ABSTRACT
This study analyzed the effects of selected macroeconomic variables on agricultural growth in Nigeria. The study covered the period (1970-2018). The study made use of secondary data obtained from various issues of CBN, NBS and FAOSTAT (1970-2018). Data obtained were analyzed using descriptive statistics such as graphs, means, standard deviation, maximum and minimum; as well as such econometric tools as growth model, quadratic trend model, Ordinary Least Square (OLS) multiple regression technique, Vector Error Correction Model (VECM) and Granger Causality tests. Unit root test of the stationarity properties of the time series was done using ADF test approach while Co-integration among the variables was established using the Johansen System Co-integration Test. Findings showed that agricultural growth decreased in both the Pre-SAP and SAP periods. The coefficients of the time trend variable for agricultural growth in these periods were negative and statistically significant at 5% level. However, in the Post-SAP period agricultural growth showed a positive and statistically significant relationship with the time trend variable at 5% level of significance. For the entire period (1970- 2018), the coefficients of the time trend variable for agricultural growth rate was negative and statistically significant at 1% level thus indicating a decrease in agricultural growth overtime. Agricultural growth had a compound growth rate of -0.499%, -11.13%, 2.942% and -2.469% in the Pre-SAP period, SAP period, Post-SAP period and the entire period per annum respectively. Agricultural growth exhibited deceleration in the Pre-SAP and SAP periods, but exhibited an acceleration in the Post-SAP period. Overall, agricultural growth exhibited deceleration in growth between 1970 and 2018. Foreign direct investment in agriculture (FDIAt), Domestic Credit loan to agriculture (CLAt), real exchange rate (EXRt), Government capital expenditure to agriculture (GCEAt) and Interest rate on loans (INTRt) were the significant variables that determined agricultural growth in Nigeria between 1970 and 2018. The Vector Error Correction (VEC) model showed that agricultural growth was affected positively by the value of foreign direct investment in agriculture, total domestic credit loans to agriculture and agricultural import tariff and was affected negatively by real exchange rate, inflation rate and interest rate in the long run. In the short run, agricultural growth responded positively to changes in the one–year lag of the value of foreign direct investment in agriculture, total domestic credit loans to agriculture, government capital expenditure on agriculture and agricultural import tariff while real exchange rate and unemployment rate negatively affected agricultural growth. The Granger causality test shows that agricultural sector growth was preceded by government capital expenditure, foreign direct investment in agriculture and total domestic investment in agriculture. The study recommends that policies of government that encourage foreign direct investment inflow into the Country and participation of domestic investors in agricultural investments should be strengthened to ensure sustainable growth in the agricultural sector.
TABLE
OF CONTENTS
Content Page
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of contents vi
List of Tables xi
List of Figures xiii
Abstract xiv
CHAPTER
ONE: INTRODUCTION
1.1 Background of the Study 1
1.2 Statement of the Problem 14
1.3 Objectives
of the Study 18
1.4 Hypotheses of the Study 18
1.5 Justification of the Study 19
CHAPTER 2: LITERATURE
REVIEW
2.1 Conceptual Literature 22
2.1.1 Concept of Macroeconomic policies 22
2.1.2 Description
of Agricultural Monetary and Fiscal
Policies 24
2.1.3 Overview of the
agricultural finance policies in Nigeria 27
2.1.4 Schemes 27
2.1.5 Programmes 29
2.1.6 Institutions and Agencies 31
2.1.7 Challenges of Agricultural Financial Policies 35
2.1.8 Meaning
of Foreign Direct
Investment (FDI) 38
2.2 Theoretical Literature 43
2.2.1 Neo-
Classical Exogenous Growth Theory 43
2.2.2 Dependence Theory 46
2.2.3 Adolph
Wagner’s Theory of Government Expenditures 47
2.2.4
Keynesian Theory of the Influence of Monetary Policy 49
2.2.5 Theory of Inflation as a Monetary Phenomenon 52
2.3 Empirical Literature 62
2.3.1 Effects
of Macroeconomic Variables on Agricultural Growth in Nigeria 62
2.3.2 Relationship between Government Expenditure
in Agriculture
and Agricultural Growth 68
2.3.3 Impact
of Foreign Direct Investment on Agricultural Growth 70
2.3.4 Sources
of Growth in Agricultural Production in Sub-Saharan Africa 76
2.3.5 Effects
of Trade Policies on Agriculture and Economic Growth 78
2.4 Analytical
Framework 81
2.4.1 Multiple Regression Technique 81
2.4.2 Unit Root Test 82
2.4.3 Co-integration Test 83
2.4.4 Error
Correction Mechanism 84
2.4.5 Granger Causality Statistics 84
2.4.6Autoregressive Model 85
2.4.7 Spurious Regression 87
CHAPTER 3: METHODOLOGY
3.1 Study
Area 89
3.2 Types and Sources of Data 90
3.3 Data
Collection 90
3.4 Data
Analysis 91
3.4.1 Rate of Agricultural Growth within the
Pre-SAP, SAP and Post-SAP Era 91
3.4.2 Trend and Pattern of Agricultural Growth in
the Area 93
3.4.3 Effect of selected Macroeconomic Variables
on Agricultural Growth 95
3.4.3.1 Co-integration Test 98
3.4.3.2 Error Correction Mechanism 99
3.4.3.3
Causal Relationship between Government Expenditure on
Agriculture and Agricultural
Growth. 100
3.4.3.4
Causal Relationship between Foreign Direct Investment in Agriculture
and Agricultural Growth. 101
3.4.3.5
Causal Relationship between Total Domestic Investment in
Agriculture and Agricultural
Growth. 102
3.5 Test of Hypotheses 103
CHAPTER
4: RESULTS AND DISCUSSION
4.1 Summary
Statistics of the Variables Used in the Study 104
4.1.1.
