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07030248044CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
The contribution of agricultural sector to the economy of Nigeria cannot be overemphasized when considering its building roles for sustainable development, in terms of employment potentials, export and financial impacts on the economy. In the world nowadays, agricultural sector acts as the catalyst that accelerates the pace of structural transformation and diversification of the economy, enabling the country to fully utilize its factor endowment, depending less on foreign supply of agricultural product or raw materials for its economic growth, development and sustainability. Apart from laying solid foundation for the economy, it also serves as import substituting sector, providing ready market for raw materials and intermediate goods. The agricultural sector contributes significantly to the nation’s economic development by: improving the standard of living; increasing government revenue through tax; infrastructural growth; enhance manpower development; employment generation; contribution to Gross National Products (GNP); It plays a key role by sourcing of food for man and animal and providing raw materials for the industrial sector, provision of employment and foreign exchange to the government, amongst others. With about 70% of the working population still engaged in Agriculture, It remains the most important single activity of the Nigerian economy. Despite the predominance of the oil and gas sector in Nigeria, agricultural sector still remains source of economic resilience within the Nigerian economy. So far, it’s been argued that the quicker trend through which a nation can achieve sustainable economic development is neither by the level of its endowed material resources, nor that of its vast human resources, but technological innovation, enterprise development (commercial farming of various types inclusive) and industrial capacity. Government spending is perhaps the single most important policy instrument available to governments of most developing countries for promoting growth and equitable distribution. Aside the fact that government spending is used to improve technology, human capital and infrastructure development necessary for growth, it also provides the incentives and enabling environment to promote private sector investments in order to further growth. Public spending is the government spending from revenue derived from tax and other revenue. An important problem facing most countries is the low growth of government revenue at variance with rapid growth of public spending stimulated by the increase in demand for improved economic welfare by the people. This however leads to an increase in budget deficits with adverse effects on efficiency and macro-economic stability. The people whose lives are directly affected by government spending expect the government to do more with their welfare; thus, annual budgets are eagerly awaited for possible indications of any change. In Nigeria, the general administration including defence and internal security, economic service like agriculture, communication, transportation, construction etc. along with social and community services, which also include education, low housing etc, have attracted government expenditure decisions. Other factors responsible for growth in the public expenditure are inflation, population; provision of infrastructure and encouragement of industrial development. On the other hand, public spending has helped the economy in numerous ways in attaining higher levels of production and growth, which obviously are inter-related. It has been used to create and maintain social overheads, human skills through education and training, encouraged the market sector of the economy for contributing to the process of economic growth and create demand for various products and stimulate private production (Olugbenga & Owoeye, 2008). Government performs two functions- protection and provisions of certain public goods (Abdullah 2000). Supporting this view, scholars like (Al- Yousif, 2000), (Ranjan & Shrma, 2008) concluded that expansion of government spending contributes positively to economic growth. However, some scholars did not support the claim that increasing government expenditure promotes economic growth, instead they assert that higher government expenditure may slowdown overall performance of the economy. In fact, studies by (Landau 1986) suggested that large government spending has a negative impact on economic growth. Inadequate funding of the agricultural sector has been re-echoed by several experts as an obstacle to increased agricultural output (CBN, 2007). However, it is evident that in Nigeria, government spending on agriculture continue to increase over the years while empirical evidence have revealed that the performance of the agricultural sector has been inadequate (CBN, 2000). The agricultural sector in Nigeria which was the main stay of the economy is no longer performing the lead role it was known for. In mid 1970’s Nigeria’s agricultural sector started to experience issues, agricultural exports began to decline and food shortages started emerging. From 1975, emboldened by considerable enlarged revenue from petroleum, government assumed huge responsibilities for agricultural production, input supply and marketing; in addition to adopting credit control and other allocated policies in favour of agriculture. Also, in 1994, the agricultural sector performed significantly below the projected 7.2% of budgetary output (Lawal, 1997). Contribution of agricultural sector to economic growth has been decreasing continuously after the Structural Adjustment Programme (SAP) period. Recently, in Nigeria, there has been a conflicting view about spending on agriculture; the performance of the agricultural sector had fared better than it was before independence. Input-output theory in economics posits that input determines output; theoretically this is needed to increase government spending in order to boosts economic growth. Problems particular to the economy of Nigeria include; unprecedented fall in capacity utilization rate in industry, dysfunctional social and economic infrastructure, excessive dependence on imports for consumption and capital goods and neglect of the agricultural sector, among others. These problems have resulted in fallen incomes and devalued standards of living amongst Nigerians. Although, Structural Adjustment Programme was introduced in 1986 to address these problems, no notable improvement has taken place since then. In view of this, the question now is; does the agricultural sector “ceteris paribus” has impact on the economic growth of the nation in view of the Vision 20;2020. The statement to be set to test in this research paper is to examine the impact of government spending on agricultural sector and economic growth in Nigeria.
