...Implications of Fuel Subsidy to Nigerian Economy Babandi Ibrahim Gumel Doctor of Business Administration California Southern University Mike Ewald, PhD November 2015 Introduction This paper would discuss the implications of fuel subsidy in the Nigerian economy. It is a position paper as an extra credit assignment for ECO 87501 for DBA course at California Southern University. The paper would review what subsidy is, the reason for subsidizing petroleum product in Nigeria, challenges the Nigerian economy is facing because of subsidizing petroleum products, and the crisis the country is facing because of subsidy. Analysis According to the dictionary of Investopedia, “subsidy is a benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is given to remove some burden and is often considered to be in the interest of the public. Politics plays an important part in subsidization. In general, the left is more for having subsidized industries, while the right feels that industry should stand on its own without public funds” (Investopedia, 2015, p. 1). The above definition clearly indicates that the subsidy is a kind of free money in whatever form given to the public by Government. It is worth noting that the definition highlighted that politics plays a role in subsidy, and politicians on the left, (e.g. in U. S. the Democrats) favor subsidy. The Merriam-webmaster dictionary defines subsidy as “money that is...
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...FUEL SUBSIDY REMOVAL AND THE NIGERIAN ECONOMY (A CASE STUDY OF ABAKILIKI LOCAL GOVERNMENT AREA, EBONYI STATE) BY NKWAGU OLUCHI WINIFRED PA/2008/182 DEPARTMENT OF PUBLIC ADMINISTRATION FACULTY OF MANAGEMENT AND SOCIAL SCIENCES CARITAS UNIVERSITY, AMORJI-NIKE, ENUGU. ENUGU STATE AUGUST 2012 1 TITLE PAGE FUEL SUBSIDY REMOVAL AND THE NIGERIAN ECONOMY (A CASE STUDY OF ABAKALIKI LOCAL GOVERNMENT AREA, EBONYI STATE) BY NKWAGU OLUCHI WINIFRED PA/2008/182 A RESEARCH PROJECT PRESENTED IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF BACHELOR OF SCIENCE (B.SC.) DEGREE IN PUBLIC ADMINISTRATION DEPARTMENT OF PUBLIC ADMINISTRATION, FACULTY OF MANAGEMENT AND SOCIAL SCIENCES, CARITAS UNIVERSITY, AMORJI-NIKE, ENUGU, ENUGU STATE. AUGUST 2012 2 CERTIFICATION This is to certify that Nkwagu Oluchi Winifired with Registratoin Number PA/2008/182 has successfully carried out a research work on “Fuel Subsidy Removal and the Nigerian Economy (A case Study of Abakaliki Local government Area, Ebonyi State.) in partial fulfillment of the requirement for the award of Bachelor of science (B.Sc.) degree in Public Administration ---------------------------------Mr. M. O. Ugada (Project Supervisor) -------------------------Date --------------------------------Mr. M. O. Ugada (HOD Public Adminstration) ---------------------------Date -------------------------------External Examiner ---------------------------Date ...
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...illustrate what sort of analysis is expected. Topic Selected: Economic Welfare Fuelling Controversy The Economist 11 January 2014 Overview of Article Many governments subsidise fuel consumption. However, many countries that currently subsidise fuel are starting to reverse course. In June 2013, Indonesia increased fuel prices by 44% and decreased their total subsidy cost by $20 billion annually. Malaysia also reduced fuel subsidies – household energy bills increased by 15% as a result. Egypt and India are considering following suit. The key rationale to these governments of removing subsidies was to decrease the budget deficit. Effects of Fuel Subsidy According to Article The article discusses that there are many other benefits to reducing fuel subsidies. o Fuel subsidies generate deadweight loss. o Fuel subsidies make inequality worse – it is mostly the rich that benefit (the rich use fuel disproportionately more). o Removal of fuel subsidies will allow the government to develop infrastructure. These policies are unpopular, however, and many in Indonesia and Malaysia protested the new policies. Fuel Prices around the World Indonesia and Malaysia have some of the largest fuel subsidies and lowest fuel prices in the world. Analysis of Welfare Effects of Fuel Subsidy This article discusses that there are deadweight losses...
