THE OIL SECTOR VIS-À-VIS THE AGRICULTURAL SECTOR; THE NIGERIAN EXPERIENCE (1981-2007)

ABSTRACT

This study aims at evaluating the oil sector vis- a vis the agricultural sector in Nigeria from 1981-2007. The role of agriculture in the Nigerian society has been quite significant even in the pre-colonial times. The attractiveness of the Nigerian agricultural sector to the colonialist largely formed the basis for the development of the railway system from the north to the coast through the eastern and western of the country given that there was the need to evacuate agricultural produce from the hinterland to the coasts for onward shipment to Europe as raw material to feed British industries. The agricultural sector used to be the mainstay of the Nigerian economy. It provided for the nation, generated revenue and foreign exchange earnings for the government, supplied raw materials to the industrial sector, generated employment and contributed over 50% of the Gross Domestic Product (GDP). This occurred until the 1970’s when the oil sector came in and took over from agriculture in such a way that there was a rapid decline in the agricultural sector output. Nigeria became solely dependent on the oil sector for its revenue such that policies that were formulated were usually in favor of the oil sector. This obviously has led to the neglect of the agricultural sector as all focuses are on the oil sector. This research work aims at determining the relationship between the oil sector and the agricultural sector, the impact of the oil sector and the effects of exchange rate on the agricultural sector and to find out ways to solve the problem, and make some recommendations that can bring about positive change.

TABLE OF CONTENT

CHAPTER ONE – INTRODUCTION…………………………………….  1

1.1 Background of the study……………………………………………….           1

1.2 Statement of the problem………………………………………………           5

1.3 Objective of the study………………………………………………….           6

1.4 Research hypothesis……………………………………………………          6

1.5 Significance of the study……………………………………………….          7

1.6 Scope and limitation……………………………………………………          7

CHAPTER TWO – LITERATURE REVIEW…………………………….   8

2.1.1 Theoretical literature…………………………………………………          8

2.1.2 Crude oil and the Nigerian Gross Domestic Product………………..          10

2.1.3 Crude oil as a source of federally collectable revenue and source of energy……………………………………………………………………..  13

2.1.4 Petroleum and Balance of Payment………………………………….          15

2.1.5 Historical development of agriculture and agricultural sector in Nigeria   17

2.1.6 The impact of petroleum production on Nigeria agricultural policy………………………………………………………………………            22

2.1.7 The effects of oil production on policy maker’s perception of the role of agriculture in Nigeria……………………………………………………..  23

2.1.8 The impact of oil revenue on the scope and character of the government’s intervention in agricultural development…………………………………………..      …..     27

2.1.9 Past effort at revamping agriculture in Nigeria…………………………     29

CHAPTER THREE – RESEARCH METHODOLOGY…………………….           34

3.1 Research design………………………………………………………….        34

3.2 Research methodology…………………………………………………..        34

3.3 Model specification……………………………………………………..         35

3.4 Method of evaluation……………………………………………………        37

CHAPTER FOUR – DATA PRESENTATION AND ANALYSIS………….            40

4.1 Data presentation and analysis of result…………………………………      40

4.2 Economic A priori expectation test……………………………………..        41

4.3 Evaluation Based On Statistical Criteria (First Order Test)…………..           42

4.3.1 T- test………………………………………………………………….          42

4.3.2 F- test………………………………………………………………….          43

4.4 The coefficient of determination R2…………………………………….        44

4.5 Economic Criteria (Second Order Test)………………………………..          45

4.5.1 Autocorrelation test…………………………………………………..          45

CHAPTER FIVE – SUMMARY OF FINDINGS, RECOMMENDATION AND CONCLUSION…………………………………………………………….47

5.1 Summary………………………………………………………………47

5.2 Recommendation……………………………………………………..              49

5.3 Conclusion…………………………………………………………….50

CHAPTER ONE

INTRODUCTION

1.1            BACKGROUND OF THE STUDY

Agriculture, according to Omidigi (1993), is an applied science that deals with the preparation of land, cultivation of crops and rearing of animals.

Akinsami (1973:p1) defined agriculture as the production of plants and animals useful to man. It covers not only the cultivation of soil and the feeding and management of crops and livestock, but also the preparation of plants, and animal products for man’s use and the disposal of those products by marketing.

The role of agriculture in transforming both the social and economic framework of an economy cannot be overemphasized. It is a source of food and raw materials for the industrial sector. It is also essential for expansion of employment opportunity, for the reduction of poverty and improvement of income distribution for speeding up industrialization and easing the pressure of balance of payment. In essence, it has been the main source of gainful employment; from which the nation can feed its teeming population, a regenerative, providing the nation’s industries with local raw materials, and as s reliable source of government revenue.

