FUEL SUBSIDY: IF GOVERNMENT SAVES ₦15 TRILLION BUT MILLIONS OF NIGERIANS SUFFER, WHO REALLY BENEFITS?
For the Attention of President Bola Ahmed Tinubu
By Abbati Bako
Political Philosopher and Governance Analyst
The Minister of Finance reportedly argues that Nigeria is losing ₦15 trillion annually to fuel subsidies and that the arrangement is unsustainable.
But this raises a fundamental question: What is the ultimate purpose of government—to balance its books or improve the lives of the people it governs?
The question deserves serious consideration, particularly in a democracy where citizens elect leaders with the expectation that public policies will protect their welfare, expand economic opportunities and improve living standards.
The argument is not that government expenditure should be unlimited or that public funds should be spent without accountability. Rather, it is that fiscal discipline must be evaluated alongside its social and economic consequences.
A government may record financial savings while households struggle with rising transport fares, food prices, production costs and declining purchasing power. If the benefits of those savings do not translate into improved living conditions, citizens are entitled to question the policy's overall value.
GOVERNMENT IS NOT A PRIVATE BUSINESS
Government is fundamentally different from a private commercial enterprise.
A company is primarily established to generate returns for its owners or shareholders. Government, by contrast, has broader responsibilities: maintaining security, providing public services, developing infrastructure, protecting vulnerable citizens and creating conditions for economic prosperity.
Public policy therefore cannot be judged exclusively by whether it produces an accounting surplus.
Defence spending, public healthcare, education and social protection may not generate direct commercial profits, yet they can deliver substantial benefits to society.
The same principle applies to fuel subsidies. Their justification should not rest solely on whether they reduce the price of petrol, but on whether they provide measurable benefits to households, businesses, farmers, transport operators and the wider economy.
Equally, subsidies should not be defended simply because they are popular. Their costs, beneficiaries, effectiveness and long-term sustainability must be examined objectively.
The real question is whether Nigeria can design an energy-pricing policy that protects citizens without imposing disproportionate costs on public finances.
THE NEOLIBERAL ECONOMIC DEBATE
For decades, international financial institutions, including the World Bank and the International Monetary Fund, have advocated fiscal discipline, reduced inefficient subsidies and more market-oriented economic policies.
Supporters of these reforms argue that poorly designed subsidies can encourage waste, distort prices, discourage investment and divert public resources from essential services.
Critics, however, argue that rapid subsidy removal can transfer enormous costs to ordinary citizens, particularly in countries where public transportation is inadequate, electricity supply is unreliable and social protection systems are weak.
Nigeria's experience brings this debate into sharp focus.
When petrol prices rise, the consequences extend beyond the cost of filling a vehicle. Transport operators adjust fares, businesses face higher distribution costs, farmers pay more to move produce and manufacturers contend with increased operating expenses.
These pressures can contribute to inflation and reduce household purchasing power.
Consequently, the economic assessment of subsidy reform should account for both the fiscal savings government expects to achieve and the costs households and businesses must absorb.
WHAT OTHER COUNTRIES TEACH US
International comparisons offer useful lessons, although the differences between countries must be acknowledged.
1. The United States: Public spending beyond commercial returns
The United States commits substantial resources to national defence. Such spending is justified primarily in terms of national security and strategic interests, rather than direct commercial profit.
The lesson is that governments routinely spend money on objectives that cannot be assessed using ordinary business-profit calculations.
However, defence expenditure and fuel subsidies serve different purposes and have different economic consequences. The comparison illustrates the broader principle of public spending, not proof that every subsidy is justified.
2. The United Kingdom: Healthcare as a public responsibility
The United Kingdom's National Health Service provides publicly funded healthcare, with most services free at the point of use.
Its value is assessed through public-health outcomes, access to treatment and social welfare, rather than commercial profitability alone.
This demonstrates why the success of public policy must be evaluated against its intended social objectives.
3. Germany: Protecting households during an energy crisis
Following Russia's invasion of Ukraine and the resulting energy-price shocks, Germany introduced measures to cushion households and businesses against soaring energy costs.
These interventions reflected the government's responsibility to mitigate the economic consequences of an extraordinary external shock.
Nigeria can draw lessons from such interventions, particularly the importance of targeted support during periods of severe price increases. However, the fiscal capacity and economic circumstances of the two countries differ considerably.
4. Oil-producing countries: Managing petroleum wealth
Several oil-producing countries use public revenues to support citizens through energy subsidies or other welfare arrangements.
Their experiences demonstrate that petroleum wealth can be channelled into programmes intended to improve citizens' living standards.
