By Oliseneku Chukwuwinke Melody
Harboursandprt.com: Delta State - Fuel Subsidy refers to the financial support provided by the Nigerian government to reduce the cost of fuel for its citizen. Fuel Subsidy applies to companies in the petroleum sector and it reduces the overall price people pay to buy petroleum related products by funding the extraction and importation of these resources. Nigeria is one of African's largest producer of crude oil, and it relies heavily on this resources for it economic growth. Subsidies were initially introduced in Nigeria in the 1970s as a response to the oil price shock of 1973. The situation of the shock led to a global rise in oil prices, and if the international rates were to be used would have made Nigerians pay more, thereby forcing the government to regulate local prices for energy products.
The Olusegun Obasanjo military regime formalized the subsidy in 1977 when it promulgated the "Price Control Act" which regulated prices of items including fuel. Subsequent administration attempted to remove the subsidy but failed to do so because it is widely popular among citizens; many of whom consider it their major or only benefit from the federal government. It gradually became a heavy burden to the government as the cost of maintaining the subsidy increased over the years. In January 2012, the former President Goodluck Jonathan; in a bid to remove subsidy led to increased fuel price from N65 to N141 which culminated in protest rocking different parts of the country. Subsidy payments have always been thwarted by issues of corruption and a lack of fiscal transparency.
Furthermore, in 2015, former President Muhammadu Buhari said "The removal of fuel subsidy would add to the economic woes of Nigerians.” He also referred to the subsidy as "Fraud" and "Non-existent" even though his administration retained it, spending 11.7 trillion naira ($26bn) from 2016-2023.
At his inauguration speech on 29th may 2023, President Bola Ahmed Tinubu, said that the Fuel Subsidy is gone. He made this statement in his speech few minutes after his swearing-in ceremony, saying the scheme has "Increasingly favored the rich more than the poor". He said that the subsidy could no longer justify its ever increasing costs in the wake of drying resources. President Tinubu said money that was previously meant for fuel Subsidy will now be used to better the Nigerians economy "We shall instead re-channel the funds into better investment in public infrastructure, education, health care, and jobs that will materially improve the lives of millions".
Moreover, the removal of fuel subsidy has some advantages and disadvantages. The Advantages of Fuel Subsidy removal includes;
Fiscal Responsibility: The removal of fuel subsidy is seen as a fiscally responsible move as it will help ease the financial burden on the Nigerian government.
Encouragement of Domestic Refining Industry: Subsidy removal may encourage the growth of Nigeria's domestic refining industry by making fuel prices more reflective of market forces.
Reduces Government Spending: The government can save money by reducing subsidies which can be used for other programs and projects, allowing for funds to be re-allocated to other sector of the economy.
Reduces Corruption: Although a delicate subject, there is a lot corruption allegation surrounding the payment of subsidies.
Additionally, the removal of fuel subsidy will permanently banish queues from petrol stations across the nation, and free the country from the endless pains and sufferings that come with fuel scarcity which makes Nigerians line up in petrol station for a day. Fuel subsidy removal could boost the country's economy by creating jobs for Nigerians, and curb the greed for higher profit and sabotage by a few players in the oil industry which will positively affect the economy.
On the other hand, disadvantages of the removal of fuel subsidy include;
Increased Cost of Living: The removal of fuel subsidy is the potential increase in the cost of living for Nigerians especially for those living in rural areas with limited access to other forms of transportation. Lower income families may be disproportionately affected by the removal of fuel subsidies. Higher prices will likely lead to higher cost for goods and services.
Public Unrest: This could lead to social unrest and protests, which may continue if the government fails to address concerns about transparency and corruption in government spending.
Disincentivized growth in certain sectors: Without subsidies, certain industries (such as agriculture might be less incentivized to grow, as they depend heavily on fuel for transportation.
Furthermore, the removal of fuel subsidy could lead to a rise in fuel smuggling and other illegal activities.
The Government must carefully consider the impact of removing the subsidy and take positive steps to cushion any negative effect. Increasing the salary of civil servants and workers is a positive step towards cushioning the impact of removing the fuel subsidy. The focus should be on finding a solution that balances the need for economic growth and development with the need to ensure that Nigerians have access to affordable fuel.
Oliseneku Chukwuwinke Melody, a student of Delta State University, wrote in from Abraka, Delta State.
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