A subsidy is financial support provided to businesses in an economy by the government, often during recessions or other periods of low economic growth. Subsidies might involve direct cash payments, but they might also take the form of discounts or forgiven charges.
For example, a government might issue cash payments to businesses, but it might also provide a subsidy by forgiving loans or reducing taxes. Fuel subsidy applies to companies in the petroleum sector. It reduces the overall price people pay to buy petroleum related products by funding the extraction and importation of these resources.
Fuel subsidy removal has been a contentious issue in many countries around the world. In Nigeria, the fuel subsidy removal has been a recurring debate for several years, with some calling for its complete and immediate removal and others propagating for its continuation.
Presently, there is a renewed debate about the subsidy issue after the pronouncement by President Bola Tinubu that the subsidy regime is over. Fuel subsidy removal can allow governments to save money and allocate funds to other areas of development.
On the other hand, it can significantly increase the cost of living for citizens. In this article, we’ll go over both the pros and cons of fuel subsidy removal.
Pros:1. Encourages energy conservation – removing fuel subsidies will encourage people to conserve energy, as the cost of using energy will increase.2. Reduces government spending – governments can save money by reducing subsidies, which can be used for other programmes and projects allowing for funds to be reallocated elsewhere in the economy.
3. Reduces oollution and an Improved Environment – reducing fuel subsidies can reduce air pollution caused by burning fossil fuel. This encourages clean energy sources due to their reduced cost when compared to subsidised fuel. Hence, reduction in green house effects and ozone layer depletion and by extention global warming.
4. Increases efficiency: Without subsidies, prices reflect market conditions more closely, which can lead to increased efficiency in resource allocation.5. Reduces corruption: though a touchy subject there’s a lot corruption allegations surrounding the payment of subsidies.
Cons:1. Increases energy costs – fuel costs may increase, leading to an overall increase in energy costs. 2. Possible increase in corruption – without subsidies, there may be an increase in corruption, as businesses could manipulate prices or take advantage of consumers.
3. Increases cost of living. The removal of fuel subsidies can significantly increase living costs, especially for those living in rural areas with limited access to other transportation options. Lower-income families may be disproportionately affected by the removal of fuel subsidies.
4. Disincentivizing growth in certain sectors: Without subsidies, certain industries (such as agriculture) might be less incentivised to grow, as they depend heavily on fuel for transportation and production.
In conclusion, while removing the fuel subsidy has some advantages, it also has lots of disadvantages. The government must carefully consider the impact of removing the subsidy and take steps to mitigate any negative effects.
Rich and advanced countries still subsidise fuel for their people but the sad reality is that corruption and economic realities will not allow Nigeria to continue the subsidy regime. I was of the opinion we fight the corruption and cabals in the oil industry but I later found out that it is beyond that.
We cannot continue to borrow to pay subsidies. It is not sustainable. Increasing minimum wage is a positive step towards mitigating the impact of removing the fuel subsidy. Government at all levels should increase workers’ salaries.
However, additional measures need to be implemented to ensure that society is adequately prepared for the potential effects of this policy change. We can go the Mozambique way. When they undertook the removal of fuel subsidies, the government widely distributed transport discount vouchers to reduce the impact of the reform process on citizens like workers, students, and the elderly.
This helped reduce the cost of transportation which would have been difficult for this group of people. These are some of the measures the Nigerian government should look into for the well-being of its people.
The focus should be on finding a shock absorber that balances the need for economic growth and development with the need to ensure that Nigerians have access to affordable fuel and transportation.
Although we are all facing difficulties to adapt to this new normal, I am optimistic there will be light at the end of the tunnel. Let us all keep enduring.
Imam Maiyaki,
Kaduna, Kaduna state
