AN ASSESSMENT OF SOCIO-ECONOMICS IMPLICATIONS OF THE 2023 FUEL SUBSIDY REMOVAL IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1  Background of the study

Nigeria is recognized as a nation possessing abundant mineral resources, with particular emphasis on its substantial reserves of oil and gas. According to Okwanya, Moses, and Pristine (2023), it is evident that the nation holds around 28% of Africa's confirmed oil reserves, ranking second only to Libya. Furthermore, the country stands as the primary producer of crude oil within the area, with a production rate of 2.4 million barrels per day in 2020, accounting for approximately 24% of the continent's total petroleum output. However one of the current controversial matters in Nigeria pertains to the elimination of fuel subsidy on Premium Motor Spirit (PMS).  Despite the enormous revenue Nigeria derives from oil, the benefit has not reflected in the lives of ordinary citizens in the country and this has not translated into an improved economy for the country. Rather, through inefficiencies, corruption, abuse of natural monopoly powers, mismanagement, smuggling, bureaucratic bottlenecks and excessive subsidy, the supply of refined crude oil in the country has virtually collapsed (Gidigbi & Bello 2020).

Notwithstanding, fuel subsidy reform is increasingly seen as an opportunity for consolidating public finances and fostering sustainable economic development. One of the crucial issues of energy market in oil exporting developing countries is the high level of subsidies on petroleum products and low efficiency in energy use. In spite 10 of cumulative efforts by successive governments, oil subsidy remains one of the most intricate socio-economic policy issues in Nigeria. By definition, Ovaga and Okechukwu, (2022) stated that a fuel subsidy refers to a governmental policy that involves providing a reduction in the market price of fossil fuel, resulting in customers paying a lower amount than the prevailing market price for fuel. However when subsidies are implemented, citizens are able to purchase petroleum products at a price per litre that is lower than the prevailing market price. Arguably, Ozili and Ozen, (2021) mentioned that while the government's supply of welfare is praiseworthy, its economic impact may be limited. According to Antimiani, Costantini, & Paglialung (2023), a fuel subsidy refers to a policy implemented by the government that primarily focuses on the oil business. Its main objectives are to lower the cost of energy production, raise the price received by energy producers, or decrease the price paid by energy consumers.

Coherently, fuel subsidies were initially implemented in Nigeria during the 1970s in direct reaction to the oil price shock experienced in 1973. In 1986, a partial removal of fuel subsidies took place. Subsequently, fuel subsidies have been implemented. In the year 2012, Kyle (2018) observed that the government implemented a sudden removal of fuel subsidies. This act resulted in widespread protests, with the primary objective of urging the government to reinstate the subsidy that had been rescinded. As a result of the extensive demonstrations, the administration proceeded to reintroduce the fuel subsidy in 2012. Subsequently, the disbursement of fuel subsidies in Nigeria has experienced a substantial increase.

Although  previous administration made an attempt to remove the fuel subsidy. The 2023 removal of the fuel subsidy in Nigeria marks a pivotal moment in the nation's economic, social, and environmental trajectory. This decisive policy shift carries with it a multitude of implications that warrant rigorous investigation to comprehend its far-reaching consequences. The core problem at the heart of this study lies in uncovering the intricate web of impacts – positive, negative, direct, and indirect – that arise from the subsidy removal and examining their ramifications for both the Nigerian economy and society. The subsidy removal, while driven by the intent to align with global trends of fossil fuel subsidy reduction and enhance fiscal sustainability (Al Jazeera, 2023), presents a host of challenges.

1.2 Statement of the problem

The removal of fuel subsidy in Nigeria in 2023 has triggered a profound shift with far-reaching implications across economic, social, and environmental spheres. Foremost among these challenges is the potential exacerbation of socio-economic inequality, given that subsidy removal can lead to increased fuel prices and a subsequent rise in the cost of living. This predicament echoes the concern raised by Ude (2023), emphasizing that while subsidy elimination might hold long-term benefits, it can strain the financial resources of households, particularly those already marginalized.

According to Evans,  Nwaogwugwu,  Vincent, Wale-Awe,  Mesagan, & Ojapinwa (2023), the structural underpinnings of Nigeria's economy introduce additional layers of complexity. The existing state of the country's refineries, coupled with a dependency on imported oil, elevates the risk of escalated fuel prices. The delicate balance between encouraging domestic refining capacities and managing consumer costs warrants a detailed examination, considering that the subsidy removal could amplify the challenges posed by an under performing domestic refining sector. Moreover, the subsidy removal's impact on public services and infrastructure requires thorough investigation. The anticipated redirection of funds from subsidies to public goods such as healthcare, education, and infrastructure holds the potential for positive transformation. However, the effective utilization of these funds and their equitable distribution must be closely scrutinized. Ensuring that the removal leads to tangible improvements in these areas without causing unintended negative consequences becomes a central concern.

