A CRITICAL COMPARISON OF NIGERIA'S OIL AND NON-OIL EXPORTS ON ECONOMIC GROWTH: 2000-2023

CHAPTER ONE: INTRODUCTION

Background to the study

Oil is a highly adaptable and flexible non-renewable hydrocarbon that plays a crucial role in modern economic activity. It accounts for approximately 50% of the global energy consumption (Anyanwu et al, 1997). Petroleum, also referred to as crude oil, is a viscous and tar-like liquid composed of a blend of many components, predominantly hydrocarbons, which are compounds consisting of carbon and hydrogen. The composition of the substance also includes trace amounts of non-hydrocarbon elements, with sulphur being the most prominent (about 0.2 to 0.6% by weight), followed by nitrogen and oxygen. Anyanwu J.C. et al, 1997. Non-oil exports encompass a variety of goods such as agricultural products, solid minerals, textiles, tyres, and manpower. It includes all our exports except for petroleum products. During the 1960s and 1970s, the Nigerian economy was mostly reliant on the exportation of agricultural commodities. These commodities consist of cocoa, groundnut, cotton, and palm products. Starting in the mid-1970s, crude oil emerged as the primary commodity for export in the Nigerian economy. Anyanwu J.C. and colleagues in 1997

The inception of the petroleum (oil) business in the nation commenced in 1909. The exploration activities initiated by the German Bitumen Corporation came to a halt following the First World War due to Germany's role as the instigator and subsequent defeat in the war. Due to Nigeria being under British colonial rule, it was inevitable that the Germans had to cease their exploring endeavours.

In 1937, Shell D'Arcy Exploration parties were granted an oil prospecting licence. Shell made the initial commercial finding of crude oil in Nigeria at Oloibiri in 1956. In 1961, the Nigerian Federal government granted ten oil prospecting licences on the continental shelf to five businesses, marking the beginning of the company's production. Payment of N1 million was required for each covered licence. Upon receiving this large concession, extensive on-shore and off-shore oil exploration commenced.

Significant oil reserves were discovered at Oloibiri in the Niger delta, and further findings at Afam and Boma solidified the country's status as an oil-producing nation. The Nigerian crude oil is classified as a "sweet" variety due to its characteristic of being lightweight and having a low concentration of sulphur. It was highly coveted on the global oil market.

Nigeria is commonly perceived as a highly endowed oil-producing country, however with an increasing poverty index. Maaji Umar YAKUB, 2008. The low economic performance of Nigeria cannot be primarily attributed to the instability of earnings from the oil industry. Rather, it is a consequence of the government's failure to effectively utilise the earnings from crude oil exports since the mid-1970s to grow other sectors of the economy. Nigeria ranks among the most impoverished nations globally, with an estimated poverty rate of 54% in 2006. The economy has experienced significant instability, primarily due to its large reliance on oil revenue and the volatility of oil prices. The surge in oil production throughout the 1970s resulted in the disregard of non-oil tax income, growth of the government sector, and decline in financial prudence and responsibility. Oil-dependency made Nigeria vulnerable to fluctuations in oil prices, leading to significant disruption in the country's public finances. This study aims to analyse the comparative influence of oil and non-oil exports on the economic growth of Nigeria.

Statement of the Problem

Petroleum, an indispensable commodity, serves as a prominent and pivotal energy resource within the Nigerian landscape and the global sphere at large. The prominence of oil as the cornerstone of the Nigerian economy assumes a pivotal role in shaping both the economic and political trajectory of the nation. During the denouement of the Nigerian civil war, spanning from 1967 to 1970, the oil industry commenced its ascent to a position of eminence within the economic fabric of the nation.

On the contrary, non-petroleum commodities assume a pivotal role in fostering the economic expansion and advancement of the nation. Prior to the era of the oil boom, our primary economic reliance resided in non-oil exports, particularly agricultural commodities such as groundnut, palm oil, cotton, natural rubber, coffee, gum Arabic, sesame seed, and the like. It was within that temporal epoch (specifically, the epoch characterised by a surge in oil production and consumption) that Nigerians inadvertently disregarded the cultivation and promotion of non-oil exports to a considerable degree.

Nigeria can be classified as a predominantly agrarian nation, wherein its economic sustenance is contingent upon the exportation of primary commodities, with a particular emphasis on petroleum derivatives. Ever since achieving independence in the year 1960, this nation has been confronted with the intricate challenges of ethnic, regional, and religious discord, which have been further exacerbated by notable disparities in economic, educational, and environmental progress between the southern and northern regions. This phenomenon can be partially ascribed to the significant revelation of petroleum resources within the nation, thereby exerting a profound influence on both the economic and social facets thereof.

