Subsidy was never Nigeria’s problem - Punch Newspapers

I am grateful to Hon. Gboyega Isiaka for his courteous engagement with my argument in these pages on September 4. Debates of this quality are rare, and I do not take them lightly. Isiaka’s is a nuanced contribution to the burning welfare issue on Nigeria’s plate now.  He wrote in response to my recent Arise TV appearance (August 25), in which I assessed the outcomes of the reforms over the past three years of President Bola Tinubu’s administration, following the Coordinating Minister of the Economy, Prof. Taiwo Oyedele’s presentation of the reform scorecards.   My position is that government policy should always be assessed and conditioned on its impact on citizens’ general welfare.  I also argued that a developmental state (which I believe Nigeria is) ideally pursues a problem-driven, iterative adaptation in its policy choices.  Where a policy achieves its intended objective, the government should be bold to maintain its course.  However, when the outcome materially deviates from the intended objective, the government should be equally bold in updating its assumptions and changing course.  The core of such policy experimentation in the context of a developmental state is empirical, data-backed evidence, not ideological intransigence or political truism. However, I must correct the record on what I actually said and then present readers with the evidence that Isiaka’s article fails to engage with. Let me begin with the point on which we agree, because it is the crux of the argument. Isiaka writes that “subsidy is a legitimate instrument of public policy”, used to “protect consumers, support strategic industries, correct market failures and cushion temporary economic shocks”. I accept that formulation without reservation. It is mine too. If subsidy is a legitimate instrument, then the question before Nigeria was never whether to use it. It was whether Nigeria’s version was well designed, well targeted, and honestly accounted for — and whether what replaced it is better. On that question, the evidence is nowhere near conclusive. Hon. Isiaka stated that I “simplistically” treated a rule of thumb as a forecast. I did not. The Rule of 70 is a diagnostic, not a prophecy — a way of asking what a growth rate means for the people living inside it. Applied properly, it is far more damning than the version he rebuts. Nigeria’s economy grew 4.01 per cent in 2025. Divide 70 by four, and you get seventeen years to double national output. But Nigerians do not eat national output. They eat output per head, and our population is growing at 2.11 per cent a year. Real GDP per capita has grown at 1.79 per cent a year since 2021. Seventy divided by 1.79 is thirty-nine years. A child born this morning in Ilaro will be approaching forty before the average Nigerian is twice as well off as today. Worse, we are not starting from a high base. Nigeria’s real GDP per capita in 2025 stands at $2,369 in constant dollars. In 2014, it was $2,584. We are 8.3 per cent poorer per head than we were eleven years ago. At the current rate, it will take until 2030 simply to regain the position we held in 2014. Sixteen lost years. Hon. Isiaka’s answer is that reform changes the growth rate. Precisely so — then let us test it. Between 2003 and 2014, with the subsidy fully in place, Nigeria grew at an average of 6.75 per cent a year. Since the removal, in 2024 and 2025, we have grown at an average of 4.04 per cent. The reform was justified as the price of faster growth. Three years on, growth has not returned to what it was under the regime we were told was strangling us. That is not an argument from arithmetic. It is an argument from the record. This is the empirical claim on which the entire removal case rests, and it collapses when you put it up against international data. Take the International Monetary Fund’s own Fossil Fuel Subsidies Database, which measures every country on the same basis. In 2022, Nigeria’s subsidy peak year, Nigeria’s explicit fossil-fuel subsidy was $64 per person. Germany’s was $1,137 – nearly eighteen times ours. Italy had $790, the United Kingdom had $422, France had $420, and Saudi Arabia had $2,857. The United States, more than twenty times richer per head, subsidised at $61, essentially the same as Nigeria. On Nigeria’s own fiscal books, the figure is smaller still. At its 2022 peak, the petrol subsidy cost 12.7 US cents per Nigerian per day. In its most expensive year ever, 2011, it cost twenty cents a day. Over the 20 years from 2005 to 2024, it cost about $356 per Nigerian. Germany spent €3,158 per German over 17 months shielding its citizens from energy prices in 2021–23 – nearly nine times what Nigeria spent on petrol per capita over two decades. Nobody called that unsustainable. Nobody called it a crawl backwards. Nigeria holds 2.8 per cent of the world’s people and accounts for 0.43 per cent of the world’s energy subsidies – roughly one-seventh of the world’s average intensity per head. Here is the objective version of the fiscal argument, and I put it plainly because our critics deserve the strongest version. The subsidy consumed a large share of revenue – around 26 per cent of general government revenue in 2022 – not because it was large, but because Nigeria’s tax collection is abysmal. General government revenue was 8.4 per cent of GDP that