ECONOMIC DEVELOPMENT IN NIGERIA THROUGH THE AGRICULTURAL,

ECONOMIC DEVELOPMENT IN NIGERIA THROUGH THE AGRICULTURAL,
ECONOMIC DEVELOPMENT IN NIGERIA THROUGH THE AGRICULTURAL,
MANUFACTURING AND MINING SECTORS: AN ECONOMETRIC APPROACH
by
DENNIS CHIEKWEIRO UZOIGWE
Thesis submitted in partial fulfilment of the requirements for the degree of
PhD (ECONOMICS)
in the
Faculty of Economic and Management Sciences
at the
UNIVERSITY OF PRETORIA
PRETORIA
AUGUST 2007
ECONOMIC DEVELOPMENT IN NIGERIA THROUGH THE AGRICULTURAL,
MANUFACTURING AND MINING SECTORS: AN ECONOMETRIC APPROACH
DECLARATION
I, Dennis Chiekweiro Uzoigwe declare that the dissertation / thesis with the above title which
I hereby submit for the degree of PhD in the Department of Economics at the University of
Pretoria, is my own work and has not previously been submitted by me for a degree at
another University.
_____________________
ii
DEDICATION
This study is dedicated to my God, the Almighty Jesus Christ, for sparing my life from a
ghastly auto accident that claimed the lives of more than two-thirds of the 52 passengers of a
Lagos-bound bus on which I was travelling on my way to board the aeroplane to the
University of Pretoria after the Christmas holidays in 2004.
iii
ACKNOWLEDGEMENTS
This study has been possible because of God’s and my family’s support over the past years.
My unreserved gratitude goes to my supervisors, Prof. A.C. Jordaan and Prof. J.N. Blignaut,
who in spite of their busy schedules and programmes found time to read the work in great
detail and offer constructive ideas. I will always remain grateful to them for the speedy and
great attention they gave to me. Prof. J.N Blignaut got me interested in the topic during one
of my consultations with him. Since then he has helped me with materials and has steered the
direction of the research through interesting and intellectual conversations.
I am very much indebted to the coordinator of the postgraduate programme, Prof. Charlotte
Du Toit, for her encouragement and support. I must thank Prof. Renee van Eyden, who, when
my personal computer crashed, helped me out with one from the department.
I am grateful to the Head of Department, Prof. Jan van Heerden, and to Prof. N.J.C.
Schoeman, Prof. S. Koch, Prof., Margarat Mabugu and the other lecturers at the Department
of Economics for their intellectual contributions throughout the period of my research. To my
great friend and lecturer Dr. Johannes Jordaan I say, thank you and God bless.
My thanks to Maria Prozesky for her language editing.
iv
ECONOMIC DEVELOPMENT IN NIGERIA THROUGH THE AGRICULTURAL,
MANUFACTURING AND MINING SECTORS: AN ECONOMETRIC APPROACH
by
DENNIS CHIEKWEIRO UZOIGWE
SUPERVISOR:
CO-SUPERVISOR:
PROFESSOR A. C. JORDAAN
PROFESSOR NELSON JAMES BLIGNAUT
DEPARTMENT:
ECONOMICS
DEGREE:
PHD (ECONOMICS)
ABSTRACT
In the 1960s, Nigeria was on a par, in terms of aspirations to attain a very high level of
economic growth and development, with its fellow-oil producing and exporting countries
such as Malaysia and Indonesia, but has since failed to keep pace with them. Nigeria’s
agricultural, manufacturing and mining and quarrying sectors have played a continuous and
significant role in the development of the country’s economy. The approval of the
millennium development goals (MGDs) by the United Nations General Assembly therefore
raises three pivotal questions for Nigeria. 1) Why is Nigeria still an underdeveloped and lowincome country? 2) What should the country do to make rapid economic and social progress?
and 3) How can it attain a high level of economic development and growth?.
This is the background of this study, which is an empirical investigation into the factors
affecting Nigeria’s bid to achieve sustainable economic growth and development with
particular reference to such sectors as agriculture, manufacturing and mining and quarrying
(solid minerals) over the period of 1970-2005. This involves the analysis of the relevance of
the health care and education sectors and examination of impediments to past economic
development, a development model applicable to Nigeria, the efforts made and the challenges
facing the country in achieving the MDGs, and the role of foreign development partners in
complementing Nigeria’s development efforts.
v
The methodology adopted for this study is sectoral-econometric modelling, using the EngleYoo (1991) model, which contributes to bridging the gap seen in empirical studies in the
application of a multivariate dynamic econometric cointegration model on the effect of
domestic and foreign financial resources investment for the development of the growth
sectors in the Nigerian economy. The model captures the essential linkages between the
growth sectors and the country’s efforts to achieve a high level of economic development.
The results from the simulations are broadly consistent with findings described in theoretical
and empirical literature. There is a strong positive relationship between the gross output of
the agricultural, manufacturing and mining and quarrying sectors and labour input and public
capital expenditure for the growth sectors. Also there is a strong positive relationship between
the agricultural credit guarantee scheme, fertiliser and the gross output of agriculture.
Furthermore, the findings show a positive impact of the structural adjustment programme
with the agricultural and manufacturing production. Dynamic simulation of results was
undertaken to assess the path of the 10 percent dynamic adjustment (shocks) on the relevant
exogenous variables and the response properties show remarkable and positive significant
impact due to the shocks. The estimated actual and forecast values of the equations in the
model show notable increase in the amount and growth of the gross domestic product of the
real sectors in Naira billion from 2005 to 2008.
The study calls to question rigid government control over the mining and quarrying sector.
The importance of mining and quarrying in accelerating the pace of economic growth in
Nigeria should rather motivate the government to deregulate and reform the sector. This will
enable the government to attract investors into the sector, while effectively planning to
encourage the proliferation of small-scale artisan, medium-scale and large-scale miners. The
deregulation of the mining and quarrying sector will boost production, growth and
development through employment creation, increased income of household miners and
upliftment of the social and economic status of the vast majority of Nigerians.
Some of the reasons identified for Nigeria’s poor economic performance include: the serious
effect of “Dutch disease”, reflected in the country’s inability to manage and diversify its oil
wealth to transform and achieve dynamic industrial (manufacturing), agricultural, mining,
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health and educational and other growth sectors. Nigeria also suffers the effects of a troubled
political history, during which military rule persisted for extended periods.
This study shows the importance of improving the knowledge base for policymaking, where
intersectoral linkages between economic and social factors can be identified, and direct and
indirect macroeconomic policy effects discerned. This distinguishes the study from earlier
work in Nigeria on development policy. Achieving a high level of economic development
through transforming the country’s real sectors will not only reduce poverty by providing
food security, increased agricultural and industrial exports, increased per capita income and
consumption, but will also bring about improved literacy and a healthy workforce and foster
peace and security in Nigeria. In addition, success in transforming the real sectors will
strengthen and broaden the productive base of the country, which currently relies heavily on
the petroleum sector as the major earner of foreign exchange. In order to achieve a high level
of economic development and growth, attention should be concentrated on channelling global
financial resources to the above-mentioned sectors because of their strong linkages with and
powerful value-added effect to the rest of the economy.
Under the new democratic dispensation, there ought to be large investment into the growth
and support sectors from domestic and external sources if the country is to attain the
international growth target of achieving a high and sustainable level of economic
development. Therefore, with a strong will to become a patriotic civil society, stable and
prosperous, and enough wisdom to elect leaders with good will and fairly good knowledge of
the country’s economy, great prospects lie before the Nigerian economy.
vii
TABLE OF CONTENTS
ACKNOWLEDGEMENTS…………………………………………………………………iv
ABSTRACT ………………………………………………………………………………….v
LIST OF TABLES ………………………………………………………………………...xiii
LIST OF FIGURES ……………………………………………………………………….xv
LIST OF ABBREVIATIONS AND ACRONYMS ……………………………………...xvi
CHAPTER ONE: INTRODUCTION……………………………………………………........1
1. 1 Introduction
…………………………………………………………………………..1
1. 2 Background to the problem. …………………………………………….. ……………..3
1. 3 Problem statement ……………………………………………………………………..12
1. 4 Objectives of the study ………………………………………………………...............13
1. 5 Contribution and justification for the study ………………………...............................15
1. 6 Outline of the study. ………………………………………………………..................16
CHAPTER TWO: LITERATURE REVIEW OF ECONOMIC DEVELOPMENT:
CONTEMPORAY ISSUES AND THEIR RELEVANCE TO NIGERIA’S
ECONOMY………………………………………………………………………………...18
2.1 Introduction …………………………………………………………............................18
2.2 Overview of economic development ………………………………… ………….........19
2.2.1 The concept and relevance of economic development …………… …………........19
2.2.2 Economic development: the perspective of human development
index (HDI)……………………………………………………………………….20
2.2.3 Economic development lesson for the developing countries ……………………...22
2.3 Overview of the Nigerian economy ………………......................................................28
2.3.1 Undiversified economic base of Nigeria …….........................................................31
2.3.2 Weak manufacturing sector (industry)………….....................................................31
2.3.3 The growing incidence of poverty in the Nigerian economy ……………………..32
2.3.4 The impact of external debt burden on Nigerian economy .....................................32
2.3.5 Evidence of corruption in the Nigerian economy ...................................................32
2.4 Development prospects of Nigeria ……………………………………………............34
2.4.1 Liberalisation of the economy ….............................................................................34
2.4.2 Restructuring and privatisation programmes in the Nigerian economy ...................35
2.4.3 Financial sector liberalisation and policy reforms …………………………….......36
2.4.4 Attraction of foreign private investment into the agricultural sector .......................37
viii
2.4.5 Industrialisation policy and incentives for small, medium
and large-scale Enterprises …....................................................................................37
2.4.6 Social and environmental services reforms in Nigerian economy…........................38
2.5 Evidence from development models in Asian countries……………………………….39
2.5 1 The adoption of special economic zones …………………………………..............39
2.5.2 Encouragement of private entrepreneurs and institutions …………………………40
2.5.3 Adoption of sound macroeconomic policy management ……….............................40
2.5.4 Adoption of a labour intensive manufacturing strategy ……………........................41
2.5.5 Adoption of strategies to develop human capital ………………..............................41
2.5.6 Increased productivity and rise in real wages ……………………………………...42
2.5.7 Mitigation of corruption in the economies ……........................................................42
2.6 Overview and lessons from a Malaysian development model ……………....................42
2.7 Development model applicable to Nigeria ……..............................................................46
2.7.1 Efficient utilisation of agricultural potentials in the development process…………46
2.7.2 Adoption of attractive manufacturing (industrial) incentives ……….......................48
2.7.3 Attraction of FDI into the economy ………………………………..........................48
2.7.4 Outwardly-oriented or export-led development strategies through
trade and regional integration ……………………………………………………...49
2.7.5 Private-entrepreneur driven development process …................................................50
2.7.6 A need for a professional civil service …………………………..............................50
2.7.7 Human resources development ………………………………………………….....51
2.7.8 Information technology driven economy ………………………………………......52
2.8 Summary of the review findings and conclusions …………………………………........52
CHAPTER THREE: POLICY FRAMEWORK TO ACHIEVE THE MILLENNIUM
DEVELOPMENT GOALS IN NIGERIA……………………………………………......56
3.1 Introduction ………………………………......................................................................56
3.2 Policy framework of the MDGs ………………………………………………………...57
3.3 The MDGs: efforts, progress and challenges in Nigeria ..................................................59
3.4 General appraisal and challenges facing the country in meeting the MDGs ……...........64
3.5 The role of foreign partners in achieving the MDGs in Nigeria ......................................66
3.5.1 Official Development Assistance (ODA) …………...................................................66
3.5.2 Trade and development …………………………………..........................................68
3.5.3 Foreign Direct Investment (FDI) in Nigeria……………………………....................72
3.5.4 External debt relief …………………………….........................................................74
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3.6 Summary of the main findings and conclusions …………………….............................78
CHAPTER FOUR: THE RELEVANCE OF GROWTH IN NIGERIA’S SUPPORT
SECTORS FOR ECONOMIC DEVELOPMENT……………………………………........80
4.1 Introduction …………………………………………………………...............................80
4.2 Relevance of the agricultural sector in Nigeria …………………….................................82
4.2.1 Provision of food security ………………………………….......................................82
4.2.2 Provision of raw materials for domestic industries …………………………….........85
4.2.3 Provision of foreign exchange from exports …………………...................................85
4.2.4 Structural transformation in Nigeria …………………………………………………87
4.2.5 Provision of employment opportunities ……………..................................................87
4.2.6 Provision of large markets for industrial products ……..............................................87
4.3 The relevance of the manufacturing sector in economic growth and
development in Nigeria ………………………………………………………................88
4.3.1 Historical association with development ……………………………........................89
4.3.2 Inability to harness the potential in agriculture ……….................................................89
4.3.3 Developing countries as agricultural societies ………………………......................89
4.3.4 Manufacturing sector as complement to other sectors in job creation ......................89
4.3.5 Manufacturing as a relevant development strategy because of its
efficient use of land resources …………………………………..….…....................90
4.3.6 Industrialisation promoting national integration ……………...................................90
4.3.7 The manufacturing sector providing additional income ……………………………90
4.3.8 Industrialisation inducing technological development ……………………………..91
4.3.9 Highly industrialised nations and the status of superpower …………………..........91
4.4 Relevance of mining and quarrying (solid minerals) in economic growth and
development of Nigeria …………………………………………………….................92
4.5 Relevance of the growth support sectors, education and health, in achieving
economic development in Nigeria …………………………………………….............98
4.5.1 Education as condition and support sector for MDGs in Nigeria ….........................98
4.5.2 The importance of health care service as growth support sector for
attaining the MDGs in Nigeria …………………………………..........................105
4. 6 Summary of the main findings and conclusions ………………………………….......107
CHAPTER FIVE: THEORETICAL AND ANALYTICAL FRAMEWORK ………..........109
5.1 Introduction …………………………………………………………………………….109
5.2 The concept of cointegration and error-correction (ECM) econometrics
methodology…………………………………………………………………………....111
5.3 Structure of the model ……………………………………………………………….....115
x
5.4 Model for agriculture …………………………………………………………...............116
5.5 Basic hypotheses, assumptions and expectations for each variable in the
cointegration agricultural model ………………………………………………………117
5.6 Model for the manufacturing sector …………………………………………................119
5.7 Basic hypotheses, assumptions and expectations for each variable in the
cointegration manufacturing model ………………………………………………........120
5. 8 Model for the mining and quarrying sector …………………………………………...121
5.9 Hypotheses and basic expectations for each of the variables included in the
mining and quarrying (solid minerals) model……………………………………........122
5.10 Summary of the main findings and conclusions ………………………………….......122
CHAPTER SIX: EMPIRICAL ANALYSIS AND PRESENTATION OF
ESTIMATED RESULTS ………………………………………………………………...124
6.1 Introduction ………………………………………..…………………………..............124
6.2 The model for agriculture ……………………………………………………………..125
6.2.1 Estimation results of long-run cointegration equation ….........................................125
6.2.2 Estimation results of the error correction model (ECM) ….....................................126
6.2.3 Diagnostic statistical testing………………………………………………………..127
6.2.4 Cointegration correction and adjusted coefficients. ……………………………….127
6.2.5 Analysis of the results of the estimated models for agriculture
and their implications …………………….………..................................................130
6.3 The model for manufacturing ………………………………………….........................131
6.3.1 Estimation results for long-run cointegration equation ……....................................131
6.3.2 Estimation results of the error correction model (ECM)….......................................132
6.3.3 Diagnostic statistical testing. ………………………………………………….......134
6.3.4 Cointegration correction and adjusted coefficients …………………......................134
6.3.5 Analysis of the results of the estimated manufacturing model and
their implications …................................................................................................137
6.4. Model for the mining and quarrying sector……………………………….....................137
6.4.1 Estimation results of long-run cointegration equation…………………………........138
6.4.2 Estimation results of the error correction model (ECM)…………………………….139
6.4.3 Diagnostic statistical testing ………………………………………………………...140
6.4.4 Cointegration correction and adjusted coefficients ……………………………........141
6.5. Dynamic simulation and response property of the model……………...........................144
6.5.1 Policy shocks ……………………………………………….....................................145
6.5.2 Forecasts……………………………………….…………………............................149
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6.6 Dynamic simulation of the results and the policy-scenarios…………………………....153
6.7 Summary of the main findings and conclusion…………………………………………155
CHAPTER SEVEN: SUMMARY OF MAJOR FINDINGS AND POLICY
IMPLICATIONS, CONLUDING REMARKS, LIMITATIONS,
RECOMMENDATIONS AND SUGGESTIONS FOR FURTHER WORK………………158
7.1 Summary of major findings and policy implications …..................................................158
7.2 Concluding remarks ………………………………………………………………........163
7.3 Limitation of the study …………………………………………....................................164
7.4 Policy recommendations ………………………………………………………….........164
7.5 Suggestions for further work ………………………………………...............................166
BIBLIOGRAPHY ……………………………………………………………….................167
APPENDICES ……………………………………………………………………………...186
Appendix 1. List of variables…………………………………………………............... ...186
Appendix 2 Stochastic functions………………………………………………………. ...187
Appendix 3. Graphical representation of the data…………………………………............188
Appendix 4. Augmented Dickey-Fuller tests for non-stationarity,
levels, 1970-2003
……………………………………………………………………...194
Appendix 5. Augmented Dickey-Fuller tests for non-stationarity,
First differences, 1970-2003 ………………………………………………….................195
xii
LIST OF TABLES
Table 1.1 Changing sectoral structure of GDP in the Nigerian economy
(1960-2005) ………………………………………………………………………………….3
Table 1.2 Values of capital goods and raw material imports and percentage
rates (1981-2005)…………………………………………………………………………....5
Table 1.3 Political regimes in Nigeria (1966-2006)…………………………………………...9
Table 3.1 The MDGs, targets and main challenges…………………….……………………57
Table 3.2 Implications of alternative growth scenarios for the key development
Indicators ………………………………………………………….........................59
Table 3.3 Projected sources and means of employment generation ……................................62
Table 3.4 Targeted instruments for the most vulnerable ……………….................................63
Table 3.5 Safety nets for the protection of women, poor and the vulnerable. ........................64
Table 3.6 The performance of the Nigerian economy based on the ranking of 125
countries of the world in 2006-2007 ….……………………………………….....65
Table 3.7 Aid flows to Nigeria, Burkina Faso and Ghana 1999-2004 US$ million ………...67
Table 3.8 Composition of Nigeria’s exports (1990-2005)………………...............................70
Table 3.9 Trading activities between Nigeria and the rest of the
world (1997-2001)…..............................................................................................71
Table 3.10 Foreign direct investment flows to Nigeria, Burkina Faso
and Ghana, 1999-2004 in US $ million ………………………………………….73
Table 4.1 Gross Domestic Product (US$ GDP) of Nigeria (1980-2003)…………….............81
Table 4.2 Food imports in Nigeria. in million $ US (1980-2003) …………..........................84
Table 4.3 Food production and food production per capita index
(1980-2003) ….........................................................................................................85
Table 4.4 Major agricultural exports commodities in Nigeria (1980-2002)…………............86
Table 4.5 Small scale mines employment in selected African countries. …….......................93
Table 4.6 Criteria used in the definition of small mining in selected
African countries……………………………………………………………….....94
Table 4.7 Demand and supply statistics of some processed minerals in Nigeria ……………97
Table 4.8 Principal importance and use of some minerals in Nigeria …………….................97
Table 4.9 Federal Government of Nigeria budget allocation
to education (1990-2005)………………………………………………………...101
Table 4.10 Primary education in Nigeria (1990-2005) ……………………........................101
Table 4.11 Secondary education in Nigeria (1990-2005) …………………………………103
Table 4.12 Federal Government of Nigeria budget allocation
to health (1990-2005)…......................................................................................106
xiii
Table 6.1 Data incorporated in the estimated agricultural model …....................................124
Table 6.2 Estimated result of the long-run cointegration equation ………….......................124
Table 6.3 Estimated result of the error correction model (ECM) ….....................................126
Table 6.4 Diagnostic tests on the real estimated agricultural model ….................................127
Table 6.5 Engle-Yoo third step estimation for the agricultural model …………..................128
Table 6.6 The calculation of the new coefficients for agricultural model ………………....128
Table 6.7 The adjusted coefficients and t-statistics ………………………………………...128
Table 6.8 Data incorporated in the estimated manufacturing model ………………............131
Table 6.9 Estimated result of the long-run cointegration equation……………....................132
Table 6.10 Estimated resulted of the error correction model (ECM) …................................133
Table 6.11 Diagnostic tests on the real estimated manufacturing model ……………..........134
Table 6.12 Engle-Yoo third step estimation for the manufacturing model …………..........135
Table 6.13 The calculation of the new coefficients for manufacturing model …………….135
Table 6.14 The adjusted coefficients and t-statistics ……………………………………….135
Table 6.15 Data incorporated in the estimated mining and quarrying model………............138
Table 6.16 Estimated result of the long-run cointegration equation …………….................138
Table 6.17 Estimated result of the error correction model (ECM) ………...........................140
Table 6.18 Diagnostic tests on the real estimated mining and quarrying model ……...........141
Table 6.19 Engle-Yoo third step estimation for the mining and quarrying model................141
Table 6.20 The calculation of the new coefficients for mining and quarrying model .........141
Table 6.21 The adjusted coefficients and t-statistics ……………………………………….142
Table 6.22 Policy proposal based on the empirical results
xiv
…………………………........154
LIST OF FIGURES
Figure 1.1 Maslow’s Hierarchy of Human Needs …………………………………………...24
Figure 3.1 Net total aid inflows from all donors to Nigeria, Burkina Faso and Ghana
1999-2004 ………………………………………………………………………...68
Figure 3.2 Foreign Direct Investment flows to Nigeria, Burkina Faso
and Ghana, 1999-2004 in US $ million ……………………………………….....74
Figure 6.1 Residuals of real agriculture (lnragr)…………………………………………....126
Figure 6.2 Actual and fitted values of agricultural model ………….....................................129
Figure 6.3 Residuals of real manufacturing value added (lnmanuf) model ……..................132
Figure 6.4 Actual and fitted values of manufacturing model ……………............................136
Figure 6.5 Residuals of real mining and quarrying value added
(lnrminqua) model …………………………………………................................139
Figure 6.6 Actual and fitted values of the mining and quarrying model …………………...142
Figure 6.7 The effect of a 10 percent increase in public capital expenditure
on the agricultural gross product …………………………………………. …...145
Figure 6.8 The effect of a 10 percent increase in labour on the agricultural
gross product ………….......................................................................................146
Figure 6.9 The effect of a 10 percent increase in FDI on the manufacturing
gross product …………………………………………………………………...146
Figure 6.10 The effect of a 10 percent increase in labour on the manufacturing
gross product ………………………………………………………………….147
Figure 6.11 The effect of a 10 percent increase in public capital expenditure on
the mining and quarrying gross product ……………………………………...148
Figure 6.12 The effect of a 10 percent increase in labour on the mining and quarrying
gross product ………………….........................................................................148
Figure 6.13 Actual and forecast real agriculture GDP from 2006 to 2008 ………………...150
Figure 6.14 Actual and forecast real manufacturing GDP from 2006 to 2008......................151
Figure 6.15 Actual and forecast real mining and quarrying from
2006 to 2008 ……..............................................................................................152
xv
LIST OF ABBREVIATIONS AND ACRONYMS
ADB:
African Development Bank
ADF:
Augmented Dickey-Fuller
CBN:
Central Bank of Nigeria
DAC:
Development Assistant Committee
ECM:
Error correction model
et al.:
et alii, means others
FDI:
Foreign Direct Investment
FOS:
Federal Office of Statistics
GDP:
Gross Domestic Product
HICPs:
Highly indebted poor countries
HIV/AIDS:
Human Immune Deficiency Virus/Acquired-Immune
Deficiency Syndrome
IMF:
International Monetary Fund
LDCs:
Less Developed Countries
LN:
Logarithm
MAP:
Multi-country aid programme
MDGs:
Millennium Development Goals
MMSD:
Ministry of Mines and Steel Development
N:
Symbol for Nigeria’s currency note
NDE:
National Directorate of Employment
NEEDS:
National Economic Empowerment and Development Strategy
NEPA:
National Electric Power Authority
NEPAD:
New Partnership for Africa’s Development
NICs:
Newly industrialised Countries
NISER:
National Institute of Social and Economic Research
OECD:
Organisation for Economic Co-operation and Development
ODA:
Official Development Assistance
OLS:
Ordinary Least Squares
SAP:
Structural Adjustment Programme
SSA:
Sub-Saharan African
UK:
United Kingdom
UN:
United Nations
USA:
United States of America
xvi
CHAPTER ONE
1. 1 Introduction
At the dawn of this twenty-first century, strong efforts are being made round the world to
accelerate the pace of economic growth and development. Concerns such as poverty
eradication, empowerment of women, improvement in education, health and environmental
protection for people living in the developing countries have received increased attention in
world. The increasing attention paid to growth, development and social capital in the global
arena is silently, but steadily overthrowing the economic and social conflicts that are prevalent
in most developing countries.
There is a general belief that the economic development of any country depends on the
quantity and quality of its resources (renewable and non-renewable), the state of technology
and the efficient utilisation of resources in both the production and consumption processes.
Resources-rich developing countries have the responsibility and the challenge to ensure that the
benefits accruable from these resources filter down to the poor. However, it is evident that
Africa is presently riddled with poverty, disease, ignorance, food insecurity and famine, with a
large external debt and continued mismanagement of human, material and physical resources
(Iwuagwu, 2000:22). It is not surprising, therefore, that 22 of the 36 poorest countries of the
world are in Africa.
The United Nations Assembly in September 2000 approved an eight-point development target,
tagged the Millennium Development Goals (MDGs). The broad objectives of the MDGs are to
reduce poverty and extreme hunger by half; achieve universal primary education; promote
gender equality and empower women; reduce child mortality; improve maternal health; combat
HIV/AIDS, malaria and other diseases; ensure environmental sustainability and develop a
global partnership for development by 2015 in all the poor countries of the world (United
Nations, 2003:2). The declaration could be heralded as a timely gesture; at least for the first
time, the international community sought in one voice and unity to address poverty as a global
problem. The approval of the MDGs by the UN has further reinforced the need for developing
countries to embrace economic development as paramount in their respective countries.
1
In the case of Nigeria, despite its large renewable and non-renewable resources, the country is
still grappling with mounting economic problems of unemployment, hunger, poverty, external
debt burden and decaying public infrastructures. The development challenges facing Nigeria
are not of improving one sector or region at the expense of another or of introducing policy
distortions and inefficiencies in resource allocations to the benefit of one group, which in the
past led to increased poverty for others, but rather to adopt growth and social service-oriented
policies that will enable all Nigeria’s inhabitants to improve their welfare (Nwaobi, 2004:5).
President Obasanjo (2006:11) admitted that the building blocks for the diversification of the
Nigerian economy and the priority sources of growth for the economy are agriculture,
manufacturing, solid minerals and construction. In other words, accelerating the pace of growth
and development of the agricultural, manufacturing, mining (solid minerals), education,
healthcare and other non-oil sectors will lead to faster integration and improvement in the
welfare of the vast majority of the population of Nigeria.
Despite its temporary economic setbacks, Nigeria needs substantial investment in physical and
human infrastructure and social capital (see Blignaut & Parsons, 2005). The most urgent needs
as far as social capital is concerned are to develop the ability of different ethnic tribes to work
together in “enlightened self-interest” for a common purpose in groups and organisations; to
expand institutionalised social dialogue; and to rebuild and renew the economic value of high
trust. Rebuilding Nigeria’s socio-economic capital could entail a tripartite mechanism
involving the government, labour and the civil society being part of the democratic structure
and the development of a culture of seeking solutions together, and of building capacity,
partnership, economic and political settlement. In other words, to renew the economic value of
the country, concerted effort and emphasis is needed on technological dynamism in Nigeria’s
economic activities, and a long-term vision of its place in the global economy is imperative.
The goal of this study is to present development scenarios and policy implications of
harnessing Nigeria’s resource potentials through domestic and foreign financial resource
mobilisation and investment to foster diversification and growth in Nigeria’s agricultural,
manufacturing, mining (solid minerals), educational and healthcare sectors, using a
multivariate cointegration econometric dynamics Engle-Yoo (1991) third step model. In the
following section, the background to Nigeria’s economic problem is discussed. Then, the
2
statement of the problem, the objectives of the study and its justification, and the structure of
the study are presented.
1. 2 Background to the problem
The agricultural and manufacturing sectors have been the bedrock of the Nigerian economy.
Table 1.1 below shows that these sectors kick-started the development process in the country.
For instance, the agricultural share of the GDP decreased from 62.9 per cent in 1960 to 39.0 per
cent in 1990. It further decreased to 26.3 percent in 2000, showed some upward improvement
from 34 percent in 2001, 36 in 2002 and declined slightly to 32 percent in 2005. However, the
agricultural share to the GDP has not reached the 62.9 percent mark of 1960. The manufacturing
share of GDP in 1960 was 4.8 per cent. It showed a significant contribution up to 1975, but
declined to 5.4 per cent in 1980. It significantly improved its share of the GDP to 8.1 per cent in
1990, but its contribution decreased to 3.7 percent in 2000. It increased again from 7.77 percent
in 2001, declined to 6.51 in 2002. The manufacturing share to the GDP has consistently
decreased from 4.7 percent in 2003, 3.06 percent in 2004 and at the lowest mark of 2.79 in 2005.
Table 1.1 Changing sectoral structure of GDP in the Nigerian economy (1960 – 2005)
Sectors
Agriculture
Manufacturing
1960
62.9
4.8
1970
48.8
7.2
1975
30.1
5.6
1980
22.2
5.4
1990
39
8.1
2000
26.3
3.7
2001
34
7.77
2002
36
6.51
2003
32
4.7
2004
34
3.06
2005
32
2.79
1.6
10.8
32
27.3
13.8
47.52
36.26
34.58
41.5
37.22
38.77
0.58
0.58
0.33
0.25
0.29
0.11
0.11
0.11
0.11
0.11
0.12
Transport &
Communication
4.9
2.8
3.2
4.1
3.4
2.8
2.3
2.52
2.5
3.41
2.91
Building &
Construction
4.8
5.1
5.5
8.5
1.9
2
1.14
1.21
1.2
1.46
1.47
Trade &
Finance
12.4
12.8
17.2
25
21.4
12.6
11.85
12.78
11.86
13.91
14.1
Other
GDP
8.02
100
11.9
100
6.07
100
7.25
100
12.1
100
4.97
100
6.57
100
6.29
100
6.13
100
6.83
100
7.84
100
Energy (Oil)
Mining &
Quarrying
Sources: 1) The changing structure of the Nigerian economy and implications for development. CBN publication
2000 p114
2) Central Bank of Nigeria Annual Report and Statement of Accounts 31st December 2005 p176.
The energy sector, which was 1.6 percent of the GDP in 1960, started increasing, up to 13.8
percent in 1990. Energy share to the GDP has consistently increased from 47.52 in 2000, to 41.5
percent in 2003. It recorded 37.22 percent and 38.77 percent in 2004 and 2005 respectively.
3
The mining and quarrying sector which recorded 0.58 percent share to the GDP in 1960 had
suddenly stagnated from 0.58 in 1970 to 0.12 percent in 2005. It is interesting to note that
agriculture still retained first position with its share of GDP at 32 percent in 2005. According to
Ajayi (1984:123), agriculture was the mainstay of the economy and leading sector in Nigeria in
the 1950s and 1960s; during this period, a predominant share of the GDP originated in
agriculture. Simpson (1987:194) further explains that the small independent farmers of
independent Nigeria accounted for 70 per cent of its exports. It is significant that by almost all
economic measures, the economic progress of Nigeria distinctly accelerated after 1957 and
manufacturing started to grow, though this was essentially an urban phenomenon (Simpson,
1987).
However, the discovery of crude oil in large commercial quantities and the attendant oil boom
between 1974 and 1980, which are attributable to the Israeli-Arab War, earned about $8.62 and
$25.3 billion respectively for Nigeria. In spite of the global oil market glut, which started in
1981, Nigeria earned about $200 billion from oil exports between 1970 and 1990. This
represented about 95 per cent of the total foreign exchange earned in the economy (Adeola,
1994:10).
The oil boom had three major important implications for the Nigerian economy. First, there is
evidence of the serious effects of “Dutch disease”, usually diagnosed when a resource rich
country earns significant increases in revenue from a sector’s raw material export, so that the
resulting boom tends to “crowd out investment” in other sectors that might be more likely to
support development (see Sachs & Wamer, 2001). The boom encouraged the government to
embark on an ambitious industrialisation strategy, which emphasised import substitution. The
investment programme and the policy of import-substitution (ISI) pursued during this period
was predominantly in favour of light industries over the capital goods industry. As argued by
Onah (1986), Nigeria’s import substitution strategy, based on a system of protection, led to a
home-market bias in resource allocation in favour of consumer and raw material production.
Table 1.2 shows that the importation of capital goods was generally high during this period as
the overall share of total imports was highest at 58.0 per cent especially in 1983.
4
Similarly, the raw material imports exhibited an upward trend, especially in 1985 with 41.4
percent and 45.3 percent in 1995 within this period. It was a sign of the failure of the
agricultural sector to feed the expanding domestic industries. According to Olorunshola
(1996:54)
and
Ogunlana
(1999:71),
Nigeria
consolidated
its
import
substitution
industrialisation strategy, which meant essentially replacing imported manufactures with
locally produced products.
Table 1.2: Values of capital goods and raw materials imports, their growth rates and
percentage share of total imports (1981-2005).
Year
Total Import
Capital
Goods
Imports
(N’Million)
As % of
total
imports
Raw
materials
imports
(N’Million)
as % of total
imports
1981
12,599.10
4,018.00
31.1
3,152.40
24.4
1982
10,100.20
4,119.50
32.8
3,163.00
25.2
1983
8,903.70
3,168.00
58
2,479.30
25.5
1984
7,178.30
2,307.20
32.1
2.183.2
29.7
1985
5,536.90
2,768.60
34.9
3,284.60
41.4
1990
45,717.90
18,515.70
40.5
14,995.47
32.8
1995
755,127.70
162,352.50
21.5
342,072.85
45.3
2000
985,022.39
242,829.69
24.6
292,037.47
29.6
2001
1,371,409.10
338,079.16
24.7
407,283.13
29.7
2002
1,457,091.43
358,516.43
24.6
431,357.15
29.6
2003
1,507,422.81
350,057.39
23.2
479,439.07
31.8
2004
1,638,353.67
390,170.69
23.8
486,425.54
29.7
2005
2,496,423.69
579,669.58
23.2
768,399.22
30.8
Sources: 1) The changing structure of the Nigerian economy and implications for development. Central Bank of
Nigeria publication 2000 p.201
2) Central Bank of Nigeria, Annual Report and Statement of Accounts. 31st December 2004 p169
3) Central Bank of Nigeria, Annual Report and Statement of Accounts. 31st December 2005 p197
As shown by Elkan (1995a:83), countries that have pursued import substitution policies by
protecting industry have placed themselves at a disadvantage, in that their industries are too
inefficient to compete in world markets. Furthermore, most investment programmes were left
uncompleted and abandoned due to high unit costs, long gestation period and low foreign
exchange earning potential, coupled with declines in the foreign exchange revenue to finance
such projects identified in the First, Second, and other Development Plans.
5
Auty (1995:19), in his analysis of “the resource curse” thesis, explains that resource-rich
countries may squander their resource advantage, because an over-optimistic estimate of their
prospects leads to the pursuit of lax economic policies. A corollary is that resource-poor
countries, mindful of their marginal position, may compensate for their disadvantage by adopting
firmer and more far–sighted policies. According to Ilorah (1999:153), although the oil sector
itself never did put pressure on the others directly, since its labour requirements were negligible,
the policy response by the authorities towards the oil revenue generated adverse effects on the
agricultural sector. The implications for Nigeria’s dependence on one export product (crude oil)
have been highlighted by Arnold (1997:126), Agba (2000:52), and Abolo (2001:35).
Besides, to industrialise, a country requires substantial capital investment, which is possible
through either earnings of foreign exchange from exports, borrowing in the international
financial markets, or allowing foreign businessmen to invest in the economy. Since the
beginning of the oil glut, Nigeria’s earnings from exports have been fluctuating downward
with the consequent debt crisis pushing the economy into depression to the extent that the
international community is reluctant to grant further credit facilities until the country shows a
practical demonstration of improved ability to pay (Aremu,1997:1-2).
The second, the inflow of oil revenue motivated the military government to pursue the
Indigenisation and Technology Transfer Decree of 1972 and 1977 (the Nigerian Enterprises
Promotion Decree No.3). Prior to the Indigenisation Decree, the economy was mainly
dominated by foreign investment, for instance, in 1967, 70 percent of the equity capital was
foreign owned (Adejugbe, 1987:34). The Federal Military Government of Nigeria under
General Gowon formulated the Indigenisation Policy, promulgated it into a Decree 1972 and
later spelt it out as the Nigerian Enterprises Promotion Decree in 1973. According to the
Decree:
“ (1) All enterprises specified in Schedule 1 of this Decree are hereby subject to the
provisions of this Decree, exclusively reserved for Nigerian citizens or associations, or
accordingly: a) as from the appointed day, no person, other than a Nigerian citizen or association,
enterprise in Nigeria; and
6
b) no alien enterprise on or after the date of commencement of this Decree shall be
established in Nigeria.
(3) Nothing in this section shall, as from the date of commencement of this Decree and
before the appointed day, preclude the sale or transfer by any person of any of the
enterprises affected by this section. The Decree further spelt out offences and penalties. In
the attempt to achieve economic independence, the policy of Indigenisation Decree was
geared towards:
a) increasing indigenous participation in activities that are economic in character;
b) maximising and locally retaining profits;
c) raising the level of production of intermediate and capital goods;
d) increasing the contribution of industry to the national economy;
e) the promotion of indigenous manpower; and
f) increasing Nigerian participation in decision making in the management of the large
commercial and industrial establishments.
As shown by Aremu (1997:24), the indigenisation policy was confrontational to Foreign Direct
Investment and did not guarantee control, since foreign parent company still exercised
effective control over their local affiliates in the country.
Lessons and experience with the introduction of the Decree show that the government did not
do its homework well, given that the Nigerian economy was still characterised by inadequately
skilled manpower, low levels of technology, private domestic capital and a lack of the requisite
business skills and capacity for sound national economic management. The decree also
portrayed Nigeria as a high-risk investment environment (see Whiteman, et al, 2001:8-9).
Furthermore, early opportunities and benefits derivable from Foreign Direct Investment and
transfer of technology accruable to Nigeria’s economy were lost.
The development of the agriculture and livestock sub-sectors of any country should first aim to
generate food and fibre for the teeming population, local industries, and then in some cases, for
exports. Available statistics, however, show that generally, budgets at both the national and
state levels in Nigeria have not been supportive of agriculture (Okuneye, 2002:18).
7
Past agricultural development programmes, such as the National Accelerated Food Production
Programme (NAFPP), which was started in 1973, Operation Feed the Nation (OFN), started in
1976 and the Green Revolution Programme (GRP), launched in 1980, were all judged to be
failures. According to Evbuomwan (1997:26), the Nigerian government launched various
schemes, programmes and projects, primarily to increase agricultural output and improve the
wel-being of the masses, but most of these ambitious programmes did not succeed due to poor
planning and ineffective implementation. Special programmes such as the Community Bank,
Directorate for Food, Road and Rural Infrastructure (DFRRI), the National Directorate for
Employment (NDE), the Peoples Bank, the Better Life for Rural Women, Family Support
Programmes, Family Economic Advancement Programme (FEAP), the Open Apprenticeship
Scheme (OAS), to mention just a few, were established by different administrations, to address
various manifestations of poverty such as unemployment, lack of access to credit, and the rural
and gender dimensions of poverty. The response of various administrations to poverty problems
appears to have been ad-hoc, uncoordinated and based more or less on a fire-brigade approach.
While none of these programmes was completely without merit, the truth is that they did not
have a significant, lasting and sustainable positive effect (National Planning Commission,
2004:100).
Nigeria experienced a troubled political history since its independence in 1960. It has had
multiparty democracy, civil war and rule by the military, a return to civilian rule, then a return of
the military again. In the 1990s, the country was ruled by an increasingly corrupt military,
bankrupt of ideas and clinging onto power at all costs (Arnold, 1997:124). If authoritarianism
(read as strong government) facilitated development as argued in the past, then Nigeria, whose
track record of military dictatorial rule is arguably unsurpassed in Africa, would be by far the
most developed country on the continent (Joseph, 2000:11). However, Chong (2004:190) argues
that Taiwan and South Korea have both achieved a relatively equal distribution of income during
autocratic regimes. This implies that Nigeria has been unable to develop, because it lacks the
political will and commitment and suffers from too much corruption on the part of leadership in
the country. Osaghae & Ikeotunye (2000:7) maintain that Nigeria has failed to develop in spite of
its vast human and material resources, because these resources have been badly mismanaged and
looted in the context of the rogue state run by military tyrants.