Trend of Agricultural Growth in Nigeria Since1970-2018 109
4.1.1.1Agricultural
Growth Rate Pattern in the Pre-SAP era (1970 -1985) 110
4.1.1.2 Agricultural Growth Rate
Pattern in the SAP era (1986 -1994) 112
4.1.1.3 Agricultural Growth Rate
Pattern in the Post-SAP era (1995 -2018) 113
4.1.1.4 Agricultural
Growth Rate Pattern 1970 -2018 115
4.2
Rate of Agricultural Growth in Nigeria Since1970-2018 121
4.3 Effect of Selected Macroeconomic Variables
on Agricultural
Growth in the Country 125
4.3.1 Preliminary
Tests (Stationarity and Cointegration Tests) 125
4.3.1.1
Stationarity Test 125
4.3.1.2
Cointegration Test 127
4.3.2 Determinants
of Agricultural growth in Nigeria (1970 – 2018) 132
4.3.3 Vector error correction
model of the long-run and short-run effect
of the Selected Macroeconomic Variables
on Agricultural
Growth in Nigeria. 137
4.4 Causal
Relationship Between Government Expenditure On
Agriculture and Agricultural Growth In
Nigeria (1970-2018) 141
4.5
Causal Relationship Between Foreign Direct Investment
in Agriculture and Agricultural Growth in the Country 144
4.6 Causal
Relationship Between Domestic Private Investment In Agriculture
and Agricultural Growth In The Country 146
4.7 Confirmation
of a Priori Expectations 148
CHAPTER 5: SUMMARY, CONCLUSION AND
RECOMMENDATIONS
5.1 Summary 149
5.2 Conclusion 151
5.3 Recommendations 153
5.4 Contribution to
Knowledge 154
REFERENCES
LIST OF TABLES
Table Pages
2.1 Budgetary Allocation to Agriculture (N
billion), 1990-2002 34
4.1: Summary statistics of the variables used
in the study (1970 -2018) 104
4.2:Estimated
trend equations for Agricultural growth in Nigeria (1970 -2018) 117
4.3: Compound rate
of growth of agricultural growth in the Pre-SAP, SAP and Post-SAP periods in Nigeria. 120
4.4: Estimated quadratic equations in time
variables for agricultural
growth rate at various periods in Nigeria (1970 -2018) 121
4.5: Augmented Dickey-Fuller (ADF) tests for integration for
Agricultural growth
(Determinants) 126
4.6: Unrestricted Johansen system
Cointegration Rank Test (Trace Test) 128
4.7: Unrestricted Cointegration Rank Test
(Maximum Eigenvalue Test) 129
4.8: Cointegration test of the OLS regression
residual using ADF test Approach 131
4.9: Cobb-Douglas ordinary
least square regression estimateof the
determinants of agricultural growth in
Nigeria (1970 -2018) 132
4.10: Result of the parsimonious Error Correction Model
of the long-run and short-run
effects of selected macroeconomic variables on agricultural growth in
Nigeria (1970 -2018) 138
4.11: Pairwise Granger
Causality tests of the relationship between government expenditure on agriculture and
agricultural growth in Nigeria (1970 -2018) 142
4.12: Pairwise Granger
Causality tests of the relationship between foreign
direct investment in agriculture and
agricultural growth in
Nigeria (1970 -2018) 144
4.13:Pairwise Granger Causality test of the
relationship between
domestic investment in agriculture and agricultural growth
in Nigeria (1970-2018) 146
4.14: Confirmation of a priori
expectations 148
LIST OF FIGURES
Figure Page
2.1 IS-LM
Intersection 50
2.2
Expansionary Monetary Policy 50
2.3 Expansionary Fiscal
Policy 52
2.4 Cost Push Inflation analysis
Diagram
2.5 Real GDP 56
2.6 Demand Pull Inflation Analysis Diagram 57
2.7 Real GDP 59
2.8 Real GDP 59
2.9 Agric.GDP growth vs Crop
production and Livestock 63
2.10 Sources of growth in agricultural production by country income
group,
1961-2010 77
4.1 Trend in Agricultural growth
in Nigeria 1970-1985 110
4.2 Trend in Agricultural growth
in Nigeria 1986-1984 112
4.3 Trend in Agricultural growth
in Nigeria 1995-2018 114
4.4 Trend in Agricultural growth
in Nigeria 1970-2018 116
CHAPTER 1
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
In spite of the predominance
of oil and gas sector in Nigeria, the agricultural sector still remains a
source of economic resilience in the Nigerian economy and as such its growth
needs to be promoted (Bekun,2015).Agriculture is one of the
leading sectors in the country in terms of its contributions to income,
employment and domestic food supply (Sertoğlu,K., Urugal, S. and
Bekun, F.V. 2017), it is also, a means of providing the nation’s industries
with local raw materials, a reliable
source of government revenue and a regenerative source of foreign exchange
earnings (World Bank, 2014). Agriculture, major driver of non-oil sector (Central
Bank of Nigeria, 2018), with a growth of 3.06% contributed to the growth rate
of real Gross Domestic Product (GDP) by
1.40% recorded in third-quarter of 2017 (FSDH Merchant Bank Research Report, 2018).
