CHAPTER own family and personal demands on work.

1.1 Background to the study

These days business is faced with an ever stressful work environment. Many employees are faced with the challenge of hanging a balance between work and their own family life. Sustaining a healthy work-life balance is an issue that is increasingly recognized as of strategic importance and of significance to employees. Employee performance is a fundamental determinant in the realization of organizational goals. Thus, agencies have devised extraordinary approaches of motivating their employees, so as for them to offer their best to the organization.
WLB includes adjustment of working patterns to allow employees combine work with their different family demands. The demerits associated with WLB can have a negative effect on both the employee and the employer. For employers the results of bad WLB are negative performance, ill leaves, higher staff turnover, and accelerated absenteeism. While on the employee the outcomes include mental health, bodily fitness, and terrible person performance in an organization.
In a highly competitive labour market an employer needs to hold its treasured employees. It’s a strong motivating factor for increased organizational awareness and action in regards to implementing and control of work-life balance strategies. WLB is an area of interest in human resource management and it is receiving lots attention from researchers, trade unions and media.
Work-life balance from the employees’ perspective is the protection of equilibrium between duties at work and at home. Employers view the benefits or the working conditions that they offer to help employees balance their family and the work domains as work life benefits (Okeke, 2017). First of all the idea of work life conflic focused on the effect of own family and personal demands on work. It now extends to the effect work has on individual strain, relationships and family well-being (Russell & Bowman, 2000).
Work-to-family conflict occurs when experiences at work interfere with family life, rigid work hours, work overload, interpersonal conflict at work and unsupportive supervisor within the organization. Family-to-work conflict occurs when experiences within the family interfere with work, life’s primary responsibility for children, elder care obligations, interpersonal conflict within the family unit and unsupportive own family members.
Running efficiently and keeping a well-balanced social life, has to strike a balance between work and emotional wellbeing. This translates to improved organizational, character emotional balance and proper societal functioning (Grady, 2014). Individuals experience more divergence linking work and personal life as they continue to pursue the quality of life that they need (Kim, H. K. 2014). Consequently, successfully balancing work and family life is one of the most important challenges facing modern-day employees (Uusiautti, S., ;Määttä, K. 2018).
Traditionally, work-life balance issues were considered personal issues (Irungu, 2017) and employers have just responded to their employees’ needs by means of presenting extra benefits such as on-site childcare service and paid maternity leave in the work place. Despite the fact that, with environmental shifts and value adjustments of employees, choice for work-life balance has accelerated and employers have started to offer more active help of their employees’ work-life balance (Kim, 2014).
Fortune magazine in its listing of the 100 high performing organizaions to work for identifies agencies that take the time to aid employees in dealing with the obligations of work and family (Firfiray; Mayo 2017). As a result, organizational efforts for ensuring employees’ work-existence balance are required and prized greater than ever.
The multi-tasking between domestic responsibilities and work have assumed increased relevance for employees in the service sector in modern years. That is due to work place and demographic changes, which includes; technological advancement, transformation in family unit structures, increased reluctance for ‘long working hours’, greater number of women in the work force and culture acceptance (Sharma, & et al 2016). End result employees may have stress in prioritizing between their private lives and work roles. poor organizational culture; like commutation of leave of employees, inconvenient period of leave for employees and the inability of employers to stick to leave policy of their employment agreement all these may also result in difficult-pressed workloads which bring about different issues to the employee. Those difficulty involve the psychologically and the emotional well-being of employee and these can bring about reduction in employee overall performance in areas along with, poor service delivery and health associated issues
According to (Ngari, & Mukururi, 2014), many service sector organizations and groups in Kenya have did not recognize the significance of working environment for employee job satisfaction and as a consequence face a whole lot of difficulties during their work. To meet the standards of organization, employees want a working environment that permits them to work freely without problems which restrain them from performing up to the level of their complete capability. It’s therefore essential for the service industry to have a good working environment improving the work, technical, human, and organizational factors vital to enhancing the organization’s competitive role by means of attracting certified human asset.
Sullivan, & Skelcher, (2017), states that the service industry covers a wide area with a myriad of environmental and physical elements that employees work in. This spatial detail affords a unique trouble in occupation health and safety faced by employees together with lengthy travel hours to and from; long operating hours at work, lengthy away time from family, workload, strain, over time, fatigue and boredom are a few elements to reduce employee performance (Caesar, & Fei, 2018). Then again provision of appropriate working environment, refreshment, health & safety facility, fun at workplace and clear work-life balance guidelines and policies which accommodate out of workplace preoccupations will go a long way in growing the degree of employee performance (Hartnell, 2010).
This project therefore intends to evaluate the extent to which work life balance impacts employee overall performance and additionally introduce suitable employment practices to help employees obtain a higher work life balance which can offer tangible benefits to the organization as well as the persons involved. This project additionally examines the way to promote top WLB practices in the service and telecommunication sector of Kenya and highlights a few merits for the agencies.
1.1.1 Work life balance in the insurance industry

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Introduction of the Insurance Act, CAP 487 of the Laws of Kenya, supervision and regulation of insurance business has substantially stepped forward the industry overall performance. The insurance industry has over the last decade continued to check in double digit increase in gross written premium profits with insurance penetration at around 3% that’s similar to nations within the developing countries. These trends have bestowed on the industry some demanding situations and opportunities key of that are the specified human resource capacities and compliment to drive the growth agenda as set out within the imaginative and Vision 2030 (IRA Report, 2015).
Insurance companies are basically human extensive, and human assets act as an absolute differentiator. Quality manpower and its retention could act as a Litmus test. Turnover of the workforce has been excessive due to low exit and entry barriers within the industry (IRA record, 2016). Taylor et. al. (2017) in a study conducted on the connection among worker commitment and their performance, determined that organizational culture characterized with the aid of excessive adaptability and a HRM system emphasizing excessive overall performance work practices had, a direct and profound effect on employee commitment. Martin and Beaumont (2014) study on employee commitment points out that there may be need for employees to conduct themselves consistent with the requirements of the company’s preferred brand. The success of this hinges at the potential of businesses to win employee loyalty to the brand and growing dedication to the employer.
The upward thrust of technological development ,the move by insurance firms to acquire and merge has led to changes in the social surroundings forcing new organizational restructuring, task re-engineering and ultimately downsizing of employees who had come of age as a result retiring and rendering employees redundant. These changes have expanded pressure on employees, in terms of adjusting to the change itself and managing its ensuing consequences. Increased pressure from workloads and a need to develop new skills is of key challenge in the insurance sector in Kenya. Hence the objective of finding the possible answers to enhancing work lifestyles balance is paramount on this project.
1.1.2 Work-life balance and employee performance in the Mobile Telecommunication industry in Kenya

Kenya’s mobile Telecommunication sector has grown tremendously over the years. The mobile telecommunication sector contributes over KES 300 billion and as much as a in addition KES 100 billion from intangible benefits to clients. It employs roughly 25,000 people in Kenya on permanent and contract terms. Mobile Network operators have undertaken civil works together with contributing to the power roll out (Williams et al., 2016). The mobile Telecommunication sector is very dynamic; there’s cut throat competition in the sector. Employees are faced with challenges concerning their work environment especially their operating hours due to shifts and lack of mobility in the place of work in terms of promotions. With the intention to reach their organizational top performance, the cell agencies need to be capable of create a work environment where employees are encouraged to work.
UNCORP (2012) report indicates that Safaricom PLC has initiated numerous mechanisms to cushion mothers from personal and job related stress. a number of this includes day care facilities, Flexi time for lactating mothers, fitness facilities for both men and women, even prayer rooms for spiritual nourishment. The strategies are deemed to boost work life balance to diffuse employees pressure, beautify performance, and productivity; consequently the want to explore greater work life balance practices at Safaricom in comparison to others in the service industry working under similar circumstances.
1.2 Statement of the problem

Despite the effort to come up with numerous work life Initiatives (WLBI) in the service industry to enhance employees’ overall performance, the performance of most employees has remained dismal. Furthermore, the mechanism and extent to which the flexible work arrangements, HR financial incentives, HR work family support services, work-life balance, employee behavior and attitudes affect employees’ overall performance continues to be doubtful and unclear (Wang and Walumbwa, 2011; Snape and Redman, 2010; Wright and McMahan, 2011; Groen, B. A., van Triest, S. P., Coers, M., & W tenweerde, N. 2018; Wang, E. S., & Lin, C. L. 2018).
Empirical research carried out in developed countries by Wright and MacMahan, (2010); Kuvaas and Dysvik, (2010); Boxall,(2013); Allen, (2013) in addition to studies performed in Kenya by Shitsama, (2011) and Bosibori,(2012) reveal that HR practices have a high effects and statistically relationship with performance. but, those research have centered on HRM functions of employee development and attraction practices such as training and development, performance appraisal, profession career management, recruitment and selection (Teseema and Soeters, 2006; Mutua, Karanja and Namusonge, 2009).There is a scanty empirical study exploring the telecommunication and insurance industry in terms of work life balance on employee performance. This research will try to identify whether there is a relationship between work life balance and employee performances in insurance and telecommunication industry in Kenya so as to add to the existing literature more ingredients that will spice up human resource practices as far as employees are concerned.

1.3 Objectives of the study

1.3.1 General objective

The general objective of the study will be to evaluate the effect of work life balance on employee performance in the service industry.
1.3.2 Specific objectives

The specific objectives will be to;

i. To establish the effect of work family priorities on employee performance in the service industry
ii. To examine the influence of Flexible Working Options on Employee Performance the service industry
iii. To determine the effects of Employee Assistance Programs on Employee Performance in the service industry
1.4 Research questions

a) What is the influence of work family priorities on employee performance in the service industry?
b) Which Flexible Working Options are available to the Service industry employee?
c) What are the effects of Employee Assistance Programs on Employee Performance in the service industry?
1.5 Significance of the study

The study will benefit various groups in Kenya and also in other developing countries. First it brings light to HR managers and future managers on the importance of integrating work life initiatives in the strategic objectives of the organization.
The research is of importance to organizational policy makers by providing relevant information about employees’ perception on the availability of work life initiatives to employees and its effect on organizational behavior. Specifically, the government policy makers can use the research findings when drafting statutory polices by including those initiatives not included in the employment Act of Kenya such as flexible work arrangements, onsite and offsite baby care centers as requirements in organizations with a certain number of female employees.
The study is also of use to other human resource management students and scholars who might want to carry out their research in the area of work life initiatives and employees’ performance.
1.6 Assumptions of the study

The study assumes that first, involvement in one role necessarily impedes attention of family and social life and that such interference between role commitments leads to work-life conflict if not balanced. Further the study assumes that Organizations can implement various work-life balance initiatives that may assist employees to better balance their work, family and social life responsibilities, gain improvements in well-being and provide organizational benefits.

1.7 Limitations of the study

The influence of work life balance on employee performance is not restricted to the service industry in Kenya only as there are many industrial sectors whose settings may not be related to the ones in the service industry. The area of study in Kenya is under researched and it may be difficult to compare the different sectors of the population and come up with a cross cutting generalization because different factors could affect one sector and not another. This issue will be mitigated by ensuring that similar questions are asked cutting across the sectoral lines to ensure that uniformity of the answers could be achieved for comparison.
Access to the respondents may also pose a challenge due to the stringent policies by most of the organizations not to allow any form of research within their premises. This challenge will be mitigated by using a research permit from the National Commission for Science, Technology and Innovation and an introduction letter given by the University which will easily enable access to the organizations under study.
Some respondents are likely to be reluctant to give confidential information which would be vital for the study. The Researcher will assure the employees that the information given would be treated with confidentiality and would not use the information for other purposes other than for the research.

