Economic Growth and Population in Nigeria

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CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

Over the years and in the recent times the Nigeria economy has operated within a relatively hostile international environment characterized by numerous distributions, deteriorating terms of trade, increasing international protectionism and executing external debt burden. Consequently, the Nigerian economy like those of many other developing countries has been neck deep in economic crisis manifested in recession, macro economic instability and fiscal crisis, balance of payment deficit and foreign exchange problems.

Economic Growth and Population in Nigeria

It is in the light of the above that export promotion was seen as a strategy aimed at stimulating economic growth and development. According to Olorunshiola (1995:8) It was perceived in Nigeria as a potentially effective strategy for dealing with the myriad of economic down turn and thus taps other benefits accruing from it. But this is not to say that prior and during this period, the role off exports in the growth process or Nigeria not realized, rather it had not gathered enough momentum as desired. Pinto (1987:2). For instance noted 1973-1983), Nigeria took delight in simply exporting oil (and virtually nothing else). And using the proceeds to import massively all kinds of goods and services under the name “imported substitution”.

The continued and dominant role exerted by the soil sub-sector sent negative signals to the other sectors of the economic by weakening and rendening those sectors redundant. An effect which Okoronkwo (1999:20) described as the “Dutch Disease”. But Pinto remarked that there is no disease in the strict sense of the word, since the boom enables the economy to attain higher level of consumption and welfare the drive towards resuscitating the non-oil sub-sector according to Osontogun and Oramah (1994:101) has remained an engaging issue for many renowned economists and other analyst even before the early 1980’s when most Nigerian’s first appeared to see the indices of major economic depression on the horizon.

What follows in thus research work therefore is to carefully provide a detailed account of polices and strategies of non-oil exports in Nigeria and also to assess those policies with a view to determining the extent of impact created in the economy.

1.2   STATEMENT OF PROBLEM

The problem in Nigeria is that of t much importing without exporting which have placed the economy in balance of payment deficits. As Todar (1988) night pointed out, the overall balance of payment deficits will pose severe strains on an economy and greatly restricts its ability to import needed capital and consumer foods.

He also contends that the nation has to import to feed its population and posses very limited stocks of monetary reserves. Balance of payment deficits spell disaster for many millions of people. Measures taking by government to improving export expansion or limiting imports.

Makeover, it is disheartening that despite export promotion efforts towards non-oil Nigeria economic exports her non-oil exports performance over the years seems to be relatively, poor and below expectation. It is in order to do a thorough assessment of the effect of these policies on her non-oil exports that this study is indented to full.

1.3   OBJECTIVES OF THE STUDY

This study is aimed at attaining the following objectives:-

  1. To examine the export promotion role in Nigeria export promotion council in promoting non-oil export in Nigeria.
  2. To determine and assess the effectiveness of the promotional tools employed by the NEPC in carrying the activities.
  3. To examine the complementary role of other government agencies/institution towards expert promotion e.g. Nigerian Export Processing Zone Authority (NEPZA), Nigerian Export-Import Bank (NEXIM), Customs Services etc.
  4. To proffer solutions and recommendations that would improve the activities of the Nigeria export promotion council in achieving the targets of the country’s export promotion drive.

1.4   RESEARCH QUESTIONS

For the purpose of addressing the problem carefully, the following questions have been formulated:

  1. What are the roles of Nigerian export promotion council (NEPC) in export promotion in Nigeria?
  2. How far has Nigerian Export promotion council (NEPC) gone in its leading role of export promotion in Nigeria?
  • What if any are the non-oil export promotion constraints?
  1. What are the solutions to these problems and the way forward for Nigeria export promotion council (NEPC) in constituting its achievement?

1.5   RESEARCH HYPOTHESES

Hypothesis one (1)

Ho:   Export promotion policies do not have a significant effect on Nigeria’s non-oil exports.

Hi:    Export promotion policies have a significant impact on non-oil exports.

Hypothesis two (2)

Ho:   Increased export of oil has no significant impact on non-oil export.

Hi:    increase export of oil has a significant impact on non-oil export

1.6   SIGNIFICANCE OF THE STUDY

The significance of the study is to serve as an appraisal of government’s effort towards the diversion of Nigeria’s export base since the devaluation of the Naira, which was the main thrust of the structural adjustment programme (SAP). With this, government can actually know whether to take corrective measures to allow economic activities thrive on their own terrain.

