export promotion in nigeria: a financial and empirical analysis of the economic diversification...

EXPORT PROMOTION IN NIGERIA: A FINANCIAL ANDEMPIRICAL ANALYSIS OF THE ECONOMIC

DIVERSIFICATION POLICY BETWEEN 1981 AND 2013

BY

AKHARUMERE AUGUSTINE OHIOBRAIN

Nigerian Economic Journal of Export promotion and Import Substitution,Vol. 1 (1).

BEING AUSTIN-BRACE PARTIAL FULFILMENT OF PDP CANDIDATES FOR

THE PRESIDENTIAL/NATIONAL ASSEMBLY AND GUBERNATORIAL/STATE

ASSEMBLY ELECTIONS

FEBRUARY, 2015

Abstract

The Paper examines export promotion in Nigeria through priceincentive for export production and economic growth inNigeria using yearly data for the period 1981to 2013.Basically, the inclusion of an annual budget was to enablethe Government plan for sectoral development in Nigeria.Specifically, the existence of a long run relationshipbetween Agricultural productivity and price incentives forexport production was empirically tested after the initialregression been established using the Ordinary Least Squares(OLS) technique. The empirical model of this paper wasdeveloped from the export led hypothesis modified to includeAgriculture as a percentage of GDP. The empirical resultfrom the Vector Error Correction Model (VECM) shows asignificant but slow speed of adjustment. This shows a slowmechanism of restoring the system back in periods ofexogenous disturbances associated with the system whichrequires quite a long period of time to adjust toequilibrium when disturbed by external influences. The paperconcludes that trade liberalizing concessions are indeedreally marginal to the central core of the distribution ofworld economic and political power, which in itself is whatdetermines the ultimate magnitude of each nation’s benefitsfrom external trade and for Nigerian companies to prosper inthe international trade, and manifest the desired economicwww.academia.edu/universityoflagos/Austinbrace


transformation, they need to appreciate the strategicimportance of non-oil export, identify, evaluate, and planon how to overcome the above factors that constitutechallenges or barriers in their export promotion. The papertherefore recommends that there should be stable politicaland economic environment for the attraction of foreigncapital and technology and periodic review of export policypackages so as to ensure that policies are relevant at alltimes to the export problems in Nigeria.

Keywords: Export Promotion, President Goodluck EbeleJonathan, Transformation Agenda.

Chapter One

1.1 Introduction

Export means to send or transport a commodity, for example

to another country especially for trade or sales. It also

www.academia.edu/universityoflagos/Austinbrace


means to send or transport abroad merchandise, especially

for sale or trade. Export also means to send goods (Visible

Export) or services (Invisible Exports) to a foreign country

or countries. Export is also the shipment of goods and

services to a foreign country or countries.

Export generally refers to the purchasing of domestic goods

and services by foreigners. Export is the act of exporting

commodities to other countries. Exports are the goods and

services that are made in one country and transmitted to

foreigners. It doesn’t matter what the goods or services is

or how it is sent. It can be shipped, sent by email, or

hand-carried in personal luggage on a plane. If it is

produced domestically and sold to someone from a foreign

country, it is an export.

For example, tourism products and services are considered

exports even though they are sold to foreigners who are

visiting here. If an overseas friend sends you money to buy

a pair of jeans and mail it to them, that’s an export.

Exports are the sending or selling of goods or services

across national frontiers for the purpose of selling and

realizing foreign exchange.

Export is also a function of international trade whereby

goods produced in one country are shipped to another countrywww.academia.edu/universityoflagos/Austinbrace


for future sale or trade. The sale of such goods adds to the

producing nation’s gross output. If used for trade, exports

are exchanged for other products or services. Exports are

one of the oldest forms of economic transfer, and occur on a

large scale between nations that have fewer restrictions on

trade, such as tariffs or subsidies. Most of the largest

companies operating in advanced economies will derive a

substantial portion of their annual revenues from exports to

other countries. The ability to export goods helps an

economy to grow by selling more overall goods and services.

Exports means shipping the goods and services out of the

port of a country where the seller of such goods and

services is referred to as an “exporter” and is based in the

country of export whereas, the overseas based buyer is

referred to as an “importer”.

To be able to export, you need something to sell that is

profitable. Many LDCs economies rely heavily on the

production of primary commodities. In many cases, the prices

for these commodities are deteriorating vis-à-vis prices of

manufactured goods that need to be imported from

industrialized countries. Consequently, many LDCs are

suffering from chronic trade and current account deficits



which in turn mean problems of indebtedness and/or deep and

dependency.

There are many good reasons for a country to export a lot

more than importing a lot of goods. The following are the

benefits of export to Nigeria.

Increasing sales

Increasing profits

Reducing risk and balancing growth

Lower unit cost

Economies of scale

Minimizing the effect of seasonal fluctuation in sales

Small or saturated domestic markets

Extending the product life cycle

Improving efficiency and product quality

Untapped markets

Addressing customers, competitors and cost factors

Status as an exporter

Enhanced innovation

Gain global market shares

Gain new knowledge and experience



Increasing Sales: Exporting is one way of increasing

sales potentials. It expands the “pie” that an exporter

or a country earn revenue from, otherwise, the country

will be struck trying to make money only out of the

local market. It has been said that there are no sales

barrier that automatically begins where the border

ends. Increased sales also impact upon a country’s

profitability and productivity by lowering unit costs

thereby affecting its competitive position compared

with other countries.

Increasing Profit: Exports can contribute to increased

profits because the average orders from international

customers are often larger than they are from domestic

buyers

Reducing Risk and Balancing Growth: Export sales to a

variety of diverse foreign markets can help reduce the

risk that the country may be exposed to because of

fluctuations in local business cycles. Export may help

to create and/or maintain jobs thus reducing the risk

of labour dispute or lack of employment that a country

would have.



Lower Unit Cost: Export help to put idle production

capacity to work. This is generally achieved by more

efficient utilization of the existing factories in a

country. Lower unit cost makes the product of a country

more competitive by exporting to foreign markets and

can contribute to a country’s GDP.

Economies of Scale: Exporting is an excellent way to

enjoy pure economies of scale with products that are

more “global” in scope and have a wider range of

acceptance around the world, in other words, they can

be used in other parts of the world without much

adaptation. With increased export production, a country

can achieve economies of scale and spread cost over a

large volume of revenue. Long-term export may enable a

country expand its production in order to achieve an

economic level of production.

Minimizing the Effect of Seasonal fluctuations in

Sales: Nigeria has seasons that are opposite to the

eastern countries. For the sales of seasonal goods,

such as fruits, swim wear, being able to sell these

goods when our season ends, helps to achieve a longer

and more stable sales pattern. It increases the sales



potentials of these goods and also, helps reduce risk

and uncertainty.

Small and/or Saturated Domestic Market: One good reason

to begin exporting is when a country local market is

too small to support a country’s output or when the

market becomes saturated. The only way a country can

justify their investment or the poor economic standard

is to sell abroad because their respective Local

Government is too small.

Overcoming Low Growth in the Home Market: with the help

of exportation of goods, country’s sales potential will

increase, there would be low growth in the local

market.

Extending the Product Life-Cycle: All products go

through a product life-cycle. When a country exports a

product, it will increase the life-cycle of that

product. It has the effect of making more efficient use

of existing factory infrastructure and other investment

spent on the product. It extends sales the lowers the

unit costs even further may allow for higher margins to

be generated.



Improving Efficiency and Product Quality: The global

market is a highly competitive place and by

participating in this marketplace, there is need to

become quality efficient and quality conscious.

Untapped Markets: A country may have a very unique

product that is not yet available elsewhere in the

world. In this instance, these untapped markets are

likely to drive a country’s export activities

Addressing Customers, Competitors and Cost Factors:

Countries may export internationally to take advantage

of labour costs. Skilled workers and other cost factors

such as lower telecommunication or energy costs, which

are better in a foreign market.

Status as an Exporter: For some countries, the status

of being involved in international trade is very

important to them.

Enhanced Innovation: Exporting allows a country to take

advantage of economies of scale, hence, leading to

increased productivity and efficiency. When a country



exports, it would experience innovation in different

sector of their economy through the revenue generated

from the exportation of goods.

Gain Global Market Shares: When a country is involved

in trading internationally, the country will

participate in the global market and gain a piece of

their share from the huge international marketplace.

Gain New Knowledge and Experience: When a country sale

internationally, that is, exports goods, they can yield

valuable ideas on how to expand their economy. The

country will have information about new knowledge and

technologies, new marketing techniques and foreign

competitors.

