Fuel Subsidy Removal and the 2027 Election: Was Nigeria Ready for the Shock?

By Victor E Emejuiwe

The conversation around fuel subsidy removal has returned to the center of Nigeria’s political debate following the decision of the Presidential Candidate of the African Democratic Congress (ADC), Atiku Abubakar, to make the restoration of petrol subsidy part of his 2027 campaign proposition. Atiku has maintained that he would restore the subsidy, while critics within the ruling All Progressives Congress (APC) have questioned the economic wisdom of such a proposal and accused him of using the policy to win voters.

But beyond the political argument, there is a more fundamental question that Nigerians must ask: Was the removal of fuel subsidy, under the circumstances in which it was implemented, the right economic decision?

There are strong economic arguments for removing fuel subsidy. For many years, Nigeria spent enormous public resources subsidising petrol, resources that could have been deployed to infrastructure, healthcare, education, social protection and other areas of development. The World Bank estimated that Nigeria’s petrol subsidy cost the country more than ₦8.6 trillion between 2019 and 2022 and described the arrangement as costly, regressive and opaque.

The first argument, therefore, is the need to create fiscal space for development. If government no longer spends huge amounts keeping petrol prices artificially low, those resources can potentially be redirected towards infrastructure and productive investments. In principle, this should create room for private-sector investment, improve productivity and expand economic opportunities.

Secondly, the history of the subsidy regime raises serious questions about corruption and accountability. A system that is difficult to monitor and that allows public resources to leak through fraudulent claims, diversion, smuggling and other abuses cannot be considered sustainable. The World Bank has also noted that the former subsidy system created incentives for smuggling and benefited relatively better-off consumers rather than the poorest Nigerians.

Thirdly, Nigeria’s petroleum sector has already moved towards a market-based pricing framework. Section 205 of the Petroleum Industry Act provides that wholesale and retail prices of petroleum products shall be based on unrestricted free-market pricing conditions, while allowing regulatory intervention where a licensed activity becomes a monopoly or is excessively dominated by a supplier.

Therefore, the economic argument for moving away from a permanent, open-ended petrol subsidy is not without merit.

However, the more important question is whether subsidy removal on its own is sufficient to improve Nigeria’s economy and the welfare of Nigerians.

This is where the current reality of Nigeria must be considered. The 2022 National Multidimensional Poverty Index found that about 63 percent of Nigerians, approximately 133 million people, were multidimensionally poor. This does not mean that all 133 million people were below the monetary poverty line; rather, they experienced multiple deprivations in areas such as living standards, education, health, employment and access to basic services.

Nigeria’s income level also remains low. World Bank data put Nigeria’s GDP per capita at about US$1,084 in 2024. While GDP per capita is not a direct measure of individual living standards, it illustrates the limited income base within which most Nigerian households are expected to absorb rising transportation, food and energy costs.

This is why the manner and timing of subsidy removal matter. For millions of Nigerians who depend on petrol-powered transportation, generators and small businesses, an increase in petrol prices does not stop at the filling station. It moves through the economy. Transport fares rise, the cost of moving agricultural produce increases, businesses spend more on energy, and the prices of goods and services rise.

The World Bank acknowledged that petrol price increases following the reform contributed to inflationary pressures. By December 2023, retail gasoline prices had increased by an average of 163 percent, while inflation had risen substantially, with the World Bank attributing part of the pressure to the one-off effect of subsidy removal. By May 2024, Nigeria’s annual inflation had reached 33.95 percent. The argument, therefore, should not simply be subsidy versus no subsidy. The more important question should be: What conditions must exist before subsidy is completely removed?

I strongly believe that if Nigeria must remove petrol subsidy, it should be done through a clearly defined and measurable transition. The first condition should be the availability of functional domestic refineries. A country that produces crude oil should have sufficient capacity to refine a significant proportion of its crude domestically. Nigeria’s dependence on imported refined petroleum products exposes consumers to international prices, foreign exchange fluctuations and exchange-rate shocks.

Government should therefore prioritise domestic refining capacity. This does not necessarily mean that government must own every refinery. Existing government-owned refineries should either be rehabilitated where economically viable or replaced where rehabilitation is no longer rational. At the same time, private refineries should be encouraged to operate within a competitive and transparent market.

With sufficient domestic refining capacity, the country can reduce its dependence on imported petrol and limit the foreign-exchange pressures associated with fuel imports. This could create room for a more gradual reduction of government intervention without transferring the entire shock to consumers. At that stage, a partial removal or targeted subsidy could be considered.

