FUEL SUBSIDY REMOVAL AND NATIONAL DEVELOPMENT IN NIGERIA: 1999 – 2012
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FUEL SUBSIDY REMOVAL AND NATIONAL DEVELOPMENT IN NIGERIA: 1999 – 2012
ABSTRACT
The Nigerian economy relies heavily on fuel subsidies. It is maintained that for years, gasoline subsidies have been the only way for the Nigerian government to live up to its socioeconomic obligation to its citizens, and that any attempt to abolish this policy has been viewed as a move by the government to default on its responsibility.
As a result, this study looks into the consequences of gasoline subsidy reduction on national development in Nigeria between 1999 and 2012. The precise issues for inquiry were:
Do incremental increases in petrol pump prices harm Nigerians’ living standards? Has the fuel subsidy investigation improved national revenue accounting?
Did the large protests that accompanied the hike in fuel prices jeopardise Nigeria’s economic stability? The theoretical framework of study was chosen to be public choice theory.
The Ex-post facto design was used for the investigation. Data from secondary sources such as books, journals, and government records were analysed qualitatively.
The research demonstrated that incremental increases in fuel pump prices harmed Nigerians’ living standards. It also discovered that the gasoline subsidy investigation has not improved Nigeria’s national revenue accounting.
Finally, the study indicated that widespread protests accompanying fuel price increases harmed Nigeria’s economic stability. The report advises that the government implement programmes to create more jobs in order to mitigate the negative effects of rising fuel prices on the poor and vulnerable populations.
CHAPITRE ONE – INTRODUCTION
1.1 Background Of The Study
Subsidies have been characterised as government help directly granted to an individual or private commercial enterprise deemed advantageous to the public. It is also a government grant or gift of money to a private enterprise, organisation, or charity to help it function.
In connection to fuel in Nigeria, it refers to the government’s financial assistance to independent and leading oil marketers in order for them to supply their products at a lower cost for the benefit of the populace.
This step is nearly always intended to strengthen a country’s economy, provide social amenities for the people, stabilise the market, create job possibilities, and, of course, the government’s presumption that it is capable of battling corruption.
The Nigeria Extractive Industries Transparency Initiative (NEITI, 2011) notes that the issue of subsidy is not foreign to the nation’s bloodstream because it existed during the military regime when the nation’s four refineries could only produce a small amount that could not even meet the people’s domestic needs.
In economic terms, subsidy arises when the government assists consumers of a certain commodity in paying less than the prevailing market price. In terms of fuel subsidies, this means that consumers would pay less per litre of product than the pump price.
More specifically, a fuel subsidy is the difference between the actual market price of petroleum goods per litre and what ultimate consumers pay for the same products.
Indeed, as stated by Bazilian and Onyeji (2012), developing countries have employed petroleum goods or fuel subsidies for consumers primarily to achieve particular social, economic, and environmental goals.
These include reducing energy poverty and enhancing fairness, increasing domestic supply, redistributing national resource wealth, correcting externalities, and regulating inflation.
Subsidies were first used in Nigeria’s petroleum sector in the mid-1980s. The value of the subsidies has risen gradually, from 1 billion Naira in the 1980s to a projected 6 billion Dollars in 2011.
Nigeria is endowed with immense mineral resources, the most notable of which are its oil and gas reserves. The country has 28% of Africa’s proven oil reserves, second only to Libya, and is the region’s largest crude oil producer, producing 2.4 million barrels per day in 2010, accounting for around 24% of the continent’s petroleum (Siddig et al, 2013).
Furthermore, Nigeria has four refineries with an installed production capacity of 445,000 barrels of petroleum per day, which is sufficient to cover local needs while leaving a surplus for export (Explore, 2011). Nigeria, on the other hand, is a significant net importer of fuel and other petroleum products.
Despite efforts to revitalise her economy via different reforms, including extensive non-oil export diversification programmes, petroleum still accounts for 95% of the nation’s foreign earnings (Majekodunmi, 2013).