According to
Aderibigbe, S., Olomola and Manson Nwafor
(2018) record shows that agriculture is one of the main sectors driving
the economic recovery process; others are oil and gas, manufacturing and trade.
Of these four sectors, however, only agriculture has a persistently positive
growth rate. Its growth rate stood at 4.53 percent in the second quarter of
2016, 3.39 percent in the first quarter of 2017 and 3.01 percent in the second
quarter of 2017. Although growth in agriculture was positive throughout the
recession, the sector has been growing at a decreasing rate. Nonetheless,
agriculture witnessed a relatively improved performance in terms of its
contribution to GDP. As expected, services continued to have the lion share;
being 54.80 percent in the second quarter of 2016; 55.67 percent in the first
quarter of 2017 and 53.73 percent in the second quarter of 2017. It is followed
by industries whose share rose gradually from 22.65 percent in the second quarter of 2016; to 22.90 in the first
quarter of 2017 and 23.31 percent in the second quarter of 2017; while
agriculture’s share is the lowest; fluctuating from 22.55 percent in the second
quarter of 2016 to 21.43 percent in the second quarter of 2017. In 2013, the sector’s
contribution to the growth in nominal non-oil GDP decreased from 5.49 per cent
to 3.10 per cent. (CBN, 2013).
Ogbalubi and Wokocha,
(2013), posited that agriculture is considered a catalyst for the overall
development of any nation .Agriculture reduces unemployment as it drives
industrialization and economic development of any developing country. Olaokun
(1979) explained that agriculture is a source of food for the populace and raw
materials for the industrial sector .In his assessment agriculture creates more
employment opportunities, reduces poverty and improves income distribution,
speeds up industrialization while reducing the pressure on balance of payment.
Moses, E. and Michael, O. (2015) have posited that
the agro-industrial enterprises depend on the sector for raw materials while
88% of the non-oil export earnings come from the sector, so it remains the
leading employment sector of the vast majority of the Nigerian population as it
employs two-third of the labour force .If the agricultural sector is developed a
developing country can move from stagnation to self-sustained growth Fei-Ran
(2008).
According
to Obasaju, Barnabas
Olusegun, Oloni, Funlayo Elizabeth, Obadiaru, Eseosa David and Rotimi Matthew
Ekundayo (2014) Nigeria’s
agricultural sector became a victim of policy discrimination after the huge oil
discoveries. Important production factors like labour and capital fled to
construction, manufacturing, mining and services as a result of this
discrimination Agricultural research, analysis, and evaluation were only
modest. In-depth knowledge and understanding of the technical issues within the
public sector were lacking. When policies are formulated they often have
unintended and unpredictable effects on the agricultural sector and major
players usually have little considerations in structuring and forming the
policies. Schiff and Valdes ( 1998) have asserted that developing countries
might face a delay in agricultural
growth as a result of price intervention
through trade, exchange rates and other macro-economic variables.
The main reason for the decrease and slow
growth of agriculture in Nigeria is poor policy formulation and implementation
(Fasminrin and Braga,
2009). Macroeconomic policies play significant roles in stimulating the growth
of the sector, and the policy outcomes vary greatly depending in
part on the policy targets and instruments used (Agu, 2007). (Olarinde and
Abdullahi, 2014) have posited that low and predictable inflation rate, an
appropriate real interest rate, a stable and sustainable fiscal policy, a
competitive and predictable real exchange rate and a viable balance of payment are five conditions that are necessary to make
a macroeconomic framework conducive to stimulate agricultural growth.. Important
macroeconomic variables such as gross capital formation and foreign direct
investment are also essential in determining growth and
development of agriculture.
Victor and Samuel (2018)
have posited that agricultural crops dominated the export
sector in Nigeria before and immediately after the discovery of crude oil.
Despite the huge contribution by crude oil to
government revenue, it only accounts far below 25 percent of Real Gross
Domestic Product (Solomon and Abiodun, 2013).
Agricultural sector performance in Nigeria
was shrinking due to macroeconomic policy distortions (Ukoha, 1999). By mid-1970’s
Nigeria’s agriculture started to experience problems, agricultural exports
began to decline and food shortages started emerging.
Abiodun and Solomon (2010) have asserted that agricultural exports of crops like cocoa,
rubber, palm produce, groundnut etc. declined considerably. According to them it
dropped from an average of 72 percent during the 1955 and 1969 period to 35
percent in the early 1970s. (Usman, 2010) has posited that the high level of
domestic demand for agricultural produce leaves little for exports. (Usman, 2010)
was also of the view that the exports of agricultural produce fell from 63.00
percent in the 1960s to 28.92 percent and 20.15 percent in 1974 and 1979 periods.
