CHAPTER ONE

INTRODUCTION

1.1 THE BACKGROUND OF THE STUDY

The economy is the backbone of any nation. Nigeria like other development

countries of the world is paying more attention on how to accelerate the rate of

development through the various sections of the economy.

Oil a very versatile and flexible non-productive depleting natural

(hydrocarbon) resource is a fundamental input to modern economic activities

providing about 50% of the total energy demanded in the world excluding the

former centrally planned economy. Oil exploiting countries of the world depend

heavily on oil revenue for foreign exchange earnings and for the government

budget in most cases reaching 90% or above.

Petroleum or crude oil is an oily bituminous liquid consisting of a mixture

of many substances mainly the elementsof carbon and hydrogen and thus known

as hydrocarbon. It also contains a very small amount of non-hydrocarbon element

chief amongst which are sulphur nitrogen and oxygen. Petroleum industry covers

the exploration and production of crude oil as well as petroleum refining

marketing and servicing. Specific policy objectives with respect to petroleum and

mining can be summed up us follows. Active government participation in mining

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operations diversification of mineral products the organization and regulation of

the development of mineral resource so as to optimize their contribution to the

overall national development effort the conservation of the countries mineral

resources research into efficient extraction methods and wider application and use

of mineral manpower development of internal self sufficiency in the supply and

effective distribution of petrol industry products commercialization of gas and the

control of the environmental problems of oil production (Obudun 1987).

Though oil did not assume its present significant position in the natural

economy until the early 1970s it is not a novel revelation that it has since become

the mainstay of contemporary Nigerian economy. Petroleum either as petrol

dieselfuel oil lubricant or petro-chemical makes Nigeria’s economy wheel go

round.

Petroleum has transformed poor nations into rich ones desert into watersheds

and bankrupt nations into creditors. Specifically with respect to Nigeria there is

no gain saying that the oil sector has undergone tremendous transformation over

the years. (Anyanwa et al 1997).

The industry has emerged from being merely the “supportive” economic

sector it was in the 1960’s to the predominant source of foreign exchange and

most viable access to international investment opportunities in the 80’s and 90’s

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no other resources in Nigeria has played such a towering role over the national

economy as crude oil. The government of Nigeria has used the revenue derived

from oil through tax and royalties to carry out development projects in the country

(Iyohu 2000).

This study therefore aims to illustrate clearly the impact of oil industry on

economic growth performance in Nigeria.

1.2 STATEMENT OF THE PROBLEM

The over – dependence on oil has created vulnerability to the vagaries in the

progressing section that shows the contribution of oil to some macroeconomic

variables. In particular the lace of oil in the psyche of the average Nigerian oil

industry in 2003. The contradiction is more external earning for Nigeria and also

increased tax burden on imported refined petroleum products.

Some scholars have advocated for the shifting of emphasis from the oil

industry to other sectors owing to their belief in the negative fallouts of the oil

industry; some others opined that the sectors should be promoted and developed

for its benefits. These opposing views have created the problem of acceptance or

otherwise of the oil industry in Nigeria.

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In view of the controversy with respect to the relative contribution of the oil

sector compared with other sectors it is imperative to establish empirically the

relative impact of the oil industry in the Nigeria economy.

1.3 OBJECTIVE OF THE STUDY

With the development of petroleum in the Nigerian economy there has been

a growing interest and concern towards its contributions to the economy and

economic growth. By the end of the research the study aims at achieving the

following objectives.

 To find out the impact of oil revenue (oil sector) on gross domestic product

(GDP).

 To find the relationship between oil revenue and economic growth.

1.4 STATEMENT OF THE HYPOTHESIS

The following hypothesis will be tested in this study:

H

o

: Oil has no effect on the economic growth in Nigeria

H

1

: Oil has a significant effect on the economic growth in Nigeria

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1.5 SIGNIFICANCE OF THE STUDY

The study will be beneficial to the following:

 It will be relevant to oil companies operating in Nigeria in many of their

operational and investment decisions.

 It will equally serve as a source of information for the policy makers and

stakeholders in the industry.

 It will also guide the government and its agencies in regulating the industry.

 It will serve as a source of information (data) to students in their field of study.

1.6 SCOPE AND LIMITATIONS OF THE STUDY

This research work is an investigation into the impact of oil industry on economic

growth in Nigeria (1980-2010).

In carrying out this research work the researcher encounted some

difficulties. The first of such constraints or difficulties concerns data collection

from different sources. Also was the reluctance of some library or Liberians to

make data available.

Apart from the above mentioned constraints which are capable of adversely

affecting the accuracy of the results of this research work all other errors and

omissions are entirely those of the researcher.

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REFERENCES

AgbeJule T.A.O.L. (1987) “Collection of revenue in Nigeria” seminar held at the

Federal Place Hotel Lagos.

Ailemen M.I. and Oleosodo L.A. (2000) The Oil Industry and Environmental

problems in Nigeria(A Case study of Nigeria Delta Area).

Biodun AdedipePh.D The Impact of oil on the Nigerian economy.

Obadan M.I (1987) The Impact of petroleum on the Nigerian Economy.

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