Effect of Fuel Subsidy Removal on Marketing Performance Selected Independent Oil Market in Anambra State
Chapter One
Objective of the study
The objective of the study are;
- To examine the impact of fuel subsidy removal on the marketing strategies adopted by selected independent oil marketers in Anambra State.
- To assess the financial performance and profitability of the selected independent oil marketers before and after the fuel subsidy removal.
- To analyze the changes in market share dynamics among independent oil marketers in the Nigerian petroleum industry following the removal of fuel subsidies.
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
Concept of Subsidy
The concept of subsidy has been widely discussed and defined by various authors in the literature. Subsidies are financial or non-financial incentives provided by the government or other organizations to support specific industries, sectors, or individuals (Scott & Kvilhaug, 2022). They are intended to alleviate economic burdens, promote growth, and address market failures. According to IMF et al. (2020), subsidies can take various forms, including direct government expenditures, equity infusions, tax incentives, soft loans, government provision of goods and services and procurement on favorable terms, and price supports such as price reduction. While Haley and Haley (2013) argued that subsidies are provided in diverse formats, encompassing direct assistance such as cash grants and interest-free loans, as well as indirect support such as tax exemptions, insurance coverage, low-interest loans, accelerated depreciation, and rent rebates. These forms of support aim to lower the cost of production, encourage investment, stimulate demand, or improve access to essential goods and services. Subsidies are often targeted at specific sectors, such as agriculture, energy, education, healthcare, or housing, to achieve desired social and economic outcomes. At present, Nigeria implements two types of subsidies. The initial one according to Akanbi (2023) involves compensating for the disparity between the actual retail price of petrol, which is determined by calculating the landing cost and existing margins. The second subsidy covers transportation expenses, amounting to approximately N30 per liter, to maintain consistent petrol prices nationwide (Akanbi, 2023). In the context of petroleum subsidies, authors have highlighted their significance in ensuring affordable access to fuel and mitigating the impact of volatile fuel prices on consumers. Fuel subsidies are a means of government intervention aimed at decreasing the expense of fuel by offering direct financial assistance to oil companies. In doing so, they subsidize the product for consumers (Soremekun, 2023). Popoola (2020) argues that petroleum subsidies in Nigeria have been instrumental in cushioning the effects of price fluctuations and maintaining stability in the transportation sector. The author emphasizes that the subsidies have played a crucial role in supporting economic activities and improving the welfare of the Nigerian population. However, Munshi (2018) sheds light on the challenges associated with petroleum subsidies, including their high financial cost and potential for corruption and mismanagement. The author points out that large sums of public funds are allocated to fuel subsidies, which could be utilized more effectively in other sectors, such as healthcare or education. Munshi suggests that subsidy reforms are necessary to promote transparency, reduce fiscal burdens, and encourage market efficiency (Munshi, 2018). The origins of fuel subsidy can be traced back to October 2000, stemming from supply insufficiencies in Nigeria’s four refineries. To address this issue, the Nigerian government established a committee to thoroughly assess petroleum product pricing and distribution. According to Soremekun (2023), as a result of the committee’s recommendations, the Petroleum Products Pricing Regulatory Committee (PPPCRC) was formed, which later evolved into the Petroleum Products Pricing Regulatory Agency (PPPRA). The PPPRA employs a price modulation mechanism that enables the adjustment of petroleum product prices to align with fluctuations in global oil prices. In instances where international oil prices are high, the Nigerian government may raise the regulated price of petroleum products to avert shortages and ensure the profitability of independent petroleum marketers. Conversely, when global oil prices are low, the government may decrease the regulated cost of petroleum products to align with market conditions and pass on the advantages to consumers. Under the purview of the PPPRA, the Nigerian National Petroleum Corporation (now NNPC Ltd) and authorized importers are responsible for bringing in petroleum products. These products are sold to independent petroleum marketers at government-regulated prices, which are typically lower than the landing cost. Subsequently, independent marketers sell the products to consumers at a price that encompasses their operational expenses along with a government-regulated margin. While fuel subsidies have contributed to increased accessibility of petroleum for citizens, they have also brought about some adverse effects on the economy.
