The results of oil subsidy discontinuation on the education of youths in rural communities in Ohaukwu Local Government Area                              

                                       CHAPTER ONE


Background to the Study

The issue of oil crisis has become a common phenomenon in Nigeria, which is naturally enriched with large endowment of crude oil deposit and greater exporter of the free commodity that was naturally given by God. It is very pathetic to observe that no other Organization of Petroleum Exporting Country (OPEC) member or even country that does not produce oil, share similar experience with Nigeria (Badmus, 2009:25). Before these circumstances, there were moments of bliss among Nigerians when the four existing refineries were working at full capacity. However, according to Badmus (2009), the local refineries could not be properly managed and they produced below the installed refining capacity, thereby making it imperative for demand to be met through importation.

This research work starts with evidence that oil subsidy has been a poor policy tool for the government of many country. The oil subsidy scheme enacted is implemented to a particular good that is fuel, as opposed to subsidy transferred to targeted households or industries (Pradiptyo and Sahadewo, 2012). In addition, there have been no restrictions on the purchase of subsidized fuel in retail outlets. Every household, both poor and rich has equal chances of buying subsidized fuel International Energy Agency (IEA, 2008).

According to Coordinating Ministry for Economic Affairs of Indonesia (2008) and the World Bank (2009, 2011a, 2011b), shows that the subsidy has been a crowd pleaser for particular socio-economic groups; the distribution of fuel subsidy is skewed to wealthy households. In this vein, it is notable that this policy will only be beneficial to the rich people in the society who have immersed wealth and live extravagantly and to the poor ones who at times cannot afford to feed well.

The mono-product nature of the Nigerian economy, which revolves around oil, makes it possible for any attempt to disrupt the oil industry, leads to serious disharmony that will spark off some series of multiplier effects that would be difficult to measure. It studies broad aggregates such as; national income, investment, aggregate employment, money supply, the average price level, balances of payment, inflation. Therefore, in the study of the performance of an economy as a whole, macroeconomics focuses on the economic policies and policy variables that affect the activities of government.

Mourougane (2010) suggests that subsidy hinders investment in infrastructure for energy infrastructure. It is envisaged that the government will eliminate full subsidy due to increasing fiscal pressure in coming years. This reform will certainly bring structural changes in the economy both for government and for households. These structural change should be evaluated to determine the extent of the impact on the society. Short-run impact of fuel subsidy removal to the economy is quite complex. Price level will increase as prices of goods and services adjust. Output will also adjust given certain group of households reasons to reallocate their spending to compensate extra spending on fuel. Firms will keep their output levels unchanged but will receive fewer margins per output produced.

Even if a subsidy policy is introduced with benevolent aims, they are seldom the most efficient policy tool. McKenzie and Mintz (2011) pointed out that one possible problem is waste, which arises when subsidies do not alter behaviour as expected or the incentives activities that would have happened anyway. Another damaging impact of subsidies is that they can distort the allocation of resources by redirecting activity towards subsidized areas and away from alternatives. As McKenzie and Mintz (2011:4) puts, you can end up with “activities because the subsidy is available rather than investing solely on the basis of economic criteria”.

Subsidy is an assistance paid to a business or economic sector mainly by the government to prevent the decline of that industry (Todaro, 2009). Subsidy in this perspective according to Todaro is aids by the government to an industry to encourage it and as well increase the output of its products. In order to achieve increase in productivity, government pays some percentage of the amount of the production costs. This will further reduce the price of the final product, which is known as the goods and services that is produced.

On the other hand, the Oxford Advanced Learners dictionary (2001) defined a subsidy as money that is paid by the government or organization to reduce the cost of services or of producing goods and services so that their prices can be kept low. In addition, Bakare (2012) pointed out that to subsidize is to sell a product below the cost of production. Within the Nigerian context, fuel subsidy means to sell petrol below the cost of importation. In the economic perspective, subsidy exists when consumers of a given commodity are assisted by the government to pay less than the prevailing market prices of the same product.

