EFFECT OF FUEL SUBSIDY REMOVAL ON PERFORMANCE OF SMALL SCALE ENTERPRISES: A CASE STUDY OF SME’S IN IKEJA METROPOLIS, LAGOS STATE

TOPIC: EFFECT OF FUEL SUBSIDY REMOVAL ON PERFORMANCE OF SMALL-SCALE ENTERPRISES: A CASE STUDY OF SMEs IN IKEJA METROPOLIS, LAGOS STATE

TOPIC IS SUITABLE FOR:

1. Department of Business Administration
2. Department of Entrepreneurship
3. Department of Economics
4. Department of Marketing

This research material contains:
1- Chapter One to Five
2- Recent References/citations
3- Tables/Charts/Graphs in chapter four

4- Accurate Data Analysis
5- Table of Content
6- Questionnaire

ABSTRACT

The objective of this study is focused on the effect of fuel subsidy removal on the performance of small-scale enterprises: a case study of the Ikeja metropolis. Specifically, the study assessed the effect of fuel subsidy removal on customer patronage, customer satisfaction, market share, and sales performance of SMEs in Ikeja Metropolis. The study adopted a survey research design; responses were obtained from SME owners in Ikeja Metropolis. Using the Yamane sampling technique, the researcher validated a sample of 141 participants as the sample size for the study. A self-structure questionnaire was issued to the participant, and responses received were presented in tables and analyzed in frequencies and mean scores, whereas hypotheses were tested using the Chi-Square statistical package for social science (SPSS v.23). The findings from the study on the effect of fuel subsidy removal on SMEs in Ikeja Metropolis indicate a significant negative impact across various areas of business performance. The majority of respondents agreed that the removal of fuel subsidies led to higher transportation costs, increased prices for goods and services, and reduced disposable incomes, all of which have deterred customer patronage and reduced foot traffic to SMEs. Additionally, service delays, quality compromises, and limited product availability have contributed to customer dissatisfaction, affecting overall satisfaction with SMEs. The removal has also posed challenges to SMEs' market share, with many smaller businesses losing ground to larger companies capable of absorbing increased operational costs. This has led to halted expansion plans and restricted growth opportunities. Further findings reveal that sales performance has been similarly affected, with SMEs experiencing a decline in sales volume, difficulty in offering promotions, and a drop in customer loyalty. The study, among other things, recommends that SMEs should explore cost-cutting measures beyond price increases, such as optimizing supply chain management, reducing inefficiencies in operations, and exploring alternative energy solutions to mitigate the impact of rising fuel costs. This will help keep operational costs lower and maintain competitive pricing for customers.

CHAPTER ONE

INTRODUCTION (Preview)

1.1 Background of the Study

Globally, fuel subsidies have been implemented by governments to stabilize fuel prices, support economic activities, and mitigate inflationary pressures. These subsidies are often justified by the need to protect consumers and businesses from the volatility of global oil prices, ensuring affordability and steady supply. By definition, Ovaga and Okechukwu (2022) stated that a fuel subsidy refers to a governmental policy that involves providing a reduction in the market price of fossil fuel, resulting in customers paying a lower amount than the prevailing market price for fuel. However, when subsidies are implemented, citizens are able to purchase petroleum products at a price per liter that is lower than the prevailing market price. Arguably, Ozili and Ozen (2021) mentioned that while the government's supply of welfare is praiseworthy, its economic impact may be limited.

In developing countries, the impact of fuel subsidy removal is particularly pronounced due to the continent's reliance on fuel for various economic activities and the prevalent informal economy. Many African nations, including Egypt, Ghana, and Nigeria, have attempted subsidy reforms with mixed results. Monasterolo and Raberto (2019) argue that there is a growing agreement that the fossil fuel subsidies given by wealthy governments are in conflict with the emission reduction objectives of the global climate agenda. This has led to discussions about the adverse social, economic, and environmental effects of these subsidies. According to Agbonifo (2023), fuel subsidies have been deeply embedded in economic policies since the establishment of the Nigerian National Petroleum Corporation (NNPC) in 1977 (McCulloch et al., 2021). Solarin (2020) opined that although fuel subsidies were initially designed to provide benefits, their elimination has now become a subject of debate and policy implementation. This is because over time, the practice of subsidizing fuel has resulted in significant public expenditure, where public officials take advantage of policy to embezzle and syphon public resources. Regardless of the corruption that exudes thereof, subsidies make fuel available and affordable.

