ASSESSMENT OF THE EFFECT OF FUEL PRICE HIKE ON BUSINESS OPERATIONS (A CASE STUDY OF GOURMET PIZZA COMPANY, ABUJA)

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF STUDY

Almost all sectors of the economy depend on oil. Any contemplation therefore of a possible scarcity or unavailability of the product will in no doubt stipulate unnecessary price hike of petroleum in the country (Sikkam, 2009).

Arinze (2011) opined that the fuel price hike is a reflection of bad management. Irrespective of the negative effects of fuel price increase, the Federal Government of Nigeria on January1st, 2012 ceased to subsidize petroleum In Nigeria, for decades Nigerians have enjoyed low gasoline prices, but those benefits are no more. Fuel prices should be uniform, controlled by government, and infrequently adjusted. The Nigeria fuel price was ₦65/liter between Aug 2005 (US$0.50) and Dec 2011 (US$0.41), except in 2007 and 2008 when it was raised to ₦75/liter for a month and then lowered to ₦70/liter. And have ever since gained higher increase in price. Fuel subsidy removal has been a very topical and delicate issue in Nigeria as it is the one of the major factors influencing fuel price rise in the country.

The impact of the petrol price hikes could go beyond simply pushing up transport costs. It also affects the cost of producing goods and services. In particular, the prices of food, clothing and footwear, furnishings, and most importantly businesses struggle to carryout operations, more also housing and utility costs also tick up on the back of the scrapping of the petrol price subsidy. In addition the higher petrol prices, the cost of producing electricity from petrol-powered generators for businesses also rise,” according to Yvonne Mhango, an analyst at Renaissance.

Mhango said the impact of a higher petrol price on food is likely to resonate with most Nigerians. Rough estimates suggest that transport costs account for about 10% of the total cost of producing food in Nigeria. The cost of electricity used to process food is estimated to be around 5% of total production. This therefore explains the ugly setbacks businesses faces as a result of this scenario of fuel price hike which Is the major concern of this study to examine the effect of fuel price hike in the operation of businesses in Nigeria.

1.2 STATEMENT OF PROBLEM

The high cost of fuel prices has paralyzed several businesses in Nigeria, as a result of this, there have been an unendurable difficulty in the operations of businesses in Nigeria as most of their operation demands the use of fuel due to lack of constant electricity. Notably most businesses in Nigeria utilizes fuel for the powering of electrical supply machines (in the absents of electricity) and their transportation vehicles. however, there haven't suitable stability in the price of fuel this is as a result of uncontrollable rise in the price of fuel. hence this menace unpalatable affect businesses in the country as businesses incur additional cost in their transportation, marketing, administrative activities. this in-turn affects the cost of products and services of the businesses. Thus this study focuses on assessing the effect of fuel price hike on Business Operations using Gourmet Pizza Company as a case study.

1.3 PURPOSE OF THE STUDY

This study aims at assessing the effect of fuel price hike on Business Operations using Gourmet Pizza Company, Abuja as case study. Other specific objective include;

1. To investigate if fuel price hike affects businesses performance.

2. Examine the relationship between fuel price hike and business cost of operation.

3. Identify if fuel price increment influences the cost of products and services of businesses.

4. To ascertain if fuel price hike adds to the profitability of businesses in Nigeria.

1.4     RESEARCH QUESTION

a.         What is the effect of fuel price hike on Business Operations?

b.        Does fuel price hike affects businesses performance?

c.         Is there any relationship between fuel price hike and business cost of operation?

d.        Does fuel price increment influences the cost of products and services of businesses?

e.         Does fuel price hike adds to the profitability of businesses in Nigeria?

1.5 SIGNIFICANCE OF THE STUDY

This study will be helpful to the federal Government as it will enlighten them on the need for free and constant running of business country. And also the economic dangers which would like occur as a result of fuel price hike. Also this study will serve as a source of information or as an academic material to the general public, students and researchers.

1.6  SCOPE OF THE STUDY

This study discusses the effect of fuel price hike on business operations in Nigeria. This study however covers only  Gourmet Pizza Company, Abuja.

1.8 DEFINITION OF TERMS

Fuel: A fuel is any material that can be made to react with other substances so that it releases energy as heat energy or to be used for work. The concept was originally applied solely to those materials capable of releasing chemical energy but has since also been applied to other sources of heat energy such as nuclear energy

Price: A price is the quantity of payment or compensation given by one party to another in return for one unit of goods or services. A price is influenced by production costs, supply of the desired item, and demand for the product.

Subsidy: A subsidy or government incentive is a form of financial aid or support extended to an economic sector generally with the aim of promoting economic and social policy. Although commonly extended from the government, the term subsidy can relate to any type of support

Price Hike: This a certain percentage increase in the price or value of a commodity

Business: Business generally refers to organizations that seek profits by providing goods or services in exchange for payment. However, businesses don't need to turn a profit to be considered a business. The pursuit of profit, in and of itself, makes an organization a business

Business Operation: Business operations refer to activities that businesses engage in on a daily basis to increase the value of the enterprise and earn a profit. The activities can be optimized to generate sufficient revenues to cover expenses and earn a profit for the owners of the business. Employees help accomplish the business’ goals by performing certain functions such as marketing, accounting, manufacturing, etc.

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