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THE IMPACT OF DEREGULATION OF OIL INDUSTRY ON SMALL SCALE
ENTERPRISES IN NIGERIA
ABSTRACT
In many developing countries, structural reform of petroleum
markets has been a critical component of macro-economic liberalization
policies. The role of government in the
petroleum sector is being re-defines and markets are being deregulates that is
state interventions such as special treatments of states owned oil companies,
price control and restriction to trade are being broken up.
The researcher to examine the need for deregulation in
Nigeria petroleum industry to examine the survival strategies being adopted by
the small scale enterprises in Nigeria.
So also the following review the researcher findings
throughout the period under review, show positive relationship because
x2cal>x2 tab which make use to accept Hi and reject Ho.
At the present stage of implementation of the deregulation
policy, government investment in technical restructuring of the downstream
sub-sector needs to be married with the pursuit. The objectives of right
pricing of petroleum product (which was the first phase of deregulation).
The medium term recommendation involves the repair of
pipelines, tank and other reception facility and the provision of level playing
field for investors and operators in the downstream sector.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO
THE STUDY
In many development countries, structural reform of petroleum
market has become a critical component of macro-economics liberation policies.
The role of government in the petroleum sector is being re-defined and markets
are being deregulated that is state interventions such as special treatments of
state owned oil companies, price control and restriction to trade are being
removed and monopolies are being broken up.
Increasingly, the private sector is particularly in more
competitive petroleum markets. The low capacity utilization of Nigeria state
owned refineries and petrochemicals plants in Kaduna, Port Harcourt and Warri.
The sorry state of despair, neglect and repeated canals of the state ran
petroleum products pipelines and oil movement infrastructure nationwide, the
collateral damage of institutionalized competition, with the frightening
emergency of a local nouveauriche oil mafia that controls and coordinates
crude-oil and refined petroleum products pipeline sabotage and theft
("illegal bunkering") nationwide, the instability corrupt military
task force operations that assist diversions of both crude oil and petroleum
products and large scale cross boarder smuggling of petroleum products all of
which are the root causes of protracted and seemingly intractable severe fuel
crisis to a decade now, are all predictable outcomes of government involvement
in the downstream sector of Nigeria petroleum industry.
Today, Nigeria needs about 30 million litres of gasoline
daily, up from about 22 million liters per day in 1996, through in 25 million
liters per day in 2001. Thus, the annual petrol consumption growth rate between
2011 and 2003 is about 10% per annum. Meanwhile, Nigerian refinery all of them
operating at a very low efficiency are detective or are frequency shut down and
can hardly Produce 60% of the fuel needed to keep Nigeria going strong, even if
they were all brand new and optimally operational given the imposed feed stock
constraint of 300,000 bbl/d.
While Nigeria refineries need about 530,000 bbl/d of crude
oil in order to satisfy a pent up daily demand for about refining capacity
amounts of only 445, 000 bbl/d but the federal government of Nigeria allows
only 300,000 bbl/d of crude oil for the expect of excess refined petroleum
products even when the local demerit has not been met These inefficiencies of
the petroleum industry of Nigeria have necessitated the introduction of
deregulation and liberalization policies of the downstream sector of the
industry. However deregulation is seen as desirable in freeing government
products in the Nigerian market. It is refined petroleum products in the
Nigerian market. It is the reduction of government control and allowing the
market forces to dominate in industry decision making. This shows that
government will stop interfering in the downstream activities of the petroleum
industry and would allow private investors to refine, distribute and sell
petroleum products at prices not determined by government or its agencies. The
fundamental objectives of deregulation are to allow for competition in the
petroleum products market with its attendant increased economic efficiency and
welfare packages.
Given a fore going analysis on deregulation, it was assumes
that technically, the price of petroleum products may not be easily deregulated
however when the petroleum products markets are deregulated, the new
competitive environment would affect the prices. Thus to make economic
deregulation work, particularly in the petroleum products market, in Nigeria
government inaugurated the petroleum products pricing regulatory Agency (PPPRA)
on 19 June, 2003 to monitor and regulate the pricing and distribution of
petroleum products. Despite this, the prices of petroleum products tend to move
towards international prices, some factors competitive force particular impeded
the setting of prices at import party.
