Abstract
Fuel subsidies in Nigeria are enormous – around USD 3.9 billion – almost double the health budget. Such subsidies come at great cost: the opportunity costs of such spending on other development objectives are large; the distribution of resources to the state governments is reduced; the vast majority of the subsidy goes to better off Nigerians; and cheaper petrol encourages greater pollution, congestion and climate change. Despite this, most Nigerians oppose the reduction of subsidies. We draw on a new nationally representative household survey that asked Nigerian men and women about their knowledge and attitudes towards subsidies. We construct and test a set of hypotheses about the factors associated with support for subsidy reform. We find that those who pay more or who experience less availability of fuel tend to support reform more. On the other hand, people who believe the Government is corrupt or lacks the capacity to implement compensation programs appear strongly opposed to reform. Finally, being religious and the delivery of reasonable national and local services also improves the acceptance of reform. These results support the idea that building a social contract is key to reform success.
Highlights
Subsidies exist because the government fixes the price of gasoline for consumers below the international price and uses government resources to pay for the difference. They were first introduced in Nigeria in the 1970s as a response to the oil price shock in 1973
Despite numerous attempts at reform, Nigeria has never successfully removed gasoline subsidies, in large part due to strong popular opposition to reform. Such subsidies come at great cost: spending on other development objectives is lower; the distribution of resources to the state governments is reduced; the vast majority of the subsidy goes to better off Nigerians; and cheaper gasoline encourages greater pollution, congestion and climate change
The literature has mentioned a number of factors explaining why certain citizens are inclined to support subsidy reform
Summary
Fuel Subsidy Reform and the Social Contract in Nigeria:. Summary of ICTD Working Paper 104 by Neil McCulloch, Tom Moerenhout and Joonseok Yang. Subsidies exist because the government fixes the price of gasoline for consumers below the international price and uses government resources to pay for the difference They were first introduced in Nigeria in the 1970s as a response to the oil price shock in 1973. Despite numerous attempts at reform, Nigeria has never successfully removed gasoline subsidies, in large part due to strong popular opposition to reform. Such subsidies come at great cost: spending on other development objectives is lower; the distribution of resources to the state governments is reduced; the vast majority of the subsidy goes to better off Nigerians; and cheaper gasoline encourages greater pollution, congestion and climate change. Our survey indicates that 70 per cent of Nigerians oppose the reduction or removal of subsidies
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