Impact Of Fuel Subsidy Removal On The Operation Of Small Scale Business
(A Case Study Of Selected Businesses In Owerri Metropolis)
The removal of fuel subsidies can significantly affect the operation of small-scale businesses, causing a ripple effect across various aspects of their operations. Firstly, it can lead to increased operational costs, as transportation expenses rise due to higher fuel prices, impacting both the procurement of raw materials and the distribution of finished goods. This, in turn, may compel businesses to either increase prices or absorb the additional costs, potentially reducing their competitiveness in the market. Moreover, the removal of subsidies can trigger inflationary pressures, affecting consumer purchasing power and subsequently dampening demand for goods and services. Small businesses, often operating on tight profit margins, may struggle to adapt to these changes, leading to reduced profitability or even business closures. Additionally, the overall economic uncertainty resulting from subsidy removal can hinder investment and expansion plans for small enterprises, limiting their growth prospects in the short to medium term. In response, businesses may need to implement cost-cutting measures, explore alternative energy sources, or seek government support programs to mitigate the adverse effects of fuel subsidy removal on their operations.
This research which is a modest attempts to study the impact of removal of fuel subsidy has been systematical surveyed and analyze by the researcher. The researcher selected some firms as a study and reviewed some impacts that exist within removal of fuel subsidy, its effect in Nigeria citizens. Data were gathered with the use of questionnaire and oral interview and the researcher noted that fuel subsidy removal affected a host of individuals as well as Nigeria citizens. Although fuel subsidy removal should be discouraged because of its negative impact to Nigeria
Title Page
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
citizens as a whole.
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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The impact of fuel subsidy removal on small-scale businesses can be both positive and negative, and it largely depends on various factors such as the nature of the business, its location, and the overall economic context. Here are some potential effects:
Positive Impacts:
- Reduction in Budget Deficits: Governments often provide fuel subsidies to keep fuel prices artificially low. Removing these subsidies can help reduce budget deficits, potentially leading to more stable economic conditions in the long term. This can indirectly benefit small businesses by ensuring a more stable macroeconomic environment.
- Resource Reallocation: When fuel subsidies are removed, governments may redirect the funds saved to other critical sectors such as healthcare, education, or infrastructure. Improved public services and infrastructure can create a more conducive environment for small businesses to operate in.
- Incentive for Energy Efficiency: Rising fuel prices due to subsidy removal can incentivize small businesses to adopt energy-efficient practices and technologies. This can lead to long-term cost savings and environmental benefits.
Negative Impacts:
- Increased Operational Costs: One of the most immediate and direct impacts of fuel subsidy removal is the increase in fuel prices. Small businesses that heavily rely on transportation, such as delivery services or manufacturing, will face higher operating costs. This can eat into their profit margins.
- Inflationary Pressure: Fuel price increases can trigger a chain reaction of rising costs across various sectors of the economy. This can lead to general inflation, which may erode the purchasing power of consumers. Small businesses might experience reduced demand for their products or services as consumers cut back on spending.
- Supply Chain Disruptions: Small businesses that rely on imported goods or materials may face challenges if transportation costs increase significantly. This can disrupt their supply chains and potentially lead to delays in production or increased costs.
- Reduced Consumer Spending: When fuel prices rise, consumers often have less disposable income. This can lead to reduced spending on non-essential goods and services, which can negatively impact small businesses in sectors like retail and hospitality.
- Operational Challenges: In some cases, fuel subsidy removal can lead to social unrest, strikes, or protests. These events can disrupt the normal operation of small businesses, particularly if they are located in areas affected by civil unrest.
- Competitive Disadvantage: Small businesses facing higher fuel and transportation costs might struggle to compete with larger competitors that can absorb these cost increases more easily.
In summary, the impact of fuel subsidy removal on small-scale businesses can be complex and multifaceted. It often involves a trade-off between short-term challenges, such as increased operating costs, and potential long-term benefits, such as a more stable economic environment. Small businesses should adapt to changing economic conditions, seek opportunities for efficiency and innovation, and monitor government policies to mitigate the negative effects and take advantage of any potential benefits.