CHAPTER ONE

1.0 General background of the study

This chapter outlines the Introduction, Statement of Research Problems, Objectives of study, Methodology, Theoretical Framework, and Significance of study, Scope and limitation as well as the Chapter outline.

1.1 Introduction

The Organization ofPetroleum Exporting Countries (OPEC) Formed in 1960, is a cartel formedby oil producing states for the purposes of monitoring and regulating output and prices of petroleum product by placing quotas which serve as control mechanism towards the production and supply capacity of member countries.

Nigeria joined the organization in 1971 with the purpose of trading her natural resources to improve on her foreign exchange earnings and to boost her economy. Ever since, her economy and foreign exchange earnings have been largely dependent on the production quota given by OPEC.

To this extent, Nigeria prepares her annual budget based on the envisaged

international price from sales of oil at the international market for e.g in 2007 the benchmark of 43$ to 56$ was used to prepare Nigeria’s budget. (Business watch, 2009) and has also been able to place an appreciable price on how much she sells her oil irrespective of the fixed price by OPEC.

It is understood that member countries of OPEC have benefited in a way that cannot be overlooked. For example Nigeriahas benefited from direct sales of crude oil to both developing and developed nations such as USA, China,and Britain.

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It is also important to know that membership in OPEC does not confer automatic economic advantages.

For instance, there are a lot of countries whose economy is far better than some OPECmembers. Such include France,Japan, China e.t.c this is due to their low absorptive capacity i.e(ability to absorb capital productively) as compared to Nigeria who has high absorptive capacity.

This indicated that despite foreign exchange earnings from oil, certain fiscal measures are needed to be taken to promote economic, social and infrastructural facilities of some member countries. For instancethe revenuegenerated from oil wind fall against the background of crises in some oil region of the world like Iraq,Kuwait in 1992 and of recentLibya in     2011 respectively(Wikipedia 2011),have not conferred automatic economic advantage resulting from increased foreign exchange earnings from corresponding increase in production and supply but rather promotedcorruption, mismanagement and underdevelopment of some member countries like Nigeria whereby funds are eventually borrowed from IMF, world bank to finance the economy.

The question therefore is, has the increase in production and supply ever improved the economy of Nigeria given the increase in prices per barrel at a given point in time? Ifyes how has it been managed? And if no what are the causes? All these are what this project is concerned with.

1.2 Statement of Research Problem

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