The Effects Of Fuel Subsidy Removal On Nigerians’ Standard Of Living

Project and Seminar Material for Political Science

Abstract

This study examines the effects of fuel subsidy removal on Nigerian’s standard of living in Lagos State in which 50 civil servants were randomly selected in Ikeja for the purpose of the study. Statistical data for about eight different periods where fuel hike occurred in Nigeria was revealed and the instrument used to collect the data was questionnaire which contained sixteen questions. Data collected was dully analyzed with the help of chi-square. So, it was deduced from this study that increase in fuel pump price which resulted from fuel subsidy removal has an adverse effect on the standard of living of the people, since fuel is essential for the transportation of major commodities, such as agricultural produce and other market product in Nigeria.

Chapter One

Introduction

1.1 Background of the Study

Research on the effects of fuel subsidy removal on Nigerian’s standard of living has been on interest to the economy and Nigerians. This research evidence will show the effect of fuel subsidy removal on the standard of living of Nigerians.

Petroleum is the mainstay of the Nigerian economy. It plays a very crucial role in shaping and modifying the economic, political and social destiny of the country.

The discovery of oil in commercial quantities at Olobiri in the Niger Delta and later at Afam and Boma in the 1960s established Nigeria as oil producing nation. The oil sector, as the prime mover of the economy became apparent in the 1970s due to the dramatic increase in oil process and the rise in the nation’s proven oil reserves and production.

Subsidy has been defined as aids directly granted by government to an individual or private commercial enterprise deemed beneficial to the public. (Ogundipe D.O. 2013).

According to Ogundipe D.O. 2013, Fuel Subsidy can be said to be the financial aid granted to autonomous and foremost oil marketers by the government for them to supply their products as a cheaper rate for the good of the masses. This move is almost always aimed at boosting the economy of a country, providing social amenities for the people, stabilizing the market, creation of employment opportunities and of course the new theory of it is capable of fighting corruption as postulated by the Nigerian government. The issue of subsidy is not alien to the nation’s down-stream because it existed during the military regime when the four refineries of the nation could only produce little which could not even satisfy the domestic needs of the people. Then, a need arose for the importation of finished petroleum products such as diesel, petrol and kerosene to meet the domestic need of Nigerians. For this reason, the influential Nigerians and those in the corridor of power considered the sudden wealth that will result from this opportunity and started acquiring the various wells in the country and finally, they overtook the petroleum industries. This undoubtedly was the birth of the child of fuel problems Nigerians are nurturing today especially as it affects petroleum.

On the first day of January, 2012 Nigerians woke up to face one of the greatest shock of their lives when the removal of fuel subsidy was announced by the federal government at a time perceived wrong, in a way many saw as erroneous, in a situation several believed was unstable and with arguments many opined came with a sinister motive. This raised the price of a litre of petrol from N65 to N141. A drive through the memory lane revealed that subsidy was once removed on kerosene and diesel by the then Federal government of Nigeria on reasons similar to one gave by the President Jona led administration and with promises that such policy will have a long lasting positive effects on all areas in the nation. However, nothing tangible could be said to be the celebrated outcome of the said policy. It was argued by the then federal government that the removal of subsidy on diesel and kerosene would make the products available and affordable but it turned out to be a fallacious fabrications, the products have become more scarce and expensive, instead of the promise of its expensive, instead of the promise of its availability. Saddening enough, none of the crippled refineries was brought back to its feet from the money realized from the removal of subsidy on diesel and kerosene. One begins to wonder if the time honoured saying ‘once bitten twice shy’ was not the rhythm in the minds of long-suffering Nigerians when the Petroleum Products Pricing and Regulatory Agency (PPRA) announced the infamous policy on the 1st of January, 2012.

After weeklong protests by Nigerians, which was led by the Nigerian Labour Congress (NLC), Trade Union Congress (TUC), and some civil society groups, government bowed to public pressure not to remove the fuel subsidy entirely in view of some negative effects it would unleash on the populace, especially where there was absence of palliative and coupled with the fact that the government took the people by surprise. The government after much hesitation, made a U-turn in her policy, partially removed the subsidy and reduced petrol price from N141 to N97 per litre. Although, it was not a return to status quo, Nigerians had wanted but they heaped much of their hope on government planned palliative to cushion the negative effects the partial removal of the fuel subsidy would have on the masses. Unfortunately, most of the promised palliative such as massive job creation, easy transportation and other goodies did not get out of government’s drawing board.

Early 2014, the same government was again touting with the idea of removing what remained of the subsidy, which the people thought is the only benefits they derive from the nation’s naturally endowed petrol – dollar largesse. The government argued that a tiny percentage of Nigerians called the cabal are the ones hugely profiting from the subsidy largesse and that the current low price of oil will always encourage smuggling of the product along our numerous porous boarders. Government also said that the total fuel subsidy removal will attract more investment in the downstream oil sector which will boost employment and the economy.

Although, the government arguments may sound convincing, Nigerians have a pathetic tale and manifold frustrations to express over many years of government’s fuel price hike based on terrible regimes and the failure by the government to deliver on its promises.

