Fuel subsidy in Nigeria: Fact or fallacy

Opinions have differed sharply in Nigeria on the continued existence of fuel subsidy. The opponents of Government-planned removal of fuel subsidy argue that the existence of fuel subsidy is a fallacy. On the other hand, the proponents opine that the existence of fuel subsidy is a fact. The objective of this study is to empirically examine these claims and counter-claims. It is therefore hypothesized that there is no significant relationship between fuel demand and fuel subsidy factors. Multiple linear regression was used to test the research hypothesis. The result suggests that there is a significant relationship between the fuel demand and fuel subsidy factors (fuel subsidy, and price of fuel), at 0.01 level (R2 = 50.4). This implies that fuel subsidy factors accounted for 50.4 percent changes in demand for fuel. This result is empirical evidence that fuel subsidy is a fact and not a fallacy. This study recommends a gradually controlled withdrawal of fuel subsidy at the level it will be minimally harmful to the economy.

► This paper investigates whether the existence of fuel subsidy in Nigeria is a fact or fallacy. ► The results showed that fuel subsidy factors (fuel subsidy and price) accounted for 50.4 percent changes in fuel demand. ► The elasticity of fuel demand shows that a unit increase in subsidy leads to a 0.449 unit increase in demand. ► Similarly, a unit increase in fuel price accounts for a 0.886 unit decrease in demand. ► These imply that attributed changes in fuel demand in Nigeria are related to subsidy factors, an evidence that subsidy exists.