CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Fuel subsidy removal has been a subject of significant debate and scrutiny, particularly in oil-producing nations like Nigeria. The Nigerian government has historically subsidized fuel prices to mitigate the impact of fluctuating global oil prices on its citizens. However, the removal of fuel subsidies can have profound implications for the economy, affecting various sectors and socioeconomic strata. This introduction aims to explore the effects of fuel subsidy removal on the Nigerian economy, shedding light on both the potential benefits and challenges associated with this policy decision. Adenikinju, A., & Ajose, K. (2016).
Removing fuel subsidies in Nigeria has been a contentious issue due to its potential to trigger inflationary pressures and social unrest. Subsidized fuel prices have long served as a form of implicit social welfare, benefiting consumers by keeping transportation and living costs relatively low. However, the removal of these subsidies can lead to immediate increases in fuel prices, subsequently impacting the cost of goods and services across the economy. This can disproportionately affect low-income households, exacerbating poverty and inequality levels. Iwayemi, A., & Arimah, B. C. (2017).
On the other hand, fuel subsidy removal can also yield positive outcomes for the Nigerian economy in the long run. By eliminating subsidies, the government can redirect resources towards critical sectors such as healthcare, education, and infrastructure development. Moreover, it can incentivize investments in the domestic oil and gas industry, fostering greater efficiency and productivity. Additionally, removing subsidies can help reduce the fiscal burden on the government, freeing up funds for investment in social programs and economic diversification initiatives. IMF. (2019).
However, the success of fuel subsidy removal in Nigeria hinges on effective policy implementation and complementary measures to cushion the impact on vulnerable segments of society. Adopting targeted social safety nets, such as cash transfers or food subsidies, can help mitigate the immediate adverse effects on low-income households. Furthermore, enhancing transparency and accountability in the management of saved resources is crucial to ensure that the benefits of subsidy removal are equitably distributed across the population. Onuoha, B. C. (2018).
1.2 Statement of the Problem
The removal of fuel subsidies in Nigeria poses a significant challenge to the country's economy, triggering a cascade of impacts across various sectors. Primarily, the abrupt removal of subsidies often leads to a surge in fuel prices, subsequently increasing the cost of transportation and production. This inflationary pressure tends to ripple through the economy, affecting the prices of goods and services nationwide. Moreover, the removal of fuel subsidies can exacerbate poverty levels, particularly among low-income households, as they struggle to cope with higher living expenses amidst stagnant wages. This economic shock also has the potential to stir social unrest and political instability, as citizens voice their discontent over the government's decision. Adenikinju, A., & Ajose, K. (2016).
Furthermore, the removal of fuel subsidies in Nigeria confronts policymakers with the challenge of mitigating adverse effects while striving for long-term economic sustainability. While subsidies strain government finances, their removal can lead to short-term disruptions and hardship, particularly for vulnerable populations. Additionally, the decision necessitates a comprehensive strategy to address underlying issues such as corruption, inefficiencies in the energy sector, and the need for alternative social safety nets to cushion the impact on the most marginalized segments of society. Balancing the immediate economic repercussions with the imperative for structural reform presents a complex policy dilemma that requires careful consideration of both short-term and long-term implications for Nigeria's economic development and social stability. . Iwayemi, A., & Arimah, B. C. (2017).Top of FormBottom of Form
1.3 Objectives of the Study
The main objective of the study is to examine the effect of fuel subsidy removal on the economy of Nigeria. Specific objectives of the study are:
- 1. To analyze the short-term and long-term impact of fuel subsidy removal on inflation and economic growth in Nigeria.
- 2. To evaluate the effectiveness of government policies implemented to mitigate the negative impacts of fuel subsidy removal on vulnerable populations.
- To compare the relative efficiency and potential economic benefits of alternative fuel subsidy management strategies in Nigeria.
1.4 Research Questions
To guide the study and achieve the objectives of the study, the following research questions were formulated:
- To what extent did fuel subsidy removal in Nigeria contribute to changes in inflation and economic growth in the first year and the following three years?
- How effective were the social safety net programs implemented by the Nigerian government in mitigating the negative impact of fuel subsidy removal on low-income households and informal sector workers?
- Compared to the complete removal of subsidies, how would a targeted subsidy program or a cash transfer program impact the overall budget deficit and the living standards of low-income Nigerians?
1.5 Research Hypothesis
The following research hypothesis was developed and tested for the study:
Ho: There is no statistical significant relationship between fuel subsidy removal and the economy of Nigeria.
1.6 Significance of the Study
The study is important for many reasons. The following are the major stakeholders this paper through its practical and theoretical implications and findings will be of great significance:
Firstly, the paper will benefit major stakeholders and policy makers in the Economics sector. The various analysis, findings and discussions outlined in this paper will serve as a guide in enabling major positive changes in the industry and sub-sectors.
Secondly, the paper is also beneficial to the organizations used for the research. Since first hand data was gotten and analysed from the organization, they stand a chance to benefit directly from the findings of the study in respect to their various organizations. These findings will fast track growth and enable productivity in the organisations used as a case study.
Finally, the paper will serve as a guide to other researchers willing to research further into the subject matter. Through the conclusions, limitations and gaps identified in the subject matter, other student and independent researchers can have a well laid foundation to conduct further studies.
1.7 Scope of the Study
The study is delimited to Cbn. Findings and recommendations from the study reflects the views and opinions of respondents sampled in the area. It may not reflect the entire picture in the population.
1.8 Limitations of the Study
The major limitations of the research study are time, financial constraints and delays from respondents. The researcher had difficulties combining lectures with field work. Financial constraints in form of getting adequate funds and sponsors to print questionnaires, hold Focus group discussions and logistics was recorded. Finally, respondents were a bit reluctant in filling questionnaires and submitting them on time. This delayed the project work a bit.
1.9 Organization of the Study
The study is made up of five (5) Chapters. Chapter one of the study gives a general introduction to the subject matter, background to the problem as well as a detailed problem statement of the research. This chapter also sets the objectives of the paper in motion detailing out the significance and scope of the paper.
Chapter Two of the paper entails the review of related literature with regards to corporate governance and integrated reporting. This chapter outlines the conceptual reviews, theoretical reviews and empirical reviews of the study.
Chapter Three centers on the methodologies applied in the study. A more detailed explanation of the research design, population of the study, sample size and technique, data collection method and analysis is discussed in this chapter.
Chapter Four highlights data analysis and interpretation giving the readers a thorough room for the discussion of the practical and theoretical implications of data analyzed in the study.
Chapter Five outlines the findings, conclusions and recommendations of the study. Based on objectives set out, the researcher concludes the paper by answering all research questions set out in the study.
REFERENCES
Adenikinju, A., & Ajose, K. (2016). The Macroeconomic and Distributional Effects of Fuel Subsidy Reform in Nigeria. Nigerian Economic Summit Group.
Iwayemi, A., & Arimah, B. C. (2017). The Political Economy of Fuel Subsidy Removal in Nigeria. African Development Bank.
IMF. (2019). Nigeria: Selected Issues. International Monetary Fund.
Onuoha, B. C. (2018). The impact of fuel subsidy removal on the Nigerian economy. International Journal of Energy Economics and Policy, 8(5), 83-90.
World Bank. (2016). Nigeria: Investment in human capital and inclusive growth - Selected policy notes. World Bank Group.