1.8 Operational Definition of Terms

Employee performance- The favorable expected employee outcomes in terms of productivity and efficiency in the organizations
Flexible work arrangements- Working arrangements which allow the employee to differ the amount, timing and location of his/her work.
Human resource practices- Human resource management control activities.
Organizational performance- Refers to achievement of Human resource management short and long term goals and objectives in terms of employee performance, retention of employees, provision of quality services and the ability to attract better applicants.
Productivity- Refers to the perceived work effort expended by an employee.
Service efficiency- Employee service behaviors such as carrying out the right task at the right time with the right speed of delivery.
Work life balance -Managing work and family responsibilities without the influence either into work and family responsibilities.
Work life conflict- The interference between work and non-work responsibilities
Work life initiatives- Practices and programmes beyond and above the statutory requirements offered by the employer for the use and benefit of the employ

2.1 Theoretical Review

This study is anchored on three theories; spillover theory by Guest (2002), Hertzbergs Two Factor Theory by psychologist Frederick Hertzberg (1959) and The Demand–Control Model by Karasek (1979).
2.1.1 Spill over theory

Spill-over may be defined as a procedure through which work and family impacts each other, which in turn, generates similarities between the two domain names (Edwards and Rothbard, 2000). it can be both positive and negative. If work family interactions are rigidly structured in time and space, then spill over in term of energy, time and behavior is negative. When flexibility occurs which permits individuals to integrate and overlap work and family responsibilities in time and space result in positive spill over that is instrumental in reaching healthful work life balance.
According to guest (2002), the determinants of work life balance are placed in the work and domestic contexts. Contextual determinants consist of needs of labor, culture of labor, demands of home and culture of home. Individual determinants consist of work orientation (i.e. the extent to which work (or domestic) is a primary life interest), personality, energy, personal control and coping, gender and age, life and career level. The variables of the have a look at are under the contextual determinants, which are leave policy and service delivery. The leave policy is the culture of work, while the service delivery is the demand of work.

The nature of work life balance was described both objectively and subjectively. The objective indicators encompass hours of labor and hours of uncommitted or free time out of work.
Subjective indicators refer to the states of balance and imbalance. He additionally stated that balance may be reported while identical weight is given each to work and domestic or, when domestic or work dominates by choice. Spill over occurs while there is interference of one sphere of life with other. Additionally, several outcomes of work life balance which include personal satisfaction and wellbeing at work, domestic and entire existence, overall performance at work life, impact on others at work, family and friends.
The relevance of this theory to the study is that organizations are expected to adopt positive work life balance policies that will enable employee have a positive work life balance which will make them be effectively committed to achieving the organization’s goals.

2.1.2 Hertzbergs Two Factor Theory
The Two Factor Theory was developed by a psychologist Frederick Hertzberg in 1959, who theorized that job satisfaction and job dissatisfaction act independently of each other. The characteristics related to job satisfaction included advancement, recognition, the work itself, achievement, growth and responsibilities. Hertzberg referred to these characteristics as motivators. The characteristics related to dissatisfaction, which included working conditions, supervision, interpersonal relationships, company policy and administration were referred to as hygiene factors. It states that there are certain factors in the workplace that cause job satisfaction, while a separate set of factors cause dissatisfaction. The theory perceives workplace as independent variable and job satisfaction as dependent variable. These variables concur with the study variables which are technical environment, physical environment and organizational environment and job satisfaction (Spearritt, 2010).
According to Schermerhorn (2003), Herzberg’s two-factor theory is an important frame of reference for managers who want to gain an understanding of job satisfaction and related job performance issues. Schermerhorn asserts that Herzberg’s two-factor theory is a useful reminder that there are two important aspects of all jobs: what people do in terms of job tasks (job content), and the work setting in which they do it (job context). Schermerhorn suggests that managers should attempt to always eliminate poor hygiene sources ofjob dissatisfaction in the workplace and ensure building satisfier factors into job content to maximize opportunities for job satisfaction. Therefore, this theory is relevant and significant to this study in that it recognizes that employees have two categories of needs that operate in them and that both should be addressed. This theory therefore can guide a researcher in establishing work life balance and its effects on employee performance in the Service industry

2.1.3 The Demand–Control Model

The Demand–Control Model by Karasek (1979) points out that job demands and job control jointly predict the occurrence of individual mental strain. Based on comparative empirical findings, the causal relationship between job characteristics and strain outside the work-sphere is furthermore essential to the model. Karasek (1979) however implicitly acknowledged a wider range of demands and resources. Accordingly, the Job Demands–Resources Model (Bakker and Demerouti, 2007; Demerouti, 2001) claims that demands and resources determine job-related stress. Although the Job Demands–Resources Model exclusively refers to work-related demands and resources – given the bi-directional nature of work–family conflict – a conflict occurs if demands from the family and/or the work sphere compete with and exceed individual resources (Demerouti, 2007).

According to Greenhaus and Parasuraman (1999), a high level of involvement in unpaid work leads to a high level of conflict in paid work. Similarly, previous research revealed that children in the household – inducing higher family demands – are associated with a higher level of conflict (Crompton and Lyonette, 2008; Greenhaus and Parasuraman, 1999), particularly for women (Hennig et al., 2012). Martinengo et al. (2010) reveal that younger children – who demand more time – are predictors of family to-work conflict. As women still tend to be more responsible for childcare than men (Sayer, 2010), regardless of hours worked in paid employment, they work a second shift at home (Asher, 2011; Hochschild, 2003). Thus, household and family responsibilities are family demands which potentially increase the family-to-work conflict. The work-related demand that is most often discussed is the number of working hours, possibly causing work-to-family conflict (Sayer, 2010).
Long working hours limit the time resources for one’s private life (Chung, 2011; Golden and Wiens-Tuers, 2006; Jacobs and Gerson, 2004; Tausig and Fenwick, 2001), while shorter working hours and part-time employment might contribute to a better work–life balance (Bonney, 2005; Crompton and Lyonette, 2008). In a European comparative study, Fahlén (2012) discovers that shorter working hours reduce conflict in both directions; that is, home-to-work and work-to-home. Related to high work demands, job position/level (Crompton and Lyonette, 2008; Steiber, 2009; Tausig and Fenwick, 2001) and educational level (Jacobs and Gerson, 2004) were also found to increase work–life conflict.
Along the same line of reasoning, Bakker and Demerouti (2007), Bakker and Geurts (2004), Demerouti et al. (2001), Parasuraman, (1996) and Pocock (2005) interpret individual temporal, spatial and organisational control over the work sphere as a job resource. Relating individual control to work flexibility, Hill et al. (2008) defined workplace flexibility as ‘the ability of employees to make choices influencing when, where, and for how long they engage in work-related tasks. Thus, individual flexibility can be seen as a job resource since flexibility allows control over devoting resources to one or the other life spheres. This in turn decreases the likelihood of negative interference. Control in this context can have a buffering effect on job-related demands such as long working hours (Gerson, 2004).
2.2.1 The effect of work family balance on employee performance
Work and family are most important parts in human life that are not easily separated. When trying to balance between the work and family, the employees often end with conflict and dilemma in giving priority to both career and family. The incompatible of demand between career and family seem to create a personal pressure to the employees. More often than not, conflict tends to create pressure to the employees as they try to balance the two roles that need to be performed simultaneously. The last decades have seen dramatic changes in family life, including increases in dual-earner households and single-parent families as well as greater numbers of employed adults who are also caring for elderly or infirm relatives (Neal ; Hammer, 2007), that mean many employees are simultaneously juggling paid work and unpaid family work.

Work–family conflicts are a common source of stress and have been linked to employees’ health and family functioning, as well as labor market decisions and fertility decisions (Gornick& Meyers, 2003). Stress has the implications for the individual as well as the organization and it can no longer be considered merely as the individuals or managers problem (Menon and Akhilesh, 2007). It is now generally accepted that prolonged or intense stress can have a negative impact on an individual’s mental and physical health. When trying to balance work and family responsibilities, many employees experience conflict between these two roles (Day and Chamberlain, 2006). Work – family conflict has been defined as a mutual compatibility between the demands of the work role and demand of the family role. Juggling work and family responsibilities is a common experience for many employees. Although engaging in both work and family roles can have positive effects for individuals, but if employees are unable to balance the responsibilities associated with both roles, the potential for conflicts between roles increases (Frone, Russell and Cooper, 2010).

In the work setting, Rees (2005) researched on the uneven development of gender mainstreaming in Europe and found that women encounter more stress as compared to men. The main reason is women have to balance their responsibilities towards their work and family. While Carnicer et al., (2004) have found that gender is not a significant variable to explain work-family conflict. As the consequences of work – family conflict, De Janasz (2007), found that the conflict of work and family may lower job satisfaction and it may decrease the organizational commitment. In order to overcome the work – family conflict, Boyar et al (2008) suggested that organizations can work to reduce work family conflict by adopting family-friendly programs that help employees balance work and family demands. Specifically, their study implies that organizations should find ways to hold constant or reduce perceptions of work and family demand, along with other direct antecedents of work interfering with family and family interfering with work (Cooper, 2010).
2.2.2 The influence Flexible Working Options on Employee Performance

Pruchno, Litchfield and Fried (2007), conducted a research to find out impacts of workplace flexibility which shows that the most workplace flexibility turns into a win-win situation for both the company and the employee, the research also concluded that flexible working hours increases the employee productivity and allow him to do proper scheduling to move with official and personal life. Employees who are using alternative work schedule are conscious that all the other staff has not been able to utilize it. It is the responsibility of the managers to recognize the staff that will be more productive for opting flex schedule (Fried, 2007).

Employees, who are giving maximum output, will continue to sustain the same output. Supervisor evaluates an employees capability and job performance with the flexible work schedule while maintaining productivity. By decrease in the time, supervisor believes that they can improve employee confidence, loyalty, thus enhancing productivity. Flexible working intended at making convenience for employees to change when, where and for how many hours they want to work. Flexible working persuades employees to bring in new ideas for the conflicts occurring and they convinced line managers to take flexible working options more sincerely. According to the research when organization environment are not reactive to the needs for substitute work schedule, the probability is that staff work less than their capability (Nkereuwem, 2006).

Broadly acknowledged statement is that better workplace environment produces better results. It is considered with due significance to the nature of job and the individuals that are going to work in that office. The employee performance is actually considered by the output that the individual produces and it is related to productivity. Efficiency is affected at business level by such factors such as employees, technology and objectives of the organization. Employees performance and health also affected by the physical environment of the organization (Nkereuwem, 2006).

Morgan (2014) found that flexible time effects on employee behavior. The impact of flexi time is also highly dependent on nature of job like low wage employees get waged on daily basis at hour regulation so they could not make full use of flexi timing. Scandura and lankau (2007), in their research show the relationship between flexible working hours, personal (family) responsibilities and gender differences to job satisfaction and commitment toward organization.

According to Hurtz and Donovan (2000), Better significance is the opportunity that the relationship between personality characteristics and specific work environments may influence performance. Researchers distinguished that the effects of exhaustion, are mostly related to a wide range of physical and mental health problems. People cannot give their output to maximum capacity without good health and proper functioning conditions, which cause failure for the employees’ to reach their own proficient potential and the output required to make the organization perform efficiently and effectively. The secret to the job satisfaction is our ability to control our moods on a daily basis strain. Emotional balance enhances the employees’ ability to handle work pressure and stress, to consistently carry out the responsibilities, and self-indulgence (Worral, 2009).
Emotionally stable people are able to sustain an analytical approach when dealing with a nerve-racking work conditions. Costa and McCrae, (1985, 2002) say that people with neuroticism behavior are those who experience more negative emotions, which would be reflected in poor job attitudes and high levels of job stress. Neuroticism is a propensity to experience harmful effects such as panic, depression, humiliation, annoyance, guiltiness, and hatred. The findings of Van Vianen and De Dreu in 2001 are that high levels of emotional balance contributed to social consistency in teams, and high levels of neuroticism predict irritation and ignorance in relationships. James and Galinsky, 2006, the higher income employees are more offered with the flexible work arrangements than the lower income. This creates a sense of inequality at the workplace and decreases the motivational level.
Worral and cooper (2009) conducted a research to find out effects of working hours patterns in general and by managerial level, and the way they tradeoff between official work and personal life related issues like health, moral, time to family and productivity. The research shows a strong relationship between working hours and increasingly negative impact. Findings regarding tradeoff clearly demonstrate that it’s a very difficult for many managers. The results also disclose the fact that specifically the junior managers and those who are working in non-profit organization are more concerned toward their social life but picture is different for senior managers who works for profit oriented firms they are more concerned toward their office. The research also concluded that long working hours have negative impact of managers’ productivity and on their social life like with family and moral (Cooper, 2009).

2.2.3 Employee Assistance Programs

Employee assistance program can be defined as work-based intervention program designed to identify and assist employees in resolving personal problems (e.g., marital, financial or emotional problems; family issues; substance/alcohol abuse) that may be adversely affecting the employees performance. Employee assistance program plans are usually 100% paid by the employer and can include a wide array of other services, such as nurse lines, basic legal assistance and referrals, adoption assistance or assistance finding elder care services. Employee assistance services can be made available to not only the employee but also to immediate family members or anyone living in their home. (SHRM, 2015).

