COMPLETE full project new

1.1 Background Of Study

Nigeria is a member of the following international organizations: United Nations

and several of its special and related agencies, Organization of Petroleum

Exporting Countries (OPEC), Economic Community of West African States

(ECOWAS), Organization of African Unity (OAU) - now African Union [AU],

Organization of African Trade Union Unity (OATUU), Commonwealth,

Nonaligned Movement, and several other West African bodies. The Babangida

regime joined the Organisation of the Islamic Conference (OIC, now the

Organisation of Islamic Cooperation), though President Obasanjo has indicated

that he might reconsider Nigeria's membership. Comments are being made for

Nigeria to establish more bilateral relations.

Gowon (1973) reaffirmed the priorities in foreign policy established at

independence. These included active participation in the UN, advocacy of pan-

African solidarity through the Organization of African Unity (OAU), regional

cooperation, support for anti-colonial and liberation movements--particularly

those in southern Africa--and nonalignment in the East-West conflict. The role

of Nigeria in world affairs, outside its African concerns, was insignificant,

however.

Nigeria was admitted to the UN within a week of independence in 1960. It was

represented on the committees of specialized agencies and took its turn as a non-

permanent member of the Security Council. One of Nigeria's earliest and most

significant contributions to the UN was to furnish troops for the peacekeeping

operation in Zaire in the early 1960s. By 1964 Nigerian army units, under

Ironsi's command, formed the backbone of the UN force. The FMG was

committed to eliminating white minority rule in Africa, and it channelled

financial and military aid to liberation movements through the OAU.

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Although there was considerable African criticism of Nigeria during the civil

war, the military government resisted this pressure as interference in the

country's internal affairs. An OAU statement in 1967 backing the federal

position on national unity assuaged Nigerian feelings to some extent, but Lagos

protested subsequent OAU efforts to bring about a cease-fire. When the war

ended, Nigeria's participation in OAU activities returned to normal.

The second biggest African economy and the eigth biggest oil exporter in the

world, Nigeria was strongly hit by the world economic crisis, which led to a

decline in the oil price. In 2010, the GDP growth however reached 7.4%,

stimulated by the economy recovery and the increase in oil price. This trend

should continue on this level in 2011.

Nigeria is endowed with various kinds of resources needed to place her amongst

the top emerging economies of the world. Unfortunately, the nation has not

adequately benefitted from the economic prosperity expected of a nation so

richly blessed. Ironically, global economic indices from reputable international

organisation have consistently categorized Nigeria as an economically backward

state. For instance, in 1995, the UNDP human development Index ranked

Nigeria as 164th and 141st amongst 197 nations with low per capital income and

“low quality of life” respectively (World Bank Development Report, 1997)

Through export promotion for instance, Nigeria can manage her resources to

create enough wealth and improve the quality of the economy vis a-vis standard

of living and also enhance her global economic rating. An appraisal of Nigeria‘s

export promotion policy indicates that there is the need to review aspects

relating to non-oil exports so as to harness the vast potential hither to largely

underutilised in that critical sector. The discovery of oil and the realisation that

foreign exchange could comparatively be easily derived there from relegated

attention to the non oil sector to the background. As at 1996, crude oil

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constituted about 97.4% of total export earnings while non oil exports accounted

for only 2.6% (Yesufu, 1996). It could be said that consideration was not given

to the volatility of the oil market, its diminishing nature, the security implication

of a monolithic economy and the instability in the oil producing region, the over

reliance on oil as the major revenue earner for the economy. Recent trends in the

international markets and the restive activities in the oil producing areas

encouraged this study with a view to highlighting the weak links in Nigeria’s

nonoil export policy.

The growth of Nigeria’s non-oil exports has been sluggish in the post

independence period. It averaged about 2.3% during 1960 to 1990 but in relative

terms, declined systematically as the proportion of total exports fell from about

40% in 1970 to about 2% in 2006. In addition, the spread of the non-oil export

items experienced considerable decline in the period under study. Although

many factors may have combined to explain the general adverse development,

the trade policy of the country has frequently been identified as a major

contributor. Nigeria adopted import substitution trade strategy immediately after

independence and export promotion strategy was later ushered in as part of the

structural adjustment programme. Over the years, Nigeria has applied several

measures of trade protections as a means of consolidating her trading position.

These trade policies have to some extent impacted on the performance of the

Nigeria non-oil export.

Nigeria is a country open to the foreign trade, which represented around 60% in

2009. The country has been improving access of non-agricultural products to its

market, but at a rather slow pace. The trade policy aims to promote and diversify

exports by strengthening national competitiveness and liberalizing by reducing

subsidies.

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Customs duties are not very high. Despite attempts at liberalization, Nigeria's

trade regime continues to be protectionist in certain sectors like agriculture.

However, raw materials and intermediate goods enjoy tariff concessions. Import

restrictions and tariff protection have effected trade development and resulted in

the increase of consumer prices. Limited financial means, a crumbling economy

and the weak official exchange rates have limited trade growth.

The trade balance is positive. After a clear decrease of the surplus in 2009, due

to the drop in income from oil, the surplus again grew and should remain

comfortable in the coming years. Nigeria's main trade partners are the United

States, the European Union and China.

Nigeria also nationalized the British Petroleum (BP) for supplying oil to South

Africa. In 1982, the Alhaji Shehu Shagari government urged the visiting Pontiff

Pope John Paul II to grant audience to the leaders of Southern Africa guerrilla

organisations Oliver Tambo of the ANC and Sam Nujoma of SWAPO. In

December 1983, the new Major General Muhammadu Buhari regime announced

that Nigeria could no longer afford an activist anti-colonial role in Africa.

1.2 Statement Of The Problem

Although various factors have been adduced to Nigeria’s poor economic

performance, the major problem has been the economy’s continued excessive

reliance on the fortunes of the oil market and the failed attempts to achieve any

meaningful trade policy (Osuntogun et al., 1997), reflecting the effect of the so

called “Dutch disease”. The need to correct the existing structural distortions

and put the economy on the path of sustainable growth is therefore compelling.

This raises the question of what else need to be done in order to diversify the

economy and develop the non-oil sector in order to realize the potentials of the

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sector through trade policy in the country. This calls for new thoughts and

initiatives, which is the essence of this project.

The main thrust of this research is to take an objective view regarding the

controversy of the role of international trade, in the progress of a country in

terms of economic growth of Nigeria. It has been eluded by the dissenting

voices in the 21st century that trade could be negative in terms of acting as a

catalyst of economic growth and development, being a retrogressive force, in the

journey to economic independence. But ironically, past experience has proven

the potency of trade as a catalyst of economic progress, with regards to growth

and development.

Since 1970 there has been a positive correlation between non oil export and real

GDP, until 1982- 1986 when Nigeria recorded a less non oil export and also in

1995 -1998 there was a decrease but the real GDP continued to increase. In 1998

the non-oil exports 34070.20million naira and decreases to 24822.90million

naira in year 2000. The fluctuation in the non oil export can be attributed to the

different trade policy the government put in place during this selected years.

From 1979 till date Nigeria never recorded any double digit for non-oil export as

a % of total export. In 1979 the non oil export was just 6.2 out of the total export

of the country and it has been decreasing over period of time. The growth of

Nigeria’s non-oil exports has been sluggish in the post independence period. It

averaged about 2.3% during 1960 to 1990 but in relative terms, declined

systematically as the proportion of total exports fell from about 40% in 1970 to

about 2% in 2006. In addition, the spread of the non-oil export items

experienced considerable decline in the period under study.

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1.3 Aim and Objectives Of The StudyThe aim of this study therefore, is to critically examine the effect of trade

policies on non-oil exports in Nigeria over the period 1970 to 2010. While the

specified objectives are to:

Examine the importance of foreign trade policy on non-oil export in Nigeria

Examine other important determinants of the performance of non-oil exports

Identify the problem facing export of non oil product in Nigeria

1.4 Research QuestionsThe study intends to provide answers to questions such as;

How does government trade policy affect non-oil exports?

What are other important determinants of the non-oil export performance?

1.5 Research HypothesisThe research hypothesis is to show the relationship between foreign trade

policy and non-oil export sector in Nigeria.

HO: That foreign trade policies has no impact on non-oil export sector

H1: That foreign trade policies has impact on non-oil export sector

H0: Foreign trade policy does not have any significant impact on

economic growth in Nigeria.

H1: Foreign trade policy has significant impact on economic growth in

Nigeria.

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1.6 Research Methodology

1.6.1 Data collections

The data for this study would be obtained mainly from secondary sources,

particularly from Central Bank of Nigeria (CBN) publications such as the CBN

Statistical Bulletin, CBN Economic and Financial Review Bullion, CBN

monthly reports, CBN Annual Reports and Statements of Accounts of various

years.

1.6.2 Data analysis

The data set for this study is mainly secondary data. The secondary data

comprises annual time series spanning 1970 through 2010. The variables of

interest are: oil and non-oil exports, a measure of foreign demand for Nigerian

export, effective exchange rate, US real gross domestic product, domestic

consumer price index, foreign wholesale price index (US wholesale price index),

trade policy represented by trade openness (ratio of sum of export and import to

GDP). The Ordinary Least Square (OLS) technique will be employed in

obtaining the numerical estimates of the coefficients in different equations using

Statistical Package for Social Sciences (SPSS) or econometrics view (E-view).

The OLS method is chosen because it possesses some optimal properties; its

computational procedure is fairly simple and it is also an essential component of

most other estimation techniques. Here, Gross Domestic Product (GDP) shall be

used as the proxies for the level of economic activities. The estimation period

will cover 1986 to 2010.

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1.7 Significance Of The StudyThe research is significant in so many ways it will aid policy maker to identify

the performance, relevance and impact of trade policy on non oil export in the

country.

Considerably, Scholars will be educated and enlighten on the key role of non oil

export in Nigeria and trade policies suitable for promoting non oil export in the

country and also exposed some past trade policies in Nigeria.

To the general public the research work will create a better awareness of how

government can use policy to regulate non oil export in Nigeria.

Finally, this study will help government and all policy makers in the government

parastatal on all issues on non oil and trade policy in the country. This research

work will allow the country to secure economic growth and development if

judiciously considered.

1.8 Scope Of The StudyThe scope of the study is limited to the financial years between 1970 and 2010.

It is concerned mainly with the trade policies and the determinants of non-export

and various factors affecting import in Nigeria within those periods. Following

the introduction part is the literature review and theoretical framework. It also

discusses the methodology and other relevant issues while results presentation

and analysis as well as concluding remarks are addressed in the concluding part

respectively.

1.9 Limitation Of The StudyThe researcher, in carrying out this work, faces several problems which serves

as hindrances to effective reach the idea goal in terms of adequate data,

resources and methodology limitation. This study use presumed data which

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remain the best currently available in proxing the dependent and independent

variables.

1.10 Plan Of The Study

The research is organised into five parts. Following the introduction part is the

literature review – chapter two and theoretical framework. It also discusses the

methodology-chapter three and other relevant issues while chapter four - results

presentation and analyses as well as concluding remarks are addressed in the

concluding part respectively in chapter five.

1.11 Operational Definition Of Term

Trade policy: it can involve various complex types of actions, such as the

elimination of quantitative restrictions or the reduction of tariffs.

Bewildered: to perplex or confuse especially by a complexity, variety, or

multitude of objects or considerations.

Dutch disease: this is the apparent relationship between the increase in

exploration of natural resources and a decline in the manufacturer sector.

Hegemonic: the process by which dominant culture maintains its dominance

position.

Reaffirmed: to repeat, restate, or to claim

Rife: to find something widely or frequently

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Chapter two

Literature review

2.1 Conceptual Framework

Over the years, nations have articulated various policies on important matters of

state such as defence, health, economy and education for the advancement of

their countries. Recent developments around the world have also proved that a

country’s standing in the committee of nations largely depends on the country’s

level of economic development. It is in realization of this fact, amongst other

factors that Nigeria has over the years formulated a number of policies to

enhance the nation’s development. One of such policies is trade policy which

was exposed in a number of studies (Oyejide, 2002; Kruger, 1992; Oyinlola,

2005).

Dornbusch (1980) in his study of a small open economy showed that trade

policy directly affects the domestic price of each tradable good in relation to

others through general equilibrium interactions and the domestic prices of

importable and exportable in relation to home goods. In particular, it can be

shown analytically, that protecting any one sector through trade policy penalizes

other sectors and that the degree of damage imposed on these other sectors

depends on the substitution relationships in production and consumption. Thus,

an attempt to protect an import-competing sector through import tariffs and

other import restrictions may generate significant and unintended negative

incentive effects on the unprotected sectors (Oyejide, 2007).

Tokarick (2006) and Oyejide (2007) argued that import restrictions act as tax on

exports through at least two key channels. First, import restrictions create a

disincentive to exporting activities by directly raising the domestic price of

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imports relative to that of exports. Second, import restrictions discourage

exports by raising the price of imported inputs and domestic intermediate inputs

that are used in the productions of export products.

2.1.1 THE STRUCTURE OF NIGERIA’S NON-OIL EXPORTS

Agricultural products constitute the bulk of Nigeria’s non-oil exports. The

shares of these products both processed and unprocessed in total value of non-oil

exports is as high as 70 per cent. Other components of the non-oil exports

include manufactured products and solid minerals. The agricultural products

include cocoa, groundnut, palm produce, rubber (natural), cotton and yarn, fish

and shrimps, while the manufactured products and solid minerals include

processed agricultural products, textiles, tin metal, beer, cocoa butter, plastic

products, processed timber, tyres, natural spring water, soap, detergent and

fabricated iron rods. The non-oil commodities market experienced an export

boom between 1960 and 1970. Their fortunes declined in the early 1980s when

the international primary commodity markets collapsed with the associated

deterioration in the terms of trade. Resulting mainly from the policies adopted

during the structural adjustment programme, non-oil exports increased owing

mainly to increase in the Naira price of the export commodities. This was,

however, short-lived as international demand for Nigeria’s non-oil exports

remained weak (Okoh, 2004). The value of non-oil exports has been on the

decline ever since. For instance, the share of agricultural products in total

exports declined from 84 per cent in 1960 to 1.80 per cent in 1995 (CBN, 2000,

Ogunkola and Oyejide 2001). Thus, contrary to the expectation of increase in

non-oil exports, there was an overall decline in the export of these commodities.

Manufactures decreased from 13.10 % in 1960 (CBN, 2000) to 0.66% in 1995

and remained the same in 2002 (WTO, 2003). The values of exports in as well

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as the percentage shares of the major export commodity groups in total

merchandise exports are shown in Table 1.

Table 1: Value of Exports and Percentage Shares in Total Merchandise Exports

Value of export (US$ million) Percentage share in total

merchandise export

Year Agriculture Oil and

mining

Manufactures Agriculture Oil and

mining

manufactures

1960 391.72 11.26 60.76 84.48 2.43 13.10

1965 481.50 238.90 16.90 59.01 32.40 2.29

1970 447.60 765.60 14.70 36.45 62.35 1.20

1975 459.20 7485.70 38.50 5.75 93.77 0.48

1980 622.30 24744.80 71.40 2.45 97.77 0.28

1985 328.20 15004.80 296.97 2.10 96.00 1.90

1990 302.02 13265.00 103.30 2.21 97.03 0.76

1995 211.73 11448.70 79.95 1.80 97.64 0.66

2000 279.51 20111.81 166.41 2.20 96.1 1.70

2005 251.50 22554.30 181.61 1.91 128.6 1.08

2010 223.50 24996.79 199.06 1.83 139.3 1.01

Source: CBN, Annual Reports and Statement of Account (1960-2010), and

Ogunkola and Oyejide (2001).

An examination of the contribution of each non-oil merchandise to total exports

shown in Table 1, shows that there has been a general decline in their individual

contributions to total export. The export of processed agricultural products has

however increased over the years.

2.1.2 THE NON OIL EXPORTS

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The export sector serves as an outlet for commodities manufactured

domestically from constituent sectors of the country’s economy. In Nigeria the

domestic sectors are categorized as: a. oil and b. non-oil sectors. The non-oil

sector of the Nigerian economy is the whole of the economy less oil and gas

sub-sector. It covers agriculture, industry, solid minerals and the services sub-

sector, including transport, communication, distributive trade, financial services,

insurance, government, etc in a very broad terminology (Adejugbe, 1997).

Exports are the goods and services produced in one country and sold to earn

foreign exchange, which can be used to purchase goods and services from

another country (Daisi, 2011). Non-oil exports and exports merchandise are

agricultural/farm produce, semi-manufactured and manufactured goods, and

mineral exports and services exports.

The Nigeria’s non exports sector is structured into four broad constituents which

are the agricultural exports, manufactured exports, and solid mineral exports and

services exports. Each constituent will be adequately profiled.

2.1.3 AGRICULTURE EXPORT

Nigeria’s non-oil exports are mostly agricultural/farm produce which are

normally referred to as her traditional export commodities. These are cocoa,

rubber, oil-palm, coffee, cotton, wood products, cassava, ginger, fish and

shrimps etc. However, it is important to mention that cocoa exports had pre-

eminence as Nigeria’s most exportable non-oil agricultural commodity (CBN

and NEXIM, 1999). In the 1960s to the 1970s, even the years preceding

independence, agricultural produce exports played a dominant role in attracting

foreign exchange, aside the solid mineral exports of cocoa, groundnut, rubber,

palm kernels and palm oil accounted for 69.4 percent of total export earnings,

out of the total 97.3 percent for which all non-oil exports accounted for. But

overtime the Nigerian economy became mono-cultural, having been transformed

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from one dependent on fairly diversified portfolio of agricultural exports. It is,

therefore, a consequence of several causative factors, which included:

As the World Bank Report (1984, p4) (cited in Ukpong 1997, p48), which

notes that there has been a consistent bias in prices, tax and exchange rate

policies against agriculture. b. Ukpong (1997, p.48) cites then excising

structures of incentives given to farmers in most African countries as one the

reasons for the reasons for the continent’s poor performance in agricultural

output. And since farmers are price responsive as by Behman (1968); Oni

(1969); Olayemi et al (1975) (cited in Ukpong 1997, pp.47-48), low producers

prices and relative prices of competing crops constrained output. c. The 1971-

1973 drought, which caused significant fall in crop harvest as Nigerian

agriculture is primarily rain-fed. D. The rosset virus epidemic and pest of 1975

e. little or no application of fertilizers to soils farmed continuously;

f. Shortages and high costs of farm labour (relative rural/urban wages); interest

rates on loans

g. Dependence on wild and low yielding plant species, and outdated technology;

and

h. Civil disturbance that dislocate farmers and the population

These factors caused the share of agricultural export produce to fall from 63.0

percent in the in 1960s to 28.92 percent and 20.15 percent in 1973/74 and 1979

respectively. It not only decline in relative terms in 1973/74 and 1981, but in

absolute terms. Its earning from export also fell. Aside the above factors, greater

quantities of agricultural output were processed or consumed locally than

hitherto. Another major structural change was the disappearance of a number of

export products from the export list. Notable exports like groundnuts, groundnut

oil, raw cotton and palm oil decline in their contributions to export earnings but

also in real terms while others like timber, plywood, palm kernel, and groundnut 14

cake, became mere shadow of their past importance (CBN and NEXIM, 1999,

p31) All these were what characterized the agricultural industry in the pre-

Structural Adjustment Programme (SAP).

