AN EVALUATION OF NATIONAL FUNDING AND INVESTMENT IN THE AGRICULTURAL SECTOR OF NIGERIA (1970-2008)

ABSTRACT

The research study evaluated National funding and investment in the agricultural sector of Nigeria (1970-2008). Information was gathered from secondary data and analyzed to evaluate  fund  allocations  to  Nigerian  economic  sectors  and  agriculture  from 1970  to

2008, determine  difference  in budgetary allocations  to Nigerian economic sectors  and agriculture,  examine  the  effect  of National  funding  and  investment  in  agriculture  on agricultural production –GDP and different  economic regimes (pre  and post SAP) on agriculture GDP rates, identify the implementation constraints to  National funding and investment in Nigerian agricultural sector. A simple random sampling was employed to select 2 states’ ADPs from each of the 6 geo-political  zones that served  as source of constraints analyzed in the study. Time series (secondary) data obtained from CBN and NBS publications were used for analysis.  The data collected were analyzed using both descriptive and inferential statistics  such as means, percentages,  frequency distribution tables and OLS regression model. The major findings were that budget allocations and expenditure  to  and  by  the  five  economic  sectors  of  agriculture,  defence,  education health, and general administration differed in various years. There were variations in the budget  allocations  to     the economic  sectors and an unsteady trend in the percentage allocation to agriculture  which was 11.2% in 1970-1975  period, it declined  to 7%  in

1976-1980, increased to 21.61%(1981-1985), declined to 18.52% in 1986 -1990, peaked

28 % in 2001-2005 and fell to 21.22% in 2006-2008.The study further revealed that the dynamic analysis of the impact of National funding and investment on agricultural GDP is acceptable. Out of the five variables, three (ADP services, fertilizer use, and amount of ACGSF) were positively and significantly correlated  to  the agriculture share of GDP, while two (irrigation cost and rural roads constructed) were found to have insignificant impact  on agriculture  share  of  the  GDP.  Result  also  showed  that  Nigeria  economic regimes of SAP had a positive effect on agriculture GDP growth rates as its rate increased from 20.6 % in 1980 to 31.5% in 1990 .Subsequently, it appreciated to 35.8% and 42.1% in 2000 and 2009 respectively. Eleven constraints were identified as hindering

the  implementation  of  National  funding  and  investment  in  agriculture.  Most  critical constraints  were financial,  infrastructure,  economic,  technical,  political,  social-cultural and  environmental   in  the  6  geo-political  zones  of  Nigeria.  The   study  therefore, recommended that budget allocations to agriculture should be increased to 30% target of NEPAD  minimum  by legislative  act  so  that  agricultural  projects  will  be  effectively implemented. Federal government should improve on human capital building on the ADP staff to increase their efficiency and agricultural output. The amount of loan granted by ACGSF to individual farmers should also be stepped-up to help create vibrant agricultural enterprises with employment opportunities to reduce the financial exclusion of the rural poor Nigerians which  stunts agricultural growth and development.  Federal government should also re-appraise fertilizer local production, local and state government ownership of   irrigation projects policy to increase agricultural output by the public-private- partnership  strategy.  The study further  recommends  that rural feeder roads should  be funded  by the  three  tiers  of  government  to  increase  rural  roads  density,  access  and evacuation  of  agricultural  products  which  will  reduce  spoilages  thereby  increasing agricultural                                output                                in                                 Nigeria.

CHAPTER ONE

INTRODUCTION

1.1   Background of the Study

Agriculture   played   a  pivotal   role   in  the   history  of  Nigeria’s   economic development.   Over   the   past   several   decades,   agriculture   has   provided   food, employment,  foreign exchange  and reduced  poverty.  It is the  bedrock of Nigeria’s economy (FGN, 2004).Nigeria is endowed with a huge expanse of arable land, as well as a large, active population that can sustain a high productive agriculture. Nigeria has a great potential to become the food basket  of  the West African sub-region (FAO,

2003).

Improvement  in agricultural sector is a major thrust for poverty reduction. It  is expected that high growth rate in agriculture will push the growth of non-faractivities as well (Gemma, 2008). Several studies have examined the impact of public spending on agriculture and rural development and showed that public spending on agriculture and education could positively contribute to the improvement of the quality of life in rural areas which is in tandem with the United Nation’s Millennium Development Goal of eradication of extreme poverty and hunger (Rajkumar & Swaroop, 2002; ADB Key indicator, 2007; Eboh, 2009).

