CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The 2023 removal of the fuel subsidy in Nigeria marks a pivotal moment in the nation’s

economic, social, and environmental trajectory. This decisive policy shift carries with it a

multitude of implications that warrant rigorous investigation to comprehend its far-reaching

consequences. The core problem at the heart of this study lies in uncovering the intricate web of

impacts – positive, negative, direct, and indirect – that arise from the subsidy removal and

examining their ramifications for both the Nigerian economy and society. The subsidy removal,

while driven by the intent to align with global trends of fossil fuel subsidy reduction and enhance

fiscal sustainability (Al Jazeera, 2023), presents a host of challenges. Foremost among these

challenges is the potential exacerbation of socio-economic inequality, given that subsidy removal

can lead to increased fuel prices and a subsequent rise in the cost of living. This predicament

echoes the concern raised by Ude (2023), emphasizing that while subsidy elimination might hold

long-term benefits, it can strain the financial resources of households, particularly those already

marginalized. The structural underpinnings of Nigeria’s economy introduce additional layers of

complexity. The existing state of the country’s refineries, coupled with a dependency on

imported oil, elevates the risk of escalated fuel prices. The delicate balance between encouraging

domestic refining capacities and managing consumer costs warrants a detailed examination,

considering that the subsidy removal could amplify the challenges posed by an underperforming

domestic refining sector. Moreover, the subsidy removal’s impact on public services and

infrastructure requires thorough investigation. The anticipated redirection of funds from

subsidies to public goods such as healthcare, education, and infrastructure holds the potential for
positive transformation. However, the effective utilization of these funds and their equitable

distribution must be closely scrutinized. Ensuring that the removal leads to tangible

improvements in these areas without causing unintended negative consequences becomes a

central concern. The complexity of the problem is magnified by the dynamic interplay between

economic, political, environmental, and societal factors.

Okwanya et al. (2015) findings resonate with the recent data indicating a 0.19 percentage point

increase in the inflation rate following the subsidy removal (see NBS, 2023). The subsidy

removal increased the PMS price across the country from an average of ₦238.11 at the end of

May 2023 to ₦545.83 at the end of June 2023 (see Figure 1). This significant price rise came

with its associated influence on the total inflation and food inflation rate, as shown in Fig. 2. The

evidence indicates that the inflation rate before the subsidy removal was 22.41%. After the

removal, it rose slightly to 22.79% in June; in July, it rose by nearly 2% to 24.08%. On the other

hand, the food inflation rate of 24.82% in May rose to 25.25% and 26.98% at the end of June and

July, respectively. Since several small and medium enterprises (SMEs) rely on the PMS, local

input prices rise due. As such, final consumers are at the receiving end through higher food

prices leading to a surge in inflation. Also, since the PMS is a fundamental transportation

component, the overall transportation cost rises, raising the cost of delivering goods across the

supply chain.
 Figure 1. Inflation (May to July 2023)
PERCENTAGE (%)
Total Inflation Rate Food Inflation Rate
30 26.98
24.82 25.25 24.08
25 22.41 22.79
20
15
10
5
0
May June July Months

Data Source: Central Bank of Nigeria (2023).

Babalola and Salau (2020) also conducted a panel dynamic analysis focused on petroleum pump

prices and the consumer price index in Nigeria. Their study emphasized the complexity of the

relationship, revealing that while subsidy removal might contribute to inflation, other factors,

such as exchange rate fluctuations, economic structure, and government fiscal policies, can also

exert influence. Therefore, it is crucial to consider a holistic framework when evaluating the

consequences of subsidy removal.

Nigeria, as an oil-dependent economy has long relied on petroleum subsidy to ensure affordable

fuel prices for its citizens. The country provides subsidy on petroleum products to mitigate the

effects of rising fuel prices on the population (Ekeghe, 2020). However, in recent years, the

Nigerian economy has faced numerous challenges including the rising rate of inflation,

unemployment and increase in poverty rates.

But with the recently announced deregulation of the downstream sector in the country, it is

obvious that government has caved in to the proponents of subsidy removal. Information from

the Nigerian standard, (2021) shows that, “petroleum sub-sector is characterized by gross

corruption, abuse of office, inadequate record keeping, smuggling and inefficiency in addition to

the various regimes of fuel price increases, makes subsidy payments amorphous and their

effectiveness and otherwise in stimulating economic activities in Nigeria doubtful”.

However, for over a decade now, the controversy over fuel subsidy removal has been an

important subject of discussion in Nigeria, due to the economic burden placed by the fuel

subsidies on the country’s finances which with a high negative impact leading to an annual

budget deficit (Umar and Umar, 2013). Nigeria had $10.8 billion in total income in 2000,this

sum climbed to USD 67.9 billion by 2010 (Pwc Nigeria, 2023). Yet during the last 18 years, the

Nigerian government has spent more than USD 30 billion on gasoline subsidies (Pwc Nigeria,

2023). The Nigerian government is still having trouble striking a balance between the need to

address fiscal issues and the socioeconomic effects of the removal of fuel subsidy.

The Nigerian government implementation of fuel subsidies policy is a means to ensure

affordable and stable fuel prices for its citizens. Fuel subsidies is one of government

interventions to keep fuel prices artificially low by providing financial support to fuel importers

and distributors (National Bureau of Statistics, 2021). The primary objective was to mitigate the

effects of rising international oil prices on domestic consumers. Over time, however, the subsidy

program became increasingly burdensome for the government due to the high costs associated

with maintaining artificially low fuel prices (Iwayemi et al., 2019). This influenced the need for

fuel subsidy removal by the Federal government in Nigeria. The issue of fuel subsidy removal in
Nigeria has been a contentious and complex subject, deeply intertwined with the country's

economic, social, and political landscape.

1.2 Statement of the problem

Many debates have surrounded government retention to lapse fuel subsidy policy over the years.

Because of the anticipated social and economic ramifications, attempts by the previous regimes

to reverse retention of this policy have significantly sparked debate. Although the idea of

subsidies is a noble one, there have been serious allegations of corruption and poor management

regarding their implementation and management under the previous regimes (Ogwu, 2023).

As soon as Senator Ahmed Bola Tinubu, the newly elected president, announced the planned

subsidy withdrawal on May 29, 2023, prices for goods and the costs of services, including

transportation, rose sharply. Motorcyclists also changed their fare. Artisans including welders,

aluminium window filters and tailors, and market men and women who cannot afford power

generators raised their charges for services rendered to their customers. Nigerian youths engaged

in riding of commercial motorcycles and tricycles, and into street hustling just to keep body and

soul together are now finding it very difficult to cope following the recent development.

According to Adeyeye (2023), the new administration's intention to eliminate the current fuel

subsidy, which it views as a burden on governments, has a negative impact and, if not properly

managed, its economic benefit could be meaningless. The fact remains that the new

administration has to act in this way because a significant amount of money was spent on

subsidizing imported fuel into the nation. One of the major problems associated with government

withdrawal of its policy on fuel subsidy is mass poverty as prices of goods and services increased

while public workers incomes remained constant. In some occasions, it resulted to violent

demonstration that distorted peace and tranquillity. Umoru and Adeniy (2020) argued that it was
essential to reduce the government's fiscal vulnerability to oil price fluctuations. They also

stressed the importance of redirecting resources towards sectors that could drive sustainable

economic growth and reduce the country's dependence on oil revenue. Several Nigerian

governments attempted to address the issue of fuel subsidy removal, but each effort was met with

significant public backlash (Umoru & Adeniy, 2020). The subsidies have become deeply

ingrained in the daily lives of citizens, and any attempt to remove them have been met with

protests and opposition. This highlighted the challenge of balancing economic reforms with the

social implications of removing a subsidy that many Nigerians relied on (Umoru & Adeniy,

2020).

The paper therefore seeks to examine the politics of fuel subsidy removal in Nigeria, under the

Tinubu’s administration; to examine how the resources of the country can be used to the benefit

of all; to identify the challenges militating against the pursuit of this goal and the ways of

resolving them.

1.3 Research Questions

In respect to the above problem statement, the study tends to provide answers to the following

questions:

i. What is the effect of fuel subsidy removal on different sectors of society, including

middle class, low-income households, and small businesses?

ii. How does the removal of fuel subsidies impact the prices of other goods and services

in the economy?

iii. Does the removal of fuel subsidy influence affordability of transportation for

citizens?
1.4 Research Objectives

The broad objective of this study is to investigate the politics of fuel subsidy removal in Nigeria,

u;

i. Examine the effect of fuel subsidy removal on different sectors of society, including

middle class, low-income households, and small businesses;

ii. Assess the impact the removal of fuel subsidy on prices of other goods and services in the

economy;

iii. Determine the influence of fuel subsidy on affordability of transportation for citizens.

