THE FINANCIAL CONTRIBUTION OF PETROLEUM TO

ECONOMIC DEVELOPMENT IN NIGERIA

BY

AMAECHI NORA OSINACHI

MAT NO: SSC0410195

DEPARTMENT OF BANKING AND FINANCE

FACULTY OF MANAGEMENT SCIENCES
UNIVERSITY OF BENIN
BENIN CITY

AUGUST 2010

1
 THE FINANCIAL CONTRIBUTION OF PETROLEUM TO
ECONOMIC DEVELOPMENT IN NIGERIA

BY

AMAECHI NORA OSINACHI

MAT NO: SSC0410195

BEING A PROJECT SUBMITTED TO THE DEPARTMENT OF

BANKING AND FINANCE, FACULTY OF MANAGEMENT
SCIENCES, UNIVERSITY OF BENIN,
BENIN CITY

IN PARTIAL FULFILLMENT OF THE AWARD OF BACHELOR

OF SCIENCE (B.Sc.) DEGREE IN BANKING AND FINANCE
UNIVERSITY OF BENIN

AUGUST 2010

2
 CERTIFICATION

We the undersigned certify that this project work was carried out

by Amaechi Nore Osinachi of the Department of Banking and

Finance, University of Benin, Benin City. It is in partial fulfillment

of the requirement for the award of Bachelor of Science (B.Sc.)

Degree in Banking and Finance.

________________ __________________

Project Supervisor Head of Department

Date: ………………… Date: ……………………

_________________

Project Coordinator

Date: …………………

3
 DEDICATION

This work is dedicated to God Almighty, who has been my source

of strength, wisdom, knowledge and understanding. And to my

lovely parents Mr. and Mrs. Solomon Amaechi.

4
 ACKNOWLEDGMENT

I am really grateful to God Almighty for his infinite mercy

and encouragement to complete this programme.

My profound gratitude goes to my able and wonderful

project supervisor Dr. D. E. Amadasu, although a lot of person has

a wrong notion about him, but I saw a different person entirely

who acted wonderfully to me, reading through and suggesting

useful ideas that brought about the production of this work.

Thank you sir.

I acknowledge the work of all the lecturers that taught me as

an undergraduate, especially Rev. Canon Osamwonyi, Head of

Department.

Thanks to my lovely and wonderful sisters and brothers,

Miss Chioma Amaechi, Victor, Samuel, Emmanuel and Blessing.

Special thanks goes to Mr. and Mrs. Alaye who always

encourage me.

Thanks to my lovely mother, Evangelism Cicilia Amaechi

who have been supporting me in all aspect, my gratitude also goes

5
to Mr and Mrs Osagie Ogemudia, Mrs Betty, Miss Henrita, Miss

Esther Ejimofor, Mr Edwin, the family of Mathew Emodunefe.

Michael (BBF), Don Emmanuel.

I love you all and remain blessed in the lord.

Amaechi Nore Osinachi

TABLE OF CONTENTS

Title page - - - - - - - - - i

Certification - - - - - - - - iii

Dedication - - - - - - - - - iv

Acknowledgment - - - - - - -

Table of contents - - - - - - - -

vi

Abstract - - - - - - - - - viii

CHAPTER ONE: INTRODUCTION

6
1.1 Background of the study - - - - - -

1.2 Statement of the research problem - - - - 3

1.3 Objectives of the study - - - - - -

1.4 Hypotheses of the study - - - - - -

1.5 Significance of the study - - - - - - 5

1.6 Methodology of the study - - - - - 6

1.7 Scope and limitation of the study - - - - 7

CHAPTER TWO: CONCEPTUAL ISSUE

2.1 Introduction - - - - - - - -

2.2 The Nigeria oil industry in the pre OPEC years - -

16

7
2.3 The OPEC years - - - - - - - 17

2.4 A overview of the petroleum sector on the Nigeria economy

21

2.5 A review of petroleum as a source of energy - - -

24

2.6 Crude oil contribution to growth in Nigeria - - -

25

2.7 Future of Nigeria’s petroleum sector- - - - -

34

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 3.1 Theoretical framework and model specification -

37

3.2 Model specification - - - - - 40

3.3 Method of estimation - - - - - - 42

3.4 Data collection - - - - - - - 42

3.5 Data for regression - - - - - -

43

CHAPTER FOUR: PRESENTATION OF REGRESSION

RESULT

8
4.1 Introduction - - - - - - -

44

4.2 Interpretation of result - - - - - - 44

4.3 Policy implication - - - - - - - 46

CHAPTER FIVE: SUMMARY, CONCLUSION AND

RECOMMENDATIONS

5.1 Summary of findings - - - - - - 48

5.2 Conclusions - - - - - - - 49

5.3 Recommendations - - - - - - -

50

Bibliography - - - - - - 52

ABSTRACT

The work covers Nigeria economy. The objective of these

study is to determine the financial impact/contribution of

petroleum in the total growth of the industrial sector and in

general growth of the country’s economy, why financial

9
contribution is not fast tracking economic growth in Nigeria’s, to

analyze the impact of the petroleum sector on the Nigeria

economy, and to offer recommendation to the basis of the

findings.

The major source of data used in this study is a secondary

data, most of the data were computed from government agencies

such as federal office of statistics, Nigeria National Petroleum

Corporation (NNPC), the federal ministry of petroleum resources

and the central bank of Nigeria (CBN).

The major problem faced in the petroleum sector today is

mis-appropriation of funds to meet developmental needs through

the maintenance of construction of refineries in Nigeria.

Recommendations based on the findings of the study include:

(1) Appropriate money sully should be geared towards the

improvement of petroleum.

10
(2) All OPEC member nations should work together and

adopt a cooperative productive strategy based on the

concept of mutual understanding of production

allocation.

(3) Oil revenue obtained through crude oil exports that were

not always efficiently utilized must be seriously

considered.

11
 CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Nigeria has the largest population in Africa and endowed

with a massive wealth of both natural and human resources.

Nigeria is also the largest producer of trade petroleum and natural

gas in Africa from 1960’s the petroleum sector began to exert its

overriding height to the extend that by the mid 1970’s it had

anchored itself as the most readily available resources of

prosecuting programmes directed at achieving rapid growth and

development of the Nigeria economy. During the 1970’s and up to

1981, the Nigerian economy experienced the lives so called which

resulted from its swimming in the mean of “oil boom” is not

12
destined to last long. But before the “Oil boom” in 1970’s Nigerian

economy could be described basically as an agration economy.

