THE IMPACT OF NON-OIL SECTORS CONTRIBUTION ON NIGERIA’S BALANCE OF PAYMENT POSITION (1988-2012)

CHAPTER ONE

INTRODUCTION

1.1Background of the Study

Since after the discovery and commercial exploration of oil in Nigeria in 1958, the Nigeria economy has drastically change. But oil was not the only sources of her economic development.  However, the non oil sector will not be under estimate. The non-oil include such sub-sectors like the Agricultural sector, service sectors, building and construction, wholesale and retail trade, utilities, and other sub-sectors and manufacturing activities that are not related to oil.

       Prior to the commercial mining of oil in Nigeria the Nigeria economy had been characterized with, and importantly also, had depended on agricultural produce for the provision of food and raw-materials for the cottage and small industries that then existed.  In the early 1950’s and 1960s, agriculture played a crucial role to the nation’s economy. Abayomi (1997) did not that in these golden agricultural years, contributions from the sector accounted for 70 per cent of the Gross Domestic Product (GDP).  This was a period when the economy was not only self-sufficient in the production of food crops to feed the nation, but also provided raw materials fro industries and major cash crops for exports in the 1970s, as we have said earlier, the Nigeria economy became heavily dependent on the oil sector, as the revenue from this sector overshadowed that from the agricultural sector.  This was the beginning of our economic problems (Udabah 1999:75).  Despite constituting 90 percent of the total foreign exchange earnings. Since 1970 till date, such contributions which was as a result of the increased international demand and subsequent improvement in the market price that preceded the oil-boom era. The adversity of the fluctuations in oil prices has, in no small measure, stalled the developmental efforts of the various governments, and made the Nigeria economy to plummet from the oil-boom era; as exemplified by the buoyant economy of the time, which massive infrastructural development, to the oil-doom era, which arose from the glut in the world market, since 1981only led to the neglect of the non-oil export productive base.  Consequent upon the collapse in the world oil market, Nigeria started experiencing economic crises.  “The fall in oil prices and exports reduced the government revenue to service all sectors of the economy…. It was against this background that the government introduced an economic programme embodied in Structural Adjustment Programme (SAP) which is still being pursued in the form of guided deregulation.” (Udabah 1999;76). It was unfortunate to observe that the phenomenal improvements in the contribution of the oil sector only but marked the beginning of the dismal performance of the non-oil sector.  Hence, according to Udeabah (1999:79), while the non-oil sector grew at an average annual rate of about 15 percent between 1970-1974 in the pre-SAP era, the oil sector grew by a straggering rate of 117 percent.

       The continued unimpressive performance of the non-oil sector, the volatility of the world oil price, and the vulnerability of the external sector thus dictate the urgent need for a conscious reappraisal of the thrusts and contents of the development policies and commitments to the implementation.  Udabah (1999;77) did stated that in view of the volatile nature of the country oil export earnings, it would appear that the only way out is to curtail the rate of growth of imports and boost the rate exports. 

       Indeed, the need for a change in the policy focus and a shift in the industrialization strategy is imperative if Nigeria is to be returned to the path of sustainable growth and external viability.  We must go back to our roots and plan more astutely if we are to concretize the concept of the vision 20, 2020, as was pioneered by the immediate past President, Late Alhaji Umaru Musa Yar’adua.

1.2Statement of the Problem

Although various factors have been adduced to Nigeria’s poor economic performance, the major problem has been the economy’s continued over reliance on the fortunes of the oil market and the failed attempts to achieve any meaningful economic diversification. (Osuntogn et al; 1997).

       Over the years, the domination of the economy by unstable oil sector, and the poor contribution of the non-oil sector to aggregate gross domestic product have remained very worrisome.  Despite the numbers policies and programmes of the government, and other packages of incentives designed to boost non-oil export, the growth rate of the sector has remained generally disappointing.  The sector’s trade balance has continued to show negative trends as the Nigeria oil industry has continued to operate with minimum linkages with the rest of the economy, including the non-oil sector.  The observed dismal performance of the sector has been attributed to the following factors.

a.  Over reliance on the oil exports for foreign exchange earnings

b.  Instability and incredibility of trade and domestic policy reforms.

c.   Poor policy formulation and implementation.

d.  The shift of public policy focus away from agriculture.

e.  Financial constraint and lack of venture into the non-oil sector.

With these crippling problems, the impact of the non-oil sector on the Nigeria’s balance of payment positions remains poor and doubtful, hence this research.

1.3  Objectives of the Study

The primary objective of this study is to:

1.   Critically determine the contributions of the non-oil sector on Nigeria’s balance of payments position. 

2.   To evaluate and analyze the non-oil sector’s activity, its effect on the balance payments position, and its contribution to the country’s total export and gross domestics product.

3.    This study shall find out the problems militating against the development of the sector, and the policy so far enacted to checkmate these problems.

4.   To make reasonable contributions on the how to enhance non oil export which is a source of economy growth and development.

1.4Hypotheses of the Study

The hypotheses of the Study

H0: The non-oil sector has no significant impact on Nigeria’s balance of payments position.

Hi:  The non-oil sector has significant impact on Nigeria’s balance of payment position.

1.5    Significance of the Study

Attamah (2000:197), stated that, there is no question of guaranteeing adequacy and stability of future flows in oil revenue because factors at work in the oil market are complex and ever-changing.  He further stated that on account of very large income from crude oil sales, (accounting for over three-quarters of government revenue from all sources), any vagaries in the world oil demand or crude oil price severely affects Nigeria’s national development.  Therefore, there is the exigent necessity to develop other sectors of the economy, especially the non-oil sector, to complement the proceeds from the oil sector.  This study provokes the requisite interest from the concerned stakeholders for the conscientious revival and resuscitation of the sector.

With proper evaluation and analysis, the study;

Will provide an econometric assessment of the performance of the Nigeria non-oil export in relation to the gross domestic product.

Will identify the factors responsible for the poor performance of the non-oil sector.

Will serve a very useful purpose to individuals, firms and the government.

Will enlighten the public on what the non-oil sector is really all about, its meaning, composition, and various activities that take place within the sector.

Will propel the need to achieve the enduring objectives of altering the structure of production so as to diversify the nation’s export based and reduce dependency on oil.

Will guide the policy makers on how to around the fortunes and age-long underperformance of the non-oil sector.