Impact Of Non Oil Export On Nigerian Economy (1986-2010)

IMPACT OF NON OIL EXPORT ON NIGERIAN ECONOMY (1986-2010)

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
There are a number of reasons for a country to be concerned about its rate of economic growth. Economic growth is designed 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, policymakers, public and private sectors work ceaselessly forwards 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 product. These non-oil export products are coal, cotton, timber, groundnut, coca, beans, etc.
10
Today, as in the past, the growth of Nigeria economy remains partly dependent upon increasing productivity of the agricultural sector.
Helleiner, 2002 state 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 agricultural sector can make a substantial contribution to the total revenue, as well as having some implications for intersectional 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 stimulates the product of the modern sector.
11
The needs of the agricultural sector could indirectly influence the creating of additional infrastructures which are in dispensable to rapid economic development (Olaloku, 2001).
Another non-oil export to be developed on is industrial sector. It is the fastest growing sector in Nigerian 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 technological 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 bank braches 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
12
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 background linage in the economy, since the bulk of the inputs is imported, thus the manufacturing sector depends or imported raw-materials of 42%. The capacity utilization of manufacturing industries 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, and increase in cost of manpower. Others mentioned are equipment breakdown due to poor technology, lack of spare parts. Time lies between when inputs are ordered for and when they arrive, cash flow problem in industries becomes a permanent features.
The Nigeria civil war brought about the deterioration of the oil palm grooves and plantations 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 wild palm tress, which are of low-yield quality, and the difficulties experience in harvesting them. In addition, the old system of pricing which guarantees low
13
production prices for palm produce discourage substantial investment from being made for further production of this product. Also, the problem of 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 the state, one of the marketing functions of the marketing board is to stabilize the prices or our cash crops and hence creates stability of income for formers and to accumulate funds for development purposes. But the operation has failed to provide incentives to farmers to increase their input. Also, the producers aid unnecessary tax and they took from the producers some money, which should have gone to them as income they this reduced the amount of capital available to the producers.
This criticism, according to Adenira (1991) made the federal Government to reform the marketing board some with a view to increase producers’ prices and income. He said that the essential
14
features of the new authority while producer taxation (export duty and produce sale tax) has been abolished. Another major boards with the responsibility of market specific products wherever they are produced in the country. These boards are likely to reduce administrative problem and be more economical compared with all oil – produce state market 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 hither to imploring from Nigeria. The situation was becoming worrisome thus by 1975 there were attempts to recapture the lost of glory of agriculture. General Olusegun Obasanjo’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 and 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 relunch of “operation feed the nation” with a
15
new tag “Green Revolution” with various committees set up for its implementation (Oko, 1999).
If the efforts of the two leaders – General Olusegun Obasanjo and Alhaji Shenu 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% in the SD’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 motor able 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
The table below shows yearly palm production and coca products
16
Production in tones, which cover from 1990-2004.
Year
Plan products
Cocoa products
1990
730
1190
1991
760
1363
1992
792
1321
1993
825
419
1994
837
503
1995
871
403
1996
920
591
1997
938
635
1998
992
683
1999
1003
721
2000
1411
832
2001
1603
925
2002
114
1160
2003
1701
1165
2004
1770
1200
Source: CBN-Annual report and statement of Account 2000
1.2 STATEMENT OF THE PROBLEM
Nigeria remained a net exporter of agricultural products between 1960 and 1970. Goods exported include 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
17
domestic product and providing employment for over 70% of the work population. But recently there has been a steady decline in terms of agricultural product, to export and an abandonment of sector by a large percentage of the workforce.
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 comes 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 stole right to export the commodities. It is also pertinent to say that fixing of export product prices by marketing board discouraged further private investments in the sector. Further, the sector suffers 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 serious was neglected, infrastructural facilities, not provided, CBN objectives on agricultural loans floated. The package of policies used did not
18
only discriminate against export development but also disturbed the economy in several other ways. For instance an exchange rate of an artificially high level was maintained which in turn reduce the profitability of exports, raised domestic cost alone world process and reduced level maintenance uncompetitive in the world market.
In view of these problems resulting from the inappropriate use of policies persisted over times and necessitated the need to change policy direction. More emphasis was directed towards the promotion of non-oil exports. Various monetary and fiscal policies have been restored to various governments in Nigeria to encourage the non-oil performance and the economy generally.
The question today is to what extent has the redirection in policy affected the performance of non-oil export in Nigeria? But more simply, this research work is set to answer the following research questions:-
(1) To what extent has the non-oil exports sector contributed to
the overall gross domestic product (GDP) of the economy?
It is on this background that this research work is focused.
19
1.3 OBJECTIVE OF THE QUESTION
This research has a particular focus that aim at examining the causes of growth in government revenue using non-oil revenue of the government as an instrument. The non-oil revenue takes the range of products as agriculture and manufacturing. The major objectives are broadly defined as follows;
a) To empirically find out the impact of non-oil export earnings on
the nation Gross Domestic Product (GDP)
B) To evaluate government policies or measures towards boosting non-oil sector contribution to the economy.