1.5 Research Hypotheses

The following null hypotheses will be tested in the study:

i. There is no significant effect of fuel subsidy removal on different sectors of society,

including middle class, low-income households, and small businesses.

ii. There is no significant impact of fuel subsidy on the prices of other goods and services in

the economy.

iii. There is no significant influence of the removal of fuel subsidy on affordability of

transportation for citizens?

1.6 Implication of the study

Petroleum subsidies intended to benefit the entire population, but often disproportionately benefit

higher-income groups due to their higher levels of fuel consumption. Therefore, removal of these

subsidies can exacerbate income inequality and further widening the gap between the rich and

the poor (Okwuanya, Ogbu, Pristine, 2015) In a country where a significant portion of the

population lives below the poverty line, access to basic services such as healthcare, education,
and clean water is crucial for improving living standards. The removal of petroleum subsidies

can strain government finances, limiting its ability to invest in these essential services. A study

by Agu et al. (Agu, Ekwutosi, Augustine, 2018) revealed that subsidy removals resulted in

reduced government spending on social programs, leading to a decline in access to basic

services, particularly among the most vulnerable population and deepens their level of poverty.

Given the rising poverty levels in Nigeria, it is imperative to consider the implications of subsidy

removal on poverty alleviation measures. The removal of petroleum subsidies can also

undermine existing poverty reduction initiatives and hinder efforts to lift people out of poverty.

To this end, this The paper therefore aim to examine the politics of fuel subsidy removal in

Nigeria, under the Tinubu’s administration

1.7 Significance of the Study

The significance of fuel subsidies lies in their impact on various aspects of the Nigerian

economy, including businesses, government finances, and social welfare programs. Fuel subsidy

has been a major source of government expenditure in Nigeria, with huge sums being spent

annually to keep petrol prices artificially low. Additionally, it will significantly aid government

to reduce its borrowing and the associated huge deficit, freeing up resources for other important

sectors. With the removal of fuel subsidy, the government can free up resources that would have

been spent on the subsidy to invest in other critical sectors such as education, healthcare, security

and infrastructure. This will not only improve the standard of living for citizens but also enhance

economic growth. By removing the subsidy, the incentive for smuggling will be reduced or

eliminated, which will lead to a reduction in security risks associated with fuel smuggling. The

massive importation of fuel increases the demand for foreign exchange. One of the medium to

long term contribution of the subsidy removal is the reduction of fuel purported consumed in
Nigeria as cheap, subsidised fuel will no longer be available for smuggling. This reduced volume

will translate to a reduction in demand for foreign exchange which will lead to a stronger Naira.

This will also reduce imported inflation and its pass through effect, as the cost of importing

petroleum products is a major contributor to inflation in Nigeria. Removal of subsidy will create

an enabling environment for private sector investment in the downstream sector, leading to the

development of local refineries and the creation of jobs. This will enhance the country’s energy

security and reduce dependence on imported petroleum products. More profitable downstream

players Along with the increase in investment flow to the downstream sector, deregulation of the

downstream sector will stimulate increased activities that will lead to more profitable

downstream companies. This will result in improved tax revenue both from the companies, their

employees, vendors and other players across the value chain.

1.8 Delimitation/Scope of the study

The study seek to examine The politics of fuel subsidy removal in Nigeria, under the Tinubu

administration. It also examine the effect of fuel subsidy removal on different sectors of society,

including middle class, low-income households, and small businesses, assess the impact of fuel

subsidy on prices of other goods and services in the economy and determine the influence of fuel

subsidy on affordability of transportation for citizens.

1.9 Operational Definition of Terms

Fuel subsidy: It involves the government offering financial assistance or discounts to fuel

producers or retailers, which in turn lowers the price of fuel at the pump.

Fuel subsidy removal: Fuel subsidy removal refers to the process of discontinuing or eliminating

government-allocated financial support or discounts for fuel prices.

Politics: Politics refers to the process of decision-making and governance within a group or

society to promote and achieve specific goals and objectives.

Middle class income earners: refers to a class of people generally characterized as having a

moderate level of income that allows for a comfortable standard of living.

Low-income households: A low-income household refers to a family or household that earns a

relatively low amount of income compared to the average or median income in a specific country

or region.

Affordability of transportation: Affordability of transportation refers to the ability of individuals

or households to access and utilize transportation services without experiencing undue financial

strain or burden.
 CHAPTER TWO

LITERATURE REVIEW

2. 1.1 The Conceptual Discourse on Fuel Subsidy Removal

Fuel subsidy can be properly defined as government effort in paying for the difference

between the pump price of fuel at the petrol station and the actual cost of importation of the

product. So by paying the difference, the government enables fuel to be sold a t a lower price

so as to help ease the burden of its people especially lower income group, Fuel subsidy is a

grant of financial aid from the government used to maintain the low price of petroleum

products (Civic Keypoint, 2023). Subsidy exists when government helps the consumers of a

particular product to pay a price lower than the prevailing market price of that commodity

(Kadiri & Lawal, 2016). Some authors like Agu et al., (2018) see it as a kind of market

manipulation whereby government fixes the price of the commodity below its actual market

price and pay the difference to the retailers. In this case, the government fixes the pump price

of fuel below the actual market price and the difference is paid to the importers and

marketers by the government.

2.1.2 History of Fuel Subsidy Removal in Nigeria

The Nigerian economy has been subsided in va rious ways for many years and this includes

fuel, education, electricity, forex etc. Fuel subsidies began in the 1970s and became

institutionalised in 1977, following the promulgation of the Price Control Act which made it

illegal for some products (includ ing petrol) to be sold above the regulated price. While the

concept of subsidy itself is noble, its administration in Nigeria has been plagued with serious

allegations of corruption and mismanagement. On another account, the history of the fuel

subsidy in Nigeria dates back to April 1992 when Ibrahim Babangida government raised the

price of a liter of fuel from 15.3 kobo to 20 kobo. He did it again on March 31 1986, from

20kobbo to 39.5kobbo, on April 10 1988, from 39.5kobbo to 42kobbo. On January 1, 1989,

he increased the price from 42kobbo to 60kobbo. Although, according to Mr. Oyegoke

Adeola of the Mace News, the regime said the increase in price was for private vehicles only,

but the price remained 42kobbo for commercial vehicles. On December 19, 1989, it moved

to a uniform price of 60kobbo. On March 6, 1991, the price of a liter of fuel was increased

from 60k to 70kobbo and that was the price when he stepped aside in August 1993. Chief

Ernest Shonekan increased the price of a liter of fuel from 70k to N 5 on November 8, 1993

but a hectic mass protest, saw Abacha take over power. The incoming Abacha regime

reduced the increment to N3.25 on November 22, 1993. On October 2nd 1994, the Abacha

junta increased the price of fuel to N15, from N3.25 but after mass ive street protests, the

regime reduced the increment to N11 on October 4, 1994. That was the price till Abacha

passed on and the Abdulsalami Abubakar caretaker regime raised the price from N11 to N25

on December 20 1998 and after days of sustained protest s, it was forced to reduce the

increment to N20 on January 6, 1999. The Obasanjo’s presidency adopted fuel subsidy as the
bedrock of its economic policy, for no sooner than it was sworn in than it effected an

increment to N30 on June 1, 2000 but protests a nd mass rejection forced it to reduce the

increment to N25 on June 8, 2000 and further down to N22 on June 13, 2000. The regime

was again to increase the price to N26 on January 1, 2002 and again to N40 on June 23,

2003. He was to raise it up to N70 by the time he left in May 2009 but the incoming

Yar’Adua regime reduced it to N65, after general protest against the new price regime. In

January 2012, President Goodluck Jonathan increased the pump price of petrol from N65 to

N141 but he was forced to reduce it to N97 per litre, due to Labour strike. In January 2015,

due to the fall in crude oil price in the international market, the federal government slashed

the pump price of Premium Motor Spirit (PMS), otherwise known as petrol, from N97 to

N87 per litre. F inally, on May 11, 2016, President Muhammadu Buhari announced that the

