ABSTRACT
The agricultural
sector's impact on GDP, food and nutritional supplies, job creation, income and
wealth creation, and foreign exchange revenues cannot be overstated. Despite
the agricultural sector's enormous contribution to Nigeria's economic growth,
it has received less attention since the discovery of oil. As a result, this
study investigates how government spending on agriculture has affected
agricultural output in Nigeria from 1981 to 2019. e data used for this study
was obtained from the Central Bank Statistical Bulletin. Using the
Autoregressive Distributed Lag approach, the results revealed the presence of a
long-run link between government agricultural expenditure and agricultural
output in Nigeria. Government agricultural capital spending has a negative and
statistically insignificant influence on agricultural output in Nigeria in both
the short and long run. The findings demonstrate that government recurrent
investment in agriculture had a favorable but statistically insignificant
impact on agricultural output in Nigeria in the short and long run.
Agricultural loan guarantee scheme funds had a negative and statistically
negligible long-run influence on agricultural output while having a positive
short-run impact. To that end, the government should strengthen monitoring
institutions to guarantee that funds provided to the agricultural sector are
utilized wisely and effectively in Nigeria. e government should promote the
consumption of locally grown farm products to limit the number of resources
spent on imported agricultural items, which erode consumers' purchasing power
owing to imported inflation.
TABLE
OF CONTENTS
Title page i
Declaration ii
Approval iii
Table of Contents vi
Abstract x
INTROUCTION
1.0 Background
to Study 5
1.1 Problem
Statement 10
1.2 Objectives
Of the Study 12
1.3 Study
hypotheses
12
1.4 Research
Questions 12
1.5 Significance
Of Study 13
1.6 Scope
Of Study 13
1.7 Limitation
of the study 14
1.8 Organization
of the study 14
REVIEW
OF RELATED LITERATURE
2.0
Introduction 15
2.1 Conceptual Literature 15
2.1.1 Concept of Agriculture 15
2.1.2
Agricultural Productivity 15
2.1.3 Concept of Government Expenditure 15
2.1.4 Concept of Government
Expenditure 19
2.1.5 Agricultural Policies in
Nigeria 21
2.1.6 Government’s Budgetary
Allocation and Agriculture in Nigeria 25
2.2 Review
of Empirical literature 27
2.3 Theoretical
Framework 31
2.3.1 Musgrave Theory of Public Expenditure Growth
Musgrave (1997) 31
2.3.2 The Wagner’s Law/Theory of Increasing State
Activities 32
2.3.3 The
Neoclassical Growth Theory 32
2.3.4 Erik Lindahl in 1919 32
2.3.5 Bowen’s Model of Public Expenditure 33
RESEARCH METHODOLOGY
3.0
Introduction 34
3.1
Sources of Data 34
3.2 Data
Sources 34
3.3 Model Specification 35
3.4 Research Methodology 35
3.4.1 Definition
of Variables 36
3.5 Statistical Tests 37
DATA
PRESENTATION AND ANALYSIS
4.1 Introduction 38
4.2 Data Presentation 38
4.3 Data
Analysis 41
4.3.1 Unit Root
Test 41
4.3.3 Co-Integration
Test 42
SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1 Summary 50
5.2 Conclusion 50
5.3 Recommendations 51
REFERENCES 52
APPENDIX 56
CHAPTER ONE
INTRODUCTION
1.0 Background to the Study
Agriculture as a sector is a
factor for the development of the economy, as it sustains the livelihood of
about 75 percent of the population, and according to World Bank estimates,
increased instrumental at an annual rate of 2.1 percent in 2021 (Nigeria/World
bank development indicators, 2022). The contribution of agricultural sector to
the economy cannot be overemphasized when considering its building roles for
sustainable development, in terms of employment potentials, export and
financial impacts on the economy. Agriculture is an important sector of
Nigerian economy. In the world today, agricultural sector acts as the catalyst
that accelerates the pace of structural transformation and diversification of
the economy, enabling the country to fully utilize its factor endowment,
depending less on foreign supply of agricultural product or raw materials for
its economic growth, development and sustainability. Apart from laying solid
foundation for the economy, it also serves as import substituting sector, providing
ready market for raw materials and intermediate goods.
