Nigeria’s Fuel Subsidy: A Historical Analysis

The Nigerian subsidy debacle has remained a point of intense debate, protests, and government policy shifts, shaping the country’s economic and political landscape for decades. From military regimes to the democratic governments of today, each administration has handled the fuel subsidy differently. Below is an in-depth look at the history of fuel subsidy in Nigeria, highlighting the presidents who implemented or adjusted it, the economic implications, and the controversy surrounding its removal.

Pre-Democracy Era: A Foundation for Fuel Subsidy Policy

The roots of Nigeria’s fuel subsidy policy can be traced back to the military era. Following the oil boom of the 1970s, Nigeria’s economy became heavily reliant on petroleum exports, with revenues from crude oil sales constituting a significant portion of national income. Successive military regimes recognised the importance of oil and aimed to keep fuel prices low to foster stability among citizens. As such, the government began subsidising fuel to maintain affordable prices and mitigate the cost of living for Nigerians.

One of the earliest significant actions came under General Olusegun Obasanjo’s military rule (1976–1979), when efforts were made to regulate and stabilise fuel prices due to fluctuating global oil prices. The subsidy was relatively modest but served as a precursor to the more formalised subsidy structure that would develop in subsequent administrations.

Babangida’s Era and the Expansion of Fuel Subsidy

Under General Ibrahim Babangida (1985–1993), the fuel subsidy policy became more structured as part of an effort to address economic challenges. Babangida introduced policies that increased fuel prices slightly while maintaining subsidies, partly due to recommendations from international organisations like the International Monetary Fund (IMF) as a way to reduce Nigeria’s debt burden. His administration’s adjustments increased fuel prices by about 60%, which spurred protests from the public who viewed the subsidy as essential for daily economic stability.

However, as Nigeria was still under military rule, these changes were implemented without the political challenges that democratic governments would later face. The Babangida administration’s subsidy strategy, though controversial, set the stage for later civilian administrations to grapple with the same economic and political complexities.

The Jonathan Saga: Attempts to Remove Subsidy and the Fuel Subsidy Protests

Goodluck Jonathan’s presidency (2010–2015) brought the fuel subsidy issue to national attention, sparking one of the most significant protests in Nigeria’s recent history. In January 2012, Jonathan’s administration announced the removal of the fuel subsidy, which led to fuel prices increasing from ₦65 per litre to ₦141 per litre, a 116% price increase. Jonathan argued that the subsidy removal was essential to address Nigeria’s growing fiscal deficit and allow funds to be redirected towards infrastructure development.

Jonathan’s decision, however, was met with widespread public backlash, sparking a nationwide protest known as the “Occupy Nigeria” movement led by the Labour Unions. Citizens viewed the subsidy as a vital social safety net, and the removal led to fears of increased hardship amid already difficult economic conditions. The protests forced Jonathan to partially reinstate the subsidy, reducing the price from ₦141 to ₦97 per litre, but the episode left a lasting impact on his presidency.

Jonathan argued that his attempt to remove the subsidy was informed by the then-robust economic growth Nigeria was experiencing. With the nation being Africa’s largest economy at the time, he believed it was the right moment to phase out subsidies and reinvest in other sectors. However, the lack of transparency in subsidy spending and allegations of corruption in subsidy management exacerbated public distrust, adding to the challenges of implementing such reforms.

Muhammadu Buhari: An Initial Continuation of Subsidy

Muhammadu Buhari’s administration (2015–2023) initially continued with the subsidy policy, with fuel prices subsidised at ₦145 per litre despite the rising cost of maintaining the programme. In 2020, following the COVID-19 pandemic, the government announced the removal of the subsidy as global oil prices dropped sharply, making the timing seem favourable. However, the subsidy was soon reintroduced, as public backlash and economic pressures led to fuel prices being set at ₦162 per litre in 2021.

Buhari’s government argued that Nigeria’s economy, recovering from the pandemic, still required the subsidy to prevent inflation and the escalation of transport costs. By the end of Buhari’s tenure, the subsidy had become a significant strain on government finances, costing approximately ₦4.39 trillion annually.

President Tinubu and the Controversial Removal of Fuel Subsidy

Upon assuming office in May 2023, President Bola Ahmed Tinubu made a landmark announcement, stating, “the fuel subsidy is gone.” This declaration marked the official end of fuel subsidy payments and led to an immediate spike in fuel prices, with prices reaching ₦500 to ₦600 per litre in many parts of the country. Tinubu justified the removal by arguing that subsidy payments were unsustainable, draining national resources that could be better spent on healthcare, education, and infrastructure.

However, Tinubu’s administration has faced accusations from industry experts, who allege that subsidy payments have not been entirely abolished. Some analysts claim that the government still indirectly subsidises fuel by offering foreign exchange concessions to oil marketers to mitigate the impact of fluctuating currency exchange rates. These accusations remain controversial and have yet to be fully addressed by the government.

A Policy Marred by Controversy and Economic Realities

Fuel subsidy in Nigeria has long been a double-edged sword. While it has provided immediate relief to citizens by keeping fuel prices affordable, it has also strained government resources and facilitated corruption. The National Bureau of Statistics (NBS) reported in recent years that a substantial portion of subsidy funds was siphoned off through fraudulent claims, further straining Nigeria’s finances and sparking calls for reforms.

The subsidy system has now left Nigerians divided. On one side, citizens and civil society groups argue that subsidies are essential to alleviate the high cost of living, especially with Nigeria’s inflation rates and economic challenges. On the other, economic experts and international organisations have long urged Nigeria to end the subsidy and redirect funds towards sustainable development goals.

Conclusion: A Decades-Long Policy at a Crossroads

As President Tinubu’s government faces ongoing questions about fuel subsidy policy and the future of Nigeria’s energy economy, the nation stands at a critical juncture. The legacy of fuel subsidies reveals a pattern of governments balancing economic realities with public sentiment, often sacrificing long-term fiscal health for short-term relief.

Whether Tinubu’s approach will pave the way for economic transformation or spark renewed social unrest remains to be seen. The story of fuel subsidy in Nigeria continues to evolve, as each administration confronts the same challenges in different forms, leaving a legacy of economic policies that future leaders will inevitably have to address.