Full Project – EFFECT OF FUEL SUBSIDY ON THE ECONOMY OF NIGERIA

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO THE STUDY

Nigeria’s economy is almost entirely supported by proceeds from oil sales. Government gasoline subsidies have been a major financial burden for the country for many years. There has been debate in Nigeria about whether or not to eliminate the country’s gasoline subsidy, with some believing that doing so is essential for cutting back on wasteful government expenditure and boosting the economy.

Subsidizing the oil and gas sector is one method the government use to maintain low retail prices at the pump. Because of its detrimental effects on the country’s economy, this policy has been debated heatedly in Nigeria for decades. One proposed answer to Nigeria’s economic woes is to eliminate the country’s gasoline subsidy, but this comes with its own set of complications.

In recent years, there has been substantial controversy about how gasoline subsidies have impacted the Nigerian economy. Subsidizing gasoline is the practice of providing financial aid to oil corporations by the government in order to maintain a low retail price of fuel. The goal of the subsidy is to make fuel cheaper for Nigerians, however it has been criticized for being wasteful and costly.

The gasoline subsidy’s effect on the Nigerian economy has been the subject of several studies. Fuel subsidy reduction may benefit the economy by lowering government spending and raising tax income, according to research by Adeola Adenikinju (2016). Adenikinju contended that the subsidy was wasteful and unnecessary, and that its removal may improve resource allocation.

However, other research has shown that eliminating the gasoline subsidy might be harmful to the Nigerian people. Removing the gasoline subsidy resulted to higher prices for petrol and other products and services, according to research by Oluwaseun Oluwasegun and Olufemi Saibu (2017). It was suggested in the report that people with lower incomes in Nigeria would be hit most by the price hikes that would result from the subsidy’s elimination.

Oil corporations may be more willing to participate in Nigeria’s economy if they don’t have to rely on government subsidies, as claimed by Afeikhena Jerome and Olufemi Saibu (2018). It was also suggested in the study that if the subsidy were eliminated, businesses would be forced to become more competitive and innovative in order to survive without the government’s financial support, which would result in a more efficient use of resources. The withdrawal of the subsidy has been shown to have mixed impacts on the economy, with some research finding good results and others finding negative results for Nigerians. Any choice made on the subsidies must, therefore, think about how it will affect the economy and people’s living conditions in Nigeria.

1.2   STATEMENT OF THE PROBLEM

The fuel subsidy program has had considerable detrimental effects on the economy, despite the fact that it may look favorable to the typical Nigerian. Budget imbalances and cuts to essential public services and infrastructure have resulted from the government’s decision to subsidize gasoline.

Furthermore, fuel subsidies have distorted the market by providing preferential treatment to oil firms at the expense of smaller enterprises. One recommended answer is to eliminate gasoline subsidies, although this comes with its own set of problems.

Rising gasoline costs have the potential to harm the economy by increasing inflation and lowering consumer purchasing power. Fuel subsidy’s impact on Nigeria’s economy is multifaceted, therefore it’s important to take the time to fully understand it.

1.3   OBJECTIVES OF THE STUDY

The following are the objectives of this study:

1. To examine the effect of fuel subsidy on the economy of Nigeria.
2. To identify the advantages of fuel subsidy to Nigerians.
3. To determine the disadvantages of fuel subsidy.

1.4   RESEARCH QUESTIONS

1. What is the effect of fuel subsidy on the economy of Nigeria?
2. What are the advantages of fuel subsidy to Nigerians?
3. What are the disadvantages of fuel subsidy?

1.5   HYPOTHESIS

H_O: Fuel subsidy does not promote Nigerian economy

H1: Fuel subsidy does promote Nigerian economy

1.6   SIGNIFICANCE OF THE STUDY

Policymakers and economists in Nigeria must have a firm grasp of the impact that gasoline subsidies have on the country’s economy. This information can guide policymakers as they choose how to effectively manage the country’s resources and foster long-term economic growth. In addition, it can assist them in recognizing the dangers and difficulties connected with eliminating gasoline subsidies and planning for their management.

The lessons learned from analyzing the impact of gasoline subsidies on Nigeria’s economy may also be applicable to the economies of other emerging nations that rely significantly on oil exports. There is much that other nations experiencing comparable issues may take away from Nigeria’s experience that will shape their own resource management decisions.

Finally, it is imperative that the impact of gasoline subsidies on the Nigerian economy be investigated. It’s a tricky situation that calls for deep thought and study. Policymakers and economists can increase economic development and living standards for all Nigerians if they have a thorough grasp of the effects of gasoline subsidy and the risks and problems associated with eliminating it.

1.7   SCOPE/LIMITATIONS OF THE STUDY

The study examines the effect of fuel subsidy on the Economy of Nigeria.

REFERENCES

Adeola Adenikinju’s (2016) study is as follows: Adenikinju, A. (2016). “The Impact of Fuel Subsidy Removal on the Nigerian Economy.” Journal of African Economies, 25(1), 1-15.

Jerome, A., & Saibu, O. (2018). Fuel subsidy removal and investment in Nigeria’s oil and gas sector. Energy Policy, 113, 386-393.

Oluwasegun, O., & Saibu, O. (2017). The impact of fuel subsidy removal on the Nigerian economy. Journal of Economics and Sustainable Development, 8(4), 222-231.

Full Project – EFFECT OF FUEL SUBSIDY ON THE ECONOMY OF NIGERIA