ABSTRACT
The study investigated the impact of capital flight and external debt servicing on agribusiness sector performance in Nigeria from 1970 to 2018. Agribusiness sector performance was measured by total contribution of agriculture output to aggregate gross domestic product of Nigeria while capital flight was measured by the residual method proposed by World Bank. External debt servicing was measured by the amount paid as interest for externally borrowed funds. Also, other variables included the model were interest rate differentials, inflation, exchange rate and political instability. The trend analysis conducted on the data showed that agribusiness performance (proxy, output), capital flight and external debt servicing accelerated over the period. Prior to the empirical analysis, the time series data were tested for unit root using Augmented Dickey-Fuller and Philip-Perron approaches to confirm the stationarity of data. Based on the unit root test results, it was found that the data were integrated at different levels, that is, a mixture of integration at level and first difference. Since the data were of mixed integration, it became appropriate to use the Autoregressive Distributed Lag (ARDL) proposed by Paseran et al. (2001) for situations that data were integrated at level and first difference. Long-run relationship between agribusiness output and the explanatory variables were ascertained by the F-statistic (5.982448) of the ARDL bounds tests which was greater than the upper and lower bounds of the ARDL critical values. The adjusted R2 of 0.948618 showed that capital flight, external debt servicing, interest rate differentials, inflation, political instability and exchange rate accounted for approximately 94.86% of the total variations in agribusiness sector output in Nigeria. The observed collective impact of the explanatory variables on the dependent variable in the long-run was significant as shown by the p-value (0.000000) associated with the F-statistic. In the long-run, amidst fluctuations in interest rate differentials, inflation, political instability and exchange rate, capital flight emerged with negative coefficient (-0.020140) and a p-value (0.0352) which implied negative and significant impact of capital flight on agribusiness output. Similarly, external debt servicing emerged with a negative long-run coefficient (-3.455434) and a p-value (0.0211) indicating negative and significant impact on agribusiness sector output. In the short-run, all the explanatory variables were significant in explaining changes in agribusiness sector output as their p-values were less than 0.05 at the recommended lag length. However, capital flight and external debt servicing had positive impacts with coefficient of 0.020140 and 3.455434, respectively. The short-run adjusted R2 of 0.882637 indicated that the explanatory variables sufficiently explained about 88.26% of the total variations in agribusiness output and its significance confirmed by the p-value (0.0000) of the F-statistic associated with the short-run ARDL model. Granger causality test was also carried out and it revealed that agribusiness output Granger caused external debt servicing. Based on these findings, it was recommended among other things that, government formulate and implement policies that would decelerate capital flight and external debt servicing and enhance agribusiness output and overall economic performance of the country.
TABLE
OF CONTENTS
Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Table of Contents vi
List of Tables vii
Abstract viii
CHAPTER
1: INTRODUCTION
1.1 Background of the Study 1
1.2
Statement of Problem 9
1.3 Research Questions 11
1.4 Objectives of the Study 12
1.5 Research Hypotheses 12
1.6
Justification of the Study 13
CHAPTER 2: LITERATURE REVIEW
2.1
Conceptual Framework 15
2.1.1
Concept of capital flight and external debt servicing 15
2.1.2
Measurement of capital flight 17
2.1.2.1
Residual method 17
2.1.2.2
Dooley method 19
2.1.2.3
Trade mis-invoicing method 22
2.1.2.4 Hot money method 23
2.1.2.5. The asset method 24
2.2
Empirical Framework on Capital Flight and External Debt Servicing 28
2.3
Determinants of Capital Flight 35
2.3.1 Macroeconomic instability 35
2.3.2
Inflation 39
2.3.3 Political instability 40
2.3.4 Rate
of return differentials 41
2.3.5 Capital
inflows or foreign direct investment 41
2.4 Determinants
of External Debt Servicing 42
2.4.1 Inefficient
trade and exchange rate policies 43
