06 January 2012

Nigeria and Higher Priced Energy

CNN asks, "What is behind Nigeria fuel protests?" and explains the context (see also above):
On January 1 2012, Nigeria, Africa's largest oil producer, ended oil subsidies that had kept gasoline prices artificially low.

The cost of a liter of gasoline shot up from 65 naira (40 cents) to at least 141 naira (86 cents) virtually overnight.

Furious Nigerians have since taken to the streets, staging 'Occupy Nigeria' protests and mass demonstrations across the country.
CNN provides an answer to the question that it posed:
Nigerians are angry because they believe the government has introduced the plan without any regard to how it will affect the cost of living in the country.

They say they are already experiencing undue hardship as a result of the move, which they say has already affected the cost of transport, food, medicine, rent and school fees.

Feyi Fawehinmi, an accountant and analyst, told CNN the government's abrupt move was like having a "tooth pulled without a plier."

"When you have so much poverty, a lot of business and lives have been built on petrol being at N65, which is not exactly cheap, even at subsidized rates. People are just not moving out of poverty quickly in Nigeria. There is an economic case but this is not something that can be quantified economically," he said.

"The government cannot tell how many businesses will be ruined or even how many people will die," Fawehinmi continued. "The impact will be so wide-ranging. There should have been a plan to remove this in a sensible way, not in this crude manner." he said.

Many Nigerians see the subsidy, which gives them the cheapest gas price in the region, as the only benefit of being an oil producing country. Most live in grinding poverty and on less than $2 a day. There is little infrastructure, high unemployment and only intermittent electric power.
In 2010, India tried to reduce its liquid fuel subsidies, and with similar consequences. It sees inevitable that the Nigerian government will have to go back on the price increases. People do not want higher priced energy, even if reducing subsidies makes good economic sense. Another way must be found.