The agricultural sector
contributes significantly to the nation’s economic development by: increasing
government revenue through tax; improving the standard of living;
infrastructural growth; contribution to Gross National Products (GNP);
employment generation; enhance manpower development; It plays a key role by
sourcing of food for man and animal and providing raw materials for the
industrial sector, provision of employment and foreign exchange to the
government, among others. In Nigeria, agriculture used to be the mainstay of
the economy in the 1960s producing about 90 percent of the government income
and providing up to 70 percent job opportunities to the unemployed youths
(Okuneye and Ajayi, 2021). Despite the predominance of the oil and gas sector in
Nigeria, the agricultural sector still remains a source of economic resilience.
Economic history
shows that agricultural revolution is basic precondition for economic growth,
especially in developing countries. Agriculture provides food for the citizens,
raw materials for the industries, employment, and income for the farmers, and enhances
society’s well-being (Edeh et al., 2020). every industrialized country passed
through the agrarian era. The maxim that agriculture is the hub of the Nigerian
economy underscores the importance placed on agriculture as the engine for
growth. Prior to the discovery of oil, the Nigerian economy was predominantly
agriculture with abundance of arable land and water resources to foster
agricultural development. As it were, the agricultural sector contributed
immensely to the Nigerian economy in provision of food for the increasing
population, supply of raw materials to industries, major source of employment
and generation of foreign exchange earnings. As such, literature abound that
stagnation in agricultural production accounts for the economic failure facing
Nigeria, while the acceleration in agricultural productivity is the key
explanation to industrialization in the developed countries.
According to
Abraham (2020) Consequently, federal government should preserve quality and
stability in its agricultural expenditure in order to achieve the significant
productivity required. The development of agriculture in every country in the
world (both developed and underdeveloped) requires government assistance in
recent years, agricultural outputs in other regions have been doubling, while
Nigeria has experienced a significant decline in agricultural output.
Consequently, following the stunt growth in agricultural output in developing
countries, low agricultural investments have been seen as a major contributory
factor to this development. As such, government fiscal responsibility has
always been seen as a fundamental stability, often viewed as prerequisite to
achieving sustainable output growth. Hence, the potential contribution of
agriculture to economic development in Nigeria have been marred by poor
funding, coupled with misguided government policies.
Nigeria is
enthusiastic with strong ambition and immense potential, which has been
manifested in various agricultural frameworks and policies. Most of the
agricultural frameworks and policies are meant by the government to attain food
self-sufficiency and rapid economic development (Yusuf, 2022).
Agricultural
sector in the 1960s contributed about 64 percent of the total gross domestic
product (GDP) of Nigeria, but gradually declined to 48% in the 1970s during the
oil boom. Nigeria, has diverse agro-ecological conditions that can support a
variety of farming models, which can create its own agricultural models.
However, successive administrations over the years neglected the agricultural
sector in favor of the oil industry. Akintunde, Adesope and Okruwa, (2018).
Undoubtedly,
Nigeria has immense potentials in agricultural sector, but the problem of
continuity of various agricultural policies and programmes remained a great
obstacle. Hence, there was an emphasis on strengthening the agriculture sector
whereby in 1998, the government paid a meticulous focus on the enhancement of
the sector. There was an adoption of agricultural policy that aimed at ensuring
food security for the entire population of the country as well as trying to
focus on the local or domestic production in order to boost economic growth as
literature contends (Emmanuel, Agwale & Usman, 2020).
Public
expenditure can be described to mean the cost or expenses the government incurs
for its own maintenance and for the society, with expanding state activities.
