How Nigeria’s fuel subsidy shock jolted Cameroon’s economy
In Cameroon, the unintended consequences of Nigeria’s fuel subsidy withdrawal ripple across the beleaguered Anglophone region.
On the night of 29 May, 2019, the lone petroleum refinery in Cameroon was struck by a massive explosion that damaged four of its 13 production units.
The incident at the 42,000 barrel-per-day SONARA refinery in Limbe, southwest Cameroon, abruptly stopped petroleum refining in Cameroon. To mitigate the effects of the damage, the government immediately accorded the National Oil Refining Company, SONARA, and other licensed agents, the right to import and market refined petroleum products across the country.
Wary of inflation, the government subsidised the prices of the various imported fuel products. The price of a litre of petrol was thus fixed at FCFA 630 (approx. $ 1.4)
On 1 February, 2023, with the refinery still not restored almost four years after the explosion, the government increased fuel prices. Petrol and diesel rose by 15.87 percent and 25.2 percent, respectively; a litre of petrol rose from FCFA 630 (approx. $ 1.2) to FCFA 730 (approx. $ 1.4).
According to President Biya during his 2022 end-of-year address to the nation, the government increased fuel prices after spending a whopping FCFA 700 billion ($ 1.158 billion) in 2022 in fuel price subsidies.
The February price hike didn’t have the inflationary effects many anticipated. For over 50 years, communities living in the towns bordering Nigeria, have depended on cheap refined petroleum flowing across the border. Mostly smuggled into the country, it has been the main source of livelihood for millions of ordinary Cameroonians.
This is why the 29 May, 2023 inauguration announcement by Nigeria’s Bola Ahmed Tinubu to end fuel subsidies in his country was such a blow to so many Cameroonians, illicit beneficiaries of Nigeria’s decades-old fuel subsidy programme. This was a drama of the illicit and the invisible playing out at the border outposts of a region in the thick of a six-year bloody, separatist war. To heighten the surrealism, in the northern town of Garoua thousands of angry motorbike riders took to the streets in protest, aggrieved by a decision taken by another country’s government to which they had no part.
The price of Nigerian fuel in Cameroon shot up from FCFA 400 (approx. $ 0.66) a litre to FCFA 700 (approx. $ 1.16), slightly lower than the official price. In some areas, such as Idenau in the Southwest, the price has been fluctuating from FCFA 700 (approx. $ 1.16) to FCFA 800 (approx. $ 1.32).
Over 50 percent of Cameroon’s population of 28 million lives below the poverty line, the World Food Programme estimates. With the cost-of-living crisis and chronically high unemployment, pre-May 29th subsidised Nigerian fuel was an economic lifeline. Many youngsters especially in the rural areas engage in the motorbike taxi business; with low barriers to entry in the sector, and cheap Nigerian fuel, there was some money to be made.
When fuel previously retailed at FCFA 400 or $ 0.66 a litre, the riders and cab drivers were able to make a daily profit. In border towns such as Limbe, Idenau, Bamenda in the Southwest and Northwest Regions, motorbike taxis were very affordable for the common man.
“The increase in fuel prices has really affected our motorbike business. When the price of fuel from Nigeria was cheap, with FCFA 2000 ($ 3.30) we could afford 5 litres and would make a good profit. But today with this same amount, we can only buy about two-and-a-half litres. Our passengers, too, are not willing to pay high,” Jean Pascal, a motorbike taxi rider in Limbe says.
Thomas Engenu of the Limbe Motorbike Taxi riders’ union: “We are having difficulties because our passengers don’t want to accept that the price of Nigerian fuel has increased. We can’t make any real profits now.”
African Arguments interviewed imported goods traders from Nigeria to Idenau, the port town on the southwestern coast closest to Nigeria. Idenau is an entrepôt serving the hinterland between Limbe and Douala. Motorbikes are the only means of transportation within the township. Since there are no filling stations in the town, it is completely dependent on Nigerian fuel.
“We at Idenau have decided to increase the price for a motorbike drop from FCFA 100 ($ 0.16) to FCFA 150 (approx. $ 0.25),” Kiko Ernest, a rider, said.
The increase in the price of Nigerian fuel drastically reduces traders’ already limited profit margins, given that they still have to pinch from their own profits to bribe security officials and other bureaucrats who have criminalised the trade.
“We are finding it difficult to make any profit. Car owners and bike riders, our major customers, are complaining about the increase in the price. Some of our fellow traders have had to fold,” says an Idenau trader. “We used to buy a 200-litre container of fuel from Nigeria at FCFA 95,000 ($ 157.225). With the increase we now buy a 200-litre container for FCFA 200,000 ($ 331).
The government plays mum
The Southwest Regional Delegate in charge of Trade and Commerce, Mr Denis Bepano, said that imported fuel from Nigeria was pfeviously treated as contraband. The higher prices, he said, would work in the government’s favour; vehicle owners would now buy from government licensed petrol stations, which in turn pay taxes to the state. He did not remark on the total absence of fuel stations in towns such as Idenau, entirely dependent as they are on contraband fuel.
Prof. Ernest Molua, an Applied Economist and the Deputy Vice Chancellor of the University of Bamenda, Cameroon, was hopeful that the current shock was only temporary; trade union officials in Nigeria were in talks with the new government in a bid to mitigate the situation. He argues that despite Tinubu’s Inauguration Day fuel subsidy withdrawal, it would be very difficult for him to eliminate subsidies completely.
After this current price hike, Nigerian fuel is still going to be relatively cheaper than fuel in the neighbouring countries such as Cameroon, Benin, Niger and the others.
As to what the Cameroon government can possibly do to mitigate the dismal situation, especially in the border regions, Professor Molua said that, “It is now possible for the government to establish filling stations under the Tradex scheme in the border towns where private entrepreneurs have not been able to go.”
Dr Nick Ngwanyam, another university don and a social critic, said that the Cameroon government, like many others in Africa, must now fully invest in the process to refine its own crude and wean itself from the hassles of imported petroleum products which can only be sold when subsidized.
“African governments have a lot of problems when it comes to fuel and that problem has to do with technology. Many African countries have crude oil deposits but lack the skills or manpower to refine it. So they sell the crude at very low prices and buy finished petroleum products at higher prices. They end up with the burden of paying subsidies.
“And when it comes to financial management in African countries, it is very hazy. So there is a lot of theft, corruption and mismanagement.”
If it has to resolve the current crisis and free Cameroonians from the double May shocks – the destruction of its lone oil refinery on 31 May, 2019 and Tinubu’s subsidies removal on 29 May 2023 – the government must quickly resurrect its refinery, plant filling stations in border towns and work towards reducing the high prices of its own fuel products for the benefit of its 28 million inhabitants. After all, Cameroon is an oil producing nation ranked 55th in the world with a total of 200 million barrels of proven oil reserves.