CHAPTER ONE

INTRODUCTION

1.1 Background of Study

The Nigeria Economy has undergone structural changes in the past three decades form a freedom agriculture economy in the 1960’s to an economy mainly reliant on oil from the mid 1970’s.

The phenomenal growth in earnings in the mid 1990’s was not fully internalized into the economic system. The result was that the consumption production pattern became largely import oriented inability to rationalize imports when the oil boom gave way to oil glut led to emergence of trade arrears. A great debt burden also surfaced from 1978 to the early 1980’s as a result of Jumbo loans from the international capital market external debt outstanding shot up drastically from us $593.6 million in 1976 to us $2.2 billion in 1978? Thereafter, the spate of borrowing increased with the entry of state government into large external loan contractual obligations. Thus, by 1983, the total external debt stock was us $18.6 billion in 1986. It rose further to us $29.4 at the end of December 1994, the pursuit of an over-valued exchange rate policy. The subsequent relegation of the agriculture sector to the background; heavy public sector spending and the huge over, hang; all combined to create distortions in the production, consumption and payment patterns. The precipitation decline in oil earnings in the 1990’s necessitated a policy redirection, aimed at realigning the domestic production pattern with the local resources base.

Most less developed countries including Nigeria have turned to import-substitution policy in order to become self reliant and to help develop indigenous industries that we need raw material in order to produce these products. Most of these imputs are not availably locally, consequently. The industries depend heavily on imported inputs of law materials, machinery, capital equipments and the consumer goods. Generally speaking, a nation volume of import is a positive function of its imports and its income tall, it is import will also fall. This relationship is made intuitively apparent by considering the two great components of income in the economy: investment expenditure and consumption.

An increase in investment, that is the addition of plant and equipment to our capital stocks means that we must increase our imports. If nothing else, we must buy from abroad a number of raw materials that we ourselves do not posses in sufficient quantities and similarly, with consumption goods. These will be imported as people’s real income rises, they will buy more and more goods and some of these will be imported.

Automobiles refrigerator are good example therefore, to curtail excessive importation, a complementary development in the agricultural sector, which provides the earnings necessary to finance the minimum level of import required to sustain the continued growth of the local industries is necessary since the adverse effect of too much reliance on imported inputs has also been clearly demonstrated in the agricultural sector where substantial increases in the costs of Agricultural modernizations.

Unfortunately, the policies adopted to reserve the domestic products primary tariffs is some how biased in the effect against production for exports. This is one of the problems of less developed countries who rely on import-substitution as a means of developing their economics.

The system of production is adopted, and it consists primarily of the use of import duty policies/restrictions, which take various forms including outright ban, or total prohibition or tariffs, duty free on some items, the imposition of import quotes, foreign exchange control, invisible tariff in the form of introduction of comprehensive import supervision scheme or the placing of specific commodities on license. These policies are aimed at either shutting out competition entirely or to give domestic producers a significant cost advantage over foreign producers and most importantly protect the country against being used as a dumping ground for interior goods.