ABSTRACT
The study investigates the impact of agricultural financing and agricultural output growth on employment generation in Nigeria. It also examines the causal linkage between agricultural financing and agricultural output growth in Nigeria. The data for the study were mainly sourced from CBN statistical bulletins and World Bank economic indicator for Nigeria. The estimation of the first and second objectives was done using the framework of the Auto Regressive Distributed Lag (ARDL)bounds test approach while the third objective was evaluated using the pairwise granger causality test. The study shows that while agricultural financing increases employment generation insignificantly in both the short run and long run, agricultural output growth has a significantly negative impact on employment generation on both the long run and the short run. Other variables found to have significant effect on employment generation were price and agricultural output while labor force population, wages and aggregate expenditure were insignificant. With these findings it is therefore imperative for Nigeria to take more careful look into why agricultural financing has been insignificant in employment generation. This may be achieved by allocating more funds to the agricultural sector when computing the annual national budget and also making sure that the funds allocated for agriculture is used for its purpose. The pairwise granger causality test showed that there was no causal linkage between agricultural financing and agricultural output growth.
CHAPTER ONE
INTRODUCTION
1.1 Background of Study
Agriculture is the science of cultivation of soil for crops and the rearing of animals. Agriculture is as old as man himself as it was the first occupation of mankind. Even with the evolvement of modern civilization, it still remains an essential part of the growth and development of any extant economy (Ogbuabor& Nwosu, 2017). In Nigeria, the agricultural sector is a major sector that drives economic development and industrialization because of its importance in the provision of food for the increasing population, the supply of raw material to the growing industrial sector, generation of foreign exchange earnings, creation of employment opportunities, and provision of market for the product of the industrial sector (World Bank, 2016). Agriculture is the backbone of the Nigerian economy as it creates employment for about 70 percent of the population. Nigeria is endowed with large expanse of arable land and favourable climate for agriculture.As at 1990 the estimated arable land was 81 million hectares out of the Nigerian total land of 91 hectares of which 18 million hectares of this land was classified as permanent pasture for livestock production. This enables the production of a wide variety of crops, livestock, forestry and fishery products (Ewatan, Urhie, Fakile&Oduntan, 2017).
The 1962-1968 development plan was the first national plan of Nigeria post independence and among its many objectives, the introduction of modern agricultural methods, agricultural extension services and the supply of better farm implements were greatly emphasized. This national plan was to a large extent achieved and Nigeria became the leading producer of export crops such as cocoa which was produced in the western region, palm oil which was largely produced in the southern region and groundnut which was produced majorly in the northern region. In the 1960’s, agriculture contributed about 60 percent to the Gross Domestic Product (GDP) of the nation (CBN, 2016). It was the most important sector in terms of its contribution to the to the country’s output, employment and foreign exchange earnings (NBS, 2014). However the success of the sector was short-lived and its share of contribution to the GDP of Nigeria
declined drastically to 25 percent between 1975 and 1979 and later rose up to 38 percent in 2002 but later fell again to 20 percent in 2010.There hasn’t been a significant change in agriculture’s share to the GDP since then. This fall in agricultural production was owed greatly to the oil boom the economy experienced in the 1970’s. Figure 1.1 below shows the contribution of the agriculture to the GDP between 1960 and 2016. The Y axis is the percentage contribution of agriculture to GDP while the X axis is the years.
Fig 1.1 Agriculture’s Contribution to GDP
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
AO/GDP
1950 1960 1970 1980 1990 2000 2010 2020
AO/GDP
Source; researcher’s computation based on data from CBN (2016)
The 1970’s brought about the emergence of the oil industry as the main driver of economic growth and since then, agricultural production has been progressively declining in terms of its annual contribution to Nigeria’s GDP. The Nigerian economy became over-dependent on the oil sector and this caused the decline in the revenue generated by the agricultural sector overtime. The Nigerian government has recognized how detrimental the over dependence on only one sector can be to the economy and has recently started to seek for diversification of the economy through the development of other productive sectors aside from the oil sector. The government has brought into cognisance the importance and prospects of the agricultural sector and it is one the major sectors it seeks to develop. There are other sources of generating employment and economic growth but only a few can be compared with agriculture in its ability to reduce poverty
and enhance economic growth especially at the early stages of development. For example in Zambia and Nigeria, mineral wealth has not provided a platform for wide range of employment opportunities, poverty reduction and economic growth as agriculture has proven to have done. Without the increasing income and affordable food that a dynamic agricultural sector provides, economic transformation will be slow and economies will remain trapped in a cycle of low growth and poverty (Department for International Development, 2005).
However, it is a known fact that for the successful development of any sector, adequate financing is essential. Credit plays an essential role in the development of the agricultural sector of economy. The agricultural sector depends more on credit as a source of finance compared to any other sector in the economy due to the seasonal variation in the returns of farmers and a changing trend from subsistence to commercial farming (Mahmood, Khalid &kouser, 2009).The provision of suitable financial policies and enabling institutional finance for both subsistence and commercial agriculture has prospects of enhancing agricultural development, hence, increasing the contribution of the sector in the generation of employment, foreign exchange earnings and increasing the income of economic agents engaged in agricultural practices (Olomola, 1997).
