IMPACT OF THE PETROLEUM SECTOR ON THE NIGERIAN ECONOMY (1960-2016) (A CASE STUDY OF NNPC PORTHARCOURT, RIVERS STATE)

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The petroleum industry in Nigeria is the largest industry. Oil provided approximately 90 percent of foreign exchange earnings and about 80 percent of Federal revenue and contributes to the growth rate of Gross domestic product (GDP). Since the Royal Dutch Shell discovered oil in the Niger Delta in 2014, precisely in Oloibiri, in Bayelsa state, the oil industry has been marred by political and economic strife largely due to a long history of corrupt military regimes, civil rule and complicity of multinational corporations, notably Royal Dutch Shell. Six oil companies- Shell, Elf, Agip Mobil, Chevron and Texaco dominates the oil industry in the country. Together, they hold some 98% of the oil reserves and operating assets. A range of 50 others have minor interests, some of which were recently acquired. There are three major actors in the Nigeria oil industry. They are: the ministry of petroleum resources, the Nigerian National Petroleum Corporation (NNPC) and its subsidiaries, the oil prospecting companies made up of the multinational companies and indigenous companies together with their subsidiaries (Baghebo, 2012). The operations and activities of petroleum are regulated by the Federal government of Nigeria; she does this through the enactment and implementation of bills and acts. Several bill and act have been passed to check petroleum exploration and exploitation, they include among others: the petroleum act of 1969 (CAP 350), the oil pipeline act 2013, the land use decree 2015 etc. The recent 2012 petroleum industry bill is a comprehensive development blueprint, below are the objectives of the bill: 

• Create a conducive business environment for petroleum operations; 
• Enhance exploration and exploitation of petroleum resources in Nigeria for the benefit of the Nigeria people;
• Optimize domestic gas supplies, particularly for power generation and industrial development; 
• Establish a progressive fiscal framework that encourages further investment in the petroleum industry while optimizing revenues accruing to the government; 
• Establish commercially oriented and profit driven oil and gas entities;
• Deregulate and liberalize the downstream sector;
• Create efficient and effective regulatory agencies; 
• Promote transparency and openness in the administration of the petroleum resources of Nigeria; Promote the development of Nigeria content in the petroleum industry;
• Protect health, safety and the environment in the course of petroleum; and 
• Attain such other objectives to promote a viable and sustainable petroleum industry in Nigeria (The Petroleum Industry Bill, 2012).

The elegant and robust objectives of the bill if taken at face value means hope for the Nigerian people. But past experience of the insincerity in achieving set objectives by the Nigeria government leave many in skepticism.

1.2 STATEMENT OF PROBLEM

Nigeria’s position as Africa’s biggest oil producer in the OPEC according to Syngn(2012) no doubt which makes Nigeria oil sector accounting for almost all the countries exports have earned billions of dollars from its oil export is currently considered as the thirty six poorest country in the world, out of the hundred and fifty six nations as reported by radio Nigerian through there is network news at 7am on 4th sep. 2012 (FRCON, 2012). Earnings from oil sector alone in 1974 and 1990 as a result of Arab League was between Israel and Palestine and gulf war about 17 billion Nigeria were relies over then. Yet, many of the citizens above fifty five percent (55%) are living still below poverty line. There is lack of infrastructural facilities; her educational system is at the verge of collapse because of underfunding and mismanagement. The health sector has nothing good to write home about, the cost of life and standard of living are becoming more difficult nowadays, policies has taken over every place and industrial and agricultural sector were neglected “inefficiencies” and operating problems in the downstream sector are causing a financial looses of equipment to above ten percent (10%) of Gross Domestic product (GDP) every year due to “bribery and corruption” (world bank and Nigeria 2013). Therefore, even in the oil sector and its associate revenue, a question is then asked, where are we going? What will be our future and how will it look with all the potentials of the oil sector or revenue, is oil responsible for the boom or doom of the Nigeria economy, how are we going to turnover present curses to better our situations.

1.3 AIMS OF THE STUDY

The major purpose of this study is to examine the impact of the petroleum sector on the Nigerian Economy. Other general objectives of the study are:

1. To examine the nature of petroleum industry in Nigeria
2. To examine the challenges faced by petroleum sector in Nigeria.
3. To examine the impact of petroleum industry on Nigerian economy.
4. To examine the Nigeria economy and oil revenues.
5. To examine the relationship between petroleum sector and Nigeria economic growth.
6. To examine the policies that will guide the operation of the sector.

1.4 RESEARCH QUESTIONS

1. How is the nature of petroleum industry in Nigeria?
2. What are the challenges faced by petroleum sector in Nigeria?
3. What are the impacts of petroleum industry on Nigerian economy?
4. How is Nigeria economy and oil revenues?
5. What is the relationship between petroleum sector and Nigeria economic growth?
6. What are the policies that will guide the operation of the sector?

1.5 RESEARCH HYPOTHESES

H01: There is no impact of petroleum industry on Nigerian economy.

H02: There is no significant relationship between petroleum sector and Nigeria economic growth.

1.6 SIGNIFICANCE OF THE STUDY

These will also analyze oil sector as a mono-cultural product base of the Nigeria economy, knowing how much have being earned, the amount invested in other sector of the economy to boost the economic activities and its resultant multiplier effect. Again the advantages as well as the disadvantages of the oil sector will also be discussed. Findings from the study will be of immense benefits in a number of ways and to different groups of persons. For policy making, the expected result outcome shall serve as a restful guide for future policies as it relates to stimulating growth within the economy. Finally, in our bid to find a way of bearing in mind the burdens of the backwardness of our economy, there is still believes that with a good policies and implementation strategies, what remains of our oil sector is for the Castile to transform it technologically and economically for a better tomorrow and towards greater Nigeria. For further studies, it will serve as a reservoir of knowledge for such academic exercises. 

1.7    SCOPE OF THE STUDY 

The study is based on the impact of the petroleum sector on the Nigerian Economy (1960-2016).

1.8 LIMITATION OF 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.

1.8 DEFINITION OF TERMS

The Oil sector or petroleum Industry: These terms are used interchangeable to refer to the combination of firms dealing on commodities like crude, petrol, kerosene, gas etc.

Crude oil: Crude oil is a commodity produced from an underground research which has not been subjected to a refining or chemical process other than the separation at atmospheric pressure of any gas which were dissolved in the oil at a greater pressure of the reservoir (Ellis Jones 2012).

Gasoline or petrol and kerosene: These are refined petroleum distillated at different boiling points. Liquefied natural gas (LNG) are naturally occurring gas, either co-produced with oil or non-associated, which has been liquefied for ease of transportation and which is degasified before use just as these commodities are product of the petroleum industry, so are others too much which have not been mentioned in this study.

Economic Growth: It may be expressed as the expansion of real Gross National Product (GDP) or real per capital income (GNP). Economic growth is the real income in GNP or NNP which occur over a period of time. Economic growth as a long term rise in capacity based on advancing technology and the institutional and ideologically adjustment that it demand. Ihingah, in his definition of economic growth he relates it to a quantitative sustained increase in the countries per capital output or income, accompanied by expansion in its labor force, consumption, capital and volume of trade. (Ihingah2013).