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...FUEL SUBSIDY AND THE LOSS OF JOBS AND INVESTMENTS IN NIGERIA This issue of deregulation of fuel prices and the downstream Oil and Gas industry is understandably one on which much debate is going on. Let me start by stating very early that I have nothing against subsidies per se. I am for subsidizing education, healthcare, rural agriculture, rural power etc. I however have everything against a subsidy that is neither creating skills nor building industry. I am against a subsidy that stifles investments and job creation in Nigeria but rather exports jobs and puts stupendous wealth in the hands of a few traders. Let me state upfront that I have spent a better part of my more than two decades of working in a management consulting career advising clients in the oil and gas industry. I have more than an average understanding of the issues facing the industry and I am convinced that unless we get private capital and expertise and a decent regulator into the downstream industry we cannot solve the problem of local value addition, investments and sustainable employment. The problem off course is that no serious investor will put money into an industry where price is set below cost of production and supply. Most Nigerians really do not know how bad the situation is in the government monopoly controlled downstream sector. An industry that should be employing a significant number of our engineering graduates and technicians yearly employs almost none. Until a few years ago the average...
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...is the current solar PV panel subsidy, which is further examined. Australia’s per capita carbon (CO2) emissions are amongst the highest in the world. Figure 1 illustrates when compared to other high income OECD countries, Australia’s CO2 emissions are higher than Germany, United States and United Kingdom, and are second to only Luxemburg. Figure 1 World Development Indicators & Global Development Finance (2008) Figure 1 also illustrates that over twenty out of thirty of these countries are below 10 metric tons of CO2 per capita compared to the dramatically high 18.5 tons from Australia. Additionally to this, according to the ABC (Clarke, 2009) Australia’s CO2 emissions are set to keep rising. Rising CO2 emissions are the result of increasing economic output of the Australian economy. These CO2 emissions have risen to a level which is not socially efficient, and is damaging to Australia’s economy; they have risen to a level resulting in global warming. The negative externality of the markets inability to produce efficient CO2 outputs and a lack of property rights for atmospheric pollution is described by Helm (2010, p. 183) as “one of the biggest market failures”. The emitter of these Greenhouse Gasses (GHG) will face little or no economic incentive to reduce emissions themselves (Stern, 2007). Intervention of Government policy is therefore intended to rectify this market failure, resulting in both Pigouvian taxes and subsidies. The Garnaut (2011) review highlighted...
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...Function Application: Enlightment to the Impact of Fuel Subsidy Removal in Nigeria Abang I. S.*, Elufisan T.O., Okwubunne A. C. National Centre for Technology Management, an Agency of the Federal Ministry of Science & Technology, Obafemi Awolowo University, Ile-Ife, Nigeria Abstract This paper adopts a linear function approach to analyse the effect of fuel subsidy removal on the value of Nigerian Naira and local production in the country. Data for about eight different periods where fuel hike occurred in Nigeria was used, and a mathematical model with the aid of a graph, was also developed to aid estimated calculation of Naira’s value. We also deduced from this study that increase in fuel pump price has an adverse effect on the standard of living of the people, since fuel is essential for the transportation of major Nigerian commodities, such as Agricultural produce and other market product. The significant impact of the upsurge of petroleum pump price on the price of goods transport initiates this study; with the aim of checking its effect on the purchase value of naira. Though this study is totally neutral about the subsidy removal, its just to enlighten us on the topic and let viewers decide. Keywords GDP, Subsidy, Data, Scarcity calls for a quick intervention. In a bid to averting the continual occurrence of this problem, Nigeria government have decided to intervene by deregulating the petroleum sector in the form of subsidy removal. The aim of the government for doing this...
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...Chapter 1 #2. Rising unemployment is related to social and economic deficiency - there is some relationship between rising unemployment and rising crime and falling social displacement (increased divorce, worsening health and lower life expectancy). Areas of high unemployment will also see a decline in real income and spending together with a rising scale of relative poverty and income inequality. Unemployment also costs the government several amounts of money to pay the unemployed individuals. #5. Consumer surplus is the amount that consumers benefit by being able to purchase a product for a price that is less than they would be willing to pay. The producer surplus is the amount that producers benefit by selling at a market price mechanism that is higher than they would be willing to sell for. It depends on if they are buying the product from a consumer or producer that will determine what price to sell the product to maximize profits. #6. Price mechanism is an economic term that refers to the buyers and sellers who negotiate prices of goods or services depending on demand and supply. If there is more demand for a certain product the prices tend to go up. I believe this would not be very equitable due to the fact of the changes in the economy and the fact of people being unemployed. #7. The equilibrium price would be $16.00 at a quantity of 800 apples. The supply hasn’t increased however the price has. The new equilibrium price is $20.00 and the quantity is 600...
