A new research study conducted by Agora Policy, a leading economic research and consulting services provider in Nigeria, has revealed that about 63% of Nigerians fell below the poverty line after the removal of petrol subsidy.
According to a new study that examined the welfare impact of the country’s recent economic reforms, the national poverty headcount rose from a baseline of about 49.8% pre-subsidy removal era to roughly 63% after the subsidy removal before moderating slightly after the introduction of social protection measures by the Federal Government.
The research study findings were presented at a stakeholders’ dialogue organized by Agora Policy with the theme “Sustaining and Deepening Economic Reforms in Nigeria” on Thursday in Abuja.
The dialogue featured policymakers, economists, civil society advocates, and the organized private sector representatives, who critically appraised the effects of the Federal Government’s reform agenda.
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Some of the attendees at the forum included the Deputy Governor for Economic Policy at the Central Bank of Nigeria (CBN), Dr. Muhammad Abdullahi; World Bank Senior Economist for Nigeria, Dr Samer Matta; Special Adviser to the President on Finance and Economy, Ms Sanyade Okoli; Executive Director of Agora Policy, Waziri Adio; and Country Director of CARE International, Dr Hussaini Abdu.
The research study findings, which were presented by a Senior Lecturer at the Department of Economics, University of Abuja, Dr Mohammed Shuaibu, analyzed the economic and social consequences of key reforms introduced by the President Bola Tinubu-led administration over the past few years, including the removal of petrol subsidy and adjustments in electricity tariffs.
Shuaibu noted that the fuel subsidy removal policy triggered broad price increases across the economy and significantly affected household welfare.
He said: “After the subsidy removal, poverty increased from a baseline of about 50 per cent to 63 per cent.”
The university don pointed out that the introduction of social protection measures helped moderate the impact but did not fully reverse the deterioration in welfare conditions, noting, however, that when social protection measures such as cash transfers were introduced, the poverty rate moderated to around 56.2%.
According to him, the findings indicate that the immediate effects of the reform were unevenly distributed across different income groups and while high-income households remained largely insulated from the shocks, low-income households experienced the most severe erosion of purchasing power.
Shuabu said that data from the study showed that poverty among low-income households rose sharply from about 50% before subsidy removal to roughly 63% afterwards just as the national poverty gap remarkably widened.
The economist further clarified that the research study reflected that poverty gap at the national level increased from 31.6% to more than 45% following the fuel subsidy removal, thereby deepening the level of deprivation among poor households.
He explained that although the study found that social transfers slightly reduced the gap, adding that the improvement remained limited due to delays in the rollout of the government’s intervention programmes and the relatively small scale of support provided for poor households nationwide.
Shuaibu further expatiated that the study also assessed how the reforms affected household consumption patterns and that the findings revealed that consumption levels declined across income groups following the removal of the subsidy and the adjustment of electricity tariffs.
He said: “Across the board, household consumption declined following both the subsidy removal and electricity tariff adjustments. However, social transfers helped cushion the impact, especially for low-income households.”
A further analysis of the study’s findings, based on the presenter’s paper, showed that the effect on consumption was particularly pronounced among rural and low-income households, where rising energy and transport costs significantly reduced spending capacity.
Similarly, households in urban low-income groups also experienced declines in consumption, though the impact was moderated where social transfers were introduced.
Beyond household welfare, Shuaibu said that the research work also examined the broader macroeconomic consequences of electricity tariff reforms, and found that electricity tariff adjustments resulted in a modest increase in consumer prices, initially raising prices by about 0.26%, which later marginally rose to roughly 0.52% after the inclusion of social protection measures.
However, the expert said that the study found that the electricity reform slightly impacted positively on economic output as the real Gross Domestic Product (GDP) increased by about 0.42% under the reform regime before moderating to around 0.21% when social protection programmes were factored into the model.
He marinated that firm-level investment also recorded slight gains following electricity tariff adjustments, although these improvements were partly offset by the cost of implementing social protection measures.
In contrast, Shuaibu noted that the removal of the petrol subsidy impacted negatively on economic activity as the study showed that rising fuel prices and transport costs triggered inflationary pressures that weighed on business activity and investment.
Beyond the quantitative modelling, he clarified that the research incorporated insights from focus group discussions conducted among households and businesses and provided qualitative evidence on how Nigerians were coping with the economic changes across the nation’s geopolitical zones..
Shuaibu explained that the study revealed that households reported that the reforms rapidly eroded purchasing power and forced many families to adopt survival strategies, adding that “households adjusted to the shocks not through recovery but through sacrifice.”
