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This study focused on the growth of the agricultural sector of the Nigerian Economy. A key policy objective of sustainable economic development especially in any developing country like Nigeria, is to establish agricultural sector that are both economically efficient and sustainable. However, this depends significantly on full utilization of such resources. This research work adopts an econometric approach to evaluate both the impact and the sustainability of economic growth in Nigeria. The regression result and co-integration test shows that agricultural exports on Nigeria’s economic growth impact positively on the economy but also sustainable. On the other hand, the research work equally reveals that the agricultural sector decline since the discovery of oil. Finally, the research work offer same policy recommendations for effective planning, management and development of agricultural sector in Nigeria.
1 Background of the Study
All over the world, Nigeria inclusive, Agriculture is tied with various sectors and is essential for generating broad-based growth necessary for Economic growth and development. It is fundamental to the sustenance of life and is the bedrock of economic growth especially in the provision of adequate and nutritious food so vital for human development and raw materials for industries. Agriculture has played and will continue to play a key role in the Nigerian economy. The sector holds the key to rapid economic transformation, poverty alleviation, stable democracy and good governance. There is no national security without food security.
Economic growth is “a gradual and steady change in the long run which comes by a gradual increase in the rate of saving and population” (Schumpeter 2005). The gross domestic product is monetary value of goods and services which serve as a major growth (economic) indicator. This presupposes that all sectors of an economy make their inputs to the economic growth of the economy. Agriculture is one of such sectors (Yakubu, 2006).
Agriculture was the in-thing in Nigeria’s pre-crude oil era. In every region of the country, one cash crop or the other was yielding foreign currencies enough to make the people happy and make the country meet its obligations to the international community. But with the discovery of oil and its exploitation in commercial quantity, agriculture was neglected despite the fact that a long chunk of the population was still involved in agriculture, albeit at restrained pace. (Tell Nigeria, 2008). A retrospective look into the Nigerian economy and its development reveals that agriculture was both the main stay of the Nigerian economy and chief foreign exchange earner. It provided employment for a large number ofNigerians. (Chigbu, 2005). The principal constraint to the growth of agricultural sector is the fact that the structure and method of production have remained the same since independence more than four decades ago, (Ukeje 2005). The United Nations food and agriculture organization rates the productivity of Nigerians farmland as low to medium; but with medium to good productivity if properly managed, (Needs, 2004).
The decline in domestic output and the poor exports performance have largely been blamed on both internal and external factors. Ogbu (1991) attributed the problem mainly to the poor macro – and sectoral economic policy environment and the consequent deterioration in the domestic terms of trade against agricultural sector. He also noted the importance of external terms of trade and declining world demand. He argued that the external terms of trade and the level of real protection were worsened by rigid exchange rate regimes, inflationary pressures created by reckless monetary and fiscal policies and trade regulation policies pursued by the developing countries.
There is however, no consensus among analyst on the relative share of internal and external factors causing the current economic problems of the developing countries. While some followed the International Monetary Fund (IMF) and World Bank position, which largely blamed the domestic factors and prescribed the removal of market distortions, returns to the neoclassical economic doctrine of free market determination of prices, exchange rates and less state intervention in resource allocation, others, mainly the structuralists argued that the problems lay majorly on unequal trade relations between the developed and developing country, hence the demand for a New Economic International Order (UNCTAD, 1968). The latter’s position is similar to the “Lagos Plan of Action for Economic Development of Africa 1980-2000” adopted by African heads of state and the Organization of African Unity (OAU). The Plan’s main objectives were to bring about self-sufficiencyin food and a diminishing dependence on exports (Brown and Cummings, 1984).
However, it has now been widely realized that the crises of the developing countries are multi-dimensional in nature. Thus, in addition to the visible external and internal imbalances, there has been identified some invisible or structural constraints in the economic structures that contributed to the crises. The structural constraints tended to reduce the production and supply capacities. Quarcoo (1990) Koester et al (1990) and others identified the structural constraints that impeded supply in most developing countries as follows:
(i) Excessive protection of private industries implemented through inward-oriented import-substitution development strategy using devices like tax exemption or holidays, accelerated depreciation, investment tax credit, and tariff concessions for imported raw materials, spare parts and equipment, thus discouraging local sourcing. These supplemented the extensive use of tariff and nontariff measures such as import licensing and exchange controls.
(ii) Excessive government – leading to bloated public service, inefficiencies in investment and production. This was largely the cause of annual budget deficits that characterized developing countries which led to excess demand and inflation especially when the deficit was financed through monetary accommodation by the Central Bank.
