1.0 Introduction
1.1 Background of Study
The Nigerian economy operates primarily as an open economy, with a significant share of the total economic activity coming from overseas exchanges. The extent to which the economy is open has increased over time. Prior to gaining political independence in 1960, Nigeria's economy relied heavily on agriculture, which produced the majority of the nation's foreign exchange as well as both cash and food crops.
On the other hand, the early 1980s marked the beginning of a new path for all economic activity. The current trajectory is a result of the oil industry's constant growth. As a result, agricultural goods were neglected, and the economy became mostly dependent on the extraction of crude oil.
The oil industry will be referred to by this terminology in this study: petroleum, crude oil, gas, and so on. The existence of oil has been documented from the time of the Pharaohs and the Babylonians. In Persia, Iraq, Indonesia, and other regions of the world, it seeped from the soil. Since its discovery, it has been utilised in medicine and in some locations, it has caused enormous flames that locals have revered. Oil was used sparingly but variedly; by the middle of the 17th century, oil derived from coal was being used to light a few street lamps in Bucharist.
Oil is universally neither the first nor the only primary sources of energy. The properties of oil shows that it possesses distinct advantages over other sources of energy, mainly coal. Modern oil exploration began by the applications of those theories when “Colonel” Edwin Drake provides that oil does exist beneath the earth's crust. Drake discovered the first underground oil near Titusville in Pennsylvania on August 27th 1859, after drilling a well 70 feet deep. Drake's well produced about 30 barrels of crude oil.
There are four technical methods for a less developed country like Nigeria to tap a potential extractive export reserve. They are:
- To invite foreign concessionaries to form local industries and therefore supply management and technological, capital and markets.
- Undertake, joint venture in which foreign investors supply management and technological and market as well as a portion of the capital furnished by the host country.
- Institute management contracts, whereby experienced foreign firms offer management and technology only.
- Do without foreign participation altogether and furnish management and technology. Capital and market itself.
Basically, it could be argued that there was little real choice of discovering petroleum in Nigeria before the mid 1950s. For example, L Dudley stamp, the noted British geographer wrote in 1953 that “Apart from the yard along the shores of the Gulf of Suez in Egypt and a small yard from three thing fields in Algeria and four in morocco, Africa has no oil.
The search of oil in Nigeria began in 1908, when a German company called Nigeria Bitumen Corporation (NBC) which was granted a license to exploit. Bitumen deposits located at Ijabu Ode and Okitipupa the present Ondo State. After the war 1914-1919, their work was terminated due to the colonial-entrepreneurship for legitimate commercial activities, which were meant to replace the oppressions and inhuman slave trade that reigned in the eighteen and early period of the nineteen century.
Geological research work conducted showed that Nigeria's petroleum potential was towards the southern part of Nigeria. After shifting focus to the tertiary area of Delta, shell BP, made Nigerian's first discovery of oil in 1956 after 19 years search of petroleum at Oloibiri in Ogbia Local Government Area is now the present Bayelsa State. There were other companies that joined the Nigeria petroleum, such as American Oversea Petroleum Company. (TEXACO), Mobil Tennessee's Nigeria incorporated (JENNECO), Gulf Oil, Satrap (ELF), Nigeria Agip Oil Company (NAOC), Philips Petroleum and ESSO exploration. All these were joined latter, such as Japan petroleum, American occidental company, Deminex Nigeria Limited, Union Oil, etc. However, not all these companies were successfully explored.
As government interest in oil industry continues to grow, a license was granted to Nigeria Agip Oil Company in 1962. This license was optionally in favour of the government to purchase about thirty percent (30%) of the share capital of the company if and when discovered oil in commercial quantity.
In 1977, the Nigeria National Petroleum Corporation (NNPC) formerly known as Nigeria National Oil Corporation (NNOC) was established by Act of No 18 which was charged with the responsibility of exploring and producing oil and gas, transporting, refining, processing, marketing and converting petroleum products into useful products (Attamah; 2000 p. 25). NNPC therefore, performed dual functions according to Quinlan (1980), it performs one as a state-owned right as well as in partnership with International Oil Companies, it is playing a part and reaping the reward for Nigeria Oil. As a result of economic transformation of the country through the Structural Adjustment Program (SAP) this was imposed by the Federal Government in 1986, the NNPC, according to Akinnusi (1990). Adopted a new mission in January 1987 that was intended to be realized by April 1st 1989. From modest production of 5000 barrels per day (b/d) in 1958 by shell BP, the volume of the production in the country has multiplied impressively over years (Nigeria Oil Directory 1987 p. 60).
