AN EXAMINATION ON THE EFFECT OF 2023 FUEL SUBSIDY REMOVAL ON LIVING STANDARD OF RESIDENTS IN AJAH, LAGOS STATE

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

Globally, 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 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.

Unarguably, 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. One of the current controversial matters in Nigeria pertains to the elimination of fuel subsidy on Premium Motor Spirit (PMS). Despite the substantial wealth generated by Nigeria's oil industry, there is a notable disparity between the benefits accrued and their impact on the livelihoods of the general populace. Furthermore, this discrepancy has not resulted in a commensurate enhancement of the nation's economy. According to Houeland (2020), the supply of refined crude oil in the country has significantly declined due to several factors such as inefficiency, corruption, abuse of natural monopoly rights, mismanagement, smuggling, bureaucratic bottlenecks, and excessive subsidies.

Significantly, fuel subsidies began in the 1970s and became institutionalised in 1977, following the promulgation of the Price Control Act which made it illegal for some products (including petrol) to be sold above the regulated price. While the concept of subsidy itself is noble, its administration in Nigeria has been plagued with serious allegations of corruption and mismanagement. 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.  Thirteen years after diesel was deregulated, kerosene subsidy was removed in 2016. However, the subsidy on Petroleum Motor Spirit (PMS) has proven to be the biggest challenge to the managers of the Nigerian economy.

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 a report by Evans, Nwaogwugwu,Vincent, Wale-Awe, Mesagan,  & Ojapinwa (2023) households in the bottom 40% of the income distribution account for less than 3% of all fuel purchases. Furthermore, it is reported that three-quarters of all fuel sold in Nigeria is consumed by private firms, public transportation services, government agencies, and other businesses. Most vehicles used for carrying large numbers of people (such as molue) and goods are diesel powered which is already deregulated. Also, Household Kerosene which is mostly used by the poor is no longer subsidised, meaning that the poor are already to a large extent paying market prices for their fuel. This effectively means that the government is subsidizing mostly those who can afford fuel (PMS) at market rates and not the poorest of the poor who need subsidy. This is one of the major problems with the way fuel subsidy is being implemented in Nigeria.

            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.

            While these previous studies have shed light on the socil economic and environmental consequences of various subsidy removal efforts, there is limited exploration of the effect of 2023 fuel subsidy removal on living standard of residents in Ajah, Lagos state hence the motive of this study.

1.3  Objectives of the study

The objective of this study is focused on an exploration of the effect of 2023 fuel subsidy removal on living standard of residents in Ajah, Lagos State.  Other specific objectives includes:

i.          To examine whether fuel subsidy removal affects  household purchasing power  for  residents in Ajah, Lagos State ..

ii.        To find out whether removal of fuel subsidy will have significant impact on standard of living .

iii.      To ascertain whether rise in consumer goods, transportation and household product  as a result of subsidy removal create direct constraints for  residents in Ajah, Lagos State .  

1.4       Research Questions

i.          Does fuel subsidy removal affects  household purchasing power for  residents in Ajah, Lagos State .

ii.        Will  removal of fuel subsidy will have significant impact on standard of living in Ajah, Lagos State  .

iii.      Does  rise in consumer goods, transportation and household product  as a result of subsidy removal create direct constraints for  residents in Ajah, Lagos State?

1.5       Research hypotheses

Ho: There are no significant  effect of 2023 fuel subsidy removal on living standard of residents in Ajah, Lagos State.

Hi:  There is a  significant the effect of 2023 fuel subsidy removal on living standard of residents in Ajah, Lagos State.

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 exploration of the effect of 2023 fuel subsidy removal on living standard of residents is broad, there is need  to delimit the study to measurable scope hence the researcher selected  resident of  in Ajah, Lagos State 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  in Ajah, Lagos 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.

Transportation: transportation is the movement of humans, animals and goods from one location to another