In the literature, several studies have probed into the impacts of subsidy removal ( Osunmuyiwa & Kalfagianni, 2016 and Harring et al., 2023). In the context of assessing the impact of subsidy removal on the poor, Nwafor, Ogujiuba, and Asogwa (2016) employ a computable general equilibrium analysis. Their study digs into the question of whether subsidy removal disproportionately affects the economically vulnerable segments of the population. According to Omotosho (2020), the elimination of fuel subsidies in Nigeria results in increased macroeconomic instability due to the escalation of energy costs and inflation. Also, Osunmuyiwa and Kalfagianni (2017) delve into the broader energy context, examining whether Nigeria's fuel subsidy reforms can act as a catalyst for energy transitions. Their research underscores that subsidy removal can lead to shifts in energy consumption patterns, affecting government revenue and expenditures through changes in the energy sector's dynamics.While these previous studies have shed light on the economic and environmental consequences of various subsidy removal efforts, there is limited exploration of the socio-economic effects of the 2023 subsidy removal in Nigeria hence the motive of this study. By exploring the complex relationship between subsidy removal, energy transitions, and fiscal dynamics, this study emphasizes the need for a comprehensive understanding of how policy changes reverberate throughout the economy.

1.3  Objectives of the study

The objective of this study is focused on an assessment of socio-economics implications of the 2023 fuel subsidy removal in Nigeria . Other specific objectives includes:

i.          To examine the economic implication of of the 2023 fuel subsidy removal in Nigeria

ii.        To investigate the social consequence of  the 2023 fuel subsidy removal in Nigeria

iii.      To ascertain if  the removal of fuel subsidy have any effect on the socio-economic condition of the country.

1.4       Research Questions

iv.      What are the economic implication of of the 2023 fuel subsidy removal in Nigeria?

v.        What are the social consequence of  the 2023 fuel subsidy removal in Nigeria?

vi.      Does the removal of fuel subsidy have any effect on the socio-economic condition of the country?

1.5       Research hypotheses

Ho: There are no significant  socio-economics implications of the 2023 fuel subsidy removal in Nigeria .

Hi:  There are significant socio-economics implications of the 2023 fuel subsidy removal in Nigeria .

1.6 Significance of the study

The study makes significant contributions to our understanding of the multifaceted implications of fuel subsidy removal. The study's holistic analysis and nuanced insights into the diverse dimensions of subsidy removal offer a comprehensive foundation for informed decision-making, fostering equitable economic growth, social welfare, and environmental sustainability. By providing a comprehensive analysis across economic, social, and environmental dimensions, the study equips policymakers with a nuanced perspective to navigate the complexities of subsidy reform. The findings offer valuable insights into potential challenges, opportunities, and the need for holistic approaches that balance economic development, social welfare, and environmental stewardship. Moreover, the study's implications extend beyond Nigeria's borders, serving as a reference point for other nations grappling with subsidy reform or seeking sustainable energy transition strategies. Researchers, policymakers, and stakeholders can draw from the synthesized findings to make informed decisions that align with global efforts toward mitigating climate change, fostering inclusive economic growth, and ensuring equitable societal outcomes.

Finally, it would contribute to existing literature on the subject matter and serves as an invaluable tool for students, academic institutions and individuals who would like to know about the issues of fuel subsidy in Nigeria.

1.7       Scope of the Study

Owing that making an investigation like this on an assessment of socio-economics implications of the 2023 fuel subsidy removal in Nigeria is broad, there is need  to delimit the study to measurable scope hence the researcher selected civil servant working in Kogi State Government which as the respondent for the study.

1.8 Limitation of the Study

During the course of the research,  few minor obstacles while conducting the study, just as in every scientific endeavour. It is worthy to note that the accuracy of the result will totally base on the data provided to the researcher by the  resident of Kogi State  and the results of this study cannot be generalized for other states in Nigeria. Time restrictions were also an issue because the researcher had to complete this research while still going to classes and performing other necessary educational tasks.  However all aspects were minimized in order to deliver the best results possible and ensure the success of the research, despite the limitations that were faced during the study.

1.9 Definition of Terms

Subsidy: Subsidy (subvention) is an amount of money paid by government to suppliers (providers or producers) of a product or service to enable them to sell their products or services to final consumers at a price determined by the government which is less than the true supply cost.

Fuel subsidy: Fuel subsidy is a government discount on the market price of fossil fuel to make consumers pay less than the prevailing market price of fuel.

