2023 FUEL SUBSIDY REMOVAL AND THE SMALL AND MEDIUM ENTERPRISES (SMES) IN ABUJA

Abstract

This study examined the impact of the 2023 fuel subsidy removal on the growth and operational sustainability of Small and Medium Enterprises (SMEs) in Abuja, anchored on the cost-push theory of inflation. Despite the policy’s fiscal rationale, limited empirical evidence existed on its firm-level effects and the coping strategies adopted by SMEs. The study employed a mixed-method approach, combining structured questionnaires with key informant interviews. A proportionate stratified random sampling technique was used to select 349 respondents from a population of 2,825 SMEs, of which 315 valid responses were analysed alongside 6 interviews. Quantitative data were analysed using simple percentages, while qualitative data were thematically analysed. The findings revealed that 94.6% of SMEs were directly affected by the subsidy removal. Major impacts included increased transportation costs (95.9%), higher operational costs (94.0%), reduced profit margins (91.7%), and decreased consumer demand (80.3%). In response, SMEs adopted various adjustment strategies, including price increases (91.1%), workforce reduction (71.7%), use of alternative energy sources (56.5%), and supplier renegotiation (50.5%). These findings supported the cost-push theory, which posits that rising input costs compel firms to adjust prices or internal operations. However, the study found that SMEs were unable to fully transfer increased costs to consumers due to weak purchasing power. The study concluded that fuel subsidy removal significantly constrained SME growth and operational sustainability in Abuja. It recommended targeted government support, improved access to energy-efficient alternatives, and strategic business restructuring to enhance SME resilience in a post-subsidy economic environment.