Subsidy removal: Gains, losses – Daily Trust

Halfway into President Bola Tinubu’s first term, the scorecard of his stewardship is not looking impressive—at least to most Nigerians, who continue to await the crystallisation of the positive effects of his landmark economic reforms.

Tinubu anchored his electoral campaign on economic reforms, which the state of the Nigerian economy had made imperative at the time. He hinged his reform programme on a search for appropriate pricing of products, particularly petroleum products and foreign exchange.

On his first day in office, while still at the inauguration venue on May 29, 2023, at Eagle Square in Abuja, Tinubu made the now-famous declaration: “Subsidy is gone.” With that, the new president deregulated the downstream sector of the oil industry. Barely two weeks later, his administration followed up with another bold move—deregulating the foreign exchange market. On June 14, the Central Bank of Nigeria floated the naira.

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These two policy measures, which many have described as missteps, interacted in a way that reset the Nigerian economy far beyond what ordinary Nigerians had expected. To be fair, the economy had been primed for a reset. The foreign exchange market needed an overhaul. The naira was “cheap” on the official market, relative to its value on the parallel market. This created a golden opportunity for arbitrage that favoured speculators. Round-tripping—buying from the official market and selling in the black market—had become a booming business. All a rent-seeker needed was simply a connection in the banking sector to access dollars at official rates, which they would then offload into the black market to make a quick profit. The government was anxious to close that gap, as the differential in rates constituted a loss through implicit subsidies.

In the oil sector, the government faced an equally daunting task: how to deal with subsidies on local consumption of refined petroleum products. That subsidy had become a huge drag on the economy. Estimates of the cost of the subsidy varied, but each pointed to a significant threat to economic stability. The World Bank opposed the subsidy and, in June 2023, said the fiscal cost to Nigeria had risen from 1.1 per cent of total revenues in 2020 to 32.4 per cent in 2022—or 2.2 per cent of GDP—“costing more than the budget allocated to health, education, and social protection combined.”

With the subsidy removal and naira flotation, the bank projected fiscal gains of about N3.9 trillion in 2023, equivalent to 1.6 per cent of GDP. The gains, it added, would rise above N21 trillion between 2023 and 2025.

Gains’ claims from the Book of Arithmetic

The government has been strident in its claims of the gains from subsidy removal. Last November, President Tinubu’s aides reeled out the figures. The administration claimed Nigeria was saving $7.5 billion yearly from the reforms. But some clarifications are needed to understand the true picture.

While Tinubu announced the end of the subsidy on his inauguration day, the practice continued implicitly. This again highlighted the uncoordinated nature of the reforms. According to the World Bank in its May 2025 Nigeria Development Update, the subsidy was not fully removed until October 2024. Even then, the Nigerian National Petroleum Company Limited (NNPCL) began transferring revenue gains to the Federation only in January 2025. “Since then, it has been remitting only 50 per cent of these gains, using the rest to offset past arrears,” the bank noted.

Nonetheless, the reforms have had a positive impact on Nigeria’s external sector, according to the Central Bank. The CBN reported a balance of payments surplus of $6.83 billion in 2024, a turnaround from deficits of $3.34 billion in 2023 and $3.32 billion in 2022.

“The 2024 BOP surplus highlights the effectiveness of Nigeria’s ongoing reform agenda,” the CBN said in a report earlier this year. It attributed the improvement to the liberalisation and unification of the foreign exchange market, a disciplined monetary policy, and better coordination between fiscal and monetary measures—all contributing to enhanced competitiveness and investor sentiment.

Over the same period, the current account balance rose to $17.22 billion, up from $6.42 billion in 2023 and $3.48 billion in 2022. This, according to the bank, was due to increased exports, reduced import bills, and a decline in the net outflow for investment income.

Progress amid challenges

Indubitably, the reforms have brought a measure of progress to the oil industry. Today, Nigerians can drive into petrol stations in different parts of the country and, within minutes, buy the product they need. Gone are the long queues and fuel scarcity that used to choke the cities.

This change has come largely due to rising local refining capacity, driven by the private sector. Leading this revolution is the Dangote Refinery, the 650,000-bpd behemoth redefining the downstream sector of Nigeria’s oil industry. Based in Ibeju-Lekki, Lagos, the plant is fast establishing itself as the market leader and price-setter.

As deregulation led to price spikes—at times above N1,000 per litre—the refinery has consistently lowered its price in line with global market dynamics. This has offered a measure of relief in an otherwise volatile market.

The government also helped by backing policies such as the naira-for-crude initiative, which allows the refinery to pay for crude in naira. The administration deserves credit for swiftly addressing misconceptions that nearly derailed this policy.

Other operators adding to the rising refining capacity include Eghudu Refinery Limited (100,000 bpd) in Edo State, MB Refinery and Petrochemicals (30,000 bpd) in Delta, and HIS Refining and Petrochemical (10,000 bpd) in Abia. Additional contributors are Edo Refinery and Petrochemical Company (12,000 bpd), Duport Midstream (2,500 bpd), and Walter Smith Refinery (5,000 bpd).

Then there are NNPCL’s four refineries in Port Harcourt (2), Kaduna, and Warri, with a combined capacity of 445,000 bpd. These public facilities have yet to be turned around but could play significant roles once fully rehabilitated.

Losses: Rising hardship and public discontent

Despite these gains, the economic reforms have inflicted significant pain on the average Nigerian. The most visible impact has been the surge in headline and food inflation. With the removal of the fuel subsidy and the floating of the naira, prices across the board have skyrocketed. By early 2024, inflation had crossed 30 per cent, with food inflation reaching levels that pushed millions into deeper poverty.

The floating of the naira, though aimed at unifying exchange rates and attracting investment, triggered a free fall that at one point saw the currency trading close to N2,000 to the dollar. Though it has stabilised somewhat, the initial damage to purchasing power was already done.

Fuel prices tripled, and transport costs followed suit. A significant number of workers now spend more than half their income on commuting. The cost of cooking gas has also jumped, with a 12.5kg cylinder now selling above N15,000 in some parts of the country—up from around N5,000 before the reforms. Food, rent, school fees, and healthcare have all become more expensive, pushing middle-class families to the brink.

The government’s response through palliatives has been slow and largely ineffective. While it earmarked N500 billion for palliative programmes, many of these initiatives—such as school feeding, cash transfers, and mass transit support—are either still in pilot stages or have had minimal reach. For most Nigerians, the promised cushioning has yet to materialise. The gap between public expectations and the reality of reform outcomes continues to widen.

What adds to public frustration is the visible disconnect between the sacrifices demanded of citizens and the lifestyle of those in government. Amid the economic pain, reports of luxury SUVs, foreign travel, and inflated budgets for political officeholders have continued to emerge. These optics hurt the government’s credibility and deepen resentment.

Two years after the official removal of the fuel subsidy, Nigeria stands at a complex juncture. The reforms were necessary—few would argue otherwise. The economy needed to plug fiscal leakages, improve transparency, and boost productivity. But the execution and timing have exposed deep structural weaknesses.

Yes, there have been fiscal gains, improved external balances, and signs of increased investor confidence. But the cost to the average Nigerian has been staggering. The disconnect between macroeconomic data and daily realities could not be starker.

Unless the government acts decisively to deliver relief, invest in social infrastructure, and rebuild public trust, the legacy of the reforms may not be the gains economists celebrate—but the hardship citizens remember.

Dr Vincent Nwanma is a seasoned business analyst and researcher with over 30 years of experience in business and economic journalism across Nigeria and other parts of Africa.