Since the 1970’s the government has established and implemented several agricultural financing policies, some of the early agricultural policies established include, National Accelerated Food Production Program established in 1972, Agricultural Development Program Established in 1975 and Operation Feed the Nation established in 1976 among many others. A lot of these policies didn’t last long to achieve its set objectives and will be discussed in detail in the following chapter. Over the years, inadequate finance has been identified to be a major limiting factor to the development of the agricultural sector in most developing countries including Nigeria.
The use of crude and obsolete tools, poor agricultural infrastructure such as poor transport facilities has been an obvious characteristic of the sector. These appalling characteristics are attributed to the lack of financial resources needed to acquire modern and improved farm implements, new farming methods and enhance the infrastructural facilities. The government sees this limitation and has since the 1970’s introduced and implemented various agricultural financing policies in order to achieve an effective system of sustainable agricultural financing schemes, programs and institutions that can provide credit facilities to agricultural producers, processors and marketers at all level (Eze, Lemchi, Ugochukwu, Eze, Awulonu & Okon, 2011).
Even with all these policies and strategies of the government and other institutions to broaden the framework of sustainable growth, the performance of the agricultural sector is still suboptimal.
Agriculture in Nigeria is dominated by small scale farmers and it is largely subsistent with low production capacity, stagnancy and over 90 percent of agricultural output is accounted for by farmers with less than two hectares of land available for crop production (Federal Ministry of Agriculture and Rural Development, 2008). Many of the policies have been ineffective either because of poor management or macroeconomic policies affecting exchange rates, inflation and cost of capital has drowned its impact.
1.2 Statement of Problem
Employment generation is major indicator of socio-economic progress. Attainment of full employment is a major macro-economic goal that responsible governments all over the world vigorously strive towards (Todaro & Smith, 2003). Nigeria has been faced with the problem of unemployment in recent times. In the 1960’s and 1970’s just after Nigeria gained her independence, the unemployment rate in Nigeria was similar to or even less than that of developed countries but beginning from the 1980’s Nigeria has been facing high and increasing unemployment rate (Onwioduokit, 2007). The Nigerian unemployment rate increased from
18.8% in the third quarter of 2017 to 23.1% in the third quarter of 2018 (NBS, 2018).
This high unemployment rate in the country has made many Nigerians to experience low quality of life, poverty and has led to the increase in social vices and criminal activities as a high percentage of the labour force are not gainfully employed and do not usually have a reliable or steady source of income so they resort to illegal or morally repugnant activities such as arm robbery, all forms of fraudulent activities, insurgency and prostitution just to survive. It is rather absurd to state here that despite the different forms natural resources and potential human resources that Nigeria is endowed with, a large number of the country’s labour force are without employment and the labour market is characterised with poor working conditions and low wages. It is worthy to note that this appalling situation started shortly after the oil boom of the 1970’s when the government and majority of the labour force were attracted to the oil sector while many other productive sectors where left unattended to.
High uncontrolled population growth rate, poor national economic planning, corruption at all levels, low rate of industrialization and low productivity are some of the other causes of the increasing rate of unemployment the Nigerian economy has faced. Between 2015 and 2017 the unemployment rate increased drastically by over 70 percent, from 9.9 percent in 2015 to 13.4 percent in 2016 and 14.2 percent in 2017 (World Bank, 2017). This horrendous situation resulted from the economic recession the country experienced during those periods which was triggered by the sharp decline of the crude oil prices in the International market. If the Nigerian economy was not over dependent on the oil sector and had other productive sectors like the agricultural and manufacturing sectors adequately functioning, the drop in the international oil prices would not have hit the economy so hard.
Agriculture has linkage with other productive sectors such as the manufacturing sector and it has a high potential of generating employment for the different forms of skilled and unskilled labour that constitute the labour force. Agricultural products have been recognized to have industrial value and great export potential, increase farmers’ income and many other economic agents involved in the processing and marketing of agricultural produce. Agricultural products serve as major raw materials for industries and non-oil foreign exchange earnings for the nation. Food items and even some cosmetic products that are usually imported such as sardine and coconut oil can be manufactured in Nigeria through the processing of agricultural commodities thereby increasing output and generating more employment opportunities in the country.
There are numerous opportunities that are yet to be fully exploited and have a great potential of generating employment exist in the agricultural sector. Such opportunities include agricultural production, processing, storage and marketing, agricultural input production and supply, agricultural business management and agricultural research amongst many others. Exploiting all these opportunities in the agricultural sector will promote increased commercialization and generate higher income for those engaged in small scale farming as well as large scale agro based industries (Olukunle, 2013). Adequate financing and proper management of funds are important for successful exploitation of these opportunities. Inadequate financing and lack of proper management has been identified as a major cause of the low performance of the Nigerian agricultural sector.
