EXAMINE CRITICALLY THE EXTENT TO WHICH PETROLEUM PRODUCTS AFFECT THE NIGERIAN ECONOMIC GROWTH

CHAPTER ONE

INTRODUCTION

1.1 Background to the study

The petroleum industry is still the prime mover and the energy source of Nigeria economy. It increasingly play important role in our daily lives, homes and environment. The spin-off effects of its downstream activities have become noticeable, as its importance over the years. These importance have been largely in the area of energy for powering productive activities, industrialization through the provision of industrial input as well as employment generation or opportunities.

Prior to Independence in 1960, agricultural sector dominated the provision of food income and labor force of the Nigeria’s populace. Agricultural sector accounted for the nation’s growth rate of 5% per annum across the 1950 and 1960s. In 1960, agricultural sector contributed triple what the petroleum sector contributed to the country’s GDP, Foreign exchange earnings, the national income investment etc. Oil is a major source of energy in Nigeria and the world in general. Oil being the mainstay of the Nigeria economy plays a vital role in shaping the economic and political destiny of the country (Gbadebo Odolarui 2005).  In 1970s, petroleum sector took over as the bedrock of the nation, although it entered the export list since 1958. Petroleum asserted its importance in 1970 after the Nigeria civil war (1967-1970) when it accounted for 70% and 80% of export and export earnings. Since the Nigeria economy has solely dependent on the petroleum industry as the major source of government revenue and foreign exchange (Ojamerage and Oyaide 1987).

In recent times, the structure of Nigerian economy has undergone changes with the help of Oil sector which has contributed largely to its economic growth and has provided revenue to the government. The relatively importance of some sectors and degree of population concentration emphasize by increasing urbanization which is caused by geo-political and economic development which has resulted in the rising of petroleum products demand, especially fuel requirement and use of propensities.

Nevertheless, the above points have called to our understanding that the need for petroleum production in Nigeria is for economic growth and household consumption. For economic growth, the movement of larger proportions of the population to commercial centers will promote high petroleum products needs. It could interest us to know that the demand for petroleum products is a determinant of the level of the economic growth. Petroleum products such as fuel oil, diesel, kerosene, jet fuel, cooking gas, lubricating oil, petroleum jelly and petrol etc is mainly the energy needed for urban household and industrial consumption.

Although the oil industry is the pillar of Nigerian economy, the full benefits of the industry have not been realized and most of the time, their product has been noted to be limited in the area of supply since the volume of its production is determined mainly by external factors such as demand and supply situation in the oil markets. Some of the reasons for this limited supply in production are acute shortage of skilled technical cadre, lack of national commitment and lack of knowledge about policy formulation and appraisal. Kimuyu (1993) noted that urbanization is the major structural phenomenon generated from the increased shift in large proportions of the population to commercial and administrative centers during developments. And this structural shift was identified as the major factor responsible for the unprecedented increase in the demand for petroleum products in Nigeria.

Nigeria depends on crude oil and when there is any slight fluctuation in the world oil market, the economy is thrown into commotion. For the past three decades, crude oil has been a major source of revenue, energy and foreign exchange for Nigerian economy. Against this background, this paper work reviews the early attempt of exploring petroleum, its importance, its role as it affects the various segments of the economy, example government revenue, foreign exchange etc. we will analyze some of the problems of the petroleum industry, the role of NNPC and OPEC as well as the prospects of the industry in Nigeria. Also, build and analyze date, concluding this work by providing recommendation based on our findings.

1.2 Statement of the problem

Owing to both external and internal factors, the growth performance of the Nigerian economy has been less than satisfactory during the past three decades. There has been large proceeds obtained from the domestic sales and exports of petroleum products, its effect on the growth of the Nigeria economy as regard to returns and productivity is still questionable, hence, the need to evaluate the relative impact of petroleum on the economy.

Crude oil discovery has had certain impact on the Nigeria economy both positively and adversely. On the negative side, this can be considered with respect to the surrounding communities within which the oil wells are exploited. Some of these communities still suffer environment degradation which leads to deprivation of means of livelihood and other economic and social factors.

Also, over the past few years, petroleum products has been noted to be limited or insufficient and its limited energy planning which among others includes: acute shortage of skilled technical cadre, inefficiency of refineries resulting in low optimal utilization of installed capacities, pipelines raptures, aging petroleum tankers and marketers facilities have hand in the delay of receipt of petroleum in some areas as all these and many more have surrounded the problem of its scarcity.

Given the fact that the oil sector is a very crucial sector in the Nigerian economy, there is a dire need for an appropriate and desirable production of crude oil and export policy for the sector. In Nigeria, the inability of the oil sector to produce sufficient petroleum and make a better policy in order to meet the point of equilibrium and at least lead to an increase in the gross domestic product (GDP) of the country has been a major concern. Hence, the central purpose of this study is to examine the impact of petroleum products on economic growth in Nigeria.

1.3   Research questions

 The questions to be answered in this paper are as follows:

• To what extent do petroleum products impact on Nigerian economy?
• Is there any causal relationship between petroleum products and economic growth in Nigeria?
• Is there any long-run relationship between petroleum products and economic growth in Nigeria?

 

 

1.4 Objectives of the study

The broad objective of this study is to examine critically the extent to which petroleum products affect the Nigerian economic growth. To achieve the broad objective, the specific objectives shall be to:

• Determine the impact of petroleum products on Nigerian economic
• Evaluate the causal relationship between petroleum products and economic growth in Nigeria.
• Empirically investigate the existence or not of any long-run relationship between petroleum products and economic growth in Nigeria.

1.5 Research hypothesis

The null hypothesis propounded is as follows:

H₀: There is no impact of petroleum products on Nigerian economic growth.

H₀: There is no causal effect between petroleum products and economic growth in Nigeria.

H₀: There is no long-run relationship between petroleum products and economic growth in Nigeria.

1.6 Significance of the study

The significance of this entire research is to determine the overall impact of the petroleum sector to the growth and development of the Nigerian economy.

This work will help the petroleum industries in making better policies and also to improve in the supply of their products in order to meet the equilibrium condition in the supply and demand of petroleum products within and outside Nigeria.

This work will also be useful to the government in checking smuggling and undue excess of hoarding of petroleum products. This work goes further to expose the aspect of our economy, especially the inefficiencies associated with the petroleum industry arising from wide spread shortage tendencies towards price increase or decrease with attendant socio and economic unrest.

1.7   Scope and limitation of the study

 This is an investigation into the impact of petroleum products on Nigeria’s economic growth performance. It shall be for a period of thirty-four (34) years, from 1980 to 2013. The petroleum products under consideration are petrol, gas, and kerosene, while gross domestic product (GDP) is considered as a proxy for economic growth performance.

However, this research work was beset with some constraints or limitations such as inadequate funds to support the study, data conflicts, and the problem of time since both research work and academics studies were running currently. Inspite of all these limitations, the researcher made every effort to ensure that what could have been their adverse effects on the accuracy of the research findings were minimized.