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FUEL SUBSIDY REMOVAL AND THE NIGERIAN ECONOMY

FUEL SUBSIDY REMOVAL AND THE NIGERIAN ECONOMY

TABLE OF CONTENTS
pages
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

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

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

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.

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.

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.

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Updated: March 9, 2016 — 5:05 am

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