ABSTRACT
The study was carried out in Nigeria with the main objective - to determine the effects of macroeconomic variables on agribusiness and economic performance in Nigeria. Secondary data obtained from the Central Bank of Nigeria and World Development Indicator Data base 2017 within the period 1970 to 2016 were used for the analysis. Endogenous growth theory was used as the base theory for this analysis. Analytical techniques applied included unit root, Granger causality, ARDL co-integration, chow tests and ordinary least square. Granger causality test revealed a bi-lateral relationship between capital, non-oil export and agribusiness performance, while other variables exhibited unilateral relationships. Capital, Inflation, Labor, Non oil export, had positive and significant effects on agribusiness performance. Food import, Foreign private investment, Real exchange rate, Real gross domestic product had positive but insignificant effects on agribusiness performance. The results revealed that agribusiness had positive and significant effects on economic performance of Nigeria. Chow testing revealed that agribusiness performance was not the same during regulated and deregulated economy. Test on overall fitness of the models and stability revealed that the models were stable and normally distributed with no heteroscadascity or residual autocorrelation. The policy implication of this work is that, macroeconomic variables are important determinants of agribusiness performance. Appropriate Institutional frame work and policies ought to be in place to make agribusiness value chain inclusive and dynamic.
TABLE
OF CONTENTS
PAGE
Cover Page
Title Page i
Declaration ii
Dedication iii
Certification iv
Acknowledgement v
List of Tables ix
List of Figures x
Abstract xi
CHAPTER 1: INTRODUCTION
1.1
Background Information 1
1.2 Statement of the Problem 5
1.3 Research Questions 10
1.4 Research Objectives 11
1.5
Research Hypotheses 11
1.6 Justification
of the Study 12
1.7 Scope of the Study 13
CHAPTER 2: LITERATURE REVIEW
2.0 Introduction 14
2.1
Conceptual and Theoretical Framework 14
2.1.1
Cause and effect relationship 19
2.1.2
Agribusiness gross domestic product 22
2.1.3 Measurement of G.D.P 22
2.1.4 Calculation of GDP 23
2.1.5 Nominal G.D.P and real G.D.P 23
2.2 Review of Analytical Techniques 24
2.3
Empirical Literature 27
2.4
Review of Macroeconomic Policies
Affecting Agribusiness 29
2.4.1 Monetary policy 30
2.4.2
Fiscal policy 32
2.4.2.1 Austerity measure (1980-1985) 33
2.4.2.2 Structural adjustment programme
(1986-1997) 37
2.4.2.3 Reregulation 40
2.4.2.4 Guided de-regulation (1995) 41
2.5
Research Variables and their
Inter-Relationship 42
2.5.1 Exchange
rate 43
2.5.1.1 Definition of Exchange Rate 46
2.5.1.2 Agribusiness performance, economic growth and
the effects of
exchange rate in Nigeria 47
2.5.2 Food import. 50
2.5.3 Non-oil export 53
2.5.4. Foreign private investment 56
2.5.4.1 Determinants of capital flow to a country 58
2.5.5 Manufacturing (Agro Allied Industries) 61
2.6 Agribusiness
GDP 64
2.6.1 Agriculture
and agribusiness 64
2.7 Agribusiness
Value Chains and Economic Performance 66
2.7.1 Structure
of agribusiness value chain 68
2.7.2 Structural
transformation of Nigeria agribusiness 69
2.7.3 Making
agribusiness inclusive 69
2.8 Agribusiness
Finance and Performance 71
2.8.1 Main
sources of financing 72
2.8.2 Financial
institutions 73
2.8.3 Reducing the risk of lending to agribusiness 74
2.8.4 Bank portfolio diversification of agribusiness 74
2.8.5 Value-chain financing 75
2.8.6 Collateralization 75
2.8.7 Warehouse receipt system 76
2.8.8 Leasing 77
CHAPTER 3: RESEARCH
METHODOLOGY
3.1 The
Study Area 78
3.2 Sources
of Data Collection and Data Description 79
3.3 Method
of Data Analysis 79
3.3.1 Analytical technique 80
3.3.1.1 Unit root test 80
3.3.1.2 Granger causality test 80
3.3.1.3 Cointegration test 80
3.3.1.3.1 ARDL/bound test 81
3.3.1.3.2 Error correction model
(ECM) 81
3.3.2 Chow
test 82
3.4 Model
Estimation 83
3.5 Model
Specification 83
3.5.1 Model
for objective I (Granger) 84
3.5.2 Model
for objective II 85
3.5.2.1 Model diagnostic
and stability tests 88
3.5.3 Model
for objective III 89
3.5.4 Model
for objective IV 90
CHAPTER 4
4.0 Result
and Discussions 91
4.1 Results
of Unit Root Test 91
4.2 Results
of Granger Causality Test 93
4.3 Model
Stability and Diagnostic Tests Results 95
4.4 Results
of Effects of Macroeconomic Variables on
Agribusiness Performance 103
4.5 Estimation
of the Results of Structural Changes in
Agribusiness Performance 113
4.6 Effect
of Agribusiness Performance on Economic
Performance of Nigeria 123
CHAPTER 5
5.0 Summary
of Findings, Conclusion and Recommendations 126
5.1 Summary
of Findings 126
5.2 Conclusion 128