However, export promotion or rather import substitution

strategies has been advocated as a means by which countries

especially the developing ones like Nigeria can evolve their

own style of development and also, gain control over their

economic status. This is because, export according to

Olusegun (2009) is believed to lead to better resource

allocation, economies of scale, production efficiency

through knowledge and technological transfer, capital



formation, employment creation leading to economic growth

and development. Export promotion is also seen in most

developing countries as a way of correcting imbalances in

the external sector and at the same time assists countries

in ensuring that their domestic economies make a full

recovery.

1.2 Statement of Problem

Challenges such as extra costs, product modification,

financial risk, export licenses and documentation, and

market information have been identified as being responsible

for not achieving the desired economic development through

export marketing despite Federal Government policies and

programmes on export promotion over the years. Moreover, one

of the specific problems according to Opara (2010) has to do

with exporting raw agricultural commodities by Nigerian

exporters, and these commodities are processed and sold to

Nigerian consumers at a higher price. It can be noted 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 (Nwakama, 1986). The industrial sectors’

low growth and expansion is also caused by the lack of

backward integration hence, considering the array of



government export incentives, the performance of the export

sector has been unimpressive over the period so far.

It is pertinent that the political and legal systems in

Nigeria have partially improved the marketing system of the

country. The implementation of these policy documents – like

most other Federal Government Programmes such as Subsidy

Reinvestment and Empowerment Programme (SURE-P), Youth

Enterprises With Innovation in Nigeria (YouWiN!) –greatly

reflect the policy position of the country and most policy

statements and documents of these nature appear to be at

least encouraging. It has been noticed that some small,

poor, and newly industrialized nations like Taiwan,

Singapore and South Korea now offer favourable marketing

environment in developing countries. Kingsley (1988) noted

that many of the small, poor South-East Asian newly

industrializing countries have used inward investment and

export led policies for economic development which have

created favourable and competitive marketing environment.

Nigerian marketing system or export marketing unlike that of

developed countries – U.S, U.K, France, Germany, China, etc,

or that of some developing countries such as Taiwan,

Singapore, South Korea, India, Brazil, South Africa, etc –

are characterized by political uncertainties, acute



shortages of qualified and competent people leading and

managing business organizations, and unplanned government

restrictions, red-tape and bureaucracy, the non-availability

of local finance to expand, effective and efficient running

of business organizations, availability of spare parts for

machines – which result to under-utilization of production

capacity and inability to meet production schedules,

ineffective production of patent or trade mark, and low

wages payment to employees. These are some of the

difficulties or hindrances that affect the Nigerian export

marketing and the entire marketing system when compared with

that of developed and some developing countries (Opara,

2010).

Despite these challenges faced by Nigerian export promotion,

this paper therefore seek to establish a nexus of long run

relationship between export promotion policies and economic

growth in Nigeria and more essentially, to investigate

whether there exist any mechanism of convergence between

export promotion policies and the performance of the

Nigerian economy. This gap analysis according to this paper

is to be actualized by employing the method of Linear

Programming (LP) and Error Correction Mechanism (ECM) as



methods of data estimation and analysis in order to achieve

the Nation’s desired objectives.

1.3 Aim and Objectives

The aim of this paper is to assess the effectiveness of

export promotion strategies and policies in stimulating

economic growth and development in Nigeria. Specifically,

other objectives of this paper are:

To ascertain the extent which Nigerian trade

relations with other countries have helped the

country to achieve its macroeconomic goals;

To empirically investigate the nexus between

agricultural productivity and export promotion

through macroeconomic variables;

To identify the challenges and problems which

constitute constraints to export promotion and

expansion in Nigeria?

1.4 Research Question

This paper intends to provide reasonable answers to the

following research questions confronting export promotion

policies in Nigeria:



To what extent has Nigerian trade relations with other

countries helped the country to achieve its

macroeconomic goals?

What is the empirical nexus between agricultural

productivity and other macroeconomic variables?

What are the challenges and problems which constitute

constraints to export promotion and expansion in

Nigeria?

1.5 Research Hypothesis

In recognition of the current situation vis-à-vis Federal

Government’s export drive, this paper seeks to verify the

following null hypothesis:

There is no significant relationship between Nigerian

trade relations and other countries in achieving its

macroeconomic goals;

There is no significant relationship between

agricultural productivity and other macroeconomic

variables;

There is no significant relationship between the

challenges of export promotion and problems of export

expansion in Nigeria.



Chapter Two: Literature Review

2.1 Introduction

The realization of macroeconomic objectives of equitable

income distribution, price stability and economic growth has

been the ultimate aim of the Federal Government of Nigeria

in order to achieve a well-developed economy in the world.

However, the switching to export promotion strategy due to

the realization of a more effective option rather than

import substitution in achieving a faster growth and

structural upgrading of the economy by Nigeria and many

developing countries had at specific period of time, adopted

the policy of import replacement under the ideology of

economic nationalism.

Moreover, Federal Government efforts to expand the volume of

Nigeria’s export through export incentives in form of public

subsidies, tax rebates, special credit lines and other forms

of financial and non-financial measures provided to promote

a greater level of economic activities in export industries

in regards of generating more foreign exchange and improve

the current account of the balance of payment is referred to

as export promotion strategy (Todaro, 2003).



In the literature, it has been established that export trade

is an engine of growth and therefore, increases foreign

exchange earnings, improve balance of payment position,

creates employment opportunities, and improves Federal,

State, and Local Government revenue through taxes, levies,

and tariffs. Since foreign exchange derived from these

benefits will eventually transform into better living

standard of the citizenry of the exporting economy, it would

also contribute to meeting their needs for essential goods

and services. The dependency of the economy on only one

sector for the supply of needed foreign exchange will not

realize these benefits and before they can be achieved, the

structure and direction of these exports must be adequately

channeled to diverse areas or sectors of the economy.

Consequently, Nigerian economy was dependent on export of

agricultural commodities in the years immediately after

independence for survival. Invariably, as a result of the

setting up of commodity board by the Federal Government to

act as buying agent, this board embarked on fixing prices

arbitrarily and below market prices, therefore, farmers

moved out of the business because they no longer found it

profitable. The policy effect was a negative development of

exports in the agricultural sector. In addition, available



data revealed that the manufacturing sub-sector of the

economy had often been making minimal contribution to

export. The rationale that can be cited as proof for this

had been neglect of the sector by colonial masters before

independence in favour of export of industrial raw materials

for their domestic industries. Even after independence, poor

infrastructure, lack of adequate finance, high cost of

production, and low market penetration due to poor quality

control were factors constraining the development of

manufacturing exports. Furthermore, in the 1970s, oil sector

experienced price explosion at the global crude oil market.

It is imperative that before then, crude oil was sold for

less than $2 per barrel (pb) and Nigeria was producing less

than 0.5 million barrels per day (mbd). In 1973, as a result

of crisis in the Middle East, the price rose gradually from

$2 to $11 per barrel and rose further to $37.1 per barrel in

1981. This was a period when crude oil production equally

rose to 2.5 mbd. The ultimate effect of this was a massive

inflow of foreign exchange (Ajakaiye and Ayodele, 2000).

Nigeria became a mono-cultural economy of over depending on

crude oil export for her foreign exchange eventually during

this period. In a nutshell, the world oil market collapsed

in mid 1980s as a result of the protectionist policies of



the developed countries and increased substitution of

synthetic for primary products in the technically advanced

countries which escalated in a sharp drop in crude oil

prices at the international markets.

However, there was ever increasing demand for foreign

exchange by this import dependent economy due to a

significant decline in foreign earnings from crude oil at

that time. It became clear then that crude oil export should

not be looked upon to guarantee sustained growth of

Nigeria’s economy in the long run (Ojo, 1996). Therefore,

the financing of gap between the demand for and the supply

of foreign exchange must be sorted out by additional sources

of foreign earnings. The ineffectiveness of all policy

measures designed to improve the situation including the

stabilization measures in 1982 as well as the restrictive

monetary policy and the stringent exchange control measures

in Major Gen. Buhari and Brigadier Gen. Idiagbon regime of

1984 elucidated the Structural Adjustment Programme (SAP)

which was introducted by Gen. Babangida in July 1986.

One of the principal objectives of the programme was to

diversify export from dependence on crude oil through the

promotion of non-oil exports. Export promotion strategies

were put in place to assist intending exporters in creating



conductive environment for th production and exportation of

non-oil products. The objective of this paper against this

background is to find out to what extent non-oil export

promotion strategies have been effective in increasing the

value of total export in general and diversifying the

productive base of the Nigerian economy from crude oil as

the major source of foreign exchange in particular. This

study is quite unique in that we will be employing the

Linear Programming (LP), Ordinary Least Squares (OLS),

before applying Vector Error Correction Model.