From the above various definitions of subsidy, oil subsidy appeared to be the difference between the actual market price of petroleum products per liter and what the final consumers are willing and is paying for the same product. Today, the difference, which is borne by the Government, is caused by eight ‘import-induced costs’. These costs, according to Afonne (2011:18) have been discovered to be responsible for the high prices of petroleum products in the present day Nigeria. Nevertheless, since petroleum became the dominant sector, both the range and volume of agricultural sector exports has declined drastically. Consequently, agricultural import has increased dramatically.

Furthermore, US Census Bureau in Crandall and Webber (2005), uses a formula involving population size (2,500 or more), and the population density (500 persons per square mile or more) to classify a place as either rural or urban. The census bureau divides the nation into census blocks, the smallest geographic entity for which the census reports population data. These are aggregated into block groups (which generally have between 300 and 3,000 people). According to the US Census Bureau (2005), urban places are defined starting with a block group that as a population, density of 1,000 persons per square mile and adding on block groups and blocks that have a density of 500 persons per square mile. If the territory so defined has 2,500 or more people, it is then called urban area. Urban areas are called urbanized areas if they have 50,000 or more people and urban clusters if they have between 2,500 and 49,999 people.

All other areas are rural apart from these above mentioned. This is to say that, according to US Census Bureau (2005), a rural community is one that does not qualify as an urban community. Specifically, if a territory has more than 2,500 people per square mile, it is defined as urban. Areas with less than 2,500 people per square mile would then be considered rural.

Presently, the Goodluck Jonathan administration claims will save its #1.3trillion to #1.5trillion annually, which it will channel into infrastructural development (Lawson, 2012). For several years, Nigerians enjoyed subsidy on gasoline. However, it ended on 1st January 2012, after an announcement from the president of the Federal Republic of Nigeria, President Goodluck Jonathan, that subsequently, the subsidy was to be removed. While some sort of resolution or middle ground has been reached in response to the reaction that this news generated the concept and theory behind the oil subsidy removal is worth understanding.

In view of the above, Iyobhebhe (2012) stated that the Nigerian government has the medium term fiscal framework that would not work unless the subsidy is scrapped out or to put it in another way that the scrapping of the subsidy is an integral part of its Medium Term Fiscal Framework (MTFF). That it needs the #1.3trillion savings for critical infrastructural development projects.

However, there is a prevailing view in Nigeria that the new ministers of finance and coordinating minister for the economy; Dr. Mrs. Okonji-Iweala is advocating the IMF and World Bank Agenda (Iyobhebhe, 2012). The issue is that deregulation and removal of the subsidy may initially lead to inflationary pressures, but as the market is opened up for investors, millions of dollars will flow into the downstream sector and more private refineries will be opened for business operations in Nigeria.

Nevertheless, if the policy of oil subsidy removal is well implemented, there are certain benefits, which the government and her economic experts explained could be derived from the oil subsidy removal. These benefits are as follows:-

Fuel subsidy removal will allow government access to more funds to develop infrastructure (Iba, 2012). Fuel subsidy removal helps in the reduction in the pressures on foreign reserves, provide employment opportunities for the teeming jobless citizenry as well as improve education, health, power, water resources and agriculture (Nwadialo, 2012). Fuel subsidy removal will also reduce borrowing, and allows market operation. Also addresses the great imbalance between the recurrent and capital expenditure in Nigeria (Iyobhebhe, 2012).

More so, fuel subsidy removal encourages local and foreign direct investment in the oil sector, also frees more funds for local investment in the oil sector, and increases local refinery production and reduces importation of refined products in medium to long term.

Consequently, the Nigerian economy over the years was programmed to revolve around the supply of ‘cheap’ petroleum products. An average household in Nigeria more especially in rural communities as the case may arise, depends on subsidized by-products of crude oil such as; petrol, kerosene and pomade for domestic and commercial uses. This dependence is not remedied either as public electricity supply from Power Holding Company of Nigeria (PHCN) is epileptic. Generators fired by subsidized petrol power almost every home and business.