(Solomon and Abiodun 2013) also posited that the contribution of agriculture to
non-oil exports declined from 64.90 percent between 1970 and 1975 period to
25.60 percent between 2001 and 2008. The consequence of this phenomenon was that,
owing to the reduced competitiveness of agriculture, Nigeria began to import
some of those agricultural products it formerly exported and other food crops
that it had been self-sufficient in. (Ajuwon and Ogwumike 2017) have asserted that
the major challenge hindering the performance of the Nigerian agricultural
exports is not limited to the concentration on mainly the oil sector, but the
loss of market share of agricultural products from Nigeria to both emerging and developed economies (Adebiyi
Daramola, Simeon Ehui, Emmanuel Ukeje and John McIntire (2005) were of the
opinion that the major cause of the decline in agricultural exports was the oil
price shocks of 1973–74 and 1979, which resulted in large inflows of foreign
exchange and neglect of the agricultural sector. They asserted that the consequence of this
phenomenon was that, owing to the reduced competitiveness of agriculture,
Nigeria began to import some of those agricultural products it formerly
exported and other food crops that it had been self-sufficient in. They posited that between 1970 and 1982,
Nigeria lost over 96.6 per cent of her exports in nominal terms; domestic food
production also declined substantially, causing the food import bill to attain
a high of about $4 billion in 1982. They
revealed that the astronomical increase in imports was financed by oil
revenues, which ensured positive current account balances in 1979 and 1980. (Daramola, 2004) has posited that
almost all Nigeria’s agricultural exports still go to the European Union, and
almost in its primary form. He asserted that the agricultural sector suffered
serious discrimination and neglect from successive administrations, and no
spirited or coordinated efforts to revitalize or resuscitate the sector were
made until 1999 when a new civilian administration headed by Obasanjo embarked
on far- reaching reforms. (Bakare, 2011) has observed that as agricultural exports shrank from the
traditional 12-15 commodities of the 1960s, Nigeria became a net importer of
basic food stuff she formerly exported. He however predicted that since Nigeria
has embraced macroeconomic adjustment and deregulation, the macroeconomic
environment will have a strong influence on the overall viability of
agricultural performance and the effects of agricultural policy
Egbuna (2008) posited that over the past two or
three decades, the dominant role of agriculture in the economy, especially in
terms of ensuring food security cannot be overemphasized. Nigeria is a net importer of some core food
commodities. Such commodities include rice, sugar, wheat flour, fish, milk,
etc., (Vaughan, Afolabi, Oyekale and Ayegbokiki, 2014). This is a clear sign
that the agricultural sector needs more attention to keep pace with the demand
for its products. Imports
to Nigeria advanced 15.7 percent year-on-year to NGN 949.3 billion in September
of 2018 from NGN 820.5 billion in the same month a year earlier, mostly due to
higher purchases of agricultural goods (11.4 percent) and manufactured goods
(27.8 percent). The most important import partners were: South Korea (29.1
percent of total imports), China (14.2 percent), Netherlands (11.6 percent),
Belgium (7 percent) and the US (5.4 percent.) Imports in Nigeria averaged
201097.41 NGN Millions from 1981 until 2018.The highest import of 1554732.90 NGN Millions was recorded in
March of 2011 while the lowest of 167.88
NGN Millions was recorded in May of 1984, (Trading economics 2018).
In
Nigeria, agricultural export has played an important role in economic
development. It has provided the needed foreign exchange earnings for other
capital development projects. Agricultural export commodities contributed well
over 75% of total annual merchandise exports in 1960 according to Ekpo and
Egwaikhide (1994). They observed that Nigeria ranked very high in the production and
exportation of some major crops in the world in the 1940s and 1950s and posited
that Nigeria was the largest exporter of
palm oil and palm kernel, ranked second to Ghana in Cocoa and occupied a third position
in groundnut. Olayide and Essang (1976) had noted that Nigeria’s export earnings from
major agricultural crops contributed considerably to the Gross Domestic Product
(GDP). Ekpo and Egwaikhide (1994) had
also observed a long-term relationship between agricultural exports and
economic growth in Nigeria.
Exports
are an important driver of economic growth at the macroeconomic level. There is
strong empirical evidence of a positive relationship between firm-level productivity
and exports at the microeconomic level.
The major
agricultural exports produced in Nigeria consists of cocoa beans, rubber, fish/shrimp and cotton
(Adebiyi et al., 2005) but as at 2018
Nigeria’s top agricultural exports in the third quarter of 2018 were Cashew
nuts which brought in N9.85 billion, followed by Sesamum seeds (N9.0 billion)
and Superior quality raw cocoa beans which brought in N7.6 billion.
The prices
of Nigeria’s major agricultural export commodities were generally depressed in
the international commodities market. Agricultural
exports in Nigeria were a direct victim of, firstly the civil war and later the
oil boom. Growth in agricultural export earnings in recent decades has merely
been a price effect, with little output effect even when allowance is made for
time lags in output changes relative to price changes. The latter effect is
what is required to give real sustained growth in agricultural export (World
Bank, 2006).
Although
according to the CBN (2005), the agriculture sector has been growing at between
5.5 per cent and 7.5 per cent in the last five years, improvement of R&D
investment in agricultural research; (ii) improvement of markets,
infrastructure and institutions;(iii) improvement of irrigation capacity and
(iv) strengthening of the agricultural input supply systems will go a long way
to improving agricultural growth and exports ( World Bank, 2006a). Evidence suggests that agricultural exports
have grown since 2010; but growth seems to be reducing during the two years of
the post-Malabo era. Agricultural exports as a ratio of agricultural GDP fell
from 3.23 percent in 2015 to 3.01 percent in 2016; The average agricultural export in
2011/2013 was 4.46 percent but it
dropped to 2.89 percent in 2014/2016 .
