The Effect of Fuel Crisis in Nigeria Economy 2010 – 2022
CHAPTER ONE
INTRODUCTION
Background of the Study
In Nigeria, fuel price increases are a typical occurrence. The majority of the time, a spike in gasoline prices has an impact on the nation’s economic operations. The increase may cause prices for goods and services, transportation, pay increases, and other things to go up. All of these have a detrimental impact on the state’s economy and the general populace. Oil is a major source of cash and revenue for Nigeria’s economy. So, at this time, the government’s plan and financial allocation are focused on the export and domestic use of oil. As a result of oil’s inherent importance to national economies, the economy’s concentration on a single export good has been shifted, making it easier for politicians to manipulate. The greatest threat to Nigeria is that oil has become the nation’s only export and that the economy of the nation now revolves entirely around it.
Agriculture was the backbone of the Nigerian economy up until the early 1970s. Before, the nation was renowned for its prowess in the production of groundnuts, leading to the pyramid-shaped groundnut fields in Kano, oil palm plantations, and the quicker cocoa in the western region of the nation. The country’s economy saw significant changes after large quantities of oil were discovered there. The country is now entirely dependent on oil for its foreign exchange revenues, not agriculture, as all other sectors appear to have vanished into oblivion or were even abandoned.
Since that time, every attempt to diversify the nation’s economy has failed. Oil has been a target of political manipulation as a result of its significance to national economies, which is a natural consequence of the economy becoming focused on a single export good. But the bigger threat to Nigeria is that it depends entirely on oil as its only export and that its economy has been designed to revolve around it. Almost every critical service provided in the nation revolves around it. Oil is a necessity for almost all other economic sectors. Any contemplation therefore of a possible scarcity or unavailability of the product will no doubt spell doom for the economy of the country (Sikkam, 2009).
According to Yemi (2012), full scarcity has recently plagued the country and seemed to be worse in the beginning of these years. This has created a great deal of sorrow, misery, and disruption in various activities, including the economy. Nowadays, there are very few specific businesses, institutions, and organisations in Nigeria that have not been negatively impacted. In government circles, it is commonly accepted that bottlenecks in the distribution system are substantially to blame for the ongoing gasoline problem. Yet, a survey reveals that the competing operations of many government entities are to blame for the delays and other related issues.
In addition, there are issues with a lack of manpower, insufficient funding, a lack of materials, legal restrictions, and the safety of personnel, which officials explained have hundreds of departments to petroleum resources (DPR) in the petroleum products, which worsen the crisis in Nigeria despite the efforts of DPR (Nwankwor,1981). The crisis situation deteriorated day by day when some petrol stations sold fuel in the middle of the night to a black market, raising the price from N350 to N500 per gallon depending on the degree of kerosene adulteration. With the overall co-operation monitoring and general supervision of product random sampling at several filling stations, it was discovered that the ongoing fuel shortage was caused by filling stations. The fuel shortage was thought to be made worse on occasion by hoarding, fuel diversion, smuggling, and underdelivery at retail outlets. Notwithstanding all of the ministry’s and parastatals’ efforts, the NNPC has nearly failed to stop sabotage activity in the nation’s oil business. According to an investigation, Nigeria used 8.509 million litres of fuel each day between January and March 1999, with an additional 6.883 million litres of fuel imported, increasing the total amount of fuel accessible to 15.392 million litters. Allwell (2012) suggests that smugglers and saboteurs in the country contributed so much to the scarcity.
Notwithstanding the NNPC’s official efforts, which culminated in the first-ever statewide exercise known as “operation crush,” the petrol crisis has not been resolved. The station is allegedly being run by economic saboteurs who divert the majority of the fuel supply intended for everyday use to the black market. Nwosu (2009) asserts that as long as there are high oil prices in neighbouring nations and inadequate pricing of petroleum products, oil smuggling will continue to be a lucrative industry. Poor management is to blame for the current petrol scarcity, claims Arinze (2011a).
Despite the detrimental effects of fuel price increases, the Federal Government of Nigeria stopped subsidising petroleum on January 1st, 2012. For many years, Nigerians have benefited from low gas prices. Now that this benefit is over, what are the economic repercussions for the country, aside from the widely anticipated protests planned by various groups including labour, occupy Nigeria, and fuel subsidies? This study will attempt to capture the economic implications without arguing for or against the elimination of subsidies. The Nigerian government would need to take these repercussions into account right away or prepare for them in the near future.
According to Osogie’s (2012) prediction, real GDP growth will slow down if gas prices remain unchanged. Moreover, the increase in gas prices and the likelihood of disparate pricing across the federation will increase consumer price inflation by 3 to 5 percentage points in 2012. The increase in petrol prices will have an impact on household income as well as consumption. If the minimum salary eventually reaches N18, 000, along with the rise in inflation, its value will continue to decline. The average household will spend an additional N75,000 on energy-related goods and services each year, while their savings rate would plummet. Almost half of Nigeria’s current middle-class population would be lost as a result of the decline in saving rates, which will also mitigate the short-term negative effects that increasing prices would have typically had on the economy. Throughout the coming years, consumer spending will significantly decline as people strive to adjust and accumulate fresh reserves.