However, agricultural sector which was the main stay of the

economy was soon short lied with the advent and consequent

boon of Nigeria oil. The petroleum sector in Nigeria has

undergone significant changes since oil discovered in commercial

quantity in decades ago. The sector has become the main stay of

the overall Nigeria economy pivoting other sectors and accounting

for about 90 percent of the country’s foreign exchange earners and

about 20 percent of the Gross Domestic Product (GDP) and about

85 percent of the federal collectable revenue, it is therefore not

surprising that the industry has become very crucial and

significant to the economy growth and development of the

country.

13
 In 1970, Nigeria became a member of the organization of

petroleum exporting countries (OPEC) and it is currently one or

the top ten oil exporting countries in the world, and with the oil

earnings flowing into the country government could embark or

major economic project. Therefore the fact that the oil sector has

great impact and significant on the Nigeria economy should not be

overemphasized. Having known the indispensable nature of

petroleum sector on the economy, it is therefore necessary that the

degree of the impact be brought to knowledge. This makes

empirically analyze the fortunes of the petroleum industry to the

growth and development of the Nigeria economy.

1.2 STATEMENT OF THE RESEARCH PROBLEM

14
 The oil sector at present has suffered from some problem it

encountered which has gradually crippled two aspect of the

petroleum sector in Nigeria today. According to the oil expect

only the exploitation aspect is functioning, the refining and

marketing aspect of the sector has been almost completely

paralyzed. The crises today are attributing to several reasons and

they contribute the problems facing the oil sector. They include:-

(1) Insufficient financial resources for the maintenance of oil

sector in Nigeria.

(2) Poor financial backing to aliavate the Niger Delta crises

(militancy):- the oil sector has suffered a lot recently as a

result of the Niger Delta crises.

(3) Funds are not properly utilize:- for example, most refineries

in Nigeria are not functioning as well as low technological

capabilities leading to value added in the sector.

15
The decline has been exacerbated by depletion agency oil fields

deteriorating equipment and facilities. Over exploration of the

Niger Delta obsolete technology, insufficient financial resources

increasing cost of exploration. These impediments have serious

implication for the ultimate success of the petroleum sector and

this remain an issue to be addressed by the government of Nigeria

further more, the over dependence on crude oil by Nigeria

government is problematic in such a way that it resulted to

“crutch disease” on the economy i.e. allowing other sector of the

economy to suffer and not away.

In conclusion therefore, diversification and proper

utilization of finance in the Nigeria economy is what should be

practicable so as to be firm even in times of problem in oil sector.

1.3 OBJECTIVE OF THE STUDY

16
 The study is designed to analyze the importance and

contribution of petroleum sector to economic growth in Nigeria,

the emphasis will be on the following areas:

(1) To determine why financial contribution to petroleum is not

fast-tracking economic growth in Nigeria.

(2) To determine the financial impact/contribution of petroleum

in total growth of the industrial sector and in the general

growth of the country’s economy.

(3) To analyze the impace of the petroleum sector on the

Nigeria economy.

(4) To offer recommendation to the basis of the findings

1.4 HYPOTHESIS OF THE STUDY

This study intended to test the hypothesis that:-

Ho: The petroleum sector has no positive impact on Nigeria’s

economic   growth.

17
Hi: The petroleum sector has positive impact on Nigeria’s

economic growth.

1.5 SIGNIFICANCE OF THE STUDY

Oil is always a justificating and intriguing resources in both

local and international context. The petroleum industry is perhaps

one of the most important and largest industries in the world.

However, the industry has bestowed great financial power on oil

producers who are opportuned to posses the scarce natural

resources. The importance of the study therefore is to create

necessary awareness among economic agents and government

agencies about the danger of over dependence on one sector of the

economy (oil sector).

Another importance of this study is to throw light on the

need for real linkage between the oil industry and the economy of

Nigeria.

18
 The study due to its nature will further help in formulating

policy that will make the oil sectors performance increased and it

also serves as a useful source of information of other researcher

who may develops further interest on the activities of the oil

industry in relation to the Nigeria economy.

1.6 METHODOLOGY OF THE STUDY

The major source of data used in this study is a secondary

data; most of the data were computed from government agencies

such as federal office of statistics, Nigeria National Petroleum

Corporation (NNPC), and the Central Bank of Nigeria (CBN) etc.

Information shall be gathered from relevant text books

magazines, journals, etc.

The econometric model will be formulated to establish the

relationship between petroleum revenue (earnings) and

industrial growth. The method of estimation that will be used is

19
the Ordinary Least Square (OLS) method of multiple regression

equations. Hypothesis will be tested for the possible acceptance or

the rejection using relevant test statistics. This will be followed by

interpretation and summary of findings.

1.7 SCOPE/LIMITATION OF THE STUDY

Nigeria economy is the foundation upon which this study is

built, the study will be looking into the Nigeria leven industry,

focusing on the assessment of Nigeria economy in respect to

petroleum industry and when the economic boom started in

Nigeria, fortunes arising form the sales to present day when oil

price has follow. Consequently the period chosen for this research

is from the period of 1980-2005.

Some constraints (known or anticipated) would to a large

extent limit this research work. Some of them are as follows:-

20
(i) The study will be limited to the amount of information

made available. Thus the work may not be hundred

percent (100%) perfect, but a considerable work would be

done and objectivity will be observed.

(ii) Time constraints:- The time available for the research

work and the researcher other academic work put some

limitations.

(iii) Finance and logistics are also some factors that are likely

to limit this research work.

21
 CHAPTER TWO

CONCEPTUAL ISSUE

2.1 INTRODUCTION

The petroleum industry has proved dynamic worldwide.

The changes that have occurred globally in this industry in the last

decades made experts to for cast and predict the uncertain jurture

of oil.

Iyoha (1992) opines that the omnipresent nature of oil to

characterize late 20th century civilization as a hydrocarbon

22
civilization which would virtually drive to a halt. Shokunbi (1992)

“the discovery of oil in any country focused the world attention on

what country”. In essence, Nigeria’s political status in the

“committee or nations” has increasing numbers of proven oil

reserve grants her “special prestige in international relation”.

In retrospect, the petroleum industry has exerted a

tremendous impact on the Nigeria economy. However, this impact

has been a both blessing and a curse to Nigeria economy.

Asiodu (1980) states that the impact of petroleum on nation

income is simply demonstrated in the size of development plans.

Thus, in the mid 1960’s when oil was insignificant in the economy

the size of the annual budget was less than N200 million, but

following. The effect of a booming problem industry, its became

about N5 billion in 1975/1976 and has been over 13 billion since

1980.

23
Iyoha (1989) states its bluntly, “During the 1970’s Nigeria as

economic growth was literally fuelled by petroleum, he reckon

government activities will guide to a halt of oil money is not

available served that revenue from oil form the basis for

development expenditure.

