Fuel Subsidy Removal in Nigeria: A Misstep in Policy Implementation from a Policy Consultant's Perspective

The decision to remove fuel subsidies in Nigeria has been a contentious issue for decades, marked by political resistance, economic complexities, and public scepticism. However, the recent removal has triggered an economic crisis and adversely affected the lives of millions of citizens. The recent decision by President Bola Tinubu to end fuel subsidies in Nigeria has ignited debates and discussions about the complexities surrounding this long-standing issue. This has triggered an all-time hike in consumer goods and services prices within Nigeria, with citizens expressing their dissatisfaction and concerns about the impact of these changes. While there is a compelling case for ending fuel subsidies to promote a transition to a clean energy and net-zero future and redirect savings towards public infrastructure, how this policy was implemented lacked a people-centred approach and continuous stakeholder engagement. No matter how well-intentioned, a policy is destined for failure if it does not consider the people as significant stakeholders . The fuel subsidy removal in Nigeria is a prime example of this failure to prioritise the citizens' well-being, balancing the social, environmental and economic metrics to achieve sustainability. As a policy consultant, I will analyse what went wrong in the policy implementation, offer recommendations for a more practical approach, and discuss the broader implications of this decision.

• What Went Wrong

The decision to phase out fuel subsidies without concomitantly establishing localised and suitable social safety nets has left the population in a precarious state. While cash transfers constitute one element of social safety nets, it only? addresses a single facet of the multifaceted poverty prevalent within the affected populace. Consequently, there is an urgent demand for a comprehensive strategy encompassing subsidised healthcare, accessible education, small business grants, and other support mechanisms to effectively confront the citizens' economic and social challenges, moving beyond sole reliance on cash transfers. The introduction of cash transfers was initially conceived as a mitigating measure and the untimely floating of the national currency has led to a depreciation of the naira's value, and as a reactive approach, the government has proposed borrowing $10 billion to stabilise the naira. Cash transfers are now no longer adequate to cover essential utilities and living expenses. This underscores the need for a more comprehensive and integrated approach to social safety nets, ensuring that the population receives sufficient support during this challenging period.

Another pivotal concern arises from the lack of involvement of stakeholders in the decision-making process. Who were the principal stakeholders consulted, and did local government authorities have a voice in this matter? What were the results of these consultations? This approach could have ensured transparency, which was conspicuously absent in the decision-making process. Transparency is fundamental for cultivating public trust and garnering support for such a momentous policy change. The government should have actively engaged diverse stakeholders, disseminated comprehensive information, and orchestrated public consultations to elucidate the rationale and potential benefits of removing subsidies. In line with the 7C's protocol of policy implementation, the policy execution should have primarily addressed the question of "when" . The decision coincided with global economic uncertainty and rising living costs. This unfortunate timing exacerbated the immediate impact of the policy on citizens, who were already struggling with financial hardships. Neglecting this temporal aspect raises concerns about the potential for increased governance costs and exacerbated inefficiencies. This situation also presented an opportunity to the government (which was not exercised) to adopt a servant -leadership approach, underscoring its dedication to lead by example by reducing wasteful spending and enhancing transparency in public expenditures, thereby diverting from business-as-usual budgetary practices.

Moreover, the lack of effective communication with the public is at the core of the transparency issue. The abrupt and unexplained surge in fuel prices resulting from subsidy removal has triggered public outrage and protests. The decision to discontinue fuel subsidies was made suddenly, without prior communication or consultation with the public. This lack of transparency has sown confusion and stoked public resentment. The abrupt termination of fuel subsidies has led to a sharp hike in fuel prices, setting off a domino effect throughout the economy. Escalating transportation and food costs have contributed to the highest inflation rate in 18 years, adversely affecting the cost of living and small businesses. The policy reform's shortcomings highlighted a lack of strategic foresight on the part of the government, revealing a failure to adequately prepare for eliminating fuel subsidies. The original intent behind this move was to redirect the savings toward bolstering public infrastructure. However, this presented a missed opportunity to invest in sustainable energy sources. Nigeria could have employed these funds to advance clean energy initiatives and reduce its reliance on fossil fuels at the household level and among small businesses.

