ABSTRACT
Despite the huge amount of money Nigerian government spends on fuel
subsidy, the situation in the oil sector has not been promising and Nigerians
still experience scarcity of premium motor spirit. There has been dearth of
infrastructural investments in the oil sector due to the enormous funds sunk
into fuel subsidization, and as it is now, the government is yet to fix her
refineries. As a result, there has been little or no significant improvement in
the quality of life for the majority of Nigerians, 54 percent of who still
lives below the national poverty line. Hence, the main objective of this study was
to assess the contributions of the fuel subsidy in the Nigerian economy, that
is, the study examined the problems, the prospects and a way forward for the
sustainable economic growth in Nigeria considering the subsidy removal. The
major sources of data used in the study were primary The primary data were
collected through the use of questionnaire and the secondary data were also
collected. Descriptive statistics was used to analyze the data. The study found
that fuel subsidy has not resulted in a significant improvement in the quality
of the life for the majority of Nigerians. The study therefore recommended that
government should diversify the Nation’s economy instead of focusing on just
oil.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
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, (Alozie et al., 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 Nigerian 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 policies/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 nation’s economy. The prices of goods and services rose;
the cost of transportation also rose drastically even commercial motorcycle
instantly adjusted their fares as soon as the subsidy removal was announced.
Many artisans 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 hawking
just to keep body and soul together. The NLC and government workers went on
strike which resulted the nation (Nigeria) to lose 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). 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 dislocation 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 rigorous 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 distorted 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 RESEARCH
QUESTIONS
The
following shall constitute a question for this research
1. What
are the effects of fuel subsidy on the average cost of living in Abakiliki
L.G.A?
2. What
is the rational for the removal of fuel subsidy by the Federal government?
3. What
is the effect of fuel subsidy removal on the Nigerian economy??
4. What
are the challenges of fuel subsidy removal in Nigeria and what are the possible
solutions to these problems?
5. What
is the failure of fuel subsidy removal and also the success?
1.4 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
examine the effects of fuel subsidy on the average cost of living
2. To
identify the rational for the removal of fuel subsidy by the federal
government.
3. To
identify what petrol subsidy removal, portend for the Nigerian economy.
4.
to
identify the prospects and the challenges of fuel subsidy removal in Nigeria
5. To
assess the failure or success of the oil subsidy regime.
1.5 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 that will be beneficial to Nigeria
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
1.6 SCOPE
OF STUDY
Because
of the vast nature of Nigeria, the researcher limited its study to Abakaliki
local government area and its environs
1.7 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 analyze 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-cooperation of the respondents to give information to the researcher. Also,
there is the problem of transportation from one place to another. 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.
1.8 DEFINITION
OF TERMS
Impact
– consequences, outcome, reparations
Fuel subsidy
– The amount of money that the government pays 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.
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