The study examined the government as a catalyst to agricultural growth in Nigeria. Specifically, the study investigated the impact of public expenditure on agriculture; bank credit to agriculture and interest rate on agricultural output in Nigeria from 1985 to 2018. The Ordinary Least Square (OLS) was utilised to estimate the model and various post-estimation tests were employed to ensure that the result is statistically reliable for policy analysis. The results from the findings showed that public expenditure on agriculture and bank credit to agriculture had a positive and significant impact on agricultural output within estimated period. A percent increase public expenditure on agriculture and bank credit to agriculture will result in 0.35% and 0.69 % increase in agricultural output. In addition, interest rate had strong negative impact on agriculture output. A percent increase in interest rate will reduce agricultural output by 0.05 %. The combined influence of the explanatory variables had strong influence on agricultural output. The study contributed to the subject by providing empirical evidence that the growth of the agricultural sector is driven by the funding of government and financial institutions. The study suggested that the agricultural sector should be well funded to stimulate productivity and make the country more food secure
1.1. Background to the study
Agriculture can be simply be defined as the cultivation of land and rearing of animals for the purpose of feeding for survival. It is a concept that highlights the importance of agriculture in every society. Agriculture has been identified as a significant key growth engine in the Nigerian economy and has a crucial role to play in achieving vision 2020 in Nigeria. According to the vision, the agriculture sector shall be a technologically driven sector that is profitable, sustainable and meets the socio-economic aspirations of Nigerians (Abuka & Ebiemere, 2015). Agriculture is the bedrock of Africa’s economy, with about 70% of Africans living in rural areas and roughly 80% of the poor largely dependent on farming for their livelihood. Nevertheless, in an agrarian economy such as the type that exists in Nigeria, agricultural production provides the necessary tool for a sustainable development to flourish. Apart from being the main source of food for most of the population, the agricultural sector makes a substantial contribution to GDP and has therefore remained important to the Nigerian economy. It provides the livelihood for more than 70% of the population, as well as being a significant source of raw material for the agro-allied industries and a strong source of the much-needed foreign exchange earnings (World Bank, 1998).
Government spending is referred to as an outflow of resources from government to other sector of the economy (Umaru, 2012). Government spending or public spending is subdivided into current and capital expenditure. Capital expenditure has been identified as payment for non-financial assets used in production while current expenditure are payments for repayable transactions within a year (CBN, 2003). Government spending in Nigeria has continued to rise due to enormous revenue from crude oil production and sales, and the increase demand for public goods such as roads, communication, power, education and health, (CBN, 2003), leaving very little allocations to the agricultural sector. Overall government spending (capital and recurrent) and its components have continued to rise over the past three decades, according to available statics gotten from EOGBA Annual reports. According to Owoputi & Alayande 2010, government expenditure is defined as those expenses and expenditures incurred by government in the course of maintaining herself, the society and improving economy. Government spending, in other words, public expenditure is reflected in existing budgets. These budgets indicate how much will be spent and how much money will be extracted from the stream of private spending by taxation (Everett, 2011).
Generally, government expenditure has been a topic of concern for academics as well as macroeconomic policymakers because to its impact on an economy’s growth rate. Many political philosophers like Hobbes and Locke considered the supposed disadvantages of life without government (Miles, 2013). This must have provided governments in Nigeria and other developing countries, where market failures and other social unjustified vices are predominant, the push to exercise greater control and prudence over their economies. They do this through periodic resource allocation planning and productive spending in critical areas of need. Thus, government expenditure has become an important factor for self-sustaining improvements in productivity and long-term growth, which is clearly a major goal of government expenditure policy. Therefore, it is imposed on government to allocate public spending across different sectors of an economy to maximise the prospects of achieving its goals of growth and development. The concept of Government expenditure comes under the latter view of one of the three specific fields of finance which are corporate finance, personal finance, and public finance. The principles of government expenditure are canon of economy; that is government should be efficient in its spending so as to reduce wastage of resources, canon of benefit which says that government expenditure must be expanded in a ways that will maximise social benefits of the citizens, canon of equality implies that there should be a reduction in the disparity in the distribution of income, and canon of sanction (authorisation) implies that no expenditure should be incurred without the proper approval from the appropriate authorities. The factors that determine government expenditures are urbanisation, population, economic growth, deprecation, technological change and reduction in inequality. Therefore, expenditure discusses the circumstances on how spending is and must be structured and this expenditure structure enables accounting aspects of fiscal control and other expenditures. Government expenditure is usually categorised as recurrent and capital expenditure (Ogba, 2011).