The discovery of crude oil in Nigeria has undeniably exerted a discernible influence on the nation's economy, yielding both favourable and unfavourable consequences. From a pessimistic standpoint, one must take into account the implications for the neighbouring communities in which the extraction of oil wells takes place. Certain communities continue to endure environmental degradation, thereby resulting in the deprivation of essential resources for sustenance and exacerbating various economic and social factors. Notwithstanding the substantial revenues derived from both domestic sales and exports of petroleum products, the impact of such activities on the Nigerian economy in terms of returns and productivity remains a subject of uncertainty.

Therefore, it is imperative to assess the comparative influence of oil and non-oil exports on the trajectory of economic growth in Nigeria. In light of the aforementioned study, the primary aim is to evaluate the comparative influence exerted by both oil and non-oil exports on the Nigerian economy. Below are the research questions of the study.

1. What is the relative impact of oil and non-oil exports on investment in Nigeria?

2. What is the relative impact of oil and non-oil exports on economic growth in Nigeria?                   .

Objective of the Study

The broad objective of this study is to investigate the impact of oil and non-oil exports on economic growth in Nigeria. However, the specific objectives are;

1. To determine the relative impact of oil and non-oil exports on investment in Nigeria.

2. To determine the relative impact of oil and non-oil exports on economic growth in Nigeria.

Research Hypothesis

The following hypotheses are tested in this study;

1. Both oil and non-oil exports have no significant impact on investment in Nigeria.

2. Both oil and non-oil exports have no significant impact on economic growth in Nigeria.

Scope of the Study

This research work covers the impact created on economic growth by oil and non-oil exports. The geographical area involved is Nigeria. The study is as such a comparative one. The variables of interest are oil export, non-oil export, real interest rate, inflation rate, investment and GDP. The time period is from 2000-2023.

Significance of the Study

Countries of the world today are engaging themselves more in international trade to earn foreign currency, maintain a surplus Balance of Payment (BOP), establish good relationship with foreigners and most of all achieve economic growth. Nigeria as a country is not left out in the international trade. Our export commodities can de divided into oil and non-oil.

It is important to study the relative impact of oil and non-oil exports on economic growth in Nigeria to ascertain whether the exportation is contributing to our economic growth and per capita income or whether we have just been wasting our resources.

Definition of Operational terms

Economic growth: This is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

Oil sector: This is also known as the oil industry or the oil patch, includes the global processes of exploration, extraction, refining, transporting, and marketing of petroleum products. The largest volume products of the industry are fuel oil and gasoline.

Oil Price Volatility: This is the measure of the tendency of oil price to rise or fall sharply within a period of time, such as a day, a month or a year. Lee (1998) as cited in Mgbame, Donwa and Onyeokweni (2015) defines volatility as the standard deviation in a given period and noted that volatility has a negative and significant impact on economic growth instantly, while the impact of oil price changes delays until a year.

Non-oil revenue: This is the income or proceeds generated from the commodities that are sold in the international market excluding crude oil (petroleum product). Non-oil exports on the other hand are those commodities (excluding crude oil) that are sold abroad in order to generate revenue. These non-oil exports include agricultural products or crops, manufactured goods, tourist services/receipts, solid minerals, telecommunication services and other exports.

Gross Domestic Product: This implies the market value of all officially recognized final goods and services produced within a country in a given period. GDP per capita is often considered as an indicator of a country‘s standard of living. GDP is related to national account, a subject in macro -economics. It is customarily reported on an annual basis. It is defined to include all final goods and services, that is, those that are produced by economics resources located in that nation regardless of their ownership and are not resold in form.

Inflation is defined as a generalized increase in the level of price sustained over a long period in an economy. It is a rise in the general level of prices of goods and services in an economy over a period of time.

Exchange rate: An exchange rate (also known as foreign exchange rate) between two currencies is the rate at which one currency will be exchanged for another. It is regarded as the value of one country‘s currency in terms of another currency. Exchange rates are determined in the foreign exchange market, which is open to a wide range of different types of buyers and sellers where currency trading is continuous.

Non-oil export: These include the exportation of the non-oil produces among which are agricultural, industrial and manufacturing outputs.

Non-oil export index: This is the fraction of the total export of goods and services that are produced within the economy that are not directly related to the oil sector of the economy. The non-oil products exports are unlimited as they include cash crops, food crops, manufacturing, entertainment, tourism etc. the value of the non-oil export index shall be used for measuring the non-oil export.