For small and medium-sized enterprises (SMEs) operating in urban areas, the affordability and availability of fuel are crucial to their daily functions and sustainability. Fuel serves as a fundamental resource for powering machinery, running delivery vehicles, and supporting basic energy needs, especially in areas where electricity supply may be inconsistent (Nwachukwu & Emeka, 2022). SMEs rely heavily on fuel to maintain production lines, facilitate transportation logistics, and ensure the seamless operation of equipment. The accessibility of affordable fuel can reduce operational costs, thereby allowing businesses to allocate resources toward expansion, innovation, and workforce development (Adeleke et al., 2020). When fuel is both affordable and readily available, SMEs can operate with fewer interruptions and at optimal capacity, directly influencing productivity and profitability. The significance of affordable and available fuel extends to the overall performance of SMEs, impacting their ability to compete in the marketplace and maintain financial stability. When fuel costs are manageable, SMEs can offer products and services at competitive prices without compromising quality or cutting corners (Ogundipe & Adebayo, 2021). This economic stability helps boost consumer confidence and can lead to an increase in customer retention and growth. Furthermore, predictable fuel availability ensures that businesses can plan and execute their operations efficiently, leading to improved customer service and timely delivery of goods. In urban environments, where competition can be intense and operational challenges are numerous, the consistent availability of affordable fuel is a significant factor that enables SMEs to maintain resilience and support local economic development.

Unfortunately, President Bola Ahmed Tinubu made a huge change in the economic environment by announcing the complete elimination of gasoline subsidies in May 2023 after his assumption of office. This move has caused a sequence of occurrences, mostly leading to a rise in fuel prices. This decisive policy shift carries with it a multitude of implications that warrant rigorous investigation to comprehend its far-reaching consequences, especially for small and medium-scale businesses, which play a crucial role in contributing to economic progress and advancement, as demonstrated by their substantial impact in terms of generating employment, alleviating poverty, boosting GDP, and reducing crime rates. Thus, at the heart of this study lies uncovering the intricate web of impacts that arise from the subsidy removal and examining their ramifications for small and medium-scale businesses.

1.2 Statement of the problem

Lately, the removal of fuel subsidies has profound implications for the economic landscape of developing countries, especially those with fragile economies like Nigeria. The recent policy shift towards subsidy removal has sparked widespread concern, particularly regarding its impact on small-scale enterprises (SMEs) that rely heavily on affordable fuel for their operations. In a study by Anwanakak (2023), the implementation of the new non-subsidy policy may have adverse effects, especially on small and medium-scale businesses that heavily depend on petrol-powered generators. Without government intervention to keep fuel prices low, the cost of fuel can rise significantly, leading to increased operational expenses for businesses that rely on fuel for transportation, manufacturing, and power generation. This spike in costs can erode profit margins, force SMEs to raise their prices, and potentially reduce their competitiveness in the market.

Obi & Chinonso (2022) stated that higher fuel expenses may also result in decreased production efficiency as SMEs cut back on non-essential activities to manage budgets. For smaller businesses operating with limited financial buffers, the removal of fuel subsidies can pose a threat to sustainability, potentially leading to downsizing, layoffs, or even business closures. By implication, the escalating expenses of fuel, coupled with the unreliability of electricity, are likely to deepen the wounds for small enterprises that are already grappling with survival challenges. Similarly, Hamiza (2023) documented effects such as increased production expenses, rising overhead costs, reduced customer patronage due to pricing pressures, inflationary pressures on the whole economy, and long-term concerns for business survival. According to Ado and Josiah (2019), when SSEs experience increased operational costs, they frequently transfer these costs to consumers by raising prices for goods and services. Tola (2022) added that product price inflation due to high cost of production can result in decreased demand as consumers may lower their spending or choose more affordable alternatives. As a result, small businesses may face a decrease in both sales volumes and revenues, which adds additional pressure to their financial stability.

In other economies, existing studies have documented the adverse effects of fuel subsidy removal in various contexts. For instance, Armah-Attoh (2019) highlighted how Ghana's elimination of fuel subsidies led to increased transportation costs, escalating the prices of goods and services and thereby negatively impacting small businesses. Similarly, Hassan and Sayed (2019) found that the phasing out of fuel subsidies in Egypt resulted in higher production costs for SMEs, challenging their competitiveness and profitability. While these studies provide valuable insights into the broader economic impacts of subsidy removal, there is a notable gap in the literature concerning the specific effects on SMEs in conflict-affected regions like Ikeja Metropolis an urban environments, where competition can be intense and operational challenges are numerous. This study seeks to fill this gap by providing a focused analysis of the impact of fuel subsidy removal on the performance of SMEs Ikeja Metropolis.

