Moving Fuel-Subsidy Debate Beyond Idealogical Slogans

Iyobosa Uwugiaren argues that, amid the renewed debate over fuel subsidy recently ignited by candidate of the African Democratic Congress  in the January,  2027 presidential poll, Atiku Abubakar, Nigeria should be asking: What kind of subsidy provides the greatest protection to the poor at the lowest possible cost to taxpayers? In other words, Nigeria’s fuel-subsidy debate should move beyond ideological slogans.

The renewed debate over fuel subsidy has exposed one of the country’s most difficult economic policy questions: should the government allow petrol prices to be determined almost completely by market forces, or should it intervene to protect citizens from the full effects of international oil prices, exchange-rate volatility and domestic production costs?

Former Vice-President and African Democratic Congress (ADC) presidential candidate, Atiku Abubakar has answered that question in favour of intervention. He has recently reaffirmed that, if elected in 2027, he would restore a form of fuel subsidy, arguing that Nigeria is sufficiently endowed with oil resources to protect its citizens from excessive energy costs.

His proposal has, justifiably, generated controversy. Critics, especially government supporters, have argued that subsidy is fiscally expensive, encourages corruption, disproportionately benefits richer Nigerians who consume more petrol, and diverts public resources from infrastructure, healthcare and education.

These criticisms cannot simply be dismissed. To be sure, the previous subsidy regime was deeply compromised by allegations of fraud, opaque accounting and weak controls.

But there is another side to the argument. Many economists have argued that the failure of the previous subsidy regime does not necessarily prove that the idea of subsidising energy is inherently wrong. It may instead demonstrate that Nigeria designed and administered the subsidy poorly.

The dominant question, therefore, should not be whether Nigeria should subsidise energy under any circumstances. The more important question is: Can Nigeria design a subsidy that protects poor and vulnerable citizens while preventing politicians, importers, middlemen and officials from capturing the benefits?

The answer can be yes. In fact, there is broad international evidence that energy subsidies are not an economic aberration. One of the weakest arguments against fuel subsidy is the suggestion that serious economies simply allow energy prices to float freely. International experience demonstrates otherwise.

The World Bank’s Global Fuel Subsidies and Price Control Measures Database indicates that fuel subsidies, price controls and fuel-tax reductions remain widespread across the world. In its assessment of 154 economies, the World Bank identified many countries using some form of official fuel subsidy, recurring price freezes or fuel-tax reductions between 2021 and 2024.

The International Monetary Fund (IMF) likewise estimated that explicit fossil-fuel subsidies globally amounted to about $725 billion in 2024. These figures are important because they challenge the simplistic idea that subsidies are practised only by poorly governed developing countries.

Major economies and oil-producing states have used energy subsidies or price interventions for decades. Saudi Arabia, for example, has historically maintained fuel prices below international market levels.

Although the country has been gradually reducing subsidies under Vision 2030, the IMF reported that government compensation for energy prices was still equivalent to about 3.5 percent of GDP in 2024.

Iran provides an even more dramatic example. IMF data for 2024 indicated enormous explicit and implicit fossil-fuel subsidies, reflecting the country’s policy of keeping domestic energy prices far below international levels.

The lesson is not that Nigeria should duplicate every aspect of Saudi or Iranian energy policy. Rather, the lesson is that government intervention in energy pricing is a legitimate policy instrument used in many countries when governments believe that affordable energy serves broader economic and social objectives.

India provides perhaps the most useful lesson. With a population of about 1.47 billion people, India offers a particularly relevant example because it demonstrates how energy subsidies can be targeted towards poorer households rather than distributed indiscriminately.

Through the Pradhan Mantri Ujjwala Yojana, an Indian government scheme launched in 2016 to help poor households, especially women, the government provides subsidised LPG to eligible households. For the 2025–26 financial year, the Indian government approved a targeted subsidy of 300 rupees per 14.2-kilogram LPG cylinder for up to nine refills annually, with an expenditure ceiling of 120 billion rupees—about $1.27 billion. The programme had more than 103 million beneficiaries at the time of the announcement.

The implication for Nigeria is enormous. India has effectively recognised that energy affordability is not merely a market question; it is also a social-policy question. Poor families need energy to cook, travel, trade, farm, manufacture and earn a living. When energy prices rise sharply, the consequences spread throughout the entire economy.

Nigeria’s experience since subsidy removal validates precisely this transmission mechanism. Higher petrol prices increase transportation costs. Higher transport costs increase the cost of moving food from farms to markets. Businesses then increase prices to compensate for higher logistics expenses. Workers demand higher wages. Consumers lose purchasing power.

Consequently, a person who does not own a car can still be severely affected by petrol prices. Petrol subsidy can therefore function as an anti-inflation instrument.

This is perhaps the strongest argument for reconsidering subsidy in Nigeria. Petrol is not an isolated commodity. It is an input into virtually every part of the Nigerian economy. A farmer needs fuel to operate machinery or transport produce. A trader needs transportation. A manufacturer needs energy and logistics. A school bus needs petrol. A taxi driver needs petrol. A generator-dependent small business needs fuel.

When the price of fuel rises dramatically, the shock is transmitted throughout the economy.

Nigeria is particularly vulnerable because transportation infrastructure remains inadequate and millions of businesses depend directly or indirectly on petroleum products. The World Bank’s latest Nigeria Development Update acknowledges that food inflation and poverty remain high and calls for stronger social protection and improved public-spending efficiency.

Recent reporting has also highlighted the enormous cost-of-living pressures facing ordinary Nigerians following the removal of fuel subsidies, even as the government and investors point to improvements in public finances and macroeconomic stability. This creates an important policy dilemma.