Federal Government would no longer be paying any subsidy on oil; the price was therefore

increased from N87 to N145. Thirteen years after diesel was deregulated, kerosene subsidy

was re moved in 2016. However, the subsidy on Petroleum Motor Spirit (PMS) has proven to

be the biggest challenge to the managers of the Nigerian economy. On an annual basis, a

substantial portion of the national inflow is committed to funding the subsidy scheme. Of

course there are good reasons for the astronomical growth in subsidy amount price of crude

oil in the international market, volume of PMS consumed albeit debatable, and Naira

devaluation are some of the drivers. In view of the significance of the amo unt committed to

funding the subsidy regime, there is a need to have a close look at this scheme. According to

Garba (2023), the historical antecedent of subsidy removal on petrol in Nigeria is marked by

a series of policy shifts, attempts, and controversies. This was in response to protests in the

year 1999, the then President Olusegun Obasanjo attempted to deregulate the downstream
sector of the oil industry, which included removing fuel subsidies. However, due to public

resistance and protests, the plan was abandoned. The story was not different as the President

Goodluck Jonathan administration in January 2012, announced a partial removal of fuel

subsidies, leading to a sharp increase in fuel price s. This move sparked widespread protests

across the country, known as the “Occupy Nigeria” protests. Eventually, the government

bowed to pressure and rescinded its decision. Likewise, in the month of May 2016, the

President Muhammadu Buhari led administrat ion announced the complete removal of fuel

subsidy. This led to a significant increase in fuel prices, which resulted in nationwide

protests. The government argued that removing the subsidy was necessary to address

corruption, inefficiency, and the drain o n public finances. However, due to the public

backlash, the decision was reversed, and subsidies were partially reinstated.

According to Garba (2023) further opines that the issue of subsidy removal has remained a

topical and recurrent issue of debate and discussion in Nigeria. While no full removal has

taken place since 2016, there have been discussions and considerations by successive

governments regarding subsidy reforms and finding alternatives to address the fiscal

challenges associated with the subsidy regime. Consequently, the newly sworn in

administration in Nigeria under the leadership of President Bola Ahmed Tinubu squarely and

openly addressed the issue as he announced at Eagle Square while delivering his inaugural

speech that said, “...Fuel subsidy is gone! Subsidy can no longer justify its ever increasing

cost in wake of dying resource...”. And within a couple of hours, Fuel pump price was set at

N540 per litre.

However, only history can juxtapose between the later and the former as Nigeria Labour

Congress and affiliated Unions had warmed up to begin industrial actions, but later shielded
their sword and after series of dialogue between government and the unions, averted the

intended strike action. It’s then important to note that the subsidy removal on petr ol in

Nigeria has been a highly controversial and politically sensitive topic. The debate

surrounding it is multifaceted, involving economic considerations, social implications, and

political factors. The decision to remove or retain subsidies on petrol in Nigeria has also

often been influenced by a range of factors, including public sentiment, international oil

prices, government finances, and the overall stability of the country.

2.1.3 The Political Economy of Fuel Subsidy

The issue of fuel crisis has become a common phenomenon in Nigeria that is richly endowed

with large crude oil deposit and a greater exporter of the God-given commodity. It is pathetic

to observe that no other OPEC member or even country that does not produce oil, share

similar ugly experience with Nigeria (Badmus, 2009). Subsidy in economic sense exists

when consumers of a given commodity are assisted by the government to pay less than the

pump price per litre of petroleum product. On the other hand, fuel subsidy could be described

as the difference between the actual market price of petroleum products per litre and what the

final consumers are paying for the same products. Today, the difference, which is borne by

the government, is caused by eight imports induced costs. These costs, according to Afonne

(2011) have been discovered to be responsible for the high prices of petroleum products in

present day Nigeria. Fuel subsidy was before the coming of the Jonathan administration, a

policy of federal government meant to assist the people of Nigeria to cushion the effects of

their economic hardship. Fuel subsidy seeks to enhance financial capacity but also to accept

the implied financial losses by it in the spirit of its national responsibility to ensure the well

being of the populace. In other words, if a product like fuel, is to be sold for N141 per litre,
but for some considerations, it cannot be sold at that rate but atN97 per litre and if

government then accepts to pay the difference between N141 and N191, that is N44, this

simply means that there is a subsidy to the tune of N85 for every litre purchased at the filling

stations (Onyishi, 2012). Nigerian oil and gas downstream sector is dominated by cartels who

manipulate prices, through artificial supply restriction. These cartels determine volume of

importation and the proportion that should be released to the market. At times, they only

allow a few products holders to supply the market, while others hoard. Peter Akpatasan

former president of NUPENG has stated thus: Deregulation cannot work in a market

dominated by cartels. This cartel is so strong that it can continue to manipulate prices out of

the reach of common man. You cannot deregulate when you have no refineries. There will be

serious economic crisis” (Democratic Socialist Movement, 2009). The Nigeria’s first

refineries have a maximum nominal or installed capacity to process 445,000 barrels of crude

oil per day. This is less than 40% of the daily national consumption requirement such

relatively low production capacity is further hampered by maintenance and operational

shortcomings. This has resulted in inevitable severe product shortages. The situation is

further compounded by the price disparity between the Nigeria markets and her sub-regional

neighbours, which encourage product smuggling and further widen the gap between supply

and local demand. Today, more than 90% of petroleum products consumed in the domestic

market are imported usually at costs, which naturally reflect international crude oil prices.

This is clearly a dysfunctional state of affairs for a policy which is one of the top ten oil

producers in the world. The history of fuel subsidy removal in Nigeria is rather a long one

particularly with the negative effects it has on the polity.

2.2 Theoretical Framework

Analysing the removal of subsidies involves the application of diverse theoretical

frameworks that encompass economic, political, and social dimensions. These frameworks

provide valuable insights into the complexities of subsidy removal, shedding light on both

anticipated and unintended consequences. Economic theories play a crucial role in

understanding subsidy removal’s economic implications. One such framework is the Rational

Choice Theory, which posits that individuals act to maximize their self-interests within

constraints (Van Valkengoed & Van der Werff, 2022). In the context of subsidy removal, this

theory can explain how consumers react to price increases by altering their consumption

patterns. Data from Nigeria’s 2012 subsidy removal protests reveals shifts in consumer

behaviour due to sudden fuel price hikes (Apeloko & Olajide, 2012). Political theories offer

insights into how government decisions on subsidy removal are influenced by power

dynamics and public opinion. The Public Choice Theory argues that political actors aim to

maximize their interests, leading to policies that may not always align with the public’s

welfare (Obasi et al., 2017). This theory can explain the rivalry between citizens’ interests

and government decisions in both the 2012 and 2023 cases of subsidy removal in Nigeria.

Social theories illuminate the societal repercussions of subsidy removal. The Theory of

Social Conflict explains how societal groups with differing interests may engage in conflict

when policies threaten their well-being (Apeloko & Olajide, 2012). The Theory provides a

lens through which an analysis of the tensions and clashes that arise when policies like

subsidy removal have differential impacts on various societal groups can be carried out. It

underscores the importance of considering not only the economic implications of such

policies but also their social and distributional effects. By understanding these dynamics,

policymakers can anticipate and address potential conflicts, striving for policy solutions that
are more equitable and socially acceptable. Environmental theories consider the ecological

effects of subsidy removal, particularly relevant in the context of climate action. The theory

of Ecological Modernization examines how policy shifts can lead to more sustainable

practices, including reduced fossil fuel consumption (Van Valkengoed & Van der Werff,

2022). The theory proposes that societies can transition toward greater environmental

sustainability through a process of modernization that integrates ecological considerations

into economic and policy decisions. It suggests that technological innovations, shifts in

production methods, and changes in societal values can collectively contribute to reducing

environmental impacts. In the context of subsidy removal, this theory becomes relevant as it

prompts a consideration of how the removal of subsidies on fossil fuels could incentivize the

adoption of cleaner energy sources and more energy-efficient technologies. In short, a multi-

dimensional analysis of subsidy removal necessitates the application of various theories.

Economic theories illuminate market dynamics and consumer behaviour, social theories

reveal societal implications, and environmental theories address ecological consequences. By

integrating insights from these frameworks and grounding the analysis in empirical data, a

comprehensive understanding of the 2023 subsidy removal case in Nigeria can be achieved.