It is also aimed to act as a guide to prospective Nigerian entrepreneurs who have the desire to engage in non-oil export transactions. The study gives a chronological run down of export promotion policies being introduced in Nigeria, so also is export financially and how they concern exporters peruse. These are of course who such entrepreneurs need to be equipped with when venturing into such endeavors for instance, the study has given the researcher who is preparing to engage in the exportation of one of the most profitable livestock business in the world, an in-dept knowledge of both the existing policies  and some associated intrigues in the international trading arena.

1.7.  SCOPE/LIMITATION OF STUDY

This study is being carried out by starting from the period when export was given great attention in Nigeria. That is between (1986 and 2007). It covers more than ten years period. The essence of using this scope is because most of the aggressive export policies fell within the range under study.

1.8   ORGANIZATION OF STUDY

The research work is being segmented into five chapters.

Chapter one contains the introduction of the study with the research hypotheses stated therein.

Chapter two took care of the literature review looking into the various views of authorities in the field of export.

Chapter three displayed the method of data collection employed for the computation of the gathered data and also describes the limitation and coverage of the study.

Chapter four deals with the presentation of data and the interpretation made to it.

Chapter five summarizes, concluded and proffers useful suggestions based on the results obtained from the study.

1.9 DEFINITION OF TERMS

DUTCH DISEASE: a general phenomenon that describes effect of a dominant sector in an economy over all others. That is the effect of community boom and how it relegates other commodities to the background. It is the sector of progressing and declining or booming and lagging sub-sectors.

INTERNATIONAL ENVIRONMENT: an environment that permits the interaction of countries all over the world on trade liberation.

INTERNATIONAL PROTECTIONISM: law and regulations introduced by some countries to protect their trading interest in relations to their trading partners or countries.

TRADEABLE GOODS: these are goods that cross borders at internationally determined prices.

 

 

CHAPTER TWO

CONCEPTUAL LITERATURE

2.1   CONCEPT/MEANING OF EXPORT PROMOTION

According to Onah (1999:95), Export Promotion has been defined as “those public” measure which actually or potentially enhancing exporting activity at the company, industry, or national level”. Although many forces determine the international flow of goods and services export promotion is one of the principal opportunities that government that government have to influence the volume and types of goods and services exported from their areas of jurisdiction.

Government of India, like in almost all other nations, has been endeavoring to develop exports development is important to to the firm and to the economy as a whole. Government measures aim, normally at an overall improvement of the export performance of the general benefit of economy. Such measures help exporting firms in several ways.

Ezeagu (2002:63) point out that, export promotion strategy promotes only the industries that have potential for developing and comparing with foreign rivals. Since goal is to trade abroad, there becomes competition, which in turn remedies that return to scale. According to him, the main goal of export promotion is to prepare the “potential” industries for competition with the foreign rivals. So the industries at their childhood must be protected for a while.

Exporters facing the increasing competitions have to improve their technologies, their quality continuously in order to compete with the rivals.  They have to make research and development studies.

Ekeke (2009:22) noted that comparative advantage theory implies that a country must specialize in the production. By this way the harmony with the country structure, if the country has advantage in human capital, then the EP strategy maybe a remedy to the unemployment problem.

The indirect effect of the EP strategy appears in the export values of the countries. The increase in exports raises the foreign exchange inflow. However, there may be an increasing income of the country which in turn worsen the country’s trade balance.

2.2   EXPORT PROMOTION POLICIES IN NIGERIA

Export promotion policy is a deliberate government policy undertaken to encourage and boast the production of commodities for export (To draw, 2002). According to him, this is meant to diversify the export base that led to favourable economic growth.

Zakanya (1998:91) noted that, it was realized that given the night policy environment (trade and exchange reforms, encouragement of export financing and risk bearing facilities coupled with export stimulation incentives) non-oil export would perform credible well overtime. The drive towards achieving this goal was given great impetus by the structural adjustment programme, which laid a solid foundation stone in Nigeria. In order to achieve expected objectives, the government introduced a number of economic and financial measure as well as institutional support arrangement.