2.2 Conceptual Framework

The basic concept of the macroeconomic ideology relevant to

a good grasp is the circular flow of national income,

presented in Fig. 2.1 and 2.2 below. The circular flow of

income shows the mutual and reciprocal relationship among

four sectors, namely: the producing sector (that is, the

collection of all firms, businesses or enterprises) which

refers to as The Firm; all The Households that consume the

final goods and services and supply factor services like

labour, capital, land and entrepreneurship; The Government

and all Central Authorities that regulate economic

activities, levy taxes, and provide subsidies; and finally,



The External Sector or Rest of the World that provide the

imports of goods and services and receive the exports.

Fig 2.1: The Circular Flow of National Income (Opened Governed

Economy) Framework


Factor Incomes Y Direct & Indirect Taxes

Aggregate Expenditure

(C+I+G+X)

Personal Income Taxes

Import (M)

Exports (X)

THE FIRM

THE GOVERNMENT

THE HOUSEHOLD

THE EXTERNAL SECTOR


Source: Todaro (1971)

Fig 2.2 The Circular Flow of National Income (Closed Ungoverned Economy) Framework

Source: Todaro (1971)

This framework is designed with an interest regarding the

flow of income (that is, payment and receipt) rather than

the flow of goods and services, since what matters at the

end of the day is not the type and quantities of goods or

services that are delivered or supplied but the amount of

money or financial returns involved.

For analytical simplification, this framework sometimes

abstract from complications introduced by government and The

External Sector. So consider a closed economy in which the

external sector (exporting, importing and capital transfer)

as non-existent or inconsequential and also, equivalent to

equilibrium condition in the external sector such that total

earnings from export equals total earnings from import. It


Factor Incomes (Y) Expenditure (C+I)

THE FIRM

THE HOUSEHOLD


considered all payment to abroad for factor services (factor

payment) equal to all factor incomes from abroad (factor

income), where the difference between them gives the net

factor payment to abroad. The framework also consider an

ungoverned economy by abstracting from government activities

which involves separating the private sector from public

sector, merging all consumption expenditure (private

consumption expenditure and government recurrent

expenditure) into national consumption expenditure, and

merging all investment expenditures (private investment

expenditure and government capital expenditure) into

national investment expenditure.

The Open and Governed Economy stipulated in Fig 2.1,

constitutes the reality by relaxing all those abstractions,

while the Closed Ungoverned Economy is depicted in Fig 2.2.

The Closed Economy with government is obtained by deleting

the external sector and its interactions from the circular

flow of Fig 2.1. The basic variable of the Macroeconomic

Framework is the Gross Domestic Product (GDP) and is broken

down into its constituent components of National Investment

Expenditure and National Consumption Expenditure. For the

scope of this paper, among competing mathematical or

theoretical frameworks that are realistic or amenable to



practical applications, this research work shall employ

statistical and econometric tests to select the appropriate

model to be use in forecasting real life situations and

policy analysis.

2.3 Export Promotion Zone (EPZ)

As explained above, apart from macroeconomic policy

measures, fiscal compensation arrangements constitute

another method through which Government had supported

exports. In line with objectives of SAP, Federal Government

promulgated the Export (Incentives and Miscellaneous

Provisions) Decree No. 18 in 1986. The decree not only

abolished import licensing, but it also introduced

comprehensive incentive measures for Nigerian exporters such

as the 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 industrialwww.academia.edu/universityoflagos/Austinbrace


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 at Calabar, and the

foundation was laid on November 7, 1991, by the then

President of the Federal Republic of Nigeria, Gen. Ibrahim

B. Babangida. The manufacture-in-bond and export processing

zones schemes were introduced in 1991 with the common

objective of making non-oil export goods (especially

manufacturers) competitive, in price terms, through a waiver

of duties and/or taxes.

Invariably, 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. It is important to mention, however, that the

implementation of these incentives has been the bottleneck,

among which institutional inadequacies are avoidable

rivalries in implementing institutions, and

administrative/bureaucratic tardiness. The abolition of the



erstwhile publicity owned Commodity Boards in 1986 seems to

have achieved only minimal results. The boards were

abolished to enable the private sector to take over the

internal and external marketing of agricultural produce and

to minimize the distortion of international market price

signals to farmers. This policy, coupled with currency

depreciation, raised the naira prices that farmers received

for their export produce. Moreover, other internally

generated problems such as inadequate storage facilities and

soaring domestic production and transportation costs

remained as stumbling blocks to realizing the objectives of

the measures. The absence of a good quality-control system

also led to export of ungraded and poor quality products.

In addition to the creation of a conductive environment for

export and adoption of an appropriate incentive structure,

Federal Government also established or re-focused several

institutions in the period proceeding (as well as after) the

inception of SAP to implement the incentive which was put in

place to boost exports. The institutions whose functions

impinge on export directly or indirectly include the Central

Bank of Nigeria, Nigeria Export Promotion Council, Federal

Board of Inland Revenue, Customs and Excise Department,

Nigerian Standards Organization, Nigerian Export Processing



Zone Authority, the Nigerian Committee on Trade Procedures

(NITPRO), and the Nigerian Export-Import Bank (NEXIM).

2.4 Challenges Involved in Exports

The challenges involved in exports include:

Extra Costs

Product Modification

Financial Risk

Export Licenses and Documentation

Market Information

Extra Costs: Because it takes more time to develop

extra markets, and the pay back periods are longer, the

up-front cost for developing new potential and

promotional materials, allocating personnel to travel

and other administrative cost associated to market the

product can strain the meager financial resources of

small size companies.

Product Modification: When exporting, companies or

countries may need to modify their products to meet

foreign country safety and security codes, and other

import restrictions. At a minimum, modification is



often necessary to satisfy the importing country’s

labeling or packaging requirements.

Financial Risk: Collection of payments using the

methods that are available (open account, prepayment,

consignment, documentary collection and letter of

credit) are not only more time consuming than for

domestic sales also more complicated. Thus, companies

must really weigh the financial risk involved in doing

international transaction.

Export Licenses and Documentation: Though the trend is

towards less export licensing requirements, and the

fact is that, some companies have to obtain an export

license to export their goods which makes them less

competitive. In many cases, the documentation required

to export is more involved than for domestic sales.

Market Information: Finding information on foreign

markets is unquestionable, more difficult and time

consuming than finding information and analyzing

domestic markets in LDCs, for example, reliable

information on business practices, market

characteristics, and cultural barriers may be



unavailable. Entering an export business requires

careful planning, some capital, market know-how, access

to quality products, competitive pricing strategy,

management commitment and realizing the challenges and

opportunities. Without them, it is almost impossible to

succeed in the export business. While there are no

hard-and-fast rules that can help companies make

decision to place export stressful, understanding the

advantages and disadvantages of exporting can help

smooth entry to new markets, keep pace with competition

and eventually realize profit.

In Nigeria, exports are apparently made up of two or divided

into two namely: Oil exports and Non-Oil exports. Oil

exports refer to crude oil, petroleum and related products

such as Liquefied Natural Gas (LNG) and other refined

petroleum products. Non-Oil exports on the other hand refer

to export of various manufactured products. The export of

other products that is not directly associated with crude

oil or petroleum. Challenges facing development of the non-

oil sector include: poor infrastructure, energy, finance,

skills and capacity. The other challenges facing non-oil

export in Nigeria include: Poor standardization of products,



high cost of product, falsification of documents, weak

linkages to chain of supply, unwholesome trade practices,

and exports dominated by primary products, inability to meet

orders, restricted access to credit and trademark. For

Nigeria to meet or position them effectively in the global

market, Made in Nigeria goods for export must meet the

following:

Competitiveness Standards,

International Benchmark,

Invest in Skill Manpower,

Invest in technology and innovation,

Provide conducive and stable export policies,

Health, Safety, Environment and Social

Performance,

Intensified Public-Private Partnership (PPP)

collaborations,

Consult widely with Stakeholders,

Address issues of Market failure,

Partner with Bilateral and Multilateral chambers

of commerce, export opportunities and promotion,

As well as engaging Nigerians in Diaspora,



Take optimal advantage of trade preference

programmes.

Nigerians must also learn to export value added products as

against commodities which government should simplify exports

procedures and documentations by imbibing e-commerce

cultures to reduce costs and time. There is no better time

than now to address issues that will enhance the development

and promotion of Nigerian non-oil export for instance

YouWiN! Programmes. Considering the importance of the

manufacturing sector to the Nigeria economy, especially, its

contribution towards job creation, it was not satisfactory

performance with the Nigerian manufacturing exports in

particular and total non-oil exports but with the ongoing

transformation agenda by President Goodluck Ebele Jonathan,

Nigerians are assured of greater chances to wealth creation,

employment generation and self reliance.

