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A Proposal On Dutch Disease And Resource Curse In Nigeria A Case Of Capital Inflow


Nigeria is known for her vast black populace, unarguably the largest in the world today she lies between Cameroon and bordered by Chad Republic, (Benin republic), (Niger republic), the gulf of guinea on the Atlantic ocean, all from East, West, North and the south respectively, she is in the western part of Africa, her population currently stands at over 150million people as of today, having had her colonized by Great Britain. Nigeria is blessed with over 89 natural resources as documented as of today, with lush agricultural landscape, her initial source of economic sustenance was through agricultural output exports namely cash crops such as Cocoa, Timber, Cashew, Kolanut, Palm oil, Palm Kernel, Rubber and Groundnut, which aided her economic growth and  development. [(olusi and olagunju 2005)] records that Crude oil exploration and exploitation by foreign firms especially Royal Dutch Shell BP initiated marketable export sales in large quantities from the wetland Niger-Delta area in the mid-1950s from Oloibiri now in the present Bayelsa state and old Bendel state (mid-west region), thereby heralding the advent of international sale of crude oil in the late 1950s, also confirmed by the world bank reports. The outbreak of clashes between the federal government troops and the Biafra republic now defunct (eastern part of Nigeria) between (1967 to 1970) paralyzed activities in this sector, nevertheless it was to later emerge as the source of catalyst of economic boom for the country after the war ended in 1970. Major economic analysts who studied the Nigeria oil sector recalled that the impact of this new sector was not felt until the mid1970s where it became a major means of foreign exchange earnings and contributed to the National Income (NI) and Gross National Product (GNP). The crisis in the middle-east in the mid-1970s led to a hike in price of crude oil, therefore increasing the national revenue while we enjoyed this oil boom the cash crop agricultural sector began to diminish to the lowest level.


Before 1970‟s the nation‟s competitive edge was in her cash crop production (LAGR) which portrayed an important source of livelihood for the nation, since the advent of crude oil this sector has accounted for over 90% of our source of foreign exchange revenue. Even though Agriculture was responsible for the highest employment of our labour force the World Bank report corroborate this fact. According to World Bank (1975) in the 1960‟s , Nigeria was listed as a  exporter of major cash crops in the world, while exporting over three hundred thousand tonnes of her cash crops, as supported by central bank of Nigeria statistical bulletin.


Progressively, Nigeria began to steer away from agriculture to crude oil sector exploitation, but before the 1970‟s we had a primary agricultural produce sector that was very strong which was our main exports and ever since then this has earned the reputation of being our total gainer in our exports  until crude oil was found, this led to current state of doldrum in which agriculture has been underutilized due to high dollar denominated proceeds from crude oil as cited by [(olusi and olagungu,2005)].  Progressively, it was quite obvious in Nigeria our crude oil was thriving with Nigeria extracting and producing over two million barrels of crude oil daily, the initial agricultural sector was dwindling due to the progress made in this newly found oil industry.


The Nigerian economy has since experienced numerous political and economic distortions since she got independence in 1960. Nigeria is known for her vast crude oil and gas reserves making her a regular member of the (OPEC), with this immense wealth at her disposal, Nigeria as a nation should be able to sustain her infrastructural capacity and economic enhancement.  Economic activities were stagnant for a long period as a result of poor economic policy, low institutional qualities and bad leadership by the military administration for over thirty years or more. The country was  indebted and had led to 30% of her international  revenue from crude oil sales been used  for servicing  the interest accruable from the foreign debt of $33 billion (USD), which greatly stifled the growth of the country during this period, even though the Obasanjo-led government in year (1999-2007) paid off this external debts.

According to „„[(Henry Bienen (1988)] this indicated that Nigeria‟s economic upheaval and turbulence could jeopardize the overall well being of the economy, this invariably led the country in 1986 to adopt the Structural Adjustment Programme (SAP) so as to contend with the impact of the debt crisis, while channeling a long run solution economically so as to attain the standard of the global financial aid organization who could aid debt relief called the International Monetary Fund (IMF)]‟‟.


Nigeria‟s strength is in no doubt a food basket in Africa, having sustained this food production segment for ages which is driven by subsistence, cash crop and cattle rearing farming as an edge for the survival of the nation, currently Nigeria ranks among major food-importing economy due to negligence in the „„agricultural tradable sector‟‟. The (SAP) was implemented on the basis of IMF expertise advice after critically evaluating national projects and proffering it as an antidote to the manifestation of (DD). “Dutch Disease can be defined as a case of huge monetary influx due to accumulated funds from a major sale of major natural resource export at the global market, this impact  will crowd out numerous aspect of the economy, leaving behind wreckages in employment and inflicting have burden on the system if not properly managed as there will be imbalances to contend with such as  joblessness, crime, increase in price levels and trade deficit, where all these features are prevalent in the Nigerian economy‟‟.


2. Statement of problem

Since the initiation of oil exploration and exploitation in Nigeria from 1956 till date, this industry after the 1970s had achieved the position of the heartbeat of the economy, providing high annual revenue to our national government, with fuel exports at 91.74% as at year 2008 and provides 80% of budget revenues, employment of youths, boosting local expenditure on goods and services, increasing our GDP, gigantically expanding our foreign revenue earnings and ensuring the adequacy of needed resources to our industrial and commercial sectors.


Major impact of this segment to the Nigerian economy cannot be under emphasized despite the constraints on the overall welfare of the economy. Progressively, the segment of the economy began to employ Nigerians into their technical sectors from the non-technical sectors, after proper skills acquisition and training exercise, as well as into supervisory and managerial capacities.


The core stakeholders‟ contributors in the oil sectors to GNP are measured by its (gross outputs minus the cost of inputs namely heavy earth moving machines, material resources, and services) imported from overseas. The total output in the crude oil sector = [(revenues from oil exports abroad + local sales of crude oil for local refining + local and foreign sales of liquefied natural gas)].


Another important contribution was the initiation of the joint venture called „„Nigeria National Petroleum Corporation‟‟ (NNPC) which is state-owned which provides fuel to industrial facilities, commercial enterprises and individuals with operations that cover the extended spectrum of the Nigerian Petroleum industry. The NNPC is bequeathed with the responsibilities of joint ventures with multinational oil companies, it has an extensive brief tasks of production, distribution, and marketing, besides training workers, managing oil leases, encouraging indigenous participation, ensuring uniform pricing in local markets and exploring allied industries, among other things, with oil sales totally $2.6 billion(USD) in 2005, a major revenue earner for the government that additionally provides employment to over 1500 people. NNPC was founded in 1971, when the Nigerian National Oil Company (NNOC) was created after the country signed to a member of OPEC. It was renamed NNPC six years later, while the government decentralized it into nine subsidiaries in 1981. The NNPC significantly augmented its holding in multiple oil ventures amid sustained attempts to make a financially autonomous and commercially integrated entity.


The extent to which price of crude oil per barrel fluctuations may transit it to in terms of prediction relies on the market forces of demand and supply at the global stage, as at January 2010 the world price for a barrel of Crude Oil stands at $100(USD), and the pace at which development of substitute fuels are being consumed, Crude Oil extraction has had a colossal and immense contribution to the Nigerian economy.

There are several literatures discussing the Dutch Disease in Nigeria, but non is specific on it’s impact on agricultural exportation in  Nigeria and how it hampers the capital inflows from that sector.

İt is on this backdrop that this research will uncover the capital inflow implication of Dutch Diesease and resource curse in Nigeria.


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