2.3   THE NIGERIAN EXPORT PROMOTION COUNCIL (NEPC)

The Nigerian Export Promotion Council (NEPC) was established through the Nigeria Export Promotion Decree No.26 of 1976, and was formally inaugurated in March 1977.  Decree No. 72 of 1979 which introduced some slight changes in the membership of the governing council and made formal provision for the establishment of the secretariat of the council, amended this Decree. This was announced by the Nigeria Export promotion Act which resulted in the redefinition o its functional responsibilities, thus strengthening a dynamic export development programmes and implementing the various incentives contained in the export (incentives and miscellaneous provision) Decree No. 18 of 1986. Abebefe (1995:44) noted that the establishment of NEPC in 1976 manifested government activities in the country.

The council was mandated to carry out the following responsibilities.

  1. To spread the natural effort development and promotion by generating ideas, suggestions and measures designed to advance the course of Nigeria’s export trade.
  2. To assist the government in the creation of necessary infrastructures such as export incentives and trade information services.
  • To advise and assist the government in the identification of export – oriented industries and help stimulate growth of non-traditional exports from Nigeria.

However, major expects promotion schemes current operated by the council by the council include the following :-

  1. The Duty Draw Back (D.D.B): This provides for the refund duties paid on important input used for the manufacture of exports products. Payment is affected by adjustment on subsequent import action.
  2. The export development fund (E.D.F.): Assist exporter in playing part of the cost of trade promotional activities such as trade air and research of foreign export markets.
  3. Export expansion grant fund (E.E.G.F.): Designed to reward only exporters of value added manufactures already confirmed by the Central Bank of Nigeria.
  4. Capital Assets Depreciation Allowance (CADA): Provides an additional annual depreciation allowance of 51% of plants and machinery to manufacturing exports who import a least 5% of their annual turn over provided that their product has at least 40% of their local value added.

2.4   THE NIGERIAN EXPORT-IMPORT BANK (NEXIM)

In recognition of the key role of financial institution played in export promotion, the federal government established the Nigerian Export-Import Bank (NEXIM) by decree 38 of 1991 as an export credit institution to promote the growth and development of Nigeria’s export sub-sector. The bank export facilitating services in support of the overall objectives of Nigeria’s non-oil export given its capital base.

Zakanya (1998:75) remarked that NEXIM had an initial capital share of N500m and was boosted with additional N500m in the 1997 budget.

  1. Promotion of export credit guarantee and exporters credit insurance facilities for exporters.
  2. Maintenance of foreign exchange revolving fund for leading to exporters who need to import foreign input to facilitate production.
  • Purchase and sale of foreign currencies and transmission of funds to all countries.
  1. Establishment and management of fund connected with exports.

Under the export incentives scheme, NEXIM continue to provide facilities like rediscounting and refinancing facility (RRF), trade finance, finance export risk guarantees.

  1. Rediscounting and refinancing facility (RRF): This was designed to assist banks to provide pre and post shipment finance in support of non-oil exports. According to Zakanya, disbursement under the RRF increased from N2.099m in 1994 to N2,663.3m in 1995. On the average, twenty-five (25)commercial and merchant banks participated in the scheme from 1991 to 1994 providing support to 489 exported.
  2. Stock facility: Provides funds for manufacturing of exportable goods to procure and stock by seasonal and scare local raw materials input.
  3. Foreign Input Facility (FIF) funded by the African Development Bank (ADB) under the NEXIM Export Stimulation Loans (ESC) was conceived to provide much needed foreign exchange requirements to exporters for importation f raw materials and equipments.

2.5   EXPORT FINANCING IN NIGERIA BACKGROUND

Export financing according to Ezeagu (1994:1) is the provision of short, medium and long term funds for export operations. The fund are usually provided banks, non-banking, financial institution as well as the exporters themselves and foreign buyers. Agene (1996:159) noted that export financing in Nigeria started with the bill finance scheme introduced in 1962 to finance the purchase of agricultural produce by the Northern Nigeria Market Boards, but Ezeagu maintained that Nigeria has no specialized export financing mechanism until 1945.

According to him, this is not to say that the country had nt been exporting rather traditional products were exported by multi nationals who had no problem in securing financing from foreign owned banks.