CHAPTER ONE

INTRODUCTION

1.1  Background of the study

Nigeria is recognized as a nation possessing abundant mineral resources, with particular emphasis on its substantial reserves of oil and gas. According to Okwanya, Moses, and Pristine (2023), it is evident that the nation holds around 28% of Africa's confirmed oil reserves, ranking second only to Libya. Furthermore, the country stands as the primary producer of crude oil within the area, with a production rate of 2.4 million barrels per day in 2020, accounting for approximately 24% of the continent's total petroleum output. However one of the current controversial matters in Nigeria pertains to the elimination of fuel subsidy on Premium Motor Spirit (PMS).  Despite the enormous revenue Nigeria derives from oil, the benefit has not reflected in the lives of ordinary citizens in the country and this has not translated into an improved economy for the country. Rather, through inefficiencies, corruption, abuse of natural monopoly powers, mismanagement, smuggling, bureaucratic bottlenecks and excessive subsidy, the supply of refined crude oil in the country has virtually collapsed (Gidigbi & Bello 2020).

Notwithstanding, fuel subsidy reform is increasingly seen as an opportunity for consolidating public finances and fostering sustainable economic development. One of the crucial issues of energy market in oil exporting developing countries is the high level of subsidies on petroleum products and low efficiency in energy use. In spite 10 of cumulative efforts by successive governments, oil subsidy remains one of the most intricate socio-economic policy issues in Nigeria. By definition, Ovaga and Okechukwu, (2022) stated that a fuel subsidy refers to a governmental policy that involves providing a reduction in the market price of fossil fuel, resulting in customers paying a lower amount than the prevailing market price for fuel. However when subsidies are implemented, citizens are able to purchase petroleum products at a price per litre that is lower than the prevailing market price. Arguably, Ozili and Ozen, (2021) mentioned that while the government's supply of welfare is praiseworthy, its economic impact may be limited. According to Antimiani, Costantini, & Paglialung (2023), a fuel subsidy refers to a policy implemented by the government that primarily focuses on the oil business. Its main objectives are to lower the cost of energy production, raise the price received by energy producers, or decrease the price paid by energy consumers.

Coherently, fuel subsidies were initially implemented in Nigeria during the 1970s in direct reaction to the oil price shock experienced in 1973. In 1986, a partial removal of fuel subsidies took place. Subsequently, fuel subsidies have been implemented. In the year 2012, Kyle (2018) observed that the government implemented a sudden removal of fuel subsidies. This act resulted in widespread protests, with the primary objective of urging the government to reinstate the subsidy that had been rescinded. As a result of the extensive demonstrations, the administration proceeded to reintroduce the fuel subsidy in 2012. Subsequently, the disbursement of fuel subsidies in Nigeria has experienced a substantial increase.

Although  previous administration made an attempt to remove the fuel subsidy. The 2023 removal of the fuel subsidy in Nigeria marks a pivotal moment in the nation's economic, social, and environmental trajectory. This decisive policy shift carries with it a multitude of implications that warrant rigorous investigation to comprehend its far-reaching consequences. The core problem at the heart of this study lies in uncovering the intricate web of impacts – positive, negative, direct, and indirect – that arise from the subsidy removal and examining their ramifications for both the Nigerian economy and society. The subsidy removal, while driven by the intent to align with global trends of fossil fuel subsidy reduction and enhance fiscal sustainability (Al Jazeera, 2023), presents a host of challenges.

1.2 Statement of the problem

The removal of fuel subsidy in Nigeria in 2023 has triggered a profound shift with far-reaching implications across economic, social, and environmental spheres. Foremost among these challenges is the potential exacerbation of socio-economic inequality, given that subsidy removal can lead to increased fuel prices and a subsequent rise in the cost of living. This predicament echoes the concern raised by Ude (2023), emphasizing that while subsidy elimination might hold long-term benefits, it can strain the financial resources of households, particularly those already marginalized.

According to Evans,  Nwaogwugwu,  Vincent, Wale-Awe,  Mesagan, & Ojapinwa (2023), the structural underpinnings of Nigeria's economy introduce additional layers of complexity. The existing state of the country's refineries, coupled with a dependency on imported oil, elevates the risk of escalated fuel prices. The delicate balance between encouraging domestic refining capacities and managing consumer costs warrants a detailed examination, considering that the subsidy removal could amplify the challenges posed by an under performing domestic refining sector. Moreover, the subsidy removal's impact on public services and infrastructure requires thorough investigation. The anticipated redirection of funds from subsidies to public goods such as healthcare, education, and infrastructure holds the potential for positive transformation. However, the effective utilization of these funds and their equitable distribution must be closely scrutinized. Ensuring that the removal leads to tangible improvements in these areas without causing unintended negative consequences becomes a central concern.

