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Export Promotion and the Nigerian Economy: An Empirical Analysis

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This work focuses on the impact of export promotion on the Nigerian economy (1985-2012). There is need to diversify the productive base of the economy away from oil and foster market-oriented and private sector driven economy. To this effect, this study seeks to find out what impact export promotion has on the Nigerian economy and means by which it could be enhanced. In the study, a multiple regression was adopted meaning economic growth was measured using GDP and regressed oil sector, non-oil sector (manufacture export, agriculture export and services export) and exchange rate using the ordinary least square (OLS) estimation method owing to its desirable BLUE properties. Secondary data used, collected from Central bank of Nigeria (CBN) annual statistical bulletin, national bureau of statistics (NBS), and the Nigerian export promotion council (NEPC) data bank to estimate the relationship. The findings showed that manufacturers export, and oil export significantly impacted on the economy (GDP) whole agriculture export services export, and exchange rate had insignificant impact on GDP. It was concluded that diversification will reduce the nations or dependency on crude oil exploration (mono custom foreign trade products) which will aid development and welfare improvement of the populists. This study therefore recommended that Nigeria’s export development strategy should address the supply capacity constraints urgently to promote non-oil export growth.

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CHAPTER ONE

1.1     Introduction

Recognizing the export promotion requires a concerted effort of various sectors of government and of private sector stakeholders, there is need for sectoral support required for certain critical sectoral policy through trade, macroeconomics, agricultural, industry, physical infrastructure and logistics, education and training and environment, among others. Indeed, practically every policy sector has a support role to play in the national export endeavour, only their relative importance differs. In particular, however, apart from macroeconomic stability, trade policy is strongly instrumental in shaping the environment in which export and other businesses are conducted.

This research work; Export promotion and the Nigerian economy: An empirical analysis, examine the oil and the non-oil export. There is need to diversify the productive base of the economy away from oil and foster market – oriented and private sector-driven economy. This two sectors will facilitate exports to promote sustainable economic development due to the fact that, if one sector suffers, the other sector will still contribute significantly to the Nigeria’s Gross Domestic Product (GDP) with this the economy will thrive faster. It takes cognizance of the dynamics of the world economic and trading environment as continued to be shaped by fierce competition among trading nations and globalization under the impetus of evolutionary changes in information communication technology and tremendous technical progress in manufacturing, agriculture, service industries and oil sector, resulting in significant changes in the structure of exports of leading countries in the world trade.

The best export performers on the international market scene are high – technology products, skill- intensive products and services. The era of national economic dependence on raw commodity export has passed. Even though there is still scope for increasing export earnings and employment opportunities in this sector, the bulk of the wealth is in valve added downstream product diversification. The development and promotion of exports on a sustainable basis in Nigeria must take these phenomena into account to ensure that Nigeria joins the race of high export performers while strengthening export activities in other product groups in which the country possesses competitive advantages.

The high performing- types of exports, however, can be produced by a highly educated and skilled labour force trained in high technology, science and similar disciplines. For Nigeria to join this race, the Federal Government must do a radical rethinking of the educational and skill training system that is to produce the appropriate human resource to develop such products. This should start with teacher education, procurement and installation of the necessary facilities in educational institutions. By its nature, this can only materialize in the long-run.

Globalization refers to the process of intensifying economic, political, socio-cultural relationship across international boundaries. It deals with increasing integration of world markets (Fafowora, 1998) in other words, as Ohoabunwa, (1999) once opined, ‘globalization can be seen as an evolution which is systematically restructuring interactive phases among nations by breaking down barriers in the areas of culture, commerce communication and several other levels or fields of endeavour’.

Export promotion enhance economic development which is achieved through open economics, open economics tend to grow faster than close economics because reduction in trade barriers raises the other factors that can produce growth and development.

By the end of 1985, as the debt situation worsened and recession deepened, the Nigeria government introduced the Structural Adjustment Programme (SAP) in July 1986, the programme objective in specific terms were to foster balance of payments viability, reduce the dependence on import and the oil sector, enhance non-oil export base and bring the economy to a path of steady balance growth.

As part of conscious efforts to develop the Nigerian economy, the federal Government intensified the promulgation of trade policies aimed at bringing about conditions which would promote economic development. Thus, the country’s effort to open-up the economy and thereby encourage exportation through export incentives and other means to generate more foreign exchange, and also elimination of arbitrary restrictions and the extensive liberalization of external trade were commended (Abebefe, 1999).