8
Table 1.3 Political regimes in Nigeria (1966-2006)
Period
Type of government
1960-1966
civilian
1966-1975
military
1975-1979
military
1979-1983
civilian
1983-1985
military
1985-1993 Aug.
military
1993-Aug-Nov.
interim
1993 Nov -1998
military
1999-2006
civilian
Head of Federal Government
T. Balewa
Y. Gowon
M. Muhammed and Obasanjo, A.M
S. Shagari
B. Buhari
I. Babangida
E. Shonekan
S. Abacha and A Abubukar
A. M. Obasanjo
Source: Ndiomu, C. 2000 pp.14-18.
The political regimes in Nigeria can be classified into military and civilian, as shown in Table
1.3. Of the 46 years of independence, 28 years have seen military regimes ruling. The civilian
regime following independence was parliamentary, fashioned after the British model, while the
1979-1983 civilian regime was modelled after the American presidential system (Gana,
2000:37). A common trend was the military seizing power after accusing the preceding regime
(military or civilian) of corruption, nepotism, ineptitude and the inability to offer solutions to
the economic problems of the country. Each of the governments had been quick to promise and
express the desire to improve the standard of living of the vast majority of the people by
stimulating growth and development (Alalade, 2000:48).
The first civilian regime, which ruled from 1960-1966, adopted a market-oriented approach to
economic management with strong planning and control. The second regime that held power
between 1966-1975 focused its economic policy on demand management. The third regime,
that ruled between 1975-1979, opted for a market system biased towards demand management,
planning and control systems. The fourth regime, 1979-1983 decided to continue this market
system with the introduction of heavy doses of austerity measures to control demand and the
high escalating inflationary trend in the country. The fifth regime which ruled from 1983-1985
continued the market system of its predecessor, but introduced further control and stabilisation
measures. The sixth regime, which ruled from 1985-1993, favoured a strict market system with
a package of structural adjustment programmes. The seventh regime was an interim
9
government that lasted for less than a year, in 1993, and opted to continue with the
deregulation policies of its predecessor. In the period between 1993-1998, the regime embraced
a market-oriented management philosophy with a bias towards guided deregulation. The
civilian regime that was voted into power in 1999, and is still in power, still continues this
market system (Ndiomu, 2000:14-18). However, the current regime has also introduced the
dimension of a private sector-led development strategy by speeding up the privatisation of nonperforming public enterprises. It achieved some measure of recovery in terms of dealing with
corruption and diversifying the economic base of Nigeria (OECD-ADB, 2006:421).
This analysis aims to show that, though different economic development policies and strategies
have been pursued in the past by the various governments in Nigeria, none has been able to
redirect the economy to the path of growth and recovery. However, the current civilian regime,
which came to power in 1999, has demonstrated its commitment to leading the country toward
achieving the international growth target by 2015.
Ake (1996:1) asserts that political conditions in Africa, and also in Nigeria are the single greatest
impediment to development. African politics would appear to have been constituted to prevent
the pursuit of development and the emergence of relevant and effective development paradigms
and programmes. The commitment of leadership to development is problematic. The difficulty is
not that they do not want development, but rather that these are really not attempting to bring it
about. Their intentions and actions filter through complex layers of self-interest, and the policies
that emerge effectively cease to be policies for development, as opposed to, for instance,
strategies for survival, power or accumulation (Ake 1996:64). Initially, most African leaders
hoped that someone else would take on the burden of development, while they concentrated on
the struggle for power and accumulation, concludes Ake.
The greed to rule and the problem of corruption also constitute major impediments to the
economic development of Nigeria. Transparency International, an independent organisation
based in Germany, has consistently ranked Nigeria as one of the most corrupt in the world.
Thomas (2000:144-145) identifies some of the many channels whereby corruption can weaken
economic growth:
10
a) Misallocation of talent including under-utilisation of key segments of the society, such as
women;
b) Lower levels of domestic and foreign investment;
c) Distorted enterprise development and growth of the unofficial economy;
d) Distorted public expenditure and investment and deteriorated physical infrastructure;
e) Lower public revenues and less provision of the rule of law as a public good; and
f) Capture of the state by the corporate elite of the “purchased” law and policies of the
state, thereby undermining growth of output and investment of the enterprise sector.
Nigeria is believed to have benefited from its oil exports, which have earned the country large
amounts of foreign exchange over the years, but has failed to effectively invest the oil wealth
and hence boost the productive capacity of other sectors. This suggests why the country has
failed in the past to achieve meaningful and purposeful development. Admittedly, Olusanya
(2000:5) points out, since independence, successive Nigerian governments have battled against
some inherent management problems militating against the development of the national
economy, but with little success.
There is little doubt, therefore, that the dwindling fortune of the country’s real sectors could be
largely attributed to the effect of “Dutch disease” in the economy. The import substitution and
industrialisation strategy adopted in the country is at variance with the industrial export-led
development strategy pursued by other oil exporting developing countries like Malaysia and
Indonesia, to mention but two, that have become Newly Industrialised Countries (NICs). The
indigenisation policy and the subsequent promulgation of Enterprise Promotion Decree No.3
undertaken by the military government in 1973 were also at variance with policy inducements
of Foreign Direct Investment (FDI) and accruable to technological transfers in the economy.
The greed to be in power that the Nigerian military had felt for many years, the attendant
corruption and rent-seeking class, created by the military regime in the country, have
constituted a clog in the wheel of the country’s development process.
According to Camdessus (2001:3), “the hope of all Nigerians, and the hope of the international
community, is that the same determination that has brought Nigeria out of the dark shadow of
11
military dictatorship can now banish the failure of discredited economic policies from the
people of Nigeria.”
1. 3 Problem statement
The Nigerian economy was at the same level of development as countries such as Brazil,
Indonesia, Malaysia and Pakistan in the 1950’s - 60’s, but today it is far behind all of them in
terms of its overall level of economic development (Egbochuku, 2001:8). In essence, Nigeria has
lagged behind other oil producing countries in terms of development, especially as most of these
countries are now emerging as newly industrialised countries (NICs).
Obadan (2001:21) summarises the development challenges facing the country today as follows:
how to revive the prostate economy, promote efficient and respectable economic growth, and
increase productivity; and how to establish and sustain a viable and stable macroeconomic
framework in the context of a stable democratic political system. In light of deteriorating social
indicators, the government must urgently begin to reduce poverty, create employment
opportunities and revive the infrastructural services in the country
In September 2000, at the dawn of this twenty-first century, while Nigeria was still searching
for development break-through, at the 55th Millennium Summit, a global development mandate
was given to all developing countries in partnership with the rich countries and development
institutions and agencies, to: reduce poverty and extreme hunger; ensure universal primary
education; eliminate gender disparity in primary and secondary school; reduce infant and child
mortality by two thirds; reduce maternal mortality by three quarters; ensure universal access to
productive health; and ensure sustainable development and reverse the loss of environmental
resources by 2015 (United Nations, 2003). The MDGs declaration by the UN is a wake up call
for Nigeria to redouble its economic development efforts towards achieving rapid and
diversified development in the twenty-first century.
Reflecting on the performance of Nigeria’s economy, Abdulahi (2002:67) concludes that it is
still not satisfactory for the average Nigerian citizen. Problems, therefore, exist given that the
different development planning, objectives and efforts put in place by the various past
governments aimed at poverty reduction and general economic development, have not
12
achieved the desired objectives. The problem is either that the agricultural, manufacturing,
mining and quarrying, education and health policy objectives are not well articulated or that
certain actions by the governments and others within the economy have tended to encourage
variables that hinder the implementation and realisation of economic development in the
country.
Nevertheless, three pertinent pivotal questions that will drive the aim of achieving a rapid and
sustainable development in Nigeria are: 1) Why is Nigeria still an underdeveloped and lowincome country?, 2) What should the country do to make rapid economic progress? and 3)
How can it attain a diversified and sustainable economic development and growth?. This study
aims to respond to these questions. In the section that follows, the objectives of the study are
presented.
1. 4 Objective of the study
The broad objective of this study is to explore policy scenarios that could enable Nigeria to
achieve rapid economic development success, using a multi-sectoral cointegration
econometric model. The dynamic cointegration Error Correction Mechanism of Engle-Yoo
(1991) as the econometric model for Nigeria can provide a policy simulation laboratory in
which exogenous changes in some aspects of the policy environment can be analysed for the
economy-wide effect. Explicit focus is on agriculture, manufacturing, and the mining and
quarrying (solid minerals). So far, development models for Nigeria have tended to focus
primarily on the use of partial equilibrium and traditional econometric policy analyse. As a
result, they often ignore the much-needed feedback from error correction (ECM) in the longrun dynamic adjustment of the macro economy. The application of Engle-Yoo (1991) third
step dynamics for analysing economic development policy in Nigeria, therefore, represents a
major improvement to the limited scope and to the methodological deficiencies of previous
studies of this magnitude.
The model has the capability of establishing the linkage and interaction between the agricultural,
manufacturing, mining of solid minerals and other variables from the rest of the economy. In
essence, the multi-sectoral cointegration econometric framework and model can provide useful
insights and guidance for exploring macroeconomic and development policy issues. This can
13
enable Nigeria to move towards achieving rapid economic development. This model thus
represents a distinctive feature of this study and a significant departure from earlier studies in
development policy in Nigeria. To achieve the high, sustained economic growth rates needed to
reach the global development goals, Nigeria will need to quicken the pace of its economic
development, attain and sustain broad balanced development in the various sectors of the
economy.
Five sectors considered to be critical in this study include: agriculture, industrial (manufacturing),
mining and quarrying (for non-renewable resources), education and health. Their choice can be
explained as follows:
a) Agriculture is one of Africa’s most important sectors. It has two major components;
namely, food production and export commodities, and a more productive sector that
would boost growth (World Bank, 2004a:211);
b) Progress in industrialisation is highly dependent upon agricultural development;
c) The mining and quarrying of solid minerals sector could play an important role in
rural areas and in the national economy as a whole by serving as sources of
employment and income. The earned income could improve the people’s lives,
enabling many to invest in good quality housing, businesses and livestock;
d) Formal education plays a role in the development of human capital. Moreover,
Koven & Lyons (2003:50) has linked education to economic progress for individuals
and for the society; and
e) Maintaining a healthy population is an important goal in its own right. This is crucial
to the development of a productive workforce, which in turn is essential for
economic development (World Bank, 2000:134).
Other objectives of the study are to:
a) Asses the challenges, progress and efforts of the stakeholders towards achieving
the global development goals in Nigeria;
b) Identify and evaluate the role of domestic financial institutions in the mobilisation
of financial resources for productive investment to complement foreign investment
in the development process in Nigeria; and
14
c) Suggest a pragmatic and practicable development model as a policy guide towards
the implementation and achievement of rapid development and thus attain the
MDGs in Nigeria.
1.5 Contribution and justification for the study
This study aims to contribute to the understanding of macroeconomic development policy
stimulations, using the multivariate Engle-Yoo (1991) cointegration econometrics dynamic
third steps model. This focuses on the linkages between variables reflected in the agriculture,
manufacturing, mining and quarrying, and other relevant sectors and socio-economic factors.
Nigeria needs to improve on its knowledge base policymaking, particularly the inter-sectoral
linkages between economic and social factors. The direct and indirect macroeconomic policy
effects and feedback from the model, distinguishes it from earlier works in development
policy in Nigeria. The Engle-Yoo (1991) multivariate cointegration econometrics dynamic
model for Nigeria is developed to conduct quantitative policy analysis. The model structure
explores policy framework scenario options that may be able to provide feasible solutions for
the problems facing Nigeria in achieving its development goals.
This study is also justified for a number of other reasons, including:
a) The achievement of rapid economic development through the transformation of the
country’s real sectors will not only reduce poverty by providing food security. By
increasing agricultural and industrial production, increasing exports, and per capita
income and consumption, it can also help to build a literate and healthy workforce
and foster peace and security in Nigeria;
b) The achievement of a diversified economic development and the MDGs in Nigeria
through the transformation of the non-oil sectors will strengthen and broaden the
productive base of the country, so that it no longer relies heavily on the petroleum
sector as the major earner of foreign exchange to the country;
c) Since this is the first time the delayed development in Africa and indeed in Nigeria is
being addressed globally, attention should be concentrated in channelling global
financial resources to the agricultural, industrial, mining and quarrying, educational
and healthcare sectors, because of their strong linkage to and high value-added effect
to the rest of the economy.
15
d) The achievement of rapid and diversified development in Nigeria through the
country’s agricultural, industrial, mining, educational and healthcare sectors can help
raise the economy to being a global player; and
e) An empirical analysis of the macro economy-wide framework using the Engle-Yoo
dynamic cointegration eeconometric model for Nigeria is deemed suitable and
relevant for providing feedback and policy options for attaining rapid economic
development success in the country.
1.6 Outline of the study
This study is structured into seven chapters. The remaining part of the thesis is arranged as
follows: Chapter Two contains the literature review. It focuses on contemporary and relevant
issues in the economic development of developing countries. Included here is an overview of the
state and trends of development in Nigeria. Its development prospects, a review of a general
development model from the newly developed countries of South East Asia. Also discussed is a
development model that can be applied to Nigeria.
Chapter Three discusses the policy framework of the MDGs, efforts and challenges, and the role
of external partners. It focuses on the Official Development Assistance (ODA), international
trade, Foreign Direct Investment (FDI) and debt relief. Chapter Four focuses on the relevance
and the analysis of the growth sectors in Nigeria, emphasising agriculture, manufacturing, mining
and quarrying, education and health.
Chapter Five deals with the theoretical and analytical framework of the study; it sets out the
structure of the model and a general model of agriculture. Models 1 to 4 of agriculture, and the
basic hypotheses and expectations for each variable in the agricultural model. This chapter also
contains a model for manufacturing and basic hypotheses and expectations for each variable
included in the model. The structure of the model for mining and quarrying is also discussed,
with basic assumptions and expectations for its variables.
Chapter Six contains the empirical analysis and presents the estimated econometric models.
The analysis of the results of the cointegrated estimated models for agriculture, manufacturing
and mining and quarrying, and their implications are analysed. The dynamic simulation results,
16
the actual and forecasted models, and the policy scenarios based on the empirical results are
also discussed in this chapter.
Chapter Seven reviews the major findings, and makes concluding remarks. Policy
recommendations and implications from the study are discussed, as well as the robustness or
limitations of the model and suggested further areas of study.
17
CHAPTER TWO
LITERATURE REVIEW OF ECONOMIC DEVELOPMENT: CONTEMPORAY
ISSUES AND THEIR RELEVANCE TO NIGERIA’S ECONOMY.
2.1 Introduction
The origin of science of economics can arguably be located in the need to study the assessment
and causal influences on the opportunities that people have for living well (Sen, 1999:24).
Indeed, the ultimate objective of “economic development” and state action in all countries,
more especially in developing countries, is the enhancement of human capabilities including
the basic capacities of avoiding ignorance, under-nutrition, disease and early mortality, leading
a fuller, longer life, and being able to participate in decision-making in the community (Sen,
1999; Dreze & Sen, 1989).
The purposes of this chapter are six-fold:
a) To present an overview of the concept of economic development, and its relevance, in
line with the emerging popular development with a human face;
b) To analyse the state of the Nigerian economy so as to identify salient developmental
features, trends and challenges that have arisen since the country became independent in
1960. To showcase and give insight into the current level of the country’s economic
development;
c) To identify and analyse impediments to development in Nigeria, to further help to
explain why Nigeria is at this low level of economic development;
d) To review and explore the potential of Nigeria’s growth sectors to help answer the
question of where the country’s economy should be given its resources endowments;
e) To evaluate the development prospects of Nigeria, to help set an economic development
agenda and answer the question of what should be done to get the country on the path of
recovery and sustainable development; and
f) To review and present the salient economic facts relevant to various development models
of the newly industrialising Asian countries, so as to draw lessons for Nigeria and other
developing countries in Africa.
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2.2 An overview of economic development
Economic development encompasses progress in providing livelihood on a sustainable basis,
access to education and basic healthcare for the majority of the population (Belshaw &
Livingstone, 2002:3). The meaning of the term “development” becomes clearer with the
understanding of the term “economic growth”. By economic growth, economists generally mean
the increase over time in a country’s real output per capita. Though other measures can be used,
output is most conveniently measured by the gross national product (GNP). This implies that
economic growth is measured by the increase in a country’s per capita GNP. Economic growth is
thus sustained expansion of production possibilities measured as an increase in the real GDP over
a given period. Rapid economic growth maintained over a number of years can transform a poor
nation into a rich one, as has been the experiences of Hong Kong, South Korea, Taiwan and other
Asian economies (Bade & Parkin, 2002:222). According to Malizia and Feser (2000:20), growth
and development is complementary, because one makes the other possible. They are also
alternating processes that occur sequentially. Growth is an increase in output, development is a
structural change, for example technological or legal. Growth expands the economy, while
development must lead to more equal distribution of income and wealth. Overall, growth and
development lead to a greater range of economic choices.
2.2.1 The concept and relevance of economic development
A common alternative for measuring economic development has been using the rate of growth
of income per capita or per capita GNP, which expresses the ability of a country to expand its
output at a rate faster than the growth rate of its population (monetary growth of GNP per
capita minus the rate of inflation). The GNP per capita is used to measure the overall economic
well-being of the population, expressing the amount of real goods and services that is available
to the average citizen for consumption and investment (Todaro & Smith, 2003:15). Recently,
however, economic development is defined in terms of the quality of life of the majority of the
population. According to Todaro and Smith (2003:16), the experience of the 1950s and 1960s
when many developing nations failed to realised their economic growth targets and the quality
of life of the majority of their people remained for the most part unchanged, signalled that
something was very wrong with this narrow definition of development.
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Notwithstanding the debate for and against the efficacy of using economic growth, GNP percapita as an index for economic development, there is considerable evidence in developmental
literature. It has shown that this index of economic growth is characterised by many deficiencies
when related to welfare (see Allen & Thomas, 2000:23; Mohr & Fourie, 2004:576). Most
specifically, the economic growth index fails to reflect the distribution of income or wealth
between the rich and the poor, and can also not show what sections of the population are
favoured by the growth; or the level of welfare derived from the consumption of goods and
services involved. Using GNP per capita as an index, thus requires a range of problems to be
resolved. Such as capturing unrecorded economic transactions from the informal sector,
externalities (pollution, congestion and noise). In essence, it says nothing about the values or
costs of these activities. Comparing the GNP per capita of different countries is also problematic
considering the varying exchange rates of national currencies.
It could be in light of all these problems that Thomas (2000:23) says that over the long term,
development could be seen in terms of increased living standards, improved health and wellbeing for all, and the achievement of whatever is regarded as a general good for the society as a
whole. Hall (1983:6) says that belief in the trickle-down effect is one reason why the GNP per
capita measure has become deeply entrenched. However, the fact that the benefits of growth have
not always trickled down from all sectors as expected, is an argument neither for nor against
growth as such, since a faster growth might after all be what is needed.
However, Belshaw and Livingstone (2002:10) argue that while GNP per capita figures are the
traditional measurement of economic growth and development, a better indicator of well-being is
now available, namely the Human Development Index (HDI). The HDI defines well-being in
terms of combinations of a measure of income, a health indicator and an access to knowledge
indicator. The process of development should at least create a conducive environment for people,
individually and collectively, to develop their full potential and to have a reasonable chance of
leading a productive and creative life according to their needs and interests (UNDP, 1992:1).
2.2.2 Economic development: the perspective of human development index (HDI)
According to the United Nations Development Programme (UNDP, 1992:1), development
should focus on human development. The UNDP argument stresses that economic growth must
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be managed and wealth distributed for the benefit of the majority of the country’s people. Central
to this process of human development is the enlargement of people’s choices, most crucially in
the areas of being able to live long and enjoy healthy lives to have access to education and to the
varied resources needed for a decent standard of living.
Progress in human development can also be measured by the degree of political freedom,
guaranteed human rights and personal self-respect the citizens of the country enjoy. On the basis
of this reasoning, the UNDP (1992:1) evolved the HDI, including component variables such as
the standard of living (purchasing power based on real GDP, knowledge (adult literacy and more
years of schooling) and longevity (life expectancy). Essentially, development is the increasing
ability of a given society to productively manipulate her environment. This entails a rising level
of social and scientific consciousness, and advancement in science and technology for the society
in question (Adenuga, 2003:46). Kayode and Odusola (2001:17) see development as a process
that results in improved economic status for a country. They say it is often measured by increased
real per capita income and if possible should be sustained over a long period of time. Moreover,
they note that development is a process involving elements of modernisation such as enhanced
productivity, social and economic equalisation; improved knowledge, attitudes and institutions;
and rationally coordinated policy measures that are capable of reviewing all obstacles to social
economic transformation.
Intuitively, economic development goes far beyond just real per capita GNP or national
income. Its sustenance over time through the continuous increase in per capita and
productivity. It is about who benefits from the fruits of economic growth, the vast majority of
the populace or just a fraction of it (the high-middle-income population). Economic
development could include changes in social, political and institutional structures in the
economy, reflected in the character of the people and the attainment of better life for the
majority of the population in a society. Economic development could also involve development
in different sectors of the economy. It involves efficient economic management, good
governance, sustainable development and poverty reduction; all of these are goals to which
development stakeholders have to contribute (Sako, 2002:75). Ruttan (1997:225) explains that
the basic needs approach represents a radical departure from conventional development
strategy.
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In the basic human needs approach, poverty is defined not in terms of income, but rather as a
lack of good nutrition, good health, educational opportunities and similar dimensions of welfare
(see Allen & Thomas, 2000:11; Lewis, 2003:252; Nielson, 2002:101; Wade, 2003:37-38).
According to this view, usually referred to as the basic (human) need approach, economic
development is defined in terms of progress towards reducing the incidence of poverty,
unemployment and income inequalities. Beneria (2003:21) advocates a vision of development
based on an intuitive idea of life that is worthy of the dignity of human beings for each and every
person, a view that is in tune with the basic objectives of feminist economics. Meeting the basic
needs of the vast majority of the population of a country is at the centre of this view. Ruttan
(1997) further argues that growth objectives are replaced in this approach by consumption targets
translated into specific programme goals, namely a life expectancy of 65 years, a literacy rate of
at least 75 percent, an infant morality rate of 50 or less per thousand births and a birth rate of 25
or less per thousand of the population. Sen (1999) asserts that “development has to be more
concerned with enhancing the lives we lead and the freedom we enjoy,” rather than economic
growth being treated as an end in itself. In the same vein, Blignaut (2004:41) explains that
ignoring the impact of social capital or environmental preservation in the conventional growth
models may be a problem when predicting the possibility of sustained growth. This suggests that
the linkage and interactions between the economy and the environment are constrained, since
growth does not automatically lead to increased welfare.
2.2.3 Economic development: lessons for the developing countries
Apparently, a crucial test for economic development and growth remains ensuring that the
majority of the population of a developing country are manifestly better off and that their living
conditions improved. Also, a distinct advantage of the human needs approach and model is that
poverty reduction strategies are made top priority in the development agenda. It is persistently
clear in recent developmental literature that the phenomenon of poverty eradication may not be
easily analysed with orthodox economic models that originated from and are applied in the rich
industrialised countries. Rajan (2004:56-57) argues why an orthodox economic model may not
be the best guide for policy in developing countries. He pinpoints the absence of institutions,
such as efficient and impartial judiciaries, legal systems to protect intellectual property, tax
22
administration and credible central banks; as one of the reasons why so many countries do not
grow fast enough to vanquish poverty. In many situations, complete market models are too far
distanced from reality to be useful and the model is in most cases an intellectual straitjacket when
applied universally, because it ignores cost of contracting and enforcement.
It is worth noting that the failure of the now orthodox development models to provide relevant
solutions to these fundamental questions betrayed their usefulness in the context of development
economies. More so, the United Nations (UNDP, 1992) HDI, which defines development in
terms of human development, has further exposed the deficiencies of the orthodox development
models. Overall, the developing countries are becoming conscious that orthodox economic
models and hypotheses such as the export-led model, the vicious circle of poverty hypothesis,
unbalanced growth model, the Harrod Domar, Rostow’s stages, import substitution
industrialisation, the big push strategy and surplus labour models have all failed to impact
meaningfully on the economic development of developing countries.
The weakness of these strategies stems from the fact that they are developed and nurtured in an
environment that is alien to developing countries. According to Adams (2001:334), top-down,
technocratic blueprint approaches to development have come under increasing scrutiny as they
fail to deliver the economic growth and social benefits that had been promised. It has been
widely argued that development goals can only be achieved by “bottom-up planning”,
decentralisation and participation and community development (Agrawal & Gibson,
1999:629). This development from below demands a reversal of conventional development
thinking, working from the bottom-up and periphery inwards; it suggests that, for success,
development must be not only innovative and researched-based, but also locally conceived and
initiated, flexible, participatory and based on understanding of local economies and politics
(Adams, 2001:335).
In line with the human welfare approach, it has been argued in the literature that the behaviour of
people at a particular moment is usually determined by their strongest needs. This will be
significant to policy makers who have to understand the needs that are commonly important to
people. A framework that helps to explain the strength of certain needs has developed by
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Maslow. According to Maslow (1995:19), human needs arrange themselves into a hierarchy, as
illustrated in a pyramid form, shown in Figure 1.
Figure 1.1 Conceptual Representation of Maslow’s Hierarchy of Needs
Top
5
4
3
2
Bottom
1
Source: Maslow, A. H. 1943. A theory of human motivation, Psychological Review, 50, 370-396
5. The need for self-actualisation or fulfilment
4. Esteem needs: recognition, prestige
3. Social needs: acceptance, feeling of belonging.
2. Needs for safety: security, comfort, economic well-being
1. Physiological needs: food, clothing, shelter, clean water, air and health and education
The physiological needs are placed at the foundation of the hierarchy, because they most
urgently need to be satisfied. These are the basic human needs to sustain life itself, needs for
food, clothing, shelter, clean water, air, primary health care and education. Until these basic
24
needs are satisfied to a degree sufficient for the operation of the body, the majority of the
person’s activity will probably be at this level, and the other needs will provide little
motivation.
Once the physiological needs have been satisfied, safety needs become predominant, as
highlighted in figure 1. These needs are basically the need to be free from fear of physical
danger and deprivation of basic physiological needs (see Sen, 1999). This need for selfpreservation is concerned with the future of the people. It helps to answer the question of
whether or not people are able to maintain their property or jobs so that they can provide food
and shelter tomorrow, and the next day. In other words, if people’s safety is not guaranteed,
other things seem unimportant.
Once the physiological and safety needs and the need for family well-being are satisfied, social
or affiliation needs emerge as dominant. This is not unexpected, because people are social
beings; they need to belong to and be accepted by various groups. When the social needs become
dominant, a person will strive for meaningful relations with others. After individuals begin to
satisfy their needs, they generally want to be more than just members of a group. They feel the
need for others, for both self-esteem and recognition from others. Brown & Harvey (2006: 77)
related the Maslow’s social needs: acceptance, feeling of belonging to the value system that
underlying organisational development approach of increasing individual growth and
effectiveness of creating the climate that develops human potentials while achieving
organisational goals.
Most people need a positive evaluation of themselves that is based in reality on recognition and
respect from others. The satisfaction of these needs produces feelings of self-confidence,
prestige, power and control. At this level, people usually feel that they are useful and have some
effect on their environment. Once esteem needs are adequately satisfied, self-actualisation needs
become more important. Self-actualisation is the need to maximise one’s potential, whatever this
may be. According to Maslow (1943), what a man can be, he must be. Therefore, selfactualisation is the desire to become what one is capable of becoming. According to Greiner &
Cummings (2005:89), the need for self-actualisation or fulfilment is an inherent potential of
25
individuals to pursue what he or she is likely to achieve under condition of openness and
personal recognition.
While this framework may not apply universally, it may to an appreciable extent, reflect in
reality the common welfare needs of people in most developing countries. In reality the
suggestion that one level of need has to be completely satisfied before the next level emerges
may not be applicable, because most people in a society tend to be partially satisfied at each
level. However, in most developing countries, attention tends to be devoted to satisfying
physiological and safety needs. Maslow’s framework therefore plays a useful role in predicting
where the majority of people in developing country will be likely to have unfilled needs.
Maslow’s hierarchy of human needs also contributes to the new ideas and concepts about a
bottom-up development model.
The concept of bottom-up development could help to strengthen civil society and gain popularity
among development practitioners. A strong civil society is an important foundation for
democracy and even a necessity for effective and meaningful development in a developing
economy. According to Prahalad (2005), the “bottom-up" system is a new concept of
development, complete and coherent, designed to exploit every possible avenue of economic
development. The "bottom-up" method of economic development is a new concept designed to
benefit the poorest of a nation's people, particularly the landless poor. It is grassroots
development on a large scale, growing rapidly from a few "entrepreneurs" to many hundreds of
workers employed in "bottom-up" enterprises. Prahalad (2005) argues that the system builds
upon existing local resources, improving, for instance, agricultural and small-scale
manufacturing productivity and creating rural diversified non-farm employment for
progressively larger numbers of people. The system is not merely self-sustaining, but selfevolving.
The "bottom-up" concept of development could offer Nigeria the opportunity to improve the
well-being of its poor majority currently put at 70 percent of the population. This is because the
system which focuses on encouraging (a) micro-entrepreneurs constrained by high-productivity
competition and (b) the prevalence of large informal economic activities, may have encouraged
"hidden entrepreneurs;". The only way to mobilise and integrate them in mainstream economic
26
activity is to try to improve their well-being and to harness their latent determination and
attributes to succeed as business people (Prahalad (2005).
The most relevant lesson for Nigeria and indeed developing countries to learn from the new
development strategy, is the understanding that development should start from below (from the
majority). As stressed by Nwaobi (2004) resources should be channelled into those areas or those
things that will benefit the majority; those areas that employ more of the majority, and those
areas that have potentials of employing more majority without necessarily neglecting other
important sectors.
The economy should be properly understood and factors that have contributed to the past
economic waste well-articulated so they can be tackled. Development is for man and should start
from man for the provision of his basic needs, food, shelter, clothing, health and education, first.
Development should also include the promotion of gender equality and the empowerment of
women, environmental sustainability and pursuing policy programmes that would reverse the
loss of environmental resources. The ultimate purpose of the exercises is to treat men and women
as ends, to improve the human condition, and to enlarge people’s choices (Streeten, 1994:232).
A determined attack on poverty and hunger has led to the formulation of a new development
paradigm that recognises the role of the state in protecting the rights of the weaker and poorer
segments of the population and meeting their basic needs (Bukman, 2002:17). However, Todaro
and Smith (2003:23) summarise the three basic objectives of development in all societies as: (a)
to increase the availability and widen the distribution of basic life-sustaining goods such as food,
shelter, health and protection; (b) to raise standards of living, including in addition to higher
income, the provision of more jobs, better education and greater attention to cultural and human
values. This serves not only to enhance material well-being but also to generate individual and
national self-esteem; and (c) to expand the range of economic and social choices available to
individuals and nations by freeing them from servitude and dependence not only in relation to
other people and nation-states, but also to the forces of ignorance and human misery.
Attempts have been made to identify the relevance of incorporating emerging contemporary
issues in economic development into Nigeria’s development model. This is imperative since the
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World Bank (2003a:59) claims that over 70 percent of the country’s population are basically
poor. In the next section, an overview will be given of Nigeria’s economic situation and the
question explained of why the country is still classified as poor in spite of its large potential in
terms of natural resources and capital. In essence, the state of Nigeria’s economy is analysed
with respect to salient trends, challenges and impediments to development. This gives insights
into why the economy has stagnated.
2.3 Overview of the Nigerian economy
According to Simpson (1987:205), Nigeria ranked among the few countries in the world, with
the potential to achieve the status of a stable and sustainable developing economy at the time of
its independence in 1960. Simpson maintains that the impressive foreign exchange earned by
Nigeria during the oil boom encouraged the country’s various governments to embark on
ambitious investment programmes, which can be seen in the various national development plans.
Ajakaiye (2004:54) has shown that between late 1950s and the early 1980s, most African
governments drew up comprehensive development plans usually in consultation with the local
and foreign experts, to help coordinate their decision making. These national development plans
were used as deliberate efforts by the governments to speed up the process of social and
economic development in Nigeria (see Tomori & Fajana 1987:131). Assessment of the
objectives and performance of the various national development plans between 1945-1995,
however, reveals that the pre-independence development plans of 1945-1954 and 1955-1960
were mere listings of projects to be executed at the Federal and Regional Government levels. The
plans failed to take account of the social and cultural background of all Nigerians, and lacked a
clear understanding of the people’s needs, and therefore could not perform due to a lack of
national cooperation and common interest.
The Second Development Plan of 1962-1968 represented the first conscious efforts by the
Nigerian government to put in place a plan that reflected common national interests, aspirations
and objectives. The plan was principally expected to facilitate the highest possible rates of
increase in the standard of living of Nigerians, and in wealth creation in relation to public support
for the newly gained independent country. According to Awoseyila (1996:23-31) the plan’s
actual allocations and targets, however, showed that it aimed at accelerating growth and
28
sustainable development. The plan in the end was not efficiently implemented, since it relied
heavily on external sources of funds to execute most of the projects. Also, the implementation
was constrained by the political crisis of early 1966.
The Third Development Plan 1970-1974 was formulated at the end of the Nigerian Civil War.
It aimed to speed up post-independence development and to essentially provide a master plan
for rebuilding the country after the civil war. The plan recorded some positive achievement
especially in the areas of improving the performance of the manufacturing, transport, health,
education, information and social welfare communications and mining sectors. These
significant achievements can be attributed to increasing inflows of foreign exchange from
crude oil exports. In essence, however, the major constraining factor to the plan’s
implementation was inadequate manpower and executive capacity (Awoseyila, 1996:23-31).
The 1981-1985 development plan was the fourth put in place by the country’s civilian
administration. It aimed to improve the standard of living of the people and diversify the
economic base from a mono-cultural economy (dependence on oil as the only source of revenue)
to an economy strong in other sectors like agriculture, manufacturing and science and technology
(Central Bank of Nigeria, 2000:1). However, the achievement of the targets was dismally low.
The unimpressive performance of the plan was attributed to international oil market glut, due to
which the projected foreign earnings from oil exports crashed due to the near collapse of the
international oil market. Further attempts to finance the revised plan through external borrowing
also failed due to the country’s high external debt burden. According to Aremu (1997:1), since
the beginning of oil glut, earnings of Nigerian economy from exports had been fluctuated
downward with the consequent debt crisis to the extent the international community are reluctant
to grant credit facility.
In 1986, the Structural Adjustment Programme (SAP) was launched. Its cardinal objectives were:
restructuring and diversifying of the productive base of the economy in order to reduce
dependence on the oil sector and on imports; achieving in short-to-medium-term fiscal and
balance of payments viability; laying the basis for sustainable non-inflationary growth; reducing
the dominance of unproductive investment in the public sector’s efficiency enhancing the
potentials of the private sector (Central Bank of Nigeria, 2000:1). The SAP unleashed serious
29
hardship on the Nigerian populace and worsened poverty levels, the crisis of Nigeria education
since 1980s, has been rooted in the SAP (Fashina, 2003:35-42). According to (Fashina, 2003:36),
the withdrawal of subsidies from education and health, imposing an educational policy that
generated crisis in the entire system. However, the SAP did establish some salient
macroeconomic factors such as trade and payment liberalisation; adoption of appropriate pricing
policies for public enterprises (essentially the beginning of commercialisation and privatisation
of unprofitable and inefficient public enterprises), and reduction of government deficit financing,
to mention a few (Central Bank of Nigeria, 2000:1). It is important to note that some of the SAP
prescriptions still form the pillars of Nigeria’s economic agenda to date.
Nigeria’s three-year Rolling Plan (1990-1995), Awoseyila, (1996:30) said was planned with a
shorter duration for three major reasons, namely:
a) To avoid the risks of long-term planning in a mono-cultural economy based on
projections of crude oil sales, given the volatility of international oil market;
b) To suit the highly changing international environment, characterised by uncertainty and
the dependence of developing countries on rich counties; and
c) To make implementation and management of development easier than it had proved to be
over a longer time frame of about five years. The country’s long-term development plans
had always failed to achieve their targets. Invariably, plans are better implemented if they
are reviewed more frequently.
The Rolling Plan also provided the macroeconomic framework upon which projections for
economic aggregates such as the GDP, population growth and investments are planned.
However, after several years of economic planning, Ernest Shonekan, a former Nigerian head
of state (2000:42), confessed that the country’s economic progress over the years has neither
matched its enormous resources endowment nor met the expectations of the citizenry, friends
and well-wishers. In 2004 the country was still classified as a third-world country with a low
income, Gross National Income, (GNI) of US$38.7 billion and GNI per capita of US$290
(World Bank, 2004b:253).
Indeed, Nigeria has lagged behind other oil producing countries in terms of development.
Shamsuddeen (1998:29) stresses that efforts made in terms of the various development plans
30
which the country tried to implement, especially during the oil boom, have not been very
successful, as discussed above.
The development impediments and challenges that have confronted Nigeria can be summarised
as follows:
2.3.1 Undiversified economic base of Nigeria
Arnold (1997:126) says that the main problem facing development in Nigeria appears to be
political rather than economic, particularly the habit developed since the oil boom of the mid
1970s of over-dependence upon oil to solve all the nation’s problem. He stresses the urgent need
to translate oil wealth into other forms of economic growth, because Nigeria’s population is
expected to double in years to come.
2.3.2 Weak manufacturing sector (industry)
A general belief is that, if a country is to develop rapidly, it must industrialise, since
industrialised countries appear to be the most developed. However, to industrialise a country
requires substantial capital investment, which is possible through either earnings from foreign
exchange and exports; borrowing in the international financial markets; or allowing foreign
businessmen to invest in the economy. Since the beginning of the oil glut, earnings in Nigeria
from exports have fluctuated downward, with a consequent debt crisis pushing the economy into
depression to the extent that the international community is reluctant to grant further credit
facilities until the country shows a practical demonstration of improved ability to pay (Aremu,
1997:1-2).
The problem of a weak manufacturing sector is also linked to a hostile business environment, and
to perceptions of risk and high costs of doing business. These factors have tended to cause some
foreign companies in Nigeria to keep the bulk of their assets abroad. Analysis of panel data from
23 developing countries confirms that economic growth, predicable behaviour, trustworthiness
and commitment from government institutions, infrastructurally developed cities and low tax
rates are important factors in attracting foreign investment (Hsiao, 2003:893). Infrastructure is
central to development and the state of infrastructural development in Nigeria is far from meeting
the expectations of the average potential investor in the country.
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2.3.3 The growing incidence of poverty in the Nigerian economy
The eradication of poverty is universally accepted as a primary developmental objective (World
Bank, 1990:24). Nigeria is one of the poorest of the nations of the world, and is confronted with
not just pockets of poor-disadvantaged or marginalised areas, groups and individuals, but with a
situation of mass poverty. This is a situation in which most of the population exists at standards
of living below those required for full development and the enjoyment of individual and societal
well-being (Ukwu, 2002:44). The prevalent situation of mass poverty reflects the poor
performance of the Nigerian economy. The level of economic performance in any country
depends primarily on two factors: the level of resources relative to the population, and the level
of productivity. According to Awoseyila (1999:31), the HDI of Nigeria was ranked 142nd among
the 174 countries listed in 1997, and by 1998, the country had dropped to amongst the 40 poorest
countries. The conviction, therefore, is that poverty has been on the increase, commensurately
with the deterioration in the economy.
2.3.4 The impact of the external debt burden on the Nigerian economy
Bhattacharya and Clements (2004:48-49) argue that the high external debt service absorbs
resources that could be used for essential spending on poverty reduction and diverts resources
away from public investment. The large debt stock and crushing debt service burden have
introduced a new vicious cycle to the development problem in Nigeria. Ogbu (2002:41) explains
that, in many African countries, debt servicing in the face of inadequate foreign exchange
earnings leads to severe import strangulation, and holds back export growth. This and other
uncertainties created by debt further depress investment and output, escalating the current
account deficit and leading to increasing debt and rising debt service obligations. External
borrowing may have some desirable effects on the economy where such funds are properly
invested into productive ventures or sectors. In Nigeria and other developing countries
undesirable consequences of external debt constitute a serious constraint on economic
development of the nation tend to outweigh these advantages most of the time.
