Subsidy removal: Nigerians pay price with no benefits, economist says

Dr Samson Simon, Chief Economist of ARKK Economics & Data Limited, says the removal of fuel subsidy by the Bola Tinubu administration has failed to deliver the economic and social benefits Nigerians were promised. Simon spoke on Tuesday.

He said economists, including himself, supported subsidy removal before Tinubu took office because government was spending huge resources to keep petrol prices low. The expectation was that savings would be redirected to education, healthcare and infrastructure.

Promises not matched by spending

Simon said that expectation has not materialised. 'Now that subsidy has been removed, unfortunately, there is nothing that we are doing now that we were not doing before, whether pertaining to education, healthcare or infrastructure,' he said.

He dismissed the argument that higher Federation Account Allocation Committee, FAAC, allocations mean states are receiving the money previously spent on fuel subsidy. He said much of the increase is nominal and reflects exchange rate changes rather than real resources.

He gave an example: before Tinubu came to power, $1 billion was around N460 billion. At the current official exchange rate, $1 billion is more than N1.3 trillion. The same dollar from four years ago now converts to more than three times the naira amount. 'If you look at the increase in FAAC allocation from before Tinubu came on board to now, it has largely been reflected in the exchange rate differential,' Simon said. 'It is just a nominal increase. It is what is being called money illusion.'

Subsidy removal was bungled

Simon was critical of how the policy was implemented. 'To be blunt, this government has bungled the subsidy removal. The money that should have been used right after subsidy was removed is hardly anywhere to be seen,' he said.

He said Nigerians are now bearing the cost that government previously shared. Before removal, for every one litre of fuel bought, a consumer paid one half and government paid the other half. 'By saying the government will not pay for subsidy, you are saying the Nigerian people should pay. It is the government that was paying before. Now the Nigerian people are paying for it,' he said.

He added that many Nigerians live below the poverty line and are struggling. 'If before now we were living in crushing poverty, you can only imagine the extent of poverty now that subsidy has been removed, and nothing commensurate, particularly for the most vulnerable, the bottom decile, the bottom 10%,' he said. 'What exactly has the government done to cushion the effect of this subsidy removal? Next to nothing. In fact, nothing.'

Transport, food and who bears the burden

Simon said the consequences go beyond petrol. Higher transportation and production costs are feeding into the prices of food and other essential commodities. 'The suffering has been visited on Nigerians, and even for people that have relatively decent jobs, they are struggling,' he said.

He also challenged the argument that fuel subsidy mainly benefited the rich. He said wealthy Nigerians with big cars, multiple vehicles and diesel generators may have benefited more in absolute terms. But the removal has hit the poorest hardest. 'The argument some of them, unfortunately, the current Minister of Finance keeps making, that when we were paying for subsidy, it was only benefiting the rich, which is false,' Simon said. 'Now that subsidy has been removed, who is bearing the brunt? Who is suffering it more than anybody? The poorest of the poor.'

Simon said the debate should not have focused only on the cost of subsidy without weighing the benefits. He said a proper cost-benefit analysis should have determined whether the benefits were worth the cost. He said he does not remember the government doing one.

For consumers and businesses, the pressure remains in transport, production and food costs. The exchange rate effect also means higher FAAC allocations in naira do not necessarily translate to more real resources for states.