In  Nigeria,  the  three  tiers  of  government   (federal,  state  and  local)  have

overlapping but autonomous  fiscal and policy jurisdictions  for basic public  services that directly impinge on the MDGs. In such federal setting, progress towards the MDGs will be hindered or accelerated depending on synergy and coordination of policies and service  delivery across the public sectors.  In  particular,  because  Nigeria’s state and local governments are closest to the grass roots in terms of providing public services, their actions or inactions could impact  greatly on MDG’s hence agriculture ( Eboh,

2008;   Okogu   and   Osafo-Kwaako,2008;   and   2009).   Nigeria’s   state   and   local governments  have  constitutionally  been  guaranteed  autonomy  for  public  spending, economic planning and sector policies (Eboh, 2009).

Oyebanji  (2008)  observed  that  most  farm  and  agro-processing  operations  are carried out manually using simple hand tools. Small-holder farmers generally still do not have access to and lack knowledge about the use of improved technologies or crop,

fish, animal or food processing. The use of rudimentary processing techniques lead to reduced national capacity for food security due to massive post-harvest losses and as well as revenue from value-addition opportunities (FAO, 2004) .

Many studies attempted to link government spending to agricultural growth and poverty  reduction  (Elias,  1985;  Fan  and  Pardy,  1998;  Fan,  Hazell  and   Throat,

2000).The   studies   found   that   government   spending   contributed   to   agricultural production  growth  and  poverty  reduction.  Central  Bank  of  Nigeria(2006),  Eboh, Amakom and Oduh, (2006) and Eboh, (2008), reported   that between 1980 – 1998, Nigeria expenditure on agriculture rose from N528.65 ($9.45) to N44,130.24 ($20.16) billion, while agriculture percentage of GDP rose in percent from 12.80 to 19.79 in the period under review (CBN, 2006).

Economic  growth  refers  to  the  increase  in  the  value  of  goods  and  services produced by an economy. It is conventionally measured as the rate of increase in Gross Domestic Product (GDP). Finance and investment aid growth and development in an economy. There is a link between growth of output, investment and savings (Nnanna, Englama  and  Odoko,  2004).  Levine  and   Renelt  (1992)  explained  the  empirical relationship between investment and economic growth; and concluded that the rate of physical investment to GDP was the most important of the factors. Arrows (1962) also pioneered a work that considered the impact of human capital on growth and concluded that  variations  in  investment  performance  and  growth  rates  across  countries  was accounted  for  either explicitly or implicitly by the variation  in the accumulation  of human capital.

Feldstein  and Harroka  (1980)  explained  that in the  long term,  gross  national savings and domestic investment rates show a strong positive correlation. Iyoha (1998) established  a  positive  relationship   between  investment  and   economic  growth  in Nigeria, using investment – income ratio as the explanatory variable. Using data for the

1970 – 1994 period, Iyoha found that a 10 percent rise in investment income ratio will trigger a 3 percent increase in short run and 26 percent in the long run in per  capita gross national product (GNP) respectively. Iyoha (1998) concluded that per capita GNP is  highly  investment  elastic  in  Nigeria  and  for  government  to  achieve  its  desired objectives of high economic growth and rapid development; it must pursue policies that will increase both public and private investments in her economic sectors.

The Nigerian data on investment and economic growth was analyzed by Nnanna, Englama and Odoko (2004) using the correlation technique to establish  relationship between investment and growth. The result showed a weak relationship between capital

formation and economic growth. Indeed during the period 1981 – 1986, investment and economic growth moved in opposite directions with a negative co-efficient of 0.22 or

22 percent.

This was not unexpected  given that investment declined in four out of the  six years (1981 – 1986). Data for Structural Adjustment Programme (SAP) period of 1987

– 2001 indicated that the relationship between investment and economic growth was positive,  with a correlation  coefficient  of 0.30 or 30 percent  (Nnanna,  Englama  & Odoko, 2004). Obadan and Odusola (2001) using the granger causality test on Nigerian data, testing the causal relationship between savings and income growth, savings and investment and economic growth. This follows that investment would increase growth or Gross Domestic Product share of agriculture in the national economy. The findings are  in accordance  with,  that  of Iyoha  (1998)  on the  same  issue,  therefore,  giving credence to the importance of investment in the growth process.

However, Nigeria is no longer able to produce enough food for her needs. Despite advances in science and technology, Nigeria still finds it difficult to match supply with the ever increasing demand for food – a situation attributable mainly to uncontrolled population growth and inefficient utilization of productive resources. In an empirical study on the food problem in Nigeria, a challenge for the agricultural sector, Utomakili and Molue (1998) (using base year 1980 = 100); reported that the index of agricultural production in Nigeria declined from 34.2 to 17.2 percent between 1970 – 1975 as oil became increasingly important in the Nigerian economy.

Ample  evidence  on  investment  climate  reveals  that  infrastructural  weakness; institutional  deficiencies   and  regulatory  bottlenecks  act  as   disincentive  to  private investments  and businesses.  Public spending aims at  eliminating these deficiencies  in order to promote investments, employment and  economic growth (Eboh, 1999; Collier,

2006; Malik and Teal, 2006).