However, the fortunes of agricultural goods improved stemming from the

policies of the structural adjustment programme (SAP). The trend in years from

1986 to 1996 showed favorable growth for agricultural products. The

deregulation of the commodity marketing boards as well as the devaluation of

the naira, coupled with the incentive of 100 percent foreign currency retention

scheme for repatriated export earnings significantly aided export expansion. The

pre-eminence of export of agricultural products notwithstanding, its share in

non-oil exports fluctuated significantly. Cocoa accounted for most of the export

volume of non-oil exports products. Its export volume rose dramatically in 1986

and 1988, from then on it continued to fluctuate till in crashed in 1994 and 1995.

The same is true of other commodities such as rubber and palm produce.

This due to economic conditions in the importing countries and continuous

exportation of these commodities largely unprocessed or in semi processed form

contributed substantially to the observed fluctuations their volume and value

(CBN and NEXIM, 1999, p46).

The year succeeding the SAP years, which is termed post-SAP was

characterized by increased openness of the economy and further depreciation of

the naira. It should be noted that agricultural products export had increased. This

post-SAP reform feature mixed trade policy stance-export promotion continued

and control measures were exercised on imports, which were in force until 2003,

when it was changed.

2.1.4 MANUFACTURED EXPORT

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The manufactured exports to the international export market comprises of agro-

allied and manufactured exports. The agro-allied export products are cocoa

butter, cocoa powder, cocoa cake, cocoa paste, groundnut cake and wood

products including furniture and fixtures etc. while main manufactures are

textiles, chemical products, beer and beverages, urea-ammonia, insecticides,

soap and detergents, plastics and non-metallic mineral products and processed

skin etc. In the period succeeding independence and pre-structural adjustment

programme, the non-oil exports was characterized by the predominance of the

agricultural exports, which is reflected in its share of contribution to total export

and non-oil export, which are 4.0 percent and 67.0 percent respectively.

However, the manufactured exports were about 1.0 percent and 13.0 percent

respectively in the same period (Adewuyi, 2005). However, with the adoption of

the Structural Adjustment Programme (SAP), the degree of openness of the

economy increased while the naira depreciated. Although there were fluctuation

in the value of exports of processed or manufactured products between 1986 and

1991, the export value increased continuously from US$ 11.0 million in 1992 to

US$ 24.0 million in 1996. All this was as a result of the measures put in place

since 1986 to diversity the nation’s non-oil exports. But in terms of volumes, it

was an opposite trend entirely; the quantum fell continuously from 38.6

thousand tons in 1993 through to 2.4 thousand tones in 1996. The structure in

the post SAP showed that the share of semi-manufactured increased immensely

from an annual average of 4.6 percent for the period of 1986 to 1990, to 23.0

percent in 1991 and 1995 (CBN and NEXIM, 1999, pp46-47).

However, this performance as highlighted in a World Bank study (1989) cited in

the CBN and NEXIM study (1999) which showed that manufactured export

accounted for 30 percent of exports from developing countries.

2.1.5 SOLID MINERALS EXPORT

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Solid minerals exports from Nigeria are cassiterite, coal, columbite, charcoal,

asbestos, processed iron ore and marble. Exports of solid minerals to the

international market have from the time of independence had minimal in terms

of their volume and share of the exports earnings. Prior to independence, the

solid minerals export were to satisfy the demand from industrial base of the

British imperialism. But after independence, the Nigerian government avoided

direct participation in the mining of solid minerals due large capital outlay

involved, reoccurring flooding of mines, high risks intricate technology and

huge financial outlay involved, instead mining was left to private firms.

However, government still provided support as highlighted in the CBN and

NEXIM (199, p28). However, in the 1970s engaged in direct participation,

which was volte face to its earlier stance.

In the period of 1985 to 1996 accounted for an average 0.8 percent of total non-

oil exports and about 0.1 percent of total exports. And in value terms, the export

of solid minerals during the period was not substantial (CBN and NEXIM,

1999, p48). This clearly shows the infinitesimal contribution sold minerals made

so far within the period. So far, in recent times government has instituted

reforms to exploit the optimal potentials inherent and derivable from the solid

minerals, and as ways of diversifying the economy from its oil exports addition.

2.1.6 SERVICES EXPORT

Exporting does not only involve the delivery of physical goods to another

country. Exporting can also include the export of services such as education,

consultancies, nursing and tourism. These are known as service export. There

are unique benefits to service exports that do not apply to goods, as no or low

freight costs. But service exports also carry risks and challenges, such as limited

options for secure payment and the protection of your intellectual property rights

(Business Victoria, 2007).

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This is an export area in which there has been no significant activity or event

occurring. It remains still a veritable means of generating foreign exchange for

the country and facilitating economic development, which is largely untapped.

Services such as transportation, tourism, communication, construction,

insurance, financial professional, and technical activities are what countries in

the developing countries, like Nigeria except for a few such as Egypt have not

been able to export to the international market. However, Nigeria has been

making progress in a n area like tourism in current times. Places like Obudu

Cattle Ranch, Tinapa Business Resort, and other arrears of tourist attraction are

spring up to offer leisure services.

Also in terms of financial and professional services, Nigeria has no services to

provide here, although Nigerian experts work in other countries and remit

money, in foreign currency back home, it is more of brain drain phenomenon.

And some Nigerians serve in overseas countries under the Technical Aids

Corps ((TAC), it is a foreign aid and cooperation to other developing countries.

This does in no way bring foreign exchange to the country, Nigeria.

In the CBN and NEXIM study (1999, p33), the sector contributed an average

of 30 percent to GDP between 1973 and 1981, 57 percent of it been made by the

wholesale and retail trade sector. But its contribution to balance of payments

was negative. The reason for this is because of Nigeria’s low level participation

in the provision of international services.

2.2 TRENDS IN NIGERIA’S NON-OIL EXPORT POLICIES:

PRE-INDEPENDENCE ERA TO 2013

In the pre-independence years, the marketing board system was adopted by the

colonial administration to ensure regular supplies of raw materials to factories in

metropolitan Britain in particular and Western Europe in general. The system

was adequate as machinery for the effective and efficient marketing of Nigerian

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farm produce to the outside world (Itegbe, 1989). It indeed helped to boost farm

incomes, improved the livelihood of the peasant farmers and above all, assured

and enhanced government revenues especially needed for acquiring the

country’s essential import needs. The marketing board grew into a formidable

platform for the negotiation of profitable deals on a comparable term with the

more experienced and more efficient foreign firms and multi-nationals with

whom the Boards had to invariably conclude substantial export sales contract

and also ensure prompt repatriation of proceeds.

However, inspite of the positive contributions of the export trading system,

Itegbe (1989) noted that the system was bedevilled by numerous export

constraints such as export licensing. Fagbenro (1996) is, however, of the view

that the marketing board policy was meant to serve the British interest

exclusively in that its articles provided for the supply of raw materials to British

factories and check diversion of such produce to other European countries. With

the attainment of independence, such a policy was bound to collapse, he stated.

The shortcomings of the marketing board system gave rise to the establishment

of the commodity boards in 1977 (Itegbe, 1989). The commodity board was to

foster uniformity and stability in prices for all export commodities throughout

the country. The measure however did not stop the downward trend in the

volume of Nigeria’s export of agricultural commodities. According to Igbani

(1981), this downward trend in agricultural export was because the root

problem, being diminishing returns from agricultural productions, remained

untackled.

However, Itegbe (1989) was of the view that the monopoly enjoyed by the

Commodity Boards constituted some degree of disincentive to export-oriented

investments. He further stated that the system did not allow for the rapid

expansion of the processing industry to allow for the exportation of value added

19

products and therefore higher export earnings. Consequently, by the end of the

seventies, export of non-oil commodities declined to an insignificant figure of

about 4.4% of Nigeria’s total export value. Between 1976 and 1983 two policies

on agriculture were launched to encourage massive participation in agriculture

for self sufficiency and exports, Abimboye (2009).These were the operation feed

the nation (OFN), initiated in 1976 to1979 and the green revolution programme

that operated between 1979 and 1983. He observed that except in name, there

was no difference in the aims or contents of these two agricultural policies. The

twin objectives were to boost local crop and fibre production through

introduction of high yield varieties of grains and improved management

techniques. The improved outputs envisaged were to cater for domestic needs

and provide enough for exports. The impacts of these programmes on Nigerian

non-oil exports were however never felt. Abimboye posited that politicians

cornered the bank loans given for agricultural development purposes for their

fake companies and nonexistent firms. By the time the schemes were suspended,

over N200 billion had been expended.

In furtherance of Nigeria’s quest for a sustainable diverse exports base, the

Nigeria export promotion council (NEPC) was enacted through the

promulgation of the NEPC act No. 26 of 1976 which according to Ezike (2009)

gave legal backing to adhoc incentives already in place. The decree created the

Nigeria’s export promotion council and charged it with the promotion of

Nigeria’s non-oil exports and the diversification of the export base. The primary

objectives of the NEPC were to promote the development and diversification of

Nigeria’s export trade and assist in promoting the development of export related

industries in Nigeria. It is also to spearhead the creation of appropriate export

incentive and articulate the implementation of export policies and programmes

of the Federal government, Isiekwenu (1985). Isiekwenu (1985), however,

stated that since its creation, the agency has adopted various strategies to

20

enhance Nigeria’s non-oil export base. These include the exports expansion

grant (EEG) designed to induce non-oil exporters whose minimum annual

export turnover was N5, 000,000.

This scheme is aimed at assisting exporters, diversify export markets and to

make them more competitive in the international markets. The NEPC has also

made some progress in product development. It has made inroads in the

development of solid minerals export, even though this is being constrained by

the absence of mechanized mining. The council is also into capacity building

and entrepreneurship in export trade through training of existing and potential

exporters. The NEPC has established a human capital development centre in

Ikoyi and the common facility centre in collaboration with United Nations

industrial development organisation (NIDO) in Aba. The human capital

development centre would train exporters in the production of garments and

apparels while the common facility centre carters for over 11,000 small and

medium scale enterprises involved in the production of leather products such as

shoes, belts and bags. Notwithstanding these seeming achievements by the

NEPC, the desired result for a sustainable non-oil export base is yet to be

achieved. Touted lack of strong political will to diversify our nonoil export base

by the policy-makers as one of the major problems of NEPC. According to

Isiekwenu (1985), even though the NEPC act was promulgated in 1976, the

powers, authority and functions of the council were not more than advisory and

besides, it has little or no autonomy in practical terms. He argued that despite the

Act, Nigeria continued her over-reliance on crude oil export until some

unexpected and undesirable phenomenal development occurred between 1977

and 1979 in the world oil market. This was marked by the sharp decline in oil

price in 1978 which sent a ripple of shocks through the economy. It soon

became clear to the government that the foreign exchange being generated

21

mainly by crude oil could not be adequate for the development needs of the

country.

Fagbenro (1999) noted that by 1984, Nigeria faced a situation of economic

recession and austerity characterised by serious balance of payments deficits,

escalating external debts and an unbearable debt servicing burden. He affirmed

that the structural adjustment programme was introduced in 1986 as a last ditch

attempt to resolve this economic crisis and assure the nation’s economic

survival.

Nigeria made N428bn from non-oil export in the last one year, the Minister of

Trade and Investment, Mr. Olusegun Aganga, said on Thursday (18th April

2013). This feat, he said, was achieved through proactive trade policies and

incentives for non-oil exports introduced by the Ministry of Trade and

Investment, adding that Nigeria had achieved a relatively high level of

international penetration currently. He spoke at the ministerial platform

organised by the Ministry of Information to mark the President Goodluck

Jonathan administration’s one year in office. Aganga said,

In 2011, Nigeria exported non-oil products to 103 countries and territories out of

220. This shows significant improvement over the previous years. There has

been an increase in non-oil export to $2.765bn (N428bn at N155/$),

representing an increase of 19 per cent.

“The Export Expansion Grant is critical to the growth of the Nigerian export

market. We have had wide consultations across all industry groups within the

value chain of each commodity. New guidelines on EEG is expected shortly.”

The minister also disclosed that actual investments in Nigeria’s Free Trade

Zones currently stood at $11.1bn , adding that 35,120 new jobs had been created

in the zones. Giving the breakdown of the investment inflows into the FTZs, the

22

minister stated that the Onne Oil and Gas Free Trade Zone, in Rivers State, had

attracted investment worth $6billion, noting that investment commitments in the

FTZ were worth $6.7bn in the last one year. He added that other Free Trade

Zones across the country under the Nigeria Export Processing Zones Authority

also generated $4.4bn investment in the last one year, noting, however, that the

Ministry of Trade and Investment was currently reviewing the operations of the

Free Trade Zones to make them more functional.

Overall, Aganga said that Nigeria had secured over N6.6trillion investment

commitment over the last one year. “The breakdown of the total investment

commitment showed that expected FDI into the country stood at N3.9 billion,

while investment commitment from local investors stood at N2.7trillion,” he

stated. Aganga also said that the ministry had held over 70 meetings in over 12

countries, resulting in the renewed investment interest in Nigeria. He said “As a

result of the on-going reforms and aggressive investment drive by the Ministry

of Trade and Investment, investment commitments of over N6.6trillion over the

next three years have been generated. To attract investment in these key sectors,

the ministry has made trade and investment missions to key partner countries to

develop interest in the Nigerian market, accompanied by Nigerian business

leaders. “As part of efforts to boost the country’s investment drive, we

established the Australia Nigeria Trade and Investment Council in October

2011, while the Qatar Nigeria Trade and Investment Council will be inaugurated

by next month. Similarly, discussions have reached advanced stages with China,

Brazil and Austria for the establishment of such important councils.”

A very important achievement, according to the minister, is that in the last one

year, the Standards Organisation of Nigeria had been able to reduce the volume

of sub-standard products from 85 to 74 per cent, with a target of 30 per cent

reduction by the end of this year. He said notable improvement were recorded

23

with life-endangering products, saying that the volume of substandard electric

bulbs had been reduced from 80 per cent to 50 per cent; reinforced steel bar (45

per cent to 30 per cent); while the volume of substandard tyres reduced from 60

per cent to 50 per cent. He also noted that, as part of efforts to improve the

country’s business environment and make it the preferred investment hub, the

ministry had strengthened its One Stop Investment Centre and streamlined

investment procedures to remove bottlenecks in business registration,

incorporation and granting of permits and licences, among other things.

He said, “We have commenced the Nigeria Investment Climate Reform

Programme, partnering with the World Bank and DFID. Also, we have

inaugurated the Investor Care Committee and Doing Business and

Competitiveness Committee as part of our investment climate reform

programme.

We are closer to the 24-hour target for registering new businesses. Our target is

to achieve significant improvement in Nigeria’s Ease of Doing Business ranking

by a minimum 103 points by 2015 and improve on Nigeria’s Global

Competitiveness ranking by 75 points by 2015.

2.2.1 Nigeria's Current Trade PolicyThus, as observed above, the Nigerian government like many other developing

countries considers trade as the main engine of its development strategies,

because of the implicit belief that trade can create jobs, expand markets, raise

incomes, facilitate competition and disseminate knowledge. (WTO 2005: 15).

The main thrust of trade policy is therefore the enhancement of competitiveness

of domestic industries, with a view to, inter alia, stimulating local value-added

and promoting a diversified export base.

24

Trade policy also seeks (through gradual liberalization of the trade regime) to

create an environment that is conducive to increased capital inflows, and to

transfers and adoption of appropriate technologies. The government pursues the

liberalization of its trade regime in a very measured manner, which would

ensure that the resultant domestic costs of adjustment do not outweigh the

benefits. The reforms which accompany this policy direction are also aimed at

re-orientating attitudes and practices towards modern ways of doing business.

However, the instruments of trade policy such as the tariff regime are designed

in a manner which allows a certain level of protection of domestic industry and

enterprise. While this is the main trade policy framework to guide economic

growth, the trade expansion, employment generation and poverty alleviation

dimensions are now subsumed in a new overarching economic development

policy blueprint adopted in 2003, the National Economic Empowerment and

Development Strategy (NEEDS).

2.3. Theoretical Analysis of Nigeria Export Policies and

ProgrammesThe export assistance policies and programmes of Nigeria are largely based on

the government assistance programmes/incentives and fiscal policies. Since

1979, Nigeria government took reasonable steps to deal with the things

identified as constraints in export marketing expansion and diversification in the

country by approving what NEPC referred to as package of incentives. The

incentives according to NEPC (1997) are aimed at encouraging Nigerian

exporters to stimulate the foreign exchange earning capacity of the export sector

and diversifying the productive base of the economy. Other objectives of the

incentives are to address the problem of supply, demand, and price

competitiveness of Nigerian exporters, the provision of foreign exchange

requirements of the exporters to direct cash grant on export performance, tax

25

relief inducements and some other export assistance are to improve production,

marketing, packaging quality and price competitiveness of Nigeria export

products. The export assistance policies and programmes of Nigeria government

are largely based on the government assistance programmes/incentives and

fiscal policies.

Since 1979, the government took what can be regarded as reasonable steps to

deal with some of the things identified as constraints in export marketing

involvement and diversification in the country by approving what NEPC (1997)

described as package of incentives. The incentives are aimed at encouraging

Nigerian exporters to stimulate the foreign exchange earning capacity of the

export sector and diversifying the productive base of the economy. Other

objectives of the incentives are to address the problem of supply, demand, and

price competitiveness of Nigerian exporters, the provision of foreign exchange



marketing, packaging, quality and price competitiveness of Nigerian export

products.

Structural Adjustment Program (SAP) And Non-Oil Exports In Nigeria

According to Itegbe (1989), between 1984 or thereabout to September 1986,

successive military administrations started giving serious consideration to the

need to urgently find or develop other methods or avenues of sourcing foreign

exchange, in addition to measures adopted to conserve what was already earned.

This situation arose as a result of mounting obligation on the country to settle

trade arrears and for debts servicing as well as to meet current trade bills. He

further stated that by 1984, Nigeria had found herself in huge foreign debts in

addition to being in serious arrears in settlement of foreign trade bills mainly on

irrevocable letters of credit.

26

Thus, it became clear to policy makers in Nigeria that additional effort had to be

made by the nation to earn foreign exchange. It was for this reason that the

government in 1986 adopted export-oriented development strategy as a major

cornerstone of the structural adjustment programme (SAP). SAP involved the

formulation and adoption of a comprehensive export incentive legislation known

as the Ezike and Ogege 195 export incentives and miscellaneous provision

decree No.18 of 1986. The provisions of this decree were subsequently

strengthened by the provision of the second tier foreign exchange market

(SFEM) decree No. 26 of September, 1986.The introduction of the export decree

and SFEM decree could be described as “Watershed” in the history of non oil

export policy development in Nigeria, according to Itegbe (1989), pointing out

that for the first time, in the history of the country, export expansion and

diversification strategy became a national policy objective. The removal of all

bureaucracies and additional incentives through SAP did not however make any

significant impact on the volume of non-oil exports. Experts and academicians

in the area of export promotion have tried to figure out why after over 20 years

of this export policy regime there has yet been little significant positive results.

In their view, Faruqee and Husain (1994) said the SAP policy virtually had

everything sorted out but only on paper including plans for diversification,

foreign exchange earnings and retention through domiciliary accounting,

incentives, institutional frameworks, laws, decrees etc. However, a fresh

dimension into export policy expectation which might not have been provided

for is the increased protectionism in most developed countries especially those

of developed markets that the country trade ties with. They further stated that the

inability of SAP to secure against this protectionism, is indicative of the fact that

the global trade competition is more formidable and less friendly than reflected

by our acceptances (as in the law of contract) and by the competitions

27

themselves. This assertion goes to show that there may have been some

fundamental defects in policies regarding non-oil exports in Nigeria in the

period under study.

