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EFFECT OF FUEL SUBSIDY REMOVAL ON THE NIGERIAN ECONOMY



EFFECT OF FUEL SUBSIDY REMOVAL ON THE NIGERIAN ECONOMY








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 (Siddig et al 2014). However, the country is a large net importer of gasoline to meet domestic needs despite having four refineries that are capable of producing 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 et al 2013).
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 (Gyoh, 2012).
Fuel subsidy removal is one of the critical issues that dominate public debate in oil exporting nations and among the G-20.
Akinwale et al (2013) asserted that larger proportion of the citizens are seriously resisting the government planned policy to remove fuel subsidy which according to them is against the Millenium Development Goals (MDGs) of the government which aim to reduce the poverty level in the country by 2015.
Furthermore, Hobhebhe, (2012) 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. Peter (2011) argued that it is a form of tactis employed by the government to diastase the people without let.
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 enormous benefits to Nigeria economy Osagie, 2012).
The government also insisted that fuel subsidy removal will climate fuel snuffling across Nigeria border thereby eliminating scarcity in Nigeria.
The former central Bank of Nigeria Governor Sanusi Lamido Sanusi once said

“If we borrow to subsidize today, it is our children that are subsidizing us. Let us take a difficult decision today and make tomorrow better by supporting the subsidy” (Onanugh 2011:3).
 George, T. et al, (2014) summarized the benefits of the policy as follows;
(i)                Government hopes the removal will save the government about US$6billion par annum.
(ii)             Help address the great imbalance between recurrent and capital expenditure
(iii)           Reduce importation of refined product in the medium and long-term
(iv)           Increase local refinery production
(v)             Free more funds for local investment in the oil sector
(vi)           Encourage foreign investment in downstream infrastructure
(vii)        Eventually, stalize market prices as competition increases.
Countering all these arguments I.F store who in 1928 in the ever of the great depression wrote that every government is run by liars and nothing they say should be believed (Sobowale, 2012:42). This history of fuel subsidy in Nigeria has been a complex subject and often times an emotional debate.
Following the above argument in favour and against fuel subsidy removal, this research work shall examine critically how the policy of fuel subsidy removal using both primary and secondary data to analyse how the policy affects local production of foods and services, transportation cost, the prices of commodities in the market and the Gross Domestic Product.
1.2            STATEMENT OF THE PROBLEM
Whenever, the price of fuel goes up the prices of everything foes up. This is because transport cost for providing essential services, the prices of goods and services all have multiplier effect on the economy.
This study is therefore aimed at examing the problems and effects of fuel subsidy removal on the Nigerian economy. The following all the statement of problems.
(a)              Examine the effects of fuel subsidy removal on local production of goods and services.
(b)             The effect of the fuel subsidy removal on transportation cost.
(c)              The effect of fuel subsidy removal on the price of commodities in the market.
(d)             The effect of fuel subsidy removal on the Gross Domestic Product of Nigeria.

1.3            OBJECTIVE OF THE STUDY
The aim of this project work is to enlighten the people on the effect of the removal of fuel subsidy has on the economy-how it affects the various sectors. Below are the objectives of the study.
(a)              To ascertain the effect of fuel subsidy removal on our local production of goods and services.
(b)             To ascertain the effect of fuel subsidy removal on transportation
(c)              To ascertain the effect of fuel subsidy removal on the general prices of commodities.


1.4            RESEARCH QUESTION
This study is to examine the problems encountered by the citizens as a result of the removal of fuel subsidy on the Nigerian economy. The research questions are raised by the researcher on the above topic.
(a)             What are the effect of removal of fuel subsidy on local production?
(b)             What are the effects of removal of fuel subsidy on transportation.
(c)              What is the effect of removal of fuel subsidy on the prices of commoditie...

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