The Federal Government has spent over N10 trillion on subsidy in at least 12 years. This is at the expense of the overall wellbeing of the people. Analysis of the opportunity cost of the subsidy spending far outweighs the direct benefits.
Nigeria is the second-largest producer of crude oil in Africa, possessing 28% of Africa’s reserve. Petroleum contributes significantly to the economy of Nigeria.
However, the benefits derived are gradually diminishing due to the amount paid on subsidy. Moreover, the subsidy regime is further fuelling the vicious circle of poverty in the country.
The main aim of subsidies is to keep the prices of fuel low in order to enhance the low cost of living. However, the increased volatility in petroleum prices. Likewise, it breeds illegal exportation of the subsidized fuel, conversely increasing the cost of subsidy on the economy.
For instance, between 2006 and 2018, the Federal Government spent close to 10 trillion naira (9.84 trillion) to help subsidize imported petroleum products. These funds have either come from deficit budget or debited to the revenue purse of the government. In all, the funds come with great opportunity costs to the infrastructural development that Nigerians deserve.
Opportunity Cost Of Subsidy On The Nigerian Economy
Research as shown that subsidies have constraints with crowding effects on the resources of the country. The Nigerian economy, with a dire need for investment in basic infrastructures, has lost greatly from the subsidy. These monies spent on subsidy, if properly invested, would have been more productive and beneficial to both the economy and the people.
DATAPHYTE analysis revealed that the amount, N9.8 trillion, spent on subsidy in 12 years could have provided tremendous amenities. These would have spread across the whole economy, bringing dividends to the masses and improving their wellbeing.
For instance, a breakdown shows that over 328,100 Primary Health Centers (PHCs) would have been constructed across the country at the cost of N30 million each. These would have improved access to health for the people and also created jobs for an average of 10 persons per health centre.
Also, close to 10 million (9,843,000) entrepreneurs could have been made or empowered with an N1 million loan each to boost their businesses. This would have had a great impact on the lives of these persons, removing them from lack and making them comfortable. Multiply the figure by the number of persons the businesses would have employed in the process. More so, the amount of locally made goods and service that would be produced. These would have culminated to increased GDP and improved living standard for millions of Nigerians.
What about Housing or Electricity
The same amount would have improved the living conditions of Nigeria through the construction of 656,200 houses. These houses would have been mortgaged at an average cost of N15 million, generating revenue to the government. Furthermore, access to good water would have been enhanced through the sinking of 16,405,000 boreholes across the country.
Most importantly, 27,342 megawatts (MW) of solar electricity would have been added to the national grid at N360 million per megawatt. This would have improved the power supply to the manufacturing industries, hence, enhancing production at a lower cost, which would have translated into low prices of goods.
Subsidy And The Vicious Circle
The continuous subsidy on petroleum imports is always justified as a measure to alleviate poverty. However, subsidies have been reported not to really redistributing income. It mostly makes the rich, richer and the poor, poorer. For instance, Soile and Mu found out that while the kerosene subsidy is more evenly distributed across income groups, the petrol subsidy is concentrated to high-income groups. In aggregate, the top 20% of households enjoy twice as much the benefit of fuel subsidies as the bottom 20% of households.
Another study supported by the Facility for Oil Sector Transparency and Reforms in Nigeria showed a large part of the subsidy accrues to importers and wholesalers. An estimate shows that 57% of the gain from subsidies goes to the top 20%; only 3.8% of the benefit goes to the bottom 20%. This accounts for the mixed success of attempts for its removal. 
Impact Of Subsidy Removal
Subsidy removal is one of the most contentious socio-economic policy issues in Nigeria today. However, the reduction/removal of subsidy would have an impact on both households and the economy.
Subsidy removal, without any accompanying policy, would negatively affect household income. However, this effect can be minimized with government transfer of spending. The transfer of government income to rural households would not only promote pro-poor growth but would also alleviate some of the negative impacts on the real income of all households.
On the economy, there would be a possible increase in the GDP and the long-run effect on inflation. The removal of subsidy would have a substantial increase in government revenues that allow increased spending on transfers and/or government provision of services.