Nevertheless, the cost and effectiveness of these arrangements depend on domestic production, population, fiscal capacity, consumption patterns and the design of the subsidy system.
Nigeria must therefore develop a model suited to its own circumstances rather than copy another country's policy without examining the underlying conditions.
WHAT DOES DEMOCRACY REQUIRE?
Abraham Lincoln's celebrated definition of democracy as government of the people, by the people and for the people captures an essential principle of representative government.
Citizens elect leaders to exercise public authority on their behalf. Those leaders are expected to consider the public interest when making decisions that affect livelihoods and economic opportunities.
But democracy is not simply a system in which governments automatically implement whichever policy receives the loudest public support.
Elected leaders must also consider constitutional obligations, competing interests, long-term economic consequences and the rights of future generations.
The democratic responsibility is therefore twofold: governments must listen to citizens, and they must explain the consequences of their decisions honestly.
If Nigerians believe affordable petrol is essential to their survival, the government has a responsibility to take that concern seriously.
If the government concludes that the existing subsidy system is financially unsustainable, it must demonstrate why its alternative is necessary, how the savings will be used and what protection will be available to vulnerable households.
Democracy requires more than announcing difficult decisions. It requires public accountability for their consequences.
WHO REALLY BENEFITS FROM FUEL SUBSIDIES?
The strongest argument for retaining fuel subsidies is that lower petrol prices can reduce costs across the economy.
Consider four important sectors.
1. Agriculture and food security
Farmers depend on affordable energy for irrigation, mechanised farming, processing and the transportation of agricultural produce.
When petrol and diesel prices rise, the costs of moving fertiliser, seeds, machinery and harvested crops can also increase.
These additional expenses may eventually be reflected in food prices.
A well-designed subsidy could help moderate some of these pressures. However, its actual impact would depend on how much of the benefit reaches farmers and consumers rather than intermediaries or other high-volume fuel users.
Government should therefore evaluate fuel pricing alongside targeted agricultural support, rural infrastructure, irrigation and affordable transportation.
2. Transportation and household welfare
For millions of Nigerians, transportation is an unavoidable daily expense.
Higher petrol prices can increase commercial transport fares and raise the cost of commuting to work, attending school, accessing healthcare and conducting business.
For low-income households, these increases can consume money otherwise available for food, rent and education.
The central policy question is whether subsidy removal generates sufficient economic benefits to compensate for these additional burdens.
Where compensation is inadequate, the immediate consequences can outweigh the promised long-term benefits for many households.
3. Small businesses and employment
Small businesses are particularly vulnerable to increases in energy and transportation costs.
Manufacturers, traders, artisans and service providers often operate with limited capital and narrow profit margins. Higher operating costs can force them to increase prices, reduce production, postpone expansion or cut jobs.
Affordable and reliable energy can support business activity, but fuel subsidies alone cannot guarantee industrial growth.
Nigeria also needs reliable electricity, improved infrastructure, access to credit, policy stability and a business environment that encourages investment.
4. Public confidence and democratic legitimacy
Economic policies affect not only household finances but also public confidence in government.
When citizens are repeatedly asked to make sacrifices without seeing corresponding improvements in public services, trust can deteriorate.
Conversely, transparent spending, credible social protection and visible improvements in living standards can strengthen confidence in democratic institutions.
This makes the management of subsidy savings a matter of public accountability, not merely fiscal administration.
THE ₦15 TRILLION QUESTION: WHAT ARE THE ALTERNATIVES?
If the government claims that fuel subsidies cost ₦15 trillion annually, Nigerians deserve a detailed explanation of how that figure was calculated, the period it covers and the assumptions behind it.
They also deserve to know what the government intends to achieve by removing the subsidy.
The relevant questions include:
- How much will the government actually save after accounting for the costs of implementation and any replacement programmes?
- How will the savings be allocated among infrastructure, healthcare, education, security and social protection?
- What measurable improvements have citizens received from previous fiscal reforms?
- What mechanisms exist to prevent waste, corruption and diversion of the resources released?
- What evidence demonstrates that the benefits of subsidy removal will eventually outweigh its immediate economic costs?
These questions are especially important when citizens face higher living expenses and businesses struggle with the cost of production.
A government cannot establish the success of subsidy removal simply by announcing the amount it no longer spends. It must also demonstrate what the country gains in return.
FISCAL SAVINGS VERSUS SOCIAL COSTS
The strongest criticism of subsidy removal is not necessarily that government should spend indefinitely to keep petrol cheap.
It is that the fiscal savings must be assessed alongside the social and economic costs of the policy.
