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IMPACT OF AGRICULTURAL SECTOR ON ECONOMIC GROWTH IN NIGERIA (1981-2017)


Project topic for Economics department

CHAPTER ONE

Introduction

1.1 Background of the Study

The agricultural sector of Nigeria has from time to time undergone different phases since her independence in 1960. The agricultural sector in the 1960’s was contributing 85% of Nigeria foreign exchange earnings, 90% employment generation, and about 80% to gross domestic product (CBN, 2010). However, the sector since the discovery of oil has witnessed lots of neglect from the various successive governments. At present, agriculture accounts for only 31 percent if not below of the real sector, while crude oil accounts for about 55 percent and above (WTO, 2002). Although agriculture no longer serves as the leading contributor to Nigeria’s gross nationalproduct and leading foreign exchange earner due to phenomenal growth in the petroleum sector of the economy as observed; still it is the dominant economic activity in terms of employment and linkages with the rest of the economy. While accounting for one-third of the GDP, it remains the leading employment sector of the vast majority of the Nigerian population as it employs two-third of the labor force (Ekpo and Umoh, 2012). The principal constraint to the growth of the agricultural sector is the fact that the structure and method of production have remained the same since independence more than four decades ago. Nigeria, which spans an area of 923,639 kilometers square, is bordered by the Gulf of Guinea, Cameroon, Benin, Niger, and Chad. The topography ranges from mangrove swampland along the coast to tropical rain forest and savannah to the north. Nigeria is generously endowed with abundant natural resources, with its reserves of human and natural resources; Nigeria has the potential to build a prosperous economy and provide for the basic needs of the population if her resources is well managed and this could support a vibrant agricultural sector capable of ensuring the supply of raw materials for the industrial sector as well as providing gainful employment for the teeming population. Nigeria’s rich human and material resource endowments give it the potential to become Africa’s largest economy and a major player in the global economy compared with other African and Asian countries, especially Indonesia, which is comparable to Nigeria in many aspects (Noko, 2014). Economic development in Nigeria has however been disappointing with GDP of about 45billion, 32.953 billion and 55.5billion dollars in 2001, 2002 and 2003 respectively and per capita income of about $300 a year (CBN, 2010). Despite all these seemingly endowment, Nigeria has become one of the poorest countries in the world. The role of agriculture in economic development of most countries can hardly be seen clearly. Long before now, the relationship between the banking industry and the agricultural sector in Nigeria has been a contentious issue. If one were to take a census of all the pronouncements on the matter by various governments since independence and classify them into those praising the efforts of the banking industry and those castigating them as regards granting credit to agriculture, we may likely notice that the ratio of those in favour of the later will be in the ratio of four to one. This could further be reflected in the legislation of governments and the directives of quasi government institutions like the CBN on the issue. The setting up of a government owned microfinance bank in the name of the Nigerian Agriculture, Cooperative and Rural Development Bank (NACRDB) now bank of agriculture (BOA) with an aim of solely lending to agricultural endeavors on short, medium and long-term basis is predicated on the philosophy that the mainstream banking industry does not adequately cater for the urgent need of credits required for rapid transformation of the agricultural sector of the economy. And also, such schemes like Agricultural Credit Guarantee Scheme Fund (ACGSF). The ACGSF, established by the Federal Government in 1978 to encourage banks to extend credit to the agricultural sector, provides a 75 percent guarantee in respect of bank loans to agriculture in the event of default. In the second half of 2011, a total of 44,918 loans valued N8.0 billion were guaranteed as against 11,410 valued N2.19 billion guaranteed in the first half representing an increase of 74.6 percent in number and 72.6 percent in value. The number and value of loans guaranteed under the scheme since its inception stood at 754,528 and N52.34 billion respectively. The Transformation Agenda of the former president Jonathan administration identified seven sectors as the main growth drivers during the transformation period, 2011-2015, via: agriculture, water resources, solid minerals, manufacturing, oil and gas, trade and commerce as well as culture and tourism. The decision was prompted by the fact that the performance in these sectors has been constrained by several challenges including low productivity, low level of private sector investment, non-competitiveness, inadequate funding, shortage of skilled manpower, low investment in research and development, poor development of value chain and low value addition, poor regulatory environment, poor quality of goods and services and poor state of physical infrastructure, policy instability and discontinuity, low level of technology, paucity and poor flow of information and high cost of doing business (FGN, 2011). Government thus, assumed a baseline Gross Domestic Product (GDP) growth rate of 11.7 per cent per annum within the period, which will translate to real and nominal GDP of about N428.6 billion and N73.2 trillion, respectively at the end of the program period. In recent decades, the potential contribution of agriculture as one of the drivers of economic growth has been a subject of much controversy among development economists. While some contend that agricultural development is a pre-condition for industrialization, others strongly disagree and argue for a different path.  However, the role of agriculture sector in bringing about economic growth and sustainable development of a nation cannot be underestimated. Okolo (2004), described agricultural sector as the most important sector of the Nigeria’s economy which holds a lot of potentials for the future economic development of the nation as it had done in the past. The agricultural sector is arguably the most important sector of the economy. Abayomi (1997) once averred that the stagnation in agriculture is the principal explanation for poor economic performance, while rising agricultural productivity has been the most important concomitant of successful industrialization. Thus, it is not an overstatement to assert that the growth and development of Nigeria depend to a large extent on the development of the agricultural sector.