NOTE: Overview on the CAADP, the 2003 Maputo
and particularly 2014 Malabo Declarations(Malabo Declaration on Accelerated
Agricultural Growth and Transformation for Shared Prosperity and Improved
Livelihoods 2014) established by the AU Assembly of Heads of State and
Government through the Maputo Declaration in 2003,the African Union
Comprehensive Africa Agriculture Development Programme (CAADP) was developed to
improve food security and nutrition and increase incomes in Africa’s largely
agriculture based economies. The CAADP is a pan-African framework that provides
a set of principles and broadly defined strategies to help countries:
Ø
Critically review their own situations and identify investment opportunities
with optimal impact and returns. CAADP champions reform in the agricultural
sector, setting broad targets 6% annual growth in agricultural GDP.
Ø
An allocation of at least 10% of public expenditures to the agricultural
sector. In the CAADP, Africa as a
continent has recognized that enhanced agricultural performance is key to
growth and poverty reduction through its direct impact on Job creation and
increasing opportunities, especially for women and youth.
Ø
Food security and improved nutrition and strengthening resilience. The
2014 Malabo Declaration made seven specific commitments to achieve accelerated
agricultural growth and transformation for shared prosperity and improved
livelihoods: 2014 Malabo Declaration – seven specific commitments1.Recommitment
to the Principles and Values of the CAADP Process2.Recommitment to enhance
investment finance in Agriculture.
Ø
Uphold 10% public spending target·Operationalize the African Investment
Bank3.Commitment to Ending Hunger by 2025.
Ø
At least double productivity (focusing on Inputs, irrigation,
mechanization).
Ø
Reduce PHL at least by half.
Ø
Nutrition: reduce and underweight to 5% and stunting to 10% Commitment
to Halving Poverty, by 2025, through inclusive Agricultural Growth and
Transformation.
Ø
Sustain Annual sector growth in Agricultural GDP at least 6% Establish
and/or strengthen inclusive public-private partnerships for at least five (5)
priority agricultural commodity value chains with strong linkage to smallholder
agriculture.
Ø
Create job opportunities for at least 30% of the youth in agricultural
value chains.
Aderibigbe and Manson (2018) have noted that
agricultural export performance is far below the set target of 9% for 2016 in
the Economic recovery and Growth Plan (ERGP) .
These
have resulted in fallen incomes and devalued standard of living amongst
Nigerians they asserted. Anyanwu and Erhijakpor ( 2004) has posited that the
economy of Nigeria is plagued by excessive dependence on imports for
consumption and capital goods, dysfunctional social and economic
infrastructure, unparalleled fall in capacity utilization rate in industry and
neglect of the agricultural sector, among others.
Even
the introduction of Structural Adjustment Programme (SAP) in 1986 to tackle
these problems no notable improvement has taken place. Nigeria was a middle
income nation in the 1970s and early 1980s, but today Nigeria is a poor
country. Against this backdrop the question is: does the agricultural sector
has impact on the economic growth of the nation in view of the Vision 20:2020?
According
to CBN (2013) report agricultural sector’s contribution to the
growth in nominal non-oil GDP decreased from 5.49 per cent to 3.10 per cent
implementation. Fasminrin
and Braga (2009) identified the main reason for the
decrease and slow growth of agriculture in Nigeria as poor policy formulation. Macroeconomic policies play significant roles
in stimulating the growth of the agricultural sector and
the policy
outcomes vary significantly depending in part on the policy targets and
instruments used (Agu, 2007).
Macroeconomic
policies comprises trade policies, fiscal, monetary and exchange rate regimes that
determine production outcomes in the real sectors and other sectors including
the agricultural sector. There are five circumstances which together entail
that a macroeconomic framework is favorable to encourage agricultural growth. These are: low inflation rate, an appropriate
real interest rate, a steady and sustainable fiscal policy, a competitive real exchange rate and a viable balance of
payment, (Olarinde and Abdullahi, 2014).
Macroeconomic variables such as gross capital formation and foreign direct
investment are also important in determining growth and
development of agriculture.
Nigeria’s agricultural policies can be
examined from three policy regimes:
a) The Pre-SAP regime (1970-1985)
b)
The SAP regime (1986-1994)
c) The Post SAP regime (1995-2018)
The
Pre-SAP regime: This era was characterized by a change of policy from minimal
government intervention in the agricultural sector. During this regime Fiscal
Policy, Monetary Policy and Trade Policy were launched. These fell under the group of macro-economic
Policies
Fiscal
Policy: Under this regime attention was only focused on budget, taxation and
wage Under budget, budgetary allocation to agriculture was substantially
increased to take care of both capital
and recurrent expenditures. During this period the capital expenditure on agriculture
declined from 6.2 percent of total capital expenditure by the federal
government in 1973 to 4.0% in 1985. State
government expenditure followed similar trend for the period under review.
As
regards tax policy, a policy of income tax reliefs on incomes from new
agricultural enterprises was pursued .A wage structure that was unified was
also put in place for all public sector workers.
Monetary
Policy: A concessionary interest rate on agricultural loans was put in place; a
maximum of 6 percent per annum, which was raised to 9 percent per annum. In
1973 the Nigerian Government established ‘The Nigerian Agricultural and
Cooperative Bank’ (NACB) to facilitate the grant of credit to Nigerian farmers.
There was also a directive from the Central Bank that a minimum of 6 percent of
commercial and merchant bank loans must go to the agricultural sector. This
percentage was later raised to 12 percent. Rural Banking Scheme was launched in
1977 and Agricultural Credit Guarantee Scheme (ACGS) in 1978.
