Fuel Subsidy Removal And The Economy
(A Case Study Of Abakiliki Local Government Area, Ebonyi State)
The removal of fuel subsidies has significant ramifications for the economy, impacting various sectors and stakeholders. While such a move can lead to increased government revenue and fiscal sustainability, it often triggers inflationary pressures as fuel prices surge, affecting the cost of transportation, production, and ultimately consumer prices. Additionally, the removal of subsidies may incentivize efficiency and innovation in energy usage, fostering a more sustainable energy landscape. However, it can also disproportionately burden low-income households and certain industries reliant on affordable fuel, potentially exacerbating socioeconomic disparities. Effective policy measures, such as targeted social safety nets and investment in alternative energy sources, are crucial in mitigating adverse effects and ensuring a smooth transition towards a more economically viable and equitable energy framework.
When the researcher chose this topic “fuel subsidy removal and Nigerian economy”-she was inspired on how Nigerians reacted towards the fuel subsidy removal, the strikes, violent demonstrations, high cost of fuel and transportation etc, it was these problems that made the researcher carryout this work. To do this, researcher developed three major questions and other sub/minor questions aimed at prying into fuel subsidy removal and the Nigerian economy. These questions were administered in the form of a questionnaire to 399 respondents who were selected as a sample of the population. Apart from the primary data collected through questionnaire, secondary data were also collected. In organizing and presenting data collected, tables and percentages were used. Data analysis and interpretation revealed the level of impact felt in the sectors of the economy. A high level of impact was felt in health, transportation, education and power sector, a low impact was felt in agriculture, infrastructure and basic amenities, majority of the respondents had no idea of the achieved impact in communicating and no impact was felt at all in tourism. It was therefore recommended that government should pay adequate attention to these sectors of the economy, this should also be supplemented by providing social amenities and infrastructures in the country. If the sectors of the economy are in a very good shape, it will not only go along way in sustaining and reviving other sectors of the economy, it wil also help to hasten growth and development in Nigeria.
pages
Title
Certification
Dedication
Acknowledgment
Table of contents
Abstract
CHAPTER ONE
INTRODUCTION
1.1 Background of study
1.2 Statement of problem
1.3 Objectives of the study
1.4 Research questions
1.5 Scope of the study
1.6 Limitations of the study
1.7 Significance of the study
1.8 Definition of terms
Reference
CHAPTER TWO
LITERATURE REVIEW
2.1 Subsidy and fuel subsidy
2.1.1 Agencies involved in subsidy
2.2 Origin of fuel price increase in Nigeria
2.2.1 Petrol prices in selected countries
2.3 Deregulation
2.4 Fuel subsidy removal
2.4.1 SURE Programme
2.4.2 Objectives of the SURE Programme
2.5 Rational for the fuel subsidy removal
2.6 Politics of fuel subsidy removal
2.7 Impact of fuel subsidy removal in Nigeria
2.8 Concepts of palliative measures by government
2.9 The house of representative report of the ad-hoc committee to
verify and determine the actual subsidy requirements
2.10 Theoretical frame work of analysis
Reference
CHAPTER THREE:
RESEARCH METHODOLOGY AND DESIGN
3.1 Research design
3.2 Sources of data
3.3 Location of study
3.4 Population of the study
3.5 Sampling and sampling technique
3.6 Sample size determination
3.7 Instruments used for data collection
3.8 Administration of instrument
3.9 Validity of the instrument
3.10 Reliability of the instrument
3.11 Data collection
3.12 Instrument of return rate (IRR)
Reference
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS AND INTERPRETATION
4.1 Data Presentation and analysis
4.2 Interpretation of data
CHAPTER FIVE:
FINDINGS, CONCLUSIONS AND
RECOMMENDATION
5.1 Summary of findings
5.2 Conclusion
5.3 Recommendations
Bibliography
Appendix
Questionnaire
INTRODUCTION
1.1BACKGROUND OF STUDY
A subsidy by definition is any measure that keeps prices consumers pay for a good
or produce below market level for consumer or for producers. Subsidies take
different forms,these include grants, tax reductions and exemptions or price
controls. Others affect prices or cost indirectly such as regulations that skew the
market price in favour of a particular fuel, government. Sponsored technology, or
research and development.(R & O) Alozie (2009).
