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AN ECONOMIC ANALYSIS
OF THE IMPACT OF OIL SECTOR ON NIGERIAN ECONOMY
(1980-2010)
ABSTRACT
This research work “An Economic
Analysis of the Impact of Oil Sector on Nigeria Economy (1980-2010)” is set to
find out the performance of oil sector in stimulating economic growth in
Nigeria. The major objectives of this study is to examine the
relationships between the oil sector and economic growth. This study is
empirical in nature and the use of historical data become inevitable. We
preferred econometric model using Ordinary Least Square Method (OLS), in
estimation of the relationship between oil sector and economic growth and some
macro-economic variables. Therefore, to examine the basis of analysis of
the impact of oil sector in Nigeria economy, Hypothesis was formulated to guide
the study. The Null Hypothesis (Ho) oil sector has no significant impact
on economic growth in Nigeria, Alternative Hypothesis (H1) oil sector has
significant impact on economic growth in Nigeria. From the findings made,
Ho: there is no relationship between oil sector and economic growth and H1:
there is a positive relationship between the oil sector and economic growth of
Nigeria. From the result of the test carried out, it was observed that
oil sector has positive impact on Nigeria economic growth. Based on the finding
a major recommendation was made: since oil sector operations contribute a lot
of investment, government ought to be given these sector preferences in her
policies to make it attractive and viable.
TABLE OF CONTENTS
Title
Page
Abstract
Table of
Contents
CHAPTER ONE
1.0 Introduction
1.1
Background of the
Study
1.2
Statement of the Problem
1.3
Objectives of the Study
1.4
Hypothesis of the Study
1.5
Significance of the Study
1.6
Scope and Limitation of the Study
CHAPTER TWO
2.0
LITERATURE
REVIEW
15
2.1 Theoretical Literature
2.2 Empirical Literature
CHAPTER THREE
3.0
RESEARCH, DESIGN AND METHODOLOGY
3.1 Methodology
3.2 Mode Specification
3.3 Method of Evaluation
3.4 Data Required and Sources
CHAPTER FOUR
4.0
DATA PRESENTATION AND ANALYSIS
OF
RESULTS
4.1 Presentation of Empirical
Result
4.2 Examination of the Algebraic
Signs
4.3 Statistical Test of Significance
4.4 Evaluation of Working
Hypothesis
4.5 Policy Implication of the
Results
CHAPTER FIVE
5.0
SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATION
5.1 Summary of Findings
5.2 Conclusion
5.3 Recommendations
References
CHAPTER ONE
1.0
INTRODUCTION
1.1 Background
of the Study
Nigeria economy is basically on open economy with international transactions
constituting on important proportion of her aggregate economic
activities. Over the years, the degree of openness of the economy has
grown considerably. Before Nigeria gains her political independence in 1960,
agriculture was the main stay of Nigeria economy, which provides both cash
crops and food crops to the economy and accounted for the largest part of the
foreign exchange of the country.
However, the beginning of early 80s ushered in a new direction for overall
economic activities. The now ever-growing oil sector led to the new
direction witnessed. This led to the neglect of agricultural products,
making the economy to depend heavily on the production of crude oil.
In
this study, we shall be using these terms to refer to oil sector, such as
petroleum, crude oil, gas and so on. Oil has been known to exist in the
ancient time of Pharaohs and Babylonians. It seeped from the earth in
Persia, Iraq, Indonesia and other parts of the world. Since it was
discovered, it has been used in medicine and some places it created huge fires
which people worshipped. Oil usage was varied but limited and by the middle
of the 17th century, a few street lumps in Bucharist were lit by oil
extracted from coal.
Oil is universally neither the first nor the only primary sources of
energy. The properties of oil shows that it possesses distinct advantages
over other sources of energy, mainly coal. Modern oil exploration began
by the applications of those theories when “Colonel” Edwin Drake provides that
oil does exist beneath the earth’s crust. Drake discovered the first
underground oil near Titusville in Pennsylvania on August 27th 1859,
after drilling a well 70 feet deep. Drake’s well produced about 30
barrels of crude oil.
There are four technical methods for a less developed country like Nigeria to
tap a potential extractive export reserve. They are:
1.
To invite foreign concessionaries to form local industries and therefore supply
management and technological, capital and markets.
2.
undertake, joint venture in which foreign investors supply management and
technological and market as well as a portion of the capital furnished by the
host country.
3.
Institute management contracts, whereby experienced foreign firms offer
management and technology only.
4.
Do without foreign participation altogether and furnish management and
technology. Capital and market itself.
Basically, it could
be argued that there was little real choice of discovering petroleum in Nigeria
before the mid 1950s. For example, L Dudley stamp, the noted British
geographer wrote in 1953 that “Apart from the yard along the shores of the Gulf
of Suez in Egypt and a small yard from three thing fields in Algeria and four
in morocco, Africa has no oil.
The search of oil in
Nigeria began in 1908, when a German company called Nigeria Bitumen Corporation
(NBC) which was granted a license to exploit. Bitumen deposits located at
Ijabu Ode and Okitipupa the present Ondo State. After the war 1914-1919,
their work was terminated due to the colonial-entrepreneurship for legitimate
commercial activities, which were meant to replace the oppressions and inhuman
slave trade that reigned in the eighteen and early period of the nineteen
century.