Trade Policy : Export duties on scheduled export crops
was abolished in 1973 by the Nigerian Government in order to promote
agricultural export trade The Policy liberalized imports with respect to food, agricultural
inputs, agricultural raw materials ,agricultural machinery and equipment. From
1972-1973, Nigeria developed the National Accelerated Food Production Programme
(NAFPP). The purpose of setting up the policy was to increase food production
and achieve food security, eliminate rural and national poverty.
This programme however failed to achieve its objectives.
Obasanjo as
military Head of State created Operation Feed the Nation (OFN) in 1976 in an
attempt to achieve food security. That policy collapsed four years later
and also did not achieve its set goals. Shehu Shagari-led administration
launched “The Green Revolution Programme” (GRP) in 1981 targeted at ensuring
self-sufficiency in food production and also to introduce modern technology
into the Nigerian agricultural sector.
The programme also tried to introduce modern methods of
farming such as high yielding varieties of seeds, fertilizers, tractors, etc.,
in order to boost the agriculture sector. This programme was not a success and
it was discontinued two years after.
Gen Muhammadu Buhari introduced ‘The Back to Land
Programme’ in 1984. The programme
aspired to implement a policy that will encourage massive agricultural food
production and also alleviate poverty, but like those before it, the programme
failed two years after.
The SAP Regime (1986-1994): The Federal Ministry of
Agriculture, Water Resources and Rural Development produced an agricultural
policy for Nigeria in 1988 which was decreed by the Federal Government to be
“operational” for at least the next fifteen years. The document embodied the
following among other policies:
· Agricultural sector
policies and strategies on food crop, livestock and fish production, industrial
raw material(crop and by-products) production, forest products and wildlife;
and
· Policies on support
services such as agricultural extension, technology development and transfer ,agricultural
credit ,agricultural insurance ,agricultural produce marketing and commodity
storage and processing ,agricultural research, agricultural cooperatives and
resources ,pest control ,agricultural mechanization, water resources
development rural infrastructure, agricultural statistics and data bank ,agricultural
investment and management advisory services and agricultural manpower
development and training.
Directorates
of Food, Roads and Rural Infrastructure (DFRRI), 1986 to 1993. This agency
adopted an integrated approach to rural development. The philosophy recognized
that increased food production was tied to development of rural economic
infrastructure. Budget allocation to DFRRI was as high as N1 billion in 1988 from
N433 million in 1986 when it was introduced.
Nigerian
Agricultural Insurance Corporation (NAIC), 1987 to date. This corporation was
established to provide insurance cover for farming and farming related
activities. The indemnity paid in the event of occurrence of a risk insured
against helps in swinging the farmer back to business.
People’s
Bank of Nigeria, (1990). This Bank is no
more but before it was merged with FEAP NACB to form NACRDB in 2002 now (BOA)
its mandate was to target self-help groups with credit for micro and small
businesses.
National
Agricultural Land Development Authority – 1991 to open up more areas for agricultural
production with supporting credit. To achieve these schemes, programmes, and
institutions, the government over the years made budgetary allocations to agriculture
which when compared with the total budget, fall short of meeting policy
intentions. For instance during the first to third (1962 to 1980) development
plan periods, the federal government budgeted N3.57billion but only N2.41
billion was actually released for the sector(Federal Department of Agriculture,
National Development Plan, 1992). The
record also showed that in the first Plan, 11.6 percent of the budget was
allocated to agriculture but only 9.8 percent was released, in the second Plan
9.9 percent was budgeted but 17.7 percent was in fact spent and in the third
plan 7.2 percent provision was made and 7.1percent of this amount was released
for the period.
In 1986 Nigeria reduced subsidies on some agricultural
inputs and abolished marketing boards.. This resulted into reduction in
utilization of fertilizers and consequently in the output of food crops. Ayinde,
Adewunmi, Nmadu, Olatunji and Egbugo (2014) have recommended that Government of
West African countries especially Nigeria and cocoa farmers should learn from
the price stabilization mechanism of marketing board era but its exploitative
factors should not be emulated to allow the farmers to experience and reap the
benefits of higher output. With respect to marketing, different policies were
introduced such as trade liberalization, export promotion, backward
integration, agricultural investment promotion, etc. in order to boost and
diversify the country’s export base.
The
Post SAP Regime (1995-2018): In Nigeria, the government has
instituted various institutions, policies and laws aimed at encouraging foreign
direct investment. In 1995, the Nigeria Government under Gen. Sanni Abacha
established the Nigeria Investment Promotion Commission (NIPC); which provides
for a foreign investor to set up a business with 100% ownership which must be
registered with the Corporate Affairs Commission (CAC) following guidelines of the provisions of the
Companies and Allied Matters Decree of 1990. Foreign investments are guaranteed
against Nationalization and expropriation by the government by the Decree
establishing the Commission. Previous Decrees like the Industrial Development
Coordination Committee (IDCC) Decree No 36 of 1988 and the Nigeria Enterprise
Promotion Decree (NEPD) of 1972 as amended in 1977 and 1989 hitherto, reserved
for Nigerians the ownership of certain businesses but the NIPC repealed them. (Umah,
2007) noted that NIPC liberalized the operations of Foreign Exchange Market
immediately it replaced Exchange Control Act of 1962.
Gen. Abdulsaalam’s Government established the
Abuja Stock Exchange in 1998. This was later changed to Abuja Securities and
Commodity Exchange in 2003 and was given the mandate to trade in agricultural
products and solid minerals among others.