In the literature, several studies have probed into the impacts of subsidy removal ( Osunmuyiwa & Kalfagianni, 2016 and Harring et al., 2023). In the context of assessing the impact of subsidy removal on the poor, Nwafor, Ogujiuba, and Asogwa (2016) employ a computable general equilibrium analysis. Their study digs into the question of whether subsidy removal disproportionately affects the economically vulnerable segments of the population. According to Omotosho (2020), the elimination of fuel subsidies in Nigeria results in increased macroeconomic instability due to the escalation of energy costs and inflation. Also, Osunmuyiwa and Kalfagianni (2017) delve into the broader energy context, examining whether Nigeria's fuel subsidy reforms can act as a catalyst for energy transitions. Their research underscores that subsidy removal can lead to shifts in energy consumption patterns, affecting government revenue and expenditures through changes in the energy sector's dynamics.While these previous studies have shed light on the economic and environmental consequences of various subsidy removal efforts, there is limited exploration of the socio-economic effects of the 2023 subsidy removal in Nigeria hence the motive of this study. By exploring the complex relationship between subsidy removal, energy transitions, and fiscal dynamics, this study emphasizes the need for a comprehensive understanding of how policy changes reverberate throughout the economy.

1.3  Objectives of the study

The objective of this study is focused on an assessment of socio-economics implications of the 2023 fuel subsidy removal in Nigeria . Other specific objectives includes:

i.          To examine the economic implication of of the 2023 fuel subsidy removal in Nigeria

ii.        To investigate the social consequence of  the 2023 fuel subsidy removal in Nigeria

iii.      To ascertain if  the removal of fuel subsidy have any effect on the socio-economic condition of the country.

1.4       Research Questions

iv.      What are the economic implication of of the 2023 fuel subsidy removal in Nigeria?

v.        What are the social consequence of  the 2023 fuel subsidy removal in Nigeria?

vi.      Does the removal of fuel subsidy have any effect on the socio-economic condition of the country?

1.5       Research hypotheses

Ho: There are no significant  socio-economics implications of the 2023 fuel subsidy removal in Nigeria .

Hi:  There are significant socio-economics implications of the 2023 fuel subsidy removal in Nigeria .

1.6 Significance of the study

The study makes significant contributions to our understanding of the multifaceted implications of fuel subsidy removal. The study's holistic analysis and nuanced insights into the diverse dimensions of subsidy removal offer a comprehensive foundation for informed decision-making, fostering equitable economic growth, social welfare, and environmental sustainability. By providing a comprehensive analysis across economic, social, and environmental dimensions, the study equips policymakers with a nuanced perspective to navigate the complexities of subsidy reform. The findings offer valuable insights into potential challenges, opportunities, and the need for holistic approaches that balance economic development, social welfare, and environmental stewardship. Moreover, the study's implications extend beyond Nigeria's borders, serving as a reference point for other nations grappling with subsidy reform or seeking sustainable energy transition strategies. Researchers, policymakers, and stakeholders can draw from the synthesized findings to make informed decisions that align with global efforts toward mitigating climate change, fostering inclusive economic growth, and ensuring equitable societal outcomes.

Finally, it would contribute to existing literature on the subject matter and serves as an invaluable tool for students, academic institutions and individuals who would like to know about the issues of fuel subsidy in Nigeria.

1.7       Scope of the Study

Owing that making an investigation like this on an assessment of socio-economics implications of the 2023 fuel subsidy removal in Nigeria is broad, there is need  to delimit the study to measurable scope hence the researcher selected civil servant working in Kogi State Government which as the respondent for the study.

1.8 Limitation of the Study

During the course of the research,  few minor obstacles while conducting the study, just as in every scientific endeavour. It is worthy to note that the accuracy of the result will totally base on the data provided to the researcher by the  resident of Kogi State  and the results of this study cannot be generalized for other states in Nigeria. Time restrictions were also an issue because the researcher had to complete this research while still going to classes and performing other necessary educational tasks.  However all aspects were minimized in order to deliver the best results possible and ensure the success of the research, despite the limitations that were faced during the study.

1.9 Definition of Terms

Subsidy: Subsidy (subvention) is an amount of money paid by government to suppliers (providers or producers) of a product or service to enable them to sell their products or services to final consumers at a price determined by the government which is less than the true supply cost.

Fuel subsidy: Fuel subsidy is a government discount on the market price of fossil fuel to make consumers pay less than the prevailing market price of fuel.