Nigeria’s recent removal of fuel subsidies has sparked significant economic challenges, including rising inflation and a deterioration of living conditions.
However, lessons from Indonesia’s phased approach to subsidy removal could offer valuable insights for Nigeria as it navigates these reforms.
Indonesia, Southeast Asia’s largest economy, embarked on its own fuel subsidy removal to promote sustainable growth and redirect funds into capital projects. Unlike Nigeria, which eliminated its subsidies in one go, Indonesia opted for a gradual approach to avoid severe economic shocks for its citizens.
After several unsuccessful attempts, including one in 1998, Indonesia finally eliminated most gasoline and diesel subsidies by January 2015. With a population of over 250 million, the country managed this transition through phased implementation, along with targeted social safety nets to protect vulnerable populations.
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“Indonesia’s phased approach to subsidy removal, coupled with targeted social safety nets, mitigated the immediate adverse effects on the poor,” said Adeola Adenikinju, president of the Nigerian Economic Society (NES), at the 65th annual NES conference in Abuja. “Despite initial unrest, this strategy eventually stabilized social conditions.”
Indonesia’s gross domestic product (GDP) at the time of the subsidy removal was $860.9 billion in 2015. Within less than a decade, the economy grew to $1.37 trillion. According to the World Bank, Indonesia’s GDP growth is forecast to average 5.1 percent annually from 2024 to 2026. The country is also ranked the 10th largest economy globally in terms of purchasing power parity, showcasing its economic viability and improved living conditions.
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Adenikinju highlighted that Indonesia’s energy reforms improved energy availability and infrastructure resilience, reducing the likelihood of shortages and creating a more stable energy supply. These outcomes are a result of careful planning and the adoption of complementary policies.
In contrast, Nigeria’s fuel subsidy removal in May 2023 caused petrol prices to triple, straining household finances and fueling inflation. The sudden removal, without adequate buffers for energy security, resulted in price volatility and concerns about affordability.
“Nigeria’s 2023 reforms, while aiming for similar outcomes, have faced challenges in ensuring immediate energy security,” Adenikinju said. “The subsidy removal led to price volatility and concerns about energy affordability, revealing the complexities of balancing economic imperatives with social and energy security considerations.”
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Indonesia’s example shows that successful energy reforms require a combination of factors, including a strong domestic refining value chain, robust infrastructure for transportation and logistics, and complementary policies to mitigate short-term social costs. As Nigeria moves forward with its reforms, it could benefit from adopting a more phased approach similar to Indonesia’s, to better manage the economic and social impacts.