Presently, hundreds of small enterprises are being
strengthened by the deterioration in economic conditions especially inadequate
credit, rising production costs caused by the rise in price of petroleum
products for running the business and diminishing consumer demand which was
brought about by like in prices of the goods demand for the capacity of the
economy to provide full time employment has diminished. It is difficult to estimate
the size of Nigeria's informed sector, since virtually its entire city redes
peoples busy scratching a livelihood from micro and small-scale enterprises.
The apparent resilience of this sector, which provides a wide range of services
and goods for the poor and the pauperized middle classes, sharply contrast with
the fragility of the formal sector. According to the international labour
organization, small and medium scale enterprises and particular informal sector
undertakings account for over 60 percent of economic activities in Nigeria and
over 35 percent of urban employment.
The deregulation policy of the government was based on some
objectives are elimination of large welfare losses emanating from supply
inefficiencies and poor quality of services establishment of a perfectly
competitive energy market environment so much so that consumers needs are
adequately not dynamic efficiency gains associated more with market oriented
pricing, providing the necessary incentive to innovate and improve the quality
of supply through investment prevention of any possible collision by producers
to form cartels to controls the market products quality and quantity prices
investment etc.
Establishment of optimal and affordable energy prices such
that the poor is not neglected in the consumption of energy products
institutional frame work for energy planning and management in the country.
1.2 STATEMENT OF
PROBLEM
The government is faced with the task of ensuring effective
allocation or distribution of petroleum products through price mechanism. Price
mechanism has been adjusted to be the most efficient means of
distributing/allocating scare resources in the country. The policy maker or
government has now position deregulation has a means for proper allocation.
Deregulation involves a shift from administered pricing mechanism.
The questions to be answered by this research work are:
a. What measures
have been taken toward achieving the desired goals of deregulation?
b. What has been
the effect of deregulation of the petroleum industry on the informal sector of
the economy?
c. What have been
the benefits and losses of deregulation of petroleum industry on the formal
sector of the economy?
d. Is
deregulation really a way out of this inefficiencies of the petroleum industry
in Nigeria?
1.3 OBJECTIVES OF
THE STUDY
The broad aim of this work is to assess the government
deregulation policy of the petroleum industry and its effect on the small and
medium scale enterprises in the Nigerian economy specially, the study aimed at
examining.
a. The need for
deregulation in the Nigeria petroleum industry.
b. The
implication of the policy on small scale business in terms of cost of doing business productivity
competitiveness, and the response of the consumer in terms of demand.
c. Examine the
survival strategies being adopted by the small scale enterprises in Nigeria.
d. Make
recommend action and suggestions
1.4 HYPOTHESIS
The research hypothesis used here is weather deregulation
policy of the petroleum industry has had any adverse effect on rates of returns
in the informal sector or not.
Thus, the null hypothesis (Ho) will be tested against the
alternative hypothesis (Hi)
HO: deregulation of
petroleum industry has no adverse effect on the rate of returns of small medium
scale enterprises in Nigeria.
HI: deregulation of
petroleum industry has adverse effect on the rate of the small and medium
enterprises in Nigeria.
1.5 SCOPE AND
LIMITATIONS OF THE STUDY
This study examined whether deregulation of the petroleum
industry has affected the informal sector of the Nigerians economy especially
with respect to small scale enterprises in Ado-Odo Ota local govt. area. It
examined the effect of this policy on the productivity of these enterprises. It
enlightens the benefits and the short comings for the small scale enterprises.
This study was limited by unavailability of accurate or
sufficient data due to the fact the virtually most of the SME's have no records
of activities. This brings about an inaccurate analysis of these data.
1.6 RESEARCH
METHOLOGY
Some of the data was used in this study was collected
primarily. The use of questionnaire will be engaged in the collection of these
data. Also some of these data was from the secondary source like articles from
individuals and texts the chi-square method was used to test for the
hypothesis. This was to test if there is any dependency or independency between
the policies of petroleum products specially, the petrol and the level of
productivity of the small scale enterprises.
1.7 DEFINITIONS OF
TERMS
Deregulate: It simply means when Government reduces its role
and allows industry greater freedom in how it operates. The stated rationale
for deregulation is often that fewer and simpler regulations will lead to a
raised level of competitiveness.
Therefore, higher productivity more efficiency and lower
prices overall. In Canada; Natural gas is deregulated in most of the country,
with the exception of some Atlantic provinces and some pockets like Vancouver
Island and medicine that most of this deregulation happened in the mid-1980s.
