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Nigeria, since the 70s has been a mono-cultural economy relying heavily on oil as its major income earner. The implication is that the dynamics of the economy is at the whims and caprices of the price of oil, which for the most part, has been volatile (Enoma and Mustafa, 2011). The major fallout of this fragile structure of the Nigerian economy is a situation where the economy has been growing without creating jobs and reducing poverty (Onodugo, 2013). The on-hand explanation to this economic paradox is that the oil sector that produces about 90% of export earnings are in the hands of less than one percent of the Nigerian population dominated by expatriates and members of the political class who control production and the proceeds respectively. Worse still, the sector is disconnected from other tiers and sectors of the economy and thus offers little or no linkage and multiplier effect to the economy as a whole.
The adverse consequences of over dependency on oil trade heightened the need and call to diversify Nigerian economy away from oil towards the direction of non-oil export trade. Proponents of this increased proportion of non-oil export argue that the non-oil trade has great potentials to propel Nigerian economy to the desired growth and development. For instance, Onwualu (2012) maintains that the value chain approach to agriculture has the potentials to open up the economy and generate various activities which are capable of creating jobs and enhancing industrialization and thus makes the non-oil sub-sector to hold the aces for future Nigerian sustainable economic growth.
Successive Nigerian governments on its part have shown efforts over the years to increase the non-oil revenue by establishing supportive policies. Some of these policies with varying degrees of successes include but not restricted to: protectionism policy in the mode of import substitution policy of industrialization in the 1960s; trade liberalization policy (this took the form of Structural Adjustment Programme) of the mid 1980s and export promotion policy of 1990s which was executed through intensified policy support to Small and Medium Scale Enterprises (SMEs) to enhance productivity and subsequently, export of local products.
Available evidence point to noticeable increase in the contribution of non-oil sector to the growth of the Nigerian economy over the last ten years (Soludo, 2007; Olayiwola and Okodua, 2010; Aigbakham, 2008). Specifically, The Central Bank of Nigeria (CBN) has attributed the growth in Nigeria’s Gross Domestic Product (GDP) from 6.9 per cent in third quarter 2012 to 7.1 per cent in the fourth-quarter of the same year to the increase in the contribution of the non-oil sectors, particularly the industrial sector (NBS, 2012). In its report titled “Economic Report Fourth-Quarter 2012” CBN submits that non-oil receipts stood at N589.98 billion (24.4 per cent of the total). Adekunle (2012)) maintains that Nigeria has the potential to realize N310bn from non-oil export by the end of last year. National Bureau of Statistics (NBS) further reports that the non-oil sector grew at 9.07% in the fourth quarter of 2011 higher than the 8.93% increase recorded in the fourth quarter of 2010.
The growing body of literature has shown possible linkages between non-oil sector and growth of the Nigerian economy, however the dearth of empirical evidence as to the magnitude of the contribution of non- oil revenue to government revenue and growth spurred this study. The study therefore seeks to determine the impact of non-oil revenue on the Government Revenue and Gross Domestic Product (GDP) of the economy and the extent to which it contributes. It will also examine the factor responsible for the current poor performance of the non-oil sector.
The petroleum industry in Nigeria has brought unprecedented changes to the Nigerian economy, particularly in the past five decades when it replaced agriculture as the cornerstone of the economy. Non-oil revenue comprises of agricultural products, solid minerals, textile, Tyre, manpower, etc. It is made up of every other thing we revenue, except petroleum products. In the decades of 1960s and 1970s, the Nigerian economy was dominated by agricultural commodity revenue. Such commodities include cocoa, groundnut, cotton and palm produce. From the mid-1970s, crude oil became the main revenue produce of the Nigerian economy (AnyanwuJ.C, 1997). Federal Office of Statistics (FOS), in 1985, stated that crop farming and fishing activities account for about 90% of all forms of activities in the economy. They also estimated that about 50-68% of the active labor force is engaged in one form of agricultural activity or the other including fishing and farming. Azibolomari (1998) stated that farming techniques in the Niger Delta has still remained the use of land rotation or bush fallow system characterized by land and labor behind the principal inputs of production. The economy has been substantially unstable, a consequence of the heavy dependence on oil revenue and the volatility in its prices. The oil boom of the 1970s led to the neglect of non-oil tax revenue, expansion of the public sector, and deterioration in financial discipline and accountability. In turn, oil dependency exposed Nigeria to oil price volatility which threw the country’s public finance into disarray. This study will examine the effect of non-oil revenue on GDP of Nigeria.
