Impact of Fuel Subsidy Removal: Transport Sector GDP contracts by 50.64% in Q2 2023

Nigeria’s economy recorded a modest growth of 2.51% in the second quarter of 2023, according to the latest data from the National Bureau of Statistics (NBS).

This is slightly higher than the 2.38% growth recorded in the first quarter of the year and marks the fourth consecutive quarter of positive growth since the recession of 2020.

However, not all sectors of the economy performed well in the second quarter. The transportation and storage sector, which accounts for about 0.89% of the GDP, contracted by a whopping 50.64%, the largest decline among all sectors.

The NBS attributed this to the sharp fall in the road transport sub-sector, which shrank by 55.14%. The road transport sub-sector makes up over 95% of the transportation and storage sector and is vital for the movement of goods and people across the country.

The NBS did not provide any explanation for the poor performance of the road transport sub-sector, but analysts at Nairametrics, believe that it was largely driven by the removal of fuel subsidies by the federal government in May 2023.

The removal of fuel subsidy, which was aimed at reducing the fiscal deficit and attracting foreign investment, led to a spike in the pump price of petrol from N162 per litre to N256 per litre, a 58% increase.

The increase in petrol price, coupled with inflation and currency depreciation, has pushed up the cost of transportation for both commuters and businesses.

Transport cost soars

According to data from the NBS, Transportation Watch, the average fare paid by commuters for bus journeys within the city per drop increased by 97.88% from N649.59 in May 2023 to N1,285.41 in June 2023. On a year-on-year basis, it rose by 120.63% from N582.61 in June 2022.

  • The average fare paid by commuters for bus journey intercity per drop rose to N5,686.49 in June 2023, indicating an increase of 42.09% on a month-on-month basis compared to N4,002.16 in May 2023.  On a year-on-year basis, the fare rose by 55.25% from N3,662.87 in June 2022.
  • In air travel, the average fare paid by air passengers for specified routes’ single journey increased by 4.93% from N74,948.78 in May 2023 to N78,640.54 in June 2023. On a year-on-year basis, the fare rose by 40.22% from N56,082.64 in June 2022.
  • The average transport fare paid on Okada transportation was N618.52 in June 2023 which was 33.14% higher than the rate recorded in May 2023 (N464.55). On a year-on-year basis, the fare rose by 48.34% when compared with June 2022 (N416.97).
  • For water transport (waterway passenger transportation), the average fare paid in June 2023 increased to N1,366.22 from N1,045.15 in May 2023. On a year-on-year basis, it increased by 44.84% from N943.26 in June 2022.

Nairametrics survey also indicated that transportation activities have dropped off in the last few weeks, as higher transportation costs and increased cost of petrol have kept most cars off the road.

The impact of the transportation crisis on the economy is likely to be significant, as it affects other sectors such as trade, manufacturing, agriculture, and services.

The Nairametrics survey revealed that many businesses have reduced their production and distribution activities due to higher logistics costs and lower demand. Some consumers have also cut down on their spending on non-essential goods and services due to lower disposable income.

The outlook for the third quarter of 2023 remains uncertain, as the economy faces several headwinds such as rising insecurity, political instability, exchange rate volatility, and COVID-19 resurgence.

The government has announced some measures to mitigate the impact of the fuel subsidy removal, such as providing palliatives to vulnerable groups, expanding mass transit schemes, and promoting alternative energy sources.

However, these measures may take time to yield results, and may not be enough to address the structural challenges facing the transportation sector and the economy at large.

Source: Nairametrics

Leave a Comment

Your email address will not be published.