NON-OIL EXPORTS AND THE PERFORMANCE OF NIGERIAN’S ECONOMY THEORY AND EVIDENCE

NON-OIL EXPORTS AND THE PERFORMANCE OF NIGERIAN’S ECONOMY THEORY AND EVIDENCE

The broad purpose of this study is to investigate the non-oil exports and the performance of the Nigerian economy: theory and evidence.

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CHAPTER ONE

INTRODUCTION

1.1 Overview of the Study

The growth of the economy is a direct function of the level of growth in the activity sectors in Nigeria. Nigeria with her vast collection of agricultural products once proved to be the main economic drivers, not until the discovery and consistent dominance of crude oil trade in the foreign market in the 1970s. The pre-independence era was marked by the drive of the economy, trading majorly on agricultural products, but a sudden shift in direction in the early 1970s made agro-allied export activities an icebox with the discovery, exploits and export activities of black gold in abundance, i.e. crude oil.

The boom in the oil market and relatively high price enjoyed by crude oil made the country to rely on the oil sector as the chief source of foreign earnings and abandon all other sectors that contributed to foreign earnings for the economy. The core of the job was that while oil export was growing, non-oil export was declining to make the dominance much more rapid and pervasive (Osuntogun, Edordu, and Oramah 1998). Teal (1983) stated that the output of export crops grew at an abnormal annual rate per unit of 4.7% in 1950-1957 and 7.4% in 1960–1965 and then declined by 17.3% in 1970–1975. Accordingto Oyejide (1986) the nominal non-oil export earnings fell from N363.5 billion in1973 to N203.2 million in 1982. The decline was even more dramatic in real terms. Petroleum exportation in contrast rose phenomenally, from about N2 billion to aboutN8 billion in real terms during the same period. This is a classic example of what economic scholars referred to as the “Dutch disease” a scenario where a natural resource boom triggers a process of de-industrialization (Bature, 2012). Gains from petroleum export have since skyrocketing G.D.P thereby, turning Nigeria to a mono-cultural economy.

The adverse consequences of over-dependency on oil trade heightened the need to diversify the Nigerian economy away from oil towards the direction of non-oil export trade. It is believed that the non-oil trade has great potentials to propel the Nigerian economy to the desired growth and development. For instance, Onwualu (2012) maintained that the value chain approach to agriculture alone has the potentials to open up the economy and generate various activities that are capable of creating jobs and enhancing industrialization and thus makes the non-oil sub-sector to hold the aces for the future economic growth of Nigeria.

Non-oil exports are structured into four broad constituents which are the agricultural exports, manufactured exports, and solid mineral exports (Akeem, 2011), however, non-oil exports are commonly agricultural based, with no affiliation with the exhaustible dominant commodity (Crude oil, petroleum) in Nigeria. The practice of agricultural activities has great potential to propel the Nigerian economy to the desired growth and development as it builds an essential component of any economy aiming to establish a growth bound system. Following this, there is a need for Nigeria to return to its leading position in the export of palm produce, cocoa, groundnuts, and rubber. Several policies and attempts have been made throughout the years by the Nigerian government to enhance the non-oil sector of the economy by implementing helpful policies and incentives to encourage diversification strategies in the economy. Prominent in the lists of policies of the government was the adoption of the Structural Adjustment Programs (SAP) in 1986 as advocated by WorldBank and the International Monetary Fund (IMF). The result of this policy has not in any way improved the prospect of the economy but rather has compounded the problem.

However, despite the’ government’s various efforts to grow the non-oil exports, the growth performance of Nigeria’s non-oil exports is perceived to have been very slow. For instance, Ogun (2004) stated that non-oil exports grew at an average of 2.3% during the 1960 -1990 period, while its share of total export declined from about 60% in 1960 to 3.0% in 1990.

This, therefore, makes it imperative to find out if non-oil contributes to economic growth. On this note, this research tends to investigate the performance of the non-oil exports of the Nigerian economy.

1.2 Statement of the Problem

Agricultural activities build essential components of any economy aiming to establish a growth bound system, it also has great potential to propel the Nigerian economy to the desired growth and development. Imoughele and Ismaila (2015) noted that expanding non-oil exports to get rid of a one-product economy has been known as a solution for economic development in oil-producing countries of which Nigeria is one and also the sixth-largest oil-producing and exporting country in the world. Enoma and Isedu (2011) pointed out that Nigeria, since the 1970s has been a mono-cultural economy relying heavily on oil as its major income earner. The implication of this is that the dynamics of the economy are at the whims and caprices of the price of oil, which for the most part, has been volatile. Omjimite and Akpolodje (2010) also asserted that the dependence of Nigeria on crude oil exports has serious implications for the Nigerian economy since the oil market is a highly volatile one. Being dependent on the export of crude oil, the Nigerian economy is subject to the vicissitudes and vagaries of the international oil market such that international oil price shocks will immediately be felt in the domestic economy.

Thus, the major problem currently facing the Nigerian economy is the over-reliance on petroleum products without considering the enormous potential of non-oil exports particularly crops. This is traceable to the decline in non-oil exports and loss of market share in global non-oil trade performance (Abogan, Akintola, and Baruwa, 2014). It is believed that the non-oil trade has great potentials to propel the Nigerian economy to the desired growth and development. The value chain approach to agriculture alone has the potentials to open up the economy and generate various activities which are capable of creating jobs and enhancing industrialization and thus makes the non-oil sub-sector to hold the aces for Nigeria’s future sustainable economic growth, however, despite’ government various efforts to grow the non-oil exports, the growth performance of Nigeria’s non-oil exports is perceived to have been very slow.