2.3.5 Evidence of corruption in the Nigerian economy
Corruption is one of the major impediments to economic development in Nigeria. Transparency
International, an independent organisation, consistently ranks the country as one of the most
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corrupt in the world. Thomas (2000:144-145) identifies some of the many channels through
which corruption can weaken economic growth:
a. Misallocation of talent including underutilisation of key segments of the
society, such as women;
b. Lower levels of domestic and foreign investment;
c. Distorted enterprise development and growth of the unofficial economy;
d. Distorted public expenditure and investment and the deterioration of physical
infrastructure;
e. Lower public revenues and less provision of the rule of law as a public good;
and
f. State captured by the corporate elite of the “purchased” law and policy of the
state, thereby undermining growth of output and investment in the enterprise
sector.
Tanzi and Davoodi (1997) find in their studies that corruption increases public investment,
because it creates opportunities for manipulation by dishonest high-level officials. It also skews
the composition of public expenditure away from needed operations and maintenance spending
and directs it towards new equipment purchases, thereby reducing the productivity of public
investment, especially in infrastructure. According to these authors, under corruption, public
officials shun health programmes, because they offer less scope for rent-seeking; this may reduce
tax revenue, and compromise the government’s ability to collect taxes and tariffs. Ledermann,
Norman and Soares (2005:1), in their recent study, show that indicators of corruption are
negatively correlated with important economic outcomes. This implies that corruption is a
serious obstacle to development. Similarly, Mauro (1995:681-712) and Burki and Perry (1998)
stress that corruption reduces economic growth, via reduced private investment. Kaufmann and
Zoido-Lobaton (1999) also find that corruption limits development, as measured by per capita
income, child mortality and literacy; and Bai, Norman and Wei (2000) argue that corruption
affects the making of economic policy. There is little doubt therefore that corruption could have
constituted a strong impediment to economic development in Nigeria over the last two decades.
Abdullahi (2000:70) believes that the Nigerian economy has failed to achieve expected growth,
because Nigeria’s people have failed to manage and husband it in such a way as to fully achieve
33
its potential. Sadly, people rather talk copiously about the potential than take concrete measures
to exploit and harness this potential for the benefit and well-being of the Nigerian people.
Abdullahi (2000), however, suggests that with political will and commitment to the national
interest, the realisation of the large development potential especially in its agriculture is not
impossible.
Having presented an overview of the major developmental features, trends and challenges in
Nigeria, suffice it to respond to a pertinent question, namely, how Nigeria can accelerate the pace
of economic progress. The next section, therefore attempts to identify and articulate policyoriented development and growth prospects in the economy.
2.4 Development prospects of Nigeria
Nigeria is a developing country endowed with significant renewable and non-renewable
resources (Oladunni, 2004:31). Since 1998, when a democratic government took over power,
there have been a number of positive developments, which seem to suggest that the country is
willing to transform and create an enabling environment for growth and development in the
economy. The government has displayed measures of commitment to pursue some economic
reforms, maintaining macroeconomic stability and growth, by enhancing policies that largely
conform to global standards. Ogwuma (1996:6) says that the commitment of Nigeria to
implement these economic reforms will among other things, qualify the country for debt relief. If
all these reforms and policy are put in proper perspective, it can restore confidence in the
Nigerian economy. More so, domestic and foreign investment will begin to proliferate and thrive.
Employment opportunities and improved living conditions of Nigerians will begin to stimulate
growth and development in the country (see Zarsky, 2005).
2.4.1 Liberalisation of the economy
The past two decades have seen a worldwide shift in markets with developing countries opening
themselves to investment from overseas (Havrylyshyn, 2004:34). The guiding economic
principles and philosophies of a liberalised market economy are being pursued vigorously by
Nigeria. According to the World Bank (2004c:8), increased access to the markets of the
developed countries is critical for the development of poor countries. However, many developing
countries that have opened up their trade regimes are prevented from reaping the benefits,
34
because of market-access barriers imposed by developed countries, especially on agriculture,
textiles and clothing. These are labour-intensive sectors where developing countries typically
have a comparative advantage. Henry (2003:91-96) asserts that in countries that began to allow
foreigners to hold shares in domestic firms, a diverse group including Brazil, Indonesia and
Nigeria, investment growth averaged 1.1 per cent higher after liberalisation than before. The
Nigerian government, therefore, needs to moderate its trade liberalisation policy as the economy
seems too weak to absorb the negative shock from external trade (Olufemi, 2004:313).
2.4.2 Restructuring and privatisation programmes in Nigerian economy
The privatisation of moribund public enterprises that have contributed to mass corruption and
economic waste in the country is a bid to encourage efficiency, speed up quality of service
delivery, and generally stimulate a private sector-led economy. Tanzi and Schuknecht (2000:239)
explain that the privatisation of public enterprises and a growing private sector participation in
government-planned investment and public services seems widely accepted. The main vehicle
for funding and managing investment and technological innovation efficiently, creating more
jobs and labour income is by encouraging private sector-led growth and development. According
to the World Bank (2003b:92), private sector investment, whether domestic or foreign, is crucial
for the rejuvenation of the African economy.
A considerable literature about privatisation and experience with privatisation shows that it can
reduce operating inefficiencies resulting from overstaffing or poor management of public
enterprises (Tanzi & Schuknecht, 2000:175). The World Development Report (1994) says that
privatisation is most meaningful, when there is potential for competition in a sector, regulatory
requirements should then not be too strong, so that the public does not complain about abuse of
monopoly power by the private sector. Butzen and Fuss (2003:1) further stress that private
investment is a key variable in economies. It is therefore crucial for policy makers to understand
the mechanisms that determine investment spending.
The Nigerian government has repeatedly stated that economic recovery and growth are high
priorities on its policy agenda. This reflects recognition of the need to move the country from the
current path of slow growth to a way of more robust and sustainable growth. Privatisation is
therefore crucial to the government’s economic reform agenda and essential to its objectives of
35
fostering economic competitiveness and strengthening a private sector-led economy (Otobo,
2002:159). There is increasing awareness of the strategic role of the private sector as the engine
of economic growth and development, government predominance in economic activities is
giving way to privatisation and commercialisation of public enterprise. The private sector is
therefore expected to take the lead in promoting the growth of the manufacturing sector in
Nigeria (Ogwuma, 1995:70).
However, Zinnes, Eilat and Sachs (2001:146-170) argue that the benefit of privatisation without
a proper accompanying climate of open competition and rule of law may be very small or even
zero. According to the World Bank (2000:545-576), privatisation can result in a strong
concentration of ownership, and then a class of rent-seeking vested interests develops and
captures the state to ensure that policies work in their favour and prevent competition this then
slows further institutional and democratic development. Havrylyshyn (2004:40) believes that the
state vested interest in privatised enterprises may not occur if the process is rapid.
2.4.3 Financial sector liberalisation and policy reforms
In 2004, the Nigerian government initiated a compulsory merger and acquisition programme of
domestic banking institutions. The goal of this policy reform was to reduce the number of
commercial banks from about 89 to a manageably small number with large capital base of about
$250 million. Through this programme it was hoped that the banking groups at the end of 2005
would be better able to meet the demands of the changing domestic economy. Moreover, future
challenges from the globalisation and liberalisation process can contribute meaningfully towards
achieving sustainable growth and development in Nigeria. Concerted efforts are being made to
restore the productive base of the economy, and this overhaul of the banking and finance sector
to enable it to play an active role in financing manufacturing, agricultural and the mining sectors
of the economy is part of the process. According to Kochar (1997:339), the major obstacle to the
expansion of firms and productivity distribution is the limited availability of credit.
According to Quinn (2002:160), all countries in Africa have had severe economic problems of
one type or another, though those with most economic accountability, they have fared better than
those without such an accountability have tended to keep the levels of their currency aligned with
market prices. They have higher levels of investment; higher levels of both agriculture and
36
manufactured exports; invest in industries in which they have long-term comparative advantage;
keep their debt-to-export ratio relatively low; and keep export-agriculture taxation to a moderate
level. It is in an effort to emulate their success that Nigeria has embarked on these economic
reforms. Most recently, the International Monetary Fund has extolled Nigeria’s economic
reforms. In 2003, the economy grew at nearly 11 percent, its fastest rate in many years (IMF,
2004:55). This is attributed to increased oil production.
2.4.4 Attraction of foreign private investment into the agricultural sector
Attempting to expand the country’s agricultural productivity, the Nigerian government has
packaged some policy incentives to attract foreign large-scale commercial farmers into the
sector. The policy aims to increase productivity and adaptability of crops, diversify the variety of
crops; and enhance the nutritional value of food. It is equally important to combat the perennial
problems of poverty, malnutrition, starvation and disease. Furthermore, the Nigerian agricultural
sector has the capacity to create more jobs, directly in the farms and indirectly in the industries
where agricultural raw materials serve as basic inputs.
2.4.5 Industrialisation policy and incentives for small, medium and large-scale enterprises
The overriding objective of the industrial policy being pursed by the Nigerian government is to
accelerate the pace of industrial development by radically increasing value-adding at every stage
of the value-chain (National Planning Commission, 2004:78-80). Small and medium enterprises
are acknowledged to have potential for employment generation and wealth creation in an
economy. It is important to provide a platform for increasing productivity related to import
replacement and exports expansion; enhancing foreign exchange earnings; generating
employment; and raising per capita income, which increases per capita consumption. In addition,
a dynamic manufacturing sector creates investment capital at a rapid rate while promoting wider
and deeper linkages with other sectors of the economy.
Nigeria has large domestic and regional markets for its products, both manufactured and
agricultural. The country also has the potential of becoming industrialised, given the discovery
of iron ore and coal and the establishment and take-off of the steel industry. According to
Olomola (2004:181), the Nigerian government is already benefiting from the inflow of foreign
investment into the country, which enables the economy to achieve growth.
37
2.4.6 Social and environmental services reforms in the Nigerian economy
The present democratic government is committed to improving the living standards and wellbeing of Nigerians. Concerted efforts are being made to increase the proportion of the country’s
federal budgetary allocations to education and health facilities, environmental protection, rural
development and infrastructure as well as poverty reduction. With over sixty higher institutions
of learning in the country, and the numbers of highly educated Nigerians both inside and outside
the country, sufficient manpower and workforce is available for developmental activities in the
nation (National Planning Commission, 2004).
The development prospect for Nigeria depends on the government’s commitment to growthinducing policies that are consistent with international standards, as discussed above. Boughton
and Qureshi (2004:43) stress that policies in developing countries have improved, enhancing the
countries’ ability to better direct resources towards development policies both domestic and
external.
In terms of the environment, the World Bank (1994) reports that, like most of sub-Saharan
Africa, Nigeria’s key environmental problems are soil degradation, water contamination and
deforestation. If this is left unaddressed, these problems could cost the country an estimated $5
billion annually in the long term. Apparently alarmed by this report, the government has
embarked on environmental renewal and development initiatives, the primary goals of which are:
to take a full inventory of Nigeria’s natural resources; to assess the level of environmental
damage; and to design and implement restoration and rejuvenation measures to halt further
degradation of the environment.
A primary difference between African countries with good economic performance records and
those with poor records is the way these external factors are managed by domestic policies
(Adenikinju, Soderling, Soludo & Varoudakis, 2002:645). This suggests the importance of
adopting a proactive approach, showing commitment to sound macroeconomic management and
instituting an unbiased legal framework to tackle the problems of development in Nigeria.
38
In the following section, a review of the development model adopted by the newly
industrialised Asian countries (NICs), known as the Asian “Tigers” will be presented. Lessons
for development that may be relevant to Nigeria will be drawn from this discussion.
2.5 Evidence from development models in Asian countries
New economic development and growth models have brought significant advances in the
understanding of development and growth processes. They stress the importance of innovation,
human capital accumulation, the development of new technologies and financial intermediation
(Agenor & Montiel, 1999:703).
Empirical evidence reveals that countries that grow faster devote a larger share of their output to
investment (in physical as well as in human capital) (Parente and Prescott, 2006:24). Lower
inflation and a more stable macroeconomic environment often occur in more open than slowgrowing countries. The experience of the selected East Asian countries provides important
lessons about the policies that are compatible with rapid growth and development (Meyer &
Grag, 2005:1). The rapid development of the NICs is sustained by private investment (induced
by higher levels of domestic financial savings) and rapidly growing human capital (fostered by
increased public spending on primary and secondary education and health services). In addition,
a series of other factors have directly or indirectly played a significant role in what has become
known as the “East Asian Miracle” (World Bank, 1993).
Modern literature on development seems to suggest that the implantation of the Asian model of
development is crucial for most developing countries, especially in Africa. The reasons for this
are discussed shortly. However, it is important to note that these Asian countries have all reached
the status of “crossover” countries within reach of joining the ranks of developed nations.
Some development models to emerge from these countries include:
2.5 1 The adoption of special economic zones
These Asian countries opted for the establishment of Special Economic Zones such as Export
Processing Zones, where manufactured exports were given adequate attention. In other words,
this outward-oriented development model enables the countries to make successful inroads into
the world’s manufactured exports market (Meyer & Grag, 2005:1).
39
.
Rising volumes of world trade in manufactured goods has also increased the importance of the
industrial sector of these countries. The growth momentum of the East Asian counties has been
dictated by growth of industrial output, rather than agricultural output as it was in the early
1960s, this changing pattern of output has become a stylised fact in the development process
(Nidhiprabha, 2003:198). Nidhiprabha (2003) stresses further that the reason behind this rapid
growth is the expansion in exports of manufacturing products, made possible by outwardoriented development policies that reduce the bias against external trade. Capital formation
concentrate mainly in the manufacturing sector, thereby raising the productivity of industrial
workers higher than workers in other sectors.
2.5.2 Encouragement of private entrepreneurs and institutions
Private entrepreneurs and institutions are motivated to grow and develop by government policies.
There are platforms as well as deliberation councils through which government bureaus and
business representatives exchange and share information about technological best practices,
market opportunities and jointly find solutions to identifiable problems areas. Evans (1998a:75)
also notes that the government-business relationship did not emerge spontaneously in either
Korea or Taiwan, but was initially based on a deliberate “synthesis of scepticism and
enlistment”. According to Aryeetey and Nissanke (2003:46), the East Asian governments are
more accurately characterised as successful developmental authoritarian regimes, the economies
are by no means homogenous in many aspects.
2.5.3 Adoption of sound macroeconomic policy management
The East Asian countries have achieved remarkable records of sustained rapid growth over the
past three decades (Fishlow & Gwin, 1994:1). The economic development success factors of
these countries could be attributed to improved and sound macroeconomic policy. Adopting the
Asian model of good macroeconomic management has become an imperative for Nigeria and
other developing countries. Venter & Neuland (2005:110) believe that improved macroeconomic
fundamentals contributed to the stability and recovery in most African countries.
Therefore, sound macroeconomic policy, management and performance in the Asian countries
has encouraged private sector-led economic growth by allowing private individuals to play a
40
positive role in industrial development. Fishlow & Gwin (1994) stress that these governments
have triggered high rates of national savings, invested in universal education, and maintained a
high calibre of professionalism in the civil service.
2.5.4 Adoption of a labour intensive manufacturing strategy
The promotion of a labour-intensive manufacturing strategy has induced productivity in the
region and also attracted foreign investors from relatively costly industries in the advanced
world, who have relocated their plants and production in South East Asian countries where wage
rates are relatively cheap. The transfer of technologies and capital to the NICs has also resulted in
the governments’ rolling out extra incentives to export-oriented joint ventures and foreign
investment (Meyer & Grag, 2005:32). According to Meyer & Grag (2005), virtually all Asian
government have played and are still playing a strong role in the development of the local
economy.
The inflow of FDI into the East Asian region has contributed to the changing structure of the
economies by transforming predominantly agricultural countries into industrialising countries.
The speed of this transformation depends partly on the flow of foreign direct investment
(Nidhiprabha, 2003:202). The positive effect of FDI on the balance of payment leads to
accumulated international reserves in host countries, which has a strong impact on the stability
of their currencies.
2.5.5 Adoption of strategies to develop human capital
The East Asian countries under discussion have tended to introduce human capital development
policies. Countries at higher development levels such as Malaysia and Singapore have put great
emphasis on the role of government in providing education. The Malaysian government budget
allocated to education is higher than that allocated to defence, reflecting a strong commitment to
human capital development over the last decades. Malaysia and Singapore have achieved higher
standards of education than other countries in the region, giving them a comparative advantage in
producing higher value-added products and skilled labour-intensive products for export (Evans,
1998b).
41
2.5.6 Increased productivity and rise in real wages
The rise in real wages in urban sectors attracts unskilled labour from rural areas to the industrial
sector. Consequently, the structure of employment also changes with a rising share of industrial
workers in total employment at the expense of the share of labour in agriculture. High growth
rates experienced by these countries are arguably the result of rapid expansion of output in the
industrial sector, which can be explained by improvements in both the quality and quantity of the
labour force employed in this sector. In other words, the East Asian economy has grown rapidly,
because of the increased productivity of labour, rise in real wages, macroeconomic stability,
infrastructural development, and a switch-over effect. The rural agricultural unskilled labour are
absorbed into manufacturing enterprises (Nidhiprabha, 2003).
2.5.7 Mitigation of corruption in the economies
Although the East Asian economies are not insulated from corruption, it features in these
economies more in the relationships between politicians and large private business concerns than
in those between government officials and middle or lower class groups. In other words, the
cases of corrupt practices among interest groupings commonly observed in other developing
countries are not found in East Asian economies. According to Nidhiprabha (2003), in general, in
the East Asian economies, strong control mechanisms are in place to check rent-seeking
activities.
Having reviewed the East Asian economies and their development path and process, it is
important to sketch the anatomy of a development model for one of these Asian countries that
was at the same level of development as Nigeria in the 1950s and 1960s. It is likely that
valuable development lessons can be drawn from such a model. In the next section, an
overview and lessons from a Malaysian development model are presented.
2.6 Overview and lessons from a Malaysian development model
Malaysia operates in a mixed economy, and its public sector is efficiently managed. Malaysia as
an upper middle-income economy and is already on the verge of becoming a newly industrialised
country. The country is endowed with great natural and agricultural wealth. Its agricultural
sector includes forestry, fisheries and rubber, which have long been key products for export. Its
42
second-tier export commodities include palm oil, cocoa, pineapple and coconuts, all the states
produce rice, the main grain crop, but not for export. Malaysia is a major producer of tropical
hardwoods. Overall, the main agricultural exports are palm oil, wood and wood products and
rubber (Department of Information Services Malaysia, 2003:40-42)
The main mineral resources are tin, petroleum, copper, iron ore, natural gas and bauxite.
Although Malaysia is only a small oil producer in terms of petroleum exports, revenue from
petroleum exports contributes significantly in boosting the country’s economic performance and
growth (Department of Information Services Malaysia, 2003:41).
The Malaysian manufacturing sector records consistent growth since 1960 with vigorous
encouragement from the government. Machinery and transport equipment constitute the majority
of the country’s export earnings. Other manufactured products include cement, refined sugar,
wheat flour, other processed foods, fertiliser, plywood, radio receivers and automobile tyres. The
country’s major export and import destinations include Japan, Singapore and the U.S. A range of
incentives, such as reduced duties applies to imported raw materials for the production of goods
for export (Jan, 2003:42). Malaysia has a modern railway system and extensive waterways as
well as a good road network, all of which are linked to eight seaports. The country has a total of
102 airports, of which 32 have permanent surface runways. The telecommunications system in
the country is one of the best in Asia (Department of Information Services Malaysia, 2003).
According to Jan (2003), Malaysia’s GDP grew by 5.4 percent in 2002, a figure expected to
increase to 5.7 percent in 2003. The external reserve is put at USD34.2 billion, and the
unemployment rate at 3.4 percent, which implies full employment. The growth rates for
agricultural and manufacturing GDP in 2002 were 5.4 percent and 5.3 percent respectively.
The exports and imports for the same year were RM39.7 billion or $4.96billion and RM13.4
billion or $1.68 billion respectively, showing a trade surplus of RM13.4 billion or about $1.68
billion.
The Malaysian government ensures that the economy continues to achieve sustainable
domestic business and industry to generate higher economic growth. The country’s National
Development Policy (NDP) contained a long-term vision working towards 2020. The broad
43
objective of the NDP is to attain balanced development in order to create a more united and
just society. Jan (2003) further explains other objectives of the NDP, which include:
a) Optimising growth by ensuring the goals of economic growth and equity;
b) Reducing and ultimately eliminating social and economic inequities and imbalances to
promote a fair and more equitable sharing of the benefits of growth by all citizens;
c) Promoting and strengthening national integration by reducing the wide disparities in
economic development between states, and between urban and rural areas in the
country;
d) Promoting human resource development, including creating a productive and
disciplined work force. The government is developing the necessary skills to meet the
challenges of an industrial society through a culture of positive values and attitudes;
e) Making science and technology an integral components of socio-economic planning
and development;
f) Relying more on the private sector’s involvement in restructuring processes and
mobilising high domestic savings to support investment;
g) Emphasising large-scale industrial production for exports for global markets in order to
enjoy the advantages economies of scale and lower costs of production as well as
restructuring strategic industries to nurture capital and technology-intensive and
knowledge-based activities;
h) Instituting measures to reduce the deficit in the current balance of payments by
encouraging domestic industrial inputs to meet domestic demand as well as exports
expanding potential activities in the services sector that can be exported to correct
imbalances in the services account of the balance of payments;
i) Establishing strategic alliance and niche markets overseas to encourage Malaysian
investors to venture abroad source their capital from international markets in the era of
increasing globalisation of business operations;
j) Maintaining an efficient management of the macroeconomy of the country and ensuring a
prudent financial and fiscal policies besides developing a knowledge-based economy;
k) Increase national productivity by upgrading the knowledge, skills and specialisation of
workers enhancing research and development (R&D) activities and achievement in
science and technology; and
44
l) Extending the use of Information Technology (IT) to all economic sectors in order to
accelerate the growth process.
In 1999, Malaysia undertook major banking reform that led to the merger of the domestic
banking institutions into six large, strong domestic financial groups thus reducing the number of
domestic commercial banks, finance companies and merchant banks (Department of Information
Services Malaysia, 2003). The commercial banks located throughout the country are the largest
and most significant providers of funds. They maintain trading and financial connections with the
major financial centres of the world. The finance companies constitute the second most important
source of private sector credit in Malaysia. Loans granted by finance companies are mainly loans
for the purchase of motor vehicles, leasing finance, housing loans and other short-medium-terms
business finance. Merchant banks complement the activities and services already offered by the
commercial bank. They act as intermediaries in the short-term money market and the capital
market. They provide corporate financial services and financial portfolio management.
The Government continues to give priority to education, with 27 percent of the total budget in
2003 being allocated to this sector. Greater emphasis is given to pre-school and primary levels.
The government also runs integrated schools where students are offered a choice of subjects
from three streams, focusing on the pure sciences and technology. To enhance computer
learning and information communication technology, smart schools which are equipped with
computer laboratories emphasise the use of software for the teaching of mathematics and
sciences (Department of Information Services Malaysia, 2003). .
Malaysia has proved to be one of the most politically stable economies in South East Asia and a
strong member of the Association of South East Asian Nations (ASEAN). It has maintained a
steady increase in living standard with a per capita income that places it in the upper-middle
income group of countries. With an expanding economy, Malaysia is one of the cross-over
countries that may be ranked as developed in the near future (Nidhiprabha, 2003).
The development models of the Asian Tigers have been reviewed and specific development
experiences and strategies drawn from the Malaysian economy. In the subsequent section,
45
some valuable information from these development models will be presented as lessons for the
Nigerian economy.
2.7 Development model applicable to Nigeria
There is no reason to believe that developing countries are in principle incapable of reaching
higher levels of prosperity. however, it is rather unlikely that the path to a higher per capita
income will be the same as the path rich countries have followed in the past (Szirmai,
1997:54). According to Szirmai (1997), initial conditions for development differ in each period
and in every phase of development of international economic and political order. This involves
demographic development of world trade;
international competition; technological
development; the international balancing of power; the nature of relationships with rich
countries. (Szirmai, 1997) stresses that around 1700, developing countries were about as rich
as the present affluent countries at that time.
In essence, Nigeria and other developing
countries aspiring for break throughs in economic development can be advised not necessarily
to adopt the development models of rich countries, but rather to follow policy decisions made
in developing countries.
According to the World Bank (2004d:4), the lessons of research and experience have produced
a broad consensus on an effective strategy for development, one that is country-owned and
country-led. This promotes growth, ensures that poor people participate in and benefit from it,
and produces maximum progress towards achieving a sustainable development and growth. A
development model for a developing country like Nigeria could therefore incorporate the
following: efficient utilisation of agricultural potentials; adoption of attractive manufacturing
(industrial) incentives; attraction of FDI; outward-oriented or export-led development
strategies private-entrepreneur driven development process; a strong and civilised professional
civil service; human resources development; and an information and technology-driven model.
Each of these measures will now be briefly discussed.
2.7.1 Efficient utilisation of agricultural potentials in the development process
A problem with developing countries, of which Nigeria is one, is the neglect of agriculture.
The drive to industrialisation by many developing countries has often been highly damaging to
agriculture, especially with little or no rural infrastructure (Sloman, 2003:746). Nigeria’s socio-
46
economic history and development have been very closely tied to its agricultural sector
(Abdullahi, 2002:67).
The Nigerian agricultural sector, Abdullahi (2002:68) believes has the potential to drive the
economic development process of the country, as the following facts suggest:
a) Total land mass of about 923,771 sq km (92.4 million hectares),
b) Estimated arable land are 68 million hectares,
c) Natural forests and range land of about 37 million hectares,
d) Large diversity of livestock and wild-life,
e) Large rivers and lakes of about 120,000 sq km
f) Coastal and marine resources of about 960 km of shore line,
g) Variable suitable climates,
h) Large population estimated at 120 million,
i) Large consumers market,
j) Relatively high-levels of available manpower,
k) Large regional and continental African markets, and
l) Large potential world market.
Agriculture is assigned the role of providing food, and raw materials for industries, creating
employment, providing a market for industrial products such as chemicals, and generating
foreign exchange. With recent developments and the wide consumption and use of cassava for
food security among the poor nations by the Food and Agriculture Organisation (FAO), the
Nigerian government has quickly put in place a Presidential Committee on cassava production.
The mandate to ensure that the country becomes a world-acknowledged cassava export nation
(Abubakar, 2003:6). Agriculture has the capacity to mitigate the rapid rural–urban migration.
One major reason for an increasingly large population in the urban areas is that people are no
longer dependent on farms or subsistence agriculture. This is as a result of urban-oriented
development strategies.
However, considering the number of programmes that have been introduced by the Nigerian
authorities to resolve the country’s food crises and the subsequent failures of these programmes,
a radical departure from the old programme becomes necessary (Ilorah, 2002:81). It has been
47
suggested that agricultural biotechnology may contribute significantly in overcoming the
perennial shortage of vitamins A and D, of iron, iodine and calories in the diets of people in
developing countries including Nigeria. Therefore, the introduction of agricultural biotechnology
will increase yields and the nutritional quality of crops (Johnson, 2002:1-2).
2.7.2 Adoption of attractive manufacturing (industrial) incentives
The manufacturing sector, including small-and-medium scale enterprises, has great potential for
generating employment, foreign exchange and wealth in the economy. Nigeria’s industrial policy
should be made appealing to speed up the process of industrialisation by motivating and
providing an attractive package of incentives for private entrepreneurs. The surest way to rapidly
accelerate industrialisation in the economy is to put in place a conducive policy environment that
will attract both local and foreign direct investment to the country. Walker (2006:27) stresses that
the key to success of the industrialised countries was based on the platform for achieving
diversification and economic growth. Nigeria with its large renewable and non-renewable
resources should be able to articulate sound industrialisation policy.
2.7.3 Attraction of FDI into the economy
FDI brings great assets to a host economy if that country can induce investors to transfer their
advantages in appropriate forms. Lall (2002:330) says the assets of FDI can include:
a) Provision of adequate capital. FDI brings in investable financial resources to capitalscarce countries. The inflows of capital to the resident countries are more stable and
easier to service than commercial debt or portfolio investment within the domestic
economies.
b) Provision of technology and experts to the resident countries. Developing countries tend
to lag in the use of technology, and many of the technologies deployed even in mature
industries may be outdated. The efficiency with which these countries use given
technologies is often relatively low. FDI can drive development of modern technologies
and raise the efficiency with which the technologies are used. Investors can adopt
technologies to suit local conditions, drawing on their experience in other developing
countries, may in some cases set up local Research and Development (R&D) facilities.
They can upgrade the technologies as innovations emerge and consumption patterns
48
change. They can stimulate technical efficiency in local firms, both suppliers and
competitors, by providing assistance, acting as a role model and intensifying competition.
c) Provision of skills and management expertise. FDI often possesses advanced skills and
can transfer these to host countries by bringing in experts and by setting up training
facilities. They also possess new management techniques, presumably among the best
available whose transfer to host countries offers enormous competitive benefits.
d) Provision of market access to host counties exports. FDI can provide access to export
markets, both for existing activities (that switch from domestic to international markets)
and for new activities. More important is the fact that FDI is often by definition the only
way to enter the international production systems that increasingly dominate trade in
sophisticated and high-tech products. Export activity in turn offers many important
benefits. These benefits include: technical information, realisation of scale economies,
competitive stimulus and market intelligence.
e) Provision of environmental friendly technology: FDI often possess advanced
environmental technologies and can use them in all the countries in which they operate
2.7.4 Outwardly-oriented or export-led development strategies through trade and
regional integration
Nigeria should be committed to the full and complete implementation of the Economic
Community of West African States (ECOWAS) and free-trade zone agreements, strive towards
the creation of a single monetary zone and common custom territory. The relevance of trade,
investment and regional integration is imperative. This is because developing countries that have
attracted many of these foreign direct investment (namely Brazil, Chinese Coastal provinces,
Colombia, Indonesia, Malaysia, Mexico, Taiwan, Thailand, and Turkey). These are countries
with established records of foreign trade and with developed internal markets (Lieten, 2001:106).
This export model shows factors that enhance economic development. State and local policy
makers need to support programmes that will expand the export sector. Export-based jobs can
stimulate growth in other areas of the local economy (Mocombe, 2006). According to him,
export-producing industries are believed to be critical to a region’s growth for a variety of
reasons. Firstly, export industries attract income from other countries, which income can be used
to finance imports of goods and services. Secondly, export industries tend to be technologically
49
advanced and to operate at comparatively high levels of productivity. Thirdly, since export
industries are often linked to other regions and industries, they encourage the integration of
regions within the national economy; and fourthly, a strong export sector allows a region to shift
part of its tax burden to residents of other countries. Mocombe, (2006) further links the export
model with the innovation model, which he says is essential for maintaining economic
prosperity; innovation and the creation of unique products.
2.7.5 Private-entrepreneur driven development process
Lessons drawn from the East Asian economic miracles reveal that the crucial success story
behind their rapid development and growth is based on private-sector-motivated government
policies. For Nigeria to increase the contribution of its manufacturing sector to the GDP and to
increase its exports, a vibrant private sector that can respond positively to the rigors of market
forces act as an engine of growth must be encouraged. According to Jenei (1999:60), the salient
trend in modern public administration is the pursuit of greater operational efficiency and
effectiveness. In the view of McDade & Spring (1998), a new generation of African entrepreneur
is networking to change the climate for business and private-sector-led development. These
thinkers say that this small but growing segment of African entrepreneurs may serve as a catalyst
to improve economic conditions and stimulate private-sector-led development. These businesses
span the extremes. The configuration includes informal and formal sector business, traditional
and modern, indigenous and foreign-owned enterprises that are geographically dispersed in rural
and urban areas.
2.7.6 A need for a professional civil service
There may be a strong need to put in place a highly civilised and professional civil service that
can respond to the infrastructural, legal and market needs of private entrepreneurs. A responsive
and efficient public sector should play the role of addressing the issue of market failure, and
enforcing contractual rights, investment, property rights, and aspects of legal frameworks. The
central role of markets is almost universally declared, but few government agencies in developed
and developing countries would think of applying the concept of planning to their efforts to
influence the directions of the economic and social progress driven by market forces (Baudot,
1999:28). According to Dickenson (1996:260), the role of government has changed from being
the leading direct provider of economic and social investment to one of providing an enabling
50
economic and political infrastructure. The role of government is to ensure the rule of law and
quality of governance and encouraging local and international companies to invest in production
enterprises.
In addition, to complement the role of the market, a responsive and efficient public sector is
required for formulating the development strategies and economic plans needed to use national
resources in the best interests of the nation as a whole (Dickenson, 1996).
2.7.7 Human resources development
For meaningful economic growth and development to be achieved in Nigeria, the economic
development model should help every citizen to realise his/her full potential for well-being,
fulfilment and accomplishment of happiness, love and contentment. Nidhiprabha (2003:305)
notes that countries like Malaysia and Singapore that have higher budget allocations to education
than defence, achieve higher standards than other countries in the region. Since they enjoy a
comparative advantage in producing value-added products and labour-intensive products for
export. Past human resources development and anti-poverty strategies implemented in Nigeria
were not sustainable. They appeared in the form of an ad-hoc, uncoordinated and more or less
fire-fighting approach. Public projects such as the Directorate for Food Road, and Rural
Infrastructure (DFRRI), the National Directorate for Employment (NDE), the Peoples Bank, the
Community Bank, the Better Life for Rural Women, the Family Support Programmes and the
Family Advancement and Economic Empowerment strategy could not add value nor produce
any sustainable positive effect on the citizens. These public projects suffered severe problems
such as poor coordination, the absence of a comprehensive policy framework, undue political
interference, failure to target the poor, high levels of corruption and leakage in the economy
(National Planning Commission, 2004:100).
Several recent empirical studies at the household level using panel data provide support for a
strong interaction between human development and growth in income countries have put in
place incentive structures and complementary investment to ensure that better health and
education lead to higher income. The people have always benefited doubly; they are healthier
and better educated, and they increase their consumption (Kanbur & Vines, 2000:93).
51
2.7.8 Information technology driven economy
The deregulation of the telecommunication sector in Nigeria has led to the arrival of more than
three giant mobile telecommunication companies. The operation of these companies have caused
much growth in the sales of mobile telephone lines and accessories. According to the World
Bank (1996:28-29), high-quality communications are essential for countries that aim to
participate in the global production structure established by multinational corporations, to
respond promptly, to rapidly changing market conditions in industrial countries, or to participate
in new export markets. Communication is vital for the functions such as long-distance service,
including data processing, software programming back-office service and customer support.
For all these reasons, one would expect to find a positive correlation between telephone density
and the degree to which developing countries are integrated into the global economy (James,
1999:22). James (1999) also believes that one of the most important mechanisms through which
technology spurs globalisation is by making it more attractive for multinationals to engage in
dispersion of their economic activities, in so far as this mechanism is driven by the desire to
reduce costs, it is often developing rather than developed countries that will benefit from the
globalisation this induces.
The era of globalisation is driven by computerisation, miniaturisation, digitalisation, satellite
communications, fibre optics and the internet (Shamsuddeen, 1998:7). The global spread of
production requires that, beyond the availability of new technology, two additional conditions be
satisfied, namely, a liberal international trading system and a relatively well-educated labour
force. When these are put in place, new systems of communication, and information processing
and control can allow profitable production to be carried out virtually anywhere. Incidentally, no
country is so remote that investors will be dissuaded by location alone, because modern
production methods can be introduced into countries that previously were by–passed by
economic development (Mandle, 2003:9 -10)
2.8 Summary of the review findings and conclusions
This chapter is devoted for an overview of the concept of economic development and the
relevance to the Nigerian economy. The development impediments and challenges that have
confronted Nigeria since it gained political independence. It also discusses the development
52
prospects of Nigeria. The analysis of the evidence from development models in Asian countries
were reviewed. Specifically an overview and lessons from a Malaysian development model that
could be applicable to Nigeria were expounded.
Literature suggests that Nigeria has not been able to make rapid economic development given its
large potentials of renewable and non renewable resources. The development impediments of
Nigeria were blamed on its undiversified economic base. The country was practically a monocultural economy with heavy reliance on crude oil exports to the utter neglect of other important
real sectors such as agriculture, manufacturing, mining and quarrying. The external debt
overhang and the debt service ratio over the exports rose to 23.9 percent in 1990, but had
decreased to 7.2 percent in 2004 (CBN Annual Report and Statement of Accounts, 2005:76).
Weak manufacturing and increasing rate of incidence of poverty further impeded economic
progress in the country. Evidence of corruption in the economy dealt a major blow to economic
development in Nigeria. Apart from corrupt leaders taking large sum of hard currency overseas,
depleting resources to run the country, foreign investment into the country stagnated due to
macroeconomic instability and the spite of corruption in the country.
The economic review also showed prospects of Nigeria’s economic recovery especially with the
enthronement of a democratic government in the country since 1998. Economic prospects were
sited from economic reforms of liberalisation of the economy, restructuring and privatisation
programmes to encourage organised private sector participation in the economy that was hitherto
dominated by the public sector as at 1998. These reforms were aimed at attracting domestic and
foreign investment into the economy. Financial sector liberalisation and policy reforms were
pursued to reduce the fragmented banking institutions from a total number of about 89 to 25 in
2005 (CBN Annual Report and Statement of Accounts, 2005: 46). The banking consolidation
was targeted at making the sector participate actively in financing the agricultural, manufacturing
and mining and quarrying sectors production for economic development and growth. The review
also revealed that industrialisation policy and incentives for small, medium and large-scale
enterprises, social and environmental services were included in the reform policy package. The
policy stances of these reforms are part and parcel of the National Economic Empowerment and
Development Strategy (NEEDS) to grow the economy and attain the MDGs by 2015 (see the
National Planning Commission, 2004:75-89).
53
A review of the development model adopted by the newly industrialised Asian countries (NICs),
known as the Asian “Tigers” was done. Lessons for development that may be relevant to Nigeria
are drawn, these include: the adoption of special economic zones, encouragement of private
entrepreneurs and institutions and the adoption of sound macroeconomic policy management.
Also drawn for the development model of the Asian countries include: the adoption of a labour
intensive manufacturing strategy, adoption of strategies to develop human capital, increased
productivity and rise in real wages and mitigation of corruption in the economies. The Asian
model of economic development were focused on because Nigeria was at par with some of these
countries in the 1960s in terms of aspiration to attain a high economic development and growth.
Literature and evidence from these countries economic advancement have shown that they are
regarded as “cross over” or newly industrialised countries.
Malaysia’s development experience and lessons are drawn for Nigeria. Malaysia is one of the
cross-over countries that may be ranked as developed in the near future. It has proved to be one
of the most politically stable economies in South East Asia and a strong member of the
Association of South East Asian Nations (ASEAN). It has maintained a steady increase in living
standard with a per capita income that places it in the upper-middle income group of countries.
With an expanding economy, Malaysia virtually has some salient similarities with Nigeria in
terms of renewable and non-renewable resources endowment, heterogeneous and diversified
ethnic and tribal population. It stands to reason therefore, that Nigeria can benefit from the
lessons of development model of Malaysia.
The literature review has shown the state (situation) and challenges that faced the Nigerian
economy. It is imperative to suggest that the policy reforms embarked on by the present civilian
government should be pursued to conclusive and robust end by the next government as from
2007. A pragmatic approach to diversify the Nigerian economy by giving priority attention to
agricultural development to complement in foreign exchange generation, in the provision of
productive employment and food security in the country. The output performance and
employment creation of the manufacturing sector will be encouraged if the reform to upgrade the
energy (power) sector is speedily concluded. However, the silent disposition shown by Nigerian
governments over the development of the solid mineral sector should be discouraged. A pro-
54
active deregulation and repositioning measures should be taken by government to open up and
privatise the mines so that it can complement in the employment and income generation in the
country.
A sustained effort to channel resources and improve the output performance and growth of the
agricultural, manufacturing and mining sectors will raise the tempo of economic activities of
employment generation, income, food security and foreign exchange earning to the country. The
reform to mitigate corruption should be reinforced given the positive impact on the recent exist
from the Paris Club debt burden and debt relief granted to Nigeria. The resources freed from the
debt relief should be channelled to the health and the education sectors. Concerted efforts to
reinforce the implementation of the various economic recovery reforms in terms of the
diversification of the productive base of the economy, upgrading the power sector, committing
the banking institutions to finance the production of the agricultural, manufacturing and mining
sectors will lead to rapid economic development and growth in Nigeria.
In the next chapter, the policy framework of the MDGs is discussed, and efforts, challenges, and
the role of development partners are presented.
55
CHAPTER THREE
POLICY FRAMEWORK TO ACHIEVE THE MILLENNIUM DEVELOPMENT
GOALS IN NIGERIA.
