1.1 BACKGROUND TO THE STUDY
Oil is a major source of energy in Nigeria and the world in
general. Oil being the mainstay of the Nigerian economy plays a vital
role in shaping the economic and political destiny of the country.
Although Nigeria’s oil industry was founded at the beginning of the
century, it was not until the end of the Nigeria civil war (1967 - 1970)
that the oil industry began to play a prominent role in the economic
life of the country (Fashola, 1999).
Oil abundance, and specifically oil dependence
has often been associated with poor growth, poverty and
underdevelopment. Nigeria is considered to be a classic example of the
contradiction between natural resource abundance and perverse economic
development outcomes (or the paradox of plenty). It is Africa’s
highest oil exporter, and the world’s tenth largest oil producing
country. It has realized over US$ 600 billion in oil revenues since
1960, a figure greater than the resources used by the Marshall Plan in
rebuilding Europe after World War II, and is currently the 8th highest
net oil exporter in the world. Nigeria’s economy is heavily dependent
on natural resources: oil and gas constitutes 98% of total exports, 80%
of government revenues and around 20% of GDP (CBN, 2010). In spite of
the enormous economic potentials in Nigeria, it has largely failed to
live up to the ambitious growth projections that followed the first oil
boom in the 1970s.
Also, social indicators have displayed no
specific tendency towards improvement such that in 2010, Nigeria was
ranked 142nd out of 169 countries by the United Nations Human
Development Index. Furthermore, up to 70% of Nigerians are considered
to be ‘poor’ – subsisting below the national poverty line (NBS, 2012).
It thus goes without saying that Nigeria has evidently grappled
with the paradox of plenty. The negative impacts of abundant oil
revenue from oil abundance include; a decline in the competitiveness of
other economic sectors (caused by appreciation of the real exchange
rate), volatility of revenues from the natural resource sector due to
exposure to global commodity market swings, government mismanagement of
oil revenues, weak, ineffectual and corrupt institutions. In addition,
this massive inflow of revenue fuels greed and jostling for resources,
both of which serve as the bedrock for crises, conflicts and violence
that have come to epitomise most resource-rich countries (Nigeria
inclusive). However, the deleterious economic effects embedded in the
foregoing perverse outcomes have been argued to be muted within the
ambit of well functioning institutions and their accompanying
structures and mechanisms.
Along this line of thought, the seminal work of
Rodrik (1999a,b, 2002) on the role of institutions in economic growth
and development has contributed to the recognition of the role played
by the quality of domestic institutions in shaping policy responses to
exogenous shocks (including oil windfalls), and the redistribution of
wealth to reduce poverty and drive economic growth.1 In an application
of this important thesis to Nigeria, the well-known study by
Sala-i-Martin and Subramanian (2003) introduces a measure of
‘institutional quality’ – defined as the mortality rates of colonial
settlers, and the fraction of the population speaking English and other
European languages – within an Instrumental Variable model of a
cross-country econometric analysis, to arrive at the conclusion that
crude oil has a negative and non-linear impact on growth in Nigeria,
through the deleterious impact on domestic institutions. Macroeconomic
performance refers to an assessment of how well a country is doing in
reaching key objectives of government policy. The main aim of policy is
usually an improvement in the real standard of living for their
population. The effect of the abundant oil revenue has not been felt in
the standard of living of Nigerians.
1.2 STATEMENT OF THE PROBLEM
There is already a plethora of academic literature on the issues
associated with oil revenue and macro-economic performance in
resource-rich countries. Existing studies on Nigeria’s experience with
oil revenue have also tackled the macroeconomic implications,
(Subramanian and Sala-i-Martin 2003). This study, however, aims to
provide an analysis of oil revenue and macroeconomic performance in
Nigeria. This study is going to proffer suggestions to policymakers, to
help in the design of appropriate policies to manage appropriately
future oil revenue that will be generated. While the extant studies on
the subject with specific focus on Nigeria have hinged on the
macroeconomic implication of oil revenue, the institutional setting has
scarcely ever been given any attention.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
- To examine the effect of oil revenue on macroeconomic performance in Nigeria.
- To examine the level of economic development in Nigeria.
- To examine the relationship between oil revenue and macroeconomic performance
- RESEARCH QUESTIONS
- What are the effects of oil revenue on macroeconomic performance in Nigeria?
- What is the level of economic development in Nigeria?
- What is the relationship between oil revenue and macroeconomic performance
HO: There is no significant relationship between oil revenue and macroeconomic performance in Nigeria.
HA: There is significant relationship between oil revenue and macroeconomic performance in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
- The outcome of this study will enlighten the government of
Nigeria, the policy makers and the general public on the influence of
oil revenue on macroeconomic performance in Nigeria with a view of
understanding better how to manage the revenue generated from abundant
oil in Nigeria for rapid and sustainable development of the country.
- This research will also serve as a resource base to other
scholars and researchers interested in carrying out further research in
this field subsequently, if applied will go to an extent to provide
new explanation to the topic.
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study on the analysis of oil revenue and macroeconomic
performance in Nigeria will cover the overview of money generated from
crude oil in Nigeria and its effect on the economy of the nation. It
will also cover how the government of Nigeria has allocated and managed
resources generated from oil since the beginning of oil exploration
and production in Nigeria.
LIMITATION OF STUDY
- Financial constraint- Insufficient fund
tends to impede the efficiency of the researcher in sourcing for the
relevant materials, literature or information and in the process of
data collection (internet, questionnaire and interview).
- Time constraint- The researcher will
simultaneously engage in this study with other academic work. This
consequently will cut down on the time devoted for the research work.
CBN (2010) Central Bank of Nigeria Annual Report, 2010
Falola, T (Westport, 1999), “The History of Nigeria”, Nigeria in the Twentieth Century 133-156.
Rodrik, D. (1999a), Institutions for high-quality growth:
what they are and how to acquire them, Paper prepared for the
International Monetary Fund Conference on Second-Generation Reforms,
Washington, DC, November 8-9, 1999.
Rodrik, D. (1999b), Where did all the growth go? external shocks, social conflict, and growth collapses, Journal of Economic Growth (4), pp.385-412.
Rodrik, D. (2002), Institutions, integration, and
geography: in search of the deep determinants of economic growth,
Weatherhead Centre for International Affairs, Harvard University Working
Sala-i-Martin, X. and A. Subramanian (2003), Addressing
the natural resource curse: an illustration from Nigeria, IMF Working