Impact of Subsidy Removal on the Nigeria Economy (a Study of Some Selected Firms in the Nigeria Economy)

ABSTRACT

This research work determined the impact of subsidy removal on Nigeria Economy using some selected firms in  the economy  as a case study. Personal interview and questionnaire were used for data collection. The various sectors under study constituted the respondents for this study. The data that were generated were presented, analyzed and interpreted using the simple percentage table. The findings of this study revealed that subsidy removal have impact on the Nigeria economy.

CHAPTER ONE

INTRODUCTION

1.1     Background of the study

          The benefit given by the government to groups or individuals usually in the form of cash payment or tax reduction is what is known as subsidy, the subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public.

          Therefore, there are many forms of subsidies given out by the government, including welfare payments, housing, loans, students loans and form subsidies. For example, if a domestic industry like farming is struggling to survive in a highly competitive international industry with low price, government may give cash subsidies to farmers so that they can sell all the low market price and still achieve it financial gain.

          Politics plays an important part in subsidization in general, the left is more in favour of having subsidized while the right feel that industries should stand on it own without public funds. Subsidizing and subsidy removal has been on the public domain since the transition from military rule to civilian rules in 1999. But the one that seems to have generate a lot of controversy is the issue of subsidy removal on fuel. Two reasons can be adducted for this, one is the fact that oil remains the backbones on the Nigerian economy, secondly, large chunk of government money go into oil subsidizing.

          However, the removal of fuel subsidy over the years has been a gradual one, until recently, early January 2012 when the government embarked on a drastic removed of the subsidy. Though, it was claimed to be a partial one (N85 – N120 and later reduced to N97). Whether the removal was partial or not, the issue raised was that, the timing was wrong i.e January. There was no safety net” put in place before it’s removal, amongst other issues.

          The federal government of Nigeria has for sometime now been selling the idea of subsidy removal be to all, they (government) particularly points that it aimed generating additional revenue that will be used to improve the infrastructure in the country such as roads, schools, hospital etc, however, Nigerians are looking at it differently, as an attempt to exploit their meager resources.

1.2     STATEMENT OF THE PROBLEM    

          The impact of subsidy removal on the Nigeria economy have been very great but it is being ignored by many groups that should have taken appropriate remedy. The results being operating at high cost and at extreme cases, losses. For this reasons, one may want to know the following problems:

 

          High cost of transportation fare in Nigeria.

The impact of subsidy removal on the transportation firm section is that, as a result of increase in the price of fuel, there is going to be an increase also in the cost of transportation.

High cost of Agricultural products in Nigeria. Due to an increase  in fuel or removal of subsidy in petroleum product, some farmers that use mechanic to perform their farming activities we on the other hands increase the price of their farm products.

 

Increase in the cost of education in Nigeria. Another impact of subsidy removal is at the side of educational firm, the removal of subsidy will increase the cost of running education which will in turn increase the fees payable to education.

 

General increase in the price of goods and services in Nigeria. For the fact that the subsidy has been removed, the cost of moving goods produced by industries to the places those goods are needed will increase, which will as well increase the price of goods.  

 

Reduction of the living standard of the average Nigerian. As a result of subsidy removal, good number of average Nigerians wouldn’t be living up to standard of living in Nigeria thereby increasing the poverty level of citizenry

    1. OBJECTIVES OF THE STUDY

The main objective of this study is to investigate the impact of

subsidy removal on the Nigerian economy, other specific objectives are as follows

  1. To find out the impact of subsidy removal on the cost of transportation
  2. To know the impact of subsidy removal on the cost of Agricultural products.
  3. To find out if there is a relationship between subsidy removal and increase in the cost of education in Nigeria.
  4. To ascertain the impact of subsidy removal on the producing of goods and services.
  5. To find out how subsidy removal contribute to the reduction of the living standard of average Nigerians.
  6. The work is poised to make recommendation on the impact of subsidy removal on the Nigerian economy.
    1. RESEARCH QUESTIONS 

The following research questions will help us to achieve the

objectives of this research work;

  1. Does subsidy removal have any impact on the cost of transportation of products?
  2. Does removal of subsidy have any impact on the cost of Agricultural products?
  3. What is the relationship between subsidy removal and increase in the cost of education?
  4. What is the impact of subsidy removal on the prices of goods and services?
  5. Does subsidy removal contribute to the reduction of the living standard or average Nigerians?

1.5     SIGNIFICANCE OF THE STUDY

          There are good number of people that we benefit from this work, first is those selected firms of economy which include: transportation firm, Educational firm, Agricultural firm and Industrial firm, because it is going to help them to know how to run and manage their activities at a low cost.