Nweankwo (1982) highlighted that the oil industry can readily be

referred has provided ample financial resources for the

persecution or several development programmes. Notable plan

includes the expansion of infrastructure development that is

roads, bridges and construction including the monumental

Nigeria Art theatre and stadia complexes located in uritan areas,

he further observed that without the revenue from crude

petroleum neither the nation industrially agricultural no

infrastructural development world have capable of being financial

from the orthodox sources.

24
Ali (1986) opines that the phenomenal growth in gross domestic

Product (GDP) is attributed to oil petroleum product. The hizard

growth and decline is as a result of catalytic role played by the

petroleum industry in the economy at present. Further, oil

contributed 70.7% of the total foreign exchange supply in

1971/1972. This implies over thrown of oil as the main prop of the

external economy with the turn out of event. Ali notes succinctly

that petroleum atters the traditional structure of the economy’s

external trade affecting the process of domestic product.

Usoro (1972) like Ali (1986), notes the rising proportional

shares in the country’s important economic indicator such as

Gross Domestic Product (GDP) government revenue and export

share over the decades to crude oil. To this end, he asserted that

“no other single industry has contributed so much to the

25
development process in the country at such a spontaneous rapid

rate.

Also Falegan (1976) argues that with the increase in foreign

exchange earning from oil, the country was able to import

adequately the necessary boosting economic development. In

addition, government was able to increase the basis income of the

labour force, thereby increasing their purchasing power which in

turn boosted economic activities.

Obadan (1983) on the impact of petroleum on the national

economy from a purely analytical point of view, sought to

evaluate the impact of development of crude oil on several sector

of the economy, on government reserve arises from the use of

increasing oil revenue by government to develop the other sectors

of the economy. Such as agriculture, education and infrastructure.

However, he affirmed that the problem inherent in this linkage is

26
that the euphoria created b y the sudden substantial windfall from

oil in the 1970’s let to laxity in tapping of revenue from other

sources or sector.

With the quadrupling of world oil market price by OPEC in

the 1973/1974 period, huge petroleum dollar flowed into the

country, infact money was not a problem. Massive conspicuous

consumption habit was learned in this period. But when prices

stated falling in the early 1980, imports of foreign good were still

unrealistically high to off set the ever increasing import,

international revenue was soon deflected even resulted to colossal

debt problem (banks).

Anyanwu (1997) argued the following “the resulting drastic

increase in oil wealth syndrome”, Anyanwu further opined that

“the rapid monetization of her oil earning let to a spending spread

27
leading to high but distributing import consumption, huge budget

deficits, excess money supply and external debt overhand”.

In ending, they reckoned that oil sector has had a diver

stated impact on the economy, such that any developments in the

international oil market are directly translated into instability in

the economy.

According to Akpan (1991), the Nigerian economy during

the boom period witnesses remarkable growth rates, yet the oil

boom had no impact on real sector since the industrial sector

remained relatively weak. The asserted that windfall from oil was

utilized in sharing up the industrial sector. Therefore, when the

recession of the 1980’s set in, the economy found itself unable to

absorb the shocks, declaiming oil price for example Akpan noted

strictly. The oil boom became and without making much national

change in the auage Nigeria living standard, but left behind the

28
unfortunate legacy of highly indebted nation almost totally reliant

on oil revenue.

It is sadly observed that Nigeria has become a mono-economy that

is dependent only one export commodity crud oil, to the neglect

and abandonment of all their commodities. Fluctuation in crude

oil price in the unfold hardships for economy and her people, the

oil boom era is a farcuy from that which we have today. We now

talk of “oil boom”.

To Canagara (1997) agriculture sector was the most hit production

and its contribution to gross domestic product (GDP) declined

both in absolute and real terms due to country romance with

crude oil. In no time the country become net imports of

agricultural commodities. This phenomena he called “Dutch

disease” the export commodity (oil in this cases), has undesirable

effect on other economic activities conclusively, be posited that

29
when oil revenue as they did dramatically in Nigeria between

1980-1996, the economy was left with an unsustainable import and

capital intensive production structure.

Essay (1984) contents that the effect of oil production is the

official change in attitude with regard of the appropriate role of

agriculture has in evidence. He further observe that agriculture

was no longer regarded as the sector from which capital has to be

transcribed to the non-agricultural sector, rather it was to be the

net recipient of capital from the letter sector. In effect emphasis on

agricultural export production charge to domestic food

production. Ever since, export or agriculture commodity had

divided into insignificance. Even since, export of agriculture

commodity had divided into insignificance.

Arzuing in line, Onyeye (1980) says that the petroleum has

encourage government agencies to neglect agriculture

30
development and has engineered a “get hid quick” mentality

favouring speculative activities are encouraging people to

concentrate of fast yielding production to the determinant of

agriculture production involving long gestation period typical of

all agricultural product which is the “bedrock of the local

economy”.

Furthermore Onyeye noted that “oil operation have aggravated

rural poverty and inequality”.

According to Okeke and Turner (1988) without question the

main result of development of petroleum industry is the

destruction of peasant agriculture such that the advent of

petroleum activities in Nigeria led to the drastic relegation or the

agriculture industry to the background.

Faleye (1989) is of the view that the emergence of the oil

sector in the early 1970 as a major revenue earner for government

31
coupled with the macro-economic policies during the period

turned the term-of-trade against the agricultural sector which had

until then played a dominant role as the “engaging of growth” in

the economy.

2.2 The Nigeria Oil Industry in the Pre OPEC Years

(1) The Pre OPEC Years:- Nigeria did become a member of the

Organization of Petroleum Exporting Countries (OPEC)

until July 1971, but remarkable development took place in

the Nigeria oil industry is the proceeding decades. Firstly

Nigeria became independent on October 1960 and

consequently was able to allow oil companies from the

other nations outside Britain and United states of America

to participate in petroleum exploration activities in the

country. Secondly, as oil had become a significant energy

source, Nigeria with a production of 1700 barrels per day

32
by 1960 was a major attraction for companies prospecting

for oil. Thirdly by virtue of progressive government

policies and legislation which compelled oil companies

with big concession to relinquish the area covered by their

license more areas became available for oil companies to

explore . Thus within five years of Nigeria independent no

less than nine international petroleum exploration

companies were achieve in the country. Among these were

shell- Bp, America Overseas Incorporated, Nigeria Agip oil

company (NAOC), Philips petroleum and ESSO

exploration. These companies were later joined in the late

sixties and early seventies by international companies such

as Japan petroleum, America occidental company,

Deminex Nigeria limited, Union oil, Grate Basis, Astihand

33
 oil as well as Stephens. Delta oil Niger petroleum company

and Niger oil resource..

