IMPACT OF DEREGULATION OF OIL INDUSTRY ON SMALL SCALE ENTERPRISES IN NIGERIA.

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IMPACT OF DEREGULATION OF OIL INDUSTRY ON SMALL SCALE ENTERPRISES IN NIGERIA.

Chapter one

INTRODUCTION

1.1 Background of the Study

In many developing nations, structural reform of the petroleum market has become an essential component of macroeconomic liberalisation strategies.

The government’s position in the petroleum sector is being redefined, and markets are being deregulated, which means that state interventions such as special treatment of state-owned oil corporations, price controls, and trade restrictions are being eliminated, and monopolies are being broken up.

The private sector is increasingly participating in more competitive petroleum markets. The low capacity utilisation of Nigeria’s state-owned refineries and petrochemical complexes in Kaduna, Port Harcourt, and Warri.

The sorry state of despair, neglect, and repeated canals of the state-run petroleum products pipelines and oil movement infrastructure nationwide, the collateral damage of institutionalised competition, with the terrifying 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 of corrupt military task force operations that assist diversi

Today, Nigeria requires approximately 30 million litres of petrol per day, up from 22 million litres per day in 1996 and 25 million litres per day in 2001. Thus, the yearly growth rate in petrol consumption between 2011 and 2003 was almost 10% each year.

Meanwhile, all of Nigeria’s refineries are detective or frequently shut down, and they can barely produce 60% of the fuel required to keep Nigeria running, even if they were all brand new and optimally operational given the imposed feed stock constraint of 300,000 bbl/day.

While Nigeria refineries need about 530,000 bbl/d of crude oil to satisfy a pent-up daily demand for about refining capacity amounts of only 445, 000 bbl/d, the federal government of Nigeria allows only 300,000 bbl/d of crude oil for the expectation of excess refined petroleum products even when the local demerit has not been met.

These inefficiencies in Nigeria’s petroleum industry demanded the implementation of downstream sector deregulation and liberalisation measures. Deregulation, on the other hand, is viewed favourably in terms of allowing government products to enter the Nigerian market.

The Nigerian market is dominated by refined petroleum products. It involves reducing government authority and letting market forces to take precedence in industry decision-making.

This demonstrates that the government will cease to interfere in the downstream activities of the petroleum sector, allowing private investors to refine, distribute, and sell petroleum products at prices not fixed by the government or its agencies.

The primary goals of deregulation are to enable for competition in the petroleum products industry, resulting in increased economic efficiency and welfare packages.

Given the ongoing deregulation analysis, it is assumed that, while the price of petroleum products may not be easily deregulated, the new competitive environment will effect prices.

To make economic deregulation work, particularly in the petroleum products sector, the Nigerian government established the Petroleum Products Pricing Regulatory Agency (PPPRA) on June 19, 2003, to monitor and regulate the pricing and distribution of petroleum products.

Despite this, petroleum product prices tend to trend towards international prices; nevertheless, several factors, particularly competitive forces, delayed price setting at the import side.

Hundreds of small businesses are currently being bolstered by deteriorating economic conditions, particularly insufficient credit, rising production costs caused by the rise in the price of petroleum products for running the business, and diminishing consumer demand, which was caused by a rise in the price of goods demand for the economy’s capacity to provide full-time employment has diminished.

It is impossible to quantify the size of Nigeria’s informed sector because almost the entire city is populated by people who make a living through micro and small-scale firms.

The apparent stability of this sector, which provides a wide range of services and goods to the poor and underprivileged middle classes, contrasts strongly with the fragility of the official sector.

According to the International Labour Organisation, small and medium-sized firms, as well as informal sector ventures, account for more than 60% of Nigeria’s economic activity and more than 35% of urban employment.

The government’s deregulation policy was based on some objectives, including the elimination of large welfare losses resulting from supply inefficiencies and poor quality of services, the establishment of a perfectly competitive energy market environment so that consumers’ needs are adequately met, and providing the necessary incentive to innovate and improve the quality of supply through investment prevention.

Establishment of appropriate and reasonable energy prices so that the poor are not excluded from energy product usage. Institutional framework for energy planning and management in the country.

