A CRITICAL INVESTIGATION ON THE EFFECT OF PETROL SUBSIDY REMOVAL IN 2023 ON CONSUMER PURCHASING POWER IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

A subsidy may be seen as a kind of reverse taxation. The purposeful intervention of the government to offer assistance to a selected economic entity, which functions as both a consumer and a supplier, may be implemented within any market that encompasses the exchange of goods and/or services. According to a research conducted by the Organisation for Economic Cooperation and Development (OECD), a subsidy may be understood as a governmental measure aimed at reducing the price paid by consumers or increasing the price received by producers. The United Nations Environment Programme (UNEP) in 2002 (Olaniyi, 2016). The use of subsidies is not limited just to economies in the process of development. Subsidies include a wide range of economic activities, with agricultural and energy subsidies being the most often discussed in popular media. The subsidy may take the form of direct interventions such as price restrictions, tax exemptions, or the distribution of grants. These measures include the injection of financial resources either to the consumer or the producer. The indirect type of subsidy mostly manifests via the supply of industrial input needs, such as beneficial regulatory frameworks and investments in research and development.According to Akinyemi et al. (2017), deregulation and privatisation are components of economic reform plans that aim to enhance the broader economy via well defined strategies. One potential approach involves liberating the government from the obligation of providing ongoing funding for extensive projects that are more suitable for private investment. This can be achieved through the sale of such enterprises. Additionally, it is important to foster efficiency and effectiveness in the utilisation of resources, decrease government borrowing while increasing revenue, and encourage healthy market competition within a free market setting. Furthermore, enhancing returns from investment and expanding the ownership of enterprises can contribute to the development of the capital market. Lorusso and Pieroni (2018) conducted a study. In other terms, deregulation in the context of economics refers to the state of being exempt from government oversight and intervention. According to Oboe et al. (2017), deregulation refers to the elimination of governmental intervention in the operation of a certain system. This implies that the government's regulatory framework for the system's operations is either loosened or maintained at a consistent level, allowing the system to determine its own optimal state via the interplay of supply and demand (Akinyemi et al., 2017). Therefore, the researcher sought to investigate the effect of Petrol Subsidy Removal in 2023 on Consumer Purchasing Power in Nigeria.

1.2 Statement of the problem

Subsidies have been widely used by several governments as a mechanism to disseminate economic impact to a larger population. Frequently, it manifests as a decrease in the price of an item via rebates, the provision of consumption vouchers, tax reductions, and perhaps even cash disbursements. Subsidies are often used as an economic strategy with the aim of enhancing the affordability of vital products and services for those with low incomes, therefore elevating their overall quality of life. Additionally, subsidies serve as a means to stimulate company growth and development (Obi, Awujola & Ogwuche, 2016). The efficacy of the programme would have implications for economic endeavours inside the nation. Nevertheless, the advantages of gasoline subsidy in Nigeria were of limited duration, as the government opted to withdraw the subsidy in 2016. The government has asserted that the magnitude of subsidised payments for imported refined petroleum within the country is substantial. Additionally, it has been claimed that subsidised fuel is not being sold domestically, but rather either being falsely represented or re-exported to neighbouring nations. Furthermore, it has been argued that the payments allocated for fuel subsidies have not resulted in benefits for the citizens, but rather have been advantageous to an illicit cartel. The authority further asserted that the implementation of the policy has resulted in various instances of petroleum product smuggling, fuel diversion, hoarding, and over invoicing by petroleum marketers. Additionally, it was argued that the fuel subsidy has diminished the revenue that could have been allocated towards infrastructure development, agricultural initiatives, and the restoration of deteriorated refineries. If the fuel subsidy is eliminated, the general population would not derive any benefits from the abundant oil resources of the country. This measure would have a negative impact on their livelihoods, as it would lead to increased production costs and subsequently higher prices of goods and services. Consequently, the purchasing power of Nigerians would be reduced. According to the study conducted by Olaniyi in (2016). Hence, the study investigates the effect of Petrol Subsidy Removal in 2023 on Consumer Purchasing Power in Nigeria.

1.3 Objective of the study

The broad objective of the study is to investigate the effect of Petrol Subsidy Removal in 2023 on Consumer Purchasing Power in Nigeria. The specific objectives is as follows:

i.          Determine whether there is a significant relationship between  Petrol Subsidy Removal  and Consumer Purchasing Power in Nigeria.

ii.        Determine the extent Petrol Subsidy Removal in 2023 affected consumers affordability capacity.

iii.      Determine the extent Petrol Subsidy Removal in 2023 affected consumers consumption pattern.

iv.      Determine the extent Petrol Subsidy Removal in 2023 affected consumers standard of living

1.4 Research questions

The following questions have been prepared for the study:

i.          Is there a significant relationship between  Petrol Subsidy Removal  and Consumer Purchasing Power in Nigeria?

ii.        What is the extent Petrol Subsidy Removal in 2023 affected consumers affordability capacity?

iii.      What is the extent Petrol Subsidy Removal in 2023 affected consumers consumption pattern?

iv.      What is the extent Petrol Subsidy Removal in 2023 affected consumers standard of living?

1.5 Resrearch Hypotheses

The hypotheses have been formulated for the study:

H0: There is no significant relationship between Petrol Subsidy Removal and Consumer Purchasing Power in Nigeria.

Ha:There is a significant relationship between Petrol Subsidy Removal and Consumer Purchasing Power in Nigeria.

1.6 Significance of the study

The study is significant to the Nigerian government and the citizens as there is a need for more awareness on the removal of fuel subsidy as there are lots of information which are not right, but because government do not carry the citizens along the impact seems to be hard on the populace.  Also, government needs to put up measures that will cushion the effect of fuel subsidy on rural dwellers.

The study is also significant to the academic community as it will contribute to the existing literature.

1.7 Scope of the study

The study focuses on the effect of Petrol Subsidy Removal in 2023 on Consumer Purchasing Power in Nigeria. Hence, the study will determine whether there is a significant relationship between  Petrol Subsidy Removal  and Consumer Purchasing Power in Nigeria, determine the extent Petrol Subsidy Removal in 2023 affected consumers affordability capacity, determine the extent Petrol Subsidy Removal in 2023 affected consumers consumption pattern and determine the extent Petrol Subsidy Removal in 2023 affected consumers standard of living. The study is delimited to Osun State.

1.8       Limitations of the study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection (internet, questionnaire, and interview), which is why the researcher resorted to a moderate choice of sample size. More so, the researcher will simultaneously engage in this study with other academic work. As a result, the amount of time spent on research will be reduced.

1.9       Definition of terms

Fuel Subsidy: government effort in paying for the difference between the pump

Purchasing power: the financial ability to buy products and services.