CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Nigeria is a country endowed with vast mineral resources prominent among which are the oils and gas reserves. The country possesses 28% of Africa’s proven oil reserves, second only to Libya; and is the largest producer of crude oil in the region, producing 2.4million barrels per day in 2010 which is about 24% of the continent’s petroleum output Siddig, (2014). However, the country is a large net importer of gasoline to meet domestic needs despite having four refineries that are capable of refining 445, 000 barrel per day operating below 10%. One of the contentious issues in Nigeria today is the removal of fuel subsidy on Premium Motor spirit (PMS) (Akinwale, 2016). The subsidy is a form of price manipulation whereby the government fixes the pump price for sale to consumers and pays the retailer difference between the actual market price and the regulated or official price per litre. Iyobhebhe, (2012) asserted that through this fuel subsidy, millions of Nigerians have access to cheap refined petroleum products. The Federal Government of Nigeria in its effort to deregulate the downstream sector completely decided to remove fuel subsidy on January 1st 2012. This was made real when President Goodluck Jonathan decided not to make provision for subsidy payment in the 2012 appropriation budget. The president came up with a strong argument that the sum of N3.4 billion is spent in subsidizing fuel went to fraudulent hands.
Fuel subsidy removal is one of the critical issues that dominate public debate in oil exporting nations and among the G-20 Nations.
The federal government recently removed petrol subsidy and ushered in a regime of partial deregulation in the downstream sector of the Nigeria’s oil and gas industry.
Though the sector would have preferred full deregulation, the action is a right step, which will eventually lead to the ultimate goal, if the government could muster the political will to move a step further in the future.
This belated action is however coming when the crude oil price has hit the bottom level, with corresponding drop in the price of refined products. But for the high cost of foreign exchange, which has led to high cost of product, the drop in the crude oil would have made mockery of the subsidy removal as there would have been nothing to subsidies. Subsidy removal would have made more economic sense when crude oil price was high to save the trillions of naira wasted on payment of subsidy.
Furthermore, Lyobhebhe, (2016) insisted that subsidy is an indirect form of wealth redistribution to the poor majority and if this is taken away, the government must then come up with policies to compensate Nigerians, utilize the savings and explain how the inevitable inflation will be managed. However, proponents of the policy have enumerated the numerous benefits the policy will bring to Nigerians. The Nigerian chambers of commerce and industry insisted that full implementation of the policy will bring enormous benefits to Nigeria economy Osagie, (2016).
1.2 Statement of the Problem
Whenever, the price of fuel goes up the prices of everything goes up too. This is because transport cost for providing essential services, the prices of goods and services all have multiplier effect on the economy.
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 news 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 Objectives of the Study
The aim of this project work is to enlighten the people on the effect that the removal of fuel subsidy has on the economy and how it affect the various sectors of the economy. Below are the objectives of the study.
To ascertain the effect of fuel subsidy removal on our local production of goods and services.
To assess the rationale for the removal of fuel subsidy by the federal government.
To ascertain the effect of fuel subsidy removal on transportation
To ascertain the effect of fuel subsidy removal on the general prices of commodities.
1.4 Research Questions
The following shall constitute questions for this research
What are the effect of fuel subsidy removal on our local production of goods and services?
Was the federal government reasonable in removing the subsidy on fuel?
What are the effects of fuel subsidy removal on transportation?
What are the effects of fuel subsidy removal on the general prices of commodities?
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 to what will be beneficial to Nigerians both 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 findings will also be useful to students, staff and researchers looking for reference materials on fuel subsidy (removal). The public, private sectors and public affair analysts will learn a lot from the findings and recommendations made in this work
1.6 Scope of the Study
Because of the vast nature of Nigeria, the researcher limited its study to Ikot Ekpene LGA, Akwa Ibom State.
1.7 Limitations of the Study
The study was limited by the following factors
Funds: funds were in very short supply to the researcher and he could not purchase some valuable print materials needed for this project at the time they were most needed.
Another constraint faced by the researcher was limited time for the completion of the project and engagement in other academic activities which occupied most of the researcher’s time.
Material factor: shortest of relevant materials for literature review poses a great difficulty.
Inability to retrieve all the questionnaire forms for good representative used for the anticipated sample.
The study was also limited to the information gathered from both primary and secondary sources.
FUEL SUBSIDY REMOVAL AND THE NIGERIAN ECONOMY A CASE STUDY OF IKOT EKPENE LOCAL GOVERNMENT AREA
