Fuel Subsidy Removal And The Nigerian Economy

Project and Seminar material for Public Administration

Fuel Subsidy Removal And The Nigerian Economy


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

1.1 Background of the 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 nigerian 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.

The stakeholders, 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 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


1.6 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 (removal). The public, private sectors and public affair analyst will learn a lot from the findings and recommendations made in this work


1.8 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


Chapter Five


Findings Conclusions and Recommendations

5.1 Findings

In the course or process of this research, the researcher observed from the numerous respondents that the subsidy on fuel which the federal government introduced was not useful to a majority of Nigerians because it did not benefit the masses. Thou majority of Nigerians did not benefit from the subsidy but they were able to buy/purchase fuel at a cheaper rate during the subsidy regime. The researcher also found out that it was the cabals whom the fuel subsidy was made available for. In the process of this research, the researcher also discovered that other sectors of the economy such as the agricultural sector, communication sector, educational sector, etc were highly neglected during the subsidy regime.

The researcher also observed that the federal government was reasonable enough in removing subsidy on fuel with the sole aim of developing other sectors of the economy, with the belief that the result of the removal will generate employment opportunities for Nigerians, stop Nigerians from importing fuel from other countries, attract foreign investors in the downstream sector of the economy and also to recover and sustain other sectors of the economy. Finally, the researcher also found out that the removal of subsidy on fuel has a high impact on the health, transportation, education and power sectors of the economy, a low impact was felt in the agricultural sector, infrastructures and social amenities. The researcher also noticed that majority of the respondents had no idea of the achieved impact on communication and that no impact was felt at all in tourism. The researcher also observed that there is a great disappointment and a high level of mistrust among the populace because Jonathan‟s presidency/regime has not proved to be different from other regimes in terms of sincerity and honesty. The federal government promised to use the money that accrued from the fuel subsidy removal to develop other sectors of the economy but majority of Nigerians are protesting against the policy of fuel subsidy removal not because they don‟t know its importance in the long run, but because of their experience with past government. This is not the first time Nigerians are hearing of the word “subsidy removal”. Nigeria government have removed subsidy on kerosine, diesel and fuel but then the story still remains the same. Nigerians believe that the government will use the money that were accrued from fuel subsidy removal for their own selfish interest and not for the benefit of the masses. The people also agitated that Jonathan did not mention anything about fuel subsidy removal all his month of campaigning for the presidential office, only to introduce it immediately he was declared winner of the election.

During the period of fuel subsidy, some major players in the petroleum sectors shared a huge sum of money all in the name of importing refined petroleum products into the country (Nigeria), some companies in the downstream sector shared over #1.428 trillion between January and August 2011 alone (nation newspaper 2012:71). Oando oil,  conoil, African petroleum and Mrs oil are among powerful players in the petroleum sector. However the corruption in the oil sectors by the cabals has brought more hardship to the poor Nigerian masses by the sudden removal of subsidy on fuel and deregulation of the downstream sector of the economy. Finally the policy was well formulated but poorly implemented and executed.


5.2 Conclusion

A majority of Nigerians accepted the fuel subsidy removal because they were not actually the ones benefiting from it. It was the hope of the masses that the government would use the money that accrued from the removal of subsidy on fuel to develop other sectors of the economy from which the masses could benefit. The people agitated against the removal of subsidy on fuel not because they did not know its importance and what they would benefit from it in the long run, but because of the high level of mistrust they had in government and also the wrong timing and execution of the policy. Since the fuel subsidy removal has come to stay, the people are now asking that the government should provide palliatives measures that would help cushion the adverse effects in the short run. In summary the removal of fuel subsidy will be good for Nigerians and if properly applied would go a long way in reviving and sustaining the other sectors of the economy.


5.3 Recommendations

Government should identify areas of wastages in governance such as the allocation of largesse and booties in the name of allowance. The government should also try and adjust and reproioritize the proposed spending in the 2012 bedget to fund fuel subsidy, and in a way that addresses social needs and improve the well being of all citizens:

The palliatives should have been put in place before removing subsidy on fuel in other to help cushion the adverse effect of the subsidy removal, and the government should try and implement the N18,000 minimum wage which the president signed into law at the heal of elections.

Deregulation can also be attained in phases/stages, that is the current increment can be spread over period of six years or more.

The various law enforcement agencies such as the ICPC and EFCC should be fully empowered and well funded to perform effectively and again the cabals that constitutes the beneficiaries of the fuel subsidy that held the country and its economy to ransom should be identified and be brought to book immediately.

The federal government of Nigeria should address and adequately develop other sectors of the economy such as the educational, agricultural, communication, transportation, tourism, heath, provision of social amenities and infrastructure, which will go a long way in providing employment opportunity and raise the standard of living of the people.

The above panacea will go a long way to resolve the hardship in Nigeria and rest the issue of subsidy removal finally.


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