          Secondly, the students and other up coming researchers who may decide to research further on this topic, it can serve as a reference material to them.

          Thirdly, the government can also benefit because they can use this work to know the impact of subsidy removal on the economy of Nigeria.

 

1.6     SCOPE OF THE STUDY

          There are many sectors of firm of economy in Nigeria, thus, it will be difficult to cover them all within the short period allowed for this study.

          Consequently, the study is made to cover especially this selected firms of the economy, which include, the transportation firm, Educational firm and Agricultural firm.

          On the other hands, the time frame allowed for this work is five(5) months.

1.7     LIMITATIONS OF THE STUDY

          At the cost of carrying out this research work, the researcher encounters the following limitations:

i.       MONEY/FINANCE

          As a student, the researcher does not have enough amount of money with which to carry out all that is required in making the project work a success. An example is the high cost of accessing information and materials needed for the work, payment of jobs done by the typewriter, others include traveling expense as the organizations under study are located away from the institution of the researcher, and being a student, who is dependent, little  money is at his disposal to support the work.

ii.      TIME

          The period set aside for the completion and submission of this project report was not enough for the researcher to carry out in details on the topic chosen, the academic activities in school equally took part of the time given to the researcher.

iii.     EXPERIENCE

          The researcher lacks much experience to enable him analyze more on how subsidy removal affect the economy of the country. The researcher also lacks the required experience for him to develop an additional principles and techniques on subsidy removals.

1.8     PROFILE OF STUDY ORGANIZATIONS 

          AGRICULTURAL FIRM

          This is the major branch of the economy in Nigeria, providing employment for about 70% of the population. The firm is been transformed by commercialization at the small, medium and large scale enterprises levels, major crops includes beans, cashew nuts, cassava, groundnuts, kola nut, palm oil, palm kernels, plantains, rice, yam, rubber, melon among others, the country Agricultural products fall into two main groups: food crops for home consumption and industrial crops. The country was self sufficient in food but increased steeply after 1973.

          In the year 1962 – 1968, development plan was Nigeria first National plan on Agriculture. Among several objectives, it emphasized the introduction of more modern Agricultural method through firm settlements. There were also a number of Agricultural development intervention experiments notable.

  1. Operation feed the Nation Launched in 1976.
  2. Green Revolution Programme Inaugurated in 1980.
  3. The world Bank funded Agricultural Development Project.

TRANSPORTATION FIRM

            At present, the modes of transport in Nigeria include roads, railways, airways, inland water ways, coastal water, the deep sea and the pipeline, the potential significance of road development for investment trade, growth and poverty alleviation has long been recognized, not only does road transport infrastructure facilitate the direct provision of services to consumers, it also  provides intermediate input that enter into the production of other sectors and raise factors productivity by lowering the cost and reducing the time of moving goods and services to the places they can be used more efficiently.

EDUCATIONAL FIRM

            This is one of the major firms that provide the Nigerians with the basic western knowledge. Starting from primary, secondary and higher institutions, citizens gain their knowledge of how to read and write through this sector of economy.  

            And government has in many ways try the much they can by giving free education to some levels of education so as to enable lower class to gain from it.

INDUSTRIAL FIRM

            This sector/firm of the economy involves itself with the extraction of raw materials, or unfinished goods from the ground or sea, transformation of raw materials into finished goods and assembling of different components into unified whole.

            Such activities involves extraction of crude oil, diamond, tin coal etc and the transformation activities perform by this industry include, procession of palm oil and kernels, coals crud oil etc.

1.9       DEFINITIONS OF TERMS

Adjustment Programme: This is a programme design to make or improve some firms of an economy.

Agricultural Firm: This is the firm of the economy that takes the responsibility of making farm products available to the citizens.

Economy: The relationship between production, trade and the supply of money in a particular country or region.

Educational Firm: Is the firm that takes the duty of teaching, training and impacting knowledge and skill into the students which are the future leaders. 

Fuel Subsidy Removal: This is the removal of the money that is been  paid by government to reduce the cost of fuel.

Industrial Firm: This is the production firm that makes provision of goods and service by extracting the raw materials.

Poverty Alleviation: This is the making or reducing the level of poverty.

Transportation Firm: This is the firm of the economy that makes movement of people, goods and service easy for the citizenry.

Subsidy: Money that is paid by the government or an organization to reduce the cost of service or of producing goods so that their price can be kept low is known as “Subsidy”.

Subsidy Removal: It is the removal of money that is been paid by the government or an organizations to reduce the cost of goods and services.

 

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