Employers are recognizing that a holistic approach to wellness results in a happier, more productive employee. According to the Employee Assistance Professionals Association, an employee assistance program utilizes specific core technologies to enhance employee and workplace effectiveness through prevention, identification, and resolution of personal and productivity issues. An employee assistance program, typically consists of a group of professionals, such as lawyers, therapists, counselors and financial experts, who contract with an employer to provide advice and guidance to employees. EAPs help them address personal, non-work issues, and concerns that could possibly affect their work life. Employee assistance programs (EAPs) began in the 1940s by providing employee services that primarily focused on the affect of alcohol use and abuse on job performance.

Over time, this emphasis was broadened to include other personal issues that negatively affect job performance. Tremendous growth in EAP services began in the early 1970s. During that period, EAPs helped employers address a growing list of employee concerns and proactively deal with workplace problems that could lead to violence, physical and mental health issues or declining morale among employees. Today, the vast majority of Fortune 500 companies offer EAPs that deliver a variety of health and productivity services to improve organizational performance, as well as assist individual employees and their dependents. (Attridge, 2005).

Worsening health status and stagnating productivity are major concerns of large employers nationwide. Some employers are experiencing alarming increases in absence rates due to the growing number of claims for short- and long-term disability and Family Medical Leave (FML). Stress is a major concern for employers and managers, and mental health and substance-use conditions continue to be a leading cause of illness and lost productivity for most employers (Nkereuwem, 2006).

According to Roman (2005), factors such as mental health conditions, sleep problems, mental health stigma and substance use and abuse affect business performance by reducing productivity and increasing both planned and unplanned absences. Many of these factors are either preventable or modifiable. While stress is known to affect productivity, few employers have found successful strategies to reduce the negative effects of chronic stressors. Many employees experience damaging levels of stress due to problems they experience in their home or work lives (Roman, 2005).

Todays workforce faces many new causes of stress, including the economy, long commutes, the time and energy required to care for ailing parents or young families and the availability of new technologies that blur the line between work and home. Furthermore, common behavioral health conditions such as depression can negatively affect productivity. Depression itself can be life-threatening, but it may also increase an individual’s risk for developing common medical conditions such as heart disease. Two decades of research show that persons with depression are at a greater risk for developing heart disease than healthy persons. Left untreated, depression may have a negative impact on comorbid (co-occurring) disease outcomes and reduce an individual’s ability to comply with treatment. (Rees, 2005).

2.3 Empirical Literature Review

2.3.1 Work life balance
Iqan, (2010) Conclude that, a successful balance between work and non-work roles are beneficial for both employee and employer. And this balance in work and life domains enhances quality of personal relationship and organizational outcomes. Work/life balance is a broad concept that encompasses prioritizing between work (including career and ambition) on one hand, and life (including areas such as health, leisure, family, pleasure and spiritual development) on the other. There are also two key concepts related to work/life balance – achievement and enjoyment (Bowman 2013).

According to Susi (2010), Work life balance is drive for satisfaction of employees. Many organizations feel the need of work life balance which include retention of valuable work force, reduce work family conflict, and reduce employee stress, job satisfaction and better life balance. Work life balance practices need to be supported and encouraged at workplace culture. Strong and supportive organizational culture increase employee intent to remain in the organization. Felicity, Asiedu, Appiah, (2013) concludes that work life balance is important in enhancing employee performance at work and home. Gender difference exists in work life balance needs because work and non-work responsibilities are different for male and females. Some research results show that female demonstrated more need for work life balance as compared to male. An individual derive satisfaction in life from work and family domains. Researches find that work balance practices effect overall organization and individual performance.

Lockwood (2012) defines work life balance as a managing work and personal responsibilities. Work-life programs require support from senior management. For work/life benefits in work environment it is helpful to have a corporate culture that encourages employees to look at business in an entirely different way and supports and accepts employees as individuals with priorities beyond the workplace. Work life balance programs increased employee motivation and productivity. Work-life environment is a concept that supports the efforts of employees to split their time and energy between work and the other important aspects of their lives. Work-life environment is a daily effort to make time for family, friends, community participation, spirituality, personal growth, self-care, and other personal activities, in addition to the demands of the workplace. Organizations are social systems where human resources are the most important factors for effectiveness and efficiency and need effective managers and employees to achieve their objectives. Organizations cannot succeed without their employees efforts and commitment (Hobson, 2009).

Job satisfaction is critical to retaining and attracting well-qualified employees. Exceptional organizations have leaders that create work environments where people can achieve work-life balance and well-being as they define it for themselves (Spinks, 2004). A satisfied work force is essential for the success of organizations and their businesses. Dissatisfied employees make organizations dysfunctional, damaging their financial performance. Job satisfaction and work life balance are more likely to drive employees to remain with their current employers than Work-life balance is assisted by employers who institute policies, procedures, actions, and expectations that enable employees to easily pursue more balanced lives. The pursuit of work-life balance reduces the stress employee experience. When they spend the majority of their days on work-related activities and feel as if they are neglecting the other important components of their lives, stress and unhappiness result. Work-life balance enables employees to feel as if they are paying attention to all the important aspects of their lives.

Because many employees experience a personal, professional, and monetary need to achieve, work-life balance is challenging. Employers can assist employees to experience work-life balance by offering such opportunities as flexible work schedules, paid time off (PTO) policies, responsible time and communication expectations, and company-sponsored family events and activities. Managers are important to employees seeking work-life balance. Managers who pursue work-life balance in their own lives model appropriate behavior and support employees in their pursuit of work-life balance. They create a work environment in which work-life balance is expected, enabled, and supported. They retain outstanding employees to whom work-life balance is important (Spinks, 2004).

Literature shows that managers have valuable role in encouraging employees to manage their work and life activities. Strong relationship exists between work life balance and employee satisfaction, hence companies should make policies and programs for employees. Managers can apply different roles of work-life balance to manage employees work life balance and provide success to the company (Rani 2011). When employees are not clear about their roles to be performed then employees are unable to meet organizational goals and it also has an impact on their personal life and employees become dissatisfied towards their job and organization faces lack of effectiveness (Spearritt, 2010).

A study conducted in Pakistan by Nadeem and Abbas, (2009) on the relationship among work life conflict and employee job satisfaction at all levels of the management in public and private organizations, showed that job satisfaction at top level of management has negative correlation with family to work interference, family to work interference and stress and job satisfaction has positive correlation with job autonomy. Job satisfaction at the middle level of employees decreases when work life conflict and stress increases. Job satisfaction at the lower level of employees has negative correlation with stress and family to work interference and positive correlation with job autonomy.

A study by Hanglberger (2010) on the effect of work-life balance, specifically working hours on employees’ job satisfaction found a positive relationship between them. The same was analyzed by Gash, (2010) for women in UK and Germany and the findings supported Hanglberger studies, showing a positive effect of reduced working hours on employees’ life satisfaction. Another study (Malik, 2010) was conducted in Pakistan to investigate the relationship between work-life balance, job satisfaction and turnover intentions among medical professionals in hospitals.

The level of employees’ job satisfaction increases by many factors and when employees are satisfied with their work, they feel motivated (Noor, 2011). The demand of employees work life balance is increased by change in trends in the business such as change in organizations structure, diversity of work force and female employees working in organizations. Organizations should provide work life balance facilities to their employees so that employees can perform their duties effectively and leads organization to the success (Parvin and Kabir, 2011).
Another study by Dev 2012, conducted in India indicates that work-life balance is significantly correlated with job satisfaction in the service industry. It suggested that female employees should be given more facilities such as flexi time, job sharing, child care, etc. to gain their organizational commitment. It was revealed that those doctors who are better in managing their work-life shows higher satisfaction with jobs and less turnover intentions. Job satisfaction has negative correlation with work stress, family to work interference and work to family interference but have positive correlation with workload. Employees productivity is reduced and their turnover and absenteeism are increased due do work life strain and most of the institutions also complain that they cannot much facilitate their employees to balance their work and family responsibilities (Dev, 2012).

Fatima and Sahibzada (2012) conducted a study on work-life balance in the universities. They concluded that due to heavy workload in universities, staff becomes dissatisfied. Hence, universities should develop strategies that could facilitate faculty needs to balance between work and life activities to achieve competitive advantage. A study was conducted by Maren, (2013) to analyze work-life balance and job satisfaction among teachers exposed a negative relationship between work-life conflicts and job satisfaction. The study suggested that if organizations offer facilities to reduce work-life conflicts, it will lead to improvement in employees job satisfaction. Chahal, (2013) suggested to increase the efficiency of the employees bank should timely appraise their employees and encourage them to work hard because satisfied employees are reason for the success of the organization. When employees are satisfied with their jobs they become loyal and committed to the organization. Saleem, (2013) say that organization should make strategies and policies that will help employees to have clear understanding regarding their job tasks and objectives and if employees are not satisfied with their job they will not pay attention to their work and will not make customers happy.

2.4 Summary of Literature

Konrad and Mangel, (2000), found no relationship between a composite measure of work-life initiatives and productivity. However, while there is not strong evidence for the universalistic approach for work-life policies regarding their effects on job performance; Perry, Smith and Blum (2000), provide evidence for the configuration approach. Specifically, organizations with a greater range of work-family policies (including leave policies, traditional dependent care and less traditional dependent care) had higher organizational performance, market performance and profit-sales growth.

Furthermore, the research has been dominated by North American and North European academics. This reflects the fact that the contemporary debate is partly about affluence and its consequences and according to Crompton (2006), Work Life Balance may be a misleading phrase as it implies that employees.

It is also argued that the conceptualization of work-life balance is not applicable to all types of people, for certain low income employees the concept of work-life balance may be unthinkable if they must struggle to find enough work to make ends meet (DeBruin and Dupuis, 2004). Employees may work longer hours because flexible arrangements increase their availability for work and reduce their commuting time, or because they are exchanging leisure time for flexibility. There is also ambiguity around the definition of work. The term work often refers to paid employment but may also refer to that which includes unpaid work at home and in the community (Eby, 2005). Greenhaus,(2003) have also questioned the self-evident assumption that work-family balance always leads to favorable outcomes since according to them this is an empirical question which has not yet been firmly answered due to miscellaneous definitions of work-family balance.

Additionally, the use of family-friendly provisions such as regular leave entitlements, flexibility and part-time work may inadvertently indicate less career commitment, reducing the likelihood of career progression (Hosking and Western, 2008). While part-time work is likely to reduce general experiences of work-life conflict, it is also widely observed that part-time hours often involve work that is lower paid and less secure, involving less autonomy and skill discretion (Bardoel, 2007). Hence, reduced hours may improve work-life outcomes, but other important aspects of job quality, opportunity and financial security are substantially reduced.

2.5 Research Gap
Researcher(s) Focus of the Study Research Gap
Beauregard Henry (2009) Making the link between work life balance practices and organizational performance These scholars have concentrated their studies in the developed countries; it is with this in mind that this study will attempt to fill this gap by addressing work life balance and employees performance in the service industry in Kenya.
Mordi, (2011) Extent to which work-life balance policies/practices are a reality for employees in the banking sector Study sought to establish the levels of awareness of the availability of work life balance policies in the banking sector in Nigeria. Thus does not look at the effect these policies have on the performance of employees. This study will therefore seek to fill these gaps.
Lilian, Menezes and Kelliher (2011)
Flexible working arrangements, work related outcomes and employee outcomes
Study looked at performance at organizational level, and individual level which mostly inferred large surveys done making it secondary data hence mixed findings reported. Generalizing the findings is therefore a problem for this study.
Gillian andMarilyn(2004) Connections between macro, organizational and individual levels of WLB policy and practice in UK Carried seven case studies–five in the public sector and two in the voluntary sector. They found a connection between organizational and individual levels in terms of mutuality in both needs and benefits are arguably necessary for the effective development and implementation of WLB. While this study recognizes the connectivity of organizational and individual levels in the use of WLB practices it does not concentrate on these connections but on the effect of these practices on the performance of employees. This study seeks to investigate this in Kenyan companies as opposed to UK with specific WLB practices under scrutiny.
Lockwood(2003) Work life balance: Challenges and solutions in the USA Identifies three factors-global competitions, personal lives/family values, and an aging workforce–as present challenges that impair work life balance. Suggests companies capitalize on factors using work/life initiatives to gain a competitive advantage .Recognizes the importance of organizational culture in the use of work life balance practices, but did not point the role it plays on performance of employees when specific WLB practices are used. This study seek to address this and focus on specific WLB practices and how they affect the performance of employees in the service sector in the developing countries context
Quazi, Koh and Huang, Khoo(2011)

Flexible work arrangements, child care facilities, employee support schemes, perceived supervisor support

Study used hierarchical regression analysis indicating both perceived availability and utilization of work life initiatives were positively related to job satisfaction, commitment and negatively associated with turnover intentions. Questionnaire was developed from scales developed by other researchers and were tested for content validity and clarity by subject experts, this is a large number which is good for any research. The study suggested a further study to incorporate moderating and mediating variables such as gender differences and perceived organizational support.

