The removal of regulations or restrictions within a particular industry signifies its deregulation. Economic deregulation occurs when the government reduces or eliminates restrictions in specific sectors to enhance business operations and stimulate competition. This move often follows complaints from businesses about how existing regulations hinder their competitive edge.
A notable example of successful deregulation is the telecom industry, transformed by former President Olusegun Obasanjo in the early 2000s. Initially, many Nigerians struggled to afford telecommunication services and devices due to high costs. However, the influx of various market players fostered intense competition, resulting in reduced prices and increased access to mobile phones and services.
While the successes in telecommunications suggest that deregulation can be beneficial, other factors such as implementation methods, timing, and public sensitization play crucial roles in achieving desired outcomes with minimal unintended consequences.
Over the years, successive Nigerian governments have made significant strides toward deregulating the downstream petroleum sector, albeit with mixed results. Efforts to remove restrictions allowing market forces to dictate the price of Premium Motor Spirit (PMS) have sparked widespread concern and protests from groups like the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC). Despite this opposition, President Bola Tinubu’s administration has initiated the final removal of PMS subsidies.
The implications of this policy are severe, leading to skyrocketing inflation, increased transportation costs, and rising prices for food and goods. Experts attribute these challenges to the volatile exchange rate of the Naira against the Dollar and other currencies, compounded by Nigeria’s heavy reliance on a single commodity for foreign exchange earnings. Furthermore, the country’s import dependency exacerbates these economic pressures.
In the short term, the prevailing situation is likely to continue, placing increased pressure on the government to provide palliatives to mitigate the policy’s adverse effects on citizens.
The government defends its decision by arguing that petrol prices remain elevated despite local refining and production due to the influence of global market forces. Although local refining initiatives, such as the Dangote Refinery and the Nigerian National Petroleum Company Limited’s (NNPC) Port Harcourt refinery, are in progress, crude oil prices and production factors still align with global benchmarks. By removing subsidies, the prices Nigerians pay at the pump will reflect the actual costs of refining, logistics, and distribution, promoting long-term sustainability in the sector after years of inefficiency and subsidy mismanagement.
Beyond immediate benefits, full deregulation and local refining are expected to attract increased investment in the downstream sector, creating thousands of jobs and fostering industrialization. By reducing reliance on imported refined petroleum products, Nigeria can retain jobs and economic benefits within the country.
The government argues that the subsidy regime, which drained billions of dollars and resources from critical infrastructure projects, is no longer sustainable. Deregulation allows the market to operate freely, with prices influenced by global oil prices, exchange rates, and local refining costs. It is believed that if crude oil prices decline or refining processes become more efficient, pump prices will adjust accordingly. Additionally, removing subsidies is expected to diminish petrol smuggling, a common issue under the previous regime.
Moreover, the abolition of subsidies presents opportunities for local refineries to flourish. As investment in the refining sector grows, the downstream market will become increasingly competitive, drawing in investors and generating the jobs that Nigerians urgently need.