Nigeria’s Fuel Subsidy Removal May ‘Kill’ Small Businesses 

Ayomide Ogunrinde, a 25-year-old student at the Tai Solarin University in Ogun State, aspires to become a chartered accountant in five years. Mr Ogunrinde funds his education by running a printing shop within the school premises.

Unfortunately, the removal of fuel subsidy in Nigeria has reduced the profits he makes from his business. Before President Bola Tinubu announced the subsidy removal, Mr Ogunrinde would start his day by buying 5 litres of fuel for N1,100 at N220 per litre. 

He would then switch on his Firman generator to run his print shop, earning a daily income of N10,000 and pocketing about N8,000 in profits. Due to the subsidy removal, Mr Ogunrinde grapples with the soaring fuel prices. From N220, he now purchases a litre of fuel for N640, a 199% increase.

“Suddenly, that 5 litres of fuel, which used to cost me N1,100, became N3,200. The announcement impacted fuel prices and caused essential supplies like A4 paper for my print work to skyrocket from N4,000 to N4,500. 

“The days of making N6,000 in profit are gone. Now, I struggle to scrape together a profit of N3,250 at the end of each gruelling day. The removal of the fuel subsidy poses a severe threat to my business and aspirations.” Ogunrinde told Campus Reporter.

He noted that since his business depends solely on a fuel-powered generator, removing the subsidy has increased his expenses while leaving him with little profit. 

“What is left as profit can hardly cater for my feeding and other basic expenses. I am concerned about continuing my schooling because the print business is the only way I can support his education.” he lamented.

Mr Ogunrinde hopes he can make more income by increasing the costs of his services.

Meanwhile, in Ido-Ekiti state, a seasoned 57-year-old cab driver, Babatunde Badmus, faces a similar fate. Mr Badmus has navigated the streets for years, ferrying passengers from dawn till dusk. 

Before fuel subsidy removal, he began his day by purchasing 10 litres of fuel for N200 per litre. He would work from 8 a.m. to 5 p.m., transporting passengers from Ido-Ekiti to Ijero Ekiti. On a bad day, he made N20,000; on a good day, he made N24,000. 

Since the removal of the fuel subsidy, he noted that there is now a threat to his livelihood, and he has had to increase the cost of transportation. He stated that many passengers would now have “difficulties in boarding cabs” as they may be unable to afford the new transportation fares. 

“This evening, I went to the fuel station, and they are now selling for N640 per litre. How do you want us to survive with this price? There will be an increment in transportation costs,” Mr Badmus lamented.

The 57-year-old driver now finds it hard to get a reasonable profit in a day as the fuel price has increased. He noted that the profit he earned since the increment in fuel prices has affected his feeding while working. 

“Now, I must be meticulous while eating not to waste my resources,” he lamented. 

What Data Says 

According to National Bureau of Statistics data, the average fuel price in January 2023 stood at N251.12 per litre. In subsequent months, it increased to N263.76 per litre in February, reached N264.29 in March, and dropped to N254.06 in April. 

In May, the average fuel price was N238. 11. The prices surged to N545.83 in June and N600.35 in July. PMS retailed at N626 in August and has waived between N600 and N640 from August till November.

These figures show the steady rise in fuel prices and the mounting financial burden on Small and Medium Enterprises (SMEs). 

Nigeria, Africa’s largest oil producer and a significant exporter, needs more refining capacity for its daily production of 1.6 billion barrels. Outdated refineries force the country to export crude oil and import refined products. Billions of naira are spent on subsidies for fuel importers. 

For many years, the Nigerian government has provided financial support for fuel by subsidising its cost and setting fixed prices for petroleum products. However, this practice has threatened the country’s fiscal situation and has affected the government’s capacity to finance various development projects nationwide.

In 2017, the government spent N144.5 billion on subsidies, N722.3 billion in 2018, N551.2 billion in 2019, N102 billion in 2020, N1.780 trillion in 2021, N4.39 trillion in 2022, and N3.6 trillion between January and June 2023.

The Minister of Finance, Budget, and National Planning, Zainab Ahmed, in January, stated that the fuel subsidy was substantial, and the Nigerian government was resorting to borrowing to cover the costs of petrol subsidies, emphasising that the current subsidy system had reached a point where it could no longer be sustained. 

Thus, there is a need for the removal of fuel subsidies. Also, the World Bank warned that subsidy payments in Nigeria could significantly impact public finance and raise concerns about the sustainability of the country’s debt. Nigeria heavily relies on petroleum, constituting 90 per cent of its exports and one-third of its GDP. 

However, while delivering his inaugural speech on 29 May 2023, President Asiwaju Bola Ahmed Tinubu announced the removal of fuel subsidies. 

He said, “We commend the decision of the outgoing administration in phasing out the petrol subsidy regime, which has increasingly favoured the rich more than the poor. The subsidy can no longer justify its ever-increasing costs due to drying resources. We shall instead re-channel the funds into better investment in public infrastructure, education, health care, and jobs that will materially improve the lives of millions.”

SMEs Struggle, Revenue Suffers 

The subsidy removal, many experts argued, will destroy SMEs and, in return, increase the country’s unemployment rate.

In April, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) said the federal government’s planned removal of the subsidy on petrol could shut down businesses, especially the Small and Medium Enterprises (SMEs).

Also, a renowned economist, Sheriffdeen Tella, warned about the potential consequences of removing fuel subsidies, emphasising the adverse effects on small and medium-sized enterprises (SMEs) and government revenue. 

Mr Tella noted that when the removal of fuel subsidies is combined with the current high input prices, SMEs face significant challenges in sustaining their operations. “The consequences of these challenges are dire, with many businesses unable to cope and being forced to shut down. This trend of closures has far-reaching implications for the overall economy, posing a severe threat to its stability”, he stressed. 

Modupe Adelere, a grocer in Abeokuta, the capital of Ogun state, expressed her distress over the ongoing increase in fuel prices, which has severely impacted her business. The rising costs of purchasing and transporting goods have become unbearable and unaffordable for her. 

Mrs Adelere stressed that, as a result, the prices of goods will skyrocket, leading to a decline in customer patronage as consumers can hardly afford the inflated prices. She emphasised that removing the subsidy would only exacerbate the situation for those who are still struggling to meet their basic needs, adding that her business has been crippled as she could no longer meet up with the demand.

“I can no longer continue the business. My shop has closed up. I have nothing left in it. This is happening even before the so-called removal of subsidies. What then will happen now that they have removed it? Things will be more difficult for all. I pray the government does not kill us. Now I’m jobless.” said Mrs Ogundele.

One of the significant concerns raised by Mr Tella is the surge in unemployment rates resulting from these closures. He said as businesses fold, individuals lose their jobs, directly impacting the government’s revenue generation. 

Mr Tella explained that employed individuals contribute to tax payments, but tax revenues decline as unemployment rises.

He urged the government to intervene and find effective ways to subsidise struggling SMEs. He said measures and financial assistance should be implemented to alleviate these businesses’ burden and ensure their continued existence.

This story was funded by the Centre for Journalism Innovation and Development (CJID) under the Campus Reporter project.