2.2.1 Case Study: The 2023 Fuel Subsidy Removal

1. Context and Reactions

The historical context of fuel subsidies in Nigeria, as documented by Houeland (2020),

reveals their long-standing presence as measures to mitigate global oil price shocks. The

subsidization of petrol prices has been institutionalized since the 1970s, primarily to shield

citizens from volatile energy costs. This historical backdrop underscores the need for a

cautious approach to subsidy removal, particularly in a developing nation like Nigeria. The
decision by Nigeria to remove its consumer fuel subsidy in 2023 therefore has significant

economic, social, and environmental implications that must be carefully considered. The

announcement reflects a growing acknowledgment of the challenges posed by fossil fuel

subsidies and the need for equitable and sustainable reforms. The move to remove subsidies

aligns with a broader global trend toward subsidy elimination to fulfil climate change

obligations and promote fiscal sustainability. The context of the 2023 subsidy removal in

Nigeria is multifaceted. The new president, Bola Ahmed Tinubu, cited concerns that the

subsidy scheme disproportionately benefited the wealthy while escalating costs became

increasingly unjustifiable. This highlights a crucial aspect of subsidy removal – addressing

inequality and ensuring that the most vulnerable segments of the population are not adversely

affected. The subsidy removal, while potentially reducing carbon emissions, can lead to

increased economic pressure on the population, as pointed out by Ude (2023). The structure

of Nigeria's subsidy system involves fixing the price of petrol for consumers below

international prices and using government resources to cover the difference. Given that

Nigeria's refineries are in a state of decay, imported oil prices tend to be higher than they

would be if the products were refined domestically. This structural issue has contributed to

the perceived unsustainability of the subsidy programme. The decision to raise the price of

petrol by 200% shortly after the subsidy removal announcement underscores the immediate

impact on consumers and the broader economy. The potential benefits of subsidy removal, as

highlighted by the government, include increased resources for public infrastructure,

education, and healthcare. This aligns with the prevailing global perspective that fuel

subsidies often lead to inefficiencies and financial leakages, ultimately detracting from other

crucial areas of development. The reported staggering monthly expenditure of $1.22billion

on petrol subsidies, surpassing allocations for education, health, and infrastructure,

underscores the need for fiscal reallocation and prioritization. The chronology of events and

reactions surrounding the 2023 fuel subsidy removal in Nigeria paints a complex picture of

economic, political, and societal dynamics. The announcement of the subsidy's removal

during President Bola Ahmed Tinubu's inauguration set off a chain reaction that elicited

public outcry and governmental responses. Slated to take effect on July 1, the policy

prompted immediate concerns and chaos, with citizens scrambling to purchase fuel before

prices surged (Al Jazeera, 2023). The economic implications of the fuel subsidy removal

were substantial. The retail fuel price was anticipated to rise from the official pump price of

185 naira ($0.40) to a range between 350 ($0.76) and 550 naira ($1.18). Given that about 133

million Nigerians were living in multidimensional poverty (United Nations data), the impact

on their lives was palpable (Al Jazeera, 2023). The roots of the fuel subsidy ran deep in

Nigeria's history. The country's oil was refined in Europe and then imported back, incurring

higher costs. To alleviate this financial burden on consumers, the government provided

subsidies. This subsidy was intricately linked to fuel prices and consequently influenced the

costs of almost all goods and services within the nation. Originating in the 1970s as a

response to volatile global oil prices, the subsidy became deeply entrenched, eventually

evolving into a substantial fiscal burden on the government (Al Jazeera, 2023). The

sentiment surrounding the fuel subsidy had been both popular and contentious. Previous

attempts to remove it were met with resistance due to perceived citizen benefits. The 2012

effort to remove the subsidy under then-President Goodluck Jonathan led to nationwide

protests, organized by labour unions, civil society, and opposition party leaders, including

Bola Ahmed Tinubu. The resulting demonstrations brought the nation to a standstill,
compelling the government to reduce fuel prices and reinstate the subsidy (Al Jazeera, 2023).

However, corruption and a lack of fiscal transparency plagued subsidy payments. A

parliamentary inquiry in 2012 exposed a $6 billion fraud involving officials at the state-run

Nigerian National Petroleum Company (NNPC). This fuelled demands for investigations into

NNPC and a re-evaluation of subsidy payments (Al Jazeera, 2023). In the lead-up to the

February 2023 election, all major presidential candidates pledged to remove the subsidy and

enact oil sector reforms, indicating political consensus on the matter. Given Nigeria’s

economic realities, experts deemed the subsidy removal necessary. The preceding Buhari

administration had left a significant debt, necessitating financial prudence. Despite

opposition from labour unions, the government’s decision to eliminate the subsidy was seen

as economically prudent, although calls to reduce wasteful government spending grew more

prominent (Al Jazeera, 2023). Reactions to the subsidy removal were mixed. NNPC Limited

welcomed the move, citing the government’s substantial debt to the company stemming from

the subsidy. Labor unions protested, expressing concerns about transparency and historical

corruption in government spending. While unpopular, the government’s decision was

considered economically sensible, necessitating parallel improvements in areas like power

supply and transportation to alleviate citizens’ pains (Al Jazeera, 2023).

2. Comparative Analysis with 2012 subsidy removal

The 2023 subsidy removal in Nigeria echoes previous cases, such as the 2012 subsidy

protests, revealing both similarities and contrasts. Comparative analysis sheds light on the

underlying economic, political, and social dynamics that drive subsidy removal decisions and

their consequences. The present subsidy removal shares parallels with the 2012 case, yet it

also exhibits distinctive features, potentially indicating evolving governance strategies. The
2023 subsidy removal reflects the Nigerian government’s continued efforts to address fiscal

challenges and rationalize subsidy expenditure. The move, as seen in the 2012 case, aims to

reduce the fiscal burden and redirect funds to developmental initiatives (Ude, 2023).

However, this recent decision differentiates itself by aligning with the manifestos of the

major presidential candidates before the 2023 election, indicating political consensus on the

necessity of reform (Al Jazeera, 2023). This reflects a more strategic and calculated approach

compared to the sudden announcement in 2012. The response from citizens in both cases

underlines their dependence on subsidies and the perceived impact on their economic well-

being. In 2012, widespread protests erupted due to the abruptness of the policy change and its

immediate impact on fuel prices (Houeland, 2020). Similarly, the 2023 removal prompted

public chaos as individuals rushed to purchase fuel before prices escalated (Al Jazeera,

2023). The reactions highlight the significant role subsidies play in the daily lives of

Nigerians. Comparing the economic context reveals certain trends. Both cases underscore the

financial unsustainability of maintaining subsidies. The 2012 subsidy removal aimed to

address increasing subsidy costs, similar to the 2023 situation where escalating costs became

a primary concern (Ude, 2023). The 2012 protests emphasized the need for fiscal

transparency, and the present decision was driven by the administration’s acknowledgment of

the subsidy’s adverse economic effects (Al Jazeera, 2023). These parallels indicate the

recurring financial strain subsidies impose on Nigeria’s economy. Political factors are also

evident in both cases. In 2012, President Goodluck Jonathan’s subsidy removal decision led

to public outcry and labour unions’ protests, forcing a partial reversal (Houeland, 2020). In

contrast, the 2023 subsidy removal was announced by President Bola Ahmed Tinubu,

showing his administration’s commitment to addressing economic challenges and avoiding

similar public backlash. This suggests that the current government may have learned from

past experiences and adopted a more calculated approach. Social impact remains a central

concern. The 2012 protests highlighted the subsidy’s importance as a social safety net,

especially for the vulnerable population (Houeland, 2020). Similarly, the 2023 decision

raised concerns about exacerbating inequality, given that a significant portion of the

population lives in multidimensional poverty. This continuity underscores the necessity of

considering the impact on the most vulnerable segments of society.

2.2.2 Economic Implications

i. Government Budget and Fiscal Dynamics

The removal of subsidies has been a subject of considerable debate due to its potential

economic implications, particularly concerning government budgets and fiscal dynamics. In

Nigeria, this has been a salient issue, as highlighted in recent research. Akinyemi et al.

(2017) conducted a simulation study using a dynamic Computable General Equilibrium

(CGE) approach to analyse the impact of fuel subsidy removal on the agricultural sector.