Economic growth is the percentage increase in the Gross National Product (GNP). Economic is the ability of an economy to produce greater levels of output, represented by an outward shift of its Production Possibilities Curve (PPC). Thus, economic growth is defined on a quantitative basis using the percentage change in Gross Domestic Product (GDP) per capita. Gross National product increases the total and foreign output claimed by residents of a given country. It comprise Gross Domestic Product and factors that accrues to residents from abroad less income earned to the domestic economic accruing to persons aboard.

Economic development is a broader concept that is more qualitative in nature. Economic development encompasses improvement in the quality of life, including economic growth in the production of goods and services. In short, continuous economic growth is necessary for economic development, but economic growth is not the only consideration. (Irvin B, 2004)

Gross Domestic Product (GDP) measures the total final domestic output of goods and services produced by residents regardless of the allocation to domestic and foreign claims (CBN statistical bulletin, 2001).

Exports are the goods and services which a country sends to other countries (abroad) in return for some payment made in foreign exchange. Exports are determined by the exchange rate, domestic income, tariffs, trade policies, and foreign income for practical purposes, it is assumed that exports are determined by external variables and in that case, exports are taken as autonomous (Anyanwu, et. al, 1995). On the other hand, imports are goods and services which are brought into a country from foreign nations for which the receiving country pays in foreign exchange. Imports are largely determined by domestic variables, the chief of which is domestic income (Anyanwu, et. al, 2004)

An open economy is an economy which transacts business with the rest of the world. And for export promotion to be efficiently and effectively conducted it must not devoid of its necessary ingredient like free trading, distorting price and cost effect of protection (Jhingan, 2001).

A country’s consumption possibilities are limited by its production possibility frontier and are increased by net trade with the rest of the world (Inang, 1995). Any country involved in export promotion will definitely allowed foreign investment inflow into its country.

Foreign investment is the inflow of foreign resources in the form of equity, capital, reinvested earnings, or net borrowing from parent companies or affiliates abroad. It also involves the transfer of package resources including capital, technology, management and market expertise. These resources have the effect of extending the production capacities of receipts country.

Foreign investment inflows are required to stimulate the acquisition of technology and transfer the structure of domestic output. The most attractive feature of foreign investment is the package of capital technological and managerial resources contained in the investment which generates a stream of real income, in fact it exceed profits that constitutes the returns to the investment. However, underdeveloped countries like Nigeria are generally weak in the ability to negotiate for technologies and in the assessment of the quality of foreign investment package. Multinational Corporation is also involved in the over-invoicing of their import inputs and over invoicing of their exports. Foreign owned enterprises are being indifferent to technology transfer. They could adopt high capital intensive technology to the detriment of employment and the labour surplus hosted by less developed countries.

Openness permits the inflow of imported product such as consumer goods, transport equipment, vehicles and agricultural implements. The main drawback is that higher rate of growth of imports coupled with the instability that has consistently plagued primary production in the world commodity markets had led to deteriorating terms of trade and adverse balance of payments (Olayide, et al 1982).

It is however, economically suicidal to open the floodgate to unbridled importation of all sorts of goods into the country. More import would compete and kill domestic industries. There is no question, however that international trade brigs with its change. There are dynamic as well as static gains.

These prove sufficiently attractive to local residents to induce them first to spare some of their current product for exchange, then to increase output and eventually to transform subsistence agriculture into commercial agriculture. As the need for exports to pay for the desired inputs grow, the boundaries of commercial agriculture are extended, it becomes more specialized and more efficient. Nigeria is predominantly rural. About 65 percent of the population lives in the rural areas. One of the important leverage areas of intervention in the export promotion strategy is opportunities which enable people in the rural areas to participate in mainstream export activities. Also, one of the most effective instruments of linking rural production with the export market is the “Exports production Village (EPV)” concept. It was tested with varying levels of success in a few developing countries such as Ghana, Honduras, Ecuador and a few other Latin American countries but it was based on a concept developed and implemented in Sri-Lanka with great success in the 1970s; the outcome reflecting the efficiency of designing and executing the schemes, thus providing very useful lesson learnt. Some of such lessons are to adopt the participatory approach in formulating and implementing the scheme to secure the commitment of the villagers and to ensure that the scheme has passed the feasibility test before being undertaken. It is a powerful tool for rural development.

