Subsidies have become a prominent feature in Nigeria’s economic landscape since the introduction of the Structural Adjustment Programme (SAP) in the mid-1980s. This period marked a significant shift in the country’s economic policy, transferring much of the government’s social and economic responsibilities to the private sector. Core components of SAP included the privatization of state-owned enterprises, financial and trade liberalization, and allowing market forces to determine prices. This led to the withdrawal of subsidies on essential commodities, particularly in agriculture and petroleum products.
Successive governments have continued to implement these market-driven policies, adhering to the dictates of international financial institutions like the World Bank and the International Monetary Fund (IMF). These policies were a response to the economic crisis that followed the overthrow of President Shehu Shagari’s government, a crisis that Chief Obafemi Awolowo had forewarned. Shagari’s administration introduced austerity measures to cut public spending, including rationalizing unnecessary expenditures.
During this period, Nigeria’s import license regime was grossly abused, leading to rampant importation of essential commodities through the Nigerian National Supply Company. The economy became heavily dependent on imports, from household items to foodstuffs like rice, which replaced locally produced varieties. The political elite, in collusion with private sector operators, engaged in over-invoicing and other corrupt practices that further weakened the economy.
The economic downturn provided the military with the pretext to intervene, promising to correct the nation’s economic and political trajectory. During the military rule, counter-trade policies were introduced, bypassing the international payment system, which resulted in adverse effects on Nigeria’s balance of payments and a sharp decline in foreign reserves. This approach pushed the country deeper into financial crisis, as Nigeria defaulted on its international debt obligations. By the time the military regime ended, Nigeria was in a dire financial state, with its letters of credit rejected by trading partners, raw materials and consumables for the manufacturing sector halted, and foreign reserves depleted.
The overvaluation of the Naira became a significant issue, leading to the introduction of the Second-Tier Foreign Exchange Market (SFEM), the first step in the devaluation of the currency. The devaluation began with a “crawling peg” adjustment, starting with the Naira at N4 to $1. This was followed by a national debate on whether Nigeria should seek IMF support to guarantee its borrowing from the international financial market. The debate concluded in favor of seeking IMF assistance, which came with strict conditionalities, including the withdrawal of subsidies on agricultural inputs and petroleum products.
Since then, successive governments have struggled to bring Nigeria out of the economic quagmire, with the country continuing to rely heavily on crude oil revenue. The subsidy issue remains a politically charged topic, with significant economic implications for the well-being of Nigerians.
When Nigeria’s four refineries were operational, the concept of petroleum subsidies was virtually nonexistent. However, with the refineries closed, the country has incurred substantial costs, detrimentally affecting the economy. The Obasanjo administration once planned to privatize the refineries, but this did not materialize. Recognizing the business potential in the downstream petroleum sector, Aliko Dangote developed a plan to establish a private refinery, meticulously navigating the risks and challenges in the sector.
The successful operation of the Dangote Refinery could pose a serious threat to the existing monopolies in West Africa’s and Africa’s broader petroleum markets. If the refinery becomes fully operational, the issue of subsidy payments could be eliminated, closing a significant drain on national income.
Recently, the President approved the use of over N2 trillion from the Nigerian National Petroleum Corporation Limited’s (NNPCL) dividend to subsidize petroleum products, with the price of PMS hovering around N1,000 per liter at filling stations. The current political climate, characterized by excessive living costs and a growing divide between the wealthy and the poor, highlights the need for urgent economic reforms.
To revive Nigeria’s economy, it is essential to prioritize agriculture and industry, unlock investment opportunities in the solid minerals sector, and rejuvenate transportation infrastructure like railways. Encouraging both local and foreign investors to reinvigorate the manufacturing sector will pave the way for industrialization and self-reliance, leading to economic growth and prosperity.
The lingering issue of petroleum subsidies should be resolved by supporting the Dangote Refinery, the upcoming BUA Refinery in Akwa Ibom, and other emerging players in the industry. This will help Nigeria regain its economic footing and reduce its dependence on international financial institutions.
President Bola Ahmed Tinubu has the opportunity to leave a lasting legacy by reviving Nigeria’s economy and making the country self-sufficient and self-reliant. Creating an enabling environment for investors will boost confidence and trust in his administration’s ability to deliver on promises, ensuring that investments are safe, secure, and capable of fostering steady growth and profitability.
Mahmud Shuaibu Ringim
HALIM Consulting Ltd
mahmudshuaibu44@gmail.com