Government Motivational Export Policies and StrategiesThe nation export promotion programmes are contained in the Nigerian Export

Incentives and Miscellaneous Provision Decree 18 of 1986, as amended by

Decree 65 of 1992, and the 1996/1997 national budget policies on export. Some

of the assistance policy programmes include: Currency Retention Scheme

This is also referred to as “Domiciliary Account Export Proceeds”; the scheme

allows exporters to retain one hundred percent of their foreign exchange

earnings in their domiciliary accounts in any authorized bank of their choice.

The objective of the currency retention scheme is to enable exporters have

foreign exchange at their disposal, and this can be utilized for non-oil export

related activities.

Export Development Fund (EDF)

This is a special fund provided by the Nigeria government to give financial

assistance to exporting companies so as to cover part of their initial expenses in

respect of the following export promotion activities:

a. To participate in training courses, symposia and workshops in all aspects of

export promotion,

b. To enable exporters advertise in foreign markets,

c. To carryout market research studies,

d. To encourage firms to engage in product design and consultancy programmes,

e. To participate in trade missions buyers-oriented activities, overseas trade fairs

exhibitions and store promotions

f. To assist in the area of cost of collecting trade information,

28

g. To encourage the development of export oriented industries.

It is important to note that the fund would only cover part of the cost involved in

any export related activity, while exporters bear major part of such costs.

Export Expansion Grant Fund (EEGF) The fund is to provide an inducement for

exporters to enable them (exporters) increase the volume of export, diversify

export products and market coverage. The Export Expansion Grant Fund is

made available only to exporters who have repatriated their proceeds from

previous export transactions as certified by Central Bank of Nigeria (CBN).

Duty Draw-Back Scheme (DDS)

This scheme is aimed at providing for the refund of import duties and surcharges

on raw materials, including packaging and packaging materials used for the

manufacturing of products destined for export.

Duty Suspension Scheme (DSS)

This is a mechanism through which imported inputs for export production can

be imported with a waiver of import duties and surcharges, such as raw

materials and intermediate inputs packaging materials, labels, etc used directly

to manufacture export products that can be imported free of customs, excise and

other duties under the scheme.

Manufacturing-in-Bond Scheme

The manufacturing-in-bond scheme provides for importation of raw materials

into a bounded warehouse of the company for export production. That is, the

scheme is designed to enable manufacturers to export products that have a

minimum value added of 20 percent to import duty free on their raw materials

for exportable products. Only products produced in Nigeria qualify to benefit

from this incentive.

Pioneer Status Scheme (PSS)

29

This is an incentive that grants tax holidays on corporate income to

manufacturing exporters that export at least fifty percent of their turnover. The

objective of this scheme as provided in the income tax Act of 1971 is to

encourage the establishment of export-oriented industries in Nigeria.

Export Price Adjustment Fund (EPAF) This fund serves as a supplement or

additional fund to compensate exporters on the following:

(a) High cost of production arising mainly from infrastructural deficiencies.

(b) Purchasing commodities at prices higher than the prevailing world market

prices-this is usually fixed by government.

(c) Other factors beyond the control of the exporters are unfavourable currency

exchange rate, political instability, etc.

The fund is principally designed to provide leverage after other incentives might

have been exhausted.

Tax Relief on Interest Income

The relief is aimed at tax exemption on interest accruing from loans granted by

banks in aid of export activities. This is in accordance to Company’s Income

Tax Act of 1979, which states the percentages of tax exemption on interest for

foreign investors.

Capital Asset Depreciation Allowance (CADA)

The Company’s Income Tax Act of 1979, as amended by the

Finance/Miscellaneous Provisions Decree of 1985, and amended further by the

Export Incentives Decree No. 18 of 1986, provides for an annual depreciation

allowances of five percent on plants and machinery to all manufacturing

exporters who export at least fifty percent of their annual turnover with at least

thirty-five percent value added. Incentives for Manufacturing Enterprises

Manufacturers profit and dividends are exempted from taxation under this

scheme. The tax exemption

30

Includes:

(a) Removal of taxes on interest income loans and advances granted by banks

for export manufacturing.

(b) Tax exempt for dividend derived from manufacturing companies in the

petrochemical and liquefied natural gas sub-sectors.

(c) Low rate of tax (20%) for small manufacturing companies for the first five

years of commencement of business.

(d) Small companies’ dividends are free from tax.

(e) Restrictions for capital allowances are removed for manufacturing

companies

(f) Profit for any Nigerian company in respect of goods exported from Nigeria

are exempted from tax, and

(g) Profits of companies whose supplies serve as inputs to manufacturing of

products for exports are excluded from tax.

Incentives on Export of Solid Minerals

New companies venturing into the mining of solid minerals from 1996 are to

enjoy tax free holiday for the first three years of their operation.

Special Trade Agreements Liberalization Certain bilateral and multi-lateral trade

agreements are entered with a view to waiving or reducing some duties or tariffs

on goods from countries that signed the agreement. This is aimed at encouraging

foreign trade and investment. The Lome conventions, generalized system of

preferences (GSP), and ECOWAS treaty are some of the examples of the special

trade agreements to which Nigeria has been associated with.

Export Promotion Zone (EPZ) Nigerian export promotion zone was established

by Decree No 34 of 1991; the decree provides for the establishment of a

geographical enclave within the country, to which normal customer’s tariffs or

duties do not apply. In other words, EPZ is an incentive provision for exporters

31

within a nation’s customs territory, which provides an attractive environment for

doing business especially in an otherwise not too attractive environment. The

objective of EPZ is to motivate local and foreign investors, stimulate industrial

production for export, diversify economic activities, generate foreign exchange,

create backward linkages and provide bases for technology transfer. The first

export promotion zone in Nigeria is located in Calabar, and the foundation was

laid on November 7th, 1991, by the then President of the Federal Republic of

Nigeria-General Ibrahim B. Babangida.

Other policies and incentives aimed at not only creating export awareness, but

also to promote other export activities include incentives for the manufacture of

locally made spare-parts and equipment, re-discounting and refinancing facility

for export, industrial export simulation facility, export credit guarantee facility,

export credit insurance facility and insurance of market risks.

Perception of Nigeria Export Policies and Programmes to have an insight to the

perception and performance of the Nigerian export promotion programs, we will

consider the number of participants and the total sum paid to beneficiaries with

respect to duty drawback scheme and export expansion grant fund from 1988 to

1996.

According to NEPC (1997), a total of ninety-three companies benefited under

the duty drawback scheme, out of one hundred and forty-three companies that

applied within the period; while about one hundred and ninety-one million naira

was paid to the companies for the same period of nine years (1988 to 1996). It is

worthy to remark that the number of companies that applied is small, and the

number of benefiting firms is also not encouraging.

Hence the desired objectives could not be achieved. Okeke (1990), also stated,

that the drawback schemes’ elaborate administrative procedures gave rise to

what the author called “undesirable situations”. Another example of Nigerian

export performance can be seen from the total export expansion grant disbursed

32

to companies from 1989 to 1996. The grant ranged between 1.7 million Naira to

79 million Naira. Considering the capital-intensive nature of expanding

manufacturing companies, it will not be out of place to state that the above sum

disbursed is insignificant to make meaningful impact in the export expansion

scheme of most companies within the given period. In analyzing the scope and

the objectives of Nigerian export assistance programmes as discussed above, we

can describe them as laudable. But some of the export assistance programmes

are not yet being implemented or are poorly implemented. Hence, Iyanda (1998)

similarly remarked that Nigeria government’s approval of export credit

guarantee scheme was more on paper. In the same manner, the commercial

banks failed persistently to comply with CBN’s guidelines on credit to the

export sector, while some people have also argued that successive governments

were simply paying “Lip service” to the promotion of non-oil export. The usual

complaints of NEPC since its establishment in 1976, has been that of inadequate

funding. The underfunding if NEPC may have also been responsible for the

ineffectiveness and inefficiencies. NEPC (1989), noted that, “…owing to the

ineffectiveness of existing package of export incentives as well as constrains, the

orders received in some of its missions overseas could not be executed”.

This is coupled with some administrative “bottle-necks” placed on the part of

exporters which resulted in the inability of Nigerian exporters to respond

urgently and successfully to the over fifty million Naira tentative orders received

during the trade missions embarked in the past. It was to solve some of the

above-mentioned problems that the Association of Nigerian Exporters (ANE)

was formed in 1984 (Ogunnusi, 1986). ANE is a private sector, non-profit

organization that liaises with relevant government agencies over export matters.

It may also be necessary at this point to ask whether we-those involve in export

policy formulation, promotion and implementation in Nigeria-are supporting the

best programme (Czinkota 1981).

33

Some other problems were also identified as being responsible for not achieving

the nation’s desired economic development through export marketing. One of

the problems has to do with exporting raw agricultural commodities by Nigerian

exporters, and these commodities are sold as processed goods to Nigerian

consumers at a higher price. This is why Nwakama (1986), stated that the

absence of forward integration in the Nigerian agricultural sector is largely

responsible for the failure of the Nigerian agricultural sector to expand, and

make meaningful progress. Similarly, lack of backward integration is also

accused of been responsible for the industrial sector’s low growth and

expansion. From the preceding discussions, it can be appreciated that marketing

in general, and export marketing in particular can be described as the necessary

foundation and facilitator for any meaningful economic development to be made

in any given country of the world, and government effective export incentives

and conducive environment will not only motivate firms’ export marketing, but

will also facilitate the achievement of the desired export objectives of the

Nigeria nation.

2.3 Empirical Analysis Tariffs on imports result in negative rates of protection for exports since the

nominal rate of protection for their output is typically zero while the protection

applicable to imported intermediate inputs is usually positive.

Thus, for a given domestic export price, tariffs on imported intermediate inputs

increase the cost of producing export goods and, therefore, will reduce their

profitability and tend to decrease the output of exportable. Rajapatirana (1995)

found empirically that the negative impact of import restrictions on

manufactured exports was much more significant through the second channel. In

particular, import restrictions negatively affected the availability of imports that

were often critical to the production of manufactured export products. Hence; in

34

general, it was found that import restrictions had a significant negative effect on

manufactured exports while their liberalisation had a positive effect. The

assertion of a strong influence of trade policy reform on export performance in

developing countries has remained largely unresolved in the literature. The

argument is based on whether trade liberalization has led to positive or negative

export performance. While some studies have found a positive association

between trade liberalization and export performance, some other studies have

also found little empirical evidence to support a link between trade liberalization

and export performance.

Most developing countries marketing system like that of Nigeria, particularly

export marketing, unlike that of developed countries – U S A, Britain, France,

Germany, China etc., or that of few developing countries like Taiwan, Singapore

and South Korean – is characterized of questionable government

incentives/programmes, political uncertainty, acute shortages of competent

marketing managers, inconsistent policies, and red-tape bureaucracy, among

others. However, government of Nigeria in appreciation to the import and role

export now plays in nations’ development motivate firms to be involve in

export. This is done through various agencies and policies- such as Nigeria

Export Promotion Council (NEPC) and Structural Adjustment Programme

(SAP) - were said to have been designed to address these problems and

encourage export sector with a view of diversifying the productive base and its

export earnings. The export promotional programmes and policies, though well

intentioned and designed, are yet to achieve the desired objectives because of

the not un-usual poor implementation of government policies and programmes

in Nigeria. This study therefore examined government policies and strategies,

export awareness of Nigeria government incentives and policies, perception of

the policies and programmes, and whether the current incentives encourage

Nigeria firms’ export marketing involvement.

35

Fagbenro (1999) identified some major defects in the policy environment.

These include constraints in infrastructural development e.g. electricity, water,

communication, transport and inefficient implementation of incentives. He

further cited difficulties in managing the transition from import substitution to

export oriented industrialization strategy and various policy inconsistencies

among other factors.

The vital role of optimizing economic growth process can therefore, be credited

to export marketing and or marketing. This is because marketing was

instrumental in laying the groundwork necessary for rapid development of most

developed nations. Drucker (1958) asserted that marketing is the process

through which the economy is integrated into society to serve human needs. In

the same manner, “effective marketing” was described as not only improving the

life-style and well being of a people in a specific economy, but also upgrades

world markets. In other words, marketing raises the living standard of not only

of its domestic economy, but also that of others through export marketing.

Walter Elkan (quoting Myint. 1971), observed that export expansion of peasant

products, particularly in South East Asia, Uganda and West Africa, placed not

so much emphases on the reallocation of given and fully employed resources

from domestic to the export sector, by bringing hitherto under-utilized surplus of

land and labour in the subsistence economy into export production. The

significance of export to a nation’s economic development was further

highlighted by Haberker (1961), as he observed that exports (or import

substitution), now constitute important national goals. It has been argued that the

economic development of any nation has some strong relationship with the

export performance of the country. Ayal (1982) similarly noted that the

economic problems faced by most countries, at a given period, were associated

with export marketing of the nations.

36

Kilpatrick and Miller (1978), relevantly remarked that determinants of export

success from Israel, had to do with wages per employee which are strongly

associated (positively) with capital per employee, and the study concluded that

higher wages per employee, higher value added per production workers, and

higher economies of scale, are the main characteristics discriminating between

net exporting and net importing industries in the United States.

Export marketing can be described as a nation’s economic facilitator, as it

facilitates transactions between a country’s productive sector and its

international consumer need/demand. It is the critical link in effectively utilizing

the production resources of one country to the economic wellbeing and growth

of both the importing and exporting countries. It has also been argued that

export marketing and by extension marketing, might by itself go far toward

changing the entire economic tone of the existing system, without any change in

methods of production, distribution of population, or of income. What is needed

in most developing countries’ (like Nigeria) growth to make economic

development realistic and meaningful is to engage in effective marketing and

export marketing. It is the belief of most people that man can improve his

economic lot through systematic, purposeful, and directed marketing effort,

individual as well as for the entire society. This is because man has so been

equipped or blessed with necessary tools of divine aptitude, learning, developed

technology among others.







37







period under study.

However, government of Nigeria in appreciation to the import and role export

now play in nations’ development motivates firms to be involve in export. This

is done through various agencies and policies- such as Nigeria Export Promotion

Council (NEPC) and Structural Adjustment Programme (SAP) - were said to

have been designed to address these problems and encourage export sector with

a view of diversifying the productive base and its export earnings. The export

promotional programmes and policies, though well intentioned and designed,

are yet to achieve the desired objectives because of the not un-usual poor

implementation of government policies and programmes in Nigeria. According

to NEPC (1997), a total of ninety-three companies benefited under the duty

drawback scheme, out of one hundred and forty-three companies that applied

within the period; while about one hundred and ninety-one million naira was

paid to the companies for the same period of nine years (1988 to 1996). It is


number of benefiting firms is also not encouraging. Hence the desired objectives

could not be achieved.

Okeke (1990), also stated, that the drawback schemes’ elaborate administrative

procedures gave rise to what the author called “undesirable situations”. Another

example of Nigerian export performance can be seen from the total export

38

expansion grant disbursed to companies from 1989 to 1996. The grant ranged

between 1.7 million Naira to 79million Naira. Considering the capital-intensive

nature of expanding manufacturing companies, it will not be out of place to state

that the above sum disbursed is insignificant to make meaningful impact in the

export expansion scheme of most companies within the given period. In

analyzing the scope and the objectives of Nigerian export assistance

programmes as discussed above, we can describe them as laudable. But some of

the export assistance programmes are not yet being implemented or are poorly

implemented.

Hence, Iyanda (1998) similarly remarked that Nigeria government’s approval of

export credit guarantee scheme was more on paper. In the same manner, the

commercial banks failed persistently to comply with CBN’s guidelines on credit

to the export sector, while some people have also argued that successive

governments were simply paying “Lip service” to the promotion of non-oil

export. The usual complaints of NEPC since its establishment in 1976, has been

that of inadequate funding. The under-funding of NEPC may have also been

responsible for the ineffectiveness and inefficiencies.

NEPC (1989), noted that, “…owing to the ineffectiveness of existing package of

export incentives as well as constrains, the orders received in some of its

missions overseas could not be executed”. This is coupled with some

administrative “bottle-necks” placed on the part of exporters which resulted in

the inability of Nigerian exporters to respond urgently and successfully to the

over fifty million Naira tentative orders received during the trade missions

embarked in the past. It was to solve some of the above-mentioned problems

that the Association of Nigerian Exporters (ANE) was formed in 1984

(Ogunnusi, 1986). ANE is a private sector, non-profit organization that liaises

with relevant government agencies over export matters. It may also be necessary

at this point to ask whether we-those involve in export policy formulation,

39

promotion and implementation in Nigeria-are supporting the best programme

(Czinkota 1981). Some other problems were also identified as being responsible

for not achieving the nation’s desired economic development through export

marketing. One of the problems has to do with exporting raw agricultural

commodities by Nigerian exporters, and these commodities are sold as

processed goods to Nigerian consumers at a higher price.

This is why Nwakama (1986), stated that the absence of forward integration in

the Nigerian agricultural sector is largely responsible for the failure of the

Nigerian agricultural sector to expand, and make meaningful progress.

Similarly, lack of backward integration is also accused of been responsible for

the industrial sector’s low growth and expansion.

Dynamics Of Trade Policy Since 1960

An assessment of Nigeria's trade policy since the 1960s reflects a trend which

has been known to characterize uncertain and unpredictable trade regimes the

world over. Trade policy since the 1960s has witnessed extreme policy swings

from high protectionism in the first few decades after independence to its current

more liberal stance (Adenikinju 2005:113).

Tariffs have at various times been used to raise fiscal revenue, limit imports to

safeguard foreign exchange or even protect the domestic industries from

competition. In addition, various forms of non-tariff barriers such as quotas,

prohibitions and licensing schemes have on various occasions been extensively

used to limit imports of particular items.

The overall pattern portrays the long-held belief that trade policy can be used to

influence the trade regime in directions that can promote economic growth.

Attempts were made to use trade policy to promote manufactured exports and

enhance the linkages in the domestic economy, to increase and stabilize export

40

revenue, and scale down the country's reliance on the oil sector (Olaniyi

2005:7). Trade policies were accordingly directed at discouraging dumping;

supporting import substitution; stemming adverse movements in the balance of

payments; conserving foreign exchange; and generating government revenue

(Bankole and Bankole: 2004).

TRADE POLICY TRENDS BETWEEN 1960 – 1970s

During the first decade of independence, Nigeria pursued an import substitution

industrialization strategy. This involved the use of trade policy to provide

effective protection to local manufacturing industries, through such measures as

quantitative restrictions and high import duties. Many items were accordingly

placed on import prohibition. During this period, all imports from Japan were

placed under import license. Machinery and spare parts imports were restricted

and exchange controls on the repatriation of dividends and profits were

enforced. Restrictions were also applied on capital goods, spare parts and non-

essential imports. Although the import substitution industrialization strategy

continued even after the Nigerian civil war in 1970, trade policy between 1970

and 1976 assumed a less restrictive stance, ostensibly because of demands

necessitated by the post-war reconstruction.

Thus, only items that were regarded as non-essential consumer goods were

restricted, while tariff rates on raw materials were reduced and quantitative

restrictions on spare parts, agricultural equipment and machinery were relaxed.

Similarly, the reconstruction surcharge on imports was reduced from 7.5 percent

to 5 percent and later completely eliminated, while exchange controls and profit

repatriation were also relaxed. The 1960s and early 1970s also saw the

application of export duties ranging from 5 to 60 percent on agricultural exports

such as cocoa, rubber, cotton, palm oil, palm kernel and ground nuts. In 1973

41

however, these duties were eventually abolished, as a result of the oil boom and

the need to promote agricultural exports as part of the export diversification

strategy. However this spurt of liberalization ended in 1977, when a wide range

of imported finished goods requiring licenses came to be placed on very high

duties or were banned outright. This renewed restrictive trade policy culminated

in the banning of 82 items in 1979; while a further 25 items were placed on

import license.

