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Impact of government spending on agricultural sector in Nigeria

ABSTRACT

The study explores the impact of government spending on agricultural sector in Nigeria. Agriculture is the simplification of nature’s food webs and the rechanneling of energy for human planting and animal consumption. The objective of this study was to determine the extent to which government expenditure has led to the development of the agricultural sector in Nigeria. The data used were sourced from the CBN statistical bulletin for the period 1986 to 2017. Two research questions guided the study. The data collected were analyzed using multiple linear regression. The result revealed that government expenditure led to the development of the agricultural sector in Nigeria, agricultural sector help boost the economy of Nigeria.  Following the findings, it was recommended that there is need to boost the value of government transactions in the Nigerian agricultural sector also government should come up with stable policy guideline to enable farmers’ increase their capacity of production as this will help boost the economy.

Keywords: agriculture, government, economy, growth.

 

CHAPTER ONE

INTRODUCTION

 

1.1   Background to the Study

 Prior to the discovery of oil boom of the 1970s, the importance of agriculture to the economic development of Nigeria is enormous owing to the fact that agriculture was the main source of food and employment for a sizeable number of the people. The Nigerian economy during the first decade after independence could be described as an agrarian economy because agriculture served as the engine of growth of the overall economy [Ogen, 2003]. Until the exploitation of oil reserves in 1980s, Nigeria’s economy was largely dependent on agriculture. Akinboyo [2008] defines Agriculture as the science of making use of the land to raise plants and animals. It is the simplification of nature’s food webs and the rechanneling of energy for human planting and animal consumption. It is not an overstatement to assert that the growth and development of any nation depend, to a large extent, on the development of agriculture. Agriculture has serve as an engine of growth in the Nigerian economy.

The contribution of the agricultural sector to any economy cannot be over emphasized when considering its employment potentials and financial impacts. Nigeria’s wide range of climate variations allows it to produce a variety of food and cash crops. The importance of agriculture to the economic development of Nigeria is enormous owing to the fact that agriculture was the main source of food and employment for a sizeable number of the people.

In the 1960s, more than 80% of the rural population of Nigeria was engaged in one type of agricultural activities or the other and between 1963 and 1964, the sector contributed as much as 65% of the nation’s Gross Domestic Product (GDP) (Muftau and Gafar, 2003; Aina, 2015). During this period, Nigeria was the world second largest producer of cocoa, largest exporter of kernel and largest exporter of palm oil [Ogen, 2003], even though most of the small-holder farmers in Nigeria lack access to inputs to increase productivity. Rural farmers lack access to credit facilities, fertilizers.

Over the past two or three decades, the dormant role of agriculture in the economy, especially in terms of ensuring food security, gave way to massive importation of basic food [Egbuna, 2003], this is a clear indication of the failure of the agricultural sector in performing its duties of food production. Government expenditure, which serves as the bed rock of financing of the agricultural sector has consistently decline. A collaborative study carried out by the International Food Policy and Research Institute (IFPRI) and the World Bank in 2008 revealed that Nigeria’s Public expenditure on agriculture is less than 2% of total federal annual budget expenditure. In realization of this, the government has embarked on various policies and programmes aimed at strengthening the sector in order to continue performing its roles.

In a bid to correct this anomaly, the government, from the year 1975 decided to directly participate in commercial production of food crops. The Nigerian Agricultural and Corporative Bank (NACB) was established in 1973 as part of government’s effort to channel oil fund into agriculture sector [Olagunju, 2000]. Various agricultural development programmes were also adopted as part of efforts to revitalize agricultural performance. These were backed up by substantial budgetary allocations, but agricultural output is still very low [Ojo, 1991].

Despite numerous agricultural programmes like Agricultural Credit Support Scheme of 2006; FADAMA Development Programmes among others, productivity has not improved (Oriola, 2009). Take for instance, despite the huge amount invested in FADAMA Rice programs, Nigeria is still spending huge amount on rice importation.