The next phase should be a serious investment in alternative sources of transportation and energy. Government cannot ask Nigerians to absorb the full cost of petrol while alternatives remain inaccessible. CNG conversion kits, electric vehicles, efficient public transportation, rail services and other cleaner energy options must be developed alongside adequate refuelling and charging infrastructure.

If a substantial proportion of Nigerians have access to affordable alternatives to petrol-powered transportation, the economy will be better positioned to absorb the complete removal of petrol subsidy.

This is particularly important because the success of subsidy removal should not be measured only by the amount of money government saves. It should also be measured by whether Nigerians have better transportation, lower logistics costs, more reliable electricity, increased productivity and improved household welfare.

There must also be transparency in whatever subsidy arrangement government chooses to operate. If government decides to provide a targeted subsidy, it must be capped, properly budgeted, independently audited and publicly reported. Every naira spent should be traceable. The actors responsible for approving, administering and receiving subsidy payments must be identifiable and accountable.

This is particularly important because the government has now disclosed that the removal of petrol subsidy mobilised an estimated ₦15.8 trillion in resources for the Federation between June 2023 and December 2025. Of this amount, about ₦5.43 trillion was attributed to the Federal Government, while ₦6.52 trillion went to states and ₦3.88 trillion to local governments.

This disclosure answers part of the question about where the resources went. But it also creates another important policy question: What measurable improvements in the lives of Nigerians can be attributed to these additional resources?

The states and local governments, which received a substantial share of these resources through the Federation Account, should be required to demonstrate how additional revenues have translated into better healthcare, education, roads, public transportation, water, social protection and other services.

The Federal Government must equally demonstrate that the fiscal space created by subsidy removal is producing tangible development outcomes.

The problem with the Tinubu administration’s approach was not necessarily the economic principle behind subsidy removal. The problem was the speed and sequencing of the reform and the inadequacy of the measures introduced to protect vulnerable Nigerians from the immediate shock.

The removal was announced abruptly in May 2023, and petrol prices rose sharply almost immediately. The World Bank warned at the time that without adequate compensation, higher petrol prices could push vulnerable households further into poverty and force families to reduce spending on essential needs such as education and healthcare.

The government subsequently introduced palliative measures and social transfers, but the scale, speed and sustainability of these interventions became a subject of considerable public concern. Temporary relief cannot substitute for a comprehensive social protection system capable of protecting households during major economic reforms.

The consequences have also extended to government itself. When fuel prices, transportation costs, construction materials and other inputs rise sharply, the cost of executing public infrastructure projects also increases. Therefore, part of the fiscal gains created by subsidy removal can be eroded if inflation and exchange-rate pressures substantially increase the cost of government spending. This is why subsidy removal cannot be treated as an isolated economic reform.

It must be accompanied by policies that increase domestic production, stabilise the foreign exchange market, expand public transportation, improve electricity supply, strengthen social protection and reduce the cost of doing business.

The current debate between the APC and the ADC should therefore go beyond whether Atiku’s proposal to restore subsidy is politically motivated or whether the APC was right to remove it.

The real question is whether Nigeria can design a subsidy system that protects vulnerable citizens without recreating the corruption and fiscal burden of the past. Similarly, the government must answer whether the savings from subsidy removal have been converted into improvements that ordinary Nigerians can actually see and feel.

The Federal Government says the subsidy reform created substantial fiscal space, and there is evidence to support the fact that significant resources became available to the Federation. But the economic success of the reform cannot be judged by fiscal savings alone. A reform that improves government finances while leaving citizens unable to afford transportation, food, healthcare and basic services will continue to face legitimate questions about its social sustainability.

For this reason, Nigerians may be receptive to Atiku’s promise to restore subsidy, not necessarily because they believe subsidy is the best economic policy, but because they are responding to the economic hardship they have experienced since its removal. That reality could become politically significant in the 2027 general election.

The lesson for Nigeria is therefore not that subsidy must permanently remain or that subsidy must permanently disappear. The lesson is that economic reforms must be sequenced around the capacity of citizens to absorb them. Nigeria needs a petroleum policy that reduces waste, discourages corruption, promotes domestic refining, attracts investment and protects public finances. But it also needs an economic system that protects ordinary Nigerians from sudden and unbearable shocks.

If subsidy must eventually disappear completely, then government must first build the conditions that make its disappearance economically and socially sustainable. The ultimate measure of subsidy reform should not be how much government saves, but how much better Nigerians are able to live.

Victor E Emejuiwe
Programs Manager
CHRICED
RESOURCE CENTRE for HUMAN RIGHTS
& CIVIC EDUCATION
08068262366