TRADE POLICY TRENDS BETWEEN 1980 -1990s

From 1981, there was a policy shift towards exports promotion and a move to

intensify the use of local raw materials in industrial production. However, the

increase in the value of imports led to a worsening of the balance of payments

(with, in addition, the backdrop of the collapse in world oil prices), which forced

the government to promulgate the Economic Stabilization (Temporary

Provisions) Act in April 1982. Under this Act, tariffs on 49 items were raised,

while a prohibition was imposed on gaming machines and frozen poultry.

Further, 29 commodities were removed from the general import license regime

and placed under specific license, while the use of pre-shipment inspection

became widespread.

During 1983 - 1985, 152 items were brought under specific import license, and

foreign exchange regulations became more stringent. The central objective of

trade policy was to provide protection for domestic industries and reduce the

perceived dependence on imports; a corollary to that objective was a desire to

reduce the level of unemployment and generate more revenues from the non-oil

sector. Accordingly, tariffs on raw materials and intermediate capital goods were

scaled down.

42

THE STRUCTURAL ADJUSTMENT ERA

From 1986, there was a significant shift in trade policy direction towards greater

liberalization. This shift in policy is directly attributable to the adoption of the

structural adjustment programmes. The Customs, Excise, Tariff etc

(Consolidation) Decree, enacted in 1988, was based on a new Customs goods

classification, the Harmonized System of Customs Goods Classification Code

(HS). It provided for a seven-year (1988 -1994) tariff regime, with the objective

of achieving transparency and predictability of tariff rates. Imports under the

regime thus attracted ad valorem rates applied on the Most Favoured Nation

(MFN) basis. A new seven-year (1995 - 2001) tariff regime, established by

Decree No. 4 of 1995 succeeded the previous (1988 – 1994) regime. The tariff

structure over the period 1988 – 2001 increased import duties on raw materials,

and on intermediate and capital goods, while tariffs on consumer goods were

slightly reduced. This was aimed at reducing distortions in resource allocation

and combating smuggling. Both the 1988 and 1995 tariff schedules had

provisions for reviews and amendments. However, they maintained the familiar

mixed trends in tariff regimes. Three types of changes were subsequently

common, namely, reduction in rates; increase in rates and/or removal from or

addition to the import prohibition list.

TRADE POLICY UNDER THE NEEDS ERA (1999 - 2006) As pointed out

above, Nigeria's trade policy regime as currently contained in the NEEDS and

trade policy documents, has been geared to enhancing competitiveness of

domestic industries, with a view to, inter alia, encouraging local value-added

and promoting as well as diversifying exports. The mechanism adapted to this

end is gradual liberalization of the trade regime. Thus, the government intends to

liberalize the trade regime in a manner, which will ensure that the resultant

domestic costs of adjustment do not outweigh the benefits. This is the

43

fundamental basis on which to gauge the direction and implementation of

policy. The clarion call is "gradual liberalization". This addresses the question as

to what is the kind of trade strategy the government has adopted in furtherance

of its development agenda. Current reform packages are therefore designed to

allow a certain level of protection of domestic industries and enterprise.

Concretely, this has translated into tariff escalation, with high effective rates in

several sectors and lower import duties on raw materials and intermediate goods

unavailable locally. This policy perspective has also led to the application of

relatively high import duties on finished goods which compete with local

production.

Measures affecting imports The tariff structure, indicates that Nigeria’s bound

tariffs taken together, are in the range of only 19.2 per cent. In the period since

1998, the average applied MFN tariffs have increased from about 24 per cent to

29 per cent, with applied MFN tariff rates on agriculture and non-agricultural

products averaging 50 per cent and 25 per cent, respectively. A general

assessment of the tariff structure reveals that tariff rates are widely dispersed,

ranging from 2.5 per cent to a maximum of 150 per cent, with a total of only 19

bands applied. Thus the overall picture reveals mixed escalation, and this is

attributable to the high tariffs on agricultural commodities. This seems to

indicate a policy bias in favour of agricultural protection. A number of industries

are also protected through positive tariff mechanisms, while several industries

benefit from tariff exemptions and concessions on imports of inputs of raw

materials.

Duty exemption and concessions Duty exemptions and concessions also remain

some of the quantitative policy instruments for affecting trade policy in favour

of domestic producers and to achieve the aim of diversification. Exemptions on

44

import duties have been put in place for a number of goods. There are tariff

concessions which have been put in place to attract investment and boost

production. These concessions apply to certain raw materials used by

manufacturers. Tariff concessions are also applied to fertilisers, in order to

support agriculture, while tax concessions have been extended to exporters

under the Export Expansion Grant (EEG).

Import prohibitions Import prohibition continues to be a major non- tariff tool

for pursuance of trade policy. Comparison between 1998 and 2005 has seen the

addition and withdrawal of items on the prohibition list. Since 1991, several

items had been removed from the list. These include vegetable oils; processed

wood; textile fabrics, furniture; fluorescent tubes and lamp bulbs. Imports of

motor vehicles over eight years from date of manufacture, were also banned, but

again re-authorized in January 1998. In 1993, imports of all types of meat were

banned. In 1998, products under 23 HS four-digit codes were subject to import

restriction. However, in line with the government's desire to scale down

prohibitions, a number of prohibitions were replaced with high tariffs between

1999 and 2001. Since 2002 however, there has been a sharp reversal of policy.

Thus, as at November 2004, agricultural and non-agricultural goods under some

218 HS four-digit codes have been subjected to import restrictions, mainly for

purposes of protecting domestic industries. Under the Export Prohibitions Act,

certain agricultural products have also been placed under prohibition to enhance

domestic food security and support local processing.

These include raw hides and skin; timber (rough and sawn); unprocessed rubber

latex and rubber lumps; rice; yam; maize and beans. Although opinions differ as

to the impact of the measures taken on local production, there are indications

that the aggregate index of agricultural production registered an increase of 6.1

per cent in 2003, over the preceding year, with all sub-sectors contributing to

45

growth. This upward trend has shown some measure of consistency between

2003 and 2005. It is noteworthy that in addition to various other measures

initiated by the federal government, the Central Bank of Nigeria (CBN) has

attributed the success partly to the imposition of bans in the sector. Similarly,

the CBN report cited sub-sectoral growth of livestock by 5 per cent in 2003, up

from 4.2 per cent in 2002. There seems not to be a clear certainty that tariff

protection measures, including import bans, have led to very salutary results in

the manufacturing sector. A 2005 trade policy review document indicates that

import bans and lower tariffs on inputs for growth of businesses appear to have

declined since 1999, in spite of the increased use of prohibition measures. The

conclusion is that the manufacturing sector appears to have fundamental

problems, which cannot be addressed by merely increasing effective rates of

protection.

Other macroeconomic trends under needs era

In assessing the performance of trade policy, the view has often been expressed

that trade policy in itself may not be able to accomplish the desired policy

objectives, in the absence of appropriate complementarities. Studies of trade

liberalization since the 1980s have shown that trade liberalization has failed in

many instances due to lack of appropriate accompanying measures, and not so

much as a result of faulty design of the trade policies themselves. Such

associated policies are macroeconomic policies, pro-growth regulatory and

competition policy, investments in infrastructure, human resource development,

governance and the rule of law.

Under the NEEDS regime, fiscal policy has continued to be influenced by

developments in the oil sector. Petroleum-related taxes account for over 70

percent of public revenue. Increases in crude oil prices in recent times have led

to improvements in the fiscal balance. Between 2003 and 2005, federal revenue

46

increased by 48.7 percent on account of increased production and higher world

market prices; another contributory factor was the removal of subsidies on

domestic crude oil sales to the Nigerian National Petroleum Corporation

(NNPC). Public revenue from company income tax, customs and excise duties

and value-added tax (VAT) also increased over the same period while aggregate

public expenditure rose by 20 per cent on capital items. Concomitantly, the

public deficit diminished from 5.0 per cent in 2002 to 1.3 per cent in 2003.

While the aim of monetary policy continues to be fiscal and macroeconomic

stability, inflation rates have in recent times remained above the single-digit

mark, due mainly to excessive money supply, with adverse effects on the

competitiveness of the economy. The growth in money supply was attributed

largely to an increase in net foreign assets, and to a lesser extent, on overall

banking sector credits. The inadequacy of stabilization policies has meant

sustained high inflation levels, partly also accentuated by a reduction in the

minimum discount rate between 2003 and 2005. Overall, the nominal exchange

rate appears to be adjusting to the misalignment of the local currency, the naira,

vis-à-vis the currencies of the major trading partners, largely due to persistent

depreciation and devaluation. Unfortunately however, high inflation rates

appeared to have dampened the impact of depreciation on the competitiveness of

non-oil export products in particular. At the same time, restrictions in the

exchange-rate market have widened the gap between the official and non-

official exchange rate, which thus constitutes an indirect tax on non-oil exports,

and hence a disincentive to export-oriented activities. The trade account balance,

largely affected by world market prices and domestic production of oil, remains

mixed, with improvements during years of favourable oil prices as occurs

presently. Fiscal policy has also shown a similar trend due to a high import

content of expenditure. Management of the external debt burden still represents

a heavy drain on government resources.

47

2.4 METHODOLOGICAL FRAMEWORK

There is huge number of studies that investigate the impact of exchange rate on

export. But according to our research objective we try mainly to focus on studies

that investigate this relationship in case of oil dependent economies like

Azerbaijan.

Bernardina (2004) investigates impacts of the real exchange rate, real non-oil

GDP, and the world income on Russian non-oil export by using an Error

Correction Model over the period 1994-2001. Author finds that there is a robust

and negative long run co-integration relationship between the real exchange rate

and Russian non-oil exports. Furthermore, the world income has positive effect

on Russian non-oil export while real non-oil GDP causes a decline in non-oil

export.

By using Static OLS and Fix Effect based on Two Stage LS Masoud and Rastegari

(2008) estimate effects of certain factors as well as real exchange rate on non-oil

export over the period 1995-2005. Study concludes that Iran’s non-oil exports

positively related to increase in population, per capita income and consumer price

index while negatively depends on appreciation of real exchange rate.

Another study related to Iranian non-oil export comes from Sabuhi and Piri

(2008). They explore the effects of exchange rate, export volume, domestic

saffron production on price of saffron, Iran’s major non-oil export good in the

short- and long-run. Employing Autoregressive Distributed Lag (ARDL) model

shows that appreciating exchange rate has statistically significant negative

impact on export price of saffron while there is no significant relationship

between export price and domestic production of Saffron in the long-run.

Sorsa (1999) analyzes Algerian non-oil export promotion issues in presence of

oil sector dominancy over the period 1981-1997 and reveals that appreciation of 48

real exchange rate is the major factor that impedes non-oil export growth and its

diversification.

The effects of real exchange rate, its movements and volatility on the growth of

non-oil export in Nigeria are studied by Ogun (1998) over the period 1960-1990.

The results show that real exchange rate and also both its misalignment and

volatility affect non-oil export growth adversely.

Oyejide (1986) examines effects of trade and exchange rate policies on

Nigeria’s agricultural export using Ordinary Least Squares (OLS) over the

period 1960-1982 and concludes that appreciation of real exchange rate

adversely influences to non-oil export especially during the oil boom.

Another study that investigates relationship between exchange rate and non-oil

export goods in Nigeria comes from Yusuf and Edom (2007). By applying

Johansen co-integration approach over the period 1970-2003 they reveal that

depreciation of official exchange rate promotes export of round wood and sawn

wood in Nigeria.

Adubi and Okunmadewa (1999) investigate impact of exchange rate and price

indexes and also their volatilities on the agricultural export of Nigeria in the

period 1986 to 1993. Results of ARIMA and OLS estimations indicate that

appreciation of exchange rate and its volatility have negative impacts on

agricultural export earnings.

By applying OLS on the time series of relevant variables including exchange

rate over the annual period of 1970-2005 Abolagba et al. (2010) find that

appreciation of real exchange rate has statistically significant and negative

impact on export of cocoa and rubber in Nigeria.

49

Ros (1993) analyzes Mexico's non-oil trade and industrialization experience

during 1960-1990 and concludes that appreciation of real exchange rate due to

oil revenues is harmful for non-oil export performance.

There are many variables that can be used to measure economic activities in a

country. These include; gross domestic product, net national product, amount of

import and export, index of industrial production. Following Oyejide (2002),

this study uses US real gross domestic product as a measure of foreign demand

for Nigeria‘s export. Also following Oyejide, (2002), relative price is captured

by dividing US wholesale or producer index with Nigerian consumer price

index. Also oil export is introduced to test the ‘Dutch disease hypothesis’. This

is due to the fact that increases in demand for Nigeria’s oil have contributed to

the neglect of the non-oil export. By introducing oil export in the export

function, we are able to verify the ‘Dutch disease’ function.

Trade policy encompasses all measures taken to guide exports and imports.

Accordingly, trade policy can be considered as liberal or restrictive. Trade

policy is liberal when an economy is open to international trade and export

promotion. Whereas, trade policy is restrictive when an economy is closed to

international trade or when international trade is prohibited or restricted. The

effect of trade policy can be examined through the level of trade openness. This

is captured by ratio of sum of export and import to GDP. According to Olaniyi

(2005) the trade openness implemented in the post to1986 structural adjustment

period contributed to Nigeria’s export performance. Thus, it is expected that

openness relates positively with economic growth in Nigeria.





50



index. Also oil export is introduced to test the ‘Dutch disease hypothesis’. This

is due to the fact that increases in demand for Nigeria’s oil have contributed to

the neglect of the non-oil export. By introducing oil export in the export

function, we are able to verify the ‘Dutch disease’ function.

Chapter Three

Structure of Foreign Trade And Non Oil Exports In Nigeria

3.1 Introduction

The immense benefits derivable from engaging in export marketing and the

emerging business opportunities worldwide are associated with the current

international trends in global trade liberalization in most nations (including

Nigeria). Buzzel (1968) noted that as trade barriers in Western Europe and

elsewhere diminish; more companies have found attractive opportunities for

expansion in countries other than their traditional home markets.

To engage in foreign trade bring about: earning foreign exchange, increase in

sales, increase in profit, lower production cost, employment creation, earning

international recognition, enhancing reputation, improving living standard of

both the exporting and importing firms/nations. Panagariya (1995), in a study of

China’s exporting strategy, remarked that, export is a key to high GDP growth

rates. The critical economic difficulty faced by Nigeria as a result of oil glut in

the world market stimulated several search for alternative to oil as a sustainers

of economic development in 1980s, hence the need for export marketing as a

viable alternative to oil (crude petroleum).

51

3.1.1 THE STRUCTURE OF NIGERIA’S NON-OIL EXPORTS

Agricultural products constitute the bulk of Nigeria’s non-oil exports. The

shares of these products both processed and unprocessed in total value of non-oil

exports is as high as 70 per cent. Other components of the non-oil exports

include manufactured products and solid minerals. The agricultural products

include cocoa, groundnut, palm produce, rubber (natural), cotton and yarn, fish

and shrimps, while the manufactured products and solid minerals include

processed agricultural products, textiles, tin metal, beer, cocoa butter, plastic

products, processed timber, tyres, natural spring water, soap, detergent and

fabricated iron rods. The non-oil commodities market experienced an export

boom between 1960 and 1970. Their fortunes declined in the early 1980s when

the international primary commodity markets collapsed with the associated

deterioration in the terms of trade. Resulting mainly from the policies adopted

during the structural adjustment programme, non-oil exports increased owing

mainly to increase in the Naira price of the export commodities. This was,

however, short-lived as international demand for Nigeria’s non-oil exports

remained weak (Okoh, 2004). The value of non-oil exports has been on the

decline ever since. For instance, the share of agricultural products in total

exports declined from 84% in 1960 to 1.80% in 1995 (CBN, 2000, Ogunkola

and Oyejide 2001). Thus, contrary to the expectation of increase in non-oil

exports, there was an overall decline in the export of these commodities.

Manufactures decreased from 13.10 % in 1960 (CBN, 2000) to 0.66% in 1995

and remained the same in 2002 (WTO, 2003). The values of exports in as well

as the percentage shares of the major export commodity groups in total

merchandise exports.

3.2 TRENDS IN NIGERIA’S NON-OIL EXPORT POLICIES:

PRE-INDEPENDENCE ERA TO 1992

52

In the pre-independence years, the marketing board system was adopted by the

colonial administration to ensure regular supplies of raw materials to factories in

metropolitan Britain in particular and Western Europe in general. The system

was adequate, as machinery for the effective and efficient marketing of Nigerian

farm produce to the outside world, (Itegbe, 1989). It indeed helped to boost farm

incomes, improved the livelihood of the peasant farmers and above all, assured

and enhanced government revenues especially needed for acquiring the

country’s essential import needs. The marketing board grew into a formidable

platform for the negotiation of profitable deals on a comparable term with the

more experienced and more efficient foreign firms and multi-nationals with

whom the Boards had to invariably conclude substantial export sales contract

and also ensure prompt repatriation of proceeds.

However, inspite of the positive contributions of the export trading system,

Itegbe (1989) noted that the system was bedevilled by numerous export

constraints such as export licensing. Fagbenro (1996) are however of the view

that the marketing board policy was meant to serve the British interest

exclusively in that its articles provided for the supply of raw materials to British

factories and check diversion of such produce to other European countries. With

the attainment of independence, such a policy was bound to collapse, he stated.

The shortcomings of the marketing board system gave rise to the establishment

of the commodity boards in 1977, Itegbe (1989). The commodity board was to

foster uniformity and stability in prices for all export commodities throughout

the country. The measure however did not stop the downward trend in the

volume of Nigeria’s export of agricultural commodities. According to Igbani

(1981), this downward trend in agricultural export was because the root

problem, being diminishing returns from agricultural productions, remained

untackled.

53

However, Itegbe (1989) was of the view that the monopoly enjoyed by the

Commodity Boards constituted some degree of disincentive to export-oriented

investments. He further stated that the system did not allow for the rapid

expansion of the processing industry to allow for the exportation of value added

products and therefore higher export earnings. Consequently, by the end of the

seventies, export of non-oil commodities declined to an insignificant figure of

about 4.4% of Nigeria’s total export value. Between 1976 and 1983 two policies

on agriculture were launched to encourage massive participation in agriculture

for self sufficiency and exports, Abimboye (2009).These are the operation feed

the nation (OFN), initiated in 1976 to1979 and the green revolution programme

that operated between 1979 and 1983. He observed that except in name, there

was no difference in the aims or contents of these two agricultural policies. The

twin objectives were to boost local crop and fibre production through

introduction of high yield varieties of grains and improved management

techniques. The improved outputs envisaged were to cater for domestic needs

and provide enough for exports. The impacts of these programmes on Nigerian

non-oil exports were however never felt. Abimboye posited that politicians

cornered the bank loans given for agricultural development purposes for their

fake companies and nonexistent firms. By the time the schemes were suspended,

over N200 billion had been expended.

In furtherance of Nigeria’s quest for a sustainable diverse exports base, the

Nigeria export promotion council (NEPC) was enacted through the

promulgation of the NEPC act No. 26 of 1976 which according to Ezike (2009)

gave legal backing to adhoc incentives already in place. The decree created the

Nigeria’s export promotion council and charged it with the promotion of

Nigeria’s non-oil exports and the diversification of the export base the primary

objectives of the NEPC are to promote the development and diversification of

Nigeria’s export trade and assist in promoting the development of export related

54

industries in Nigeria. It is also to spearhead the creation of appropriate export

incentive and articulate the implementation of export policies and programmes

of the Federal government, Isiekwenu (1985). He stated that since its creation,

the agency has adopted various strategies to enhance Nigeria’s non-oil export

base. These include the exports expansion grant (EEG) designed to induce non-

oil exporters whose minimum annual export turnover is N5, 000,000.

