Fuel Subsidy Reform and the Social Contract in Nigeria: A Micro-economic Analysis
This paper provides rigorous empirical evidence about the determinants of support for fuel subsidy reforms in Africa’s largest economy – Nigeria. Fuel subsidies in Nigeria are large – at the last estimate the state subsidises petrol to the tune of around USD 3.9 billion – almost double the government’s spending on health. Subsidies exist because the government fixes the price of petrol for consumers below the international price, and uses government resources to pay for the difference. They were first introduced in Nigeria in the 1970s as a response to the oil price shock in 1973. However, despite numerous attempts at reform, Nigeria has never successfully removed petrol subsidies, in large part because of strong popular opposition to reform. We draw on a new large, nationally representative dataset of the perceptions of Nigerians regarding taxes and subsidies to assess the factors that make people more or less likely to support reform. Support for reform is low, at under 30 per cent of the population. We also exploit a survey experiment that randomly provided respondents with different framings of the subsidy issue, to estimate the impact of different types of messages on support for subsidy reform. Our findings suggest that economic variables (related to price and availability), along with greater trust and service delivery, and stronger social and personal norms, are all associated with stated support for subsidy reform. However, different framings of the survey question did not yield significant changes in peoples’ opinions.