Critical Survey on Fuel Price Changes and Its Effect on Nigeria Economy
Objective of the study
The broad objective of this study is to carry out a critical survey on fuel price changes and its effect on Nigeria economy. Specifically the study will:
- Ascertain if the recent increases in fuel prices will have any effect on the economic growth in Nigeria
- Determine what extent fuel price hike will affect purchasing power in Nigeria
- Investigate if fuel subsidy removal will have an impact on Nigerian balance of payment.
- Examine if increase in pump price of petroleum will have any implications on food security in Nigeria
Our focus in this chapter is to critically examine relevant literatures that would assist in explaining the research problem and furthermore recognize the efforts of scholars who had previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.
Overview of Nigeria economy
The economy’s poor performance in terms of growth is demonstrated by the rising incidence of poverty, widespread and graduate unemployment, skyrocketing inflation, worsening balance of payments imbalance, enormous external debt burden, widening income disparity, and growing fiscal imbalances, which take the Nigerian underdevelopment crisis into account. Because of this, Bassey and Atan (2012) cited Arewa and Nwakanma (2017) confirmed that all of these issues are caused by widespread economic distortions. Since Nigeria gained its independence, the country’s economic development and social transformation have shown again how inadequate macroeconomic planning methods have been for controlling the domestic labor market.
According to Iyoha (2018), despite having abundant people and material resources, Nigeria has a potential for rapid economic growth and development; yet, the nation’s economic performance has been characterized as being truncated, erratic, dismal, and mostly unimpressive. The national macroeconomic planning framework has always assumed away the basic issues that a labour surplus economy faces. It is barely acknowledged that a significant part of recent graduates who have entered the labor force are those in whom the nation has made significant investments in education and training.
Because empirical research has continued to show that many government initiatives are ineffective, the issue of labor market disequilibrium continues. The growth of human resources at all educational levels has continued to draw investments from succeeding governments, and enrollment has increased dramatically over time. However, complementing investments in those industries that may produce jobs for graduates have been extremely restricted. Years of bad management, erratic and poorly thought out government regulations, and a lack of fundamental infrastructure have all hurt agriculture. Still, the industry generates approximately 26.8% of the GDP and two-thirds of all jobs (CBN Statistical Bulletin, 2015).
On the other hand, Obadan and Odusola (2015) assert that Nigeria’s oil and gas wealth hasn’t done much to reduce poverty by giving the populous jobs. The poor have suffered in numerous ways as a result of the economy’s reliance on oil for export revenues and government income. First, the volatility of economic growth, inflation, and exchange rates has grown as a result of oil income, and the poor are least equipped to hedge against these changes. Dependence on oil exports also contributes to revenue volatility, which impacts government services and policy. Few unskilled people are employed in the oil business, which is not labor demanding.
Also, agriculture was essential to Nigeria’s economic growth as a nation in the early 1950s and 1960s. Over 75% of the labor force came from rural regions, giving millions of Nigerians jobs. When agriculture was at its peak, it contributed around 70% of the nation’s gross domestic product (GDP), but by 2003, that percentage had dropped to only 34.6% (Abalola, Jimoh, and Adenuga 2018). In Nigeria, agriculture used to be the main source of employment, but since 1979, it has rapidly declined due to carelessness and poor government policies, which has resulted in widespread unemployment.
Unfortunately,with a strong economic foundation and an average growth rate of 6.8% over the past 10 years, Nigeria has maintained impressive development, with reasonable growth potential. Real gross domestic product (GDP) growth was predicted to increase by 6.23% in 2014, up from 5.49% in 2013. With a rebased GDP estimate of USD454 billion in 2012 and USD510 billion in 2013, it surpassed South Africa to become Africa’s largest economy when the National Bureau of Statistics revised its GDP in April 2014 to better represent the size and structure of the economy. The revised pricing and better methods of the rebased GDP also show that the economy is more diverse than previously believed. The Nigerian economy today seems to be more diversified, with hitherto unrecorded services—including the entertainment sector—contributing an increasing amount to GDP.