This scheme is aimed at assisting exporters, diversify export markets and to

make them more competitive in the international markets. The NEPC has also

made some progress in product development. It has made inroads in the

development of solid minerals export, even though this is being constrained by

the absence of mechanized mining. The council is also into capacity building

and entrepreneurship in export trade through training of existing and potential

exporters. The NEPC has established a human capital development centre in

Ikoyi and the common facility centre in collaboration with United Nations

industrial development organisation (UNIDO) in Aba. The human capital

development centre would train exporters in the production of garments and

apparels while the common facility centre carters for over 11,000 small and

medium scale enterprises involved in the production of leather products such as

shoes, belts and bags. Notwithstanding, these seeming achievements by the

NEPC, the desired result for a sustainable non-oil export base is yet to be

achieved. Touted lack of strong political will to diversify our nonoil export base

by the policy-makers as one of the major problems of NEPC. According to him,

even though the NEPC act was promulgated in 1976, the powers, authority and

functions of the council were not more than advisory and besides, it has little or

no autonomy in practical terms. He argued that despite the Act, Nigeria

continued her over-reliance on crude oil export until some unexpected and

undesirable phenomenal development occurred between 1977 and 1979 in the

world oil market. This was marked by the sharp decline in oil price in 1978

55

which sent a ripple of shocks through the economy. It soon became clear to the

government that the foreign exchange being generated mainly by crude oil could

not be adequate for the development needs of the country.

Fagbenro (1999) noted that by 1984, Nigeria faced a situation of economic

recession and austerity characterised by serious balance of payments deficits,

escalating external debts and an unbearable debt servicing burden. He affirmed

that the structural adjustment programme was introduced in 1986 as a last ditch

attempt to resolve this economic crisis and assure the nation’s economic

survival.

3.2.1 THE NON OIL EXPORT

The export sector serves as an outlet for commodities manufactured

domestically from constituent sectors of the country’s economy. In Nigeria the

domestic sectors are categorized as: a. oil and b. non-oil sectors. The non-oil

sector of the Nigerian economy is the whole of the economy less oil and gas

sub-sector. It covers agriculture, industry, solid minerals and the services sub-

sector, including transport, communication, distributive trade, financial services,

insurance, government, etc in a very broad terminology (Adejugbe 1997, p67).

Exports are the goods and services produced in one country and sold to earn

foreign exchange, which can be used to purchase goods and services from

another country (Daisi, 2011 p32). Non-oil exports are exports merchandise are

agricultural/farm produce, semi-manufactured and manufactured goods, and

mineral exports and services exports.

The Nigeria’s non exports sector is structured into four broad constituents which

are the agricultural exports, manufactured exports, and solid mineral exports and

services exports. Each constituent will be adequately profiled.

3.2.2 AGRICULTURE EXPORT 56

Nigeria’s non-oil exports are mostly agricultural/farm produce which are

normally referred to as her traditional export commodities. These are cocoa,

rubber, oil-palm, coffee, cotton, wood products, cassava, ginger, fish and

shrimps etc. However, it is important to mention that cocoa exports had pre-

eminence as Nigeria’s most exportable non-oil agricultural commodity (CBN

and NEXIM, 1999, p54). In the 1960s to the 1970s, even the years preceding

independence, agricultural produce exports played a dominant role in attracting

foreign exchange, aside the solid mineral exports of cocoa, groundnut, rubber,

palm kernels and palm oil accounted for 69.4 percent of total export earnings,

out of the total 97.3 percent for which all non-oil exports accounted for. But

overtime the Nigerian economy became mono-cultural, having been transformed

from one dependent on fairly diversified portfolio of agricultural exports is

consequence of several causative factors, which were:

As the World Bank Report (1984, p4) (cited in Ukpong 1997, p48), which

notes that there has been a consistent bias in prices, tax and exchange rate

policies against agriculture. b. Ukpong (1997, p.48) cites then excising

structures of incentives given to farmers in most African countries as one the

reasons for the reasons for the continent’s poor performance in agricultural

output. And since farmers are price responsive as by Behman (1968); Oni

(1969); Olayemi et al (1975) (cited in Ukpong 1997, pp.47-48), low producers

prices and relative prices of competing crops constrained output. c. The 1971-

1973 drought, which caused significant fall in crop harvest as Nigerian

agriculture is primarily rain-fed. D. The rosset virus epidemic and pest of 1975

e. little or no application of fertilizers to soils farmed continuously;

f. Shortages and high costs of farm labour (relative rural/urban wages); interest

rates on loans

g. Dependence on wild and low yielding plant species, and outdated technology;

and 57

h. Civil disturbance that dislocate farmers and the population

These factors caused the share of agricultural export produce to fall from 63.0

percent in the in 1960s to 28.92 percent and 20.15 percent in 1973/74 and 1979

respectively. It not only decline in relative terms in 1973/74 and 1981, but in

absolute terms. Its earning from export also fell. Aside the above factors, greater

quantities of agricultural output were processed or consumed locally than

hitherto. Another major structural change was the disappearance of a number of

export products from the export list. Notable exports like groundnuts, groundnut

oil, raw cotton and palm oil decline in their contributions to export earnings but

also in real terms while others like timber, plywood, palm kernel, and groundnut

cake, became mere shadow of their past importance (CBN and NEXIM, 1999,

p31) All these were what characterized the agricultural industry in the pre-

Structural Adjustment Programme (SAP).

However, the fortunes of agricultural goods improved stemming from the

policies of the structural adjustment programme (SAP). The trend in years from

1986 to 1996 showed favorable growth for agricultural products. The

deregulation of the commodity marketing boards as well as the devaluation of

the naira, coupled with the incentive of 100 percent foreign currency retention

scheme for repatriated export earnings significantly aided export expansion. The

pre-eminence of export of agricultural products notwithstanding, its share in

non-oil exports fluctuated significantly. Cocoa accounted for most of the export

volume of non-oil exports products. Its export volume rose dramatically in 1986

and 1988, from then on it continued to fluctuate till in crashed in 1994 and 1995.

The same is true of other commodities such as rubber and palm produce.

This due to economic conditions in the importing countries and continuous

exportation of these commodities largely unprocessed or in semi processed form

58

contributed substantially to the observed fluctuations their volume and value

(CBN and NEXIM, 1999, p46).

The year succeeding the SAP years, which is termed post-SAP was

characterized by increased openness of the economy and further depreciation of

the naira. It should be noted that agricultural products export had increased. This

post-SAP reform feature mixed trade policy stance-export promotion continued

and control measures were exercised on imports, which were in force until 2003,

when it was changed.

3.2.3 MANUFACTURED EXPORT

The manufactured exports to the international export market comprises of agro-

allied and manufactured exports. The agro-allied export products are cocoa

butter, cocoa powder, cocoa cake, cocoa paste, groundnut cake and wood

products including furniture and fixtures etc. while main manufactures are

textiles, chemical products, beer and beverages, urea-ammonia, insecticides,

soap and detergents, plastics and non-metallic mineral products and processed

skin etc. In the period succeeding independence and pre-structural adjustment

programme, the non-oil exports was characterized by the predominance of the

agricultural exports, which is reflected in its share of contribution to total export

and non-oil export, which are 4.0 percent and 67.0 percent respectively.

However, the manufactured exports were about 1.0 percent and 13.0 percent

respectively in the same period (Adewuyi, 2005). However, with the adoption of

the Structural Adjustment Programme (SAP), the degree of openness of the

economy increased while the naira depreciated. Although there were fluctuation

in the value of exports of processed or manufactured products between 1986 and

1991, the export value increased continuously from US$ 11.0 million in 1992 to

US$ 24.0 million in 1996. All this was as a result of the measures put in place

since 1986 to diversity the nation’s non-oil exports. But in terms of volumes, it

59

was an opposite trend entirely; the quantum fell continuously from 38.6

thousand tons in 1993 through to 2.4 thousand tones in 1996. The structure in

the post SAP showed that the share of semi-manufactured increased immensely

from an annual average of 4.6 percent for the period of 1986 to 1990, to 23.0

percent in 1991 and 1995 (CBN and NEXIM, 1999, pp46-47).

However, this performance as highlighted in a World Bank study (1989) cited in

the CBN and NEXIM study (1999) which showed that manufactured export

accounted for 30 percent of exports from developing countries.

3.2.4 SOLID MINERALS EXPORT

Solid minerals exports from Nigeria are cassiterite, coal, columbite, charcoal,

asbestos, processed iron ore and marble. Exports of solid minerals to the

international market have from the time of independence had minimal in terms

of their volume and share of the exports earnings. Prior to independence, the

solid minerals export were to satisfy the demand from industrial base of the

British imperialism. But after independence, the Nigerian government avoided

direct participation in the mining of solid minerals due large capital outlay

involved, reoccurring flooding of mines, high risks intricate technology and

huge financial outlay involved, instead mining was left to private firms.

However, government still provided support as highlighted in the CBN and

NEXIM (199, p28). However, in the 1970s engaged in direct participation,

which was volte face to its earlier stance.

In the period of 1985 to 1996 accounted for an average 0.8 percent of total non-

oil exports and about 0.1 percent of total exports. And in value terms, the export

of solid minerals during the period was not substantial (CBN and NEXIM,

1999, p48). This clearly shows the infinitesimal contribution sold minerals made

so far within the period. So far, in recent times government has instituted

60

reforms to exploit the optimal potentials inherent and derivable from the solid

minerals, and as ways of diversifying the economy from its oil exports addition.

3.2.5 SERVICES EXPORT

Exporting does not only involve the delivery of physical goods to another

country. Exporting can also include the export of services such as education,

consultancies, nursing and tourism. These are known as service export. There

are unique benefits to service exports that do not apply to goods, as no or low

freight costs. But service exports also carry risks and challenges, such as limited

options for secure payment and the protection of your intellectual property rights

(Business Victoria, 2007).

This is an export area in which there has been no significant activity or event

occurring. It remains still a veritable means of generating foreign exchange for

the country and facilitating economic development, which is largely untapped.

Services such as transportation, tourism, communication, construction,

insurance, financial professional, and technical activities are what countries in

the developing countries, like Nigeria except for a few such as Egypt have not

been able to export to the international market. However, Nigeria has been

making progress in a n area like tourism in current times. Places like Obudu

Cattle Ranch, Tinapa Business Resort, and other arrears of tourist attraction are

spring up to offer leisure services.

Also in terms of financial and professional services, Nigeria has no services to

provide here, although Nigerian experts work in other countries and remit

money, in foreign currency back home, it is more of brain drain phenomenon.

And some Nigerians serve in overseas countries under the Technical Aids

Corps ((TAC), it is a foreign aid and cooperation to other developing countries.

This does in no way bring foreign exchange to the country, Nigeria.

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In the CBN and NEXIM study (1999, p33), the sector contributed an average

of 30 percent to GDP between 1973 and 1981, 57 percent of it been made by the

wholesale and retail trade sector. But its contribution to balance of payments

was negative. The reason for this is because of Nigeria’s low level participation

in the provision of international services.

3.2.6 Why Nigeria’s Non-Oil Exports Are Uncompetitive

Stakeholders in Nigeria’s non oil export industry have said that the near collapse

of infrastructure and the consequent high cost of logistics and multiple taxes

imposed by various levels of government as well as the low level of availability

of Information Technology are major challenges impeding the growth of the

industry.

Programme Director and Chief Executive Officer of Multimix Academy, Dr.

Obiora Madu, made the observation while speaking at a one-day training

workshop organised by the academy in conjunction with the Nigerian Export

Promotion Council captioned: “The making of an Exporter” and Export

Mentorship Programme held in Lagos. According to him, most of the nation’s

non-oil exports are more expensive than others in the international market due to

high cost of production arising from the high logistic cost occasioned by the

decay of infrastructure in the country.

Madu also noted that the inability of these exporters to manage the logistic cost

has not helped matters, a development that have made them uncompetitive and

therefore impede the growth of the industry. In addition to these challenges, he

also observed that poor packaging of the exports and inadequate incentives in

the country have all contributed the low growth of the industry, which many

believe could sustain Nigeria’s economy if the potential are properly harnessed.

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“I can tell you export incentives in the country are inadequate and I hope the

NEPC would do something about this. The Export Expansion Grant, which is

the only incentive that readily comes to mind, has been shaking since two years

now”, he noted.

While taking participants at the workshop through the rudiments of the various

means of payments and risk associated with each, warned them to disregard any

export proposal to them that looks too good to be real and also warned that they

must engage the service of a legal practitioner before they enter into such

contracts as well as choosing means of payment.

On writing offer letters, he charged the participants to ensure that such letters are

as explicit as possible containing such detailed information as the nature of the

product, its shelf life, non-negotiable price, quantity per shipment or season,

quality, packaging, the validity and reference of companies the exporter had

done business with in the past.

Managing Director of Apany Global Resources Limited, Mr. Sampson Enwere,

one of the mentors while speaking at the event, decried the worsening cases of

imposition of multiple taxes on the exporters, which jack up their cost of

production and make them uncompetitive in the international market arena.

Enwere, who is a specialist in Sesame seed production said: “If you are taking a

consignment of sesame seed from Maiduguri to Lagos for instance, you will be

stopped at every local government area where you would be required to pay one

form of tax or the other”

He argued that there was urgent need for all the three tiers of government to

harmonise the various taxes so that they would be paid at a particular point

instead of duplicating them, which some of the tax officials have turned into

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instrument of extortion from unsuspecting members of the public, especially

those that move goods.

3.3.1 Nigeria's Current Trade Policy

Thus, as observed above, the Nigerian government like many other developing

countries considers trade as the main engine of its development strategies,

because of the implicit belief that trade can create jobs, expand markets, raise

incomes, facilitate competition and disseminate knowledge. (WTO 2005: 15).

The main thrust of trade policy is therefore the enhancement of competitiveness

of domestic industries, with a view to, inter alia, stimulating local value-added

and promoting a diversified export base.

Trade policy also seeks (through gradual liberalization of the trade regime) to

create an environment that is conducive to increased capital inflows, and to

transfers and adoption of appropriate technologies. The government pursues the

liberalization of its trade regime in a very measured manner, which would

ensure that the resultant domestic costs of adjustment do not outweigh the

benefits. The reforms which accompany this policy direction are also aimed at

re-orientating attitudes and practices towards modern ways of doing business.

However, the instruments of trade policy such as the tariff regime are designed

in a manner which allows a certain level of protection of domestic industry and

enterprise. While this is the main trade policy framework to guide economic

growth, the trade expansion, employment generation and poverty alleviation

dimensions are now subsumed in a new overarching economic development

policy blueprint adopted in 2003, the National Economic Empowerment and

Development Strategy (NEEDS).

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3.3.2 Theoretical Analysis of Nigeria Export Policies and

Programmes

The export assistance policies and programmes of Nigeria are largely based on

the government assistance programmes/incentives and fiscal policies. Since

1979, Nigeria government took reasonable steps to deal with the things

identified as constraints in export marketing expansion and diversification in the

country by approving what NEPC referred to as package of incentives. The

incentives according to NEPC (1997) are aimed at encouraging Nigerian

exporters to stimulate the foreign exchange earning capacity of the export sector

and diversifying the productive base of the economy. Other objectives of the

incentives are to address the problem of supply, demand, and price

competitiveness of Nigerian exporters, the provision of foreign exchange



marketing, packaging quality and price competitiveness of Nigeria export

products. The export assistance policies and programmes of Nigeria government

are largely based on the government assistance programmes/incentives and

fiscal policies.

Since 1979, the government took what can be regarded as reasonable steps to

deal with some of the things identified as constraints in export marketing

involvement and diversification in the country by approving what NEPC (1997)

described as package of incentives. The incentives are aimed at encouraging

Nigerian exporters to stimulate the foreign exchange earning capacity of the

export sector and diversifying the productive base of the economy. Other

objectives of the incentives are to address the problem of supply, demand, and

price competitiveness of Nigerian exporters, the provision of foreign exchange


65


marketing, packaging, quality and price competitiveness of Nigerian export

products.

3.3.3 Structural Adjustment Program (SAP) And Non-Oil Exports

In NigeriaAccording to Itegbe (1989), between 1984 or thereabout to September 1986,

successive military administrations started giving serious consideration to the

need to urgently find or develop other methods or avenues of sourcing foreign

exchange, in addition to measures adopted to conserve what was already earned.

This situation arose as a result of mounting obligation on the country to settle

trade arrears and for debts servicing as well as to meet current trade bills. He

further stated that by 1984, Nigeria had found herself in huge foreign debts in

addition to being in serious arrears in settlement of foreign trade bills mainly on

irrevocable letters of credit.

Thus, it became clear to policy makers in Nigeria that additional effort had to be

made by the nation to earn foreign exchange. It was for this reason that the

government in 1986 adopted export-oriented development strategy as a major

cornerstone of the structural adjustment programme (SAP). SAP involved the

formulation and adoption of a comprehensive export incentive legislation known

as the Ezike and Ogege 195 export incentives and miscellaneous provision

decree No.18 of 1986. The provisions of this decree were subsequently

strengthened by the provision of the second tier foreign exchange market

(SFEM) decree No. 26 of September, 1986.The introduction of the export decree

and SFEM decree could be described as “Watershed” in the history of non oil

export policy development in Nigeria, according to Itegbe (1989), pointing out

that for the first time, in the history of the country, export expansion and

diversification strategy became a national policy objective. The removal of all

66

bureaucracies and additional incentives through SAP did not however make any

significant impact on the volume of non-oil exports. Experts and academicians

in the area of export promotion have tried to figure out why after over 20 years

of this export policy regime there has yet been little significant positive results.













period under study.

Government Motivational Export Policies and StrategiesThe nation export promotion programmes are contained in the Nigerian Export

Incentives and Miscellaneous Provision Decree 18 of 1986, as amended by

Decree 65 of 1992, and the 1996/1997 national budget policies on export. Some

of the assistance policy programmes include: Currency Retention Scheme

This is also referred to as “Domiciliary Account Export Proceeds”; the scheme

allows exporters to retain one hundred percent of their foreign exchange

earnings in their domiciliary accounts in any authorized bank of their choice.

The objective of the currency retention scheme is to enable exporters have

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foreign exchange at their disposal, and this can be utilized for non-oil export

related activities.

1. Export Development Fund (EDF)

This is a special fund provided by the Nigeria government to give financial

assistance to exporting companies so as to cover part of their initial expenses in

respect of the following export promotion activities:

a. To participate in training courses, symposia and workshops in all aspects of

export promotion,

b. To enable exporters advertise in foreign markets,

c. To carryout market research studies,

d. To encourage firms to engage in product design and consultancy programmes,

e. To participate in trade missions buyers-oriented activities, overseas trade fairs

exhibitions and store promotions

f. To assist in the area of cost of collecting trade information,

g. To encourage the development of export oriented industries.

It is important to note that the fund would only cover part of the cost involved in

any export related activity, while exporters bear major part of such costs.

Export Expansion Grant Fund (EEGF) The fund is to provide an inducement for

exporters to enable them (exporters) increase the volume of export, diversify

export products and market coverage. The Export Expansion Grant Fund is

made available only to exporters who have repatriated their proceeds from

previous export transactions as certified by Central Bank of Nigeria (CBN).

2. Duty Draw-Back Scheme (DDS)

This scheme is aimed at providing for the refund of import duties and surcharges

on raw materials, including packaging and packaging materials used for the

manufacturing of products destined for export.

