About 63 per cent 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 research, presented at a stakeholders’ dialogue organised by Agora Policy in Abuja on Thursday, showed that the national poverty headcount rose sharply from a baseline of about 49.8 per cent to roughly 63 per cent following the subsidy removal before moderating slightly after the introduction of social protection measures.
The dialogue, themed “Sustaining and Deepening Economic Reforms in Nigeria,” brought together policymakers, economists, civil society leaders, and private sector representatives to examine the effects of the Federal Government’s reform agenda.
Among those present were the Deputy Governor for Economic Policy at the Central Bank of Nigeria, Dr Muhammad Abdullahi; the Special Adviser to the President on Finance and Economy, Ms Sanyade Okoli; the World Bank Senior Economist for Nigeria, Dr Samer Matta; the Country Director of CARE International, Dr Hussaini Abdu; and the Executive Director of Agora Policy, Waziri Adio, among others.
The study, presented by a Senior Lecturer at the Department of Economics, University of Abuja, Dr Mohammed Shuaibu, analysed the economic and social consequences of key reforms introduced by the Federal Government, including the removal of petrol subsidy and adjustments in electricity tariffs.
President Bola Tinubu had announced the end of petrol subsidy during his inaugural address on May 29, 2023. According to the study, the policy triggered broad price increases across the economy and significantly affected household welfare. “After the subsidy removal, poverty increased from a baseline of about 50 per cent to 63 per cent,” Shuaibu said.
He added that the introduction of social protection measures helped moderate the impact but did not fully reverse the deterioration in welfare conditions. “However, when social protection measures such as cash transfers were introduced, the poverty rate moderated to around 56.2 per cent,” he said.
The findings indicated that the immediate effects of the reform were unevenly distributed across different income groups. While high-income households remained largely insulated from the shocks, low-income households experienced the most severe erosion of purchasing power.
Data from the study showed that poverty among low-income households rose sharply from about 50 per cent before subsidy removal to roughly 63 per cent afterwards, while the national poverty gap widened significantly.
The poverty gap at the national level increased from 31.6 per cent to more than 45 per cent following the policy change, indicating a deeper level of deprivation among poor households.
Although social transfers slightly reduced the gap, the improvement remained limited due to delays in the rollout of intervention programmes and the relatively small scale of support provided.
The study also assessed how the reforms affected household consumption patterns. According to the findings, consumption levels declined across income groups following the removal of the subsidy and the adjustment of electricity tariffs.
“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,” Shuaibu said.
The analysis 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.
Households in urban low-income groups also experienced declines in consumption, although the impact was somewhat moderated where social transfers were introduced.
Beyond household welfare, the research also examined the broader macroeconomic consequences of electricity tariff reforms.
The study found that electricity tariff adjustments resulted in a modest increase in consumer prices, initially raising prices by about 0.26 per cent, which later rose to roughly 0.52 per cent after the inclusion of social protection measures.
However, the electricity reform produced a small positive impact on economic output. According to the analysis, real Gross Domestic Product increased by about 0.42 per cent under the reform scenario before moderating to around 0.21 per cent when social protection programmes were factored into the model.
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, the removal of the petrol subsidy had a contractionary effect on economic activity. The study showed that rising fuel prices and transport costs triggered inflationary pressures that weighed on business activity and investment.
Beyond the quantitative modelling, the research incorporated insights from focus group discussions conducted across Nigeria’s six geopolitical zones. These discussions involved households and businesses and provided qualitative evidence on how Nigerians were coping with the economic changes.
Participants generally acknowledged the need for reforms given the country’s fiscal and macroeconomic challenges, but many criticised the speed at which the policies were introduced.
Households reported that the reforms rapidly eroded purchasing power and forced many families to adopt survival strategies. “Households adjusted to the shocks not through recovery but through sacrifice,” Shuaibu said.
According to the study, many households responded by cutting consumption, reducing transport use, rationing electricity, and borrowing money to meet basic needs. Several respondents also said they had received little or no assistance from government support programmes designed to mitigate the effects of the reforms.
Businesses reported similar difficulties, noting that rising fuel and electricity costs significantly increased operating expenses. Some firms said they had been forced to raise prices, reduce staff strength, or shut down operations entirely.
Others reported switching to alternative energy sources to cope with rising electricity tariffs and fuel costs. However, many business owners said that promised government support programmes had either not reached them or were insufficient to offset rising costs.
The study concluded that while the reforms were necessary to correct structural distortions in the Nigerian economy, their implementation created severe short-term shocks.
The PUNCH