ASSESSING THE IMPACT OF OVERDEPENDENCE ON OIL REVENUE ON NIGERIA ECONOMY


ASSESSING THE IMPACT OF OVERDEPENDENCE ON OIL REVENUE ON NIGERIA ECONOMY  

ABSTRACT

The research is on Assessing the Impact of Overdependence on Oil Revenue to Nigeria Economy. The main objective of this study is to assess the impact of overdependence on oil revenue to Nigeria economy. Data for this research  were  obtained  from  both  primary and secondary sources. The questionnaire served as the main instrument for data collection. Interview was also conducted so as to obtain more data. Data analyses  were done through  the  use  of tabular presentation and percentages. Hypotheses were tested through Chi-square (X2).

The major findings of this study are as follows:

1. Overdependence on oil revenue has more positive impact than negative impact on Nigeria‟s economic development.

2. Agriculture, Tourism, Taxation & Solid minerals are factors that could minimize Nigeria‟s overdependence on oil revenue.

On the basis of the above findings, the  study  concludes  that Nigerian economic growth is highly depended on the oil revenue. Hence, if there is a glut and fall in oil price in international market, it may be a great disaster on the economy and to the citizenry of the country.

From the findings of this study, the following are recommendations:

1. The Nigerian government should focus on the need for diversification into other sources of revenue in order not to be affected by fall of oil price in the international market.

2. The government should develop other sectors of the economy such as agricultural sector, and industrial sector by providing incentives such as tax concession, provision of facilities needed by these sectors in order to boost more production.

TABLE OF CONTENTS

Title page - - - - - - - - - - i

Approval page - - - - - - - - - ii

Certification - - - - - - - - - iii

Dedication - - - - - - - - - iv

Acknowledgements - - - - - - - - v

Abstract - - - - - - - - - - vii

Table of contents - - - - - - - - viii

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study  - - - - - - 1

1.2 Statement of the Problem - - - - - - 5

1.3 Objectives of the Study - - - - - - 5

1.4 Research Questions - - - - - - - 6

1.5 Research Hypotheses - - - - - - 7

1.6 Significance of the Study  - - - - - - 8

1.7 Scope of the Study - - - - - - - 9

1.8 Limitation of the study - - - - - - 9

1.9 Definition of Terms - - - - - - - 10

References

CHAPTER TWO: REVIEW OF RELATED LITERATURE

History of Crude Oil in Nigeria  -----13

The Performance of the Oil Sector in Nigeria--15

The Impact of Petroleum Sub-Sector on

the Nigerian Economy - - - - - - 20

The Negative Impact of Petroleum Sub-Sector

on the Nigerian Economy - - - - - - 21

The Positive Impact of Petroleum Sub-sector on

the Nigerian Economy - - - - - - 28

Impact of Overdependence of Budget on Oil Revenue -38

The Need for Independent Revenue Mobilization

for Nigerian Economy - - - - - - 40

State Government and Internal Revenue Mobilization42

Local Government Revenue Mobilization---42

Challenges in the Oil Sector-----44

Attempts Made by Government to Improve Non-Oil

Sectors - - - - - - - - - 46

The Level of Importation of Petroleum Products in

Nigeria - - - - - - - - - 48

Factors that Could Minimize Nigeria‟s Over-

dependence on Oil Revenue - - - - - 51

References

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Sources of Data - - - - - - - 59

3.2 Population and Sample Size Determination - - 60

3.3 Description of Research Instrument - - - - 61

3.4 Data Analysis Technique - - - - - - 62

Validity of the- Research Instrument ----64

Reliability of the Research Instrument----

64 References

CHAPTER FOUR: DATA PRESENTATION, ANALYSIS

AND INTERPRETATION

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS

Summary of Findings------94

Conclusions--------95

Recommendations-------95

Bibliography Appendix

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Oil is a major source of energy in Nigeria and the world in general. Before the advent of oil (Crude oil), agriculture used  to  be  the mainstay of the Nigerian economy which plays a vital role  in shaping the economic and political destiny of the country (Abolaji1985:2).

