THE IMPACT OF EXPORT STRUCTURE ON ECONOMIC PERFORMANCE IN NIGERIA

THE IMPACT OF EXPORT STRUCTURE ON ECONOMIC PERFORMANCE IN NIGERIA

The main purpose of this research is to examine the impact of export structure on economic performance in Nigeria. It will specifically examine the following:

1. To determine the impact of Oil exports on the Gross Domestic Product of Nigeria.
2. To examine the effect of Non-Oil exports on the Gross Domestic Product of Nigeria.

CHAPTER ONE: INTRODUCTION

1.1     Background of the Study

Trade across the borders of a domestic economy has diverse implications for the growth and development of that economy. Evidence from studies on trade and economic growth across the globe show mixed results depending on the circumstances of a given economy at a given point in time. Developing countries like Nigeria whose trade terms are mostly unfavorable (exports less than imports) tend to witness a negative impact of trade on economic growth (Bakari, 2017).

Despite the perceived negative impact of import dominated trade on the economic growth prospects of developing countries, in the 1950s and 60s, developing countries pursued import substitution policies as it was regarded as the recipe for economic growth.  The advocates of import substitution, however, based their argument on the need for developing countries to carve a niche for themselves by developing trade policy that will encourage local technology. This seems to suggest the need to encourage indigenous technology and expertise through ‘learning by doing’ in the real sector of the economy (Todaro and Smith 2003). Later, this policy of import substitution was abandoned in most developing countries in favor of export expansion. The proponents of export expansion argued that expanding exports benefits the domestic economy. It increases efficiency in resource use and allocation, creates substantial economies of scale in production, generates employment and hence economic growth (Udah, 2012).

Nigeria’s exports are classified into the Export trade in the realm of Oil and Non-oil Export. In the 1970s and 80s, Nigeria’s major exports include cocoa, rubber, cotton, and groundnut. Currently, Nigeria’s non-oil exports range from raw agricultural products to manufactured products. Prior to the discovery of oil, Nigeria like many other African countries strongly relied on agricultural exports to other countries to supply their economy. Expectedly, the annual production of major cash crops (cocoa, rubber, cotton, and groundnut) fell by 42, 29, 65, and 64 percent, respectively, between 1970 and 1985 (Osaka, Masha, Adamgbe, 2003:329). The growth of Nigeria’s non-oil exports averaged about 2.3% from 1960 to 1990 but in relative terms, declined systematically as the proportion of total exports fell from about 40% in 1970 to about 5% in 2010 (World Bank, 2011).

Several reasons have been adduced to be responsible for the near-comatose situation of exports in the non-oil real sector of the Nigerian economy. Okubor (2014) averred that there has not been adequate investment in equipment, infrastructure, intellectual capital, human capital, and utmost transparency to spur interest on the sector, which will affect positively on the cost of doing business and these have aided the neglect of production in this sector of the economy. Again, the policy has not really been made to include a framework that will enhance various forms of non-oil business entrepreneurship and financing. For instance, the banks prefer to finance service sectors rather than the non-oil real sector. Also, Nigeria’s educational system in real terms does not support the development of appropriate critical skills nor provide knowledge that supports adaptations of technologies for local production intensities mix that enhance sustainable development which has not made it possible to provide permanent incentives to innovate and adapt or diffuse technologies that aid non-oil led sustainable economic development. One other challenge facing the non-oil sector is the existence of high trade barriers in form of duties, tariffs, documentation, and procedures that make products for export of non-oil cumbersome and uninteresting.

