{"id":64189,"date":"2024-07-05T18:11:21","date_gmt":"2024-07-05T10:11:21","guid":{"rendered":"https:\/\/www.imoney.my\/articles\/?p=64189"},"modified":"2024-07-05T18:11:21","modified_gmt":"2024-07-05T10:11:21","slug":"nigeria-fuel-subsidy-malaysia","status":"publish","type":"post","link":"https:\/\/www.imoney.my\/articles\/nigeria-fuel-subsidy-malaysia","title":{"rendered":"Nigeria\u2019s Fuel Subsidy Removal Is A Disaster, Here\u2019s What Malaysia Can Learn From It"},"content":{"rendered":"
Speculation is rife on when the fuel subsidy cuts on a wider scale will be implemented in Malaysia. In fact, a recent international news report indicated that Malaysia cannot afford to delay the painful decision any longer. The <\/span>report<\/span><\/a> highlighted that the Malaysian government expenditure for the first half of 2024 climbed to a new high of 53.9% of the whole year’s budget.<\/span><\/p>\n However, removing fuel subsidies to safeguard government coffers is not unique to Malaysia. Last year, in June 2023, Nigeria made the landmark decision to <\/span>remove their fuel subsidies<\/span><\/a>, after almost 50 years of providing fuel subsidies to Nigerians.\u00a0<\/span><\/p>\n Almost immediately after, the full brunt of the decision was made known to Nigerians, with their <\/span>inflation rate rising<\/span><\/a> at astronomical rates, even when global inflation was shown to be slowing down.<\/span><\/p>\n Seeing that the Malaysian government is set on abolishing the fuel subsidy here as well, is there anything we can do to avoid what happened to Nigeria? Let\u2019s have a look at what we can learn from Nigeria\u2019s fuel subsidy removal.<\/span><\/p>\n First things first, we have to understand the context behind Nigeria\u2019s fuel subsidy removal. Nigeria is the largest oil exporter in Africa. However, it imports nearly all its fuel as it does not refine enough to meet the demand of its 200 million citizens.<\/span><\/p>\n As they are importing fuel, the fuel subsidy was needed to ensure that Nigerians won\u2019t be adversely affected when global fuel prices skyrocket.<\/span><\/p>\n The fuel subsidy has been around in Nigeria since the 1970s. This makes it a longstanding incentive their citizens have grown used to enjoying in the country.<\/span><\/p>\n So why did Nigeria decide to remove it? Here are the reasons which you can also immediately draw parallels to Malaysia.<\/span><\/p>\n Perhaps the most important reason that Nigeria removed their subsidies, is because they deem it unsustainable.<\/span><\/p>\n And for good reason. According to <\/span>Reuters<\/span><\/a>, the Nigerian National Petroleum Corporation (NNPC) spent $10 billion on fuel subsidies in 2022, which was about 40% of the country\u2019s revenue.<\/span><\/p>\n One important thing to understand when discussing the fuel subsidy in Nigeria is that – very few Nigerians own cars.<\/span><\/p>\n Nigeria is among the countries with the least number of vehicles per capita, with <\/span>0.06 vehicles per person<\/span><\/a> or 50 vehicles per 1,000 Nigerians.<\/span><\/p>\n Naturally, the people owning vehicles are the more affluent sections of the population, which means that the subsidies are going to people who are undeserving of it.<\/span><\/p>\n And finally, the fuel subsidy was also very exposed to graft and corrupt practices.<\/span><\/p>\n In 2023, reports of a missing $2.1bn subsidy payouts were made public, and rights group, the Socio-Economic Rights and Accountability Project (SERAP) urged the Nigerian president to set up a probe to investigate.<\/span><\/p>\n Nigeria also has a smuggling problem when it comes to their fuel, where the subsidised fuel is smuggled to neighbouring countries.<\/span><\/p>\n Okay, sounds like Nigeria has some valid reasons to remove their fuel subsidy, so why exactly is Malaysia removing the fuel subsidy?<\/span><\/p>\n Let\u2019s have a look at the reasoning behind Malaysia\u2019s impending fuel subsidy removal.<\/span><\/p>\n Yes, just like Nigeria, the fuel subsidy in Malaysia is unsustainable.<\/span><\/p>\n According to reports, last year alone, the government spent <\/span>RM81 billion<\/span><\/a> on fuel subsidies, which is untenable by the government.