Because existing refineries are producing less than 20% of their installed capacity, the country is increasingly reliant on imported petroleum products. Indeed, the cost of importing petroleum products has risen so rapidly in recent years that the country’s capital expenditures and balance of payments are jeopardised (Adelabu, 2012).
According to Majekodunmi (2013), the oil sector has had a significant impact on Nigeria’s economic growth and other related activities (including living standards) throughout the past five decades.
The perception that the economy is strongly reliant on the oil business is an understatement, since the oil industry is the lifeblood of the Nigerian economy (Adelabu, 2012).
According to the International Monetary Fund (IMF), Nigeria is the largest oil producing country in Africa and the sixth largest in the world. The country’s economic strength is largely drawn on its oil and gas wealth, which accounts for around 99 percent of government income and 38.8 percent of GDP (National Budget, 2010).
Despite these encouraging achievements, successive Nigerian administrations have been unable to considerably reduce poverty and deliver basic social and economic services to their residents (Ering and Akpan, 2012).
Prior to the arrival of the Goodluck Jonathan administration, fuel subsidy was a federal government policy intended to help the people of Nigeria weather the effects of economic hardship.
However, the debate over the elimination of fuel subsidies was initiated in June 2011 at the request of the Nigeria Governors’ Forum, which includes governors from Nigeria’s 36 federating states.
The Forum paid a visit to President Jonathan in the aftermath of the national discussion over the new N18,000 minimum wage. The governors pled their inability to pay the new wage bill and proposed eliminating the gasoline subsidy to ensure that more money accrues to the Federation Account, which will be split among the three tiers of government: federal, state, and municipal.
Nonetheless, the Forum’s Chairman, Governor Chubuike Amaechi of Rivers State, later stated that, contrary to popular belief, the Governors’ support for the removal of fuel subsidies was based on their inability to pay the new minimum wage, and that they wanted it removed because only a few people benefited from the subsidies.
“With billions spent on fuel importation and we are not seeing the fuel, refineries are not in place,” he continued. If we remove the subsidy, people will build refineries… The refineries will provide jobs and fuel (Social Action 2013:1).
The argument over subsidies was fueled further on October 4, 2011, when President Goodluck Jonathan forwarded the 2012-2015 Medium Term Expenditure Framework and the 2012 Fiscal Strategy Paper to the National Assembly [Senate and House of Representatives]. Among other things, the documents advocated phasing away fuel subsidies beginning in 2012.
According to the President, this will make available approximately N1.2 trillion, some of which will be used to provide safety nets for the poor who will be severely affected by the elimination of the subsidy, as well as to develop “critical infrastructure.”
The withdrawal of fuel subsidies, which the federal government has effectively canvassed and lobbied for since May 29, 2011, appears to be taking effect on December 12, 2011. This is when the National Economic Council (NEC), led by Vice President Namadi Sambo, agreed that the subsidy will be phased down beginning in January 2012.
By January 2012, it was revealed that the amount spent on fuel subsidies in 2011 was significantly more than the administration was willing to admit. While government spending on this purpose was expected to be at N561 billion in 2010, the figure more than tripled in 2011, despite no significant increase in gasoline consumption between the periods.
An intriguing economic topic is the withdrawal of fuel subsidies, which has sparked much debate among Nigerians. The subject of gasoline subsidy elimination has been ongoing in Nigeria for decades, with various governments attempting to execute the reform but failing due to strong public opposition.
This has frequently resulted in enormous protests by individuals and civil society, who see such policy as a means to further enslave and impoverish the masses. Regardless, it appears that the longer the subsidies have been in place, the more entrenched the opposition to reducing them has become.
Against this backdrop, this paper explores the impact of gasoline subsidy reduction on national development in Nigeria, focusing on the years 1999 to 2012. To that end, it seeks to ascertain whether incremental rises in fuel prices undercut Nigerians’ living standards.
Furthermore, the study tries to determine whether the gasoline subsidy investigation has improved national revenue accounting. Finally, the study will look into whether widespread protests accompanying fuel price increases jeopardise Nigeria’s economic stability.
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