2.6 Conceptual Framework

Independent variables Dependent variable

Source: Author, 2018


3.0 Introduction
This chapter outlines the research design, study area, study population, sampling techniques, instruments, data presentation and data analysis and ethical considerations of the study.
3.1 Study Area

To achieve the study objectives the researcher will use the employees in Safaricom PLC Ltd and Jubilee Insurance Kenya which will comprise of the managerial staff and non-managerial staff.
3.2 Research design
The study will employ descriptive survey method as this method gives wider room for the researcher to study the subject matter. It also ensures that inferences can be made on characteristic, attitude and behavior of the population under study. Kasomo (2007) defines descriptive research methods as methods that are concerned with the conditions or relationships that exist. Such methods are designed to investigate the current status and nature of the phenomenon.
3.3 Target Population

The target population is the entire set of units for which the data are to be used to make inferences. For this study the target population will be drawn from a population of 593 employees working in various positions in the selected companies. The study will target key informants like the managers, supervisors and other employees who have an understanding of the operations of the company.

Company records (2016) indicate that Safaricom PLC has over 4,000 employees spread across the country employed as either permanent or contractual employees and the Company records (2016) of Jubilee Insurance Kenya Ltd also has 878 employees employed on either permanent or contract terms. This study will focus on permanent employees of both organizations.

Table: 3.1 Target population

Size Sample
Insurance Jubilee Insurance Kenya Ltd Top level
Middle level
Section heads 30 6
Other staff 210 42
Total 268 54
Tele -communication Safaricom PLC Top level
Middle level
Section heads
65 13
Other staff 235 47
Total target population 593
Sample size 119

Source: Company records 2016

3.4 Sampling Procedure and Sample Size

The technique to be used is stratified random sampling which according to Kasomo (2007) helps in identifying groups in the population. Sampling is to be used on about 20% of staff in each category of the selected companies. This will ensure that the sample is a good representative of the study population as Kerlinger (2003) recommends 10% minimum sample for a descriptive research. Purposive sampling will also be used to identify the various managers for interview since they will be key informants who may have certain information, because of their expertise, that employees may not have or allowed to give (KIM,2015).To arrive at the sample size of the respondents, the study will adopt a sample determination table used in social research. From Table3.1, a total of 593 populations is equivalent to 119 sample size.

3.3 Data Collection Instruments
3.3.1 Questionnaire

Kasomo (2007) defines a questionnaire as a carefully designed instrument (written, typed or printed) for collecting data direct from people. That a typical questionnaire consists of questions and statements. Two types of questions are normally asked; close ended questions and open ended questions. Closed ended questions are normally questions that are structured in such a way the respondents are provided with a list of responses from which to select an appropriate answer. The open ended questions enable the researcher to receive the answer open to what the respondent wishes to give. The advantage of using this type of instrument is the ease with which it accords the researcher. Moreover, they are easy to administer and economical to use in terms of time and money.

In this study the both questionnaires will be used to get uniform responses from given companies since the study targets persons in management who have adequate information (managers/supervisors) and the employees under them. The structured questionnaires are accompanied by a list of all possible alternatives from which respondents will select the suitable answer that describe their situation by simply ticking.

3.4 Measurements of Variables

According to Kothari (2004) measurement is the process of mapping aspects of a domain onto other aspects of a range according to some rules of correspondent. It involves devising form of scale in range and then mapping the properties of the object to be measured on this scale. The study seeks to investigate the effect of work life balance on the performance of employees in selected companies in the service industry in Kenya specifically in Nairobi County. The Likert scale will be calibrated to adequately bring out the most fairly honest opinion of the respondents regarding the questions covering the dependent and independent variables. Kothari (2004) argues that a Likert scale is relatively easy to construct and permits the use of statements that are not manifestly related. He further explains that they are not only useful with respondent centered studies but are also considered more reliable.

Table 3.2: Summary of the Operationalization and measurement of the study variables

i) Work Life Balance Practices

Indicators Instrument

Work Family Priorities

Adopting family-friendly programs that help employees balance work and family demands with other direct antecedents of work interfering with family and family interfering with work
• Balanced work and family
• Higher Role Conflict
• Tensioned interpersonal Relations

Questionnaire Likert Scale

Flexible Working Options
Programmes /schedules that enable employees to vary the number of work hours daily as long as they maintain regular number of work hours on a weekly basis. • Flexible work schedules/
Programmes and Working Hours
• Childcare Facilities
• Leave policy

Questionnaire Likert Scale
Employee Assistance Programs
An arrangement where employees share the duties and responsibilities of one job.
• Professional referrals
• Financial backups
• Counseling
Questionnaire Likert Scale

ii) Employee Performance

Indicators Instrument

Performance The outcomes of activity and endeavor which can be assessed qualitatively by reference to standards of performance defined in the form of meeting the required standards. • Competence
• Customer satisfaction
• job satisfaction
• improved service delivery
• Employee loyalty and commitment
• Competence
• Customersatisfaction
• job satisfaction
• improved service delivery
• Employee loyalty andcommitment

Questionnaire Likert Scale/nominal scale

3.5 Validity of Research Instruments

In research, the fundamental rule of the thumb is that every information collected must be accurate (Kasomo, 2007). This implies that what is used to obtain that information must also be accurate thus the concept of validity. It implies that if whatever is used in the study makes it possible to get what should be gotten then there is validity. Fraenken (1993) explains that the instrument should be given to an individual who can be expected to render an intelligent judgment about the adequacy of the instrument. The instrument is then amended according to the expert’s comments and recommendations before being administered. For the validation of the instrument therefore, the researcher will consult supervisors and experts in the Human Resource Department who will give expert advice and suggestions on the instrument. The aim is to determine whether the items are adequate in content, wording, sequence, form, layout, question difficulty and instruction. The feedback obtained will be used to correct the questionnaire.

3.6 Reliability of the Instruments
According to Kosomo (2007), reliability refers to how consistent a research procedure or instrument is. It is the degree of consistency demonstrated in a study. In this study therefore the provisional draft of the questionnaire will be pre-tested on a pilot group similar to the sample to which the questionnaire will be given. The test–retest method will thus be used on the pilot group. The score on the two sets of measures will then be correlated to obtain an estimated coefficient of reliability. The coefficient will be computed using the Karl Pearson’s product moment coefficient of correlation given as r. A coefficient of between 0.5and 0.7 will be acceptable for this study. The items will be scored individually and aggregated to get the total score on the whole instrument for both test and retest administration.
For this purpose then ten questionnaires will be used for piloting by the researcher. Cronbach’s alpha, ? (or coefficient alpha), developed by Lee Cronbach in 1951, measures reliability, or internal consistency. “Reliability” is how well a test measures what it should. For example, a company might give a job satisfaction survey to their employees. High reliability means it measures job satisfaction, while low reliability means it measures something else (or possibly nothing at all).

Cronbach’s alpha tests to see if multiple-question Likert scale surveys are reliable. These questions measure latent variables — hidden or unobservable variables like: a person’s conscientiousness, neurosis or openness. These are very difficult to measure in real life. Cronbach’s alpha will tell you if the test you have designed is accurately measuring the variable of interest.

N = the number of items.
c? = average covariance between item-pairs.
v? = average variance.

3.7 Data Analysis Techniques

Data analysis will be done at two levels; first the data collected through questionnaires will be coded manually and analyzed using SPSS (statistical programme for social sciences).The data will then be organized under different variables and the frequency established. Percentages and the ratios will be calculated to allow for the use of descriptive statistics. The results will then be presented in the frequency tables and charts. The second level of the data analysis will involve inferential statistics where the Pearson’s coefficient of correlation will be used to establish the relationship among the variables.

3.8 Ethical Considerations

The study will put in place a series of ethical considerations. A letter of introduction from the University will be provided to the researcher to identify her as a bonafide student permitted to carry out the research. The researcher will then obtain a research permit and a letter from the National Commission for Science; Technology ; Innovation copied to the top management of the companies clearing her to collect data from the target respondent highlighting the topic of research. On all the questionnaires to the various respondents, there will be a forward note assuring them on anonymity, confidentiality and the voluntary participation.

Chapter in many countries, both developed and


1 Background Fuel subsidies are known as any government action directed primarily at the energy sector that lowers the cost of energy production, raises the price received by energy producers or lowers the price paid by energy consumers.Fuel subsidies have long been used in many countries, both developed and developing, to encourage the production of goods and services through lowering the cost of production and in certain cases to lighten the burden of rising prices on consumers. As in other countries, the Sudanese government has been subsidizing fuel products where they are sold below the market price. Evidently, fossil fuel subsidy has made a hole in the country’s budget, contributing to the fiscal deficit, which stood at 5.

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2% of gross domestic product GDP in 2012. (IMF Sudan report 2013).Many researches have been conducted to provide better understanding about fossil fuel subsidies.

Nonetheless, most discussions focused on the cost and benefit of subsidies while some others assessed the impact of subsidy reform. There are several reasons to justify the presence of subsidies. First of all, low price of energy guarantees energy access for the poor. Moreover, by subsidising energy, the price of other commodities will be more affordable to the poor. Secondly, fossil fuel subsidy plays an important role in supporting industrial development and boost investment.

However, there are some critics toward the presence of fossil fuel subsidy. Those who criticize it argue that fossil fuel subsidies bring negative impacts on the economy and environment. Subsidies depress the government budget and decrease the budget available for infrastructure, which will hinder growth in the future.Recent studies also show that the cost of subsidies outweighs its benefit and that the subsidies are wrongly targeted. The evidence shows that the rich are those who enjoy much of the benefit of subsidies. Conducting research in Indonesia, Agustina et al. (2008) found that most of the subsidies went to the richest 20%. Similarly, Dartanto (2013) found that about 72% of oil subsidies had been enjoyed by the 30% highest income groups in the societies.

The International Monetary Fund (IMF) estimates about Sudan found that about 48% of Fuel subsidies had been enjoyed by the 20% highest income groups in the society reflecting the high consumption of subsidized energy among these households.This situation raises a call for subsidy reform, which aimed to eliminate the presence of fossil fuel subsidies. It was started in the Pittsburgh Summit Commitment in 2009 when some countries agreed to remove subsidies.

While some other countries still mitigate the adverse impact of subsidy removal before deciding to phase out the subsidies. Some countries are in doubt to phase out subsidies since its cost and benefit is still unclear.Sudan is among the countries that are implementing such a policy reform to reduce fuel subsidy gradually.

The subsidy cuts were announced as part of a programme designed to deal with the country’s widening fiscal deficit following the secession of South Sudan in 2011.There are so many issues related to fossil fuel subsidies. However, this research will focus on the impact of fossil fuel subsidies toward economy especially on GDP as a good indicator for economic growth, and the main objective of this research is to investigate the relationship between fossil fuel subsidies and economic growth.1.2 Statement of the ProblemFuel subsidy have long been used in many countries, both developed and developing, to encourage the production of goods and services through lowering the cost of production and in certain cases to lighten the burden of rising prices on consumers. Fossil fuel subsidy is critical to the Sudanese economy, whenever the price of fuel goes up, the price of everything goes up. This is because transport cost for providing essential services goes up and it creates multiplier effect in the economy.Although Subsidy fills the gap between the domestic price and the international price and keeps the price lower than its international price bot some prior studies show that fuel subsidies hinder growth in the long term through its effects on government budget.