This paper is therefore carried out to assess diversification of the Nigerian economy through the agricultural sector’s diversification exercise, to proffer suitable solutions to the lingering industrialization challenges affecting non-oil exports in Nigeria, the strategies and initiatives set up for the nation’s economic growth and majorly selected non-oil products from the agricultural sector, such as cassava, groundnut, millet, yam, and maize exports.

1.3 Purpose of the Study

The broad purpose of this study is to investigate the non-oil exports and the performance of the Nigerian economy: theory and evidence. The specific objectives are as follows;

1. To examine the extent to which Non-oil export affects the Gross Domestic Product.

1.4 Research Questions

1. To what extent do Non-oil exports affect the Gross Domestic Product?

1.5 Hypotheses

H0₁: There is no significant relationship between Non-oil exports and Gross Domestic Product.

1.6 Scope of the Study

This study concerns itself with the Nigerian economy which will span from 1981 to 2017. This period is used to capture the Structural Adjustment Period (SAP) when trade policies and other financial market activities were implemented.

Geographical Scope: The study covers Nigeria’s non-oil sector.

1.7 Significance of the Study

The relevance of this study is to enable the government to determine the shortcomings and problems that have confronted the non-oil export activities in Nigeria, that can relevant for future purposes. The study will also enable policymakers such as The Central Bank of Nigeria (CBN) and the stakeholders to implement various policies and reforms to restructure the Nation’s economy. It will also serve as resource material to students for knowledge, information, and further research in the Nigerian economy, agricultural activities, and also non-oil goods, export services, and trade.

1.8 Definition of Terms

Agricultural Exports: Nigeria’s non-oil exports are mostly agricultural/farm produce which are normally referred to as her traditional export commodities. These are cocoa, rubber, oil palm, coffee, cotton, wood products, cassava, ginger, fish shrimps, and so on. It is of utmost importance to note that exports of cocoa had pre-eminence as Nigeria’s most exportable non-oil agricultural commodities until the oil boom (CBN and NEXIM, 1999).

Manufactured Exports: The manufactured exports to the international export market comprises of agro-allied and manufactured goods. The agro-allied export products are cocoa butter, cocoa, powder, cocoa cake, groundnut cake, and wood products including furniture and fixtures, etc. while main manufactures are textiles, chemical products, beer and beverages, urea-ammonia, insecticides, plastics, and non-metallic mineral products and processed skin, etc.

Solid Minerals Export: The solid minerals exports from Nigeria are cassiterite, coal, columbite, charcoal, asbestos, processed iron ore, and marble. They had been minimal in terms of their volume and share of the export’s earnings. Before independence, the solid minerals exports were to satisfy the demand from the industrial base of the British imperialism. After independence, the government avoided direct participation in the mining of solid minerals due to large capital outlay involved, reoccurring flooding of mines, high risks, and intricate technology. Instead, mining was left to private firms.

Services Export: Service export is the export of services such as education, consultancies, nursing, and tourism. There are unique benefits to service exports that do not apply to goods, such as any or low freights costs. Service exports also come with some risks and challenges and they include limited options for securing payment and the protection of intellectual property rights (Business Victoria, 2007). It however remains still a veritable means of generating foreign exchange for the country and facilitating economic development, which is largely untapped.

Agro-Allied Products: these are products produced by agro-allied industries ie. Industries that depend on agriculture for their raw materials to operate successfully in the production of finished goods that are useful to animals and humans. Examples of such industries in Nigeria and the raw material used are; beverage industry, soap industries, feed mill, tire industries, sugar industries, textile industries, paper industries oil milling industries, using the following raw materials; coffee, cocoa, and tea, oilseeds, cereal and grains, rubber latex, sugar cane, cotton, pulpwood, oil seeds respectively.

Structural Adjustment Programs (SAP): Structural adjustment programs (SAPs) consist of loans provided by the International Monetary Fund (IMF) and the World Bank (WB) to countries that experienced economic crises. The two Bretton Woods Institutions require borrowing countries to implement certain policies to obtain new loans (or to lower interest rates on existing ones). SAPs are created to reduce the borrowing country’s fiscal imbalances in the short and medium-term or to adjust the economy to long-term growth. The bank from which a borrowing country receives its loan depends upon the type of necessity. The IMF usually implements stabilization policies and the WB is in charge of adjustment measures.

Since the late 1990s, some proponents of structural adjustments (also called structural reform), such as the World Bank, have spoken of “poverty reduction” as a goal. SAPs were often criticized for implementing generic free-market policy and for their lack of involvement from the borrowing country. To increase the borrowing country’s involvement, developing countries are now encouraged to draw up the Poverty Reduction Strategy Papers (PRSPs), which essentially take the place of SAPs.

1.9 Limitation of Study

In this research work made use of secondary data gotten from Central Bank of Nigeria publications (Central Bank of Nigeria bulletin 2019). As a result, this work may not be free from the problem of inadequacies and inconsistencies, and also the availability of adequate, reliable, and updated data imposed a serious constraint on this work.

1.10   Organization of the Study

This study is made up of five chapters. Chapter one is the introduction, comprising of the overview of the study, statement of the problem, research questions, formulation of hypotheses, the scope of the study, the significance of the study, definition of terms, organization of the study, and references. Chapter two is concerned with the review of literature which comprises the theoretical and conceptual framework and the review of previous studies (Empirical perspective), and the references. Chapter four concerns itself with the presentation and analysis of data which includes the presentation of data, data analysis and findings, and test of hypotheses. While in chapter five, the discussion on findings, conclusions, and recommendations is presented.