EMPIRICAL ANALYSIS OF FEDERAL GOVERNMENT EXPENDITURE POLICY ON AGRICULTURE IN NIGERIA

ABSTRACT

The study assessed the trend, structure, composition, determinants and effectiveness of Federal

Government agricultural expenditure policies and the implications of these policies from 1960-

98.The study covered the Nigerian nation and used federal level time series data to achieve the set down objectives. The primary analytical method consisted of descriptive analysis, appropriate pictorial diagrams, line and pie charts. Stationarity, co – integration /error correction model (ecm) and granger causality approaches were also employed to verify the characteristics of the data, ascertain the existence of causality/determinants of agricultural expenditure and long run relationship,  while  the  Tin  Bergen  Model  was  employed  to  determine  the  effectiveness  of Federal Government agricultural expenditure policies. The study revealed that the real Federal Government expenditures on agriculture increased enormously since 1970, from N152.0 m to a peak of N 2,473.0m in 1980 due to the oil boom. The proportion of the Federal Government expenditure on GDP fluctuated during the study period, rising from 0.1 per cent in 1960 to a peak of 3.4 per cent in 1987, followed by gradual decline to 0.4 per cent in 1998, implying a decline in agricultural growth. The recurrent capital expenditure ratio stood at 33: 67 in the last decade of the study period, compared to a ratio of 88:11 obtained from 1960-67. The dwindling proportion of recurrent  expenditure, particularly overheads, had  grave consequences for the sustenance of the numerous agricultural projects on board. The structure of expenditure was generally weakened, with undue emphasis on investments in inefficient parastatals, which prior to SAP engaged in direct production. The crop sub-sector was observed to have crowded other sub sectors such as livestock, fisheries and forestry. The mean civilian total expenditure put at N664.90m was about 1.5 times the average under the military regimes, even though the t-test of significance carried out on these means revealed that they were not significantly different from each other. Expenditure volume during the 1970-85 was about twenty three and two times those of the immediate preceding and proceeding periods, respectively. The Coefficient of Variation (COV) analysis showed that expenditures were more stable and less volatile during the first era (1960-69). The review of expenditure relative to selected sectors of the economy showed that the mean  defence  and  administration  expenditures  were  four  times  and  two  times  those  of agricultural  expenditures. The share of agricultural expenditure in total expenditure was  an average of three per cent compared to ten per cent, nine per cent, six per cent and two per cent for defence, administration, education and health respectively. The Product Moment Correlation analysis indicated a positive correlation, implying that these expenditures tended to move in the same direction and went to confirm the use of the “across – the – board addition/cut expenditure technique” which had been a disincentive to sectoral peculiar expenditure needs. The causality tests indicated that the real government agricultural expenditure in Nigeria had been largely determined by the level of public financial resources in the Country, while the ecm  revealed that there was no long term neutrality of change between agricultural expenditures and the tested determinants.  The policy effectiveness elasticity further showed that public expenditure policy on agriculture was generally ineffective, contributing a marginal increase of 0.03 per cent to agricultural output from every 10 per cent increase in agricultural expenditure.

CHAPTER ONE

1.1      Background Information

INTRODUCTION

Agricultural  expenditure  policies  in  Nigeria  have  undergone  many  changes  since independence  in 1960. These changes were mainly a reflection of changes in  government philosophy to agricultural development, while the philosophical changes were in themselves, often brought by changes in government.

Between 1960 and 1998, the country witnessed six military regimes and three civilian eras (spanning 29 and 10 years, respectively), which implemented varied policy measures in line with the priority of the government. A review of the Federal Government agricultural expenditures  by the type of government  showed  that the  average real annual agricultural expenditure  on total  expenditure  was higher  under  the  civilian  regimes,  averaging  about 3.82% compared to the 2.94% under the military regimes. The annual average real civilian government agricultural expenditure was also about 1.5 times that of the military, while the percentage  of agriculture’s  contribution  to GDP average about  47.10%  under the civilian regime compared to 38.90% under the military. The total  Federal Government agricultural expenditure figure, which reached peak of N2,473 million in 1980, fell to N286.0 million in 1984, after the military came to power.

In a broad sense, however, Federal Government  expenditure policy on  agricultural development  had  undergone  three  major  phases,  the  first,  which  was   the  period  of decentralized  approach  to  agricultural  development,  was  from  1960  to  about  1969.  The second from 1970 to 1985, witnessed increased Federal Government participation, while the third, which is still unfolding, from 1986 to the present time is the era of economic reforms (Olayemi and Dittoh, 1995).

A comparison  of real  Federal  Government  (FGN)  expenditures  on agriculture  by philosophical orientation revealed that the average real Federal Government expenditure on agriculture of N867.06m recorded during the 1970 – 85 era was higher than the  N398.0m and N37.3m  obtained  under  the  reform  and  decentralized  era  respectively.  Also,  the  annual growth of real government  expenditure  on agriculture  was higher (50%) under the era of increased Federal participation compared to the 16.67% observed for the 1960 – 1969 period and  the  11.43%  recorded  during  the  1986  –  1998.  Ironically  however,  the  percentage contribution of agriculture to GDP was higher during the decentralized era, averaging about

57.67% compared to 36.25% and 34.04% recorded in the last two periods.

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