EFFECTS OF SOCIOECONOMIC AND ENVIRONMENTAL VARIABLES ON RENEWABLE RESOURCE DEGRADATION IN NIGERIA

ABSTRACT

Nigeria is faced with many environmental problems. Available data indicate that Nigeria is losing her renewable natural resources (including arable land, forest, pasture/rangeland and water resources) beyond sustainable limits. Economic and environmental systems interact in many important ways and hence the need to understand these interactions and develop effective public policy. While economic systems derive many invaluable inputs (some commodified, others free) from environmental systems and processes, economic activity can have negative impacts on the functional integrity of these natural systems and processes. The dynamic interactions of the environmental degradation problem with socioeconomic factors are neither well understood in Nigeria, nor are the implications for the nation’s Transformation Agenda and Vision 20:2020 well appreciated. This study, therefore, explored the inherent dynamic interactions and feedback between the environment and socioeconomic spheres. The specific objectives were to: (i) determine the causality of resource degradation and macroeconomic profile, (ii) determine the causality  of  resource  degradation  and  social  profile,  (iii)  assess  the  effects  of  resource degradation on macroeconomic profile, (iv) assess the effects of resource degradation on social profile, and (v) forecast the impact of resource degradation on Nigeria’s socioeconomic profile and implications for Nigeria’s Vision 20:2020. The study adopted time-series design. Nigeria was the unit of analysis. Time series secondary data (from 1970 to 2010) from various sources were utilized for modeling and analysis. A time series environmental degradation index was constructed using the tool of principal components analysis (PCA). The constructed index (a synoptic single number) represents the nation’s ecological footprint or bio-capacity. The next step  was  the  modeling  of the  index  and  seven  other  variables  as  a  dynamic  vector  error correction model, given the non-mean reverting nature of the variables, and to  capture the evolution and interdependencies between the variables. Results from the analysis show that the exploitation of renewable natural resources in Nigeria was highly cointegrated with her socio- economic spheres as there were 5-7 cointegrated equations in the vector error correction model (VECM). A bi-directional or feedback relationship existed between the index of environmental degradation and  Nigeria’s  socioeconomic profile.  Agricultural prices,  population dynamics, public capital expenditure on agriculture, fertilizer consumption, per capita income, life expectancy and greenhouse emissions granger-caused the index of degradation (joint p-value =

0.0389), the index of degradation granger-caused (p ≤ 0.05) agricultural prices, expenditure on agriculture, fertilizer consumption, greenhouse emission, per capita income, migration and life expectancy. The index of degradation produced significant (95% confidence level of error bands) positive and sustained effects on Nigeria’s macroeconomic profile (including agricultural prices, agricultural capital  expenditure,  fertilizer  consumption and  climate  change  over  a  ten-year horizon (2011-2020). On the other hand, the effects on Nigeria’s social factors (such as per capita income, rural population dynamics and life expectancy) by the index of degradation were significantly (95%  confidence  level of error bands)  negative and  sustained over  a ten-year horizon (2011-2020). Following from these results, the study among other things recommends a more comprehensive holistic and sustainable development path, and strategies and policies that integrate rural development and renewable natural resources management in order to tackle the complex, diverse and deeply rooted issues underlying worsening environmental degradation in Nigeria.

CHAPTER ONE

INTRODUCTION

1.1      Background of the Study

There exists a delicate balance between economics and the environment and for several decades now, the challenge of achieving accelerated growth and poverty reduction while conserving the natural environment especially in poor countries has occupied the attention of policymakers and researchers. This global desire is expressed   in many environment and development conferences including the environmental conference in Stockholm in 1972 and the World Commission on Environment and Development (WCED) in 1987 (which produced the landmark Brundtland Report: Our Common Future). Others  include the  UN  conference on Environment and Development (UNCED) in Rio de Janeiro in 1992,the “Earth Summit” (which produced the Agenda 21 action plan for development and the Rio Declaration on environmental protection and responsible development), the Millennium Summit in New York in September

2000 producing the MDGs, and the World Summit on Sustainable Development (WSSD) in Johannesburg in 2002 (CROP, 2005; Evans, 2004; Ralph & Roper, 2005).

More  recently,  according  to  United  Nations  (2012),  the  resolutions  adopted  during Rio+20 conference on Sustainable Development in Rio de Janeiro, Brazil, in June 2012 acknowledged the need to further mainstream sustainable development at all levels. This means integrating economic, social and environmental aspects into development and recognizing their inter-linkages so  as to  achieve sustainable development in all  its dimensions. These global initiatives and brainstorming are in recognition of the centrality of the natural capital (e.g. forest,

arable land, water, rangeland, etc.) to long-term economic growth, human development and poverty reduction.

