Effect Of Fuel Subsidy Removal On The Operation Of Small Scale Business In Nigeria
The removal of fuel subsidies in Nigeria significantly impacts the operational dynamics of small-scale businesses across various sectors. This policy change directly affects business overhead costs, as fuel prices influence transportation expenses, power generation, and overall production expenditures. Small businesses, already operating on tight profit margins, face heightened operational challenges as they grapple with increased expenses. Transportation-dependent enterprises, such as logistics and distribution firms, experience amplified costs for fueling vehicles, leading to elevated prices for goods and services. Similarly, businesses reliant on diesel generators for power generation encounter inflated energy costs, affecting both production processes and service delivery. Consequently, the removal of fuel subsidies imposes financial strain on small-scale enterprises, potentially hindering their growth and competitiveness within the Nigerian market.
This study represents a humble effort to examine the consequences of eliminating fuel subsidies, systematically surveyed and analyzed by the researcher. Specific firms were chosen for study, and the researcher explored the various effects associated with the removal of fuel subsidies on Nigerian citizens. Data collection involved the use of questionnaires and oral interviews, revealing that the removal of fuel subsidies affected both individuals and the broader Nigerian population. Despite the negative repercussions observed, advocating against fuel subsidy removal is recommended due to its adverse effects on Nigerian citizens as a collective.
Approval Page
Dedication
Acknowledgment
Abstract
Table of Contents
CHAPTER ONE
1.0 Introduction
1.1 Background of the study
1.2 Statement of the problem
1.3 Purpose of the study
1.4 Research questions
1.5 Statement of hypothesis
1.6 Significance of the study
1.7 Scope of the study
1.8 Limitations of the study
1.9 Definitions of terms
CHAPTER TWO
2.0 Literature Review
2.1 Conceptual framework
2.2 Theoretical framework
2.3 Empirical framework
2.4 Researchers position
CHAPTER THREE
3.0 Research methodology
3.1 Research design
3.2 Sources of data
3.3 Population and sample determination
3.4 Sample techniques
3.5 Instruments of data collection
3.6 Validity and reliability of the instrument
3.7 Method of data analysis
CHAPTER FOUR
4.0 Data presentation, analysis and interpretation of results
4.1 Presentation of data
4.2 Hypothesis testing
4.3 Statistical criteria (First order test)
CHAPTER FIVE
5.0 Summary of findings, Conclusion and
Recommendations
5.1 Summary of findings
5.2 Conclusion
5.3 Recommendations
Bibliography
Appendix I
Appendix II
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In the past Nigerians solely depended on the exportation of agricultural product for their source of income. This continued until the discovery of the presence of the presence of oil in our country, especially in Port Harcourt. This made them (Nigerians) to divert from agriculture to the exportation of oil to other countries, which was actually fetching them much money even till this present time.
There are many subsidiary oil companies scattered all over the country but the biggest among them is in Port Harcourt and it is called the Nigeria National Petroleum Company (NNPC). It is from here that crude oil is extracted from the ground refined to get those components like fuel, kerosene and gas.
There are depots scattered all over the country, like shell port Harcourt, NNPC oil, EIF oil company, Warri pipelines are directed towards these oil companies to facilitate distribution. It was observed that shortage of petroleum products in one part of the country cannot be resolved by pumping from the area with surplus petroleum products because the pipelines and depots were not interlinked.
When Nigeria got her independent, the main stay of Nigeria’s economy was agriculture. By the end of first decade of its existence as a sovereign nation, agriculture was replaced by oil as the most important revenue earner for the country.
The fall on oil revenue and the subsequent reduction of the revenue from the oil sector can be regarded as a lesion in disguise for Nigerian government for one thing. It has shown that the government dependence on one source of revenue is not good for any country for another. It has shown that dependence on imported goods of all kinds cannot in any way help the country to develop.
Tanker drivers and other dealers will load from the depot and distribute to filling stations, then the consumer will buy from the filling stations.
Fuel supply has been moving smoothly in the country before the announcement of the budget by the head of state in January last four year 1999. It was in February 1999 that the whole issue of fuel scarcity started. This has made it difficult for the government to accomplish that which it proposed to do the budgets.
One of the most inevitable problems that also faced and caused fuel subsidy is when there is any fault in the refinery because of this problem there is fuel subsidy.
Oil companies kept Nigerian fuel as a reserve. This policy has definitely shunned down our economic development. This is typical of all international monopolist schatal revealed that since shell has had twenty years in which to pick and has the area where to drill for petrol and has chosen the best sites. In other to get monopoly control now and in future over oil industry.
1.2 STATEMENT OF THE PROBLEM
The removal of fuel subsidy will cause untold hardship on the economic lives of the citizens in the following ways:
1. It will lead to inflation: The general price level will rise thereby making the cost of living very high in Nigeria.
2. Transportation cost will increase as transporters will like u their fares.
3. General unemployment as many as who cannot cope with increase production cost will be forced to lay off workers.
4. The real income of workers will fall as the value of their take home pay will drop drastically.
5. Operational costs of firms doing business in Nigeria will rise astronomically leading to reduction in productive capacity.
1.3 PURPOSE OF THE STUDY
Development of any nation relies really on the ability of the government to identify her general needs, provide enabling environment for her citizens as well as attract investors.
