IMPACT OF PETROLEUM OIL EXPORT ON THE GROWTH OF NIGERIA 1980- 2012

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IMPACT OF PETROLEUM OIL EXPORT ON THE GROWTH OF NIGERIA 1980- 2012

ABSTRACT

CHAPTER ONE
1.0 INTRODUCTION

Nigeria, which spans an area of 924,000 square kilometers, is bordered by the Gulf of Guinea, Cameroon, Benin, Niger, and Chad. The topography ranges from mangrove swampland along the coast to tropical rain forest and savannah to the north (1). Nigeria is generously endowed with abundant natural resources. With its reserves of human and natural resources, Nigeria has the potential to build a prosperous economy and provide for the basic needs of the population. This enormous resource base if well managed could support a vibrant agricultural sector capable of ensuring the supply of raw materials for the industrial sector as well as providing gainful employment for the teeming population (2).

Nigeria’s rich human and material resource endowments give it the potential to become Africa’s largest economy and a major player in the global economy (1). Compared with other African and Asian countries, especially Indonesia, which is comparable to Nigeria in many respects, economic development in Nigeria has however been disappointing. With GDP of about 45 billion, 32.953billion and55.5billion dollars in 2001,2002 and 2003 respectively and per capita income of about $300 a year, Nigeria has become one of the poorest countries in the world. Having earned about $300 billion from oil exports between the mid-1970s and 2000, its per capita income was disappointingly 20 percent lower than that of 1975. As stated by Obeke J (2004) , inability to tap much of the abundant human and material resources can therefore put the attainment of the Millennium Development Goals by 2015 in jeopardy (1,3).

According to (1970) the role of agriculture in economic development of most countries can hardly be overemphasised (4). The contribution of agricultural growth to overall poverty reduction has been documented (5). In view of

1 African Journal of General Agriculture Vol. 2, No. 1 (2006) the importance of agricultural growth to economic growth, (6) observed that rising agricultural productivity has been most important concomitant of successful industrialization.

A retrospective look into the Nigerian economy and its development reveals that agriculture was both the main stay of the Nigerian economy and the chief foreign exchange earner (7). In the 1960s, agriculture accounted for well over 80 percent of the export earnings and employment; about 65 percent of the GDP (gross domestic product) and about 50 percent of the government revenue (8). This contribution to the Nigerian economic growth has however declined over the years. The contribution of agriculture to the GDP was about 50% in 1970 and 34% in 2003(9). At present, agriculture accounts for only 41 percent of the real sector, while crude oil accounts for 13 percent (10). Although agriculture no longer serves as the leading contributor to Nigeria’s gross national product and leading foreign exchange earner due to phenomenal growth in the petroleum sector of the economy as (11) observed, agriculture is still the dominant economic activity in terms of employment and linkages with the rest of the economy (1). While accounting for one-third of the GDP, it remains the leading employment sector of the vast majority of the Nigerian population as it employs two-third of the labour force (7).

The principal constraint to the growth of the agricultural sector is the fact that the structure and method of production have remained the same since independence more than four decades ago (10). The United Nations Food and Agriculture Organization rates the productivity of Nigeria’s farmland as low to medium— but with medium to good productivity if properly managed (1). To be effective, and attain higher level of productivity and growth in the agricultural sector there is a need to identify the major factors that determine its growth.

