Impacts/Effects of Fuel Subsidy removal on Nigerian Economy

The impact and effects of the recent fuel subsidy removal in Nigeria on the economy cannot be quantified, it has both negative and perhaps the positive impact which government suggests it will take some time to start yielding anticipated dividends, here are some submissions on the effects/impact of the recent government policy on the economy:

The Lagos Chamber of Commerce and Industry (LCCI) has listed some of the adverse effects of the Federal Government’s recent policy to deregulate the nation’s downstream oil sector.

LCCI, in a statement, said the policy has led to fresh inflationary pressures resulting from sharp increases in transportation cost, high inflationary expectations across all sectors of the economy, and a devastating impact on the psyche of the common people as the new policy poses a serious risk to their survival.

LCCI said the policy would also lead to the sharp increases in operating costs of micro and small enterprises, many of which rely on small electricity generators powered by petrol.
LCCI said, if well implemented however, it is expected that the policy would benefit the economy and the citizens, in the medium to long term leading to an increased private investment in the downstream oil sector with a corresponding impact on the creation of quality jobs.

Other benefits, the body said, include reduction in the pressures on foreign reserves, a huge chunk of which is currently being used to fund fuel importation and a better fiscal space to ensure macroeconomic stability with a resultant positive effect on the economy.

The Chamber noted that options available to the government in the current circumstances are limited but stressed that in light of the prevalent poverty and high rate of unemployment in the country, government needs to demonstrate its sensitivity and concern to the plight of the ordinary Nigerians by focusing urgently on the acceleration of the delivery of palliatives to cushion the adverse outcomes of the subsidy removal.

LCCI said in order to provide the moral basis to demand sacrifices from citizens, the political leadership and bureaucrats should demonstrate visible fiscal prudence.

“The governance structure should be more cost-effective and corruption must be more effectively tackled saying that government must sustain the momentum of dialogue and enlightenment to stabilise the polity and ensure accountability and transparency in the use of the savings from this policy decision for the benefit of the people as promised.

LCCI urged stakeholders to cooperate with the Subsidy Reinvestment Board to make this happen.

“The promise made by government on this matter is a covenant that should be respected. Government must fast track the turnaround maintenance of the refineries and encourage the building of new ones to reduce dependence on importation of refined products and protect the economy from the volatility of global oil prices,” it said.

According to the body, government must ensure an effective regulatory framework to protect the citizens from exploitation by petroleum products marketers and ensure quality assurance and accelerate implementation of power sector improvement programmes to reduce reliance on petroleum products as principal sources of energy in the economy.

“LCCI wishes to appeal to all Nigerians to ensure that all forms of agitations protests against this policy are conducted in the most peaceful manner. In the same vein, we urge the law enforcement agencies to manage the current situation with utmost professionalism to avoid the escalation of the current crisis.

“The collapse of law and order will not serve any useful purpose. If anything, it would worsen the predicament of all, including the common people of this country,” the chamber added.

Job cut looms over fuel subsidy removal
With the removal of oil subsidy, industry watchers forecast tremendous job cuts as companies struggle to stay afloat. They argue that subsidy removal will increase the cost of operations, as well as reduce the capacity to function. Akinola Ajibade and Daniel Essiet report.
Job loss is imminent in the manufacturing industry, as the Federal Government announced the removal of oil subsidy two Sundays ago. The announcement, which came to many as a surprise, is bound to have ripple effects on the economy. It is expected to affect every facet of the economy, especially the manufacturing sector.
Before now, the industry has been plagued with problems, such as low capacity utilisation, funding, weak corporate governance policy, and huge unemployment. The development has resulted in the retrenchment of millions of workers, as well as closure of many manufacturing outfits. Findings have shown that multinationals and indigenous companies have had cause to sack their workers. The list of such companies include Cadbury Nigeria Plc, Nestle Nigeria Plc, Airtel Nigeria Limited, Nigerian Bottling Company Limited, Michelin Nigeria Limited, Dunlop Nigeria Plc, Unilever Nigeria Plc, and Leventis Nigeria Plc. Many companies have relocated to neighbouring countries due to huge cost of doing business in Nigeria.
Others are struggling to survive.
But the announcement of fuel subsidy removal by the Federal Government has since brought untold hardships to many Nigerians.
Industry observers argue that the removal of fuel subsidy would further reduce the living standard of an average Nigerian. They reason that many industries would downsize to stay in business.
The Executive Secretary, Association of Foods Beverages and Tobacco Companies, Mr Aderemi Adegboyega, said the removal of fuel subsidy has the potential of leading to job loss in the manufacturing industry.
He said the development would increase the prices of goods and services and affect the capacity of companies to operate optimally.
He said: “The removal of oil subsidy would increase the cost of moving goods around. This would further lead to increase in the prices of goods. When the prices of goods go up, there would be fewer demand for goods. If the demand for goods decreases, the companies would be forced to rationalise their operations. When this happens, there would be retrenchment. Whenever a company cuts its workforce, the remaining workers would demand higher salaries to cushion the effects of the bad economy. In a situation like this, companies would prefer to sack more workers, than increase their salaries.”
He said the decision to remove the oil subsidy is painful, adding that the issue would have negative effects on the operators in the real sector. He said operators would cut jobs when they can no longer cope with the economic pressures.