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3. Duty Suspension Scheme (DSS)

This is a mechanism through which imported inputs for export production can

be imported with a waiver of import duties and surcharges, such as raw

materials and intermediate inputs packaging materials, labels, etc used directly

to manufacture export products that can be imported free of customs, excise and

other duties under the scheme.

4. Manufacturing-in-Bond Scheme

The manufacturing-in-bond scheme provides for importation of raw materials

into a bounded warehouse of the company for export production. That is, the

scheme is designed to enable manufacturers to export products that have a

minimum value added of 20 percent to import duty free on their raw materials

for exportable products. Only products produced in Nigeria qualify to benefit

from this incentive.

5. Pioneer Status Scheme (PSS)

This is an incentive that grants tax holidays on corporate income to

manufacturing exporters that export at least fifty percent of their turnover. The

objective of this scheme as provided in the income tax Act of 1971 is to

encourage the establishment of export-oriented industries in Nigeria.

Export Price Adjustment Fund (EPAF) This fund serves as a supplement or

additional fund to compensate exporters on the following:

(a) High cost of production arising mainly from infrastructural deficiencies.

(b) Purchasing commodities at prices higher than the prevailing world market

prices-this is usually fixed by government.

(c) Other factors beyond the control of the exporters are unfavourable currency

exchange rate, political instability, etc.

The fund is principally designed to provide leverage after other incentives might

have been exhausted.

6. Tax Relief on Interest Income

69

The relief is aimed at tax exemption on interest accruing from loans granted by

banks in aid of export activities. This is in accordance to Company’s Income

Tax Act of 1979, which states the percentages of tax exemption on interest for

foreign investors.

7. Capital Asset Depreciation Allowance (CADA)

The Company’s Income Tax Act of 1979, as amended by the

Finance/Miscellaneous Provisions Decree of 1985, and amended further by the

Export Incentives Decree No. 18 of 1986, provides for an annual depreciation

allowances of five percent on plants and machinery to all manufacturing

exporters who export at least fifty percent of their annual turnover with at least

thirty-five percent value added. Incentives for Manufacturing Enterprises

Manufacturers profit and dividends are exempted from taxation under this

scheme. The tax exemption

Includes:

(a) Removal of taxes on interest income loans and advances granted by banks

for export manufacturing.

(b) Tax exempt for dividend derived from manufacturing companies in the

petrochemical and liquefied natural gas sub-sectors.

(c) Low rate of tax (20%) for small manufacturing companies for the first five

years of commencement of business.

(d) Small companies’ dividends are free from tax.

(e) Restrictions for capital allowances are removed for manufacturing

companies

(f) Profit for any Nigerian company in respect of goods exported from Nigeria

are exempted from tax, and

(g) Profits of companies whose supplies serve as inputs to manufacturing of

products for exports are excluded from tax.

70

8. Incentives on Export of Solid Minerals

New companies venturing into the mining of solid minerals from 1996 are to

enjoy tax free holiday for the first three years of their operation.

Special Trade Agreements Liberalization Certain bilateral and multi-lateral trade

agreements are entered with a view to waiving or reducing some duties or tariffs

on goods from countries that signed the agreement. This is aimed at encouraging

foreign trade and investment. The Lome conventions, generalized system of

preferences (GSP), and ECOWAS treaty are some of the examples of the special

trade agreements to which Nigeria has been associated with.

Export Promotion Zone (EPZ) Nigerian export promotion zone was established

by Decree No 34 of 1991; the decree provides for the establishment of a

geographical enclave within the country, to which normal customer’s tariffs or

duties do not apply. In other words, EPZ is an incentive provision for exporters

within a nation’s customs territory, which provides an attractive environment for

doing business especially in an otherwise not too attractive environment. The

objective of EPZ is to motivate local and foreign investors, stimulate industrial

production for export, diversify economic activities, generate foreign exchange,

create backward linkages and provide bases for technology transfer. The first

export promotion zone in Nigeria is located in Calabar, and the foundation was

laid on November 7th, 1991, by the then President of the Federal Republic of

Nigeria-General Ibrahim Babangida.

Other policies and incentives aimed at not only creating export awareness, but

also to promote other export activities include incentives for the manufacture of

locally made spare-parts and equipment, re-discounting and refinancing facility

for export, industrial export simulation facility, export credit guarantee facility,

export credit insurance facility and insurance of market risks.

Perception of Nigeria Export Policies and Programmes to have an insight to the

perception and performance of the Nigerian export promotion programs, we will

71

consider the number of participants and the total sum paid to beneficiaries with

respect to duty drawback scheme and export expansion grant fund from 1988 to

1996.

According to NEPC (1997), a total of ninety-three companies benefited under

the duty drawback scheme, out of one hundred and forty-three companies that

applied within the period; while about one hundred and ninety-one million naira

was paid to the companies for the same period of nine years (1988 to 1996). It is


number of benefiting firms is also not encouraging.

Hence the desired objectives could not be achieved. Okeke (1990), also stated,

that the drawback schemes’ elaborate administrative procedures gave rise to

what the author called “undesirable situations”. Another example of Nigerian

export performance can be seen from the total export expansion grant disbursed

to companies from 1989 to 1996. The grant ranged between 1.7 million Naira to

79 million Naira. Considering the capital-intensive nature of expanding

manufacturing companies, it will not be out of place to state that the above sum

disbursed is insignificant to make meaningful impact in the export expansion

scheme of most companies within the given period. In analyzing the scope and

the objectives of Nigerian export assistance programmes as discussed above, we

can describe them as laudable. But some of the export assistance programmes

are not yet being implemented or are poorly implemented. Hence, Iyanda (1998)

similarly remarked that Nigeria government’s approval of export credit

guarantee scheme was more on paper. In the same manner, the commercial

banks failed persistently to comply with CBN’s guidelines on credit to the

export sector, while some people have also argued that successive governments

were simply paying “Lip service” to the promotion of non-oil export. The usual

complaints of NEPC since its establishment in 1976, has been that of inadequate

funding. The underfunding if NEPC may have also been responsible for the

72

ineffectiveness and inefficiencies. NEPC (1989), noted that, “…owing to the

ineffectiveness of existing package of export incentives as well as constrains, the

orders received in some of its missions overseas could not be executed”.

This is coupled with some administrative “bottle-necks” placed on the part of

exporters which resulted in the inability of Nigerian exporters to respond

urgently and successfully to the over fifty million Naira tentative orders received

during the trade missions embarked in the past. It was to solve some of the

above-mentioned problems that the Association of Nigerian Exporters (ANE)

was formed in 1984 (Ogunnus, 1986). ANE is a private sector, non-profit

organization that liaises with relevant government agencies over export matters.

It may also be necessary at this point to ask whether we-those involve in export

policy formulation, promotion and implementation in Nigeria-are supporting the

best programme (Czinkota 1981).

Some other problems were also identified as being responsible for not achieving

the nation’s desired economic development through export marketing. One of

the problems has to do with exporting raw agricultural commodities by Nigerian

exporters, and these commodities are sold as processed goods to Nigerian

consumers at a higher price. This is why Nwakama (1986), stated that the

absence of forward integration in the Nigerian agricultural sector is largely

responsible for the failure of the Nigerian agricultural sector to expand, and

make meaningful progress. Similarly, lack of backward integration is also

accused of been responsible for the industrial sector’s low growth and

expansion. From the preceding discussions, it can be appreciated that marketing

in general, and export marketing in particular can be described as the necessary

foundation and facilitator for any meaningful economic development to be made

in any given country of the world, and government effective export incentives

and conducive environment will not only motivate firms’ export marketing, but

73

will also facilitate the achievement of the desired export objectives of the

Nigeria nation.

Dynamics Of Trade Policy Since 1960

An assessment of Nigeria's trade policy since the 1960s reflects a trend which

has been known to characterize uncertain and unpredictable trade regimes the

world over. Trade policy since the 1960s has witnessed extreme policy swings

from high protectionism in the first few decades after independence to its current

more liberal stance (Adenikinju 2005:113).

Tariffs have at various times been used to raise fiscal revenue, limit imports to

safeguard foreign exchange or even protect the domestic industries from

competition. In addition, various forms of non-tariff barriers such as quotas,

prohibitions and licensing schemes have on various occasions been extensively

used to limit imports of particular items.

The overall pattern portrays the long-held belief that trade policy can be used to

influence the trade regime in directions that can promote economic growth.

Attempts were made to use trade policy to promote manufactured exports and

enhance the linkages in the domestic economy, to increase and stabilize export

revenue, and scale down the country's reliance on the oil sector (Olaniyi

2005:7). Trade policies were accordingly directed at discouraging dumping;

supporting import substitution; stemming adverse movements in the balance of

payments; conserving foreign exchange; and generating government revenue

(Bankole and Bankole: 2004).

3.4 TRADE POLICY TRENDS BETWEEN 1960 - 1970s

During the first decade of independence, Nigeria pursued an import substitution

industrialization strategy. This involved the use of trade policy to provide

74

effective protection to local manufacturing industries, through such measures as

quantitative restrictions and high import duties. Many items were accordingly

placed on import prohibition. During this period, all imports from Japan were

placed under import license. Machinery and spare parts imports were restricted

and exchange controls on the repatriation of dividends and profits were

enforced. Restrictions were also applied on capital goods, spare parts and non-

essential imports. Although the import substitution industrialization strategy

continued even after the Nigerian civil war in 1970, trade policy between 1970

and 1976 assumed a less restrictive stance, ostensibly because of demands

necessitated by the post-war reconstruction.

Thus, only items that were regarded as non-essential consumer goods were

restricted, while tariff rates on raw materials were reduced and quantitative

restrictions on spare parts, agricultural equipment and machinery were relaxed.

Similarly, the reconstruction surcharge on imports was reduced from 7.5 percent

to 5 percent and later completely eliminated, while exchange controls and profit

repatriation were also relaxed. The 1960s and early 1970s also saw the

application of export duties ranging from 5 to 60 percent on agricultural exports

such as cocoa, rubber, cotton, palm oil, palm kernel and ground nuts. In 1973

however, these duties were eventually abolished, as a result of the oil boom and

the need to promote agricultural exports as part of the export diversification

strategy. However this spurt of liberalization ended in 1977, when a wide range

of imported finished goods requiring licenses came to be placed on very high

duties or were banned outright. This renewed restrictive trade policy culminated

in the banning of 82 items in 1979; while a further 25 items were placed on

import license.

3.4.2 TRADE POLICY TRENDS BETWEEN 1980 -1990s

75

From 1981, there was a policy shift towards exports promotion and a move to

intensify the use of local raw materials in industrial production. However, the

increase in the value of imports led to a worsening of the balance of payments

(with, in addition, the backdrop of the collapse in world oil prices), which forced

the government to promulgate the Economic Stabilization (Temporary

Provisions) Act in April 1982. Under this Act, tariffs on 49 items were raised,

while a prohibition was imposed on gaming machines and frozen poultry.

Further, 29 commodities were removed from the general import license regime

and placed under specific license, while the use of pre-shipment inspection

became widespread.

During 1983 - 1985, 152 items were brought under specific import license, and

foreign exchange regulations became more stringent. The central objective of

trade policy was to provide protection for domestic industries and reduce the

perceived dependence on imports; a corollary to that objective was a desire to

reduce the level of unemployment and generate more revenues from the non-oil

sector. Accordingly, tariffs on raw materials and intermediate capital goods were

scaled down.

THE STRUCTURAL ADJUSTMENT ERA

From 1986, there was a significant shift in trade policy direction towards greater

liberalization. This shift in policy is directly attributable to the adoption of the

structural adjustment programmes. The Customs, Excise, Tariff etc

(Consolidation) Decree, enacted in 1988, was based on a new Customs goods

classification, the Harmonized System of Customs Goods Classification Code

(HS). It provided for a seven-year (1988 -1994) tariff regime, with the objective

of achieving transparency and predictability of tariff rates. Imports under the

regime thus attracted ad valorem rates applied on the Most Favoured Nation

(MFN) basis. A new seven-year (1995 - 2001) tariff regime, established by

76

Decree No. 4 of 1995 succeeded the previous (1988 – 1994) regime. The tariff

structure over the period 1988 – 2001 increased import duties on raw materials,

and on intermediate and capital goods, while tariffs on consumer goods were

slightly reduced. This was aimed at reducing distortions in resource allocation

and combating smuggling. Both the 1988 and 1995 tariff schedules had

provisions for reviews and amendments. However, they maintained the familiar

mixed trends in tariff regimes. Three types of changes were subsequently

common, namely, reduction in rates; increase in rates and/or removal from or

addition to the import prohibition list.

3.4.3 TRADE POLICY UNDER THE NEEDS ERA (1999 - 2006) As pointed

out above, Nigeria's trade policy regime as currently contained in the NEEDS

and trade policy documents, has been geared to enhancing competitiveness of

domestic industries, with a view to, inter alia, encouraging local value-added

and promoting as well as diversifying exports. The mechanism adopted to this

end is gradual liberalization of the trade regime. Thus, the government intends to

liberalize the trade regime in a manner, which will ensure that the resultant

domestic costs of adjustment do not outweigh the benefits. This is the

fundamental basis on which to gauge the direction and implementation of

policy. The clarion call is "gradual liberalization". This addresses the question as

to what is the kind of trade strategy the government has adopted in furtherance

of its development agenda. Current reform packages are therefore designed to

allow a certain level of protection of domestic industries and enterprise.

Concretely, this has translated into tariff escalation, with high effective rates in

several sectors and lower import duties on raw materials and intermediate goods

unavailable locally. This policy perspective has also led to the application of

relatively high import duties on finished goods which compete with local

production.

77

Measures affecting imports The tariff structure, indicates that Nigeria’s

bound tariffs taken together, are in the range of only 19.2 per cent. In the

period since 1998, the average applied MFN tariffs have increased from

about 24 per cent to 29 per cent, with applied MFN tariff rates on

agriculture and non-agricultural products averaging 50 per cent and 25 per

cent, respectively. A general assessment of the tariff structure reveals that

tariff rates are widely dispersed, ranging from 2.5 per cent to a maximum

of 150 per cent, with a total of only 19 bands applied. Thus the overall

picture reveals mixed escalation, and this is attributable to the high tariffs

on agricultural commodities. This seems to indicate a policy bias in

favour of agricultural protection. A number of industries are also

protected through positive tariff mechanisms, while several industries

benefit from tariff exemptions and concessions on imports of inputs of

raw materials.

Duty exemption and concessions Duty exemptions and concessions also

remain some of the quantitative policy instruments for affecting trade

policy in favour of domestic producers and to achieve the aim of

diversification. Exemptions on import duties have been put in place for a

number of goods. There are tariff concessions which have been put in

place to attract investment and boost production. These concessions apply

to certain raw materials used by manufacturers. Tariff concessions are

also applied to fertilisers, in order to support agriculture, while tax

concessions have been extended to exporters under the Export Expansion

Grant (EEG).

78

Import prohibitions Import prohibition continues to be a major non- tariff

tool for pursuance of trade policy. Comparison between 1998 and 2005

has seen the addition and withdrawal of items on the prohibition list.

Since 1991, several items had been removed from the list. These include

vegetable oils; processed wood; textile fabrics, furniture; fluorescent tubes

and lamp bulbs. Imports of motor vehicles over eight years from date of

manufacture, were also banned, but again re-authorized in January 1998.

In 1993, imports of all types of meat were banned. In 1998, products

under 23 HS four-digit codes were subject to import restriction. However,

in line with the government's desire to scale down prohibitions, a number

of prohibitions were replaced with high tariffs between 1999 and 2001.

Since 2002 however, there has been a sharp reversal of policy. Thus, as at

November 2004, agricultural and non-agricultural goods under some 218

HS four-digit codes have been subjected to import restrictions, mainly for

purposes of protecting domestic industries. Under the Export Prohibitions

Act, certain agricultural products have also been placed under prohibition

to enhance domestic food security and support local processing.

These include raw hides and skin; timber (rough and sawn); unprocessed rubber

latex and rubber lumps; rice; yam; maize and beans. Although opinions differ as

to the impact of the measures taken on local production, there are indications

that the aggregate index of agricultural production registered an increase of 6.1

per cent in 2003, over the preceding year, with all sub-sectors contributing to

growth. This upward trend has shown some measure of consistency between

2003 and 2005. It is noteworthy that in addition to various other measures

initiated by the federal government, the Central Bank of Nigeria (CBN) has

attributed the success partly to the imposition of bans in the sector. Similarly,

the CBN report cited sub-sectoral growth of livestock by 5 per cent in 2003, up

from 4.2 per cent in 2002. There seems not to be a clear certainty that tariff

79

protection measures, including import bans, have led to very salutary results in

the manufacturing sector. A 2005 trade policy review document indicates that

import bans and lower tariffs on inputs for growth of businesses appear to have

declined since 1999, in spite of the increased use of prohibition measures. The

conclusion is that the manufacturing sector appears to have fundamental

problems, which cannot be addressed by merely increasing effective rates of

protection.

Other macroeconomic trends under needs era

In assessing the performance of trade policy, the view has often been expressed

that trade policy in itself may not be able to accomplish the desired policy

objectives, in the absence of appropriate complementarities. Studies of trade

liberalization since the 1980s have shown that trade liberalization has failed in

many instances due to lack of appropriate accompanying measures, and not so

much as a result of faulty design of the trade policies themselves. Such

associated policies are macroeconomic policies, pro-growth regulatory and

competition policy, investments in infrastructure, human resource development,

governance and the rule of law.

Under the NEEDS regime, fiscal policy has continued to be influenced by

developments in the oil sector. Petroleum-related taxes account for over 70

percent of public revenue. Increases in crude oil prices in recent times have led

to improvements in the fiscal balance. Between 2003 and 2005, federal revenue

increased by 48.7 percent on account of increased production and higher world

market prices; another contributory factor was the removal of subsidies on

domestic crude oil sales to the Nigerian National Petroleum Corporation

(NNPC). Public revenue from company income tax, customs and excise duties

and value-added tax (VAT) also increased over the same period while aggregate

public expenditure rose by 20 per cent on capital items. Concomitantly, the

80

public deficit diminished from 5.0 per cent in 2002 to 1.3 per cent in 2003.

While the aim of monetary policy continues to be fiscal and macroeconomic

stability, inflation rates have in recent times remained above the single-digit

mark, due mainly to excessive money supply, with adverse effects on the

competitiveness of the economy. The growth in money supply was attributed

largely to an increase in net foreign assets, and to a lesser extent, on overall

banking sector credits. The inadequacy of stabilization policies has meant

sustained high inflation levels, partly also accentuated by a reduction in the

minimum discount rate between 2003 and 2005. Overall, the nominal exchange

rate appears to be adjusting to the misalignment of the local currency, the naira,

vis-à-vis the currencies of the major trading partners, largely due to persistent

depreciation and devaluation. Unfortunately however, high inflation rates

appeared to have dampened the impact of depreciation on the competitiveness of

non-oil export products in particular. At the same time, restrictions in the

exchange-rate market have widened the gap between the official and non-

official exchange rate, which thus constitutes an indirect tax on non-oil exports,

and hence a disincentive to export-oriented activities. The trade account balance,

largely affected by world market prices and domestic production of oil, remains

mixed, with improvements during years of favourable oil prices as occurs

presently. Fiscal policy has also shown a similar trend due to a high import

content of expenditure. Management of the external debt burden still represents

a heavy drain on government resources.

Chapter four

RESEARCH METHODOLOGY, DATA ANALYSIS, PRSENTATTION

AND INTERPRETATION OF DATA

4.1 Introduction

81

Having considered the trend of trade policy adopted in Nigeria from the pre-sap,

sap and post-sap era and the effect of these policies on the performance of the

non oil contribution to GDP, and economic growth. This chapter considered the

theoretical frame work backing the topic, the research methodology adopted,

data analysis and interpretation of results.

