I have followed with considerable interest the continuing debate over Nigeria’s economic reforms, particularly the arguments surrounding the removal of the petrol subsidy and the direction of economic policy under President Bola Ahmed Tinubu. Such debate is necessary. Government policy must remain open to scrutiny, especially when its consequences are felt directly in citizens’ daily lives.
Against this background, I read Professor Bongo Adi’s recent opinion on Nigeria’s growth trajectory, including his reference to the Rule of 70. Adi is an economist whose contribution to public discourse I respect. The mathematical rule he cited is also well understood. It estimates the time required for a quantity to double, assuming a constant growth rate. So, for instance, an economy growing at a constant rate of four per cent annually will take 17.5 years to double its size. The difficulty arises when this calculation is treated as a prediction of a nation’s economic trajectory without adequately recognising the rule’s limitations. Economic outcomes are dynamic, shaped by emergent trends, while the Rule of 70, by its nature, assumes constancy. Indeed, the purpose of economic reform is to alter the conditions that constrain growth and ultimately improve the growth rate, which delivers better development outcomes.
Therefore, the erudite Bongo’s suggestion that the subsidy regime be reversed on the strength of the result of the mathematical rule of 70 is, in my view, too simplistic.
Subsidy is a legitimate instrument of public policy. Governments use it to protect consumers, support strategic industries, correct market failures and cushion temporary economic shocks. Nigeria’s petroleum price intervention developed over several decades, beginning with a broader regime of price regulation in the 1970s. Its objectives included moderating inflation, supporting industrial development and providing affordable energy to citizens. As domestic refining capacity weakened and dependence on imported petroleum products increased, the subsidy component became progressively more pronounced, and its cost to the economy became increasingly difficult to sustain.
As the fiscal burden expanded, the subsidy became increasingly difficult to reconcile with Nigeria’s limited public resources and enormous development needs. What NNPC described in its books as “under-recovery” represented, in economic substance, the cost of selling petrol below its supply cost. The price differential also created powerful incentives for smuggling and arbitrage, while regulated pricing weakened incentives for investment in domestic refining.
Nigeria could export crude, import refined petrol and devote enormous public resources running into trillions of naira to maintaining an artificially low domestic price.
The question eventually became one of priorities. The resources required to sustain the arrangement had to be weighed against the nation’s needs for infrastructure, education, healthcare, human capital and productive investment. The issue was never whether Nigerians deserved protection from high fuel prices. The issue was whether a universally applied petrol subsidy is the most effective and sustainable way to provide that protection.
President Bola Tinubu, therefore, deserves commendation for the courage to confront this paradox. The decision to remove the subsidy carried an immediate social cost, and Nigerians have felt it. It is a necessary pain on the path towards an enduring recovery.
Universally, such pains are relieved through various interventions. Nigeria has not shied away from these global policy practices. Many interventions have been introduced that can cushion the effect of the subsidy removal while the economy adjusts and stabilises. NELFUND reduces the immediate cost of tertiary education and enhances access through interest-free student financing. CREDICORP is expanding responsible consumer credit for vehicles, energy solutions and essential assets. The MOFI Real Estate Investment Fund is widening access to long-term mortgage finance. Cash-transfer programmes provide direct support to poor and vulnerable households. The Bank of Industry and related SME interventions support businesses, manufacturing, agriculture and employment, while the Federal Government’s TVET programme combines skills training with stipends and start-up support. Investment in compressed-natural-gas buses and vehicle conversion is meant to provide succour in transportation by reducing transport costs. Several pro-poor and pro-business provisions in the new tax law, which became effective early this year, are another important component of this response.
Nigeria’s approach also draws on international experience. Countries that have undertaken difficult energy-subsidy reforms have generally found that reform durability depends on credible social protection, clear communication, and visible use of the resources released. Indonesia’s Bantuan Langsung Tunai provided a social assistance programme through direct cash transfers to low-income and vulnerable households to help build public acceptance for fuel-subsidy reform, while Yaraneh, a Persian word for Subsidy described similar cash support to households by the government of the Republic of Iran in replacement of broad price subsidies as part of its 2010 reform. The Philippines, meanwhile, demonstrated the importance of sustained public communication and consensus-building in securing support for fuel-price reform, while Ghana accompanied its subsidy reform with measures covering education, transport, healthcare, and rural electrification. The lesson here is that economic arithmetic may explain the need for reform, but social protection, transparency and competent governance give reform legitimacy and durability.
That the subsidy removal alongside other related policies has had positive impacts on the country’s macroeconomic dynamics is no longer debatable. The economy has become more stable, with many variables heading North. The removal has substantially improved government fiscal space by eliminating a large and wasteful expenditure obligation, thereby reducing fiscal pressure. Alongside foreign-exchange market reforms, it has reduced foreign exchange distortions associated with fuel importation and smuggling, strengthened the external position, and supported greater confidence in Nigeria’s fiscal and monetary stance. Foreign reserves have grown tremendously, currently standing at over $50bn, providing a financial safety net and confidence to the international community. The IMF and World Trade Organisation represented by their Nigerian Director General, among others recognised the removal of fuel subsidies and exchange-rate reform as important steps in addressing deep-rooted structural weaknesses and creating fiscal space, and these have been reflected in the improved credit rating by several international credit-rating institutions. These are meaningful gains because fiscal stability and external resilience are essential foundations for sustainable investment and growth.
For these reasons, reversing the removal of the subsidy would be a step in the wrong direction. It would restore the fiscal burden, revive the price differential that encouraged smuggling and arbitrage, and weaken incentives for efficient domestic refining. More fundamentally, it would address the immediate price of petrol while leaving the structural weaknesses that produced the wider economic problem largely untouched. It would simply return government to financing the difference between the regulated price and the underlying cost of supply, at the expense of competing national priorities.
Nigeria has made a difficult but necessary choice. The wiser course is to make the post-subsidy economy work for every citizen.
The measure of reform is ultimately the quality of the economy it leaves behind. The responsibility now is to ensure that the sacrifice produces greater productivity, stronger institutions and a more prosperous Nigeria.
Isiaka represents Yewa North/Imeko-Afon Federal Constituency of Ogun State in the House of Representatives and serves as Chairman of the House Committee on National Planning and Economic Development.
Provided by SyndiGate Media Inc. (Syndigate.info).
