On 29 May 2023, Bola Ahmed Tinubu took the presidential oath of office and delivered one of the most consequential sentences in recent Nigerian economic history: "Fuel subsidy is gone." Within hours, queues formed at petrol stations across Lagos, Abuja, and Port Harcourt. Within weeks, the price of Premium Motor Spirit (PMS) had more than tripled. Within months, the naira had shed roughly half its value against the dollar. This is a chronicle of what happened, why it happened, and what the data shows.

What Did the Fuel Subsidy Actually Cost Nigeria?

Nigeria's fuel subsidy was a decades-old arrangement under which the Nigerian National Petroleum Company Limited (NNPCL) imported refined petrol and sold it to Nigerians at a government-controlled price well below the cost of procurement. For most of the 2010s the subsidy hovered between ₦1 trillion and ₦2 trillion per year. By 2022, the fiscal mathematics had become grotesque.

According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and NNPCL's own disclosures, the country was spending roughly ₦3.36 trillion on petrol subsidy in the first half of 2023 alone, on an annualised trajectory that would have reached ₦6.7 trillion for the full year. The Federal Inland Revenue Service (FIRS) collected ₦12.37 trillion in total federal revenue in 2022. Petrol subsidy was consuming, in effect, more than half of what the government collected in taxes.

The cost was also systematically misreported. A 2023 audit commissioned by the Tinubu transition team found that NNPCL had withheld oil remittances to the federation account to fund subsidy payments, creating a structural cash-flow deficit that starved the three tiers of government of distributable revenue. States and local governments received fewer federation allocations than they were legally entitled to, not because oil prices were low, but because subsidy payments consumed the surplus before it was remitted.

The parallel FX market, which The Cowrie has covered in depth in its full guide to the parallel rate, was already reflecting this fiscal strain before Tinubu's inauguration. In April 2023, the parallel rate stood at approximately ₦750 per dollar against a Central Bank of Nigeria (CBN) official window rate of ₦461.

How Did Removal Trigger the Naira's Freefall?

The removal of the subsidy was not only a petrol price story. It was a foreign exchange story.

Nigeria imports nearly all its refined fuel. Every litre of petrol sold at a filling station was purchased in dollars on the international market. For years, the federal government had been implicitly subsidising not just the price of fuel, but the dollar demand required to buy it. When NNPCL acquired dollars to pay for imports, those dollars did not flow through the formal interbank FX market at the prevailing rate. They were either sourced through the CBN's opaque special windows or financed through deferred remittances, insulating the official rate from the true scale of dollar demand.

Once the subsidy was removed and NNPCL was instructed to source dollars commercially, that demand hit the open market. It coincided with a separate CBN policy shift: in June 2023, the newly appointed CBN Governor Olayemi Cardoso's predecessor, Godwin Emefiele, was suspended and eventually replaced. The CBN simultaneously collapsed its multiple FX windows into a single Investors and Exporters (I&E) window, effectively floating the naira for the first time in years.

The result was immediate and brutal. The official rate moved from ₦461 per dollar before June 2023 to ₦770 by July 2023. By the end of 2023 it had reached ₦907. In the parallel market, rates tracked the official window with a smaller but persistent premium, reaching ₦1,100 by December 2023.

“Between May and December 2023, the naira lost approximately 60% of its value in the official market and 47% in the parallel market. Both moves were traceable to a single policy reversal announced in a 53-word presidential inauguration speech.”

The National Bureau of Statistics (NBS) recorded headline inflation at 22.79% in June 2023, accelerating to 28.92% by December 2023. Food inflation reached 33.93% by year-end, driven by the direct pass-through of transport costs into farm-gate and retail prices. Diesel, which was never subsidised, had already been priced freely, but petrol subsidisation had held down the cost of last-mile distribution across the country. When petrol prices tripled, the logistics cost of moving food from farms in Benue, Kebbi, and Sokoto to markets in Lagos and Abuja rose in parallel.

