Magoosh GRE

Research Proposal On Impact Of Oil On Agriculture In Nigeria’s Economy

| March 3, 2015

INTRODUCTION

Fluctuations of crude oil prices and the crisis of rising food insecurity have always been the main concerns of policymakers worldwide. Since the 1960s when oil was first discovered in Nigeria, oil has accounted for a large share of Nigeria’s export economy (Daramola, et.al, 2007). In 2000, for example, 99.6% of Nigeria’s export income came from oil, making it the world’s most oil dependent economy (Akpan 2009).

The country’s fortune has increasingly relied on oil for its revenue. Nigeria is currently known as the largest oil producer in sub-Saharan Africa producing an estimate volume of around 2.413 million barrels of oil per day (AFDB 2005). This makes it the 6th largest oil producer in the world. Despite being amongst the largest oil producers in the world, Nigeria remains home to the world’s poor after China and India with majority of its population living below  one USD per day (Akpan 2009). This raises a fundamental question: why the high rates of poverty? Could it be because of years of mismanagement of the oil sector or due to its neglect of agricultural sector? In addressing these concerns, this analysis examines the impact of oil on agriculture in Nigeria’s economy.

RATIONALE OF THE STUDY

Prior to the 1960, agriculture was known to be the dominant sector of the country’s economy. It accounted for nearly 70% of the GDP and about 90% of foreign earnings and federal government revenue (Akpan 2009). However, a notable shift emerged with the discovery of oil at the Niger Delta in 1965 as agriculture was replaced by the oil industry (Sekumade 2009).

Today, oil account’s for a large percentage of Nigeria’s export earnings (Lawal 2011). Interestingly though, Nigeria fares much worse in terms of the rates of poverty, with the third highest number of people living in abject poverty after China and India. It is estimated that the population of people living on less than US$1 per day had increased significantly from 36% in the 1970 to about 70% in 2006 (Akpan 2009). Of course, these outcomes coincided with oil discovery in the country.

It is in this recognition that this proposal seeks to explore on the effect that oil has had on Agriculture in Nigeria’s economy. The proposal seeks to confirm the hypothesis that Nigeria’s neglect of its agricultural sector and increased dependence on oil was the main reason behind the current crisis in its economy.

RESEARCH OBJECTIVES

This analysis is guided by the following research objectives:

  • To investigate how the discovery of oil in Nigeria has affected the attention given to, and government spending on agriculture in the economy.
  • To examine the extent to which agricultural exports in Nigeria have been adversely affected by oil.
  • To determine the impact that increased government spending, more attention and policies on agricultural practice; may have on the economy considering the neglect it has suffered so far.

LITERATURE REVIEW

Since the main objective of this paper is to investigate how the discovery of oil in Nigeria has affected the attention given to, and government spending on agriculture in the economy; as part of the study, we shall review some theoretical and empirical studies related to this core objective.

Prior to the oil discovery in Nigeria, agriculture accounted for a lion share of the GDP. It also provided employment and food to the teeming population as well as raw materials for the growing industries (Adeniyi 2008). From the standpoint this standpoint, Ogen (2007) suggests agriculture to have been the lead sector of growth in Nigerian economy during the 1960s.

Ogen (2007) notes that Nigeria had, during that period, become the world’s second largest cocoa producer and the lead producer and exporter of palm oil. Contributing to this subject, (Alkali 1997) also points out that besides being the lead producer in palm oil; Nigeria had also become the lead exporter in groundnut, rubber, cotton, and hides and skins. Lawal (1997) also affirmed the positive contribution that agriculture had made to the economy of Nigeria before the oil discovery.

Despite the reliance on traditional farming methods, agriculture was the main stay of the economy accounting for over 70% of Nigeria’s exports (NEEDS 2004). But the oil boom of the 1970s led to its neglect of agriculture and increased dependence on oil resources. According to Ogen (2007), by 2004 the contribution of the agricultural sector to Nigeria’s GDP had declined to less than 5%. Ever since, food insecurity and poverty have remained persistently high in Nigeria.

The NEEDS Policy Paper (2004) further reveals that close to two-thirds of Nigeria’s population live below US$1 per day with most of them situated in the rural areas. The policy paper, suggests that roots of this crisis, which led to a vast number of the Nigerian population living below the poverty index, lies in its neglect of agricultural sector and increased dependence on oil. Contributing to this debate, this proposal provides important insights of how the discovery of oil in Nigeria has affected the attention given to, and government spending on agriculture in the economy.

To address this drift and as an important realization of the central role that agriculture plays in development, the proposal seeks to determine the impact that increased government spending, more attention and policies on agricultural practice; may have on the economy considering the neglect it has suffered so far.

