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GOVERNMENT POLICIES ON NON-OIL EXPORTS (AGRICULTURE) AND THE GROWTH OF THE NIGERIA ECONOMY

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CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND TO THE STUDY

The agricultural sector in Nigeria was a source of foreign prior to the discovery of oil in commercial quantity. Then Nigeria was reckoned with the production and export of groundnut, cocoa, rubber, and other agricultural crops in Nigeria. The discovery of oil at large exploration in the 1970s turned the tide against the agricultural sector in favor of the oil sector. For instance, as at 2000, oil and gas exploration accounted for more than 98% of export earnings and about 83% of federal government revenue (Export Import Bank,2009).The oil sector also accounted for more than 40% of the Gross Domestic Product (GDP) in Nigeria and about 95% of the foreign exchange earnings. Despite this seemingly high revenue from oil sector, the paradox of it that over 70% of the Nigeria population is engaged in either informal sector or in agricultural production (Olaitan , 2006).

The vast employment opportunity and the quest towards diversification of the revenue by the federal government and development agencies have shifted attention towards the informal and agricultural sector. For example ,to sustain the agricultural production in Nigeria, the World Bank developed a project called Agricultural Development Projects (ADPs) which was designed to enhance the production of agricultural outputs in Nigeria .As at the year 1989 ,the ADPs were situated in 19 states in Nigeria as at then .The efforts of the ADPs  were geared towards enhancing agricultural productivity (World Bank,2001).There have been other national programmes established to boost agricultural production in Nigeria .Notable among them was the Agricultural Credit Guarantee Scheme Fund (ACGSF) in 1977.

The ACGSF has lofty aims especially the need to make the agricultural sector lucrative. However, it has not lived up to its bidding, which calls for empirical assessment with a view of understanding the resultant effect from the huge investment from the government into the sector. This is germane given the increase in the capital base of the fund from a start-up capital ₦100million to a current capital base of ₦6billion in 2006.Thus, there is need to investigate if this huge investment put in place to encourage agricultural production has actually had significant impact on export especially non-oil export, which the agricultural constitute a sizeable proportion. This is the main motivation for this study.

In Nigeria, apart from the crude oil production, agricultural products account for the major source of non-oil export revenue. This especially in the cash crop production likes rubber, cocoa, cotton, timber and so on.

Nigeria has achieved some appreciable economic growth in recent times. A number of explanations of this observed trend have attempted in different academic papers. Non-Oil exports performance has only improved considerably during this period. Several factors appear to have contributed to this phenomenon including a rapid improvement in trade liberalization, concerted efforts to diversify the productive base of the economy and a substantial increase in Foreign Direct Investment (FDI) inflows into the country. Arguably, FDI is a one of the most important strategies for the promotion of economic growth and development in  poor  developing countries .FDI can serve as an  engine growth and development for developing countries by increasing the opportunity for their integration into global financial and capital flows, expand employment and export base, generate technological capability building and efficiency spillovers to local firms as well as establish investment arrangement that increase the potential of host countries for economic growth.

Expectedly, the role of exports in economic performance of developing countries has become one of the more intensively studied topics in recent years. The major impetus of most studies on this relationship is the export-led growth (ELG) hypothesis which intensively represents a dominant explanation in this context. The ELG hypothesis states that the growth of exports has a favorable impact on economic growth. However, the empirical evidence on the casual relationship between exports and growth is mixed. In particular, available time series studies fails to provide uniform support for the ELG hypothesis while most cross-sectional studies provide empirical evidence in support of the hypothesis. The liberalization process in developing countries has increased not only trade but also FDI flows. Thus, FDI has become an important link in the export-growth relationship.

Over all, empirical evidence in the last few decades indicates that FDI flows have been growing at a place far exceeding the volume of international trade between 1975 and 1995,the aggregate stock of FDI rose from 4.5% to 9.7% of world GDP with sales of foreign affiliates of multinational enterprises substantially exceeding the value of world exports (Barrel and Pain,1997).The United Nations Conference on Trade and Development, UNCTAD(2007) reports that FDI flows to Africa has increased from $9.68billion in 2000 to $1.3trillion in 2006.The UNCTAD World Investment Report 2006 shows that FDI inflow to Nigeria, who received 70% of the sub-regional total and 11% of Africa’s total. Out of this Nigeria‘s oil sector alone receive 90% of the FDI inflow.

