Effects of Fuel Subsidy on Transport Costs and Transport Rates in Nigeria

Abstract

Fuel is a major factor among many others influencing transport costs and transport rates in Nigeria. It plays significant role in the production of goods and services in all sectors of the economy, that is why countries find it necessary to subsidize and ensured citizens have access to fuel which is of national importance. Fuel in Nigeria is an inelastic product both at demand and supply sides, which means that it is very difficult for consumers to find alternatives to the use of it in their daily lives. Transport costs are monetary measure of what the transport provider must pay to produce transportation services. Transport rates are the prices or fares of transport services paid by their users to the transport service provider. There are several factors influencing transport costs and rates, meanwhile fuel subsidy also influences those factors influencing transport costs and transport rates. Among other indices of attaining a diversified economy is the diversification of transport modes and energy sources. For a developing country like Nigeria, fuel subsidy is considered as major tool to enhance citizens’ welfare most especially the middle and low income earners, meanwhile, the disbursement of fuel subsidy must be properly monitored to guide against corruption as shown in the past administrations. Strict policies can be set aside as punishment (such as death sentence, life imprisonment and other costly punishments) for any corrupt political office holder. Before considering subsidy removal, the recommendations in the research must have been fully achieved.

Keywords: Fuel subsidy, Fuel subsidy removal, Transport costs, Transport rates and Production costs.