2.5 Nigerian Customs Services as a Case Study for Nigeria

Economic Development

The Nigerian Custom Service (NCS) came into being in 1891

and was saddled with the responsibility of revenue

collection accounting for the revenue collected and anti-

smuggling. Today, the NCS has such other function as

implementation of government fiscal measures, generation ofwww.academia.edu/universityoflagos/Austinbrace


statistical data for planning purpose, trade facilitation,

implementation of bilateral and multilateral agreements

entered into by the Federal Government, collection of levies

and charges, and collaborative functions with all levels of

Government agencies such as the CBN, Nigerian Police, NDLEA,

SON, NAFDAC, FIRS, etc.

The Nigerian Customs Service (NCS) is an independent agency

under the supervisory oversight of the Nigerian Ministry of

Finance, responsible for the collection of customs duties,

revenue collection and anti-smuggling efforts. Customs

generally play a pivotal role in the economic life of any

country. There is hardly any sector of the economy that is

not directly or indirectly affected by the activities of

customs. The functions of Nigerian Customs Services include

but not limited to the following:

Collection of Revenue (Import/Excise Duties and

other taxes and levies)

Anti-Smuggling activities

Security Functions

Generating Statistics for Planning and Budget

Purposes

Monitoring Foreign Exchange Utilization, etc.



Engaging in Foreign Research, Planning and

Enforcement of Fiscal Policies of Government,

Manifest Processing,

Licensing and Registration of Customs Agents,

Registration and designation of collecting banks,

Working in Collaboration with other Government

Agencies in approved Ports and Border Stations.

Today, trade facilitation has become a fundamental role,

progressively seen by Government as an important element of

economic policy with Customs having a unique position within

the hub of the international supply chain management of

goods and services. Consequently, one of the challenges to

Nigerian Customs Services s the proactive management of the

seeming contradictory role of ensuring improvements in

speedy delivery of services, while maintaining systematic

and effective intervention controls, necessary to meet the

demands of complex and growing international trade,

characterized in recent time by economic crime, money

laundering, menace of tourism, threaten weapon of mass

destruction, violation of intellectual property right, and

dumping of toxic and hazardous substances.

It is apparent therefore that NCS that has for long been a

steward of the nation’s trade and border, but now has an



enlarge role to perform at the highest levels, facilitates

legitimate trade in a global environment harboring a litany

of threat.

Nigerian Custom Service has the mission to provide services

in ways that minimize efficiency and promote trade

competitiveness wherein declarations are promptly processed.

Nigerian Customs Service also supports the combating of the

following:

Illegal commercial activities and trade in illicit

goods e.g import of fake and substandard goods,

Infraction on intellectual property rights,

Illegal international trade in endangered species,

Money laundering,

Traffic of illicit drugs,

Illegal trade in cultural artifacts,

Importation of pornographic materials,

Importation of toxic and hazardous substances

2.6 Contribution of Export to the Economic Development of

Nigeria

Export offers a platform for growth and

development in a country economy through provision

of employment opportunity.



Export income is used or is essential for

financing import of factor of production,

technological products that are not produced at

home (Nigeria) but are necessary for enhancing

productivity.

Export helps in alleviating poverty as it leads to

increase in income earnings.

Export helps to increase a country’s Gross

Domestic Product (GDP).

Export increases a country’s foreign exchange.

Export helps a country in surpassing her debts.

Export triggers greater productivity in a country.

Export leads to increase in Balance of Payment

(BOP).

For Nigeria to effectively export goods and services without

any hindrances and in order for Nigerians to have economical

development and empowerment, Federal Government has to deal

with the challenges involved in the export of goods and

services. This paper on Export Promotion in Nigeria have

established a concrete literature review which shall usher

it to look into the theoretical framework and methodology,



Chapter Three: Theoretical Framework and Research

Methodology

3.1 Introduction

This chapter of the paper provides an in-depth to the

econometric and analytical aspect of the research work. It



shall identify the theoretical framework that forms the

fundamentals of the research model taking into

consideration, several sub-sections.

3.2 Theoretical Framework

The theoretical concept of export led growth hypothesis that

postulates a relationship between the growth of export and

the economy such that export expansion becomes one of the

main determinants of economic growth shall be discussed.

This hypothesis holds that over-all growth of different

economies could be generated not only by increasing the

amount of labour and capital but also by expanding exports.

The important relationship between export expansion and

economic growth could be traced down to the possible

positive externalities caused by the fact that different

countries are involved in the international trade. Variety

of empirical works have been conducted which have

extensively emphasize the importance of trade particularly

export promotion in order to explain economic growth. This

has given rise to various models using different variables

which includes, degree of trade openness, term of trade,

tariff and exchange rate to confirm the hypothesis that open

economies grow more rapidly than those that are closed

(Edwards, 1998; Olusegun, 2009). Some changes have occurred



in the field of economic development and international trade

in the last two decades. These involve modification from

inward-oriented policies to export promoting strategy. These

changes are believed to be responsible for the vast and

extensive empirical literature concerning the relationship

between trade and growth (Olusegun, 2009). According to

literature, how sustainable this trade policy of export

promotion is in terms of economic growth and development has

greatly been argued. Export promotion or rather import

substitution strategy has been propagated as a means by

which countries especially the developing ones evolve

according to their own fashion peculiar to them and

determine their own destiny with the rest of the world

(Olusegun, 2009). The major issue militating export

promotion and expansion is believed that it will lead to

better resource allocation, economies of scale, production

efficiency through knowledge and technology transfer,

capital formation, employment generation and thus, economic

growth and development. Therefore, the empirical model for

this paper is derived from this base.

3.3 Research Methodology

This paper employs an estimated budget for five sectors of

the economy which include: Agriculture, Oil and Gas,



Education, Defence, and Telecommunication. The linear

programming technique shall be employed to determine the

maximum and minimum value of the objective function.

According to Black (2003), linear programming is a

mathematical procedure for finding the maximum or minimum

value of a linear objective function subject to linear

constraints. Where only small numbers of variables and

constraints are involved, it is possible to proceed by

assuming every possible set of the constraints to hold

exactly and solving this as a system of simultaneous

equations. Each solution is checked to see if the remaining

constraints are satisfied: if they are, it is feasible. The

objective function can then be evaluated at every feasible

solution and the feasible solution(s) giving the highest

value for the objective function can be selected. If the

number of variables concerned is large, this procedure is

impossible; linear programming works by selecting a set of

constraints yielding one feasible solution, and adding

constraints one by one, and excluding others, if making this

change gives a feasible solution and increases the objective

function; this procedure stops when no further change in the

set of constraints can increase the objective function.



However, the paper also employs secondary data and

econometric technique will be utilized in the data analysis.

Econometric is made of economic theory, mathematics and

statistics. Therefore, Ordinary Least Squares (OLS) and

Vector Error Correction Model shall be used to estimate the

data and a priori expectation are clearly identified.

3.3.1 Analytical Framework and Model Specification

Illustrating the use of spreadsheet modeling and Excel

Solver in solving linear programming problems, this paper

seeks to establish a budget of N1trillion for five sectors

of the economy. The aim of this technique is to find the

optimal, or most efficient, way of using limited resources

to achieve the objective of the economic situation of

Nigeria’s budget. Hence, a model will be estimated using a

simple algorithm developed by Dantzig (1963) which is used

to solve linear programming problems.

This section illustrates how to allocate money to different

sectors of the economy in order to maximize total returns

(Ragsdale, 2011). However N1trillion is budgeted for these

sectors where Agriculture will be expected to derive an

annual return of 9.5 percent of the total budget with a long



term maturity lifespan, high risk management control system

and tax free both for both import of farm equipment and

export of agricultural products. Moreover, Oil and Gas will

be expected to derive an annual return of 8.0 per cent of

the total budget with a short term maturity lifespan, low

risk management control system, and tax free for both import

of crude oil exploration equipment and export of crude oil.

In addition, Education will also be expected to raise an

annual return of 9.0 per cent of the total budget with a

long term maturity lifespan, low risk management control

system, and no tax free from primary to tertiary

institutions. Consequently, Defence will be expected to

generate 9.0 per cent of the total budget with a long term

lifespan, high risk management control system, and tax free

for all military and paramilitary personnel. Finally,

Telecommunication will also be expected to derive an annual

return of 9.0 per cent of the total budget with a short term

lifespan, high risk management control system, and no tax

free for all telecommunication companies. The rationale for

adopting these percentages is in line with the expected

increase with Nigeria’s economic growth rate of 6.67 per

cent to 9.67 per cent by 2020.



The maturity of various sector projects was adopted on the

bases of policy analysis. The Agricultural, Education, and

Defence, sectors are placed as long term lifespan project

due to their insufficient funding by the past budgets. Also,

Oil and Gas, and Telecommunication are placed as short term

lifespan project due to the fall in crude oil pump price and

Foreign Direct Investment enjoyed by the Telecommunication.

