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Author Topic: Week 6 & 7 Debate Topic: The impact of fuel subsidy removal on the country's...  (Read 2043 times)


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How much of an impact will fuel subsidy removal have on the country's Economy?

« Last Edit: August 19, 2015, 09:48:34 AM by ffadmin »


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The impact of fuel subsidy removal on the country's economy from my point of view is seen from two different angles: the demerits and the merits thus;
The Nigerian economy over the years has been programmed to revolve around the supply of ‘cheap’ petroleum products. An average household in Nigeria depends on subsidized by-products of crude oil such as petrol and kerosene for domestic and commercial use. This dependence is not helped either as public electricity supply is epileptic. Almost every home and business is powered by generators fired by subsidized petrol. The few small scale businesses such as Hotels, Barbers, Welders, Hair dressers, Pepper sellers, Cool-room owners, Food sellers, Private and Government hospitals etc all rely on subsidized fuel. Transportation costs for instance have gone up and this will result in spiral effect on other sectors- all other businesses in fact revolve around the transport sector. It is very obvious that subsidy removal will worsen the country’s already inflation rate. In fact it will result in hyper inflation as prices of goods and services are bound to skyrocket beyond the reach of many. Even the Naira will not be spared, because it will further depreciate in value as much money will be chasing fewer goods. Creditors also lose during inflation because if they lend out money when there is no inflation and the prices are moderate or stable, the moment inflation sets in the value of that money to the creditor is lost. The demerits can be outlined as follows:
1)   There will be a drop in the standard of education.
2)   It will have a multiplier effect on various aspects of the people’s lives thereby making more people to drop from the near non-existent middle class.
3)   Public and private sector workers on low salaries will see their standard of living drop dramatically as they struggle to make ends meet.
4)   Sharp increases in operating costs Micro and Small Enterprises, many of which rely on small electricity generators powered by petrol.
5)    There will be pressure from organized labour to increase the national minimum wage.
6)   It may lead to social and industrial unrest as the cost of living in Nigeria will become even higher.
7)   Unemployment will definitely rise as SMEs (accounting for more than 60% of employers in the Nigerian organized sector) find it more expensive to either hire or retain staff.

However, if well implemented by the government, benefits can be derived from the fuel subsidy removal. These benefits includes:
1)   Fuel subsidy removal will allow government access to more funds to develop infrastructure.
2)   Reduction in the pressures on foreign reserves.
3)   It will provide employment for the teeming jobless citizenry as well as improve education, health, power, water resources and agriculture.
4)   It will reduce borrowing.
5)   Allows free market operation.
6)   Helps address the great imbalance between the recurrent and capital expenditure in Nigeria.
7)   Encourages local and foreign direct investment in the oil sector.
8)   Frees more funds for local investment in the oil sector.
9)   Increases local refinery production.
10)Reduces importation of refined products in the medium to long term.
These are my submissions. Thank you moderator.


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I think on the short run, it will have a negative effect because there will be an immediate increase in price of fuel which will make people shift to its substitutes for their different endeavours, and hence its sales drop. However, on the long run, more private investors will come into the industry and increase competition and subsequently increase sales.