1.3 Research Objectives In this research, critical attention is devoted towards investigating the relationship between fuel subsidy and economic growth. This research try to attain the following:To determine the responsiveness of fuel subsidy to changes in gross domestic product.To ascertain the existence of a relationship between fuel subsidy and economic growth in Sudan.To explore policy initiatives that can be put in place to promote economic growth.1.4 Research HypothesesThere a significant relationship between fuel subsidy and gross domestic product.Fossil-fuel subsidies have a negative effect on gross domestic product.

There is a causal relationship between fuel subsidy and gross domestic product.1.5 MethodologyAn econometric approach has been adopted drawing growth model by putting GDP as a dependent variable, and fuel subsidy as independent variable with the inclusion of three other explanatory variables from which to estimate the impact of fuel subsidy on economic growth.The research employs a quantitative time series approach using annual country level observations between 1990 and 2015. This will include ordinary least squares (OLS) regression analyses, unit root stationarity tests, Granger causality test, normality, heteroscedasticity, serial correlation and stability tests.1.6 Scope and Limitation of the research Since the research focuses on the relationship between fuel subsidy and economic growth in a specific country, Sudan. The scope of this research is to analyze the relationship between fuel subsidy and economic growth in Sudan, limited to the 1990 to 2015.

The main reason why the scope is limited from the year 1990 is due to the lack of fuel subsidy data.1.7 Structure of the ResearchThis research will comprise five chapters structured as follows: chapter one is an introductory. It states the research problem and its significance, objectives, hypothesises, methodology and source of information. Chapter two provides the theoretical background through reviewing the relevant parts of the extensive literature on fossil fuel subsidies and its positive and negative impacts on economic. Chapter three overviews the main characteristics of the Sudan Economy and its performance and polices.

Chapter four includes econometrics model and the empirical analysis which aims to investigate the relationship between fuel subsidy and economic growth. Chapter five will be reserved for data analysis, interpretation of the results, conclusions and recommendations.Chapter TwoLITERATURE REVIEW2. 1 Subsidies: definition and measurement2.1.1 What is a subsidy? It has sometimes been argued that the concept of a subsidy is just too elusive to even attempt to define. As a result, the fairly large body of research on government subsidies uses a variety of concepts to define a subsidy.

In the most general terms, a subsidy can be defined as: any government assistance that allows consumers to purchase goods and services at prices lower than those offered by a perfectly competitive private sector. Under this definition, subsidies to consumers include cases where the government, as a producer of goods and services, sells its output at a price that does not reflect all costs, including a normal return to capital, or compensates the private sector for doing so. This is a broad definition in order to identify all existing subsidies in a sector, regardless of whether they are considered good or bad. This includes most support that could be considered a subsidy except for environmental externalities (such as carbon emissions or pollution). This definition extends beyond the narrow subsidy concepts that are employed in fiscal or national accounts, and it leaves room for a wide range of government activities to be defined as subsidies. However, such a broad definition is necessary to capture both explicit and implicit subsidy elements that are contained in different forms of government intervention while a wide array of government activity may contain subsidy elements. Subsidies may be classified on the basis of the following seven categories:Cash subsidies or Cash grants: direct government payments to producers or consumers.

Credit subsidies: government guarantees, interest subsidies to enterprises, or soft loans (i.e., low-interest government loans).

Tax subsidies: reductions of specific tax liabilities.Equity subsidies: government equity participations.In-kind subsidies: government provision of goods and services at below-market prices.Procurement subsidies: government purchases of goods and services at above-market prices.

Regulatory subsidies: implicit payments through government regulatory actions that alter market prices. But the above classification has at least three shortcomings. First, the various subsidies contained within each of the seven categories are not homogeneous. Tax subsidies, for example, may take on different forms, including those obtained through, tax credits, tax deferrals, or the accumulation of tax arrears. Second, some subsidies may, at least a priori, belong to several different categories. For example, consignment subsidies, that is, grants given to projects that are only repayable should the project turn out to be commercially successful, may, if the project is unsuccessful, be a cash grant, or, when the project is successful, become a credit subsidy when the interest rate is below the market rate. Third, it leaves ample room for ambiguities and measurement problems.

For example, overvalued exchange rates affect market prices and access, and, while they contain subsidy elements (e.g., to those who purchase imported goods), they also entail costs or negative subsidies (e.g.

, to exporters); the full extent of the subsidy element of overvalued exchange rates may be difficult to establish, even on a gross basis.2.1.2 How to measure subsidies? There are several ways to measure subsidies, each of which has its advantages and shortcomings.

One of most popular way to measure subsidies is budgetary cost which can be measured either on a gross or net basis. However, government budget data only provide an incomplete picture of the full extent of subsidy outlays, as they may show subsidies either under the budget category `subsidies’, under various other headings, or not at all. More specifically, using government budgets for assessing the cost of subsidies has three main shortcomings:First, the budget category `subsidies’ does not contain all government subsidies. In government fiscal accounts, only cash subsidies are classified as subsidies; other types of subsidies (i.

e., credit, tax, equity, in-kind, procurement, and regulatory subsidies) are classified elsewhere or excluded from fiscal accounts. For example, tax subsidies show up implicitly as reduced tax revenue, but not explicitly in the budget category (subsidies), also loans are frequently classified as (net lending) rather than subsidies.Second, government fiscal accounts do not capture most operations that create subsidies. Hence, a significant part of subsidy operations is carried out (off budget).

For instance, some subsidy operations, such as payments to cover operational losses of state enterprises, have often been kept `off budget’. also, government fiscal accounts often do not contain subsidization operations provided by international organizations. For example, subsidies bestowed upon countries in the context of the common agricultural policy of the European Union and paid from the common budget are not reflected in the national budgets.

Third, fiscal accounts do not show the full economic impact of current subsidy practices. In many cases the budgetary impact may be delayed, but, eventually, it is likely to occur.2.

2 Subsidies as a policy tool2.2.1 Why subsidize? There are numerous reasons why governments may decide to use subsidies as a policy tool. From an economic perspective, the main purpose of subsidies is to reallocate resources, that is, to alter economic activity and behaviour to achieve an outcome that is `more desirable’ from what would occur otherwise. Hence, arguments for subsidies are often based on some concept of efficiency or economic justice.

But even when subsidies generate a more desirable outcome, it does not mean that the entire value of the subsidy is corrective in nature, or that the particular type of subsidy used for a given purpose is best among the available policy alternatives.Economic arguments for using government subsidies generally fall into three main categories:offsetting various market imperfections.exploiting economies of scale in production.meeting social policy objectives, including, for example, protecting the poor, changing the distribution of income, and increasing or retaining employment.

2.2.2 How governments subsidize? Any given policy objective can usually be pursued through different policy tools. Subsidization objectives are no different. Subsidies are intended to benefit specific groups of beneficiaries, but the extent to which they do frequently depends on how the subsidy is provided. Fossil fuel subsidies, which exist in many countries, may be used to illustrate these points. The intended beneficiaries of fossil fuel subsidies are consumers, but the subsidy may be paid to either consumers or producers, and if it is given to producers, it may either be directed at inputs or outputs, or be given in the form of general operating support.

Defining Fossil Fuel Subsidy Countries effort to advance fossil fuel subsidy reform have suffered from the lack of an established definition of what constitutes a subsidy, which makes the assessment of public support and cross-country comparison very difficult. and gives countries more room to omit mention of particular policies. The World Trade Organisation (WTO) defines a subsidy as ‘any financial contribution by a government, or agent of a government, that confers a benefit on its recipients in comparison to other market participants’. This definition of subsidies and its detailed components has been accepted by the 153 member states of the WTO, and can be used as a basis for identifying fossil fuel subsidies, which include subsidies for the production and consumption of coal, oil and gas.The World Trade Organisation takes a broad approach and defines a subsidy as “any financial contribution by a government, or agent of a government, that confers a benefit on its recipients”.

in the context of fossil fuels, subsidies are often split into two non-exclusive categories: those that reduce the cost of consuming fossil-based energy, called consumer subsidies, and those that support the domestic production of fossil fuels, called producer subsidies. This research focuses on consumer subsidies only. Though subsidies come in many different forms, the types of fossil-fuel consumer subsidies that are most commonly observed include:Direct government expenditure to maintain fossil-fuel prices at below-market levels.Selling domestically produced energy at below-market prices.Regulation requiring other market actors to absorb the cost of selling fossil fuels at below-market prices.

Setting prices that do not recover the full costs of energy production or the costs of maintenance and reinvestment in energy infrastructure.Foregoing revenue through tax exemptions, rebates or credits for fossil fuel consumers.Several methodologies –not mutually exclusive– can be used to identify and measure consumer subsides:Price-gap approach Measures the net price effect of all energy subsidies and taxes in place. It does this by quantifying deviations between the price of international benchmarks and the price of fossil fuels within a country, adjusted for the costs of bringing the commodity to the market.

The basic formula of price gap approach is as follows:Measuring the amount of subsidies per litres/gallons:?P=Pr-PcCalculating the total amount of subsidies in a given year:S=?P×EWhere:?P? Price gapPr ? Reference price /International price Pc ? Consumer priceS ? Size of subsidyE ? Fossil fuel energy consumptionA relatively similar formula was also introduced by the International Energy Agency (IEA) in 2015 to calculate their consumer subsidies. The formula is as follows:Subsidy = (Reference price – End-user price) × Units consumedFrom those two formulas, if the difference between the reference price and end user price is negative, the difference represents taxes. Meanwhile if the difference is positive, the difference represents subsidies.Bottom-up approach This approach captures transfers created by specific policies, such as the direct transfer of funds or liabilities and credit support.Hidden cost approach Estimates the value of energy that is consumed but not sold. It does this by estimating the difference between a utility’s current revenue and the revenue it would receive if it operated efficiently-charging tariffs that cover full costs, collecting all bills and with normal losses.

The consumer support estimate Is a framework for organizing information on consumer support. It covers both measures that lower prices and those that support consumers through other means, thus requiring the use of both price-gap and bottom-up estimation methods or their equivalents.2.4 International organisations Methodologies for estimating fossil fuel subsidy Despite the lack of globally agreed definitions, three international organisations (the IEA, the IMF and the OECD) have attempted to collect data on fossil fuel subsidies in a systematic way, albeit with different methodologies:International Energy Agency (IEA) The IEA defines an energy subsidy as “any government action directed primarily at the energy sector that lowers the cost of energy production, raises the price received by energy producers or lowers the price paid by energy consumers.

The IEA provides estimates annually of consumer fossil fuel subsidies for 40 developing countries, including the world’s top subsidisers. They are calculated using the price-gap approach, based on the differential between the end user price of a specific fossil fuel and a reference price of the same fuel. The IEA estimates that fossil fuel consumption subsidies in 2013 totalled USD 548 billion, or 5% of the total GDP of the 40 countries included in the analysis.Organisation for Economic Co-operation and Development (OECD): The OECD takes a different approach to estimate the extent of consumption and production subsidies together in its member states. The OECD uses an inventory based approach to estimate the value of fossil fuel subsidies in its member states. This method identifies all government measures (subsidies and tax breaks) that support fossil fuel production or consumption, and calculates and adds up the value of all these measures based on the government’s budget. The OECD estimates that in the 2005-2011 period an annual average of USD 55-90 billion was spent on fossil fuel (production and consumption) subsidies in its member states.International Monetary Fund (IMF): The IMF provides the most comprehensive pre-tax and post-tax subsidy estimates for 176 countries.

Pre-tax subsidies are mostly based on the price-gap approach, and are therefore similar to IEA estimates. The IMF’s estimate for global pre-tax subsidies in 2011 totalled USD 492 billion, relatively close to the IEA’s estimate of USD 523 billion for the same year. According to the IMF, when the costs of climate change, local air pollution, congestion, accidents and road damage are included in the calculated subsidies for fossil fuels (which are not included in the OECD and IMF estimates), the global cost to society will be USD 5.3 trillion in 2018.Although this progress in the estimation of subsidies is extremely valuable, substantial gaps remain because of limited transparency at the national level, and a full accounting of global energy subsidies has never been completed. As a result, it is likely that existing global estimates are well below the actual levels of subsidies.2.

