HoughtonlakeBoard.org

TIPS & EXPERT ADVICE ON ESSAYS, PAPERS & COLLEGE APPLICATIONS

means
increase in transport cost as well as increase in price of agricultural product.
For instance, an increase in the pump prices of PMS from N65 per litre to
between N138 official price and N140 commercial price (Adeleke & Gafar, 2012), was
responsible for the astronomical increase in transport fare, and this has
consequently led to an increase in price foodstuffs like Rice from 8,000 naira
per bag to 19,000 naira per bag and other basic essentials.

The
Federal government decision to remove fuel subsidy has resulted to persistence
increase in general price level, and it has brought so much hardship on the
civil society at large, and most especially the civil servants because their
monthly income is no longer enough to make ends meet; this is as a result of
the fact that an increase in fuel price would most likely bring about an
increase in price of food stuffs and other basic necessities, and the income to
buy all these things has not been increasing proportionately with the price
level. Besides; fixed income earners like retirees felt the pressure of subsidy
removal more.

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

Moreover;
Nigeria is said to be the large net importer of gasoline and other petroleum
products despite being endowed with vast amount of petroleum resources.
Consequently; the advent of fuel subsidy removal has resulted to the depression
of Nigeria’s international financial markets, Nigeria’s foreign exchange rates continue
to show weakness, naira posting a persistent slide against all major currency.
Unemployment rate is becoming alarming. Most industries are closing down
because of their inability to cope with the business challenges (Onyeizugbe and
Onwaka, 2012).

Finally;
fuel subsidy removal is a sine qua nun for increase in fuel price, which
consequently leads to increase in the price of basic essentials. And as a
result of this, households and individuals are likely to spend a large
proportion of income on consumption and this tends to have a negative effect on
the saving rate at of people in the economy. It is on these premises that this
research is carried out to examine the fuel price, subsidy removal and
inflation in Nigeria.

1.2       OBJECTIVE
OF THE STUDY

The
broad objective of the study is to investigate the fuel price, subsidy removal
and inflation in Nigeria. However, the specific objectives are:

·        
To examine the impact of subsidy removal
on selected food items such as garri, rice, and beans.

·        
To examine inflation growth rate since
the removal of fuel subsidy.

 

1.3       JUSTIFICATION
OF THE STUDY

Several
studies have been conducted on the fuel price, subsidy removal and inflation in
Nigeria. And this study would be significant theoretically, methodologically
and empirically.

Theoretically;
relating this study to other studies conducted by Innocent Okwanya et al (2015),
Danladi Bashir (2016), Ekine D.I. et al
(2013), Stephen Ikani Ocheni (2015), Adewunmi Musa et al (2014), Chukwulobe
Ukamaka O. (2014), Ukeyima Nicholas Pever et al (2016); of which some of these
studies have no clear theoretical foundation, and while some of them adopted a
theoretical framework outside economics discipline except for the studies
conducted by Innocent Okwanya et al (2015), and Ukeyima Nicholas Pever et al (2016) that adopted  poverty gap theory and growth theory respectively. However; the
theoretical significance of this study lies in fact that this study would adopt
two different economics theory as it theoretical framework and these theories
includes general equilibrium theory and mark-up inflation theory.

Methodologically;
previous studies on the fuel price, subsidy removal and inflation in Nigeria
were carried out with data sourced from a secondary source. This study would
also be carried out with a secondary data sourced from relevant institutions
that specialized in giving up to date information about the variables related to this study. And the
estimation techniques that would be employ includes The Augmented Dickey Fuller
(ADF) and the Phillips-Perron tests are used to test the stationarity of the
data, Ordinary Least Squares will be used to estimate the
parameters in the models because OLS has the minimum variance (efficiency) and
that it is an unbiased estimator, and relevant descriptive
statistics. These estimation techniques were by Ekine D.I. et al (2013), Innocent
Okwanya et al (2015), and Adewunmi Musa
et al (2014).

Empirically; from 1966 to 2012, Nigeria had removed
subsidy 24 times in 58 years, and that the prices of most food items increased
astronomically from 2001 to 2012 especially beef and fish due to fuel subsidy Ekine
D.I. et al (2013). This claim requires further verification and it is necessary
to identify the reasons for the recent escalation in the price of foodstuff. In
another study, it was claimed that the
fuel subsidy removal does not have short run impact on the social well-being of
Nigerians Adewunmi Musa
et al (2014). This claim also needs to be verified.

In
conclusion; this study would contribute to existing
literature and would serve as a springboard for further research.

SCOPE OF THE STUDY

The study focuses on the fuel price, subsidy
removal and inflation in Nigeria, so the
subsequent literature and its related empirical analysis would be strictly
limited to this area. More so, the scope of this project in terms of location covers
Nigeria. Since the study focus on the fuel price, subsidy
removal and inflation in Nigeria.

Moreover;
the data relevant to this study would be sourced from relevant institutions
that give up to date information about variables related to this study, and all
estimation techniques that would be employed to analyze the data of this study
would be manipulated appropriately in order to achieve the set objectives of
this study.

 

 

 

 

CHAPTER
TWO

2.0       BACKGROUND
TO THE STUDY

Subsidy
are aids from government granted directly to an individual or private
commercial enterprise considered beneficial to the public. It could also be a
grant or gift of money from a government to a private company, organization, or
charity to help it function.

In
Nigeria, subsidy is the financial aid given by the government to independent oil
marketers for them to supply their products at a cheaper rate for the benefit
of the whole nation. This move is aimed to bolster the economy, provide social
amenities for the people, stabilize the market, create employment opportunities
and on the assumption in some quarters; it is capable to curtail corruption. The
Nigeria Extractive Industries Transparency Initiative (NEITI, 2011) notes that
the issue of subsidy is not alien to the nation’s blood 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.