A review by Federal Office of Statistics (National Bureau of Statistics, 2000) of the   national   savings   and   investment   rates   from   1990-1999   showed   that    the investment/GDP  ratio/rate  in percentage  declined  from 6.33  in 1990  to 5.40  in  1999 (Table 1.1). This implied that investable fund in Nigeria is declining relatively and calls for efficient utilization of available investment fund especially in the agricultural sector of the Nigerian economy to increase productivity

Item

Table 1.1:            National Savings and Investment Rates, 1990 – 1999

                           1990  1991     1992  1993   1994  1995     1996    1997    1998    1999

National Savings	14.68		12.39		4.15		11.73		12.79		12.55		14.18		16.28		14.58	16.87
(N billions) National Investment (N	5.73		5.53		5.57		6.16		5.85		5.13		5.56		5.98		6.01	6.30
billion)
Savings Investment	8.5		6.86		1.43		5.57		6.94		7.42		8.62		10.30		8.52	10.57
Ratio (N billion)
Savings/GDP Ratio (%)	16.22		13.07		4.25		11.7		12.6		12.1		13.1		14.6		12.7	14.4
Investment/GD P -Ratio (%)	6.33		5.83		5.71		6.15		5.77		4.95		5.17		5.38		5.29	5.40

Source: Federal Office of Statistics (2000).

However, the savings -investment ratio in naira which appreciated from 8.5 billion in 1990 to 10.57 billion in 1999 should  be reflected  in the agricultural  sector. Public sector investment in the agricultural sector has a high potential for increasing farm output, income  and  standard  of  living  while  increasing  food  security  and  achievement  level towards the millennium development goals (MDG, 2005).

1.2 Problem Statement

Most studies focused on the impact of total government expenditure and overall GDP growth  in  Nigeria.  Very  few  of  these  studies  attempted  to  link  different  types  of government  spending  to  growth,  and  even fewer  attempted  to  analyze  the  impact  of government spending at the sector level, especially agriculture  (Kelly,  1997;Miller and Tsaukis, 2001).

It is difficult to obtain a clear picture of total agricultural expenditure.  Budget documents as reported by Kilick (2005) have tended to be released only on a “need to know basis”, and it is only in recent years that this has begun to change.  Implementation bottlenecks still hamper effective use of resources. Ten percent of expenditure is funded through revenues outside the budget. Ministerial budgets and actual expenditures diverge significantly, reflecting frequent use of in-year budget re allocations (World Bank, 2006).

There is also no available detailed analysis on the returns to agriculture investment in most  African  countries,  and  reporting  on  Plan  for  the  Modernization  of  Agriculture (PMA)expenditures  more broadly is weak(Robinson,2006).  Cooker (2008) reported that access to detailed agricultural sector expenditure data was problematic in Nigeria because information on the impact of agricultural expenditure was inadequate. This gap is sought to be reduced by this study.

Information obtained from this study will assist in evaluating and implementing new mechanism  for  Nigeria’s  funding  for  effective  investment  by  the  stake  holders  for promoting technical assistance  for farmers;  and support for the  agricultural  expansion programme while contributing to the existing body of knowledge in agricultural finance policy in Nigeria.  The study will also  identify  implementation  constraints  to national funding and investment in agricultural sector in the country so as to increase effectiveness of National funding and investment to reduce poverty. The study will help in provision of data  to  encourage  private  sector  involvement  in agriculture  under  the  new  proposed private-public-participation.

One of the problems identified is that despite increase in both fund allocation  and investment by the national government; agricultural output and percentage  share  of the GDP are still very low. For instance, the percentage agriculture share of the GDP for 5 years were; 3.4(2002); 2.6 (2003);4.2(2004);2.4(2005)  and 1.9(2006) respectively while the   budgetary   allocation   rose   from   10.1   percent   in   2002   to   16.2   percent   in 2006(CBN,2006). Again,   the  total  output  of  major   agricultural   products   did   not   increase appreciably. Statistically, between 1999 and 2000, the relative percentage increase was 6.1;  and  in  the  succeeding  years:  2001  (0.1);  2002(4.1);  2003(7.2);  2004(6.2); 2005(6.7) but in 2006, it reduced to 3.6 Percent from the estimated 9 percent and 6.7 percent of the previous year (IFAD, 2007)

This wide gap created by the declining output of major staple agricultural products, the low agricultural share of GDP and high Nigerian population  growth  rate of 4.9 percent in 2006 is alarming. The inequalities have resulted to  high increase in staple food costs and also forced federal government to import food to sustain the increasing population. At 2006 population of 140,003,542  Nigerians,  it is expected  that with a growth rate of 4.9 percent;  the  population  estimate  for 2008  was 161,608,980  and 177,834,683 for 2010 (CBN, 2006). As shown over the  years, the rate of agricultural  production has stagnated  and decreased;  and  failed  to  keep  pace  with  the  needs  of  a rapidly  growing  Nigerian population.  Thus,  resulting  to  a  progressive  increase  in  import  bills  for  food  and industrial  raw  materials  (World  Bank,2008).  Based  on  this  problem,  the  federal government’s committed increased investment in food and agricultural production has failed to drastically reduce food imports from 14.5 percent of total imports to 5 percent in  2007  as  projected  by National  Economic  Empowerment  Development  Strategy (NEEDS, 2005; IFAD, 2007; World Bank, 2008).