2.4.2 Adverse exchange rate movements 43
2.4.3
Adverse
interest rate movements. 43
2.4.4 Poor
lending and inefficient loan utilization. 44
2.4.5
Poor
debt management practices 44
2.4.6 Accumulation
of arrears and penalties. 44
2.5
Nigeria’s
External Debt Profile 44
2.6 Nigeria’s
External Debt Relief 45
2.7
Theoretical Framework on Capital
Flight and External Debt 46
2.7.1
The investment diversion theory 46
2.7.2
The
debt driven capital flight thesis 47
2.7.3 The
tax-depressing thesis 48
2.7.4
The
austerity thesis 48
2.8
Analytical Framework on Capital
Flight and External Debt 50
2.8.1
Multiple regression analysis 50
2.8.2 The granger causality test model
53
2.8.3 Estimation procedure 53
2.8.3.1 Unit root tests 54
2.8.3.2 Co-integration equation
55
2.8.3.3 The error correction model equation
55
2.9 Impact of External Debt Servicing on Agribusiness Sector
Performance 55
2.10 Impact
of Capital Flight on Agribusiness Sector Performance 56
CHAPTER 3: METHODOLOGY
3.1
Study Area
57
3.2
Data Source and Collection Procedure
58
3.3
Method of Data Analysis 58
3.4
Model specifications
59
3.4.1 The granger causality test model 62
3.4.3.1
Estimation procedure
62
3.4.3.2 Unit
root tests
62
3.4.3.3 Co-integration equation
63
3.4.3.4 The error
correction model equation
64
3.4.3.5 External debt
regression equation
64
3.4.3.6 Capital flight regression model
65
CHAPTER
4: RESULTS AND DISCUSSION
4.1 Unit
Root Test for Stationarity of Data
66
4.2 Trend
of Acceleration, Stagnation and Deceleration of the Time Series Data 69
4.2.1 Total
agribusiness sector output (AGBSO)
69
4.2.2 Trend
of capital flight from Nigeria
70
4.2.3 Trend
of external debt servicing in Nigeria
71
4.3 Descriptive
Statistic of Data
72
4.4 ARDL
Estimation for Long-Run and Short-Run Impact of Capital Flight 75
and External Debt Servicing on
Agribusiness Sector Performance in Nigeria.
4.4.1 ARDL
bounds testing for co-integration
76
4.4.2 Long-run
ARDL estimation
77
4.4.3 Error
correction mechanism (ECM) and short-run estimates 83
4.4.4 Diagnostic
tests
85
4.5 Granger Causality Test
87
CHAPTER
5: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings
88
5.2 Conclusions
91
5.3 Recommendations
92
References 96
Appendices
109
LIST OF TABLES
4.1: Unit root test results at level 67
4.2: Unit root test results at first difference 68
4.3: Summary of descriptive statistic
of the time series data 72
4.4: Bounds test results 76
4.5: Long-run estimates of the ARDL model 77
4.6: Error correction mechanism and short-run coefficient
estimates 84
4.7: Summary of diagnostic tests for
the ARDL models 87
4.8:
Granger causality test results
LIST OF FIGURES
1: Trend
of total agribusiness sector output in Nigeria
69
2: Trend
of capital flight from Nigeria
70
3 Trend of external debt servicing for
Nigeria
71
4: Volatility plot for total agribusiness
sector output given fluctuations in capital
flight, external debt servicing and
other explanatory variables in the model. 75
CHAPTER
1
INTRODUCTION
1.1
BACKGROUND
OF THE STUDY
Capital
departure from Africa and especially Nigeria has been as of late, put at the
bleeding edge of the improvement strategy banter. Lately, significant interest
has emerged in the degree to which capital flight unfavorably affects financial
turn of events (United Nation Development Program, 2011). Ajilore (2010)
thought that, capital flight is for the most part connected with transient
surges coming about because of political and financial vulnerabilities in the
home country. Capital trip in all consequences alludes to capital moving out of
a homegrown economy to another nation's economy. Capital flight could have
extreme impact on the overall economy just as on agribusiness area specifically
both in Nigeria and somewhere else. Cash that is moved out of a nation can't
contribute sensibly to her sectoral advancement; agribusiness area
comprehensive. Net financial advancement is the entirety of all sectoral
monetary turn of events. Additionally, complete monetary shortage is the
entirety share deficiencies contributed from every area. Capital flight
influences the monetary offer commitment of every area of the economy of which
agribusiness isn't excluded. The Implication is that capital flight influences
the portion of agribusiness commitment to the overall monetary growth. (Ajayi,
2014)
The
sluggish economic growth and persistent balance of payment deficits in most
developing countries have been attributed to capital flight (Ajayi, 2014).
