Nigeria's Rocky Effort to Wean Itself From Subsidized Fuel

Nigeria faces an uphill battle in removing fuel subsidies that kept gasoline cheap, but critically hampered the country's development.

Widespread protests gripped Nigeria when the government tried to eliminate subsidies that kept gasoline prices artificially low.

The fierce protests over fuel prices that rocked Nigeria in January have subsided, but the effects of a rollback in subsidies are still keenly felt, at the gas pump and beyond.

President Goodluck Jonathan delivered an unwelcome New Year's Day surprise to the public when he announced the elimination of Nigeria's fuel subsidy, which kept gas prices artificially low, at about $1.50 per gallon (40 cents per liter). In short order, fuel prices more than doubled.

"When they removed the subsidy, I immediately had problems filling my tank," said Bola Thomas-Davis, a pharmaceutical sales representative in metropolitan Lagos (map). "My coverage area is really wide; I have to visit places that are all over. Before, I never had to think about gas, but now, I haven't been to the farthest outposts in two months."

The price hike sparked protests and a general labor strike in a country already reeling from Christmas Day church bombings perpetrated by Boko Haram, an Islamist sect based in Nigeria's majority-Muslim north. After several days of unrest, President Jonathan partially restored the subsidy, which eased the price hike but left prices still about 50 percent higher than they had been before.

Church-bomb attacks have continued, and so has the economic strife. For Thomas-Davis, and for the remote villagers who depend on his deliveries of antibiotics and anti-malaria drugs, the rise in fuel costs is a crippling development.

"The company gives me 6,000 naira ($38) each month for fuel," said Thomas-Davis, who makes his deliveries from the Lekki area of Lagos on a motorized tricycle. "1,200 naira ($8) fills the tank, and if you visit 16 clients a day, you'll need to fill the tank the next day."

Now that his fuel allowance is gone within the first week of the month, Thomas-Davis must dip into his 300,000 naira ($1,900)/month salary to pay for fuel to make his deliveries to areas up to 80 kilometers (50 miles) away.

"The problem starts at filling your tank, but it doesn't end there. Fuel affects everything you can think of in one's life," he said.

Subsidies: Popular, but Inefficient

Though they are meant to shield a nation's poorest people from price volatility, fossil-fuel subsidies often fail to meet that objective.

"Only 8 percent of the $409 billion spent on fossil-fuel subsidies in 2010 was distributed to the poorest 20 percent of the population," said Fatih Birol, chief economist at the International Energy Agency (IEA). "[This] demonstrates that they are an inefficient means of assisting the poor."

In Nigeria, much of the subsidized gasoline generates profit for smugglers, who sell it at a higher price to neighboring countries. A legislative committee investigating the subsidy program noted that of the 59 million liters (16 million gallons) per day Nigeria imported, only 35 million liters (9 million gallons) were consumed within the country.