According to Iba (2012), “Creditors also loose during inflation because if they lend out money when there is no inflation and the prices are moderate or stable, the moment inflation sets in the value of that money to the creditor is lost.

The primary purpose of oil subsidy removal by the Federal Government is to save funds from the subsidy, which will be reinvested in other sectors that will be directly beneficial to the public in which rural communities are inclusive. Although households in the rural communities may not fully gain from the benefits due to some corrupt persons in the management of oil subsidy funds. Jonathan (2013) stated that the Federal Government introduced Subsidy Reinvestment and Empowerment Programme (SURE-P) to help in insuring that the fund or revenues raised from oil subsidy removal are properly reinvested into different sectors of the economy.

Jonathan (2013), stated, “The objectives of SURE Programme as it focused on utilization of Federal Government’s share of subsidy, projected to be at #478.9billion, while every state and Local Government is expected to design its own programmes utilizing its own portion of the subsidy reinvestment funds. The subsidy reinvestment funds from the discontinuation of the fuel subsidy will be used for the implementation of the Programme and to reduce government’s borrowing needs. The Federal Government plans to channel its own share of the resources into a combination of programmes to stimulate the economy and alleviate poverty through critical infrastructure and safety net projects.

SURE-P in Jonathan (2013) pointed that the revenue rose from oil subsidy discontinuation would be directed to improved and quality education that would be beneficial to children both in urban and in rural communities. This could be attainable if funds are channeled into educational sector properly by allowing free education in public schools and provision of well-equipped library and laboratory in which less privileged children from the rural areas can gain free access. More staff that is qualified could also be employed and well conducive structures built in schools. Education is a systematic process through which a child or an adult acquires knowledge, experience, skill and sound attitude (Parankimalil, 2012). According to him, education makes an individual civilized, refined, cultured and educated. Mahatma Gandhi in John Parankimalil (2012), “By education I mean an all-round drawing out of the best in man-mind, body and spirit. Rousseau in Parankimalil (2012), “education is the child’s development from within.”

Plato in Parankimalil (2012), “Education is the capacity to feel pleasure and pain at the right moment.” Aristotle in Parankimalil (2012), “Education is the creation of a sound mind in a sound body.” John Dewey in Parankimalil (2012), “Education is a process of living through a continuous reconstruction of experiences.” John Locke in Parankimalil (2012), “plants are developed by cultivation and men by education.

The oil subsidy discontinuation also affects the income of families in rural communities. According to SURE-P in Madueke (2013), more funds would be available, as discontinuation of oil subsidy will free more funds that would increase the allocation of funds that is meant for the payment salaries and wages of workers. Income is any money you or your partner gets from any source, taxable or non-taxable. This could include, but is not limited to, wages, salaries, termination payment, bonus pay, holiday pay, child support, maintenance payments, paid parental leave, interests from investments and savings, dividends from shares, income from a family trust, farm or business, income from boarders or rent, superannuation, overseas benefits and pensions, weekly accident insurance payments, some scholarships, any indirectly monetary benefits you get such as free shares in business, and any other income that you have or derive yourself of. The minimum wage increment to #18,000 is a good example.

Furthermore, it could negatively affect income of some in the rural areas who are self-employed in some manual job like welding, barbing and agriculture, among others that make use of petroleum product petrol for powering their generating set owing to inadequate power supply from PHCN with increased market prices of petrol (Madueke, 2013). In addition, oil subsidy removal would create employment opportunities for the jobless youths in the rural communities. The revenue raised from oil subsidy would be reinvested in other industries like energy sector and build more industries in the country where these unemployed youths could get good job. The government would also create more refineries that will provide employment for the teeming jobless citizenry as well as improve education, health, power, water resources and agriculture (Nwadialo, 2012). According to Unabridged (2011), “employment is the state of employing or being employed”. Employment is also referred to as the state of someone having occupation or job. Job opportunity is therefore referred to as the situation of individuals who are qualified and are willing to work, have chances of being employed.