Suppose a government saves trillions of naira by eliminating a subsidy but simultaneously experiences higher expenditure on social interventions, rising borrowing requirements or weaker economic activity.
That would not automatically mean the reform had failed. It would, however, make a comprehensive assessment essential.
Similarly, if subsidy removal reduces fiscal pressure but leaves households facing sharply higher transport and food costs, the government must explain how those consequences fit into its broader economic objectives.
Claims about the amount saved, the number of people pushed into poverty or the value of the economic benefits should be supported by reliable data.
The objective should be to establish the net effect of the policy, rather than assume that either subsidy retention or removal is automatically the better option.
NIGERIA'S EXPERIENCE: LESSONS FROM PAST REFORMS
Nigeria's history demonstrates that fuel pricing is not merely an economic issue. It is also a politically sensitive question closely connected to public trust and the cost of living.
The 1980s: Structural adjustment and public resistance
During the Babangida administration, Nigeria implemented structural adjustment measures that included changes to petroleum pricing and other aspects of economic policy.
These reforms generated public opposition amid wider economic difficulties.
The experience illustrates the political risks associated with economic restructuring when citizens believe the immediate costs are falling disproportionately on them.
January 2012: The Jonathan administration
The Goodluck Jonathan administration's attempt to remove the petrol subsidy in January 2012 triggered widespread protests under the Occupy Nigeria movement.
The government subsequently reduced the pump-price increase, demonstrating the influence of public resistance on a major economic decision.
However, Jonathan's defeat in the 2015 presidential election cannot be attributed to the subsidy controversy alone. Security challenges, economic conditions, political competition and other factors also shaped the election.
May 2023: Tinubu's subsidy announcement
President Bola Ahmed Tinubu announced the end of the petrol subsidy regime during his inauguration on 29 May 2023.
The subsequent rise in petrol prices contributed to a broader increase in living and operating costs, although exchange-rate changes, supply conditions and other economic factors also influenced prices and inflation.
The reform's long-term consequences should therefore be evaluated using evidence on government finances, inflation, poverty, employment, household welfare and economic growth.
The fundamental lesson is that a policy's success cannot be established by its stated intention alone. Its actual results must be measured.
SHOULD NIGERIA RESTORE THE SUBSIDY?
This is the central question raised by the subsidy debate.
There is a legitimate argument for protecting citizens from extreme energy-price increases, particularly where high transport costs, unreliable electricity and weak purchasing power make adjustment difficult.
There is also a legitimate argument that an expensive, poorly targeted subsidy may consume resources that could otherwise fund essential public services.
The answer should not be determined by ideology alone.
Instead, the government should publish transparent cost estimates, demonstrate how any savings are being spent and compare the results with the social and economic consequences of the reform.
If retaining a universal subsidy proves too costly or disproportionately benefits wealthier consumers, the government could consider targeted transport assistance, support for farmers and small businesses, improvements in public transportation and other measures designed to protect vulnerable households.
Such interventions must be adequately funded, transparently administered and independently evaluated.
The ultimate objective should be to ensure that economic reform improves the welfare of Nigerians rather than merely changes the government's expenditure profile.
CONCLUSION: THE PEOPLE MUST REMAIN THE CENTRE OF ECONOMIC POLICY
President Bola Ahmed Tinubu and his economic team face a difficult policy choice.
Nigeria must manage public finances responsibly, reduce waste, invest in development and protect citizens against avoidable hardship.
These objectives are not mutually exclusive. The challenge is to design policies that reconcile them.
If the government believes that eliminating the petrol subsidy is necessary, it must explain the decision in terms ordinary Nigerians can understand. It must also show where the savings are going and establish credible mechanisms for ensuring that citizens benefit.
If, on the other hand, the government determines that some form of subsidy or targeted energy support would produce greater social and economic benefits, it should evaluate that option transparently and demonstrate how it can be financed sustainably.
The argument that government exists to serve the people remains fundamental to democracy.
But serving the people requires more than promising cheap fuel. It requires affordable transportation, stable food prices, reliable electricity, accessible healthcare, quality education, employment opportunities and responsible management of public resources.
Ultimately, the relevant question is not simply whether Nigeria saves ₦15 trillion by removing fuel subsidies.
The real question is whether the economic choices made by the government are improving the lives of Nigerians—and whether the benefits justify the sacrifices citizens are being asked to make.
That is the standard against which any major economic reform should be judged.
Abbati Bako is a political philosopher and governance analyst. He can be reached via abbatibako@gmail.com or +234 907 788 9959.