EFFECT OF OIL DROP ON THE ECONOMY OF NIGERIA
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Corruption stands as a significant impediment to the economic and political progress of any nation (Mohammed, 2013). In Nigeria, corruption has been recognized as a major obstacle hampering the rapid growth and development of the economy (Nagari, Umar & Abdul, 2013). It distorts public policy, leads to the misappropriation of resources, adversely affects the private sector and its development, and particularly harms the less privileged (Ajao, Dada & Olaoye, 2013). The detrimental impact of corruption on development has prompted the Nigerian government and international organizations to seek solutions to combat this menace. Corrupt practices have persisted in governance, both in public and private spheres, from the pre-colonial era to the colonial period and through independence to the present (Nagari et al., 2013). Corruption, described as a disease, infiltrates the political, cultural, and economic growth of a nation, undermining the functionality of various government organs.
The emergence of public administration and the discovery of petroleum and natural gas are two pivotal events that have given rise to a series of ignoble corrupt practices in Nigeria (Wikipedia, 2014). Corruption infiltrates social programs and services through bribery, kickbacks, and inflated pricing of contracts and public projects (Obioma, 2012). It breeds crises, posing significant threats to national security (Obioma, 2012).
Despite efforts by entities such as the Economic and Financial Crime Commission (EFCC), Independent Corrupt Practices and Related Offences Commission (ICPC), Transparent International, World Bank, and others to reduce corruption in Nigeria, the levels of corruption and poor governance persist (Akinwale, 2012).
Baghebo and Atima (2013) emphasize that since the discovery of oil by Royal Dutch Shell in the Niger Delta in 1956, the oil industry in Nigeria has been marred by political and economic strife, stemming from a history of corrupt military regimes, civil rule, and complicity of multinational corporations, notably Royal Dutch Shell.
Ribadu (2006), as cited in Ajao, Dada, and Olaoye (2013), attributes the history of corruption in Nigeria to over 29 years of military rule out of the country’s 46 years of statehood since 1960. Successive military regimes undermined the rule of law, facilitated the looting of public funds, weakened public institutions and free speech, and fostered a secret and opaque culture in government. The consequences included insecurity, poor economic management, human rights abuses, ethnic conflicts, and capital flight.
While previous studies have examined corruption in Nigeria, none have specifically focused on corruption in the oil and gas industry. This study aims to fill that gap by concentrating on corruption in the oil and gas sector in Nigeria.
1.2 STATEMENT OF THE PROBLEM
Over the years, the oil sector has been a major source of income for Nigeria, with significant participation in foreign exchange due to oil exports. However, there has been a substantial drop in the price of oil in Nigeria. The belief is that the United States, a major patron of the Nigerian oil sector, has reduced its purchases from Nigeria due to the discovery of more oil sectors elsewhere, which sell at a subsidized rate compared to Nigeria. Consequently, for the country to remain competitive, the price of oil must decrease. Concerns have been raised that this drop in oil prices will have a significant impact on the real gross domestic product (GDP).
1.3 RESEARCH QUESTIONS
1. Does crises and corruption have any effect on the drop in oil prices in Nigeria?
2. Since there is a drop in the price of oil, indicating a reduction in the export rate, why doesn’t the government release more oil to individuals?
3. Is there any way the government can mitigate the effects of crises and corruption on oil production and exportation from Nigeria?
4. Is there any way the government can address crises and reduce corruption, especially in the oil sector?
5. Can the real gross domestic product of the country grow with a high rate of export?
1.4 METHODOLOGY
This paper is part of a larger research project with a comparative research design. It aims to address the research gap by using a newly elaborated comprehensive matrix of central contextual factors concerning the potential relationship between resources and violence. The matrix considers assumptions from recent branches of the resource curse theory, general theoretical approaches of peace and conflict research, and the debate regarding the “political economy of war.”
1.5 AIM AND OBJECTIVES OF THE STUDY
1. To determine the effect of export rates on the real gross domestic product.
2. To investigate the effect of the drop in oil prices on the availability of petroleum in Nigeria.
3. To determine how to balance the export rate and the real gross domestic product of Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
This research aims to establish a significant relationship between real gross domestic products, exchange rates, interest rates, oil prices, and gross domestic capital. The study will also assess the effect of export rates on the real gross domestic product of Nigeria.
1.7 SCOPE OF THE STUDY
The primary data source for this research is the Central Bank of Nigeria (CBN) Statistical Bulletin 2011, and secondary data was obtained from books, journals, etc. The research utilizes regression analysis and other econometric tests.
1.8 DEFINITION OF TERMS
Real Gross Domestic Product: A macroeconomic measure of the value of economic output adjusted for price changes, transforming nominal GDP into an index for the quantity of total output.
Gross Capital Formation: The total value of gross fixed capital formation (GFCF), net changes in inventories, plus net acquisitions less disposals of valuables for a unit or sector.
Reference:
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Adebiyi, M., Adenuga, A., Abeng, M., & Omanukwue, P. (2009). Oil price shocks, exchange rate, and stock market behavior: Empirical evidence from Nigeria.
Adeniyi, O. A. (2010). Oil price shocks and economic growth in Nigeria: Are thresholds important? Department of Economics and Business Studies, Redeemers University.
Adeniyi, O., Omisakin, O., Yaqub, J., & Oyinlola, A. (2012). Oil price-exchange rate nexus in Nigeria: Further evidence from the Nigerian economy. International Journal of Humanities and Social Science, Vol. 2(No. 8).
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