1.1 Background to the Study
Non-oil exports are the products which are produced within the country in the agricultural, mining, and querying and industrial sectors that are sent outside the country in order to generate revenue for the growth of the economy excluding oil product. These non-oil export products are coal, cotton, timber, groundnut, coca, beans, etc. Today, as in the past, the growth of Nigeria economy remains partly dependent upon increasing productivity of the agricultural sector. Helleiner, (2002) state that no matter how much development and structural transformation achieved, it will remain its relative dominance in the economy to many decades to come. Precisely, it is from agricultural exploits that the economy has received its principal stimulus to economic growth.
Agricultural sector can assist through the exportation of principal primary commodities which will increase the nation’s foreign earnings and which can be used to finance a variety of development projects. The growth of the agricultural sector can make a substantial contribution to the total revenue, as well as having some implications for intersectional terms of trade. Furthermore, in the area of capital formation, the savings generated in this sector can be mobilized in development purposes, while increase in rural income as a result of increasing agricultural activities can further stimulates the product of the modern sector.
Research related to exchange rate management still remains of interest to economists, especially in developing countries, despite a relatively enormous body of literature in the area. This is largely because the exchange rate in whatever conceptualization, is not only an important relative price, which connects domestic and world markets for goods and assets, but it also signals the competitiveness of a country’s exchange power vis-à-vis the rest of the world in a pure market. Besides, it also serves as an anchor which supports sustainable internal and external macroeconomic balances over the medium-to-long term.
Hasanov and Samadova (2012) noted that expanding non-oil export to get rid of one-product economy has been known as a solution for economic development in oil producing countries which Nigeria is one of them and is the sixth largest oil producing and exporting countries in the world. According to export-led growth hypothesis, increased export can perform the role of “engine of economic growth” because it can increase employment, create profit, trigger greater productivity and lead to rise in accumulation of reserves allowing a country to balance their finances.
The Nigerian government has over the years engaged in international trade and has been designing trade and exchange rate policies to promote trade (Adewuyi, 2005). Although a number of exchange rate reforms or depreciation has been carried out by successive governments, the extent to which these policies have been effective in promoting export has remained unascertained. This is because despite’ government efforts, the growth performance of Nigeria non-oil export has been very slow. It grew at an average of 2.3% during the 1960 -1990 period, while its share of total export declined from about 60% in 1960 to 3.0% in 1990 (Ogun,2004). Looking at the sectoral contribution to non-oil export in the period before the introduction of the Structural Adjustment Programme (SAP) (1975-1985), it can be seen that agricultural sector contributed about 4.0% and Windfalls that result from volatile oil price surges/shocks overwhelmingly flow through the economy; expand the oil sector and penalise the non-oil sector (Mieiro and Ramos, 2010). The present research studies tries to look at the effect of exchange rate changes on Nigeria’s non-oil export.
1.2 Statement of Problem
Nigeria remained a net exporter of agricultural products between 1960 and 1970. Goods exported include palm oil, palm kernel cotton, groundnut, etc; agriculture through export of non-oil products has a rosy record contribution up to 80% of the gross 17 domestic product and providing employment for over 70% of the work population. But recently there has been a steady decline in terms of agricultural product, to export and an abandonment of sector by a large percentage of the workforce.
Nigeria’s exports can be broadly classified into oil and non-oil exports. In recent years, the oil component has become the major source of the country’s exchange earnings, a position it took over from the agriculture sector beginning from the 1970s. Over the years, it is evident that non-oil exports have continued to decline due to the advent of petroleum. The share of oil in Nigeria’s export was between 57.6% and 99.7%, while non-oil export was between 1.8% and 42.4% (CBN, 2004). The major contribution to exchange rate, Nigerian’s gross domestic product (GDP), national income has fallen short of the potentials it has. These could be said to be due to frequent changes of government policies as well as poor economic policy implementation that resulted in slow output growth, low standard of living, income inequality and increased poverty. The fall in non-oil export has made the Nigerian economy to depend on oil exports as a major source of income.
A central goal of Nigeria’s reform Structural Adjustment Programme (SAP) was to restructure and diversify the productive base of the economy in order to reduce dependence in the oil sector and in imports through the promotion of non-oil exports via the exchange rate policy.
The exchange rate is the rate at which two national currencies exchange for each other. The non-oil exports are products that are not identified as oil exports; they include natural resources, agriculturally produced products, and manufactured products. Examples are limestone, cocoa, coal, rubber; palm oil etc.
The exchange rate as a policy plays an important role in international economic transaction for a developing country that is highly dependent on trade. The price of a foreign exchange plays a major role in the ability of the economy to attain optimal productive capacity. Thus the attainment of a realistic exchange rate is an important macroeconomic policy objective. The exchange rate as a price incentive could be used to boost the export of non-oil products.
When the exchange rate policy was adopted, it was to serve as a price incentive to increase the volume of non-oil exports. When the rate of the domestic currency to the foreign currency depreciates, this lowers the price of the non-oil exports making it cheaper, which may increase the volume of the products being export. Thus, the essence of this study is to determine the effect of exchange rate changes on Nigeria’s non-oil export. In essence the study seeks to answer the following research questions
1.3 Objectives of the study
The broad objectives of this research study is to analyse the impact of exchange rate changes on non-oil export in Nigeria while the specific objectives includes the following
1.4 Research hypotheses
H01
exchange rates have no significant impact on non-oil export in NigeriaH02
there is no long-run relationship between non-oil export and exchange rate in Nigeria1.5 Significance of the study
The study of the impact of exchange rate changes on non-oil export in Nigerian is significant and important, it will enable the policy makers to formulate appropriate policies that will aim at improving on the quota of the total revenue brought about by the non-oil sectors of the economy. This study is also important and significant in that it will examine the various ways of improving non-oil sector towards raising the living standard of Nigerians.
Since not so much works have been done on the contributions of non-oil exports to Nigerian economic growth, this study will be of great importance for intending researcher as it will serve as a source of reference material.