STATEMENT OF THE PROBLEM
In spite of Nigeria’s rich agricultural resource endowment, there has been a gradual decline in agriculture’s contributions to the nation’s economy. The agricultural sector during the 1960s, accounted for over 70% of the total exports in Nigeria. According to Olajide, et al (2012), the agriculture sector fell to 40% in the 1970s, and got worse in the late 1990s by less than 2%. The sudden decline in the agricultural sector was largely due to the rise in crude oil revenue in the early 1970s. As a result of this, today, small scale farmers are constrained by lots of problems including poor infrastructure, poor access to modern inputs and credit, land and environmental degradation, inability to capture the financial service requirements of farmers and agric-business owners. Categorically, the state of agriculture in Nigeria remains poor and largely underdeveloped which is constrained by the lack of synergy between public and private expenditure in boosting agricultural production, the sector rely on primitive methods to sustain a growing population without efforts to add value. This has reflected negatively on the productivity of the sector, its contributions to economic growth as well as its ability to perform its traditional role of food production among others. According to Falola and Haton (2008), the state of this sector has been blamed on oil glut and its consequences on several occasions. Hence, the pattern was not an outcome of increased productivity in the non-agricultural sectors as expected in the industrialization process (Christiansen & Demery, 2007); rather it was the result of low productivity due to negligence of the agriculture sector. It is evident that the agricultural sector especially the small scale farmers constitute about 70% of the population in Nigeria, yet agricultural output has been very low due to government’s neglect in form of financial aid, and soft loan to boost agricultural output, which in turn has a negative effect on the Nigerian economy as a whole. Therefore, it is on this note that this study is hinged to examine the relationship between government spending on agricultural sector and economic growth in Nigeria.
AIMS AND OBJECTIVES OF THE STUDY
The major aim of the study is to examine the impact of government spending on agricultural sector and economic growth in Nigeria. Other specific objectives of the study include;
RESEARCH QUESTIONS
RESEARCH HYPOTHESES
Hypothesis 1
Hypothesis 2
SIGNIFICANCE OF THE STUDY
The study would be of immense benefit towards the development of agriculture in Nigeria by properly assessing the importance of agriculture to the country at large. The findings of this study will be useful for the Economic Planners who are responsible for allocating budgetary for the growth and development of agriculture sector. The study would also be of immense benefit to students, researchers and scholars who are interested in developing further studies on the subject matter.
SCOPE AND LIMITATION OF THE STUDY
The study is restricted to the impact of government spending on agricultural sector and economic growth in Nigeria, a case study of federal ministry of agriculture, Kogi state.
LIMITATION OF THE STUDY
Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview)
Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
DEFINITION OF TERMS
Government Spending: It refers to the purchase of goods and services, which include public consumption and public investment, and transfer payments consisting of income transfers (pensions, social benefits) and capital transfer
Agriculture: The science, art, or practice of cultivating the soil, producing crops, and raising livestock and in varying degrees the preparation and marketing of the resulting products.
Economic Growth: Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.
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