BACKGROUND OF THE STUDY

Nigeria economy is basically an open economy with international transactions constituting an important proportion of her aggregate economic activities. Over the years, the degree of openness of the economy has grown considerably.
Before Nigeria gain her political independence in 1960, agriculture was the dominant sector in the economy, which provides both cash crops and food crops to the economy and accounted for the largest part of the foreign exchange of the country. But, the discovery of crude oil production in commercial quantities changed the structure of the Nigerian economy. This led to the neglect of agricultural product, making the economy to depend heavily on production of crude oil. In 2000, oil and gas export accounted for more than 98% of export and about 83% of federal Government Revenue. (Odularu 2008). Nigeria’s proven oil reserves are estimated to 35billion barrels, Natural gas reserves are 1000 trillion fti (2,800kmi) and its crude oil production was around 2.2million barrels (350,000mi) per day. (Odularu 2008).
Furthermore, the oil and natural gas export generated huge revenue to the government and have a surplus balance of payment over the years. It was reported that 80% of Nigeria’s revenue goes to the government, 16% spent on administrative expenses and 4% go to investors. The huge revenue from oil export only benefit 1% of the population due to corruption in Nigeria. ( Odularu 2008). Mismanagement over the years back hindered economic reforms from achieving its full economic potentials.
However, Nigeria Gross Domestic Product at purchasing power parity became more than doubled from $170.7billion in 2005 to $374.3billion in 2010, with informal sector putting the actual numbers greater than $374billion. The Gross domestic Product per capita doubled from $1,200 per person in 2005 to an estimated $2,500 per person in 2009, with the informal sector included, the Gross Domestic Product per capita was estimated around $3,500 per person. (Nigeria economy).
Furthermore, the united states remains Nigeria’s largest customer for crude oil export accounting for 40% of the country total oil exports, providing about 10% of overall united state oil imports and ranked as the fifty-largest source for united state imported oil.(Odularu 2008). The petroleum industry in Nigeria has brought unprecedented changes to the Nigerian economy, particularly in the past five decades when it replaced agriculture as the cornerstone of the Nigeria economy. The oil industry has risen to the commanding heights of the Nigerian economy, contributing the lion share to gross domestic product and accounting for the bulk of federal government revenue and foreign exchange earnings since early 1970. However, Nigerians considerable endowment in fossil fuel has not translated into an enviable economic performance; rather, the nations mono-cultural has assumed a precarious dimension in the past decade susceptible to the vagaries of the international oil markets. Agriculture forms the most dominant economic activity of the Nigeria people most. Federal office of statistic (F.O.S) in 1985 stated that crop farming and fishing activities account for about 90% of all forms of activities in the economy. They also estimated that about 50-68% of the active labor force is engage in one form of agricultural activity or the other including fishing and farming. Agricultural technology has remained relatively unchanged over the years and over 90% of the farmers are subsistence farmers operating on traditional methods using basic tools. Azibolomari 1998 stated that farming technique in the Niger delta has still remained the use of land rotation or bush fallow system characterized by land and labor behind the principal inputs of production. The challenge of resuscitating agricultural production and development in Nigeria is an enormous one. This is because of the dramatic shift in the fortunes of the sector over the years; from the dominant sector of the economy (contributed 64.1% to GDP) and supplier of food, income, foreign exchange and employment in the1960s to a net importer of food contributing less than 5% to total foreign exchange earnings in 2000.Many policy analysts attribute this to the sector s neglect following the discovery of petroleum. Domestic demand for food and agricultural products was altered in favor of import of grains, beverages and vegetable oils and fibers which Nigeria was on cereputed as a leading world power. The task of resuscitating agricultural production for exports is therefore very tasking. This would require stepping up production to meet and bridge the import gap, provide for strategic food reserves and generate surplus for exports to earn income and sustain farming enterprise in general. It goes beyond resuscitation of traditional exports to conscious effort at developing and promoting new commodities for exports.

Acording to Osuntogun CA (2007; 1 :35-36) ,Oil industry in Nigeria has contributed tremendously to the of the country even among the African countries and the popularity of Nigeria in the world market. Petroleum has fashioned a remarkable economic landscape for the country since it was discovered in commercial amounts in 1956. However, on the contrary, petroleum exploration and production have had negative effects on aquatic environment and activities like fishing and farming which have greatly led to retrogression in agriculture in the Niger Delta region, which in the past was the major source revenue for the Nigerian economy.

Oil spillage has a major impact on the ecosystem. Major tracts of the mangrove forest, which are susceptible to the negative effect of crude oil have been destroyed by the same, mainly because spilled oil is stored in the soil and released gradually. Crude oil spills in populated areas often spread out over a large area of land destroying crops and aquacultures through contamination of the groundwater and soils. Aquatic organisms like fish now feed on bacteria which have consumed dissolved oxygen from the spilled hydrocarbons, which evidently leads to rapid depletion of fishes since they can not withstand the high organic quantity of these hydrocarbons. Armah B and TA Park (19981-16p) opined that the rate of death is even higher when fishes directly inhale such oxygen, thus making the region increasingly uninhabitable for other aquatic animals as well. Crude oil spillage has great adverse effect on growth and feed utilization of African cat fish, which has consequently reduced the economic yield of Niger Delta region of Nigeria. Due to the vast development in Oil industry in Nigeria, agriculture has been drastically affected as indigenous people can no longer plant crops in areas of oil exploration region, and aquatic animals hardly thrive in the same region. This has also led to economic instability, arising from militants disrupting commercial activities and causing riots and violence in various parts of the Eastern Nigeria. Enormous money had been derived from oil export but the area has been subjected to severe land degradation, socio-economic disorder, increasing poverty due to poor agricultural practice. etc. It a popular opinion that the development of the Agricultural sector of the economy could be a great remedy. This should involve government at various levels and disbursement of money to the agricultural sector of the oil rich states, and the people must be enlightened and educated to stop pipeline vandalisation, violence, and settle for a more profitable job.