The ratio of export to Gross Domestic Product (GDP) is yet another measure to openness. It measures the share of national product that is exported. This index of openness is considered more important in underdeveloped countries because acquiring important capital goods and other food items through importation is a function of earnings from export, export plays an important role in the growth of an economy since earnings are used to finance the important of capital goods.

Over the years, the government of Nigeria has introduced various export promotion policy measures as well as financial and institutional support arrangements to find out whether there is a relationship between the index of openness (export + Import / GDP) and the growth and development of the economy.

In this research work, emphasis will be laid more on the non-oil export due to the fact that Nigeria operates on mono-economy which is the oil sector, so diversification is encouraged.

1.2     Background to the Study

          Export has been known to be the major contributor to the growth and development of domestic and international economies. Studies by economic historians have shown that in the progressive development of human society from subsistence level is of crucial importance.

          The ultimate aim of the government of any country is to achieve a well developed economy which can be depicted by the realization of macroeconomic objectives of equitable income distribution, price stability and economic development. Consequently, various policies and strategies can be adopted in the realization of these objectives. Some countries prefer inward looking import substitution model because it enables them to evolve in the adoption of export oriented strategy.

          Nigeria like many other developing counties adopted the policy of import substitution under the philosophy of economic nationalism, have switched to export promotion strategy because it realized that his was more effective than import substitution in achieving faster growth and structural upgrading of the economy.

          This study is basically undertaken to take an objective view of the impact of export promotion on the economy of Nigeria. Before her political independence in October 1st 1960, Nigeria has been an active player on the field of international trade, initially with predominantly primary agricultural commodities that comprised groundnuts, cocoa beans, palm oil, cotton and rubber (Englama, et al 2010), but presently dominated by petroleum products. Before the oil boom of the 1960s, the economy of Nigeria was relatively balanced with each principal economic sector, namely agriculture, manufacturing and services, contributing its fair share of development to the total national effort and Gross Domestic Product.

          Before the decade of the 1960s the dominant role of agriculture in Nigeria’s economy was such that with little support from government, agriculture was able to grow at a sufficient rate to produce adequate food for an increasing population, raw material for newly emerging industrial sector, increasing public revenue of government, foreign exchange for growing external needs and employment opportunities for an expanding labour force. The little support given by the government to agricultural development was concentrated on export crops like cocoa, groundnut, palm produce, rubber and cotton, since food self sufficiency did not seem to post any problem worthy of public attention.

          Apart from oil and gas, the country has vast deposits of solid minerals, such as iron ore, coal, lead, zinc, tin, Columbite, Kaolin, Gypsum, Barite, Phosphate, Bitumen, Gold, etc which are not sufficiently developed.

          Nigeria’s neglect of the agricultural sector aggravated already problematic food shortages, experienced in the 1970s and 1980s, which necessitated the importation of food from foreign countries. Among the imports was palm oil (from Malaysia, of which Nigeria has been the world’s largest producer and exporter, and rice (from the United States) which was considered less nutritious than Nigerian brown rice. Once Africa’s largest poultry producer, Nigeria lost that status because of inefficient corn production and a ban on the importation of corn. Furthermore, it is no longer a major exporter of cocoa, peanuts, and rubber.

          The oil boom which Nigeria experienced in the 1970s helped the nation to recover rapidly from its civil war and at the same time gave great impetus to the government is programme of rapid industrialization. Many manufacturing industries sprang up and the economy experienced a rapid growth of about 8 percent per year that made Nigeria, by 1980, the largest economy in Africa. The growth, however, was not sustained. When the price of crude oil fell, corruption and mismanagement still prevailed at all levels, the economy became severely depressed.

Presently, Nigeria displays the characteristics of a dual economy, a modern sector heavily dependent on oil revenues overlays a relatively poor traditional agrarian and trading economy. The enclave nature of the capital intensive oil sub-sector and the consequent lopsided development of the economy in general have become a matter of great concern to the Federal Government.

          In year 2001, the oil sector accounted for 76.5 percent of Federal Government revenue, 94.5 percent of export earnings and 10.6 percent of Gross Domestic Product at factor cost. Agricultural activity however, diverse in character (ranging from mainly peasant-type traditional subsistence to relatively modern mechanized type) still remains the main activity of t he majority of the people country wide, accounting for about 40 percent of Gross Domestic Product.

