THE EFFECT OF FUEL SUBSIDY REMOVAL ON THE PROFITABILITY OF EN-TREPRENEURIAL BUSINESSES IN LAGOS STATE, NIGERIA

Abstract

In Nigeria, fuel subsidies have been in place since the 1970s, with a brief removal in 2012 followed by reinstatement due to widespread protests. By 2022, fuel subsidies had reached ₦4 trillion, accounting for 23 percent of the national budget. Unsustainability led to their removal in June, 2023. Existing research in Nigeria provides mixed findings on fuel subsidies' effects. Some emphasize benefits, while others highlight negative consequences. Despite the extensive literatures, little attention has been given to the 2023 fuel subsidy removal's repercussions, particularly on entrepreneurial businesses. This study aims to comprehensively analyse the impact of the 2023 fuel subsidy removal on the profitability of entrepreneurial businesses in Lagos, Nigeria. The research addresses the consequences on business operations, costs, sales, and profitability. It also proposes strategies to mitigate the adverse effects of the subsidy removal of entrepreneurial businesses. Chi-square was used to analyse the data, leading to the rejection of the null hypothesis, indicating a significant impact of fuel subsidy removal on the profitability of entrepreneurial businesses. The findings show that the removal of fuel subsidies has led to a noteworthy escalation in the operational costs, a decline in sales, reduced stock levels, and diminished profitability for entrepreneurial enterprises. Recommendations on market protections, subsidy reinvestment programmes, infrastructural development, access to credit facilities and improved on energy supplies were made to ease the effect of the subsidy removal on entrepreneurial businesses. The effective implementation of the Subsidy Re-investment Program is crucial to supporting these enterprises. This study contributes to the ongoing discourse on fuel subsidies, their consequences, and potential policy responses.