4.2 Theoretical Framework







index.

Also oil export is introduced to test the ‘Dutch disease hypotheses. This is due to

the fact that increases in demand for Nigeria’s oil have contributed to the neglect

of the non-oil export. By introducing oil export in the export function, we are

able to verify the ‘Dutch disease’ functions.

4.3 Research Methodology

The data set for this study is mainly secondary data. The secondary data

comprises annual time series spanning 1970 through 2010. The variables of

interest are: oil and non-oil exports, a measure of foreign demand for Nigerian

export, effective exchange rate, US real gross domestic product, domestic

consumer price index, foreign wholesale price index (US wholesale price index),

trade policy represented by trade openness (ratio of sum of export and import to

GDP).

82

4.3.1 Model Specification

The model used in this study can be presented as;

NON-OIL = F (EXC, OILEXP, OPEN, RGDP*, PRICE) Regression form of the

model specification is thus,

NON-OIL = β0 + β1EXCR + β2OILEXP + β3OPEN + β4PGDP* + β5PRICE + μt

Where:

NON-OIL = non-oil export,

EXCR = effective nominal exchange rate (N/$),

OPEN = degree of economic openness (ratio of sum of export and import to

RGDP),

RGDP* = foreign income (US),

PRICE = relative price (US wholesale price index divided by domestic

consumer price index)

μt represents the stochastic error term

β0, β1, β2, β3, β4, and β5 are coefficients.

4.3.2 Techniques Of Estimation And Procedure

The above models will be analyzed using the Electronic Views Statistical

Software (E-views) and as well the hypothesis will be tasted using the T-test

estimation derived from the estimation of the models.

83

4.3.3 Sources Of Data

The data for this study will be obtained mainly from secondary sources;

particularly from World Bank world development indicator, Central Bank of

Nigeria (CBN) publications such as the CBN Statistical Bulletin, CBN Annual

Reports and Statements of Accounts, CBN Economic and Financial Review

Bullion and Bureau of Statistics publications.

4.3.4 Data Presentation

Secondary data of annual time series spanning 1970 through 2010.Year Nonoil EXCR Oil EXP OPEN RGDP PRICE

1970 375.4 0.7143 509.6 19.6205992 4269.9 4.723863

1971 340.4 0.6955 953.0 24.46363514 4413.3 4.425692

1972 258 0.6579 1,176.2 22.76364559 4647.7 3.175526

1973 384.9 0.6579 1,893.5 31.26775278 4917 3.215407

1974 429.1 0.6299 5,365.7 39.74699041 4889.9 1.784244

1975 362.4429 0.6159 4,563.1 41.17034351 4879.5 0.821105

1976 429.5 0.6265 6,321.6 42.1380988 5141.3 0.654384

1977 557.9 0.6466 7,072.8 47.39526574 5377.7 0.609454

1978 662.8 0.606 5,401.6 43.31484204 5677.6 0.7097

1979 670 0.5957 10,166.8 43.87840231 5855 0.7905

1980 554.4 0.5464 13,632.3 48.57131433 5839 0.390084

1981 342.8 0.61 10,680.5 49.11075631 5987.2 0.524563

1982 203.2 0.6729 8,003.2 38.65359044 5870.9 0.492393

1983 301.3 0.7241 7,201.2 31.14045213 6136.2 0.618095

1984 247.4 0.7649 8,840.6 27.80373467 6577.1 0.662507

1985 497.1 0.8938 11,223.7 28.53790277 6849.3 0.525209

1986 552.1 2.0206 8,368.5 37.59272999 7086.5 0.436799

1987 2152 4.0179 28,208.6 53.28098452 7313.3 0.33214

84

1988 2757.4 4.5367 28,435.4 45.14847531 7613.9 0.27438

1989 2954.4 7.3916 55,016.8 57.85016321 7885.9 0.192206

1990 3259.6 8.0378 106,626.5 72.24051075 8033.9 0.133302

1991 4677.3 9.9095 116,858.1 68.55251797 8015.1 0.120375

1992 4227.8 17.2984 201,383.9 82.73972426 8287.1 0.089303

1993 4991.3 22.0511 213,778.8 97.32114796 8523.4 0.036455

1994 5349 21.8861 200,710.2 82.51748817 8870.7 0.055134

1995 301.3 21.8861 927,565.3 86.4721649 9093.7 0.036555

1996 247.4 21.8861 1,286,215.9 75.5898159 9433.9 0.027976

1997 497.1 21.8861 1,212,499.4 82.70230038 9847.07 0.022996

1998 552.1 21.886 717,786.5 71.59202109 10275.9 0.021095

1999 2152 81.0228 1,169,476.9 78.03020725 10767.5 0.011362

2000 2757.4 81.2528 1,920,900.4 86.00480592 11223.1 0.016009

2001 2954.4 81.6494 1,839,945.3 75.28293574 11364.2 0.011163

2002 3259.6 83.8072 1,649,445.8 64.42089218 11560.3 0.011354

2003 4677.3 92.3428 2,993,110.0 83.14267482 11807.8 0.009631

2004 4227.8 100.801

6

4,489,472.2

75.00881111

12212.6 0.008823

2005 4991.3 111.701 7,140,578.9 77.58412138 12554.5 0.007202

2006 5349 126.257

7

7,191,085.6

70.59713719

12895.9 0.006999

2007 5455.9 134.037

8

8,110,500.4

66.95936566

13143.7 0.005596

2008 5692.1 132.370

4

9,659,772.6

71.1684472

13100 0.004042

2009 5788.5 130.601

6

8,543,261.2

63.03477563

12773.9 0.003695

2010 5798.9 128.279

6

8,653,234.9

65.45678125

13847.2 0.003882

85

Source: Central Bank of Nigeria: Statistical bulletin and annual reports for the period 1970

to 2010.

Table 1

Correlation analysis .

Variable Non-oilNON-OIL 1.000000EXCR 0.876500OILEXP 0.954219OPEN -0.034524RGDP 0.804247RPRICE -0.500501

Table 2

Regression result.

Dependent variable: LOG (Non-oil)Method: Least squaresDate: 07/18/13 Time: 22:42Sample: 1970 – 2010Included observations: 41

Variable Coefficient Std. Error T-statistic Prob.86

C 21.74230 9.356495 2.323765 0.0266 LOG (EXCR) 0.432841 0.162883 2.657371 0.0122 LOG (OILEXP) 0.459990 0.151786 3.030527 0.0048 LOG (OPEN) -0.110534 0.068708 -1.608768 0.1175 LOG (RGDP) 2.275732 1.103565 2.197394 0.0473 LOG (RPRICE) 0.522266 0.265570 1.966585 0.0580

R-squared 0.964788 Mean dependent variable 8.116502Adjusted R-squared 0.959287 S.D. dependent variable 2.233011S. E. of regression 0.450567 Akaike info criterion 1.387320Sum squared resid 6.496342 Schwarz criterion 1.645886Log likelihood -20.35907 Hannan-Quinn criter. 1.423178F-statistic 175.3585 Durbin-Watson stat 1.885748 Prob (F-statistic) 0.000000

Table 3 Performance of non-oil export.

year Nonoil exportGrowth rate of non-oil export

export Non-oil export as % of total export

1970 375.4 0.267094 42.41971 340.4 -9.32339 26.31972 258 -24.2068 17.91973 384.9 49.18605 16.91974 429.1 11.4835 7.41975 362.4429 -15.5342 7.31976 429.5 18.50142 6.31977 557.9 29.89523 7.31978 662.8 18.80265 10.91979 670 1.086301 6.21980 554.4 -17.2537 3.91981 342.8 -38.1674 3.11982 203.2 -40.7235 2.51983 301.3 48.27756 41984 247.4 -17.8892 2.71985 497.1 100.9297 4.21986 552.1 11.06417 6.21987 2152 289.7845 7.11988 2757.4 28.13197 8.8

87

1989 2954.4 7.144411 5.11990 3259.6 10.33035 2.91991 4677.3 43.49307 3.81992 4227.8 -9.61025 2.11993 4991.3 18.05904 2.31994 5349 7.16647 2.61995 23096.1 331.7835 2.41996 23327.5 1.001901 1.91997 29163.6 25.01811 2.31998 34070.2 16.8244 4.51999 19492.9 -42.7861 1.62000 24822.9 27.34329 1.32001 28008.6 12.83371 1.52002 94731.8 238.224 5.42003 94776.4 0.04708 3.12004 113309.4 19.55445 2.52005 105955.8 -6.48984 1.72006 133594.9 26.0855 2.32007 169709.7 27.03307 2.12008 0 0 0

Source: Central bank of Nigeria: statistical bulletin and annual reports and accounts: 1970 to 2008.

88

-40,000

0

40,000

80,000

120,000

160,000

200,000

1970 1975 1980 1985 1990 1995 2000 2005 2010

% change NONOIL GROWTH

4.4 Data analysis

Data analysis

This part presents the results of empirical analysis of the failure of trade policies

to impact positively on non-oil exports. Correlation between non-oil export,

trade policy (liberalisation or degree of economic openness) and other

explanatory variables are shown in Table 1. In the Table, the coefficients of

correlation between non-oil export and degree of economic openness (Trade

liberalization) is negative but very weak (-0.034). This shows that there exists a

negative relationship between the two variables. This result shows that trade

liberalization policies have not helped in enhancing the performance of the non

oil export. From the correlation analysis, non oil export has a positive

relationship with exchange rate, oil export and foreign income. The coefficients

of their association are 0.87, 0.95 and 0.80, respectively. These results imply

that exchange rate, oil export and foreign income move in the same direction as

non oil export. However, since correlation does not imply causation, it is

necessary to conduct regression analysis. Here, significances of all explanatory

variables are tested. This implies the test of hypotheses. Null hypothesis to be 89

tested for the significance of each explanatory variable is that the coefficient of

each explanatory variable is zero. That is,

β1= β2 = β3 = β4 = β5= β6 = 0

The table t-statistic with 32 as degree of freedom is 2.04. Comparing the table t-

statistic value with calculated t-statistic value of each independent variable, it

can be seen that only three explanatory variables are significantly different from

zero. Coefficients of exchange rate, oil export and foreign income or foreign

demand for local commodities are significant at 5% significant level, while the

coefficient of relative price and trade liberalisation are insignificant at 5%

critical level. Therefore, it can be concluded that exchange rate, oil export and

foreign income or foreign demand for local commodities are major determinants

of non oil export in Nigeria, while trade liberalization and relative price are not

significant determinants of the performance of non oil export in Nigeria.

4.5 INTERPRETATION OF RESULTS

From the results in Table 2, the coefficient of exchange rate is positive and

significant at 5% level. This suggests that exchange rate has a positive impact on

the performance of the non-oil export. 1% increase in exchange rate will, on the

average, lead to about 43% decrease in the performance of non-oil export. This

result indicates that exchange rate has been well managed by the monetary

authorities. High and unstable exchange rate creates uncertainty and increases

cost of production which can invariably reduce the competitiveness of local

commodities. In the result, degree of economic openness, a measure of trade

liberalization has an insignificant negative relationship with non-oil export. The

implication of this result is that trade liberalization adopted in the country has

not promoted the performance of the Nigeria non-oil export. It reduces cost of

production and accelerates the rate of economic growth. This result finding

90

contradicts the work of Olaniyi (2005). He found that the trade liberalization

contributed to performance of Nigeria’s nonoil export. US real gross domestic

product, a measure of foreign demand for local output, has a positive and

insignificant relationship with non-oil export. 1% in US real GDP will, on the

average, lead to about 2.27% increase in non-oil export. With the significance of

coefficient of US RGDP, US income remains significant determinant of non-oil

export in Nigeria. Also, it was discovered that the performance of the non-oil

sector was very poor for the period under study as revealed by the correlation

analysis. The result also suggests that relative price (ratio of US to Nigeria’s

price) has a positive and insignificant relationship with non-oil export. This

result conforms to economic expectation. 1% increase in relative price leads to

about 0.522 increases in non-oil export. The implication of this result is that

cheaper domestic price relative to foreign goods price promotes the performance

of the non-oil export, and that economy which produces efficiently will perform

well in international trade.

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of findings

The study intends to provide answers to questions such as; examining the

importance of trade policies on non-oil exports in Nigeria and also to examine

how government trade policies affect non oil export, what are other important

determinants of the performance of non-oil export amongst other questions over

the period 1970 to 2008.

91

The result of the finding shows that, there exist a negative relationship between

trade policy and non oil export in Nigeria. Also government trade policy is not

significant on the non oil export in the country.

In the result, degree of economic openness, a measure of trade liberalization has

an insignificant negative relationship with non-oil export.

US real gross domestic product, a measure of foreign demand for local output,

has a positive and insignificant relationship with non-oil export. The result also

suggests that relative price (ratio of US to Nigeria’s price) has a positive and

insignificant relationship with non-oil export. This result conforms to economic

expectation. Therefore, it can be concluded that exchange rate, oil export and

foreign income or foreign demand for local commodities are major determinants

of non oil export in Nigeria, while trade liberalization and relative price are not

significant determinants of the performance of non oil export in Nigeria.

5.1 CONCLUSION

This study undertook to investigate the effect of trade policies on Nigeria’s non-

oil exports for the period 1970 to 2010. The study showed that exportation of

non-oil goods has positive effect on economic growth of Nigeria.

The result of this research has established that the performance of non-oil

exports and their contribution to GDP is sub-optimal.

5.3 RECOMMENDATIONS

From the above conclusion it is evident that Trade policies in Nigeria has it

concerns Non-oil exports have impacted positively towards economic growth

and development. As such the following are recommended:

Direct government intervention through minerals exploration and policies

92

Formulation of an explicit export promotion programme based on

principles of comparative advantage or disadvantage

Reducing trade dependence on developed countries by looking for other

markets, particularly developing countries. Inter-regional trade between

Sub-Saharan African countries should also be encouraged because of the

relatively low transportation cost and lax importation barriers.

The government should encourage private investment, both local and

foreign, through adequate provision of infrastructures.

The export base should be diversified in favour of non-oil commodities

not only to increase their contribution to GDP but also to help cushion the

effect of price shocks in the international oil (crude oil) market.

Oil explorers, producers and exporters should be persuaded to diversify

their interests into non-oil commodities as well or they could be obligated

to somehow assist with the exports of non-oil commodities.

Promotion of a stable political and macroeconomic environment that

encourage exportation, particularly of non-oil commodities.

Encouragement of production and exportation of value added

commodities because of its relatively high price and income elasticises of

demand, storability and adaptability over primary products such as

processed agricultural products or foods.

Incentives attached to non-oil exports should be continually reviewed and

improved as well as strictly implemented.

If the various recommendations are properly implemented, then the contribution

of non-oil exports to GDP is expected to increase to a significant level. It will

also help absorb any shocks from the international oil market and Nigeria will

be on its way to economic prosperity.

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Appendix

Data presented for chapter four

Year Log nonoil

Log EXCR

Log Log oilEXP OPEN LogRGD

PLog PRICE

1970

375.4 0.7143

509.6 903.9 4269.9 4.7239

1971

340.4 0.6955

953 997.2 4413.3 4.4257

1972

258 0.6579

1,176.20 1463.6 4647.7 3.1755

1973

384.9 0.6579

1,893.50 1529.2 4917 3.2154

1974

429.1 0.6299

5,365.70 2740.6 4889.9 1.7842

1975

362.44

0.6159

4,563.10 5942.6 4879.5 0.8211

1976

429.5 0.6265

6,321.60 7856.7 5141.3 0.6544

1977

557.9 0.6466

7,072.80 8823.8 5377.7 0.6095

1978

662.8 0.606 5,401.60 8000 5677.6 0.7097

1979

670 0.5957

10,166.80 7406.7 5855 0.7905

1980

554.4 0.5464

13,632.30 14968.6 5839 0.3901

1981

342.8 0.61 10,680.50 11413.7 5987.2 0.5246

1982

203.2 0.6729

8,003.20 11923.2 5870.9 0.4924

1983

301.3 0.7241

7,201.20 9927.6 6136.2 0.6181

1984

247.4 0.7649

8,840.60 9927.6 6577.1 0.6625

1985

497.1 0.8938

11,223.70 13041.1 6849.3 0.5252

1986

552.1 2.0206

8,368.50 16223.7 7086.5 0.4368

102

1987

2152 4.0179

28,208.60 22018.7 7313.3 0.3321

1988

2757.4

4.5367

28,435.40 27749.5 7613.9 0.2744

1989

2954.4

7.3916

55,016.80 41028.3 7885.9 0.1922

1990

3259.6

8.0378

106,626.50 60268.2 8033.9 0.1333

1991

4677.3

9.9095

116,858.10 66584.4 8015.1 0.1204

1992

4227.8

17.298

201,383.90 92797.4 8287.1 0.0893

1993

4991.3

22.051

213,778.80 233807 8523.4 0.0365

1994

5349 21.886

200,710.20 160893 8870.7 0.0551

1995

301.3 21.886

927,565.30 248768 9093.7 0.0366

1996

247.4 21.886

1,286,215.90

337218 9433.9 0.028

1997

497.1 21.886

1,212,499.40

428215 9847.1 0.023

1998

552.1 21.886

717,786.50 487113 10276 0.0211

1999

2152 81.023

1,169,476.90

947690 10768 0.0114

2000

2757.4

81.253

1,920,900.40

701059 11223 0.016

2001

2954.4

81.649

1,839,945.30

1018026

11364 0.0112

2002

3259.6

83.807

1,649,445.80

1018156

11560 0.0114

2003

4677.3

92.343

2,993,110.00

1225966

11808 0.0096

2004

4227.8

100.8 4,489,472.20

1384100

12213 0.0088

2005

4991.3

111.7 7,140,578.90

1743200

12555 0.0072

2006

5349 126.26

7,191,085.60

1842588

12896 0.007

200 5455. 134.0 8,110,500.4 234859 13144 0.005103

7 9 4 0 7 62008

5692.1

132.37

9,659,772.60

3240819

13100 0.004

2009

5788.5

130.6 8,543,261.20

3456925

12774 0.0037

2010

5798.9

128.28

8,653,234.90

3567211

13847 0.0039

Null Hypothesis: LOG_EXCR has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*

Augmented Dickey-Fuller test statistic -1.505827 0.8105Test critical values: 1% level -4.211868

5% level -3.52975810% level -3.196411

*MacKinnon (1996) one-sided p-values.

Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_EXCR)Method: Least SquaresDate: 03/07/14 Time: 18:09Sample (adjusted): 1972 2010Included observations: 39 after adjustments

Variable Coefficient Std. Error t-Statistic Prob.

