Nigeria’s petrol subsidy abolition has so far failed to produce the promised improvements in living standards or public services, according to Dr Samson Simon, chief economist at ARKK Economics & Data Limited.
Key takeaways
- Simon says higher Federation Account allocations largely reflect naira depreciation rather than a genuine expansion of government resources.
- He argues that education, healthcare and infrastructure have not received visibly greater support since the policy change.
- Transport, farming and manufacturing costs have risen, pushing up food prices and worsening pressure on households.
- The economist rejects the claim that only wealthy Nigerians benefited from subsidised petrol, saying poorer citizens now face the greatest hardship.
- He does not support simply restoring the former arrangement and says assistance should instead target people least able to absorb higher prices.
Expected public benefits have not emerged
Simon said he had supported ending the subsidy before President Bola Tinubu took office, alongside other economists, because the government had been committing substantial funds to keep petrol prices artificially low.
The case for reform, he said, was that money previously devoted to reducing the pump price would be redirected towards schools, hospitals, roads and other essential infrastructure. Under the old system, consumers paid only part of the cost of each litre while the state covered the balance. The expectation was that individuals would bear the full price while public funds were used to improve services that benefit society more broadly.
That rationale has not been borne out, Simon said. He maintained that Nigerians have seen little evidence of additional spending or better outcomes in education, healthcare or infrastructure since the policy was introduced.
He also disputed the view that states have effectively received the former subsidy funds through larger disbursements from the Federation Account Allocation Committee, or FAAC. While allocations have increased in naira terms, he said the rise is mostly nominal and reflects the weaker exchange rate rather than a substantial increase in the purchasing power of government revenue.
As an illustration, Simon said $1 billion was worth approximately N460 billion at the exchange rate in place around the time before Tinubu assumed office. At the current official rate, the same amount exceeds N1.3 trillion. The naira value therefore rises by more than three times even though the dollar amount is unchanged.
In his assessment, much of the apparent growth in FAAC distributions can be explained by that exchange-rate difference. The increase does not demonstrate that money formerly spent on petrol support is now flowing to states. Instead, it is an example of “money illusion”: a larger nominal figure that does not represent a comparable gain in real resources.
Implementation left households exposed
Simon was particularly critical of the way the reform was executed. He said the government did not put sufficient measures in place before exposing vulnerable citizens to the full effect of higher fuel prices.
In his view, the administration mishandled the transition because promised relief has been difficult to identify. Ending the state’s contribution to the price of petrol means that the public must now carry a cost previously shared with government. For households already living below the poverty line, he said, that additional obligation has intensified an existing crisis.
The impact is especially severe for the poorest 10% of the population, who have received little or no assistance proportionate to the shock. Simon questioned what meaningful measures had been introduced to offset the change and concluded that the response had been negligible.
The damage has also spread beyond the amount paid at filling stations. More expensive fuel has raised transport and operating costs, which have then fed into food prices and the cost of other basic goods. Simon said even people with relatively secure employment are finding it difficult to cope with the resulting deterioration in purchasing power.
Subsidy benefits were not limited to wealthy consumers
Simon rejected the argument, frequently made by government officials including the finance minister, that petrol support mainly benefited rich Nigerians. Wealthier households generally used more fuel because they owned larger vehicles, several cars and diesel-powered generators, meaning their absolute benefit was greater.
However, he said that does not mean lower-income citizens gained nothing from the arrangement. When support was removed, the burden fell most heavily on people with the fewest financial resources and the least ability to absorb increases in transport, food and energy bills.
Simon argued that policymakers concentrated almost entirely on the fiscal cost of the subsidy and failed to measure the value it delivered to households and the wider economy. A proper assessment, he said, should have compared the expense of maintaining the programme with the social and economic gains it generated.
If the benefits exceeded the costs, retaining the policy would have been justified; if the two were broadly equal, there would still have been a case for continuation. In his view, abolition should occur only when the costs clearly outweighed the benefits. He said he had not seen data showing that the government conducted such a comparison before making its decision.
Higher fuel costs ripple through food and farming
The economist said petrol is a critical input across transportation, agriculture and other productive activities, giving the policy a multiplier effect throughout the economy. Once fuel becomes more expensive, the consequences extend into nearly every stage of producing and moving goods.
Food costs rise, as do the prices of other necessities, placing the greatest strain on people who are already struggling to eat. Simon also highlighted the difficulty of expanding irrigation farming as an alternative to reliance on rainfall. Irrigation equipment requires fuel, and many farmers can no longer afford enough of it to operate machinery and water their fields.
Salaried professionals are also under pressure. Simon noted that many academics, including professors, are poorly compensated relative to the new cost structure. For some workers, a monthly salary is barely enough to fill a vehicle’s tank, leaving little income for other household needs.
He said the principle of reform was not necessarily mistaken, but the policy had not been properly designed or prepared. The government, he argued, became focused on the large amount being spent on the subsidy and failed to account for the benefits that consumers and businesses had been receiving.
Social protection should match the scale of hardship
Simon further questioned whether Nigeria devotes enough of its budget to social support given the depth of the country’s economic difficulties. He pointed to the United States, where government social programmes account for more than half of federal spending, and asked what proportion of Nigeria’s budget is directed towards comparable measures.
In his view, there is no contradiction between running a market-oriented economy and providing assistance to citizens. The basic purpose of government, he said, includes protecting public welfare and helping people through severe economic hardship.
He clarified, however, that he was not advocating an automatic return to the exact subsidy structure that existed before Tinubu’s presidency. Any alternative would need to be carefully designed, including the proposal associated with Atiku Abubakar.
Simon said Atiku’s emphasis on the benefits of subsidy addressed one side of the issue, just as the Tinubu administration had focused primarily on its costs. Both sides, he argued, must be assessed together. The central question is whether Nigeria can afford to finance the full cost of bringing back petrol support.
Petrol below N200 is unlikely to return
Simon said consumers should not expect petrol to return to prices below N200 a litre, which had been possible before the reform. Reinstating the former arrangement would place a very heavy demand on public finances.
He did not describe such a price as absolutely impossible, but said it would be prohibitively expensive and that he doubted the Nigerian state would be prepared to fund the entire bill. Any decision, he maintained, should follow a careful comparison of fiscal costs and social benefits rather than a simple reversal of the existing policy.
For now, Simon said the government’s priority should be targeted support for the people least able to withstand the higher cost of living. Protecting the most vulnerable, rather than restoring the old system without modification, is in his view the most practical response.
