NOT IMPRESSED: Nigerians protesting government fuel subsidy cuts (XINHUA)

For Nigerians who have long enjoyed having their fuel prices subsidized, events in early January pulled the rug out from under them. The Nigerian Government removed its oil subsidy from January 1 this year, an action it said has become necessary to provide money for the improvement of the country's inadequate infrastructure and complete the deregulation of the downstream sector of the oil industry.

Nigerians have come out in mass protest against this "New Year gift," as they see the fuel subsidies as their only benefit from the country's huge oil wealth. Many people have little faith in the government after years of deeply rooted corruption. However despite public anger the government has said there is no going back on the subsidy removal and the various programs it has put in place under the Subsidy Reinvestment and Empowerment Program (SURE) are to be unswervingly implemented in order to benefit Nigerians in the long term.

Costing billions

The Petroleum Pricing Regulatory Agency (PPRA) said the country consumes an average of 35 million liters of fuel daily and that the Federal Government spent more than $86.5 billion on fuel subsidies in the past five years. The country also pays heavily to subsidize kerosene, which is imported through the Nigerian National Petroleum Corp. (NNPC).

Nigeria produced 2.2 million barrels of crude a day in December 2011, according to Bloomberg estimates, and the removal of the subsidy in Africa's biggest oil producer has resulted in a hundred percent increment in transport fares. This is due to the increase of fuel pump price from $0.4 to $0.87 a liter in the urban areas and between $0.9 and $1.1 a liter in semi-urban and rural areas. The result is food prices have risen along with transport costs in a nation of more than 160 million people where most live on less than $2 a day.

Economists say the subsidy promoted corruption and retaining it would mean Nigeria would have to enter into large-scale external borrowing. However in a country of 160 million people who live on less than $2 a day the subsidy was a welfare benefit.

Critics say that Nigeria's problem lies in its preference to export crude oil rather than refine it. Nigeria is Africa's biggest oil producer, but imports refined petrol. Ongoing mismanagement and corruption have resulted in the country not having the capacity to refine oil into petrol and other fuels. Refining would give Nigeria higher stakes in a deregulated market, encourage medium sized service industries and also create more jobs for the many skilled unemployed citizens.

The almost total dependency of the economy on crude export means any small increase in the fuel price impacts on the industrial sector and subsequently trickles down to affect basic needs like food, housing and health.