Therefore, Government expenditure on agriculture is the allocation of fund to
the agricultural sector in order to boost agricultural production and output
thereby promoting economic growth. Government expenditure on agriculture
comprises expenses on sector policies and programmes, constructions of flood
control, irrigation and drainage system, operation or support of extension
services, pest control services, crop inspection services, provision of grant
and subsidies to farmers. The objectives and strategies of the federal
agricultural expenditure include: creating enabling environment for agricultural
activities, government intervention in agricultural sector, increase budgetary
allocation on agriculture, etc., (Agbana and Ludo, 2022).
Agriculture is
the catalyst or base through which the growth and development of any economy
like Nigeria must rely on. Nigeria being an agrarian economy is naturally
blessed with various resources such as good atmospheric conditions, adequate
rainfall, sufficient sunlight, a fertile and large land area of 910,770km and a
population of 206,139,589. Over 50% the
population lives in the rural areas that form the population responsible for
these agricultural activities (Worldometer, 2020). The expected significant
contribution was made towards the attainment of several national economic and
social goals. The resultant effect is the huge importation of food, made
possible by the enhanced crude oil export earnings, but which served as a
disincentive to serious domestic farming. In line with the anticipated
contribution agriculture makes to the overall development of the Nigerian
economy, several measures were designed in the years preceding the Structural
Adjustment Programme (SAP) to stimulate the growth and development of the
sector. Such measures included subsidized/low interest rate policies of the
1970s and early 1980’s, establishment of specialized institutions to lend
solely to the sector, funding agricultural production directly through
budgetary allocation and by 3 establishing agricultural oriented institutions
and programs such as Nigerian
Agricultural Credit Bank (NACB), Agricultural Credit Guarantee Scheme Fund
(ACGSF), Agricultural Development Programmes (ADPS), River Basin Development
Scheme (RBDS) and Operation Feed the Nation (OFN).
Following the
adoption of Anchor Borrowers’ Programme, (ABP) in 2015 and is intended to
create a linkage between anchor companies involved in the process of selecting
key agricultural commodities and small holder farmers. The focus of (ABP) is to
provide seed to farmers and cash to grow the crops. This will help to boost
production of the select commodities and make sure there is constant supply of
the commodities to the agro-processors. The programme targets farmers who
produce cereals (Rice, Maize, wheat etc.); Roots and Tubers (Cassava, Potatoes,
Yam, Ginger etc.); Tree crops (Oil palm, Cocoa, Rubber etc.); Legumes (Soybean,
Sesame seed, Cow pea etc.); Livestock (Fish, Poultry, Ruminants etc.). Others
include: Cotton, Sugarcane, Tomato, etc. The fund given to the farmers are
loans. The participating banks, which work with the CBN lend to Anchors at 9%
per annum for onward disbursement to the farmers. The loan is repaid by the
farmers after the crops have been harvested with the harvested crops which must
cover the loan principal and interest, in all to poster agricultural
productivity in Nigeria.
Despite decade
of public sector contribution to agriculture, there were evidences of unstable
or fluctuating trends. In this research, efforts have been made to find out
what is responsible for the downward trend in the contribution of agriculture
to food supply, Gross Domestic Product (GDP), foreign exchange earnings and raw
materials. Also, why there has been mixed result from the financing policies
and programmes of government for agriculture in Nigeria.
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 precondition
for industrialization, others strongly disagree and argue for a different path.
While agriculture may no longer serve as the 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, leading
contributor to Nigeria’s gross national product 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. The Economic development decline in Nigeria with
GDP of about 45billion, 32.953 billion and 55.5billion dollars in 2019, 2020and
2021 respectively and per-capita income of about $300 a year according to the
CBN Annual Report of 2022 notwithstanding oil production has confirmed the need
to pay attention to agriculture.
Transformation
agenda of the president Goodlock which was sets out to create over 3.5 million
jobs in the agricultural sector, from rice, cassava, sorghum, cocoa and cotton
value chains, with many more jobs to come from other value chains under
implementation. The agenda aims to provide over 300 billion Naira (US$ 2
billion) of additional income in the hands of Nigerian farmers.