The province of Alberta has deregulated their electricity
provision. Customers are free to choose which company they sign up with, but
there are few companies to choose from and the price of electricity has
increased substantially for consumers because the market is too small to
support competition. If they choose they may remain.
Monopolies: (From Greek Monos uovoc (alone or single) +
Polein NWAEOU (to sell) is the only supplier of a particular commodity (This
contrast with a monopoly which relates to a single entity's control of a market
to purchase a good or service, and with oligopoly which consists of a few
entities dominating an industry.
Monopolies are thus characterized by lack of economic
competition to produce the good or service and lack of viable substitute goods.
The verb 'Monopolize' refers to the process by which a company gains the
ability to raise prices or exclude competitors.
In economics, a monopoly is a single fellow, In law, a
monopoly is business entity that has significant market power, that is, the
power to change higher prices.
Smuggling: This is the claundestine transportation of goods
or persons, such as out of a building, into a prison or across an international
border, In violation of applicable laws or other regulations.
There are various motivations to smuggle. These include the
drug trade, In illegal immigration or illegal immigration or illegal
emigration, tax erosion, providing contra-band to a prison inmate, or theft of
the items being smuggled. Examples of non - financial motivations include
bringing barred items past a security checkpoint (such as airline security) or
the removal of classified documents from a Government or corporate office.
Nouveariche: It simply means new money, it comprises of those
who have acquired considerable wealth within their own generation. The term is
generally used to emphasize that the individual was previously part of a lower
socioeconomic rank, and that such wealth has provided the means for the
acquisition of goods or luxuries that were previously obtainable. The term can
also be used in a deregulatory fashion, for the purpose of social class
districts there, "Nouveau rich" describes persons with new found
wealth as being vulgar, in lacking the experience or value. System to utilized
wealth in the same manner as those of "Old money" (Persons whose
families have been wealthy for multiple generations.
Liberalization: In general, it refers to a relaxation of
previous Government restrictions usually in areas of social or economic policy.
In some contexts this process or concepts is often, but not always, referred to
as deregulation liberation of autocratic regimes they precede democratization
(Or not, as in the case of the Prague Spring). There is also a concept of
hybrid liberation as, for instance, in Ghana where Cocoa crop can be sold to variety
of competing private companies, but there is a minimum price for which it can
be sold and all exports are controlled by the state.
Refinery: A refinery is a production facility composed of a
group of chemical engineering unit processed and unit operations refining
certain materials or converting raw materials into products of value. There are
different types of refineries which are; Oil refinery, Sugar refinery, national
gas processing, salt refinery, Metal refinery, Vegetable oil refinery e.t.c.
Considering the oil refinery or petroleum refinery, is an
industrial process plant where crude oil is process and refined into more
useful petroleum products, such as gasoline, diesel fuel, asphalt base, heating
oil, kerosene and liquefied petroleum gas. In many ways oil refineries use much
of the technology of, and can be thought of, as types of chemical plants. The
crude oil feed stock has typically been processed by an oil production plant.
There is usually an oil depot (tank farm) at or near an oil refinery for
storage of bulk liquid products.
Diminish: Is to make (Someone or something) seem less
impressive or valuable.
Mechanism: It is the act of designing rules of a game to
achieve a specific outcome. Mechanism is also the belief that natural wholes (Principally
living things) are like machines or artifacts, composed of parts lacking any
intrinsic relationship to each other, and with their order imposed from
without. Thus, the source of apparent things activities is not the whole
itself, but its pants or an external influence on the parts mechanism is
opposed to the organic conception of nature best articulated by Aristotle and
more recently elaborated as vitalism.
Inaugurated: An Inauguration is a formal ceremony to mark the
beginning of a leader's term of office. An example is the ceremony in which the
president of the limited state officially takes the oath of office. The most
common usage of the term is in the context of a formal most investiture whereby
an individual assumes an office or position of authority or power.
Illegal Bunkering: A bunker is a bin or tank especially for
fuel storage, as on a ship where as illegal or unlawful, is used to describe
something that is prohibited or not authorized by law. i.e. the Niger Delta has
been a source of illicit international business deals (like the trans -
Atlantic slave trade), as far back as the 15th Century. Today a new form
syndicated criminal proclivity is threatening the very foundations of Nigeria's
petroleum industry, and by extension, the Nigerian economy as well as putting
tremendous pressure on chief (General) Olusegun Obasanjo. That problem is the
"Illegal bunkering" of crude oil and / or its derivatives.
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