The Nigerian government announced the deregulation of the country’s fuel prices in 2020. This means that fuel prices at petrol stations in Nigeria will now be determined by market forces rather than a formula set by the Federal Government. This has had a profound impact on prices and has caused fear among the Nigerian people. Here’s what you need to know about the Nigerian fuel plans and how they will impact the economy.
From Subsidy To Self-Reliance
The Nigerian economy is one of the most vibrant in Africa, yet its fuel efficiency is among the worst. The country has seen rapid economic growth over the last few years, but many Nigerians struggle with poverty. This leaves them unable to afford any form of alternative transportation. The government is currently exploring different avenues for cheaper fuels that Nigerians could use and provide them with cleaner air. However, this goal seems a long way off due to corruption and inefficient bureaucracy.
Since deregulation of the petroleum market in September 2020 in an attempt to reduce its eye-watering $4 billion per year subsidy, prices at the pump have shot up. Nonetheless, deregulation isn’t the only reason for this happening.
Uniquely for an oil-producing nation, Nigeria has to import most of its domestic supplies, and as such is just as much at risk of crude oil price changes as other nations. When you contrast that with low wages, the cost is far higher than other nations. As you can see in the image by Compare the Market Fuel above, Western nations have a higher cost per litre; but when compared with monthly income, the cost in real terms is dramatically lower. This has a knock-on effect for almost everything in the economy. For example, it’s well-known that consumer prices increase in relation to petroleum prices.
What Is Next For Nigeria?
Although the Nigerian government wants to scrap its fuel subsidy, it seems to be aware that many regular Nigerians are fearful of supporting themselves. To that end, they are beginning to introduce cash handouts to its citizens to the tune of 5,000 Naira, or $12.20 USD, per month. Nonetheless, the question remains: will this plan reduce costs for Nigerian Citizens?
Corruption Could Scuttle Handout Attempts
Nigeria is notorious for having one of the most corrupt governments in the world, and this is playing on the minds of most citizens. Many are worried that the planned cash will never make it to their pockets and instead end up in the ether. Unfortunately, this is an accurate prediction, as there have been numerous examples of fraud, embezzlement, and outright theft. This is particularly true in the case of Nigerian law enforcement, who are infamous for corruption. The main issue with cash is its unaccountable nature; it’s easy to see why people fear that this handout will never arrive or, if it does, be taken away from them without opportunity for recourse.
High-Tech Solutions
In an attempt to allay the people’s fears, the government is looking to provide these handouts to their rightful owners by using advanced biometric technology combined with traditional forms of identification. However, despite a thriving economy, many people still lack a bank account or even a government-issued ID. In order to alleviate some of the teething pains, the government is looking to the World Bank to assist them in designing a system that will enable them to provide this much-needed assistance to as many people as possible.
Is This Simply Another Form Of Subsidy?
Indeed, this looks like another subsidy, hidden behind the veneer of helping the people. Some have argued that this is simply the government’s attempt to reduce accountability in an effort to reduce its budget. Furthermore, some economists even state that it is unsustainable in the long run and could lead to increased misery due to people not receiving their cash.
What Do Regular People Think?
In many cases, Nigerians are unhappy with the situation because they don’t know if they will receive this money or even if it will be enough to cover rising fuel costs. Furthermore, with the current price sitting around 165 Naira per litre, 5000 Naira is only enough for around 30 litres of gasoline.
Is Nigeria’s fuel plan up to a first-world standard? In theory, yes, as the program looks set to reduce the government budget while still providing the people with a much-needed source of cash to pay for their fuel needs. However, in practice, the answer has to be no. The main reason is the lack of accountability of cash coupled with a corrupt state apparatus ready to take advantage of the situation.