The Impact Of Oil And Non Oil Revenue On The Economy Of Nigeria

The Impact Of Oil And Non Oil Revenue On The Economy Of Nigeria
Abstract
Economic growth from the time immemorial has been subject of debate in both academic and non – academic circles. Hence, measuring growth of key sectors of an economy to ascertain its contribution to the aggregate national economy has been adjudged as one way of determining vibrant sector(s). The history of oil industry in Nigeria dates to early 1900‟s when the British Colonial Government shortly after the creation of Nigeria as a legal entity started the first geological survey of the country. The study seeks to examine the impact of oil and non-oil revenue on the Nigeria economy. The study adopted the exploratory research design. The design made use of qualitative data to draws its conclusion. The findings showed that the oil and non-oil revenue generated by the Nigerian government has helped in the construction of basic amenities and also run the concurrent expenditure of the nation. However, the non-oil sectors needs proper funding, accountability and transparency in its dealings.
Chapter One
Introduction
1.1 Background of the Study
For development and growth of any society, the provision of basic infrastructure is quite necessary. This perhaps explains why the government shows great concern for a medium through which funds can be made available to achieve their set goals for the society (Fagbemi and Noah, 2010). Government needs money to be able to execute its social obligations to the public and these social obligations include but not limited to the provision of infrastructure and social services.Exportation is required by any economy to enhance revenue and usher in economic growth and development. It is therefore crucial for economic progress and this has informed the idea of export-led growth. Export is a catalyst necessary for the overall development of an economy (Abou-Strait, 2005). It was also noted that foreign trade creates an avenue for foreign capital to flow into a country (Ricardo, 1817). This increases the earnings of the country thereby creating an avenue for growth by raising the national income of the country. It also increases the level of employment in the economy as a higher demand for exports will require more production which will in turn lead to the employment of more people. Exportation by a country also helps attain a favourable balance of trade and balance of payment position for the exporting country provided its exports reasonably exceed its imports.
In a country like Nigeria where the level of investment is low, foreign capital is very much needed in order to accelerate the creeping rate of economic growth. The Nigerian economy is one that depends largely on foreign trade for growth and is also one which depends majorly on one export commodity at a time. For instance, at independence, the major export commodity was cocoa and the leading sector in the economy was the agricultural sector but today, the major export commodity is crude oil and the leading sector is now the petroleum sector. This has not allowed for balanced growth in the economy as some sectors have been allowed to grow while growth has been impeded in others and this has made the country remain a developing country.
In Nigeria, crude oil is the major export because of the large revenue it generates. This has led the economy to focus on the petroleum sector while ignoring the other sectors as well as the potential revenue they can generate. This research aims to determine if non-oil exports contribute significantly to the Gross Domestic Product (GDP) of the economy and to what extent they contribute. It also aims to determine the factors responsible for the current performance of the non-oil sector.
1.2 Statement of the Problem
Owing to both external and internal factors, the growth performance of the Nigeria economy has been less than satisfactorily during the past three decades.Nigeria is yet to attain the ranks of a developed economy due to lack of structural change, among other factors.Also, it was observed that a factor crucial to this lack of economic progress is the lack of economic diversity which has caused the economy to rely heavily on crude oil for revenues and as the major export commodity in the economy (Osuntogun et al, 1997). Prior to the 1970s, Nigeria’s exports were predominantly non-oil commodities with agricultural commodities accounting for the oil share. However, in the 1970s, when the price of crude oil in the international market sky rocketed, the share of non-oil exports began falling and has remained low ever since.
This is majorly due to the money-spinning nature of oil exports which makes it more profitable to export oil and less profitable to export non-oil commodities. This has cause a rather heavy dependence on the oil sector and the proceeds from the exportation of crude oil. This heavy reliance subjects the country to difficulties when the price of crude oil, the major export commodity, is low in the international market. In light of this, the government adopted various strategies to boost non-oil exports and stabilize the economy. In spite of these efforts, the performance and contribution of the non-oil exports sector has remained very low. The sector has continued to perform below its full potential. This research is therefore carried out to determine to what extent the diversification of the economy will help enhance the economic progress of the economy, to appraise the past efforts at diversification and to discover how the current performance of the non-oil sectors can be improved.
1.3 Objectives of the Study
- To examine the impact of oil and non-oil revenue on economic growth of Nigeria.
- To determine whether non-oil exports contribute to Nigeria’s Gross Domestic Product.
- To find out whether oil export generate revenue in Nigerian economy.
1.4 Research Questions
- What is the impact of oil and non-oil revenue in economic growth of Nigeria?
- Does non-oil exports contribute to Nigeria’s Gross Domestic Product?
- Does oil export generate revenue in Nigerian economy?
1.5 Research Hypotheses
- H0: There is no significant relationship between the impact of oil and non-oil revenue and economic growth of Nigeria.
H1: There is a significant relationship between the impact of oil and non-oil revenue in economic growth of Nigeria. - H0: Non-oil exports do not contribute to Nigeria’s Gross Domestic Product.
H1: Non-oil exports do contribute to Nigeria’s Gross Domestic Product.
1.6 Significance of the Study
Despite the various allocations and policies to the development of the oil and non-oil exports sector, it is yet to perform up to expectation. The volume of foreign exchange being generated is either not enough or has fallen. This is due to the monoculture nature of the Nigerian economy. Since the first Nigerian national plan, the allocation to the non-oil exports like manufacturing sector has been increasing with little impact being felt in the economic recovery.
