The Effect of the Fuel Crisis on Nigeria Economy 2010 – 2022
Chapter One
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.
CHAPTER TWO
REVIEW OF LITERATURE
Conceptual Framework
The Concept of Fuel Crises/Scarcity
Before attempting to establish a conceptual description, it would be much simpler to first comprehend what the phrases “Crisis,” “Scarcity,” and “fuel” mean separately to evaluate the notion of fuel crises/scarcity successfully. According to Kalra (2018), a crisis is a significant or pivotal moment, circumstance, or event, particularly one that involves approaching change or an unstable time, particularly one that is extremely troublesome or dangerous in politics, economics, or another field. Contrarily, scarcity refers to a commodity’s restricted supply despite potential market demand (Nwosu, 2019). Also, it illustrates the discrepancy between what is available and what is in demand. Scarcity occurs whenever the quantity or availability of a given good falls short of the demand for that good at that particular moment. According to Nwosu (2019), the word “Scarce” refers to something limited in quantity or availability, hence scarcity is the condition of having a very little amount of something. Last but not least, when the word “fuel” is used in this body of work, it refers to Premium Motor Spirit (PMS), also known as gasoline and a byproduct of refined crude oil.
The next step would be to carefully combine these definitions of the three crucial compositional terms to comprehend the idea of fuel scarcity or crisis. Hence, it is correct to say that fuel crises or scarcity refer to a situation of difficulty and instability brought on by a lack of or limitation on the supply of petrol or Premium Motor Spirit concerning the demand or desire for it. The causes of the gasoline shortages in the FCT range widely, including logistical problems, external impediments, pipeline vandalism, corruption, and many other things.
Long lines at petrol stations around the country and an arbitrary spike in fuel prices are signs of an irregularity in Nigeria’s downstream industry. The government regulatory authorities’ threats of sanctions or even the fines purportedly imposed on some petroleum merchants won’t likely help fix the issue. Furthermore, it appears that the subsidy problem may take some time to be resolved, given how difficult it must be for officials to make such important choices. There is no doubt that urgent, short-term, and long-term actions are needed to break the impasse, even if it is generally agreed that the government should take a stand sooner rather than later. The always-used justification is that marketers are unable to import refined petroleum into the nation because the government has not yet paid the backlog of subsidies owing to them. The absurdity of the assertions is highlighted by the fact that there are four refineries in the country, but they are unable to satisfy even a small portion of the needs of the population. And this is due to nothing more than the nation’s thieving elite’s cunning plan, which appeared to have blocked the oil majors from participating in the downstream sector (Mbendi, 2018).
Nonetheless, despite repeated claims that the government owes them unpaid arrears of subsidies and their subsequent demands for payment, many Nigerians continue to hold the view that oil subsidies are a hoax and rarely exist, which is supported by reasoning and occasionally official findings. To get things back to normal, the government just paid out roughly N200 billion, but the marketers are now demanding the remaining N500 billion. However, there is disagreement over what is owed to the marketers, making the oil subsidies a murky subject. Most recently, the government authorised N413 billion in payments to marketers (Mbendi, 2018).
Causes of Fuel Scarcity and Crisis Situation in Nigeria
Petrol, often known as petrol, is a by-product of petroleum, or more specifically, crude oil. By the 1950s, oil had supplanted coal as the primary fuel, and filling stations had begun to develop as a result. During the nineteenth century, petrol has been the primary driver of advancements in automobile engines. The majority of automobile engines are built using the type of gasoline that is now available. When there is a short supply of anything that is in high demand, there is scarcity. People are more likely to spend more on a product when this occurs. If all of our resources and goods are in short supply, inflation may result. The paucity of petrol in Nigeria is horrendous and discerning (Adamu, 2019).
The crisis has disrupted the country’s economy and other activities and caused much sorrow, pain, and anguish. Nowadays, it is difficult to locate a single sector of the economy, institution, or organisation in Nigeria that is unaffected. Official circles attributed the scarcity of petrol in Nigeria mostly to bottlenecks in the distribution system. This speculative hypothesis was reinforced by the results of the study conducted by the Department of Petroleum Resources (DPR), in 2012 (Ogunde, 2018).
