The Impact of Fuel Subsidy on the Nigerian Economy in the Fourth Republic: An Analysis

Abstract

Fuel Subsidy means that a fraction of the price that consumers are supposed to pay to enjoy the use of petroleum products is paid by government so as to ease the price burden. Ever since President Goodluck Jonathan mooted the removal of fuel subsidy in 2012, the debate has been whether or not to remove the fuel subsidy. The history of fuel subsidies dates back to the '70s, when they were first introduced in Nigeria in response to the oil price shock in 1973. However, different regimes have been subsidizing fuel imports with Huge budgetary provisions but the actual amounts expended on Fuel subsidy and paid to Independent Oil Marketers had remained a myth. Besides, the actual impact of fuel subsidy on the Nigerian economy had become a subject of theoretical debate. This study is a bold attempt to determine and estimate the annual levels of fuel subsidy since 1981 and to empirically evaluate its impact on the Nigeria economy on the one hand as well as measure the shifts and changes in the economy under different democratic political regimes on the other, using the Total Differential Modeling Approach (Ecostatometrics). The result is that Fuel subsidy still holds a lot of promise for the Nigerian economy but its administration needs major reforms. It requires greater transparency and accountability among its operatives, both on the Government side and on the part of the Independent Marketers.

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