The agricultural sector constitutes one of the most important sectors of the Nigerian economy. Its importance stems from the abundance of agricultural resources and the high percentage of the active population engaged in agriculture. In addition to this, is its contribution to the country’s gross domestic product (GDP) as well as foreign exchange earnings.  (Moro (1995:29)). The contribution of agriculture to GDP, in 1960 was 63%while the percentage share was 74% of the total domestic exports. At this period, agriculture was the mainstay of the Nigerian economy.

Oil or petroleum, on the other hand, is a very versatile and flexible, non –reproductive, depleting natural (hydrocarbon) resource that is a fundamental input into modern economic activity, providing about 50% of the total energy demand in the world, excluding former centrally planned economies. Oil exporting countries of the developing world depend heavily on oil revenue for foreign exchange earnings and for the government budget, in most cases reaching 90% and above.

In Nigeria, the oil sector has assumed a central role in the economy in such a way that it cannot be overemphasized. In fact, Iyoha(2005) had it that between 1981 and 1999,Nigeria received over 228billion US dollars from petroleum export. The inflow of foreign exchange from petroleum export has overwhelming influence on the economy. The growth in GDP since the early 70s is largely attributable to crude oil production.

Moreover, our development plans were focused on the expected earning from crude oil export as a source of finance. More specifically, the Nigerian revenue budget since oil took a primal position in revenue attraction is directly a function of the price per barrel of crude oil and the projected total sales.

Nigeria was a predominantly agrarian economy before the discovery of oil in commercial quantity in 1956 and remained so up to the early part of the 1970s, thereafter oil exerted tremendous impact on the economy.  In Nigeria’s attempt to make oil exploration a lucrative business, there was a shift in its dependence from the agricultural sector to the oil sector, largely based on the innumerable benefits it derived from the later (oil sector). This attitude has brought about a major decline in the agricultural sector and even other sectors of the economy, thereby making the Nigerian economy a mono-economy.

Gone are the days when ships used to sail from Nigerian parts, laden with agricultural products such as cocoa, timber, groundnut, oil palm, rubber, cotton, cassava etc, when the country derived most of its revenue from the export of agricultural products, then the economy was diversified with more focus on the agricultural sector. Then Nigeria’s budget reflected that it was proud of its agricultural heritage. Then, agriculture used to be the backbone of the economy, inviting foreign investors from far and near.

Nigeria’s economy has gradually become one that is almost completely dependent on the oil sector for its sustenance, thereby causing the neglect of the agricultural sector that used to be the foremost of the Nigerian budget.

According to Moro (1995), it is believed that the problem of food crisis has its roots in the gradual transformation of the Nigerian economy accelerated with the impact of the oil price increases during the 1970s, Nigeria who could provide her own food, regardless of its population now has to import staple commodities such as rice, sugar etc.

The agricultural sector has gradually ceased to be what it used to be because of the new rave for oil. States like Delta state Rivers Bayelsa etc are worst as they all have tales of woe to tell, as the catastrophic effects of oil spillage has led to inestimable losses that has led to gradual decline of agriculture in some areas of the region.

Many financial experts are of the view that an economy that largely depends on a sector is definitely not a healthy one. A healthy economy is one that is diversified and not mainstreamed. It appears as if Nigeria has put all her eggs in one basket, standing at the risk of loosing if something should go wrong.

1.2            STATEMENT OF THE PROBLEM

This research work is determined to finding answers to the following problems stated below:

·        The persistent decrease in agricultural production for the period under review:

This has resulted to scarcity of food supply with increased prices for them.

·        The problem of inadequate modern farm implements:

This has contributed to the decline in productivity, as the crude implements can no longer increase output to meet with the increasing population and demand for agricultural products.

·        The decline in government’s revenue from the agricultural sector:

This trend limits various development works that should have been carried out.

·        The problem of shortage or inadequate local raw material for industrial use:

This in-turn negatively affects the industrial development in the country, as industries are forced to close up, owing to the inability to import the high cost of imported raw materials.

1.3            OBJECTIVES OF THE STUDY

This study is designed to achieve the following objectives;

1.     To determine the relationship that exists between the petroleum sector, exchange rate, and the agricultural sector in Nigeria.

2.     To know the relative contribution of both the petroleum and the agricultural sector to the economy of Nigeria.

3.     To determine the causes of either a boom, or decline in any, and the economic implications.

1.4            HYPOTHESIS

The hypotheses for this work are;

Ho: –  There is no significance relation between the petroleum and the agricultural production in Nigeria.

Hi:   – There is a significant relation between the petroleum sector and agricultural production in Nigeria.

1.5            SIGNIFICANCE OF THE STUDY

This research work is significant as it will be useful to policy makers and serves as a reference material for members of the academia and the public to sustain the economy.

1.6            SCOPE AND LIMITATION:

This research work covers only the period between 1981 and 2007, and only x-rays the petroleum and the agricultural relativities.