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CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Crude
oil is one among other natural resources endowment in a nation by
nature. Natural resources are often regarded as free gifts of nature.
All over the world, different countries are endowed differently with
different resources, both in quality and quantity, to some less and
others in abundance. Nigeria is one among these countries that is richly
blessed with vast natural resources, such as: forests, lands, fresh and
salt water, sands, coal, Iron-ore, natural gas, aluminum, non- mineral
energy source of solar, crude oil which is our subject matter among
others. Crude oil was first discovered in united state (US) in 1859,
which was sold on a large scale in the 1860s. In Nigeria, the search for
crude oil started within 1905 and 1908 by the Nigerian Bitumen
Corporation (NBC) who on their search found 16 shallow wells, confirming
a line of oil seepage in the Eastern Dohomey Basin in Okitipupa,
Western Region of Nigeria. The NBC could not go far with its search due
to the outbreak of the First World War in 1914 which distorted their
activities. However, after the war, the Roral/Dutch Company took over
and continued with the search from Ondo State to Abia State and finally
narrows down their search to Niger Delta Region where they first
discovered oil in large commercial quantity in 1956 at Oloibiri
specifically in the present Bayelsa State. Nigeria oil hit.
The
international market in 1958 with approximately 5,000 barrels per day.
Nigeria produces about 30% of the total oil production in the Africa
region. As of September 2004, she was ranked the largest producer in the
sub- Saharan Africa, the 5th largest petroleum exporting country in
organization of petroleum exporting countries (OPEC) and the 5th largest
oil exporting country to the united state of America, amounting to
about 8% of USA crude oil imports. Here current production capacity is
over 2 million barrels per day on average. Although Nigeria for over
30 years has established herself as a leading producer of crude oil, she
is known in energy circles as a “gas province with only a little pool
of oil”.
The oil producing states in Nigeria so far discovered
include: (Abia, Akwa Ibom, Bayelsa, Cross River, Delta, Edo, Ondo and
Rivers) state, nine in number with a common nomenclature known as the
“Niger Delta region”. The formulation and implementation of the Nigerian
oil sector is under three actors which are:
1. The ministry of petroleum resources, established in 1972 with four departments functioning differently.
2.
The Nigeria national petroleum corporation (NNPC), established in
1977 under decree No. 33 as government owned company together with the
petroleum inspectorates as its integrate part under six directors.
3. The
private sector, which comprises of multinational oil companies, which
produces about 98% of the total production and indigenous companies
producing about 2%.
The oil sector is categorized into up and down
stream, connected with forward and backward linkages. Over the past 30
years, different people have commence differently in the activities of
oil production in Nigeria, to some it has made a Variety of
contributions to the Nigerian economy, such of which include: the
creation of employment opportunities, the supply of energy to
industries, supporting the transportation system, source of revenue
generation to the government, etc. while to others, oil production does
more harms than good to the environment and the economy as a whole,
which call for environmental-resource accounting. In terms of output
production and product contribution, oil witnessed steady progress
throughout the period under review. Crude oil production increased from
1.9 million barrels in 1958 to 152.4 barrels in 1966. Production
increased from 395.7 million barrels in 1970 to 660.1 and 845.5 million
barrels in 1975 and 1979 respectively. The increase in production
witnessed during this period was precipitated by Middle East crisis and
the 1973/74 oil embargo which caused a sharp reduction in world oil
supply. The increased oil prices that the crisis generated helped to
boost local oil production in the country. However, this was short-lived
as the early 80s witnessed a glut in the international crude oil
marketing to over-supply, which culminated in sharp drop in prices and
central reduction in the production quotas by OPEC member countries.
Consequently,
oil production in Nigeria dropped from 0. 1 million barrels in 1980 to
535.9 and 383.3 million barrels in ‘1986 and 1987 respectively. The
situation improved in the 90s as crude oil output rose from 383.3
million barrels in 1987 to 711.3, 742.3 and 772.9 million barrels in
1992, 1996 and 1998 respectively. The trend continued between the year
2000 and 2009. The cumulative crude oil production for the country
increased from 20,575881mi11ion barrels in 2000 to 27,052, 0677 million
barrels in the 2009. In general, crude oil production witnessed
appreciable increase over the period under study. Finally, the
production of oil in Nigeria is not totally free from challenges; rather
it has been plagued by various problems which undermined its optimal
development over the years. In general term, from 1990s till date,
public control and bureaucracy, poor funding of investments, communal
disturbances, smuggling and diversion of petroleum products, fraudulent
domestic marketing practices, and product adulteration, oil theft among
others has in identified as the challenges facing crude oil production
in Nigeria.
1.2. Statement of Problem
Crude oil which is
believed to be a gift of nature to a nation, like Nigeria and others who
are blessed, has become a controversial subject among scholars and
researchers worldwide. Over the years, the issue of whether crude oil
production translate to economic growth or not has been a burning
question to many as well as a global subject of considerable interest
and debate as a bone of contention. While some strongly opine that crude
oil production is the life-wire of a producing country’s economy,
maintaining that its export has a positive relationship with economic
growths, spill-over effect on foreign reserve as well as determining the
rate at which her currency is exchanged for in international market
etc, to others, the reverses is the case, as the argued that it has done
more harms than good.
Affirming their argument, they point at
environmental degradation, pollutions, deprivation of means of
livelihood, over dependence on oil revenue, socio economic conflict
associated with crude oil production activities among others. To be
specific, the words of Juan Perez Pablo Alfonso, fully support the
latter when he says “I call petroleum the evil’s excrement. It brings
trouble…waste, corruption, consumption, our public services fall apart
and debt, a debt we shall have for years” (the economist, May 22, 2003).
Research-wise, this contradictory argument “for and against” the
subject matter, has create a gap which keep both end from reaching a
consensus. Objectively, these hypothesize arguments is what necessitate
the conception of this study as an attempt to ascertain which assertion.
1.3 Objective of the Study
The objective of this research
work is sub-divided into two, the main and specific. The main Objective
is to examine the impact of crude oil production on economic growth in
Nigeria. Specific Objectives include;
1. To examine the impact of crude oil export revenue on economic growth in Nigeria.
2.
To examine the transmission channel through which exchange rate is
affected by crude oil export and thus economic growth in Nigeria.
3. To examine the relationship between Nigerian foreign reserve and her economic growth through crude oil export.
1.4 Research Hypothesis
1. Ho: There is no significant relationship between oil revenue and economic growth in Nigeria.
2. Ho: There is no significant relationship between exchange rate and economic growth in Nigeria.
3. Ho: There is no significant relationship between Nigerian foreign reserve and her economic growth.
1.5 Scope and Limitation of the Study
This
research work focus on the impact of crude oil production on economic
growth in Nigeria, with time series date from 1980-2011, which cover a
period of thirty-two (32) years to examine the relative impacts of oil
revenue, exchange rate and foreign reserve as the regressors on the
regressed (economic growth represented by G-DP). This choice of time
space is believed to be long enough to capture and explain the long-run
relationship that exist between the variables noted above in the growth
of Nigerian economy. On its limitation, source of gathering data was the
major constraint encountered in the cause of conducting this study,
together with the difficulty in accessing the internet in Amassoma due
to poor network services. Also financial constrain and time factor as
well as academic stress among others, as well contributed to the
limitation of this work.
1.6 Significance of the Study
It
will provide useful information to government and policy makers. It will
also provide an econometric basis upon which to examine the impact of
crude oil production on economic growth in Nigeria. It will as well add
to existing literature and knowledge.
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