In 1960s, agricultural products provided about 80% of the total export earnings and the main cash crops were cocoa, palm oil, groundnut etc. In 1962, agriculture accounted for about N229.8 million or 82% of the nation‟s total values of export. Moreso, in 1964 a total of N356.4 million was realized which represented 85% of the country‟s total export for that year.

According to Ezeagu (1979:9), the exportation of agricultural products was really thriving during these years. However, by 1976 out of N274.2 million that came from export, agriculture accountedonly for 4% of the nations earnings, even with the take- over of export financing by the Finance Development House, the earnings from the non-oil export (which agriculture products

dominated) have not improved by the end of 1991. It only managed to provide 3.8% out of the total revenue. This was as a result of the oil boom and excess dependence on its revenue or earnings.

During this time, the need and consumption pattern shifted and became import – oriented. Thus, the insatiable desire for importation of goods became widespread in the nation with its attendant economic problems.

According to the Statistical Bulletin 1997:60 of the Federal Bureau of Statistics, the 1970s witnessed a drastic change of Nigeria economy from one share of agriculture to Gross Domestic Product (G.D.P) which drastically dropped from about 40% in the  early 1970s to about 20% in the 1980s and even 16% in the 1990s. Since the oil sector assumed a wider dimension to account for about 20% of Gross Domestic Product (G.D.P), it also accounted for 81% of government revenue and 96% of export earnings.

Sequel to the oil boom of the 1970s, spectacular change that crept into the Nigerian economy with devastating effect still lingers on till today.

The heavy dependence on oil as the main source of revenue to the economy was highly vulnerable. Agriculture was completely neglected to the extent that Nigeria began to import agricultural products which were previously exported. The oil revenue kept declining and the celebrated “boom” of 1970s  became  a  “doom”  for the country.

Following the glut in the international oil market from 1982 to date, the country‟s projected revenue has never been attained due to instability in the price of oil, for instance as at September 1985, the total federally collected revenue was N20.287 billion. Arene (1985:25).

In 1987, N29.44 billion was projected as federally collected revenue, out of which N28.53 billion was envisaged to come from the oil sector. This raises the question of how successful or to what extent can this sum be realized when the vagaries of oil market are considered?

To this end, President Olusegun Obasanjo buttressed his optimism in which he stated, “As a nation, we should be  sensitive  to  oil but not panic at the falling process rather we should pursue vigorously

the current programme already put in place to diversify revenue sources (Statistical Bulletin 1999:80).

To all intents and purposes, the strengths and weaknesses of Nigeria economy are tremendously being subjected to the dictates of oil revenue. It could easily be  seen  that Nigeria  virtually has  no  control on the foreign exchange which is in high demand in  the  country because of excessive importation  of  foreign  goods  which  is  as  a result of underdevelopment on the part of our industries, for example, cottage industry.

Furthermore, there is optimism on the part of the federal government inspite of the  instability  of  the  oil  market,  that  the selling price of the crude oil would be $14 per barrel with the production base of 1.355 million barrels  per day. It is  imperative  on the part of the government to seek alternative source to supplement oil as the major source of revenue.

Moreover, some major areas have been suggested by the experts as a possible solution that can help salvage the present economic situation. These are agriculture, mining, deregulation and promoting manufacturing industries.

STATEMENT OF THE PROBLEM

Crude oil discovery has had certain impacts on the Nigeria economy both positively and adversely. On the negative side, this can be considered with respect to the surrounding communities within which the oil wells are exploited. Some of  these  communities  still suffer environmental degradation, which leads to deprivation of means of livelihood and other economic and social factors. Although large proceeds are obtained from the domestic sales and export of petroleum products, its effect on the growth of  the  Nigerian economy as regards returns and productivity is still  questionable.  Thus  the study focuses on the impact of overdependence on oil revenue to Nigeria economy.