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. Since the first oil price shock of 1974, oil has annually produced over 90% of Nigeria’s export income from 1970 to 1999, oil generated almost $231 billion in rents for the Nigeria economy and these rents have constituted between 21% and 48% of Gross Domestic Product, but yet these rents have failed to raise Nigeria incomes and done little to reduced poverty. Since 1970, Nigeria’s per capita income has fallen by about 4% in constant dollars.
Also, since early 1970, the government has annually received over half of its revenues from oil sectors which are about 85%. These oil revenues are not only large but highly volatile and causing the size of government programs to fluctuate accordingly. From 1972 to 1975, government spending rose from 8.4% to 22.6% of GDP, by 1978, it dropped back to 14.2% of the economy. This fluctuation has made the government unable to adhere to wise fiscal policies during the 1970s and 1980s, when oil prices fluctuated sharply, the ability of these governments to spend their funds wisely, and limit corruption has been low.
Although large proceeds are obtained from the domestic sales and export of petroleum products, its effect on the growth of the Nigeria economy as regards returns and productivity is still questionable, hence there is a need to evaluate the relative impact of oil export on economic growth in Nigeria.

1.3 OBJECTIVES OF THE STUDY.

The objectives of this study are spelt out into two, i. e. general objective and specific objectives. The general objective of this study is to examine the impact of oil export on economic growth in Nigeria. While the specific objectives are:
1.To examine the relationship between oil export growth and economic growth.
2.To find out if fluctuations in oil revenue also causes a fluctuation in economic growth.

3. To examine the growth in the various agricultural sub sectors of the Nigerian economy between 1981-20013 .

4. To determine the factors affecting domestic agricultural production in Nigeria.

5. The main aim of this study is to analyze and evaluate natural oil resource extraction, its impact on the agricultural development in Nigeria and its effect on the agricultural livelihood on the people of Nigeria most especially the oil producing community.

6. To examine the major underlying factors behind poor agricultural growth in Nigeria.

7. To identifies the potential sources of growth of the agricultural sector.

8. To analyze the impact of intensive resource exploitation on the agriculture, the people and the oil producing community in Nigeria.

9. To know the effect oil revenue on the growth agricultural production in Nigeria.

10. To measure the income generated from farming enterprises in crude oil-polluted area.

1.4 RESEARCH QUESTION

1. How can one examine the relationship between oil export growth and economic growth?
2.Is it possible to find out if fluctuations in oil revenue also causes a fluctuation in economic growth?

3. Can this research work examine the growth in the various agricultural sub sectors of the

Nigerian economy between 1981-20013?

4. What are the factors affecting domestic agricultural production in Nigeria?

RESEARCH HYPOTHESES

This study is designed to investigate the impact of oil export on economic growth in Nigeria. The hypothesis is therefore postulated as follow:
Ho: There is no statistically significant relationship between oil export and economic growth in Nigeria.
Hi: There is statistically significant relationship between oil export and economic growth in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY.
Going by the research conducted by some scholars or economists such as Akanni (2007), Idowu (2005), Hadi et. al., (2009), Mohammed and Amirahi (2010), Odularu (2008), and Samad (2011), for instance, provides an sight on the contributions of exports to economic growth in the country. These studies also shaded light on the policies that have been taken to reform the economy and the challenges faced by the export sectors.
However, in view of this, I tried to research on how oil export sector have contributed to economic growth in Nigeria by knowing the rate of real growth domestic product compared to the volume of oil export. By using multiple linear method and a sample size of 36years ranging from 1970-2008, which is different from the study mentioned above.
1.7 ORGANISATION OF THE STUDY
This research work has been divided into six chapters as follows:
Chapter one which is the general introduction of the entire study comprises of the statement of problem, objectives of the study, significance of the study, hypothesis of the study, methodology and organization of the study.
Chapter two gives a detail the background information on the study which includes the historical background of oil sector, performances of oil export sector, its contributions, challangences faced by the oil sector and other related issues to oil sector.
Chapter three is the literature reviews, which covers conceptual, theoretical and empirical literature as well as the theoretical framework.
Chapter four consists of the research methodology which shows the model specification, sources of data, econometrics techniques and sampling techniques.
Chapter five presents the data and show the analysis and interpretation of findings which as well as hypothesis testing and discussion of results.
Chapter six which is the last chapter deals with the summary of findings, conclusions and recommendations.
1.8 SCOPE OF THE STUDY

This study is centered on impact of petroleum oil export on the growth of Nigeria 1980- 2012

1.9 LIMITATION OF STUDY

Despite the limited scope of this study certain constraints were encountered during the research of this project. Some of the constraints experienced by the researcher were given below:

i. TIME: This was a major constraint on the researcher during the period of the work. Considering the limited time given for this study, there was not much time to give this research the needed attention.

ii. FINANCE: Owing to the financial difficulty prevalent in the country and it’s resultant prices of commodities, transportation fares, research materials etc. The researcher did not find it easy meeting all his financial obligations.

iii. INFORMATION CONSTRAINTS: Nigerian researchers have never had it easy when it comes to obtaining necessary information relevant to their area of study from private business organization and even government agencies. Zenith bank of Nigeria Plc finds it difficult to reveal their internal operations. The primary information was collected through face-to-face interview getting the published materials on this topic meant going from one library to other which was not easy.

Although these problems placed limitations on the study, but it did not prevent the researcher from carrying out a detailed and comprehensive research work on the subject matter.

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