The study indicated that respondents generally acknowledged the need for reforms given the country’s fiscal and macroeconomic challenges, but many criticized the speed at which the policies were introduced.
Based on research study findings, the economist said that many households responded by cutting consumption, reducing transport use, rationing electricity, and borrowing money to meet basic needs while many respondents also said they had received little or no assistance from government support programmes designed to mitigate the effects of the reforms.
He noted that businesses reported similar difficulties as the rising fuel and electricity costs significantly increased their operating expenses while some business owners said they had been forced to raise prices, reduce staff strength, or shut down operations entirely.
Shuaibu clarified that others reported switching to alternative energy sources to cope with rising electricity tariffs and fuel costs, adding, however, that many business owners lamented that the promised government support programmes had either not reached them or were insufficient to offset rising costs.
He finalized his presentation that the study concluded that while the reforms were necessary to correct structural distortions in the economy, their implementation created severe short-term shocks.
Giving a monetary policy perspective to the study findings at the dialogue, Deputy Governor of the CBN for Economic Policy, Muhammad Abdullahi, said the reforms were inevitable because the Nigerian economy had been weakened by deep structural distortions.
Specifically, he maintained that “Nigeria faced severe macroeconomic imbalances, economic distortions, and collapsing revenues before major reforms began.”
According to him, Nigeria had suffered a huge decline in oil revenues over the past decade as earnings from crude oil fell from about $92 billion in 2012 to less than $2 billion in 2023, representing a decline of about 98% in expected revenue during the period.
The banker said the situation contributed to severe fiscal pressure and made policy reforms unavoidable, noting that Nigeria inherited major distortions in the foreign exchange (FX) market, including encouragement of arbitrage in multiple exchange rate windows.
Abdullhi pointed out that the subsidy regime and exchange rate distortions together were estimated to have cost the Nigerian economy about 6% of its Gross Domestic Product, adding that the apex bank inherited a backlog of about $7bn in foreign exchange obligations owed to businesses and investors.
He disclosed that the apex bank had already cleared about $4.5bn of the backlog as part of its initiatives to restore confidence in the financial system.
He maintained that restoring confidence in the foreign exchange market and improving oil sector performance were critical to stabilising the economy, recalling Nigeria’s foreign reserve position was weaker than it appeared before the reforms.
Although official reserves were reported to be about $32bn, the banking expert explained that much of the funds consisted of borrowed resources and swaps, leaving the country with net reserves of only about $800m.
Despite the difficult transition period, Abdullahi explained that currently the reforms were beginning to yield the desired results, as inflation has been declining steadily for about 19 months, while food inflation is currently at its lowest level in about 13 years.
He added that Nigeria was gradually moving towards single-digit inflation while the net foreign reserves had improved significantly, rising from about $800m to roughly $32bn, improving international investor confidence.
The apex bank Deputy Governor also cited the rising non-oil exports, which reached about $6bn last year, with the government targeting $12bn in the near future, to justify his stance on the improving state of the nation’s economy.
Speaking at the dialogue, the Director-General of the Lagos Chamber of Commerce and Industry, Dr. Chinyere Almona, agreed that the reforms had corrected several long-standing distortions but had also placed heavy pressure on businesses.
She noted that the removal of petrol subsidy alone could save the government about $7.5bn annually, which should be invested in infrastructure and human capital development.
On the LCCI position on the reforms and the gains, the Director-General said: “For the private sector, what we want to see is that the savings from the fuel subsidy removal are actually being used to fund infrastructure.”
Noting that rising fuel prices have significantly increased electricity generation costs for businesses, Almona maintained that while macroeconomic indicators such as reserves and the balance of payments had improved most Nigerians had yet to experience the benefits.
She clarified: “The economy is improving at the macro level, but that improvement has not trickled down to the common man and many small businesses.”
The LCCI boss, therefore, charged the Federal Government on the need to introduce complementary policies that would support businesses such as improved access to credit and targeted assistance for small and medium-sized enterprises.
Also, in his contribution during the dialogue, the World Bank economist, Samer Matta, urged the government to expand social protection programmes and strengthen the National Social Register to ensure that assistance quickly get to the vulnerable people naationwide.
He pointed out that sustained dialogue and stronger safety nets would be critical to maintaining public support for Nigeria’s economic reforms and ensuring inclusivity of the nation’s growth.
In his remarks at the forum, the Chairman of Agora Policy, Ojobo Ode Atuluku, said the dialogue was organised to promote evidence-based discussion on Nigeria’s reform agenda.
He disclosed that the initiative was supported by the United Kingdom’s Foreign, Commonwealth and Development Office and the Nigeria Economic Stability and Transformation Programme.
