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The Nigerian government removes fuel subsidies & Dangote takes control of Nigeria's oil industry


Economic growth cannot happen if its key sectors are under government constraints. In Nigeria, oil is the bread-and-butter of its economy since most of the national revenues depend on oil exports.

The economic sector that provides the most revenue to an economy shall be liberalized in order to increase the number of goods and services being produced in that industry, to increase the distribution of these goods and services produced, and to increase the income generated by these goods and services. That being said, since the oil industry is the most important of all sectors of the Nigerian economy, it is, therefore, normal that it should be liberalized so that it continues to accumulate national revenues and increases the industry’s profitability. And this is exactly what President Bola Tinubu is trying to do to maintain economic growth.

President Bola Tinubu ordered the removal of fuel subsidies in the oil industry. The oil industry used to be under government management. It was mainly managed by a state-owned corporation, the Nigerian National Petroleum Corporation (NNPC). Although Nigeria occupied the status of Africa’s largest oil producer, the oil industry was still mismanaged by the NNPC.

According to The Punch, a Nigerian socialist newspaper, the removal of the fuel subsidy was a massive mistake. The socialist tabloid argued that the oil industry should remain subsidized because doing so would maintain oil cheap and affordable for consumers.

The Marxist tabloid further expressed its dismay by emphasizing that the oil industry could be privatized under a public-private partnership rather than completely privatizing. It argued that putting the oil industry under Dangote’s control would lead to a monopoly and to prioritize multinational corporations’ interests rather than Nigerian consumers.

Nigerians do not consume crude oil. They consumed refined oil like everyone else. The only consumers that use crude oil are oil corporations, as they use it to refine it into a manufactured and consumable good. And oil corporations are the ones that sell these manufactured and consumable petroleum products to the Nigerian consumer.

What The Punch failed to comprehend is that Nigerians do not consume crude oil. They consumed refined oil like everyone else. The only consumers that use crude oil are oil corporations, as they use it to refine it into a manufactured and consumable good. And oil corporations are the ones that sell these manufactured and consumable petroleum products to the Nigerian consumer.

President Tinubu understands that government subsidies are problematic. Indeed, they create market distortion because they distort the pricing process. And this distortion of prices generally leads to supply shortages. Subsidy of a particular product causes prices to decline and demand to increase, and this leads to product shortage and economic scarcity. Thus, this market distortion generates losses to the economy that are not easily seen. Oil is a finite resource, and government subsidies made Nigeria sell its oil cheaper and demand to rise.

The liberalization of the Nigerian oil industry will enable the market to determine the price of crude oil rather than having it set below market value and create unnecessary shortages. Prices are signals that enable consumers and producers to coordinate the economy.

Moreover, the privatization of the oil industry is necessary to expand the use of resources within that industry. Aliko Dangote has the resources to apply vertical integration to the oil industry. This will innovate the production capacity of the oil industry as it would add a new stage to its production process. Consequently, this will help Nigeria refine its own oil, thus selling it at a much higher price to multinationals and making it affordable to the Nigerian consumer.

There is no guarantee that Dangote will necessarily form a monopoly within the oil industry. Nigeria has very powerful billionaires that can also start their own oil companies and rival Dangote’s corporation. More competition is what will improve the oil industry, its production capacity, the quality distribution as well as its affordability to the local consumer market.

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