EXPORT DIVERSIFICATION STRATEGY FOR ECONOMIC GROWTH IN NIGERIA

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EXPORT DIVERSIFICATION STRATEGY FOR ECONOMIC GROWTH IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

Nigeria is located in the Western part of Africa lying in the tropics between latitudes 40 and 140 North of the equator and longitudes 30 and 140 East of the Greenwich meridian. The country has a total land area of 9, 323,768 square kilometres with a multi-ethnic population of approximately 120 million people. The country is bounded in the West by Republic of Benin, in the East by the Republic of Cameroon, in the North by the Republic of Niger and the Coastline in the South is berthed by the Atlantic Ocean. A conspicuous feature of the country is that of extensive arable farm and grazing land for animal husbandry from the North to South, East to West. The country’s vegetation is made up of high zone forest (covering one sixth of the country) and the Savannah, the high forest zone is further made up of the mangrove or swamp and the rain forest, while the Savannah s made up of grassland and scrub forest.

The country possesses extensive endowment of largely exportable mineral resources and an array of neutral stuffs. Nigeria is endowed with vast and largely untapped natural resources including such minerals as petroleum, limestone, tin, columbite kaolin, gold and silver, coal, lead, zinc, gypsum, clay, shale, marble, iron-ore, stone, zircon and natural gas, the abundance human resources and the geographical features of the beautiful plateau with steep escarpment, cold, warm springs vast game reserves, waterfalls, river confluence’s and various other tourism potentials and veritable sources of foreign exchange earnings. Sincerely the above opportunities should have naturally put Nigeria at a vantage position as one of the leading nations of the world. Notwithstanding the above, Nigeria is still struggling hard to come out of the economic doldrums caused by political imbroglio, corruption, bad leadership deficient policies, planning, economic myopism etc the era has now come in Nigeria history when competent international managers and leaders must seek relevance and look for frantic ways to bail the country out of her economic predicaments. The statistical evidence for today’s developing countries (particularly Nigeria) is not unequivocal as it supports the hypothesis that the growth of export plays a major role in the economic growth process by stimulating demand, encouraging savings and capital accumulation. Export increases the supply potentials of the economy by raising the capacity to import.

Historically, and in the contemporary world exchange between different economies has been the engine room of growth there is almost no country that has for a long period sustained a growth rate substantially higher than its growth exports. It is claimed that the growth rate of developing countries since 1950 correlate better with export performance than any other single economic indicator. Developing countries such as Puerto Rico, Japan and Hong Kong have certainly achieved remarkable growth in export of their manufacturing sectors. There is a consensus among economic historians that in the 19th century export trade acted a catalyst of growth as it contributed to the optimal utilization of resources within countries economies of scale and it transmitted growth from one part of the world to another. The demand in Europe and Britain in particular, for raw materials brought prosperity to such countries as Canada, Argentina, South Africa etc as the demand for their commodities increased, investment in these countries also increased and arable was mutually profitable.

In Nigeria, in terms of exports and economic growth, we have travelled from the point where in 1960, agricultural and crude oil exports contributed some 89% and 2.7% respectively of our foreign exchange to where they now account for about 2.5% and over 90% respectively prior to the 1970s, agricultural exports were Nigeria’s main source of foreign exchange. During this period, Nigeria was a major exporter of cocoa, cotton, palm oil, palm kernel, groundnuts and rubber and in the 1950s and 1960s 3%-4% annual output growth rates for agricultural and food crops were achieved. Government revenues also depended heavily on taxes on those exports. Thus, during the period the current account and fiscal balances depended or the agricultural sector. However, between, 1970 and 1974, agricultural export as a percentage of total exports declined from about 43% to slightly over 70%. From the mid 1970s, the average annual growth rate of agricultural exports declined by 17%.

The major cause of this development was oil price shocks of 1973-1974 and 1979, which resulted in large receipts of foreign exchange by Nigeria and the neglect of agriculture. The oil boom afflicted the Nigeria economy with the so called Dutch disease (Harberger, 2013) the petroleum sector exhibited an increasing and dominant influence as regards contribution to government revenue, rising from 1% in 1960 to over 90% as of now. Because of the vulgarise of oil, we have now forcefully re-discovered that the excessive reliance on crude oil export at the detriment of the previous composite vector of the “traditional” primary export, though more lucrative does not provide secure foundations for prosecuting deliberate development policy. (Alli 2014). Fuelled by the crude oil exports, the domestic economy nominally recovered rapidly from civil war disequilibrium and sustained unprecedented growth rate of Gross Domestic Product (GDP) up to 1990s presently, there is need to diversify from crude oil export to other sectors of the economy due to fluctuation in oil prices. Hence, exports diversification from total reliance on the crude oil export is now necessary to achieve rapid economic growth.

1.2 STATEMENT OF THE PROBLEM

Every country will have to achieve a growth rate consistent with her balance of payments equilibrium on current account and with its overall balance on the current and capital account, since trade (with emphasis on exports) is the engine of growth export promotion must be the focus of any country that intends to achieve a desirable level of economic growth.

Over the year, export diversification has proved to be a successful strategy of improving the level of exports and economic growth of many countries in the world. This has been a lesson for most developing countries particularly in Nigeria. Therefore, the issue is whether diversification should be undertaken in the oil export sector or non-oil export sectors of the economy. To determine this, a critical analysis of the performance of these sectors of the economy overtime is absolutely necessary.

1.3 OBJECTIVE OF THE STUDY

Given the role of export in the achievement of a desirable economic growth of a country, and also the role of export diversification. In achieving increased level of export, the objective of the study is the optimal export diversification to achieve increased level of exports which will in turn lead to economic growth in Nigeria, also to discover other sectors of the economy which will improve our foreign exchange earnings.

1.4 SIGNIFICANCE OF THE STUDY

This study will highlight the contribution of various exportable commodities to the Gross Domestic Product (GDP) of the Nigerian economy over the years. It will also help in the allocation of the available resources of the country for export purposes. The findings of this study will be a basic for achieving economic growth in Nigeria.

1.5 SCOPE OF THE STUDY

Given the availability of data necessary for the success of this study the study has been designed to examine the performance of the oil export and non oil export sectors. This study will focus mainly on export diversification strategy for economy Growth in Nigeria and for the purposes of empirical analysis, the time frame of 25 years (1980-200%) shall be taken.

1.6 METHODOLOGY OF THE STUDY

The study will involve the used of secondary data, the data will be obtained from various issues of the CBN statistical bulletins and other sources of data relevant to the study. The data obtained will be analysed using the co-integration and error correction model from which conclusion will be draw on the basic of the estimated model the reason for the adoption of co-integration techniques is based on the existence of non-stationary of most time series data the flexibility richness and efficient estimates of co-integration for the adoption of the approach.

1.7 HYPOTHESIS OF THE STUDY

A hypothesis would be adopted which would be examined to determine the validity of our model.

1. H0 = 0 Export diversification will lead to an increase in the level of Gross Domestic Product (GDP) of the economy.

H1 ¹ 0 Export diversification will not lead to an increase in the level of Gross Domestic Product (GDP) of the economy.

2. H0 = 0 Non-oil Export diversification will lead to an increase in the level of Gross Domestic Product (GDP) of the economy.

H1 ¹ 0 Non-oil export diversification will not lead to an increase in the level of Gross Domestic Product (GDP) of the economy.

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