OBJECTIVES OF THE STUDY

The specific objectives of the study include the following:

1. To assess the impact of overdependence on oil revenue to Nigeria economy.

2. To determine the factors that could minimize Nigeria‟s overdependence on oil revenue.

3. To assess the level of importation of petroleum products in Nigeria.

4. To evaluate the problems encountered by the Nigerian oil sector.

RESEARCH QUESTIONS

The research questions postulated for this study include the following:

1. What is the impact of overdependence on oil revenue to Nigeria economy.

2. What are the factors that could minimize Nigeria‟s overdependence on oil revenue.

3. What is the level of importation of petroleum products in Nigeria.

4. What are the problems encountered by  the  Nigerian  oil sector.

RESEARCH HYPOTHESES

For the purpose of this study, the following research hypotheses will be tested.

1. Ho: Overdependence on oil revenue has more negative impact than positive impact on Nigeria‟s economic development.

H1: Overdependence on oil revenue has  more positive impact than negative impact on Nigeria‟s economic development.

2. Ho: Agriculture, Tourism, Taxation and Solid minerals are not factors that could minimize Nigeria‟s overdependence on oil revenue.

H1: Agriculture, Tourism, Taxation and Solid minerals are the factors that could minimize Nigeria‟s overdependence on oil revenue.

3. Ho: The level of importation of petroleum products in Nigeria is high.

H1: The level of importation of petroleum products in Nigeria is low.

4. Ho: Poor funding of investments, Communal disturbances, Smuggling and diversion of petroleum products and Products adulteration are not problems encountered by the Nigerian oil sector

H1: Poor funding of investments, Communal disturbances, Smuggling and diversion of petroleum products and Products adulteration are the problems encountered by the Nigerian oil sector.

SIGNIFICANCE OF THE STUDY

The study is significant because it assesses the impact of Nigeria‟s overdependence on oil revenue. Also, the study will help direct attention of the federal government and the oil sector on the need for diversification into other sources of revenue like agriculture, for economic growth.

It will also serve as a reference for future researchers in the same field.

SCOPE OF THE STUDY

The study is on assessing the impact  of  overdependence  on  oil revenue to Nigeria economy. The study focuses on the impact of overdependence on oil revenue  to  Nigeria  economy,  factors  that could minimize Nigeria‟s overdependence on oil revenue, the level of importation of petroleum products in Nigeria and problems encountered by the Nigerian oil sector.

However, the study will be carried out in the Federal Ministry of Finance, Abuja.

LIMITATION OF THE STUDY

The main constraints of the study include the following:

a. Time

Due to the limited time given for the study, the researcher could not get all the required information needed for the study.

b. Finance

The researcher has not got enough money to  embark  on  the study and therefore could not visit places where information relevant to the study could be obtained.

c. Attitude of the Respondents

The attitude of the respondents affected the research work because some of the respondents were unwilling to co-operate with the researcher. They felt they have nothing to benefit from the study.

DEFINITION OF TERMS

a. Crude Oil

Mixture of naturally occurring hydrocarbon that is refined into diesel, gasoline, heating oil, jet fuel, kerosene, and literally thousands of other products called petrochemicals.

b. Gross Domestic Product (GDP)

This refers to the total value of all the  goods and services produced in a country in a year. It is concerned with domestic production and does not, include net income from abroad.

c. Petroleum Products

These are useful materials derived from crude oil (petroleum) as it is processed in oil refineries.

d. Downstream Sector

The downstream sector of the petroleum industry is a part of the industry that is responsible for final processing, product distribution and marketing.

e. Deregulation

This is an act by which the government of a particular industry is reduced or eliminated in order to create and foster a more efficient market place.

REFERENCES

Abayomi, Y.O. (1977), “Revenue Diversification”. C.B.N. Bullion: 12(3).

Ugwuanyi, W. (1999), Agricultural Financial Management and Food Marketing. (1st Edition), Lagos: John Kens and Willy Publication, Ltd.

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ASSESSING THE IMPACT OF OVERDEPENDENCE ON OIL REVENUE ON NIGERIA ECONOMY



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