…reversing the removal of the subsidy would be a step in the wrong direction. It would restore the fiscal burden, revive the price differential that encouraged smuggling and arbitrage, and weaken incentives for efficient domestic refining. More fundamentally, it would address the immediate price of petrol, while leaving the structural weaknesses that produced the wider economic problem largely untouched.
I have followed with considerable interest the continuing debate over Nigeria’s economic reforms, particularly the arguments surrounding the removal of the petrol subsidy and the direction of economic policy under President Bola Ahmed Tinubu. Such debate is necessary. Government policy must remain open to scrutiny, especially when its consequences are felt directly in the daily lives of citizens.
It was against this background that I viewed Professor Bongo Adi’s recent intervention on Nigeria’s growth trajectory, including his reference to the Rule of 70. Professor Adi is an economist whose contribution to public discourse I respect. The mathematical rule he cited is quite straightforward. It provides an estimate of the time required for a quantity to double when a constant growth rate is assumed. So, for instance, an economy growing at a constant rate of 4 per cent annually will take 17.5 years to double its size.
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The difficulty arises when this calculation is treated as a prediction of Nigeria’s economic growth. Economic outcomes are dynamic, shaped by emergent trends, while, the Rule of 70, by its nature assumes constancy. Indeed, the purpose of economic reform is to alter the conditions that constrain growth and ultimately, improve the growth rate, which delivers better development outcomes.
As a result of the foregoing, Professor Bongo further suggested that the subsidy regime should be reversed. For me, a call for the reversal of petroleum subsidy on the strength of a mathematical rule is too simplistic. Nigeria’s economy is far more complex than what a simple and linear mathematical rule can capture and predict its growth trajectory.
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Subsidy is a legitimate instrument of public policy. Governments use it to protect consumers, support strategic industries, correct market failures and cushion temporary economic shocks. Nigeria’s petroleum price intervention developed over several decades, beginning with a broader regime of price regulation in the 1970s. Its objectives included moderating inflation, supporting industrial development and providing affordable energy to citizens. As domestic refining capacity weakened and dependence on imported petroleum products increased, the subsidy component became progressively more pronounced, and its cost to the economy became increasingly difficult to sustain.
As the fiscal burden expanded, however, subsidy became increasingly difficult to reconcile with Nigeria’s limited public resources and enormous development needs. What NNPC Limited described in its accounts as “under-recovery” represented, in economic substance, the cost of selling petrol below its supply cost. The price differential also created powerful incentives for smuggling and arbitrage, while regulated pricing weakened incentives for investment in domestic refining. Nigeria could export crude, import refined petrol, and devote enormous public resources running into trillions of naira to maintain an artificially low domestic price.
Many interventions have been introduced to mitigate the effects of subsidy removal, while the economy adjusts. NELFUND reduces the immediate cost of tertiary education through interest-free student financing. CREDICORP is expanding responsible consumer credit for vehicles, energy solutions and essential assets. The MOFI Real Estate Investment Fund is widening access to long-term mortgage finance. Cash-transfer programmes provide direct support to poor and vulnerable households.
The question eventually became one of priorities. The resources required to sustain the arrangement had to be weighed against the nation’s needs for infrastructure, education, healthcare, human capital and productive investment. The issue was never whether Nigerians deserved protection from high fuel prices. The issue was whether a universal petrol subsidy remained the most effective and sustainable means of providing that protection to Nigerians.
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The impact of the removal of subsidy, alongside other reforms on macroeconomic stability, is equally noticeable. Its removal has substantially improved the government’s fiscal space by eliminating a large and wasteful expenditure obligation, thereby reducing fiscal pressure. Alongside foreign exchange market reforms, it has reduced foreign exchange distortions associated with fuel importation and smuggling, strengthened the external position and supported greater confidence in Nigeria’s fiscal and monetary stance.
The World Trade Organisation (WTO) has recognised the removal of fuel subsidies and exchange rate reform as important steps in addressing deep-rooted structural weaknesses and creating fiscal space. The broader reform programme has also received improved assessments from international credit-rating institutions. These are meaningful gains because fiscal stability and external resilience are essential foundations for sustainable investment and growth.
President Bola Ahmed Tinubu therefore deserves commendation for the courage to confront this difficult situation. The decision to remove the subsidy carried an immediate social cost, and Nigerians have felt it. It is a necessary pain on the paths towards an enduring recovery.
Universally, such pains are relieved through various interventions. Nigeria has not shied away from these global policy practices. Many interventions have been introduced to mitigate the effects of subsidy removal, while the economy adjusts. NELFUND reduces the immediate cost of tertiary education through interest-free student financing. CREDICORP is expanding responsible consumer credit for vehicles, energy solutions and essential assets. The MOFI Real Estate Investment Fund is widening access to long-term mortgage finance. Cash-transfer programmes provide direct support to poor and vulnerable households.
The Bank of Industry and related SME interventions are supporting businesses, manufacturing, agriculture and employment, while the Federal Government’s TVET programme combines skills training with stipends and start-up support. Investment in compressed-natural-gas buses and vehicle conversion is providing succour and reducing transport costs. Pro-poor and pro-business provisions in the new tax law are another important component of this response.
The measure of reform is ultimately the quality of the economy it leaves behind. The responsibility is to ensure that the sacrifice produces something worthy of it: greater productivity, stronger institutions, broader opportunity and ultimately, a more prosperous Nigeria.
Nigeria’s approach also finds support in international experience. Countries that have undertaken difficult energy subsidy reforms have generally found that the durability of reforms depends on credible social protection, clear communication and visible use of the resources released. Indonesia’s experience shows how cash transfers can help build public acceptance for fuel subsidy reform, while Iran replaced broad price subsidies with direct cash transfers as part of its 2010 reform. The Philippines, meanwhile, demonstrated the importance of sustained public communication and consensus-building in securing support for fuel price reform.
Ghana also commissioned independent poverty and social impact assessments before its reform and accompanied subsidy reform with measures covering education, transport, healthcare and rural electrification. The lesson here is that economic arithmetic may explain the need for reform, but social protection, transparency and competent governance give reform legitimacy and durability.
For that reason, reversing the removal of the subsidy would be a step in the wrong direction. It would restore the fiscal burden, revive the price differential that encouraged smuggling and arbitrage, and weaken incentives for efficient domestic refining. More fundamentally, it would address the immediate price of petrol, while leaving the structural weaknesses that produced the wider economic problem largely untouched. It would simply return the government to financing the difference between the regulated price and the underlying cost of supply, at the expense of competing national priorities.
Nigeria has made a difficult but necessary choice. The wiser course is to make the post-subsidy economy work for every citizen.
The measure of reform is ultimately the quality of the economy it leaves behind. The responsibility is to ensure that the sacrifice produces something worthy of it: greater productivity, stronger institutions, broader opportunity and ultimately, a more prosperous Nigeria.
Gboyega Nasir Isiaka (GNI), FCA, FCS, a member of the House of Representatives representing Yewa North/Imeko-Afon Federal Constituency also serves as chairman of the House Committee on National Planning and Economic Development.
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