OIL PRICE INSTABILITY AND INDUSTRIAL SECTOR OUTPUT IN NIGERIA
1.1 BACKGROUND OF THE STUDY
The need to promote a virile industrial sector has continued to be a major concern of most development economies. The reason for this awakened interest in industrialization can be traced to the fact that a significant work to be the level of industrialization offers the place in a growing economy.
Also, a significant increase industrial output offers prospect of growing availability of manufactured products, increase employment, greater efficiency, improved balance of payments and higher technological innovation “CBN 2002”
However, despite efforts by past administrations in Nigeria at promoting trade and industrial development, and its effects of macroeconomic variables on the industrial sector shows that efforts by policy makers have not effectively satisfied the desired industrial development which should increase national income per capital income, prove foreign exchange earnings, secure full employment and expand the market for local law materials. Industrial sector performance in Nigeria has been rather poor since independent. Prior to 1970, there was a real total reliance on agricultural production while the past 1970 era shower a total shift to exclusive reliance on petroleum.
In addition to the monoculture structure of the production bases, there was the problem of oil price instability, which to a large extent has advancely affected industrial sector productivity in Nigeria since 1973,substantial fluctuations in the international price of crude oil have had for reasing implication for the country’s macroeconomic policies “Olapoenia, 1986” Okigbo, 1973, Iwayemi, 1995.
The price of crude petroleum rose from the first time in Nigeria in 1973 from $3 to $11.6 per barriers in response to the uncertainties created by the Grab – Israel war, which erupted in October 1973. The resultant rise in the price of crude petroleum generated a total of N9.2 billion in revenue for Nigeria in 1994 as the country exported 108 million tons of crude oil that year “mandal, 1977. The upsurge in crude oil and price and the resultant increase in the revenue for the country created opportunity for industrial development and modernization of the Nigeria economy.
Although the oil price increase in 1943 was short lived, between 1979 and 1980, the price of oil rose in the international market between 135 and A$40 a barrel from et $14 level recorded in the early part of 1978. the rise in crude oil price again was only mainly to the Iraninan revolution. In responses Nigeria produced 84.2.5 million barrel in 1979 and realized N9305.6 million in the prices “The Africa Guardian, 1986, First Bank Business Report,1990” with the increased revenue derivable from oil sector the Nigeria economy became mono-cultural as emphasis shifted from the agriculture sector to the oil sector. Thus is 1980 the nation experienced a severe economic crisis which is receasble to the over dependence a severer economic crises which is traceable to the overdependence on the oil sector “Otashere, 1988” The oil glut era of the 1980s created a serious problem for the industrial sector, as there was a decline in industrial output and the level of industrial employment.
Consequent upon the freezing, the country passed through a period of structural adjustment programmed in 198. This was accompanied by austerity measure of enormous proportion. By 1990 a sign of relief was not welcome with the price of oil in the international market seoard as a result of the guif war between Iraq and Kawat. as a result of the war, Nigeria earning from crude oil export reached N106.62 million as against the targeted N38.62 million.
These translate into windfall of N68 billion since the exchange rate was stabilized atN9 to 11 between September and December 1990. The revenue gained from the glut crises was however not translated to productive investment and increased manufacture productivity.
In the late 1990’s and early 2000 crude oil maintained at position as the highest contributor to the federation account. This was shown in the year 2003 annual budget. Out of estimated proved revenue of N1,819.0214 billion, a total of N120. 1789 billion representing 61.58% is expected to be generated from oil. The projection is predicted on a crude oil price at $21 per barrel: the answer to this question rest on the pattern of crude oil price volatility
1.2 STATEMENT OF THE PROBLEM
Nigeria like many other developing nations has seen several decades of political instability and dictatorship the country in addition to continuous oil price instability is still faced with a lot of political tension, there is tension between the tension between different ethnic groups especially current ethnic crises in the Nigeria Delta which is threatening the down stream oil sector. As the 7th largest producer, Nigeria external liquidity position has been strengthened by the high oil price.
The country produced 2 million barrel of oil pending and high oil price has seen to it that it’s current account changed from a deficit of 9% GDP in 1998 to a surplus currently.
Export growth has seen spectacular, but Nigeria remains too dependent on oil, her position can weaken quite significant and quite rapidly if the oil price drops too far below $20 per barrel.
The highest oil price in the early 1970 led to massive industrialization of the Nigeria economy. However, hopes that Nigeria will regain the strong growth momentum that characterized its performance in 1970’s are unlikely to be realized in the near terms growth in the 70’s was driven by rapid expanding oil production that quadingpling of the declare price of oil and the massive public sector investment in the infrastructure and scare owned heavy industry. The favourable condition that favoured industrial sector performance and growth in the No’s as unlikely it apply in the event 6 to 8 years because of the existence of the following constraints.