3.1 Introduction
The upsurge of interest in studying the economic development of poor countries dates back to
official calls for a new international economic order, usually by the United Nations (UN) and
its various agencies. Thomas (2000:4) notes that development goals and targets have been
reiterated in several areas related to poverty alleviation, and the goals have been agreed upon at
a series of OECD, UN and World Bank conferences, national governments and international
agencies remain unable to mount concerted and successful development efforts to remedy the
situation.
However, the 1999s have witnessed the spontaneous creation of several national pressure
groupings in different parts of the world, whose platform is the abolition of world poverty
(Thirlwall, 2003:18). The development of the third world, which above all needs the
eradication of poverty, is now regarded as one of the major problems facing mankind. This is
one of the world’s greatest social and economic challenges.
One of the most memorable moments of this trend came when the UN Assembly rose from the
Millennium Summit, in September 2000, with the eight-point MDGs, binding countries to do
more and join forces in the fight against poverty, illiteracy, hunger, lack of education, gender
inequality, disease and environmental degradation. Commitments were made to specific timebound targets and goals, all focused on the development of the third world. The Summit Report
focuses the problem, saying that no country can achieve economic growth and development
and reduce poverty, while its people cannot read or write, or while its people struggle with
malnourishment and sickness. Yet as the new millennium began hundreds of millions of people
still lack the minimal accepted levels of education, health and nutrition that so many in
industrialised world take for granted (World Bank, 2001:7).
56
The MDGs state the paramount task of development, such as improving the welfare of all
people on earth to help them realise their human potential, to reduce insecurity and increase
opportunity, and to ensure that benefits secured in the current generation are sustained and
augmented in the next generation (World Bank, 2003c:3). The MDGs set specific targets for
improving poverty, education, and the status of women, health, environmental conservation
and global development cooperation. Now widely accepted as a framework for measuring
development progress, the goals focus the efforts of the world community on achieving
significant, measurable improvements in people’s lives. They establish yardsticks for
measuring results, not just for developing countries, but also for developed countries that
would help to fund development in programmes for the multilateral institutions that help
countries implement the programmes.
Each of the goals is important by itself, but should be viewed together with the rest, because they
are mutually reinforcing. Better healthcare, for example, improves school enrolment and reduces
poverty. Better education leads to better health, and increasing income gives people more
resources to pursue better education and healthcare and a cleaner environment (World Bank,
2003d). The purpose of this chapter is to set out and also highlight the background and policy
framework of the MDGs. In most cases, the challenges facing and progress towards the goals are
also assessed.
3.2 Policy framework of the MDGs
The goals are interrelated and mutually reinforcing, while they aim to eradicate poverty, human
suffering and misery in developing countries. The eight development goals approved by the
UN Assembly (United Nations 2003) are shown in Table 3.1.
57
Table 3.1 The MDGs, targets and main challenges
Goal Number 1
The target
The main
challenge
Goal Number 2
The target
The main
challenge
Goal Number 3
The target
The main
challenge
Goal Number 4
The target
The main
challenge
Goal Number 5
The target
The main
challenge
Goal Number 6
The target
The main
challenge
Goal Number 7
Eradication of extreme poverty, extreme hunger and malnutrition
To halve the proportion of people living on less than a dollar a day and those who
suffer from hunger by 2015
In the developing world an estimated 1.2 billion people survive on less than $1 a
day, 800 million are undernourished and 153 million children under age five are
underweight. In Sub-Saharan Africa half of the population lives in poverty.
Universal primary education
To ensure that all boys and girls complete primary school by 2015
The major challenge is that an estimated 114 million children of primary school age in
the world are not enrolled in school, depriving one in every five children of access to
even the most basic education.
Promotion of gender equality and empower women:
To eliminate gender disparities in primary and secondary education, preferably by
2005, and at all levels by 2015
Gender disparity exists everywhere in the world. Overcoming women’s disadvantages
in the labour force and increasing their representation in public life also help to
encourage girls to attend and stay in school. There is urgent need of overcoming the
social and economic obstacles that stop parents from sending their daughters to
school, girls safety and lack of suitable toilet facilities inhabits attendance.
Eradication of child mortality:
To reduce by two thirds between 1990 and 2015 the under-five mortality rate
Close to 11 million children under the age of 5 die in the world every year, well over
1,200 every hour, mostly from easily preventable or clinically treatable sicknesses.
Child mortality is closely linked to poverty.
Improvement of the health of mothers:
To reduce by three quarters, between 1990 and 2015, the maternal mortality rate
Globally, some 500,000 women die in pregnancy or childbirth each year, one every
minute. Most of these deaths occur in developing countries. The rich countries’
average maternal mortality ratio is around 21 deaths per 100,000 live births, while
this ratio may be as high as 1000 deaths per 100,000 live births in poor countries.
Combating of HIV/AIDS, malaria and other diseases:
To halt and begin to reverse the spread of HIV/AIDS and the incidence of malaria and
other diseases
HIV/AIDS is the leading cause of death in sub-Saharan Africa and, worldwide, the
fourth greatest killer. Sub-Saharan Africa is the most affected region, but other
regions, including South Asia and the Caribbean, are experiencing rapid increases
in the incidence of HIV/AIDS. Malaria is endemic in large parts of the developing
world, particularly in tropical and sub-tropical regions. WHO estimates that 300500 million cases occur each year, leading to 1.1 million deaths (WHO:2002).
Almost 90 percent of all cases of malaria occur in sub-Saharan Africa, where
children are the most affected and malaria may account for as much as 25 percent of
child mortality. Since children mostly bear the greatest burden of malaria, the
millennium declaration focuses mainly on monitoring children under five years of
age.
Ensuring environmental sustainability
58
The target
The main
challenge
Goal Number 8
The target
The main
challenge
To integrate the principles of sustainable development into country policies and
programmes and reverse the loss of environmental resources by 2015 to reduce by
half the proportion of people without access to safe drinking water; by 2020, to
achieve significant improvement in the lives of at least 100 million slum dwellers
Almost 2.4 billion people do not have access to improved sanitation and some 1.2
billion do not have access to an improved source of water.
Development of a global partnership for development
To ensure that rich countries take responsibility for establishing equitable access to
their markets and technology and for creating a favourable financial environment.
Good governance and focus on social needs and human capital are essential for
developing countries to achieve the goals within their own territories
Pledges to increase development assistance should be honoured and progress on
relieving the debt burdens of poor nations needs to be stepped up. The promise of
the Doha round of international trade negotiations should be fulfilled, including the
reduction of agricultural subsidies, which disadvantage farmers of developing
countries in the world market.
3.3 The MDGs: efforts, progress and challenges in Nigeria.
This section deals with the assessment of the efforts and progress made and the challenges facing
Nigeria in its efforts to reach the MDGs by 2015. The new civilian administration in Nigeria has
since 1999 prepared an economic development plan that focuses on the economic and social
empowerment of Nigerians, wealth creation, employment generation, poverty reduction and
value re-orientation. This programme, called the National Economic Empowerment and
Development Strategy (NEEDS), is rooted in the experience of past failed plans, an articulation
of a clear national purpose or vision, and a realistic appraisal of what is feasible within the
medium to longer-term framework (National Planning Commission, 2004:12).
Table 3.2 below highlights the implications of alternative growth scenarios for per capita income
and poverty reduction in the medium and long-run. The scenarios assumes that the respective
growth rates are maintained until 2030, with no demographic transition (constant population
growth rate of 2.8%), and also constant urbanisation growth rate.
59
Table 3.2. Implications of alternative growth scenarios for key development indicators
2000
Actual
2015
2030
Per capita income average growth performance (1999-2002):3.6%
$300
$328
$352
Poverty incidence (assuming 3.6% annual growth
70%
70%
80%
B
Per capita income assuming 5% annual growth
$300
$416
$576
70%
70%
70%
C
Poverty incidence (assuming 5% annual growth)
Per capita income assuming MDGs-compatible growth rate of 7%
per annum
$300
42
million
(35%)
$556
87
million
(48%)
$1,031
182
million
(66%)
A
E Urbanisation (with 5% annual rate growth)
Source: National Planning Commission, 2004. p23.
a) Scenario A considers the implication of Nigeria’s maintaining the average growth
performance recorded over the last four years (1999-2002), about 3.5% until 2030.
Assuming that per capita income was $300 in 2000, by 2015 it should have increased by
just US$28, and by 2030 by $52, leaving Nigeria as one of the poorest countries in the
world if current trends in the rest of world continue. Poverty obviously will have
worsened and, given the poverty-growth elasticity, its incidence could be as high as 80
percent in 2030.
b) Scenario B considers the implications of re-enacting the average growth performance in
the late 1980s (5%); that is, the growth rate required to prevent poverty from escalating,
but not enough to reduce it. Essentially, the poverty incidence will stay constant at 70%
percent even in 2030, while per capita income will increase to $416 by 2015 and $576 by
2030, still leaving the average Nigerian very poor.
c) Scenario C considers the implications of Nigeria’s fundamentally changing its strategy
and achieving an average 7% percent growth rate per annum, which is compatible with
the MDGs, and with reducing the incidence of poverty by half by 2015. This growth rate
leads to the halving of the incidence of poverty by 2015, and leaves less than 20% percent
of the population below the poverty line in 2030, provided that growth is broad- based
and pro-poor ( National Planning Commission, 2004: 23).
The rather gloomy scenarios, A and B, which derive from Nigeria’s historical experience, are
also in the context of rather high population growth rate (National Planning Commission,
2004:23). As illustrated in Table 3.2, Nigeria needs a vibrant and growing economy to be able to
60
reduce the level of poverty in the country. With its many renewable and non-renewable
resources, offering opportunities to jump-start faster growth with sound macroeconomic policies
National Planning Commission, (2004:32-33) policy objectives include:
a) Sustaining high but broad, non-oil base growth of GDP at a rate consistent with poverty
reduction and employment generation;
b) Diversifying the productive structure away from oil/mineral resources;
c) Ensuring international competitiveness of the productive sector; and
d) Systematically reducing the role of government in the direct production of goods and
strengthening its facilitation and regulatory functions.
In the light of these macroeconomic policy objectives, the Nigerian government intends to
deploy the following key instruments to achieve its growth and development strategy (National
Planning Commission, 2004), the policy objectives include:
a) Privatisation, de-regulation and liberalisation;
b) Coordinated national sectoral development strategies for agriculture, and industries
(especially small and medium scale enterprises);
c) Infrastructural development, especially electricity, transport and water;
d) Addressing the problems of financing the real sector and mobilising long-term savings
and investment;
e) Effective regulatory regimes;
f) Targeting of programmes to promote private sector growth and development
g) Strengthening the machinery for tax collection, and tracking of all government revenues
paid into different bank accounts, as well as for recovering debts, misappropriated and
looted funds and payments for work not executed;
h) Tracking/responding to comparative/international standards;
i) Promotion of investments;
j) Export promotion and diversification of exports away from oil;
k) Seeking of debt reduction to make Nigeria’s debt service sustainable;
l) Restructuring of the composition of credit to the private sector to boost production;
m) Provision of more credit to the private sector especially long term credit for real sector
development;
n) Tackling of corruption and improvement of the efficiency of government accounts, and
61
o) Redefinition of the role of the government as a facilitator providing an enabling
environment for the private sector to invest and operate in a free market-system.
Further challenges to achieving the MDGs include poverty, the most difficult challenge facing
Nigeria and its citizens. Poverty is also a major hurdle that must be overcome in the pursuit of
sustainable socio-economic growth. The welfare of the Nigerian child is also accommodated in
(National Planning Commission, 2004:108) through the implementation of Child Right
Implementation Committees at both the federal and state levels. The Committees are charged
with the following responsibilities:
a) Protection of children from communal, armed conflict as specified in the Child Rights
Act; Protection of children from all forms of abuse, neglect and exploitation, such as:
economic exploitation, sexual exploitation, in the production and trafficking of narcotic
drugs, use of psychotropic substances, and use in criminal activity
b) Protection from child trafficking; Protection from all forms of hazardous work; and
c) Recognition of the child’s right to participate in recreation, leisure, association and
matters affecting his/her life through promotion of representation, association and
participation opportunities (National Planning Commission, 2004).
Table 3.3 Projected sources and means of employment generation
Sources of growth
Agriculture and rural development
Manufacturing and small and medium
scale enterprises
Solid minerals
Information
and
telecommunication
communications
Services (especially tourism)
Oil and gas
Projected means of employment generation
Productivity enhancement for peasant farmers
New jobs in the rural areas arising from improved rural
infrastructure
Increased employment from commercial agriculture
Increased production through coordinated programmes
between federal and state governments
Federal and state collaboration in the development of
industrial clusters and parks
Prospective new investment resulting in increased mining
and exploration activities
Improvement in infrastructure at mining sites
Expansion of the telecommunication industry and the
coming on board of second national carrier generating
more direct and indirect employment
Increase in distributive trade as a consequence of growth
in the productive sectors and services
New focus on tourism leading to more direct and indirect
employment
Growth in the entertainment industry especially export of
home video leading to increased employment in the sector
The enforcement of local content policy leading to more
jobs in the sector
62
Envisaged growth in the gas sector
Increased participation of Independent Power Providers
(IPPs) expanding productivity and leading to greater
demand for both skilled and unskilled workers in the
sector
The social services (education)
Commencement of Universal Basic Education (UBE)
and the increasing growth of private provision of
education and skilled training
Works and housing construction
Use of public works in the construction of roads and other
public utilities especially by state and local governments
New and continuing boom in housing constructions all
over the country continuing to generate huge employment
Intervention schemes
Micro-credit and concessional credit to provide start-up
capital for new business l generating new jobs
Source: National Planning Commission, 2004. p104
Power
The plan aims also to ensure that the most vulnerable groups in society are protected using the
targeted instruments shown in Table 3.4.
Table 3.4 Targeted instruments for the empowerment of the most vulnerable
Vulnerable group
Rural poor
Instruments/Interventions
Access to credit and land; participation in decision-making; agricextension services; improved seed, farm inputs and implements;
strengthening of traditional thrift/savings/insurance schemes
Urban poor
Labour-intensive public works schemes; affordable housing; water
and sanitation skill acquisition/entrepreneurial development; access
to credit and land; maternal and child health
Women
Affirmative action (proportional or 30% representation) in all
programmes; education, including adult education; scholarships;
access to credit and land; maternal and child health
Youth
Education; entrepreneurial development; skills acquisition and
access to credit; prevention and control of HIV/AIDS and other
sexually transmitted diseases
Children
Children’s parliament; juvenile Justice administration; Universal
Basic Education; Girl Child Education; care of orphans and
vulnerable children (HIV/AIDS-affected children); prevention and
treatment of childhood diseases,
Rural communities
Social infrastructure; water; rural roads; electricity; schools; health
facilities; communications
Source: National Planning Commission, 2004. p104
The Nigerian government has also provided safety nets to help prevent the poor from becoming
poorer and the non-poor from slipping into poverty. The safety nets give further protection for
women and other vulnerable groups from diverse social perils, this is highlighted in Table 3.5.
63
Table 3.5 Safety nets for the protection of the women, poor and vulnerable groups.
NATURA-drought, flood, erosion,
rainstorm and food loses due to pests.
Key risk group
Well-to-do, poor, rural male, rural
female, rural youth, rural female youth
ENVIRONMENTAL-deforestation,
desertification, oil spillage
Poor, rural male, rural female, rural
male youth, rural female youth
LABOUR-loss of job, drop in income
Poor, urban male youth, urban female
youth.
Well-to-do, poor rural male, rural
female, urban male, urban female,
urban female youth, rural female
youth
Sources risks
SOCIAL-HIV/AIDS,
maternal mortality
infant
and
Gender-unwanted pregnancies and
sexually transmitted diseases, job
discrimination, harmful traditional
practices
LIFE EVENTS-death of spouse, old
age
CONFLICT-ethnic conflicts, armed
robbery and child abuse
MACROECONOMICmacroeconomic instability,
unemployment.
Poor, rural female, rural female youth,
urban female youth.
Well-to-do, poor urban male female,
rural female youth
Well-to-do, poor, urban male, urban
female, urban male youth, urban
female youth
Poor, urban male, urban female, urban
male youth, urban female youth
Formal response
Irrigation,
agriculture
extension
services,
forestation/agro-forestry,
agricultural insurance
Environmental measures to stem
pollution, tree-planting campaigns,
agro-forestry, incentives to convert to
alternative energy use, enforcement of
standard oil field practices
Institutionalisation of unemployment
insurance
Comprehensive
health
centers,
government
immunization
and
inoculation programmes (NPI), health
insurance
scheme,
HIV/AIDS
programme. UBE
Timely sex education at appropriate
stage in school. social welfare
counselling, enforcement of rights and
appropriate legislation, advocacy
Pensions and reform of inheritance
laws.
Police, social welfare counselling,
national refugee commission, criminal
justice system.
Stable macroeconomic policy Social
safety nets.
Source: National Planning Commission, 2004. p109
3.4 General appraisal and challenges facing the country in meeting the MDGs
The well-being of the society is entrusted to the state and its human development, which is
partially measured by the extent to which all its citizens enjoy good health, education, shelter and
the other amenities of life that are generally regarded as social services. Such basic human
services as health, electricity (energy), sanitation, education, communication, housing and
drinking water constitute social services, lack of access to these services by human beings is both
a direct and indirect measure of human poverty (Ukwu,2002:44-45). The government’s social
and human development objective is to accelerate the provision of electricity, water, roads,
health and sanitation in urban and rural areas, to provide reliable employment opportunities,
redistribution of income and national economic growth are still much to be desired. According to
the OECD-ADB (2006: 419), poverty and social indicators with respect to the MDGs in Nigeria
compares unfavourably with the average low-income countries. The performance of the Nigerian
economy based on the ranking of 125 economies of the world is shown in Table 3.6.
64
Table 3.6 The performance of the Nigerian economy based on the ranking of 125
countries/economies of the World in 2006-2007
Infrastructure
Rank in
the world
119
110
92
Technological readiness
Quality of electricity supply
Personal computers
Telephone lines
Technological readiness
Overall infrastructure quality
Health and primary education
Market efficiency
Infant morality
118
Prevalence of trade barrier
Life expectancy at birth
115
Intensity of local competitiveness
HIV prevalence
113
Brain drain
Primary enrolment
113
Ease of access to loan
Tuberculosis prevalence
110
Efficiency of legal framework
Malaria prevalence
106
Source: Global Competitiveness Report 2006-2007. World Economic Forum. pp.312-313
Rank in
the world
107
86
106
104
101
91
82
Table 3.6 highlights the latest global assessment of the performance of 125 countries based on
infrastructure; health and primary education; technological readiness and market efficiency. The
assessment of the Nigerian economy based on infrastructural development shows some major
disadvantages in terms of the quality of electricity supply, telephone lines installed, and overall
infrastructure quality. Evidence suggests that electricity supply and overall infrastructure quality
in Nigeria have not improved (World Bank, 2005:131-132).
Furthermore, findings based on the World Bank (2006:82-83) African economic and social
indicators for Nigeria show that the gross national income per capita $430 is below the average
for Sub-Saharan Africa (SSA) $600; life expectancy at birth is 44 years below the average for the
SSA 46 years; maternal mortality rate (per 10,000 live births) is 800 below the average for the
SSA 874; HIV prevalent rate (ages 15-49) 3.9 percent below the average for the SSA 6.1; student
teacher ratio (primary school) 36 below the average for the SSA 46. The gross primary
enrolment, total (of relevant age group) 99 percent above the average for SSA 92. The ratio of
girls to boys in primary and secondary schools records 88 for Nigeria and the average for SSA
88. Similarly, Labour force participation rate, female (ages 15-64) 47 percent is below the
average for SSA 63 percent; and improved sanitation (of rural population with access) 48 percent
below the average for SSA 55. The findings show that the millennium development goals
(MDGs) poverty and social indicators for Nigeria compare unfavourable with the average for
low income country (OECD, 2006:419) The social and economic development indicators show
65
that Nigeria it is still faced with challenges and has not performed above the average for SubSaharan Africa.
3.5 The role of foreign partners in achieving the MDGs in Nigeria
Achieving the internationally agreed development goals, including those contained in the
Millennium Declaration, demands a new partnership between the developed and developing
countries (UN, 2002a:5). A developing country like Nigeria needs to mobilise domestic
resources in addition to attracting international financial flows, and promoting various factors
including: international trade as engine for development, technical cooperation for
development, FDI, sustainable debt financing and external debt relief. Mobilising and investing
these resources effectively are necessary for accelerating the development and growth needed
to raise the standards of living of the populace, eliminate poverty, improve social conditions
and protect the environment (World Bank, 2005:24).
3.5.1 Official Development Assistance (ODA)
Aid flows in the form of official development assistance (ODA) could play important role as a
complement to domestic financing for development in the Nigerian economy (Aremu, 2002:45).
ODA can be critical in enhancing the business environment for the private-sector and indeed
quickening growth and development. Aremu (2002) states that ODA is also a crucial instrument
for supporting education, health, public infrastructure development, agriculture and rural
development and food security. Table 3.7 highlights the major sources of total net aid flows to
Nigeria compared with two other West African countries and the total for Africa between 1999
to 2004.
66
Table 3.7 Aid flows to Nigeria, Burkina Faso and Ghana 1999-2004 US$ million
ODA net total, all donors
Nigeria
Burkina Faso
Ghana
Africa Total
1999
152
398
609
16074
2000
185
336
600
15717
2001
185
392
644
16681
2002
314
473
650
21540
2003
318
507
950
26781
2004
573
610
1358
29080
ODA net total, DAC countries
Nigeria
Burkina Faso
Ghana
Africa Total
1999
53
232
356
10340
2000
84
228
376
10373
2001
108
221
387
10159
2002
215
230
406
13362
2003
200
266
479
19158
2004
314
331
897
19301
ODA net total, Multilateral
Nigeria
Burkina Faso
Ghana
Africa Total
1999
96
157
250
5485
2000
100
104
222
5045
2001
79
158
254
6244
2002
101
198
238
7478
2003
118
238
462
7380
2004
260
278
451
9594
Source: OECD-ADB 2006 pp. 566-567
The analysis of the major sources of official development assistance (ODA) from all donors,
from development assistant committee (DAC) countries and from the multilateral. The total net
aid flows from all donors shows that Nigeria received US$152 million in 1999. In 2000, aid
flows increased slightly to $185 million and by 2004, it reached $573 million. However, these
amounts are far below the receipts in Burkina Faso, Ghana and the Africa’s total within the
period under consideration. Furthermore, aid from DAC countries mostly favoured Burkina Faso
and Ghana than Nigeria. Similarly, the multilateral total net aid showed the same unfavourable
trend for Nigeria especially for 1999 and 2001. Although the net aid flows to Nigeria from the
multilateral source in 2000 and 2004 measured up favourably with those for Burkina Faso.
However, Burkina Faso and Ghana received more ODA than Nigeria. It is evident from this
analysis that ODA in Nigeria has not increased (World Bank, 2006:82-83; OECD-ADB, 2006:
67
566-567). Figure 3.1 is the graphical representation of the total net aid flows from all donors to
Nigeria, Burkina Faso and Ghana within the period under consideration.
Figure 3.1 net total aid flows from all donors to Nigeria, Burkina Faso and Ghana
1999-2004.
1600
1400
1200
1000
800
600
400
200
0
1999
2000
Nigeria
2001
2002
Burkina Faso
2003
2004
Ghana
Source: OECD-ADB 2006 pp. 566-56.
3.5.2 Trade and development
A universal rule based on an open non-discriminatory and equitable multilateral trading system,
as well as meaningful trade liberation, can substantially stimulate development worldwide,
benefiting countries at all stages of development (UN, 2002b:11). Trade liberalisation and export
growth seem to be positively correlated, and export acts as an engine of growth. How powerful
the engine is depend on the production and demand characteristics of the goods produced and
exported (African Development Bank, 2000:133). According to the UN (2002c:58), the
expansion of world trade is closely related to growth in world output and income. Increased
access to the markets of developed countries is therefore critical to the development of poor
countries. Agricultural subsidies in developed countries amount to more than $300 billion a year,
roughly six times the total official aid to poor countries. These subsidies hurt growth in
68
agriculture, where the concentration of the poor in the developing countries is highest (World
Bank, 2003e:8).
Recent development experience assigns a crucial role to trade and outward-oriented trade policy
in the development process, and in particular to a policy focused on exports which serves to
induce domestic firms to acquire the capabilities for facing foreign competition by adopting
international standards and technology (Oyejide & Wangwe, 2003:225). Nigeria needs to engage
in aggressive outward-oriented development strategies, especially in trade and in investment, to
enhance the non-oil export earnings to finance development and growth-led projects in the
country. If the country is to develop a deepening process of industrialisation, it should build a
dynamic export sector. Economic development is closely linked with trade and industrialisation.
The remarkable achievements in terms of growth and development of the advanced economies of
Asia, the so-called Asian Tigers (Hong Kong, Korea, Malaysia Thailand and Taiwan) are clear
evidence of outward oriented-growth (Ogunlana, 1999:71). According to Ogunlana (1999),
export of manufactured rather than primary produce has been the most viable export strategy for
economic development. This accounts for many developing countries that have opened their
trade regimes being prevented from reaping the benefits, because of the market-access barriers
imposed by developed countries’ especially on agriculture, textiles and clothing (World Bank,
2003f).
Economic development that is based on the export of primary commodities is often beset with
problems of slow and unstable demand, unstable prices and severe competition from synthetics
and other substitutes. Furthermore, the exports of primary commodities is more often influenced
by vagaries of weather, pest, drought, diseases and, if they are minerals non-renewable supply,
than are manufactured goods (Etuk, 1985).
69
Table 3.8. The composition of Nigeria’s exports 1990–2005 (in percentage)
Description
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Oil exports
97.03
96.15
97.94
97.70
97.40
97.57
98.22
97.65
95.47
98.36
98.72
98.50
94.57
96.93
97.53
98.53
Non-oil exports
2.97
3.85
2.06
2.30
2.60
2.43
1.78
2.36
4.53
1.64
1.28
1.50
5.43
3.07
2.47
1.47
Total exports
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Sources: 1) Central Bank of Nigeria Annual Report and Statement of Accounts, for 31st December, 2001 p141
2) Central Bank of Nigeria Annual Report and Statement of Accounts, for 31st December, 2005 p197
Table 3.8 shows that Nigeria’s export sector is still dominated by crude oil. It was only in 2002
that non-oil exports recorded 5 percent of the total exports within a period of sixteen (16) years
starting from 1990 to 2005. This reveals that the country has not made any serious efforts to
diversify its export base over the past decade. Stressing development in sub-Saharan Africa.
Oyejide and Wangwe (2003:227) observe that sectors like agriculture and infrastructure, which
would be supportive of industrial development, have lagged behind industrial requirements,
exports have remained undiversified, undynamic and insufficiently competitive. Despite amounts
of foreign exchange that accrue to Nigeria from crude oil exports, the level of economic
development leaves much to be desired. The HDI ranked the country as among the leastdeveloped in the world, with a high mortality rate, low literacy levels and low calorie intake,
among other problems (UNDP (2000:160). This can be attributed to the tendency of Nigeria’s
past leadership to neglect agricultural and manufacturing production.
The country’s principal trading partners as at 2001 is shown in Table 3.9, include the United
States of America, the United Kingdom, Germany, and China. Table 3.9 clearly shows that
China is fast dominating and becoming Nigeria’s outstanding main trading partner.
70
Table 3.9 Trading activities between Nigeria and the rest of the world, 1997-2001.
Totals, 1997-2001
$ mill.
Imports
Exports
INDUSTRIALISED NATIONS
USA
Canada
Japan
France
Germany
Italy
Netherlands
Spain
Switzerland
United Kingdom
AFRICA
Cameroon
Cote d'Ivoire
Ghana
South Africa
ASIA
China &
Hong Kong
India
Indonesia
Korea
Singapore
Thailand
OTHER
Brazil
Chile
Russia
WORLD
Percentages, 2000Percentages,
1997-2001
2001
Imports Exports Imports Exports
25,827
56,827
61.3%
68.6%
58.8%
70.8%
4,347
1,608
2,986
3,931
2,138
2,121
4,389
1,948
281
377
528
10,694
32,216
1,299
892
4,138
2,284
1,169
7,104
1,313
864
8,325
839
2,115
2,467
972
10,579
10.5%
9.1%
25.0%
38.5%
1.7%
1.1%
5.1%
2.7%
0.0%
1.4%
8.4%
1.7%
1.2%
10.3%
1.0%
2.6%
3.1%
1.2%
13.3%
27.2%
41.9%
1.1%
1.1%
5.0%
2.6%
0.0%
1.4%
9.3%
1.4%
0.7%
9.7%
1.2%
2.4%
2.6%
1.0%
11.1%
3,752
687
8.7%
0.8%
9.8%
1.1%
1,237
949
1,204
1,084
1,322
3,759
1,614
240
42,327 $
3.8%
7.1%
9.5%
5.1%
4.9%
10.5%
4.5%
0.7%
0.9%
3.0%
6,366
2.2%
1,140
2.7%
1,140
2.6%
3.1%
8.9%
6,426
3.8%
4,021
760
0.5%
82,146 100.0%
4.0%
5.6%
7.8%
5.0%
5.5%
9.7%
5.2%
0.7%
0.9%
8.1%
2.7%
7.1%
1.3%
2.6%
1.9%
1.3%
3.6%
1.9%
0.0%
2.7%
0.0%
0.0%
3.1%
0
7.8%
8.3%
8.5%
5.0%
3.6%
5.0%
0.9%
0.9%
0.0%
0.8%
0.0%
100.0% 100.0% 100.0%
Source: International Monetary Fund (2003). "Nigeria: Selected Issues and Statistical Appendix", IMF Country Report No.
03/60, p. 144 (Imports), 145 (Exports). [From IMF, Direction of Trade Statistics].
Another important outward–oriented policy that encourages and promotes trade flows that could
accelerate rapid development in Nigeria is active participation in and transformation of the West
African sub-regional trade (ECOWAS), together with other countries in Africa.
Apart from oil and mining activities, the principal manufacturing process in Nigeria involve
primary processing-palm oil, groundnuts, cotton, rubber, chemicals, printing, ceramics and steel.
Given the size of the Nigerian market, which is the largest in Africa, there is room for
manufacturing (industrial) expansion (Arnold, 1997:125). Nigeria has not shared equally in
71
growth of trade with her trading partners. The increase in volume of exports has been slower,
especially in non-oil products, because of the low value-added nature of the manufactured goods,
the low income elasticity of demand in the global market. However, Annan (2002) maintains that
one of the fundamental challenges facing the international community is to ensure that potential
gains from more interdependent world economies are enjoyed by all, particularly the poorest
countries and communities. Many developing countries have shown their commitment to new
ways of doing business in a globalising world by integrating rapidly into the multilateral trading
system at considerable cost. Thirlwall (2003:8) believes that the issue for developing countries
(including Nigeria) is not what to trade, but on which terms should trade take place with
developed countries.
3.5.3 Foreign Direct Investment (FDI) in Nigeria
Private international capital flows, particularly FDI, along with international financial stability, is
vital complements to national and international development efforts (Lall, 2005: 44-46). FDI
contributes towards financing sustained economic growth in the long-term. FDI plays an
important role in sustaining equity-finance. Capital investment contributes to technology
spillovers through learning by doing, leads to improvements in productivity and facilitates the
transfer of human capital skills. Achy & Sekkat (2006: 47), stress that FDI is an important source
of private international capital flows. It creates employment opportunities and contributes to
economic growth of the host country. FDI is most often accompanied by access to foreign
markets, new technology, and training (Stiglitz; Ocampo; Spiegel; French-Davis & Nayyar,
2006:179). They further argue that the new investment in plant and equipment associated with
FDI create employment and real growth.
Nigeria needs to attract FDI in order to raise productivity to the level needed to increase the
living standard of the majority of the people in the country. Zarsky (2005:1) states that FDI can
potentially transfer technologies, skills and global market links, which is lacking domestically,
thus stimulating industrial growth. Creating an enabling business environment for FDI in Nigeria
will no doubt help to generate the additional external funds required by the country to meet the
increased growth and development target of poverty reduction by 2015.
72
However, Nigeria has to make concerted efforts to improve its level of infrastructure, strengthen
it’s banking system, develop the capital market and quicken the pace of the privatisation
programme which it started over five years ago. Furthermore, there is a strong need for the
country to promote appropriate regulatory frameworks for a liberal investment regime, the
upgrading of human capital, strengthening of the judiciary system and eradication of corruption.
Given the country’s enormous renewable and non-renewable resources and a large market, a
broad compliance to these conditions should induce the inflows of FDI to the economy.
Table 3.10 shows the FDI inflows to Nigeria and other West African countries namely Burkina
Faso and Ghana, between 1999-2004. The analysis of FDI inflows have shown favourable
trend to Nigeria compared with flows to Burkina Faso and Ghana. In 1999 for example,
Nigeria received US$1,178 million, the flows increased to US$2,040 in 2002. As at 2004, FDI
inflows into Nigeria stood at US$2,127 million. This can be attributed to favourable investment
reform packages being undertaken by the new democratic administration in the country.
Table 3.10 Foreign Direct Investment flows to Nigeria, Burkina Faso
and Ghana, 1999-2004 in US $ million.
Nigeria
Burkina Faso
Ghana
Africa
1999
1178
8
244
11886
2000
1310
23
166
9627
2001
1277
6
89
20027
2002
2040
15
59
12994
2003
2171
29
139
18005
2004
2127
35
139
18090
Source: OECD-ADB 2006 pp. 566-56.
As an alternative for the ODA, Nigeria needs to focus on attracting more FDI into the country as
this will help to boost the economy. Figure 3.2 is the graphical illustration of FDI inflows to
Nigeria, Burkina Faso and Ghana within the period under consideration.
73
Figure 3.2 Foreign Direct Investment flows to Nigeria, Burkina Faso
and Ghana, 1999-2004 in US $ million.
2500
2000
1500
1000
500
0
1999
2000
Nigeria
2001
2002
Burkina Faso
2003
2004
Ghana
Source: OECD-ADB 2006 pp. 566-56.
3.5.4 External debt relief
External debt relief can play a key role in liberating resources that can be directed towards
activities consistent with attaining sustainable growth and development. Therefore, debt relief
measures should be pursued vigorously and expeditiously by Nigeria. According to the World
Bank (2004), granting debt relief to heavily indebted poor countries can provide an opportunity
for them to strengthen their economic prospects and poverty reduction efforts. In essence, debt
relief impacts positively on progress towards the achievement of the development goals
contained in the millennium declaration.
According to the African Development Bank (2000:96-97), the burden of external debt in West
Africa is more severe than in other parts of the continent. The 11 West African countries are
ranked as severely indebted, namely Benin, Burkina Faso, Cote d’Ivoire, Ghana, Guinea,
Guinea-Bissau, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo. This implies that the debt
service of these countries as a percentage of their GNP exceeds 80 percent. Alternatively, the
ratio of total debt service to export exceeds 220 percent. Only three West African countries,
74
Benin, Senegal and Togo, are eligible for debt relief under the Highly Indebted Poor Countries
(HIPC) scheme. Three countries Burkina Faso, Cote d’Ivoire and Mali, have been promised
relief and the debts of Benin and Senegal have been judged sustainable at the current levels.
Liberia is yet to qualify for highly indebted poor country status, but its debt burden is just as
serious, amounting to $3 billion. Both Nigeria and Ghana are not eligible. It will be important to
ensure that all highly indebted poor countries make use of the resources freed up by debt relief, to
progress expeditiously toward poverty reduction and avoid the accumulation of new
unsustainable debt (World Bank, 2003g:28).
Significant progress has been made towards providing deeper, broader and faster debt relief to
some of the world’s poorest countries in Africa, under the enhanced HIPCs initiative. According
to Addison, Hansen and Tarp (2004:17) and Delphos (2004:236) 26 countries were receiving
debt relief under this framework in 2002. The total amount was expected to reach to US $41
billion by 2006. In addition, the multi-country HIV/AIDS programme for Africa, the first of its
kind under the MAP, is expected to commit flexible and rapid funding on terms agreed by
individual countries based on their HIV/AIDS projects (Delphos 2004:236).
In his 2006 budget speech, President Obasanjo (2006:17) said Nigeria has successfully
negotiated and accomplished the writing off of $18 billion of its debt of $30 billion owed to the
Paris Club, and completed payback of the balance. This has significantly helped the country’s
outstanding total debt stock, which has decreased from $35 billion to $5 billion. The country’s
debt service burden has been reduced and the national budget expanded. The impact of debt
relief can reduce income poverty. However, the amount depends on the characteristics of the
country concerned and the elasticity of poverty reduction with respect to growth. The poverty
impact of debt relief also depends on the scale of resources released from debt service for proservices and infrastructure, and how effectively the system of public expenditure operates.
Such spending can be added to accumulated investment in a poverty-eradication project, and
improved income for poverty reduction resulting from additional growth. It can also improve the
non-monetary dimensions of poverty, reflected in better HDIs. According to the World Bank
(2003h) and Reinikka and Svensson (2004), identifying the benefits from the resources released
by debt relief is crucial for poverty reduction, and applies to new aid and public spending in
75
general. But Addison, Hansen and Tarp (2004:17) argue that whether the growth benefits of debt
relief are realised will depend on factors, which cannot be included in either econometric or
computable general equilibrium (CGEs) models.
Nevertheless, Dabla-Norris, Matovu and Wade (2004:260-262) in their study find that resources
released from debt relief can be of potential gain to the social sectors. Debt services are
equivalent to 62-71 percent of total public spending on education and health in HIPCs. The study
by Dabla-Norris, Motovu and Wade (2004:260-262) find that debt relief produces significant
human capital and growth effects, with poverty falling. They also say that, though the primary
focus was on primary and secondary education, the finding could be related to territory
education, which shows significant long-term growth effects through the formation of large scale
skills.
The clues from the results and analyses mentioned above imply that donor countries should focus
on priority projects that have the capability of reaching and impacting on the poor. Monetary
arrangements and evaluation of such policy are necessary so that the resources can reach the
targeted destination. It is also important to task governments with adequate preparations, so that
they show in clear and convincing terms how they intend to invest the funds released from debt
in social and economic sectors. A satisfactory programme of action that aims to reach the poor,
with detailed description of the goals, strategies and action steps of this programme could be
made conditions for debt relief.
There is little doubt that the HIPC debt relief initiative could be used in Nigeria to increase the
government subsidy for primary education or even make this education free for all poor people.
This could raise the confidence of poor households to send their children to school, and also help
to reduce child labour. For debt-relief resources to reach the poor, the donor countries need to
scale down the volume of reforms and conditions attached to relief by focusing on pro-poor
projects. Attaching stringent conditions for debt-relief could constrain recipient countries’ ability
to process and invest the funds released in the social sector. Lindahl (2005:47) believes that the
achievement the MDGs depends on major investment in the social sector. This will comprise of
primary education; child and maternal health; efforts to mitigate the spread of HIV/AIDS and
other killer diseases.
76
The donors could also decide not to tighten the conditions for eligibility so that other debtor
countries can also benefit from the HIPC initiative in time. The recipient countries could be
given the benefit of the doubt during determination of debt and the level of reform required, in
the negotiation period. In packaging the proposal, allowance should also be made for new
unexpected shocks such as environmental disasters, changes in export commodity prices and oil
crises. Most importantly, HIPCs initiatives need not compensate or constrain the poor countries’
other avenues of earning foreign resources. In essence, the rich countries should not tighten up
their trade policies. As shown by Beghin, Roland-Holst and Van der Mensbrugghe (2002),
OECD farm subsidies reduce rural incomes in poor countries by US$62 billion annually. Perhaps
it should be emphasised again that debt relief initiatives should not be seen as efforts by the
OECD to block other sources of foreign exchange to the developing poor countries.
Nigeria and other countries that have benefited from debt relief, must now put in place evaluation
and monitoring strategies to keep track of the impact of such funds in social and economic
sectors. In line with this, these countries could accelerate efforts to improve data collection, not
only on the household level, but also by conducting benefit-incident analysis of the increased
government spending arising from debt relief and reporting state and local government spending
across basic services. The monitoring team could consist of credible men and women from
various segments of the civil society. Also, a comprehensive blue print of national capacity needs
to be made available as a common framework plan to monitor progress. In addition, the national,
state, local monitoring teams could be linked to the recently launched African Monitoring Faithbased NGO. Criteria the teams would look for could include, transparency of appraisal
techniques and processes; the involvement of all Nigerians in the diaspora in the monitoring
process; and, most importantly, commitment and determination on the part of the OECD to
fighting corruption in developing countries by refusing to accept looted funds as private
investment in monetary or asset forms in any banking and financial houses overseas owned by
anybody in or from the developing world. It is important to stress that foreign investment houses
should desist from accepting looted funds from poor countries.