Their findings revealed that subsidy removal could have far-reaching effects on various

sectors, with repercussions for government revenue and expenditure patterns. This study

emphasizes the importance of understanding the intricate interplay between subsidy removal,

sectoral performance, and fiscal dynamics. The economic implications of subsidy removal

for government budgets and fiscal dynamics are multifaceted. On the one hand, subsidy

removal could lead to increased government revenue if the savings from subsidy elimination

are allocated efficiently. However, this revenue gain must be balanced against potential

social and economic consequences, particularly for the vulnerable population. Additionally,

the government’s ability to effectively manage and allocate these newfound resources is
crucial in determining the overall fiscal impact. The studies mentioned provide insights into

the intricate interactions between subsidy removal, fiscal dynamics, and sectoral

performance, urging policymakers to adopt a holistic approach that considers both short-term

fiscal gains and long-term economic stability.

ii. Inflation and Consumer Price Changes

The removal of petroleum subsidies has stirred significant debate due to its potential

economic implications, particularly its impact on inflation and consumer prices. The

Consumer Price Index (CPI), which measures the rate of change in prices of goods and

services, is a crucial indicator to assess the inflationary pressures resulting from such policy

changes. According to the National Bureau of Statistics (NBS), Nigeria's CPI surged to 22.41

percent in May 2023, marking the fifth consecutive rise in the country's inflation rate this

year (NBS, 2023). The correlation between subsidy removal and inflation has been explored

in various studies. Okwanya et al. (2015) conducted an assessment of the impact of

petroleum subsidies on the consumer price index in Nigeria. Their findings suggested that the

removal of subsidies tends to exert upward pressure on the CPI, leading to inflationary

trends. Okwanya et al. (2015) findings resonate with the recent data indicating a 0.19

percentage point increase in the inflation rate following the subsidy removal (see NBS,

2023). The subsidy removal increased the PMS price across the country from an average of

₦238.11 at the end of May 2023 to ₦545.83 at the end of June 2023 (see Figure 1). This

significant price rise came with its associated influence on the total inflation and food

inflation rate, as shown in Fig. 2. The evidence indicates that the inflation rate before the

subsidy removal was 22.41%. After the removal, it rose slightly to 22.79% in June; in July, it

rose by nearly 2% to 24.08%. On the other hand, the food inflation rate of 24.82% in May
 rose to 25.25% and 26.98% at the end of June and July, respectively. Since several small and

medium enterprises (SMEs) rely on the PMS, local input prices rise due. As such, final

consumers are at the receiving end through higher food prices leading to a surge in inflation.

Also, since the PMS is a fundamental transportation component, the overall transportation

cost rises, raising the cost of delivering goods across the supply chain.

Figure 1. Inflation (May to July 2023)

Data Source: Central Bank of Nigeria (2023)

A comparative perspective can be drawn from the work of Husaini et al. (2019) in Malaysia,

where energy subsidies and oil price fluctuations were analysed. Although the context is

different, the study highlighted that subsidy removal can interact with oil price dynamics to

influence consumer price behaviour. Similar dynamics might be at play in Nigeria, where the

removal of petroleum subsidies can magnify the impact of oil price changes on domestic

consumer prices. Babalola and Salau (2020) also conducted a panel dynamic analysis focused on

petroleum pump prices and the consumer price index in Nigeria. Their study emphasized the

complexity of the relationship, revealing that while subsidy removal might contribute to

inflation, other factors, such as exchange rate fluctuations, economic structure, and government

fiscal policies, can also exert influence. Therefore, it is crucial to consider a holistic framework

when evaluating the consequences of subsidy removal. The recent NBS report points out that the

food inflation rate in May 2023 stood at 24.82 percent on a year-on-year basis, driven by

increases in prices of essential commodities like oil and fat, yam, bread, cereals, fish, and meat

(NBS, 2023). This underscores the cascading effects of subsidy removal on various sectors of the

economy, potentially exacerbating inflationary pressures. The analysis of month-on-month and

year-on-year data highlights the upward trajectory of inflation in the wake of subsidy removal.
Year-on-year inflation in May 2023 was 4.70 percentage points higher compared to May 2022,

and monthon-month inflation in May 2023 was 0.03 percent higher than in April 2023 (NBS,

2023). This trend indicates that the subsidy removal has contributed to persistent inflationary

pressures.

Given the importance of fuel in daily activities, subsidies ensure access and affordability,

especially when crude oil prices are volatile. Additionally, subsidies lower and stabilize fuel

prices, thus contributing to price stability in the economy. Moreover, fuel subsidies support

various industries by keeping input costs, particularly transportation, relatively lower, which

sustains economic activities (NES Group, 2023). Market distortions and inefficiencies arise from

the deviation of prices from market clearing prices, which can lead to shortages and disruptions

in the supply chain. As Nigeria grapples with the economic implications of subsidy removal,

policymakers therefore need to adopt a comprehensive approach that considers not only short-

term inflationary effects but also broader economic dynamics and potential mitigative measures.

iii. Foreign Exchange and Trade Balance

The removal of subsidies, particularly in the petroleum sector, has significant economic

implications for Nigeria, particularly in terms of its impact on foreign exchange reserves and the

trade balance. The removal of fuel subsidies can have direct consequences on the availability of

foreign exchange due to its connection with crude oil imports and its potential influence on the

trade balance. Research by Adagunodo (2022) highlights the effect of oil receipts and fuel

subsidy payments on the current account deficit in Nigeria, shedding light on the complex

relationship between subsidies and the external balance. Similarly, the work of Akinyemi et al.

(2017) employed a dynamic Computable General Equilibrium Approach to simulate the removal

of fuel subsidies and its impact on the agricultural sector, demonstrating the interconnectedness
of various economic sectors in response to subsidy removal. Nigeria, renowned for its

considerable oil production, paradoxically grapples with significant inadequate domestic refining

facilities, necessitating a reliance on imported refined petroleum products. This intricate

juxtaposition underscores a central economic dilemma – the need to allocate foreign exchange

earnings and revenue to fund these vital imports. The fuel subsidy, by artificially suppressing the

costs of imports, constitutes a substantial financial commitment, diverting foreign exchange

resources that could otherwise be directed towards other pivotal developmental avenues.

Therefore, subsidizing fuel imports diverts foreign exchange earnings and revenue that could be

used for other developmental purposes, negatively impacting the country’s trade balance (NES

Group, 2023). At its core, this foreign exchange diversion, though meant to cushion the impact

of fuel price fluctuations, essentially shifts the balance of foreign exchange earnings. Instead of

leveraging these earnings for diverse developmental initiatives, a significant portion is

channelled into fuel subsidies. This not only perpetuates Nigeria’s dependency on imported

refined products but also contributes to a skewed trade balance scenario. In practical terms, the

subsidy setup requires the Nigerian government to allocate foreign exchange resources for fuel

imports that would otherwise be available for other crucial imports or investments. This

redirection strains the trade balance, influencing the dynamics of exports and imports. The

distortion in foreign exchange allocation inadvertently skews the nation’s trade equilibrium,

potentially affecting the overall stability of its economy. This can explain the government’s

complementary policy decision not to fund foreign exchange demands of importers and the

merger of the erstwhile dual exchange rate rregimes

2.2.3 ForeignConsequences

I. Impact on Vulnerable Populations

The removal of subsidies carries profound social consequences, particularly for the vulnerable

population. Research by Rentschler (2016) highlights the regional variation of poverty effects

due to fossil fuel subsidy reform, underscoring how such reforms can disproportionately impact

certain regions and communities. Mmadu and Akan (2013) have also examined the implications

of inefficient subsidies in Nigeria’s oil sector on household welfare, providing valuable insights

into the intersection of subsidies and vulnerable populations. Ovaga and Okechukwu (2012) have

delved into the downstream oil sector and its impact on the masses, offering further

understanding of subsidy-related consequences. The recent data reveals that Nigeria’s inflation

rate has led to a significant increase in poverty levels, with an estimated four million people

falling into poverty between January and May 2023. Moreover, the removal of fuel subsidies has

exacerbated the situation, with about 7.1 million poor Nigerians at risk of becoming even poorer

if the government does not provide compensation or palliatives (World Bank, 2023). These

developments echo the findings of Rentschler (2016), showing how subsidy reforms can lead to

varying regional impacts on poverty levels. In the case of Nigeria, the removal of fuel subsidies

has led to an increase in prices, particularly affecting poor and economically insecure

households. As petrol prices have now tripled following the subsidy removal, these vulnerable

households, who directly or indirectly rely on petrol consumption, are adversely affected. The

immediate consequence of this price increase is an equivalent income loss of ₦5,700 per month

for poor and economically insecure households. Without compensation, an additional 7.1 million

people could be pushed into poverty, exacerbating an already dire situation (World Bank, 2023).