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...have steadily declined by 53% within the past year, which is rather detrimental to society. Incentives to buy hybrid cars are too insignificant because technology has not yet been able to produce them at affordable prices. Subsidies should be provided because positive externalities are not accurately reflected in the cost. America desperately needs to create solid energy policies in order to thrive domestically and internationally. With an inadequate amount of attention directed towards environmental and energy issues, America should embrace hybrid vehicles in order to reduce our consumption of foreign oil, thwart the threat of global warming, and implement innovative techniques to use energy more efficiently. To support our findings, we will explore the negative externalities associated with a petroleum-based economy and emphasize the magnitude of environmental benefits that could be reached with more hybrid vehicles. Further we will use economic analysis to justify that the implementation of these subsidies will benefit society as a whole. The United States began subsidizing hybrid vehicles in 2005, but these tax credits no longer exist. There has been a shift from subsidizing hybrid vehicles to plug-in electric vehicles. While these subsidies are generous and help reduce greenhouse gas emissions, the subsidization of hybrid vehicles should not be discontinued. Electric vehicles are...
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...countries (India, Pakistan, Thailand, USA and Vietnam) account for over 80% of global rice exports.” King Corn follows two best friends from college, Ian Cheney and Curt Ellis, who go to the heartland to figure out what their food is composed of after finding out in a laboratory study that their DNA was mostly made up of corn. They were curious how corn ended up on their hair. After they plant and grow an acre of America's most produced and most subsidized on Iowa soil, they try to find out where the corn goes in the food system and how it is distributed all over America. What they discover shocks them. There are many reasons why there is an overproduction of corn in the United States, including advancements in technology, government subsidies, the cheap price of corn and corn syrup as opposed to grass and sugar. Overproduction of corn leads to overconsumption of the crop, because since corn is so cheap to grow, many try to figure out new ways on how to turn these surpluses into inexpensive, new products. Corn’s commodity is corn sweetener such as high-fructose corn syrup, as well as corn feed for beef, pork, and chicken. Nowadays, people are even trying to feed corn to salmon. It is also beneficial for the farmers growing cattle to grow corn as feed for the cattle right on their farm land. It is cheap, there can be a lot of it and it is easier...
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...reducing costs. These days we have been surprised with the innovation of transportation in Japan whereby theirs are modern and highly developed. Which its transportation stands for its efficiency of energy, it uses less energy per person compared to other countries. For example, A JR East E5 series Shinkansen (Railway) train, a massive innovation that have been made and well-known for Japan’s speed train or bullet train which surprised the transportation sector in the world industries. So how does we improve transportation in Malaysia with a number of populace all over the country? Here are few suggestions and ways to improve and overcome the problems of transportation in Malaysia. At the first place, recently the reduction in the fuel subsidy, people would be willingly to use public transportation if it were improved. The actions should be taken by the government in order to improve public transportation of course to look at...
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...The Future of Food Production The process that food consumed in America goes through to make its way to our mouths is like a Rube Goldberg contraption. The seemingly straightforward process of growing, raising, harvesting, and slaughtering goes on every day, completely hidden from consumers. Very few Americans are aware of the highly complicated, mechanized, and convoluted journey that any given bite of food takes from its origins in nature (or some manipulated approximation of it) to its destination on our plates. Although some people criticize the state of our food system, it is clear that it grew to be the international machine that it is because of demand. More than 300 million Americans want lots of food, meat especially, and they want it cheap. So like every other production process in this country, our food system has been industrialized to produce maximum food calories for the American people at minimum cost. This industrialization of our food system has allowed for population increase and higher standards of living. But there are significant problems with the industrial food system. Caught up in a drive to maximize production and profit, the industrial food system has grown to an unsustainable size. As food production has become increasingly industrialized, concern for the environment and the animals we eat has taken a backseat to expansion. Specialization, rather than integration, has become Forman 2 the hallmark of America’s farms. Rather...