The marketing boards trough the defunct west produce boards handle exclusively the marketing scheduled agricultural produce such as cocoa, coffee, ginger and solid minerals. Later, the Nigerian produce marketing company limited (owned by stake marketing boards) took over exports of these scheduled commodities. From 1962, a new export financing mechanism was evolved by the Central Bank of Nigeria. Under this mechanism, the marketing boards net their requirements for cash by drawing 90 day bill of exchange on the Nigeria marketing company limited, the company sited as an exporter for all marketing boards. On acceptance by the company, the bill were discounted by consortiums of commercial banks and acceptance houses participating and refinancing facilities for the bills up to specified limits.

Zakanya (1998:70) remarked that under this method of rediscounting and refinancing of produce bills, the gross value of commercial bills actually refinancing by the CBN rose from N59.4m in 1994 to N142.6m in 1967.

However, due to uncertainties in the produce market in the 1964 period, the schemes collapsed in 1968 with the withdrawal of commercial and acceptance houses from scheme. Consequently, the CBN assumed direct controls as its main instrument of monetary policy by financing exports rather than direct financing. As a result, it stipulated credit allocations by commercial and merchant banks to the export sub-sector until 1979, was classified under the less preferred sector of the economy apparently due to high foreign earning form non-oil exporters.’

TYPES OF EXPORT FINANCE

Exporters require finance to carry out orders and the appropriate financial requirement depends on the duration of each other. Ezeagu classified export financing into the following types:

  1. Short term finance
  2. Medium term finance
  • Long term finance

These as written above are the three and most important criterion in assessing the types of finance needed.

 

 

SHORT TERM FINANCE

This finance is needed by exporters to meet orders of short time nature ranging from one to twenty months. This type of finance is more important in traditional produce dominant exporters where the financing instrument stipulate that credits must be liquidated within 90 to 180 days.

There are three (3) major stages in short term financing. These are

  1. Pre-shipment financing: Exporters need money to finance produce or production packages and transport the consignment to the part where they are loaded into a ship for onward movement to the importer. The finance needed at this stage is termed preshipment finance. Essentially, it can be defined as a loan or advance granted by financing institutions to exporters to financing the purchasing, processing or packaging of goods, on the basis of letter or credit goods, or any other instrument of payment.
  2. Point of shipment financing: this is also required to as stock refinancing. It involves financing goods in a particular point that is warehouses managed by a reputable quantity inspection agency.
  3. Post shipment financing: this can be defined as any loan advance mad to any exporter of goods to commence next operation until he received payment of his last shipment. Exporter who sold goods on credit to an importer has to wait for sometime before he receives his next production.

 

MEDIUM AND LONG TERM EXPORT FINANCE

Medium and long term credit takes the form of term loans or lease and is usually repaid by installments. These facilities are granted by export industries to finance importation and installation of plants and equipment. For the production of export products and expansion of production facilities, to improve the quantity, quality and packaging of export products, including up to final processing for export.

In an emerging export oriented economy like Nigeria, the need for medium and long term finance has become more imperative especially in the improvement of export infrastructures like warehouses export zones, roads and rail way transportation, construction of hostels to support tourism, establishment and abroad to serve as marketing channels, shipping and aviation, fishing and scrimping. Zakanya (1998:71) remarked that more opportunities needs to be trapped from the capital market to finance exporters.

Baffa (1992:48) noted that the role of the financial institution in the promotion of non-oil exporters in Nigeria  is better appreciated when on oil realized that virtually all the export promotion policies and incentives would be very difficult if not impossible of employment without the active participation of the country’s financial institution by the banks, insurance and companies, investment houses, capital markets or stockbrokers. He also observed that virtually all the commercial and merchant banks in the country have set up export of the government export promotion measures.

2.5   CONSTITUENTS OF NIGERIA’S NON-OIL EXPORT

Fajana (1994:133) remarked that Nigeria’s export comprise mainly of commodities. This fact was supported by Itoyah (1999:24) which according to him “most exporters financiers and analyst go for cocoa beans immediately export is being mentioned “. According to him, Nigeria is blessed with so much resource that has not been tapped up to 50% of what can be exported whether in primary produce form or valued added or manufacturing form. Most of these other commodities even carry lesser risk and higher returns than cocoa beans with smaller fund investment and shorter transaction cycles.

