Removal of the subsidy: earnings, losses – daily trust

Halfway in the first mandate of President Bola Tinubu, the Scorecard of his management does not seem impressive, at least for most of the Nigerians, who continue to wait for the crystallization of the positive effects of its reference economic reforms.

Tinubu has anchored his election campaign on economic reforms, which the state of the Nigerian economy had made imperative at the time. He dependent on his reform program in search of adequate prices of the products, in particular oil products and foreign currency.

His first day in office, while he was still at the inauguration office on May 29, 2023, in Eagle Square in Abuja, Tinubu made the now famous declaration: “The subsidy has disappeared”. With this, the new president has deregulated the sector downstream of the oil industry. He barely two weeks later, his administration followed another bold move, deregulating the change market. On June 14, Nigeria’s central bank floated by Naira.

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These two political measures, which many have described as false steps, interacted in such a way as to restore the Nigerian economy well beyond what the Nigerian normal ones expected. To be honest, the economy had been prepared for a restoration. The change market needed a revision. Naira was “economic” on the official market, compared to its value on the parallel market. This created a golden opportunity for the arbitrage that favored the speculators. The return and round trip-costumes of the official market and selling in the black market-it became a highly expanding activity. All that a disturbing rental is needed was simply a connection in the banking sector to access the dollars at official rates, which would then download the black market to create a quick profit. The government was anxious to fill this gap, since the differential in rates was a loss through implicit subsidies.

In the oil sector, the government has undergone an equally discouraging task: how to manage subsidies on the local consumption of refined oil products. That subsidy had become a huge drag on the economy. The estimates of the cost of the subsidy varied, but each indicated a significant threat to economic stability. The World Bank opposed the subsidy and, in June 2023, stated that the tax cost for Nigeria rose from 1.1 percent of total revenues in 2020 to 32.4 percent in 2022, or 2.2 percent of GDP, “costing more than the budget assigned to health, combined education and social protection”.

With the removal of the subsidies and the flotation of Naira, the bank provided for tax earnings of about N3.9 trillion in 2023, equivalent to 1.6 percent of GDP. The earnings, they added, would rise above n21 trillion between 2023 and 2025.

Earn the statements from the arithmetic book

The government was strident in his statements on earnings from removing subsidies. Last November, the helpers of President Tinubu pulled out the figures. The administration said that Nigeria was saving $ 7.5 billion a year from the reforms. But some clarifications are needed to understand the real image.

While Tinubu announced the end of the subsidy on his inauguration day, the practice continued implicitly. This has again highlighted the unsorted nature of the reforms. According to the World Bank in his update for the development of the Nigeria of May 2025, the subsidy was not completely removed until October 2024 The bank did not do.

However, the reforms had a positive impact on the external sector of Nigeria, according to the central bank. The CBN recorded a balance of excess payments of $ 6.83 billion in 2024, a deficit turning point of $ 3.34 billion in 2023 and $ 3.32 billion in 2022.

“The 2024 surplus Bop highlights the effectiveness of the reform agenda under the course of Nigeria,” said the CBN in a report at the beginning of this year. He has attributed the improvement to liberalization and unification of the change market, a disciplined monetary policy and better coordination between tax and monetary measures, which contribute to greater competitiveness and feeling of investors.

In the same period, the balance of the current account risen to $ 17.22 billion, compared to $ 6.42 billion in 2023 and $ 3.48 billion in 2022. This, according to the bank, was due to the increase in exports, the reduction of import invoices and the decrease in the net flow for net income.

Progress between challenges

Undoubtedly, the reforms brought a measure of progress in the oil industry. Today, the Nigerians can drive in petrol stations in different parts of the country and, in a few minutes, buy the product they need. The long queues and the scarcity of fuel that suffocated the cities ended.

This change was largely due to the increase in local refining capacity, led by the private sector. To lead this revolution is the refinery of Dangote, the 650,000 BPD giant that redefines the sector downstream of the oil industry of Nigeria. Based in Ibeju-Lekki, Lagos, the factory is quickly establishing itself as a market leader and price setter.

Since the deregulation led to price peaks – sometimes higher than n1,000 per liter, the refinery has constantly lowered its price in line with the dynamics of the global market. This offered a measure of relief in a volatile market.

The government has also helped to support politicians such as the Naira-For-Crude initiative, which allows the refinery to pay crude oil to Naira. The administration deserves credit for having quickly faced the wrong ideas that have almost derail this policy.

Other operators who add to the growing refining capacity include Eghudu Refinery Limited (100,000 BPDs) in the Edo State, MB refinery and petrochemicals (30,000 BPD) in Delta and its refining and petrochemical (10,000 BPD) in Abia. Further collaborators are Edo Refinery and Petrochimical Company (12,000 BPD), Duport Midstream (2,500 BPD) and Walter Smith Refinery (5,000 BPD).

Then there are four NNPCL refineries in Port Harcourt (2), Kaduna and Warri, with a combined capacity of 445,000 BPDs. These public structures still have to be shot but could carry out significant roles once rehabilitated.

Losses: growing difficulty and public discontent

Despite these earnings, economic reforms have inflicted significant pain in the middle Nigerian. The most visible impact was the increase in the title and food inflation. With the removal of the subsidy for the fuel and the Naira float, the prices across the board have risen to the stars. At the beginning of 2024, inflation had crossed 30 %, with food inflation that reached levels that pushed millions into a deeper poverty.

The Naira float, although aimed at unifying exchange rates and attracting investments, triggered a free drop that at some point saw the currency trade near N2.000 in the dollar. Although you are a bit stabilized, the initial damage to purchasing power has already been done.

Fuel prices tripled and transport costs followed the example. A significant number of workers now spends more than half of their income for commuting. The cost of the cooking gas has also jumped, with a 12.5 kg cylinder that now sells above n15,000 in some parts of the country, from about N5,000 before the reforms. Food, rent, school taxes and health care have all become more expensive, pushing the families of the middle class on the edge.

The government’s response through palliative was slow and largely ineffective. While has allocated N500 billion for palliative programs, many of these initiatives – such as school nutrition, cash transfers and mass transit support – are still in pilot phases or have had a minimal scope. For most Nigerians, the promised cushioning has yet to materialize. The gap between the expectations of the public and the reality of the results of the reform continues to expand.

What increases public frustration is the disconnection visible between the sacrifices required of citizens and the lifestyle of those who are in the government. Among the economic pain, the news of luxury SUVs, foreign trips and inflated budgets for political offices have continued to emerge. These optics have damaged the credibility of the government and deepen resentment.

Two years after the official removal of the fuel subsidy, Nigeria is located in a complex moment. The reforms were necessary: ​​the deep would discuss differently. The economy was to connect tax losses, improve transparency and increase productivity. But the execution and the times have exposed deep structural weaknesses.

Yes, there have been fiscal earnings, improved external balances and greater confidence of investors. But the cost for the middle Nigerian was disconcerting. The disconnection between macroeconomic data and daily realities could not be more clear.

Unless the government acts definitely to provide relief, invest in social infrastructures and reconstruct public trust, the legacy of reforms may not be the celebration of earnings economists, but citizens of difficulties remember.

Dr. Vincent Nwanma is an expert company analyst and researcher with over 30 years of experience in economic and economic journalism throughout Nigeria and other parts of Africa.