Analyzing the Impact of Fuel Subsidy Removal on Small and Medium Enterprises
Chapter One
Objectives of the Study
The broad objective was to investigate the effects of the removal of fuel subsidy on the performance of small and medium enterprises in Nigeria particularly in Edo North. The specific objectives are to:
- examine the effects of hike cost of production on market share of SMEs in Edo North.
- investigate the effects of supply chain costs on the profitability of SMEs in Edo North.
- determine the influence of hike cost of finance on survival rate of SMEs in Edo North.
CHAPTER TWO
LITERATURE REVIEW
 History of Fuel Subsidy Removal in Nigeria
The history of fuel subsidy removal in Nigeria is rather a long one particularly with the negative effects it has on the polity. Specifically, the story of subsidy removal dates back to 1978 when the then military government of Gen. Olusegun Obasanjo reviewed upward the pump price of fuel which was at 8.4 kobo to 15.37 kobo. The concern was for government to generate enough money to run the administration particularly when it was preparing for the 1979 democratic elections and also to carter for the social needs of Nigerians.
In January 1982, the civilian regime of Alhaji Shehu Shagari also raised the pump price to 20 kobo from 15.37 kobo. Money realized from the fuel increase was used by members of the regime to buy properties in major capitals of European nations (USA, UK, Spain, France and others), as against using same to put in place social services that Nigerians badly needed then. The inept leadership of the then NPN national government and the corruption that bedeviled the administration led to its overthrow.
Then came the military junta of General Babangida who also increased the pump price of fuel to 39.50 kobo in March 31st, 1986. This regime was notorious for numerous pump price increases. On April 10th, 1988, the regime increased it to 42 kobo from 39.50 kobo per litre and then again to 60 kobo for private cars on January 1st, 1989. These increases came at the time the regime chose to adopt a home grown Structural Adjustment Programme (SAP) as against external borrowing. His decision was greeted with massive protests by Nigerian. The economic down turn coupled with the increases made life really unbearable and Nigerians reacted angrily.
Again, on the 6th of March, 1991, the Babangida administration raised the pump price from 60 kobo to 70 kobo. Not too long the Nigerian nation was subjected to another round of fuel increase, when in November 8, 1993, the pump price was raised to N5.00 and confronted with mass protests across the length and breath of Nigeria, the price was reduced to N3.25 on November 22, 1993. A year later, on October 2nd, 1994, it was again raised to N15.00 only to be reduced two days later to N11.00 by the Gen. Abacha’s regime. The reduction was as a result of mass protests and coupled with the need to win the support of Nigerians. On December 20, 1998, the pump price was also increased to N25 but again reduced to N20 on January 6th, 1999 just a month later. This was during Gen. Abdulsalam Abubakar brief transitional reign as a military ruler. He like others before him did not spare Nigerians the pains of fuel price increase. The decision witnessed sustained protests by Nigerians, the organized labour and the Civil Society Organizations (CSOs).
It is necessary at this point to place on record that it was only the military junta of Buhari/Idiagbon and Umaru Shehu Yardua that Nigerians were spared the ordeal of price increase. Others before and after them inflicted enormous pains on Nigerians as a result of the increases in fuel prices. This however may be because of the brief tenure of the regime and ill health of Buhari and Yardua respectively, and its focus on fighting corruption and indiscipline in the Nigerian society. Gen. Olusegun Obasenjo second coming as a civilian president, did not helped matters as he unleashed a rain of terror on Nigerians. In his eight years reign, the nation witnessed several rounds of fuel price increases. The first started on June 1st, 2000, where the petrol price per litre was raised to N30.00 but only to be reduced to N25 one week after due to massive protests by organized labour, civil society organizations and the ordinary Nigerians. Five days later, on June 13, 2000, the pump price was further adjusted to N22.00 per litre.
CHAPTER THREE
METHODOLOGY
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 Research Design
The study adopted a descriptive survey research design. Primary data was obtained from ministry of commerce and industry and were analysed using both descriptive statistic and Pearson Product Moment correlation at 5% significance level. Descriptive statistics and inferential data analysis were done using Pearson product moment correlation. The p-value at the 0.05 level of significance was used as decision criterion.
Model Specification
The model used in this study was the regression model. The model fitted for the data is: SMEP = SUBREM …………………i
CHAPTER FOUR
Hypotheses Testing
 The Pearson Product Moment Correlation was employed to test the relationship between the variables of the study, and as well as the significance of the relationships. This was tested at 5% level of significance.
CHAPTER FIVE
Conclusion
Based on the findings of the study, the cost of production and supply chain both insignificantly and positively affect market share and profitability. However, cost of finance significantly negatively correlates with survival rate of SMEs in Nigeria, especially in Edo north, suggesting that increase in the cost of finance resulting from the removal of fuel subsidies could lead to decrease in the survival rate of SMEs. Sequel to the above, it can be concluded that the government’s removal of the fuel subsidies affects the performance of SMEs in Nigeria through the high cost of production, supply chain and cost of finance
This study examined the effect of removing fuel subsidy on MSMEs in the BAY states of Northeast Nigeria. It revealed the impacts of this macroeconomic policy on MSME’s profitability and survival in the study area. This research contributes to evidence-based policymaking, support MSMEs growth, and promotes economic growth in the region. In addition, the study showed that removal of fuel subsidy causes significant differences that affect the operating costs and prices of food raw materials of MSMEs operating in the BAY states of Northeast Nigeria. Hence, the contribution of this study emerges from the results arising from analysis of new data on the BAY states of Northeast Nigeria. Prior to this study there was an existing gap on literature about how subsidy removal affects MSMEs in northeast Nigeria.
Thus, the study recommends that, it is paramount for the Nigerian government to take proactive measures to get more involved in the growth, development and sustainability of MSME in the rural areas across the country. Training should also be provided to operators of these businesses to enhance their performance. Government should also make effort to address most pressing constraint directly affecting MSME in the country and north east in particular.
In addition, government should work tirelessly to address security, fiscal, monetary, and trade reforms to create a conducive business environment for MSME especially those at the grassroots operated mainly in the rural areas. Finally, there are many related issues in relation to the effect of subsidy removal on the formation, growth, development and diversification of MSMEs in Nigeria that are not covered by this research. It is therefore an opportunity for future researchers to consider and work on them.
Recommendations
Based on the findings from the study focusing on the effect of the removal of fuel subsidies on the performance of small and medium enterprises (SMEs) in Edo North, the following recommendations are proposed:
- SMEs should explore strategies to enhance their market share by implementing efficient production processes, quality improvement, and innovative marketing
- Despite the lack of a positive correlation between supply chain and profitability, SMEs should prioritize supply chain optimization to improve overall operational efficiency.
- SMEs should explore alternative financing options, negotiate favorable terms with financial institutions, and implement prudent financial management practices to improve their survival prospects
In terms of managerial implication, the study of subsidies removal and SMEs’ performance is hereby enhanced as different approaches to government policies and organizational performance in the small and medium business sectors.
REFERENCES
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