2.3 The OPEC Years

Although Nigeria has been an oil producing and exporting

development country for thirty three years, the oil sector as the

prime mover of the economy became apparent in the 1970’s due to

the dramatic increase in prices and the rise in the nations oil

reserves and production. Generally, the impact of the petroleum

sectors on the total development process of the nation’s economy

cannot be self in one sector. Thus one can argue that the impact of

the sector is perceived in several sectors as areas of the Niger

economy subscribing to the view Obadan Angage (1986) identify

this impact to be directly on government revenue, external trade

foreign balance of payment nation income is well as in such area

employment the human income and serial values.

34
Ugboga (1986) Attempts to examine the contribution of crude oil

petroleum to the Nigeria economy from 1958-1974. The amount of

foreign exchange earnings by petroleum product for the same

year were 19 and 99% respectively while the percentage to total

export for the same year was 0.7 and 92 respectively. He further

stressed that government revenue in the form of royalties rent

license fees and petroleum profit tax rose from N20,000 in 1958 to

N2,872 million in 1974.

Nwankwo (1983) in his book Nigeria and OPEC. To bear not

to be, attempted to present a coherence and cogent reflection on

the importance of the oil glut in government finances and the

wisdom of Nigeria’s membership of OPEC. With regards to the

significance of the oil sector and the non-oil sector showed that

between 1970 and 1981, the balance on current and capital

account of the oil sector was in surplus. As noted by Nwankwo,

35
the surplus rose persistently from N253.2 million in 1970 to N5.2

billion in 1974.Owing to demand condition in international oil

market. The surplus declined to about N4 billion in 1975 similar

reason accounted for the fluctuation in the level surplus in 1978

and 1981, in the rest of the period the surplus over quite

impressive about 9 billion in 1981. In contact the record on the

non-oil trade during the same period shares deficits from N254.0

million 1970 to 7.1 billion having stagnated around that figure in

1978, through 1979 it accelerated significantly to about N13 billion

in 1981.

Nwankwo further emphasized that importance of oil sector

is also neglected in the amount of revenue accruing to the federal

government revenue increase from 26.9% in 1970 to a peak of

82.1% in 1974 and fluctuated between 63.1% and 81.4% in 1975-

1976 even in 1981 when there was a drastic in oil revenue

36
nevertheless accounted for 62.4% of total revenue from oil source

accounted for between 75 and 80% or total revenue in the period

1974-1977 the full of production and export level according to him

resulted in a full of production and export level according to him

the decline in government revenue by 25.1% from the proceeding

years. Level of N6,08.5 million to N4,565.5 and accounted for the

8.3% decline in total government revenue. He however

maintained that apart from the years 1979, the estimate of

federally collected avenue averaged a growth rate of 27.1%. So

was the government recurrent and capital expenditure which

during the same period averaged 3.7% and 43.2% respectively.

According to Nwankwo in terms of total exports, argued

that total exports since 1970 has increased because of the increase

in crude oil export while to exports increase from N255.4 million

during the same period. Angage noted the role of the petroleum

37
industry towards the development of human resources in the

Nigeria economy. He obtained that between 1954 and 1956 shell-

BP awarded over 1000 secondary school scholarship, 246

scholarships in polytechnic and collages of technology in Nigeria

1961 and 1876 he further asserted that 181 scholarships were

awarded to universities between 1953 and 1976.

Rilwanu Lukman, a one time Nigeria petroleum minister

and OPEC president summarized the dominance of crude oil in all

fact of the Nigeria economy. He opined that oil has come to

dominate the whole economy, such as anything happening in the

international oil industry will reverberate throughout all sector of

the economy.

2.4 An Overview of the Petroleum Sector on the Nigeria

Economy

38
 The financial contribution of the petroleum sector to the

growth and development of the Nigeria stands prominent in

several areas. We discuss specifically the contribution of the sector

to the country’s gross domestic product as a source of foreign

exchange and federal collectable revenue; furthermore, we discuss

the role of petroleum as a source of energy industrial development

and transfer technology.

A review of the petroleum sector and Gross Domestic Product

(GDP)

Since 1960’s the petroleum sector has contributed

significantly to the country’s domestic product (GDP). For

comparative purpose, GDP over the period has been decomposed

into oil GDP and non-oil GDP, since the agricultural sector

provided the economy’s mainstay before the advent of petroleum

in Nigeria, we have also include the share of agriculture in the

39
GDP over the period, to enable us to appreciate the overriding

influence or otherwise of the petroleum sector on the Nigeria

economy.

In the 1980s there was a general lull in the oil market, this made

the contribution of petroleum sector to decline relatively to an

average of 19.64% during the period (1981-1989), while that of the

agricultural sector fell again to 32.95%. Thus anything prevailing

circumstances changed in favour of the petroleum sectors

agricultural output tended to decrease in relation to total GDP.

Review of the petroleum sector as a foreign exchange

earners

Through the exportation of crude petroleum, foreign

exchange in earned for the country, they surpluses recorded in the

balance of payment during the mid 1960s and early 1970s was

largely as a result of export receipt from crude petroleum

40
(Ugbogu, 1979) up to 1969, the cumulative export earning from

crude oil amounted to N1.0-15 billion by the end of 1957, the

cumulative total had gone up to N22.329 billion. The highest

annual export value recorded for crude petroleum during the first

half of the 1970s was in 1974 when it hit the N7.207 billion mark.

In general, the contribution of the petroleum industry to

Nigeria’s export growth as seen tremendous for the entire period

1958-1998 Nigeria accumulated a total sum of N5,219.998 billion

from the export of crude oil of this amount, the period 1986-1998

alone accounted for N5,162. 479 million representing a current

value share of 97.55%.

A Review of the Petroleum Sector and Government

Revenue

In addition to being a source of foreign exchange, the

petroleum sector also contributed significantly to government

41
revenue paid by oil companies, petroleum profit tax rent and

miscellaneous fees from the granting of various firms of operating

uncences such as oil exploration license (OELS) oil pipeline license

(OPLS) and oil mining license and leases (OMLS) of all these

source of revenue petroleum profit tax in the most significant.

The petroleum sector yield revenue of 167 million out of the

total federally collected value of N634 million representing 26.3%

of the total. By the year 1974, Nigeria earned as much as 3,724

million as revenue from petroleum representing 82.1% of the total

for the decades 1970-1979, the average contribution of the

petroleum sector to federally collected revenue stood at 64.19%

which stood at N35 and 1989 respectively. By the year 1998, the

cumulative revenue from petroleum related taxes and other

charges had reached the N2,075 . 057 billion mark, while the

sector’s shares in total collected revenue continue to remain

42
relatively high at average of 93.6% and 74.6% recorded for the

periods 1980-1989 and 1990-1998 respectively. High out average of

73.6% and 74.6% recorded for the period 1980-1989 and 1990-1998

respectively.