Indeed, the high levels of capital flight pose serious challenges for domestic
resource mobilization in support of investment and growth in Africa (Fofack and
Ndikumana, 2010). According to Ndikumana and Boyce (2001), many developing
countries are losing more resources through
capital flight than through debt servicing. Scholars have expressed concern
over the magnitude, causes and consequences of these net flows. Investors from
developed countries are seen as responding to investment opportunities while
investors from developing countries are said to be escaping the high risks they
perceive at home (Ajayi, 2014).
Thus,
according to Schneider (2003), capital flight involves the outflows of resident
capital which is motivated by economic and political uncertainties in the home
country. The International Monetary Fund IMF (1996) reveals that Nigeria
suffered a loss of $7,573million between 1972 and 1989 to capital flight. Out
of this total, the sum of US$7,362 million was lost between 1972 and 1978
against a capital inflow of $270 million within the same period. International
Financial Corporation (1998) observed that Nigeria is among many African
economies that have achieved significant lower investment levels in industrial
and agribusiness sectors as a result of capital flight. Such low level
investment brought about by high rate of capital flight in Nigeria also has
multiplier consequences in all aspects of the economy but with primary
consequence in agribusiness sector. The 2007 United Nation Conference on Trade
and Development (UNCTAD) report showed that around $13 billion per year have
left the African continent between 1991 and 2004. This
represents a huge 7.6% of annual GDP with Nigeria having external assets 6.7
times higher than her debt stocks. In addition, the total stock of illicit
outflows from Nigeria between 2002 and 2011 was put at $142,274 million (Global
Financial Integrity, 2013).
Capital
flight has been regarded as a major factor contributing to the mounting foreign
debt and inhibiting development efforts in the third world countries (Ndiaye,
2011). The extent of capital flight the world over necessitates efforts to
checkmate and regulate it, especially in the developing countries where it
impacts adversely on the scarce capital and hinder agrarian development which
encourages deficiency of developmental resources. This anomaly has persevered
since there is no strong opposition or regulations. Actually, there are
benefits and losses associated with capital flight but the losses far outweigh
the gains, especially in the developing economies where it is so rampant. The
individuals transferring and the receiving countries benefit while the citizens
in the sending macro economies living standard are to an extent retarded from
huge capital fight. This can account for persistent low living standard, lack
of industrialization and true agribusiness development. Capital flight
undermines agribusiness investment; hence economic growth and sustainable
development. It undermines government revenue, social expenditure and meeting
the Sustainable Development Goals (SDGs) targets. It also undermines a fair
distribution of wealth, governance in both the public and private sector; and
the development of systems of accountability and a vibrant economy (Ajayi,
2014).
External
debt may be defined as debt owed to non-residents repayable in terms of foreign
currency, food or service (World Bank, 2004). It is generally expected that
developing countries facing scarcity of capital will acquire external debt to
supplement domestic savings. In order to encourage growth, countries at early
stages of development like Nigeria borrow to augment what they have because of
dominance of small stocks of capital. Economic theory suggests that reasonable
levels of borrowing by a developing country are likely to enhance its economic
growth (Pattilo, et al., 2002). The effect of external debt on agribusiness investment
of a country has remained questionable for policy makers and academics alike.