Concept of Fuel Subsidy Removal
The concept of fuel subsidy removal in Nigeria refers to the government’s decision to eliminate or reduce the subsidies provided on petroleum products, particularly on gasoline (also known as petrol) and kerosene. Historically, the Nigerian government has subsidized the retail prices of these products to keep them artificially low, aiming to provide affordable energy to consumers and alleviate the burden of high fuel costs on the general population.
Fuel subsidies were initially introduced as a social welfare measure to ensure that essential energy products are affordable to the masses, considering Nigeria’s vast oil reserves and status as a major oil-producing nation. However, over time, the subsidy system faced various challenges and criticisms due to its economic, fiscal, and social implications. Some key aspects of the concept of fuel subsidy removal in Nigeria are:
- Economic Rationale: The removal of fuel subsidies is often considered as a measure to address economic inefficiencies caused by the subsidy regime. Subsidies lead to fiscal burdens on the government budget, contributing to budget deficits, which can hinder economic growth and development.
- Fiscal Pressures: The cost of fuel subsidies can be significant, and it can strain the government’s financial resources. As global oil prices fluctuate, maintaining subsidies can become financially unsustainable, leading to fiscal deficits and macroeconomic instability.
- Misallocation of Resources: Fuel subsidies can lead to distortions in resource allocation, as they tend to encourage overconsumption of subsidized fuels and discourage investments in alternative energy sources or energy efficiency measures.
- Benefit to High-Income Earners: Subsidies on petroleum products are often criticized for being regressive, with a significant portion of the benefits accruing to higher-income earners who consume more fuel. The intended beneficiaries, such as the poor and vulnerable, may not receive a proportionate share of the benefits.
- Fuel Smuggling and Corruption: The disparity between subsidized fuel prices in Nigeria and higher prices in neighboring countries has led to cross-border fuel smuggling. This illicit trade contributes to revenue loss for the Nigerian government and creates opportunities for corruption.
- Market Distortions: Fuel subsidies can create market distortions, affecting the competitiveness of the energy sector. Independent oil marketers may face challenges in competing with state-owned entities, affecting market dynamics.
Chapter Three
Research methodology
Research Design
The research design adopted in this research work is the survey research design which involves the usage of self-designed questionnaire in the collection of data. Under the survey research design, primary data of this study will be collected from selected petroleum marketers in Anambra State in order to determine effect of fuel subsidy removal on marketing performance selected independent oil market in Anambra State. The design was chosen because it enables the researcher to collect data without manipulation of any variables of interest in the study. The design also provides opportunity for equal chance of participation in the study for respondents.
Population of Study
The population of study is the census of all items or a subject that possess the characteristics or that have the knowledge of the phenomenon that is being studied (Asiaka, 1991). It also means the aggregate people from which the sample is to be drawn.
Population is sometimes referred to as the universe. The population of this research study will be Seventy-five (75) selected petroleum marketers in Anambra State
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND DISCUSSION
This chapter is about the analysis and presentation of data collected from the field through questionnaire. The analysis of the data with particular question immediately followed by the presentation of findings.
As mentioned in chapter three, 63 questionnaires were administered and 50 were retrieved and necessary analysis was carried out on them and presented as follows:
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain effect of fuel subsidy removal on marketing performance selected independent oil market in Anambra state. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of effect of fuel subsidy removal on marketing performance selected independent oil market in Anambra state.
Summary
This study was on effect of fuel subsidy removal on marketing performance selected independent oil market in Anambra state. Three objectives were raised which included: To examine the impact of fuel subsidy removal on the marketing strategies adopted by selected independent oil marketers in Anambra State, to assess the financial performance and profitability of the selected independent oil marketers before and after the fuel subsidy removal and to analyze the changes in market share dynamics among independent oil marketers in the Nigerian petroleum industry following the removal of fuel subsidies. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. The data collected were presented in tables and analyzed using simple percentages and frequencies.