5 Economic, social and environmental costs of subsidies for fossil fuel When the full economic, social and environmental costs and benefits of fossil fuel subsidies are taken into account, their net costs far outweigh the benefits of sustaining them, and there are increasingly less costly alternatives that can achieve the same policy objectives.Here are some Economic, social and environmental costs of fossil fuel subsidies:Creating a significant burden on government budgets Energy subsidies can create a burden on government budgets (and more widely on trade flows and exchange rates), as when domestic fuel prices do not adjust automatically to changes in world prices, the government must step in to offset a portion of the shift. More directly, energy-consumption subsidies lead to greater domestic demand for energy products that must be imported, or that could potentially be exported, thus decreasing revenue and worsening the trade balance. These impacts can be particularly acute in countries that produce fossil fuels and which generate a significant portion of their revenues from oil, gas or coal, where subsidies have a significant impact both domestically and internationally. The significant proportion of many country’s budgets spent on maintaining subsidies to fossil fuels is a drain on public finances and reduces the resources available to address social and development objectives. In a number of countries that provide high levels of fossil fuel subsidies to consumers, such subsidies may be equivalent to, or significantly exceed, expenditure on health.Decreasing competitiveness of the economy Governments often use the under-pricing of energy inputs to support production across particular sectors or firms. The purpose of these subsidies is often to promote national or regional economic development.

However, these subsidies may, in fact, encourage an inefficient allocation of resources across the economy by undermining efficiency, and encouraging over-consumption. Countries where energy prices are much lower than the cost of producing it are characterised by very high consumption per capita and low energy efficiency. In Venezuela, which has some of the world’s highest levels of fossil fuel subsidies, petrol consumption per capita is 40% higher than in any other country in Latin America, and more than three times the regional average for Latin America and the Caribbean(LAC).

This impact of subsidies on inefficient over-consumption of resources by key industries and energy production has an impact not only on domestic consumption, as in Venezuela, but also means its highly subsidised oil is distributed internationally. Furthermore, every barrel sold domestically at a subsidised price cannot be exported at the international market price for hard currency.Compromising energy security Energy subsidies often start out as temporary income buffers. According to many governments these subsidies are intended to protect the population from the impact of international price hikes.66 In fact, governments may be less concerned about fluctuations in energy prices than about the resulting fluctuations in income (potential consumption) and its distribution.67 Since fossil fuel subsidies have been found to aggravate inequality and undermine the capacity of the poorest to obtain access to energy, they may in fact do more harm than good in protecting populations from volatile energy prices.Perpetuating inequality and limiting access to energy and failing to address the needs of the poorest Consumer subsidies are often justified as a way to help the poorest households to obtain access to energy. There is evidence that fossil fuel subsidies are actually regressive, since their benefits accrue mainly to middle- and higher income groups, while their costs are borne by the whole population.

IMF review of subsidies in Sudan found that the benefits from subsidies are captured by higher-income households, the top income quintile receives 48 percent of total subsidy, compared to 3 percent received by the bottom income.Figure (2.1): Distribution of subsidy benefits by social groupsSource: Ministry of Petroleum and IMF estimates. Although the benefits of subsidies accrue mostly to middle-class and wealthier sectors, the adverse impact of their removal can still fall disproportionately on the poor. As a result, the poor will be directly affected not only by the rising prices resulting from reforming subsidies, but also indirectly through the increased cost of transport and food.

Any reforms to phase out subsidies for fossil fuels should therefore include measures to mitigate the likely negative impacts on the poorest households.Damaging public health by increasing air Pollution In many towns and cities, the pollution associated with the combustion of fossil fuels either for uses such as transport, or in transformation activities (to generate electricity and heat), is a major public health problem. It is estimated that, globally, air pollution resulting from the combustion of fossil fuels was responsible for 3.

7 million premature deaths in 2012. The IMF has found that phasing out subsidies to fossil fuels would lead to reduced emissions of air pollutants such as sulphur dioxides (SOx), nitrogen oxides (NOx) and particulate matter, which are not only harmful for public health but also cause environmental problems such as acid rain, and material damage to infrastructure. Eliminating subsidies to high-emission sectors forms part of the Kyoto protocol (Article 2.1 pledges Annex I parties to reduce “subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention and application of market instruments” – UNFCC, 2009).

Also Paris Agreement, which was agreed in December 2015, sets the framework for immediate actions and long-term strategies to prevent dangerous climate change. This includes opportunities to address a significant obstacle to the Low Carbon Transition – subsidies and public finance for fossil fuels. Under the Paris Agreement, governments have committed to limiting global temperature rise to well below 2°C and pursuing efforts to limit this increase to 1.5°C. To meet this pledge, the vast majority of fossil fuels will need to remain in the ground, with all countries requiring a shift to energy systems that are fully clean.

Article (2.1c) in Paris agreement says: ‘Making financial flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development’. Article (2.1c) highlights one of the main objectives of the Paris Agreement: the global financial system – including that which is driven by government subsidies and public finance – must work for climate action and not against it. It is clear that to meet the climate objectives set out under the Paris Agreement, we will need to limit fossil fuel production and reduce fossil fuel consumption. Making the global financial system work for climate action and not against it requires ending all forms of government support to the production and consumption of fossil fuels. The IMF has found that phasing out subsidies to fossil fuels would lead to reduced emissions of air pollutants and a combination of subsidy reform and corrective taxes on fossil fuels could result in a 23% reduction in these emissions as well as a 63% decrease in deaths worldwide from outdoor fossil fuel air pollution.

2.6 Framework for analyzing whether to introduce, retain, redesign or remove a fossil fuel subsidyPolicymakers considering whether to introduce, retain, redesign, or remove a particular fuel subsidy may find it helpful to ask a number of question concerning the subsidy. A suggested list of questions is given in Figure (2.

2). If any answer is negative, the policymaker should consider either phasing out the subsidy or redesign the subsidy.Figure (2.2): Schematic Approach to Assessing fossil fuel Subsidies 242824055054500 1555234201983Question 1: Does the policy substantially achieve its objectives?00Question 1: Does the policy substantially achieve its objectives?1693156628753Yes00Yes371064839033040039600653824400Yes00Yes32888905248111Redesign or phase out subsidy00Redesign or phase out subsidy571505249545Retain (existing) or introduce (new) subsidy 00Retain (existing) or introduce (new) subsidy 1644650910590  Step 2: Value costs and benefits of the subsidy policy and its alternatives00  Step 2: Value costs and benefits of the subsidy policy and its alternatives441388424593550034480503044190No00No3479800332994000306069948602900017652994860290002413000265684000241300015963900017653004593590Yes00Yes41338512694940No0No17780003761740Yes00Yes18161002656840Yes00Yes3386455193357500337817252832100  24282402800350042321083708914Redesign or phase out subsidy00Redesign or phase out subsidy1584002228546Question 2: Is the policy the most socially efficient instrument to achieve its objectives?00Question 2: Is the policy the most socially efficient instrument to achieve its objectives?385450470872Is the impact of the policy consistent with the country’s overall strategy on GHG emissions? 00Is the impact of the policy consistent with the country’s overall strategy on GHG emissions? 155300678622Question 3: Does the policy avoid negative externalities?00Question 3: Does the policy avoid negative externalities?2420750209830001591751235778Question 4: Is this use of funds a budgetary priority?00Question 4: Is this use of funds a budgetary priority?2910967119151No00NoIf any answer is negative, the policymaker should consider either phasing out the subsidy or redesign the subsidy.

Chapter ThreeSUDANESE ECONOMY OVERVIEW3.1 Introduction Sudan is a low-income fragile country facing significant domestic and international constraints and large macroeconomic imbalances such as widening of the fiscal deficit which rise to 0.2 percentage points in 2016.

Decades of internal conflicts and U.S. sanctions have undermined economic stability and growth. While the start of oil production in 1999 triggered rapid growth that tripled per capita income within a decade, Sudan lost the bulk of its oil exports and related budget revenues following the secession of South Sudan in 2011. Since 2012, the authorities have launched reforms to adjust to the loss of oil revenues.

Measures included exchange rate adjustments, subsidy reductions, fuel price hikes, and tax increases. Tax collections and public financial management were strengthened, and social spending was increased to mitigate the impact of the adjustment on the poor. The reforms helped reduce the fiscal deficit, slow money growth, ease inflation, and support growth. The authorities’ recent five-year reform plan for 2015–2019 continues in the same direction.3.2 Economic Growth in Sudan Despite GDP expanding more than seven times since 1960, Sudan’s economic growth has not been inclusive. Growth has averaged 3.9 percent per year since 1960, it has been volatile with a standard deviation of 140 percent.

Sudan’s economic growth was adversely affected by a number of factors, including declining oil revenues because of low export prices, ageing oil fields and reduced inflows of oil transit fees from South Sudan. GDP growth is estimated at 3% in 2016, compared to 4.9% the previous year and forecast at 3.4% and 3.6%, respectively, for 2017 and 2018.In the short and medium terms, growth will be determined by developments in the agricultural and mineral sectors, skills development and prudent macroeconomic policies and structural reforms aimed at improving the business climate.

Significant downside risks include continuing civil wars in some parts of the country and low global commodity export prices. The macroeconomic imbalances and the consequent widening of the fiscal deficit by 0.2 percentage points in 2016, continue to constrain growth. Although the current account deficit narrowed by 1.1 percentage points in 2016 and expected to further widen to (5.6% of GDP) in 2018. Closing the fiscal and current account deficits is a major policy priority especially in the face of low tax revenues and shortfalls in oil export receipts as well as difficulties in accessing concessional financing.

However, the partial conditional easing of the US trade sanctions in early 2017 is expected to contribute to economic stability.Figure (3.1): Real GDP growth (Annual percent change)Source: World Bank Data 3.3 Challenges of Inclusive Growth in SudanLimited fiscal resources and macroeconomic imbalances: Government revenue is low (particularly tax revenue at 6.2 percent of GDP in 2015), thereby limiting resources for social spending and investment in infrastructure critical for private sector growth.

And macroeconomic imbalances are high-inflation has averaged 35 percent in the past four years.Internal conflicts: The UN estimates that there were 3.1 million internally displaced people in Sudan in 2015 owing to internal conflicts. Continued conflicts have been an important factor in the absence of resolution of Sudan’s external3.4 Macroeconomic policies in Sudan3.4.1 Fiscalpolicy The government uses fiscal policy to allocate and redistribute resources because the allocation and distribution resulting from private sector activities are not satisfactory in most cases, especially in the Less Developed Countries.

The oil decade, from 1999-2010, witnessed the strongest growth episode in the country’s history, there are serious concerns about the negative impact of the post-separation adjustments on real growth and social development. The immediate impact of the post-separation adjustment was ?scal. So all subsequent budgets focused on cutting spending, increasing taxes and removing subsidies such as fuel and sugar subsidies in order to contain the fiscal deficit. But the government needs to implement critical reforms to establish widespread support to avoid subsidies removal effects.

In 2016 the total spending fell to 10.8% of GDP compared with 11% in 2015 because of the partial removal of subsidies, but the shortfalls in oil revenues and slow progress in raising non-oil revenues widened the deficit to an estimated 1.8% of GDP in 2016, up from 1.

6% in 2015.Figure (3.2): Public finances (percentage of GDP at current prices)Source: World Bank Data3.3.2 Monetary policy For many developing countries, including Sudan, the monetary policy is considered to be one of the most influences on productive sectors and it continues to contribute in the growth domestic product of these countries. Sudan has been plagued with several challenges where the productive sectors are suffered from the lack of monetary and financial policies. Monetary policy in recent years is largely expansionary because of the sizeable government financing needs. Also the monetary policy in Sudan is hampered by fiscal policy dominance and reliance on central bank financing of the budget deficit.

3.5 Fossil Fuel subsidy in Sudan Fossil fuel subsidies have long been used in many countries, both developed and developing, to encourage the production of goods and services through lowering the cost of production. As in other countries, the Sudanese government has been subsidizing fuel products where they are sold below the market price. Evidently, fuel subsidy has made a hole in the country’s budget, contributing to the fiscal deficit, which stood at 5.

2% of GDP in 2012.Table (3.1): Production costs, retail Prices, and subsidies in 2012:Diesel Gasoline LPG Kerosene Jet A Fuel OilProduction Cost 4196 5584 3576 4437 4472 894Cost of Crude 3734 4739 2958 4287 4287 809Refining Cost 82 92 78 23 23 23Transport 27 31 34 0 35 32Profit Margin & Marketing 109 158 420 127 127 30VAT 85 154 86 0 0 0Production Tax 159 409 0 0 0 0Retail Price 2147 3878 1200 1858 4108 378Unit Subsidy 2049 1706 2376 2578 364 517in percent of retail price 95 44 198 139 9 137Table (.) Production Costs, Retail Prices, and Subsidies (SDG/Metric ton) Following the 2011 secession of South-Sudan, Sudan has lost almost 75% of its oil production representing approximately 55% of its fiscal revenues, and two-thirds of its foreign exchange earnings. This slowed growth and brought rising inflation as well as deterioration of the fiscal and current account balances. Government’s primary policy response to the catastrophic economic events following secession was a package of macroeconomic reforms.

