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This paper investigates if there is a significant long – run relationship between cocoa exports and economic growth in Nigeria. The study covers the periods between 1981 to 2014. The underlying models are the export led growth, hypothesis, neo – classical growth model, presbich trade model and Keynesian model. In the formulated model, real gross domestic product was used as a proxy for economic growth. The explanatory variables used were cocoa export earnings, exchange rate and government expenditure on agriculture. The study made use of unit root test and Johnsen maximum likelihood test of co-integration. It was discovered that a long – run equilibrium relationship exist between cocoa export and economic growth such that it is elastic in nature meaning that a unit increase in cocoa exports will bring more than a proportionate increase in the real gross domestic products in Nigeria
1.1 BACKGROUND OF STUDY
The oil boom of the 1970s brought with its fundamental changes in the Nigerian economy particularly the agricultural sector. The first is the heavy dependence of the economy on crude oil export as the main source of foreign exchange earnings and revenue to the government. Secondly, agriculture was relegated to the background resulting in a declining trend in its contribution to export earnings. Cocoa contributed immensely in 1960s and 1970s growth of Nigerian economy (Adeyeye, 2014). For example, it served as source of raw materials, employment generation and made a significant contribution to gross domestic product (GDP).
In1960 Nigeria ranked among one of the highest cocoa producers in the world. For instance, cocoa output peaked at 308,000 tonnes in1964, unfortunately the figure dropped sharply in 1980 and 1981 to 155 tonnes and continually down to 110,000 tonnes by 1990 and 1991 farming seasons. This trend has being since and it has negatively impacted to economic growth and general economic development.
Most importantly in the area of employment generation and the role it plays in sustaining Nigeria position in the country of agricultural nations and its pride in comity of the world has reduced. Therefore, the downward trend as a result of this position is generating a serious concerns among the stakeholders in the cocoa industry and hence the need to organize various forum for various stakeholders to look for a way of improving the productivity, competitiveness, market access to farmers with the purpose of enjoying better bargain for their product all for the purpose of improving a good relation among the farmers and other stakeholders that serve as linking-pin in the chain of marketing.
As the number one commodity in agricultural export list in Nigeria, Cocoa production, domestic consumption and export have remained central concerns of the government. Over time Nigeria has remain in the first five positions globally which emphasizes the relations importance in cocoa production and export trade as shown in the table below.
The top 10 cocoa producing countries in 2015
|S/NO.||COUNTRY RANK||PRODUCTION (METRIC TONS)|
Source: UN Food and Agricultural Organization (2015).
Although Cocoa is largely produced in developing countries, it is mostly consumed in developed countries. The buyers in the consuming countries are the processors and chocolate manufacturers. The following figure represents the main consumers of cocoa around the world. The consuming country with the highest consumption is United States while the lowest country is Belgium (Philip, 2014). Cocoa serves as an important crop around the world, a cash crop for growing countries. Cultivation of cocoa at the farm level is a delicate process as the crops are susceptible to various weather conditions.
Cocoa is one of the major agricultural exports from Nigeria and currently, it contributes 6% to the world market. Overall the West African sub region contributes a total of 70% of world market share of cocoa and yield considerable revenue to these economies (Gilbert, 2010)This means that cocoa production and export are very vital to the GDP and therefore economic performance of Nigeria.
1.2 STATEMENT OF 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 exchangerequirements of the Country (Oyatoye, 1981, Oluwasanmi, 1981, Aribisala1983). 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).
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 behaviour (Afolabe, 1992). The external reserve declined from annual average of N3063.3 billion for 1976-1980 periods to N1403.6 billionfor 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, high rate 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.
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 nairawas 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.
The question today is to what extent the redirection in policy has affected the poor performance of non-oil export in Nigeria. But more simply, this research work is set to answer the following questions to what extent has cocoa production contributed to the overall gross domestic product (GDP) of the economy.It is on this background that this research work is focused.
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is to determine the effect of cocoa export on economic growth of Nigeria.
The specific objectives are to:
1.4 Research Questions
1.5 STATEMENT OF HYPOTHESIS
1.6 SIGNIFICANCE OF THE STUDY
The study of the contributions of cocoa to the growth of Nigerian economy is important, for this knowledge, it will enable the policy makers to formulate appropriate policies that will aim at improving on the quota of the total revenue brought about by the contribution of cocoa export to gross domestic product. This study is also important and significant in that it will examine the various ways of improving cocoa production towards raising the living standard of Nigerians in the period under review (1981-2014).with the recent policies put forth by the government in order to increase the number of Nigerians involved in cocoa production.
1.7 SCOPE AND LIMITATIONS OF THE STUDY
This study is an attempt to evaluate and review cocoa production and policies in the economy towards economic growth and development in Nigeria. It also intends to cover and evaluate the contribution of cocoa exports to Nigeria economic growth and development.
This study would be based largely on secondary data; the reliability of the findings of this study would largely depend on the reliability of the data been collected. Again, our discussion will be restricted to cocoa export as our major emphasis, though we realize that the GDP of the country is composed of oil and non-oil exports.