Subsidy,
in its entirety, exists when consumers of a particular goods or services are assisted
somehow by the government in order to pay less than the prevailing market
price. In relation to fuel subsidy, it implies that fuel buyers would pay below
the pump price per litre of the product. More so, fuel subsidy could also mean
the discrepancy between the actual price of petroleum product per litre and
what the final buyers pay for the product.

Many
developing countries have employed the strategy of subsidizing petroleum
product or fuel primarily as a means to achieve certain social, economic, and
environmental goals, as discovered by Bazilian and Onyeji, (2012). These
include energy poverty alleviation and equity improvement, ante domestic
supply, redistribution of national wealth, correction of externalities and to curb
inflation.

Subsidy
was introduced in the Nigerian petroleum sector in the mid 1980’s.  Nigeria is a nation blessed with vast mineral
resources prominent among is oil and gas reserves which is a by-product of
crude oil. The country possesses 28% of Africa’s proven oil reserves, second
only to Libya; and is the largest exporter of crude oil in the region; exporting
approximately 2.4 million barrels per day in 2010 which is estimated to be about
24% of the continent’s petroleum (Siddig, et al, 2013). In addition,
Nigeria has four refineries which could produce 445,000 barrels of fuel per
day, considered to be enough to meet its domestic demands with a surplus for
export (Explore, 2011). However, Nigeria still remains the largest importer of
fuel and other petroleum products. In spite of efforts to revive her economy
via various reforms, which includes comprehensive non-oil export
diversification initiatives, petroleum still contributes on average about 95%
of the nation’s external earnings (Majekodunmi, 2013). The country continually
relies on imported petroleum products as the existing refineries are not
producing up their installed capacity. Recently, the cost of importing
petroleum products has astronomically increased that the nation’s capital
expenditures and balance of payment are under threat (Adelabu, 2012). 

According
to Majekodunmi (2013), for the past five decades, economic growth of Nigeria and
its other development indicators have been largely influenced by the oil
industry. The fact that the economy heavily dependent on the oil industry will
amount to an understatement as the oil industry is nothing short of the
life-blood of the Nigerian economy (Adelabu, 2012). The nation’s economic
strength is largely derived from its oil sector; which contributes about 99 percent
of government revenues and 38.8 percent of GDP (National Budget, 2010). Despite
the contribution of this formal sector, successive governments in Nigeria have
not been able to utilize the oil resources to the benefit of the whole nation (Ering
and Akpan, 2012).

The
phenomena of fuel subsidy was before the administration Goodluck Jonathan, a policy
of the federal government designed to assist Nigerians cushion the effects of
economic hardship. However, the issue of fuel subsidy removal sparked off in
June 2011 at the instance of Nigeria Governors’ Forum, which consist of 36 governors
of different states in Nigeria. The Forum which visited President Jonathan at
the wake of the national debate over N18, 000 minimum wage; stated instances
and why they are unable to pay the new minimum wage, and suggested the need to
remove fuel subsidy so as to ensure that more money accrues to the federal
purse, which will in turn be shared among the three tiers being federal, state and
local governments. Nevertheless, the Chairman of the Forum, Governor Chubuike
Amaechi of Rivers State later stated that contrary to the prevailing notion
that the Governors’ support for the removal of fuel subsidy is hinged on their
inability to pay the new minimum wage that they wanted it removed because only a
few people were benefitting from the subsidies. He added that “with billions
spent on fuel importation and we are not seeing the fuel, refineries are not in
place … if we remove the subsidy, then people will establish refineries … the
refineries will employ people and make fuel available (Social Action 2013:1). The
debate over subsidies was further fuelled on the 4 of October 2011 when President
Goodluck Jonathan forwarded to the National Assembly Senate and House of Representatives
the 2012-2015 Medium Term Expenditure Framework, and the 2012 Fiscal Strategy
Paper. Among other issues, the documents proposed to phase out subsidy on fuel beginning
in 2012. According to the President, this will make available about N1.2
trillion some of which will be available for use in creating safety nets for
the poor who will be adversely affected by the removal of the subsidy, and also
go into the establishment of ‘critical infrastructure’.

Fuel
subsidy removal, which the Nigeria government has effectively canvassed and lobbied
for since May 29, 2011 was finally take off on December 12, 2011. This is when
the National Economic Council (NEC) headed by Vice President Namadi Sambo decided
that the government should finally remove the subsidy from January 2012. An
intriguing fact from the economy is the issue of fuel subsidy removal, which has
created a great deal of controversy for Nigerians. The issue of fuel subsidy
removal has gathered momentum in Nigeria for over some decades of which
different governments have tried to establish the reform but were unsuccessful
due to fierce public demonstration of disapproval. The issue of fuel subsidy
removal has created a lot of skeptism in various quarters and this has often
led to massive demonstration by the citizens and the civil society as a whole
who viewed such policy as a means to further subjugate and impoverish the
masses. Nevertheless; seemingly, the longer the fuel subsidy existed, the more
entrenched the opposition to remove them. It is against this backdrop that this
study investigates fuel price, subsidy removal and inflation in Nigeria. To
this end, it aims to determine if the incremental increases in the pump price
of fuel affect price of foodstuffs in Nigerian. Finally, the research will
examine the rate at which inflation has grown since fuel subsidy removal
Nigeria.

Post Author: admin

x

Hi!
I'm Irvin!

Would you like to get a custom essay? How about receiving a customized one?

Check it out