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THE IMPACT OF THE PETROLEUM SECTOR ON THE DEVELOPMENT OF THE NIGERIA ECONOMY. (1980-2006)




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THE IMPACT OF THE PETROLEUM SECTOR ON THE DEVELOPMENT OF THE NIGERIA ECONOMY.
(1980-2006)


ABSTRACT
The purpose of this project is to assess the impact of the petroleum sector on the development of the Nigerian economy for the period 1980-2006. This research depends on secondary date. The ordinary least square method was employed. Data collected was tabulated analyzed while multiple regression technique was adapted for the testing of hypothesis. The result showed that there is a significant relationship between the petroleum sector and the Nigerian Economy. Based on the results of the study, we recommended that; a) the government should step-up the production and the revenue contribution of the manufacturing industry and agricultural sector by investing some part of the oil revenue into the development of the aforementioned sub-sectors. B) There should be true federalism and resource control etc.



TABLE OF CONTENTS
Title Page                                                                                 i
Certification                                                                             ii
Dedication                                                                               iii
Abstract                                                                                   iv
Acknowledgment                                                                     v
Table of Contents                                                                     vi
CHAPTER ONE: INTRODUCTION
1.1   Background of the study                                                  1
1.2   Statement of the study                                                     4
1.3   Objective of the study                                                      5
1.4   Research hypothesis                                                                5
1.6   Method of study                                                               6
1.7   The significance of the study                                           6
1.8   Scope and limitation of the study                                    6
CHAPTER TWO: LITERATURE REVIEW
2.0   Introduction                                                                     7
2.1   The origin of oil in Nigeria                                                        8
2.2   The Nigeria national petroleum company                        9
2.3   The state of the Nigeria oil sector                                     10
2.4   The production and consumption of petroleum product in Nigeria                                                                          11
2.5   The consumption of petroleum products in Nigeria         13
2.6   The oil industry and the agricultural sector                     15
2.7   The impact of oil on the oil sector industrial and other sectors
                                                                                                16
2.8   The contribution of the oil sector of the Nigeria GDP               18
2.9   The contribution of crude oil to the Nigeria total export   19
2.10 The effect of oil production on policy makers                   21
2.11 Revenue contribution of the sector                                  22
2.12 Excess crude oil revenue, petroleum pricing and subsidy       23
2.13 The Nigeria oil industry and unemployment                    25
2.14 The environmental impact of the oil industry                  27
2.15 The oil industry and conflict in Nigeria                            28
2.16 The mismanagement of oil wealth                                   29
2.17 Deregulation of the downstream oil sector                               31
2.18 Constraints on the petroleum sub-sector                        32
2.18.1 Public control and lack of autonomy                            33
2.18.2 Inefficiency                                                                   34
2.18.3 The distribution of problem of petroleum products in Nigeria
                                                                                                35
CHAPTER THREE: RESEARCH METHODOLOGY
3.0   Introduction                                                                     36
3.1   Source of data                                                                  37
3.2   Method of data analysis                                                   38
3.3   Model specification                                                          39
3.4   Prior expectation                                                              39


CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.0   Introduction                                                                     40
4.1   Data presentation                                                            44
4.2   Regression result and discussion                                    47
CHAPTER FIVE: FINDINGS, SUMMARY, CONCLUSION AND RECOMMENDATION
5.0   Introduction                                                                     48
5.1   Discussion of findings                                                     49
5.2   Summary                                                                         50
5.3   Conclusion                                                                      52
5.4   Recommendations                                                           55
Bibliography                                                                            56
Appendix                                                                                 57