<\/span><\/p>\n Combined with the government\u2019s goal to reduce debt level and fiscal deficit, it\u2019s a no-brainer that the fuel subsidy needs to go.<\/span><\/p>\n Although Malaysia\u2019s vehicle ownership rate is way higher (<\/span>over 100%<\/span><\/a>)\u00a0 than Nigeria, it doesn\u2019t mean that our fuel subsidy is in any way equitable.\u00a0<\/span><\/p>\n The richest people in Malaysia do <\/span>use bigger and higher powered cars<\/span><\/a> with bigger fuel tanks. It was reported in Parliament that in 2022, the largest chunk of <\/span>fuel subsidies at 35%<\/span><\/a> went to the T20 high income population. This means that they are using more of the subsidised fuel compared to the people in the lower income bracket.<\/span><\/p>\n Therefore, the subsidy which was supposed to go to people who can\u2019t afford higher fuel prices, is instead going to rich people who honestly speaking, don\u2019t deserve it.<\/span><\/p>\n And finally, Malaysia\u2019s fuel subsidy is very susceptible to graft and corruption.<\/span><\/p>\n Just like Nigeria, our porous borders means that subsidised fuel which is meant for Malaysians are smuggled out of the country to neighbouring countries like Singapore and Thailand.<\/span><\/p>\n In fact, during Budget 2024\u2019s tabling last year, Prime Minister Datuk Seri Anwar Ibrahim stated that Malaysia was losing <\/span>RM10 billion<\/span><\/a> per year thanks to smuggled fuel.<\/span><\/p>\n So those are the reasons why Malaysia\u2019s fuel subsidy has to go. See some similarities between Nigeria and Malaysia\u2019s reasons for scrapping the fuel subsidy?<\/span><\/p>\n Now let\u2019s look at what happened once Nigeria removed their fuel subsidy.<\/span><\/p>\n After Nigeria removed their fuel subsidy, as expected, fuel prices tripled across the country.<\/span><\/p>\n This in turn caused inflation to skyrocket, going from <\/span>18.8% to 24.7% in one year<\/span><\/a>. At a time where the global inflation rate was starting to slow down, it\u2019s hard to not pinpoint fuel subsidy removal as the cause for this.<\/span><\/p>\n Nigeria also saw some slowing down of their economy\u2019s growth, with the gross domestic product dropping from <\/span>3.3% to 2.9% from 2022 to 2023<\/span><\/a>. It might be harder to say that the fuel subsidy removal was the main catalyst of this drop, but it’s even harder to say that it didn\u2019t have an effect.<\/span><\/p>\n As it usually does with inflation, cost of living also skyrocketed, as although Nigeria\u2019s vehicle ownership rate might be low, but Nigeria is home to millions of households who rely on petrol generators for power due to intermittent grid supply.<\/span><\/p>\n This then in turn, caused political and public unrest, as <\/span>unions started going on strike<\/span><\/a> in protest of the fuel subsidy removal, which in turn shut down the nation\u2019s economy.<\/span><\/p>\n Come 2024 and it looks like the government has reinstated some form of fuel subsidy. Recent <\/span>news reports<\/span><\/a> cite the International Monetary Fund, petrol prices in the country are being subsidised to keep it at a managed price point despite the Nigerian currency being devalued several times since last July. This silent reintroduction of fuel subsidies is likely to drain almost half of the revenue that Nigeria earns from oil exports in 2024.<\/span><\/p>\n So now that we know all that happened in Nigeria once they removed the fuel subsidy, the question remains – how do we stop something similar happening in Malaysia?<\/span><\/p>\n<\/span>Why did Nigeria remove their fuel subsidy?<\/b><\/span><\/h2>\n
It was unsustainable<\/b><\/h4>\n
It was unequal<\/b><\/h4>\n
It was susceptible to corruption<\/b><\/h4>\n
<\/span>Why is Malaysia removing fuel subsidies?<\/b><\/span><\/h2>\n
It is unsustainable<\/b><\/h4>\n
It is unequal<\/b><\/h4>\n
It is susceptible to corruption<\/b><\/h4>\n
<\/span>What happened after Nigeria removed fuel subsidy?<\/b><\/span><\/h2>\n
<\/span>How do we avoid all this happening in Malaysia?<\/b><\/span><\/h2>\n