2.5 A REVIEW OF PETROLEUM AS A SOURCE OF ENERGY

Petroleum provides different source of energy apart from

crude oil, which is the main component of petroleum, there are

other petroleum product such as natural gas (usually found in

association with crude oil or in sole gas yields). There are other

product which are derived from crude oil, such as premium motor

sprit, commonly known as petrol, automotive gas oil derivation

include low and high pour fuel oil, bitumen, asphalt, wax and

petroleum jelly.

The gas sub sector of the petroleum industry is also

important supplier of energy although until recent times,

43
significant attention has not been paid to gas utilization to that

extent that the largest proportion of it is flared away, for example,

it has been estimated that during the period 1970-1979, the average

rate of gas flaring stood at 75% for the period 1980-1989 and 1990 -

1989 average flare stood at 79% and 78% respectively (Cirubo,

1999). These figure imply that the utilization rate of gas in Nigeria

has been very low. At the domestic level, the existing gas plant

supply gas to factories for industries purpose. For example, the

Uforogu gas plant located at devemiludo in delta state is linked to

the industrial zone in Lagos by pipeline. The Ajoakuta steel

company, the Delta steel company at Ovwlan-Ahadja, cocoa-cola

plant all over the country etc. make was of gas for generating

power. However, the largest consumer of Nigeria’s natural gas is

the national elective power authorities (NEPA) now known as

44
power holding company (PHC), accounted for about 70% of gas

utilized in Nigeria.

2.6 CRUDE OIL CONTRIBUTION TO GROWTH IN

NIGERIA

Since 1970, oil (petroleum) contribution to economic growth

had been on the increase and it has become the dominant sector in

Nigeria economy. According to Ekog (1979) in 1978, the petroleum

industry accounted over 96% of our export values, and for over

80% of federal revenues and for over 30% of our Gross Domestic

Product (GDP). Nwankwo (1982) believes that oil price change

have significant effect on government revenue. In his view, since

1970-oil revenue had dictated the trend in government revenue.

This is while oil 1973 rose phenomenally from a mere N1.0 billion

in 1973 to a peak of N11.0 billion in 1980. Government revenue

with in the same period rose from N1.7 billion to a peak N16.0

45
billion. Obadan (1983), declared that “the effect of oil industry on

government revenue is quite positive and significant. Onoh (1983)

reveals that it was until 1958 when the first oil export were made

totally 1.8m barrels of crude oil which were processed and

consumed annually in Nigeria. Obadan (1983) also made it know

that positive impact of crude oil on economic growth can be

directly seen on crude oil relationship with government revenue,

external trade, foreign exchange, total exports, GDP etc.

Ubozu (1984) attempted to examine the contribution of

crude oil to the Nigeria economy from 1958 -1978. This analysis

shared that there were substantial increased in total export,

foreign exchange earnings and government revenue as a result of

increase of crude oil export.

Nwankwo, (1993) emphasized on the importance of the sector

with respect to the amount of revenue accruing to the federal

46
government from petroleum export. He explicitly stated that the

proportion of the crude oil revenue with respect to total revenue

increased from 26.5% in 1970 to a peak of 81.45% in 1975-1979.

However, Nwankwo (1993) further made it known that crude oil

revenue as a proportion of total revenue fall from 90% to 62.46%

during the sap period.

Ineayeami (1995) asserts that the average yearly export price

of Nigeria’s Bonny light crude oil was on the rise in the 1970’s and

reached it peak in 1982-1983 before it began to fall during the sap

period. He however made it know that after 1994 (and of sap)

crude oil average yearly export price began to rise. According to

Anyanwu (1990), for most of the 1980s Nigeria suffered from

sharp decline in crude oil production and exportation as a result

of the fall in the price of crude and this was mainly attributed to

the flooding of the oil market by some large OPEC member nation

47
(Saudi Arabia) who entered into agreement with the western

world without the consent of OPEC. Thus this move resulted to oil

glut and Nigeria had no other option than to reduce its production

and exportation of crude oil.

Anyanwu (1995) further makes it known that after 1994 ( post sap

ear), the production of crude oil has risen again to 696, 790,000

barrels, export had also risen to 758,044,00 barrels.

Anyanwu (1997) empirical result (on the impact of oil on economic

growth), both crude oil and agriculture growth rate was a

significant determinate of GDP growth rate during SAP R 2 value

(0.62) indicates that the model was just far and not a very good fit

model. After sap, Anyanwu’s indicated that both crude oil and

agriculture growth rate are significant determinants of GDP

growth rate. He obtained a high R2 value (0.86) indicating that the

model was good fit.

48
 Moreover, according to CBN statistical bulletin (1998), crude

oil contribution to GDP rose from N0.42 billion in 1960-1969 to

N12.88 billion in 1995. The highest contributing period being 1975-

1979 at N17.91 billion. This percentage share of crude oil in

Nigeria GDP rose from 1/6% in 1960 period to 17.40%, 24.3% in the

1975-1979 periods. It was 22% in 1980 falling and 15.06% in 1985

and 12.90% in 1990. In 1995, it had further fallen to 12.44%. CBN

statistical bulletin (1998) also indicated that during SAP period, oil

revenue fell drastically but began to rise price again after SAP

period (this was in the 90s). This oil revenue trend will be

explicitly shown in task one (in Appendix).

A review of Iwayemi (1997) empirical work oil impact on

economic growth, indicated that crude oil growth rate was a

significant determinant of GDP growth rate during SAP, while the

49
revenue is the case for agriculture growth rate. He obtained a high

R2 value (0.82) which indicate that the model was a good fit.

Odozi (1997) empirical work on the contribution of oil on the

economic growth in Nigeria also showed that during SAP,

agriculture growth rate R2 value (0.762) indicating that the model

was good fit.

Odozi result after SAP, indicated that crude oil growth rate is not

a significant determinant of GDP growth rate, while agriculture

growth rate is a significant determinant of GDP growth rate.

Schmeider (1993) in his research findings wrote that during 1980’s

Nigeria has been shocked by two domestic increase in the price of

oil, the first came in 1973-1974. In the after math of the fourth Arab

Israeli war, oil was boosted from about U. S. a barrel on October 1,

1973 to more than U.S & 8 on January 1, 1974. By the end of the

year, the price was over U.S 10, what was particularly started

50
about this was that since 1949, the world oil price had been

relatively stable, fluctuating around U.S & 2. According to Ali

(1987), oil became the dominant sector of the Nigeria economy and

the major source of government revenue and foreign exchange

earning from 1973. Production of crude oil reached 2.3 billion

barrels per day by OPEC. It is therefore clear that the morden

times was some by the oil sector of the economy. Without the

contribution of oil neither the nation’s industrial, agricultural nor

burden of Nigeria’s economy development in infrastructural

development would have been capable of being financed from the

orthodox sources. He noted that the phenomenal growth in the

Gross Domestic Product (GDP) of Nigeria is also attributable to

petroleum production this growth is as a result of the catalytic role

played by crude oil in the economy in the past forty years of its

production in Nigeria, with the continued availability and

51
demand for petroleum, it economy and the industrial sector stand

to survive despite its preset travails.