Since crude oil was discovered in Nigeria in commercial quantity, oil exports gradually became the main source of Nigeria’s foreign exchange. As of 2000, oil and gas exports accounted for more than 98% of export earnings and about 83% of federal government revenue, as well as generating more than 14% of Nigeria’s GDP. It also provides 95% of foreign exchange earnings and about 65% of government budgetary revenues. Nigeria’s proven oil reserves are estimated by the United States Energy Information Administration (EIA) at between 16 and 22 billion barrels (3.5×109 m3), but other sources claim there could be as much as 35.3 billion barrels (5.61×109 m3). Nigeria’s reserves make her the 10th most petroleum-rich nation and by far the most affluent in Africa. In 2010, Nigeria provided about 10% of overall U.S. oil imports and ranked as the fifth-largest source for oil imports in the U.S. However, Nigeria ceased exports to the US in July 2014 because of the impact of shale production in America; India is now the largest consumer of Nigerian oil. Expectedly, the declining trend in crude oil prices at the international oil market has continued to negatively affect Nigeria’s earnings from crude oil exports. The country was reported to have lost $22.53 million (about N4.48 billion) in June 2015. As of December 15, 2015, OPEC’s daily basket price for crude oil stood at $32.61 per barrel. This has among other factors led to the devaluation of the Naira in November 2014 by the Central Bank of Nigeria, from N155 to N168 to the dollar, and later to the current N198 to the dollar. However, the rate goes for as high as N222 in the parallel market.

A well-developed export sector both in oil and non-oil sectors of the Nigerian economy will provide employment opportunities for the people with the attendant reduction in the social cost of unemployment. Earnings from export will reduce the strain on the balance of payment position and even improve it. A rewarding export drive can turn a hitherto underdeveloped economy into a prosperous economy. Income earned through exporting will help in increasing the level of demand within the economy.

 1.2     Statement of the Problem

A key problem emanating from national export in Nigeria has been the prevalence of the “Dutch Disease”, which on one hand is the changes in a nation’s productive structure which reflects a dynamic change accruing to sudden natural resource discovery, innovations, or a rise in the foreign value of a locally produced goods or services. In a peculiar case like Nigeria where the natural resources unearthed are crude oil or minerals, a shrinkage or stagnation of the agricultural or manufacturing base could follow the blind-folding effects of the shock which engulfed Nigeria as a result of its oil boom (Odularo, 2008).

The prevalence of deficient technological and educational development, as the nation (Nigeria), has struggled to attain its long-run economic growth target (the vision 2020) after independence and has continually swum in the poverty circle afflicting its nation (Abdullahi, Abdullahi, & Bello, 2012). And the incidence of the ever-increasing poverty rate in the nation since 1980. (Chinedu, Tinus,& Thaddeus, 2010). Coupled with the frequency of conflicts, kidnapping, and hostage amongst others which is menacing to sustainable international activities in the Nigerian economy (Oritsejafor, n. d.).

The Nigerian situation can be best described as an economic dilemma. This is because the CBN’s refusal to heed to IMF’s call to further devalue the Naira implies it would continue to defend the Naira with its reserves which are being eroded steadily consequent on the declining oil prices in the international market. The question is: how long can the CBN continue to defend the Naira with the nation’s reserves without the reserves being completely eroded? And, if we further devalue, does Nigeria have the trade competitiveness to trade our products internationally?

In Nigeria, within the period 1960-70, the Gross Domestic Product (GDP) recorded 3.1 percent growth annually. During the oil boom era, roughly 1970-78, GDP grew positively by 6.2 percent annually which was quite remarkable. However, in the 1980s, GDP had negative growth rates. In the period 1988-1997 which constitutes the period of structural adjustment and economic liberalization, the GDP responded to economic adjustment policies and grew at a positive rate of 4.0. As of 2003, real GDP growth was put at 7.1 percent and peaked in 2010 at 8.4 percent. However, Nigeria’s real GDP growth rate declined to 6.2 percent in 2013. As at end of quarter 1, 2015, real GDP growth was put at 3.86 percent compared to 5.94 percent the previous quarter (NBS, 2015). Contrarily, the Nigerian economy grew by 2.84 percent year-on-year in the third quarter of 2015, following a 2.35 percent expansion reported in the previous period. The oil sector, accounting for nearly 11 percent of total production rebounded while services sector growth slowed.

An assessment of the trend and patterns in Nigeria’s balance of payments showed that in 2007, non-oil exports accounted for only 2.4 percent of total exports while the remaining 97.6 percent was from oil exports. Non-oil exports grew from 2.5 percent of total exports in 2008 to peak at 7.2 percent in 2013 and declined again to 7.1 percent in 2014. On the aggregate, Nigeria generated exports of N7,246.5 billion in 2005. It grew to N11,966.5 billion in 2010 and as of December 2014, it stood at N12,988.3.

