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AN ECONOMIC
ANALYSIS OF THE IMPACT OF OIL SECTOR ON NIGERIAN ECONOMY (1980-2010)
ABSTRACT
This
research work “An Economic Analysis of the Impact of Oil Sector on Nigeria
Economy (1980-2010)” is set to find out the performance of oil sector in
stimulating economic growth in Nigeria. The major objectives of this study is
to examine the relationships between the oil sector and economic growth. This
study is empirical in nature and the use of historical data become inevitable.
We preferred econometric model using Ordinary Least Square Method (OLS), in
estimation of the relationship between oil sector and economic growth and some
macro-economic variables. Therefore, to examine the basis of analysis of the
impact of oil sector in Nigeria economy, Hypothesis was formulated to guide the
study. The Null Hypothesis (Ho) oil sector has no significant impact on
economic growth in Nigeria, Alternative Hypothesis (H1) oil sector has
significant impact on economic growth in Nigeria. From the findings made, Ho:
there is no relationship between oil sector and economic growth and H1: there
is a positive relationship between the oil sector and economic growth of
Nigeria. From the result of the test carried out, it was observed that oil
sector has positive impact on Nigeria economic growth. Based on the finding a
major recommendation was made: since oil sector operations contribute a lot of
investment, government ought to be given these sector preferences in her
policies to make it attractive and viable.
CHAPTER ONE
INTRODUCTION
Background
of the Study
Nigeria economy is basically on open
economy with international transactions constituting on important proportion of
her aggregate economic activities. Over
the years, the degree of openness of the economy has grown considerably. Before
Nigeria gains her political independence in 1960, agriculture was the main stay
of Nigeria economy, which provides both cash crops and food crops to the
economy and accounted for the largest part of the foreign exchange of the
country.
However, the beginning of early 80s
ushered in a new direction for overall economic activities. The now ever-growing oil sector led to the
new direction witnessed. This led to the
neglect of agricultural products, making the economy to depend heavily on the
production of crude oil.
In this study, we shall be using these
terms to refer to oil sector, such as petroleum, crude oil, gas and so on. Oil has been known to exist in the ancient
time of Pharaohs and Babylonians. It
seeped from the earth in Persia, Iraq, Indonesia and other parts of the
world. Since it was discovered, it has
been used in medicine and some places it created huge fires which people
worshipped. Oil usage was varied but
limited and by the middle of the 17th century, a few street lumps in Bucharist
were lit by oil extracted from coal.
Oil is universally neither the first nor
the only primary sources of energy. The
properties of oil shows that it possesses distinct advantages over other
sources of energy, mainly coal. Modern
oil exploration began by the applications of those theories when “Colonel”
Edwin Drake provides that oil does exist beneath the earth’s crust. Drake discovered the first underground oil
near Titusville in Pennsylvania on August 27th 1859, after drilling a well 70
feet deep. Drake’s well produced about
30 barrels of crude oil.
There are four technical methods for a
less developed country like Nigeria to tap a potential extractive export
reserve. They are:
1. To invite foreign concessionaries to
form local industries and therefore supply management and technological,
capital and markets.
2. undertake, joint venture in which
foreign investors supply management and technological and market as well as a
portion of the capital furnished by the host country.
3. Institute management contracts,
whereby experienced foreign firms offer management and technology only.
4. Do without foreign participation
altogether and furnish management and technology. Capital and market itself.
Basically,
it could be argued that there was little real choice of discovering petroleum
in Nigeria before the mid 1950s. For
example, L Dudley stamp, the noted British geographer wrote in 1953 that “Apart
from the yard along the shores of the Gulf of Suez in Egypt and a small yard
from three thing fields in Algeria and four in morocco, Africa has no oil.
The search
of oil in Nigeria began in 1908, when a German company called Nigeria Bitumen
Corporation (NBC) which was granted a license to exploit. Bitumen deposits located at Ijabu Ode and
Okitipupa the present Ondo State. After
the war 1914-1919, their work was terminated due to the
colonial-entrepreneurship for legitimate commercial activities, which were
meant to replace the oppressions and inhuman slave trade that reigned in the
eighteen and early period of the nineteen century.
Geological
research work conducted showed that Nigeria’s petroleum potential was towards
the southern part of Nigeria. After
shifting focus to the tertiary area of Delta, shell BP, made Nigerian’s first
discovery of oil in 1956 after 19 years search of petroleum at Oloibiri in
Ogbia Local Government Area is now the present Bayelsa State. There were other companies that joined the
Nigeria petroleum, such as American Oversea Petroleum Company. (TEXACO), Mobil Tennessee’s Nigeria
incorporated (JENNECO), Gulf Oil, Satrap (ELF), Nigeria Agip Oil Company
(NAOC), Philips Petroleum and ESSO exploration.
