CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

According to the World Bank Countries income groups, Nigeria has been classified as a lower middle income economy with an abundant supply of natural resources (World Bank, 2011). The country is also the 12th largest producer and the 8th largest exporter of petroleum in the world and has the 10th largest proven oil reserves. Petroleum plays a big role in the Nigerian economy, accounting for 40 percent of GDP and 80 percent of government earnings on the average over the period 2000 and 2009 (US Department of Energy, 2005). Decades of economic stagnation and declining living standards have seen Nigeria enlisted among the poorest countries in the world. The economy has neither been able to leverage on the country’s enormous wealth in natural resources to overcome poverty that affects about 57 percent of its population nor use the derived wealth to boost her economy considerably. The co-existence of vast wealth in natural resources and extreme poverty in developing countries like Nigeria is referred to as the “resource curse” or 'Dutch disease' (Auty, 1993).

However, the Nigerian economy is said to have witnessed some progress in macro-economic performance in recent times, with an average economic growth of 7.0 percent over 2007 and 2011 driven by the non-oil sector (NBS, 2012). The non-oil sector has been the main driver of growth over this period, with services contributing about 57 percent, while manufacturing and agriculture contributed about 9 percent and 21 percent respectively. This indicate that the productive base of the economy is being broadened as the services sectors, particularly retail and wholesale trade, real estate, information and communication are increasingly contributing to growth. The agricultural sector features prominently as an important contributor to economic growth, yet infrastructure that could have enabled it perform even better, such as good road network, power, water resources among others are seriously inadequate. According to the National Bureau of Statistics (NBS) over the last decade, Nigeria’s infrastructure spending contributed only 1.9 percent (approximately $4 billion) per annum to GDP.

Thus, the country continues to face rising incidence of poverty, social deprivation and preventable diseases (UNDP, 2011).  Unemployment rate rose from 19.7 percent in 2009 to 21.1 percent in 2010 and 23.9 percent in 2011; income distribution continues to be skewed, with a GINI coefficient of 0.44 in 2011. About 63 percent of Nigerians live below the poverty line of USD 1 per day; 42 percent do not have access to safe drinking water and 69 percent do not have access to basic sanitation (African Economic Outlook, 2012). Social and economic indicators show huge regional disparities in the country. In a nutshell, the overall economic improvements have not translated into improvements in the welfare of the average Nigerian (African Economic Outlook, 2012).

The 2012 economic outlook for the country showed that infrastructure deficit in Nigeria is a major bottleneck for the structural transformation of the Nigerian economy and that this is particularly so in the electric power industry, environmental protection, road and rail transport to mention just a few (African Economic Outlook, 2012). Increased investment in infrastructure is said to be critically needful (Sanusi, 2012). For instance, inadequate power, inefficient modes of transportation and decayed education infrastructure have imposed economic limitation within the country and these call for actions that can reverse the trend.

It is a common feature in most developing countries, to identify the mass of the people with slums, poverty and certain ailments that have gone extinct in the advanced economies. This is not because these phenomena are synonymous with the masses, but rather because institutions are feeble and investment in environmental infrastructures have fallen out of pace with rising demand for them.

The activities in the services sector in addition to the oil and gas sector which are the main contributors to economic growth in the country, have not been without some level of trade off for environmental quality (Den Butter & Verbruggen, 1994). The country is experiencing the dearth of investment in environmentally friendly infrastructure capable of mitigating the negative effects of economic growth. The environment itself as a natural infrastructure and a critical factor of production need to be taken into consideration as economic growth is being pursued (Panayotou, 1993).

The desire for greater economic growth has been linked to fall in the quality of the environment (Synder, Miler, & Stavins, 2003 & Shi, Zhao, &Zhang, 2011). Rise in the scale of production, urban growth and slum manifestation due to urban unemployment and high cost of house rent as well as increased vehicular traffic have been sources of falling quality of the environment. Refuse dumps have posed danger to health in our major cities in the country. These dumps have been sources of contamination of water and the soil as well as breeding ground for several ailment causing vectors.  The quality of the environment can also be measured by the degree of particulate matters in the air. The effect of particulate matter on human health has been noted by several scholars. For instance, (Abam & Unachukwu, 2009 & Efe, 2005) assert that high rates of respiratory diseases occasioned by increased pm10 (particulate matter up to 10 micrometers in size) concentrations were experienced by residents of most urban areas.

