As part of an effort to stabilize the economy and establish fiscal responsibility, the Nigerian government ended a decade long policy that subsidized gasoline imports. The end to fuel subsidies sent the price of gasoline soaring, doubling, and even tripling the price of gasoline in some parts of the country. In response to rising gas prices, the public spilled into the streets in major cities like Ibadan, Abuja, Ilorin and Lagos, protesting the now unaffordable commuting costs. Unions also announced their plans to strike indefinitely.
At the end of 2011, fuel subsidies surpassed the $8 billion mark for Nigeria, which the government hopes to save and redirect to infrastructure upgrades and social programs to improve the quality of life for Nigerians. According to the U.S. Department of State, out of 80,500 kilometersof roads, more than 15,000 kilometers are officially paved, but many remain in poor shape. If sustained, the fuel subsidy can help save more than $6 billion for the government. The International Monetary Fund supports the elimination of subsidies.
Initially, “the objective for the subsidy was to lower fuel prices and increase fuel availability for Nigerians,” Think Africa Press reports. “Yet even with the subsidy in place, frequent shortages were a common occurrence and the price of fuel rarely stooped to the benchmark price of N65 per litre set by government. Nigeria’s four refineries remain in a constant state of disrepair, and allegations of sabotage are rife.”
On a more positive note, Nigeria has been seeing investments to its public transportation infrastructure, and hopefully, some of the saved subsidies can make their way into improving mobility for the masses. For example, in 2009, the Nigerian Federal Government initiated the 10 billion Nigerian naira Public Mass Transit Revolving Fund (PMFT) to ease the challenges of mass transportation by providing funds for procurement and distribution of mass transit vehicles. In 2010, the United Kingdom invested £30 milllion (about US$46 million) to pay for buses and trains to replace the chaotic molues and danfoes of the city.
In 2007, 31 out of every 1,000 people in Nigeria owned a private vehicle, in comparison to 820 out of 1,000 people in the United States, the World Bank reports. Many of these vehicles are second-hand goods sent to Nigeria from the US. In fact, in 2010, the US exported more than 6.4 billion Nigerian naira (about $400 million) worth of second-hand goods to Nigeria. Most often, many of these cars are meant to go to scrap yards in the U.S. Though cheap to purchase, old and inefficient cars cost more to operate, overall, both in terms of gasoline and repairs. They also pollute more, adding to health and climate change concerns. Nigeria’s per capita carbon emissions is only a fraction of that of the United States, yet air pollution from transportation is a major concern for the country’s urban areas.
It doesn’t seem like much in comparison, but the increased gas prices can have a huge impact on how people live their lives. In fact, thousands have taken to social media to show their dissatisfaction. According to data from the Nigerian National Bureau of Statistics, unemployment in Nigeria is on average around 19.7 percent. Further adding to the concern is the level of poverty in the country. In a joint paper by the Department of Urban and Regional Planning and the Department of Geography and Regional Planning at the Olabisi Onabanjo University in Nigeria, the authors state that over three quarters of the households in most Nigerian cities earn income below poverty lines. The inadequate transportation network has failed many Nigerians as they struggle to make ends meet. The presence of the export system of used cars is therefore not surprising, especially considering the economic condition of many living in Nigerian cities.
“The major beneficiaries of subsidy are the rich, middle class and neighbouring Countries where the products are smuggled oftentimes,” explained Mr. Labaran Maku, the Nigerian Minister of Information. “In the light of our current realities and the need to stimulate economic growth, is it prudent to continue to retain fuel subsidy?”
The reality is, although removing Nigeria’s fuel subsidy will increase the price of fuel, the increased price is nowhere near the true cost of gasoline. Earlier last year we wrote about how the true cost of gasoline in the United States should be near $15 per gallon. The increased price of gasoline in Nigeria would be a little more than $2-$3 per gallon.