Fiscal policy is perhaps the single most effective policy instrument available to governments of most developing countries for fostering growth and fair distribution. Besides the fact that fiscal policy is used to boost technology, human capital and infrastructure development needed for growth, it also provides the opportunities and enabling environment to encourage private sector investments in order to further growth. Fiscal policy involves the use of public expenditure and taxes to manipulate the economy. Scholars like (Yousif, 2000), (Ogan & Shrma, 2008) concluded that expansion of government expenditure and tax contributes positively to economic growth but, some scholars did not support the argument that increasing government expenditure and taxes promotes economic growth, instead they emphasised that higher government expenditure and taxes can slow down overall performance of the economy. A list of factors has been raised for the relatively poor quality of Nigeria’s agricultural sector. Key among these include poor infrastructure base, policy inconsistency, interest and foreign exchange rate unpredictability, and excessive intervention by the public sector that sends wrong signal to the private sector. Other important constraints include insufficient public agricultural expenditure, over reliance on petroleum revenue, rural-urban migration, inadequate process and storage capability, small size of farm holdings, ageing population, use of outdated conventional technology and growing population pressure, etc. One of the major challenges facing rural farmers is lack of access to adequate and just credit and as such, the existence credit scheme has decreased the inflow of credit to the Nigerian farmers, decreased the acquisition and adaptation of new improved quality seeds, fertiliser, pesticide and machines among the beneficiaries’ farmers (Olufolji 2009). Therefore, the expansion of farmers’ output and income earnings goes with expansion of food production, food security, domestic trade, per capita output and income, standard of living and import substitution on food locally produced. This will boost the economy and stimulate growth in Nigeria. Also, the commercial agricultural credit scheme is planned in order to fast track the development of the agricultural value sector of the economy by provision of credit facility at single interest rate to large scale commercial farmers. The scheme has also improved the commercial and large-scale agricultural production in Nigeria (Ogbalubi & Wokocha, 2013), and the scheme enhances the Nigeria export commodities and foreign exchange earnings, foreign trades and investment. Hence this study is poised to examine and appraise how the government expenditure over the years (1985-2018) have been supporting the agricultural sector in terms of growth in the sector and the economy at large as well as map out areas in which can be improved on.
1.2. Significance of the study
This study will serve as a groundwork or base for future researchers who may wish to embark on the investigation on assessing the impact of agricultural policies on Nigerian economy and the issue of: to what extent has the macroeconomic factor, government agricultural expenditure influenced the level of agricultural growth? And this issue ought to be settled using empirical proof. This research will equally contribute in providing the decision makers and other key actors in the government with the strategic roadmaps that will necessitate prompt, responsive and efficient policy making in Nigerian agricultural sector. Finally, it will serve the academia as a useful bibliographical reference which will stimulate research for other related studies in relation to agricultural policies and their impact in Nigeria’s economy.
1.3. Statement of the problem
The agricultural sector has been affected with various issues which has been the result of the poor performance of the sector itself. Over the years, the sector has witnessed rapid decline in its role and contribution to national development (Ogbalubi & Wokocha, 2013). Agriculture can be said to have been abandoned in favour of other booming economic sectors, such as the oil and gas sector. This situation started with the “oil boom” that contributed to the agricultural sector’s rapid decline. However, this has drawn various strategies, including the expansion of public spending on agricultural activities by different government in the country but this expenditure may have been growing overtime without corresponding expansion or growth of the agricultural sector and why is this so? This is because there is still a huge importation of rice, fish and other agricultural products into the country remain, farmer’s incomes are still highly unequal, and food is still costly for consumers. Agricultural infrastructure remains weak i.e. farmers are still making use obsolete agricultural tools and techniques. More than 85% of Nigerian farmers do not have access to agricultural extension services and lack the necessary agricultural infrastructure to increase productivity.
The agricultural situation in Nigeria remains weak and largely underdeveloped, constrained by the lack of cooperation between the private and public investment to improve agriculture production. The sector relies on primitive methods to maintain it for the population without any attempt to add value. It is evident that the agricultural output was very low due to lack of financial assistance and soft loans to boost agricultural output, which has a negative impact on the Nigerian economy. According to Falola and Haton (2008), the state of this sector has been blamed on oil glut and its consequences on several occasions neglecting other factors that affect agricultural growth. As a result, farmers are restricted by many issues, including poor infrastructure, limited access to modern inputs and credits, land and environmental degradation, the inability to meet the financial services requirements of farmers and agricultural business owners, and the failure to meet up with international standards, and the issue of excessive importation of agricultural products in Nigeria. This study must therefore evaluate and examine the government’s previous efforts in the agricultural sector and plans to revitalise the agricultural sector in order to enable growth in the country and aims to hinge the relationship between Nigeria’s government spending and agricultural growth from 1985 to 2018.
1.4. Research Questions
- Is there a long run relationship between government expenditure and agricultural growth in Nigeria?
- What are the trends and patterns of government spending on agricultural growth in Nigeria?
1.5. Research Objectives
The main objective of this study is to examine the impact of government expenditure on agricultural growth in Nigeria from 1985 to 2018. The specific objectives of the study includes to:
- Determine the long run relationship between government expenditure on agricultural growth in Nigeria from 1985 to 2018.
- Investigate the trend and pattern between government expenditure on agricultural growth in Nigeria from 1985 to 2018.
- : There is no existing long run relationship between government expenditure on agricultural growth in Nigeria.
: There is an existing long run relationship between government expenditure on agricultural growth in Nigeria.
- : There is no existing trend and pattern between government expenditure on agricultural growth in Nigeria.
: There is an existing trend and pattern between government expenditure on agricultural growth in Nigeria.
1.7. Justification of the study
The motive behind the study is the current agricultural sector situation in Nigeria as most literatures made use of past data like Abula (2016), Obayori (2016) and Ogboru (2017). The purpose of this study is to use existing data to assess if government spending on agriculture has contributed to economic and agricultural development in Nigeria from 1985 to 2018 and also shed light on their individual persuasions.
1.8. Scope and limitation
This study seeks to determine the impact of government expenditure as a catalyst to agriculture growth in Nigeria. The study adopts the use of qualitative data (secondary data ) where there is the analysis and long run relationship between government expenditure on agriculture and economic growth in Nigeria by using a timeline analysis of 1985 to 2018, over thirty three years. The secondary data will be obtained Central Bank of Nigeria Statistical bulletin, NBS (National Bureau of Statistics) among other sources. Some of the limitations includes inadequacy of data, or near absence of a reliable and up to date data, from sources such as (National Bureau of Statistics, Central Bank of Nigeria), as well as the lack and scarcity of literature.