According to Eyiuche (2012) the federal government operated fuel subsidy
with the aim of making petroleum products available to cushion the effect of
actual market prices of the product on the general populace. The federal
government during the military era was of the opinion that the cost of production,
transportation of fuel will be so much a heavy burden for the poor masses of
Nigerians to bear alone and therefore decided to pay part of the total amount of
fuel cost for every Nigerian in order to make the product available and affordable.
This is actually what is referred to as fuel subsidy, that is the government paying
part of the total amount of fuel cost. His intention of cushioning the effect of
actual market price of fuel product actually worked for a period of time, say from
1973-1983. On March 31st 1986. Gen. Ibrahim Babangida increased the pump
price of petrol form 20k to #39.5k. This was about 97.5% increment.
Sources have it that issues worsened with the advent to democracy. On
June 1st, 2000 Chief Olusegun Obasanjo increased the pump price of petrol from
#20 to #30 (50% increment). Gradually, the aim of the military government that
introduced fuel subsidy was subdued and defeated.
The benefits of fuel subsidy to the average Nigerian was short lived. The
federal government claim to have spent over #1.4 trillion on fuel subsidy in the
past five years. It also claimed to be paying heavily to subsidize kerosene which is
imported into the country through the Nigerian National Petroleum corporation
(NNPC), the fuel subsidy policy has also bred several unintended consequences
and practices such as smuggling of petroleum products out of the country, the
federal government also claimed that the fuel subsidy policy has made them
unable to tackle problems of our collective infrastructure which are the roads,
power, agriculture, fixing the refineries etc.Omoniji (2012).
Given the antecedents that most Nigerians have not benefited from fuel
subsidy, several economists view subsidies as highly corrupt, wasteful and bled
money from the treasury into the private pockets of rich fuel importers. As a result
of this obvious reality, the federal government on January 1st 2012 dramatically
announced the end of fuel subsidy. With the intention of using the money accrued
from fuel subsidy to develop other sectors of the economy , and also to ensure
sustainable develop and wealth generation for the nation. Onanuga (2012).
The removal of fuel subsidy by the nigeian government raises lot of dust. It
can be said to be the most talked about issue since the inception of democracy in
Nigeria. It can also be said that the subsidy will go down in history as one of the
most unpopular policies ever imposed on Nigerians. The protest and war of words
that the policy generated pointed out glaringly the mistrust Nigerians, most
especially the youths have for the government due to years upon years of failed
promises and unaccomplished government polcies/programmes. Nigerians got a
shocking new year gift from the federal government on January 1st 2012. They
found long queues at the filling stations where petrol was sold above #65 per litre.
Fuel subsidy removal which the federal government under the leadership of
President Goodluck Ebele Jonathan has canvassed and lobbied for since he was
sworm in last May 29, 2011 appeared to have finally got to the blast off stage. It
was on Monday, December 12, 2011, that the National Economic Council headed
by the Vice President Nnmadi Sambo decided that government should finally
remove the subsidy come January 2012. The body consists of the vice president,
governors, strategic ministers and central bank of Nigeria (CBN) claimed that
subsidy removal had become inevitable to avert the collapse of Nigerian economy.
Daily sun (2012:18).