External debt may be used to stimulate the economy but whenever a nation
accumulates substantial debt, a reasonable proportion of public expenditure and
foreign exchange earnings will be absorbed by debt servicing and repayment with
heavy opportunity costs (Albert, Brain and Palitha, 2005). Excessive external
debt constitutes obstacle to sustainable agribusiness development and poverty
reduction (Maghyere and Hashemite, 2003; Sanusi, 2003 and Berensmann, 2004). Those
who argue that external debt has positive effect on the economy do that from
the stand point that external debt will increase capital inflow and when used
for productive ventures, accelerates the pace of economic growth. The capital
inflow may be associated with managerial know-how, technology, technical
expertise as well as access to foreign market. The above is in agreement with
the views of the Keynesian theory of capital accumulation as a catalyst for
economic growth. However, external debt may have negative impact on investment
through debt overhang and credit-rationing problem (Ajayi and Ibi, 2003). Debt
overhang phenomenon is where substantial resources are used for debt servicing
such that it stifles economic growth. It becomes a tax on domestic production
such that the amount spent hampers meaningful economic growth activities as it
reduces resources available to government to implement growth oriented economic
policies. The authorities increase interest rates to narrow savings - investment
gap, thus affecting new investment, generating greater surplus for debt
servicing and repayment. However, this may subsequently depress future growth
prospects.
The
first major borrowing of $1 billion from the International Capital Market (ICM)
by the Federal Government of Nigeria (FGN) was referred to as “Jumbo loan”
increasing her total external debt to $22 billion. The condition worsened
between 1981 and 1982 as various government agencies and state governments
resorted to deficit budgeting partly financed through external loans secured
from private sources under stiffen conditions (CBN, 2008). The Debt Management
Office (DMO) annual report and account (2001) reflected a 13.8% fall of
official debt sources in favour of the private debt sources which rose again to
an average of 82%. Trade arrears emerged by the end of 1982 constituting a
large portion of the total external debt of the nation. The jumbo loan of 1987
was supported by the promulgation of decree No. 30 of the 1978 which limited
the external loans that the Nigerian government could raise to $5 billion. The
increase in the size of Nigerian external debt was due to the preponderance of
borrowing from international agencies and countries at non concessional
interest rate. This borrowing came as a result of the decline in oil earnings
from the late 70‟s and the emergence of high trade arrears due to inability of
the country to easily neither produce nor foot the bills of importation of the
needed goods and services (Ajayi and Ibi, 2003).
Nigeria
economic growth and development had been volatile in danger and highly
discouraging despite the huge external loan profile before the year 2000.
Within the 80‟s, the country experienced the most economic recession with
declining growth rate, hyper inflation, and high unemployment rate,
disequilibrium in balance of payment, industrial decadence, poor infrastructure
and serious external debt burden.
The
poverty rate of the country stood at 65% and the country was classified as one
of the weakest economies of the world on per capital basis. The debt crisis of
Nigeria reached a maximum proportion in year 2003 when the country was to
transfer as much as $2.3 billion to service its debts. According to
Okonji-Iweala, et al., (2003), the
accumulated effect of the debt at maturity began to yield some serious strains
on the nation's macroeconomic indices. For example, the Naira was devalued, the
nation's reserve and revenue started depreciating while inflation and
unemployment intensified. These debt crises for Nigeria incidentally and
fortunately coincided with the time the IMF and World Bank was granting debt
relief to some highly indebted poor countries of the world.
The
Heavily Indebted Poor Countries (HIPC) initiative and Multilateral Debt Relief
Initiative (MDRI) were launched by the IMF and the World Bank in 1996 and 1999
respectively. The objective was to reduce the external debt of severely
indebted poor countries to a sustainable level to enhance investment and further
economic growth. They did not however, consider Nigeria as a poor country
because of its oil deposit and high price of the oil. Getting relief on the
premise of HIPC was near impossible.
