Impact Of Non-Oil Export In Nigeria Economic Growth

Project and Seminar Material for Economics

Impact Of Non-Oil Export In Nigeria Economic Growth


Abstract


The essence of this work has been to determine the effect of non-oil export on economic growth in Nigeria, during the period of 1986-2010. In carrying out this study, secondary data were collected and empirical analysis was made. To achieve these objectives, multiple regressions were used in analyzing the data. The empirical results reveal that non-oil export is statistically significant to Nigeria economic growth. On the other hand, oil export also has been significant to Nigeria Economic growth of the non-oil export while government expenditure (GEX) has not been significant to Nigeria’s economic growth of the non-oil exports. Following this, some recommendations which include encouraging financial institutions, improving in data collection and banking, efficient allocation and use of resources, government base investing in non-oil sector in other to diversify the economy (from monoculture economy to a multicultural economy) and creating economic environment which will help boost the activity of non-oil export sector.


Chapter One


Introduction

1.1 Background of the Study

There is a number of reasons for a country to be concerned about its rate of economic growth. Economic growth is desired by both affluent and non-affluent economies. Economic growth is the desire for higher levels or real per capital income, real output which must grow faster than the production of the economy in question. Economists, policy-makers, public and private sectors work ceaselessly towards attaining economic growth by the use of development and growth models and policies. Among the policies used are trade policy (Import and export policies, monetary policy, exchange rate policy, fiscal policy, market etc). In this study, the non-oil exports and economic development in Nigeria will be examined.

Non-oil exports are the products, which are produced within the country in the agricultural, mining and querying and industrial sectors that are sent outside the country in order to generate revenue for the growth of the economy excluding oil products. These non-oil export products are coal, cotton, timber, groundnut, cocoa, beans etc.

Today, as in the past, the growth of Nigerian economy remains partly dependent upon increasing productivity of the agricultural sector. Helleiner (2002:124) states that no matter how much development and structural transformation achieved, it will remain its relative dominance in the economy to many decades to come. Precisely, it is from agricultural exploits that the economy has received its principal stimulus to economic growth.

Agricultural sector can assist through the exportation of principal primary commodities which will increase the nation’s foreign earnings and which can be used to finance a variety of development projects. The growth of the agriculture sector can make a substantial contribution to the total tax revenue, as well as having some implications for inter-sectional terms of trade. Also in the area of capital formation, the savings generated in this sector can be mobilized in development purposes, while increase in rural income as a result of increasing agricultural activities can further stimulate the product of the modem sector. The needs of the agricultural sector could indirectly influence the creating of additional infrastructures which are indispensable to rapid economic development. (Olaloku. 2001:13).

Another non-oil export to be dwelled on, is industrial sector. It is the fastest growing sector in Nigeria economy. It comprises of many manufacturing and mining. Nigeria has manufacturing base prior to 1960 and shortly after.The problem was due to lack of modern technology skills, managerial experience of complex organizations and financial back -up. The problem was further aggravated by the colonialists’ merchants convincing arguments on the goodness of comparative cost advantage. Nigerians were coaxed into concentrating their efforts in the production of primary agricultural products and exporting them to the metrological industries in Europe.

Our industrial sector took off after independent relied on satellite firms representing British interest. The bank sector, which is constellation of colonial banks branches and some companies that were able to invest in manufacturing were the multi-national that have access to funds, technology and managerial expertise. This greatly hindered the progress of indigenous entrepreneurs.

The Nigerian manufacturing sector has been described by Ikediala (1983) as consisting of more assembling plants. He says that the implication of this is that the industries have very little backward linkage in the economy, since the bulk of the inputs is imported, thus the manufacturing sector depends on imported raw-material the extent of 42%. The capacity utilization of manufacturing industry has always been low in this country. The reasons as put by CBN (1998) are not unconnected with raw materials scarcity, consumers resistance due to high prices, increase in cost of manpower. Others mentioned are equipment breakdown due to poor technology, lack of spare parts. Time lags between, when inputs are ordered for and when they arrive, cash flow problems in industries becomes a permanent features.

