1.0 Introduction
1.1 Background of Study
Fuel subsidy has long been a central feature of Nigeria’s economic and social policy, intended to make petroleum products affordable and accessible to the general population. As a resource-rich nation with vast oil reserves, Nigeria instituted fuel subsidies in the 1970s to distribute the benefits of its oil wealth and cushion its citizens from global oil market volatility. Over time, however, the sustainability and efficiency of this policy came under intense scrutiny. According to the World Bank (2022), the Nigerian government spent over $10 billion annually on fuel subsidies, creating heavy fiscal burdens that limited investment in critical sectors such as education, health, and infrastructure (World Bank, 2022).
Okonjo-Iweala (2018) asserted that fuel subsidies in Nigeria have historically been riddled with corruption, inefficiencies, and mismanagement. She reported that the system often benefited middlemen and elites more than the poor masses it was meant to protect. The Nigerian National Petroleum Company Limited (NNPCL, 2023) stated that the subsidy regime was not only economically draining but also unsustainable, contributing to government borrowing and limiting fiscal space for development-oriented projects. As oil prices fluctuated globally and domestic revenues declined, the pressure to reform the subsidy system mounted.
According to Federal Ministry of Finance (2023), the Nigerian government officially removed fuel subsidies in 2023, arguing that the reform would allow resources to be redirected toward national development priorities. The government affirmed that this move would enhance transparency in the petroleum sector, and reduce fiscal leakages (Federal Ministry of Finance, 2023). However, the removal immediately triggered a dramatic rise in fuel prices, which rippled through every sector of the economy. According to Adeniran et al. (2023), the cost of transportation, food, and essential commodities surged, placing additional pressure on already struggling households.
A fuel subsidy is a form of financial support provided by the government to reduce the cost of petroleum products, making them more affordable to consumers (World Bank, 2022). In many oil-producing nations, especially developing countries like Nigeria, fuel subsidies are implemented as a social welfare policy to ease economic pressure on citizens by absorbing part of the cost of fuel. In Nigeria, the policy of subsidizing petroleum products dates back to the 1970s, following the oil boom era, and was designed to support transportation, industrial activities, and general economic development (Okonjo-Iweala, 2018). The socioeconomic effects of the subsidy removal have been most severe among low- and middle-income Nigerians, many of whom depend on daily wages and informal sector jobs. A report by the Nigerian Bureau of Statistics (2023) asserted that inflation rose to over 30% following the policy shift, driven largely by increases in energy and transportation costs. The hardship is further exacerbated by the absence of immediate and effective social protection mechanisms.
Over time, however, the fuel subsidy program became financially unsustainable. It was widely criticized for being fraught with corruption, mismanagement, and benefiting the elite more than the masses. According to the Nigerian National Petroleum Company Limited (NNPCL), the country spent trillions of naira annually on subsidies, often borrowing to finance them, thereby creating enormous fiscal deficits (NNPCL, 2023). The removal of fuel subsidies, although projected to promote economic efficiency and reallocate resources to critical sectors such as health and education, has triggered significant socio-economic consequences. The policy shift led to an immediate and sharp increase in the pump price of fuel, causing ripple effects across the economy. Transportation costs surged, food prices spiked, and the cost of living increased substantially, disproportionately affecting low- and middle-income households (Adeniran et al., 2023). This study is therefore timely and essential, as it aims to investigate the broader effects of fuel subsidy removal on the standard of living of Nigerians.
1.2 Statement of Problems
Investigation revealed that the removal of subsidy is making it more difficult for small and medium-scale enterprises (SMEs) to operate profitably, as operating costs have risen sharply (Okonkwo & Ibrahim, 2023). Since the Nigerian economy heavily depends on road transport for the movement of goods and services, this increase is trickling down into all facets of the economy, including food prices, utility bills, and general cost of living. The result is a reduction in purchasing power, heightened inflationary pressure, and deepened poverty levels among citizens (Adeleke, 2023). Essential commodities and services have become less accessible to the average household, exacerbating the socio-economic divide and threatening overall wellbeing.