Although the economic theory posits a positive relationship between trade and economic growth, the specific impact of trade needs to be investigated and estimated so as to determine its impact on macroeconomic variables such as poverty, unemployment, value chain in production, inflation rate, infrastructure which are some of the indicators of economic growth and development.

It is therefore imperative to carry out a contemporary investigation on the impact of oil and non-oil trade on economic growth and development in Nigeria coupled with the drastic fall in oil prices which is Nigeria’s main foreign currency earner.  There is also the need to test for the direction of causation between exports and economic growth to determine the governments’ trade policy direction in Nigeria and other developing economies.

1.3 Purpose of the study

The main purpose of this research is to examine the impact of Export structure on Economic performance in Nigeria. It will specifically examine the following:

1. To determine the impact of Oil exports on the Gross Domestic Product of Nigeria.
2. To examine the effect of Non-Oil exports on the Gross Domestic Product of Nigeria.

1.4     Research Questions

The research questions which would guide this study are as follows:

1. To what extent do Oil exports affect the Gross Domestic Product in Nigeria?
2. To what extent do Non-Oil exports affect the Gross Domestic Product in Nigeria?

1.5 Hypotheses

The following hypotheses are formulated to guide this study;

H₀₁  There is no significant relationship between Oil exports and Gross Domestic Product in Nigeria.

H₀₂  There is no significant relationship between Non-Oil exports and Gross Domestic Product in Nigeria.

1.6     Scope of the Study

• Content Scope: This study is limited to measuring the impact of Export trade in the realm of Oil and non-oil Export on economic performance in Nigeria.  It assesses the separate effects of oil exports and non-oil exports on economic growth in Nigeria. The study period spans from 1986 to 2018, i.e. a 33-year period. The scope of this period is selected to capture the post-Structural Adjustment Programme (SAP) Period.
• Geographical Scope: This study is limited to measuring the impact of Export trade in the realm of Oil and non-oil Export on economic performance in Nigeria.

1.7     Significance of the Study

The study would contribute to the existing literature on international trade especially its justification. The study would evaluate the importance of trade by examining its impact on the growth process of the Nigerian economy. The study is significant in the following ways:

• To practitioners:

It would help to define a strategic policy direction of Nigeria’s trade policy.

The research would help to identify the factors hindering cordial trade relations with other countries.

It would also help to evaluate the performance of different trade policies Nigerian governments have adopted.

• To scholars:

The research would also be an invaluable tool for students and researchers that want to know more about the effect of trade on the Nigerian economy.

1.8     Definition of Terms

To ensure ease of comprehension, the following key terms as defined as follows;

Export: This is the goods and services produced in one country and purchased by residents of another country.

Import: This is a good or service brought into one country from another. The word “import” derives from the word “port” since goods are often shipped via boat to foreign countries.

International Trade: This refers to the exchange of products and services from one country to another. In other words, imports and exports.

Exchange Rate: This is the value of one nation’s currency versus the currency of another nation or economic zone.

Dutch Disease: This is a shorthand way of describing the paradox which occurs when good news, such as the discovery of large oil reserves, harms a country’s broader economy… Symptoms include a rising currency value leading to a drop in exports and a loss of jobs to other countries.

Gross Domestic Product: This is the monetary value of all finished goods and services made within a country during a specific period.

1.9     Organization of Study

This study is distributed into five chapters, Chapter One introduces the study, giving it a background, identifying the problem of the study, stating the general and specific objectives of the study followed by the research question, hypotheses and identifies the study significant to scholars and practitioners, while placing the intended scope of the study and ends with the definition of terms and study organization, followed by the second chapter that examines the theoretical, conceptual and empirical overview and framework of the study while identifying the gap in the literature, followed by the chapter three which spells out the Methodology which includes the research design, the population of the study, nature, and source of data while estimating the model and it’s apriori and concludes with the operationalization of employed variables and method of data analysis. Chapter four presents the study data and analyses it using the predetermined data analytical tools and techniques and Chapter five ends with the summary, conclusion, and recommendations of the data ending with the identifies contribution to knowledge.