Itoyah further noted that such more profitable commodities and product to include wood furniture components, tiles sleepers, low horns, crushed bones and bone meal coffee, rubber, cocoa butter, soya beans, saw dust, cassava chips, palm kernel oil and cakes cotton seeds, African textiles fabrics and wears arts, craft carving etc.

2.5.2        THE EFFECT OF EXPORT PROMOTION ON NON-OIL EXPORT

The ultimate aim government of any country is to achieve a well developed economy which can be depicted by the realization of macro economics objectives of equitable income distribution, price stability and economic growth. Consequently various policies and strategies can be adopted in the realization of those objectives.

Export promotion strategy is commonly referred to many scholars as government efforts to expand through export the volume of country’s export incentives in form of public subsides, tax exceptions, special edit lines and other kinds of financial and non-financial measures designed to promote a greater level of economic activities in export industries so as to generate more foreign exchange and improve the current account of the balance of payment (Todaro, 2003). It has been established that export is an engine of growth.

According to Ezeagu (2005:94) it increases foreign earning, improve balance of payment position, creates employment and development of export oriented industries in the manufacturing sector and improves government revenue through taxes, levies and tariffs. In the pre and immediate post independence era during the 50’s and 60’s non-oil product dominated the Nigerian economy. These primary products include such product such as cotton, groundnut, palm oil, cocoa and rubber. The Nigerian economy was dependent on export of these agricultural commodities for survival and it accounted for more than 95% of export earning of the country.

However, a result of the setting up of commodity board by the federal government act as buying agent, this broad went about fixing prices arbitrarily and below market prices, therefore farmers moved out of the business because they no longer found it profitable. The policy effect was therefore negative development of exports in the oil sector. Moreover, available date revealed that the manufacturing sub-sector of the economy had often been making monomial contribution to export.

Moreover, in 1970’s oil sector experienced price explosion at the global crude oil market as a result of crisis in the Middle East. The ultimate effect of this was a massive inflow of foreign exchange (Ajakauje and Ayodele, 2002). Eventually, Nigeria became a mono-cultural economy, over depending on crude oil export for her foreign exchange. Consequently, there was a rapid depletion of Nigeria’s foreign exchange reserve and worsening unfavorable balance of payment position, there was high rate of unemployment and investment rate was low massive important of various types of food items as local production was low (Itoyah 1999:93). The manufacturing sector could no longer produce enough goods  and services as essential raw materials were not available. It became clear then, that crude oil export should not be looked upon to guarantee sustained growth of Nigeria economy in the long-run

2.5.3        THE PROBLEMS OF EXPORT PROMOTION

The problem in Nigeria is that of two much importing without exporting which have placed the economy in balance of payment deficits.

As Todaro (2013) rightly printed out, the overall balance of payment deficits will pose severe strain on an economy and greatly restricts it’s ability to continue to import needed capital and consumer goods.

He also confended that the nation has to import to feed its population and posses very limited stock on monetary reserves. Balance of payment deficits spell disaster for many millions of people. Measures taking by government to improve the situation are usually aimed at improving export expansion or limiting imports. Moreover, it is dishearten that despite export promotion in Nigeria’s economic growth and development scheme her export performance over the years have been relatively poor and below expectation.

2.5.4 EMPIRICAL FRAMEWORK

In this part of the study, the results of previous researcher and studies on export and national development are presented, especially as they pertained to Nigeria.

According to Horatio Agejah (2009) confend: the bulk of our oil revenue is spent on importation of various consumers goods, capital goods and other agriculture produces which could be cultivated in Nigeria. Oil money is thus spent on importation various goods and services which could then the money being spent for it used for another thing although.

The more government relies more on rental oil revenue, it intends to avoid accountability and the pressure towards non optional use of government revenue commenting on this view, Ajayi (2003) said: Nigeria since 1970 were beyond the dreams f this regime.

Abisoyo (2008) in his assessment of NNPC after the panel robe said, “NNPC is grossly inefficient and a movement of corruption. It does not respect its budget plans and constituted authority. The style is to loot all the lootable”. This revelation calls for concerted efforts by people and needs government urgent attention. Okigbo (1999) addressing the nation on the result of their probe into CBN dedicated said “between 1988-1999 and 12.4 billion were recorded in the account.

