Struggle over subsidy cuts: A global challenge

As protests swell around the globe, the challenge of dismantling fuel subsidies remains formidable. In Nigeria, like many other developing countries, the surge in fuel prices has sparked frustration. Antonia Arosanwo, a 46-year-old mother of five, expressed her discontent at a Lagos bus stop. “I am furious,” she said, reflecting the sentiment of many in Nigeria’s sprawling commercial capital.

Arosanwo's daily commute from Ojuelegba, a vibrant neighborhood just a short distance from Lagos's central business area, has seen its cost soar to N700a (about 45 U.S. cents) since the government ended fuel subsidies last year, causing petrol prices to triple. This dramatic increase has fueled nationwide protests, with citizens demanding relief from soaring inflation, food shortages, and job losses—issues all closely tied to the rising cost of fuel.

This scenario is not unique to Nigeria. Across Africa and other emerging markets, governments burdened with debt are grappling with the fallout from cutting fuel subsidies, a costly expense that is increasingly untenable. Egypt and Malaysia have recently raised fuel prices to curb subsidy spending, while Bolivia’s President Luis Arce, having recently navigated a coup attempt, is now advocating for a referendum on fuel subsidies. Bolivia’s subsidies are projected to cost around $2 billion this year.

Arce, facing a struggling economy and a shortage of foreign currency, acknowledged the tough decisions required in such dire circumstances. "We need decisive, thoughtful leadership during these challenging times," he stated during a speech in Sucre. Yet, the fervor of protests threatens to undermine efforts to phase out subsidies, as stagnant economic growth compounds the struggles of ordinary citizens.

Leaders in Angola and Senegal are also confronting similar difficulties in reducing subsidies, mirroring Nigeria's predicament. Bismarck Rewane, CEO of the Financial Derivatives Co and an economic advisor in Lagos, emphasizes the need for a gradual approach, balancing government capacity with public affordability.

Globally, subsidies are a pervasive issue, costing a staggering $7 trillion in 2022, equivalent to 7.1% of global GDP, according to the International Monetary Fund. Critics argue that these subsidies disproportionately benefit wealthier individuals and are fraught with corruption, besides being detrimental to the environment. Major subsidy spenders include Russia, Iran, China, and Saudi Arabia, but for emerging economies, the financial strain is severe.

Nigeria’s President Bola Tinubu, who ended subsidies upon taking office, initially froze fuel prices when costs surged but later reinstated them as the naira weakened. This reversal illustrates the complexity of subsidy reform amid economic instability.

Elsewhere, policymakers are wary of exacerbating discontent through further price increases. The resignation of Bangladesh’s prime minister following deadly protests over job quota changes, and Kenya’s recent cabinet shake-up after violent demonstrations over tax hikes, highlight the potential political fallout of unpopular economic decisions.

Goldman Sachs economist Andrew Matheny notes that political leaders worldwide are cautious about making further adjustments that might provoke public unrest. This hesitation could stretch already strained budgets. Nigeria’s subsidies consume 3% of GDP, Senegal’s electricity and fuel subsidies amounted to 3.3% of GDP last year, and Angola's subsidy expenditure in 2022 was over 40% of its social spending.

Angola has vowed to eliminate fuel-price supports by next year, though last year’s price hikes led to fatal protests. Celio of ProMeritum stresses that a sustainable budget is essential for attracting investment, while Tinubu has called for patience and promised social support in a bid to navigate the current crisis.

Yet, Rewane warns that sudden price increases could have severe repercussions for Nigeria. As Arosanwo grapples with higher transportation costs and the struggle to provide for her family, she questions the rationale behind enduring such hardships without meaningful change.

“The government has the will,” Rewane concludes. “But time is not on anyone’s side right now.”