The withdrawal of fuel subsidy by the federal government generated heated
debates by Nigerian Labour Congress (NLC) owing to its socio-economic
implications on the nations economy. The prices of goods and services rose, the
cost of transportation also rose drastically even commercial motorcycle instantly
adjusted their fares as roon as the subsidy removal was announced. Many artisan
like welders, aluminum window filters, tailors, who cannot afford power
generators are today out of work, many Nigerian youths have taken to riding
commercial motorcycle and tricycle while others went into street hawtony just to
keep body and soul together. The NLC and government workers went on strike
which resulted the nation (Nigeria) to loose chose to $617 million daily,
translating into about #100 billion, this removal also brought about mass poverty
to Nigerians as the prices of goods and services increased while their income still
remain constant, and also violent demonstration which distorted peace and
tranquility in the country. Following the pronouncement, motorist who were
traveling back to their various destinations after the new year and Christmas
celebrations were hit by sudden likes on petrol prices. Prices rose dramatically
ranging between #140 and #150 per litre and at between #170 to #200 on the black
market. Omoniji (2012: 4).
In the words of Kauffmann (2010: 128) subsidy removal as a programme
enjoyed relative success with limited social stress, in others cases the exercise was
deemed a failure. Elimination of subsidies on essential commodities like fuel has
been known to precipitate social disolocation and in the extreme led to street riots
and civil strike. Fuel subsidy removal programmes are sensitive to economy
structure, level of development of the country, political system and the state of the
economy. There is evidence that the more successful countries have taken a phase
or gradual approach, have engage in conscientious research prior to
implementation and followed a regorious approach to policy making. The
effective communication and fair level of trust between citizens and government
may be the other critical success factors in such an exercise. We examine
Nigeria‟s proposal for subsidy removal against this back drop.
The stake holders, unions and people made snide comments about the
removal of fuel subsidy, they say that the policy is unconstitutional because the
policy does not favour the poor masses, and they did not seek the consent of the
people and their full support before implementing such policy. They also stated
their view saying that subsidy removal is not the only means that the government
can accrue or save money to develop other sectors of the economy.
1.2 STATEMENT OF PROBLEM
Nigerians did not embrace the new policy of fuel subsidy removal by the
federal government. On 1st of January 2012 when president Ebele Goodluck
Jonathan announced the fuel subsidy removal. Nigerians reacted negatively
towards such policy. The Nigerian labour congress and government workers went
on strike which made the nation (Nigeria) to lose a huge amount of money close to
#100 billion naira. Emeh (2012).
The removal of fuel subsidy by the federal government also generated
inflation in the country which bought about a high cost of fuel and other items in
the market, not only did it bring about inflation, it was also accompanied with
mass poverty because the price of goods and services increased while the income
of people still remained constant. Nigerians were also traumatized by the new of
the new policy and it also brought about violent demonstrations which disorted the
peace and tranquility of the country. It was these problems that prompted the
researcher to carry a thorough research on the impact of fuel subsidy removal on
the Nigerian economy.
1.3 OBJECTIVES OF THE STUDY
The objective of this study is to look into fuel subsidy removal and the
Nigerian economy, to achieve this, the researcher wishes
1. To assess the rational for the removal of fuel subsidy by the federal
government.
2. To assess what petrol subsidy removal portend for the Nigerian economy.
3. To assess the failure or success of the oil subsidy regime.
1.4 RESEARCH QUESTIONS
The following shall constitute a question for this research
1. Was the fuel subsidy regime useful to a majority of Nigerians.
2. Was the federal government reasonable in removing the subsidy on fuel.
3. What does the fuel subsidy removal portend for Nigerians.
1.5 SCOPE OF STUDY
Because of the vast nature of Nigeria, the researcher limited its study to
Abakaliki local government area and its environs
1.6 LIMITATION OF THE STUDY
In this research work like every other purposeful act, it was met with many
obstacles in the gathering of information the major problem encountered by the
researcher is the limited time given within which to gather and analyse data
because this topic is based on current issues in our society. Also the researcher
was faced with the problem of finance as well as the negative attitude and non
coperation of the respondents to give information to the researcher. Also, there is
the problem of transportation from one place to another. Other problems include
physical problems such as energy used in carrying out this work and it was carried
out when normal school activities were on, the researcher devoted more time in
order to meet up with the time limit for the submission of this work. Another
problem the researcher encountered was lack of textbooks because this research
work is a current issue in Nigeria, people have not written any text books on it, the
researcher had to reach on journal, magazines, newspaper and the internet.