The performance of the Nigeria non-oil export sector, as pointed out earlier, has however been relatively impressive in recent times. For example, the International Monetary Fund (IMF) 2008 is of the view that the robust non-oil sector growth in the 2007 fiscal year had offset the drag from a decline in oil production in Delta, thus boosting growth in the Nigeria economy.

Aggregate output growth measured by the Gross Domestic Product (GDP), according to the Central Bank of Nigeria (CBN) 2007, economic report for third quarter of 2007, was estimated at 6.05percent, compared with 5.73percent in the second quarter. The growth was driven by the non-oil sector which was estimated at 9.47percent.This growth was driven mainly by major agricultural activities yam, Irish and sweet potatoes, groundnuts and maize.

The favorable economic environment has made countries in SSA increasingly attractive as destination for private capital inflows.Net private capital inflows reached record in levels in 2007, led by strongly FDI inflows. However, the bulk of FDI is still focused on a few countries and targeted mainly at extractive industries, particularly the petroleum sector, based on evidence from cross-border mergers and acquisition related inflows. But deposit outflows from some oil exporters notably Libya, Nigeria and Russia displayed some of the highest correlations, while for others including Saudi Arabia and other Middle Eastern Oil exporters, the correlations were only modest Libya, Nigeria and Russia also accounted for one-half for all deposit out-flows accounted for one-half of all deposit out-flows from oil-exporting countries, and in each of these countries deposit out-flows accounted for one-half or more of total gross capital outflows. These huge capital outflows are linked mainly to extractive FDI and calls to question the ability of FDI to drive growth effectively in this country.

It is not worthy however, that despite the observe increasing inflow of FDI, there has not been any satisfaction attempt to access is contribution to Nigeria (non-oil) export performance, a major channel through which FDI affects economic growth. This call for empirical investigation and the question here now are, can we find evidence to support the (non-oil) export led growth in Nigeria? What vital role does FDI play in the ELG relationship if it exists? Are there any casual relationships? Or what are the dynamic interaction among (non-oil) export, FDI and economic growth in Nigeria?

1.2 STATEMENT OF THE RESEARCH

Nigeria as a developing country has been grappling with the realities of developmental process not only politically and socially but also economically. In the 1960, agriculture was the mainstay of the economy and the greatest forging exchange earner. However, this prime position occupied by agriculture was overtaken by oil sector by the mid-1970s.In the circumstances, Nigeria export earnings increased from ₦339.4 million in 1960 to ₦14.077million in 1980.The mono-culture nature of the economy makes Nigeria’s export earnings susceptible to the vicissitudes of the international oil market. The intrevent weakness in the economy manifested with the oil glut. This therefore calls for the need to increase the Quantum of non-oil export as well as diversify export in the light of vagaries of oil fortunes decline of external receipt from about 26billion in 1980 to about 6.5billion in each of 1987 and 1988,Geroid,(1976).

However, the study(NEPC 1996),also noted inspite of the countries product advantage and various export potential some exporting firms have problems of what product to offer for export, how to source/manufacture to which market to export, considering the competition that exists in foreign markets. How to finance export and cope with the country export procedures and documentations?

Another problem associated with the country’s product exporting is the consumer perception of made–in-Nigeria goods by local and foreign consumers. It is argued that a nation without a pride is a nation which has not discovered itself. Iwok (1996) remark that such lack of pride in home made goods is an indication of immaturity and under development. I see the possession of great pride in home made goods as a pre-requisite and sustenance of economic progress by any developing country. Today a nation can earn the highest level of respect and good image by possessing pride in its goods; it must determine its destiny by developing pride in its goods.