Government formulated the 3-year Economic Salvation Programme (2012-2014), including tax reform, a gradual reduction in fuel subsidies, cuts in non-priority public expenditures, and a strengthening of social safety nets to reduce the impact of these reforms on the poor. On June 2012 the Sudanese government has increased the price of selected fuel products in the context of the revised 2012 budget, thereby significantly reducing fuel subsidies. the price of gasoline has increased from 8.5 to 12.5 SDG per gallon, the price of diesel from 6.5 to 8 SDG per gallon, the price of liquid petroleum gas (LPG) from 13 to 15 SDG per gallon. Also in September 2013, the Sudanese government implemented its second fuel subsidy cuts.

The price of petrol was increased by 68 per cent, from SDG12.5 to SDG21/gallon. Diesel prices rose by 75 per cent from SDG8 to SDG14/gallon, and the official price of a 12.5kg cylinder of LPG was boosted by two thirds, from SDG15 to SDG25.

2 At the same time, the official exchange rate was also devalued. These were the sharpest price increases in domestic in the series of austerity measures. Implementation of the authorities’ adjustment program had been done to restore macroeconomic stability and improve growth prospects over the medium term, and growth is expected to accelerate gradually to about 4.

7 percent in 2019. And the IMF has estimated that the September subsidy reform will generate about 797 million SDG in budgetary savings.Chapter FourDATA AND METHODOLOGY4.1 IntroductionThis chapter deals with estimation procedures that will be undertaken to ascertain the association that exists between fossil fuel subsidy and economic growth. As such, will encompass stationarity test, normality test, co-integration, granger causality and diagnostic tests.4.2 Source of Data In order to analyze the relationship between of fossil fuel subsidy and economic growth, we use secondary data sets.

The secondary data employed in this research were taken from several reliable sources such as Central bank of Sudan, Central bureau of statistics, IMF, and The World Bank. However, the fossil fuel subsidy data are only available for certain period. Hence, the time coverage of data is depending on the availability of the data. The data for fossil fuel subsidies were taken from the IMF and spanned from the period of 1990 to 2015.The IMF calculate subsidies by using price gap approach. They compare the domestic price with the reference price. The data about subsidies provided by IMF capture oil subsidies, electricity subsidies and natural gas subsidies.

The data about GDP, CPI, Export and Import (which being used to measure openness) are taken from the World Bank.4.3 Model Specification Prior studies on growth show that there are several factors which contribute to economic growth.

Chen and Feng (2000:4) mentioned that investment, human capital, international trade and inflation significantly influence growth. While some other research found that demographic factors such as population and population growth also influence economic growth. Furthermore, Hussin and Saidin (2012) on their research in Association of Southeast Asian Nations ASEAN countries found that openness contributes significantly to growth in Indonesia.Based on prior research and finding, we try to develop model that will be used in this research.

Since this research will examine the impact of fossil fuel subsidy, we add subsidies variable in the model.The model has four explanatory variables consisting of fossil fuel subsidy, openness, investment and consumer price index of the country as independent variables.Thus we proposed equation to measure the impact of fossil fuel subsidy on economic growth written as:GDP=?1+?2FFsubs+?3Open+?3Inv+?4CPI … (1)Where:GDP= Gross domestic product in million SDGFFsubs= Total fossil fuel subsidies in million SDGOpen= Average of the degree of openness (in %).

Conventionally the degree of openness is measured by using (X+M)/GDP.Inv= Total Investment in million SDGCPI= Consumer price index4.4 Definition of Variables:The dependent variable in this research is Growth in which measured by annual GDP per capita as explained above. The explanatory variable consists of several independent variables such as fossil fuel subsidies openness and consumer price index.GrowthThe total value of all final goods and services produced within Sudan. The series is published by World Bank in millions of SDGs. GDP is widely used as an indicator for economic growth as it captures the value of output produced and services rendered in an economy, giving a good indication of aggregate productive activity within it.Fossil fuel subsidySince the main objective of this analysis is to investigate the impact of fossil fuel subsidy on growth we put it as the main independent variable.

In this research, the fossil fuel subsidy is measured in million SDG. The data about subsidy were taken from IMF. According to prior studies, the relationship between fossil fuel subsidy and growth can be either positive or negative.OpennessHussin and Saidin (2012) defined openness as the degree of the economy interacts with other countries (the rest of the world). Commonly openness measured by using this formula:Openness= (total export + total import)GDPHere we expect that the more open the economy, the higher the economic growth (the relationship between openness and growth is positive).

InvestmentInvestment is defined as total value of gross accumulation. Data regarding total investment is obtained from the Sudanese Central Bureau of Statistics and spanned from the period of 1990 to 2015.Consumer price indexConsumer price index reflects changes in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. Which means it depicts the real inflation rate faced by the end user.The data for CPI were taken from central bureau of statistics and spanned from the period of 1990 to 2015.

Table (4.1): Expected signs for VariablesVariable Data source Period Expected relationshipFFsubsIMF 1990 – 2015 ( – ) or ( + )Open CBOS 1990 – 2015 ( – ) or ( + )CPI CBOS 1990 – 2015 ( + )INV CBOS 1990 – 2015 ( + )4.5 Stationarity testIn time series analysis, a great deal of attention is given to stationarity of the variables in order to get rid of the problem of spurious regression.

Damodar and Gujarati (2004) outlined that stationarity is a condition that exists when the data’s mean, variance and covariance do not have a unit root. This implies that the mean and variance are constant over time and the value of the covariance between the two time periods depends only on the distance or gap or lag between the two time periods and not the actual time at which the covariance is computed.It is often said that most macro-economic variables follow a random walk model, i.e., exhibiting a unit root behaviour. A random walk model can be justified when the following properties hold:Mean: EYt=?Variance: VarYt=(Yt-?)2=?2Co-variance: ?k=EYt-?Yt+k-?Where:Yt= is a series of random walk.?k= is the auto covariance at lag k.

If k=0, we obtain ?0, which is simply the variance of Y (=?2).If one or more of the above conditions fail, the random walk process Yt is said to be nonstationary exhibiting a unit root problem.The stationarity test that has become widely popular in time series econometric analysis is the unit root test. Unit root test is a statistical procedure that is designed to make judgment as to whether a given time series data implies a unit root or the time series is stationary. In this research, we use Augmented Dickey Fuller to test whether a given time series data implies a unit root or the time series is stationary.Augmented Dickey Fuller testThe null hypothesis for the test is that the time series is non-stationary, while the alternative hypothesis states that there is no unit root or the time series is stationary.The general form of Augmented Dickey Fuller (ADF) is estimated by using the following models:Yt=?Yt-1+?tIf ? =1, the above equation becomes a random walk, that is, a non-stationary process. As a result of this there tends to be the so called unit root problem which means there is a situation of non-stationarity in the series.

However, if ? <1, this means that the series Yt is stationary.4.6 Econometric testsBased on theory of statistics and econometrics we proceed with a set of standard econometric tests to ensure we are using suitable methods and our regressions fulfil the required assumptions.4.6.1 Normality TestThere are several tests for normality such as histogram of residuals normal probability plot (NPP), Anderson–Darling and Jarque–Bera tests. The Jarque–Bera test for normality is employed in this research.The Jarque – Bera test is a test based on OLS residuals.

First, it requires calculating the Skewness and Kurtosis and then measures the OLS residuals as:JB=nS26+(K-3)224Wheren = is the sample size.S = is the skewness coefficient.K = is the kurtosis of the coefficient.Therefore, the JB test of normality is a test of the joint hypothesis that S and K are 0 and 3, respectively. In that case the value of the JB statistic is expected to be 0.

Under the null hypothesis that the residuals are normally distributed, If the computed p value of the JB statistic is suf?ciently low, one can reject the hypothesis that the residuals are normally distributed. But if the P value is reasonably high, which will happen if the value of the statistic is close to zero, we do not reject the normality assumption.4.6 2 Serial Correlation TestSerial Correlation is a correlation among members of the series of error terms ordered in time. It is mainly caused by incorrect functional forms, auto regressions, manipulation of data, data transformation and non-stationarity of the data.

The problem of serial correlation can be detected using the graphical method, Geary test, Durbin – Watson d test and Breusch–Godfrey (BG) test. In this research, the BG test that is based on the Lagrange Multiplier principle is chosen to test the serial correlation.To illustrate the test, let:Yt=?1+?2Xt+utAssume that the error term ut follows the ? th-order autoregressive, AR(p), scheme as follows:ut=?1ut-1+?2ut-2+…+??ut-?+?twhere ?t is a white noise error termThe null hypothesis H0 to be tested is that:H0:?1=?2=…=??=0That is, there is no serial correlation of any order.4.6 3 Heteroscedasticity testone of the important assumptions of the classical linear regression model is that the variance of each disturbance term ui, conditional on the chosen values of the explanatory variables, has a normal distribution with mean zero and variance of ?2. This is the assumption of homoscedasticity.

Symbolically:Varui=?2 i=1, 2, … ,nBut when the error term does not have constant variance, i.e.Varui=?i2we call it heteroscedasticity.Consequences of heteroscedasticity:We couldn’t establish con?dence intervals and test hypotheses with usual t, F tests.The usual tests are likely to give larger variance than the true variance.The variance estimator of ? by OLS is a biased estimator of the true variance.We will use Autoregressive Conditional Heteroscedasticity (ARCH) LM test to test if there is a heteroscedasticity problem or not.H0: no heteroscedasticityH1: there is heteroscedasticity4.

7 Granger CausalityGranger causality seeks to determine if one variable causes a change in the other variable and the direction of causality between the two variables. Assuming that we have two variables Xtand Yt, then granger causality can be employed to determine the causal relationship between the variables and their direction of causality.Granger causality test will be utilized to research if there is causality relationship between fuel subsidy and economic growth whether it is bidirectional, unidirectional or no causality relation between them.

4.8 Stability Diagnostic testStability tests are tests that are undertaken to determine if the utilised model is stable, that is, if it satisfies the OLS assumption. This requires that both the model and the residuals be subjected to recursive estimate tests. The recursive test requires that both the model and the residuals values lie within a stipulated band. If not so, then a structural break is said to exist and the model is not stable.CUSUM test of the stability over time of the coefficients of a linear regression model, which is usually based on recursive residuals, can be applied to ordinary least squares residuals to find out if the model is stable or not at 5% level of significance.The CUSUM test is based on a plot of the sum of the recursive residuals. If this sum goes outside a critical bound, one concludes that there is a structural break at the point at which the sum began its movement toward the bound.

CUSUM test of the stability over time of the coefficients of a linear regression model, which is usually based on recursive residuals, can also be applied to ordinary least squares residuals.Chapter FiveDATA ANALYSIS, INTERPRETATION OF RESULT, CONCLUTION AND RECOMMENDATIONS5.1 IntroductionThis chapter provides an empirical analysis of the data using the techniques reviewed in chapter four and the interpretation of the results obtained.

5.2 Results5.2.1 Descriptive SummaryThe descriptive statistics of the independent variable (GDP) and the dependent variables are presented in the Table (5.1).Table (5.

1): Descriptive StatisticsGDP FFsubINV OPEN CPIMean 111624.5 2512.423 25019.

61 0.197302 110.2504Median 51746.20 1986.780 10153.25 0.

227185 71.68000Maximum 582936.7 6079.000 121793.0 0.386260 502.5300Minimum 1101.

100 646.0900 102.6600 0.007799 0.235000Std.

Dev. 144935.9 1669.378 32249.

18 0.113658 128.2619Skewness 2.002578 1.112072 1.627665 -0.490114 1.

829735Kurtosis 6.472248 2.977650 4.760560 2.096758 5.674324Jarque-Bera30.

43927 5.359592 14.83814 1.924753 22.

25571Probability 0.000000 0.068577 0.000600 0.381984 0.