President Goodluck
Ebele Jonathan also came with the Agricultural Transformation Agenda (ATA) from
2011-2015. This was aimed at making
agriculture work for rural farmers so that it could be an income generating
commercial activity. President Buhari introduced Agriculture Promotion Policy
in 2016 to last till 2020. The dream of the Buhari administration for
agriculture is to work with relevant stakeholders to establish an agribusiness
economy capable of delivering sustained prosperity by meeting domestic demand
for food, generating exports, and supporting enduring income and job growth.
The current policy regime is founded on the principles of
practicing agriculture as a business, agriculture as key to long-term economic
growth and security, food as a human right, value chain approach, and
prioritization of crops among several others.
1.2 STATEMENT OF THE PROBLEM
Agriculture
is an essential sector of the Nigerian economy, supplying the food needs of the
citizenry and raw material needs of the industries. Series of macroeconomic
policies have been introduced by the Nigerian government aimed at improving the
performance of the agricultural sector. Agu (2007) has pointed out that
macroeconomic outcomes vary greatly depending in part on the policy targets and
instruments used. Iganiga and Unemhilin (2011) have asserted that the growth
and development of any nation depend to a large extent, on the development of
agriculture. Regrettably, most of the formulated policies
often have unintended and unpredictable effects on the agricultural sector. In
some cases, the policies decrease the performance of the sector. CBN (2009) reported
that the sector fell from 48% of GDP in 1970 to 20.6% in 1980. The share of agriculture’s contribution to
GDP declined from 42.20% in 2007 to 40% in 2010 and to a more worsening rate of
32.7% in 2011 and the sector’s contribution to the growth
in nominal non-oil GDP decreased from 5.49 per cent to 3.10 per cent in 2013
(Central Bank of Nigeria, 2013). The
decline in output and contribution to other sectors resulted in shortage of
food and raw materials for the industrial sector. At international level, the
corresponding effects are decline in agricultural export and foreign exchange
earnings.
Generally, the instability in performance of
the sector may be attributed to a variety of factors such as the neglect of
agricultural sector following the increased oil revenues in the early 1970s and
under-funding leading to weak performance of the institutional support
framework in the sector. The structural Adjustment Programme (SAP) that was
introduced in 1986 underestimated the consequences of deregulating the interest
rate structure and the contraction in government spending. The deregulated
interest rates placed enormous burden on farmers in accessing credits from
financial institutions and other credit agencies. The monetary restraint policy
of the Central Bank through Monetary Policy Rate (MPR) and Cash Reserve Ratio
(CRR) directly or indirectly affects the lending capacities of financial
institutions and the borrowing capabilities of farmers. The monetary policy
instruments if well utilized stabilize the economy in the short-run and induce
the emergence of a market-oriented financial sector by influencing the cost and
availability of credit. An expansionary monetary policy reduces the cost of
credit, encourages farmers to borrow from financial institutions, boosts
investments in agriculture and increases output. The reverse holds if
restrictive monetary policy is pursued, and in most cases credits are advanced
at a distortion rate which worsens the growth in output because of its
disincentive-effect, hence making it difficult and inaccessible.
Monetary authority’s policy that devalues the
country’s currency as a strategy for achieving a favourable balance of payment
to improve net export and discourage import, has slowed down the performance of
agricultural sector in the country. In the short-run, the increase in the
nominal official exchange rate (Naira to US Dollar) constrained importation by
depreciating the domestic currency (Naira) against appreciating US dollar.
Disappointingly, in the long-run, the reduced importation decreases the supply
of major agricultural inputs such as machinery, improved and high yield seed,
chemicals, fertilizer, etc., which aid large-scale production, and consequently
reduces food production. As a result of this, Oji-Okoro, et al., (2014) asserted that one of the ways the Nigerian
government will improve agricultural production is to source for funds through
foreign direct investment (FDI), which is one of the major international
capital inflows into the country.
Several authors such as Idowu and Ying
(2013); Ajuwon and Ogwumike (2013) and others argued that the level of foreign
direct investment attracted to the agricultural sector is small, and dropped by
-23.75% in 2016 (Onakoya, 2018), and
does not have a complimentary long-run relationship with agricultural output.
This could be linked to foreign investors’
malpractices, particularly through transfer
price mechanism; foreign producers’ control of the sector with
crowding-out effect of domestic producers; and implantation of inappropriate
technology as reported by Aremu (2005). The foreign investors’ malpractices and
interest in agricultural land in Sub-Saharan Africa, Nigeria inclusive, after
the 2008 food crisis, is now a global issue commonly referred to as “land grabs”.
No matter how good literatures may align the activities of these foreign
investors, their hidden foreign interests which are not always accounted for,
may have negative effect on the domestic production and hence the growth of
agriculture in the host countries. As a result, Adegbite and Owulabi (2007)
warned that developing countries, Nigeria inclusive,
should depend greatly on domestic investment rather than foreign direct
investment.
The policy changes driven by these
macroeconomic variables have substantial effects on agricultural growth.
Therefore, this study aims at analyzing the effect of selected macroeconomic
variables on agricultural growth in Nigeria (1970-2018).