The findings claim that despite DPR’s best efforts, dishonest traders are to blame for Nigeria’s current petrol crisis or scarcity. The crisis gets worse every day when some petrol stations sell petrol to underground markets at night when the price is marked up dramatically depending on the level of adulteration. Additional factors that contribute to petrol shortages include product hoarding, diversion, smuggling, under-delivery at retail outlets, competing activities of numerous government agencies, a lack of manpower, inadequate funding, a lack of materials, legal restrictions, and worries about employee safety (Ogunde, 2018).
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter will cover the research design, the study’s population, the sample size and technique, the method and source of data collection, the method of data analysis, model specification, the validity of the study and the reliability of the study
Research Design
The research design is the general plan selected to integrate the several study components logically and coherently. It serves as a guide for data collecting, measurement, and analysis (Kamangar & Islami,2017). A cross-sectional and descriptive research design was adopted for this study.
Population of the Study
This is the summation of the characteristics that are of interest in a statistical investigation. It comprises every unit that can be used to apply research findings. In other words, a population is a grouping of all the units that have the variable attribute that is the subject of the study and for which general conclusions can be drawn (Shukla, 2020). The population of this study include all the macroeconomic variables about the effect of fuel subsidy on the Nigerian economy(2010-2022).
CHAPTER FOUR:
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Data Presentation and Interpretation
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Summary of Findings
The computed mean for the increases in fuel prices, according to the study’s findings, was 136.1577, with a standard deviation of 40.72926. This indicates that from 2010 and 2022, the average price of a litre of petrol in Nigeria was approximately N136 (One hundred and thirty-six Naira). The anticipated standard deviation of these prices (Std./mean x 100%) is 29.91, which indicates that between 2010 and 2022, the cost of a litre of petrol in Nigeria will fluctuate by 29.91%. The calculated coefficient of skewness for this variable is -0.8, which means that the data distribution for this variable is left-skewed or negatively skewed. The calculated value of the kurtosis coefficient, -0.380, indicates a negative value for the kurtosis coefficient. This suggests that the statistics for the increases in fuel prices in Nigeria from 2010 to 2022 are distributed platykurtically. The kurtosis coefficient value is less than 3(3), which is the cause of this.
Nigeria’s GDP was estimated to have a mean of 420.4562 and a standard deviation of 127.36266 between 2010 and 2022. This indicates that Nigeria’s GDP averaged $420 billion over the study period (Four hundred and twenty billion Dollars). According to the projected coefficient of variation of 30.29%, the GDP of Nigeria changed by roughly 30% between 2010 and 2020. The estimated coefficient of skewness for this variable, which is -2.358, indicates that the distribution of this variable within the dataset has negative skewness. To put it another way, the distribution of this variable is skewed to the left. This variable’s estimated coefficient of kurtosis is 7.3, which suggests that the distribution surrounding this variable is leptokurtic.
The mean and standard deviation for Fuel Subsidy Removal was calculated to be 52.9408 and 16.17954, respectively. According to these forecasts, from 2010 and 2022, the Federal Government of Nigeria subsided the price of petrol by an average of about N53 (fifty-three naira) per litre. From 2010 and 2022, fuel subsidies fluctuated by 31%, as indicated by the projected coefficient of variation of 30.56%. The data distribution for this variable is likely left-tailed or negatively skewed because the anticipated coefficient of skewness is -0.837. The computed kurtosis coefficient, which shows that the data distribution for this variable is platykurtic, is -0.297.
The mean of purchasing power parity was calculated to be 113.3469 with a standard deviation of 31.47356. According to this, Nigerians’ average purchasing power parity between 2010 and 2022 was $113. 27.76% was the estimated coefficient of variation. According to this, there would be a 27.76% change in Nigerians’ purchasing power parity between 2010 and 2022. The calculated coefficient of skewness for this variable is 0.636, which indicates that the distribution is platykurtic. According to the dataset’s leptokurtic distribution, with a kurtosis of -0.512, this variable’s distribution.
The inflation rate was estimated with a mean estimate of 13.0192 and a standard deviation of 3.77889. This shows that between 2010 and 2022, Nigeria’s inflation rate averaged 13%. According to the estimated coefficient of variation, Nigeria’s inflation rates varied by 29% between 2010 and 2022. The dataset’s distribution for this variable is positively skewed or right-tailed, as indicated by the estimated value of 0.678 for the coefficient of skewness. The data for this variable have a platykurtic distribution, as indicated by the calculated kurtosis coefficient of 0.304.