77
3.6 Summary of the main findings and conclusions
In this chapter, the policy framework of the millennium development goals (MDGs) were
discussed. Of critical importance are the four avenues through which the external partners and
resources could flow to Nigeria to support domestic resources. The provision of financial
resources to accelerate the pace of growth and development required to make maximum progress
towards meeting the MDGs are needed. These avenues are official development assistance (aid),
trade, FDI and debt relief. The four sources constitute potential opportunities for Nigeria to
increase its foreign earnings and gain assistance to pursue its development goals.
However, comparing the development assistance into Nigeria with that of other developing
countries namely Burkina Faso and Ghana all from West Africa between 1999 to 2004, it was
surprising to find that Nigeria in the recent years has received less in ODA annually. This is
compared to the total net flows in African ODA. It has shown that relying on official assistance
to complement economic development in Nigeria may not be a good option. The inflow and
activities of the FDI into Nigeria therefore offers a good development option. According to
Zarsky (2005:1) investment is the life blood of economic growth. FDI is critical to boosting
growth and development as it provides long-term sustainable capital for development. So far
with the investment climate in Nigeria being improved, there have been quite a good number of
FDI inflows in Nigeria especially into telecommunication and the mobile phone industry. More
manufacturing and engineering companies are being expected to reside in the country. It is also
found that Nigeria has improved and signed trade relationships with many foreign countries on
bilateral and multilateral levels. However, negotiations on better and robust trade policy deals are
on-going with advanced countries to grant greater access to developing countries’ exports
commodities and increase foreign exchange earnings to develop their economies. Nevertheless,
the trading activity between Nigeria and its trading partners is being dominated by China.
Between 1997 to 2001, China had increased its trade (imports) with Nigeria to 9.8 percent. This
can be compared with that of the USA 9.1 percent and United Kingdom 9.7 percent within the
same period.
Similarly, the HIPCs initiative provides debt relief measures to eligible countries, helping to free
funds that can be ploughed into poverty-reduction projects (like rural electrification, provision of
78
drinkable water, establishment of well equipped primary and secondary schools and payment of
teachers). It also stressed the critical role of good governance in providing a good business
environment and a safe landing for external funds from various sources. Nigeria has recently and
successfully had a good deal with its Paris Club creditors. Most of its debts have been paid and
others cancelled, debt-relief given to Nigeria to complement internal resources to accelerate
growth and development in the country. In essence, ODA, FDI, trade and debt-relief arrangement
can constitute important foreign pathways and roles in economic development of Nigeria.
However, lots of concessions are needed from the developed countries to grant market access to
Nigeria and other developing countries commodities. By implication, more employment
opportunities and income could be created in Nigeria from the exports of non-oil commodities.
In the next chapter, the relevance of the agricultural, manufacturing, mining and quarrying,
health and educational sectors as strategic sectors in fostering economic and development
progress in Nigeria is discussed.
79
CHAPTER FOUR
THE RELEVANCE OF GROWTH IN NIGERIA’S SUPPORT SECTORS FOR
ECONOMIC DEVELOPMENT
4.1 Introduction
Accelerating agricultural productivity, and enhancing the links with manufacturing and other
growth sectors, to create employment and increase incomes through poverty reduction are
prerequisites for structural transformation of Africa (ECA, 2005:13). The national economic
development aspiration in Nigeria has remained that of altering the structure of production so as
to diversify the economic base (Ajakaiye, 2002:49). Stimulating the structural performance of the
growth sectors of the Nigerian economy has become very imperative towards achieving a high
level of economic development. However, the country’s past development programmes have
failed, due mainly to problems of inadequate financial resources for development as well as other
policy challenges that faced the country at various times.
The amount of financial resources needed to transform the Nigerian economy is far greater
than the amount the country can generate internally. This underscores the necessity of Nigeria
soliciting external resources to drive development. As recognised by the MDG last goal, which
calls for a global partnership for development, attaining the agreed development outcomes will
require in addition to stronger reforms on the part of the developing countries themselves,
enhanced support from their developed country partners (World Bank, 2003h:7). Lessons from
research and experience have produced a broad consensus on the effective strategy for
development, one that is country-owned and country-led, that promotes growth, ensures that
poor people participate in and benefit from it, and produces maximum progress towards the
MGDs (World Bank, 2003i:4). According to the World Bank (2003i), the optimum
development strategy has two interlinked and mutually reinforcing facets:
a) A climate that enables economic activity in the form of private firms and farms that
invest, create jobs and increase productivity; and
b) Empowerment of and investment by poor people, through improvement of the enabling
economic climate to spur growth and expand opportunities for the poor; empowerment
of poor men and women through improved access to education and health fosters
80
socials inclusion and also promotes growth through the stronger participation of these
groups in economic activity.
This development strategy, points to the strategic sectors that will produce maximum progress
towards achieving the MDGs in Nigeria, assuming that the country can obtain adequate
internal and external resources. These sectors include the agricultural, manufacturing, mining
and quarrying, educational and health sectors. Table 4, shows the real GDP and the
contribution of the agriculture and industrial sectors to the total GDP for the period of 19802003. There is a strong indication from the table that output performance of the real sectors
needs to be increased. They are growth sectors, and policy strategies directed at enhancing their
productive capacity. This can undoubtedly contribute significantly to sustainable growth and
development in Nigeria.
Table 4. 1 The Real GDP of Nigeria between 1980-2004
Industry
Total GDP Agricultural GDP
GDP
Services Share of Agric. Share of Industry
US $ million
US $ million US $ million US $ million To total GDP (%) To total GDP (%)
1980
22357.0
6432.0
13605.0
3488.0
28.8
60.9
1991
26046.0
8022.0
13265.0
5222.0
30.8
50.9
1993
27396.0
8298.0
13210.0
5884.0
30.3
48.2
1994
27423.0
8498.0
12845.0
5910.0
31.0
46.8
1995
28109.0
8809.0
13009.0
6049.0
31.3
46.3
1996
29318.0
9162.0
13591.0
6317.0
31.3
46.4
1997
30109.0
9556.0
14005.0
6530.0
31.7
46.5
1998
30675.0
9942.0
13770.0
6645.0
32.4
44.9
1999
31012.0
10457.0
13419.0
6691.0
33.7
43.3
2000
32184.0
11002.0
14324.0
6671.0
34.2
44.5
2001
43382.0
12176.0
18199.0
11628.0
28.1
41.9
2002
44054.0
12692.0
16741.0
12393.0
28.8
38.0
2003
48766.0
13214.0
20484.0
13561.0
27.1
42.O
2004
72106.0
18747.6
35331.9
17305.4
26.0
49.0
Sources: 1) World Bank, African Development Indicators, 2003 pp15-18
2) World Bank, African Development Indicators, 2005 p217
3) World Bank, World Development Report, 2006 p297
Year
Table 4.1 above shows a progressive improvement in absolute terms of the performance in
agriculture and the general industrial output in the Nigerian economy. However, there is a
quantum leap in terms of harnessing and stimulating production in the real sectors towards
achieving the sustainable-growth targets set by the MDGs.
81
In the next section, further analysis is presented to buttress the role of the agricultural sector in
providing food security, raw materials for domestic industries, foreign exchange from exports,
structural transformation in the economy, employment opportunities both directly and
indirectly. A dynamic agriculture can provide large markets for industrial products, which in
turn will impact on poverty and hunger, and stimulate growth and sustainable development in
Nigeria.
4.2 Relevance of the agricultural sector in Nigeria
In a developing economy like Nigeria, agriculture can play a crucial role of providing food
security, raw materials for industries, employment, a market for industrial goods such as agrochemical, tractors and fertiliser, and foreign exchange within the context of capital formation.
These functions are very significant in Nigeria and, indeed, other developing countries,
because of the peculiar characteristics of their economies. Federico (2005:1) says that
agriculture has always been absolutely indispensable for the very survival of humankind. For
centuries, agriculture has provided people with food, clothing and heating. It has employed
most of the total active population. Each of the functions can now be briefly discussed.
4.2.1 Provision of food security
Elkan (1995b:111) argues that poverty, population growth and increased urbanisation all call for
an increase in the output of agriculture. The importance of adequate food provision is
acknowledged, and the problem seems to worsen, considering the following facts:
Nigeria has a rapidly growing population, with the population growth rate of the country more
than 3.0 percent. This teeming population has to be fed. In addition to feeding the growing
population, the food nutrition content of the people’s diet, which is mainly starchy food such as
rice, cassava, yam, coco yam, millet and maize, may also be problematic. The food content of the
diet of majority of the people is lacking in nutrition and is not balanced due to high prices of
protein-rich food like fish, meat, chicken, eggs, beans and beverages. Unfortunately, the outbreak
of a bird flu epidemic in Nigeria in 2005 has automatically discounted chicken as protein source.
Overall, therefore, any type of modern agricultural production proposed for the country should be
rich in nutrition and able to reach the population, to improve their nutritional content of their
food intake on a daily basis.
82
Nigeria is undergoing rapid urbanisation. This is a common trend in most developing countries
that adopt policies that favour urban driven development. Consequently, urban areas are
seemingly developed while rural areas are left in perpetual poverty. The result of this lopsided
development policy is that large numbers of the population of the rural agricultural economy are
tempted to migrate to the urban areas in search of white collar jobs. This situation often creates
food shortages in both the rural and urban areas, since agriculture and food production are then
abandoned to the old and weak rural population.
Increased per capita income often leads to a higher demand for food by the large low-income
bracket in Nigeria. A rise in high-income elasticity of demand often leads to higher demand for
food. The demand for food in Nigeria is estimated to grow by 3.5 percent per year, while the
growth rate of food production is only 1.0 percent. The general implication is that domestic food
production does not match population growth, so the country has to rely on food imports to feed
the people. This depletes the scarce foreign exchange as the food import bills increase.
Nigeria also has high food demand due to rising inflation. Most developing countries, including
Nigeria, often experience high inflation rates due to shortages of food. Understandably, food
shortages trigger high prices and since the imbalance is not likely to be addressed through
increased supply of food, labour representatives are often left with having to ask for wages
increases or increments. Increase in wages does cause reciprocal action by traders, who then
raise the price of food to meet the increase in marginal cost caused by the increased wages
Increasing the domestic agricultural production will play significant role in solving the problem
of food insecurity, industrial raw materials and food importation. The foreign exchange saved
can be channelled to other productive projects.
83
Table 4. 2 Food imports to Nigeria in US$ million (current prices) 1980-2003
Year
Amount in US$ million
Population
1980
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
3,161
760
807
771
738
1,060
929
1,219
1,397
1,516
1,573
1,671
1,919
2,443
71.1
88.9
99.2
104.8
108.0
111.2
114.5
117.3
120.8
123.9
126.9
129.8
132.7
136.4
Sources: 1) World Bank, African Development Indicators, 2003 p106
2) World Bank, African Development Indicators, 2005 p104
Table 4.2 justifies the need to give agriculture and food production top priority in Nigeria since
food import into the country may continue to put pressure on scarce foreign exchange. Close
study of the table reveals that, in 1980, total food imports cost the country $3,161 million when
the population was 71 million and that food importation has been rising with the increasing
population of the country. One implication of food production not keeping pace with the rise in
demand is a possible rise of wages outside agriculture. Table 4.3 shows the food production
index and per capita food production in Nigeria. The figures reveal the necessity of increasing
domestic food production in the country, which is currently not impressive in terms of the
levels of production.
84
Table 4.3 Food production and food production per capita index
(average 1989-1991=100)
Year
Food Production Food Production per capita index
Index
1980
58
1993
124
1994
128
1995
132
1996
139
1997
143
1998
149
1999
154
2000
156
2001
153
2002
156
2003
105
78
114
114
115
117
117
119
120
118
113
114
97
Sources: 1) World Bank, African Development Indicators, 2004 p221
2) World Bank, African Development Indicators, 2005 p217
4.2.2 Provision of raw materials for domestic industries
Agriculture is important in feeding local agro-process industries with raw materials such as
animal skins for leather processing; cotton for textiles; cocoa for beverages and confectionary;
maize and wheat for brewing; and so on. The import substitution industrialisation policy
adopted by Nigeria in the 1980s compelled most manufacturers, both local and foreigners to
establish and embark on domestic production of raw materials to feed their industries.
4.2.3 Provision of foreign exchange from exports
Most developing countries’ exports are still primary agricultural products, ranging from
textiles and clothing, leather, and cocoa beans to mention a few. In addition, export taxes from
producers serve as a source of capital and can contribute to capital formation for economic
development. Nigeria has recognised the importance of agriculture in capital formation since
the late 1980s. Table 4.4 shows the composition and performance of major agricultural export
commodities and the share of agricultural produces in the total exports in Nigeria.
85
Table 4.4 Major agricultural export commodities in Nigeria and the share to total exports
(1980-2003).
Year
Forest
products
exports
thousand
cubic
metres
Cocoa
(thousand
cubic
metric
tons)
Groundnut
thousand
metric tons
Oil
palm
product
s
thousan
d
metric
tons
96
0
102
64
9
8
3
2
6
11
17
Cotton
thousan
d
metric
tons
1980
11
151
1
0
1987
17
0
0
0
1988
16
220
0
0
1989
11
149
0
1
1990
37
154
0
3
1991
49
161
0
1
1992
34
111
0
0
1993
431
161
0
3
1994
288
148
7
3
1995
269
139
1
2
22
1996
248
182
4
1997
0
147
22
10
32
1998
0
135
13
11
9
1999
0
208
5
14
7
163
0
2000
0
145
0
2001
0
175
2
14
20
11
11
2002
0
0
3
13
26
2003
0
241
3
Source: 1) World Bank, African Development Indicators, 2004 p
2) World Bank, African Development Indicators, 2005 pp.92-96
Total
merchandis
e exports
US $
million
Share of
Agriculture
in total
exports US
$ million
Share of
agricultur
e in total
exports
%
25,956
7,545
6,897
7,870
13,585
12,254
11,791
9,924
9,415
11,734
16,117
15,539
10,114
11,927
21,395
17,949
14,912
0
446
258
440
255
230
214
189
275
327
403
542
522
0
0
0
0
0
0
1.7
3.4
6.4
3.2
1.7
1.7
1.6
2.8
3.5
3.4
3.4
3.4
0
0
0
0
0
0
The contribution of agricultural export commodities to the total exports and as a foreign
exchange earner has not shown significant improvement over the years, in spite of the sector’s
role as the main foreign exchange earner in the country prior to the time that crude oil exports
became prominent. This trend has to be reversed, especially now that the country needs capital
to fund the important development project needed to increase growth and build a modern
infrastructure, to provide clean water and dependable electricity and to alleviate poverty in the
country.
86
4.2.4 Structural transformation in Nigeria
The development path of the Asian countries discussed in chapter 2 started with agricultureinducing industrial exports. This in turn absorbed surplus labour from agriculture for higher
income distribution, thereby diversifying and transforming the economic base of these countries.
This implies that agriculture in Nigeria can play a crucial role in accelerating the process of
structural transformation by shifting the surplus labour from the rural agricultural economy to the
industrial sector. This process will eventually lay the foundation for sustainable accelerated
socio-economic development.
4.2.5 Provision of employment opportunities
In a developing economy like Nigeria, agriculture employs about 90 percent of the population.
This figure can be reduced with increased large-scale commercial farming and export
manufacturing industries that will attract surplus labour from the agricultural sector. However,
agriculture still creates employment opportunities for the growing population in developing
countries, and this is why the World Bank (2003j:8) says agricultural subsidies and escalating
tariffs in developed countries costs developing countries an estimated 27 million jobs annually.
This often frustrates efforts by poor countries to diversify their economies and move up the
technology ladder.
4.2.6 Provision of large markets for industrial products
Agriculture also plays an important role in providing a market for agricultural capital products,
tools, and machinery, such as tractors and harvesters, agro-chemicals and fertilisers. It is
generally recognised that growth in agricultural production has become critically dependent on
yield increases primarily based on the development of new high-yielding varieties (Srinivasan,
2003:187). As noted by Johnson (2002:1-2), agricultural biotechnology can contribute
significantly to overcoming the problems of food shortages in developing countries by increasing
yields and the nutritional quality of raw products, and ensuring an adequate amount of vitamin A
for children. The role of the agricultural sector in improving food security, creating employment,
reducing poverty and hunger, and stimulating much-needed growth and development is with
little or no doubt vital for a developing country like Nigeria.
87
However, innovative technologies are inevitably required to transform present traditional
agricultural production into modern biotechnology that caters for mass production of food,
thereby helping to solve the problems of food insecurity, poverty and hunger in Nigeria.
However, the agricultural, like the other growth sectors, can only grow through investments.
This makes foreign investment into the Nigerian agricultural sector crucial. Agriculture
remains the backbone of the economy in most developing countries and in the Nigerian
economy, typically, it is the largest source of employment. Great majority in the poor nations
source their livelihood in agriculture (Lindahl, 2005:52). A strong and growing agricultural
sector is increasingly recognised as essential to economic development, both in its own right
and to stimulate and support growth in industry. In the following section, the relevance of the
manufacturing sector in economic development and growth is discussed.
4. 3 The relevance of the manufacturing sector in economic growth and development
in Nigeria
Modern industry is seen as the hallmark of a developed economy (Lall, 2002:125). Indeed,
industrialisation is widely accepted by both developed and developing countries as the
centrepiece of the development process. Apart from the material benefits that industrialisation
can bring, there is a general belief that it expresses a nation’s success on earth and its ability to
cope with the modern world. More broadly put, industrialisation is relevant to both developed
and developing countries. Delbridge and Lowe (1998:5) identify the main contributions of the
sector to economic growth and development as increasing the productivity rate in the production
of goods and services; generating employment and skills; generating of wealth; distributing
wealth; being a source of innovation and development of technological capacities; generating
foreign exchange and trade services; and being an agent of cultural change and the impact on
urban- rural transformation. Brown (1995:190) says that in all economies, manufacturing
industries have been critical agents of structural transformation that make the transmission from a
private, low-productivity, low-income state, to one that is dynamic, sustained and diversified.
Industrial production is important for the development of the Nigerian economy for the following
reasons:
88
4.3.1 Historical association with development
Less developed economies are committed to industrialisation, because they desire the national
prestige which an industrial economy can give them over fellow primary producers, the desire
for economic independence is expressed in the attainment of self-sufficiency in the economy.
Remenyi (2004:116) stresses that South East Asia and North Asia, Malaysia, Singapore and
Taiwan have out performed the rest of the developing world in taking advantage of the growth
based on export expansion because of resolute commitment in industrialisation.
4.3.2 Inability to harness the potential in agriculture
Most developing countries can no longer push further the possibilities of agricultural
development, because the price of agricultural products trends to fluctuate widely. These
products have not kept pace with the price of manufactured goods, In other words, the terms of
trade for agricultural commodities have deteriorated. Nigeria started to exploit the manufacturing
industry when the primary sector’s foreign exchange contribution to the economy started to
dwindle (Ogwuma (1996:67).
4.3.3 Developing countries as agricultural societies
This is the traditional view, but the development of manufacturing can help the agricultural
sector in many ways. The processing of agricultural commodities, which is part of
manufacturing; increases the agricultural sector‘s income manufacturing also encourages
efficient forms of production and marketing in the agricultural sector and provides agricultural
inputs such as machinery and fertiliser, improves the availability of food items by making them
available as processed food. Food processing can also help eliminate the problem of a market
glut by providing an outlet for excess production. Furthermore, manufacturing helps agriculture
by absorbing labour from the rural sector, thus enabling the modernisation and rationalisation of
agriculture. A high degree of mechanised agriculture is essential for increased productivity in the
agricultural sector. Szirmai (2005:265) says that the industrial sector offers a much better
opportunity for capital accumulation, large-scale production and technological progress.
4.3.4 Manufacturing sector as complement to other sectors in job creation
The population of most developing countries is increasing and employment generation is not
keeping pace with population growth. Therefore, manufacturing can serve as an additional major
89
source of employment. In fact, manufacturing can complement the absorptive employment
capacities of agriculture, mining, and construction. Ogwuma (1996:67) says that the
manufacturing sector plays a catalytic role in the modern economy it is an avenue for increasing
productivity, employment generation and enhancing foreign exchange earning capacity.
Furthermore, the manufacturing sector creates investment capital income at a faster rate than any
other sectors of the economy.
4.3.5 Manufacturing as a relevant development strategy because of its efficient use of
land resources
Agriculture is an extensive user of land, which is a finite resource, especially because of
ecological problems such as erosion and desertification. This is perhaps why countries like
Hong Kong and Singapore had no better alternative than to industrialise, so that available land
could be optimally used.
4.3.6 Industrialisation promoting national integration
Industry involves large numbers of transactions, including farmers selling raw materials to
wholesalers, manufacturers selling to wholesaler after processing, manufacturers purchasing
electricity, legal services, communication and so on, both in and outside the country. This helps
each sector to develop stronger linkage with other sectors. The greater the degree of linkage, the
greater the interdependence and possibility of building a spatially integrated society. Wield
(1994:1) argues that industrialisation is at the centre of development. According to Wield (1994),
industrial development brings about most profound changes to the social and economic make-up
of societies. Ogwuma (1996) believes that the manufacturing sector promotes wider and more
effective linkages among different sectors in the economy.
4.3.7 The manufacturing sector providing additional income
Manufacturing has the potential to earn foreign exchange from exports after entrepreneurs have
acquired the necessary technology and expertise and met domestic demand. According to
Szirmai (2005:5) the industrial sector offers much better opportunity for capital accumulation,
large-scale production and technological progress. Manufacturing plays a critical role as foreign
exchange earner rather than saver, since attempting to conserve foreign exchange by restricting
imports. For example, the adoption by many developing countries of import substitution
90
strategy, often fails woefully. In Nigeria, import substitution has failed, because the foreign
exchange was being spent on plants and machinery imports, licensing fees and import of raw
materials.
4.3.8 Industrialisation inducing technological development
Technology is the principal driver of industrial production and, in particular, of increasing
productivity. According to Adiele, (2002:3-4) technology satisfies the need of making man more
productivity in his environment. Most developing countries that have industrialised have
experienced high levels of technological advancement and to that extent are less dependent on
industrialised countries. Ndiyo (2003:848) states that the ultimate impact of technology is the
enhancement of the well-being and influence of man through the creation of wealth. Seitz
(2002:211) believes that technology makes economic growth and social change happen. The
limited use of high technology in the developing countries is one of the reasons why they are less
developed and less prosperous than the industrialised nations
4.3.9 Highly industrialised nations and the status of superpower
Most powerful countries in the world are also industrialised, which implies that industrialisation
is closely related to a country being a world player in international events. It is also linked to a
country being able to wield strong military might. Most industrialised countries are rich and this
is critical to the strength of their military development. Jenkins (1994:13) states that rapid
industrial growth in developed countries is responsible for the wide gap between them and the
developing countries. It becomes imperative for developing countries to pursue industrialisation
policy so that they can at least narrow the development and growth gap. These countries have
increasingly advanced in electronics manufacturing and development.
In the following section, the relevance of mining and quarrying in economic growth and
development is explored.
91
4.4 Relevance of mining and quarrying (solid minerals) in economic growth and
development of Nigeria
It is important to emphasise that the mining and construction industries constitute an important
part of the growth sector of a country. These sectors have the potential of contributing
significantly to the development of the country. Nigerian has been ranked one of the most highly
endowed in renewable and non-renewable resources (Oladunni, 2004:31). The mineral resources
include copper, iron ore and steel, that can generate employment, income and provide raw
materials for other industries in the country. Workers on road, dam and bridge construction in
Nigeria have large potential in the production of iron, steel and natural gas. This can trigger the
inflow of foreign investment into the manufacturing sector. The mining, construction and
industrial activities in Nigeria hold great appeal and elicit very strong commitment for rapid
growth and development of the country. Nevertheless, an analysis of the importance of mining
and quarrying for Africa in economic growth and development is necessary so that Nigeria can
draw lessons of policy relevance and interest from the activities of other African countries in
policy deregulation.
Africa is endowed with rich and diverse mineral resources. In general the continent produces
about 60 metal and mineral products in large quantities. Overall, the continent contains
approximately 30 percent of the Earth’s mineral resources, including 60 percent of cobalt, 70
percent of platinum and 35 percent of gold (Hilson, 2003:233). Hilson, (2003) has shown that
an economy can gain significantly from large-scale mining operations and even more from
small and medium-scale artisan operations. Reviewing the role of large-scale FDI mining
policies as a context for small-scale mining in developing countries, Etemad and Salmasi
(2003:59) argue that FDI theory from a mining perspective is no longer rich enough to provide
enough guidelines for decision-making and policy formulation in the mining sector. The
general theory of FDI is partly responsible for the misguided inadequacies of mining
regulations in most countries where large-scale FDI mining multilateral firms hold monopoly
power over medium and small-scale mining activities. To date, many international initiatives
for the regulation of small-scale mining have been designed, yet very few have been
successfully implemented by governments (Andrews, Minying, Lei and Cao, 2003:182-185).
According to the UN (1996:43) many large companies seeking to establish operations in
92
developing countries have concerned themselves with the small-scale mining issue,
establishing specialised divisions that deal with community relations.
Artisan and small-scale mining activities are now widespread simply because there are few
alternative employment opportunities in many parts of the developing world, and an increasing
number of rural inhabitants are turning to artisan and small-scale mining in order to feed their
families. This further reinforces assertions that the industry is poverty-driven (Hilson, 2003:3).
Table 4.5 shows the small-scale mine employment capability in selected Africa countries. The
employment capability of the peasant poor located around the mines in 25 African countries. It
is evident that large numbers of people could be empowered to participate in these mining
activities in the various countries shown above. This is useful since mining could be the only
direct means these people have of access to the wealth and income generated by the mining and
quarrying sector.
Table 4.5 Small-scale mine employment in selected Africa countries 2003
Country
South Africa
Tanzania
Zambia
Zimbabwe
Ghana
Guinea
Ivory Coast
Senegal
Ethiopia
Uganda
Sierra Leone
Rwanda
Kenya
Madagascar
Morocco
Mozambique
Namibia
Burkina Faso
Burundi
Central African Republic
Chad
DR Congo
Mali
Morocco
Nigeria
Source: Hilson, G.M. 2003 p236
Employment capability
10,000
450,000 – 600,000
20,000 – 30,000
50,000 – 350,000
50,000 –300,000
40,000
10,000- 15,000
30,000
100,000
500 –10,000
30,000 – 40,000
5000 –15,000
30,000 - 40, 000
5000 – 20,000
5000 – 10,000
700 –100, 000
10,000 – 20, 000
60,000 – 70,000
10,000
45,000
10,000 –15,000
150,000
100,000
5000 – 10,000
10,000 – 20,000
93
However, common sense suggests that mining activities at any level require some capital and
skills in terms of techniques of production. Table 4.6 shows the different criteria used defining
small-scale mining in some selected African countries where small-scale mining is fully in
operation.
Table 4.6 Different criteria used in the definition of small-scale mining in selected Africa
countries 1999
Country
South Africa
Criteria used
Capital investment
Tanzania
Annual production capacity
Zambia
Size of concession area
Guinea
Size of concession area, capital
investment
Capital investment, number of
participants
Type of mineral exploited
Ivory Coast
Level of mechanisation
Senegal
Depth of working, crude
production levels
Annual production, level of
mechanisation
Zimbabwe
Ghana
Ethiopia
Comments
Black people empowered to
own shares and operate at
technical and board levels
Small-scale mining fully in
operation
Small-scale mining fully in
operation
Small-scale mining fully in
operation
Small-scale mining fully in
operation
Small-scale mining fully in
operation
Small-scale mining fully in
operation
Small-scale mining fully in
operation
Small-scale mining fully in
operation
Source: United Nations, 2002 quoted in Hilson, G.M. 2003 p236
Literature has shown that different countries use a variety of criteria to evaluate the level and
empowerment of small-scale operation on an annual basis. Some of these include: annual
production capacity; the size of the concession area; capital investment; number of participants
and depth of working; crude production levels; type of mineral exploited and level of
mechanisation. These criteria are quite important since participants are expected to significantly
boost output levels for various minerals. Also, mining production requires some level of capital
investment to be able to make large impact in the sector.
According to the UN (2002d), African governments have relied on a wide range of criteria in
their recent efforts to define artisan and small-scale mining, documented in national mineral
94
polices, codes and legislation, but the industry is far from achieving its full potential. The
continent’s operations employ at least three million men, women and children and these make
notable contribution to the continental mineral output. The ILO (1999) estimates the value of
gold and gemstones produced by artisan mining annually at US$1.4 billion in sub-Saharan
Africa. In Ghana, the government invested a modest US$1.4 million to construct regional
buying stations that pay world prices to small-scale miners for their gold, a move that has
resulted in the collection of well over US$140 million in revenues that would otherwise have
been lost (Labonne, 1996). In other African countries, such as Guinea and the Central Africa
Republic, mineral production is almost entirely confined to small-scale mining. For the Central
African Republic, 90 percent of diamond and 100 percent of gold production is carried out by
small-scale miners; in Guinea, the share of small-scale mining in national mineral production
increased from 66 percent in 1990 to almost 100 percent in 1993 (UNECA, 1993; Bocoum &
Samba, 1995; United Nations, 1996; Hilson, 2002).
Artisan and small scale mining activities are strongly proliferating all over the African continent.
In South Africa, artisan and small scale-mining is typically practiced in the poorest and most
remote rural areas by a largely itinerant, poorly educated populace of men and women without
employment alternatives (MMSD, 2002). Artisan and small-scale mining workers now feed their
families with proceeds from their mining activities, emphasising the fact the industry is povertyreduction driven. In many other countries, specific attention and efforts have been made to
provide protection to small-scale miners by licensing, registering and documenting their
operations. Some of the major reasons for this include the wish to:
a)
Monitor and checkmate illegal mining and smuggling and trading activities;
b) Encourage private citizens as prospectors to increase mineral production, and to
liberalise the marketing of minerals;
c)
Curb the supply of gold to the black market;
d) Address the exploitation, by the small-scale mining sector, of specific mineral products;
e)
Control the mining rights of cultural minorities within their ancestral lands;
f)
Serve as sources of revenue for the government from the operators;
g) Address environmental problems as they arise, such as erosion and other hazardous
environmental concerns;
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h) Develop and exploit existing small mineral deposits;
i)
Generate additional foreign exchange to the government; and
j)
Generate employment opportunities and improve living conditions in the rural areas
(Hilson, 2003).
Apart from the above reasons for licensing small-scale on artisan mining operations, there is a
large need for government to control and protect the environment. This includes to put in place
effective health and safety measures to safeguard the lives of miners to explore the need of
adopting common marketing and buying centres for all licensed miners. Overall, the government
has to introduce sanity in the sector by endeavouring to create incentives and discipline or
penalise by using fines, imprisonment, or the holding, suspending and even cancelling of mining
licenses or permits given to any miner that contravenes the legislation. The decentralisation of
mining regulations is also important and can be achieved by the active involvement of local
governments in small-scale mining activities as currently exercised in countries like Ghana,
Indonesia, the Philippines, Sierra Leone and Zimbabwe.
Poverty reduction is widely acknowledged as a consequence of the encouragement of smallscale-mining industries in Africa. Many countries have decentralised the licensing and
registration of small-mining operations to enable them to increase the exploitation of small
mineral deposits, regulate the health and safety of miners, encourage additional revenue to the
local authorities, provide employment opportunities, improve the living standard of the people
and help them to be less dependent on national government and poverty reduction campaigns.
In Nigeria, the national government should consider the large opportunities offered by small
scale-mining activities for poverty reduction, when determining to deregulate its policy and
strategies on mining and quarrying (solid minerals) as many countries in Africa have done. Reed
(2001:51) explains that Tanzania opened up its mining sector in the 1980s when it realised that it
could offer prospects of attracting the much needed foreign investment and expand the sector. At
10 years ago the demand for Nigeria’s minerals is relatively high, as shown in Table 4.6.
Liberalisation of the mining sector could ensure increased production, and this implies more
employment opportunities for skilled and unskilled men and women. Also, the employment
96
statistics shown in Table 4.5 should be higher given the size of the country in terms of
geographical dispersal of these minerals in Nigeria.
Table 4.7 Demand and supply statistics of some processed minerals in Nigeria 1996
Raw material
National
Supply
Shortfall
% short
demand
(quantity)
(quantity)
Beneficiated laolin
150,000
20,000
130,000
(87)
Beneficiated talc
50,000
300
49,700
(99)
Beneficiated phosphate
200,000
0
200,000
(100)
Beneficiated lime
500,000
20,000
480,000
(96)
Beneficiated gypsum
300,000
0
300,000
(100)
Beneficiated feldspar
100,000
10,000
90,000
(90)
Beneficiated bentonite
60,000
0
60,000
(100)
Beneficiated barytes
100,000
20,000
80,000
(80)
Soda Ash
60,000
300
49,700
(99)
Source: Aliyu 1996:158.
The mineral resources shown in Table 4.8 play an important role as inputs or raw materials for
the agricultural and manufacturing sectors. Table 4.8 contains the principal uses of the above
mineral resources.
Table 4.8 Principal importance and uses of some of the minerals in Nigeria 1996
Minerals
Principal uses
Kaolin
Paper, rubber, pottery, ceramics and pharmaceuticals
Talc
Ceramics, paint and cosmetics
Phosphate
Fertilisers
Lime
Water treatment and steel making
Gypsum
Cement
Feldspar
Glass, Pottery and ceramics
Bentonite
Water and oil-well drilling
Barytes
Oil-well drilling and white paint pigment
Detergent and glass
Soda Ash
Source: Aliyu 1996:156.
Ongoing discussion and analysis of the relevance of the mining sector has shown that it can
generate employment opportunities for rural artisan and small-scale miners and so improve their
living standards, increase collection revenue for national, state and local governments, and
raising additional foreign exchange for the national government of Nigeria. The contribution of
the mining and quarrying sector to economic development of the can be felt if policy control and
legislation in the sector is deregulated to incorporate local authorities in the licensing and
97
registration of mining operators in the country. Access to mineral exploration by small-scale
miners will provide a means of livelihood, jobs and business opportunities to millions of
Nigerians who are still roaming the streets looking for employment. The study has, however,
shown that the mining sector can also provide important inputs for the agricultural and
manufacturing sectors. Mining has been a growth and development sector in many other African
countries like Botswana, DR Congo, Ghana, Ivory Coast, Namibia, South Africa and a host of
other countries in the continent depend on it for domestic and foreign income. According to
Hilson (2003:18), the activity of mining is mainly poverty-reduction driven Hence, it is people
who initiate and direct this poverty alleviation measure for any country as a whole, with little
cost and limited intervention on the part of the government. In the next section, the role and
importance of the socio-economic sectors like education and health in economic development
and growth are discussed.
4.5 Relevance of the growth support sectors, education and health, in achieving
economic development in Nigeria
The growth support sectors, education and health, provide strong support and contribute
immensely through the provision of human capital, and enhancement of productivity,
employment and income. Advancing the performance the health sector can ensure good health
and a healthy work force for sustainable development. In this section, the outlook for the
Nigeria‘s educational and health sectors is discussed. The education sector is presented first,
followed by the health sector.
4.5.1 Education as condition and support sector for MDGs in Nigeria
Formal education plays a critical role in the development of human capital and economic
generation. Education has been linked to economic progress for both the individual and for the
society (Koven & Lyons, 2003:50). Worldwide, countries have come to recognise the link
between education and economic development as well as the growth of knowledge-intensive
fields. Education is viewed as particularly relevant for emerging industries, which are placing
new demands on the nation’s workforce for technical expertise, knowledge about regional
markets, financial capital, and a stable workforce.
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In future, production will depend on knowledge of information processing and flexibility, skills
that change frequently. The establishment and development of knowledge infrastructure should
be seen as essential for rural and urban development in the twenty-first century. Just as Nigeria
needs a high quality and efficient physical infrastructure such as transportation, electricity,
hospitals, clean water and other utility systems, it should have the capacity for future growth and
development. The country needs a knowledge infrastructure to grow creative and innovative
individuals, groups and organisations that can contribute to sustainable economic development.
The role of higher educational institutions have changed, throughout the world the trend has
been for universities to shift from elite to mass systems that offer almost universal access
(Mazzarol & Soutar, 2001:33). As a matter of fact, what made the Asian miracle is that these
countries invested largely in education, which made them much more successful at adopting
the technologies that advanced the countries requirements, than sources of their peers. Growth
needs higher rates of investment in physical and human capital, and the newly industrialised
countries achieved these high rates (Nelson & Pack, 2003:105).
According to Nelson and Pack (2003), between the 1960s and 1990s, Hong Kong, Korea,
Taiwan and Singapore transformed themselves from being technologically backward and poor
into relatively modern and affluent economics. Education represents both consumption and
investment. Education it is valued for its immediate benefits, and it helps to create income in the
future by providing educated workers with the skills and knowledge that enable them to increase
their productive capacities and receive higher earnings. This means that the distribution of
education influences future income distribution. Thus, the equity implications of educational
investment are important.
Education is an important aspect of human capital development; it is an investment to support
economic growth and enhance the well-being and standard of living of the people. Rightly
considered, it is an investment to acquire knowledge. Basic education impacts on people’s
literacy and their ability to think adaptably and with time-based discipline. It also brings a
higher degree of personal efficiency and ability to innovate. Countries like Japan, South Korea
and Germany are known to have made large investments in education. Their continued
technological dominance represents the fruits of their investments.
99
The case of Nigeria which has more than 60 institutions of higher learning is almost totally
bad. The problems that bedevil the sector are numerous, ranging from a lack of focus and
inadequate funding to poor infrastructure. The persistent industrial strikes have led to
unnecessary loss of time. There is no doubt that investment in education is an unavoidable
imperative for any country that desires economic growth and development. Firstly, it drives
meaningful socio-economic change. Secondly, proper education throws up the requisite skills
needed to tackle social problems. It was the realisation of the place of education in human
capital development that made the UN make basic universal primary education one of the
MDGs. This is to ensure that, by 2015, children everywhere, boys and girls alike, will be able
to complete a course in primary schooling.
There is no doubt that this goal is born out of the necessity to expand the primary, secondary
and tertiary institutions to the level that they will begin to provide skilled manpower for
economic and technological development. In 2000, the percentage of students over 15 years
old in tertiary institutions in Nigeria was 40 for male and 44 for female, while the students
between the age of 15 and 24 years old was 10 for male and 6 for female (World Bank, 2002).
Large numbers of children have little access to education with high dropout and repeat rates.
High school education also faces serious problems with regard to quality, and requisite public
finance. There are few libraries, most of them lacking access to international journals and
generally deprived of educational materials, while research facilities remain limited.
Furthermore, life expectancy was estimated at 54 years for the period 1999 to 2005.
respectively. The adult literacy rate for Nigeria was low at 57 percent from 1990 to 2005
indicating that at least 43 percent of Nigerians are illiterate.
The Nigerian educational system is faced with many challenges, including the problems of
providing educational opportunities to disadvantaged minorities such as the nomads (Nomadic
education), street children and disabled persons. There is also the problem of low teachersstudent ratios, inadequate supply of instructional material and poor general quality of education
in Nigeria. This can be attributed to low budgetary allocation and implementation in the
educational sector. Table 4.9 below shows the federal allocation to education between 19902005. The figures in Table 4.9 show a progressive increase in the absolute amount being
100
allocated to the educational sector, but the percentage of the federal budget that this represents
has not improved. Within the period under consideration 1990-2005, federal annual budget to
education had fallen below 15 percent.
