CHAPTER ONE INTRODUCTION
1.1 BACKGROUND TO THE STUDY International Monetary Fund (IMF) has revealed that there has been significant and prolonged drop in oil prices since mid-2014, this has changed the fortunes of Nigeria and many other energy-exporting nations around the world. This, finding from this IMF report that budgets in oil exporting nations have generally turned from surpluses to large deficits, growth has slowed, and financial stability risks have increased (Oriakhi & Iyola, 2013). However, in such a challenging environment, a policy that will not focus on another source of revenue will not suffice—policymakers will need to adopt significant measures to put public budgets on a sounder footing, address risks to liquidity and the quality of assets in the financial sector, and improve growth prospects. This will be a difficult long-term process, but the positive thing is that many countries have made a strong start, especially in terms of budget policies (Oriakhi & Iyola, 2013). However, Achuzia (2014) pointed out that in the coming years, oil revenues will no longer be sufficient for governments to act as the main employer of their fast-growing young populations. Therefore, it urged policymakers to find new ways to promote private sector development and help their economies diversify away from oil. Therefore, for Nigeria, which is heavily dependent on oil revenue, there is need for the government to pursue genuine economic diversification policies to as to take the economy out of the doldrums. Nwankwo (2015) observed that with the steps taken so far by the government towards refocusing the country’s source of revenue, the economy would no longer be susceptible to events in the international crude oil market in few years’ time. Following the drop in crude prices from a peak of $114 per barrel in July 2014 to as low as $33/barrel in January 2016, the country’s reserves have suffered great pressure from speculative attacks, round tripping and front loading activities by actors in the forex market. This fall in oil prices also implied that the Central Bank of Nigeria’s (CBN) monthly forex earnings has fallen from as high as $3.2 billion to current levels of as low as $1billion. Yet, the demand for foreign exchange by mostly domestic importers has remained unabated. The net effect of these combined forces unfortunately is the depletion of the country’s forex reserves and pressure on the naira (Udoh, 2014). Despite the challenges faced by the economy presently, Nwankwo (2015) has described the situation as temporary setback that will be overcame when the government’s policy on diversification of the economy begins to crystallize. Efforts at stimulating the non-oil sectors such as agriculture, solid minerals and manufacturing, among others, will impact on the economy in the next few years. According to Nwankwo (2015), when the economy is diversified, Nigeria’s growth will no longer be determined by the prices of crude oil. Nwankwo (2015) further stated that much revenue would be derived from taxation, adding that the country’s low comparative tax revenue to the Gross Domestic Product (GDP) ratio, at about seven per cent in 2015 against the 18 per cent average in most developing countries, will improve following efficient production. Also through taxes, government can secure the fund to finance major developmental projects that will impact on the people’s lives. Nwankwo (2015) added that the target of getting the country to rank among the 20 leading economies in the world by 2020 is still being pursued. The crash in crude oil prices should not in any way derail that target. When running a race and something trips and fall the athlete, he/she has to wake up and continue the journey. Also, even if oil is the base for economic growth and development, it was an inappropriate base for growth. But luckily for the country, there are alternatives in agriculture. It is important to note that the country has been unable to exploit up to 25 per cent of opportunities in agriculture. There is need to achieve internal food security and have the opportunity to export agro-based products in processed form. Nigeria is blessed with variety of food stuff from savannah to the deserts, all the various legumes, roots and others that can be grown from these environments. If the nation effectively exploit agriculture, then the major consumer of Nigeria’s forex like agro-based raw materials, rice, fish, poultry, wheat, will be taken care of and government will save billions of dollars from these imports.
1.2 STATEMENT OF THE PROBLEM With the continues drop in the crude oil price and considering the fact that crude oil sales constitutes the main source of Nigeria revenue, there is need look for alternative source of revenue following the drop in income and revenue. The total dependence on oil for revenue generation has led the nation economy to total recession as announced in the second quarter of 2016 by the minister of finance. The researcher has observed that Nigeria is blessed with several alternatives that can substitute oil in terms of revenue generation. They includes agriculture, solid minerals, sports, culture, engineering, ICT, medicine, manufacturing etc. But the nation has performed poorly in all these listed sectors. The researcher is also curious of determining if the available human and material resources in Nigeria can ensure effective diversification of revenue. Diversification of the economy and revitalization of power infrastructure is expected to contribute immensely to the Nigeria economy as seen in other developing countries. Hence, the researcher has decided to conduct this study on diversification of revenue in Nigeria.
1.3 OBJECTIVES OF THE STUDY 1. To examine the process of diversification of revenue in Nigeria. 2. To examine the role of non oil sector in revenue generation in Nigeria. 3. To determine the challenges of diversification of revenue in Nigeria.
1.4 RESEARCH QUESTIONS 1. What is the process of diversification of revenue in Nigeria? 2. What is the role of non oil sector in revenue generation in Nigeria? 3. What are the challenges of diversification of revenue in Nigeria?
1.5 HYPOTHESIS HO: Diversification of revenue will not bring economic growth in Nigeria. HA: Diversification of revenue will bring economic growth in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY The following are the significance of this study: 1. The outcome of this study will educate the government of Nigeria and the general public on the consequences of the nation’s dependence on the oil sector which includes inflation and total economic recession. It will also educate on the massive revenue accruable into the government’s coffer through diversification and productivity from the non oil sector of the economy. 2. This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied will go to an extent to provide new explanation to the topic.
1.7 SCOPE/LIMITATIONS OF THE STUDY This study will cover the process of revenue generation in Nigeria with emphasis on diversification of revenue. LIMITATION OF STUDY Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview). Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.