The Environmental Kuznets Hypothesis (EKH) has featured more frequently in the literature in terms of the relationship between the quality of the environment and income growth in a country or region. The Kuznets hypothesis posits that an inverted - u shaped relationship exist between a country’s per capita income and its level of environmental quality: increased per capita income is associated with an increased pollution in poor countries, but a decline in pollution in rich countries. The hypothesis is bringing to the front burner, the idea that as people and countries get to appreciate the need for better environment, they will demand for it and the authorities will also get to invest in technologies that will address the negative fallout of economic growth on the environment (Grossman & Krueger, 1993).

Economic analysts are of the opinion that infrastructure has an important role to play in driving growth and for optimal utilization of the potentials in most developing economies (Perkins, Fedderke, & Luiz, 2005).

Generally, there are costs to deficit of infrastructure. These include rising overheads to firms and industries, leading to high prices of goods and services, low competitiveness of industries, low capacity utilization and low employment. Juxtaposing this with the low income status of the economy and the incidence of poverty leaves less to be desired. Also, policies and investments that can forestall air, water and land pollution are yet inadequate or that the policies are not being implemented. An example is the impact of oil exploration on the environmental pollution in the Niger delta region.

Furthermore, the appearance of slums in the urban areas and the deplorable sanitation and hygiene condition is a product of infrastructure deficit (Morakinyo, Ogunrayewa, Koleesho, & Adenubi, 2012). Most of the cities in the country are spotted with refuse dumps and dirty neighborhoods.

In addition, the level of awareness and education of most Nigerians on the need for good environmental practice is low. In this regard, environmental education or awareness itself is an environmental infrastructure (Falk, 2005). Investment in education has been severally canvassed as being low in Nigeria. Education is an important factor for raising quality of human capital in the country. It is said that the people perish for lack of knowledge.

The country has incurred colossal losses as a result of deficit infrastructure. Some common ailments have gulped a sizable part of the national resources (human and financial) which could have been used for other developmental projects.  Firms have produced below capacity and are still doing so while those who could not cope have folded up or relocated to better economies.

Between one third and one half of infrastructure services are used as final consumption by households (Prud'homme, 2005). Besides, basic services such as water and electricity, cooking fuel often occupy a significant fraction of poor households’ budgets. Households in developing countries spend a significant fraction of their income on water and electricity in addition to time loss in the process of sourcing for water (Foster & Yapes, 2005).

Obviously, environmental infrastructure has very important role to play not only in terms of promoting economic growth, but also in terms of guaranteeing qualitative environment for good health. However, the present situation in the country does not seem to key into this fact. The government in particular must explore every opportunity it has to address this problem.

Earlier studies in the area of infrastructure and economic growth as well as economic growth and environmental quality have led to debates that have contributed to economic theory. This study seeks to provide evidence, in line with the emerging findings across the globe, for Nigeria’s economy.

1.2            Statement of Problem

The Nigerian economy, though adjudged to be performing above Africa’s average, cannot be said to be at its best given the abundant resources at its disposal and the pace at which its contemporaries are progressing. There has been deficit in environmental infrastructure translating into fall in environmental conditions coupled with non-inclusive growth, as the growth recorded was possibly not in the area that could have benefited the mass of the people, or that it does not commensurate with the country’s potential, hence breeding inequality in the country.

Investment in environmental infrastructure in Nigeria appears to have fallen out of pace with the demand for them, given their role in environmental sustainability and wealth creation. In other words, the stock of infrastructure generally, has placed limitation on sustainable economic growth potentials in the Nigerian economy. It also appears that the level of awareness and education among Nigerians on environmental best practices lives much to be desired. In addition, the desire for economic growth, in the face of inadequate environmentally friendly infrastructure such as, efficient power mix, (electricity generation) and mode of transportation, for instance, is likely to have at least, increased the level of carbon emissions. This has the potential of endangering the environment and its sustainability and eventually, the gains from growth might be jeopardized.