Conclusion
In conclusion, the removal of fuel subsidies had a profound impact on the marketing performance of selected independent oil marketers. The shift from fixed pricing to market-driven fuel prices required marketers to be more agile, innovative, and consumer-centric in their marketing strategies. Understanding consumer preferences, adopting dynamic pricing, investing in value-added services, and optimizing operational efficiency emerged as critical success factors for marketers to thrive in the new market environment.
The study provides valuable insights for policymakers, industry stakeholders, and independent oil marketers in Anambra State to navigate the post-subsidy removal era effectively. Policymakers may consider implementing measures to support marketers during the transition, while marketers can leverage the findings to formulate robust marketing strategies that cater to the changing demands of consumers and ensure sustainable growth in the challenging and competitive landscape after fuel subsidy removal.
Recommendation
Based on the findings of the study on the effect of fuel subsidy removal on the marketing performance of selected independent oil marketers in Anambra State, the following recommendations are suggested to enhance the marketing strategies and overall performance of marketers in the post-subsidy removal:
- Consumer Education Campaigns: Independent oil marketers should invest in comprehensive consumer education campaigns to inform the public about the reasons behind fuel subsidy removal and the implications for fuel prices. Transparent and effective communication can help manage consumer expectations and reduce potential resistance to price fluctuations.
- Pricing Strategies: Marketers should continuously monitor market conditions and adopt dynamic pricing strategies to respond quickly to changes in fuel prices. Implementing customer segmentation and loyalty programs can help attract and retain customers while managing profit margins effectively.
- Value-Added Services: To differentiate themselves in the competitive market, independent oil marketers should focus on providing value-added services to customers. These services can include loyalty programs, convenient payment options, clean and well-maintained fuel stations, and excellent customer service.
- Digital Marketing and Technology Adoption: Embracing digital marketing strategies, such as social media, mobile apps, and online platforms, can help independent oil marketers reach and engage with consumers more effectively. Additionally, investing in technology for supply chain optimization and operational efficiency can enhance cost-effectiveness.
- Strategic Alliances and Partnerships: To strengthen their market position, independent oil marketers can explore strategic alliances or partnerships with other industry players. Collaborative efforts can help pool resources, expand distribution networks, and collectively address market challenges.
- Regional Focus: Marketers should consider tailoring their marketing strategies to suit the specific needs and preferences of consumers in different regions of Anambra State. Understanding regional variations can help marketers optimize their product offerings and marketing messages.
- Government Support: The government should consider providing financial assistance or incentives to support independent oil marketers during the transition period after subsidy removal. Supportive policies can help alleviate the immediate financial challenges and facilitate adjustments to the new market conditions.
References
- Akanbi, F. (2023). Cushioning impacts of planned removal of fuel subsidy. https://www.thisdaylive.com/index.php/2023/04/02/cushioning-impacts-of-plannedremoval-of-fuel-subsidy
- Ayeyemi, (2023). Subsidy removal: Experts predict high costs of building materials, construction. Nigerian Tribune. https://tribuneonlineng.com/subsidy-removal-experts-predict-highcosts-of-building-materials-construction/
- Burtler, J., Schofield, T., & Scalia, S. (2022). What is consumer behavior? https://study.com/academy/lesson/what-is-consumer-behavior-in-marketing-factors-modeldefinition.html
- FutureLearn (2022). How to understand consumer behaviour. https://www.futurelearn.com/info/ blog/how-to-understand-consumerbehaviour#:~:text=Consumer%20behaviour%20in%20marketing%20refers,purchase%20it %20in%20the%20future.
- Global Subsidies Initiative Report (2016). Compensation mechanisms for fuel subsidy removal in Nigeria. https://www.iisd.org/system/files/publications/compensation-mechanismsfuel-subsidy-removal-nigeria.pdf
- Hafez, R. (2018). Nigeria health financing system assessment. Health, Nutrition and Population Discussion Paper; World Bank, Washington, DC. http://hdl.handle.net/10986/30174
- Haley, U., & Haley, G. (2013). Subsidies to Chinese industry: The economist. Oxford University Press.