The constant term of the regression estimations was calculated as 524.818 according to Table 4.2, which indicates that between 2010 and 2022, Nigeria’s GDP would have been approximately $525 billion had fuel price increases, fuel subsidy removal, Purchasing Power Parity, and inflation rate not taken place (Five hundred and Twenty-five billion Dollars). The regression parameter for the elimination of fuel subsidies was calculated to be -84.207. This implies that over the periods under consideration, there is little link between Nigeria’s fuel subsidies and GDP. In other words, between 2010 and 2022, rising gasoline costs caused an $84 billion decline in Nigeria’s GDP. (84 trillion US dollars). The value estimate of the t-significant statistic for this variable was computed as 0.000. This implies that there is a considerable negative correlation between the removal of petrol subsidies and Nigeria’s GDP between 2010 and 2022, even when controlling for other factors.
The regression coefficient for the withdrawal of gasoline subsidies was calculated to be 214.087, and the significant value estimate for the t-statistic was set at 0.000. This demonstrates that the removal of gasoline subsidies enhanced Nigeria’s GDP by almost $214 billion between 2010 and 2022. (two hundred and fourteen billion dollars). Our calculations also show a significant positive linear link between Nigeria’s GDP between 2010 and 2022, with a 95% confidence level, and the elimination of fuel subsidies. The t-significant statistic’s value was 0.230, and the anticipated value of the Purchasing Power Parity regression coefficient was 1.517. This demonstrates how purchasing power parity raised Nigeria’s GDP by roughly $1.5 billion between 2010 and 2022. Hence, between 2010 and 2022, there is a negligible positive linear connection between purchasing power parity and Nigeria’s GDP, assuming that all other factors remain constant.
The regression coefficient for the inflation rate was determined to be -13.014, with a significant value estimate of the t-statistic of 0.044. These estimates show that there was a negative linear relationship between the inflation rate and GDP for the relevant periods. This shows that between 2010 and 2020, inflation reduced Nigeria’s GDP by almost 13%. Hence, according to the significant value estimate of the t-statistic, there would be a significant negative linear association between Nigeria’s inflation rate and GDP between 2010 and 2022.
The R-statistic was assessed to be 0.944, as can be seen in Table 4.3. This suggests that there is a strong correlation between the variables examined in this study. In other words, a change in the independent variable’s value results in a commensurate rise or decrease in the independent variables while holding other components constant. Hence, between 2010 and 2022, the independent factors had a 94% impact on Nigeria’s GDP. The estimated R-Square value of 0.891(89.1%) indicates that the independent variables (Inflation Rate, Fuel Subsidy Removal, Purchasing Power Parity, and Fuel Price Increase) explained about 89% of the change in Nigeria’s GDP between 2010 and 2022. With all other factors held constant, the independent variables may account for around 89% of the volatility in Nigeria’s GDP, leaving only about 11% of the variation unaccounted for.
The adjusted R-square statistic had a calculated value of 0.836 (83.6%). This means that, with all other factors being equal, the independent variables may still, after any necessary adjustments, explain about 84% of the variation in Nigeria’s GDP during the research years. The Durbin-Watson statistic had a calculated value of 0.733. This indicates that the study’s variables have a positive autocorrelation. This indicates that the factors considered in this study have a strong (nearly exclusively positive) degree of correlation.
Table 4.5 shows that there is a 0.450 estimated coefficient of connection between fuel price increases and GDP, with a significant value estimate of 0.123. This suggests that at the 5% level of significance, there is a negligible low positive correlation between these two variables. In other words, while other factors remained constant, increases in Nigeria’s gasoline prices between 2010 and 2022 were responsible for nearly 45% of the country’s GDP change.
The coefficient of correlation between fuel price increases and the termination of fuel subsidies was evaluated at 1(100%) with a significant value estimate of 0.000; this shows that the two variables have a perfect and significant positive correlation at the 5% level of significance. In other words, the amount the Nigerian government subtracted from the price of fuel between 2010 and 2022 varied proportionally with the change in the cost of fuel per litre. As a result, if the price of fuel changed, the fuel subsidy was reduced by the same amount per litre of petrol.
Fuel Price hikes and Purchasing Power Parity were shown to be significantly associated with the extent of 0.861(86.1%). 0.000 with significant values is the estimate. This suggests that, when other variables are held constant, there is a very strong and significant positive correlation between these two variables at a 95% confidence level. Hence, between 2010 and 2022, increases in fuel prices in Nigeria were responsible for an 86% fluctuation in the purchasing power of Nigerians.