More so, the revenue realized from oil subsidy removal will also be used in improving agricultural productivity in rural community. Agricultural productivity is measured as the ratio of final output, in appropriate units, to some measure of inputs. Agriculture plays a major role in the economy of many developing countries, as it is a significant source of nourishment for citizens and a means of livelihood for the most vulnerable members of these countries. Consequently, raising agricultural productivity is an important policy goal for concerned governments and development agencies. Increasing agricultural productivity requires one or more of the following: an increase in output and input with output increasing proportionately more than inputs; an increase in output while inputs remain the same; a decrease in both output and input with input decreasing more; or decreasing input while output remains the same (Adewuyi, 2006; Oni, 2009).

Increasing inputs in order to expand output involves raising both the quality and quantity of inputs, examples of which would include the mechanization of agricultural processes, use of high yield varieties, use of fertilizers, irrigation in areas where rainfall is inadequate, and the use of agrochemicals such as herbicides and pesticides. Though all of the aforementioned activities have the potential for productivity enhancement, smallholder farmers, who account for the vast majority of farmers in developing countries, often cannot afford these investments due to their limited resources and restricted access to credit. Agriculture is cultivation of animals, plants, fungi, and other life forms for food, fibre, biofuel, drugs and other products used to sustain and enhance human life (ILO, 1999; 77).

Rubenstein, (2003), Agriculture is a deliberate effort to modify a portion of Earth’s surface through the cultivation of crops and the raising of livestock for sustenance or economic gain.

More so, the revenue raised from oil subsidy removal could also be used in improving Agricultural productivity in rural community. Government would support in rural areas by developing Research, mechanization in agriculture and maintain price stabilization scheme, fertilizers and seeds procurement and so on. All these above-mentioned facilities, if provided will help in the improvement of agricultural productivity. Furthermore, agriculture usually refers to human activities, although also observed in certain species of ant, termite and ambrosia beetle.

The oil subsidy removal has great effect on the living standard of people living in rural areas in general. Every household, both rich and poor has equal chances of buying subsidized fuel International Energy Agency (IEA, 2008). When the subsidy on oil is removed, both the poor and the rich can still buy fuel at the increased prices. Standard of living refers to the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographical area (, 2011). Standard of living include factors such as income, quality and availability of employment, class disparity, poverty rate, quality and affordability of housing, hours of work required to purchase necessities, gross domestic product, inflation rate, number of vacation days per year, affordable (or free) access to quality healthcare, quality and availability of education, life expectancy, incidence of disease, cost of goods and services, infrastructure, national economic growth, economic and political stability, political and religious freedom, environmental quality, climate and safety.

The standard of living is closely related to quality of life. Standard of living is generally measured by standards such as real (i.e. inflation adjusted) income per person and poverty rate. Other measures such as quality of health care, income growth inequality, disposable energy (people’s disposable income’s ability to buy energy) and educational standards are also used.

Statement of the Problems

Oil subsidy since oil has been and still is the chief and major source of wealth of our nation has contributed a lot to the growth and development of rural communities in Nigeria. Few greedy and wicked oil dealers and marketers has monopolized the subsidized oil that was meant to be benefited from by every member of our society and some unregistered suppliers of who supply water and receive subsidy in the name of oil supply. This led to the removal of oil subsidy.

The removal of oil subsidy led to hyperinflation as many products prices were automatically increased and to the poor and less privileged people who are mostly found in the rural communities could not afford to buy at local markets due to the spontaneous increase in the prices of commodities. This made some of the people who are self-employed with the use of petroleum products like fuel, kerosene, gas; for instance barbers, taxi driver/ bus drivers, welders and so on. These people depend directly on subsidized petrol to run their business.