Currently in Nigeria, a high proportion of those engaged in agricultural practices are rural dwellers with low level of education, these rural dwellers make up about half of the Nigerian population, yet rural poverty is on the increase. These rural dwellers find it very difficult to access useful information and credit facilities so as to acquire the necessary inputs needed to increase output. The lack of necessary inputs such as improved seedlings, pesticides, fertilizers, farm implements and land reduces farmers’ expected output, income and hinders other members of the workforce from engaging in agricultural activities (Daveze, 2000).
The Nigerian government have over the years implemented many financing policies so as to improve the performance of the agricultural sector by making credit accessible to the rural farmers but these policies have not attained its objective of significantly enhancing the development of the agricultural sector and generating employment opportunities because the credit institutions requires that farmers have acceptable collateral before they can be granted credit and many of the farmers are rural dwellers who lack property rights, making it impossible for them to access credit. Again, over the years, the federal government’s budgetary allocation to agriculture falls short of the implemented policies when compared to total budget. For instance, during the first, second and third development plan periods (1962-1980), the federal government budgeted ₦3.57 billion but only ₦2.41 was actually released to the agricultural sector (Federal Department of Agriculture, National Development Plan, 1992). It was shown in that record that in the first Plan, 11.6 percent of the budget was allocated to agriculture but only 9.8 percent was released CBN, 2014).
The high cost to the financial sector for giving loans to these farmers, the high risk involved in agriculture and the frequent low returns has made it difficult for farmers and potential farmers to access the credit facilities made available by these financing policies (Chigbu, 2004). Again, the interest rate charge on agricultural bank loan is usually very high and this makes the farmers a neglected group in the economy due to their inability to secure bank loans. These financial challenges facing farmers and potential farmers have adverse effects on agricultural production and consequently, it’s potential of generating employment and increasing farmers’ income.
1.3 Research Questions
In view of the above-mentioned problems, thisresearch attempts to answer the following questions that will act as a guide towards the better understanding of the relationship that exist between agricultural financing, agricultural output growth and employment generation in Nigeria. The questions are as follow:
1. What is the impact of agricultural financing on employment generation in Nigeria?
2. What is the impact of agricultural output growth on employment generation in Nigeria?
3. What are the causal linkages between agricultural financing and agricultural output growth?
1.4 Research Objectives
The broad objective of this study is to examine the relationship between agriculture and employment generation in Nigeria. The specific objectives are as follows:
1.To examine the impact of agricultural financing on employment generation in Nigeria.
2. To investigate the impact of agricultural output growth on employment generation in
Nigeria.
3. To determine the causal linkages between agricultural financing and agricultural output growth in Nigeria.
1.5 Research Hypothesis
Following the research objectives, the following hypothesis will be tested in this study
����: Agricultural financing has no significant impact on employment generation in
Nigeria.
����: Agricultural output growth has no significant impact on employment generation in
Nigeria.
����: No significant causal linkages exist between agricultural financing and agricultural output growth in Nigeria.
1.6 Significance of the Study
agricultural productivity and on economic growth as a whole with little or no work on its effects on specific determinants of economic growth such as employment growth. Considering the persistent problem of high rate of unemployment in Nigeria, this research study will be very beneficial to the federal government agencies and policy makers in Nigeria in reducing the appalling macroeconomic problem of high unemployment that exist in the country. The findings of this study will be beneficial to financial institutions in Nigeria because it will provide valuable information on the extent of the significance of agricultural financing in enhancing economic growth through generation of employment, so financial institutions will have a better understanding on how to fund agricultural activities and what aspects of agriculture to fund in this era as well as in the future so as to achieve the goal reviving back the failing agricultural sector and enhancing economic growth and development in Nigeria. This study will also provide adequate information on how agricultural financing policies and schemes can be channelled towards generating employment opportunities and increasing income of farmers and consequently, improving the overall socio-economic well-being of those involved in the business of agriculture.
The study will also be beneficial to economic agents engaged in agricultural practices as they will be able to identify areas in agriculture that has high income generating potentials that are still yet to be exploited. Researchers and intellectuals that are involved in the suggestion and prescription of policies to the government on agricultural credit policies and employment generation strategies can also benefit from this study because it will broaden their knowledge and understanding on the relationship between agricultural financing and employment generation in Nigeria. Finally, this research will serve as a source of reference to other researchers interested in related issues in Nigeria.
1.7 Scope of the Study
This study will be restricted to the federal government’s expenditure on financing agriculture, the agricultural output growth and employment generation in Nigeria only. The study will examine the variables within the time period of 1981 – 2017. The variables to be employed in this study include, employment level, government’s expenditure on funding agriculture as a proxy for
wages and price level.
This material content is developed to serve as a GUIDE for students to conduct academic research
AGRICULTURAL SECTOR FINANCING AND EMPLOYMENT GENERATION IN NIGERIA
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