This is a way to diversify the economy to focus on other key

sectors of the economy. The risk management control system

adopted was basically to place Agriculture, Defence, and

Telecommunication at high risk due to uncertainty in the

export of primary products, lives and properties of military

and paramilitary personnel, and the volatility of the

telecommunication business. Also, the low risk in the Oil

and Gas, and Education sectors is due to exploration done by

the Oil Multinationals who import their equipment and

technology from their countries and sap our resources

without employing and training our citizens to take over

these investments thus should be force to be insured by

themselves with low or no insurance policy by the Federal

Government. The paper seek to agitate for the signing of the

Petroleum Industry Bill to help young domestic ventures and

companies enter into Joint Venture agreements with these



Rich Oil Multinationals for both the upstream and downstream

sectors of the Oil and Gas. However, Education is

deteriorating in public schools and the autonomy given to

the Federal Government is the fundamental reason for them to

insure their schools since the annual returns are going to

be retained by them thus the low risk management system.

Finally, the tax free system was adopted for Agricultural

and Education sectors only to enable the sector empower

itself for Grass-Roots development. Once farmers enjoy free

tax, revenue that is expected to be generated will have to

be paid to an Internally Revenue Generated institution which

will be in charge of empowering the public on corporate

social responsibility. However, Oil and Gas, Defence and

Telecommunication will be taxed because of the need to

diversify the economy.

This paper seeks to establish a budget that invest at least

50 per cent of the funds in short term projects and no more

than 50 per cent in high risk projects. At least 30 per cent

of the funds should go in tax-free investments, and at least

40 per cent of the total return should be tax free.

Creating the Linear programming model to represent the

budget, decision variables are the amount of funds that

should be invested in each sector of the economy.www.academia.edu/universityoflagos/Austinbrace


X1 = Amount of funds to invest in Agricultural Sector;

X2 = Amount of funds to invest in Oil and Gas Sector;

X3 = Amount of funds to invest in Educational sector;

X4 = Amount of funds to invest in Defence Sector;

X5 = Amount of funds to invest in Telecommunication Sector.

Objective Function:

Objective is to maximize the total annual return.

Maximize f(X1, X2, X3, X4, X5) = 9.5% X1 + 8.0% X2 + 9.0% X3 +

9.0 X4 + 9.0% X5

Constraints:

Total investment:

X1 + X2 + X3 + X4 + X5 = 1,000,000,000,000

At least 50 per cent of the funds go to short term projects:

X2 + X5 ≥ 500,000,000,000

No more than 50 per cent of the funds should go to high risk

project:

X1 + X4 + X5 ≤ 500,000,000,000



At least 30 per cent of the funds should go to tax free

sectors of the economy:

X1 + X3 ≥ 300,000,000,000

At least 40 per cent of the total annual return should be

tax free:

9.5% X1 + 9.0% X3 ≥ 40% (9.5% X1 + 8.0% X2 + 9.0% X3 + 9.0 X4

+ 9.0% X5)

X1, X2, X3, X4, X5 ≥ 0

Complete linear programming model:

Max: 0.95X1 + 0.08X2 + 0.09X3 + 0.09X4 + 0.90X5

Subject to:

X1 + X2 + X3 + X4 + X5 = 1,000,000,000,000

X2 + X5 ≥ 500,000,000,000

X1 + X4 + X5 ≤ 500,000,000,000

X1 + X3 ≥ 300,000,000,000

9.5% X1 + 9.0% X3 ≥ 40% (9.5% X1 + 8.0% X2 + 9.0% X3 + 9.0 X4

+ 9.0% X5)

X1, X2, X3, X4, X5 ≥ 0



Furthermore, Agricultural productivity model was also used

to capture the impact of export promotion through price

incentives for export production while the exogenous factors

considered were Agriculture, value added (% of GDP),

Inflation, GDP deflator (annual %), Gross Domestic Product

(GDP), Agriculture value added per worker is a measure of

agricultural productivity, Exchange rate, Value of Oil

Export, Population, Money Supply, Foreign Direct Investment,

Price of Crude oil, and Total Military Expenditure as a

percentage of GDP. Thus, the functional model of the paper

could implicitly expressed as

AGDP = f (IGDP, GDP, AVAP, EXT, VOE, POP, M2, FDI, PROIL,

MGDP) ……. (3.1)

Where;

AGDP = Agriculture, value added (% of GDP),

IGDP = Inflation, GDP deflator (annual %),

GDP = Gross Domestic Product,

AVAP = Agriculture value added per worker,

EXT = Exchange rate,

VOE = Value of Oil Export,



POP = Population,

M2 = Average annual growth rate in money and quasi money,

FDI = Foreign Direct Investment,

PROIL = Price of Crude Oil.

MGDP = Total Military Expenditure as a percentage of GDP

This becomes necessary as it recognizes that these factors

are proper arguments of production, in that they influence a

nation’s productivity.

This gives rise to an explicit econometric function as:

AGDPt = β0 + β1IGDPt + β2InGDPt + β3InAVAPt + β4EXTt + β5InVOEt +

β6InPOPt + β7M2t + β8InFDIt + β9InPROILt + β10InMGDPt + μt

………………….. (3.2)

μ = Stochastic error term

3.3.2 A prior Expectation

On the basis of the discussion above, the expected sign of

all the variables is positive. However, the coefficient of

exchange rate and Inflation is expected to be negative. This

is according to Keynesian that established a negative

relationship between interest rate and investment.

3.3.3 Error Correction Mechanismwww.academia.edu/universityoflagos/Austinbrace


The error correction term indicates the speed of the

adjustment which restores equilibrium in the dynamic model.

The ECM coefficient shows how quickly variables return to

equilibrium and it should have a statistically significant

coefficient with a negative sign. Error correction technique

correct for disequilibrium between short-run and long-run

behavior of the dependent variable. Since disequilibrium may

exists in the short-run, there is need to tie the value of

the dependent variable to its long run value. The error term

from the initial regression is called “equilibrium error”.

The standard long-run real growth function modified to take

account of export trade can be written as its explicit form

as:

ΔAGDPt = α0 + α1ΔIGDPt + α2ΔInGDPt + α3ΔInAVAPt + α4ΔEXTt +

α5ΔInVOEt + α6ΔInPOPt + α7ΔM2t + α8ΔInFDIt + α9ΔInPROILt +

α10ΔInMGDPt + α10μt-1 + εt ….. (3.3)

Δ = Difference parameter;

μt-1 = One period lagged value of the error from the initial

regression;

ε = A random error term.

3.4 Sources and coverage of Data



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

secondary data comprises of annual time series spanning from

1981 through 2013. The variables of interest are well

identified and all data were sourced from World Bank

website.

Chapter Four: Empirical Findings and Discussion

4.1 Spreadsheet Result and Solver Implementation

Implementing the linear programming problem in an Excel

spreadsheet and formulation produces the following

spreadsheet and Solver parameters. Consider the table below:

Table 4.1: Budget for Five Sectors of the Economy

Sectors Annual

Return

Maturity Risk Tax Free

Agriculture 9.5% Long High Yes

Oil and Gas 8.0% Short Low No

Education 9.0% Long Low Yes

Defence 9.0% Long High No



Telecommunicat

ion

9.0% Short High No

Source: Author’s Composition

Table 4.2(a) Budget Estimated Analysis for Short Term

Source: Author’s composition

As stipulated in the table above, there exists a linear

programming that has established the objective function

(that is the Total Return). The Agricultural, Oil and Gas,

Education and Telecommunication sectors resulted to an

amount to be invested of N53, 687,091.20. However, only

Defence experienced a decline in the amount invested of N26,

843,545.60. This means that Federal Government should look

into Defence Spending in Nigeria to help stop insurgency in

the Northeast of the nation. The continuous flocking of

internally displace person to the Abuja camp is a thing of



concern to the Federal Government and seek of

Philanthropist, Non Government Organisation (NGO), and

Humanitarian Organisation for the provision of basic

amenities. The paper affirms to the DAAR Communications,

Helping Hand International and Austin-Brace Concept for

their contributions towards the situation in Nigeria.

Consequently, 0.024159191 per cent is the percentage of

Total amount invested to the Total Available for each sector

of the economy. The Total amount invested in these sectors

is given as N241, 591,910.40 out of N1, 000,000,000,000.00

budgeted as Total amount available. Short Term and Tax Free

policies of the economy show that there exists a

complementarity between them such that N107, 374,182.40 is

discovered as the maximum total amount that can be invested

in Short Term sector and also, the same amount can be

invested in Tax Free sector of the economy to arrive at

N21,474,836.48 Total Return. However, for the High Risk

sectors of the economy, a total amount of N 134,217,728.00

is the Total amount that can be invested to yield the Total

Return which appears to be higher than the other two

policies earlier discussed. Finally 18.5 per cent is seen as

the Tax Free Return which indicates a plus to the

Agricultural and Educational sectors of the economy since at



least 40 per cent that is N9, 663,676.50 of the Total Return

should be Tax Free.