The first step in enhancing Nigerian firms ‘product advantage in export marketing is to overcome the age-old colonial mentality of assigning superiority to foreign made goods and regarding Nigerian product as inferior. We cannot convince other countries as to quality of our product made in Nigeria. This is because Nigerians themselves ought to be sales men in terms of the support they give to made-in-Nigeria goods”.Nwakanma(1986) asserts that with adequate research on the products, diligence and painstaking care in handling of the products especially with respect to the aesthetic quality, physical appearance ,beautiful designs, packaging and labeling, made-in-Nigeria goods will have enhanced comparative advantage in terms of perception, market opportunities and competition in the world market.

Domestic competition encourage firms to explore foreign markets when they face stiff competition in local markets(1970) and Cavusgils (1984),similarly found that some companies see export as a way of relief in a very competitive market. It was also argued that Turkish manufacturers initiated export because of competitive pressures and saturation of domestic market rather than differential advantages (Karafakioghi and Harcar (1990).In the same lightproof (1982) found that competition in European market had an advantage because competing firms and importers had credit extension as their government provided incentives for the manufacturing of consumer and industrial goods. Competition was also found to differ across nations as it had sometimes hindered or frustrated firms export marketing Rosenbloons and Larsen (1991).

The researcher tends to find solutions to the following problems:

  1. What are the need of government policies on non-oil export (Agriculture) and the growth of Nigeria economy?
  2. What are the constraints towards non-oil export on the growth of Nigeria economy?

iii.   How can government policies aid exports in Nigeria?

1.3 OBJECTIVES OF THE STUDY

Some economists do not see this as the only means for a concerted export drive. This is the controversy that existed between in-ward looking and out-ward looking (Autarky and Open) strategies of development, delinking and complete Autarky have been considered as viable alternative development strategies by those not in favor of international exchange. The Nigeria approach to development as however encompassed the integration of her economy with world economy and the acceptance of international economy.

According to Morton and Tullock (1978).International trade brings gains to nation whether rich or poor and that it acts as a stimulus to growth. Some observers through accepting the above assertions are of the view that the growth is in-significant among the developing countries for the reason that they are less developed and lack responsiveness to market opportunities and dynamic influences of international trade that is characterized of developed market (Basile, R.2001).

Others hold that the reason for limited gain from international trade by less developed countries is the inadequacy of market opportunities. They point to the slow growth of export earnings from many primary commodities the rest attendance in less developed countries, current degrees of specialization in such export and difficulties of obtaining access to overseas market for a more diversified range of export product.

Although the level of development and growth of export trade is below the desired one as a result of the mono-cultural nature of the Nigeria economy to those of other countries in recent times (Elbadawi I.2001).

STRUCTURE OF EXPORT IN NIGERIA

The growth of export Nigeria’s external trade has been remarkable since 1970.Its value rose from ₦339.4million in 1960 to ₦885.4million in 1970.However as a result of the discovery of crude oil in large quantity and counted with significant increase in oil prices in 1970 as well as OPEC’s oil prices adjustments in 1980,the value of total export increased to ₦14,077million in 1980 before declining to ₦7636.6million in export earnings in 1983.There was temporary improvement in export earnings in 1984 and 1985 but this was not sustained as it fell to ₦8513million in 1986.(see table 2.1)

Table 2.1 STRUCTURE OF NIGERIA’S EXPORT (Millions)

 

  AGRICULTURE MANUFACTURE PETROLEUM  
YEAR Value(₦) Percent (%) Value(₦) Percent (%) Value(₦) Percent (%) TOTAL
1960 278.8 82.1 35.5 10.4 8.8 2.6 339.4
1965 311.5 58.0 56.7 10.6 136.2 25.4 536.5
1970 265.2 3.0 74.4 8.4 510.0 57.6 885.4
1975 230.6 4.6 53.8 1.2 4565.1 92.7 4935.5
1976 274.2 4.1 58.9 0.8 6321.3 94.2 6709.8
1977 375.7 4.9 84.1 1.1 7073.8 92.7 7630.7
1978 412.8 6.8 42.8 0.7 5401.6 89.1 6064.4
1979 468.0 4.3 42.6 0.3 9850.5 90.9 10836.8
1980 340.0 2.4 39.0 0.2 13505.5 95.9 14077.0
1981 5178.4 1.6 71.2 0.6 10680.6 96.9 11023.3
1982 92.0 1.01 90.2 1.0 8601.6 97.3 8783.8
1983 274.9 3.6 4.2 0.2 7201.2 94.3 7636.6
1984 288.8 3.1 1.8 0.0 8840 96.8 9131.2
1985 324.2 2.9     10890.6 97.1 11214.8
1986 240.0 2.8     8243.6 97.2 8513.0