1.7 SIGNIFICANCE OF THE STUDY
The findings of this study will be very useful to the government and
stakeholders to be able to adopt a bottom-up approach to that will be beneficial to
ngieria both the ordinary masses and the elites. The result of the study will also be
useful to Nigerian citizens as they will comprehend and be enlightened on the use
fullness or other wise of fuel subsidy removal. The finding will also be useful to
students, staff and researchers looking for reference materials on fuel subsidy
(removal). The public, private sectors and public affair analyst will learn a lot
from the findings and recommendations made in this work
DEFINITION OF TERMS
Impact – consequences, outcome, reparations
Fuel subsidy – The amount of money that the government pay to the cabals
or fuel importers while importing fuel so the price of fuel will
be cheaper for the people to purchase
Removal – Elimination, withdrawal or taking away
Nigerian economy – The wealth, resources financial system of Nigeria
Subsidy – Any measure that keep prices consumer pay for a good or
produce below market price for consumer or for producer
Regime – A period of existence of something
SHARE PROJECT MATERIALS ON:
Fuel Subsidy Removal And The Economy:
The removal of fuel subsidies can have significant implications for an economy, and the impact can vary depending on the specific context, the size of the subsidy, and the government’s overall fiscal policies. Here are some key points to consider regarding the removal of fuel subsidies and its effects on the economy:
1. Fiscal Relief: One of the primary reasons governments consider removing fuel subsidies is to relieve fiscal pressure. Subsidizing fuel can be a substantial burden on a country’s budget, as it requires the government to spend a significant portion of its revenue to keep fuel prices artificially low. Removing these subsidies can free up resources that can be allocated to other essential services or used to reduce budget deficits.
2. Reduction of Budget Deficits: Fuel subsidy removal can help reduce budget deficits, especially in countries where subsidies constitute a substantial portion of government spending. A lower budget deficit can have positive effects on the economy by reducing the need for borrowing, which can help stabilize the macroeconomic environment.
3. Incentive for Energy Efficiency: Higher fuel prices resulting from subsidy removal can incentivize individuals and businesses to use energy more efficiently and invest in alternative, more sustainable energy sources. This can lead to long-term environmental benefits and reduced dependence on fossil fuels.
4. Price Inflation: Removing fuel subsidies often leads to an immediate increase in fuel prices, which can have a cascading effect on the prices of goods and services throughout the economy. This can contribute to short-term inflationary pressures, which may negatively affect consumers’ purchasing power, especially if wages do not keep pace with rising prices.
5. Redistribution of Costs: While fuel subsidy removal can benefit government finances, it can also place a heavier financial burden on low-income and vulnerable populations who are more affected by rising fuel prices. Governments often implement social safety nets or targeted cash transfer programs to mitigate the impact on these groups.
6. Economic Growth: Over the long term, removing fuel subsidies can create a more efficient and sustainable economy by reallocating resources to more productive sectors. However, in the short term, the initial shock of higher fuel prices can potentially dampen economic growth.
7. External Factors: The impact of fuel subsidy removal can also be influenced by external factors, such as global oil prices. If global oil prices rise significantly after subsidy removal, it can exacerbate the economic challenges faced by consumers and businesses.
8. Political and Social Implications: Fuel subsidy removal can be a politically sensitive issue, as it often leads to protests and public discontent due to the immediate increase in fuel prices. Governments must carefully manage the communication and implementation of subsidy removal to minimize social unrest.
In conclusion, the removal of fuel subsidies is a complex policy decision that involves trade-offs between short-term economic challenges and long-term economic sustainability. It can provide fiscal relief and promote energy efficiency but may also lead to inflation and social unrest. Effective communication, targeted assistance to vulnerable populations, and well-designed policies to mitigate adverse effects are essential when considering fuel subsidy reform. Additionally, the specific economic impact will depend on the unique circumstances of each country.