A Simulation of the Removal of Fuel Subsidy and the Performance of the Agricultural Sector in Nigeria using a Dynamic Computable General Equilibrium Approach

Opeyemi Akinyemi, Philip O. Alege, Oluseyi O. Ajayi, Oluwasogo S. Adediran, Ese Urhie

Abstract


This study analysed the response of the agricultural sector to the removal of subsidy on refined petroleum in Nigeria, given its strategic role as a critical sector. Using a dynamic energy-environment CGE model based on the 2006 Nigerian Social Accounting Matrix (SAM), the study presents the results of the response of the agricultural sector to three different simulation scenarios. These include a partial (50 percent), gradual and a one shot (complete) removal of subsidy on imported refined oil in Nigeria. The results provided evidence that a complete or one shot removal of fuel subsidy is more favourable in terms of better performance of the agricultural sector as many of the key macroeconomic variables increased under the complete removal simulation scenario. It is recommended that a one shot removal of fuel subsidy will strengthen the agricultural sector performance and outputs, even though prices will move up in the short term. The long term benefits to the sector when funds are allocated to infrastructural and technological development will support overall growth and enhance food security in Nigeria.  


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