A subsidy is a payment made by a government or other organization to support a particular industry, business, or group of people.
Subsidies are typically designed to encourage economic activity, support social welfare programs, or achieve other policy objectives.
Subsidies can take many forms, such as cash payments, tax breaks, grants, or loans at below-market interest rates. They are often used to provide financial support to industries that are deemed strategically important, such as agriculture, energy, or technology, or to help disadvantaged groups, such as low-income households or small businesses.
Subsidies can have both positive and negative effects. On the one hand, they can promote economic growth, create jobs, and support important social programs. On the other hand, they can distort markets, create inefficiencies, and lead to waste and corruption. Therefore, the use of subsidies is often a matter of debate and controversy in public policy.
Fuel subsidy in Nigeria has a long history dating back to the 1970s.
The first major subsidy on petroleum products was introduced by the military government of General Ibrahim Babangida in 1988 as part of a structural adjustment program aimed at stabilizing the country’s economy. The subsidy was meant to keep the prices of petroleum products low and cushion the effects of economic reforms on the population.
Since then, fuel subsidy has become a fixture in Nigeria’s economy, with successive governments continuing the policy. However, the subsidy has been a subject of controversy and debate, with some arguing that it is a necessary tool for promoting economic development and social welfare, while others see it as a drain on the country’s resources and a source of corruption.
In recent years, there have been calls for the removal of fuel subsidies in Nigeria, with the government citing the high cost of the subsidy and the need to redirect resources to other areas of the economy. However, such efforts have often been met with resistance from labour unions and other groups, who argue that the subsidy is necessary to protect the poor and vulnerable in the country.
In January 2012, during the administration of President Goodluck Jonathan. The government announced a partial removal of the subsidy, which led to an increase in the pump price of petrol from 65 naira per litre to 141 naira per litre. This move was met with widespread protests and strikes across the country, with many Nigerians arguing that the subsidy was necessary to protect the poor and vulnerable from the high cost of living.
The government eventually partially reinstated the subsidy, but the experience highlighted the challenges of removing fuel subsidy in Nigeria, including the potential for social unrest and the difficulty of implementing policies that could be seen as disproportionately affecting the poor. Since then, the issue of fuel subsidy has remained a contentious and divisive topic in Nigerian politics.
In May 2023, the new president of Nigeria Bola Tinubu, removed the fuel subsidy. He announced on the day of his inauguration and was met with little to no protest from the citizens of Nigeria.
It has also been shown that fuel subsidy removal in Nigeria could cause inflation and reduce economic welfare, hurt economic growth and reduce household income and make firms less competitive.
The effect of removal of fuel subsidy has affected a lot of the working class as some couldn’t cope with the high rate of transportation.
This does not only affect the onsite workers but also remote workers as Nigeria is yet to have a stable electricity distribution, and fueling generators is the only means of getting constant and regular electricity to perform well.
For onsite workers, who typically have to commute to their workplaces, higher transportation costs could lead to reduced productivity and lower job satisfaction.
For remote workers, who rely on the internet and other communication technologies to work from home, higher fuel prices could increase the cost of electricity and other utilities, which could also reduce their disposable income and impair their ability to work effectively.
In conclusion, the effects of subsidy removal on workers in Nigeria will depend on a variety of factors, including the magnitude and timing of the subsidy removal, the availability of alternative modes of transportation, and the overall state of the economy.