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THE EFFECTS OF UNRESTRAINED IMPORTATION IN INDIGENOUS INDUSTRIES

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The Nigeria economy has undergone structural changes in the past three decades form a predominantly agricultural economy in the 1960s to an economy mainly reliant on oil form the mild 1970 the result was that the consumption to rationalize imports when the oil boom gave way to an oil glut led to the emergence of trade arrears.  A growing debt burden also surface in the early 1990 as a result of jumbo loans acquired form the international capital market.

Most less developed countries including Nigeria have turned to import substitution policy in order to become self-sufficient and  to help develop indigenous industries that will need raw materials in order to production these products most of these imputs are not locally available.

Consequently the industries depends heavily on imported inputs of raw materials machinery capital equipment and general consumer goods it requires therefore a complementary development in the agricultural sector which provides the earning necessary to finance the minimum level of imports required to sustain the continued growth of the local industries. Foreign trade has been and is today an economic force that has spurred commerce, promoted technology and growth, spread cultural patterns, stimulates exploration and brings prospect for world peace and international relationships. Foreign trade in its early beginnings was necessary, not just because it provided one society with products such as cowries from Africa to other areas; foreign trade also formed the basis for cultural interchange, thus trading not only on product, but also on lifestyles, customs and technology. It has helped to improve the living standard of nations and also, the national income. Foreign trade means the exchange of goods and services across international borders or between nations of the world. The analysis of an economy in terms of growth rate and per capita income has been based on the domestic production, consumption activities and in conjunction with foreign operation of goods and services. Foreign trade plays a vital role in reorganization of economic and social attributes of countries around the world, particularly, the less developed countries. Foreign trade has been an area of interest to decision makers, policy makers as well as economists. It enables nations to sell their domestically produced goods to other countries of the world (Adewuyi, 2002). Foreign trade is achieved when it facilitates the national and international mobility of factors of production, the exchange of ideas and improved technology which leads to international allocation and distribution of resources. Foreign trade leads to steady improvement in human status by expanding the range of people’s standard of living and preference. Foreign trade plays a vital role in reforming economic and social attributes of countries around the world, particularly, the less developed countries because no country is self sufficient to trade alone. Before the discovery of oil in 1960’s, the Nigerian government was able to carry out investment project through domestic savings, earning from agricultural product exports and foreign aids. Since the discovery of crude oil in 1956 and its exploration in commercial quantity in 1958 however, the oil sector gradually became the dominant sector in the economy, and almost the sole source of export earnings. For instance in 1970’s petroleum constituted of about 78% of Federal Government revenue and more than 95% of export earnings (World Bank, 2002). With the oil boom in 1973, the country’s foreign exchange earning raised immensely, which translated into higher economic growth, to the extent that there was no fear of expenditure in the part of government even on necessary issues. Since the advent of oil as a major source of foreign exchange earning Nigeria in 1974 the image has been almost that of general stagnation in agricultural exports. This led to the loss of Nigeria’s position as an important producer and exporter of palm oil produce, groundnut, cocoa and rubber (CBN annual report, 2006). Between the year 1960 and 1980, agricultural and agro-allied exports constituted an average of 60% of total export in Nigeria, which is now accounted for, by petroleum oil export, (CBN Annual Report and Account, 2004). Furthermore, by 1977, export stood at N7, 881.7million. Between 1960 and 1977, value of export grew by 19%. It should be noted that before 1972, most of the export were agricultural commodities like cocoa, palm produces, cotton and groundnut. Thereafter, minerals, especially crude, petroleum, became significant export commodities. Imports also increased in values during the period. By 1960, import were valued at N432 million. They increased to N758.99 million and N813.2 million in 1970 and 1978 respectively, rising to N124, 162.7 million in 1992 and N681, 728.3 million in 1997. Non-oil GDP recorded a growth rate of 8.9%, compared with 8.5% in 2010. The improved performance in the sector was driven largely by the agricultural sector which grew by 5.7%, underpinned by robust growth in all its components. However, from 1974, food import became obvious in Nigeria’s foreign trade. The country had an unfavorable trade balance from 1960 to 1965, partly because of the aggressive drive to import all kinds of machinery to stimulate the industrialization strategy pursued immediately after independence. Thereafter, export of crude petroleum guaranteed a favorable trade balance. The oil sector dominates export while the non-oil sector dominates import. Between 1960 – 1970 oil export grew by 31.6% and 44.6% respectively. Also, for this period, nonoil export showed marginal growth of 1.2% and 6.6%. Nigeria experienced a growth transition in 2011, which highlighted a gradual shift away from primary production to secondary and tertiary activities. Primary production activities, comprising agriculture, crude petroleum and natural gas, and solid minerals dominated economic activities in 2011 with a share of 55.30% of GDP, compared with 57.09% in 2010. By contrast, secondary production activities of manufacturing, building and construction which have a greater potential to expand the country’s productive base recorded a share of 6.25% of real GDP in 2011. The tertiary sectors have shown an upward trend in the last five years, accounting for about 39% of the GDP during 2011 compared with about 37% in 2010. The development of secondary and tertiary sectors showed a gradual expansion of the productive base, resulting in reduction in the dominance of primary activities in the economy. In the merchandise trade, crude oil export continued to dominate total exports, accounting for 92% by end 2011 as against 93% in 2010. Equally, crude oil exports amounted to US$79.81 billion compared to US$63.73 billion during the period. It was equally noted that the United States of America was the dominant destination of Nigeria’s exports, accounting for 53% of total exports, while Europe and Asia accounted for 23% and 12%, respectively during the

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