000015Observations 26 26 26 26 26Interpretation of TableThe first two rows in table 3 show the average value of the series as a mean and the middle values of the series as the median. The maximum and minimum values of the series are also given for each series under the row maximum and minimum, respectively.Skewness measures the asymmetry of the distribution of the series around the mean. Thus, among the values of skewness in Table (5.1), only openness is close to symmetric distribution with the value of -0.49. all Series except openness are negatively skewed implying that these distributions have a long left tail.The row under kurtosis in table 3, measures the flatness of the distribution of the series.

A normal distribution has a kurtosis value of 3 and hence (FFsub) is said to be near the normal distribution with the kurtosis value of 2.97.However, by simple observation of the values of skewness and kurtosis it is difficult to tell whether a given series is normally distributed or not.

In Table 3 above, the result for Jarque Bera (JB) test for normality is given for each variable. Under the null hypothesis of normal distribution JB statistic follows a chi-square (?2) distribution with two degrees of freedom.According to the results of Table (5.1), the null hypothesis of normal distribution is rejected for the series such as GDP, Investment and CPI due to the sufficiently low p-values of the JB statistic. Whereas the null hypothesis of normal distribution cannot be rejected for FFsub and Openness since its p-value is reasonably high (more than 0.05).

5.2.2 Stationarity of the seriesTo avoid estimating a spurious regression model, we check for the stationarity of the series before doing any analysis. To check for stationarity, we apply the Augmented Dickey Fuller (ADF) test.The result of Augmented Dickey Fuller unit root test is summarized in Table (5.2) below:Table (5.2): Stationarity ResultsVariables TestStatistic Probability Test critical values (5%) order of integration DecisionGDP -5.

275745 0.0003 -2.998064 I(2) Reject the null hypothesisFFsub-4.875246 0.0007 -2.991878 I(1) Reject the null hypothesisOpen -6.

029837 0.0000 -2.991878 I(1) Reject the null hypothesisINV -12.

12649 0.0000 -2.998064 I(2) Reject the null hypothesisCPI -3.447858 0.0201 -3.004861 I(2) Reject the null hypothesisFrom the results, we found that all the series are not stationary at their level form but stationary at 1st difference, and 2nd difference.

In addition, we checked for the stationarity with intercept.For the FFsub and Open, after first differencing in the series, the ADF supports a hypothesis that the series is stationary. Whereas GDP, INV and CPI were found to be stationary at their second difference.5.

2.3 Regression OutputsIn this research the relationship between GDP (dependent variable) and the independent variables is estimated by applying ordinary least squares (OLS). Below is the result of the regression:Table (5.3): Regression OutputsDependent Variable: GDPMethod: Least SquaresSample (adjusted): 1991 2015Included observations: 25 after adjustmentsVariable Coefficient Std. Error t-Statistic Prob.  FFsub-12.61847 4.

132869 -3.053198 0.0063INV 1.335467 0.424275 3.147644 0.0051OPEN -49295.01 27438.

65 -1.796554 0.0875CPI 1639.574 201.8060 8.124505 0.0000C 26326.24 10358.

21 2.541582 0.0194R-squared 0.905164     Mean dependent var23273.42Adjusted R-squared 0.886197     S.D. dependent var40439.40S.E. of regression 13642.13     Akaike info criterion 22.05657Sum squared resid3.72E+09     Schwarz criterion 22.30035Log likelihood -270.7071     Hannan-Quinn criter. 22.12418F-statistic 47.72251     Durbin-Watson stat 2.013495Prob(F-statistic) 0.000000 From the pooled regression we can see that the R-Squared is 90.51%, while the Adjusted R-Squares is 88.61%. The R-squared shows that about 90% variation of growth can be explained by the model.Durbin-Watson value (2.01) indicates that there is no autocorrelation problem in the model.The low p-value of (FFsub) indicates that there is a significant relationship between fossil fuel subsidy and growth. And the negative coefficient of FFsubs shows that fossil fuel subsidy has a negative impact on economic growth. The coefficient implies that 1-unit increase in FFsubs will decrease Growth by 12.61 units.The result is in line with Granado and Coady (2010) who claim that the presence of subsidies depresses government budgets and creates hindrances on growth. Meanwhile, Mourougane (2010) found that energy subsidies decrease government ability to invest in the infrastructure and productive sectors which will hinder growth in the future.5.2.4 The impact of other explanatory variables toward growthIn this research we suspected that other explanatory variables would have a positive relationship toward growth.The research found empirical evidence that Investment and Consumer price index (CPI) are positive and significant at 5% toward growth. Openness is expected to have positive impact toward growth, since the degree of openness facilitates the flow of capital and technology which are important to boost growth, but regression results failed to find a significant relationship between the degree of openness and economic growth.5.2.5 Granger CausalityTable (5.4): Granger Causality testPairwise Granger Causality TestLags: 2 Null Hypothesis: F-Statistic Prob.  FFSUB does not Granger Cause GDP  1.09227 0.3579 GDP does not Granger Cause FFSUB  0.26823 0.7679It can be noted that fossil fuel subsidy does not granger cause economic growth and that economic growth does not granger cause fossil fuel subsidy. This is because their respective p-values are more than 5% and hence we can accept their null hypotheses.So there is no causal relation between fossil fuel subsidy and economic growth.5.2.6 Normality Test OutputsThe normality test for the residual is undertaken using the Jarque-Bera (J.B.) statistic.Figure SEQ Figure * ARABIC 5 Jarque-Bera (J.B.) statisticFigure (5.1): Jarque-Bera (J.B.) statisticThe J.B. test from Figure (5.1) shows that the error terms are normally distributed. This is due to the low test statistic which is 0.131059 and very high p-value which is equal 0.936571.5.2.7 Serial Correlation Test OutputsIn this research, the Breusch-Godfrey test that is based on the Lagrange Multiplier principle is chosen to test the serial correlation. Table (5.5) shows the result of the test:Table (5.5): Breusch-Godfrey Serial Correlation LM TestF-statistic 0.297553 Prob. F(2,18) 0.7462Obs*R-squared 0.800085 Prob. Chi-Square(2) 0.6703The Breusch-Godfrey serial correlation Lagrange Multiplier test confirms that the residual terms in the model are serially independent.The observed R-squared which is used to make decision of the correlation test has a value of 0.800085 with a p-value of 0.6703. The large Chi-square probability value implies the nonexistence of the serial correlation problem at 5% level of significance.5.2.8 Heteroscedasticity Test OutputsWe used Autoregressive Conditional Heteroscedasticity LM to test if there is a heteroscedasticity problem or not. Table (5.6) shows the test results:Table (5.6): Heteroscedasticity Test (ARCH)Heteroscedasticity Test: ARCHF-statistic 2.267788 Prob. F(1,22) 0.1463Obs*R-squared 2.242764 Prob. Chi-Square(1) 0.1342The F-statistics of the test has a value of 2.267788 with a p-value of 0.1463. On the other hand, the observed R-squared of the ARCH LM test has a value of 2.242764 and the one lagged Chi-squared probability value is 0.1342.From these results, ARCH LM test strongly suggests that there exists no heteroscedasticity in the residual terms of the model. Hence, the null hypothesis of no heteroscedasticity can’t be rejected implying that the variance of the error term is constant.5.2.9 CUSUM Stability Diagnostic testThe figure below shows the result for CUSUM stability test:Figure SEQ Figure * ARABIC 6 CUSUM stability testFigure (5.2): CUSUM stability testResults shows that both the model and the residuals values lie within a stipulated band. So, there is no structural break and the model is stable.5.3 ConclusionsWhile the rationale for reducing subsidy is to ease the financial burden of the government is commonly understood, its consequences on Sudanese economic growth remain to be discovered. This research aimed to find empirical evidence about the relationship between fossil fuel subsidy and economic growth. In order to meet the objectives, this research employed ordinary least squares (OLS) to ascertain the presence of a significant relationship between fuel subsidy and economic growth.The analysis results show support for Hypothesis 1 that there a significant relationship between fuel subsidy and economic growth, also results show support for Hypothesis 2 that fuel subsidy may have a negative effect on GDP because the result of the regression found that fuel subsidy has a negative impact toward economic growth. The negative sign of fuel subsidy variable toward growth are consistent with some prior research such as Erika Sulistiowati (2015) which found that oil subsidies are negative toward growth. This is supported by Granado and Coady (2010) who mentioned that subsidies depress government budget and hinder growth.However, Hypothesis 3 that there is causal relationship between fuel subsidy and economic growth is not supported by Granger Causality results.This research also found empirical evidence that other explanatory variables, Investment (INV) and Consumer price index (CPI), are positive and significant toward economic growth.Our research illustrates that the highest proportion of fuel subsidy’ benefits (48%) goes to the highest top 20% of the income group, and the results support the viewpoint that there is no reason to keep fuel subsidy. 5.4 RecommendationsShort term:Develop a detailed plan to reduce inflationary impact of reducing fuel subsidies, ensuring the availability of key goods and consumer staples, and reducing simultaneous government expenditure on other programs as possible.Further investigate how subsidy savings could be redirected to affected people.Long term: Prepare structural mechanisms to reduce the impacts of subsidy reform, for example, energy-saving options and retraining the labour force that will be most affected by the reform (for example, freight transporters and farmers).REFERENCESAgustina, C.D.R., Arze del Granado, (2008) ‘Black Hole or Black Gold? the Impact of Oil and Gas Prices on Indonesia’s Public Finances.Annika Kjellgren, C. Jones, H.A. Alyn, E. Tadesse and A. Vermehren. Sudan Social Safety Net Assessment. 2014. The world bank.Conference, International Association of Energy Economics, June 7-10, Sydney. Roslan A.H., R Ismail,and N.A. Abdul Razak.2016. Fuel subsidy reform in Malaysia: An assessment on the direct welfare impact on consumers. Universiti Utara Malaysia.David Victor.2009. Untold Billions: Fossil Fuel Subsidies, Their Impacts and The Path of Reform. The Global Subsidies Initiative.Ekine D.I. and Okidim I A. 2013. Analysis of the Effect of Fuel Subsidy Removal on Selected Food Prices in Port Harcourt, Rivers State Nigeria (2001-2012). European Journal of Business and Management.Gujarati D.N. 2004. Basic Econometrics. Fourth Edition Pp 792-830IMF Executive Board Concludes 2016 Article IV Consultation with Sudan. 2016. Available at Monetary Fund. 2012. Sudan: Selected Issues Paper. IMF Country Report No. 12/299.International Monetary Fund. 2013. Case Studies on Energy Subsidy Reform: Lessons and Implications.Johansen, S. and K. Juselius (1990) “Maximum Likelihood Estimation and Inference on Cointegration with Applications on the Demand for Money” Oxford Bulletin of Economics and Statistics, 52(2): pg. 169-210. Parry, I., Heine, D., Lis, E.and Li, S., 2014. Getting Enery Prices Right: From Principle to Practice.Sakib B. A. 2016. The Socio Economic Impacts of Fossil Fuel Subsidy Reform in Developing Countries: The Case of Bangladesh. North South University.Saunders, M., and Schneider, K., (2000). “Removing energy subsidies in developing and transition economies”, ABARE Conference Paper, 23rd Annual IAEE International.Sudan Statistical annex report No 35/98 .1998. International Monetary Fund.Sulistiowati, E. (2015). The Impact of Fossil Fuel Subsidies on Growth,p 10.Suwareh Darbo, Yousif Eltahir. 2017.Sudan Economic outlook, Pp 5-10.Tara Laan, C. Beaton and B. Presta. Strategies for Reforming Fossil-Fuel Subsidies: Practical lessons from Ghana, France and Senegal. 2010. The Global Subsidies Initiative.The World Energy Resources report .2016. 24th edition. World Energy Resources.UNEP, 2015. Policy Brief: Fossil Fuel Subsidies. UNEP, Geneva. Available at: Bank. 2015. Fossil Fuel Subsidies Approaches and Valuation. World Bank Working Paper 7220.World Bank. 2016. Fossil Fuel Subsidy and Pricing Policies Recent Developing Country Experience. World Bank Working Paper 7531.World Trade Report. 2006. World Trade Organization. World Bank Group Energy Sector Strategy.2010.  Subsidies in the Energy Sector: An Overview. World Bank Working. Dartanto, T. (2013) ‘Reducing Fuel Subsidies and the Implication on Fiscal Balance and Poverty in Indonesia: A Simulation Analysis.


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