Table 4.2(b) Budget Estimated Analysis for Long Term

Source: Author’s composition

In the Long Term sectors of the economy, it can be seen that

Agriculture and Education require a Total amount N53,

687,091.20 respectively which is 30 per cent of the Total

amount invested, to drive the economy to a Total Return of

N16, 195,605.85 annually. This means that Agriculture and

Education requires higher share of the budget in the Long

run to bring about economic growth and development. It is

pertinent that Oil and Gas, and Telecommunication have the

same Total amount of N17, 895,697.07 respectively which is

required to yield a Total Return of N16, 195,605.85

annually. Thus, only Defence has a single value of N35,



791,394.13 which is 20 per cent of the Total amount

invested, is required to derive the same Total Return

annually. It can be observed that the Total amount of funds

required for the Agricultural and Educational sectors of the

economy are the same both in the Short and Long Term but Oil

and Gas, and Telecommunication of Total amount of N17,

895,697.07 experience a sharp fall from the Short Term of

N53, 687,091.20 to the Long Term analysis which is 10 per

cent of the Total amount of to be invested. Please

understand that 40 per cent is expected to be for Tax Free

making a total of 100 per cent of the Total amount invested.

However, there is s fall in the percentage of Total amount

invested to the Total Available funds from 0.024159191 per

cent in the Short Term to 0.01789569707 per cent in the Long

Term. The Total amount invested N178, 956,970.70 while the

Total Available fund for the budget is N1,

000,000,000,000.00. It is expected that at least N500,

000,000,000.00 is invested for the Long Term but only

0.0286331153 per cent of the funds is required that is N143,

165,576.50. It indicates a sharp increase from N107,

374,182.40 in the Short Term policy to N143, 165,576.50 in

the Long Term policy. In addition, there exists a

complementarity between the High Risk and Tax Free policies



which appears to have the same Total amount invested of

N107, 374,182.40 respectively in the Short Term policy. A

percentage of 0.02147483648 and 0.0357913941is seen to be

the calculated percentage when at most N500,000,000,000.00

is required to be spent on High Risk policies and at least

N300,000,000,000.00 on Tax Free policies respectively.

Finally 18.5 per cent is seen as the Tax Free Return which

also indicates a plus to the Agricultural and Educational

sectors of the economy in the Long Term since at least 40

per cent that is N9, 663,676.50 of the Total Return should

be Tax Free. Therefore, for the scope of this paper, the

analysis shall be based on Short and Long Term sectors of

the economy.

Table 4.3 Ordinary Least Squares (OLS) Regression Summary

SUMMARY OUTPUT

Regression StatisticsMultiple R

0.899338

R Square0.808809

Adjusted R Square

0.721903

Standard Error

3.281275

Observations 33

ANOVA df SS MS F Significan



ce FRegression 10

1002.041

100.2041

9.306794 7.9E-06

Residual 22236.8689

10.76677

Total 321238.

91

Coefficie

nts

Standard

Error t StatP-

valueIntercept

967.9661

391.4071

2.473042

0.0216

IGDP -

0.030390.025153

-1.208

380.239

731

InGDP-

9.977743.214343

-3.104

130.005

175InAVAP

34.89039

6.382262

5.466775

1.71E-05

EXT0.02797

20.058468

0.478411

0.637078

InVOE-

4.545014.085811

-1.112

390.277

979

InPOP-

44.946221.86869

-2.055

270.051

914

M2-

0.029630.050408

-0.587

810.562

643

InFDI-

0.500011.608411

-0.310

870.758

824InPROIL

0.177713

2.563586

0.069322

0.945359

MGDP4.93412

72.418158

2.040449

0.053487

OLS Result



Dependent Variable: AGDPMethod: Least SquaresDate: 02/04/15Sample: 1981 – 2013Include Observations: 32Estimated Equation: AGDPt = 967.9661 - 0.03IGDPt - 9.98InGDPt +34.89InAVAPt + 0.03EXTt - 4.55InVOEt - 44.95InPOPt - 0.03M2t - 0.50InFDIt

+ 0.18InPROILt + 4.93InMGDPt + μt*

Lower 90.0%

Upper 90.0%

Lower 95%

Upper 95%

Lower 99.0%

Upper 99.0%

295.8636

1640.069

156.2374

1779.695

-135.315

2071.247

-0.07358

0.012797

-0.08256

0.021769

-0.10129

0.040505

-15.4972

-4.45825

-16.6439

-3.3116

-19.0382

-0.91729

23.93113

45.84966

21.65439

48.12639

16.90035

52.88043

-0.07243

0.128369

-0.09328

0.149226

-0.13683

0.192778

-11.5609

2.47092

-13.0185

3.928446

-16.0619

6.971897

-82.4978

-7.39446

-90.299

0.40673

-106.589

16.69634

-0.11619

0.056927

-0.13417

0.074909

-0.17172

0.112457

-3.26189

2.261863

-3.83565

2.83563

-5.03373

4.033708

-4.22433

4.579761

-5.13884

5.494266

-7.04841

7.403837

0.7818 9.0864 - 9.9490 - 11.750



01 530.08083 79

1.88207 32

Source: Author’s Composition from Microsoft Excel (2010)

In the table above, it can be seen ceteris paribus that

Inflation represented as GDP deflator shows a negative

insignificant relationship with Agriculture as a percentage

of GDP at 95 per cent confidence interval. Also, GDP

indicated a negative but significant relationship with

Agriculture as a percentage of GDP. It means that 1 per cent

increase in GDP would lead to 9.98 decreases in Agriculture

as a percentage of GDP. It is expected that the Federal

Government standardize our level of Agriculture and provide

an enabling environment for the cultivation of crops and

rearing of animals using mechanized and technological

approach. In addition, Agriculture value added per worker

which is a measure of agricultural productivity is positive

and significantly related to Agriculture as a percentage of

GDP. This is a welcoming development and a rationale for the

diversification from Oil and Gas to Agriculture and Non-oil

sectors of the economy. Consequently, Exchange rate shows a

positive and insignificant relationship with Agriculture as

a percentage of GDP. This is because Nigeria depends largely

on exportation of primary good in which 1 per cent increase

in Exchange rate would lead to 0.03 increase in Agriculture



as a percentage of GDP. It is pertinent that Value of Oil

Export has a negative but significant relationship with

Agriculture as a percentage of GDP. It can be seen that 1

per cent increase in Value of Oil Export would lead to 4.55

per cent decrease in Agriculture as a percentage of GDP.

This justifies the diversification mechanism that need to be

put in place to ensure that the fall in the pump price of

Crude oil in world market should not retardate our economy

but strengthen other sectors of the economy.

Demographically, population has a negative but significant

relationship with Agriculture as a percentage of GDP. It

indicated that 1 per cent increase in population would lead

to 44.95 per cent decline in Agriculture as a percentage of

GDP. This is alarming and a treat of food crisis and

malnutrition in Nigeria. Consequently, financial deepening

has a negative but significant relationship with Agriculture

as a percentage of GDP. It indicated that 1 per cent rise in

Financial deepening would lead to 0.03 per cent fall in

Agriculture as a percentage of GDP. The rationale for Mr.

President, President Goodluck Ebele Jonathan to introduced

the Youth Enterprises With Innovation in Nigeria (YouWin!)

was to achieve the sole objective of empowering the Youth in

the Non-oil sectors of the Economy. Invariably, Foreign

Direct Investment escalated a negative but significant




shows that 1 percent increase in Foreign Direct Investment

would lead to 0.50 decreases in Agriculture as a percentage

of GDP. Telecommunication has enjoyed FDI in Nigeria and

show that Federal Government should invest heavily in

Agriculture to provide an equitable distribution of

resources across various sectors of the economy.

Furthermore, Price of Crude Oil has a positive and

significant relationship with Agriculture as a percentage of

GDP. It shows that 1per cent increase in Price of Crude Oil

would lead to 0.18 per cent increase in Agriculture as a

percentage of GDP. This is a clear indication that there

exist a complementarity between Price of Crude oil and

Agriculture as a percentage of GDP that is both sectors can

drive the economy to growth and development. Finally, Total

Military Expenditure as a percentage of GDP is positive and

significantly related to Agriculture as a percentage of GDP.

It elucidated that 1 per cent rise in Military Expenditure

would lead to a corresponding 4.93 per cent rise in

Agriculture as a percentage of GDP. Also, a complementarity

exists between Military Expenditure and Agriculture as a

percentage of GDP.



