by looking at government fiscal tables.

He measures it by asking:

"Can I feed my family?"

"Can I afford transport to work?"

"Can I pay my children's school fees?"

"Can I pay my rent?"

"Can I run my business?"

"Can I afford electricity?"

"Can my salary survive the month?"

These are the real indicators of economic success for ordinary citizens.

CONCLUSION: SUBSIDY WAS NOT THE CURE, BUT REMOVING IT IS NOT THE CURE EITHER

Nigeria's fuel subsidy system was unsustainable.

It consumed enormous public resources, encouraged smuggling and arbitrage, distorted the petroleum market and diverted money that could have been used for development.

But removing subsidy does not automatically make Nigeria prosperous.

Subsidy removal is a reform—not an economic destination.

The real test of President Tinubu's reform is not simply whether subsidy has disappeared.

The real test is what Nigeria does with the resources that subsidy consumed.

If the money is converted into roads, railways, electricity, healthcare, education, agriculture, security, jobs and productive infrastructure, Nigerians may eventually conclude that the sacrifice was necessary.

But if subsidy disappears while waste, corruption, extravagant government expenditure and poor public services remain, Nigerians will understandably ask:

"What exactly did we sacrifice for?"

Nigeria therefore needs to move from an economy where government spends heavily to make consumption artificially cheap to an economy where government invests heavily to make production, transportation, energy and living affordable.

The ultimate objective should not be:

CHEAP PETROL.

It should be:

A CHEAP AND PRODUCTIVE NIGERIAN ECONOMY.

Because the true measure of economic reform is not how much money government saves.

It is whether the Nigerian people eventually live better.

Ahmad M. Salihu

ahmad.msalihu22@gmail.com

FUEL SUBSIDY IN NIGERIA: FROM TEMPORARY RELIEF TO A NATIONAL BURDEN