The Nigerian Civil war brought about the deterioration of the oil palm grooves and plantation were abandoned and little if any new planting was undertaken. As a result of that, the output of palm oil and palm kernel declined drastically. But according to Onwuka (1985), the problems of palm products are due to the stagnation in the production of this commodity, which is partly explained by the presence of wild palm trees, which are of low-yield quality, and the difficulties experienced in harvesting them. In addition, the old system of pricing which guarantees low producer prices for palm produce discourage substantial investment from being made for further production of this product. Also, the problem marketing boards cannot be over looked. Marketing board is an institution set up by the government with the exclusive right to buy and sell certain agricultural products.

They purchase some products locally export sales are made through the Nigerian marketing company, which is jointly owned by all state, marketing. One of the functions of the marketing board is to stabilize the prizes or our cash crops and hence creates stability of income for farmers and to accumulate funds for development purposes. But the operation has failed to provide incentives to farmers to increase their input. Also, the producers paid unnecessary tax and they took from the producers some money, which should have gone to them as income. They thus reduced the amount of capital available to the producers.

This criticism, according to Adenira (1999) made the Federal Government to reform the Marketing Board System with a view to increase producers’ prices and income. He said that the essential features of the new reform are the prices, which are now fixed by a single authority while producer taxation (export duty and produce sale tax) has been abolished. Another major innovation in the system is the creation of commodity boards with responsibility of marketing specific products whenever they are produced in the country. These boards are likely to reduce administrative problems and be more economical compared with all oil-produced state Marketing Boards previously in existence.

The major fault of the successive government that are supposed to sustain this sector through the building of macro-economic structures and incentives diverted their attention away from agriculture. The result was sharp in the export/import equation as country started importing even palm oil that was hitherto imploring from Nigeria.

The situation was becoming worrisome thus by 1975 there were attempts to recapture the lost of glory of agriculture. General OlusegunObasanjo’s operation feed the nations becomes the first real expressed official attempt in this direction. It was followed by the establishment of two River Basin Development Authorities in 1977. By 1978/1979, the federal Government made budgetary provision to establish 4,000 hectares of mechanized farms in each of the 19 states then, by 1979, there was a re-launch of “operation feed the nation” with a new tag “Green Revolution” with various committees set for its implementation (Oko, 1999).

If the efforts of the two leaders-General Olusegun Obasanjo and Alhaji Shehu Shagari’s regimes could have brought vigor to the agricultural sector, the activities of the sic-commodity boards did not assist much..Oko said that fixing export product prices without recourse to cost inputs discourages agriculture therefore remained slow because food demand was growing at the rate of 3.5% per in the 80’s while agricultural output was crawling at 11 %. Between 1990 and 1998 GDP in agriculture declined to 6.2%. Then the distributions of agriculture inputs to producers were neglected, infrastructure facilities like motorable feeder roads, and irrigation facilities etc, made it difficult to
increase agricultural production. CBN mandate to bank with regard to bank loans to agriculture as priority sector for preferential leading was floated.


1.2 Statement of the Problem

Nigeria remained a net exporter of agricultural products between 1960 and 1970. Goods exported included palm oil, palm kernel, cotton, groundnut, etc. agriculture through export of non-oil products has a rosy record contribution up to 80% of the gross domestic product and providing employment for over 70% of the working population. But recently that has been a steady decline in terms of agricultural product, to export and an abandonment of sector by a large percentage of the work force.

But the story of its decline is as pathetic as its impact on industry that relied heavily on the sector for raw material. Thus, the decline come with surge of revenue from oil (oil export). But the discovery of crude oil alone cannot be held responsible completely for the misfortunes or decline of the agricultural sector. The policy instruments put in place by successive government were more of lip service than concrete action. The creation of Marketing Board contributes greatly to the decline of non-oil export since the Board has the dole right to export the commodities. It is also pertinent to say that fixing of export product prices by Marketing Board discourage further private investments in the sector. Furthermore, the sector suffer from inadequate credit facilities, they have no security to back-up their loan applications. Those who are lucky to be given loans do not make proper use of them. Even existence services were neglected, infrastructure facilities not provided, CBN directives on agricultural loans floated.