year, among the lowest in the world. A subsidy that is trivial relative to the economy looks ruinous against such a small revenue base. That is a revenue failure, not a subsidy failure. We diagnosed the wrong organ. Hon. Isiaka does not press this claim, but it saturates the wider debate. Nigeria’s strongest sustained expansion in half a century ran from 2002 to 2014, with the subsidy in place throughout. The standard rejoinder is that this was merely the oil boom. It was not. Look at what the IMF’s own Article IV staff reports record. In 2005, Nigeria’s oil sector grew by 0.5 per cent; in 2006, it contracted by 4.5 per cent; in 2007, it contracted by 5.6 per cent. Crude production fell from 2.47 million barrels a day in 2005 to 2.21 million in 2007. Yet the economy grew by 6.4, 6.1, and 6.6 per cent in those years because non-oil GDP grew by 8.6, 9.4, and 9.6 per cent. The pattern repeats later: oil GDP shrank by 4.9 per cent in 2012 and 13.1 per cent in 2013, while non-oil GDP grew by 5.9 per cent and 8.3 per cent. In five of those seven years, the oil sector dragged on growth, not its engine. Telecoms, trade, finance, entertainment, construction and manufacturing did the work. I subjected the growth series to a formal test for where it structurally breaks. Running every possible breakpoint between 1999 and 2025, the series breaks decisively in 2015 – mean growth of 6.74 per cent before, 1.49 per cent after. That is the year Brent fell from $99 to $52, and Nigerian production began its slide from 2.47 million barrels a day to 1.29 million by 2022. It is not a subsidy event. And in a regression of growth on subsidy intensity, oil prices, and oil output, the subsidy coefficient is statistically indistinguishable from zero. The logic is inescapable. The subsidy was present during the boom and during the bust. A constant cannot explain a change. Isiaka’s strongest passage asks us to weigh the subsidy against “infrastructure, education, healthcare, human capital and productive investment.” It is the right question. Let us answer it with what actually happened. Of the N218bn appropriated for capital projects at the Federal Ministry of Health’s headquarters in 2025, the Coordinating Minister of Health told the House Committee on Healthcare Services in February 2026 that N36m was released – 0.017 per cent, one part in six thousand. Let me be exact, because this figure has been reported loosely: the wider 2025 health sector allocation was N2.38tn, and the N218bn line is for headquarters capital alone. It is still the line through which the ministry builds things. In the same 2026 budget, 238 billion was set aside to operate the presidential air fleet. And in 2024, the year state revenues rose 66 per cent on the windfall, Nigerian states spent N3,483 per citizen on health for the whole year – about two dollars and thirty-six cents. Now take the government’s own accounting, which is unanswerable because it is the government’s. On 19 August 2026, the Minister of Finance, Mr Taiwo Oyedele, disclosed that subsidy removal saved N15.8tn between June 2023 and December 2025, and set out where the federal government’s N30.64tn of incremental spending went. Wages took N9.39tn. Debt service took N10.61tn. Together, 65 per cent. Social welfare transfers took N423.8bn – 1.4 per cent. Ex-PDP deputy chair mourns Tukur, says Nigeria lost a colossus NAF takes delivery of five new helicopters to boost anti-terror operations 2027: Barau urges aggrieved APC aspirants to work for party’s victory Two further facts from the same disclosure. First, N3.14tn went to electricity subsidies. The subsidy did not end. It changed meter. Second, having saved its N5.43tn share, the federal government still borrowed N11.85tn – 58 per cent of the resources it deployed – more than double what the subsidy savings contributed. In the minister’s own words: for every N100 the Federal Government generated in additional resources, it spent about N150. You do not borrow more after finding money, unless the money was never the constraint. And the leakage did not stop. BudgIT documented 11,122 projects worth N6.93tn inserted into the 2025 budget alone – a single federal co-operative college in Oji River received 1,142 of them, worth N320bn. The Auditor-General’s 2024 report flagged N1.34tn in irregularities across 25 MDAs. Fourteen years after the Oronsaye Report, ministries have received N1.13tn per year since 2023, while agencies recommended for abolition remain on the payroll. After the removal, $2.4bn was spent on rehabilitating the Port Harcourt and Warri refineries; both are shut. Set that against the thing we were told we could not afford. Documented misgovernance since mid-2023 runs, on a deliberately conservative reckoning, at N6.65tn a year – against an average annual petrol subsidy bill of N2.03tn in the five years before removal. Three and a quarter times. In dollars, the comparison is closer, and I say so because the naira has halved twice; the naira comparison is the defensible one. But the direction is not in doubt. We removed the small, visible, universal transfer and left the large, invisible, captured one entirely intact. Isiaka lists NELFUND, CREDICORP, the MOFI Real Estate Investment Fund, cash transfers, Bank of Industry facilities, TVET stipends and CNG conversion. I welcome every one of these programmes on its own terms. But note