Statement of the Problem
The Kogi State area’s social and economic activities have been crippled by the high cost of full price, which has led to a considerable increase in market prices for goods and services. Recent market research conducted in areas of Kogi State like the Itobe and Anyigba markets revealed that the lack of petrol was the primary cause of the high costs. Markets for building supplies in Lokoja and Okene have recently seen significant price increases. A quick look at the prices reveals that building supplies have increased in price. For example, a complete white bath tub that was N 9,375.00 in August 2011 is now N 11,500.00, and a bundle of zinc is now N 10,200.00, up from N 8,000 in August 2011. A quick peek at the food market also revealed a noticeable increase: a bag of rice that cost N7,000 in 2011 now costs N9,000, and a can of brown beans costs N6,550 as opposed to N4,500 in August 2011. The withdrawal of fuel subsidies, according to certain market participants with whom I spoke, caused an increase in petrol pump prices.
They argued that because it costs more to move goods and resources from the location of purchase to the place of business, fewer people are buying their products, which has led to steadily rising pricing. Transporters, for their part, claimed that it was particularly challenging to fill their tanks during a fuel shortage since sometimes their cars would sit at the filling stations for days. Other times, they are forced to buy from the illicit market at exorbitant prices, which drives up the expense of transportation. Furthermore negatively impacted are government employees, businesspeople, students, and lecturers. On this background, the researcher aims to investigate how the aforementioned issues have affected the Nigerian economy as a result of the rise in fuel prices.
The objective of the Study
The main objective of this study is to examine the effect of the fuel crisis on Nigeria’s economy from 2010 – 2022. Specific objectives of this study include to:
- Examine the effect of fuel price hikes on economic growth in Nigeria from 2010-2022.
- Analyse the effects of fuel price hikes on purchasing power of Nigerians from 2010-2022.
- Examine the impact of fuel subsidy removal on economic growth in Nigeria from 2010-2022.
Research Questions
- What is the effect of fuel price hikes on economic growth in Nigeria from 2010-2022?
- What is the effect of a fuel price hike on the purchasing power of Nigerians from 2010-2022?
- What is the impact of fuel subsidy removal on economic growth in Nigeria from 2010-2022?
Research Hypotheses
The following hypotheses are tested in this study:
Null Hypotheses
- There is no significant effect of price hikes on economic growth in Nigeria.
- Fuel price hikes does not significantly affect the purchasing power of Nigerians.
- The is no significant impact of fuel subsidy removal on economic growth in Nigeria.
Alternative Hypotheses
- There is a significant effect of price hikes on economic growth in Nigeria.
- Fuel price hikes significantly affect the purchasing power of Nigerians.
- The is a significant impact of fuel subsidy removal on economic growth in Nigeria.
Significance of the Study
The political and economic actions of many countries, especially those that depend heavily on oil, like Nigeria, are greatly influenced by the price of oil. However, empirical studies have shown that there are fluctuations in global oil prices, and that these instabilities have varied consequences on different countries depending on how heavily reliant on oil their economies are. Nigeria’s economy is heavily dependent on oil, which accounts for a sizable portion of the nation’s income. Therefore, research on how the volatility of oil prices affects economic growth is important because it aids governments and individuals in making future plans, particularly in terms of economic diversification, in an effort to reduce the risk of becoming overly dependent on oil income as the main source of foreign earnings.
Scope of the Study
This study focused on the effect of fuel crisis in Nigeria economy 2010 – 2022. The study also covered the effect of fuel price hikes on economic growth in Nigeria, the effect of a fuel price hike on the purchasing power of Nigerians as well as the impact of fuel subsidy removal on economic growth in Nigeria.
Limitations of the Study
There were several limitations the researcher had to operate within when analysing this research project. The amount of ground the researcher could cover in the period allotted for this study’s completion. Also, the lack of relevant material both online and offline had a substantial impact on the quantity and quality of our study. So, it was a setback that some of the key data/information needed to finish this study was not provided by the sampled research participants.
Definition of Terms
Economic growth : the rise or improvement in the market value of the products an economy produces in a given fiscal year, adjusted for inflation. Traditionally, statisticians have calculated growth as a percentage rate of real gross domestic product, or real GDP.
Inflation: an increase in the general price level of goods and services in an economy.
Purchasing power parity (PPP): a way to assess the absolute buying power of different currencies by comparing the cost of particular commodities in various nations.
Subsidy: a type of financial assistance or support provided to a member of the economy (a firm or individual), usually with the goal of advancing economic and social policy.
Gross domestic product (GDP): a measure in money of the market value or the market value of all the finished products made and sold by a country or countries within a certain time period.
References
- Okoro, E. G. (2014). Oil Price Volatility and Economic Growth in Nigeria: a Vector Auto-Regressive (VAR) Approach. Acta Universitatis Danubius, 10(1), 70-82. Oriakhi, D. E., & Iyoha,
- O. (2013). Oil Price Volatility and its Consequences on the Growth of the Nigerian Economy: An Examination (1970-2010). Asian Economic and Financial Review, 3(5), 683-702 Phillips, P.C.B. & Perron, P. (1988).
- Testing for a Unit Root in Time Series Regression, Biometrika, 75, 335– 346. Sanya O. (2015) Oil Prices and Nigerian Aggregate Economic Activities.
- IOSR Journal of Economics and Finance (IOSR-JEF), 6(6), 65-72. World Development Indicators, last updated in October 8, 2016. http://data.worldbank.org/data-catalog/worlddevelopment-indicators.
- Yusuf, M. (2015). An Analysis of the Impact of Oil Price Shocks on the Growth of the Nigerian Economy: 1970-2011. African Journal of Business Management, 9(6), 103-115.
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