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...in food prices due to dramatic climate changes and the increase in demand for biofuels (See Figure 1), which are fuels derived immediately from living matter. Just before World Food Day, which occurred five days after the report was put out, this situation called for control price volatility in the market for food for the reason of protecting LDCs from possible famines and hunger crises. Price volatility is the relative rate at which the price for a commodity changes over time, so the report is simply looking to control the increase in price volatility in the market for food. 26 countries were at risk of facing hunger strikes. To potentially solve the problem, the US and the European Union decided to subsidize, pay part of the cost of producing a good or service to keep the selling price low, biofuel (its’ high demand being a factor of the crisis) production as an alternative to crude oil, which would hopefully give farmers an incentive to shift production in biofuel crops. Furthermore, the weather has also played its’ role, with droughts and floods decimating crop fields, which further raised food prices due to farmers not being able to produce. This is especially significant to famers in poorer lands; with not many resources to re-kick start their production. Now, what is this article really about? The government intervention present in this article is a subsidy, which as mentioned before, a sum of money granted by the state or a public body to help an industry or business...
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...Pull fundin When Airbus originally received government aid in the 1960’s, it was a new enterprise. Today it is the global market share leader in the commercial aerospace business. How do gains in market share affect the legitimacy of claims for subsidies? Over the life of Airbus, it has grown into the global market share leader in the commercial aircraft industry. Gains in market share affect the legitimacy of claims for subsidies and in Airbus’s case as they have gained a larger market share their subsidies have gone down. Eventually these subsidies will almost become nothing as is continues to grow. The government organization do benefit from these subsidies they lend. The space subsidies are repayable with interest so the subsidies are legitimate. Suppose the effect of the legitimacy of the claim for subsidies is going down when the company became stronger. The subsidies have to oppose as the company’s power because of the company become stronger, they do not need to get subsidies. Otherwise, if the company market share loses, subsidies must be increase. The company is a global market share leader; government would consider that it is good for the economy and make and increase profit, so that they will control the subsidies and will save the company. Do you think that R&D contracts from NASA and the Pentagon benefit Boeing’s commercial aerospace business? How? Research and development of any kind can benefit a company in how they develop their product or...
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...Everyone understands the value that art brings to society. But, the question that is being addressed today is, should the government should fund the arts when there are more pressing issues that the tax dollars could be used to rectify. Some examples are “keeping the streets safe and the lights on”. Pro Argument by Alan Davey: * Davey points out that it takes only .05% of overall government spending to “fuel the creative industries”. This is just a little under £380 million ($590 million). * Contribution of music and visual and performing arts to the British economy exceeds £4 billion in gross value added, and the creative industries overall contribute £36 billion. * No evidence to support the suggestion that public subsidy crowds out private donors. In fact, it is just the opposite. * Private investment in the arts fell following the cuts in public funding. Con Argument by Pete Spence: * Impossible for state organizations to fairly choose which projects to fund. * Donors worry that private backing will cost their chosen cause its government subsidies. * Of all the capital distributed to the Arts Council England in 2011/12 to regularly funded organizations, 43% went to just ten institutions. This makes it hard for new entrants, who do not receive the same level of funding. * Different avenues for artists to find audiences to support their work. * Crowd funding services like Kickstarter match artists with those who are willing to pay. *...
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...The Facts Behind King Corn The documentary King Corn does an excellent job introducing us to the perils and problems with our industrial food system that are centered on cheap corn. However, it also tends to sidestep the main beneficiaries who drive and thrive off our current farm programs: corporate agribusiness. Why are farmers dependent on subsidies? New Deal Forced Agribusiness to Pay Farmers Fairly. As King Corn outlined, the government during the New Deal attempted to bring supply into line with demand, an approach known as “supply management.” This was accomplished thru the use of conservation set-asides, a price floor guaranteeing a fair price for corn (similar to a minimum wage), and a grain reserve to deal with overproduction. Farmers did not need to rely on the government for a fair income. They received it from the marketplace. Prior to the New Deal, the “free market” approach to agriculture caused economic booms and busts as farmers suffered continued depressed prices for their crops. This led to the rise of the Populist Party and other agrarian movements whose ideas were finally implemented with the New Deal. Agribusiness Had Lobbied for Decades to Allow the “Free Market” to Determine Prices. Beginning in 1973, policy changes promoted by Nixon Secretary of Agriculture Earl Butz deregulated the corn market. He dismantled supply management policies, selling off government storage bins used as food security reserves and implemented “fencerow to fencerow” planting....
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