1.2 Statement of the Problem

 In as much as the cultural inheritance of Nigeria is vested in agriculture it cannot be without some challenges.  Hence, the available literature reported that in spite of Nigeria’s rich agricultural resource endowment; there has been a gradual decline in agriculture's contributions to the nation's economy (Ekpo and Umoh, 2012; Mohammad and Atte, 2006) as evident in the contribution of agriculture to the GDP of the nation as well as the rising value of food import (CBN, 2010). This development prompted government to initiate several agricultural policies/projects and programs to enhance agricultural productivity in Nigeria; the establishment of River Basins and Rural Development Authorities, the Agricultural Development Programs; yet with her vast expanse of rich soil, a sizable number of her citizens suffer from hunger and starvation as a result of neglect of agriculture. Few agro-industries around depend greatly on importation of necessary raw materials in their production and many of the Nigerian youths roam about unemployed. It is worthy of note that various policies have been made to solve these problems in which the banks have been targeted to provide the pivotal roles in the area of funding through provision of credits. However, the fact remains that the banks precisely the commercial banks have not come to grapple with the problem in the area of credits to agriculture. The accusation was that commercial banks prefer granting credit to commerce and trading than to agriculture; and where the credit was allowed, the interest payable seems outrageous with some tight securities, which places restrictions and scare many prospective farmers away. Agriculture has been the backbone of the economy in Nigeria providing employment and source of livelihood for the increasing population, It accounts for over half of the GDP of the Nigerian economy as at independence in 1960. However, the role it plays in the regional and economic development of the country has diminished over the years due to the dominant role of the crude oil sector in the economy. With the increasing food demand in Nigeria, the country has available natural resources and potential for increasing the volume of crop production towards meeting the food and nutritional requirement of the rapidly increasing population and guarantee food security in the country. Therefore, the source of national wealth is essentially agriculture. It is on this premise that the researcher wants to study the impact of agriculture on Nigeria economic growth.

1.3 Objectives of the Study

The main objective of this research work is to ascertain the impact of agricultural sector output on Nigeria’s economic growth. Specifically, the study would try to achieve the following objectives:

(i) To determine the extent to which agricultural sector output impacts on economic growth peroxide by GDP in Nigeria.

(ii) To ascertain the causal relationship between agricultural sector output and Nigeria’s economic growth.

1.4 Research Questions

The following research questions will guide the researcher in the course of the research work:

(1)  To what extent does agricultural sector impact on economic growth in Nigeria?

(2)  What is the causality relationship between agricultural sector development and Nigeria’s economic growth?

1.5 Research Hypotheses

(i) Ho:  Agricultural sector output has no significant impact on Nigeria’s economic growth.

(ii) Ho: Domestic savings has no significant impact on Nigeria’s economic   growth.

(iii) Ho: Interest rate has no significant impact on Nigeria’s economic   growth.

1.6 Scope of the Study

This research work investigate the impact of agricultural sector on Nigeria economic growth from 1981 - 2017.

1.7 Significance of the Study

The significance of such study as this cannot be underestimated or ignored seeing that agricultural sector output is significant to economic activities in Nigeria. Development of agricultural sector entails general development of the Nigeria economy at large. If credit facility is made available to the agriculture sector, it will in turn, boost the GDP of the country and thereby causing growth in the economy. This research work will also be of utmost importance to the government and policy makers, researchers who might find the work helpful are the students of economics. The government will be able to know how with how much funds can be channeled in agriculture so as to meet its macro objectives mainly its targeted economic growth. Also government can formulate and implement policies which are favorable for the agricultural sector for enhancing economic growth.

1.8 Definition of Terms

Agriculture: The science, art, or practice of cultivating the soil, producing crops, and raising livestock and in varying degrees the preparation and marketing of the resulting products.

Economic Growth: The economic growth of a country is the increase in the market value of the goods and services produced by an economy over time.

Economic Development: Economic development usually refers to the adoption of new technologies, transition from agriculture-based to industry-based economy, and general improvement in living standards.

Agricultural Sector: Comprise establishments primarily engaged in growing crops, raising animals, and harvesting fish and other animals from a farm, ranch, or their habitats.

Agricultural policy program: The agricultural policy program work to promote understanding of transitions in food and agriculture, and appropriate policy responses.

Agricultural output: Final agricultural output measures the value of agricultural products which, free of intra-branch consumption, is produced during accounting period and, before processing, is available for export and/or consumption.


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