RESEARCH QUESTIONS

This analysis is thus underpinned by the following research questions

  • How has agriculture been affected by the discovery of oil in Nigeria?
  • To what extent has dependency in oil resulted in a decline of agricultural exports in Nigeria?
  • What will be impact of increased government spending, more attention and policies that enhance agricultural practices; on Nigerian economy?

METHODOLOGY

RESEARCH DESIGN

This analysis will take the form of a descriptive research as it seeks to describe how the decline in agriculture and increase in poverty in Nigeria was a result of an increased over-reliance on oil resource, which led to the neglect of the agricultural sector. Descriptive statistics will also be employed to describe the variables in this study.

RESEARCH APPROACH

A secondary research will be undertaken for this analysis. Because of the nature of the study, which is to investigate on how the discovery of oil in Nigeria had affected the attention given to, and government spending on agriculture in the economy; data that has already been generated will be particularly suited for this type of study. The study draws from and overlaps previous work, especially the work of Akpan (2009) who used a VAR methodology to investigate the impact of oil discovery on agriculture in Nigeria’s economy. His findings are very much in line with our hypothesis which points out that the neglect of agriculture has resulted from the increased reliance on mono-cultural oil based economy.

DATA COLLECTION

The data on government spending in agriculture and oil sector, and their contribution to GDP will be obtained from the Central Bank of Nigeria (CBN) statistical bulletin for various years. Time series data on the amount of federal government expenditure on these two comparable sectors and their contribution to GDP in Nigeria will be obtained for periods between 1970 and 2007.

DATA ANALYSIS

We will use a VAR approach (a vector autoregressive system) to analyze the relationship between increased dependence on oil in the economy and declining agricultural exports and rising food insecurity in the economy. This relationship will reveal the extent to which dependency on oil had resulted in the neglect of agriculture in Nigeria. The VAR model incorporates many time series which interact via a few dynamic factors. The variables to be incorporated in this model include: oil price, oil revenue, food insecurity, and agricultural exports. This model provides a framework where in changes to a particular variable, say the price of oil, can be related to changes in other variables and lag in those variables such as agricultural export.

ETHICAL CONSIDERATION

For any research, there are important ethical considerations that must be considered. With reference to this analysis, the main foreseen ethical issue that is likely to rise is the lack of ethical approval from the original authors. Since this analysis is based on data that has already been generated and draws from previous work; it will not be possible to have ethical approval from the original authors. However, in addressing this ethical concern, the researcher will acknowledge the work of these authors where necessary.

CONCLUSION

Unlike its neighbour countries, Nigeria has a huge agricultural potential. However, the increasing reliance on a mono-culture oil based economy has resulted in its neglect of the agricultural sector. In addressing this drift, this proposal reignites this particular subject and calls for increased government spending, more attention and urgent need for more policies that will enhance domestic production and reduce the over-reliance on oil resources in Nigeria.

 

REFERENCE

Adeniyi O., 2008. Oil Price Shocks and Nigeria’s macro economy. Unpublished PhD Thesis Post Field Report. Department of Economics, University of Ibadan

African Development Bank (AFDB), 2005. African Economic Outlook 2004/2005, Paris: OECD.

Akpan, E.O., 2009. Oil resource management and food insecurity in Nigeria. Paper presented at CSAE Conference, Oxford University, Oxford, UK.

Alkali, R.A., 1997. The World Bank and Nigeria: Cornucopia or Pandora Box? Kaduna: Baraka Press.

Daramola, et.al, 2007. “Agricultural Export Potential”. In: Collier P. and C. Pattillo (eds.), Economic Policy Options for a Prosperous Nigeria, London: Palgrave Macmillan.

Karl, T.L., 2007. Oil-led development: social, political and economic consequences. CDDRL Working Papers. No.80

Lawal, W. A, 2011. “An analysis of government spending on agricultural sector and its contribution to GDP in Nigeria”. International Journal of Business and Social Science. Vol.2 (20)

Lawal, W. A., 1997. “The Economy and the State from the Pre-colonial Times to the Present”. In: Osuntokun, A. and Olukoju, A. (eds.) Nigerian Peoples and Cultures. Ibadan: Davidson.

Ogen, O., 2007. The agricultural sector and Nigeria’s development: comparative perspectives from Brazilian Agro-Industrial Economy, 1960-1995. Noble World Archives.

Nigeria Economic Empowerment and Development Strategy- NEEDS (2004). Executive Summary on Nigeria Agricultural Policy Support Facility (A-PSF). An Agricultural Policy, Research and Knowledge Program to Support Nigeria’s NEEDS.

Sekumade, A.B., 2009. “The effect of petroleum dependency on agricultural trade in Nigeria: an error correlation modelling (ECM) approach”. Scientific Research and Essay, vol. 4 (11), pp. 1385-1391

 

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