Table 4.9 Federal government budget allocation to education between 1990-2005
Year
Amount allocated in Naira (N) million
% of total budget
1990
2,121.2
5.3
1991
1,557.5
4.1
1992
2,404.4
6.3
1993
7,999.4
7.3
1994
10,283.8
14.9
1995
12,728.0
13.0
1996
15,350.0
10.8
1997
16,840.0
11.5
1998
23,666.1
9.6
1999
27,713.5
11.1
2000
56,568.2
8.7
2001
19,860.0
7.0
2002
9,215.0
7.9
2003
14,680.0
2004
9,053.0
2005
9,053.0
Source: 1) Central Bank of Nigeria Annual Report and Statement of Accounts, 31st December, 2004 p165
2) Central Bank of Nigeria Annual Report and Statement of Accounts, 31st December, 2005 p194
Table 4.10 Primary education in Nigeria, 1990-2005
Year
No. of
schools
Total
enrolment
No. pupils
teacher
per
% of female
1990
354,333
13,607,249
36
43.2
1991
35,466
13,776,854
37
43.8
1992
36,610
14,805,937
39
44.1
1993
37,812
15,911,888
41
44.4
1994
38,000
16,831,560
50
44.4
1995
39,677
17,994,082
60
44.0
1996
416,660
19,794,082
48
41.7
1997
43,951
21,161,852
52
43.5
1998
45,621
22,473,886
54
45.2
1999
47,902
23,709,949
52
48.5
2000
48,860.00
24,895,444
54
42.0
2001
49,343.00
27,384,991
56
51.0
2002
47,694.00
29,575,790
55
51.0
2003
52,815.00
26,292,370
53
53.0
2004
65,627.00
28,144,967
52
53.0
2005
59,340.00
26,160,000
40
53.0
Source: 1) Central Bank of Nigeria Annual Report and Statement of Accounts, 31st December 2004 p165
2) Central Bank of Nigeria Annual Report and Statement of Accounts, 31st December, 2005 p194
101
Table 4.10 further shows the profile of primary education in Nigeria between 1990-2005. It
indicates that there has been an increase in the number of primary schools from 35,433 in 1990
to 39,677 in 1995 and 47,902 in 1999. The number of primary schools further increased from
48,860 in 2000 to 65,627.0 in 2004, and decreased to 59,340 in 2005. At the same time, the
total enrolment increased from 13,607249 in 1990 to 17,994,082 in 1995 and 23,709,949 in
1999. The enrolment increased further in 2000 from 24,895,444 to 28,144,967 in 2004. It also
decreased to 26,160,000 in 2005. However, it is worth noting that while the number of
enrolment was increasing, the teacher-pupil ratio did not increase as well. This means that the
pupils may not receive adequate attention from the teachers, who are burdened with many
pupils contending for attention. There is also the possibility of the pupils’ not performing well
due to inadequate attention from the few available teachers.
Nevertheless, it is also important to note that the percentage of female pupils enrolling within the
period under consideration have been increasing progressively from 43.2% in 1990 to 44% in
1995 and 48.5% in 1999. Interestingly, the number of female pupils’ enrolment increased in
2001 from 51% to 53% in 2004 and 2005. Though this indicates a positive outlook of bridging
the gap between male and female pupils in primary education by 2015. It is instructive to observe
that, apart from the physical increase in the number of primary schools enrolment, the number of
teachers need to be increased, implying both improvements in the quality of teaching and
training, and of instructional materials made available to the schools. The general picture
portrayed in Table 4.11 above of secondary education in Nigeria between 1990-2005, was not
very impressive, compared with that of primary education. Between 1990 and 1995 there was no
significant increase in the number of institutions. From 1996 to 2005, there was a proliferation in
the number of secondary schools in Nigeria. Though the teacher-student ratio did not increase
proportionally, as it was for primary education, but the number of enrolments showed a
progressive increase.
However, unlike in primary education, the percentage of female students in secondary education
had shown an unstable improvement over the same period. This dismal situation can be
attributed to factors like high rate of dropout in schools, possibly because of the high cost of
education at secondary school level. With increasing poverty among many Nigerian households
parents are forced to withdraw their female children from school. Female children at educational
102
age are also often forced into early marriage by their parents especially in the rural agricultural
areas. Some female students withdraw from school to join their parents in petty trading (child
labour). According to Atsenuwa (2003:61) the low enrolment of girls in schools is a reflection of
the sexual division of labour in most homes in Nigeria. Atsenuwa (2003:61-62) further stresses
that overall, girls labour is perceived as more essential than boys’ in domestic chores, farming
and petty trading.
Table 4.11 Secondary education in Nigeria, 1990-2005
Year
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
No, of
schools
6,046
5,905
6,009
6,162
6,300
6,452
9,111
7,311
7,801
8,113
8,275
8,275
8,351
11,918
13,333
12,610
Total
enrolment
2,949,225
3,124,171
3,600,620
4,150,917
4,500,000
5,084,546
5,389,619
5,578,255
5,795,807
6,056,618
6,359,449
6,995,394
7,485,072
7,091,376
6,745,186
6,534,000
No. students per teacher
21
22
25
N/A
N/A
40
37
39
40
38
46
47
48
43
43
27
% of female
43.0
41.0
45.0
48.6
48.6
43.0
39.2
41.9
46.2
45.0
46.0
47.0
48.0
43.0
43.0
44.0
Source: 1) Central Bank of Nigeria Annual Report and Statement of Accounts, 31st December 2004 p165
2) Central Bank of Nigeria Annual Report and Statement of Accounts, 31st December, 2005 p194
Note: N/A = not available
In agrarian societies, like Nigeria, where the female role is defined largely in terms of home,
parents are likely to have significant incentives to keep their daughters at home and out of
school. This means that in agricultural societies girls are much less likely to be enrolled in
school at any point in time thereby achieving lower levels of education than boys (Atsenuwa,
2003). This also implies that parental characteristics are important determinants of education
for both men and women. Boys are usually given higher parental encouragement for education
than girls. In addition the education process includes factors particularly relevant to women’s
adult family roles, such as dating frequently, age at first marriage, and age at first birth, which
will have significant effects on educational outcomes for females more so than for the males.
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The gender differences in education may arise because of gender differentiation in adult roles
and the emphasis on family-related roles for women (Atsenuwa, 2003). On a general note,
concerted efforts should be made by the government to reduce those constrains that encourage
high rates of secondary school dropout by female students. Strong educational foundation is
needed at primary and secondary school levels. It is, however, important that both the physical
and knowledge infrastructure be adequately provided for by both the private and public sectors.
The spread of mass education constitutes a fundamental social transformation and a watershed in
the attainment process, because it opens up previously unavailable status mobility routes (Beutel
& Axinn, 2002:109). Mass education as Beutel and Axinn (2002) suggest, is a strong instrument
for social and economic transformation in any society. Specifically, the dimensions of social
change are likely to have an important impact on educational attainment in the following ways:
a) Expansion of academic institutions: the proliferation of schools will most likely
promote enrolment and attainment as schools become increasingly available, the cost of
sending children to school will decline, and parents will find it easier to send their
children to school. In the same manner, the nearer the schools are to the homes, the
more common school attendance is likely to become.
b) Availability of wage labour employment opportunities is also likely to stimulate greater
educational attainment, because school enrolment allows individuals to invest in their
human capital in order to increase their chances of obtaining a wage labour job and
mobility among jobs. This is particularly true in Nigeria, where the British system of
formal education adopted throughout the country gives the impetus for individuals to
think of getting white-collar jobs. As a result, as wage labour employment opportunities
increase, motivation to enrol in schools is expected to increase as a means of securing
these jobs. Likewise, we expect motivation to educate children to increase with longer
exposure to wage labour jobs nearby.
c) The proliferation of industries and markets is likely to increase school enrolment and
educational attainment, although this may be effected indirectly. As industrialisation
and markets spread throughout rural areas, goods and services become more widely
available, but only to those that have the money to purchase the goods and services. In
effect, Beutel & Axinn (2002) believe that the expansion of industries and markets is
104
expected to increase the demand for money, which may encourage individuals to pursue
wage labour jobs and higher wages among the jobs, and the desire to obtain higher
paying jobs is expected to motivate educational attainment.
Provision of physical infrastructure such as transportation will facilitate access to schools,
wage labour employment opportunities, and markets. By increasing access to these other social
institutions, each of which is expected to drive and motivate educational attainment by itself.
An improved transportation infrastructure is likely to increase school enrolment especially in
urban areas. Nigeria’s major cities experience such bad traffic congestion that people and
motorists spend hours on the road before they can reach their various destinations within the
cities. The chaotic transport and traffic situation is adduced to poor road and rail network
transportation systems. This will act as a disincentive to educational enrolment and attainment
especially within and just outside the cities (Beutel & Axinn, 2002).
Attention should be concentrated on providing additional funds for the education sector. Many
Nigerian children have no access to basic education, and the majority of the nearly 19 million
that are lucky enough to enter primary schools, (both public and private), are given substandard education (UNICEF, 1999). According to Hugo (2003) “he who opens a school door,
closes a prison”. In the light of this, the government should stand tall and face the challenges
of encouraging every Nigerian child to complete a basic primary school education by 2015.
The following section discusses the crucial role of an efficient health care service in achieving
a healthy population and labour force. This is needed to promote increased productivity and
sustainable development in Nigeria.
4.5.2 The importance of health care service as growth support sector for attaining the
MDGs in Nigeria
No matter where a health care discussion begins, the conversation soon turns to issues of
affordability. Employers and employees complain about high premiums, patients and providers
note high treatment costs, and policy-makers lament high and rising spending. Each
perspective presents a different aspect of the same problem (Henderson, 2002:2). The
importance of good health across all categories of Nigeria’s population cannot be
105
overemphasised. Dasgupta (2004:114) says that improved health status implies fewer working
days lost due to ill health and fewer resources spent on health care. Consequently, economic
productivity increases. Between the 1950s and 1970s, health indicators improved substantially
in many African countries as they invested heavily in public health services, and their
governments enthusiastically endorsed the general international consensus on the relationship
between health development and poverty that culminated in the acceptance of the primary
poverty healthcare strategy (Bloom, Belshaw & Livingstone, 2002:426).
However, the concern for health care services began to decline because of economic problems
arising from declining foreign revenue and the structural adjustment programmes embarked on
by these countries. This focused market solution in 1980s and led to drastic reduction in public
expenditure. This invariably affected public expenditure on public health care delivery. For
instance, Table 4.12 illustrates Nigeria’s federal allocation to health (1990-2005).
Table 4.12 Federal government of Nigeria national budget allocation to the health sector,
1990-2005
Year
Amount (“N” million)
% of annual federal budget
1990
904.9
2.5
1991
1,091.8
1.4
1992
1,051.1
2.0
1993
2,652.2
1.5
1994
3,042.3
4.4
1995
5,060.9
5.2
1996
4,838.0
3.4
1997
7,343.0
5.0
1998
11,291.96
4.6
1999
13,727.30
4.5
2000
14,806.43
2.7
2001
20,128.0
3.9
2002
12,608.0
4.7
2003
6,431.0
4.7
2004
18,207.0
4.7
2005
18,207.0
4.7
Source: 1) Central Bank of Nigeria Annual Report and Statement of Accounts, 31st December 2004 p165
2) Central Bank of Nigeria Annual Report and Statement of Accounts, 31st December, 2005 p194
The total government budget to the health sector between 1990 and 2005, as shown in Table
4.12, was under six percent. However, since health plays an important role in achieving growth
and development in any economy, the government needs to prioritise its programmes in favour
of investing more in grass roots primary health care systems. Evidence has shown that the rich
(politicians) prefer private hospitals overseas when they are sick for quick medical attention,
106
diagnosis and medication even at the highest possible cost, while the poor generally go to public
hospitals to obtain health care services.
However, it has often been truly alleged that public hospitals are poorly run and serve as mere
consulting centres due to lack of drugs and equipment. Most public hospitals do not experience
three hours of constant electricity supply in Nigeria. Low morale and poor dedication of medical
personnel due to low remunerations and other incentives are also problems in the health care
sector. With about N100 billion of debt relief released to the country, money is available to
refurbish and equip all the public hospitals, including the famous University Teaching Hospitals,
and to build additional clinics at primary rural community level to tackle the escalating rate of the
HIV/AIDS pandemic in Nigeria. Nigeria is ranked third in the world in terms of HIV/AIDS
prevalence rates (UN Report, 2005). The World Bank (2006:293) states that the life expectancy
at birth in the country is now 44 years and 45 years for male and female respectively.
4.6 Summary of the main findings and conclusions
In this chapter, attention was concentrated on the analysis of the relevance of the growth
sectors namely agriculture, manufacturing and mining (solid minerals); and the growth support
sectors, namely education and health care delivery in Nigeria. The analysis shows that the
agricultural, manufacturing and mining and quarrying sectors have potentials for creating more
jobs and income, reducing poverty and increasing productivity for the sustainable economic
development of Nigeria. There is a strong linkage between the three important growth sectors
in Nigeria. Agriculture provides strategic raw materials for the manufacturing sector and
manufacturing in turn supplies farming tools and equipments and inputs such as fertiliser to
agriculture. Furthermore, a dynamic manufacturing sector is expected to facilitate the
transformation of the agricultural sector in terms of building, designing or fabricating suitable,
cost-effective machinery and technology to increase production, and also absorb and train extra
labour from agriculture.
The mining sector can complement agriculture in rural economic transformation since its
activities are rural-based. Both sectors are poverty-reduction driven. Therefore, poverty
alleviation policy measures of encouraging proliferation of well-organised small-scale mining
operation could easily be incorporated in the mining and agricultural sectors. Care should also
107
be taken by the government to protect the environment and the health and safety of the people
engaged in these sectors, by minimising environmental hazards such as erosion and pollution.
Farmers should be encouraged not to switch their labour to mining activities. There is a strong
need for Nigeria to deregulate its policy strategy on mining as many countries in the continent
have done. This will encourage the national, state and local governments to all work together in
harnessing the growth and development potentials of the growth sectors.
Meanwhile, the education and health care sectors play an important role in providing the muchneeded human capital and technical know-how. The interaction of these sectors could bring
about rapid social and economic transformation required to attain sustainable economic
development in Nigeria. In each of the sectors, great potential and investment are required both
from internal and external sources to boost gross output growth. In the next chapter, the
empirical and analytical frameworks of the study are discussed.
108
CHAPTER FIVE
THEORETICAL AND ANALYTICAL FRAMEWORK
5.1 Introduction
The literature provides a rich catalogue of models that deal with economic development policy
and planning in developing countries. Of the models, the most widely used models are the
econometric methodology and computable partial and general equilibrium analysis. However,
building a model for a developing economic environment poses serious problems due to the
dearth of relevant data. According to Nwaobi (2004:29), models are used to unravel complex
real-world situations of interest.
The ongoing discussion of the ways to attain the MDGs has pinpointed a lack of financial
resources as a major problem. In consequence, a series of global conferences have been
convened to discuss partnering as a way to finance development for the third world countries.
According to the UN (2002e:23), the links between financing development, measuring
development progress, helping guide development priorities and encouraging active
involvement of all relevant stakeholders, including the civil society organisations and the
private sector, are widely recognised. In Nigeria, such discussions have clearly shown that the
country needs to look inward (domestically) and outward (internationally) to find resources
that can be employed to overcome the financial limitations and to generate the type of growth
required to achieve the high level of development in Nigeria needed to reach the MDGs.
The UN has urged developed countries to make concrete efforts towards supporting and
financing growth targets by giving 0.7 percent of their GNP as ODA to developing countries,
and 0.15 to 0.20 percent of their GNP to least developed economies. The UN (2002f:8) further
urges domestic banking systems and institutional arrangements to address the financial
development of developing countries. Domestic insurance companies, debt and equity market
institutions are encouraged to mobilise and channel savings to foster productive investment.
However, while financial resources are of paramount importance, the right kind of policies and
sectors are also necessary to accelerate growth at the rapid rate required to achieve a high level
of development to attain the MDGs in Nigeria. Therefore, the core objective of this chapter is
to identify and analyse empirically the sectors most suited to accelerating growth, which could
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serve as vehicles for reaching the development goals. These sectors must also have the
capability to improve household income, by strengthening their labour power, return on labour
and most importantly, the accessibility by the poor to assets or social capital.
This chapter argues that the sectors that have the greatest potential to improve the labour
power, labour income and access to social capital and to address poverty are the agriculture,
manufacturing and the solid mineral mining. In his 2006 budget speech, President Obasanjo
(2006:11) said the national budget must focus on diversifying the Nigerian economy and the
priority growth sectors are agriculture, manufacturing and the solid mineral exploration.
Similarly, the special assistant to the country’s presidency, Armina Abrahim (2005:4), stressed
that development of agriculture and environment, power and steel, womens affairs, water,
health, education and urban development will help Nigeria to attain the MDGs.
Apparently, emphasis on these growth sectors offers leeway for poverty reduction in Nigeria,
because the poor depend on their labour capability for their livelihood, whether as wage-labour
or through self-employment. It is reasonable to link the labour capability of the poor to the
availability of productive employment. This in turn depends largely on the income earned by
the poor. Similarly, access to social capital and other physical and human assets could also
determine the returns of the poor on their labour. In sum, measures to reduce poverty should
be seen in the context of improving the return on the labour of the poor through increasing their
income and their access to social, physical and human capital assets. It should also be
mentioned that the interplay of market forces in terms of costs of inputs and output-product
prices expressed in the form of terms of trade could play a significant role in poverty reduction.
Therefore, the activity of the growth sectors, namely agriculture, manufacturing and the solid
mineral mining, could to an appreciable extent depend on the production potential and
expansion of the economy. The extent to which the economy expands will also enhance the
employment potential of the growth sectors. Dynamism in the economy will encourage the
movement of labour capabilities from one sector to another. For example, the manufacturing
sector could absorb skilled labour from the agriculture and mining sectors.
The cost of domestically produced goods, foreign imported capital goods, capital and imported
consumer-produced finished goods can simply be captured in the form of terms of trade.
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5.2 The concept of cointegration and error-correction (ECM) econometrics
methodology.
During the last few years, considerable progress has been made in developing new econometric
methodologies to make use of the two-step approaches especially the concepts of cointegration
and error-correction mechanism (Bond and Harrison, 1992:315). As explained by Bond and
Harrison (1992), the concepts of cointegration and error-correction mechanism (ECM) are
introduced to avoid spurious regressions. The estimation of long-run models containing nonstationary variables may lead to serious problems and predominantly spurious results (Lauridsen,
1998:1). Thus, the concept of cointegration and ECM have evolved to suggest an alternative
methodology to the time series analysis while taking account of many of the problems that can
give rise to unstable series. The concept of cointegration and ECM were initially introduced
independently.
The theory of cointegration was developed by Granger (1983) and Granger & Weiss (1983). It
postulates that if two variables x and y are I(1), therefore any combination of the two variables
will also be I(1). There may exist a singularity, for instance ‘λ’, such that y-λx results to I(O). In
that instance, such singularity x and y are said to be cointegrated.
The ECM was introduced by Phillip (1954) and first used in economics by Sargan (1964), and
since the work of Davidson et al. (1978), error-correction models have played an important role
in dynamic economic modelling (Bond and Harrison, 1992:317). In the application of the
cointegration and ECM model, the dynamics of both short-run (changes) and long-run (levels)
adjustment processes are included. Bond and Harrison (1992:317) further explain that the model
takes account of the dynamic adjustments to steady-state targets by including in the short-term
dynamics a measure of how much out of equilibrium the variables were at the start of the period.
Engle & Granger (1987) proved that cointegrated series can be represented by an ECM model,
and a two step estimation procedure for ECM models was developed. Practically, the first stage
of the procedure is to perform a levels estimation which allows for the hypothesis of
cointegration to be tested. A technical analysis of the methods is shown by Park & Phillip (1988,
111
1989). However, three tests have become standard in the literature: the Cointegration Regression
Durbin-Watson test, the Dickey-Fuller (DF) test and the Augmented Dickey-Fuller (ADF) test
The DF and ADF procedures are based on the standard ‘t’ test. DF is comparable to the standard
‘t’ test of the hypothesis that the parameter α equals zero in the model:
∆e = αet -1 + vt
The null hypothesis that α =0 is again comparable to the hypothesis that the regression is not
cointegrating. Thus, if the regression is cointegrating then α will be negatively signed and
significantly from zero.
The ADF is similar but the ‘t’ statistic on α is calculated from the regression:
∆et = αet -1 + Σi = 1γi ∆et-i + vt
This test allows for more dynamics than the DF and the number of, q, of lags can be varied.
Howver, if the ADF test proves inconclusive, the graphical representation of the data in levels
and first differenced may be relied upon ( Koekemoer, 1999).
Engle-Yoo (1991) estimation procedure provides an extension (third step) on the Engle-Granger
estimation. The third step provides the dynamics through which the parameter estimates of the
first stage (long-run) estimation and a set of standard errors allow for the calculation of new
adjusted coefficients and standard ‘t’ statistics. In essence, the third step procedure helps to
recovery all long-run cointegration relationship present in the data with the short-run properties
simultaneously to adjust for a set of new coefficients and the t-statistics. The two-step procedure
introduced by the Engle-Granger (1987) and Engle-Yoo (1991) have come to represent a
standardised estimation method (see Du Toit, 1999; and Koekemoer, 1999).
As emphasised in chapter one of this study, an econometric multivariate co-integration
methodology as found in Engle and Yoo’s (1991) three-step technique is a relevant tool for
analysing and addressing a wide range of economic development issues in Nigeria. The main
goal for adopting the Engle-Yoo econometric multivariate cointegration estimation model in
this study is to simulate policy-oriented macroeconomic development scenarios through the
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analysis of the relationships between domestic and foreign financial resources and the domestic
production of Nigeria’s growth sectors.
Essentially, the emphasis is on the impact of
increasing the productive output of the agricultural, manufacturing and mineral mining sectors
using domestic financial and infrastructural and foreign financial resources. Also, improving
and enhancing the productive capacity of the real sectors requires large investment in education
and health. The financial sustainability of the agricultural, manufacturing and mining sectors is
of vital importance. The development of the growth sectors can impact significantly on the
standard of living of the vast majority of their people. Through employment creation, income
generation, skills acquisition in science and technology training and capacity building can
facilitate rapid growth and poverty reduction in Nigeria. Mistry (2002:13) stresses the
importance of domestic resource mobilisation in financing development and the responsibility
that developing country governments have in maximising the availability of such resources.
The government’s expenditure and other agricultural development efforts supported by
commercial banks’ aggregate credits to farmers constitute the main domestic financing
windows for agriculture, manufacturing and mineral mining in Nigeria. Mistry (2002) stresses
the need for financial systems that intermediate domestic resources efficiently. The role of
commercial banks in mobilising financial resources and intermediating savings or idle funds
into capital investment for the productive sectors of Nigeria is compatible with Mistry’s (2002)
assertion. This is because the commercial banks have large networks of branches, and can
intermediate domestic financial resources efficiently. Similarly, FDI into the growth sectors
will offer a complementarily enhancement of the economy’s output performance.
The central objective of adopting the Engle-Yoo econometric multivariate cointegration
estimation model in this study is to simulate policy-oriented macroeconomic development
scenarios by analysing the relationships between domestic and foreign financial resources and
the domestic production of Nigeria’s growth sectors. Essentially, the emphasis is on the impact
of increasing the productive output of the agricultural, manufacturing and mineral mining sectors
using domestic financial, infrastructural and foreign financial resources.
A review of the empirical works involving the analysis of multivariate econometric cointegration
error correction methodology, especially in the context of the agricultural, manufacturing and
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mining and quarrying sectors in Nigeria, show that not many studies have been done in this area,
compared with many other developing countries. These rare studies that do address economic
development issues mostly use traditional econometric analysis. These studies include the
pioneering work of Liedholm (1966) on manufacturing industries, in which he estimates
production functions of the Cobb-Douglass type for the period 1962-1963 for selected industries
within the Eastern provinces of Nigeria. Liedholm derives cross-sectional data of individual
firms against industrial aggregates. Liedholm believed that the study made some important
contributions to the analysis of the structure of the Nigerian industry. It also highlights the
usefulness of the estimated coefficients for planning purposes. The study suggests that increases
in output can be expected from given increases in capital and labour inputs.
Oyelabi (1971:52) also estimates and tests factors substitution in Nigeria’s manufacturing sector.
He finds that the elasticity of substitution in Nigeria’s manufacturing industries varies from
industry to industry. Osakwe (1976) fits a Cobb-Douglas production function to time series
observations of ten industries in the manufacturing sector of Nigeria. He finds that labour
productivity exceeds that of capital by more than double. His coefficient of capital, however, is
negatively signed and statistically insignificant.
In their study, Odama and Kazi (1982) estimate production functions exhibiting constant
elasticity of substitution to the manufacturing industry in Nigeria, based on an industrial survey
for the years 1962 to 1975. They find that labour and capital are both economic and politically
significant. Their study shows that the level of substitution in the Nigerian industries is very low.
Ukpang and Anusionwu (1986:47) test for the contribution of expatriate labour in relation to
Nigerian labour in the Nigerian manufacturing using a traditional econometric approach. Their
result shows that Nigerian labour contributes more to aggregate production than does the
expatriate labour. They also find a negative contribution of capital and Nigerian professionals to
gross output in some industries in Nigeria.
Growth theory provides substantial guidance for specifying supply-side agricultural potential
output, which is primarily determined by measurable input factors, as well as total factor
productivity (TFP). This methodology is to a large extent consistent with the theory of
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production function that underlies specification of the supply-side of agricultural potential
output (see Agu, 1985:183; Doll & Orazem, 1978:12; Pauly, 2000:3). However, the
unavailability of most cointegrating factor inputs for the specification of the production
function results in the incorporation of variables such as commercial banks loans, agricultural
credit guarantee scheme, imported machinery and equipment which lie outside the strict inputs
of production function. However, most of the variables used in this methodology are not
strictly inputs in the production function, they strongly influence the domestic output
production and development in Nigeria.
5. 3 Structure of the model
Three behavioural equations defined in the form of a neoclassical supply-side model for the
Nigerian economy are estimated individually. Of the three equations, one is specified for the
agricultural sector and one for the manufacturing and the mining and quarrying sectors
respectively. Growth theory provides substantial guidance for specifying supply side
agricultural potential output, which will be primarily determined by measurable input factors,
as well as total factor productivity (TFP). This model is to a large extent consistent with the
theory of production function that underlies specification of the supply side of agricultural
potential output (Doll & Orazem, 1978:12; Pauly, 2000:3). Pauly (2000:3) asserts that, in most
developing economies, agricultural output is best modelled as supply-determined. The valueadded in agriculture is presented as:
XAGR /Arable Land = A0 Ka Rainfallb Fertiliserc eTFG-AGR
Thus, potential output is determined by fully utilised inputs of measurable factors of
production: capital (K), average annual rainfall and fertiliser, as well as by the total factor
productivity of agriculture (eTFG-AGR). Pauly (2000:3), however, explains that data limitations
may well lead to the estimation and introduction of non-constant returns to scale through
endogenous modelling of TFP. Most of the cointegrating factor inputs necessary for specifying
the production function are not easily available, which means that variables such as
commercial bank loans and advances, agricultural guarantee scheme, modern farming
machinery and equipment have to be incorporated into the function, though strictly speaking,
they fall outside the inputs of the production function. These variables play significant roles
115
that strongly influence the domestic output production and development in Nigeria and so are
included for that purpose in this study.
5.4 Model for agriculture
Based on the general specifications for supply-side agricultural potential output for most
developing economies, as given in Pauly (2000:3), a reasonably flexible representation is given
in equation 1.
Agr =а0 + β1lnAgcap + β2lnlabor +β3lnFert + β4lnRi + β5lnAcgs + Dum86sap + еi
……(1)
Note: а0, β1, β2, β3, β4 and β5 >0
Where:
Agr
= agricultural GDP
Agcap
= public capital expenditure
Labor
= estimated labour in agriculture
Fert
= fertiliser used in the sector
Ri
= interest rates
Acgs
= agricultural credit guarantee scheme
Dum86sap = the policy impact of the structural adjustment programme launched in 1986
а0, β1, β2, β3, β4 and β5 = coefficients
ln=logarithm
еi =error terms
This explains that Nigeria’s potential agricultural output is determined by the following
measurable input factors: labour force (Labor), public capital expenditure for agriculture
(agcap), fertiliser utilised (Fert), interest rates to the sector (Ri), the banks’ aggregate loans and
advances (Acgs) and the policy impact of the SAP on the agricultural sector (dum86sap).
116
5. 5 Basic hypotheses, assumptions and expectations for each variable in the
cointegration agricultural model
Agriculture plays a dominant role in the Nigerian economy, as it employs about 70 percent of
the total workforce, and serves as a source of income to farmers, yields foreign exchange,
provides food for the growing population (now at over 130 million) and produces raw
materials for the industrial sector. Therefore, if agriculture is adequately financed with
domestic and foreign resources, this growth sector could provide enough food and income for
the vast majority of the country’s population engaged in it. Poverty and extreme hunger will
thus be reduced.
The domestic gross product of the agricultural sector (Agr) in Nigeria is hypothesised as jointly
and severally determined by changes in labour force (Labor); public capital expenditure for
agriculture (Agcap); fertiliser (Fert); interest rates to the sector (Ri), agricultural credit
guarantee scheme (Acgs); the impact of the structural adjustment programme on agricultural
production (dum86sap).
The expected roles of these variables in increasing the agricultural production in Nigeria will
guide the assessment of each variable included in the models. The expectations include the
following:
a) Labour force (Labor) in the agricultural sector in Nigeria is expected to have a positive
effect on the productivity of the sector. Agriculture provides gainful employment to large
labour force in developing countries (World Bank 2000:187-188; Norton, 2004:4; Niang,
2006:88; Mortimore, 1998:4) others evidences include (Lenihan, 2005; Meier & Rauch,
2005:393; Mellor & Johnston, 1984). Thus, the coefficient of labour in the model is expected
to be positive.
b) Public capital expenditure for the agricultural sector (Agcap), is expected to service as positive
incentive for the country’s predominantly rural agriculture, and could stimulate growth,
production and poverty reduction. According to Schwartz (2000:151-155), Israel’s sponsored
agricultural settlement projects in Zambia, Nigeria and Nepal resulted in Zambia and Nigeria
achieving high agricultural productivity due to improved social services to the farmers. Schwartz
117
(2000) explains that Nigeria increased its agricultural production through this project, though the
high growth and productivity declined due to the outbreak of the Nigerian civil war in the early
1970s. This evidence suggests the importance of the capital expenditure for the agricultural
sector. The coefficient is expected to be positively signed.
c) The use of fertiliser provides the soil with nutrients and encourages high crop yields (Nelson,
2001:15; Mortimore, 1998:43). Therefore, the coefficient of fertiliser is expected to be positively
signed in the estimation.
d) The coefficient of interest rates is expected to be negatively signed in the model. The
expected inverse relationship between the interest rate and agricultural output is supported in
literature. The influential work of McKinnon (1973) and Shaw (1973), financial liberalization
protagonists, asserts that low or negative real interest rates discourage high saving rate and
would misallocate capital to unproductive sectors. The achievement of high, positive real
interest rate would stimulate savings and volume of credit available to the productive
investment (Demetriades and Hussein, 1996). Demetriades and Devereux (1992) study on 63
developing countries over the period 1961-1990 find higher real interest rates on investment is
adverse. It is expected that interest rates to the agricultural sectors will show a negative
relationship with the output of the sector since high and positive interest rates to farmers is
expected to discourage more investment in the agricultural sector.
e) Agricultural credit guarantee scheme (Acgs) is expected make a positive significant
contribution to agricultural production. The general contention is that low levels of savings in
developing countries contribute significantly to the depreciable level of investible funds. The
federal government of Nigeria, through the central bank with some selected commercial banks
initiated a credit scheme to support farmers with credit to enable them boost production. It is
against this background that coefficient (Acgs) is expected to have a positive impact on
agricultural production.
f) Dum86sap represents the policy impact of the structural adjustment programme on the
agricultural production. The SAP reforms aims at enhancing economic efficiency in the use and
allocation of economic resources (Mensah, 2006:4). According to the CBN (2000:38) the output
118
of the agricultural sector increased sharply due to the SAP measures. Thus, the dum86sap is
expected to be positively related with the agricultural GDP.
In the next section, the model for manufacturing is presented and its basic assumptions and
expectations discussed.
5.6 Model for the manufacturing sector
The specification of the manufacturing value-added potential output is based on Pauly’s
(2000:3) model for developing countries. Pauly (2000:3) states that non-agricultural modelling
for developing economies should be determined by fully utilised inputs of certain measurable
factors of production (such as capital (K) and labour (L), energy, imported raw materials), as
well as by total factor productivity. As for agriculture, in the manufacturing sector data
limitations can dictate a more reasonably flexible form of specification. Potential output is
given as:
Yt =eβ0t Kβ1t Lβ2t
Therefore, the value-added potential output for manufacturing will be determined by
measurable input factors represented as:
Manuf =а0 + β1lnlabor + Χ2lnfdim + β3lnrexch + dum86sap + ei ………...(2)
Note: β1, Χ2 and β3 >0
Where:
Manuf
= manufacturing value-added gross output
Manlabor = estimated labour in manufacturing
Fdim
= foreign direct investment in manufacturing
Exch
= Naira/dollar exchange rate
Dum86sap = the policy impact of the structural adjustment programme launched in 1986
β1, Χ2 , =coefficients
ei =error terms
Data coverage 1970-2005
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5.7 Basic hypotheses, assumptions and expectations for each variable in the
cointegration manufacturing model
The following are the basic underlying assumptions and expectations for the variables included
in the manufacturing model, which will be estimated in chapter six of this study:
a) Labour force consists of the quality of educated and well-trained skilled labour that can
bring about innovation and technological invention in the manufacturing sector (Okore,
1985:126). Relevant skills include for consumer-goods branding, marketing and advertising.
Because of the importance of labour in enhancing the productivity of the manufacturing sector,
the coefficient is expected to be positively signed.
b) FDI plays an important role in economic development because it helps to make possible
superior technology, huge capital outlays and superior production techniques, management,
marketing, distribution skills and technical know-how (Mugabe, 2005:75). Thus, the
coefficient for FDI (Fdim) in Nigeria is expected to be positively related with the gross output
of the manufacturing sector.
c) The manufacturing sector imports most of its raw materials for production in the country.
Consequent upon this, the manufacturers are often affected by changes in exchange rate
Naira/dollar movement. Suffice to stress that Naira/dollar appreciation will lead to lower cost
in raw materials imports while depreciation in the exchange rates translates to high cost of raw
materials imports. Thus, the coefficient of the Naira/dollar exchange rate is expected to be
positively signed.
d) Dum86sap represents the policy impact of the structural adjustment programme launched in
1986. The SAP reforms aims at enhancing economic efficiency in the use and allocation of
economic resources (Mensah, 2006:4). The SAP programmes are essentially market driven. It is
expected to encourage private sector led-businesses and production. In the light of this, the SAP
is expected to impact positively on manufacturing activities in Nigeria. Thus, coefficient of
Dum86sap should be positively signed.
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e) Infrastructure in the model is expected to have a strong and direct relationship with valueadded manufacturing gross production. Pauly (2000:3) states that productivity enhancement
factors like infrastructure can influence the productivity possibility of a growth sector.
Infrastructural investment in and outside the industrial estates in Nigeria is expected to play a
significant role in attracting more manufacturing firms due to the reduction in the cost of doing
business and greater availability of transports facilities. Uninterrupted communication systems
(both electronic and parcels) will have a similar effect. The coefficient for infrastructure
(Infrast) in the manufacturing model is expected to be positively signed.
5. 8 Model for the mining and quarrying sector
In this section, the model for the mining and quarrying (solid minerals) sector and the
underlying basic assumptions and expectations for the variables included in its estimation are
discussed. It is important to emphasise that the primary goal of this mining and quarrying
cointegration estimation model is to assess the impact of public policy and the implications of
mobilising financial resources towards stimulating investment growth in the solid mineral
resources sector in Nigeria. The mining sector is one of the backbones of most economies on
the African continent (Hilson, 2003). It is imperative to mobilise domestic and foreign
financial resources to stimulate investment at small-medium and large-scale enterprises to
boost the productive capacity of the mining sector. The deregulation of Nigeria’s mining sector
by the government, following the example of most other African countries, will no doubt
create significant economic development opportunities and bring employment creation,
increased income to household artisan miners, expansion of revenue sources and foreign
exchange for development and poverty reduction in the economy. The model for mining is
therefore presented in this section.
MINQUA = β0 + β1lnMINCAP + β2lnLABOR + DUM80S + Dum86sap +ei
……….(3)
Note: β1, β2, >0; dum80s and dum86sap <0.
Where:
121
Minqua
= real value-added gross output of mining and quarrying
Labor
= real labour in the sector
Mincap
= real public capital expenditure to the mining and quarrying sector
Dum80s = the impact of government policies on the mining and quarrying
Dum86sap = the policy impact of the structural adjustment programme launched in 1986
Note: β1, β2, = coefficients
5.9 Hypotheses and basic expectations for each of the variables included in the
mining and quarrying (solid minerals) model
a) Labour force (Labor) in the mining sector includes small-scale artisan miners and medium
and large-scale mining companies (Hilson, 2003). Given the economic and social opportunities
available for Nigerians residing around the various mining and quarrying communities, it is
expected that if their labour earns better income this will enhance their standard of living and
significantly uplift their social and economic status (Odesola, 2001:48). In essence, the
coefficient of labour in the mining and quarrying sector is expected to play a positive significant
role in poverty reduction in Nigeria.
b) Public capital expenditure (Mincap) provides the needed capital outlay to mine the solid
minerals in Nigeria because the mines are placed under direct control of the national government.
The mincap is expected to be positively signed in the mining and quarrying model
c) Dum80s which represent the effects of changes in government past policy on the mining
sector, is expected to be negatively signed. The expectation is that the past government policies
have impacted negatively on the development of the mining and quarrying sector. Onah (2004)
believes that government control and past policies have not induced the expected performance of
the sector.
5.10 Summary of the main findings and conclusions
In this chapter, attention was primarily focused on developing models for the growth sectors in
Nigeria. Overall, the models suggest that Nigeria needs to accelerate the pace of economic
growth and development in its agricultural, manufacturing and mining and quarrying sectors to
be able to attain the international development target of reducing poverty by half by 2015. It is
122
against this background that the UN through various international forums has mandated all
developing countries to look inward and ensure efficient financial intermediation to mobilise
resources to finance development and growth in their own countries (UN, 2002). This wake-up
call was needed, since Nigeria and other developing countries are endowed with rich renewable
and non-renewable resources that can be harnessed in partnership with foreign investors and
development agencies, and used to enable these countries to attain global development goals.
In response to the need to improve and increase the output performance of the agricultural,
manufacturing and mining and quarrying sectors in Nigeria, a set of factor inputs in the
production function are incorporated in the estimation of the cointegration models. Additional
input variable not strictly factor of production such as agricultural credit guarantee scheme is
included. The inclusion of this input variable is necessary because it plays an influential role in
the economic development of Nigeria. A total of three (3) cointegration equations were
formulated for estimation. The expected signs and behaviour of the variable inputs in the
equations were also discussed.
In chapter six, the results of the multivariate cointegration econometric estimated models for
agriculture, manufacturing and mining and quarrying (solid minerals) in Nigeria will be
presented and the policy implications of these results discussed.
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CHAPTER SIX
EMPIRICAL ANALYSIS AND PRESENTATION OF ESTIMATED ECONOMETRIC
MODELS
6.1 Introduction
In this chapter, the variables included in the estimated models for agriculture, manufacturing and
mining and quarrying are described and analysed. The estimated results of the model for
agriculture are presented first, followed with the models for the manufacturing and mining and
quarrying respectively. The results are analysed and their implications discussed.
6.2 The model for the agricultural sector
The data (sources, derivation and univariate characteristics) utilised in both the long-run
cointegration and short-run dynamics of the model is presented in appendix1. Appendix 2
represents the stochastic functions. On the other hand, appendix 3 presents the graphical
illustration of the data series. Appendices 4 and 5 are the Augmented Dickey-Fuller tests for nonstationarity levels and first differences
Table 6.1 highlights data included in Model for agriculture. The data described in Table 6.1
assesses the policy impact of the public capital expenditure, labour, fertiliser, interest rates, the
agricultural credit guarantee scheme and the dummy representing the structural adjustment
programme (SAP) on agricultural production and development in Nigeria.
Table 6.1 Data incorporated in the estimated agricultural model
AGR
agricultural GDP at 1984 constant factor cost
AGCAP
public capital expenditure for the agricultural sector
FERT
fertiliser
RI
interest rates for the agricultural sector
AGLABOR
estimated labour engaged in agriculture
ACGS
agricultural credit guarantee scheme
DUM86SAP
impact of the structural adjustment programme on the
agricultural sector (SAP launched in 1986)
LN
natural logarithms
Data coverage
1970-2005
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6.2.1 Estimation results of the long-run cointegration equation
The first step of the Engle-Yoo (1991) three-step estimation technique was applied to test
whether the set of variables specified in the empirical model is cointegrated. In essence, it shows
whether the combination of variables incorporated in the estimation is consistent with the longrun equilibrium relationship. The cointegration results are reported in Table 6.2
Table 6.2 Estimated results of the Long-run cointegration equation
Dependent Variable: LNRAGR
Method: Least Squares
Sample: 1970 2005
Included observations: 36
Variable
Coefficient
LNRAGCAP
0.144091
LNRFERT
0.279778
RI
-0.001385
LNRAGLABOR
0.511459
DUM86SAP
0.297486
LNRACGS
0.039825
R-squared
0.961215
Adjusted R-squared
0.954751
S.E. of regression
0.210096
Sum squared resid
1.324206
Log likelihood
8.366926
Std. Error
t-Statistic
0.030233
4.766050
0.062744
4.459029
0.002504
-0.552957
0.066712
7.666721
0.108455
2.742938
0.016677
2.387982
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Durbin-Watson stat
Prob.