The following research questions emanate from
the issues raised above and the resolve on how to close this gap forms the
broad objective of this study.
i. What is the
trend of agricultural growth since 1970-2018?
ii. What is the
rate of agricultural growth in Nigeria since 1970-2018?
iii. What are the
effects of selected macroeconomic variables on agricultural growth in Nigeria
for the period 1970-2018?
iv. What is the
causal relationship between government expenditure on agriculture and agricultural
growth in Nigeria for the period 1970-2018?
v. What is the
causal relationship between foreign direct investment in agriculture and agricultural
growth in Nigeria for the period
1970-2018?
vi. What is the
causal relationship between domestic private investment in agriculture
and agricultural growth in Nigeria for the period 1970-2018?
1.3
OBJECTIVES OF THE STUDY
The broad objective of the study was to
analyze the effects of selected macroeconomic variables on agricultural growth
in Nigeria (1970-2018). The specific objectives were to:
i.
ascertain the trend of agricultural growth in Nigeria from 1970-2018;
ii.
determine the rate of agricultural growth in Nigeria from 1970-2018;
iii.
determine the effect of selected macroeconomic variables on agricultural
growth in the study area for the period, 1970-2018.
iv.
determine the causal relationship between government expenditure on
agriculture and agricultural growth in the study area for the period, 1970-2018
v.
determine the causal relationship between foreign direct investment in
agriculture and agricultural growth in the study area for the period 1970-2018,
and
vi.
determine the causal relationship between domestic private investment in
agriculture and agricultural growth in the study area for the period 1970-2018.
1.4 HYPOTHESES OF THE STUDY
The following
hypotheses were tested:
i.
There is stagnation in agricultural growth in Nigeria from 1970 to 2018.
ii.
Agricultural growth in Nigeria is negatively influenced by some selected
macroeconomic variables such as, exchange rate, interest rate,
inflation rate and positively influenced by government expenditure on
agriculture, gross
fixed capital formation, foreign direct investment, unemployment rate, import tariffs, and credit loans to
agriculture.
iii.
There is no causal relationship between government expenditure on
agriculture and agricultural growth in Nigeria, and
iv.
There is no causal relationship between foreign direct investment in
agriculture and agricultural growth in Nigeria.
v.
There is no causal relationship between total domestic private
investment in agriculture and agricultural growth in Nigeria.
1.5 JUSTIFICATION
OF THE STUDY
The
period 1970-2018 spans two interregna-military and civilian. The trend of
agricultural growth will show the contribution of agriculture to GDP during the
military and civilian administrations. The trend will reveal whether increase
in GDP came from agriculture or some other sectors. The finding will be of
great benefit to students, researchers, economic planners and policy makers.
Different Governments of Nigeria have rolled out many agricultural policies
from 1970-2018. These policies can be departmentalized into Pre-SAP, SAP and
Post-SAP periods. To determine the rate of agricultural growth in the different
policy regimes will be of great benefit to policy makers, economic planners,
statisticians, researchers, development partners and students for comparison.
Agriculture is a source of basic food supply with which a nation can feed its
teeming population (World Bank, 2014), and in order to meet the demand of the
rising population in developing countries, Nigeria inclusive, almost 50 percent
more food, feed and biofuel need to be produced than these countries did in
2012 (FAO, 2017).
Several macroeconomic policies have been
implemented by series of governments in Nigeria, and still the food and raw
material needs of her citizens and industries are yet to be met. Organization
for Economic Co-operation and Development (OECD, 2018) has pointed out that many present food and agricultural
policies are ineffective in increasing global production and improving global
food security. This therefore calls for an urgent need to analyze the
macroeconomic variables or policy instruments used by these governments in
order to determine what made these policies not to achieve the targeted
objectives. The main reason why most of
the policies undertaken by the Governments came to naught in achieving the
targeted improvements in agriculture in the country.
The Nigerian Government has established
schemes, programmes and institutions in order to help her make good
agricultural financing policies .It therefore becomes imperative to unravel the
causal relationship between government expenditure on agriculture and
agricultural growth .This revelation will be of immense benefit to policy
makers to judge whether the formulated policies have been able to achieve their
set targets or not. The CBN introduced the Investors and Exporters window in
2017.This initiative inspired confidence from the foreign investors leading to
an increase in foreign capital inflows .It therefore becomes necessary to
determine the causal relationship between foreign direct investment in
agriculture and agricultural growth in Nigeria. The finding will be of immense benefit
to policy makers, farmers and researchers alike. It will enable policy makers
to know the effect of the ‘Investors and Exporters initiative’. Many developing nations including Nigeria are
known for having limited financial
resources. Foreign direct investment is
seen as a base of closing the gap in order to foster development and growth in
agriculture. Nigeria qualifies to be a major recipient of Foreign Direct
Investment (FDI) in Africa, and is one of the top three leading African
countries that received FDI in 2014 as reported by Loewendahl (2015), and has attracted several FDI over the
years. Ajuwon and Ogwumike (2013) reported that the level of FDI
attracted especially to agriculture is small. Owutuamor and Arene (2018) on the
other hand reported that the effect of FDI on agricultural growth is masked by
other macroeconomic variables. No matter how little the FDI in agriculture is,
it is still important to determine the effect it has on agricultural growth so
as to know whether to encourage or discourage the continuous inflow of FDI into
agriculture in Nigeria. This will also determine whether capital movement in
the form of foreign direct investment has a positive multiplier effect on the
economy or not. Therefore, this study was conducted to provide empirical
evidence that will benefit the policymakers, stakeholders and development
partners in agriculture in formulating and implementing policies using the
right policy instruments that will ensure growth in agriculture, and improve
the country’s agricultural sector.
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