CHAPTER ONE
INTRODUCTION
1.1 Background to 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 of 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 towards attaining economic growth by the use of growth and development models and policies. Among the policies used are trade policy, (import and export policies), monetary policy, exchange rate policy, fiscal policy, etc.
Non-oil exports are the products which are produced within the country in the agricultural, mining, quarrying and manufacturing 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 the Nigeria economy remains partly dependent upon increasing productivity of the agricultural sector.
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.
Agricultural sector can assist through the exportation of principal primary commodities which will increase the nation’s foreign exchange 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 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 for development purposes, while increase in rural income as a result of increasing agricultural activities can further stimulate the output of the modern sector. The needs of the agricultural sector could indirectly influence the creation of additional infrastructures which are indispensable to rapid economic growth and development (Olaloku, 2001).
Another non-oil export sector to be developed on is the manufacturing sector. It is the fastest growing sector in the Nigerian economy. Nigeria has no 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 colonialist’s 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 manufacturing sector took off after independence and relied on satellite firms representing British interest. The banking sector, which is constellation of colonial bank branches and some companies that were able to invest in manufacturing were multi-nationals 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 background linkage in the economy, since the bulk of the inputs are imported; thus, the manufacturing sector depends on 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 and lack of spare parts. The major fault of the successive governments that were supposed to sustain agricultural and manufacturing sectors through the building of macro-economic structures and incentives diverted their attention away from both sectors. The result was sharp in the export/import equation as the country started importing almost all goods into the economy even those goods that can be produced in the country.
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 of up to 80% of the Gross Domestic Product and providing employment for over 70% of the work population. But recently there has been a steady decline in terms of agricultural products to export and an abandonment of the sector by a large percentage of the workforce. But the story of its decline is as pathetic as its impact on the industry that relied heavily on the sector for raw materials. Thus, the decline comes with surge of revenue from crude 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 boards contributes greatly to the decline of non-oil export since the board has the sole right to export the commodities. It is also pertinent to say that fixing of export product prices by the marketing board discouraged further private investments in the sector. Furthermore, 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. The package of policies used did not 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 reduced the profitability of exports, raised domestic cost and reduced the level of competition of our goods in the world market.
In view of these problems resulting from the inappropriate use of policies that persisted over time necessitated the need for a change in policy direction. More emphasis was directed towards the promotion of Non-oil exports. Various monetary and fiscal policies have been put in place by various governments in Nigeria to encourage the Non-oil sector performance and the economy generally. 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. Based on this, this research seeks to address the following questions: To what extent has the redirection of policy affected the Non-oil export sector in Nigeria? To what extent has the Non-oil export sector contributed to Gross Domestic Product in Nigeria? It is by addressing pertinent questions such as these that has necessitated this study.
1.3 Objectives of the Study
The general objective of this study is to examine the impact of Non-Oil Exports on economic growth in Nigeria. The specific objectives of the study are as follows:
- To examine the impact of agricultural sector output on Gross Domestic Product in Nigeria.
- To examine the impact of manufacturing sector output on Gross Domestic Production Nigeria.
1.4 Research Hypothesis
To carry out this research, the following hypotheses were formulated:
H01: Agricultural output to have no impact on GDP in Nigeria.
H02: Manufacturing sector output to have no impact on GDP in Nigeria.
1.5 Significance of the Study
The research is on the impact of Non-oil Exports on Economic Growth in Nigeria. This study is of great significance to policy makers, firms and individuals. For policy makers, it will enable them formulate appropriate policies that will improve the quota of total revenue brought about by the non-oil export sector of the economy. To the individuals, it will examine the various ways that the non-oil export sector can be improved so as to raise the standard of living for individuals residing in the country. For the firms, it will provide them with raw materials to increase the output of goods and service they produce in the economy.
1.6 Scope and Limitations of the Study
This research work is an attempt to examine and review Non-oil export sector and policies in the economy towards economic growth and development in Nigeria. This study intends to cover the period 1981-2016. It also intends to examine the impact of Non-oil exports on Nigeria’s Economic Growth and development. In the course of this research, limitations such as inadequate finance to source for materials online and inadequate time to extensively and robustly cover the Non-oil export sector in Nigeria were encountered by the researcher.
1.7 Definition of Terms
Economy:: An economy is an area of the production, distribution, or trade, and consumption of goods and services by different agents in a given geographical location in various countries. The economy is defined as a social domain that emphasizes the practices, discourses, and material expressions associated with the production, use, and management of resources. Economic agents can be individuals, businesses, organizations, or governments. Economic transactions occur when two parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency.
Gross Domestic Product (GDP): Implies the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered as an indicator of a country’s standard of living. GDP is related to national account, a subject in macroeconomics. It is customarily reported on an annual basis. It is used to determine the growth rate of the economy.
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.
Economic Growth: According to Iniodu (1996), economic growth is defined as the rate of increase in the real output of an economy at constant prices. Economic growth can take either of the two ways. It can occur: as the rate of increase in per capita GDP; or as the rate of increase in total real GDP over time. Economic growth is an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. It can be measured in nominal or real terms, the latter of which is adjusted for inflation. Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used.
Agricultural Sector Output: Agricultural sector output has to do with those goods and services produced by the agricultural sector of a country within a given period of time. It could take the form of physical produce such as rice, beans, cocoa, palm oil, and groundnut, etc., or services such as research and consultancy.
Manufacturing Sector Output: The term may refer to a range of human activity, from handicraft to high technology, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale. Such finished goods may be sold to other manufacturers for the production of other more complex products, such as aircraft, household appliances or automobiles, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users and consumers.
NON-OIL EXPORTS AND ECONOMIC GROWTH: EVIDENCE FROM NIGERIA 1981-2016