5.3 Recommendations 129
5.4 Contributions
of the Research Project to the Body of Knowledge 130
5.5 Areas
of Further Research 131
References 132
Appendix 151
LIST OF TABLES
4.1 Results
of unit root test 92
4.2 Results
of granger causality test 93
4.3 Lag
length selection 95
4.4 Results
of ARDL/ bounds testing 96
4.5 Estimation
of ARDL co-integration model
(Effects
of macroeconomic variables on
agribusiness performance) 99
4.6 Estimated
short run error correction model 100
4.7 Dependent
variable residual test 101
4.8 Estimation
result of ARDL long run co-integration model 103
4.9 Estimated
short-run error correction model using ARDL method 105
4.10 Estimated
regression model of regulated economy 114
4.11 Estimated
regression model of deregulated economy 116
4.12 Regression
model of pooled data 118
4.13 Chow
test results 121
4.14 Estimation
of regression model of the effects of agribusiness
performance on economic
performance of Nigeria. 124
LIST OF FIGURES
I: Graphical
representation of income theory of productivity 16
II: Agribusiness
and affecting variables 21
III: Effect
of agribusiness on economic performance 21
IV: Cusum
graph 98
V: Model
normality test chart 102
CHAPTER
1
1.0 INTRODUCTION
1.1 BACKGROUND INFORMATION
United Nations
Industrial Development Organization (UNIDO, 2010) described Agribusiness as an
aggregate of sub sectors of agriculture and the proximate agro allied
industries. Yumikelia, Kormawa, Roepstorff and Hawkins (2011) expanded on this
definition to include a wide range of intermediate activities that generated
economic values, comprised of not only commercial farming but also broadly
included input supplies, agro processing, trading, exporting and retailing
which could be segmented into component groups of:
·
Agricultural input
industry,
·
Agro industries products
(food, beverages, leather, textile, etc.),
·
Equipment for processing,
Finance, marketing and other related services.
According to Desmond and John (2009) agribusiness emphasized the interdependence of the various
subsectors within the production chain with the purpose of adding value to both
the producer and the consumer. This suggested that for agribusiness to perform
successfully in an economy, the interlink between the subsectors or component
units must be properly activated and coordinated in order to create a
continuous flow of activities, goods and services and information sharing for
the purposes of adding value to both the producer and the consumer.
The performance of agribusiness in Nigeria was very
critical to solving a lot of economic problems of Nigeria (unemployment, food
sustainability, supply of raw material input to the industries, improved
foreign exchange earnings and economic growth). These all important roles were verified
in its past capacity of creating means of livelihood for greater part of the
Nigerian population especially, the rural population among others.
According to International Fund for Agricultural Development
(IFAD, 2011), agribusiness provided jobs and food for 90% of the Nigerian rural
population, and could provide food and fiber need of the nation (Onyido, 2011).
Yumikelia et al (2011) posited that,
strong synergy existed between agribusiness agricultural performance and
poverty reduction in sub Saharan Africa (which includes Nigeria) and also that
efficient agribusiness could stimulate agricultural growth and create strong
linkages between rural smallholder farmers and agro industries. In other words,
a transformed agriculture through
linkages to market and agro industries held a tremendous promise for economic
performance and creation of employment opportunities for the teeming (Nigerian)
youth population (World Bank, 2007). The World Bank (2009) further advised that
agricultural activities should not be limited to crop and livestock production
alone, rather to proximate processing and manufacturing inorder to contribute
to output growth and poverty reduction.
The need for agribusiness performance in Nigeria was
undeniable, especially when we consider its large and unemployed youth
population, estimated at 7 million (NPC, 2013).
The performance of agribusiness was expected to
stimulate economic growth, create employment opportunities, and enhance the
livelihood of the people living in poverty, in addition to becoming a socially
inclusive strategy (Alemayahu, 2014) that would create a resilient Nigerian
economy. According to Brooks, K (2012),
the growth of agribusiness, youth employment and food security were
complementary and interlinked. In other words, if the drive propensities of the
youth was properly motivated and channeled towards agribusiness development, it
would have enhanced both food security and the performance of agribusiness.