1.2 Statement of Problem

The government is tasked with guaranteeing the efficient allocation or distribution of petroleum products through a price system. The price mechanism has been changed to be the most efficient method of distributing and allocating scarce resources in the country.

The policymaker or government has now positioned deregulation as a means of ensuring optimal allocation. Deregulation entails a departure from the administered pricing structure.

This research will seek to answer the following questions:

a. What steps have been taken to achieve the desired levels of deregulation?

a. How has the deregulation of the petroleum industry affected the informal sector of the economy?

c. What have been the benefits and drawbacks of deregulating the petroleum industry for the formal sector of the economy?

d. Is deregulation a viable solution to Nigeria’s petroleum industry inefficiencies?

1.3 Objectives of the Study

The overall goal of this work is to evaluate the government’s deregulation policy in the petroleum industry and its impact on small and medium-sized firms in the Nigerian economy, with a focus on the subject at hand.

a. The necessity for liberalisation of the Nigerian petroleum industry.

b. The policy’s impact on small businesses in terms of operating costs, productivity, competitiveness, and customer demand.

c. Investigate the survival methods used by small-scale firms in Nigeria.

d. Make recommendations and suggestions.

1.4 Hypothesis.

The research hypothesis explored in this study is whether the petroleum industry’s deregulation policy had an adverse influence on rates of return in the informal sector.

So, the null hypothesis (Ho) will be tested against the alternative hypothesis (Hi).

HO: Deregulation of the petroleum business has no negative impact on the rate of return of small and medium-sized enterprises in Nigeria.

HI: The deregulation of the petroleum industry has a negative impact on the rate of small and medium-sized firms in Nigeria.

1.5 Scope and Limitations of the Study

This study investigated whether deregulation of the petroleum industry affects the informal sector of Nigeria’s economy, particularly small-scale firms in the Ado-Odo Ota local government region.

It investigated the impact of this policy on the productivity of these firms. It highlights the advantages and disadvantages of small-scale enterprises.

This study was constrained by the lack of precise or sufficient data because the vast majority of SME’s do not keep records of their activity. This results in an erroneous analysis of the data.

1.6 Research Methodology

Some of the data used in this study came from primary sources. The data will be collected using a questionnaire. Also, some of the data came from secondary sources, such as articles from individuals and texts, and the chi-square method was employed to evaluate the hypothesis.

This was done to see if there is any dependency or independence between petroleum product policies, particularly those involving petrol, and the degree of productivity of small-scale businesses.

1.7 Definition of Terms

Deregulate: This simply implies that the government lessens its involvement and gives industry more leeway in how it works. The stated argument for deregulation is often that fewer and simpler restrictions will result in increased competitiveness.

As a result, improved productivity leads to increased efficiency and lower overall prices. Natural gas is deregulated in most of Canada, with the exception of the Atlantic provinces and pockets such as Vancouver Island, and the majority of this deregulation occurred in the mid-1980s.

The province of Alberta has deregulated electricity provision. Customers can select which firm to join up with, but there are few options, and the cost of power has risen significantly for customers since the market is too tiny to support competition. They have the option of remaining.

Monopolies: (From Greek Monos uovoc (alone or single) + Polein NWAEOU (to sell) is the sole supplier of a specific commodity (This contrasts with a monopoly, which refers to a single entity’s control of a market to purchase a good or service, and an oligopoly, which consists of a few entities dominating an industry.

Monopolies are distinguished by a lack of economic rivalry to create the commodity or service, as well as the absence of viable substitute goods. The verb’monopolize’ refers to the process by which a firm gets the right to raise prices or exclude competitors.

In economics, a monopoly is a single person. In law, a monopoly is a business enterprise with enormous market power, or the ability to raise prices.

Smuggling is the clandestine transit of commodities or people, such as out of a building, into a prison, or over an international border, in contravention of applicable rules or regulations.

There are numerous reasons to smuggle. These include the drug trade, illegal immigration, illegal emigration, tax evasion, providing contraband to a prison inmate, and theft of smuggled goods. Non-financial objectives include taking prohibited things through a security checkpoint (such as airline security) or removing secret papers from a government or company office.