A government may achieve fiscal savings by eliminating subsidy, but if those savings are accompanied by significantly higher transportation, food and production costs, the population may experience a deterioration in living standards.

Fiscal sustainability is important, but human welfare is the ultimate purpose of fiscal policy. The sound argument, therefore, is that the real problem is not necessarily subsidy; it is subsidy without accountability.

Nigeria’s historical subsidy regime provides legitimate grounds for scepticism. If the government simply announces that petrol should sell for N1, 200 while the market price is N1,500 and then allows politically connected companies to submit opaque claims for reimbursement, corruption becomes almost inevitable. The answer, however, should be institutional reform.

A modern Nigerian subsidy system should have several essential characteristics. First, full transparency. Every litre eligible for subsidy should be digitally tracked from refinery or port to final retail outlet. Second, independent verification. Subsidy claims should not be accepted solely on the basis of documents submitted by the companies receiving the money. Third, open publication of subsidy payments. Nigerians should be able to see how much was paid, to whom, for how many litres and at what benchmark price.

There should also be strict volume limits. Government should determine the maximum quantity eligible for subsidy rather than allowing unlimited claims.

There should be automatic auditing and prosecution as well. Inflated claims, smuggling and diversion should carry serious criminal and financial consequences.

In other words, Nigeria should move from a subsidy for suppliers to a subsidy for consumers.

One of the traditional arguments against subsidy is that government cannot identify the poor. That argument is becoming less convincing. Nigeria now has substantial digital identity, banking and payment infrastructure. A future subsidy system could combine national identity records, bank accounts, vehicle registration, tax information and consumption data to build a targeted energy-support mechanism.

Rather than subsidising every litre of petrol consumed by everyone, government could provide limited support for public transportation, commercial farmers, small businesses and verified low-income households.

Public buses and mass-transit operators, for example, could receive fuel support in return for maintaining regulated fares. Commercial farmers could receive energy credits linked to verified production. Low-income households could receive direct energy vouchers.

There is also nothing preventing the government from providing targeted energy support to small manufacturers tied to employment or production. Such a system would be far more defensible than a blanket subsidy.

Subsidy can also be justified as an investment in economic stability.

Another dimension frequently missing from the debate is that government expenditure should not be judged only by its immediate budgetary cost. If N1 spent on subsidy prevents several naira of additional inflationary pressure, business closures and household income losses, the subsidy may generate a wider economic return.

This does not mean that every subsidy payment is automatically productive. It means policymakers should compare the full economic cost of subsidy removal with the fiscal savings.

A government that saves trillions of naira through the removal of fuel subsidy but leaves millions of households significantly poorer has not necessarily maximised national welfare.

Indeed, the World Bank itself recognises that subsidy reform must be accompanied by mechanisms that protect vulnerable populations and that successful reforms require credible guarantees that savings will be used for public benefit.

However, Nigeria must learn from the mistakes of the past. A serious argument in favour of subsidy must acknowledge its dangers. A blanket petrol subsidy is inefficient because richer households generally consume more fuel than poorer households. It can also encourage smuggling when neighbouring countries have higher fuel prices. It can create opportunities for fraudulent claims, drain government revenue and discourage investment in efficiency.

But these weaknesses strengthen the argument for reforming subsidy, not necessarily for abandoning energy protection altogether.

Saudi Arabia’s experience is instructive here. The country has gradually reduced fuel subsidies while expanding targeted social support. The IMF has specifically noted the importance of targeted programmes to cushion vulnerable citizens as energy prices rise.

Nigeria could pursue the same principle: reduce waste, eliminate corruption and improve targeting while retaining a safety net against energy-price shocks.

If Atiku’s proposal is to become credible economic policy rather than an election slogan, he should provide Nigerians with a detailed subsidy framework.

He should state the maximum annual subsidy envelope.

He should identify the beneficiaries. He should explain how subsidy payments would be verified. He should specify how corruption would be prevented.

He should publish the benchmark formula for determining the subsidy. He should explain how domestic refineries would eventually reduce the cost of intervention.

Most importantly, he should commit to making the system transparent enough that Nigerians can independently determine whether the government is paying the correct amount.

That would transform the debate.

Instead of asking, Subsidy or no subsidy?, Nigeria should be asking: What kind of subsidy provides the greatest protection to the poor at the lowest possible cost to taxpayers? The Nigerian fuel-subsidy debate should move beyond ideological slogans.

Those who advocate complete deregulation are right that Nigeria cannot indefinitely spend scarce public resources subsidising inefficient consumption. Those who defend subsidy are equally right to point out that energy prices have enormous consequences for poverty, inflation, transportation, food prices and household welfare.

The international evidence demonstrates that government intervention in energy markets is not unusual. The real lesson for Nigeria is therefore not that subsidy is inherently good or inherently bad.

Badly designed subsidy is bad economics. Corrupt subsidy is worse. But a transparent, targeted and properly funded energy subsidy can be legitimate social and economic policy.

Nigeria is an oil-producing country with millions of citizens living under severe cost-of-living pressures. It would be difficult to justify a policy framework in which the country exports crude oil but leaves ordinary citizens completely exposed to every movement in international energy prices and exchange rates.

The objective should be to ensure that Nigeria’s petroleum wealth produces a tangible welfare dividend.

The ultimate test should be simple: Does the policy reduce the cost of living for poor Nigerians without becoming another channel for public money to disappear? If the answer is yes, then fuel subsidy should not be dismissed merely because previous governments abused it.

Nigeria does not need to choose between market economics and social protection. It needs a system that combines both market discipline where markets work and government intervention where protecting citizens is a legitimate national responsibility.