All the revenue accruing from petroleum is paid to the

government there is the problem of making such revenue

circulate into all the other sectors of the economy and the problem

of investing part of funds in directly productive sectors of the

economy, in regard to the latter, government lacks the orientation

sufficient personnel and experience to engage in the directly

productive sector. The government therefore spends the oil money

in developing the infrastructure in administration thereby

contributing to an imbalance between the directly productive

activities and the social overhead capital. The proportion of the oil

revenue that is spent on local goods and services as against foreign

is obtained by monetizing the petro-dollar into Naira. This

continue to accentuate inflation in the economy Obi (1987)

52
observed that in 1986, the government amounted that withdraw of

the petroleum subsidy to the tune of 80 percent crude oil was to be

sold to domestic refinances at U. S & 20.58 per barrel (even though

the world market price full will below U. S & 20 per barrel in a

matter of days from the commencement off that fiscal year). The

price of gas online and diesel were increased by 97.5 percent and

168.2 percent to 39.5 kobo and 29.5 kobo per litre respectively.

Thus from January 1986, the Nigeria situation was reversed from

“one of an implicit subsidy of that of an implicit tax on the

domestic consumption of crude petroleum. The earlier mentioned

group further added that however due to the constraint imposed

by the global oil markets and the strains within the local or

domestic environment, the Nigeria oil industry is not yet out of

the woods. This has contributed to severe complications in the

crisis of development besetting the country’ yet crude oil export

53
have increasingly become critical to the amelioration of the

Nigerian economic crisis since it is in the short term the most

viable source of revenue needed to reducing the economy and

service external debts. It was therefore not out of place when in

1986, the NNPC provided a fresh package of incentive to oil

multinationals in the form of a memorandum of understanding

(MOU) guaranteeing wider profit margins and tax incentives.

Anyanwu (1997) writes that in April 1998, further increases

were made in the price of petroleum product. This ranged

between 6.3% for gas line and 415.8% for petroleum waxes. The

increases were based on NNPC’s new crude oil stimulated by

OPEC. The exchange rate of the naira and bank interest rates as

they affected corporation’s business. CBN (1988) cited that this

was stated as the first step toward the realization of the import

parity of the products. Okome (1993) states that market

54
fundamentals which began to impose a new downward pressive

on the spot crude oil price during the forth quarter of 1990,

continue to weaken price, with the start of the near of 17 th January

1991, oil prices collapsed by about U.S & 6 per barrel during the

following week, for the first time after the crisis, price fall below

minimum reference level of U. S & 18.67 per barrel in the fourth

week of January. The intermediate crude oil market continued to

force periods of high volatility particularly during the early

months of 1991. These were mainly associated with combination

of the Middle East crisis and its after math the attempted coup in

Moscow.

Pearson (1970) looking at the direct contribution of oil

income in Nigeria, identified that the magnitude of petroleum

industry’s export volume also increased by 7.83 percent early,

average of 16.15 million barrels day in 1993 to 1.73 mspd in 1994.

55
However, the price of oil dropped by 12.87 percent from a

weighted average of U.S & 18.02 per barrel in 1993 to U.S & 7 IN

1994. OPEC annual report bulleting of (1997/2000) recorded real

GDP growth rates from 2.4 percent in 1996 to 3.3 percent in 2000

respectively.

2.7 FUTURE ON NIGERIA’S PETROLEUM SECTOR

Forecasting the future of Nigeria’s petroleum sector is not an

easy task because all indicators point to potential difficulties and

problems, the reason being the impossibility of extra policiting

and recent past into the future. The performance of the oil sector

world wide depends critically on the development in the world

economy. Economic for casts predict negative growth rate for

many nations and the world economy at large. Prediction about

the performance of Nigeria petroleum sector must be based upon

two main economic parameters i.e. the volume of our production

56
and crude oil price. The escalation in the price of oil has drastically

changed the pattern of world oil demand.

The share of OPEC oil both in absolute and percentage terms

total world supply has persistently dropped illustrating continues

displacement of OPEC oil through substitution of other energy

sources and by non-OPEC oil. This in four years, the stare of

OPEC oil in world total has fallen from 64.4% in 1977 to 54.9% in

1980, corresponding to a drop in the demand for OPEC oil from 31

mpb in 1977 to 26.8 mpb in 1980 than to 22 mpb in 1981 and

currently to a mere 17.5mpb.

Nigeria crude oil production which stood at 2.4 mpd towards the

end of 1979 and remained at about 2.1 mbd in December 1980 had

persistently been on the decline since January 1981 when it

dropped from 2.09mbd to 1.95, 1.87, 1.62, 1.33 and 20.7 in

February, March, April and August respectively. To save the

57
crude oil, price from collapse, OPEC for the first time have in April

1982 puts a limit on total output and allocate to Nigeria a

production ceiling of 1.3 mbd. For a nation that as totally become

dependent on crude oil sales. The development seems likely to

become a permanent feature and there is little of recovery in sight.

Apart from the global factors that affect the petroleum sector,

three are the other indigenous issues that have serious implication

for the sector. Nigeria main expectation from the petroleum sector

has and turned out to be mainly to generate foreign exchange and

revenue for the coffers of government with inadequate concern for

industrial transformation of the economy, the petroleum sector

has generated enough revenue lower the years but has been

neglected. Among these are manpower development to effect

accelerated transfer of technology, establishment of petro-industry

active involvement in the petroleum services sub sector and

58
promotion of spin off industries like manufacturing of pipes and

consumer production and also the deliberate use scale and

generate electricity all of which will result in the growth of many

other sector of the domestic economy.

59
 CHAPTER THREE

3.1 THEORETICAL FRAMEWORK AND MODEL

SPECIFICATION

The Nigeria oil industry has undergone tremendous

transformation over the years. The industry has emerged from

being the merely “supportive” economic sector it was in the 1960s

to the predominant source of foreign exchange and development

finance and a most viable access to international investment

opportunities in the 1970’s and 1980. No other resources in

Nigeria, whether national, material or manpower such lowering

role over the national economy.

According to world bank (1984), “the Nigeria economy is open

and extremely dependent on the exportation of crude oil” indeed

it will be correct to say that petroleum dominates the Nigeria

60
economy as oil exports provide over 95 percent of total export

earnings and over 80 percent of total government revenue. The

1970s were the years of the oil boom in Nigeria the beginning of

the oil boom was marked by the quadrupling of world oil prices in

November 1973, the boom came to an end with the collapse of the

global oil prices, which led to economic difficulties for Nigeria.