This aligns with the findings of Mmadu and Akan (2013), who explored how inefficient

subsidies in the oil sector can impact household welfare. Furthermore, the removal of subsidies

can lead to consequential coping mechanisms among newly poor and economically insecure
households. These mechanisms may include cutting back on essential services such as education

and healthcare, or compromising on nutritional choices (World Bank, 2023). To mitigate these

adverse effects on vulnerable populations, the World Bank emphasizes the need for adequate

compensation and transfer mechanisms. Such compensating transfers can shield households from

the initial price impacts of subsidy reform and provide essential support to those at risk of falling

deeper into poverty.

II. Public Perception and Political Support

While there are various perspectives on the subsidy removal, it is evident that the public

perception and political support for this policy change are crucial factors in shaping its success

and impact on the Nigerian society. The political climate surrounding the subsidy removal is

marked by both consensus and confusion. Key presidential candidates expressed commitments to

removing fuel subsidies, albeit with varying nuances in their approaches. However, the lack of a

clear plan on how the removal aligns with strategic economic objectives raises concerns. The

diverse economic challenges Nigeria faces, including its lowest minimum wage in the world,

high levels of poverty, and significant unemployment (Amadi, 2023), underscore the need for a

comprehensive approach that considers the potential social consequences of the subsidy removal.

Public perception of subsidy removal is multifaceted and often divided along the lines of equity

and efficiency. The efficiency camp advocates for the removal to address fiscal challenges and

reduce inefficient resource allocation. Supporters of this viewpoint argue that market efficiency

can be achieved through proper pricing, reducing the public sector’s fiscal burden and

encouraging effective use of resources. However, the equity-focused camp emphasizes the

broader social impact, especially on vulnerable and marginalized populations. The abrupt and

complete removal of subsidies may exacerbate poverty and inequality (Amadi, 2023). The
dynamics between efficiency and equity intersects with the Nigerian government’s roles of

allocation, distribution, and stabilization in public finance. While the government’s focus on

efficiency is crucial for fiscal stability and resource allocation, the distributive role necessitates

addressing the wellbeing of citizens. The abrupt removal of subsidies without effective

compensatory measures risks disproportionately affecting the poorest and most vulnerable

segments of society. In addition, the debate around subsidy removal highlights the larger issue of

inequality within the Nigerian political economy. The country’s high Gini coefficient and lack of

robust social protection mechanisms contribute to a divided society where the impacts of policy

changes can vary dramatically. The removal of subsidies, if not accompanied by comprehensive

economic restructuring, can deepen inequality and poverty (Amadi, 2023). Furthermore,

historical experiences, such as Nigeria’s track record of corruption and inefficiency in subsidy

administration, contribute to public scepticism and mistrust of government actions. Previous

instances of policy adjustments and their consequences on citizens’ wellbeing impact how the

public perceives current policy changes. One crucial factor influencing public perception is the

government’s approach to social safety nets and compensatory measures. The promise of cash

transfers to poor households, while aiming to mitigate the impacts of subsidy removal, raises

questions about its adequacy and effectiveness in addressing the broader socioeconomic

challenges. Political leaders’ responses to the concerns of citizens, particularly those in the

informal sector, are pivotal in shaping public sentiment and trust in the government’s intentions.

III. Nigerian Youths’ Response and Involvement

The removal of subsidies carries significant social implications, particularly in terms of how

Nigerian youths respond and get involved. Studies like Akor (2017) have illuminated the role of

Nigerian youths in social movements and protests, highlighting the influence of social media as a
platform for mobilization. Uzuegbunam (2015) and Uji (2015) also underscore the power of

social media in shaping young people’s engagement in socio-political issues and transformative

activities. This existing research provides a foundation to examine the social implications of

subsidy removal on Nigerian youths. The inauguration of President Bola Ahmed Tinubu

triggered a series of reactions, especially among Nigerian youths, fuelled by social media trends

and hashtags. The controversial nature of the election and the subsequent subsidy removal

sparked conversations and debates across platforms, underscoring the role of young Nigerians as

active participants in shaping public discourse. This digital activism and engagement reflect the

findings of Uzuegbunam (2015) and Uji (2015), demonstrating the potential for social media to

amplify youth voices and mobilize action. The removal of fuel subsidies brought immediate

economic repercussions, with a significant surge in fuel prices and subsequent effects on

transportation costs and food inflation. This sudden increase in living expenses particularly

impacts the youth, a demographic already grappling with employment challenges and limited

financial resources. These economic pressures can lead to increased frustrations, potentially

fuelling social unrest and demonstrations, as seen in past instances like the fuel subsidy protests

of January 2012 (Akor, 2017). Nigerian youths’ response to the subsidy removal is not limited to

digital activism; it extends to their perspectives on migration. The inclination to “japa”

(emigrate) to seek greener pastures reflects the desperation of youths seeking better economic

opportunities, often in foreign countries. This trend highlights the disillusionment caused by

domestic economic challenges, including those exacerbated by subsidy removal.

2.2.4 Environmental Considerations

a. Carbon Emissions and Climate Change Impacts

The decision to eliminate petrol subsidies carries profound implications for the nation’s

environmental landscape, particularly in the context of carbon emissions and climate change

mitigation. This policy change aids the goal of bolstering Nigeria’s response to climate change

by not only reducing fuel consumption but also curtailing the release of carbon emissions into

the atmosphere. Preliminary analysis conducted by the National Council on Climate Change

reveals a significant positive correlation between fuel subsidy removal and environmental

benefits. Notably, there has been an approximate 30% reduction in daily fuel consumption,

translating to a staggering 20 million litres per day, and this reduction, in turn, results in a

remarkable daily saving of approximately 42,800 tonnes of carbon dioxide emissions

(Olorunfemi, 2023). The environmental ramifications of this reduction were elucidated at a

workshop organized by the National Council on Climate Change. The decision to remove fuel

subsidies, while economically impacting Nigerians, is poised to save over 15 million tonnes of

carbon dioxide emissions annually. This translates to a substantial 40% reduction in greenhouse

gas emissions compared to the baseline projection of 45 million metric tonnes of total GHG

carbon dioxide equivalent by 2030 and this outcome aligns Nigeria with its Nationally

Determined Contributions (NDCs) ahead of schedule (Olorunfemi, 2023).

b. Transition to Renewable Energy

The elimination of fuel subsidies offers a turning point, driving Nigerians towards embracing

renewable energy solutions, particularly solar power. The exorbitant costs of fuel-powered

generators make renewable options increasingly appealing. The resulting surge in solar adoption

is likely to catalyse rapid growth in the renewable energy sector, offering a more sustainable and

cost-effective energy solution. Nigeria's power sector is at a critical juncture, demanding

comprehensive improvements to sustain industrial growth. The country's enormous potential for
renewable energy, including solar and hydro power, presents a transformative solution

(Babatunde et al., 2019; Evans, 2023). Harnessing these resources could reshape Nigeria's energy

landscape, ensuring access to reliable and affordable electricity for its population. With abundant

sunlight and water resources, Nigeria possesses the foundation to generate electricity through

renewable sources. Coupled with its crude oil reserves, gas byproducts could be employed for

power generation, mitigating waste, and enhancing energy efficiency. However, ensuring the

viability of these renewable sources necessitates efficient grid management and balanced

consumption. The transition towards renewable energy in China exemplifies how diversified

energy portfolios can underpin a stable and service-oriented power industry, promoting both

economic growth and sustainable development. Despite the promising potential of renewable

energy, various hurdles impede its progress in Nigeria. High installation costs, lack of after-sales

services, and variations in product quality hamper widespread adoption. Misconceptions about

solar products and the perception of short-lived batteries need to be addressed through education

and awareness campaigns. Changing mindsets and highlighting the long-term value of quality

solar products are essential in surmounting these obstacles.

c. Environmental Benefits and Challenges

One of the primary environmental benefits of subsidy removal is the potential reduction in fuel

consumption. Subsidies often encourage wasteful energy use, as artificially low prices

discourage energy efficiency. With the elimination of subsidies, consumers are likely to become

more mindful of energy consumption, leading to reduced carbon emissions. The associated

decline in fuel consumption can contribute to cleaner air quality and reduced pollution, positively

impacting public health and the environment (Akinyemi et al., 2015; Evans & Mesagan, 2022).