1.2 Statement of Problems
With Nigeria's oil sector, accounting for almost all the country's exports, she has earned billions of dollars from this sector in years back. As a young nation, with oil wealth, coming almost unexpectedly immediately after her independence. Nigeria no doubt has its developmental growth problems to cope with. The oil wealth brought about growth opportunities as well as problems for the nation (Quinlan; 1980). There is lack of infrastructural facilities; her educational system is at the verge of collapse because of under findings. The health sector has nothing good to write home about; the cost of life and standard of living are becoming more difficult nowadays in Nigeria. Industrial and Agricultural sector were neglected. Inefficiencies and operating problems in the oil sector are causing financial looses.
Owing to both external and internal factors, the growth performance of Nigeria economy has been less than satisfactory during the past three decades. Since 1970, Nigeria per capita income has fallen by about 4% in constant dollars. More over, since then the government has annually received over half of its revenues from oil sector which were about 85%. These oil revenues are not only largely but highly volatile and causing the size of government programs to fluctuate accordingly.
from 1972 to 1975, government spending rose from 8.4% to 22.6% of GDP, by 1978, it dropped back to 14.2% of the economy. This fluctuation has made the government unable to adhere to wise fiscal policies. Although large sales are obtained from oil sector but it's effect on the growth of Nigerian economy as regards to returns and productivity is still questionable, hence there is a need to evaluate an economic analysis of the impact of oil sector on Nigeria economy.
1.3 Aim and Objectives of Study
The aim of the study is to examine the impact of oil sector on economic growth of Nigeria. In achieving this aim, the following specific objectives were laid out as follows:
- To examine the relationships between oil sector and economic growth;
- To evaluate the impact of oil sector on economic growth in Nigeria; and
- To proffer policy recommendations based on the result of the study.
1.4 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- What are the relationships between oil sector and economic growth?
- What is the impact of oil sector on economic growth in Nigeria?
1.5 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: There is no significant relationship between oil sector and economic growth of Nigeria
- H1: There is a positive relationship between the oil sector and economic growth of Nigeria
Hypothesis Two
- H0: Oil sector has no significant impact on economic growth in Nigeria.
- H1: Oil sector has significant impact on economic growth in Nigeria.
1.6 Significance of Study
In fact, this research is very significant in the developmental pace of any economy. This is more so in developing countries such as Nigeria where the public sector appears to be more or less concerned with mere policy formulation, infrastructural development and servicing of both.
The significance of this research, believing that the resultant findings and recommendations would be duly considered cannot be over emphasized specifically, the project will be of great benefit to the following groups:
- Policy makers of the various governmental organs in Nigeria who formulate and issue the regulatory economic guidelines.
- It will also help government to access the extent to which the oil sector has impact on the economy of Nigeria within the given time frame and thus, providing ground for future policy measures.
- It will be of help to real and potential private industrialists and or investors, especially with regard to sourcing of raw materials and cost.
- Students particularly of the business/Engineering school who might be future research in a related field on the ground already established or covered.
- The general public particularly the stakeholders (suppliers and consumers) who stand to benefit from the informal knowledge of the performance of oil sector. The researcher holds the strong belief that the findings of this study will reasonably serve the respective interest of these groups mentioned above.
1.7 Scope of Study
The scope of the research is focused on the Economic Analysis of the Impact of Oil Sector on Nigerian Economy.
1.8 Limitations of the Study
During the course of this study, there were some problems encountered which stood as limitations to the research work. Some of the limitations include:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research Material: availability of research material is a major setback to the scope of the study.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
- Initial Cooperation Delay from Respondents: A particular limitation of this work came as a result of the respondent refusal to offer their cooperation at the initial time they were contacted. This contributed in making the success of this research study difficult.
1.9 Definition of Terms
Oil and Gas Industry:
It refers to a Company that participates in every aspect of the oil or gas business, which includes the discovering, obtaining, producing, refining, and distributing oil and gas. An integrated organization usually organizes its different tasks and operations into the categories upstream and downstream.
