Fuel subsidies are aimed at reducing fuel prices but there is more to that. In Nigeria, the issue of subsidy has been the topic of discussion since 1999. This intense discussion about fuel subsidies has led Nigerians to x-raying the advantages and disadvantages of fuel subsidies in the country. As part of our effort towards contributing to the growth of the country, we are going to add our own opinion on fuel subsidy, focusing on its advantages and disadvantages.

There are many advantages of fuel subsidy in Nigeria, like reduction in fuel price, reduction in cost of living, reduced cost of transport, etc. On the other hand, it also has disadvantages, which include, but are not limited to, an increase in corruption rate and an increase in environmental pollution. We are going to discuss them in detail in the subsequent sections. Keep reading!

What is Fuel Subsidy?

In the simplest terms, a fuel subsidy is that particular amount of money that governments usually pay to reduce fuel prices for their citizens. The primary aim of fuel subsidy is to reduce its cost for the citizens. Fuel subsidy has both advantages and disadvantages. We are going to discuss that in the subsequent section.

Advantages of Fuel Subsidy

There are many advantages of fuel subsidy; we’re going to discuss them in this section:

1. It Reduces Fuel Price

One of the major advantages of fuel subsidies is that they reduce fuel prices. When the government subsidises fuel, the aim is usually to reduce the overall fuel price. Once the fuel price is reduced, it will be affordable to the citizens. 

With fuel subsidies, there is always a significant reduction in the fuel price, leading to its affordability. Because of the reduction in fuel prices, most Nigerians see fuel subsidy as one of the best things that the government can do for the citizenry.

2. It Reduces Cost of Living

Fuel subsidy also reduces cost of living. As we all know, once the fuel price is reduced through subsidies, it is going to affect other aspects of the economy, leading to a reduction in the cost of living. Fuel is used in different facets, ranging from transportation to production, etc., and once its price is subsidised, it is going to help Nigeria buy things at a cheaper rate, thereby increasing their purchasing power.

3. It leads to Affordable Public Transport

Another advantage of fuel subsidy is that it leads to a reduction in the cost of pulnic transportation. With fuel subsidies, inter- and intrastate transportation is always affordable. If owners of public transport companies buy fuel at a subsidised price, they are going to reduce their fare, leading to affordable public transport. 

4. It Reduces Inflation

Fuel subsidies also help to reduce inflation in Nigeria. Once the cost of production and transportation of the goods is cheap, it will help to regulate inflation because the goods will be sold at a relatively cheap price.  So, with fuel subsidies, the government will be able to regulate inflation.

5. It Leads to increased commercial Activities

The last but not least advantage of fuel subsidies on our list is that they increase commercial activities in the country. There is always increased commercial activity, like production of goods, buying and selling, and transportation of goods, among others, when the price of fuel is subsidised.

Disadvantages of Fuel Subsidy

In the previous section, we looked at different advantages of fuel subsidies. Now, let’s discuss some of the disadvantages of fuel subsidies. The disadvantages are discussed below:

1. It Leads to increased Corruption

One of the major disadvantages of fuel subsidies is an increase in the corruption rate. The truth is that some of the government officials involved in paying fuel subsidies are not always transparent, leading to mismanagement of funds that are meant for the program. For instance, before the Nigerian government stopped paying subsidies, Nigerians were not aware of the exact amount budgeted annually for subsidies, which suggests the likelihood of unwholesome practice.

2. Reduces Efficient Energy Management

This is another disadvantage of fuel subsidies. Once the fuel price is subsidised, citizens won’t use the fuel efficiently since it is affordable. However, once the fuel subsidy is removed, as in the country situation of Nigeria now, citizens will start using it efficiently. For instance, when the government was paying subsidies, most people used different numbers of cars, but since the removal of subsidies took effect, most Nigerians have stuck to using only one vehicle.

3. The Government Bears the Financial Burden

As we all know, subsidised fuels are not free fuels; hence, the government bears the financial  burden. Once the government pays fuel subsidies, it may limit them from providing other social services to the citizenry.

4. It may lead to environmental Pollution

Another negative impact of fuel subsidies is environmental pollution. When the fuel price is subsidised, it is going to be affordable to most of the citizens, leading to increased combustion of fossil fuels, which will invariably lead to environmental pollution that is dangerous to health.  

Conclusion

While fuel subsidy has lots of advantages, like reduction in fuel price, reduction in cost of living, reduced cost of transport, reduced inflation, etc., it also has disadvantages, such as an increase in corruption rate and an increase in environmental pollution, among others. The bottom line here is that fuel subsidies have both advantages and disadvantages for the Nigerian economy.

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