All these were joined latter, such as Japan petroleum, American
occidental company, Deminex Nigeria Limited, Union Oil, etc. However, not all these companies were
successfully explored.
As
government interest in oil industry continues to grow, a license was granted to
Nigeria Agip Oil Company in 1962. This
license was optionally in favour of the government to purchase about thirty
percent (30%) of the share capital of the company if and when discovered oil in
commercial quantity.
In 1977, the
Nigeria National Petroleum Corporation (NNPC) formerly known as Nigeria
National Oil Corporation (NNOC) was established by Act of No 18 which was
charged with the responsibility of exploring and producing oil and gas,
transporting, refining, processing, marketing and converting petroleum products
into useful products (Attamah; 2000 p. 25).
NNPC therefore, performed dual functions according to Quinlan (1980), it
performs one as a state-owned right as well as in partnership with
International Oil Companies, it is playing a part and reaping the reward for
Nigeria Oil. As a result of economic transformation
of the country through the Structural Adjustment Program (SAP) which was
imposed by the Federal Government in 1986, the NNPC, according to Akinnusi
(1990). Adopted a new mission in January
1987 that was intended to be realized by
April 1st 1989.
From modest
production of 5000 barrels per day (b/d) in 1958 by shell BP, the volume of the
production in the country has multiplied impressively over years (Nigeria Oil
Directory 1987 p. 60).
Statement of
the Problem
With
Nigeria’s oil sector, accounting for almost all the country’s exports, she has
earned billions of dollars from this sector in years back. As a young nation, with oil wealth, coming
almost unexpectedly immediately after her independence. Nigeria no doubt has its developmental growth
problems to cope with. The oil wealth
brought about growth opportunities as well as problems for the nation (Quinlan;
1980). There is lack of infrastructural
facilities; her educational system is at the verge of collapse because of under
findings. The health sector has nothing
good to write home about; the cost of life and standard of living are becoming
more difficult nowadays in Nigeria.
Industrial and Agricultural sector were neglected. Inefficiencies and operating problems in the
oil sector are causing financial looses.
Owing to
both external and internal factors, the growth performance of Nigeria economy
has been less than satisfactory during the past three decades. Since 1970, Nigeria per capita income has
fallen by about 4% in constant dollars.
More over, since then the government has annually received over half of
its revenues from oil sector which were about 85%. These oil revenues are not only largely but
highly volatile and causing the size of government programs to fluctuate
accordingly.
From 1972 to
1975, government spending rose from 8.4% to 22.6% of GDP, by 1978, it dropped
back to 14.2% of the economy. This
fluctuation has made the government unable to adhere to wise fiscal policies.
Although
large sales are obtained from oil sector but it’s effect on the growth of
Nigerian economy as regards to returns and productivity is still questionable,
hence there is a need to evaluate an economic analysis of the impact of oil
sector on Nigeria economy.
Objectives
of the Study
The
objectives of the study are split in to two that is, the general objectives and
specific objectives. The general
objective of this study is to examine the impact of oil sector on economic
growth of Nigeria. While the specific
objectives are as follows:
1. To evaluate the impact of oil sector
on economic growth in Nigeria.
2. To examine the relationships between
oil sector and economic growth.
3. To proffer policy recommendations
based on the result of the study.
Hypothesis
of the Study
This study
is designed to investigate and analyze the impact of oil sector on economic
growth. The hypothesis is therefore
postulated as follows:
Ho: Oil sector has no significant impact on
economic growth in Nigeria.
H1: Oil sector has significant impact on economic
growth in Nigeria.
Significance
of the Study
In fact,
this research is very significant in the developmental pace of any
economy. This is more so in developing
countries such as Nigeria where the public sector appears to be more or less
concerned with mere policy formulation, infrastructural development and
servicing of both.
The
significance of this research, believing that the resultant findings and
recommendations would be duly considered cannot be over emphasized
specifically, the project will be of great benefit to the following groups:
1. Policy makers of the various
governmental organs in Nigeria who formulate and issue the regulatory economic
guidelines.
2. It will also help government to
access the extent to which the oil sector has impact on the economy of Nigeria within
the given time frame and thus, providing ground for future policy measures.
3. It will be of help to real and
potential private industrialists and or investors, especially with regard to
sourcing of raw materials and cost.
4. Students particularly of the
business/Engineering school who might be future research in a related field on
the ground already established or covered.
5. The general public particularly the
stakeholders (suppliers and consumers) who stand to benefit from the informal
knowledge of the performance of oil sector.
The researcher holds the strong belief that the findings of this study
will reasonably serve the respective interest of these groups mentioned above.
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