          Within the framework of the National Economic Empowerment and Development Strategy (NEEDS), The Federal Government has taken a  policy decision to break the over dependence on oil by creating a liberal market-oriented economy driven by the private sector. Accordingly, it has committed itself sound macroeconomic management by sustaining the on-going deregulation on key variables, such as interest and exchange rates, fiscal discipline, reducing the debt burden and continued liberalization of the trade regime. It is taking a number of measures to encourage exports.

          In terms of sectoral contribution, agriculture, consisting of crops, livestock, forestry and fisheries accounted for 40.8 percent of aggregate output while the industrial sector, comprising crude petroleum, mining and quarrying and manufacturing contributed 16.0 percent. The share of services was 29.3 percent while other sectors accounted for the balance of 13.9 percent.

          Inflation declined from 18.9 percent in 2001 to 12.9 percent at the end of year 2000. Bank deposits and lending rates trended downwards.

Non-Oil export has been improving fast, the National Bureau of statistics (NBS) statistics indicate that non-oil export rose by 25.5 percent before 2011 and 2012, while the contribution of oil to total trade declined from 71.7 percent in 2011 to 69.2 percent in 2012.

Aggregate exports, according to the Bureau rose by 8.2 percent from $22.53bn in the third quarter of 2011 to $24.37bn in the third quarter of 2012. This was just as aggregate imports nosedived by 42.7 percent to 411.99bn in the period under review. From the above, that means Nigeria has a favourable trade balance as a result of lower import of goods and services, and increased earnings in terms of exports. In order to achieve sustainability of this trend, the government needs to put some protective mechanisms in place. There should be policy consistency of our local industries and ensuring that what they produce can compete favourably in the international market.

According to Manufacturers Association of Nigeria (MAN) Statistics, Industrial capacity utilization has increased from 46.44 percent in 2010 to 48.24 percent currently, while the textile, apparel and footwear sector has also recorded a significant increase in capacity utilization, from 29.14 percent to 52.01 percent in the same period.

Consequently, Structural Adjustment Programme (SAP) was introduced in July 1986, the programme objective in specific terms were to foster balance of payments viability, reduce the dependence on import and the oil sector, enhance non-oil export base and bring the economy to a path of steady balance growth and development. Other policies which includes: The establishment of Nigeria Export-Import Bank (NEXIM), Nigeria export promotion council (NEPC), Nigerian processing zone decree among others which was charged with the main objective of attaining overall export growth, to diversify export from dependence on crude petroleum through the promotion of non-oil exports and to assist intending exporters in creating conducive environment for the production and exportation of non-oil product.

The theory of export promotion has a major significance on the economy of any nation in the world. Due to the fact that it is deliberate policy made by the government of any country to expand the volume of its country’s export through export incentives and other means in order to generate more foreign exchange and improve the current account of its balance of payment.

To this end export promotion can be regarded as the pivot on which the world economy rotates. This research work aims at finding out the effect of export promotion on Nigerian Economic development. In other words, it will give the government the most viable options to current account surplus without depending much on borrowing.

1.3     Statement of the Problem

Nigeria has not really had a favourable trading position. The problem in Nigeria is that of too much importation without a corresponding export which has placed the economy in balance of payment deficits. As Todaro (1988) rightly pointed out, the overall Balance of Payment deficits will pose severe strains on an economy and greatly restricts its ability to continue to import capital and consumer goods.

It is dishearten that despite export promotion in Nigeria’s economy growth and development scheme, her export performance over the years have been relatively poor and below expectation. In other words, without the strengthening of her potentials to exports, it is difficult to contemplate bright prospects for rapid economic development.

Hence, since Nigeria joined thong of countries Trade organization in January 1995; one can raise question that when has it joined from the trade industry via export promotion? This calls for the need to look at export promotion and the economy.

1.4     Research Questions

The following are the important questions this study attempts to answer:

  1. How effective has export contributed to Nigeria’s economic development?
  2. Why should export expansion and diversification be considered as a major factor in the globalization process and integration of Nigeria into the world market?
  3. How can the policies for export promotion and tax adjustment be utilized effectively?