LOG_EXCR(-1) -0.101764 0.067580 -1.505827 0.1411D(LOG_EXCR(-1)) -0.008512 0.169052 -0.050348 0.9601

C -5.476286 4.207890 -1.301433 0.2016@TREND(1970) 0.585708 0.272432 2.149927 0.0386

R-squared 0.125340 Mean dependent var 3.271387Adjusted R-squared 0.050369 S.D. dependent var 9.902724S.E. of regression 9.650108 Akaike info criterion 7.468730Sum squared resid 3259.361 Schwarz criterion 7.639352Log likelihood -141.6402 Hannan-Quinn criter. 7.529948F-statistic 1.671843 Durbin-Watson stat 1.993646Prob(F-statistic) 0.190835

Null Hypothesis: D(LOG_EXCR) has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

104

t-Statistic Prob.*


5% level -3.53308310% level -3.198312


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_EXCR,2)Method: Least SquaresDate: 03/07/14 Time: 18:13Sample (adjusted): 1973 2010Included observations: 38 after adjustments


D(LOG_EXCR(-1)) -1.202376 0.257753 -4.664838 0.0000D(LOG_EXCR(-1),2) 0.133878 0.175995 0.760692 0.4521

C -2.074789 3.641668 -0.569736 0.5726@TREND(1970) 0.285175 0.165221 1.726019 0.0934

R-squared 0.529023 Mean dependent var -0.060116Adjusted R-squared 0.487467 S.D. dependent var 13.99140S.E. of regression 10.01664 Akaike info criterion 7.545674Sum squared resid 3411.327 Schwarz criterion 7.718051Log likelihood -139.3678 Hannan-Quinn criter. 7.607004F-statistic 12.73014 Durbin-Watson stat 2.003473Prob(F-statistic) 0.000010

Null Hypothesis: LOG_OPEN has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*

Augmented Dickey-Fuller test statistic 1.951137 1.0000Test critical values: 1% level -4.211868

5% level -3.52975810% level -3.196411


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_OPEN)Method: Least SquaresDate: 03/07/14 Time: 18:19Sample (adjusted): 1972 2010Included observations: 39 after adjustments

105


LOG_OPEN(-1) 0.113181 0.058008 1.951137 0.0591D(LOG_OPEN(-1)) -0.318232 0.201803 -1.576945 0.1238

C -58290.22 64025.90 -0.910416 0.3688@TREND(1970) 5534.143 3645.768 1.517963 0.1380

R-squared 0.380748 Mean dependent var 91441.38Adjusted R-squared 0.327669 S.D. dependent var 193259.0S.E. of regression 158464.2 Akaike info criterion 26.88136Sum squared resid 8.79E+11 Schwarz criterion 27.05198Log likelihood -520.1865 Hannan-Quinn criter. 26.94258F-statistic 7.173273 Durbin-Watson stat 1.969537Prob(F-statistic) 0.000706

Null Hypothesis: D(LOG_OPEN) has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*


5% level -3.53308310% level -3.198312


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_OPEN,2)Method: Least SquaresDate: 03/07/14 Time: 18:20Sample (adjusted): 1973 2010Included observations: 38 after adjustments


D(LOG_OPEN(-1)) -1.012738 0.255141 -3.969331 0.0004D(LOG_OPEN(-1),2) -0.073240 0.172246 -0.425205 0.6734

C -118205.7 68198.26 -1.733266 0.0921@TREND(1970) 9935.626 3564.945 2.787035 0.0086


106

Null Hypothesis: LOG_OPEN has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*

Phillips-Perron test statistic 2.257767 1.0000Test critical values: 1% level -4.205004

5% level -3.52660910% level -3.194611


Residual variance (no correction) 2.36E+10HAC corrected variance (Bartlett kernel) 1.35E+10

Phillips-Perron Test EquationDependent Variable: D(LOG_OPEN)Method: Least SquaresDate: 03/07/14 Time: 18:22Sample (adjusted): 1971 2010Included observations: 40 after adjustments


LOG_OPEN(-1) 0.061263 0.045965 1.332830 0.1907C -55045.98 60205.64 -0.914299 0.3665

@TREND(1970) 5445.468 3487.032 1.561634 0.1269


Null Hypothesis: D(LOG_OPEN) has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*

Phillips-Perron test statistic -6.451623 0.0000Test critical values: 1% level -4.211868

5% level -3.52975810% level -3.196411



107

Phillips-Perron Test EquationDependent Variable: D(LOG_OPEN,2)Method: Least SquaresDate: 03/07/14 Time: 18:23Sample (adjusted): 1972 2010Included observations: 39 after adjustments


D(LOG_OPEN(-1)) -1.082152 0.167685 -6.453496 0.0000C -115807.8 59009.94 -1.962513 0.0575

@TREND(1970) 10215.67 2849.921 3.584546 0.0010


Null Hypothesis: LOG_EXCR has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*


5% level -3.52660910% level -3.194611


Residual variance (no correction) 82.01340HAC corrected variance (Bartlett kernel) 69.72849

Phillips-Perron Test EquationDependent Variable: D(LOG_EXCR)Method: Least SquaresDate: 03/07/14 Time: 18:25Sample (adjusted): 1971 2010Included observations: 40 after adjustments


LOG_EXCR(-1) -0.095002 0.062963 -1.508855 0.1398C -4.721454 3.791518 -1.245267 0.2209

@TREND(1970) 0.542426 0.250416 2.166102 0.0368

R-squared 0.122144 Mean dependent var 3.189133Adjusted R-squared 0.074692 S.D. dependent var 9.788775

108

S.E. of regression 9.416110 Akaike info criterion 7.394760Sum squared resid 3280.536 Schwarz criterion 7.521426Log likelihood -144.8952 Hannan-Quinn criter. 7.440558F-statistic 2.574061 Durbin-Watson stat 2.009903Prob(F-statistic) 0.089812

Null Hypothesis: D(LOG_EXCR) has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*


5% level -3.52975810% level -3.196411



Phillips-Perron Test EquationDependent Variable: D(LOG_EXCR,2)Method: Least SquaresDate: 03/07/14 Time: 18:27Sample (adjusted): 1972 2010Included observations: 39 after adjustments


D(LOG_EXCR(-1)) -1.056132 0.168966 -6.250547 0.0000C -1.525191 3.347037 -0.455684 0.6514

@TREND(1970) 0.237311 0.146346 1.621577 0.1136

R-squared 0.520851 Mean dependent var -0.059056Adjusted R-squared 0.494231 S.D. dependent var 13.80608S.E. of regression 9.818523 Akaike info criterion 7.480222Sum squared resid 3470.522 Schwarz criterion 7.608188Log likelihood -142.8643 Hannan-Quinn criter. 7.526135F-statistic 19.56659 Durbin-Watson stat 1.983293Prob(F-statistic) 0.000002

Null Hypothesis: LOG_NONOIL has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*

109


5% level -3.52975810% level -3.196411


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_NONOIL)Method: Least SquaresDate: 03/07/14 Time: 18:29Sample (adjusted): 1972 2010Included observations: 39 after adjustments


LOG_NONOIL(-1) -0.311198 0.123545 -2.518897 0.0165D(LOG_NONOIL(-1)) 0.144980 0.167754 0.864245 0.3933

C -191.8999 329.7186 -0.582011 0.5643@TREND(1970) 47.54719 21.19356 2.243474 0.0313

R-squared 0.158019 Mean dependent var 139.9615Adjusted R-squared 0.085849 S.D. dependent var 987.2737S.E. of regression 943.9446 Akaike info criterion 16.63493Sum squared resid 31186101 Schwarz criterion 16.80555Log likelihood -320.3811 Hannan-Quinn criter. 16.69614F-statistic 2.189542 Durbin-Watson stat 2.036525Prob(F-statistic) 0.106674

Null Hypothesis: D(LOG_NONOIL) has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*


5% level -3.53308310% level -3.198312


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_NONOIL,2)Method: Least SquaresDate: 03/07/14 Time: 18:30Sample (adjusted): 1973 2010Included observations: 38 after adjustments


D(LOG_NONOIL(-1)) -1.067062 0.244129 -4.370894 0.0001

110

D(LOG_NONOIL(-1),2) 0.053605 0.171472 0.312614 0.7565C 18.53653 371.1178 0.049948 0.9605

@TREND(1970) 6.358419 15.49141 0.410448 0.6841


Null Hypothesis: LOG_NONOIL has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*


5% level -3.52660910% level -3.194611


Residual variance (no correction) 797116.3HAC corrected variance (Bartlett kernel) 1004418.

Phillips-Perron Test EquationDependent Variable: D(LOG_NONOIL)Method: Least SquaresDate: 03/07/14 Time: 18:30Sample (adjusted): 1971 2010Included observations: 40 after adjustments


LOG_NONOIL(-1) -0.269118 0.112140 -2.399836 0.0216C -148.0161 305.7404 -0.484124 0.6312

@TREND(1970) 42.20359 19.58939 2.154410 0.0378


111

Null Hypothesis: D(LOG_NONOIL) has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*


5% level -3.52975810% level -3.196411



Phillips-Perron Test EquationDependent Variable: D(LOG_NONOIL,2)Method: Least SquaresDate: 03/07/14 Time: 18:31Sample (adjusted): 1972 2010Included observations: 39 after adjustments


D(LOG_NONOIL(-1)) -1.012607 0.166806 -6.070565 0.0000C 8.288396 342.9300 0.024169 0.9809

@TREND(1970) 6.353473 14.44636 0.439798 0.6627


Null Hypothesis: LOG_OILEXP has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*


5% level -3.52975810% level -3.196411


112

Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_OILEXP)Method: Least SquaresDate: 03/07/14 Time: 18:33Sample (adjusted): 1972 2010Included observations: 39 after adjustments


LOG_OILEXP(-1) -0.042675 0.056466 -0.755752 0.4549D(LOG_OILEXP(-1)) 0.160412 0.175892 0.911988 0.3680

C -278734.0 238703.9 -1.167698 0.2508@TREND(1970) 25286.12 13049.62 1.937690 0.0608


Null Hypothesis: D(LOG_OILEXP) has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*


5% level -3.53308310% level -3.198312


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_OILEXP,2)Method: Least SquaresDate: 03/07/14 Time: 18:33Sample (adjusted): 1973 2010Included observations: 38 after adjustments


D(LOG_OILEXP(-1)) -1.000281 0.256304 -3.902716 0.0004D(LOG_OILEXP(-1),2) 0.124006 0.199584 0.621326 0.5385

C -257859.4 236653.3 -1.089608 0.2835@TREND(1970) 22755.97 11483.28 1.981661 0.0556

R-squared 0.442469 Mean dependent var 2888.171Adjusted R-squared 0.393275 S.D. dependent var 788235.8

113

S.E. of regression 613977.1 Akaike info criterion 29.59260Sum squared resid 1.28E+13 Schwarz criterion 29.76498Log likelihood -558.2595 Hannan-Quinn criter. 29.65393F-statistic 8.994376 Durbin-Watson stat 1.967300Prob(F-statistic) 0.000159

Null Hypothesis: LOG_OILEXP has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*


5% level -3.52660910% level -3.194611



Phillips-Perron Test EquationDependent Variable: D(LOG_OILEXP)Method: Least SquaresDate: 03/07/14 Time: 18:35Sample (adjusted): 1971 2010Included observations: 40 after adjustments


LOG_OILEXP(-1) -0.023670 0.052386 -0.451845 0.6540C -251033.0 220300.0 -1.139505 0.2618

@TREND(1970) 24527.10 12218.75 2.007334 0.0521


Null Hypothesis: D(LOG_OILEXP) has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*

Phillips-Perron test statistic -5.246509 0.0006

114

Test critical values: 1% level -4.2118685% level -3.529758

10% level -3.196411



Phillips-Perron Test EquationDependent Variable: D(LOG_OILEXP,2)Method: Least SquaresDate: 03/07/14 Time: 18:34Sample (adjusted): 1972 2010Included observations: 39 after adjustments


D(LOG_OILEXP(-1)) -0.878898 0.167022 -5.262168 0.0000C -191852.9 207948.3 -0.922599 0.3624

@TREND(1970) 18437.12 9333.465 1.975378 0.0559


Null Hypothesis: LOGRGDP has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*


5% level -3.52975810% level -3.196411


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOGRGDP)Method: Least SquaresDate: 03/07/14 Time: 18:37Sample (adjusted): 1972 2010Included observations: 39 after adjustments

115


LOGRGDP(-1) -0.146503 0.082735 -1.770746 0.0853D(LOGRGDP(-1)) -0.017352 0.202533 -0.085677 0.9322

C 616.2798 276.5690 2.228304 0.0324@TREND(1970) 40.80005 20.38752 2.001227 0.0532

R-squared 0.145940 Mean dependent var 241.8949Adjusted R-squared 0.072735 S.D. dependent var 218.8103S.E. of regression 210.7025 Akaike info criterion 13.63569Sum squared resid 1553845. Schwarz criterion 13.80631Log likelihood -261.8959 Hannan-Quinn criter. 13.69690F-statistic 1.993575 Durbin-Watson stat 1.703004Prob(F-statistic) 0.132876

Null Hypothesis: D(LOGRGDP) has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*


5% level -3.53308310% level -3.198312


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOGRGDP,2)Method: Least SquaresDate: 03/07/14 Time: 18:38Sample (adjusted): 1973 2010Included observations: 38 after adjustments


D(LOGRGDP(-1)) -1.370698 0.269222 -5.091325 0.0000D(LOGRGDP(-1),2) 0.508196 0.283258 1.794108 0.0817

C 171.2597 86.53766 1.979019 0.0560@TREND(1970) 7.380034 3.346351 2.205397 0.0343


Null Hypothesis: LOGRGDP has a unit root

116

Exogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*


5% level -3.52660910% level -3.194611



Phillips-Perron Test EquationDependent Variable: D(LOGRGDP)Method: Least SquaresDate: 03/07/14 Time: 18:40Sample (adjusted): 1971 2010Included observations: 40 after adjustments


LOGRGDP(-1) -0.135890 0.077123 -1.761991 0.0863C 589.4143 264.9868 2.224315 0.0323

@TREND(1970) 37.78289 18.82918 2.006613 0.0521


Null Hypothesis: D(LOGRGDP) has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*


5% level -3.52975810% level -3.196411



117

Phillips-Perron Test EquationDependent Variable: D(LOGRGDP,2)Method: Least SquaresDate: 03/07/14 Time: 18:41Sample (adjusted): 1972 2010Included observations: 39 after adjustments


D(LOGRGDP(-1)) -1.057393 0.207150 -5.104470 0.0000C 147.3420 82.06873 1.795349 0.0810

@TREND(1970) 5.098446 3.113060 1.637760 0.1102


Null Hypothesis: LOG_PRICE has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*


5% level -3.52975810% level -3.196411


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_PRICE)Method: Least SquaresDate: 03/07/14 Time: 18:51Sample (adjusted): 1972 2010Included observations: 39 after adjustments


LOG_PRICE(-1) -0.319284 0.051164 -6.240364 0.0000D(LOG_PRICE(-1)) -0.103913 0.120018 -0.865814 0.3925

C 0.132853 0.117993 1.125939 0.2679@TREND(1970) -0.004031 0.004344 -0.928020 0.3598

R-squared 0.629423 Mean dependent var -0.113380Adjusted R-squared 0.597660 S.D. dependent var 0.337900S.E. of regression 0.214331 Akaike info criterion -0.145677Sum squared resid 1.607820 Schwarz criterion 0.024944Log likelihood 6.840706 Hannan-Quinn criter. -0.084460

118

F-statistic 19.81579 Durbin-Watson stat 1.948522Prob(F-statistic) 0.000000

Null Hypothesis: D(LOG_PRICE) has a unit rootExogenous: Constant, Linear TrendLag Length: 1 (Fixed)

t-Statistic Prob.*


5% level -3.53308310% level -3.198312


Augmented Dickey-Fuller Test EquationDependent Variable: D(LOG_PRICE,2)Method: Least SquaresDate: 03/07/14 Time: 18:52Sample (adjusted): 1973 2010Included observations: 38 after adjustments


D(LOG_PRICE(-1)) -0.633224 0.190822 -3.318400 0.0022D(LOG_PRICE(-1),2) -0.278470 0.140731 -1.978734 0.0560

C -0.137235 0.123284 -1.113163 0.2734@TREND(1970) 0.004588 0.004700 0.976065 0.3359


Null Hypothesis: LOG_PRICE has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*


5% level -3.52660910% level -3.194611

119



Phillips-Perron Test EquationDependent Variable: D(LOG_PRICE)Method: Least SquaresDate: 03/07/14 Time: 18:53Sample (adjusted): 1971 2010Included observations: 40 after adjustments


LOG_PRICE(-1) -0.206817 0.048002 -4.308555 0.0001C 0.043531 0.128715 0.338196 0.7371

@TREND(1970) -0.001323 0.004807 -0.275164 0.7847

R-squared 0.477815 Mean dependent var -0.118000Adjusted R-squared 0.449589 S.D. dependent var 0.334817S.E. of regression 0.248400 Akaike info criterion 0.124482Sum squared resid 2.282986 Schwarz criterion 0.251148Log likelihood 0.510365 Hannan-Quinn criter. 0.170280F-statistic 16.92808 Durbin-Watson stat 2.255001Prob(F-statistic) 0.000006

Null Hypothesis: D(LOG_PRICE) has a unit rootExogenous: Constant, Linear TrendBandwidth: 3 (Used-specified) using Bartlett kernel

Adj. t-Stat Prob.*


5% level -3.52975810% level -3.196411



Phillips-Perron Test EquationDependent Variable: D(LOG_PRICE,2)Method: Least SquaresDate: 03/07/14 Time: 18:54Sample (adjusted): 1972 2010Included observations: 39 after adjustments


120

D(LOG_PRICE(-1)) -0.914816 0.166432 -5.496636 0.0000C -0.364398 0.124718 -2.921778 0.0060

@TREND(1970) 0.012444 0.004943 2.517489 0.0164


Result of Unit Root Tests (Trend and Intercept)

Variables Augmented-Dickey Fuller (ADF)

Test

Philip-Perron(PP) Test Remarks

Prob.

Value

(level)

Prob.

Value (1st.

Diff.)

Prob.

Value (2nd.

Diff.)

Prob.

Value

(level)

Prob.

Value

(1st.

Diff.)

Prob.

Value

(2nd.

Diff.)

EXCR 0.8105 0.0032* ------------ 0.833

4

0.0000

*

------- I(1)

RGDP 0.6996 0.0010 ------------ 0.769

3

0.0024* ------- I(1)

OPEN 1.0000 0.0184 ------------ 1.000

0

0.0000* ------- I(1)

OILEXP 0.9612 0.0216* ------------ 0.973

0

0.0006* ------- I(1)

NONOIL 0.3179 0.00687* _______ 0.266

8

0.0001* ------- I(1)

PRICE 0.0000* 0.0786 _______ 0.002

1

0.0002* ____ I(0) &I(1)

* Rejection of null hypothesis of unit root at 5%**Rejection of null hypothesis of unit root at 10%I(1) stationarity of the variables at first order or at first difference

I(0) stationarity of the variables at second order or at level difference

121

indicates significance at 5% or 1% level.

** indicates significance at 5% and 1% levels and I (0), I(1) and I(2) indicate the order of

integration.

Correlation analysis

LOG_NONOIL LOG_OILEXP LOG_PRICE LOGRGDP LOG_EXCR

LOG_NONOIL 1.000000 0.721095 -0.460788 0.781491 0.771118

LOG_OILEXP 0.721095 1.000000 -0.316272 0.815596 0.924232

LOG_PRICE -0.460788 -0.316272 1.000000 -0.623913 -0.401705

LOGRGDP 0.781491 0.815596 -0.623913 1.000000 0.920916

LOG_EXCR 0.771118 0.924232 -0.401705 0.920916 1.000000

122

0

10

20

30

40

50

1970 1975 1980 1985 1990 1995 2000 2005 2010

__CHANGE

0

40,000

80,000

120,000

160,000

200,000

1970 1975 1980 1985 1990 1995 2000 2005 2010

NONOIL

-100

0

100

200

300

400

1970 1975 1980 1985 1990 1995 2000 2005 2010

GROWTH

THE GROWTH OF NONOIL EXPORT

123

-40,000

0

40,000

80,000

120,000

160,000

200,000

1970 1975 1980 1985 1990 1995 2000 2005 2010

% change NONOIL GROWTH

124

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