1.2 STATEMENT OF THE PROBLEM
Over the years the government has received annually over half of its revenue from the oil sector up to about 85% to the neglect of the non-oil sector. These oil revenues are not only large 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 resulted in pervasive fiscal indiscipline, high level of corruption, dishonesty and lack of transparency in the government which has made it difficult to develop and process the non-oil sectors. Despite the large proceeds obtained from the internal and external sale of crude product, its impact on the total revenue and economic growth of Nigeria with regards to enhancing productivity in other sectors remains questionable. The over dependence of the nation on the now dwindling oil sector and the poor contribution of the non-oil sector to revenue and growth is worrisome. Many attempts by past governments in terms of policy formulations and programmes to boost the non-oil sector and create a broader revenue base have not yielded much result. This has been traced to poor implementation of policies, lack of appropriate funding, lack of political will and of course the continued belief that revenue from oil is guaranteed.
It is in the light of the above that this study seeks therefore amongst other things to evaluate the contribution of non-oil revenue to total revenue and economic growth, that is, GDP growth in Nigeria.
The broad objective of this study is to investigate the effect of non-oil revenue on GDP growth in Nigeria. However, the specific objectives are;
1.4 RESEARCH QUESTION
The research question relevant to this study are;
1.5 RESEARCH HYPOTHESIS
The following hypothesis is set to test the effect of non-oil revenue:
Ho1:Non-oil revenue does not make any contribution towards developing the Nigerian economy.
Ho2:There is no significant relationship between non-oil revenue and GDP growth.
Ho3:There is no significant impact of non-oil revenue on investment in Nigeria.
I.6 SIGNIFICANCE OF THE STUDY
Despite the various allocations and policies to the development of non-oil sector, it is yet to perform up to expectation. The volume of revenue is either not enough or has fallen. It is important to study the effect of non oil revenue on GDP of Nigeria to ascertain whether the revenue is contributing to our economic growth and per capita income or whether we have just been wasting our resources.
Going by the research conducted by some scholars or economists such as Akanni (2007), Idowu (2005), Hadi (2009), Mohammed and Amirahi (2010) et al, for instance, provides an insight on the contributions of revenue to economic growth in the country. These studies also shaded light on the policies that have been taken to reform the economy and the challenges faced by the revenue sectors.
This research is also expected to be of benefit to various stakeholders in the Nigerian economy as it will enlighten them on the problems facing agricultural development through petroleum production and the provision of suggestions to eliminate such problems.
This study covers a period of (1990-2015). This is to obtain a comprehensive analysis on the impact of non-oil revenue on the Nigerian economy. This research work covers the effect created on economic growth by non oil revenue. The geographical area involved is Nigeria. This study is centered on the effect of non oil revenue on the economic development of Nigeria.
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 annual basis.
Non-oil Revenue: These are revenues of a country gotten from every other sector in the country except the oil sector e.g., Agricultural sector, Manufacturing sector, Taxation e.t.c.
Oil revenue: This is the revenue gotten from the oil sector of a country. This sector accounts for about 35% of GDP, and petroleum exports revenue represents over 90% of total exports revenue (OPEC, 2014)
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.
Investment: To invest is to allocate money in the expectation of some benefit in the future. It is also the idea that the asset will provide income in the future or will be sold at a higher price for a profit.
Inflation: This is a general increase in prices and fall in the purchasing value of money.
Despite the limited scope of this study, certain constraints were encountered during the research of this project. Some of the constraints experienced by the researcher were given below: