Impact of over Dependence on Oil Revenue on Economic Growth of Nigeria

Impact of Over Dependence on Oil Revenue on Economic Growth of Nigeria. Download the full project from chapter one to five with reference and abstract. The impact of over dependence on oil revenue on Nigeria economic growth cannot be overemphasized this research work will explore all the negative implication of mono-export on Nigeria economy.



1.1 Background of Study

The impacts of over dependence on crude-oil over the years have been discussed and attempts have been made to understand the impact it have generated on the overall economy. This study attempts at throwing more lights or adding to existing works of other researchers.

Based on statistics from previous studies, it has been discovered that oil exporting countries appear to be among the world’s fastest and largest consumers of petroleum products. “Between 1966 and 1986, encouraged by rising incomes and falling prices, domestic consumption of oil in OPEC countries increased by 94 percent per year” Isfahani(2006).

Nigeria being one of OPEC member countries and the second largest producer of oil in Africa (World fact book: 2008), is said to have high consumption of petroleum products. The high demand for petroleum products could be as a result of rising incomes (as Isfahani  puts it), lower prices (influenced by a subsidy), a teeming population (of which Nigeria happens to be the most populous country in Africa), and various other factors that could affect demand.

From the statistics provided by the world fact book (2005), Nigeria is said to have an oil production of about 2.451 million bbI/day, while she consumes about 310,000 bbI/day(2005 est.). As at 2006, the level of consumption increased to 312,000 bbI/day with production level of 2.352 million bbI/day (2006 est.). Nigeria, as at 2007 ranked 38th position in the world with respect to oil consumption. From these facts, it is quite obvious that Nigeria, despite the decrease in oil production in 2006, still has an increase oil consumption rate.

The oil boom of the 1970s led Nigeria to neglect its strong agricultural and light manufacturing bases in favour of an unhealthy dependence on crude oil. In 2002 oil and gas exports accounted for more than 98% of export earnings and about 83% of federal government revenue (Isfahani, 2006; Noko, 2017).   New oil wealth, the concurrent decline of other economic sectors, and a lurch toward a statist economic model fueled massive migration to the cities and led to increasingly widespread poverty, especially in rural areas. A collapse of basic infrastructure and social services since the early 1980s accompanied this trend. By 2002 Nigerian’s per capita income had plunged to about one – quarter of its mid – 1970s high, below the level at independence. Along with the endemic malaise of Nigeria’s non – oil sectors, the economy continues to witness massive growth of “informal sector” economic activities (Isfahani, 2006).

Nigeria’s proven oil reserves are estimated to be 36 billion barrels; natural gas reserves are well over 100 trillion cubic feet. Nigeria is a member of the organization of petroleum exporting countries (OPEC), and it current crude oil production averages around 1.6 million barrels per day, poor corporate relation with indigenous communities, vandalism of oil infrastructure, severe ecological damage, and personal security problems throughout  the Niger Delta oil –producing region continue to plague Nigeria’s oil sector. In the absence of coherent government programs, the major motivational oil companies have launched their own community development programs (Noko, 2017). The Niger Delta Development commission (NDDC) was created to help catalyze economic and social development in the region, but it is widely perceived to be ineffective and opaque. Oil accounts for 90% of Nigeria’s exports and over 80% of government revenue Nigeria inspects all imports on arrival, rather than at ports of origin, as a result, about 95% of containers are physically examined. This procedure, along with Nigeria’s uneven application of import and labeling regulations and poor infrastructure, complicates the movement of goods through Nigeria’s notoriously congested ports and increases the cost of doing business. The government has promoted foreign investment and encouraged reforms in these and other areas, but the investment climate remains daunting to all but the most determined.

Agriculture has suffered from years of mismanagement, inconsistent and poorly conceived government policies, and the lack of basic infrastructure. Still, the sector accounts for about 42% of GDP and two thirds of employment. Agriculture provides a significant fraction (approximately 10%) of non-oil growth. Poultry and cocoa are just two areas where production is not keeping pace with domestic or international demand. Fisheries also have great potential, but are poorly managed. Oil dependency, and the allure it generated of great wealth through government contracts, spawned other economic distortions (Noko, 2017). The country’s high propensity to import means roughly 80% of government expenditures is recycled into foreign exchange. Cheap consumer imports, resulting from a chronically overvalued naira, coupled with excessively high domestic production costs due in part to erratic electricity and fuel supply, have pushed down industrial capacity utilization to less than 30%. Many more Nigerian factories would have closed except for relatively low labour costs (10% – 15%). Domestic manufacturers, especially pharmaceuticals and textiles, have lost their ability to compete in traditional regional markets.