A crucial challenge, however, is the potential for increased energy costs to consumers. As
subsidies are lifted, fuel prices rise, which could disproportionately affect vulnerable

populations. The burden of increased energy expenses could be borne by low-income

households, potentially exacerbating social inequalities. Policymakers need to implement

measures to address this challenge, such as targeted support programs for those most affected by

price hikes. A significant environmental benefit of subsidy removal is the potential reduction in

carbon emissions. The removal of fuel subsidies can lead to decreased fuel consumption and

consequently lower emissions of greenhouse gases. Nigeria's commitment to the Paris

Agreement and its Intended Nationally Determined Contributions (INDCs) necessitate

substantial carbon reduction efforts (Akinyemi et al., 2017). The removal of subsidies aligns with

these climate goals by incentivizing cleaner energy practices and reducing the carbon footprint.

A related challenge is the need for a well-designed transition plan to guide the shift towards

cleaner energy sources. While subsidy removal can encourage cleaner energy adoption, it

requires a comprehensive strategy to ensure a smooth transition. Adequate infrastructure,

incentives for renewable energy investments, and public awareness campaigns are necessary

components to support this shift and avoid potential setbacks. Furthermore, subsidy removal can

promote investment in renewable energy sources. As fossil fuel prices rise due to subsidy

elimination, the attractiveness of renewable energy becomes more pronounced. This can lead to

increased investments in solar, wind, hydro, and other renewable energy projects, fostering

sustainable energy development in Nigeria. However, the challenge lies in creating an enabling

environment for these investments, including clear regulations, access to financing, and

supportive policies. Subsidy removal can also stimulate technological advancements that

improve energy efficiency and environmental performance. As consumers and industries seek to

manage increased energy costs, there is a potential for innovations that enhance energy
efficiency and reduce emissions. The challenge here is fostering an environment that promotes

research, development, and adoption of these technologies.

2.2.5 Market and Industry Analysis

1. Changes in the Nigerian Oil Sector

The removal of fuel subsidies in Nigeria has significant implications for the country’s oil sector,

impacting various facets of the industry from production to consumption. One of the key impacts

of subsidy removal is the alteration of price dynamics within the Nigerian oil sector. The

removal leads to an immediate increase in fuel prices, impacting both retail and industrial

consumers (Majekodunmi, 2013). This change can influence consumer behaviour, potentially

leading to reduced demand for petroleum products. As prices rise, consumers may seek

alternatives, such as adopting more fuel-efficient vehicles or exploring alternative energy

sources. These shifts in consumption patterns can impact the overall demand for crude oil,

affecting the upstream sector. The upstream oil industry is directly affected by changes in

demand for petroleum products. As demand adjusts due to subsidy removal, oil companies may

need to recalibrate their production levels. Reduced demand for refined products could lead to a

decrease in refining activities, affecting the utilization of refineries. Conversely, increased

demand for alternative fuels or energy sources could influence exploration and production

decisions as companies navigate evolving market dynamics. Moreover, subsidy removal can

stimulate discussions around refining capacity and the potential for domestic refining to meet

national fuel needs. The inability of Nigeria’s refineries to operate at full capacity has

historically led to substantial fuel imports (Lawal, 2014). However, subsidy removal may

encourage private investment in refining infrastructure, aiming to capitalize on the market’s

changing landscape. Companies could see potential profitability in local refining if the cost
economics of importing refined products become less favourable due to increased fuel prices.

Market dynamics are also influenced by global oil price trends. Changes in international oil

prices can be compounded by domestic factors such as subsidy removal (Husaini et al., 2019). If

subsidy removal coincides with periods of volatile oil prices, the combined impact could amplify

market uncertainties. Oil companies, both domestic and international, will need to navigate these

complexities and make strategic decisions regarding investment, exploration, and production.

While subsidy removal introduces certain challenges, it can also create opportunities for

diversification and innovation in the Nigerian oil sector. With consumers seeking alternatives to

cope with higher fuel prices, there may be increased interest in renewable energy sources,

biofuels, and energy-efficient technologies. This could open doors for new players to enter the

market, fostering innovation and competition. The Nigerian government’s role in shaping the oil

sector becomes crucial during subsidy removal. Policymakers must ensure a conducive

regulatory environment that encourages investment and competition while safeguarding the

interests of consumers. Regulatory clarity and transparent pricing mechanisms are paramount to

maintaining investor confidence in the sector (Lawal, 2014).

2. Domestic Refining Capacity and Self-Sufficiency

The removal of fuel subsidies in Nigeria has substantial implications for the country’s domestic

refining capacity and its aspirations for self-sufficiency in the petroleum sector. Historically,

Nigeria’s domestic refining capacity has been insufficient to meet the nation’s fuel demands,

resulting in substantial imports (Iheukwumere et al., 2020). The subsidy removal creates both

challenges and opportunities for the development of domestic refining capacity. On one hand,

the increased cost of imported fuel could incentivize investments in refining infrastructure to

mitigate import dependence. On the other hand, the potential increase in fuel prices post-subsidy
removal could amplify the profitability of refining activities, encouraging both public and private

sector participation in refining projects. The country’s aspirations for self-sufficiency in the

petroleum sector align with the goal of increasing domestic refining capacity. The Nigerian

government has expressed its desire to reduce the need for fuel imports and achieve self-

sufficiency in refining (Temitayo, 2014). Subsidy removal could serve as a catalyst for

accelerating progress towards this goal by reshaping market dynamics and creating a more

favourable economic environment for investments in refining. However, the challenges of

establishing and maintaining refining infrastructure in Nigeria remain significant. Past attempts

at refinery construction have faced delays, cost overruns, and technical challenges (Iheukwumere

et al., 2020). The regulatory environment, policy consistency, and infrastructure development are

critical factors that impact the feasibility of refining projects. Market dynamics also play a role in

influencing refining decisions. The global crude oil price environment, supply-demand

imbalances, and fluctuations in international oil prices can impact the economics of refining

operations (Akinrele, 2016). The Nigerian government must consider these external factors when

formulating strategies to enhance domestic refining capacity. The removal of subsidies could

encourage a shift from an import-oriented approach to one focused on domestic production. By

increasing the cost of imported fuel, the economic equation for domestic refining becomes more

favourable. This could potentially lead to increased utilization of existing refineries,

revitalization of dormant ones, and the construction of new facilities. To capitalize on these

opportunities, Nigeria must address various challenges, including regulatory hurdles,

infrastructure deficiencies, and policy inconsistencies. Additionally, the government should

explore partnerships with experienced international refining companies to leverage their

technical expertise and investment capabilities (Temitayo, 2014).

 3. Private Sector Participation and Investment Trends

The removal of fuel subsidies has substantial implications for private sector participation and

investment trends in the country’s petroleum industry. Fuel subsidy removal signals a shift

towards a more market-oriented approach in Nigeria’s petroleum sector, creating opportunities

for increased private sector participation. The Nigerian government's decision to deregulate the

downstream sector is aimed at attracting private investment and enhancing competition (Olujobi

et al., 2020). The removal of subsidies can catalyse this process by removing price distortions

and creating a more conducive environment for private sector involvement. Private sector

participation can lead to enhanced efficiency, increased investment, and improved infrastructure.

The incentive for private investors lies in the potential for higher returns on investment in a

deregulated market. As subsidies are phased out, the market becomes more attractive for private

players, encouraging them to invest in refining, distribution, and other downstream activities

(Itsekor, 2020). Investment trends are likely to shift towards areas that were previously less

economically viable due to subsidy distortions. The removal of subsidies could encourage

investments in refining infrastructure, as the economics of domestic refining become more

favourable without price distortions. Furthermore, private investment could flow into alternative

energy sources and technologies, as the market responds to the new price dynamics. However,

challenges remain in attracting significant private investment. Regulatory uncertainties,

inconsistent policies, and political factors have historically hindered private sector participation

in Nigeria's petroleum industry (Onyishi et al., 2012). To harness the potential of subsidy

removal, the government needs to provide a stable regulatory framework that fosters investor

confidence. Transparent and predictable policies will encourage private sector engagement and

long-term investments. The impact of subsidy removal on investment trends is interconnected

with global oil price dynamics. Investors' decisions are influenced by international oil prices,

which impact the profitability of petroleum-related activities. A comprehensive understanding of

global oil market trends is crucial for both the government and private investors to make

informed decisions (Joseph et al., 2019). As Nigeria aims to attract foreign direct investment

(FDI) to boost its petroleum industry, subsidy removal could be a catalyst for increased FDI

inflows. A more competitive and transparent market can attract international investors who seek

stable and profitable investment opportunities. To fully capitalize on this potential, Nigeria must

create an environment that welcomes and supports foreign investment.

