Domino effect of petrol subsidy removal on food, income insecurity

BY CHIAMAKA ADINNU

On May 29, 2023, Nigerian President Bola Tinubu announced, in his inaugural speech, the removal of the decade-long subsidy on petroleum products. The new president cited deficit budgetary concerns as the basis of his decision and echoed his desire to channel the funds towards public infrastructure and improving the lives of the Nigerian people. 

However, his declaration of fuel subsidy removal has evoked a debilitating effect on citizens through the steep rise in inflation nationwide. The sudden and complete fuel subsidy removal further perpetuates poverty and food insecurity in Nigeria. The Nigerian government must establish adequate corrective measures to mitigate the effects of fuel subsidy removal. These corrective measures must include increasing agricultural investment and transportation subsidies to minimise the impact on food security. In addition, establishing safety nets like subsidised education and healthcare services for low-income citizens is necessary to bridge the widening income inequality in the country.

A major effect of the subsidy removal is the increased transportation costs due to the high fuel prices, directly impacting agricultural production. Agricultural inputs and production require energy to be transported to farmers and to power the machinery for food production. As such, the high transportation costs have heightened food insecurity in the country as consumers struggle to purchase daily meals at increased prices.

The Nigerian government must invest more in the agricultural sector to ensure food security. A Food and Agriculture Organization report indicates that the Nigerian government allocates less than 10 percent of its national budget to the agricultural sector. The meagre budget allocation is inadequate to counteract the effects of the fuel subsidy removal on agricultural productivity. Therefore, given the current subsidy removal, Nigeria must aim to increase budgetary allocation to the agricultural sector. The investment should go into improving agricultural infrastructures and subsidising inputs like seedlings and fertilisers. Such agricultural subsidies can reduce the burden on farmers and help keep the cost of production affordable. In this way, Nigeria can minimise the effects of the fuel subsidy removal on agricultural productivity.

Furthermore, removing fuel subsidies has widened the country’s already-existing income inequality. Although the fuel subsidy was said to have increasingly favoured the rich more than the poor, its complete removal disproportionately affects low-income citizens. The low-income citizens face greater financial strain to meet their basic food needs. They are ultimately forced to allocate less income proportion to other essential expenses like education and healthcare. Education and health form the mainstay of societal development, and less focus on them impairs the country’s socioeconomic status.

The Government must prioritise safety nets and targeted interventions to protect the vulnerable population from the impact of subsidy removal. Such interventions include subsidised basic education, affordable healthcare, and school feeding intervention programs. Intervention measures like skill development programs and cash transfer schemes can also be implemented, particularly in rural areas. Countries like Brazil, Indonesia, European countries, Ghana, and the United States have shown the cost-effectiveness of these strategies in delivering assistance to poor households to manage the impacts of fuel subsidy reform.

The Government must also aim to mitigate the impact by implementing targeted subsidies for public transportation and providing tax incentives for the transportation sector. These subsidies could also be transportation vouchers or mass transit schemes for individuals earning below a certain percentile. Luxembourg, Malta, Spain, and Germany have proven the effectiveness of this intervention. Undoubtedly, these strategies will minimize the financial strain on low-income Nigerian citizens and leave them with more resources to meet their essential needs.

In the absence of adequate counteractive measures, the fuel subsidy removal infringes on the fundamental rights of citizens. Nigerian citizens have the right to the highest attainable standard of health through nutrition and their rights to social security through affordable transportation costs. Therefore, if the subsidy reform must become effective, the Nigerian government must protect the rights of citizens through agricultural investments, safety nets, and transport subsidies for its citizens.

Chiamaka Adinnu is a writing fellow at African Liberty.