AN ANALYSIS OF THE IMPACT OF PETROLEUM EXPORT ON ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1       INTRODUCTION/BACKGROUND OF THE STUDY

Nigeria is the largest country in Africa located between 30 and 140 east longitude and 40 and 140 North latitude, it has an area of 923,79 square Kilometers with a population estimated at 140 million people in 2005, the country doubles as Africa’s most populous country. Nigeria also trebles as the largest produces of crude oil and natural gas in Africa, Nigeria is the 10th largest oil producer in the world the 3rd largest in Africa and most prolific oil producers in sub-Saharan Africa from a small beginning of an output of about 5000 barrels per day in 1958, production level reached about 2.055 million b/d in 1973 and rose to a high level of 2.3million b/d in 1979. thus steadily from 1960 petroleum sector began to exert its overriding height to the extent that by the mid 1970 it had incontrovertibly anchored itself as the most readily available resource for prosecuting programme directed at achieving rapid growth and development of the Nigeria economy (Aminu 1997). The Nigeria economy has undergone numerous phases in the premise of diagnoses, it is said that the country, is a memo economy. In spite of structural changes over the years the economy has been relying of a single sector for her foreign exchange.

Prior to independence in 1960 agricultural sector dominated the provision of food income and labour force of the Nigeria’s populace, agricultural accounted for the nation growth rate of 5% per annum across the 1950, and 1960s. In 1960, agriculture sector contributed triple what the petroleum sector contributed to the country’s GDP foreign exchange earning; the National income investment etc. oil is a major source of energy in Nigeria and the world in general. Oil being the mainstay of the Nigeria economy plays a vital role in shaping the economic and political destiny of the country (Gbadebo Odolarui 2005). In 1970, the petroleum sector took over as the bedrock of the Nation, although it entered the export list since 1958. Petroleum asserted it importance in 1970 after the Nigeria civil war (1967-1970), when it accounted for 70% and 80% of export and export earnings respectively since then Nigeria economy has solely dependent on the petroleum sector as the major sector of government revenue and foreign exchange (Ojamerage and Oyaide 1987).

The nature of the economy was described by the erstohile petroleum resources minister Alhaji Riwance Lukman “As an oil related economy with a weak and neglected agricultural sector and a manufacturing capacity dependent on imported raw materials”. Nigeria depends on crude oil and when there is any slight fluctuation in the world oil market the economy is thrown into commotion why, is this so? For the past three decades crude oil has been a major source of revenue, energy and foreign exchange for the Nigerian economy, Against this background, this paper work reviews the early attempts of exploring oil, its importance, its role as it affect various segment of the economy example government revenue foreign exchange etc). Secondly we will analyze some of the problems of  the petroleum sector, the role of NNPC and OPEC as well as the prospects of the industry in Nigeria. Thirdly, build and specify models to this effect, present and analyze date, concluding this work by providing recommendation based on our findings

1.2    STATEMENT OF THE PROBLEM

1       The communities within which the oil well are exploited. Some of these communities still suffer environment degradation which leads to deprivation of means of livelihood and other economic and social factor. According to (Amnesty International 2006) 70% of the six million people in the Niger Delta live below $1 U.S dollars per day. There is large scale corruption among the elected leaders especially governors and these leader help to sponsor the militants groups kidnapping innocent people and sabotaging efforts by the federal government for any infrastructural development

2       There has been large proceeds obtained from the domestic sales and export of petroleum product, its effect on the growth of the Nigeria economy as regard returns and productivity in still questionable, hence, the need to evaluate the relative impact of crude oil on the economy.

3       One recurring problem is that for a long time all the four refineries which are in Port-Harcourt, Warri and Kaduna operate far below their installed capacities to the extent that the country spent substantial foreign exchange to import fuel for domestic consumption (Orubu 1999)

4       The gas sub sector of the petroleum industry is also an important supplier of energy although. Until recent times significant attention has not been paid to gas. Utilization to the extent that the largest proportion of it is flared away and the flaring of gas has serious environmental hazard (Nwosu, 1998, Ogbuigwe 1998).

1.3    OBJECTIVE OF THIS STUDY

The purpose of this study is to examine critically the extent to which crude oil export affect the Nigerian economy growth. The objective are as follows:

(i)           To assess the impact of petroleum sector/petroleum exports on Nigerian economic growth by looking at the various key macro-economic valuable such as  

(a)         Gross Domestic Product (GDP)

(b)         Balance of payment

(c)         Government Revenue

(d)         Foreign exchange earning etc from crude oil

(ii)          To evaluate and empirically test for GDP as a determinant which will capture the effect of inflation, exchange rate, value of non-oil export and government revenue fro petroleum export

(iii)        To make appropriate policy recommendation

1.4    HYPOTHESIS OF THE STUDY

With respect to the analyses so far, the hypotheses propound are as follows.

Hypothesis propound are as follows

1       H0: There is no significant relationship between GDP and government revenue from oil in Nigeria

H1: There is significant relationship between GDP and government revenue from oil in  Nigeria

2       H0: The value of non-crude oil export is not significant determinant of GDP in Nigeria

H1: The value of Non-Crude oil export in a significant determinant of GDP in Nigeria

3       H0: Exchange rate in Nigeria does not impact positively on GDP

          H1: Exchange rate in Nigeria impact positively on GDP

4       H0: Inflation is not negatively related to GDP

          H1: Inflation is negatively related to GDP

5       H0: There is positive significant relationship between oil export and capital formation.

H1: There is positive significant relationship between oil export and capital formation.

1.5       SIGNFICANCE OF THE STUDY

The significance of this entire research, is to determine the overall impact/effect of the petroleum sector to the growth and development of the Nigeria economy. Given the fact that the oil sector is very crucial sector in the Nigeria economy, there is the direct need for an appropriate and desirable production and export policy for the sector in Nigeria, though crude oil has contributed largely to the economy, the revenue has not be properly used. Considency the fact that there are other sectors in the economy the excess revenue made from the oil sector can be invested in them to diversify and also increase the total GDP of the economy.

The greatest benefit which Nigeria has enjoyed from the petroleum sector has been made possible through the various mechanisms of control and regulation which the Federal Government evolved over the years, with aspect to the activities of the key operator in the sector, including revenues generated from its exportation, or the economy using some selected macro-economic indicator with Nigeria beings case study.

1.6    SCOPE OF THE STUDY.

The research covers a period of thirty-five year (1970-2005) the choice of the period is based on the rational that though exportation of crude oil first started in 1958 it because the major exportation of the Nation; resources in 1970 still date. The researcher in quite aware of the fact that a country’s growth rate is measured by its GDP hence we intend to consider only G.D.P as the determinant in Nigeria to alloy complication that may arise. Finally, this research is confined in testing the impact of exchange rate, inflation rate, value of non-oil exports and government revenue from crude oil export on GDP in Nigeria over the period under this study.