Over 60 billion
Naira (US$ 380 million) is to be injected into the economy from the
substitution of 20% of bread wheat flour with cassava flour. In total, the
agricultural transformation agenda will add 20 million metric tons to domestic
food supply by 2015, including rice (2 million metric tons), cassava (17
million metric tons) and Sorghum (1 million metric tons).
Under President
Buhari's administration many programs were introduced to boost the agricultural
productivity in the economy like Anchor Borrower's Programme lunched by CBN in
,2015, Presidential Fertilizer Initiative (PFI), Youth Farm Lab, Presidential Economic
Diversification Initiative (PEDI) and Food Security Council which was launched
on Monday, March 26, 2018.
In 2022
agriculture contributed about 23.3 percent of the country GDP, which supports
the positive trend of the previous years’ performance of 25.88 percent (2021);
26.21 percent (2020); 25.1 percent (2019); 25.13 percent (2018); 25.08 percent
(2017); 24.4 percent (2016) and 23.11 percent (2015).
Despite
government professed commitment to developing the agricultural sector, and
indeed investment in the sector, agriculture has grown at the weakest rate in
2022, The sector grew at an average of 15 per cent in the past five years, an
analysis of the country’s gross domestic products by Statistics, a data
analysis platform, shows. By comparison, the sector grew by 133 percent under
the Obasanjo administration; 19.1 per cent under President Musa Yar’adua’s
short tenure and 22.2 percent under Mr. Jonathan’s government. (Mojeed A.,
2022)
Several
researchers have investigated on the impact of government expenditure on
agricultural productivity, but with conflicting results or findings, and the
problem still persists so severely. Thus, there is the need to conduct further
investigation on the impact of government agricultural expenditure proxy by
agricultural expenditure on the Nigeria’s economy proxy by real GDP from 1990-
2022.
1.1 Problem Statement
The importance of agriculture
to the economic development of Nigeria is enormous owing to the fact that
agriculture was the main source of food and employment for a sizable number of
the people. Public expenditure, which serves as the bed rock of financing for
the sector has consistently fallen short of the public expectation. For
instance, a collaborative study carried out by the Food and Agriculture
organization (FAO) revealed that Nigeria’s Public expenditure on agriculture is
1.8 percent of total federal annual budget expenditure 1n 2021 This is
significantly low compared to other developing countries like Kenya 6 percent,
Brazil 18 percent and 10 percent goal set by African leaders’ forum, under the
comprehensive Africa Agricultural Development Programme (CAADP). In spite of
poor investment, agriculture has on the average contributed 22.35 percent of
the country’s GDP in 2021 (FAO, 2021).
According to minister of
Agriculture and rural development (FMARD) in 2022, agriculture accounted for 23
percent of the nation’s GDP, (The Guardian, 2022) yet it received below 5
percent of the total commercial Bank Loans. Inadequacy of government funding of
agricultural projects and programmes has been observed by researchers because
lack of strong evidence of growth promotion externalities by deepening food
insecurity, social inequality, rural poverty and hunger, are issues of funding
(Ogbonna and Osondu, 2015). There is also no available detailed analysis on the
returns to agriculture investment in most African countries, and reporting on
Plan for the Modernization of Agriculture (PMA) expenditures more broadly is
weak.
Most studies
focused on the impact of total government expenditure and overall GDP growth in
Nigeria. Very few of these studies attempted to link different types of
government spending to growth, and even fewer attempted to analyze the impact
of government spending at the sector level, especially agriculture
(Kenny,2019).
It is difficult
to obtain a clear picture of total agricultural expenditure. Budget documents
as reported by "Kilick" have tended to be released only on a “need to
know basis”, and it is only in recent years that this has begun to change.
Implementation bottlenecks still hamper effective use of resources. Ten percent
of expenditure is funded through revenues outside the budget. Ministerial
budgets and actual expenditures diverge significantly, reflecting frequent use
of in-year budget re allocations.