Who Bore the Sharpest Impact?

The distributional effects were not uniform. Urban middle-class households with formal employment saw wages eroded in real terms. But the sharpest impact fell on three groups.

Daily commuters in Lagos, Abuja, and other major cities saw transport costs absorb a significantly higher share of income overnight. A journey that cost ₦200 in bus fare in April 2023 cost ₦500 or more by August. For workers earning the federal minimum wage of ₦30,000 per month, this represented a catastrophic reduction in disposable income.

Small-scale manufacturers and food processors dependent on petrol-powered generators faced a simultaneous spike in energy and raw material costs. Nigeria's per-capita electricity access remains among the lowest in sub-Saharan Africa, meaning a very large share of productive activity runs on generator fuel. Manufacturing sector data from the NBS showed a contraction in Q3 2023 real output as margins were squeezed.

Naira holders with savings denominated in the domestic currency watched their purchasing power erode against both imported goods and dollar-priced assets. CBN data shows that the broad money supply (M3) grew by approximately 31% year-on-year in 2023, adding further inflationary pressure on top of the supply-side shock from fuel costs.

What Did the Government Receive in Return?

The fiscal arithmetic, on paper, was significant. By removing the subsidy, the federal government freed up the ₦3.36 trillion half-year allocation that had been going to NNPCL. The federation account began receiving fuller remittances from oil revenue, and states reported higher monthly FAAC allocations in the second half of 2023 compared to the previous year.

The Tinubu administration announced a palliative programme of ₦500 billion intended to cushion the impact on low-income Nigerians, including direct cash transfers of ₦8,000 per month to 12 million households. Implementation was patchy, and the NBS's own household survey data indicated that actual disbursement reached a fraction of the intended beneficiaries by Q4 2023.

The NGX All-Share Index, reflecting equity market expectations of improved fiscal health and FX liberalisation, gained approximately 45.9% in 2023, its best annual performance in years. Foreign portfolio investors, who had been locked out of the market by the previous CBN's restrictive FX policies, began to return. Net foreign inflows into the capital market turned positive in Q4 2023 for the first time since 2019.

The picture entering 2024 was therefore contradictory: a market environment showing signs of structural improvement alongside one of the sharpest real-income declines for ordinary Nigerians in a generation.

The Parallel Market After the Float

The CBN's decision to unify FX windows did not eliminate the parallel market. It compressed the spread between official and parallel rates from as wide as 60% in early 2023 to roughly 10%-15% by early 2024, a narrowing that CBN Governor Cardoso cited as evidence of returning market confidence. However, the absolute level at which both rates converged was sharply lower for the naira than at any point in the previous decade.

By early 2024, both the official and parallel rates were trading above ₦1,500 per dollar, a level that had seemed inconceivable even to bearish analysts a year prior. The pass-through into retail prices continued, with NBS recording headline inflation at 31.7% in February 2024 and food inflation exceeding 37%.

The CBN maintained a restrictive monetary policy stance throughout, raising the Monetary Policy Rate (MPR) to 22.75% by March 2024 in an effort to anchor inflation expectations and attract dollar inflows through higher naira asset yields. The strategy reflected a deliberate prioritisation of exchange rate stabilisation over near-term growth.

For ordinary Nigerians navigating this environment, the distinction between official and black market rates remained practically relevant. Many dollar transactions, including diaspora remittances, continued to settle at or near parallel market rates rather than the official window, as documented in The Cowrie's reporting on how remittances interact with the parallel rate.

Regulatory note: The CBN's Foreign Exchange (Monitoring and Miscellaneous Provisions) Act and subsequent circulars govern all FX transactions in Nigeria. Nigerian residents are reminded that FX dealings must comply with CBN regulations. The Cowrie is an independent editorial publication and does not hold a financial services licence issued by the CBN, SEC, or any Nigerian regulatory body. Nothing in this article constitutes financial, investment, or legal advice.

related articles