In addition, more private Nigerian banks are operating in several African nations as a result of banking sector changes, particularly the 2004 bank consolidation effort. The World Development Indicators report that the country’s large population resulted in a per capita GDP of only USD 2,980 in 2013, placing it 131st globally as opposed to South Africa, which had a per capita GDP of USD 6,886 and ranked 88th (World Bank 2015). According to the rebasing, Nigeria’s economy is transitioning from an agricultural to a tertiary service economy without going through the intermediate stage of industrialisation. The sustainability and inclusivity of economic growth in Nigeria are threatened by this unusual shift, the so-called “tertiarization,” which has so far failed to produce decent jobs. Contrary to the theories in the development literature that link quicker economic growth with the eradication of poverty, recent progress has also not translated into considerable social and human development.
Using data from the Harmonized National Living Standard Survey (HNLSS) of 2009–10, the Nigeria National Bureau of Statistics (NBS 2010a) assessed the poverty incidence at 69% in 2010, up from 54.4% in 2004. The performance of the nation is at variance with the global trend toward reducing poverty, especially in other nations that are now enjoying significant economic expansion Adebayo, A. (2015). The socioeconomic indices for Nigeria are similarly subpar. The country’s human development index (HDI) value rose by just 8.1% in the previous ten years, from 0.466 in 2005 to 0.504 in 2013, placing it at 152 out of 187 nations. The proportion of unemployment climbed from 23.9% in 2011 to 25% in 2014. Nigeria has achieved some development indicators progress, but very little. Life expectancy at birth grew by 6.9 years between 1980 and 2013, the mean years of schooling climbed by 0.2 years, and predicted years of schooling increased by 2.3 years, according to the UNDP (2014) HDI, which also considers literacy and per capita GDP. Additionally, between 1980 and 2013, the gross national product per capita rose by roughly 25.7%. Since the oil industry generates around 70% of government income and 85% of exports, the nation continues to be heavily dependent on it. While the government has benefited from oil earnings during boom times, the oil industry also poses significant difficulties during busts. For instance, the price of crude oil fell more than 50% in the final three months of 2014 and ended up at around $50 per barrel. As a result, the IMF revised down Nigeria’s growth projection for 2015 from 5% to 4.8% in its Article IV Consultation.
In the run-up to the 2015 general elections, the nation’s vulnerabilities increased and its budgetary reserves significantly shrank. The Nigerian economy had some losses as a result of growing uncertainty ahead to the elections against the backdrop of declining macroeconomic indicators 1 and significant outflows of foreign portfolio investments. The Central Bank (CBN) depreciated the Naira by 8.4% in November 2014 in an effort to support its value and protect the foreign reserves (Arewa and Nwakanma 2017). The CBN shut down the official window in February 2015, signaling another another tactical depreciation of the Naira, due to ongoing pressure on the foreign currency market. As a result of the CBN intervening to fulfill the excess demand through extraordinary operations, the currency market experienced a period of relative calm. Nigeria’s foreign reserves plunged to USD30.3 billion as of 17 March 2015, hardly enough to cover six months of imports. This level constituted a serious danger to Nigeria’s balance of payments operations due to the CBN’s continuous attempts to strengthen the Naira in the face of falling oil prices. In the largely Muslim North, feelings of neglect and economic marginalization have also fueled animosity. Boko Haram, a violent Islamist organization, has been more active and lethal in its operations against civilian and government targets, notably the April 2014 kidnapping of 276 schoolgirls from Chibok, which garnered much worldwide attention. The relatively peaceful conclusion of the general elections held in May 2015, which brought in a new leadership, substantially strengthened Nigeria’s democratic process. Power was effectively transferred from a ruling administration to the opposition for the first time in the nation’s history.
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
POPULATION OF THE STUDY
According to Udoyen (2019), a study population is a group of elements or individuals as the case may be, who share similar characteristics. These similar features can include location, gender, age, sex or specific interest. The emphasis on study population is that it constitute of individuals or elements that are homogeneous in description.
The overall purpose of this research work is to critical survey on fuel price changes and its effect on Nigeria economy using Ministry of Petroluem Abuja as case study. Therefore, staffs in Ministry of Petroluem Abuja form the population of the study.