Every sub sector of an economy had specific variables
that influenced its performance or activity. The variables ranged from social, political,
cultural practices, geophysical to macroeconomic. The combined effects of these
factors influenced agribusiness performance. However, prominent among the
factors were the effects of macroeconomic variables. This was because most
often these other variables were taken into consideration while formulating or
implementing policies. Macroeconomic policies and their outcomes could be
manipulated through appropriate planning and implementation to achieve desired
result. Macro economic variables included monetary and fiscal policies,
inflation rate, exchange rate, labor, capital, etc. Macroeconomic variables
like exchange rate, price, investment, money supply, etc could be manipulated
by the application of appropriate monetary or fiscal policies. Though, the
policy application may differ, depending if it were in a regulated or a
deregulated economy. For example, in a regulated economy, exchange rate values
were predetermined whereas in a deregulated economy forces of supply and demand
determined them. The same rule could apply to most internally controllable
factors like money supply, interest rate or taxes. However, a good policy
thrust, planning and specific strategy implementation could mitigate adverse
effects of some variables towards achieving targeted objective or goal.
Specifically, this study assessed the effects of
macroeconomic variables of real exchange rate, foreign private investment,
non-oil export, GDP, food import, capital, inflation and labor on agribusiness
performance from 1970 to 2016. It also assessed possible structural changes in
agribusiness performance during the macroeconomic regimes of regulated and
deregulated policies. The work also assessed the effect of agribusiness performance
on economic performance of Nigeria.
Nigeria has an economic comparative advantage in
agribusiness given the abundant human and material resources. Nigeria occupies
a land area of 923,768sq.kms with a wide range of agro-ecological
zones allowing for diverse crops and livestock production and 70% underemployed
working population in agriculture. (IFAD, 2009; Mccbough, 2015). About 30% of
the land was available for cultivation out of estimated 80% considered suitable
for various crops and livestock production (USAID, 2009). Agribusiness primary sector employed 2/3 of
the nation’s workforce and provided
livelihood to about 90% of the rural population, (IFAD 2011B;FAO 2010)
According to UNIDO (2010) agribusiness could play a
critical role in jump starting economic transformation of sub Saharan Africa by
developing agribusiness value chains. According to them, though agriculture
remained central to sub Saharan development agenda, it was not sufficient to
focus solely on production agriculture. Production agriculture was to be linked
to agribusiness broadly defined to include upstream and the proximate downstream
industries and this could make sub Saharan Africa competitive at the
international market.
1.2. STATEMENT
OF THE PROBLEM
Agribusiness remained a critical sector in Nigeria
economy given its multi-directional linkages with agriculture, transport
services, engineering, hospitality, and economic viability. Its role in Nigeria
economy could not be over emphasized. A performing agribusiness was capable of
forming the bedrock of the most desired diversification of the Nigerian economy.
Notwithstanding its potentials and present input into the economic performance
of the nation, there were indications of either stagnated or declining
performance at all levels of the production chain especially production
agriculture. Nigeria, a once major exporter of groundnut, cocoa, palm produce,
biggest poultry producer in Africa and other food crops became a major importer
of food (Ogen, 2003; Nwajiuba, 2012).
According to Food and Agricultural Organization (FAO) (2009),
most sub Saharan African countries, excluding South Africa agribusiness were
losing in international agricultural commodity export; while similar developing
countries like Brazil, Indonesia and Thailand exported more agricultural
products. Thailand alone with only a population of 66million people exported
more agricultural products than all sub-Saharan Africa combined; while sub
Saharan export shares were falling, their imports of many food products were
rising due to continued growth in domestic demand (UNIDO, 2011). Nigeria food
import bills stood at N33.02 billion in
2010; in 2011, the bill rose to N44.3
billion. Statistical information showed that food demand in Nigeria was at the
rate of 3.5% as against the output of 2.5% with a population growth rate of
3.18%; (Nto and Mbanasor, 2011). Many Nigerian agro products faced challenges
of international standard requirements for exports. Available statistical
information from Nigeria Bureau of Statistics indicated that the processing
industries capacity utilization operated below average, within the period under
review, because of lack of raw materials or enough foreign exchange to buy raw
materials. The Nigeria industries designs were patterned towards import
substitution (CBN, 2010). Import substitution was for the local industries to
source raw materials locally. The local source of raw material was
underdeveloped and largely subsistence and could not sustain the fiber need of
the country. The medium and large local industries rather than help develop
local raw material supplies resorted to importation of the raw materials. The oil boom of the 1970s earned Nigeria a
lot of foreign exchange and the country’s currency purchasing power parity value
became very high. One US dollar exchanged at an average of 60kobo per one US dollar
from 1970 to 1981. The apparent strength of naira, inflow of foreign exchange
and favorable balance of payment position of the economy caused Nigeria to
unconsciously undermine the initial industrialization policy and resorted to
importation of raw materials and food which were considered cheaper. The fall
of oil price in the international market drastically reduced inflow of foreign
exchange and constrained available fund for importation of raw materials. The
agro industries could no longer have enough supply of raw materials with local
source highly inadequate.