1.3            Research Questions

In the light of the above, the following research questions were raised:

i)                   How relevant is investment in environmental infrastructure to Nigeria’s economic growth?

ii)                What impact has environmental infrastructure on environmental quality in Nigeria?

iii)             To what extent has economic growth impacted the quality of the environment in Nigeria?

iv)              What is the direction of causality between environmental infrastructure and economic growth in Nigeria?

1.4 Objectives of the Study

The main objective of this study is to analyse the impact of public investment in environmental infrastructure on economic growth in Nigeria.

Specifically, this study sought to:

i)       Evaluate the relevance of investment in “environmental infrastructure” on economic growth in Nigeria.

ii)    Inquire into the impact of environmental infrastructure on environmental quality in Nigeria

iii) Investigate the impact of economic growth on environmental quality in Nigeria.

iv)  Examine the direction of causality between environmental infrastructure and economic growth in Nigeria.

1.5 Statement of Hypotheses:

H01: Environmental Infrastructure has no significant impact on economic growth in Nigeria.

H02: Environmental infrastructure has no significant impact on environmental quality in Nigeria

H03:   Economic growth does not impact on environmental quality in Nigeria.

H04:   There is unidirectional causality which runs from environmental infrastructure to economic growth in Nigeria

1.6 Justification for the Study

This study is of relevance in two distinct areas. First, it extends the study in the area of environment and economic growth using recent statistics to see if findings in the area of environment quality and economic growth nexus have been sustained. Secondly, this thesis is focusing on environmental infrastructure and economic growth nexus. Environmental infrastructure here is a subset of infrastructure. Doubtless, earlier studies such as those of (Aschauer, 1989; Canning & Pedroni, 1999; Jacoby, 2000 & Estache, 2003) have established the link between infrastructure and growth. A number of studies have been done in the area of environment and health outcome. For instance, (Turley, Saith, Bhan, Rehfuess, & Carter, 2013) examine the effectiveness of slum upgrading strategies involving physical environment and infrastructure interventions for improving the socio-economic wellbeing of slum dwellers in low and middle income countries. Employing qualitative method, they found limited but consistent evidence to suggest that slum upgrading may reduce diarrhea in slum dwellers and their water-related expenses. Indeed, environmental degradation is more noticeable in slum areas where housing and living conditions are exceptionally poor. The activities by dwellers in slums have environmental and health consequences and this should warrant for adequate investment in infrastructure which can mitigate the attendant challenges. 

 Unlike the reviewed studies, this study is in respect of harnessing infrastructure to have abating effect on the environment and also promoting economic growth. In this work, attempts have been made to fill this gap by modeling a relationship between transport, water, electricity and crude petroleum/natural gas infrastructure on one hand and aggregate output on the other. Findings are extended and replicated in line with studies outside Nigeria that are close to the focus of this study. The outcome of this study is beneficial not only to the government for policy but also all stake holders on environmental matters by raising awareness on the transmission mechanism between “environmental infrastructure” and economic growth as well as stimulate actions in the right direction.  It is also of great benefit to ordinary Nigerian as policy suggestions would affect not only their health but also their ability to create wealth.

1.7 Scope of the Study

This thesis is only concerned with environmental infrastructure emphasising on how they can serve to mitigate negative fallouts of economic growth through production and consumption. We modeled the relationship between selected environmental infrastructure output and aggregate output (GDP) in the Nigerian economy. In addition, quarterly series from 1980 first quarter to 2013 fourth quarter are employed. The reason for considering this period being that the series is adjudged to be more stable over the range as they reflect the post-civil war experience of the Nigerian economy. Moreover, the country has witnessed series of policy efforts at promoting growth as well as reducing negative impacts of production and consumption on the environment, over the period considered. It is therefore hoped that the series, over this period, will provide us with useful information in relation to this study.

1.8 Study Outline

This thesis is organised into five chapters. The preceding section is the chapter one and it covers: background to the study; statement of problem; research question; objective of the study; hypotheses; justification for the study and scope of the study. The next chapter is the literature review made up of conceptual review; theoretical review and empirical review. This is closely followed by chapter three, titled research methodology and it covers theoretical framework; method of estimation; specification of model and discussion of variables. Chapter four is on data presentation and analysis and it covers: dat

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