The crisis was apparently exacerbated by policy inadequacies

during the boom years.

In July 1986, the country was forced to adopt an

International Monetary Fund (IMF) world bank Structural

Adjustment Programme (SAP) as a means of bringing the

economy bank 70 of path of macro-economic stability and self

sustained growth. An industry refers to a number of firms

producing broadly similar commodities. Thus industrialization

capacity to convert raw materials and other inputs to diminished

61
goods and to manufactured goods for other productions or for

final consumption. There are your main types of inductor:

processing manufacturing craft, and mining industries (Anyanwu,

1997). The relationship between petroleum and industrial growth

can be analyzed as follow. The organization of manufacturing in

Nigeria had passed through your clear stages of development. The

first is the pre-independent era when manufacturing was limited

to primacy processing of raw material for export and the

production of simple consumer item by foreign multinational

corporations anxious to gain a fort hold in a growing market.

During this period manufacturing was mostly resource based but

some element of import substitution and therefore imported raw

materials base was already present.

The second is the immediate pos-colonial era of the 1960’s

characterized by more rigorous import substitution and the

62
beginning of decline for the export-oriented processing of raw

materials such a policy of import substitution meant initially to

reduce over-dependence on foreign trade and save foreign

exchange turned out to be a mere assemblage of those item rather

than manufacturing.

The third is the decade of the 1970’s. This was remarkable

because the advent of oil and the enormous resources it provided

for direct government to exercise almost a complete monopoly in

the following sub-sector.

The last phase is the decade of the 1980s market by

Dwindling government revenue consequent upon the nose-diving

of oil prices at the world and hence many adhere attempts at

tinkering the economy were made. There attempts include the

adoption of export promotion strategy on the realization of the

pitfalls of the import substitution strategy. Indeed, manufacturing

63
in Nigeria appear a favoured sector, probably because it is

generally believed that the main instrument of repaid growth

structural change and self-sufficiency lies in the manufacturing

industry. These resources have seen channels into this sector

through substitution basis industries through generous financial

incentives, in addition to a high level of protection for private

investment (Anyanwu, 1993)

The work of Ira 5.5 and Cebula (1992) also throw list on the

theoretical significance of oil as a tool of economic development.

In their literatures, they extensively death with investigation into

the determination of economic development in cross national

studies. In the light of the foregoing we attempt here under to

specify a model relating crude petroleum earning to industrial

growth and other control variable.

3.2 MODEL SPECIFICATION

64
 This model establishes a relationship between petroleum

revenue (earnings), economic development, and industrial

growth, the functional form of the model is this stated below:-

1∆ = f (PR,F1,LR)

WHERE

1∆ = Industrial Output

PR = Petroleum Revenue

FI = Foreign Investment

LR = Lending Rate

The model finally is written as

0 + 1 x1 + 2 x2 + 3 x3 + U:

WHERE

1∆ = Industrial Output Capture index of Industrial Production

PR =Petroleum Revenue

FI = Foreign Investment

LR = Lending Rate

0 = Intercept (Autonomous Industrial Output)

1 = The Slope of Regression Line, measuring the     impact

of Xi

2 = Measuring the impact of X2 only

65
 3 = Measuring the impact of X3 only

The variables “U” is the stochastic or disturbance term

without it the above equation will be of limited interest to the

econometrician for it will assume then an extract relationship

between the dependent variables.

The variable “U” introduced into the equation take care of

individuals variation in the model.

On aprior expectation, all signs are expected to be positive

except lending rate which is negative that is 0 > 0, 1 > 0 since

and increase in PR lends to an increase in 1∆, 2 > 0, since and

increase in FI leads to an increase in 1∆ but 3 < 0, since and

increase in LR generate a decrease in 1∆. Therefore an aprior

expectation (0 > 0, 1 > 0, 2 > 0, 3 < 0)

3.3 METHOD OF ESTIMATION

66
 Since the model is a single equal model, the most popular is

the Ordinary (or classical) least square (OLS) method.

3.4 DATA COLLECTION

The data collection for this research study is a secondary

type obtained through visits to establishments like the library of

the integrated data sources limited (IDSL) as subsidiary of the

Nigeria National Petroleum Corporation (NNPC) for variables

issues of NNPC statistical bulletin the central bank of Nigeria

(CBN) for a recent copy of CBN statistical bulletin. The project

sector of the University of Benin library was also visited were

various issues of the annual report and statement of account of

CBN, annual report bulletin of the or the organization of

petroleum exporting, countries (OPEC) were collected. Data was

also collected from other relevant articles and publication.

67
3.5 DATA FOR REGRESSION

YEAR 1D PR FI LR
1980 119.0 12353.3 360.1 9.50
1981 115.6 8564.4 3757.7 10.00
1982 122.9 7814.9 5382.8 11.75
1983 96.4 7253.0 5949.5 11.50
1984 91.6 8269.2 680.0 13.00
1985 100.0 10923.7 6804.0 11.75
1986 103.5 8107.3 9313.6 12.00
1987 122.1 19027.0 9993.6 19.20
1988 108.8 19831.7 11993.2 17.60
1998 125.0 39130.5 10436.1 24.60
1990 130.6 71887.1 12243.5 27.70
1991 138.8 82666.4 20512.7 20.80
1992 136.2 164078.1 66787.0 31.20
1993 131.7 162102.4 70714.6 18.32
1994 129.2 324547.6 11991.6 21.00
1995 128.8 408783.0 122600.9 20.79
1996 132.5 416811.1 128331.9 20.86
1997 133.4 324311.2 152409.0 23.32
1998 136.6 724422.5 154188.0 21.34
1999 132.0 1591675.8 155220.5 23.00
2000 136.8 1707.6 156112.0 25.00
2001 144.1 1230.9 162343.4 18.29
2002 145.2 2074.3 166631.6 24.40
2003 147.0 3354.8 178478.0 20.48

68
2004 151.0 4762.4 249844.7 19.15
2005 158.8 5287.6 269844.7 17.85

CHAPTER FOUR

PRESENTATION OF REGRESSION RESULT

4.1 INTRODUCTION

Results of an empirical work are presented below

(Cochrane- Orcult result).

Industrial Output (IDO) = 0.78 – 0.48PR + 0.33FI + 0.82LR + Ut

(2.10) (-2.96) (1.58) (0.78) ------- T- Ratio

R2 = 0.74

R2 = 0.57

F – Statistics = (8,12) 4.26

DW = Statistics = 1.62

4.2 INTERPRETATION OF RESULT

69
 The above model shows that not all the estimated coefficient

of the explanatory variable agreed with the apriori expectations.

