Deterministic Model and Analysis of Fuel Subsidy in Nigeria Commodity Market Dynamics

Abstract

The Nigerian populace’s anxieties, pessimism, and optimism over removing fuel subsidies have brought
economic tension. The conflicting views are centered on the overbearing effect of subsidy removal on the cost
of living and the commodity market. The federal government has hinged the decision on the excessive revenue
leakages due to the huge subsidy and the need to re-channel the subsidy fund to more developmental projects
impacting the Nigerian economy’s growth. Trade union and civil society hinge their opposition to the removal
of fuel subsidies based on their overbearing effect on the livelihood of citizens in terms of the subsidy-induced
high cost of living and production. In light of this commotion, there is a need to study Nigeria’s fuel subsidy,
consumer purchasing power, and commodity market dynamics using mathematical modeling and analysis.
This paper proposes a deterministic model to study the dynamics of fuel subsidy, consumer purchasing power,
oil-pirating groups, and commodity markets. To gain insight into the impact of oil leaks on the government oil
revenue, the time delay is used to depict the oil theft control by the Nigerian government. Analytically, three
steady-states, namely subsidy-free, pirate-free, and critical steady-states, are obtained, and the conditions
for their existence are determined and analyzed. The findings of this work highlight veritable conditions for
acceptable implementation of these states. The analytical results were numerically verified, and the dynamics
under these states were demonstrated graphically. The work further recommends the conditions for the
acceptable implementation of fuel subsidy removal and the blockage of oil thefts.