Geological research
work conducted showed that Nigeria’s petroleum potential was towards the
southern part of Nigeria. After shifting focus to the tertiary area
of Delta, shell BP, made Nigerian’s first discovery of oil in 1956 after 19
years search of petroleum at Oloibiri in Ogbia Local Government Area is now the
present Bayelsa State. There were other companies that joined the Nigeria
petroleum, such as American Oversea Petroleum Company. (TEXACO), Mobil
Tennessee’s Nigeria incorporated (JENNECO), Gulf Oil, Satrap (ELF), Nigeria
Agip Oil Company (NAOC), Philips Petroleum and ESSO exploration. All
these were joined latter, such as Japan petroleum, American occidental company,
Deminex Nigeria Limited, Union Oil, etc. However, not all these companies
were successfully explored.
As government
interest in oil industry continues to grow, a license was granted to Nigeria
Agip Oil Company in 1962. This license was optionally in favour of
the government to purchase about thirty percent (30%) of the share capital of
the company if and when discovered oil in commercial quantity.
In 1977, the Nigeria
National Petroleum Corporation (NNPC) formerly known as Nigeria National Oil
Corporation (NNOC) was established by Act of No 18 which was charged with the
responsibility of exploring and producing oil and gas, transporting, refining,
processing, marketing and converting petroleum products into useful products
(Attamah; 2000 p. 25). NNPC therefore, performed dual functions according
to Quinlan (1980), it performs one as a state-owned right as well as in
partnership with International Oil Companies, it is playing a part and reaping
the reward for Nigeria Oil. As a result of economic transformation of the
country through the Structural Adjustment Program (SAP) which was imposed by
the Federal Government in 1986, the NNPC, according to Akinnusi (1990).
Adopted a new mission in January 1987 that was intended to be realized by
April 1st 1989.
From modest
production of 5000 barrels per day (b/d) in 1958 by shell BP, the volume of the
production in the country has multiplied impressively over years (Nigeria Oil
Directory 1987 p. 60).
1.2
Statement of the Problem
With Nigeria’s oil
sector, accounting for almost all the country’s exports, she has earned
billions of dollars from this sector in years back. As a young nation,
with oil wealth, coming almost unexpectedly immediately after her
independence. Nigeria no doubt has its developmental growth problems to
cope with. The oil wealth brought about growth opportunities as well as
problems for the nation (Quinlan; 1980). There is lack of infrastructural
facilities; her educational system is at the verge of collapse because of under
findings. The health sector has nothing good to write home about; the
cost of life and standard of living are becoming more difficult nowadays in
Nigeria. Industrial and Agricultural sector were neglected.
Inefficiencies and operating problems in the oil sector are causing financial
looses.
Owing to both
external and internal factors, the growth performance of Nigeria economy has
been less than satisfactory during the past three decades. Since 1970,
Nigeria per capita income has fallen by about 4% in constant dollars.
More over, since then the government has annually received over half of its
revenues from oil sector which were about 85%. These oil revenues are not
only largely but highly volatile and causing the size of government programs to
fluctuate accordingly.
From 1972 to 1975,
government spending rose from 8.4% to 22.6% of GDP, by 1978, it dropped back to
14.2% of the economy. This fluctuation has made the government unable to
adhere to wise fiscal policies.
Although large sales
are obtained from oil sector but it’s effect on the growth of Nigerian economy
as regards to returns and productivity is still questionable, hence there is a
need to evaluate an economic analysis of the impact of oil sector on Nigeria
economy.
1.3
Objectives of the Study
The objectives of the
study are split in to two that is, the general objectives and specific
objectives. The general objective of this study is to examine the impact
of oil sector on economic growth of Nigeria. While the specific
objectives are as
follows:
1.
To evaluate the impact of oil sector on economic growth in Nigeria.
2.
To examine the relationships between oil sector and economic growth.
3.
To proffer policy recommendations based on the result of the study.
1.4
Hypothesis of the Study
This study is
designed to investigate and analyze the impact of oil sector on economic
growth. The hypothesis is therefore postulated as
follows:
Ho:
Oil sector has no significant impact on economic growth in Nigeria.
H1:
Oil sector has significant impact on economic growth in Nigeria.
1.5
Significance of the Study
In fact, this
research is very significant in the developmental pace of any economy.
This is more so in developing countries such as Nigeria where the public sector
appears to be more or less concerned with mere policy formulation,
infrastructural development and servicing of both.
The significance of
this research, believing that the resultant findings and recommendations would
be duly considered cannot be over emphasized specifically, the project will be
of great benefit to the following groups:
1.
Policy makers of the various governmental organs in Nigeria who formulate and
issue the regulatory economic guidelines.
2.
It will also help government to access the extent to which the oil sector has
impact on the economy of Nigeria within the given time frame and thus,
providing ground for future policy measures.
3.
It will be of help to real and potential private industrialists and or
investors, especially with regard to sourcing of raw materials and cost.
4.
Students particularly of the business/Engineering school who might be future
research in a related field on the ground already established or covered.
5.
The general public particularly the stakeholders (suppliers and consumers) who
stand to benefit from the informal knowledge of the performance of oil
sector. The researcher holds the strong belief that the findings of this
study will reasonably serve the respective interest of these groups mentioned
above.
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