(iii) Inefficient credit or financial systems that was unable to mobilize domestic resources and allocate same due to financial repression. The credit systems financed mainly the unproductive sectors and discriminated against the productive sectors-agriculture and small scale enterprises (Ayichi, 1987).
(iv) The internal imbalances manifested mainly in the gap between domestic investment requirements and available savings. The visibleexternal gaps were manifested in perennial deficits in trade and current accounts of balance of payments, over valued local currencies with large parallel market premiums for foreign exchange. The above situation was caused by the price inelastic demand of the populace; over concentration on a few primary commodity exports; deteriorating barter terms of trade for these commodities; domestic pricing policy through commodity boards that reduced incentives to increase production; protective policies of the developed countries such as the European Economic Community (EEC) Common Agricultural Policywhich placed import quotas on products like sugar, meat and substitution of agricultural raw materials with synthetics, higher tarrifson processed and semi-processed products from developing countries.
To reverse the foregoing economic maladjustments and imbalances, the IMF-World Bank supports Structural Adjustment Programmes (SAPs) were widely pursued in the 1980s by most developing countries. The conventional and initial conception of structural adjustment policies in the Nigerian crisis was built on the idea that the economic crises were caused by excessive consumption of importables, hence the orthodox prescriptions of SAP called for demand management through application of stabilization policies. The stabilization policies applied were essentially fiscal, monetary and exchange rate policies (Oyejide, 1989). The fiscal policies sought to reduce budget deficits by contraction of government spending and increased taxes. In the same vein, contractionary monetary policies were applied to reduce money supply. The monetary instruments used include discount rate, credit ceilings, and rising of reserve ratio. At the centre of stabilization policies was the exchange rate. As an instrument of stabilization, exchange rate policy of devaluation was designed to reduce import demand, raise producer prices, stimulate production and export supply of tradeableespecially agricultural commodities.
The failure of the stabilization policies to return the economies of thenations to the path of growth in the short-to medium-term, was indicative of the fact that structural adjustment policies should be much more than demand management (Selowsky, 1987). Hence Koester, Schafer and Valde’s(1990) rightly noted that structural adjustment policies should usually comprise a mix of policy measures from three categories; demand-side policies, supply-side policies and policies to improve international competitiveness. Similarly UNCTAD (1992) rightly stated that SAP should typically contain three sets of policies, namely:
(a) expenditure-reducing (monetary and fiscal) policies to lower inflation and balance of payments deficits.
(b) Expenditure and production-switching (exchange rate and wage) policies to promote exports and imports substitution, and
(c) Supply-side policies (trade, sectoral, and institutional reforms) to remove structural rigidities that cause macro-economic imbalances.
It is argued that the structural rigidities and inefficiencies combined to limit the efficiency of the stabilization policies by constraining the production and supply-side capacities of the country. The supply-side policies thus sought to improve the incentives system, ensure rehabilitation of basic infrastructures and create favourable economic environment to expand production and exports in order to close internal and external gaps.
Though Structural Adjustment Programmes have not been homogenous in content across developing countries, some approaches tried by many developing countries to address the issue of structural bottlenecks include mainly the following: trade liberalization, public enterprises and financial sector reforms (Quarcoo, 1990).
The ultimate aim of the foregoing policy measures has been tostimulate sustainable growth. In other words, the expectation has been that output will rise steadily as the reforms are implemented. Agricultural exports supply are particularly expected to grow. These expectations of the policy reform actions of the various governments of developing countries companies were predicated on the implicit assumptions that various economic agents would respond positively to the new economic environments by investing more in tradable goods especially agricultural exports for which the countries have comparative advantage (Oyejide, 1990). However, as rightly noted by Oyejide, the current state of the country raise some concern and bring to the fore front the issue of export supply responses of the agricultural commodities to the regimes of prices, exchange rates and other adjustment policies. An empirical examination of these structural relationships becomes more warranted as the adjustment process has lasted about two decade in most developing countries.
1.2 Statement of the Problem
In the sixties agriculture was the pride of the Nigerian economy. During that period it contributed over 60% to the Gross Domestic Product. (GDP) (Famoriyo and Nwagbo, 1981) and met the foreign exchange requirements of the Country (Oyatoye, 1981, Oluwasanmi, 1981, Aribisala 1983). Nigerian was the world’s largest producer and exporter of cocoa, palm kernel, palm oil, cotton, rubber, groundnut and hides and skin (Alkali, 1971).
However, with the rise in crude petroleum prices in the early nineteen seventies, the petroleum sub-sector gained prominence over agriculture. The agricultural sector was neglected (Ahmed, 1991) as crude petroleum earned over 80% of the foreign exchange and 90% of total government revenue. (Abolayi, 1985) as shown in table 1 in appendix A and figure 1 in appendixB.