1.5     Objectives of the Study

The study analyze the trend of export promotion vis-à-vis economic development in Nigeria using the empirical method of analysis, the study intends to achieve two main purposes:

(a)     To examine the impact of export promotion on the Nigerian economy, and

(b)     To establish that oil and non-oil exports have a positive relationship with the economic growth in Nigeria.

1.6     Hypothesis of the Study

In the process of ascertaining the relativity of export promotion we look critically into the Nigerian economy to see how export has really served as a medium to growth and development. The hypothesis of this study, which are empirical and conditional statements assumed to be tested are as follows;

HO: b1 = 0            Export promotion has no significant effect on                                           Nigerian economy

H1: b1 = 0             Export promotion has significant effect on Nigerian                                  economy

1.7     Significance of the Study

The significance of this study arises from the fact that no country can live in isolation. In the light of this, we want to access the impact of export promotion in the Nigerian context and relevance of the law of comparative advantage. Each of the countries involve in trade does not have to produce all of the goods and services they needed neither do each countries need to be self-sufficient.

Different countries are blessed with different resources and endowment, hence difference in resources and the capacity to use them makes it most efficient for business and nations to specialize in the activities that they do best and trade with others. It is observed that export promotion determines to a greater extent the level of economic development in the country.

This assertion is based on the evidence produced already existing developed economies of the developed countries of the world such as United State of America, Italy, France, United Kingdom, among others. So in this wise, this research work attempts to evaluate the impact of export promotion in Nigeria.

The study can be used to direct future research into the appropriate implementation of export promotion policies in Nigeria.

This study can also be used to wave the operation of mono-product as an export problem in Nigeria.

More so, this study tends to justify whether the export promotion of an economy brings about economic development by promoting efficiency, innovation and capital investment as well as improvement in information communication technology and productivity in Nigerian context.

1.8     Scope of the Study

This study is basically concerned with the empirical analysis of export growth and development through export promotion and income growth while considering the role of imports income-export relationship in Nigeria’s economic development.

The study will be using economic data from 1985-2011 covering a period of 27 years. This period was chosen because of the availability of data and information of study up to this present specified date.

The study also view analytically how some other indices like inflation rate, external reserves, Naira exchange to dollar and some other variables enabling exports to influence economic development in Nigeria.

1.9     Limitation of the Study

A research work of this magnitude is bound to face limitations which are basically unavoidable, unplanned for and very difficult. One of the major limitations to this research is the time and financial constraint. A huge research like this needs lots of time and finance, which were not fully available during the period of this research. However, this constraint did not reduce the quality of this research work; it will still contribute a lot to the growth and development of the Nigerian economy.

1.10   Plan of the Study

The study will be structured into five chapters.

Chapter One: This chapter will basically introduce the study by brief background, statement of the problem, research question, scope of the study, among others.

Chapter Two: Focuses on the literature review on export promotion as well as the theoretical framework. Also SWOT analysis of Nigeria non-oil sector among others will be examined.

Chapter Three: This chapter is going to concentrate on the methodology stating the model formulation, analytical technique etc.

Chapter Four: This chapter shall be devoted to the empirical analysis that is, data presentation, econometric analysis of data and observation.

Chapter Five: Chapter Five which is the last chapter shall present the summary of findings, conclusion and recommendation.

TABLE OF CONTENT

Title Page

Table of Content

Abstract

CHAPTER ONE

INTRODUCTION

1.1     Introduction        

1.2     Background to the Study

1.3     Statement of the Problem

1.4     Research Questions

1.5     Objectives of the Study

1.6     Hypothesis of the Study

1.7     Significance of the Study

1.8     Scope of the Study

1.9     Limitation of the Study

1.10   Plan of the Study

CHAPTER TWO

LITERATURE REVIEW

2.1     Conceptual Review

2.2     Theoretical Review

2.3     Theoretical Framework

2.4     Empirical Evidence

2.5     Nigeria’s Policies on Export Promotion and Diversification

2.6     Export Promotion Institutions

CHAPTER THREE

RESEARCH METHODOLOGY

3.1     Introduction

3.2     Sources of Data

3.3     Model Specification

3.4     Method of Data Analysis

3.5    Apriori Expectations

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

  • Data Presentation

4.2     Data Analysis

4.2.1  Regression Output

4.2.2  Estimated Regression Model

4.3    Interpretation of Regression Results

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

  • Summary
  • Conclusion
  • Recommendations

Bibliography

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