Dafinone (2008) has to say that oil permitted the achievement of certain goods through enhanced government revenue, tax incomes and foreign exchange earning but throughout the oil boom in the 1970, there was no conscriptions efforts to adequately integrated activities in the sector with the rest of the economy from the foregoing, one may be tempted to conclude that the extent to which the petroleum industry contributes to the growth and development of the Nigerian economy very much depends on the efficiency of the administration machinery for managing petroleum resources.

According to the petroleum resources minister Aminu (1998) comment that “Nigeria’s petroleum industry which constitute crude oil and natural gas, came into existence over 50 years ago. But in these years and now foreigners rather than Nigerians have been most visible in the industry. On a like tone, Horatio (2008) stipulated that “although Nigeria’s oil industry has contributed largely to the growth effort in the economy and has provided enhanced revenue to the government, yet the fill benefits have not been realized.

Like any other manager, the petroleum resource manager needs to have clearly defined and articulated objectives and will possible define targets and goals against which performance can be measured. To objectively participate in the oil industry and maximize benefits or profits, Nigeria government has established NNPC and its subsidiary, it has also increase it equity share holding from 25% to about 85% in most companies.

2.5.6        THEORETICAL FRAMEWORK

Many writers have confirmed that export growth leads to rapid economic development when the necessary institutions and other capacities are set in place. One of such writer is Todaro (1997:304) who postulated that the expanding nature of the world manufactured exports has been given great stimulus by the phenomenal export performance of countries of countries like South Korea, Singapore, Hong Kong, Taiwan and Brazil during the 1960’s: for instance Taiwan’s total export grew at an annual rate of over 2% during the 1960’s while export from South Korea grew even faster. In both cases their export growth was led by manufactured goods which contributed almost 75 percent of both nations’ foreign exchange earnings.

Hellener, as noted in Tadaro (1977:298) was the opinion that the barriers erected by the developed countries to restrict the entry of the products of third world countries to their markets is of basic importance to the issue of manufacturing export prospects for growth. He noted further that major impediments of large scale industries exports of the third world countries consist of tariffs quotes and other barriers in the market of the rich nations.

Ogwuma, et.al (1996:88) noted that studies out have confirmed the superiority of export led growth over import substitution has also shown the former, not only producing rapid export growth but also rapid economic development. A nation that participants effectively in export trade usually takes the advantage of international division of produce goods on large seals with the attendant reduction in unit of cost production. The outward orientation provides the stimulus to efficiency, owing to exposure of firms to foreign competition and technology and the prospects of world-wide market for goods. Studies have also shown that the marginal value to the economy from a unit of investment in export expansion is substantial higher that of investment in non-oil sectors.

Streeten, as noted in Todora (1977:300) emphasized that export promotion strategy does not only encourage free trade but also free movement of capital, workers, enterprise, an open system of communication. He went further to say that, export promotion strategy for industrialization could be basically divided into two broad spectrum. At one end of the spectrum is the primary outward-looking policy for the encouragement of agricultural and raw material exports. At the other end of the spectrum he identified the promotion of manufactured exports through the use of secondary out-looking policies.

Agosin (1973) studies the relationship between exports and growth using 12 countries; he concluded that exports difficulties, due to slowly expanding world markets for primary product or to tariff and non-tariff barriers to the exports of manufacturers, may indeed be serious constraints on the economic growth in countries which have established an industrial base tested the hypothesis that export oriented policies lead to better growth performance than policies favoring imports substitution. According to him, this result was obtained because export oriented policies which produce similar incentives to sales in domestic and in foreign markets lead to resource allocations according to comparative advantage, allow for greater capacity utilization, permit the exploitation of economics of scale, generate technology improvements in response to competition abroad and in labour surplus countries, contribute to increase employment.

Umo (1978) carried out a quantitative analysis of post independence trade and development in Nigeria, some of his findings which are of interest to us are: Nigeria’s exports promotion policies and economic growth are highly positively correlated but the casual pattern is yet to be discovered and negatively significant imports intercepts were found for both aggregated and disagrregate import function.

 

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