In continuation, the statistical tests revealed that the

coefficient of determination (R2) is 0.81. This indicates

that 81 per cent of the total variations in Agriculture as a

percentage of GDP are explained by the variations in all the

explanatory variables our in the model. However, the

adjusted R2 shows actual variations in Agriculture as a

percentage of GDP captured by the independent variables

introduced in the model after taking into consideration,

effect of additional explanatory variables on R2. It can be

seen that adjusted R2 still explain about 72 per cent of the

total variation in Agriculture as a percentage of GDP.

Finally, the F-statistics is a test of significant of the

joint variations of independent variables used in a model.

The F-statistic or significance F is 0.0000079 is

significant at 1, 5 and 10 per cent levels of Significance.

Also, the calculated F-statistics (9.31) is greater than the

table value of F-statistics (2.70) at 5 per cent levels of

significance with 10 and 32 degree of freedom. With this, we

reject the null hypothesis that all the explanatory

variables introduced in the model are not jointly

significant in explaining the variations in Agriculture as a

percentage of GDP.

Table 4.4 Error Correction Model Summary



SUMMARY OUTPUT

Regression StatisticsMultiple R

0.945892

R Square0.894712

Adjusted R Square

0.839561

Standard Error

3.011798

Observations 33

ANOVA

df SS MS FSignifican

ce FRegression 11

1618.727

147.157

16.22292

7.24E-08

Residual 21190.4895

9.07093

Total 321809.216

Coefficie

nts

Standard

Error t StatP-

value

Intercept

-1.19856

0.82144

-1.459

10.159

335

ΔIGDP-

0.026610.019585

-1.358

80.188

627

ΔInGDP-

6.346963.646085

-1.740

760.096

359ΔInAVAP

35.52063

8.352236

4.252828

0.000355

ΔEXT -0.05597

0.069735

-0.802

0.431157



67

ΔInVOE-

6.304393.502775

-1.799

830.086

273

ΔInPOP 6.30074.176719

1.508529

0.146318

ΔM2-

0.056220.045264

-1.242

020.227

923

ΔInFDI-

0.962621.178557

-0.816

780.423

224ΔInPROIL

0.723061

1.601063

0.451613

0.656178

ΔMGDP2.79150

52.772978

1.006681

0.325547

ECM (-1)

-0.79462

0.220972

-3.596

020.001

699ECM Result

Dependent Variable: D(AGDP)Method: Least SquaresDate: 02/04/15Sample: 1981 – 2013Include Observations: 32

Estimated Equation: ΔAGDPt = -1.20 - 0.03ΔIGDPt - 6.35ΔInGDPt + 35.52ΔInAVAPt - 0.06ΔEXTt - 6.30ΔInVOEt + 6.30ΔInPOPt - 0.06ΔM2t - 0.96ΔInFDIt + 0.72ΔInPROILt + 2.79ΔInMGDPt - 0.79462μt-1 + εt*

Lower 90.0%

Upper 90.0%

Lower 95%

Upper 95%

Lower 99.0%

Upper 99.0%

-2.61205

0.214925

-2.90684

0.509716

-3.52435

1.12723

-0.06031

0.007089

-0.06734

0.014117

-0.08206

0.02884

-12.6209

-0.07299

-13.9294

1.235488

-16.6703

3.976416



21.14857

49.89268 18.1512

52.89005

11.87244

59.16881

-0.17597

0.064022 -0.201

0.089047

-0.25342

0.14147

-12.3318

-0.27702

-13.5888

0.980025

-16.222

3.613222

-0.88636

13.48776

-2.38526

14.98666

-5.52509

18.12649

-0.13411

0.021669

-0.15035

0.037913

-0.18438

0.071941

-2.99061

1.065372

-3.41356

1.488322

-4.29954

2.374297

-2.03196

3.478079

-2.60653

4.052654

-3.81013

5.256246

-1.98008

7.563087

-2.97522

8.558228

-5.05979

10.6428

-1.17485

-0.41438

-1.25415

-0.33508

-1.42027

-0.16897

Source: Author’s Composition from Microsoft Excel (2010)

From the ECM summary table above, Inflation as represent in

GDP deflator is negative but insignificantly related to

Agriculture as a percentage of GDP. Despite it has satisfied

a priori expectation; it has not shown a sufficient

significance in the model. It indicated that 1 per cent

increase in Inflation would lead to 0.03 decreases in

Agriculture as a percentage of GDP. Also, GDP indicated a

negative but significant relationship with Agriculture as a



percentage of GDP. In addition, Agriculture value added per

worker shows a positive and significant relationship with

Agriculture as a percentage of GDP. It indicated that 1 per

cent increase in Agriculture value added per worker would

lead to 35.52 per cent increase in Agriculture as a

percentage of GDP. Moreover, there exist a negative but

insignificant relationship between Exchange rate and

Agriculture as a percentage of GDP. It indicated that 1 per

cent increase in Exchange rate would lead to 0.06 per cent

decreases in Agriculture as a percentage of GDP. This result

shows that exchange rate has not been well managed. High and

unstable exchange rate creates uncertainty and increase cost

of production which can invariably reduce the

competitiveness of local commodities. The result moreover

indicated that Value of Oil Export is negatively but


It shows that 1 per cent increase in Value of Oil Export

would lead to 6.30 per cent decreases in Agriculture as a

percentage of GDP. This is clear evidence for Nigeria

Economy to be diversified for price stability. Consequently,

population now has a positive and significant relationship

with Agriculture as a percentage of GDP. It shows that 1 per

cent increase in population would lead to 6.30 increases in

Agriculture as a percentage of GDP. This means that when



Nigerians are engaged Postgraduates, Graduates,

Undergraduates, and the Non-educated, there will be increase

in the level of Agricultural efficiency and eliminate the

White Collar syndrome which is the major cause of

unemployment in Nigeria today. It is pertinent that

financial deepening has a negative but significant


indicated that 1 per cent increase in financial deepening

would lead to 0.06 decreases in Agriculture as a percentage

of GDP. This calls for financial institution to embark on

Agricultural related programmes and credit facilities to

enable Agricultural farmers’ access loans from Microfinance

banks, Commercial banks and the Bank of Industry easily.

Moreover, Foreign Direct Investment indicated a negative but


GDP. It revealed that 1 per cent increase in Foreign Direct

Investment would lead to 0.96 decreases in Agriculture as a

percentage of GDP. Noteworthy, Price of Crude Oil is

positively and significantly related to Agriculture as a

percentage of GDP. It indicated that 1 per cent increase in

Price of Crude Oil would lead to 0.72 per cent increases in

Agriculture as a percentage of GDP. Tremendously, Military

Expenditure is positively and significantly related to

Agriculture as a percentage of GDP. It shows that 1 per cent



increase in Military Expenditure would lead to 2.79 per cent

increases in Agriculture as a percentage of GDP. Finally,

from the result, ECM is negative that is -0.80 and

significant at 5 per cent levels of significance. It shows

that about 80 per cent disequilibria in the performance of

the economy in the previous year are corrected in the

current year. The strong significance of the Error

Correction Model (ECM) is an indication and a confirmation

of the existence of a long-run equilibrium relationship

between Agriculture as a percentage of GDP and all the

independent variables used in this research work.

It is imperative that the statistical tests revealed that

the coefficient of determination (R2) is 0.90. This

indicates that for the Error Correction Model (ECM), 90 per

cent of the variations in Agriculture as a percentage of GDP

are explained by the variations in all the explanatory

variables used in the model. It can also be seen that

adjusted R2 still explain about 84 per cent of the total

variations in Agriculture as a percentage of GDP. In

conclusion, the F-statistics or Significance F

(0.0000000724) is significant at 1, 5, and 10 per cent

levels of significance. Also, the calculated F-statistics

(16.22) is greater than table value of F-statistics (2.57)



with 11 and 32 degree of freedom at 5 per cent levels of

significance. Thus, we can comfortably reject the null

hypothesis that all the explanatory variables introduced in

the model are not jointly significant in explaining the

variations in Agriculture as a percentage of GDP.



Chapter Five: Summary, Conclusion, and Policy Recommendation

5.1 Summary

The research work examined Export Promotion in Nigeria: A

Financial and Empirical Analysis of the Economic

Diversification Policy between 1981 and 2013. The study is

borne out of the need to know the implication of export

promotion policy through budgeting in Nigeria. Specifically,

the existence of a long run relationship between Agriculture

as a percentage of GDP and Price incentives for export

promotion was empirically tested after the Error Correction

Model was established.