Years ago, I remember when I drafted a policy proposal for Nigeria for Her Majesty's Government COP26 Hackathon with some colleagues Daniel Adegoke , emphasising the necessity for people-centred transitions to clean electricity. This proposal identified gaps in established policy plans, such as affordability, and recommended using social cash transfers from social protection schemes to champion subsidies for renewable electricity among vulnerable and impoverished populations. This approach could have facilitated households and businesses in transitioning to renewable technologies, potentially utilising a portion of the subsidy as a down payment or assistance.

While removing fuel subsidies may have had economic justifications, it should have been preceded by comprehensive research to understand its potential consequences. The government needed to assess the expected impacts on inflation, transportation costs, and the overall cost of living and develop compensatory policies accordingly.

• Recommendations

To address the current situation, it is essential to thoroughly re-evaluate and apply the lessons learned from past errors to achieve a more favourable outcome. Active and continuous stakeholder engagement is crucial, and the development of a comprehensive assessment to identify all the needs and set proactive measures, such as protecting vulnerable groups affected by the policy change. It is not too late to go back to the drawing board- this program can be grounded in a holistic social protection framework, enabling continuous feedback mechanisms from stakeholders through a responsive, transparent, and accountable platform. In planning future policy changes, a comprehensive stakeholder engagement process must be adopted, incorporating consultations with experts, industry representatives, civil society organisations, all levels of government and respective agencies and the general public. Furthermore, adopting an iterative approach, a comprehensive impact assessment must be conducted. This assessment should encompass an analysis of potential inflationary effects, increases in transportation costs, and the impact on the prices of essential goods. The findings from this assessment can then inform compensatory measures.

A well-prioritised and thorough communication strategy is essential. It should elucidate the reasons for reform, underscoring how the subsidy system has strained public finances and how reform will reallocate resources toward essential services and development. Transparent communication is paramount for building public trust. The government should adopt a proactive and transparent approach to communicating with the public. It is imperative to provide a clear and comprehensive explanation for the subsidy removal, emphasising the long-term benefits of the policy and the measures in place to protect vulnerable citizens.?

Rather than implementing an abrupt removal, a phased approach should be considered. This approach would involve gradually reducing subsidies, accompanied by support measures for low-income households. Phasing out the subsidy can minimise the immediate economic shock on the population. Understanding the concept of 'transition' is critical, as it guides the timing and implementation of policies at different stages and levels. Implementing the removal of fuel subsidies in a phased manner allows citizens and businesses the necessary time to adjust, mitigating the immediate economic shock and protecting the most vulnerable.The government should be prepared to trim its budgets as a demonstration of shared sacrifice while implementing robust monitoring and oversight mechanisms to ensure that the intended benefits reach the proper beneficiaries and minimise the risk of corruption. Redirecting the savings from subsidy removal toward sectors generally affected by fuel subsidies and developing innovative strategies to assist and alleviate these sectors is essential.

Supporting entrepreneurial initiatives that solve or mitigate fuel subsidy shocks to households and micro businesses is also critical. I am chuffed at the Vectar SUNWISE Program, addressing the critical power requirements of micro and nano businesses such as barbers, canteen and lotto shops by equipping them with solar power stations, through a rent-to-own model, with daily payments as low as NGN 2,000 for a duration of six (6) months. This is immensely beneficial to small businesses in Lagos State, particularly in light of the high costs associated with running daily operations using petrol generators. Nano and micro businesses often spend as much as 2,500 Naira daily on fuel.

The case of Nigeria's fuel subsidy removal is not unique, as countries around the world grapple with similar issues concerning subsidies for fossil fuels and other sectors. A recent report by the World Bank (2023) emphasises the need to repurpose environmentally harmful subsidies to address climate change and promote more sustainable development.But as the global trend toward subsidy reform continues, the lessons learned from Nigeria's experience can serve as a valuable reference.

The importance of balancing economic reforms with social considerations, effective communication, and targeted assistance cannot be overstated to enable people-centred policies. People must be at the centre of these policies to be worth pursuing. A people-centred approach and a comprehensive support system for vulnerable citizens are essential to successful fuel subsidy reform.