1.2 Statement of the Problem

The government policy of fuel subsidy removal was to bring about positive effects and changes to the economy through subsidy reinvestment programme (SURE – P) and to eradicate oil related corruption, thereby increasing the standard of living of Nigerians.

However, Fuel subsidy removal would have the following negative effects on Nigerians:

Lack of adequate palliative such as massive job creation, easy transportation and regular supply of electricity to cushion the negative effects.
Increase in cost of production which will be resulted from increase in fuel price.
Increase in the cost of providing services
Increase in house rent (cost of living)
Increase in transportation cost
Fall in the standard of living
Increase in the prices of goods and services
Increase in corruption
Increase in the cost of education

1.3 Purpose of the Study

This study aims at assessing the effects of fuel subsidy removal on Nigerians’ standard of living. The purpose of the study is summarized as follows:

To find out whether fuel subsidy removal has any effect on the private cost of education
To find out the relationship between fuel subsidy removal and increase in transportation cost
To find out the relationship between fuel subsidy removal and increase in house rent (cost of living)
To find out the relationship between fuel subsidy removal and increase in the price of goods and services

1.4 Research Hypotheses

Hypotheses 1

Ho: There is no significant relationship between fuel subsidy removal and increase in transportation cost.
Hi: There is a significant relationship between fuel subsidy removal and increase in transportation cost.

Hypotheses 2

Ho: There is no significant effect of fuel subsidy removal on the increase in the prices of goods and services.
Hi: There is a significant effect of fuel subsidy removal on the increase in the prices of goods and services.

1.5 Significance of the Study

The significance of the study to the:

i. Government

The result of this study would give necessary information to provide adequate palliative for the masses to cushion the native effects of fuel subsidy removal.
It will give the government an insight to judiciously utilized and revenue generated from fuel subsidy removal without any form of corruption
This study outcome will prompt the government to get all the cabals behind the profit from the subsidy largesse and bring them to book

ii. Researchers

The findings of this study would serve as reference point for future researchers, which would form the basis of their research work.

iii. Populace

The outcome of this study would provide necessary information to the populace over the subsidy removal, though may be accomplished with increase in cost of living, transportation, goods and services, cost of production etc. but it will lead to:

Attraction of more investment in the downstream oil sector
The boosting of employment and the economy
The discouragement of smuggling of petroleum product along our boarders.
Increase in gross domestic product (GDP)

1.6 Scope and Limitation of the Study

This study is primary concerned with the effects of fuel subsidy removal on Nigerian’s standard of living. This study/project work covers ikeja Area of Lagos. The researcher encountered some constraints, which limited the scope of the study. These constraints include but are not limited to the following

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

1.7 Definition of Terms

i. Subsidy:

Money that is paid by government of an organization to reduce the cost of services or of producing goods so that their prices can be kept low.

ii. Palliative:

An action that is designed to make a difficult situation seem better without actually solving the cause of the problems

iii. Refinery:

A factory where a substance such as oil is refined

iv. Largesse:

An act of being generous with money

v. Gross Domestic Product (GDP):

The total value of all the goods and services produced by a country in a year.

vi. Cabal:

A small group of people who are involved in secret plans to get political power.

1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
Chapter three deals on the research design and methodology adopted in the study.
Chapter four concentrate on the data collection and analysis and presentation of finding.
Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five

Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain a critical analysis of the effects of fuel subsidy removal on Nigerians’ standard of living.

In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of poor living standard of citizens, arising from subsidy removal.

5.2 Summary

This study aimed at having a critical analysis of the effects of fuel subsidy removal on Nigerians’ standard of living. Four objectives were raised which included: To find out whether fuel subsidy removal has any effect on the private cost of education, to find out the relationship between fuel subsidy removal and increase in transportation cost, to find out the relationship between fuel subsidy removal and increase in house rent (cost of living), to find out the relationship between fuel subsidy removal and increase in the price of goods and services

5.3 Conclusion

Based on the above findings pertaining to the objectives of the study the following conclusions are drawn.
The essence of government is to provide welfare so as to meet the needs of the teeming population. Therefore, the existence of subsidy is a necessity and the removal of Petroleum Subsidy has caused untold hardship on the masses. It increased the misery index and hence poverty level by further raising Transportation costs, which translated also into increased Consumer goods prices.

5.4 Recommendation

On the basis of the findings the following recommendation are made; Considering the negative impact that the fuel subsidy removal have on the poverty level in Kogi State in particular, it is recommended that government should shift Subsidy to Transportation Sector by putting in place a good transportation scheme to provide transportation services for both passengers and goods to charge a reduce price in other to reduce the hardship of increase in Price brought about by Increase in Petroleum Price. Power Supply Should be improved upon in other to reduce the Energy Bill of firm using PMS to power the Generators as this will further reduce the cost of Production of Consumer goods which will hence reduce the prices of goods and services. The Supply of Petroleum Products should be improved upon to further neutralize the potency of the demand of Petroleum product in the market in other to push down the price. Also, government should embark on mass establishment of NNPC mega stations in at least every village in other to curb the inflation of price of petrol above the market price by the profit oriented Private retailers.

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