Impact of Subsidy Removal on Nigerian Economy Essay

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IMPACT OF FUEL SUBSIDY REMOVAL ON NIGERIAN ECONOMY

By

AKINDELE OLUSOLA AKINOLA

NOVEMBER, 2O11

INTRODUCTION
The regulation and control of domestic prices of petroleum products by government is peculiar in developing nations of the world. Governments, in some cases focus their efforts on the direct control of import levels, domestic distribution, and domestic prices while some give the private sector the mandate to freely import and distribute petroleum products. However, the government sets the domestic price ceilings and compensate the private sector distributors to cover ensuing losses. Governments that directly control prices in most cases introduce price subsidies that keep domestic prices below border prices. This is particularly the case when international fuel prices increase sharply and governments are reluctant to pass these increases fully on to the domestic prices of petroleum products.
Energy subsidies are found in virtually every country but it’s size varies; some are relatively high while some are low compared to that of other countries. The justifications for the use of subsidy vary from social welfare protection, job creation, the encouragement of new sources of energy supply, and economic development to energy security. However, large energy subsidies in countries also compete for limited resources that could otherwise be used to deliver other essential services for the developmental projects in the economy.
Removing fuel subsidies is considered by many to be a win-win policy measure that would benefit both the global economy and the environment and therefore a “no regret” option for climate-change mitigation (Burniaux et al., 2009). In theory, eliminating fuel subsidies would result in higher fuel prices in countries that currently subsidize consumer prices, which would reduce consumption. At the same time, removing subsidies would remove a costly drain on the government budget. Consequently, eliminating subsidies on fuel may be one...

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