Furthermore, people in the rural areas are categorized to be low-income earners, unemployed people, illiterate and very poor. These people depend directly or indirectly on oil products to earn their living. When subsidy was lifted, there was a price hike without the government monitoring the prices of products and untold hardship was visible in different and many households. Many families could not afford a square meal a day. Many children dropped out of school due to their school fees.

Nevertheless, the overriding goal of what the discontinuation of oil subsidy should be has taken a negative shape as it posses great suffering to many poor families as they cannot afford the money to transport their farm products from the rural areas to the urban areas for commercial purposes. As there nothing to keep some of the jobless youth busy, they tend to look for solution illegally. Because of the above problem, the researcher deemed it necessary to conduct this research to find out the influence of oil subsidy removal on rural communities. What are the influences of oil subsidy removal on rural communities in Ohaukwu Local Government Area?

Purpose of the Study

The main purpose of this study is to determine the educational implications of oil subsidy removal on rural communities in Ohaukwu Local Government Area in Ebonyi State, Nigeria. Specifically, this study is designed:

  1. To determine the results of oil subsidy discontinuation on the education of youths in rural communities in Ohaukwu Local Government Area.
  2. To determine the ways oil subsidy removal creates employment opportunities for youths in rural communities in Ohaukwu Local Government Area.
  3. To determine the contributions 0f oil subsidy removal towards improving agricultural productivity in rural communities in Ohaukwu Local Government Area.
  4. To determine how oil subsidy removal contributes towards enhancement of the general living standard of families in rural communities in Ohaukwu Local Government Area.

Significance of the Study

The findings of this research work will go a long way to increase and encourage households in rural communities to embrace the policy of subsidy removal and to enlighten them on its great importance to the growth and development as well as improved standard of living. It will also stimulate children towards embracing quality education that will better their lives.

The findings of this research work will be of great concern to government, ministry of education, curriculum planners, school proprietors or authorities, teachers, families, students, and indeed the general society. The findings will draw the government to the rural communities’ needs (i.e. the social needs) that will improve their general well-being and that of the households. It will also help government to find out the areas of concern that needed to be strengthened.

The result of this study will further guide the ministry of education, the curriculum planners, the school authorities as well as the teachers to develop and improvise as well put to use appropriate instructional materials in addition, infrastructure in schools in rural areas. The results of this study would equally disclose the evaluation techniques that could facilitate reinvestment of subsidy in rural communities.

Scope of the Study

This study focused on educational implications of oil subsidy removal on rural communities.

This study also focused on the influence of oil subsidy discontinuation on education of youths in rural communities, how oil subsidy removal creates employment opportunities for youths in rural communities, and how oil subsidy removal improves agricultural productivity in rural communities and finally the contribution of oil subsidy removal towards enhancement of general living standard of families in rural communities.

This study is delimited to senior secondary schools in Ohaukwu Local Government Area of Ebonyi State, Nigeria. It includes both private and government owned secondary schools in the area.                            Research Questions

This study will be guided by the following research questions:

  1. What are the results of oil subsidy discontinuation on the education of   youths in rural communities in Ohaukwu Local Government Area?
  2. What are the ways oil subsidy removal would create employment   opportunities for youths in rural communities in Ohaukwu Local  Government Area?
  3. What are the contributions of oil subsidy removal towards improving   agricultural productivity in rural communities in Ohaukwu Local  Government Area?
  4. What are the contributions of oil subsidy removal towards the   enhancement of the general living standards of families in rural  communities in Ohaukwu Local Government Area?


The following null hypotheses will be tested at 0.05 level of significance.

HO1: There is no significant difference in the mean rating of educated and  uneducated youths among families in rural communities in Ohaukwu   Local Government Area.

HO2: There is no significant difference in the mean rating of employed and unemployed youths in rural communities in Ohaukwu Local  Government Area.

HO3: There is no significant difference in the mean rating of high and low productivity in agricultural production in rural communities in  Ohaukwu Local Government Area.

HO4:  There is no significant difference in the mean rating of poor and rich  families in rural communities in Ohaukwu Local Government Area.

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