In a startling revelation, recent data has shown that Nigeria’s government has spent a staggering N9.31 trillion on petrol subsidies in just 19 months, covering the final five months of former President Muhammadu Buhari’s administration and the first seven months under President Bola Tinubu.

This enormous expenditure, which surpasses the N8.15trn spent on subsidy in 16 years, has occurred despite repeated official claims that the petrol subsidy was abolished, exposing the heavy financial burden it continues to place on the nation’s economy.

When President Tinubu took office on May 29, 2023, he declared the end of the petrol subsidy in his inaugural speech, marking what was supposed to be a turning point in Nigeria’s economic policy. However, despite this public commitment, the government has continued to spend massively on what it now refers to as “shortfalls” rather than subsidies. NNPCL said the government now requires it to sell PMS at half the landing cost, with the difference being reconciled between NNPCL and the federation.

This rebranding effort was aimed at maintaining the narrative that the subsidy had been removed, but the financial implications tell a different story.

According to data compiled by Agora Policy and supported by sources such as FAAC communiqués, NEITI reports, and the NNPC Limited’s 2023 Annual Financial Statements (AFS), Nigeria spent N5.10 trillion on petrol subsidies in 2023 and an additional N4.21 trillion in the first seven months of 2024. This spending, far from decreasing, has escalated significantly compared to previous years, largely due to economic factors such as the devaluation of the naira.

Recently, Tinubu reportedly asked the NNPC to use the 2023 final dividends owed to the federation to pay for petrol subsidies. Additionally, the president agreed to suspend the 2024 interim dividend payments to the federation, allowing NNPC to bolster its cash flow amidst the mounting financial pressure.

This decision is part of a broader effort by the government to manage the subsidy payments discreetly, even as public discourse continues to focus on the supposed end of the subsidy regime. The NNPC has forecasted that the cumulative petrol subsidy bill from August 2023 to December 2024 will reach N6.884 trillion, highlighting the ongoing financial challenges posed by these “shortfalls.”

Impact of Naira Devaluation

The government’s narrative is further complicated by the significant devaluation of the naira following the liberalization of the foreign exchange market in 2023. Since this policy shift, the naira has lost over 60% of its value, with the exchange rate soaring from N740 per dollar in June 2023 to N1,600 per dollar recently. This depreciation has had a profound impact on the cost of petrol imports, leading to a sharp increase in the subsidy bill.

Analysts have noted that although Tinubu’s initial announcement of the subsidy removal in May 2023 saved the government N400 billion by June, the benefits were quickly eroded by the adverse effects of the naira’s devaluation.

Analysis from Agora Policy shows that Nigeria’s subsidy as a percentage of GDP rose to 2.2% in 2023, the highest level since 2011, despite the government’s claims of subsidy removal. This increase underscores the disconnect between the official narrative and the economic realities that continue to place a heavy burden on Nigeria’s finances.

The Lingering Petrol Subsidy Story

Nigeria’s struggles with petrol subsidies are not new. From 2006 to 2021, the country spent N8.15 trillion on subsidies. When including the period up to mid-2024, total expenditure balloons to N20.37 trillion. The year 2022 alone saw a subsidy bill of N2.911 trillion under Buhari’s administration, demonstrating the persistent financial strain these subsidies have placed on the country.

In August 2023, the NNPC’s fuel importation costs shifted from a surplus to a negative balance, resulting in a subsidy bill of N52.73 billion. The situation worsened over the following months, with the subsidy bill peaking at N833.68 billion in April 2024. In 2023, the NNPC raised alarms, stating that the subsidy payments were severely impacting its cash flow and threatening its viability as a “going concern.”

The NNPC also expressed concerns about its ability to sustain petrol imports, attributing its difficulties to “forex pressure.” Although the subsidy bill slightly decreased to N537.66 billion in December, it surged again to N693.67 billion in January 2024.

The ongoing payments, despite being labeled as “shortfalls,” have exposed the government’s difficulty in transitioning away from the subsidy regime. The economic strain has been compounded by the naira’s devaluation, leading to a situation where the supposed savings from ending the subsidy have been more than offset by rising costs.

You might have seen the Business Insider article where it ranked the “strongest” currencies in Africa, and our Naira was missing.  Let me help here because BI was totally wrong.

In 2007, when Ghana pegged $1 = 1Cedi (days before that translation, it was $1 = 10,000 old Cedis), Naira was trading around $1= N125. Today, both are about $1 = 15Cedi and $1 = N1600 which means Naira is still ahead.

Nigeria can decide to cut-out two digits in the exchange value with USD (you need to spend money on that as every contract in Nigeria will be off by two digits). Seriously, the strengths of currencies are not defined by pure exchange rate values. This BI article is fundamentally defective and should be ignored. That is not how to rank currencies. 

Note: I USD = 144 Japanese Yen. Does it mean those currencies are “stronger” than Yen? Also, 1USD = 1,325 South Korean won. Does it also mean that Ghana’s Cedi is stronger than South Korea’s Won?

Here is the deal: Central banks work to stabilize national currencies by managing inflation (and some others like the US Federal Reserve add the additional role of boosting employment/economic output via interest rate management). The absolute number is marginal provided that number is stable. So, it is the STABILITY (yes, volatility) that matters. 

If Naira is N3,000 and stays within a range of N2990 – N3010 over 6 months, you are better off there than Naira which is oscillating around N1000 to N1600 over the same period.

But if you have to measure by “strong”, consider purchasing power parity. Purchasing power parity (PPP) is a currency conversion rate that compares the purchasing power of different currencies by adjusting for price level differences between countries. It’s calculated by dividing the price of a basket of goods in one location by the price of the same basket in another location. The basket of goods includes those that are part of final expenditures, such as household and government consumption, fixed capital formation, and net exports. PPP is measured in national currency per US dollar.

The Chinese continue to collect: “The escalating legal confrontation between Nigeria and Zhongshan Fucheng Industrial Investment Ltd, a Chinese firm, has turned a new leaf, as Zhongshan confiscates another luxury jet owned by Nigeria in Canada. This move is part of a broader campaign by Zhongshan to recover assets as compensation for an unresolved arbitration award.”

This paralysis is coming from Ogun State but nobody knows Ogun or any state outside Nigeria. If the Nigerian government signed a sovereign guarantee on the transactions, Nigeria should step forward, and take over all elements of this arbitration from Ogun State.

Simply, no one cares about what Ogun State is saying now. What matters now is how Nigeria will get itself out of this maze. If you look carefully, it was not only the Chinese company that was affected (yes, Nigerian companies could have been harmed also). However, the difference here is that it was only the Chinese firm which might have received a sovereign guarantee from Nigeria.

It is a lesson for Nigerian leaders: you do not just abandon projects recklessly. Sure, I am not passing any judgment on this particular case; I am simply saying we need to do better. In Imo State a few years ago, a new governor came and froze a real estate project started by his predecessor, with no feeling that ordinary citizens took loans to invest in that project. In Kano, a governor bulldozed a fully developed project. They did those things and got away, but here, we are learning how it could look when the victims are not Nigerians and Nigerian companies.

Chinese Firm, Zhongshan Fucheng, Seizes Another Nigeria’s Jet in Canada