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The Impact Of Petroleum Subsidy On The Consumption Of Petroleum Products In Nigeria
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1.2 STATEMENT OF THE RESEARCH PROBLEM
During
the national debate on the international monetary fund (IMF) loan, in
1985, most Nigerians oppose to the withdrawal of the so-called
government subsidy on petroleum products in Nigeria, which was part of
the (IMF) conditionality‘s. But the military government rejected the
loan; it went along in 1986 to remove 80% of the subsidy. While the
economy was still battling with the inflationary consequences of this,
the second-tier foreign exchange market (SFEM) was introduced.
In
addition to refueling inflation, SFEM introduced other distortions in
the economy. One of such distortion is the pricing of petroleum products
in Nigeria. Therefore, the need to review the domestic price of
petroleum products has become necessary for the following problems.
1.2.1
The domestic price of local products is well below what operates in
other countries including our neighboring countries. This low price
level, for petroleum products has tended to encourage the usage of
products as amply demonstrated in the growth pattern, which is not
explainable on the rate of industrial growth of the country.
Furthermore, this price differential has encouraged active trafficking
in products across our borders and shores. The result is that government
is subsidizing a much larger population in respect of petroleum
products.
1.2.2. The creation of distortions in the consumption of
petroleum product. Subsidy discourages consumers (especially the private
sector of the economy) from being cost conscious.
1.2.3. The current
level petroleum prices does not adequately account for the capital
outlay and overhead incurred in manufacturing and distribution of
petroleum product in Nigeria.
1.2.4. The early 80% subsidy withdrawal
and the impact it has on the economy, plus the effect of oil glut on
prices of petroleum product, coupled with inflation which has eroded the
expectation of the government in relation to the generation of
appropriate revenue.
1.3 THE OBJECTIVE OF THE STUDY
The research
would however intend to investigate on the major effect of petroleum
subsidy on consumption of petroleum product in Nigeria. However, it will
be able to determine how "the reduction in the price of petroleum
products via subsidy" can consequently lead to distortion on the
consumption of petroleum product (wasteful consumption) in the economy,
adulteration and smuggling of petroleum products and however, does not
account adequately for the capital outlay and cost overhead incurred in
the production and distribution of petroleum in Nigeria could adversely
harmfully affect the revenue generation, economic development and human
growth of the economy.
Moreover, i will always attempt to make some
necessary policy recommendation which will enable the Nigerian
government to make necessary economic decision towards the impact of
subsidy on petroleum to remove or allow.
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ABSRACT - [ Total Page(s): 1 ]The petroleum sector is an indispensable body in Nigeria economy. It has remained the Nigerian biggest revenue earner. It still brings in more than 80% of the foreign exchange earned by the country. However, this resulted in the shortage of the quantities of petroleum products consumed locally in the country. Hence, the problem of development is generally faced in Nigeria. This work will as well go to show what actually constitute the petroleum subsidy in Nigeria. It will analyze the cost to the ... Continue reading---