1.3 Objective of the Study

This research has a particular focus that aims at examining the causes of growth in government revenue using non-oil revenue of the government as an instrument. The non-oil revenue spanning the range of products as agriculture and manufacturing. The major objectives are broadly defined as follows:

  1. To evaluate Nigerian’s past and present non-oil exports effect in the promotion of economic growth.
  2. To evaluate government policies or measures towards boosting non-oil sectors contribution to the economy.
  3. To evaluate the factors responsible for the decline in the contributions of non-oil revenue to the economy.
  4. To make recommendations on the ways of improving the non-oil sector

1.4 Research Hypotheses

  1. H0: Oil export does not have a positive and significant impact on growth of the Nigerian economy.
    H1: Oil export does have a positive and significant impact on growth of the Nigerian economy
  2. H02: Non-oil export has not positively and significantly affected growth of the Nigerian economy.
    H2: Non-oil export has positively and significantly affected growth of the Nigerian economy.
  3. H03: There is no causal relationship between export (oil and non-oil) and economic growth in Nigeria.
    H3: There is causal relationship between export (oil and non-oil) and economic growth in Nigeria.

1.5 Significance of the Study

The study of the contributions of non-oil export to the growth of Nigeria economy is significant and important, for this knowledge, it will enable the policy makers to formulate appropriate policies that will aim at improving on the quote of the total revenue brought about by the non-oil sectors of the economy. This study is also important and significant in that it will examine the various ways of improving non – oil outputs.

This study will also evaluate the contributions of non – oil sector towards raising the living standard of Nigerians with in the period under review (1984- 2003).Since not so much works have been done on the contributions of non- oil exports to Nigerian economic growth, this study will be of great importance.


1.6 Scopes and Limitations of the Study

This study is an attempt to evaluate and review agricultural products and policies in the economy towards economic growth and development in Nigeria. It intends to cover the periods between 1984 and 2003. It intends to evaluate the contributions of non-oil exports to Nigerian economic growth and develop.

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study.

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Finance:

The finance available for the research work does not allow for wider coverage as resources are very limited as the researcher has other academic bills to cover.


1.7 Operational Definition of Terms

Export

The term export means sending of goods or services produced in one country to another country. The seller of such goods and services is referred to as an exporter; the foreign buyer is referred to as an importer

Economic Growth

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

Crude Oil

Petroleum is a naturally occurring, yellow-to-black liquid found in geological formations beneath the Earth’s surface.


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study.
  • Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study.

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to investigate the impact of non-oil export in the Nigeria economic growth.

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 addressing the challenges of non-oil export and economic growth in Nigeria.


5.2 Summary

In response to Nigeria’s economic problems which were caused by the mono-cultural nature of the economy (a situation where Nigeria depends heavily on the exportation of crude oil), this study has examined the contribution of non oil exports on the growth of the economy. The study has established a positive and significant relationship between the non-oil exports and Nigeria’s economic growth proxied by GDP. That is non-oil exports contributed significantly to the growth of Nigeria’s GDP.


5.3 Conclusion

This study investigate the impact of non-oil export on economic growth in Nigeria, with the aim of either positive or negative claims that have attributed growth in the nation’s economy in recent times to contributions from non-oil export and the long run relationship Non-oil export and exchange rate can be treated as the ‘long run forcing’ variable explaining GDP growth in Nigeria. In otherwords, there is long run relationship between non-oil export, exchange rate and GDP growth in Nigeria. Moreover, the results of data analyzed, had an expected and highly significant positive sign. Also, findings show that the fact that exchange rate, within the study period, is not a major factor influencing the rate of change in economic growth of Nigeria. In conclusion, the absence of recent time series study to provide empirical proof of the contribution of non-oil export to Nigeria’s economic growth, this study was undertaken to actually bridge this gap in the literature. From the findings, since the nonoil export has a significant positive impact in the long run on economic growth and also, exchange rate had a significant negative impact in the long run relationship in Nigeria; it means that empirically non-oil export has the potential significant contribution to the growth of economy while exchange rate depreciation has affected the growth rate of the economy negatively in the long-run, making the GDP continue losing it values.


5.4 Recommendation

The study therefore recommends that government should formulate meaningful economic policies aimed atre-inventing in the non-oil sector, especially the, growth of non-oil exports are accommodated, more exchange rate earning will be available to forestall recurrence of volatility in exchange rate for better economic growth. The volatility in crude oil price and falling in its production will not really affect the size and growth of the economy since they established long run relationship. Hence, there is need to reform and reinforce the existing policies of non-oil sector for more diversification of the economy which will yield better outcomes.


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