This study therefore is set to
determine the contribution of government funding in terms of expenditure to
agricultural productivity in Nigeria between 1999-2022 and compare with some
other factors on which agricultural output depends. This will guide policy
making for increased agricultural productivity in the nation.
1.2 Objectives of the study
The objective of this study is to
examine the impact of government expenditure on agricultural production.
Specifically, we aim at:
- Determining
the relationship between government expenditure and agricultural output.
- Ascertaining
the impact of government expenditure on agricultural production.
1.3 Study hypotheses
The study developed and
formulated for testing the following hypothesis:
H0:
There is a relationship between government spending and agricultural
productivity in Nigeria.
H1:
There is a significant impact of government expenditure on Agricultural
productivity in Nigeria.
1.4 Research
Questions
The following research questions were
raised in the course of this work:
- what is the agricultural budget performance situation
in Nigeria?
- Has the agricultural public expenditure increased in
Nigeria to meet up with Malabo Declaration of 2014.
This study aims to provide
answers to these questions and make recommendations based on the empirical
findings. The answers to these questions will guide the policy makers on how to
prioritize and allocate public funds to achieve the best outcomes in agricultural
sector in Nigeria. It will also throw limelight on which component of spending
contributes more to agricultural growth and productivity in Nigeria. The study
also helps the policy makers on alignment and harnessing other sources of
funding for agriculture in Nigeria.
1.5 Significance of the study
The significance
of this research lies in the fact that if the impact of government expenditure
on agricultural productivity is properly identified, then it provides a pathway
to improved foresight in that particular direction, which if properly analyzed
will bring about rapid economic growth and improvements would be the end
result. The reason for the above postulation is that the agricultural sector is
a good source of diversification for an oil-driven economy and also it has
proved in recent times to be a resourceful money spinner for the national
pocket hitherto the unearthed shift to becoming an oil dependent economy.
Information
obtained from this study assist in evaluating and implementing new mechanism
for Nigeria’s funding for effective investment by the stake holders for
promoting technical assistance for farmers; and support for the agricultural
expansion programme while contributing to the existing body of knowledge in
agricultural finance policy in Nigeria. The study will also identify
implementation constraints to national funding and investment in agricultural
sector in the country so as to increase effectiveness of National funding and
investment to reduce poverty. The study will help in provision of data to
encourage private sector involvement in agriculture under the new proposed
private-public-participation. Therefore, this study would be of immense importance
to the government and policy makers especially in their efforts to fashion out
sound and effective policies and suggestions to improve output in the
agricultural sector that will now transpire to economic progress. Therefore,
the importance of this study can hardly be over-emphasized.
1.6 Scope of the Study
The scope of
this study is necessarily limited to the period 1999-2022; within this period,
some new policies on agriculture has been made. It should therefore be
acknowledged that the data used are derived from the Statistical Bulletin,
National Bureau of Statistic, Central Bank of Nigeria, Journals, etc., and they
are used to portray the significance or importance of government expenditure on
agricultural output in Nigeria.
1.7 Limitation
of the study
This study is
limited to investigate government expenditure on agricultural productivity
between the years of 1999- 2022. the main constraint faced by the researcher
was difficulty in accessing data that will aid the empirical investigation of
the study. One of such data is related to deficit financing. Despite all these
hitches and setbacks mentioned above, this work will be completed within the
speculated frame.
1.8 Organization of
the study
The project is being divided
into five chapters. Chapter one introduces the subject matter of the research
and clarifies certain basic concepts underlying the research; it further deals
with statement of problems, objectives of the study, research questions and
hypothesis, the scope/limitation and significance of the study and methodology
respectively. The second chapter focuses on the review of different literature
ranging from conceptual, theoretical to empirical literature review. In chapter
three, the methodology and procedure of the research was discussed detailing
the sources of data, method and techniques of data analysis. Chapter four is on
data presentation, analysis and interpretation of results. Chapter five, deals
with summary, conclusion and recommendations.
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