In Africa and sub-Saharan Africa in particular, it is acknowledged that the short- and medium-term options for fighting poverty and  growing more sustainably lie  in the rational management and utilization of its natural resources (Sergio, Anderson, Moes, Alam, Alemu, Macoun, Utria, Sanghvi, &Hewawasam, 2004). Forest, arableland, rangeland and water are critical natural resources not just in Africa but also in Nigeria. The forest, arableland, rangeland and water sectors present both unique opportunities and challenges (World Bank, 2002). They are key to poverty reduction, sustainable development, and the maintenance or conservation of environmental services which are central to achieving the goals and targets ofthe Millennium Development Goals (MDGs) set by the United Nations, and the Vision 20:2020, Medium Term Economic Plan and the Transformation Agenda of the Federal Government of Nigeria.

As human capacity to alter and manipulate the quality and quantity of natural resources grows with economic and  technological growth, the  prospects of resource degradation has become a paramount development concern.The landmark report of the World Commission on Environment and Development (1987), titled “Our Common Future”, warned that unless we change many of our lifestyle, the world will face unacceptable levels of environmental damage and human suffering. The Commission, echoing the urgent need for tailoring the pace and the pattern of global economic growth to the planet’s carrying capacity, said that: “Humanity has the ability to make development sustainable and to ensure that it meets the needs of the present without compromising the ability of future generations to meet their own needs” (IFAD, 2007).

The natural environment plays roles or functions that are indispensable to economic life. According to environmental economists, these functions include: a) resource functions – the

natural environment provides natural resources (renewable and non-renewable), e.g. mineral ores, crude petroleum, fish, crops and forests, that are inputs into human production processes; b) environmental service functions – the natural environment provides the basic habitat for clean air, drinkable water, and suitable climate that directly support all forms of life on earth and ameliorate climate change processes; c) sink functions – the natural environment serves as a sink which absorbs (up to a point) the pollution and wastes generated by economic activity, e.g. fluid industrial wastes end up in rivers and oceans, used packaging goes into landfills, and car exhaust dissipates into the atmosphere.

The overexploitation, degradation and unsustainable management of environmental resources can threaten economic growth and poverty reduction efforts. On one hand, protecting the environment might increase or reduce poverty; while, on the other hand, reducing poverty might help or hurt the environment. In the last few years in Nigeria, losses in non-timber forest products (NTFPs) and deforestation have been estimated at N120 billion (US$ 0.8 billion) per year (Eboh, Kalu, Achike, Ujah, Amakom, Oduh, Nzeh& Larsen, 2005b), representing about

15.48% of gross domestic product (GDP) in 2010 at 1990 constant prices. According to the statistics from the Central Bank of Nigeria (CBN) and the International Institute for Tropical Agriculture (IITA) (2010), Nigeria is losing about 3.5% (350,000-400,000 hectares) of forest land per annum. If Nigeria should continue to lose its remaining forest resources, the economic cost will be higher than the current losses with a consequent loss in revenue, fuel wood supply and non-timber forest products (NTFPs) supply. But this could just be a micro view of the consequences. What about the wider socioeconomic implications?

Today in Nigeria, environmental resources including forests, arableland, rangeland and water  are  under  pressure  from  natural  hazards  and  expanding  human  population,  which frequently leads to degradation or conversion of environmental resources into unsustainable forms of use. When forests, for instance, are lost or severely degraded due to deforestation or forest clearance, their capacity to function as regulators of the environment and mitigation of climate change (global warming)are also lost, leading to increasing flood and erosion hazards, reducing soil fertility, and contributing to the loss of plant and animal life, thereby jeopardizing the sustainable provision of economic and ecological goods and services from forest.

1.2      Problem Statement

Nigeria is a country with great natural resource wealth. As a result, she ought to be developing more rapidly than other comparable countries which got their independence around the same time – e.g. South Africa (with independence in 1961) and Malaysia (independent since

1957). Unfortunately, UNDP (2013) shows that Nigeria (ranked 153) ranks below Malaysia (ranked  64)  and  South  Africa  (ranked  121)  in  the  human development  index  (HDI).  This scenario seems to be a symptom of natural resource curse – the observation that countries rich in natural resources tend to perform badly. Resource curse is an indication of the failure to reinvest earnings from their natural capital in other assets including human capital, physical capital or natural resources. Nigeria is now recognized as the largest economy in Africa, but it is doubtful how efficient this growth is. The country’s growth is not only unsustainable but wasteful.