The
then President Olusegun Obasanjo in conjunction with his finance Minister,
Okonjo-Iweala had prioritized securing debt relief from the creditors as a
cardinal objective of his administration because Nigeria already had a debt
overhang problem having debilitating effects on her economy and that was the
popular efficacy argument or justification for the provision of the debt
relief. Consequent upon the foregoing argument, the HIPC initiative introduced
some guiding principles regarding a country's eligibility for debt relief.
According to Debt Management Office (DMO 2010), for a country to be considered
for HIPC initiative, it must face an unsustainable debt burden beyond
traditional available debt relief mechanisms and establish a track record of
reform and sound policies through IMF supported programmes.
The
HIPC initiative was further expanded in 1999 and provided more rapid debt
relief to more countries. A 2years policies support instrument was approved to
monitor Nigeria economic reforms drive. Consequent upon that, Paris Club agreed
to write off 60% of the $30.85 billion (amounting to $18 billion) owed to its
club members. This deal was signed in July 2005, after which the country was
able to affect the balance of 40%, thus, saving the country from the yearly
$2.3 billion debt service burden. This debt relief is expected to put the
economy on better springboard to accelerate the pace of growth and development
and put the country on the path of economic recovery. To the contrary, the
country appears to be deteriorating with higher rate of unemployment and lower
living standard.
Agribusiness sector indeed is an important source of
employment and income generation worldwide (Da Silva, 2009). In most developing
countries, agribusinesses are dominant in terms of contribution to value-added in
manufacturing. In agribusiness-based countries, these contributions are as high
as 66%, whereas in transforming and urbanized countries, it reaches 38% and 37%
respectively (FAO, 2009). Agribusiness sector remains very vital to the growth
and development of every nation's economy. The sector's role includes:
improving food security, resource employment and poverty alleviation (FAO,
2009). In spite of Nigeria’s rich agricultural resource endowment; there has been a gradual decline in agribusiness contributions to the nation's economy
in the presence of enormous capital flight (Manyong et al., 2003). In the 1960s, agriculture accounted for 65-70% of total exports; it fell to about 40% in the 1970s, and crashed to less than 2% in the late 1990s. The average agricultural growth rate for 2004–2007 was 7 percent but dropped to 5.2 percent from 2008-2013. Furthermore, the agricultural
sector has been one of the least attractive sectors for Foreign Direct Investment (FDI) in
Nigeria. Through 1970 to 2001 the sector comprised only
1.7
percent of the total FDI (FAO,
2012).
Agribusiness enterprises generate demand for agricultural
raw materials; this in turn creates work opportunities at the farm level and
contributes to increased demand for agricultural inputs (Wilkinson, 2004). The
demand for ancillary agro-processing inputs, such as packaging items and
product ingredients, tend also to rise with new investments in agribusiness.
Many types of agribusiness enterprises can be operated feasibly at the small
and medium-scale level, using low cost, labour intensive technologies. As such,
small and medium-scale enterprises, most of which are labour intensive, are
predominant in much of the agribusiness sectors of the developing world. With a
tendency to be located close to their sources of raw materials, agro-processing
enterprises favour the attraction of investment to the rural space and thus are
an important driver in the creation of non-farm rural employment (Reardon,
2007) . Because agribusinesses are uniquely situated between natural sources of
food and fibre, promotion of agro-enterprise development can have numerous
benefits. These includes: positive impacts on employment in both rural and
urban areas, offering market access to agricultural smallholders, business
linkages to small and medium-scale enterprises (SME); enhanced food security by
reducing post-harvest losses and extending the shelf-life of foodstuffs for the
rapidly increasingly population of urban poor (Onwumere and Okpani, 2017).