what most of them are. Student financing is a loan. Consumer credit is a loan. Mortgage finance is a loan. You cannot compensate a household for a permanent 570 per cent rise in the price of transport fuel by offering it debt. Compensation and credit are different instruments with different consequences for a poor family’s balance sheet. Then he invokes Indonesia, Iran, the Philippines and Ghana. These are exactly the right cases, and they are the strongest evidence against the way Nigeria proceeded — because in every successful episode, the compensation came first. The IMF’s own review of 28 reform episodes is explicit. In Iran in 2010, bank accounts were opened for most citizens before the reform, and compensating cash transfers were deposited before the price increases. Indonesia’s 2005 reform succeeded, after three failures, because savings were channelled to poor households as prices rose. Seventeen of the twenty-three successful or partially successful reforms were phased in, and they took, on average, five years. Eleven of the twenty-eight were only partially successful because subsidies later re-emerged. Where compensation was absent and protest followed, reform failed. And the IMF names Nigeria specifically, twice: lack of government credibility was “an important factor behind the less successful fuel subsidy reforms in Indonesia in 2003 and Nigeria in 2011,” and “too sharp an increase in energy prices can generate intense opposition to reforms, as happened with … Nigeria in 2012.” In 2023, Nigeria did the opposite of Iran and Indonesia. The price rose 129 per cent in a single month, on the strength of one sentence in an inaugural address, and the compensation architecture was designed afterwards. The result is on the record. The conditional cash transfer reached 5.5 million of 15 million targeted households – 37 per cent. The Auditor-General reports that N33.75 bn paid to 3.29 million households in 2023 cannot be verified as having reached anyone, because payment vouchers omitted beneficiary identities and auditors were blocked from the transaction records. Do the arithmetic. The subsidy delivered about $46 a year to every Nigerian. The replacement delivers roughly $5.91 a year to about 12 per cent of Nigerians. Weighted by coverage, and something under two per cent of the transfer value has actually been replaced. It was affordable to do properly. The World Bank calculates that monthly N22,500 transfers to all of Nigeria’s ultra-poor would have cost 19.1 per cent of FAAC deductions in 2024 alone — deductions that rose from N871bn to N1,786bn in a single year, a sum larger than the entire federal education budget and 6.8 times the entire budget of the Ministry of Humanitarian Affairs and Poverty Alleviation. Full compensation for the poorest Nigerians was available from one-fifth of the money quietly removed at the source before anything was shared. It was not done. Let me be precise, because Hon. Isiaka’s closing paragraphs rebut a position I do not hold. I am not calling for the restoration of the old regime – the opaque NNPC “under-recovery,” deducted at source, never appropriated by the National Assembly, never independently audited, arbitraged across our borders. That regime was indefensible, and Hon. Isiaka is right about smuggling: truck-out volumes fell from about 65 million litres a day to 46 million within weeks of the announcement. Some of what we called consumption was never consumption. What I am arguing is this. A transitional, transparent, appropriated and time-bound consumer energy intervention – funded not by borrowing but by the leakages catalogued above, delivered through a verified register, published monthly, and wound down on a fixed schedule against a published automatic pricing mechanism – is a legitimate instrument of public policy in a country where 65 per cent of people are poor, 31 million are food-insecure, the price level has doubled in thirty-eight months, and the N70,000 minimum wage has lost 31 per cent of its value since it was set. Hon. Isiaka has already conceded the principle. We are arguing about design. Reform is not a synonym for withdrawal. It is a synonym for competence. The removal was executed without the compensation that every successful international precedent required, and the savings were consumed by wages, debt, and a new electricity subsidy, while the leakage that actually bleeds Nigeria was left untouched. That is not a difficult but necessary choice. It is the easy choice, dressed as the difficult one, because it took money from Nigerians who cannot organise, rather than from interests who can. The measure of a reform, as Hon. Isiaka rightly says, is the quality of the economy it leaves behind. By that measure, the verdict is not yet earned. Reserves above $50bn and improved credit ratings are real gains, and I acknowledge them. But Nigerians do not spend reserves. This reform inherited an economy that has gone 11 years without progress in income per head and has not yet reversed it. Every figure in this article is drawn from a primary source, and the full data appendix – the underlying series, the models, and the source for each number – is available on request. Adi is a Professor of Economics and Data Analytics, Lagos Business School, Pan-Atlantic University Kindly share this story:

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