Sources: 1. Central Bank of Nigeria: Annual Report and Statements of Account (1970-1986)

  1. Federal Office of Statistics: Annual Abstract of Statistics, 1964, 1970, 1975 and 1985 Editions.

The post 1982 period witnessed margining increases in its share such that by 1984 it had risen to 3.2percent.This trend was reversed in 1985 and 1986 as its share declined to 2.9 and 2.8 respectively.

Agriculture as the mainstay of Nigeria’s economy in the early 1960 provided about 80% of the nation’s total export. Apart from the role of agricultural sector in the export trade, there were other exports mostly materials such as tin, columbites and coal which played significant roles as foreign exchange earners during this period.

It was noticeable that before 1960, virtually all the nation’s foreign exchange was obtained from the exportation of primary commodities. However, this leadership role was terminated with the emergency of petroleum as an export item. By 1965,petroleum’s share of the country’s total foreign exchange earnings had risen from 25.4% to 57.6% in 1970 and 92.6% in 1974.The vigorous pursuit of oil exploration soon increased oil production from an initial 600 barrels a day in 1958 to 16.500 barrels a day in 1960(see table 2.2).

Table 2.2: NIGERIA’S EXTERNAL TRADE (1975-1986)

Year Value of crude-oil Exports (₦) Value of Non-oil sector (₦) Total value of Exports (₦)
1975 4563.7 363.4 4925.5
1976 6321.6 429.5 6751.1
1977 7072.8 557.8 7630.6
1978 5653.6 662.8 6064.4
1979 10204.5 632.3 10836.8
1980 13523.0 554.0 14077.0
1981 102280.3 189.8 10470.1
1982 8483.8 120.9 8583.7
1983 7201.2 301.3 7502.5
1984 8840.6 247.4 9088.0
1985 10890.6 324.2 11214.8
1986 8223.0 240.0 8513.0

 

Source: Central Bank of Nigeria Economic and Financial Review (Various issues) (2007).

A glance at the above table shows the trend of growth in oil earning for Nigeria economy. Between 1970 to 1986, the amount of foreign exchange earned from crude oil export rose from ₦510.00million in 1981 and ₦10, ₦890.6 million in 1985.The earnings from the non-oil export sector for 1970 was ₦324.2 million but declined to ₦240.0 million in 1985.

The other structural side of export is that of industrialization which emphasizes on export of manufactured goods. The need for orientation towards this is because of the discovery that primary production for export has not resulted in meaningful economic development for developing countries (Odularu G O 2006).

The manufacturing sector, which starts on an insignificant footing, is today making an impact on the economy. Its contribution to the GDP in real terms stands as ₦146.4 million in 1962/63 and ₦472.7 million in 1973.

Inspite of the seemingly impressive growth rate; the manufacturing sector remains not only relatively small in absolute terms but its spectrum is still limited and the range of goods produced is narrow when compared with industrialized countries. The decline in contributing of the manufacturing to the GDP can partially be attributed to the rise in petroleum revenues which reduced the percentage share of the entire non-oil sectors of the economy, hence making Nigeria a mono-product exporting country. (Lall, K.2000).

As a result of the dividing government revenue from crude-oil exports in recent years, there is a need to diversify the source of export earnings from crude-oil and to find an alternative source of foreign exchange through the promotion of non-oil exports (Adelegan, J.O.2000).

2.2 PROMOTION OF THE