Nigeria is not only suffering from natural resource curse, but more importantly the loss of renewable natural resources beyond sustainable limits and general environmental degradation. Soil degradation, rapid deforestation, desertification, and oil/other sources of pollution (in water, in the air and on soil), are some of the current environment issues facing Nigeria. Resource degradation leads to  environmental scarcity in terms of decline in resource quantity and/or quality.

Data from CBN (2010) shows that about 350,000 to 400,000 hectares of forest land are lost per annum in Nigeria. Furthermore, the 2013 database of the Food and Agriculture Organization of the United Nations (FAO) presents some interesting statistics on the status of Nigeria renewable resources. It shows that Nigeria’s forest area declined from 1.85% of Africa’s total in 2000 to  1.39% in 2009. Secondly, Nigeria’s arable  land declined from 16.93% of Africa’s total in 2007 to 15.15% in 2009. Thirdly, the nation’s area for permanent meadows and pasture declined from 4.36% of Africa’s total in 2000 to 4.13% in 2009.

Besides, many linear models largely fail to recognize feedback loops, whereby one factor influences other processes, which in turn interact and circle back to change the initial factor. This dynamic interaction and feedback is inherent in nearly all environmental issues, but it is virtually impossible to comprehend in detail. Although there is growing recognition and understanding of the important linkages between environment and the economy, the specific details of these interactions are still largely speculative and often ignore the social aspects or dimensions. The causal links or linkages are rarely discussed and literature assumes an existing link without specifying it (Fuhr, Roeken, Schaper & Wegener, 1998).

Finally,  the  economy-environment-poverty  linkage,  in  terms  of  the  socioeconomic impacts of natural capital losses is unclear in Nigeria, while the cost of degradation of renewable natural resources are not factored into the nation’s national accounting system. These are the gaps that this study wants to fill. This study understands that economic (micro and macro), social and environmental systems interact in many important ways and their understanding is critical to developing effective public policy.

1.3      Objectives of the Study

The  objectives  of  the  study  were  derived  from  3  main  questions:  i)  Is  there  any significant effect of renewable resource degradation on Nigeria’s socioeconomic profile? ii) Is there any significant link or causality between renewable resource degradation and Nigeria’s socioeconomic profile? What is the long-term impact of renewable resource degradation on Nigeria’s future development plans and targets?

Therefore, the broad objective of this study is to evaluate the socioeconomic links and effects of resource degradation (over the period 1970-2010) in Nigeria. Specifically, it aims to:

i.      determine the causality of resource degradation and Nigeria’s macroeconomic profile;

ii.      determine the causality of resource degradation and Nigeria’s social profile;

iii.      assess the effects of resource degradation on Nigeria’s macroeconomic profile;

iv.      assess the effects of resource degradation on Nigeria’s social profile;

v.      forecast  the  possible  impact  of resource degradation and  implications  for  Nigeria’s

Vision 2020.

1.4      Research Hypotheses

This research was guided by the following null hypotheses:

i.      there is no significant effect of resource degradation on Nigeria’s macroeconomic profile;

ii.      there is no significant effect of resource degradation on Nigeria’s social profile; and

iii.      thelinks and effects of Nigeria’s socioeconomic profile with resource degradation and vice versa are zero.

If these hypotheses turn out to be untrue, then it will shed some light on the extent to which forest, arable land, pasture and water resources conservation, protection and sustainability can drive or impair sustainable economic growth and development in Nigeria.

1.5      Justification

The long-term development of society is determined by what happens within the three subsystems: economy, environment and social sector, as well as by the  links among these subsystems. Economists now recognize that, along with physical and human capital, the natural and environmental resource endowment of a country should be viewed as an important economic asset, which can be called natural capital (Barbier, 2005). Moreover, it is also accepted that management of this natural capital stock is critical to a country’s ability to attain sustainable economic development. This is particularly relevant to low and middle-income, or developing countries, many of which have abundant stocks of environmental and natural resources that they must exploit efficiently and sustainably if these economies are to develop successfully (Barbier, 2003).

A healthy environment and the sustainable use of natural resources are at the very core of long-term economic sustainability.  With the  increasing priority given to  boosting economic growth and creating new jobs, high environmental standards in terms of quantity and quality are essential to sustain growth and high employment.