Only foreign investment (FI) agreed with it, that is positively

signed as expected but petroleum revenue (PR) and lending rate

(LR) did not appear as expected.

The statistical test of significance of the parameter estimate

shows that the theoretical value at 5% IS 2.080 (to. 025,21), thus it

is obvious that the comparism between the slope shows that: All

the computed F – statistics are less than the theoretical value,

which implies that they are not significant at 95% confidence

interval.

A critical examination of the regression result shows that R 2

value of 0.74, simply tells us that over 746 systematic variation of

the dependent variable is explained by changes in our explanatory

variable. This is surely a good fit as only about 26% systematic

70
changes in the dependent variable is left unaccounted for by the

model which we attribute to the error term.

As a measure of goodness of fit, R2 tends to over estimate the

goodness of fit of the model, we therefore use the adjusted

coefficient of determination (R2 = 0.57). The R2 shows that about

57% systematic variation of industrial output (IDO) can be

explained by the regression. This means that the regression model

line is a good fit. This also means that the regression result has a

moderate predicting power.

The F- statistics result revealed that the estimated regression

model passes the significant test (i.e. F-test) at a sound 5% level of

significance because the F- calculated (4.26) is greater than the F-

critical point (2.58) at 8,12) degree of freedom. This means that

significant linear relationship exist between the dependent

71
variable and the explanatory variable. Thus, are deemed fit for use

is policy analysis.

The Durbin-Watson statistics of 1.62 implies that there is absence

of serial auto-correlation in a regression estimation carried out.

This are deemed fit for use in the policy recommendation taking

cognizance of their respective implications.

4.3 POLICY IMPLICATION

The findings of the empirical evidence from the basic of the

policy implications are enumerated below:

(1) The value of petroleum revenue (PR) is negatively related or

inversely related to dependent variable petroleum output

(IDO) such that a unit increase in petroleum revenue (PR)

will result in 0.47 unit decrease in industrial output (IDO)

and vice-versa all things being equal.

72
(2) Foreign direct investment is positively related to the

dependent variable (IDO) and vice-versa.

(3) According to the regression result, the value of LR is

positively related to the dependent variable “industrial

output (IDO) such that a unit increase in lending rate (LR)

will result in 0.82 unit increase in industrial output (IDO)

and vice-versa.

73
 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 SUMMARY OF FINDINGS

The financial contribution of petroleum sector to the

economic growth of our country cannot be over-emphasized; this

is because the sub-sector has played a dominant and leading role

in the economic development of Nigeria. For instance, the

petroleum industry accounted for over 90% of our export earnings

in the early post civil- war (Ethon, 1975). Thus, in credence to the

74
work of Ethon (1975) the revenue derived from oil through was

about N10 billion in 1975, there was a phenomenal increase to

about N11.0 billion in 1980. Within this period also, the revenue

which accrued to the government witnessed an astronomical

increase from N1.7 billion to about N16.0 billion.

Obadan (1983) asserted that the effect of the oil industry on

government revenue show a sign of positive relationship.

However, for most of the 1980s Nigeria experienced a sharp

decline in crude oil production and exportation as a result of the

fall in oil prices particularly during the (SAP) era. At this period

the international price of oil rose due to the competitive market

structure of the OPEC member nation. The effect of this

competition resulted to oil glut which forced Nigeria to cut down

the volume of its production and exportation of crude oil.

75
 Specifically, this worth is centered on the financing

contribution of petroleum (oil) revenue to the growth of the

industrial sector of the Nigeria economy and the analysis of this

empirical studies has shown “interalia” that petroleum (proxy for

oil revenue) is a significant determinant of industry growth at

least with the fore view of our study.

5.2 CONCLUSION

The growth of any nation significantly depends on the

variables sector of the economy and Nigeria is not an exception.

However, the practice in the under developed countries looks

some what different since many of such a countries are mono

cultival. For instance the oil sector has been a major determinant of

the economic growth. In 1960, oil constituted about 40% of

Nigeria’s economic growth and catapulted to about 90% in the

1970’s essentially due to the oil revenue received from the oil

76
boom. Thus, although, oil revenue has been our main-stay,

numbers of problem have plagued it. Prominent among these, is

the high level of dependence on a commodity whose price is

externally determined, controlled of critical national resources by

foreign multinationals, dependence on a commodity whose price

is externally determined, control of critical national resource by

foreign multinationals, dependence on foreign oil technology and

expertise as well as the destabilizing tendencies of the oil prices.

The practice of Nigeria’s banking institutions seen equally to

be designed to kill existing industries and discourage investment

in new ones through their high interest rate. The CBN must,

therefore arouse it self to undertake a serious surgical operation of

the Nigerian economic sector practices in order to save the

economy and ensure the viability and sustainability of Nigeria

industries.

77
5.3 RECOMMENDATIONS

Following our empirical verification on the financial

contribution of petroleum revenue to the growth of the industrial

sector of the Nigeria economy, a number of recommendations

have been made.

(1) Appropriate money supply should be geared towards the

improvement of petroleum revenue since the industrial

sector is important to economic development of all nations.

(2) All OPEC member nation should work together and adopt a

cooperation strategy based on the concept of mutual

understanding of production allocation.

(3) Oil today is currently being regarded as one single

commodity capable to generating the income and the

foreign exchange needed to restructure the economy despite

its economic crises. In this vein, the lessons of the past in

78
which substantial oil revenue obtained through crude oil

export were not always efficiently utilized must be seriously

considered.

79
 BIBLIOGRAPHY

Anyanwu, et al (1997): Structure of Nigeria Economy, 1960-1997,

Onitsha.

Central Bank of Nigeria (1982): Economic and Financial

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Structure, Growth and Development.

Essangs, S. M. (1984): “Impact of Oil Production and Agricultural

Policy” Proceeding of the International

Conference on Petroleum and Agriculture,

Organized b y Petroleum Training Institute

on October 7-19th 1984.

Hirschman, A. O. (1958): “The Strategy of Economic

Development” Yale University Press New

Haven.

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Inayemi, A. (1989): Planning and Performance in the Nigeria

Petroleum Industry. A Paper Presented at

the Nigeria Economic Society Annual

Conference Held in Illorin May 13-16, 1989.

Iyoha, M. A. (1989): “The Nigeria Economy in the 1990’s

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November/December 1989 Pg. 6 – 9.

_____ (1992): “Oil Dependency and Nigeria’s

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Obadan, M. I. (1983): “The Impact of Petroleum on the Nigeria

Economy” the ECOWAS Vol. 2.

Ojejide, T. A. (1991): Trade Shock Oil Boom and the Nigeria

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 of Economics, University of Ibadan,

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82