The combined effects of employment gains and food
security through improved agribusiness competitiveness can be an important
strategy for reducing the overall poverty within developing countries (Onwumere,
Nmesirionye and Ene 2012). Agribusiness sector remains very vital to the growth
and development of every nation's economy. The sector's role includes:
improving food security, resource employment and poverty alleviation (Mbanasor,
2009).
Furthermore, analysis combining both rigorous capital
flight and external debt services determinants have been notably lacking to
date. This study provides an integrated analytical framework with empirical and
theoretical foundations that can be used to study the impact of capital flight
and external debt servicing on agribusiness sector performance (1970-2017)
1.2 STATEMENT OF
PROBLEM
In spite of Nigeria’s rich agricultural resource endowment; there has been a gradual decline in agribusiness
contributions to the nation's economy
in the presence of enormous capital flight and
debt servicing (Ajayi, 2014). In the
1960s, agribusiness accounted for 65-70% of total exports; it fell to about 40% in the 1970s,
and
crashed to less than 2% in the late 1990s. The average agricultural growth rate for 2004–2007 was 7 percent but dropped to 5.2 percent from 2008-2013. Furthermore, the agricultural
sector has been one of the least attractive sectors for Foreign Direct Investment (FDI) in
Nigeria. Through 1970 to 2001 the sector comprised only
1.7
percent of the total FDI (FAO,
2012).
Agribusiness
is an important sector of the economy with high potentials for employment
generation, food security, foreign exchange earnings and poverty reduction.
However, funds meant for the investment and development of agribusiness in
particular and the economy in general is ''fleeing'' from the resident country
to another country; this in essence is capital flight. Capital flight has been
known to thwart economic development, foster corruption, in particular, in
countries with mineral extraction and deepens inequality. The possible
disruptive effects on the economy which stem from capital flight become more
severe and glaring when one considers the magnitude of the flight from Nigeria.
Capital flight in Nigeria deserves attention because it is regarded as a major contributing
factor to the mounting debt problems that inhibit development efforts (Ajayi,
1996). In the words of Khan and Hague (1985) capital flight reduces government
revenues and the ability to service external debt. As government revenues fall
with the erosion of the tax base, there is an increased need to borrow abroad,
thereby increasing the foreign debt.
Clearly,
Nigeria needs sustainable growth involving the parallel expansion and capacity
output. A high rate of sustainable growth requires high rate of investment.
Without much prospect of an increase in the national savings rate, domestic
investment can be boosted only by a reduction in net capital outflows. These
crisis situations and their consequences for economic conditions in Nigeria
call for more research on the factors that impel capital flight. Capital flight
from Nigeria therefore deserves serious attention for several reasons. The low
level of domestic investment is attributable in part, to the apparent scarcity
of domestic savings, weak and shallow financial systems, and high credit risks
due to unstable macroeconomic and political conditions. This downward trend in
capital formation and investment is accompanied by slowdown of economic growth.
The effect resulting from shortages of revenue and foreign exchange falls
disproportionately on the shoulders of the less wealthy members of the society.
The repressive impact of the capital flight is compounded when financial
imbalances result in devaluation.
On
the other hand, huge external debt does not necessarily imply a slow economic
growth; it is a nation’s inability to meet its debt service payments fueled by
inadequate knowledge on the nature, structure and magnitude of the debt in
question (Were, 2011). It is no
exaggeration that this is the major challenge faced by the Nigerian economy.
The inability of the Nigerian economy to effectively meet its debt servicing
requirements has exposed the nation to a high debt service burden. This poses a
grave threat to the agribusiness development as a large chunk of the nation’s
hard earned revenue is being eaten up. Nigeria’s external debt outstanding
stood at US$28.35 million in 2001 which was about 59.4% of GDP from US$8.5
million in 1980 which was about 14.6% of GDP (World Development Indicators,
2013). The debt crisis reached its maximum in 2003 when US$2.3 billion was
transferred to service Nigeria’s external debt. In the year 2005 the Paris Club
group of creditor nations forgave 60% (US$18 billion) of US$30.85 billion debt
owed by Nigeria. Despite the debt relief of US$18 billion received by Nigeria
from the Paris club in 2005 the situation remains the same (Bakare, 2010). The
question then becomes why has external borrowing not accelerated the pace of
growth of the Nigerian economy?