The study on Economic evaluation of National Funding and investment in  the agricultural sector of Nigeria; is to find out the problems of  low agricultural output, low  agricultural  productivity,  low  income  and  standard  of  living  in  spite  of  the increasing funding and investment by the National government.

1.3 Research Objectives

The broad objective of the study is to analyze national funding and investment in

Nigerian agricultural sector. The Specific Objectives are to:

i.   evaluate fund allocations to Nigeria’s economic sectors from 1970 to 2008;

ii.  determine different in budgetary allocations to the Nigerian economic  sectors and agriculture from  1970 to 2008.

iii. evaluate  the  effects  of  National  funding  and  investment  in  agriculture  on

Nigeria agricultural share of GDP.

iv.  evaluate  the  effects  of different  economic  regimes    (pre  and  post-SAP)  on agricultural share of  GDP rates in Nigeria.

v.   identify the implementation constraints to national funding and investment in

Nigerian agricultural sector

vi.  make recommendations for policy based on the findings,

1.4       Study Hypotheses

Based on the specific objectives of the study, the null hypotheses tested were that;

i.         National investment and funding of agricultural sector have no significant effect on agricultural output/ agriculture share of the GDP.

ii.        There is no significant difference between the budgetary allocations to agriculture

and other economic sectors.

.

1.5     Justification of Study

The  widening  gap  between  population  growth  and  food  supply,  the  gap between the rates of funding,  investment  and output of the agricultural  sector  have necessitated  this study.  Over  the decades,  public  sector  investment  and  funding  of agriculture  in Nigeria has been increasing.  For instance,  CBN  (2006)  revealed  that government recurrent expenditure on agriculture rose from N19.5 million in 1977 to N29.2 million in 1998 and to N18, 739.8 million in 2006. The capital expenditure of government  on agriculture also increased  from  N32, 364.1 million in 2002 to N89,

544.9 million in 2006.

Sadly, the agriculture output share of GDP declined from 2.6% in 2003 to 1.9% in

2006, while expenditure  profile  rose from 10.1% in 2003 to 16.2 % (CBN,  2006). Ironically, it is also estimated that N82billion was spent on the importation of about six million tonnes of wheat, $750 million on rice, $700million on sugar and $500 million on milk and other dairy products (CBN, 2007).

Many studies  have  shown  the  strength  of  the  growth  linkage  or  “multiplier” between agriculture  and the economy.  Models of the Kenyan  economy show those multipliers from agricultural growth (Block and Timmer, 1994). In Zambia, estimates suggest that every $1 of additional  farm income  creates a further  $1.50 of income outside agriculture (Hazell and Hojjali, 1995).

However, Fugile and Paul (2007) asserted that the Economic Research Service of US Department of Agriculture (USDA) has developed an index measure of the Total Factor Productivity (TFP) to distinguish the effect of innovation and related factors on the quota of agriculture output. In long run, growth in Total Factor Productivity (TFP) is the primary source of new wealth creation in the  economy.  Therefore,  trends in agricultural TFP may provide an indication of the long run performance of the sector.

There are also indications that the relationship between government expenditure and  economic  growth  has  been  studied  in  Ghana,  Cameroon,  Kenya  and  Uganda (Stephen and Lawrence, 2007). Some of the studies have looked specifically at the link between  government  spending  and  agricultural  growth  and  poverty reduction.  The review of public policy management, a joint DFID/World Bank (2007) study did not include Nigeria. It is pertinent to note that studies on the impact of public investment and funding of agriculture are scarce  in  Nigeria,  therefore,  necessitating the current

research on economic evaluation of national funding and investment in the agricultural sector of Nigeria.

1.6   Limitations to the Study;

The study is aimed at economic evaluation of public funding and investment on agriculture  of Nigeria.  Getting  time series  data from  States  and  Local  government Areas of the Nation for the period was a herculean task. The few  available data are scanty and with the creation of additional states, aggregated data are not available so the option of extrapolation was not possible.

It is the ambition of the researcher to examine public investment and  funding across  the  three  tiers  of  government  but  for  the  dearth  of  time  series  data.  The researcher  therefore,  relied on the national time series  data to  achieve  the research objectives.

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