Furthermore, the absence of robust social safety nets and effective palliative measures from the government is worsening the hardship. While the fuel subsidy regime was riddled with corruption and inefficiency, its sudden removal without a clear, actionable transition plan is undermining economic stability and social welfare (Udo & Ezenwa, 2023). The discontent arising from this policy shift is also manifesting in public protests and loss of trust in governance, signaling potential threats to national cohesion and security. It is against this backdrop that this study seeks to examine the effects of fuel subsidy removal on Nigerians' standard of living, with a view to assessing the policy's implications on household welfare, economic resilience, and social equity.
1.3 Purpose of the Study
The purpose of this study is to investigate the socio-economic effects of fuel subsidy removal on the standard of living of Nigerians. It aims to evaluate how the increase in fuel prices impacts household income, consumption patterns, and overall welfare. The study also seeks to identify the coping mechanisms employed by affected populations and provide recommendations to policymakers for mitigating adverse effects.
1.4 Aim and Objectives of Study
The aim of the study is to assess the effects of fuel subsidy removal on the standard of living of Nigerians. In achieving this aim, the following specific objectives were laid out as follows:
- To examine how fuel subsidy removal affects household expenditure and cost of living.
- To analyze the impact of subsidy removal on access to essential goods and services.
- To evaluate the effect of increased fuel prices on employment and business operations.
- To identify the coping strategies adopted by Nigerians in response to subsidy removal.
- To recommend policy measures that can alleviate the negative consequences of subsidy removal on households.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- How does fuel subsidy removal affect household expenditure and the overall cost of living in Nigeria?
- What is the impact of fuel subsidy removal on Nigerians’ access to essential goods and services?
- In what ways has fuel subsidy removal influenced employment and the operation of small and medium enterprises?
- What coping mechanisms have Nigerians adopted in response to the removal of fuel subsidies?
- What policy interventions are necessary to mitigate the negative effects of fuel subsidy removal on standard of living?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: Fuel subsidy removal does not have a significant effect on the standard of living of Nigerians
- H1: Fuel subsidy removal has a significant negative effect on the standard of living of Nigerians
1.7 Significance of Study
The outcome of this research will serve as an evidence-based resource for policymakers, helping them to understand the socio-economic outcomes of subsidy reforms. Also, civil society organizations and advocacy groups will find the findings useful in driving inclusive dialogue on energy pricing and economic reforms. The study will empower them with facts and figures to push for greater transparency, accountability, and equity in the management of public resources.
Furthermore, it will contribute to academic literature by bridging the gap between economic theory and the lived realities of Nigerians under subsidy removal. It will stimulate further research in the fields of development economics, and social justice.
Lastly, this research study will enhance national discourse by providing a holistic assessment of the impact of one of Nigeria’s most controversial economic decisions, with the aim of influencing future reform strategies that balance fiscal responsibility with human development.
1.8 Scope of Study
This study focuses on the effects of fuel subsidy removal on the standard of living within Lagos State, Nigeria. This study is limited to Lagos State and includes residents, business owners, and workers within the state.
1.9 Limitations of the study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.10 Definition of Terms
Fuel Subsidy:
A government policy that reduces the price of petroleum products by covering part of the cost to keep it affordable for consumers (World Bank, 2022). In Nigeria, it was intended to protect citizens from global oil price fluctuations but has been criticized for inefficiency and corruption.
Standard of Living:
The level of wealth, comfort, material goods, and necessities available to a person or community, often measured by income, access to healthcare, education, and housing (UNDP, 2021).
Inflation:
The rate at which the general level of prices for goods and services rises, leading to a decrease in purchasing power (Nigerian Bureau of Statistics, 2023).
Small and Medium Enterprises (SMEs):
Businesses with a limited scale of operations, crucial to economic growth and employment but vulnerable to cost fluctuations such as fuel price increases (Federal Ministry of Industry, Trade and Investment, 2022).
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