Nigeria, Africa's largest oil and gas producer, faces significant challenges in meeting its domestic gasoline needs. The country heavily relies on costly refined fuel imports, making it the 18th largest global importer of Refined Petroleum (OEC, 2021).
In late May 2023, President Bola Tinubu announced the elimination of fuel subsidies, causing panic and fuel shortages as private companies refused to sell at lower prices. The next day, my commute from home to work was extended by 1.5 hours due to long queues at government gas stations. My driver had to spend the entire night in line, from midnight to 11 am, before finally obtaining fuel to start working.
Two days later, Nigeria's state oil firm NNPC Ltd raised petrol prices by over 200%, signaling the beginning of an imminent removal of the subsidy regime that burdens NNPC with a monthly cost of $867 million.
Fuel subsidies were introduced in the 1970s as a response to the oil price shock and have proven challenging to remove in Nigeria. Previous attempts sparked nationwide protests in 2012, and opposition leader Tinubu opposed subsidy removal at the time.
But these subsidies have detrimental effects on the economy. They contribute to corruption and mismanagement, as evidenced by a $6 billion fraud case involving officials at NNPC. Additionally, subsidies drain significant government funds, leading to increased public debt. Price disparities between Nigeria and neighboring countries, coupled with supply chain inefficiencies, foster product smuggling, fuel shortages, and long queues at petrol stations.
To address these issues, the government should consider fully deregulating the petroleum sector, enabling market forces to determine prices, reducing the subsidy burden, and attracting private investment. In addition, encouraging renewable energy investments would diversify the energy mix, reduce dependence on fossil fuels, and mitigate the impact of global oil price fluctuations. Furthermore, incentivizing refinery investments would enhance domestic refining capacity and reduce reliance on imports, boosting the country's overall oil supply.