In spite of poor investment, agriculture has on the average contributed 32% of the country’s GDP from 1996-2000 and 42% between 2001 and 2009 (CBN, 2010). According to CBN Governor in 2011, agriculture accounted for 40% of the nation’s GDP, yet it received only 1% of the total commercial Bank Loans (People’s Daily, 2011).

Notwithstanding the enviable position of the oil sector in the Nigerian economy the agricultural sector is arguably the most important sector of the economy.

 

1.2 Statement of Problem

In spite of Nigeria’s rich agricultural resource endowment, there has been gradual decline in its contributions to the nation’s economy, the sudden decline in the agricultural sector was largely due to the rise in crude oil revenue in the early 1970s. Categorically, the state of agriculture in Nigeria remains poor and largely underdeveloped which is due to the lack of sufficient public and private expenditure in boosting agricultural production, the sector rely on primitive methods of production as compared to the sustained growth of the Nigerian population. This has reflected negatively on the productivity of the sector, as well as its ability to perform its traditional role of food production among others.

Inadequate funding of the agricultural sector has a major obstacle to increased agricultural output. (FAO (2008) reported that in terms of capital allocation to agriculture in Nigeria, it was an average of 4.74 percent from 1970-1980. But, from 1980-2000, it rose to 7.00 percent and 10 percent from 2001-2007, though revealing an increase, but still falls short of Food and Agricultural organization (FAO) recommendation that 25 percent of government capital budget be assigned to the agricultural development capital budget.

This study therefore is set to determine the contribution of government expenditure to agricultural production in Nigeria.

 

​​​​​​​1.3. Research Questions

This study will be based on the following Research Questions:

1. What is the impact of government expenditure on agricultural sector in Nigeria?
2. What is the impact of agricultural sector growth on Nigerian economy?

 

1.4. Objectives of the Study

          The general objective of this study is to investigate government expenditure on agricultural output in Nigeria. To achieve this general objective, the following specific objectives will be examined.

1. To examine the impact of government expenditure on agricultural sector in Nigerian.
2. To examine the impact of agricultural sector growth on Nigerian economy.

 

 

1.5      Research Hypotheses

1. H₀: Government expenditure has no significant impact on agricultural

      Sector.

H₁: Government expenditure has significant impact on agricultural

      Sector.

2. H₀: Agricultural sector growth has no significant impact on Nigerian

     economy

H₁: Agricultural sector growth has significant impact on Nigerian

      Economy

 

1.6 Significance of the Study

           This study will be of utmost importance to private investors and government as it would help in the policy building of the Nigerian economy. It is hoped that the exploration of the agricultural sector will provide a broad view of the operations of the agricultural sector. It will contribute to existing literature by investigating empirically the role agricultural sector plays in the development of the country. This study will be of benefit to;

          The Academia: members of the academia will find the study relevant as it will also form basis for further research and a reference tool for academic works.

          Government: formulation and implementation of policies based on this findings would ensure growth.

          Investors: this study shall also be valuable to the investors, it shall guide their private investment decisions.

 

1.7 Scope of the Study

This research work is to examine the impact of government expenditure on agricultural sector in Nigerian. The study covered the period of 1986-2017.

 

1.8 Organization of the Study

This study is divided into five chapters. Chapter one is introduction which consists of the background to the study, statement of problem, research questions, research  hypotheses,  objectives  of  the study, the  significance  of  the  study,   the scope  and  limitations  of  the  study  and  finally the  organization of the study. Chapter two deals with the literature review which consists of the conceptual literature, theoretical literature, empirical literature, theoretical framework, gaps in literature. Chapter three gives the research methodology including techniques of analysis of data, types and sources of data, method of estimation and model specification.  Chapter four is presentation and analysis of results which contains the presentation of results, interpretation of results and summary of major findings. Chapter five gives the summary, conclusion and recommendations.

 

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