Juxtaposing transport costs in Lagos with fuel subsidy removal

Statista estimates that the population of Lagos is fifteen million, making it the most populous state in Nigeria. It is not news that the Centre of Excellence hosts more businesses than any other state in Nigeria. Given Lagos’ demographic and economic size, the need for households and businesses to understand how the fuel subsidy removal has affected transport costs in Lagos needs no excessive justification.
Fuel subsidy removal and movement in petrol

On May 29th, Nigeria’s president announced the removal of fuel subsidy and on May 31st, the Nigerian National Petroleum Corporation Limited (NNPCL) officially announced an upward review of the pump price of petrol. For Lagos residents, the price moved from N189 per litre to N488. This was a 258% increase in premium motor spirit (PMS).

The transport market was quick to respond to this 258% jump in PMS price. As a result, transportation started taking its toll on the finance of Nigerians.

Private firms across the nation had to embrace hybrid work conditions to help their employees “survive” this jump in transport costs. To the surprise of many, the public sector was not left out. By July 6th, barely one week after the increase, Edo State and Kwara State already announced the reduction of working days for civil servants to three days. This announcement was made to help civil servants “survive” the unexpected transportation distress.

Many thought the fuel price increase had gotten to its destination but on Thursday, July 18th, another increase was announced. NNPC filling stations in Lagos started selling PMS at N568 per litre.
The movement of PMS price from N189 to N568 between May and July is a 301% increase.

Graph of PMS price in Lagos after PMS Subsidy Removal in 2023
Facts vs fiction – How did transport cost respond?

A 301% increase in PMS price affected transport costs greatly and social media users were quick to express their frustration. While this frustration remains understandable, it seems that this prevailing frustration resulted in a loss of accuracy while individuals were communicating the effect the subsidy removal had on transport costs. “Transport cost in Lagos is five times what it used to be,” and other related statements are largely inaccurate.

There is no better way to confirm how transportation costs increased than taking actual responses from the streets of Lagos. The table below summarizes how fuel subsidy removal affected transport costs across Lagos:

The above responses show that Uber users suffered the highest increase in transport costs with more than a 100% increase in prices. Tricycle, mini-bus, and danfo bus users suffered transport costs increase of between 25% and 100% depending on the distance.

Read also: Nigerian retailers face tough choices as inflationary pressure persists

A chat with Kunle, a tricycle rider revealed that suppliers of transport services are unable to transfer the whole fuel price increase to their customers. Kunle said that most Lagosians would rather stay at home than pay double the previous fare. “Dem don spoil this keke work for us; this business no dey pay us again. Na because I no get another work, I still dey here” he added. According to him, prior to the subsidy removal, N1000 worth of fuel was enough for him to make N5000. But now, he needs fuel of N3,000 to make N5,000.

Implications for workers and businesses

The finances of people who have to be at work daily have been affected by this transport cost change. Tomisin, an accountant who lives on the mainland but works in Lekki said that the increase in transport costs is a huge challenge for workers and everyone is affected. She added that because of this increase, the establishment she works in had to adopt a hybrid work arrangement for most of their staff.

Concerning the implications of this transport cost increase, these were the comments of Dr Yemi Kale, the former Statistician-General of the National Bureau of Statistics and the current Chief Economist at KPMG Nigeria:

“Transportation accounts for the second largest share of households expenditure after food. Evidently, a rise in transport costs in the presence of much slower growth in income will create direct constraints for households.”

“Additionally, given the relationship between transportation and supply of other products, especially food it can also cause a rise in other food prices which account for almost 60% of households’ budget. When households are faced with this they tend to rationalize expenditure and curtail discretionary and non-essential expenditure items. So producers of such goods or services may experience reduced demand. Consumers may also be more efficient with their travel arrangements and reduce their movement or find less expensive ways to move themselves or their goods around. For businesses, it constituted an increase in distribution costs and tighter margins especially if they are unable to pass those costs to their consumers.”

Dr Kale advises households and businesses to become more efficient and strategic with their movements, curtail unnecessary travel or combine similar ones. According to him, people need to take a look at their expenditure profile and cut out wastage and excesses to free up extra funds.

Olushuyi is a chartered accountant and business writer.