Previous
studies have been carried out on impact of capital flight on economic growth,
impact of external debt servicing on economic growth but little or no work has
been done with respect to agribusiness sector performance. It is against this backdrop that this
study sets to find out the impact of capital flight and external debt services
on the agribusiness sector performance (1970-2017).
1.3 RESEARCH QUESTIONS
The following research questions will be
addressed in this study.
1. How is the trend of acceleration,
stagnation and deceleration on capital flight, debt servicing and agribusiness
sector performance within the reference period?
2.
What is the mean value in capital flight, external debt servicing and agribusiness
sector performance within the reference period?
3. Is there long-run impact of capital
flight and external debt servicing on agribusiness sector within the reference
period?
4. Is there short-run impact of capital
flight and external debt servicing on agribusiness sector within the reference
period?
5. What is the relationship between
capital flight and agribusiness sector performance; external debt servicing and
agribusiness sector output performance within the reference period?
1.4 OBJECTIVES OF THE STUDY
The
broad objective of this study is to analyze the impact of capital flight and
external debt servicing on agribusiness sector performance (1970-2018).
The
specific objectives of this study are to:
(i)
analyze the trend of acceleration, stagnation and deceleration on capital
flight, external debt servicing and agribusiness sector output performance within the reference
period.
(ii) determine
the mean variability in capital flight, external debt servicing and
agribusiness sector performance within
the reference period.
(iii) estimate the long-run impact of
capital flight and external debt servicing on agribusiness sector performance within the reference period.
(iv)
estimate the short-run impact of capital flight and external debt servicing on
agribusiness sector performance within
the reference period.
(v) investigate the relationship between capital flight and
agribusiness sector performance; external debt servicing and agribusiness
sector performance within the reference period.
1.5 RESARCH HYPOTHESES
The following hypotheses were tested in
line with the research objectives.
HA1:
There is a positive relationship between
external debt servicing and agribusiness sector performance within the
reference period.
HO2:
Capital flight does not impact on the
agribusiness sector performance within the reference period.
HO3:
External debt servicing has negative
impact on the agribusiness sector performance within the reference period.
1.6
JUSTIFICATION OF THE STUDY
The place of agribusiness in
Nigeria’s economy has remained critical over the decades. Prior to the
political crisis of 1967-1970, agriculture’s positive contributions to the
economy were instrumental in sustaining economic growth and stability. The bulk
of food demand was satisfied from domestic output, thereby obviating the need
to utilize scarce foreign exchange resources on food importation. Stable growth
in agricultural exports constituted the backbone of a favorable balance of
trade. Sustainable amounts of capital were derived from the agricultural sector
through the imposition of several taxes and accumulation of marketing
surpluses, which were used to finance many development projects. However, the
crisis that developed in Nigerian economy during the civil war became more
serious in the early 1970s, which coincided with the rising fortunes of the
petroleum sector. From that period to date, agriculture’s contributions to the
economy became relatively insignificant. This development is reflected in
rising food prices and inflation, increased imports of food and agricultural
raw materials for local industries, a relative decline in agricultural export
earnings and deteriorating living conditions in the rural areas. It
is expected that the result of this study would aid policy makers in their
effort to revamp the Nigeria economy vis-à-vis
agribusiness development through bringing to a halt the movement of funds meant
for the development of the economy and minimize the rate of external borrowing.
Hence, the study will analyze the determinants of capital flight and external
debt servicing which could guide policy makers in estimating the impacts of
capital flight and external debt servicing on agribusiness sector performance.
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