1.3 Research Objectives

The primary objective of this study is to critically assess the effect of fuel subsidy removal on performance of small scale enterprises: a case study of Ikeja metropolis. Specific objectives of this study are to:

i.To assess the effect of Fuel Subsidy Removal on customer patronage of SMEs in in Ikeja Metropolis

ii.To investigate the effect of Fuel Subsidy Removal on customer satisfaction of SMEs in in Ikeja Metropolis.

iii.To ascertain the effect of Fuel Subsidy Removal on market share of SMEs in in Ikeja Metropolis

iv.To examine the effect of Fuel Subsidy Removal on sales performance of SMEs in Ikeja Metropolis

Other parts of chapter one include:

1.4 Research Questions

1.5 Research Hypotheses

1.6 Scope of the Study

1.7 Operational Definition of Terms

1.6 Significance of the study

1.9 Chapterization

CHAPTER TWO

LITERATURE REVIEW (Preview)

This chapter critically examines relevant literature that would assist in explaining the research problem and, furthermore, recognizes the efforts of scholars who have previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps. This chapter, therefore, focuses on the concept of subsidy, concept of fuel subsidy removal, historical overview of fuel subsidy removal in nigeria, 2023 fuel subsidy removal, etc. The chapter is sub-grouped into the following:

Conceptual Framework

Theoretical Framework

Empirical Review

Summary of literature review

CHAPTER THREE: METHODOLOGY (Preview)

Presented below is a snapshot of key areas of the study methodology, the full and detail chapter three methodology is contained in the instant download document.

Research Design: The study adopted a descriptive research design.

Population of the Study: The population of the study comprises small-scale enterprises in Ikeja Metropolis, including SME owners and staff.

Sample Size Determination: The study adopted the Yamane sampling technique to determine a sample size of 141 participants.

Sampling Technique: The study employed the Yamane sampling technique to determine the sample size of the study.

Research Instrument: The study utilized a structured questionnaire as the instrument for data collection.

Methods of Data Analysis: The collected data were analyzed using frequencies and mean scores to summarize and present the respondents’ responses. Inferential statistics, particularly Chi-square, were used to test the hypotheses using SPSS version 23.

Full outline for chapter three; 

3.1 Introduction

3.2 Research Design

3.3 Sources of Data

3.4 Population and Sample Size

3.5 Sample Size Determination

3.6 Description of Instrument

3.7 Validity of the Study

3.8 Reliability of the Study

3.9 Method of Data Analysis

CHAPTER FOUR: RESULTS

MAJOR FINDINGS (Preview)

The analysis results were presented in tables and charts. Based on the results obtained from the analysis, the following findings are made:

i. The study found that fuel subsidy removal significantly affects customer patronage of SMEs in Ikeja Metropolis, as evidenced by a weighted average mean of 3.60, which is above the acceptance benchmark of 2.50. This was further confirmed by the result of the corresponding hypothesis test, which showed an F-calculated value of 137.859, an F-table value of 3.260, and a p-value of 0.000 (p < 0.05), leading to the rejection of the null hypothesis. This implies that higher transportation costs, increased prices of goods and services, reduced disposable income, and reduced customer visits significantly affect customer patronage of SMEs in Ikeja Metropolis.

ii. The study found that fuel subsidy removal significantly affects customer satisfaction of SMEs in Ikeja Metropolis, as evidenced by a weighted average mean of 4.10, which is above the acceptance benchmark of 2.50. This was further confirmed by the result of the corresponding hypothesis test, which showed an F-calculated value of 222.507, an F-table value of 3.260, and a p-value of 0.040 (p < 0.05), leading to the rejection of the null hypothesis. This implies that service delays, increased operating costs, compromises in product and service quality, and limited product availability negatively affect customer satisfaction among SMEs in Ikeja Metropolis.

iii. The study found that fuel subsidy removal significantly affects the market share of SMEs in Ikeja Metropolis, as evidenced by a weighted average mean of 4.10, which is above the acceptance benchmark of 2.50. This was further confirmed by the result of the corresponding hypothesis test, which showed an F-calculated value of 99.725, an F-table value of 3.260, and a p-value of 0.032 (p < 0.05), leading to the rejection of the null hypothesis. This implies that increased operational expenses, competition from larger companies, and halted expansion plans limit the ability of SMEs to maintain and expand their market share in Ikeja Metropolis.

iv. The study found that fuel subsidy removal significantly affects the sales performance of SMEs in Ikeja Metropolis, as evidenced by a weighted average mean of 4.00, which is above the acceptance benchmark of 2.50. This was further confirmed by the result of the corresponding hypothesis test, which showed an F-calculated value of 87.225, an F-table value of 3.260, and a p-value of 0.041 (p < 0.05), leading to the rejection of the null hypothesis. This implies that increased operational costs, reduced feasibility of promotions and discounts, reduced product and service offerings, and declining customer spending negatively affect the sales performance of SMEs in Ikeja Metropolis.

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

This chapter covers the following outline:

5.1 Summary Of The Study

5.2 Conclusion

5.3 Recommendation

References

Appendix

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