There is over dependence on one sector of the economy which needs diversifying. The desire to find a realistic exchange rate for the domestic currency is an important macro-economic policy objective for a developing country highly dependent on trade.
Also the non-oil exports of the economy have featured in the developmental strategies and plans of many countries and this has been successful e.g. Newly Industrialized Countries (NIC) or the Asian tigers and this has been very successful, this necessitates for a study to be done in this area.
Since exchange rate policy was adopted during the Structural Adjustment Programme (SAP) to boost the non-oil exports, there is need to examine the impact of oil and non-oil revenue on the Nigeria. The interest of this study is to examine whether the exchange policy in Nigeria has an impact on non-oil exports.
1.7 Scope of the Study
The study will cover a period 6 years (1999-2005). This is to achieve a comprehensive analysis of the impact of oil and non-oil revenue on the Nigerian economy. This period witnessed various economic policies by the government such as the economic stabilization act and the Structural Adjustment Programme (SAP) which has so much impact on the performance of this sector.
1.8 Limitation of the Study
As it is expected with written work of this kind, the completion of this project was not possible without limitation or problems encounter in the course of writing this project which includes difficulties in obtaining relevant and up-to-date, data due to poor nature of Nigeria’s data collection and storage facilities. Also, the dwindling state of the economy has made it difficult for people to save and thereby little capital accumulation for investment.
Finally, the Nigerian government, oil sector and non-oil sector will used the recommendations of this research to provide infrastructure, such as public utilities, good road and services etc to Nigerian.
1.9 Definition of Terms
Gross Domestic
Gross Domestic Product implies the market value of all officially recognized final goods and services produced within a country in a given period. GDP per capital is often considered as an indicator of a country’s standard of living. GDP is related to national account, a subject in macro -economics. It is customarily reported on an annual basis. It is defined to include all final goods and services, that is, those that are produced by economics resources located in that nation regardless of their ownership and are not resold in form.
Inflation
Inflation is defined as a generalized increase in the level of price sustained over a long period in an economy (lipsey1995). It is a rise in the general level of prices of goods and services in an economy over a period of time.
Exchange Rate
An exchange rate (also known as foreign exchange rate) between two currencies is the rate at which one currency will be exchanged for another. It is regarded as the value of one country’s currency in terms of another currency. Exchange rates are determined in the foreign exchange market, which is open to a wide range of different types of buyers and sellers where currency trading is continuous.
Non-Oil Export:
These include the exportation of the non-oil produces among which are agricultural, industrial and manufacturing outputs.
Non-Oil Export Index:
This is the fraction of the total export of goods and services that are produced within the economy that are not directly related to the oil sector of the economy. The non-oil products exports are unlimited as they include cash crops, food crops, manufacturing, entertainment, tourism etc. the value of the non-oil export index shall be used for measuring the non-oil export.
Chapter Five
Summary, Conclusion and Recommendation
5.1 Introduction
It is important to reiterate that the objective of this study was to examine the impact of oil and non-oil revenue on the economy of Nigeria.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in examining the impact of oil and non-oil revenue on the economy of Nigeria.
5.2 Summary
This study was undertaken to examine the impact of oil and non-oil revenue on the economy of Nigeria. The study opened with chapter one where the statement of the problem was clearly defined. The study purpose and research hypotheses were defined and formulated respectively. The study reviewed related and relevant literatures. The chapter two gave the conceptual framework, empirical and theoretical studies. The third chapter described the methodology employed by the researcher in collecting both the primary and the secondary data. The research method employed here is the descriptive survey method. The study analyzed and presented the data collected in tables and tested the hypotheses using the chi-square statistical tool. While the fifth chapter gives the study summary and conclusion.
5.3 Conclusions and Recommendations
The results and findings of this study indicate that there is positive and significant relationship between non-oil export, oil export and GDP. In the last few years, the impact of non-oil export has been significant and has the potential to make a greater impact on Nigeria’s non-oil export sector in the long-run. This in turn will translate to higher foreign earnings as well as gross domestic product and consequently a higher level economic growth. This will also be the driving force in ensuring Nigeria adequately supports the non-oil export sector and diversifies the productive base of the economy so as to reduce dependency on the oil sector and imports.
Based on the findings of this study and the conclusion, the following policy recommendations are suggested:
- The government should put more resources into enhancing and promoting non-oil exports by supporting the NEPC to improve on the effectiveness of administration incentives to non-oil exports.
- Emphasis should be on agricultural exports by creating incentives for the poor farmers to start producing for export in an environment where it is assured that not only will their products reach foreign markets in time, but do so, may go a long way in alleviating poverty.
- Infrastructure amenities like road, railways, telecommunication, and electricity among others which are bottleneck for farmers and manufacturers should be improved.
- Ensure workable agricultural policies that help operators of non-oil sectors have access to cheap capital which will enable them produced higher output.
Nigeria’s dependency on oil exports has made it vulnerable to continuous fluctuations in world oil prices have it has no control over. Therefore in collaboration with the NEPC and other relevant government agencies, the government has to encourage non-oil exports by investing adequately through incentives and strike a balance between the oil and non-oil sectors of the economy. This will make Nigerian economy flourish and have alternative source of foreign exchange earnings as a result of the diversification of the economy.


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