However, in the Short Term sectors, there existed a linear

programming that established the objective function (that is

the Total Return). The Agricultural, Oil and Gas, Education

and Telecommunication sectors resulted to an amount to be

invested. However, only Defence experienced a decline in the

amount invested.

Consequently, a per cent was generated as the percentage of

Total amount invested to the Total Available for each sector

of the economy which was invariably the percentage of budget

surplus. Short Term and Tax Free policies of the economy



show that there exists a complementarity between them such

that an amount was arrived at as Total Return. However, for

the High Risk sectors of the economy indicated a different

total amount that can be invested to yield the Total Return

which appears to be higher than the other two policies

earlier discussed. Finally 18.5 per cent was seen as the Tax

Free Return which indicates a plus to the Agricultural and

Educational sectors of the economy since at least 40 per

cent of the Total Return should be Tax Free.

In the Long Term sectors of the economy, it can be seen that

Agriculture and Education require a certain Total amount

respectively which is 30 per cent of the Total amount

invested, to drive the economy to a Total Return annually.

This means that Agriculture and Education requires higher

share of the budget in the Long run to bring about economic

growth and development. It is pertinent that Oil and Gas,

and Telecommunication have the same Total amount

respectively which is required to yield a a certain Total

Return annually. Thus, only Defence has a single value which

is 20 per cent of the Total amount invested, and was

required to derive the same Total Return annually. It can be

observed that the Total amount of funds required for the

Agricultural and Educational sectors of the economy are the



same both in the Short and Long Term but Oil and Gas, and

Telecommunication of Total amount experienced a sharp fall

from the Short Term to the Long Term analysis which is 10

per cent of the Total amount of to be invested. Please

understand that 40 per cent is expected to be for Tax Free

making a total of 100 per cent of the Total amount invested.

However, there is s fall in the percentage of Total amount

invested to the Total Available funds in the Short Term to

the Long Term. It is expected that at least 50 per cent of

the Total Available funds was invested for the Long Term but

only 0.0286331153 per cent of the funds is required thus a

budget surplus. It also indicated a sharp increase in the

Short Term policy to the Long Term policy. In addition,

there exists a complementarity between the High Risk and Tax

Free policies which appears to have the same Total amount

invested in the Short Term policy. A percentage of

0.02147483648 and 0.0357913941is seen to be the calculated

percentage when at most 50 per cent of the Total Available

funds was spent on High Risk policies and at least 30 per

cent of the Total Available funds on Tax Free policies

respectively. Finally 18.5 per cent is seen as the Tax Free

Return which also indicates a plus to the Agricultural and

Educational sectors of the economy in the Long Term since at



least 40 per cent of the Total Return should be Tax Free.

Therefore, for the scope of this paper, the analysis was

based on Short and Long Term sectors of the economy.

The empirical model of this research work was developed from

the export led hypothesis modified to include: AGDP =

Agriculture, value added (% of GDP), IGDP = Inflation, GDP

deflator (annual %), GDP = Gross Domestic Product, AVAP =

Agriculture value added per worker, EXT = Exchange rate, VOE

= Value of Oil Export, POP = Population, M2 = Average annual

growth rate in money and quasi money, FDI = Foreign Direct

Investment, PROIL = Price of Crude Oil, and MGDP = Total

Military Expenditure as a percentage of GDP. The result

revealed that Inflation as represent in GDP deflator was

negative but insignificantly related to Agriculture as a

percentage of GDP. Despite it has satisfied a priori

expectation; it has not shown a sufficient significance in

the model. Also, GDP indicated a negative but significant

relationship with Agriculture as a percentage of GDP. In

addition, Agriculture value added per worker shows a

positive and significant relationship with Agriculture as a

percentage of GDP. Moreover, there exist a negative but

insignificant relationship between Exchange rate and

Agriculture as a percentage of GDP. The result moreover



indicated that Value of Oil Export was negatively but


Consequently, population now has a positive and significant

relationship with Agriculture as a percentage of GDP. It is

pertinent that financial deepening has a negative but


GDP. Moreover, Foreign Direct Investment indicated a

negative but significant relationship with Agriculture as a

percentage of GDP. Noteworthy, Price of Crude Oil was


percentage of GDP. Tremendously, Military Expenditure is


percentage of GDP. Finally, from the result, ECM was

negative that is -0.80 and significant at 5 per cent levels

of significance. It shows that about 80 per cent

disequilibria in the performance of the economy in the

previous year are corrected in the current year. The strong

significance of the Error Correction Model (ECM) was an

indication and a confirmation of the existence of a long-run

equilibrium relationship between Agriculture as a percentage

of GDP and all the independent variables used in this

research work.

5.2 Conclusion



In conclusion, the far larger issue, however, is the trade

liberalizing concessions which are indeed marginal to the

central core of the distribution of world economic and

political power, which in itself is what, determines the

ultimate magnitude of each nation’s benefits from external

trade. The Peoples Democratic Party (PDP) should not be

distorted by the odious activities of opposition parties

because we stand as the largest political party in the world

with external trade in intellectual property rights and

trademarks in international journals and publications

worldwide. This research paper therefore revealed the need

for viable export alternative to oil, which is a dominant

export product in Nigeria. It noted that exporting non-oil

products offer a greater viable alternative to oil in export

earnings and economic development for Nigeria. Hence, it is

essential to state that the desired benefit of exporting

(that is economic growth and development) are incorporated

with challenges or barriers for Nigerian companies to excel

in international trade and manifest the desired economic

transformation as stipulated in the Transformation Agenda of

the President, President Goodluck Ebele Jonathan, they need

to appreciate the strategic importance of non-oil export,

identify, evaluate, and plan on how to overcome the above

factors that constitute challenges or barriers in Nigeria’s



export promotion rather than insurgency which are acts of

obstacles to the dreams of some firms and companies mostly

in the North Eastern part of the country.

5.3 Policy Recommendation

This research work has financially and empirically

undertaken critical analysis of the export promotion and

economic growth in Nigeria. It has also identified the major

challenges to her development and efficient objective

functioning. From the analysis, the following policy

recommendations were raised:

The Government (as referred to Federal, State and

Local) should critically evaluate budgets that will

lead to a surplus to enable the nation service or pay

back debt owe by present and past administration. It

can still provide funds for the improvement of other

sectors of the economy.

The Federal Government should address the Petroleum

Industry Bill which is aimed at implementing major

reforms that will ensure the oil and gas sector is

integrated with other productive sectors such as the

agricultural sector which will in turn create jobs for

millions of Nigerians.www.academia.edu/universityoflagos/Austinbrace


The Government should seek to promote Nigeria’s

participation and benefits from international trade and

add value to projects creating new markets for non-oil

sectors so as to diversify the productive base of the

economy.

There should be adequate provision of information for

foreign traders about products available for export

from Nigeria and names of suppliers of those products

to enable effective transactions.

The Government and private organizations should

introduce the country’s industrial and agricultural

products to other countries of the world through

internet, firms and media which is highly advisable.

Overseas trade fairs can also be organized to further

expose the potentials of the country.

The Government, private and public sectors should

create a stable political and economic environment for

the attraction of foreign capital and technology thus,

a periodic review of export policy packages so as

ensure that policies are relevant at all times to solve

export problems in Nigeria.www.academia.edu/universityoflagos/Austinbrace


The Government should sufficiently equip the Nigerian

export promotion council in order to achieve its

objective functions. Its orientation should not be

bureaucratic and should not also lack transparency,

which are the features of a body charged with huge

responsibilities. Hence, the organization needs

fundamental reform for effective performance.

The Government must take adequate steps to improve the

existing infrastructure in order to reduce the high

cost of production in the manufacturing sector so as to

internalize the external economies and encourages

exporters to explore markets in the developing world.

The Standard Organization of Nigeria (SON) must be

active to its responsibilities. It should assist the

agricultural and manufacturing sectors to improve on

the quality of their products and prices competitively,

if the current non-oil export is to succeed.

The Government should grant some subsidies in addition

to the policy incentives to agricultural farmers and

manufacturers in order to speed up export promotion and

compete effectively in the international markets.www.academia.edu/universityoflagos/Austinbrace


The Government has to make concrete steps to follow up

and monitor the true implementation of the measures it

has already taken if the objective function of export

promotion is to be realized. Also it essential to know

that policy without implementation is as good as no

policy.

In a nutshell, export so far has been seen as a medium that

will solve the problems of Nigeria such as problems of job

creation, electricity generation, and scarcity of goods. It

also can be seen as an opportunity that will aid the

development of Nigeria economy. Nigeria Custom Service is

also one of the agencies that support international trade

that is the exportation of goods and services. This research

work is recommended to students, teachers, lecturers, and

people in the agencies, for example, the Nigerian Customs

Services, SON, SMEs, etc. It is also recommended to banks,

companies, firms and business enterprises.



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