Omilola Oshikoya: How to Avoid “Sapa” Now That the Fuel Subsidy is Gone

June started with a bang for Nigerians. It ushered in the announcement of the fuel subsidy removal from the new government. Even though the fuel subsidy removal was not to take effect until the 1st of July, 2023, everyone went into panic mode and rushed to petrol stations to buy petrol. This led to long queues and petrol stations increasing fuel prices. This also resulted in costlier transportation fares.  

It will be tough for everyone – average households, small businesses, high-net-worth individuals or large corporations – because everything in Nigeria revolves indirectly or directly around petrol. Like everyone else, an average Nigerian would be thinking of how to avoid sapa in times like this. 

What is fuel subsidy and why did the government decide to pay fuel subsidy in the first place? 

Sadly, even though Nigeria is an oil-producing country, we import our petrol due to the country’s lack of refineries. Importing petrol is expensive and would essentially mean Nigerians would pay for petrol as though they were living in a country that doesn’t produce oil. So the government has been paying fuel subsidies to reduce the financial impact. This is done by paying money to oil corporations to cover the gap between the real cost of producing fuel and the amount customers pay at petrol stations.

Is paying fuel subsidy a good or bad thing? 

Well, as a short-term solution, it made sense to fill the gap of lack of refineries, however, the long-term goal should have been to establish functional refineries to reduce dependence on imports and enable the export of refined petroleum products. Unfortunately, this goal was not achieved.

The economic difficulties faced by the Nigerian government, including the recessions in 2016 and 2020, as well as the impact of the Russian/Ukraine War, have exacerbated the burden on the government. Nigeria’s reliance on crude oil exports as its main source of revenue, known as the Dutch disease, has contributed to these challenges. The reduction in oil production has further affected the economy. A significant chunk of the government’s revenue is allocated to servicing debt. To finance its activities and fuel subsidy payments, the government has resorted to borrowing, resulting in increased debt. As a result, the government is now in a dire financial situation, and unable to sustain the payment of fuel subsidies.

What does this mean for you and me? 

As we have seen, the cost of petrol has gone up and this will affect other costs like food, power, housing, and every other thing that we purchase. The good news is that, in the long run, if the government does the right things, it would benefit the economy and everything. 

How would it benefit the economy? 

Ideally, the funds previously allocated for fuel subsidies should be redirected towards crucial sectors such as education and infrastructure. It is recommended that the government also prioritise investment in the technology sector, which has the potential to propel Nigeria from a developing economy to a developed one in a shorter timeframe and generate increased revenue for the overall economy. By improving the economy, we can collectively benefit from an enhanced standard of living and improved quality of life. The challenge is that because we have been borrowing to pay subsidies, there really isn’t any savings or money that can be diverted into investments.  

What can I do now to get through this? 

As a pilot would say, brace yourselves for impact. The good thing is that this plane – Nigeria – is not crashing, it’s just going through a turbulent season which shall soon pass with the right policies in place. In the short term, you can apply the following tips:

• Reduce your expenses by keeping a budget to know how much you are spending and where you can cut costs. 
• Ask for permission to work remotely 2-3 times a week if you are a 9-5er.
• Share rides with your colleagues. This is actually a great business model for car-hailing companies like Uber to implement in these times when people can choose to share rides. 
• Take the bus, like the BRT or the train, when travelling long distances. 
• For parents with children, carpooling with other parents is a great idea.
• If you are considering buying a car, opt for a fuel-efficient one.
• Think about ways you can increase your revenue. For example, create an online course where you teach people a particular skill that you are great at and that is relevant. Generate more money for yourself. 
• Invest. This may not be the time to make huge investments like real estate investments because prices will go up in the short term. You can wait a while for the market to stabilise. Be on the lookout for opportunities and then invest. Ensure you get the opinion of a finance expert before making a decision.

What can the government do to make the process easier? 

• Educate the public from the bottom of the pyramid to the top about the removal of the fuel subsidy and why it’s important at this time. There should be discussion forums with stakeholders, radio jingles, text messages, TV adverts and newspaper publications. 
• Be transparent and update the public about the process of making it easier for the citizens.
• Invest significantly in public transportation systems and infrastructure. There should be several alternatives like buses, cabs, trains, ferries and others. 
• Introduce welfare schemes like cash transfers to low-income earners, and subsidise ticket costs on public transportation.

Although it is demanding, fuel subsidy removal is necessary. Imagine you have a nail in your tyre and instead of taking it out and fixing the tyre, you patch it up. The car may be able to move but one day, the tyre may explode and cause a major accident. Nigeria has patched this tyre for far too long. It is time to fix it so that we can enjoy a smoother journey to a better Nigeria.

 

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Feature image by Dreasmtime