Within the period under review, various Nigerian
governments formulated and implemented macroeconomic policies to redirect
economic trend to the path of performance. They included Austerity measure,
Structural Adjustment Program, Deregulation, Guided deregulation, etc. Many
Institutions and schemes were also created. They were River Basin Development Authorities,
National Accelerated food Production (NAFP), Operation Feed the Nation (OFN),
Directorate of Food and Rural Infrastructure (DFRRI), etc. Policies were
established to encourage foreign investors to invest in various sectors of the
economy.
From 2003 to 2007, economic reform program (tagged;
National Economic Empowerment Development Strategy (NEEDS)) was introduced with
the purpose of raising the standard of living of the citizenry through a
variety of reform programs which included
macroeconomic stability packages intended to boost productivity, increased
industrial capacity utilization, etc. A United Nations sponsored long-term
economic development program (tagged Millennium Development Goals) was also
launched in 2000 to cover a 15 years
economic development plan, period (2000 – 2015). The aim again was to
reduce poverty, enhance economic stability, promote education, gender equality,
health and environmental management. National Incentive based Risk Management
System (NIRMS) was launched in 2011 with the aim of providing enough fund to
improve performance of agriculture and allied businesses. In 2014, Nigeria
Industrial Revolution Plan (NIRP) was also launched to integrate primary
productions, trade and create synergy between the various sectors to boost
Nigeria industrial development. Emphasis was placed on agro allied industries
which was considered to give Nigeria a comparative advantage.
Nigeria
was faced with the challenges of food insecurity, dwindling agricultural output
and foreign exchange earnings. The most agro allied manufacturing industries
were either closed down or operated at below the full capacity utilization.
Those that operated within average were not able to make significant impact on
the GDP. The national accounts showed
manufacturing still lagged behind its projected target and had neither earned a
meaningful foreign exchange nor expanded from the original capacity
installations. This explained why its average contributions towards GDP remained
lower than agriculture which was basically subsistence practice driven for the
greater part of the period under review.
Agribusiness enterprises faced challenges of optimal
production or performance and this had affected food supply, foreign exchange
earnings, agro-industrial manufacturing and processing, adequate labor pricing
within the industry, etc. A performing
agribusiness was adjudged a necessary driver of economic performance. However
the bottleneck to performance was yet to be traced and properly addressed if we
consider the numerous efforts made by Government without commensurate result. Addressing
these challenges required that agribusiness development should be context
specific by addressing issues of macroeconomic variables effects on agribusiness
performance and the economy. Several factors could be said to be responsible
for poor performance of agribusiness sector in Nigeria. Prominent among the
factors were the effects of the macroeconomic environment. This environment was
the interplay of the variables which influenced the outcome of any given
economic activity. Their interactions and effects to a large extent influenced
the performance of agribusiness and economic performance of Nigeria. A good
macroeconomic policy target and a robust knowledge of behavior of specific
macro economic variables effects on agribusiness and the economy were necessary
for agribusiness performance and economic growth. Several studies were carried out to determine
the effects of macroeconomic variables on the performance of production
agriculture, agro allied manufacturing, agro processing, etc. But no
information or a holistic study of the subsectors as an agribusiness sector
performance in Nigerian was available. From the available information to the
researcher, not much was known about the effects of macroeconomic variables on
the performance of agribusiness and its impact on economic performance of
Nigeria. According to Nigeria Industrial Revolution Plan (NIRP) document, it
was in 2014 that a policy to link production agriculture, through the program
of Agricultural Transformation Agenda (ATA), to agro industries as a common
value chain was proposed. This implied that, there would be paucity of
information on the effects of macroeconomic variables on performance of
agribusiness in Nigeria. According to the document, in the past, “Nigeria
incorporated its industrial plans within larger national development plan,
which might have distracted attention from the core goals of pursuing
industrialization. The national development plan addressed issues as diverse as
public sector reforms, primary education, national image, healthcare and
electoral reforms. Planning for industrialization with those national plans did
not allow for focus and reduced the intensity needed to accelerate industrial
growth within the economy”. Hence there was information gap on the effects of
macroeconomic variables on agribusiness performance and the economic
performance of Nigeria. Therefore there was the need to investigate the effects
of macroeconomic variables like Food import, Foreign Private Investment,
Capital, Real GDP, and Real Exchange Rate on Agribusiness performance in
Nigeria and the effect agribusiness had on economic performance of Nigeria. The
arising question is, whether changes in any of these variables contributed to
agribusiness performance or economic performance of Nigeria? The answer to this
question in Nigeria context was yet to be provided.