2.2.6 Mitigation Strategies and Compensation

a. Government Compensation Programmes

Currently, fuel subsidies consume a significant portion of the recurrent budget, diverting

resources that could be better allocated to pro-poor initiatives. The reluctance to reform this

system can be attributed to concerns about political backlash, corruption, and pressure from

beneficiaries of the subsidy. However, a growing consensus acknowledges the necessity of

reform, particularly the removal of fuel subsidies. Adeoti et al. (2016) examine compensation

mechanisms that could offset the adverse effects of fuel subsidy removal on vulnerable segments

of Nigerian society. Notably, recent policy changes, such as the "price modulation" policy

introduced by the Buhari government, have led to adjustments in fuel prices, underscoring the

ongoing relevance of Adeoti et al. (2016). Research conducted by Majekodunmi (2013)

highlights that fuel subsidies have accounted for over a third of Nigeria's recurrent budget,

representing a substantial misallocation of resources that could otherwise be directed towards

pro-poor initiatives. McCulloch et al. (2021) emphasize the need for subsidy reform to uphold

the social contract and promote economic efficiency. Additionally, Lawal (2014) underscores
that the removal of subsidies is essential for the growth of Nigeria's petroleum industry.

Compensation mechanisms proposed in Adeoti et al. (2016) include a diverse range of strategies

to mitigate the impact of subsidy removal. These strategies are rooted in empirical evidence and

international experiences. Siddig et al. (2014) explore the impacts of fuel import subsidy removal

on poverty and demonstrate the importance of well-designed compensation mechanisms. The

suggested measures include transport vouchers, mass transit schemes, E-Wallets for smallholder

farmers, free school meals, free healthcare for vulnerable populations, cash transfer schemes, and

vocational skills development programs. Adeoti et al. (2016) recommends that these

compensation measures should be implemented without any form of bias or discrimination. The

creation of new institutions is deemed unnecessary; rather, existing ministries and agencies

should be repositioned and empowered to manage the compensation programs (Evans, 2022).

The establishment of a Directorate for Subsidy Reinvestment Monitoring (DSRM) under the

National Planning Commission (NPC) is proposed, ensuring effective oversight and management

of compensation funds. This aligns with Ikenga and Oluka's (2023) suggestion that an organized

approach is crucial for subsidy removal's benefits to materialize. Adeoti et al. (2016) estimates

that the proposed compensation programs could be initiated with a budget of up to ₦250 billion

(USD 1.2 billion) and anticipates a reduction in costs over subsequent years. This financial

insight is consistent with the economic considerations raised by Amakom (2013) in the context

of the Subsidy Reinvestment and Empowerment Programme (SURE-P).

b. Social Safety Nets for Vulnerable Groups

The proposal to remove fuel subsidies in Nigeria while concurrently establishing robust social

safety nets for vulnerable groups represents a multifaceted approach to address the economic,

social, and humanitarian challenges associated with subsidy reform. As indicated by Yemtsov
and Moubarak (2018), the readiness of social safety nets is crucial for effectively mitigating the

impacts of such reforms. In line with this, it is essential to explore a combination of strategies

that not only minimize the burden on the poor but also facilitate a gradual transition to subsidy

removal. Ekong and Akpan (2014) acknowledge the need for energy subsidy reform in Nigeria

to foster sustainable development. The data shows that substantial funds were allocated to fuel

subsidies, which could have been redirected to sectors like education and healthcare. The

proposal to gradually phase out the subsidy over a span of 6 months to 1 year reflects a prudent

approach to reduce the immediate shock on vulnerable groups. A key proposal is the

subsidization of public transport during the subsidy removal phase. This is informed by the

observation that many countries subsidize public transportation to assist low-income individuals.

Leveraging partnerships with transport interest groups such as the Nigerian Labour Congress

(NLC) and National Union of Road Transport Workers (NURTW) is a strategic move to ensure

the effectiveness of such a scheme. The importance of increasing the minimum wage to alleviate

the impact of subsidy removal is emphasized, echoing the sentiment of Akinola (2018). Raising

the minimum wage would help individuals, especially those at the lower end of the income

spectrum, better cope with increased transportation costs resulting from subsidy removal. The

proposal to revisit remuneration structures by employers underscores the collaborative efforts

required from both the public and private sectors to protect vulnerable workers. A significant

mitigation strategy proposed involves accelerating the adoption of compressed natural gas

(CNG) as an alternative fuel. This aligns with global trends towards cleaner and more affordable

energy sources. The specific steps outlined, such as enacting legal frameworks, subsidizing

conversion costs, and facilitating CNG availability at filling stations, highlight a comprehensive

approach to promoting this transition.

 c. Long-Term Economic and Social Sustainability

The removal of fuel subsidies is a complex and multi-faceted issue with significant implications

for the nation’s long-term economic and social sustainability. Historically, fuel subsidies have

strained national budgets, resulted in resource misallocation, and posed challenges to

environmental sustainability. As highlighted by Onyishi, Eme, and Emeh (2012), the domestic

and international implications of fuel subsidy removal are profound and require careful

consideration. The proposed mitigation strategies and compensation mechanisms point towards a

comprehensive approach to address the challenges associated with subsidy removal. The

integration of these strategies can foster a more sustainable and resilient future for Nigeria’s

economy and society. The proposed emphasis on targeted social safety nets acknowledges the

vulnerability of specific groups, such as low-income families, in the face of subsidy removal.

Rentschler and Bazilian (2017) emphasize the importance of well-designed compensation

mechanisms in achieving effective subsidy reforms. By redirecting funds from subsidies to

sectors like education, healthcare, and infrastructure development, the government can contribute

to long-term economic growth and improve overall living standards. Investments in

infrastructure development, particularly in sectors like transportation and energy, hold the

potential to stimulate economic growth and create job opportunities. Improving public

transportation systems and promoting alternative energy sources aligns with global trends and

can mitigate the impact of subsidy removal on transportation costs. The historical context of

Nigeria’s subsidy removal efforts underscores the intricacies of the issue. The various policy

changes and controversies highlight the sensitivity of fuel subsidies and the need for informed

decision-making. The gradual phasing out of subsidies, as proposed, can help ease the immediate

shocks and provide time for individuals and industries to adjust. The focus on fiscal transparency
and accountability is crucial to ensure that the savings from subsidy removal are allocated

efficiently and effectively. By establishing reliable monitoring systems and conducting routine

audits, the government can build trust among citizens and ensure the proper utilization of

resources. Public communication and education are vital components of successful subsidy

reform. The government’s commitment to explaining the rationale behind subsidy removal and

the long-term benefits can help manage public expectations and mitigate potential unrest.

Effective communication serves to clarify the objectives of subsidy reform. Governments can

explain that subsidies are often unsustainable in the long run, leading to economic inefficiencies,

fiscal burdens, and the diversion of resources from more pressing needs like education,

healthcare, and infrastructure. This can help citizens grasp the trade-offs involved in maintaining

subsidies and the potential benefits of their removal. Moreover, clear communication can dispel

misconceptions and rumours that might circulate in the absence of accurate information (Adeola

& Evans, 2023). Misunderstandings can lead to public frustration and unrest, which can

undermine the reform process. By providing accurate and accessible information, the

government can counter misinformation and build trust among the population. Individual citizens

also play a role in navigating the challenges posed by subsidy removal. Budgeting, financial

planning, exploring alternative transportation methods, and adopting energy-efficient practices

are essential coping strategies to mitigate the impact of higher fuel costs. These coping strategies

are not only beneficial at the individual level but also collectively contribute to the success of

subsidy removal on a national scale. If a significant portion of the population adopts budgeting,

alternative transportation methods, and energy-efficient practices, it can help reduce the overall

demand for fuel and lessen the strain on resources. This, in turn, aligns with the government's

objectives of promoting fiscal sustainability and reducing the reliance on subsidies.

Gap in Literature

Theoretical Framework

Proposition

Criticisms of the Theory

Relevance/Application of the Theory