With a significant value estimate of 0.094, the correlation coefficient between the increase in fuel prices and the inflation rate was determined to be 0.484. This suggests that all other things being equal, there is a negligible low positive correlation between these two variables at the 5% level of significance.
The connection between GDP and the elimination of fuel subsidies was calculated to be 0.473, with a significant value estimate of 0.103. This suggests a negligible low positive correlation between these two variables at the 5% level of significance when controlling for all other variables. In other words, when controlling for all other factors, the reduction of gasoline subsidies between 2010 and 2022 accounted for nearly 47% of the change in Nigeria’s GDP. The estimated coefficient of correlation between GDP and PPP was 0.275, with a significant value estimate of 0.362. This suggests that, while controlling for other variables, there is only a weakly positive and negligible degree of connection between these two variables at the 5% level of significance. In other words, when all other factors were held constant, Purchasing Power Parity accounted for around 27% of the change in Nigeria’s GDP.
GDP and inflation rate are correlated by a coefficient calculated at -0.067 with a significant value estimate of 0.827. According to these estimations, when other factors are held constant, there is a negligible negative degree of connection between these two variables at a 5% level of significance. As a result, with everything else being equal, Nigeria’s GDP decreased by around 7% between 2010 and 2022 due to inflation.
Fuel Subsidy Elimination and Purchasing Power Parity were found to be correlated at an estimated 0.857, with a significant value estimate of 0.000. This suggests that, while controlling for other variables, there is a very strong positive and significant correlation between these two variables at a 5% level of significance. In other words, the removal of fuel subsidies in Nigeria between 2010 and 2022 was responsible for nearly 86% of changes in purchasing power parity.
The estimated strength of the relationship between the inflation rate and purchasing power parity was calculated to be 0.668, with a significant value estimate of 0.013. This shows that, while controlling for other variables, there is a substantial positive correlation between these two variables at the 5% level of significance. According to this analysis, the Nigerian inflation rate accounted for nearly 67% of the fluctuation in the Purchasing Power Parity.
Conclusion
Massive corruption in the petroleum sector is responsible for colossal subsidy payments. It is possible to address the corruption but to leave the petrol subsidy itself in place. Without corruption, the subsidy would be a good policy. Lack of accountability on the allocation of public expenditure, management of revenue collection and debt control, as well as transparency in fiscal matters. Contrary to the popular belief of petrol subsidy removal for the benefit of all Nigerians, it is the rich, not the poor who disproportionally benefit from Nigeria’s petrol subsidy. With the government subsidizing the market to keep domestic fuel prices artificially low, it is those who consume the most that have a greater benefit from the subsidy. Nigeria’s poor rely primarily on public transportation as such their per capita fuel consumption is significantly less than the country’s rich, who generally use private vehicles15 sponsored by the government. Neighboring countries also benefit significantly from Nigeria’s fuel subsidy through smuggling16 also. There is a history of governments reneging on earlier promises regarding compensation for subsidy cutbacks, which has led to a trust deficit. Citizens are not convinced that resources will be better allocated in their interests. Consequently, it was concluded in this study that between 2010 and 2022, in Nigeria, fuel price hikes and fuel subsidy remove had significant positive impacts on economic growth in Nigeria. Also, fuel price hike was found to had a significant positive impact on the purchasing power of Nigerians during the periods under review.
Recommendation
Based on the conclusion the following recommendations have been slated:
- Government should retain fuel subsidies while expediting the construction of the three proposed refineries.
- Fuel subsidies should be removed as soon as these new refineries are commissioned.
- The proposed rehabilitation of the existing refineries should be expedited.
- Government should vigorously pursue the revitalization of the railways. If only Nigerians had alternatives to road transport, all this noise about fuel subsidy removal would not have been there.
- Private companies should be encouraged to start building refineries now with the assurance that subsidies would be removed before they start production.
- Government should embark on full deregulation of fuel prices to ensure market competitiveness.
- Government should outlaw or legislate against unauthorized dealers in the sale and distribution of petroleum products to reduce the hazards of extortion, and unwarranted fire incidence leading to colossal economic loss and loss of life during periods of fuel scarcity and fuel price hikes.
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