0.0000
0.0001
0.5844
0.0000
0.0102
0.0234
9.946248
0.987669
-0.131496
0.132424
1.480066
The Engle-Granger test statistic of -5.601804 should be compared with the response surface for
any number of regressors, excluding any constant and trend components, 1<n<6, can be
calculated as C(P)= φ ∞ + φ1T −1 + φ 2T −2 , where C(P) is the P percent critical value. The
conclusion about this estimation is to reject the null hypothesis of a unit root in the residual. In
essence, there is evidence of cointegration at the 10 percent, 5 percent and 1 percent. The
diagram shown in Figure 6.1 also indicates that the residuals are stationary.
125
Figure 6.1 Residuals of real agricultural output (lnragr)
.4
.2
.0
-.2
-.4
-.6
1970
1975
1980
1985
1990
1995
2000
2005
RESIDUAL
6.2.2 Estimation results of the error correction model (ECM)
After the long-run cointegration relationship has been determined, the second stage of the EngleYoo procedure entails the estimation of an error correction model (ECM), which captures the
short-run dynamics of the adjustment process to the long-run equilibrium. It also incorporates the
equilibrium error (lagged residual terms) estimated from the long-run equilibrium relationship.
The estimated result of the ECM is reported in Table 6.3.
Table 6.3 Estimated result of the error correction model (ECM)
Dependent Variable: D(LNRAGR)
Method: Least Squares
Sample (adjusted): 1973 2005
Included observations: 33 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
RESIDUAL(-1)
-0.215507
0.111842
-1.926896
D(LNRAGCAP)
0.070147
0.022746
3.083912
D(LNRACGS(-2))
0.073439
0.011715
6.268808
R-squared
0.694003 Mean dependent var
Adjusted R-squared
0.673603 S.D. dependent var
S.E. of regression
0.102893 Akaike info criterion
Sum squared resid
0.317611 Schwarz criterion
Log likelihood
29.79173 Durbin-Watson stat
Prob.
0.0635
0.0044
0.0000
0.089344
0.180100
-1.623741
-1.487695
1.638553
The interpretation of the coefficients of the ECM may not be necessary (see Du Toit, 1999a;
Koekemoer, 1999; Du Toit & Moolman, 2004). The argument was based on the fact that most
variables enter the model in differenced form, it becomes intricate to interpret the relationship
plausibly. However, the coefficient of the lagged residuals is negative and significant. This
126
shows that the dynamics adjust towards the long-run equilibrium instead of moving away from
the equilibrium path. Since all the variables in the ECM are stationary, the assumptions of
classical regression analysis are fulfilled. In the ECM of the equation, the adjusted R2 is
0.673603 or 67 per cent, which shows the estimation is dependable.
6.2.3 Diagnostic statistical testing
The model was subjected to rigorous diagnostic testing. It was noted that all the variables in the
ECM are stationary; therefore, the assumptions of classical regression analysis are fulfilled. This
implies that standard diagnostic tests can therefore be used to determine which variables should
be included in the final specification of ECM (Harris, 1995:25; Du Toit 1999b:94). The
diagnostic test results reported in Table 6.4 reveal that the function passes all the statistical
diagnostic tests.
Table 6.4 Diagnostic tests on the real estimated agricultural model
Purpose of test
Normality
Heteroscedasticity
Heteroscedasticity
Serial correlation
Misspecification
Test
Jarque-Bera
ARCH LM
White
Lung Box Q
Ramsey Rest
d.f
JB(2)
nR2(2)
nR2(2)
Q(12)
LR(2)
Test statistic
4.8572
0.064982
5.411518
6.4754
0.992500
Probability
0.0886
0.798788
0.492215
0.890
0.608809
Conclusion
Normal
No heteroscedasticity
No heteroscedasticity
No serial correction
No specification problem
6.2.4 Cointegration correction and adjusted coefficients
In this step, the originally estimated coefficients and t-statistics are adjusted by applying the
Engle-Yoo technique, as depicted in Table 6.5.
127
Table 6.5 Engle-Yoo third step estimation for the agricultural model
Dependent Variable: ECM_AGR
Method: Least Squares
Sample (adjusted): 1973 2005
Included observations: 33 after adjustments
Variable
Coefficient
0.215507*LNRAGCAP
-0.009386
0.215507*LNRFERT
0.026260
0.215507*RI
-0.002820
0.215507*LNRAGLABOR
0.033403
0.215507*LNRACGS
-0.043824
R-squared
0.270493
Adjusted R-squared
0.166278
S.E. of regression
0.083690
Sum squared resid
0.196113
Log likelihood
37.74699
Std. Error
t-Statistic
0.063014
-0.148958
0.155365
0.169024
0.004701
-0.599945
0.181457
0.184081
0.033346
-1.314223
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Durbin-Watson stat
Prob.
0.8827
0.8670
0.5534
0.8553
0.1994
0.038448
0.091656
-1.984666
-1.757923
2.595116
The estimation procedure and the new calculated coefficients are shown in Table 6.6.
Table 6.6 The calculation of the new coefficients for agricultural model
Variable
LNRAGCAP
LNRFERT
RI
LNRAGLABOR
LNRACGS
Coefficient
0.144091 - 0.009386=0.134705
0.279778 + 0.026260=0.306038
-0.001385 - 0.002820= -0.004205
0.511459 + 0.033403=0.544862
0.039825 - 0.043824= -0.003999
Std. Error
0.063014
0.155365
0.004701
0.181457
0.033346
t-Statistic
2.1377
1.9698
-0.8945
3.0027
-0.0119
Table 6.7 represents the adjusted coefficient and adjusted t-statistic of the long- run cointegration
estimation for the agriculture equation.
Table 6.7 The adjusted coefficients and t-statistics
Variable
LNRAGCAP
LNRFERT
RI
LNRAGLABOR
LNRACGS
R-squared
Adjusted R-squared
Adjusted Coefficient
0.134705
0.306038
-0.004205
0.544862
-0.003999
0.961215
0.954751
Adjusted t-Statistic
2.1377
1.9698
-0.8945
3.0027
-0.0119
128
A dynamic simulation of combined long and short-run characteristics of the model results in the
overall fit is presented in Figure 6.2.
Figure 6.2 Actual and fitted values of agriculture model
Nair a Million
60000
50000
40000
30000
20000
10000
0
1970
1975
1980
1985
A c tual AGR
1990
1995
2000
2005
Fitted A GR
The closeness of fit of the model depicted in Figure 6.2 shows that the model is stable and well
specified. However, while the model moved progressively, it also showed some structural breaks
and progression. For example, from the base year 1970, there was a smooth and rapid increase to
1980 when it stooped slightly before experiencing an upward movement until it got to the peak in
2005. The sudden low down and the immediate upward movement from the1980s could be
explained as a time period when the agricultural sector was almost losing it contribution to the
economy. However, as a result of the Green revolution launched in the 1982, and the subsequent
policy strategies and intervention to the sector, the output has improved. The performance of the
sector between 2000 and 2005 has shown a much better improvement due to government focused
policy attention.
129
6. 2. 5 Analysis of the results of the estimated model for agriculture and their implications
The estimated multiple cointegration results shown in Table 6.2 of the long-run estimated
coefficients reveal that the R2 is 0.961215 or 96 per cent. This is an indication that 96 per cent of
variations in agricultural production within the period under consideration are caused by public
capital expenditure, labour, fertiliser, a robust interest rate regime, agricultural credit guarantee
scheme, the policy measures and impact of the SAP on the sector. The adjusted R-squared is
0.954751 or 95 per cent. This high value shows that the model is dependable.
The coefficients show the expected signs as discussed in chapter five. The results show that a one
per cent increases in public capital expenditure will cause 0.14 per cent increase in agricultural
production. Furthermore, a one percent increase in labour supply to the agricultural sector will
cause 0.51 per cent increase in the agricultural gross product. Similarly, a one per cent increase in
fertiliser usage for crops production will cause 0.28 per cent increase in agricultural production.
The results show that a one per cent increase in interest rate charged by the banks for loans
granted to farmers have an insignificant -0.001385 per cent decline in agricultural production in
Nigeria. Also, a one per cent increase in the agricultural credit guarantee scheme to the sector
will cause the agricultural production to increase by 0.039 per cent. This results show that the
credit scheme to the farmers have positive significant impact on agricultural production though
the magnitude is not large.
However, dum86sap shows a positive impact on the agricultural production in Nigeria. The
results show that the introduction of the structural adjustment programmes (SAP) causes the
agricultural production to increase to about 0.30 per cent. The sharp increase in agricultural
production between 1986 and 1990 reflected a favourable response of agricultural production to
the SAP measures (Central Bank of Nigeria, 2000:38). The adjusted coefficients and t-statistic in
Table 6.7 show that coefficients of fertiliser and labour increased to 0.31 percent and 0.54 per
cent respectively. But the coefficient of pubic capital expenditure decreased slightly to 0.13 per
cent, while the adjusted coefficient for interest rate increased to -0.0042, the agricultural credit
guarantee scheme dropped to -0.0039 per cent. However, the adjusted t-statistic of all the
variables shows a slight decrease while the interest rates coefficient remains insignificant.
130
The coefficients are subjected to diagnostic statistical tests, and the results confirm that there are
no serious problems with autocorrelation and that serial correlations are absent. The adjusted tstatistics also indicate that all the variables are statistically significant. The stability test reveals
that the variables included in the model are not mis-specified but are stable.
6. 3 The model for manufacturing
The purpose of the model for manufacturing is two-fold. Firstly the to assess impact of the
domestic investment climate with respect to the availability of labour in Nigeria; and secondly,
the role of FDI in the Nigerian economy vis-a-vis the impact of these variables on the
manufacturing gross output within the period under consideration. The variables shown in
Table 6.8 are included in the manufacturing model.
Table 6.8 Data incorporated in the estimated manufacturing model
MANUF
MANLABOR
FDIM
EXCH
MANCAP
INFRAST
EXPORT
DUM86SAP
LN
Data coverage
manufacturing value-added GDP
estimated labour engaged in industry/manufacturing
foreign direct investment into the manufacturing sector
Naira/dollar exchange rate
public capital expenditure for the manufacturing sector
public expenditure for communication and transportation
Exports of non-oil goods
impact of the structural adjustment programme on the
manufacturing sector (SAP launched in 1986)
natural logarithms
1970-2005
6.3.1 Estimation results for long-run cointegration equation
The first step of the Engle-Yoo (1991) three-step estimation technique was applied to test
whether the set of variables specified in the empirical manufacturing model is cointegrated. The
estimated result shows whether the combination of variables incorporated in the model is
consistent with the long-run equilibrium relationship. The cointegration results are reported in
Table 6.9.
131
Table 6.9 Estimated result of the long-run cointegration equation
Dependent Variable: LNRMANUF
Method: Least Squares
Sample: 1970 2005
Included observations: 36
Variable
Coefficient
LNRMANLABOR
0.348549
LNRFDIM
0.195541
LNREXCH
-0.082614
DUM86SAP
0.123274
C
16.26863
R-squared
0.855435
Adjusted R-squared
0.836782
S.E. of regression
0.160956
Sum squared resid
0.803109
Log likelihood
17.36832
Durbin-Watson stat
1.453011
Std. Error
t-Statistic
0.153239
2.274552
0.063924
3.058955
0.041861
-1.973549
0.069546
1.772549
1.867324
8.712271
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
F-statistic
Prob(F-statistic)
Prob.
0.0300
0.0046
0.0574
0.0861
0.0000
22.74094
0.398403
-0.687129
-0.467195
45.85929
0.000000
The Engle-Granger test statistic of -5.541749 should be compared with the response surface for
any number of regressors, excluding any constant and trend components, 1<n<6, can be
calculated as C(P)= φ ∞ + φ1T −1 + φ 2T −2 , where C(P) is the P percent critical value. The
conclusion about this estimation is to reject the null hypothesis of a unit root in the residual. In
essence, there is evidence of cointegration at the 10 percent, 5 percent and 1 percent. The
diagram shown in Figure 6.3 also indicates that the residuals are stationary.
Figure 6.3 Residuals: real manufacturing value-added (lnrmanuf)
.4
.3
.2
.1
.0
-.1
-.2
-.3
-.4
1970
1975
1980
1985
1990
1995
2000
2005
RESMAN
6.3.2 Estimation results of the error correction model (ECM)
After the long-run cointegration relationship has been determined, the second stage of the EngleYoo procedure, the ECM is applied. The estimated results of the ECM are reported in Table
6.10.
132
Table 6.10 Estimated result of the error correction model (ECM)
Dependent Variable: DLNRMANUF
Method: Least Squares
Sample (adjusted): 1973 2005
Included observations: 33 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
RESMAN(-1)
-0.786186
0.151841
-5.177696
DLNRFDIM(-2)
0.296068
0.089988
3.290063
DLNRMANCAP
-0.035805
0.012899
-2.775780
DLNRMANLABOR(-1)
0.292775
0.160440
1.824824
DLNRINFRAST
0.059601
0.031835
1.872181
DLNREXPORT
-0.237181
0.119638
-1.982481
DLNREXPORT(-1)
-0.384988
0.148737
-2.588387
R-squared
0.680490 Mean dependent var
Adjusted R-squared
0.606757 S.D. dependent var
S.E. of regression
0.112394 Akaike info criterion
Sum squared resid
0.328440 Schwarz criterion
Log likelihood
29.23853 Durbin-Watson stat
Prob.
0.0000
0.0029
0.0101
0.0795
0.0725
0.0581
0.0156
0.034814
0.179230
-1.347790
-1.030349
1.708094
The need to build a strong short-run dynamics that will facilitate a long-run equilibrium situation
leads to the inclusion of three important variables. These variables are public capital expenditure
for the manufacturing sector DLNRMANCAP, infrastructure DLNRINFRAST and non-oil
exports goods D(LNREXPORT). The public capital expenditure variable plays crucial role in the
manufacturing sector, it shows the government’s support and contribution to industrialisation in
Nigeria through supervisory, training to improve managerial and entrepreneurial skills, research
and development to the sector. Infrastructure is one of the key factors needed in any country that
encourages manufacturing enterprises. For this reason the variable is included in the ECM. The
non-oil exports from the manufacturing sector earn foreign exchange for the enterprises and to
the economy. This variable plays important role in the functioning of the sector. For this reason,
it is included in the ECM to foster the long-run dynamics of the equilibrium mechanism.
The interpretation of the coefficients of the ECM may not be necessary (see Du Toit, 1999;
Koekemoer, 1999; Du Toit & Moolman, 2004). The argument was based on the fact that most
variables enter the model in differenced form, it becomes intricate to interpret the relationship
plausibly. However, the coefficient of the lagged residuals is negative and significant. This
shows that the dynamics adjust into the long-run equilibrium instead of moving away from the
133
equilibrium path. Since all the variables in the ECM are stationary, the assumptions of classical
regression analysis are fulfilled. In the ECM of the equation, the adjusted R2 is 0.606757 or 61
per cent, which shows the estimation is dependable.
6.3.3 Diagnostic statistical testing
The manufacturing value-added function was subjected to rigorous diagnostic testing. Once
again it must be noted that, since all the variables in ECM are stationary, the assumptions of
classical regression analysis are filled. Standard diagnostic tests can therefore be used to
determine which variables should be included in the final specification of the ECM (Harris,
1995:25; Du Toit, 1999:94). The diagnostic test results reported in Table 6.11 indicate that the
function passes all the statistical diagnostic tests.
Table 6. 11 Diagnostic tests on the real estimated manufacturing model
Purpose of test
Normality
Heteroscedasticity
Heteroscedasticity
Serial correlation
Serial correlation
Misspecification
Test
Jarque-Bera
ARCH LM
White
Breusch-Godfrey
Lung Box Q
Ramsey Rest
d.f
JB(2)
nR2(2)
nR2(2)
nR2(2)
Q(12)
LR(2)
Test statistic
1.078167
3.816047
16.72262
3.695195
14.625
3.840542
Probability
0.583283
0.148373
0.271261
0.157615
0.263
0.146567
Conclusion
Normal
No heteroscedasticity
No heteroscedasticity
No serial correction
No serial correction
No problem of misspecification
6.3.4 Cointegration correction and adjusted coefficients
Table 6.12 gives the summary the Engle-Yoo third-step estimation results.
134
Table 6.12 Engle-Yoo third step estimation for the manufacturing model
Dependent Variable: ECMAN
Method: Least Squares
Sample (adjusted): 1973 2005
Included observations: 33 after adjustments
Variable
Coefficient
0.786186*LNRMANLABOR
0.039271
0.786186*LNRFDIM
-0.075619
0.786186*LNREXCH
0.042925
R-squared
0.065383
Adjusted R-squared
0.003075
S.E. of regression
0.101042
Sum squared resid
0.306285
Log likelihood
30.39083
Std. Error
t-Statistic
0.027856
1.409813
0.053617
-1.410357
0.034930
1.228883
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Durbin-Watson stat
Prob.
0.1689
0.1687
0.2287
-0.004696
0.101198
-1.660050
-1.524004
1.902675
The calculation of the new coefficients and t-statistics is shown in the Table 6.13.
Table 6.13 The calculation of the new coefficients for manufacturing model
Variable
LNRMANLABOR
LNRFDIM
LNREXCH
DUM86SAP
C
Coefficient
0.348549 + 0.039271= 0.38782
0.195541 - 0.075619= 0.119922
-0.082614 + 0.042925= -0.039689
0.123274
16.26863
Std. Error
0.027856
0.053617
0.034930
0.069546
1.867324
t-Statistic
13.922315
2.2366414
-1.1362439
1.772549
8.712271
The adjusted coefficients and t-statistics are reported in the Table 6.14.
Table 6.14 The adjusted coefficients and t-statistics
Variable
LNRMANLABOR
LNRFDIM
LNREXCH
DUM86SAP
C
R-squared
Adjusted R-squared
Coefficient
0.38782
0.119922
-0.039689
0.123274
16.26863
0.855435
0.836782
t-Statistic
13.922315
2.2366414
-1.1362439
1.772549
8.712271
Based on the new adjusted coefficient, the model for dynamic stimulation of the actual and fitted
manufacturing equation was solved. The result is graphically presented in figure 6.4.
135
Figure 6.4 Actual and fitted manufacturing model
Nair a Million
140000
120000
100000
80000
60000
40000
20000
1970
1975
1980
1985
1990
Ac tual manuf ac tur ing
1995
2000
2005
Fitted manuf ac tur ing
The solved model shows that the actual and fitted results are very close. The trend shows an
erratic upward movement from the base year 1970 through to 2005. This explains the growth
pattern of the Nigeria’s manufacturing GDP within the period under consideration. Ogwuma
(1996:69-70) states that the growth momentum of the manufacturing sector is not being sustained
due to a poor technology base, poor performance of infrastructural facilities, low production
volume and variety, and lack of new foreign capital (FDI). Thus, it is vital that the manufacturing
sector in Nigeria increases its productivity, maintains a rapid growth pattern and contributes to
the economic development of the country. This could happen with fresh local and foreign capital
injection (FDI) and the adoption of new manufacturing technologies in the sector (Ogwuma,
1996:72).
136
6. 3. 5 Analysis of the results of the estimated manufacturing model and their
implications
The estimated cointegration results shown in Table 6.9 reveal that the R2 is 0.855435 or 86%.
The variation in the manufacturing output can be explained by labour (LNRMANLABOR),
foreign direct investment (LNRFDIM) into the sector and the policy impact of the SAP
(DUM86SAP) during the period of 1970-2005 in Nigeria. The adjusted R-squared exhibits a
high value of about 0.836782 or 84%, which shows that the model is dependable. The signs of
the coefficients are consistent with the expectations, with the exception of the exchange rates.
The results show that a one per cent increase in labour supply to the manufacturing sector will
cause the value-added GDP to increase by 0.35 per cent. Furthermore, a one per cent increase in
foreign direct investment into the manufacturing sector of Nigeria will cause the value-added
GDP to increase by 0.20 per cent. Also, a one per cent increase in Naira/dollar exchange rate will
cause the value-added GDP of the manufacturing sector to decline by -0.08 per cent. Similarly,
dum86sap which tests the policy impact of the structural adjustment programme on the
manufacturing sector shows a favourable impact. It indicates a 0.12 per cent increase in the
value-added manufacturing output.
The adjusted coefficients in Table 6.14 show that labour slightly increased to 0.38782 and
foreign direct investment decreased marginally to 0.119922. The Naira/dollar exchange rates also
decreased to -0.039689. However, the adjusted t-statistic for labour increases significantly to
13.922 while FDI and Naira/dollar exchange rates decreased slightly to 2.237 and -1.136
respectively.
The coefficients are further subjected to diagnostic testing. The results show that the variables do
not suffer from problems of autocorrelation and serial-correlation. The adjusted t-statistics are all
statistically significant. Most importantly, the stability test indicates that the model is not
misspecified and stable.
6. 4 Model for the mining and quarrying sector
The primary goal of this mining and quarrying cointegration estimation model is to assess the
impact of public policy and the implications of mobilising financial resources towards
stimulating investment and growth in the solid minerals resources sector for the general
137
enhancement of the productive capacity of the country. Growth in the mining sector should
help to create employment, expanding the revenue sources of Nigeria and, the multiplier effect
enhancing development and poverty-reduction in the country. Table 6.15 shows the data
included in the long-run cointegration estimation of the mining and quarrying model.
Table 6.15 Data incorporated in the estimation of the mining and quarrying model
MINQUA
mining and quarrying value-added GDP
MINCAP
public capital expenditure for the mining and quarrying sector
LABORMINE
labour in mining and quarrying (as proxy for industry labour)
SOCOMS
public expenditure for social and community services
EXPORT
export of non-oil commodities
DUM86SAP
impact of the structural adjustment programme on the mining and
quarrying sector (SAP launched in 1986)
DUM80s
the impact of government policies and programmes on the
mining and quarrying sector.
LN
natural logarithms
Data coverage
1970-2005
6.4.1 Estimation results of long-run cointegration equation
The first Engle-Yoo (1991) cointegration estimation of the real mining and quarrying
(lnrminqua) is carried out to determine if the variables included in the model have long-run
cointegration relationship for testing the long-run equilibrium relationship. The cointegration
results are reported in Table 6.16.
Table 6.16 Estimated resulted of the long-run cointegration equation
Dependent Variable: LNRMINQUA
Method: Least Squares
Sample: 1970 2005
Included observations: 36
Variable
Coefficient
LNRMINCAP
0.049981
LNRLABORMINE
0.345660
DUM86SAP
-0.321980
DUM80S
-0.242170
C
19.27908
R-squared
0.734754
Adjusted R-squared
0.700529
S.E. of regression
0.143409
Sum squared resid
0.637553
Log likelihood
21.52366
Durbin-Watson stat
1.191332
Std. Error
t-Statistic
0.013501
3.702039
0.070412
4.909082
0.076973
-4.183024
0.075437
-3.210220
0.948670
20.32222
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
F-statistic
Prob(F-statistic)
138
Prob.
0.0008
0.0000
0.0002
0.0031
0.0000
24.25895
0.262059
-0.917981
-0.698048
21.46815
0.000000
The first methodological step of the Engle-Yoo technique was adapted to test whether or not the
set of variables specified in the empirical model is cointegrated, in other words, whether this
particular combination of variables is consistent with the long-run equilibrium relationship.
Figure 6.5 Plot of the stationary residuals of the series (residualmin)
.3
.2
.1
.0
-.1
-.2
-.3
-.4
1970
1975
1980
1985
1990
1995
2000
2005
RESIDUALMIN
The Engle-Granger test statistic of -4.733806 should be compared with the response surface for
any number of regressors, excluding any constant and trend components, 1<n<6, can be
calculated as C(P)= φ ∞ + φ1T −1 + φ 2T −2 , where C(P) is the P percent critical value. The
conclusion about this estimation is to reject the null hypothesis of a unit root in the residual. In
essence, there is evidence of cointegration at the 10 percent, 5 percent and 1 percent. The
diagram shown in Figure 6.9 also indicates that the residuals are stationary.
6.4.2 Estimation results of the error correction model (ECM)
After the first long-run cointegration relationship has been dealt with, the second stage of the
Engle-Yoo procedure the ECM, is applied, as usual. The estimated results of the ECM are
reported in Table 6.17.
139
Table 6.17 Estimated results of the error correction model (ECM)
Dependent Variable: D(LNRMINQUA)
Method: Least Squares
Sample (adjusted): 1971 2005
Included observations: 35 after adjustments
Variable
Coefficient
Std. Error
t-Statistic
RESIDUALMIN(-1)
-0.317421
0.104364
-3.041468
D(LNRSOCOMS)
0.039819
0.017024
2.338972
D(LNREXPORT)
0.572139
0.085375
6.701463
R-squared
0.707268 Mean dependent var
Adjusted R-squared
0.688972 S.D. dependent var
S.E. of regression
0.079437 Akaike info criterion
Sum squared resid
0.201926 Schwarz criterion
Log likelihood
40.55319 Durbin-Watson stat
Prob.
0.0047
0.0257
0.0000
0.039194
0.142436
-2.145897
-2.012581
1.925130
Interpreting the coefficients of the ECM may not be necessary (see Du Toit, 1999; Koekemoer,
1999; Du Toit & Moolman, 2004); since most variables enter the model in differenced form, it
becomes intricate to interpret the relationship plausibly. However, the coefficient of the lagged
residuals is negative and significant. This shows that the dynamics adjust into the long-run
equilibrium instead of moving away from the equilibrium path. Since all the variables in the
ECM are stationary, the assumptions of classical regression analysis are fulfilled. In the ECM of
the equation, the adjusted R2 is 0.688972 or 69 per cent, which shows the estimation is
dependable.
6.4.3 Diagnostic statistical testing
The results of the ECM cointegration estimation for the mining and quarrying model are now
subjected to statistical diagnostic tests. Since all the variables in the ECM are stationary, the
assumptions of classical regression analysis are satisfied. Standard diagnostic tests can therefore
be used to determine which variables should be included in the final specification of the ECM
(see Harris, 1995:25; Du Toit, 1999:94). The diagnostic test results reported in Table 6.18
indicate that the model passes all the statistical diagnostic tests.
140
Table 6. 18 Diagnostic tests on the real estimated mining and quarrying model
Purpose of test
Normality
Heteroscedasticity
Heteroscedasticity
Serial correlation
Serial correlation
Misspecification
Test
Jarque-Bera
ARCH LM
White
Breusch-Godfrey
Lung Box Q
Ramsey Rest
d.f
JB(2)
nR2(2)
nR2(2)
nR2(2)
Q(12)
LR(2)
Test statistic
0.887111
8.802333
3.588072
0.705390
3.5942
1.317511
Probability
0.641751
0.012263
0.732218
0.702792
0.990
0.517495
Conclusion
Normal
No heteroscedasticity
No heteroscedasticity
No serial correction
No serial correction
No specification problem
6.4.4 Cointegration correction and adjusted coefficients
Table 6.19 summarises the results of the third Engle-Yoo step estimation and the adjusted
coefficients respectively.
Table 6.19 Engle-Yoo third step estimation for the mining and quarrying model
Dependent Variable: ECM
Method: Least Squares
Sample (adjusted): 1971 2005
Included observations: 35 after adjustments
Variable
Coefficient
0.317421*LNRMINCAP
-0.016978
0.317421*LNRLABORMINE
0.008625
R-squared
0.041742
Adjusted R-squared
0.012704
S.E. of regression
0.076349
Sum squared resid
0.192362
Log likelihood
41.40233
Std. Error
t-Statistic
0.014063
-1.207287
0.006764
1.275161
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
Durbin-Watson stat
Prob.
0.2359
0.2112
0.005818
0.076839
-2.251562
-2.162685
1.963805
Table 6.20 shows the calculation of the new coefficients and t-statistics.
Table 6.20 The calculation of the new coefficients for mining and quarrying model
Variable
LNRMINCAP
LNRLABORMINE
DUM86SAP
DUM80S
C
R-squared
Adjusted R-squared
Coefficient
0.049981 - 0.016978= 0.033003
0.345660 + 0.008625=0.354285
-0.321980
-0.242170
19.27908
0.734754
0.700529
Std. Error
0.014063
0.006764
0.076973
0.075437
The adjusted coefficients and t-statistics are shown in Table 6.21.
141
t-Statistic
2.346797
52.37803
-4.183024
-3.210220
20.32222
Table 6.21 The adjusted coefficients and t-statistics
Variable
LNRMINCAP
LNRLABORMINE
DUM86SAP
DUM80S
C
R-squared
Adjusted R-squared
Coefficient
0.033003
0.354285
-0.321980
-0.242170
19.27908
0.734754
0.700529
t-Statistic
2.346797
52.37803
-4.183024
-3.210220
20.32222
Based on the new adjusted coefficients, the model for dynamic simulation of the actual and fitted
mining and quarrying equation was solved. The result is graphically presented in Figure 6.6.
Figure 6. 6 Actual and fitted values of mining and quarrying model
Naira Mi lli on
70000
60000
50000
40000
30000
20000
10000
1970
1975
1980
1985
1990
Actual mining and quarrying
1995
2000
2005
Fitted mining and quarrying
The actual and fitted solved model in Figure 6.6 displays an erratic and slightly onward trend.
The trend explains the growth pattern of the Nigeria’s mining and quarrying (solid mineral)
sector. The sector is characterised by low productive activity over the year due to the
government’s deliberate policy action. The 1979 and 1999 constitutions of the Federal
Republic of Nigeria place the mines and mining and quarrying activities within the exclusive
142
legislative jurisdiction of the national government (Federal Republic of Nigeria, 1979:16;
1999:131). The deregulation and privatisation of the mining sector would probably improve its
growth momentum and potential to contribute to the economic development of Nigeria.
Facilitating the productive activity of the sector would enhance rapid onward growth pattern at
a faster rate.
The estimation of the cointegration results for valued-added in mining and quarrying shows
that the R2 is 0.734754 or 73 per cent. This implies that all the variations for the period
between 1970 and 2005 can be explained by the public capital expenditure for the mining and
quarrying and labour in the sector. Similarly, the adjusted R-squared is 0.700529 or 70 per
cent, which proves that the model is dependable. The results confirm the basic assumptions
stated earlier in Chapter five, that all the coefficients of the variables included in the
cointegration estimation model will be positively signed. However, the dum80s which
represents the impact of changes in government policies on the sector shows a weak negative
relationship with mining and quarrying gross output within the period under consideration.
The negative relationship between the changes in the government policies and the impact on
the mining and quarrying sector could perhaps be explained by the fact that the 1979 and 1999
constitutions of the Federal Republic of Nigeria place the mines and the mining and quarrying
activities under the control of the national government as mentioned above (Federal Republic
of Nigeria, 1979:16; 1999:131). Thus, with the exception of government ministries and
agencies, private sector participation mining is extremely difficult in Nigeria. This restriction
thus limits the mining or extraction of the solid minerals by private enterprises which could
serve as an engine for economic activities and growth in the sector. Limited activity in the
mining and quarrying sector could also slow down the contribution of the sector to economic
growth and development. It is surprising that the structural adjustment programme launched in
1986 (DUM86SAP) has a negative relationship with the output growth and development of the
mining and quarrying sector. Perhaps the exclusive control of the solid minerals by the federal
government within the SAP period contributes to the negative policy impact on the sector.
143
However, the estimation results show that the coefficients of public capital expenditure and
labour are positively signed. This implies that a one per cent increase in public capital
expenditure will cause the GDP to increase marginally by 0.049 per cent. Similarly, a one per
cent increase in labour supply to the mining and quarrying sector will cause the GDP to increase
by 0.35 per cent. The results also suggest that these variables could play a crucial positive role in
the expansion of mining and quarrying activities, gross national income and poverty reduction in
the country. As shown by Onah (2004:1), the development of the mineral sector promotes
economic activity through investment, employment of resources, increased output and enlarged
aggregate demand. The results of the adjusted coefficients and t-statistics show that public capital
expenditure for mining and quarrying dropped marginally to 0.033 per cent, while labour gained
slightly after the adjustment process. The t-statistic labour increased to 52.378, but the t-Statistic
for public capital expenditure dropped slightly to 2.347.
The variables in the model are subjected to diagnostic statistical testing, and the results confirm
that the model is stable and there are no problems of serial correlation. The results show also that
the model does not suffer from any specification problem. In the same manner, the values of the
adjusted t-statistics show that the coefficients are statistically significant.
6.5 Dynamic simulation response property of the models
Dynamic adjustment (percentage change) shock on the variables included in the models was
executed. The 10 percent shock of the chosen variables from 1980 to 2005 coincides with the
period when the civilian administration in Nigeria launched the Green Revolution programme.
The Green Revolution is a strategy for the attainment of self-sufficiency in food production
through the application of an appropriate technology package to the existing system in a bid to
meet Nigeria’s growing demand for food. Through this programme, large-scale irrigation
schemes, budgetary concessions to commercial farms, joint-venture agricultural enterprises,
agricultural credit guarantee schemes and the promotion of integrated rural development
projects, the level of agricultural output is expected to rise to exceed the demand in the sector.
According to Akor (1985:101), the Green Revolution is a strategy for agricultural
transformation with the objective of eliminating rural and urban food shortages and poverty.
The civilian administration was able to induce some positive changes capable of improving the
macroeconomic stability and growth of the economy, especially with regards to improving the
144
agricultural production in the country, since the 1980s. Thus, the following section is devoted
to the analysis of the response to dynamic shocks of the variables estimated in the models.
6.5.1 Policy shocks
The exogenous variables are shocked in order to analyse the response characteristic of the
models. The variables shocked are mostly those included in the long-run estimation of the
cointegrated econometric model. These variables include: public capital expenditure for
agriculture (Agcap); labour in the agricultural sector (Aglabor); foreign direct investment into
the manufacturing sector (Fdim) and labour engaged in manufacturing (manlabor). Others
include: public capital expenditure for the mining and quarrying (mincap) and labour force in
mining and quarrying (labormine). The shocked variables are subjected to a permanent
increase of 10 per cent. All the variables are shocked from 1980 onwards. The resulting effects
of the shocks are illustrated graphically in Figures 6.7 to 6.12.
Figure 6.7 The effect of a 10 percent increase in public capital expenditure
on the agricultural gross product
% change
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
1970
1975
1980
1985
1990
1995
2000
2005
Public capital expenditure shock
Figure 6.7 shows the dynamic adjustment (percentage change) caused by the public capital
expenditure for agricultural production. A 10 per cent increase in capital expenditure for the
agricultural sector causes an increase of more than 1 percent in agricultural production. The
145
effect of the shock is seen as the GDP increases onward from the base year 1980 to 1995,
before it returns to equilibrium through 2005.
Figure 6.8 The effect of a 10 percent increase in labour on the agricultural gross product
% change
6
5
4
3
2
1
0
1970
1975
1980
1985
1990
1995
2000
2005
Labour shock
Figure 6.8 shows the dynamic adjustment (percentage change) caused by a 10 per cent increase
in labour supply on agricultural production. A 10 per cent increase in labour causes an increase
of more than 1 per cent from the base year 1980 to 1995 before it returns to equilibrium
through 2005.
Figure 6. 9 The effect of a 10 per cent increase in FDI on the manufacturing gross product
% change
5
4
3
2
1
0
1970
1975
1980
1985
1990
1995
2000
2005
FDI in manufacturing shock
146
Figure 6.9 shows the dynamic adjustment (percentage change) caused by a 10 per cent increase
in FDI into the manufacturing sector. The effect of this shock shows that a 10 per cent increase
in FDI inflow will cause an onward increase from the base year 1980 to 1983 before it returns
to equilibrium through 2005. This effect shows that FDI can impact positively to the growth of
the manufacturing GDP.
Figure 6.10 The effect of a 10 per cent increase in labour on the manufacturing gross
product
% change
6
5
4
3
2
1
0
1970
1975
1980
1985
1990
1995
2000
2005
Manufacturing labour shock
Figure 6.10 shows the dynamic adjustment (percentage change) caused by a 10 per cent
increase in labour supply in the manufacturing sector. The effect of this shock shows that a 10
per cent increase in labour supply will cause an onward increase from the base year 1980 to
1983 before it returns to equilibrium through 2005. This effect shows that labour can impact
positively to the growth of the manufacturing GDP.
147
Figure 6.11 The effect of a 10 per cent increase in capital on the mining and quarrying
gross product
% change
.32
.28
.24
.20
.16
.12
.08
.04
.00
1970
1975
1980
1985
1990
1995
2000
2005
Mining and quarrying capital shock
Figure 6.11 shows the dynamic adjustment (percentage change) caused by an increase in 10 per
cent in public capital expenditure for the mining and quarrying sector. A 10 per cent increase in
capital to the mining and quarrying sector will cause a sharp increase of less than 1 per cent in
the GDP of mining and quarrying from the base year 1980 to 1990 before it reaches
equilibrium and stabilises through 2005.
Figure 6.12 The effect of a 10 per cent increase in labour supply on the mining and
quarrying gross product
% change
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1970
1975
1980
1985
1990
1995
2000
2005
Mining and quarrying labour shock
148
Figure 6.12 shows the dynamic adjustment (percentage change) caused by an increase in 10 per
cent in labour supply to the mining and quarrying sector. A 10 per cent increase in labour
supply to the mining and quarrying sector will cause a sharp increase of more than 1 per cent in
the GDP of mining and quarrying from the base year 1980 before it reaches equilibrium and
stabilises through 2005.
Thus these dynamic increases (shocks) in the exogenous variables included in the cointegration
econometric models cause significant positive responses overall, suggesting those factors
potential for accelerating the agricultural, manufacturing and mining and quarrying sectors
growth and development. In the following section, the estimated models forecast from 2005 to
2008 are presented. The actual and forecast values in the models are then compared, to ascertain
the policy interventions needed to achieve the forecast for the agricultural, manufacturing,
mining and quarrying production in Nigeria.
6. 5. 2 Forecasts
Despite the limited availability of cointegrating data for the econometric estimation, the
variables included in the models in the previous section were successfully solved for the period
of 1970 through 2005. Now using the estimated values for the variables for years 2006, 2007
and 2008, the forecast and actual values of all endogenous variables are determined in the
models, as presented below.
Figure 6.13 depicts the actual and forecast for the real agricultural GDP. The amount for real
agricultural output forecast is N6.42 billion for 2006, N6.44 billion for 2007 and N6.52 billion
for 2008. The actual amount generated during these years is included for comparison. The
forecast values for Nigeria’s agricultural sector estimated can be achieved if the country’s
relatively large active labour force is motivated to engage in agriculture (see Meier & Rauch,
2005:393) It is also important that the public capital expenditure for the agricultural sector be
increased, implemented and monitored to achieve the policy strategy and objective of the
government to boost production in the sector. In addition, the banks should be encouraged to
expand their loans portfolios for agricultural production while keeping the interest rates regime
as robust as possible. The supply of fertiliser to the farmers at affordable cost, should be
149
encouraged in order to mass produce crops for both domestic and foreign markets. The graphical
illustration of the forecast model is presented also in Figure 6.13.
Figure 6.13 Actual and forecast for the real agricultural GDP from 2006 to 2008
Nai ra B i lli on
70000
60000
50000
40000
30000
20000
10000
0
1970
1975
1980
1985
1990
1995
2000
2005
Actual real agricultural GDP
Forecast of real agricultural GDP
Figure 6.14 shows the estimated impact of labour, FDI into the manufacturing sector and the
SAP introduced in 1986 in Nigeria. The amount for the real manufacturing gross output forecast
is N13.46 billion for 2006, N13.99 billion for 2007 and N14.63 billion for 2008. However, to
ensure that the forecast values of the manufacturing GDP are achieved, it is important that the
government improves the investment climate by addressing the challenges in the manufacturing
sector in Nigeria. These challenges include infrastructure and security. In addition, the
manufacturers need to focus on research and development. Adopting new modern machinery,
equipment and technologies should be given top priority in the sector. The graphical illustration
of the forecast model is presented in Figure 6.14.
