FUEL SUBSIDY REMOVAL AND THE
NIGERIAN ECONOMY
(A CASE STUDY OF ABAKILIKI LOCAL
GOVERNMENT AREA, EBONYI STATE)
ABSTRACT
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.
TABLE
OF CONTENTS
Title
- - - - - - - - - i
Certification
- - - - - - - - - ii
Dedication
- - - - - - - - - iii
Acknowledgment
- - - - - - - - iv
Table
of contents - - - - - - - - vi
Abstract
- - - - - - - - - ix
CHAPTER
ONE
INTRODUCTION
1.1
Background of study - - - - - - - 1
1.2
Statement of problem - - - - - - - 5
1.3
Objectives of the study - - - - - 6
1.4
Research questions - - - - - - - 6
1.5
Scope of the study - - - - - - - 6
1.6
Limitations of the study - - - - - - 7
1.7
Significance of the study - - - - - - 7
1.8
Definition of terms - - - - - - - 8
Reference
- - - - - - - - 9
CHAPTER
TWO
LITERATURE
REVIEW
2.1
Subsidy and fuel subsidy - - - - - - 10 8
2.1.1
Agencies involved in subsidy - - - - - 11
2.2
Origin of fuel price increase in Nigeria - - - - 13
2.2.1
Petrol prices in selected countries - - - - - 15
2.3
Deregulation - - - - - - - - - 18
2.4
Fuel subsidy removal - - - - - - 23
2.4.1
SURE Programme - - - - - - 25
2.4.2
Objectives of the SURE Programme - - - - 31
2.5
Rational for the fuel subsidy removal - - - - 31
2.6
Politics of fuel subsidy removal - - - - - 36
2.7
Impact of fuel subsidy removal in Nigeria - - 52
2.8
Concepts of palliative measures by government - - 61
2.9
The house of representative report of the ad-hoc committee to
verify
and determine the actual subsidy requirements - - 63
2.10
Theoretical frame work of analysis - - - 83
Reference
- - - - - - - 85
CHAPTER
THREE: RESEARCH METHODOLOGY AND DESIGN
3.1
Research design - - - - - - - - 87
3.2
Sources of data - - - - - - - 87
3.3
Location of study - - - - - - - 88
3.4
Population of the study - - - - - - - 88
3.5
Sampling and sampling technique - - - - - 89 9
3.6
Sample size determination - - - - - - 89
3.7
Instruments used for data collection - - - - - 91
3.8
Administration of instrument - - - - - 91
3.9
Validity of the instrument - - - - - - 91
3.10
Reliability of the instrument - - - - - - 92
3.11
Data collection - - - - - - - - 92
3.12
Instrument of return rate (IRR) - - - - - 93
Reference
- - - - - - - - 95
CHAPTER
FOUR
DATA
PRESENTATION AND ANALYSIS AND INTERPRETATION
4.1
Data Presentation and analysis - - - - - 96
4.2
Interpretation of data - - - - - - 105
CHAPTER
FIVE: FINDINGS, CONCLUSIONS AND
RECOMMENDATION
5.1
Summary of findings - - - - - - - 106
5.2
Conclusion - - - - - - - - - 108
5.3
Recommendations - - - - - - - 109
Bibliography
- - - - - - - - 111
Appendix
- - - - - - - - 114
Questionnaire
- - - - - - - - 115
CHAPTER ONE
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. 1 2
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 1 3
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 1 4
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 1 5
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 1 6
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 7
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 1 8
(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
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