In the light of the foregoing, the present study was
articulated to analyze the effects of the specific macroeconomic variables on
agribusiness performance and economic performance of Nigeria with a view to
determine their contributions.
1.3 RESEARCH QUESTIONS
i.
What were the causal effects
of specific macroeconomic variables employed in this study on the performance
of agribusiness in Nigeria?
ii.
What were the effects of
selected macroeconomic on agribusiness performance in Nigeria?
iii.
What were the economic
structural changes in agribusiness performance under the specific macroeconomic
policy regimes of Regulated and Deregulated economy in Nigeria?
iv.
What were the effects of
agribusiness performance on economic performance of Nigeria.
1.4 RESEARCH OBJECTIVES
The broad objective of this study was to analyze the
effects of macroeconomic variables on Agribusiness and economic performance of
Nigeria.
The specific objectives include to:
i.
ascertain the causal
relationship between the macroeconomic variables used in the study and
agribusiness performance.
ii.
assess the effects of selected
macroeconomic variables on the performance of Agribusiness.
iii.
determine possible
structural changes in agribusiness performance due to economic policy of
regulated and deregulated economy.
iv.
assess the effect of agribusiness performance on
economic performance of Nigeria.
1.7
RESEARCH
HYPOTHESES
Ho1: There was no significant causal relationship
between agribusiness performance and selected macroeconomic variables used in
this study.
Ho2: There was no significant effect of macroeconomic
variables on agribusiness performance in Nigeria within the period under study.
Ho3: There was no structural difference in
agribusiness performance within the various macroeconomic regimes of regulated
and deregulated economy.
Ho4: There was no significant effect of
agribusiness performance on economic performance of Nigeria within the period
under study.
1.8
JUSTIFICATION
OF THE STUDY
Knowledge of the
effects of macroeconomic variables on performance of agribusiness and the
economy of Nigeria was fundamental to the achievement of economic wellbeing of
Nigerians. This assertion informed the need to study the macroeconomic environment that impacted on
agribusiness or economic performance. An understanding of the environment,
specifically the macroeconomic variables effects would guide policy makers and
also the executives in the formulation and implementation of economic policy
instruments that would achieve desired economic goals, especially agribusiness and
economic performance.
Nevertheless, it would also expose any interested
party to the different economic regimes of regulated and deregulated economy
that served as background influence on the macroeconomic variable effects on
agribusiness performance.
This study exposed the behavior of specific
macroeconomic variables given a specific policy regime. Thus, it made it
possible to predict their individual effects on agribusiness performance
relative to the economic environment. The study would afford researchers a priori information on the variable
characteristics and could help facilitate research work. Government at various
levels could make better economic plans and forecasting of economic trends
based on the information received from the research findings.
Governments, entrepreneurs and scholars would benefit a
lot from the findings of this work, and it would create scopes for further research
works. And also gave an on the spot assessment of contributions of Agribusiness
to the economic performance of Nigeria. The study highlighted the immense
benefits a developed agribusiness could bring to Nigeria which ranged from food
and fiber sustainability to employment and earning of foreign exchange.
1.7 SCOPE OF THE STUDY
This study examined the effects of macroeconomic
variables on agribusiness performance and economic performance in Nigeria
within the period under study. Agribusiness in this study covered agriculture
(Farming, fishing, poultry, animal rearing and forestry), manufacturing (food
processing, bakery products, sugar/cocoa confectioneries, miscellaneous food
preparation, beer and soft drinks,
leather products, leather footwear, saw milling, wood and cork products,
furniture, charcoal production, etc), hotels and restaurants food services,
import and export of agro related products. The scope however may not be
exhaustive, but had given a good coverage of agribusiness activities and major
affecting macroeconomic variables.
The period covered was 1970 to 2016. It gave a good
insight into challenges and prospects of agribusiness and economic performance
of Nigeria. The study further analyzed macroeconomic policies and the behavior
of macroeconomic variables within the period under review. It also investigated
the effects of agribusiness performance on the economic performance of Nigeria
using the period 1970 to 2016.
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