150
Figure 6.14 Actual and forecast for the real manufacturing GDP from 2006 to 2008
Nair a Billion
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
1970
1975
1980
1985
1990
1995
2000
2005
Ac tual r eal manuf ac tur ing value- added GDP
For ec ast of r eal manuf ac tur ing value- added GDP
Figure 6.15 represents the actual and forecast output for the mining and quarrying for the
period 2005 through 2008. The model estimates the impact of labour and public capital
expenditure for the mining and quarrying sector. The gross output of mining and quarrying
forecast for 2006 is N7.23 billion,
N7.98 billion for 2007 and N8.72 billion for 2008. The
forecast values for mining and quarrying GDP can be attained through speedily privatisation of
the mines, engaging more active labour in the sector and increasing the export of the
commodities. The 1979 and 1999 constitutions of the Federal Republic of Nigeria placed the
mines and mining and quarrying activities under the exclusive control of the national
government (Federal Republic of Nigeria, 1979:16; 1999:131). The deregulation and
privatisation of the sector would trigger more productive activity in the mining and quarrying
sector.
151
The forecast values of the GDP of the mining and quarrying sector should be attained for
Nigeria to experience high level of development. Consequently, large injection of foreign
capital through new FDI should be targeted; policy advocates that deal with creating an
enabling business environment in the sector need to emphasise tax incentive packages for the
present and potential mining firms. This will encourage these firms to efficiently engage in
mining activity rather than keeping the mines dormant. Sustained increases in the public
expenditure for social and community services coupled with improved social responsibility of
the mining companies to the communities where the mineral deposits are found will foster
peace and productivity in the sector. The graphical illustration of the forecast model is
presented in Figure 6.15.
Figure 6. 15 Actual and forecast real value-added GDP for the mining and quarrying from
2006 to 2008
Nair a Billion
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
1970
1975
1980
1985
1990
1995
2000
2005
Ac tual r eal mining and quar r y ing GDP
For ec ast of r eal mining and quar r y ing GDP
152
The actual and forecast models reveal that the dynamic econometric cointegration estimation
depends generally on the joint behaviour of the variables in the respective models. The
observed variations and positive trends of the fitted models have proven that the models are
dependable.
As shown in the forecast figures for GDP of agriculture, manufacturing and mining and
quarrying, the growth sectors of Nigeria’s economy could be stimulated to rapid growth by
domestic and foreign financial investment into the sectors. It is significant that the growth path of
the agricultural GDP suggests that more people could be productively engaged in the agricultural
production, especially in large-scale commercial farming. With improved financial
intermediation and investment by the commercial banks through efficient mechanisms put in
place for the smooth operation of the agricultural credit guarantee scheme (ACGS), increased
public (budgetary) expenditure for social and community services especially to the rural areas,
improved fertiliser usage, the output potential of the sectors could be significantly harnessed for
the development of the Nigerian economy. More foreign exchange could accrue to the country
through the exports of the agricultural and solid mineral commodities.
6. 6 Dynamic simulation of the results and the policy-scenarios
The dynamic simulation of results for the various policy scenarios are shown in Table 6.22.
The simulations are run for the policy scenario from the results of the long-run cointegration
econometric estimated models. The simulation results of the policy proposals highlight the
relevance of the results for the policy targets, policy goal and action steps that must be taken to
harness the resource potentials of the agricultural, manufacturing and the mining and quarrying
sectors of the Nigerian economy.
153
Table 6. 22 Policy proposals based on the empirical results
Scenarios
Control/strategy
Improved
production and
socio-economic
conditions
Variables
Positive significant
Agcap: the
public capital
expenditure
for the
agricultural
and mining
and quarrying
sectors
Policy targets
Increased
financing of
growth sectors
Credit
guarantee
scheme to the
agricultural
sector
Increased foreign
investment
FDI in to the
manufacturing
sector
Increased soil
fertility and crops
production
Fertiliser
improves soil
nutrients
Increased labour
productivity and
employment
generation
Labour
employed in
agriculture,
manufacturing
Improved housing and rural electricity
provision;
Improved primary and secondary
education;
Improved health care, (availability,
affordability/accessibility and quality)
Improved adult literacy;
Improved life expectancy;
Decrease in mortal rate
Decrease in violence and unrest at the
grass roots; disincentives to rural-urban
migration; and
Improved telecommunications and
information flow to rural population
Improved mining and quarrying (solid
mineral) policy with incentives structure
for private sector
Improved interaction and consultation
between firms exploiting the natural
resources (land, forest, and minerals)
Improved cost-effective production;
Lower cost of production;
Disincentive to higher consumer prices;
Create and empower entrepreneurial
investment (small and medium scale
enterprises); and
Induce growth, development and
political stability
Increased drive for investment and
government to encourage the
proliferation FDI large-scale and smallscale mining
Create investment friendly
environment;
Accelerate foreign business registration;
Reduce the cost of doing business in the
country, by eradicating corruption;
Induce cost-effective production; and
put in place a robust package of
industrial policy-incentives (fiscal and
monetary)
Ensure orderly and competitive playing
field for the various growth sectors of
the economy
Improved mining and quarrying (solid
mineral) policy with incentives structure
for private sector
Increased incentive for high crop yields
Disincentive for environmental
degradation
Improved farming system and land/soil
conservation
Improved productivity of for peasant
farmers
Increased production by commercial
agriculture
154
Policy goal
-eradication of waterborne diseases
-improved productive
socio-economic activities
-improved economic and
political stability
-efficiency in production
-improved quality of
labour
-improved welfare and
service delivery
-improved indigenous
human capital development
-facilitate economic growth
and development across
geo-political zones of the
country
-improved
sustainable
growth of diversified
economy
-improved research
institutions and modern
agriculture
-enhanced export-led
industrial production
-improved socio economic
environment and
attractiveness of Nigeria
as preferred investment
destination
-improved social, legal,
good governance and rule
of law
-improved efficiency of
production and costeffective investment
opportunities
-stimulate fertiliser
production plants/firms in
the country
- contributes to foreign
exchange earning and save
excessive imports of
fertiliser
-create more new jobs in
the rural areas arising from
large commercial
agricultural activities,
and mining
and quarrying
sectors
manufacturing absorbing
more labour from
agriculture and mining
sectors
Source: Extracted from the empirical results
6. 7 Summary of the main findings and conclusion
Three behavioural equations defined in the form of a neoclassical supply-side model for the
Nigerian economy are estimated individually. Of the three equations, one each is specified for
the agricultural sector, the manufacturing, and for the mining and quarrying sectors respectively.
The estimated agricultural equation shows that the gross domestic output is strongly and
positively related to labour, public capital expenditure, fertiliser and the agricultural credit
guarantee scheme. An empirical study by Wiebe et al (2003:433) finds that labour and fertiliser
increase the productivity of agriculture. This finding is consistent with the results of this study.
As seen in the results, Nigerian agriculture is highly labour-intensive. This result also agrees with
Meier and Rauch (2005:393), who assert that more people in the developing countries need to be
encouraged to engage in agricultural production in order to feed the teeming population and
eradicate poverty.
This implies that if more people go into agriculture, the gross output is likely to increase. In order
to attract more labour into the sector, there should be public education programmes on the
importance of agriculture. There is also an urgent need to intensify the on-going efforts at rural
development. These efforts should concentrate on the provision of basic infrastructure and
amenities such as electricity, clean and drinkable water, access roads and other things people in
the rural areas think of as modernisation.
The results also show a strong positive relationship between fertiliser and the gross output of the
sector. This result confirms the Federal Office of Statistics (2004:87) report that shows an
increasing performance in agricultural production arising from improvements in fertiliser supply,
distribution and utilisation in Nigeria.
The role of the government’s involvement in agricultural production is seen from the results. The
capital expenditure of Nigeria’s federal government in the sector has a strong positive
relationship with the gross output. By implication, the capital expenditure for the agricultural
155
sector needs to be increased in order to increase output. The government should however direct
its attention to the provision of quality and functional primary education, healthcare and
irrigation facilities in the country’s rural agricultural areas. Policy attention should be given to
agricultural research and extension services for training farmers and improving methods of
farming. HIV/AIDS intervention programmes must be incorporated in the training of the
agricultural extension workers so that farmers can be adequately informed on the prevention of
the diseases and the treatment and care of the infected.
For the manufacturing equation, the results show that labour, FDI and the SAP coefficients are
positively related to the GDP of manufacturing. However, the positive signs of the labour, FDI
and the SAP coefficients in the results call attention to the need to inject fresh foreign capital and
adopt modern technologies in the manufacturing sector. Enabling investment climate needs to be
encouraged so that private domestic and foreign investment into the manufacturing sector can
easily be attracted to drive the growth process in the sector.
The results of the estimated mining and quarrying equation show that labour force and public
capital expenditure for mining and quarrying sector are positively related to the value-added
mining and quarrying GDP. This result is consistent with Onah (2004:1) who states that the
development of the solid mineral sector promotes economic activity through investment and
employment of resources. Kazilimani, Graca and McMahon (2003:256) state that about 90 per
cent of the active population of mining communities engage in diverse activities such as
extraction, transporting, processing, trade and businesses established at markets. The estimated
results and the discussion in the literature support the potential role of the mining and quarrying
sector in the economic development of Nigeria.
The results of the estimated value-added manufacturing equation show an erratic onward growth
pattern. This growth trend is attributable to the poor infrastructure, high cost of importing raw
materials, obsolete machinery and equipment and dearth of foreign capital challenges the sector
has faced over the years (Ogwuma, 1996:69). Thus, to ensure that the manufacturing sector is
stimulated to increase its contribution to the economic development of Nigeria, the investment
climate should address the challenges in the manufacturing sector of the country. In addition, the
156
manufacturers need to focus on research and development. Also, the adoption of modern
machinery, equipment and technologies should be given top priority in the sector.
The slow erratic growth of the mining and quarrying output requires well designed public
policy to stimulate the sector. The trend of growth of Nigeria’s mining and quarrying (solid
mineral) sector is probably due to low productive activity over the years due to the
government’s deliberate policy action. The 1979 and 1999 constitutions of the Federal
Republic of Nigeria placed the mines and mining and quarrying activities under the exclusive
control of the national government (Federal Republic of Nigeria, 1979:16; 1999:131).
Therefore, the deregulation and privatisation of the mining sector is needed for growth and
contribution to the economic development of Nigeria. Facilitating the productive activity of the
sector can enhance accelerated growth.
Policy interventions to stimulate the sector will require large foreign capital injection, therefore,
FDI inflow should be targeted. Creating an enabling business environment in the sector need to
emphasis tax incentive packages for the present and potential mining firms. Sustained increase in
the public expenditure for social and community services coupled with the social responsibility
of the mining companies to the communities will foster peace and productivity in the sector.
All the values of the adjusted coefficients are high, a clear indication that the coefficients are
statistically significant. The coefficients in the cointegration estimations in the three models
were diagnosed statistically for the presence of autocorrelation and serial correlation, and the
results show that there are no serious problems with autocorrelation and serial correlation.
Moreover, the diagnostic tests prove that all the models are correctly specified.
Dynamic simulation of results were undertaken to assess the effect of a 10 percent increase
dynamic adjustment (shocks) on the relevant exogenous variables. The response properties
show positive significant impact due to the shocks. The actual and forecast values of the three
models and the forecast amount in billion Naira from 2006 to 2008 were presented graphically.
In Chapter seven, attention is given to the summary of the major findings, the concluding
remarks, policy recommendations, the limitations of the study and suggested areas for further
study.
157
CHAPTER SEVEN
SUMMARY OF MAJOR FINDINGS AND POLICY IMPLICATIONS, CONCLUDING
REMARKS, LIMITATIONS, RECOMMENDATIONS AND SUGGESTIONS FOR
FUTURE WORK
7.1 Summary of major findings and policy implications
This study is structured into seven chapters. The first chapter, the introduction, discusses the
background of Nigeria’s economic development. The state of the country’s development
experience is attributed to many factors, most important of which is its inability to take advantage
of oil revenue to diversify its productive base. Nigeria has experienced long periods of political
problems, governed by corrupt military dictators who did not advance its development agenda in
spite of the country’s rich renewable and non-renewable resources (Arnold, 1997:124). Three
pivotal statement of problem for this study are: Why is Nigeria still an underdeveloped and lowincome country?, What should the country do to make rapid economic progress?, How can
Nigeria attain a diversified and sustainable economic development and growth?
Chapter Two contains the literature review. It focuses on contemporary and relevant issues in the
economic development of developing countries. Included here is an overview of the state and
trends of development in Nigeria, a review of the development prospects of Nigeria and a general
development model from the newly developed countries of South East Asia. Also discussed is a
development model that can be applied to Nigeria. In spite of the development impediments
identified in the literature, the country has great prospects since it has undertaken some economic
reforms aimed at recovering from ill effects of the past. Some lessons of practical development
experience from the East Asian economies are reviewed and development models drawn for
Nigeria, especially from Malaysia.
In Chapter Three, the policy framework of the MDGs, efforts and challenges and the role of
external partners to complement Nigeria’s development activity is discussed. It also assesses the
impact of the national economic and development strategy (NEEDS), a medium to long-term
plan to enable the country to attain the MDGs by 2015. Most of the economic reform packages
identified in the plan, like privatisation of public enterprises, empowering organised private
158
sector participation in the economy, improving the quality of education and healthcare services,
are well articulated.
However, findings based on the World Bank’s (2006:82-83) economic and social indicators for
Nigeria show that the gross national income per capita of $430 is below the average for subSaharan Africa which is (SSA), $600; life expectancy at birth is 44 years, well below the average
for the SSA (46 years); maternal mortality rate (per 10,000 live births) is 800, below the average
for the SSA (874); HIV prevalent rate (ages 15-49) is 3.9 per cent, below the average for the SSA
(6.1): student teacher ratio (primary school) is 36 below the average for the SSA (46); gross
primary enrolment, total (of relevant age group) 99 percent above the average for SSA (92);
ratio of girls to boys in primary and secondary schools is 88 which is the average for SSA (88);
labour force participation rate of females (ages 15-64) is 47 percent, below the average for SSA
(63 percent); improved sanitation (of rural population with access) is 48 percent, below the
average for SSA (55 percent). The findings show that the millennium development goals
(MDGs) poverty and social indicators for Nigeria compare unfavourable with the average for
low income country (OECD-ADB, 2006:419).
The analysis of the official development assistance (ODA) shows that Nigeria receives less aid
from all donors, DAC countries and multilateral sources between 1999 to 2004 compared with
net total flows to two other West African countries namely Burkina Faso and Ghana (OECDADB, 2006:566-567). However, FDI inflow into Nigeria within the same period have really
increased and far above inflows into Burkina Faso and Ghana. With respect to the country’s
terms of trade index (2000=100), the country has 125, above average for SSA (121); exports of
goods and services (% GDP) is 55 per cent above the average for SSA (35 per cent). Similarly,
imports of goods and services (% GDP) is 54 per cent compared with the average for SSA of 40
per cent. While Nigeria’s central government revenue (%GDP) is 43 per cent above the average
for SSA of 24 per cent, the country’s total external debt (% GDP) is 50 per cent, above the
average for the SSA 45 per cent (World Bank, 2006:82-83). The outlook for Nigeria’s economic
and social development shows it is still faced with challenges and has not performed above the
average for SSA.
159
In Chapter Four, the analysis of the relevance of the growth sectors, namely agriculture,
manufacturing and mining (solid minerals), and of the growth support sectors, namely
education and health care delivery, in Nigeria is discussed. The findings show that the
agricultural, manufacturing and mining and quarrying sectors have the potential for creating
more jobs and income, reducing poverty and increasing productivity for sustainable economic
development in Nigeria. There is a strong linkage between the three important growth sectors
in Nigeria.
Three behavioural equations defined in the form of a neoclassical supply-side model for the
Nigerian economy are estimated individually. The three equations, one each is specified for the
agricultural sector, one for the manufacturing and one for the mining and quarrying sector
respectively. The agricultural equation shows that the gross domestic output is strongly and
positively related to labour, public capital expenditure, fertiliser, agricultural credit guarantee
scheme and the dum86sap which measures the impact of the SAP on agricultural production in
Nigeria. An empirical study by Wiebe et al. (2003:433) finds that labour and fertiliser increase
the productivity of agriculture, and this finding is consistent with the results of this study. This
result also agrees with Meier and Rauch (2005:393), who assert that more people in developing
countries need to be encouraged to engage in agricultural production in order to feed the
population and eradicate poverty. This findings also shows that Nigerian agriculture is highly
labour-intensive. In order to attract more labour into the sector, there should be public education
programmes on the importance of agriculture.
Efforts should concentrate on the provision of basic infrastructure and amenities such as
electricity, clean and drinkable water, access roads, and other necessities. Electricity supply in
the rural areas of Nigeria is 28 per cent higher than the average for SSA (6 per cent); water
sources are available in 49 per cent of rural areas of Nigeria, above the average for SSA (45 per
cent); but sanitation is available in only 48 per cent of rural areas, below the average for SSA (55
percent) (World Bank, 2006:83).
The results also show a strong positive relationship between fertiliser and the gross output of the
sector. This result confirms the Federal Office of Statistics (2004:87) report that shows an
160
increased performance in agricultural production arising from improvements in fertiliser supply,
distribution and utilisation in Nigeria.
The role of the government’s involvement in agricultural production is seen from this study’s
results. The capital expenditure of Nigeria’s federal government in the sector has a strong
positive relationship with the gross output. By implication, capital expenditure for the
agricultural sector needs to be increased in order to increase output. The government should
direct this money to the provision of quality and functional primary education, healthcare and
irrigation facilities in the country’s rural agricultural areas. Policy attention should be given to
agricultural research and extension services for training farmers and improving methods of
farming. HIV/AIDS intervention programmes must be incorporated in the training of the
agricultural workers so that farmers are adequately informed about the prevention of the disease
and the treatment and care of the infected.
The coefficient of the interest rate is negatively signed. This shows an inverse relationship
between the GDP of agriculture and interest rate. It gives an indication that a robust interest rate
regime is in put place for the agricultural sector for ease access to credit. However, the farmers
need to reciprocate this incentive through lower food prices and production of surplus
commodities for exports.
Furthermore, the agricultural credit guarantee scheme has a strong positive relationship with the
gross output of agriculture. According to the Federal Office of Statistics (2004:87), increased
performance in agricultural production between 1999 and 2005 is attributable to farmers’
increased access to credit. The Federal Office of Statistics (2004) also reports a sustained
increase in the capitalisation of the agricultural sector market, resulting in improved agricultural
production in Nigeria. This supports empirical evidence that the financial institutions can a play
positive role in financing development in the Nigerian agricultural sector.
Nevertheless, dum86sap shows a positive impact on the agricultural production in Nigeria. The
results show that the introduction of the structural adjustment programmes (SAP) causes the
agricultural production to increase to about 0.30 per cent. The sharp increase in agricultural
161
production between 1986 and 1990 reflected a favourable response of agricultural production to
the SAP measures (Central Bank of Nigeria, 2000:38).
For the manufacturing equation, the results show that labour, FDI and dum86sap representing the
SAP are positively related with the GDP of manufacturing. The positive signs of labour and FDI
coefficients in the results suggests an urgent need to inject fresh foreign capital and adopt modern
technologies in the manufacturing sector. The importance of sustaining research, training and
development in the sector is reflected in the positive relationship between the gross output of
manufacturing and labour coefficient.
Furthermore, the results of the estimated mining and quarrying equation show that labour and
public capital expenditure for the sector are positively related to the value-added GDP of the
mining and quarrying. This result is consistent with Onah’s (2004:1) report that the development
of the solid mineral sector promotes economic activity through investment and employment of
resources. Kazilimani, et al. (2003:256) state that about 90 per cent of the active population of
mining communities engage in diverse activities such as extraction, transport, processing, trade
and businesses established at markets. The estimated results and facts from the literature support
the importance of the role the mining and quarrying the in economic development of Nigeria.
However, the dum80s which represents the impact of changes in government policies on the
sector shows a weak negative relationship with mining and quarrying gross output within the
period under consideration. The negative relationship between the changes in the government
policies and the impact on the mining and quarrying sector could perhaps be explained by the
fact that the 1979 and 1999 constitutions of the Federal Republic of Nigeria place the mines
and the mining and quarrying activities under the control of the national government as
mentioned above (Federal Republic of Nigeria, 1979:16; 1999:131). Thus, with the exception
of government ministries and agencies, private sector participation mining is extremely
difficult in Nigeria. This restriction thus limits the mining or extraction of the solid minerals by
private enterprises which could serve as an engine for economic activities and growth in the
sector. Limited activity in the mining and quarrying sector could also slow down the
contribution of the sector to economic growth and development. It is surprising that the
structural adjustment programme launched in 1986 (DUM86SAP) has a negative relationship
162
with the output growth and development of the mining and quarrying sector. Perhaps the
exclusive control of the solid minerals by the federal government within the SAP period
contributes to the negative policy impact on the sector.
Mining and quarrying is a growth and development sector in many other African countries,
including Botswana, DR Congo, Ghana, Ivory Coast, Namibia and South Africa, and a host of
other countries on the continent depend on it to a large extent for domestic and foreign income.
According to Hilson (2003:18), the activity of mining is mainly poverty reduction-driven; hence
it is a people-initiated and direct poverty-alleviation measure available for any country, with little
cost and limited intervention required on the part of the government.
7 .2 Concluding remarks
This study attempts to develop prototype sectoral econometric models that could aid Nigeria to
boost its real sectors’ productive base, and to make progress towards achieving a high level of
economic diversification by harnessing development and growth potentials of the real sectors.
Data analysis is used for economic, historical, descriptive and quantitative investigation.
In the 1960s, Nigeria was on par with its fellow oil-producing countries like Malaysia, Indonesia
and Singapore in its aspiration to achieve high levels of economic growth and development, but
failed to keep the pace. Some of the reasons for this identified in this study include the serious
effect of “Dutch disease”, reflected in the country’s inability to manage and diversify its oil
wealth to transform its industrial (manufacturing), agricultural, mining, educational, health and
other growth sectors. Nigeria has also had a troubled political history during which the military
remained in power for too long.
Under Nigeria’s new democratic dispensation, there must be large investment in the growth and
support sectors from both domestic and external sources if the country is to attain a high level of
economic development and the global growth target of fulfilling the MDGs. With a strong will
to become a patriotic civil society, and sufficient wisdom to elect leaders of good will and fairly
good knowledge of the country’s economy, the people of Nigeria may yet achieve a strong and
vibrant economy.
163
7.3 Limitations of the study
The initial methodology of this study favours the use of a computable general equilibrium
(CGE) modelling framework to capture the behaviour and interactions of various
macroeconomic variables in the Nigerian economy. But this causes some limitations in the
process of seeking and constructing a social accounting matrix (SAM), as none of the research
institutions in the country responded to my emails and requests for a SAM for this study.
Furthermore, it was difficult in securing flexible system dynamic software like Powersim and
Veinsim Models to make up for the CGE model. In the end, because of ambiguous licensing
policies and problems with manufacturers, it became obvious to revert to a multivariate
cointegration Engle-Yoo three-step econometric methodology.
However, the study is designed to make what appear as complex options feasible. In view of this,
the growth models are designed to provide insights into the possible quantitative impacts of
domestic and foreign financial resources for the development of the agricultural, manufacturing
and mining and quarrying sectors. Of course, a model, no mater how sophisticated, is still an
abstraction from reality and as such may not sufficiently embody all the complexities and
interactions of the real world. There is no doubt that the model applied in this study is therefore a
compromise between the ambition to capture a seemly comprehensive reality and the actual
computational feasibility of a foregone CGE model for the Nigerian economy. Notwithstanding
this compromise, the model adopted in this study is sufficiently robust to help in responding to
the research questions: Why is Nigeria still an underdeveloped and low income country? What
should the country do to make rapid economic progress? How can Nigeria attain a diversified
and sustainable economic development and growth?
7.4 Policy recommendations
The following tentative recommendations based on the results of the estimated models for the
agriculture, manufacturing and mining and quarrying sectors of the Nigerian economy are
proposed:
Improved land distribution and administration, well-managed irrigation and the
dissemination of environmentally sound farming methods should be efficiently
implemented to ensure environmentally sustainable agricultural production.
164
Increased agricultural production in Nigeria should be matched by the engagement of a
larger labour force in the rural areas to stem the tide of urban migration.
The timely provision of fertiliser, seeds and agro-chemical to the farmers at low cost should
be encouraged.
The monetary authorities should encourage rural banking and reward commercial banks that
make significant investment to the agricultural sector.
The monetary authorities should increase the agricultural credit guarantee scheme from 75
per cent to 85 per cent to enhance credit delivery by banks to farmers and to ensure that
farmers reciprocate the impetus by reducing the prices of food products.
Modern and tested agricultural machinery and equipment that will reduce drudgery and
enhance productivity should be encouraged.
Capital expenditure for the agricultural sector should be increased to encourage research and
development, HIV/AIDS intervention programmes, adequate housing and rural electricity
projects and other amenities which rural farmers will perceive as modernization
Public expenditure for social and community services should be increased, especially in the
rural agricultural areas. This will ensure good quality of health care and service delivery, and
free compulsory education for the poor.
Sustained efforts are needed to create a conducive economic environment to ensure the
inflow of local and foreign private investment into the agricultural sector.
Policy strategies and incentives for industrialisation in Nigeria should give priority to
creating a conducive investment climate for both local and foreign enterprises. Basic physical
infrastructure and a robust tax regime must be created and land for industrial estates mapped
out and efficiently allocated.
Manufacturing enterprises in Nigeria should constantly update their plants through the
injection fresh capital, as this will enable them to boost productivity and produce high quality
goods of international standard.
The investment effort in education and training must be strengthened to sustain the level of
human capital development and ensure high productivity among the labour force in Nigeria.
The exploitation of minerals requires large capital outlay; therefore, the government,
especially at the state level, should give financial support to local enterprises engaged in
mining activities.
165
Increased investment and employment of more active labour in large-medium and smallscale mining should be encouraged to expand economic activities and impact positively on
the poverty reduction campaign in Nigeria.
7.5 Suggestions for future work
The scope of this study can be enlarged in different directions, one of which could be to apply
alternative functional Cobb-Douglas production functions and CES production functions to the
data. Moreover, the utilisation of a CGE model to assess the policy impact of the growth sectors
in Nigeria could be considered.
166
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APPENDIX 1. VARIABLES LIST
Series
Natural
logarithms
Lnrfert
Variable name
Data source
Fertiliser
Total labour force
aglabor
lnrlabour
force
Lnraglabor
manlabor
lnrmanlabor
Labour in
industry/manufacturing
labormine
lnrlabormine
Proxy for labour in the
industry/manufacturing
Export
lnrexport
Manuf
lnrmanuf
mingua
Lnrrminqua
Agr
Lnragr
acgs
Lnacgs
mancap
lnrmancap
agcap
Lnragcap
socoms
lnrsocoms
infrast
lnrinfrast
fdim
Lnrfdim
ri
Ri
exch
lnrexch
Exports of non-oil
commodities
(at local currency)
Value-added Gross domestic
product at constant prices
(local currency)
Value-added Gross domestic
product at constant prices
(local currency)
Gross domestic product at 1984
constant factor cost
Agricultural credit guarantee
scheme
Public capital expenditure for
the manufacturing sector
Public capital expenditure for
agriculture
Annual budget expenditure for
social and community
services
Capital expenditure for
transport, communication, and
others
Foreign direct investment in
manufacturing
Interest regime for the
agricultural sector
Naira/dollar exchange rate
African development indicators. World
Bank database 1980 and 2006
African development indicators. World
Bank database 1980 and 2006
African development Bank 1996; 2000
and 2005. pp A-51, 227 and 261
respectively. FAO. 2006 p124
African development Bank 1996; 2000
and 2005. pp A-51, 227 and 261
respectively. FAO. 2006 p124
African development Bank 1996; 2000
and 2005. pp A-51, 227 and 261
respectively. FAO. 2006 p124
African development indicators. World
Bank database 1980 and 2006
mincap
lnrmincap
fert
labour
Labour in agriculture
Public capital expenditure for
the mining and quarrying
sector
186
African development indicators. World
Bank database 1980 and 2006
African development indicators. World
Bank database 1980 and 2006
Central Bank of Nigeria Statistical
Bulletins 1994 and 2005
Central Bank of Nigeria Statistical
Bulletins 1994 and 2005
Central Bank of Nigeria Statistical
Bulletins 1994 and 2005
Central Bank of Nigeria Statistical
Bulletins 1994 and 2005
Central Bank of Nigeria statistical
Bulletin 1994 and 2005
Central Bank of Nigeria statistical
Bulletin 1994 and 2005
Central Bank of Nigeria statistical
Bulletin 1994 and 2005
Central Bank of Nigeria statistical
Bulletin 1994 and 2005
Central Bank of Nigeria statistical
Bulletin 1994 and 2005
Central Bank of Nigeria statistical
Bulletin 1994 and 2005
APPENDIX 2. STOCHASTIC FUNCTIONS
Agricultural function is derived from the real GDP at 1984 constant factor cost, while
manufacturing and mining and quarrying functions derived from value added constant factor
costs.
Potential agricultural output (1) (with public capital expenditure for agriculture, estimated
labour force in agriculture, fertiliser, interest rates, agricultural credit guarantee scheme and
dum86sap as the main factor inputs)
residual = lnragr(-1) - (0.1440909687 * LNRAGCAP(-1) + 0.2797782855 * LNRFERT(-1) 0.001384701248 * RI(-1) + 0.5114588809 * LNRAGLABOR(-1) + 0.297485601 * DUM86SAP(-1) +
0.03982486965 * LNRACGS(-1))
LNRAGR = - 0.2155072748 * RESIDUAL + 0.07014675586 * D(LNRAGCAP) + 0.07343944949 *
D(LNRACGS(-2)) + lnragr(-1)
agr = exp(lnragr)
Manufacturing potential output (2) (with estimated labour force in industry/manufacturing,
foreign direct investment, Naira/US dollar exchange rate and dum86sap as the main factor
inputs).
Resman = lnrmanuf(-1) - ( 0.38782 * LNRMANLABOR(-1) + 0.119922 * LNRFDIM(-1) - 0.039689 *
LNREXCH(-1) + 0.123274 * DUM86SAP(-1) + 16.26863)
LNRMANUF = - 0.7861858287 * RESMAN + 0.2960676955 * D(LNRFDIM(-2)) - 0.03580527574 *
D(LNRMANCAP) + 0.2927747087 * D(LNRMANLABOR(-1)) + 0.05960053829 * D(LNRINFRAST) 0.2371806427 * D(LNREXPORT) - 0.3849876623 * D(LNREXPORT(-1)) + lnrmanuf(-1)
manuf = exp(lnrmanuf)
Mining and quarrying potential output (3) (with public capital expenditure for mining and
quarrying, labour force in mining, dum86sap, and dum80s as the main factor inputs).
Residualmin = lnrminqua(-1) - (0.033003 * lnrmincap(-1) + 0.354285 * LNRLABORMINE(-1) - 0.321980 *
DUM86SAP(-1) - 0.242170 * DUM80S(-1) + 19.27908)
LNRMINQUA = - 0.3174208133 * RESIDUALMIN + 0.03981870782 * D(LNRSOCOMS) + 0.5721387958
* D(LNREXPORT) + lnrminqua(-1)
minqua = exp(lnrminqua)
187
APPENDIX 3. GRAPHICAL REPRSENTATION OF THE DATA
Non-stationary agricultural data series 1970-2005
Agricultural GDP at 1984 constant factor cost
Public capital expenditure for agriculture
11.5
12
11.0
10
10.5
10.0
8
9.5
6
9.0
4
8.5
2
8.0
7.5
1970
1975
1980
1985
1990
1995
2000
0
1970
2005
1975
1980
LNRAGR
1985
1990
1995
2000
2005
LNRAGCAP
Estimated labour forece in agriculture
agricultural credit guarantee scheme
10.5
16
10.4
14
10.3
12
10.2
10
10.1
8
10.0
6
9.9
4
9.8
2
9.7
9.6
1970
1975
1980
1985
1990
1995
2000
2005
0
1970
1975
1980
1985
1990
1995
2000
2005
LNRACGS
LNRAGLABOR
Real interest rates
real fertiliser
20
10
14
0
13
-10
12
-20
11
-30
-40
10
-50
9
-60
1970
1975
1980
1985
1990
1995
2000
2005
8
1970
RI
1975
1980
1985
1990
LNRFERT
188
1995
2000
2005
First difference agricultural data series 1970-2005
3
1.0
0.8
2
0.6
1
0.4
0.2
0
0.0
-1
-0.2
-0.4
1970
1975
1980
1985
1990
1995
2000
2005
-2
1970
1975
1980
1985
1990
1995
2000
2005
DLNRAGCAP
DLNRAGR
.8
.1
.0
.6
-.1
.4
-.2
.2
-.3
-.4
.0
-.5
-.2
-.6
-.4
-.7
-.8
1970
1975
1980
1985
1990
1995
2000
2005
-.6
1970
1975
1980
1985
1990
1995
2000
2005
DLNRFERT
DLNRAGLABOR
12
10
8
6
4
2
0
-2
1970
1975
1980
1985
1990
DLNRACGS
189
1995
2000
2005
Non stationary manufacturing data series 1970-2005
Manufacturing value-added GDP at constant factor cost
23.4
FDI into manufacturing
11
23.2
10
23.0
22.8
9
22.6
8
22.4
7
22.2
6
22.0
21.8
1970
1975
1980
1985
1990
1995
2000
2005
5
1970
1975
1980
1985
1990
1995
2000
2005
LNRFDIM
LNRMANUF
Estimated labour force in manufacturing
real Naira/US dollar exchange rate
6
15.6
5
15.2
4
14.8
3
14.4
2
14.0
1
13.6
13.2
1970
0
1975
1980
1985
1990
1995
2000
2005
-1
1970
1975
1980
1985
1990
LNREXCH
LNRMANLABOR
190
1995
2000
2005
First difference manufacturing data series 1970-2005
.4
.7
.6
.2
.5
.0
.4
-.2
.3
.2
-.4
.1
-.6
-.8
1970
.0
1975
1980
1985
1990
1995
2000
2005
DLNRMANUF
1.6
-.1
1970 1975 1980 1985 1990 1995 2000 2005
DLNRMANLABOR
.7
.6
1.2
.5
.4
0.8
.3
0.4
.2
.1
0.0
.0
-0.4
1970 1975 1980 1985 1990 1995 2000 2005
-.1
1970 1975 1980 1985 1990 1995 2000 2005
DLNREXCH
DLNRFDIM
191
Non-stationary mining and quarrying data series 1970-2005
Mining and quarrying value-added GDP
public capital expenditure for mining and quarrying
25.0
12
24.8
10
24.6
8
24.4
6
24.2
24.0
4
23.8
2
23.6
23.4
1970 1975 1980 1985 1990 1995 2000 2005
0
1970 1975 1980 1985 1990 1995 2000 2005
LNRMINCAP
LNRMINQUA
Estimated labour force in mining and quarrying
15.6
15.2
14.8
14.4
14.0
13.6
13.2
1970
1975
1980
1985
1990
1995
LNRLABORMINE
192
2000
2005
First difference mining and quarrying data series 1970-2005
.4
8
.3
6
.2
4
.1
2
.0
0
-.1
-2
-.2
-4
-.3
-.4
1970
1975
1980
1985
1990
1995
2000
2005
-6
1970
1975
1980
1985
1990
1995
2000
2005
DLNRMINCAP
DLNRMINQUA
.7
.6
.5
.4
.3
.2
.1
.0
-.1
1970
1975
1980
1985
1990
1995
DLNRLABORMINE
193
2000
2005
APPENDIX 4 Table for Augmented Dickey-Fuller test for non-stationarity levels,
1970-2005
Series
lnragr
Model
Constant
Trend
None
Lags
0 (insignificant)
0 (insignificant)
0 (insignificant)
ττ ,ττµ ,ττ
-2.34040
-1.476349
2.732508
Φ3 , Φ1
5.477521
2.905361
lnragcap
Constant
Trend
None
0 (insignificant)
0 (insignificant)
0 (insignificant)
-1.475509
-3.823311
1.404106
2.177127
7.391731**
lnraglabor
Constant
Trend
None
Constant
Trend
None
0
0
0
3
0
0
(insignificant)
(insignificant)
(insignificant)
significant
(insignificant)
(insignificant)
-1.705249
-0.813685
-0.014382
-3.900323
-2.318878
1.741312
2.907873
1.559643
Constant
Trend
None
Constant
Trend
None
Constant
Trend
None
3
3
3
0
0
0
0
0
0
significant
significant
significant
(insignificant)
(insignificant)
(insignificant)
(insignificant)
(significant)
(insignificant)
-3.373864
-3.982018
-3.144443*
-1.431725
-1.869319
0.459464
-1.746080
-3.686504
1.241909
11.38296**
5.318072**
lnrmanlabor
Constant
Trend
None
0 (insignificant)
0 (insignificant)
0 (insignificant)
0.406733
-2.208321
2.887661
0.165432
2.938254
lnrfdim
Constant
Trend
None
Constant
Trend
None
Constant
Trend
None
0 (insignificant)
0 (insignificant)
0 (insignificant)
0 (insignificant)
0 (insignificant)
0 (insignificant)
0 (insignificant)
0 (significant)
0 (insignificant)
-1.356433
-1.356125
4.728166
0.053379
-2.153258
1.613585
-1,967122
-2.672951
1.608035
1.83991
1.873561
Constant
Trend
None
0 (insignificant)
0 (insignificant)
0 (insignificant)
-1.980478
-2.752928
0.069169
3.922291
3.956783
Constant
0 (insignificant)
0.406733
Trend
0 (insignificant)
-2.208321
None
0 (insignificant)
2.887661
*/**/*** Significant at a 10 per cent/ 5 per cent/ 1 per cent level
0.165432
2.938254
lnrfert
ri
Lnragcgs
lnrmanuf
lnrexck
lnrminqua
lnrmincap
lnrlabormine
194
15.21252***
7.753836
2.049837
1.908611
3.048796
6.894815**
0.003849
2.617326
3.869571
3.577254
APPENDIX 5 Table A Augmented Dickey-Fuller test for first differences, 1970-2005
Series
▲lnragr
Model
Constant
Trend
None
Lags
1 significant
1 significant
1 significant
ττ ,ττµ ,ττ
-5.960818
-6.532571
-4.920182***
Φ3 , Φ1
35.53135***
21.33776***
▲lnragcap
Constant
Trend
None
1 significant
1 significant
1 significant
-7.087197
-7.04474
-6.320031
35.13822***
23.25687***
▲lnraglabor
Constant
Trend
None
3 significant
3 significant
3 significant
-5.683621
-6.044055
-5.771820
32.30354***
18.26687***
▲lnrfert
Constant
Trend
None
3 significant
3 significant
3 significant
-5.650325
-4.389923
-3.373864
21.86614***
15.96926***
▲ri
Constant
Trend
None
1 significant
1 significant
1 significant
-5.856863
-5.793483.
-5.956091
21.53628***
14.04000***
▲Lnragcgs
Constant
Trend
None
1 significant
1 significant
1 significant
-5.988065
-5.96996
-5.732534
35.85692***
17.82575***
▲lnrmanuf
Constant
Trend
None
3 (significant)
3 (significant)
3 (significant)
-6.034121
-5.956860
-5.629482
22.31241***
14.50408***
▲lnrmanlabor
Constant
Trend
None
3 (significant)
3 (significant)
3 (significant)
-6.327661
-6.413398
-5.160025
40.03930***
20,59169
▲lnrfdim
Constant
Trend
None
Constant
Trend
None
Constant
Trend
None
3
3
3
3
3
3
3
3
3
(significant)
(significant)
(significant)
(significant)
(significant)
(significant)
(significant)
(significant)
(significant)
-6.408246
-6.357186
-2.040877
-4.857973
-4.818576
-4.265577
-6.034121
-5.956860
-5.629482
41.06562***
20.32569**
▲lnrmanlabor
Constant
Trend
None
3 (significant)
3 (significant)
3 (significant)
-6.327661
-6.413398
-5.160025
40.03930***
20,59169
▲lnrfdim
Constant
Trend
None
Constant
Trend
None
3
3
3
3
3
3
-6.408246
-6.357186
-2.040877
-4.857973
-4.818576
-4.265577
41.06562***
20.32569**
▲lnrexck
▲lnrmanuf
▲lnrexck
(significant)
(significant)
(significant)
(significant)
(significant)
(significant)
195
23.59990**
11.64471**
22.31241***
14.50408***
23.59990**
11.64471**
▲lnrminqua
Constant
Trend
None
3 (significant)
3 (significant)
3 (significant)
-5.746745
-5.640607
-5.591637
33.02508***
16.345718***
▲lnrmincap
Constant
Trend
None
3 (significant)
3 (significant)
3 (significant)
-7.913452
-7.917237
-7.738629
62.62272***
31.34133***
▲lnrlabormine
Constant
Trend
None
3 (significant)
3 (significant)
3 (significant)
-6.327661
-6.413339
-5.160025
40.03930***
20.59169***
*/**/*** Significant at a 10 per cent/ 5 per cent/ 1 per cent level.
196
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