OPINION – The fuel subsidy and political debate

Textbook economics tells us that an economy that is spending a whopping N4.1 trillion to finance subsidy that goes into the hands of private marketers and bureaucrats while it spend far less for both education

By Sam Amadi

The World Bank, the IMF and local financial experts have warned that if Nigeria does not end its fuel subsidy regime it will enter into ’existential crisis’. It is really horrible when you pay more for subsidy for fuel than you have to invest in capital projects and even recurrent costs. It is deadly when you borrow money to finance subsidy for a product that the rich who can pay the real price consume more than 70% of it. It is heartbreaking when you are paying a subsidy for a product that you are abundantly blessed but you have to refine it abroad because your refineries are not working, although you are paying their workers salaries.

Textbook economics tells you to remove the subsidy now. But real life economics (political economy) tells you don’t do it yet. Textbook economics tells us that an economy that is spending a whopping N4.1 trillion to finance subsidy that goes into the hands of private marketers and bureaucrats while it spend far less for both education, healthcare and social protection is almost dead. But political economy will argue that the medicine can be worst than the disease. You need to remember that you are still an inefficient state, that the savings that you intend to get from removal of subsidy will go to politics and to the private pockets of technocrats. Like I argued in a monthly column for the FInancial Nigeria:


“Talking of removing subsidy and investing savings on the poor in a country where the Accountant General of the Federation embezzled more than N90b in one instance rings false. No one should believe that a country like Nigeria, in the present circumstance, has the capacity to convert subsidy payment to

Investment in critical social and physical infrastructure. No one who notes how President Buhari has refused to cut down the costs of governance in spite of the recommendations of the Orosanya Committee Report will agree that Nigerians should pay N700 for a litter of fuel so that government will save N9 trillion to finance infrastructure. An inefficient government that cannot control the basics within its control cannot be trusted to properly reinvest subsidy savings”.


So, it is easier to see the inefficiency of paying subsidies. What’s not so easy is how to ensure that removal of subsidy does not become a double whammy for the poor. We need to have a good debate about how the removal should be structured so that the benefits will be more than the costs, how we can mitigate the adverse consequences for the poor in the short to medium term, how to strengthen the capacity of the state to properly husband the savings, and what redistributive measures to put in place to ensure that subsidy removal does not exacerbate poverty and inequality.


As the venerable Dudley Seer points out the questions to ask about any economic policy is “What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality”.

Now, what are the major presidential candidates saying about their policy responses to this major economic sword of Damocles over the nation? We need to hear their policy prescriptions in more detail. Peter Obi wants to remove subsidy now. What does he intend to do to answer to Dudley Seer’s concern about poverty? What will be the mitigating factors and how will he manage them? The same questions for Atiku who wants to phase the removal. I have not heard about Tinubu’s perspective on the subsidy problem. We need to hear his voice.

This is a presidential conversation we need seriously and urgently. Instead of sloganeering and abusing each other, the campaign organizations can begin to show how they will govern. Election is not all important. Governing after election is actually more important.


Amadi is a lawyer and public policy expert.

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