Consequently, food importation became a significant part of the total imports into Nigeria, while the value of agricultural exports in the total exports declined consistently, as shown in table ii in appendix A. Agriculture was the in-thing in Nigeria’s pre-crude oil era. In every region of the country, one cash crop or the other was yielding foreign currencies enough to make the people happy and make the country meet its obligations to the international community. But with the discovery of oil and its exploitation in commercial quantity, agriculture was neglected despite the fact that a long chunk of the population was still involved in agriculture, albeit at restrained pace. (Tell Nigeria, 2008)
A retrospective look into the Nigerian economy its development reveals that agriculture was both the main stay of the Nigerian economy and chief foreign exchange earner. It provided employment for a large number of Nigerians. (Chigbu,2005). The principal constraint to the growth of agricultural sector is the fact that the structure and method of production have remained the same since independence more than four decades ago, (Ukeje 2005). The United Nations food and agriculture organization rates the productivity of Nigerians farmland as low to medium; but with medium to good productivity if properly managed, (Needs, 2004). By 1980, the oil Market weakened resulting in a glut, prices started to plummet. The immediate result on the economy was current account and fiscal deficits and a rapid drawdown on external reserves as the government and other economic agents persisted in their import dependent consumption and production behavior (Afolabe, 1992). The external reserve declined from annual average of N3063.3 billion for 1976-1980 periods to N1403.6 billion for the period 1981-1985. With the dwindling external asset and large scale accumulation of arrears on external trade payments, the nation began to lose its international credibility. The resulting external and internal imbalances are manifest in the adverse balance of payment position, highrate of unemployment, increasing public debt, rising rate of domestic inflation, and low capacity utilization in virtually all sections as well as the deteriorating purchasing power of the populace, as shown in table iii in appendix A. (Bukar, Aliyu, Bakshi 1997) In view of the above economic situation, an emergency economic stabilization Act was promulgated by the government in 1982. The stabilization measure which in content mostly involved administrative controls could not correct the disequilibria in the economy. Hence, the demand and supply imbalances continued unabated. Thus, in 1986, like many less developed countries, Nigeria responded by embarking on a comprehensive IMF – World Bank supported structural Adjustment Programme (SAP). As noted by Soludo and Ayichi (1987), the SAP was aimed at altering and re-aligning aggregate domestic consumption and production patterns so as to minimize dependence on imports. It also sought to enhance non-oil export also base and bring the economy back to the path of steady and balanced growth.
The most potent instrument of the programme has been exchange rate policy which aimed at devaluing the local currency (Naira) to more realistic free market level (Nwosu 1991, Obi, 1987). Devaluation of the naira was expected to turn the terms of trade in favour of the exports and discourage importation. It was expected that SAP policies will occasion new prices in favour of non-oil exports especially agricultural commodities. The expansion of agricultural exports was perhaps the most important target of the export promotion component of SAP (Philips, 1986; FGN, SAP Document 1986). The implicit assumption was that higher naira content of export proceeds occasioned by devaluation will encourage domestic production and stimulate export supply Therefore, this research work intends to find out the impact made sofar on Nigerian economy by the value realized from agricultural exports from (1970-2006).
1.3 Objective of the Study
The broad objective of this research work is to examine the impact of agricultural export commodity prices on Nigerian Economic Growth. However in the pursuance of this broad objective, the research will achieve the following specific objectives.
1.4 Research Questions
The following research questions will guide the study:
1.5 Research Hypotheses
From the specific objective listed above the researcher has formulated the following hypothesis to guide the study.
H0: Agricultural exports prices have no significant impact on economic growth of Nigeria.
H0: There is no relationship between agricultural exports prices and economic growth of Nigeria.
1.6 Justification of the Study
It is expected that the result of the study would aid policy makers in their effort to revamp the Nigerian economy through aggressive non-oil export promotion as the study attempted to demonstrate in quantitative terms, the relationship between volumes of agricultural export prices. That is to say, the study yielded coefficients of elasticties which could guide policy makers in estimating the impacts of changes in prices, exchange rates andtrade liberalization policies on export supply of the commodities. It showed the implication of agricultural exports commodity price on economic growth. It will also assist students through the provision of a framework on which further research in the international economics discipline can be carried out.
1.7 Scope of the Study
The study was focused on Nigeria’s export commodity sub-sector capturing the period from 1970 to 2006 as available data permitted, using cocoa, coffee, copra, cotton, palm oil and soya bean as cases. It examined the responses of domestic prices to changes in exchange and the impact of prices, exchange rate fluctuations and trade liberalization on export supply.
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