DATA PRESENTATION AND ANALYSIS
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of thirty-six (36) questionnaires were administered to respondents of which only thirty (30) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 30 was validated for the analysis.
SUMMARY, CONCLUSION AND RECOMMENDATION
SUMMARY OF FINDINGS
The overall purpose of this research work is to critical survey on fuel price changes and its effect on Nigeria economy using Ministry of Petroluem Abuja as case study. The study will find out if the recent increases in fuel prices will have any effect on the economic growth in Nigeria. It establish what extent fuel price hike will affect purchasing power and food security in Nigeria and reveal if fuel subsidy removal will have an impact on Nigerian balance of payment.
Survey research design was implored for the study and with the aid of convenient sampling method, the researcher purposively enrolled thirty-six participant who are staff of Ministry of Petroluem Abuja as the participant of the study. A well structured questionnaire was issued to the respondent of which thirty (30) responses where retrieved and validated for the study. Data was analyzed using frequencies and table. Hypothesis test was conducted using Chi-Square statistical tool (SPSS v.2.3.).
Perhaps the most complex problem confronting the Nigerian nation is how to make petrol available at all times for local consumption, practical experience over the years have shown that it has not been easy for Nigeria to find a sustainable solution to frequent and protracted scarcity of petrol in the country. It is important to note that several efforts and permutations have been made and are still being made to address the problem, but the solution is far insight From the time of military administrations to present democratic dispensation, different strategies such as yearly turn-around maintenance of the refineries and importation of refined petrol to supplement local production have been adopted without any positive impact. The problem has become a recurrent dilemma in the nation’s economy. The situation is becoming more complex and dramatic especially given the current security challenges facing the nation. Pump price of petrol in Nigeria are no longer determined by government fiat (where at all times, petrol is found in the filling stations), but at the discretion of the independent petrol marketers. It appears that the more serious and committed the government is poised to put an end to petrol scarcity, the more slippery the problem becomes.
Fidings of the study reveals that incessant hike in fuel prices and the scarcity of the product has caused a lot of hardship to Nigerians. The burden of the fuel scarcity is borne more by the poor, thereby increasing their suffering and their poverty level. Increases in the price of fuel led to increase in transportation cost of consumables and in turn increased the prices of goods, resulting to inflation. Long queues at the fuel stations had led to man-hour loss, resulting to unemployment. These had effected the growth and development of the country. Hypotheses test concludes that recent increases in fuel prices has significant effect on the economic growth in Nigeria, fuel subsidy removal significant impact on Nigerian balance of payment even as the increase in pump price of petroleum poses an implications on purchasing power and food security.
The following recommendation was made due to finding of the study
- Government should carry on with the turnaround maintenance of the refineries if and only if the comparative advantage of producing locally is lower than importing fuel from abroad.
- Government should allow the market mechanism (demand and supply) to prevail in the distribution and pricing of premium motor spirit. This implies that government should remove subsidy on petroleum products and allow the forces of demand and supply to allocate the resources among the citizens.
- Management of NNPC and associated agencies should work against the found causative factors of petrol scarcity by applying an appropriate strategic management. The approach suggested here for their application is the Balanced Scorecard. This approach will help organizations operate from the perspective of various stakeholders, taking into consideration the various interests such that the tendency for heinous activities, corruption and mismanagement would be averted.
- Since the effect of scarcity on economy is more of external than internal the appropriate strategic management approach to be used in order to avert and make the effect of petrol scarcity on economic performance negligible is by applying the Porter’s Five Forces Analysis. This approach or framework helps to determine the competitive intensity and therefore attractiveness of a market to both foreign and local investors. When this happens, petrol would be made available as there would be competition.
- Since it was found that administrative bottlenecks and legal limitations caused petrol scarcity, the petroleum industry bill (PIB) should be passed into law to remove entanglements and empower relevant agencies to operate legally. The Bill will also help in regulating the activities of petroleum dealers in the sector such that any practice found to be inimical to petroleum product availability in the right quality, quantity and price would be discouraged.
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