CHAPTER ONE
INTRODUCTION
1.1   BACKGROUND OF THE STUDY
Historically before the exploration of petroleum product in commercial quantity in 1956, agriculture was the mainstay of Nigerian economy. By the time Nigeria gained independence in October 1960, the agricultural sector was the dominant sector of the economy contributing about 70 percent of the gross domestic product (GDP) employing about the same percentage of the working population and accounting for about 90 percent of the total foreign exchange earnings and federal government revenue.
The early period of the post-independence up to the mid-1970s saw a rapid growth in the industrial capacity and output. The contribution of the manufacturing sector to the GDP rose from 48 percent to 8.2 percent. The structure changed when oil suddenly became of strategic importance to the world economy through its supply price nexus. According to Moro (1995):
The picture changed dramatically by 1965 when petroleum share of the total exports amounted to 25.4 percent in the 1960s rose to 57.676 percent 1970 and 92.6 in 1974.
Oil exploration exercise in Nigeria is younger compared to other western nation like America etc. exploration oil in the country could be traced back to 1980, when the first Nigerian Bitumen Corporation (NBC) was licensed to explored bitumen around the Araromu area of Ondo State. Through, it was interrupted by the outbreak of the First World War in 1914.
Shell D. Archy the fore runner of shell petroleum development company (SPDC) was awarded the sole concessionary right in 1935 under the mineral ordinance No. 17 of 1914.
Nigeria successfully explored oil on the 3rd of August 1955 at Olobiiri and Bormu of Bayelsa and Rivers state respectively by shell Bp and first attained its peak in 1994 at the rate of 2.44 million based per day.
The nation has proven reserves of about 32 billion barrels of predominantly low sulphur light crude which at current rate of exploitation could last another 38 years. The intension is to expand the reserves to 40 Billion barrel and production capacity of four Million barrels.
Oil exploitation takes place in both onshore and offshore areas in the country. The petroleum industry is divided into two (the upstream and downstream) subsectors. The industry includes all registered organizations that are involved in the mining, refining, marketing, distributing etc of petroleum products. The sector is regulated by the Nigeria National petroleum company (NNPC).
The revenue of the sector stems from incomes from petroleum profit tax, rent, and loyalty and NNPC earnings.
1.2   STATEMENT OF PROBLEM
The overdependence on oil revenue by the federal government for the execution of development programmes has caused the sideline of the contribution of other sectors of the economy.



According to Moro (1995.75):
Due to oil wealth there is decline in the agricultural production which is closely linked to the pad of industrialization, urbanization and public development efforts in the country.
The neglect of other viable sectors like the agricultural, manufacturing etc and viable sources income like the tax system because of oil wealth have resulted in increased unemployment, food crises, poor infrastructural development, increase inequality, youth restiveness in the oil bearing regions (Niger Delta) delay or alteration of development programmes etc. upon these premised, this study is predicated.
1.3   OBJECTIVES OF THE STUDY
This study shall appraise the impact of the petroleum industry on the development of the economy of Nigeria. It will specifically:
1.     Identify the of oil industry on other sectors of the economy like the agricultural and manufacturing sectors.
2.     Assess the contribution of petroleum aggregate export and gross domestic product (GDP).
3.     Evaluate the contribution of the industry to the total government revenue.
1.4   RESEARCH HYPOTHESIS
Aggregate export and gross domestic product (GDP) are functions of oil revenue.
1.5   METHOD OF STUDY
The study shall rely largely on the data from the central bank of Nigeria statistical bulletin. Other sources will include libraries and publication from the federal office of statistics.
Multiple regression analysis shall be adopted to specify the functional relationship between oil revenue and the hypothesized variables (aggregate export and gross domestic product (GDP).
1.6   METHOD OF ANALYSIS
T-values of the parameter estimate shall be computed to determine wealth the estimate is significance or not.


1.7   THE SIGNIFICANCE OF THE STUDY
The results of this research will enable use understand the effect of the oil industry on other sectors of the economy. It will also determine the impact of the oil industry on the revenue of the federal government and overall development of the Nigeria economy. It will as well suggest solutions to the mono-economic structure of the Nigeria.
1.8   SCOPE AND LIMITATION OF THE STUDY
The scope of this study has been restricted to the assessment of the impact of the petroleum sector on the development of the Nigeria economy within the period 1980-to 2006, due to some difficulties in the areas of finance, time limit within which this work is expected to be completed, the problem of scarcity of relevant literature etc.
In spite of these hindrances, the validity of the research findings still remains reliable.


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