1.2 Statement of Problem

The negative consequence of over dependence on oil revenue in Nigeria tends to crumbled the economy instead of revitalizing the economy. In fact, heavy dependence on the export of natural resources had been shown to negatively affect a country’s economic, social and political development. The major consequences of over dependence on oil revenue for the country survival includes among others; dependence on oil multinationals and their infrastructure leading to infrastructural decay in the both down and upstream sector, agricultural sector is neglected, leading to an impoverishment of the rural population.

Oil revenues tend to displace more stable and sustainable revenue flows for example, as a result of huge oil revenue flows; countries tend to de-emphasize income taxes as a source of government revenue. Besides, low tax ratios and high consumption expenditures (typically on imported goods) reinforce inflationary tendencies with regard to expenditure; no use is made of openings for diversifying the economy enhancing infrastructure or expanding education systems.  Volatility of oil prizes makes planning difficult, hampers growth, aggravates investment conditions, income distribution and educational attainment. Diminishing willingness of governments for pursue of reforms.

It has been argued that these negative outcomes are not inevitable since they can be avoided or at least minimized when good governance, public accountability and transparent resource management, willingness of countries to transform oil revenues into positive development outcome are prevalent. The government neglect of the agricultural sector which was the main stay of the economy before the discovery of oil was the major problem hindering the country economic progress. Although, government has made some effort at combating the syndrome of over dependence on oil revenue in Nigeria but the effort was not significant at all; giving their inconsistent in policy and lack of implementation of agricultural and industrial policy in the country.

According to Igberaese (2013) who possesses a good opinion of the petroleum industry in Nigeria, he maintained that the rapid expansion of the crude petroleum content found in the country has made the Nigerian economy one of the fastest growing economics among developing nations. More importantly, he noted that this was only a necessary condition but not a sufficient one for economic development.

In view of the forgoing analysis this research work investigates the impact of over dependence on oil revenue on the economic growth of Nigeria. Besides, this paper will find out why the oil boom in Nigeria did mostly bring negative consequences such as poverty, low level of human development, environmental degradation, social and political conflicts, and has not turned into a “blessing” so far, and what policy and actions are to be implemented in order to make it otherwise.

1.3     Research Questions

The above problems has led to a lot of worries and concerns among economic researchers, the economic students, planners, the elite, public and government policy makers. This has made the authorities concerned to ask questions on the effects of over dependency on oil in the Nigeria Economy.

The concerns led to the following questions which constitute the research questions of this study.

  • To what extent has over dependence on oil revenue impacted on Nigeria’s economic growth.
  • Is there any long-run relationship between economic growth and oil revenue in Nigeria?

1.4     Objective of Study

The broad objective of the study is to determine the impact of over-dependence on oil on Nigeria’s economy.

The specific objectives of the study are:

  • Determine the impact of over dependence on oil on Nigeria economic growth.
  • Evaluate the long-run relationship between economic growth and oil revenue in Nigeria.

1.5     Hypothesis of Study

H0:       Over dependency on oil revenue has no significant impact on Nigeria economic growth.

H0:       Oil revenue has no long-run relationship with Nigeria’s economic growth.

  • Significance of Study

Every research work has its policy significance and this study is not an exception. The federal government of Nigeria, with this study, would be able to know the impact of oil dependency in the country, and would also be able to predict demand in the nearest future. If it becomes apparent that present consumption patterns cannot be sustained in the long-run, then adjustments would made to enhance the efficiency in its supply.

In summary, the study would enable the federal government make better forecast of consumption patterns. For example using the current population growth rate, the government could predict the level of consumption the following year and take better decisions that would aid and enhance economic growth. Still on ,,,, Impact of Over Dependence on Oil Revenue on Nigeria Economic Growth 1981-2016.

1.7 Scope and Limitations of Study

The scope of this study is narrowed to the activities of the oil sector and Nigeria dependence on the sector. This study will intend to know and study the impact and extent of petroleum dependency on the non-oil sector and how it relates to and affects the Nigerian economy. The empirical analysis of the study will cover the period 1981-2016.

This project is limited by insufficient data in some aspects. The study was also limited by time and also by lack of financial resources of the author. Also was the reluctance of some library or Liberians to make data available.  As a result of these, the efforts of the author were limited to a large extent. Despise this constraints the researcher still made enormous effort to come up with a good research.

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2 thoughts on “Impact of over Dependence on Oil Revenue on Economic Growth of Nigeria”

  1. Igwe Darlington Ikechukwu

    Very interesting and educating work. Will like read it please. A civil servant, I really don’t have money now

  2. Igwe Darlington Ikechukwu

    Very interesting and Educating work, I am a civil servant, don’t really have money now

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