The objectives of this study include:
1. To evaluate the degree of inflation as a result of hike in pump price.
2. To find out how to minimize the cost of transportation.
3. To examine the extent at which fuel subsidy removal will cause unemployment in Nigeria.
4. To determine how fuel subsidy removal will affect workers take home pay.
5. To determine the extent at which increase in the operational cost of firms will affect productive activities in Nigeria.
1.4 RESEARCH QUESTION
In order to achieve the objective of this study, the following questions were asked:
1. Do you think that removal of fuel subsidy will lead to inflation?
2. In view, do you agree that removal f fuel subsidy will bring about an increase in transportation?
3. Do you think that removal of fuel subsidy will give birth to an increase rate of unemployment?
4. Will the removal of fuel subsidy affect the operational cost of firms?
1.5 RESEARCH HYPOTHESIS
Ho: The middlemen have not been contributing to fuel subsidy.
Hi: The middlemen have been contributing to fuel subsidy.
Ho: Fuel subsidy is not the cause of high cost of transportation.
Hi: Fuel subsidy is the cause of high cost of transportation.
1.6 SIGNIFICANCE OF THE STUDY
This study will be of great benefit to the Nigeria National Petroleum Company (NNPC) who is not the sole cause of fuel subsidy and take drastic measure to combat them.
This study or research will be of benefit to the government because if the fuel subsidy is rectified and resolved, all businesses will start improving and progressing.
From this study, the rural drivers will find it easy to transport their farm product from the rural to urban zone because the cost of fuel will be on a lower side.
Also, from the research work, it will be kind of encouragement in that when the cost of fuel is low, the cost of transportation will also be low, and these can lead also to low price of commodity been transported.
1.7 SCOPE OF THE STUDY
This study is carried out in Enugu Metropolis, Imo State to study the operation of the Nigeria National Petroleum Company (NNPC) and the middlemen. The study is only based on petrol alone and not for kerosene or gas generally.
1.8 LIMITATIONS OF STUDY
The research work is limited to fuel scarcity in Nigeria with a case study of selected business in Owerri Metropolis.
This study was carried out purely as an academic exercise and therefore could neither receive any financial support from the government or any private enterprise. The limited financial resource of the researcher is thus a major handicap and thereby resulted in limiting the study only to Enugu Metropolis, Imo State.
Time factor also proved a major constraint.
1.9 DEFINITION OF TERMS
Economic: Punishment of another country by reducing or stopping trade with it.
Effect: Change produced by an action or cause.
Fuel: Mineral resources that provide unclear or internal energy requirements.
Scarcity: Something not been enough that is difficult to obtain and less than is needed.
Depot: A place where fuel or oil is being stored or a warehouse of anything.
Middlemen: Trader who passes goods from the producers or from place where they are produce to the final customer or final buyer.
Subsidy: Money paid by government to reduce the cost of production so that the price can be kept low.
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Effect Of Fuel Subsidy Removal On The Operation Of Small Scale Business In Nigeria:
The removal of fuel subsidies in Nigeria can have significant implications for the operation of small-scale businesses in the country. Fuel subsidies are government interventions aimed at reducing the cost of fuel for consumers, typically by providing financial support to keep fuel prices artificially low. When these subsidies are removed, it can lead to several effects on small-scale businesses:
- Increased Operating Costs:
- Small businesses in Nigeria often rely heavily on fuel for transportation, power generation, and other operational needs. The removal of fuel subsidies can result in a sudden increase in the cost of fuel, directly impacting the operational expenses of these businesses.
- Higher Transportation Costs:
- Many small-scale businesses depend on transportation for the distribution of goods and services. With the removal of fuel subsidies, transportation costs are likely to rise, affecting the overall cost structure of businesses involved in logistics and distribution.
- Inflationary Pressures:
- Higher fuel prices can lead to increased production costs for businesses, which may, in turn, contribute to inflationary pressures in the economy. Small businesses may find it challenging to absorb these increased costs, leading to potential price hikes for their products or services.
- Reduced Profit Margins:
- Small-scale businesses often operate on tight profit margins. The removal of fuel subsidies can squeeze these margins further, impacting the profitability of businesses. Some may struggle to adapt to the new cost environment, leading to financial challenges.
- Impact on Consumer Spending:
- If small businesses pass on the increased costs to consumers in the form of higher prices for goods and services, it can affect consumer purchasing power. This, in turn, may lead to a reduction in demand for certain products, further affecting the revenue of small businesses.
- Potential Business Closures:
- Small businesses that are unable to adapt to the increased operating costs may face financial difficulties and, in extreme cases, may be forced to close down. This can have broader implications for employment and economic stability.
- Adaptation and Innovation:
- On the positive side, the removal of fuel subsidies may encourage businesses to seek alternative and more efficient ways of operating. Some small businesses may explore renewable energy sources or adopt technology to improve energy efficiency, helping them navigate the new cost landscape.
- Government Revenue and Spending:
- The removal of fuel subsidies is often associated with government efforts to enhance revenue and reduce fiscal deficits. The government may redirect resources previously allocated to fuel subsidies to other sectors, potentially promoting economic development in the long run.
In summary, the removal of fuel subsidies in Nigeria can have both positive and negative effects on small-scale businesses. While it may lead to increased operating costs and challenges for some businesses, it could also spur innovation and efficiency improvements in the long term. The overall impact will depend on how well businesses and the government adapt to the new economic conditions