Nigeria’s economy depends on the availability of natural resources to provide the basic inputs to  create  goods and  services; a  healthy  workforce; and  functioning ecosystems that regulate the climate, absorb pollution or regulate flooding. But we can’t continue to take these things for granted. Rapid economic growth driven by accelerating technological change over the past half century has brought the world’s economy up against growing resource constraints such as declining forests, declining arableland and rangeland productivity, water pollution, energy shortages,  climate  impacts  and  threats  to  biodiversity and  the  economy at  large.  There  is mounting evidence that Nigeria’s pattern of growth and consumption are unsustainable at the scale required by our current and projected population. This is  basically due to  inefficient production and consumption, and poor management of natural resources.

The livelihood and needs of majority of Nigerians will continue to be dependent and satisfied by the utilization of forest, arableland, rangeland and water resources. About 60 million indigenous people living in the rainforests of West Africa, Latin America and Southeast Asia depend heavily on forests (FAO, 2001). Nigeria, endowed with rich and diverse natural environment, has over the years reaped the fruits of such rich diversity with insufficient care for the livelihoods and wellbeing of future generations (NPC, 2004).

Today, the potential for their future exploitation is extremely limited. Therefore, good management of environmental resources is crucial to the achievement of the goals of National Economic Empowerment and Development Strategy (NEEDS), Millennium Development Goals (MDGs) and Federal Government’s Transformation Agenda. Although NEEDS, for example, recognizes environmental scarcity or degradation as a major environmental problem in Nigeria, it is unsure of the empirical impact of such degradation or scarcity. This is not surprising given the  fact  that  over  the  years,  macroeconomic,  fiscal and  sector  policies  have  assumed  that renewable natural resources (RNRs) will continually supply economic outputs, without sound policies and significant investments to promote sustainable management. Now that the nation’s Transformation Agenda has come on board, the findings of this study will perhaps contribute to a better-informed policy development under the Agenda.

Moreover, economists have yet to develop a generalized analytical framework incorporating the relevant macroeconomic and environmental variables that would allow tracing the longer-term time path of the economy of any country and of its environment (Ghandi, 1998). Therefore, this study will provide a Nigeria-specific framework necessary for allowing policymakers take decisions on trade-offs on the conflict between the long term protection of the environment and the short-term stability and growth of the macro-economy.

1.6      Limitations of the Study

Vector autoregression (VAR) models have been much criticized (in terms of applications and interpretations of empirical results, rather than the methodology itself) and there exists some controversy of vector autoregression modeling. According to Monogan (2010), anti-VAR school notes that structure – which is to say, theory – is all that matters, and VAR cannot produce structural estimates. They noted that the problem of VAR analysis is that VAR models require the estimation of very large numbers of parameters (as they impose no theoretical restrictions). Thus, VARs are radically inefficient and their coefficients should never be interpreted.

However, vector autoregressions (VARs) are powerful tools for describing data and for generating reliable multivariate benchmark forecasts. It is useful as a theory-free tool to let the data  speak to  order  of causality questions,  as  well  as  subsidiary like  required  lag  length. Structural models, while desirable are impossible for complex systems. “Reduced form” models telling us about causal ordering is the most  we can hope for. In the world of endogenous relationships, structural models may be horribly misspecified.

Furthermore, when specifying a VAR model, one needs to first decide which variables to include in the model. Since one cannot include all variables of potential interest, one has to refer to economic theory or any prior ideas when choosing variables. This involves some process of marginalization, in that the joint probability density of the VAR model must be interpreted as having been marginalized with respect to some variables that are potentially relevant (Hilde, 2000). Regrettably, the subject of this thesis is one that lacks adequate theoretical guidance on the choice of variables, and therefore had to rely on the statistical considerations/performance of variables to determine which variables eventually make it into the model.

Lastly, secondary data do have some disadvantages that are important to consider. It is impossible to tightly control the desired study population, specify the exact measures of that one would like to assess and examine causal relationships (e.g. through a randomized controlled design). Also, study population and variables collected are often not exactly what one might have chosen to collect, and the observational nature of most secondary data makes it difficult to assess causality although some quasi-experimental methods such as instrumental variables or regression discontinuity analysis  can  partially  address  this  issue  (Smith,  Ayanian,  Covinsky,  Landon, McCarthy, Wee, and Steinman, 2011). Where and when it is feasible, complimenting secondary data with primary data can yield greater insights.

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