THE RELATIONSHIP BETWEEN NIGERIAN GROSS DOMESTIC PRODUCT AND FINANCIAL INVESTMENT IN THE TRANSPORT, UTILITY, CONSTRUCTION AND REAL SECTORS(1990-2009)

ABSTRACT

Nigerian development depends much on the construction to improve its value. The aim of this research is to examine the relationship of building and construction sector on Gross Domestic Product and other related sector of the economy. The real sectors that generate the bulk of construction suffer government negligence due to lack of steady GDP in measuring the performance of these sectors. The objective of this research is to determine the relationship existing between building and construction sector against real sector and GDP against real sector. The research assumed that the sector studied have a substantial input on building and construction, and there was a continuity in government over the period of study, social, political, government policy and the stability throughout the period. Data was collected from Central Bank of Nigeria statistical bulletin

2009 of gross domestic product prices in millions of Naira (1990 -2009). The data obtained was analysed by Simple linear regression analysis and the trend over time. Conclusion were drawn, the first experiment between construction and six sectors of the economy tested positive with low R2 value ranging from 2% – 4%. Construction and other sectors of economy measured against GDP ranging from 9% to 95%. Finally the multiple regression ranges between 59-95%. Recommendation were made due to the low level of R2 values of construction against the real sectors and the GDP against construction and the trends over time is not static, it fluctuates with time. That provides cause for worry, efforts should be made to improve the low level of R2 value to a significant level by government prioritising the construction sector since the industry forms a foundation for development of any nation. Further studies could be carried out of periods between (1990 – 1999) ten years military regime and (2000 – 2009) ten years civilian regime in other to form a basis for comparison. Federal ministry of finance should consider the dollar value to form a basis for budget preparation and resources planning.

CHAPTER ONE

1.0      INTRODUCTION

1.1       Background of the study

The construction and building industry plays an essential role in the socio-economic development of a country. The activities of the industry have great significance to the achievement of national socio-economic development goals of providing infrastructures, sanctuary and employment. It includes hospitals, schools, townships, offices, houses and others; urban infrastructure (including water supply, sewage, drainage) highways, roads, ports, railways, airports, power system, irrigation and agricultural system, telecommunication. It deals with all economic activities directed to the creation, renovation, repair or extension of fixed assets in form of buildings, land improvement of an engineering nature.

Besides, building and construction, the industry generates substantial employment and provides a growth impetus to other sectors through backward and forward linkages. It is essential therefore that. These economic development is nurtured for the health growth of the economic increase or alternatively did economic expansion strongly contribute to construction growth instead. Building and construction sector are considered to be one of the major sources of economic growth, development and economic activities. It can be regarded as a mechanism of generating the employment and offering job opportunity to millions of unskilled, semi-skilled work force. It also plays key role in generating income in both formal and informal sector. According to federal office of statistic that, building and construction sector is one of the most neglected sectors in Nigeria. Although the construction sector has less than 1.% share in the GDP of the nation from (1999 – 2009).

(Fajana 1975; Fadupe and William, 1985) stated that the Building and construction sector in any nation are considered as a major indication in the growth of the Nation, both in economic and social terms. The quality of public services delivery, including utility and infrastructure services, remains low in recent times, undermining Nigerian competitiveness. Until recently, much of federal government Spending remains outside the budget process. The control mechanism have been incapable of halting unauthorized extra budgetary spending for political and non-productive programmes. Society’s goals are multi-varied and often contradictory and yet the resources and means of meeting them are limited both in size and the range of instrument available within any feasible period.

1.1.1    The Nigeria Economy

The Nigerian economy has witnessed a lot of economic crises that had to do with its management. Such economic problems arose because of over dependence of the economy on oil, the oil glut, balance of payment deficits, and its drain in reserves, low productivity of all sectors of the economy, inflationary pressure, unemployment and smuggling. Therefore the building and construction could be seen as one of the components for the measuring of the gross domestic product of a country, as such whatever affects the industry will automatically affects the GDP. Base on the world bank publication of 2008 the building and construction industry – issues and strategies in the developing countries has it that some 44% of the total cost of project approved for assistance by the world bank and its affiliate goes for construction works. However, there is need to create awareness in buildings profession due to increase in demand in construction maintenance of building and both public and private sector as these could be achieved by managing construction resource like material, labour plant money effectively.

A lot had been done in the field of management of site resources employing various technique of management such as bar-chart, critical part analysis, S-graphs, cost ceiling systems, budgetary control techniques and the use of computer in resource management yet not much have been done in the field of cost data of site resources to provide some form of guide lines for cost planning, prediction and seasoned scientific advice to government officers.

1.2       Significance of the period under Review (1990 – 2009)

Despite the availability of national resources, population, and domestic markets, all sectors of the Nigeria economy performed below their potential during the period of this study (1990 – 2009). The economy remained stagnant (unchanged and over –dependent on the oil sector. The largely subsistent agricultural sector failed to keep up with rapid population growth, forcing the one-time food exporter to import food, inter-sectorial linkages remain weak and the rate of unemployment remain high and problematic. Most observers of the Nigeria scene-domestic as well as foreign-attribute the poor performance and the oil sector to a variety of reasons. Management, inadequate infrastructure, and non- properly budgetary implementation.  November 1996, the military ruler Abacha set up a committee which looked into the various sectors of the economy including construction sector, which was first on the list, no tangible progress has so far been made. The Nigeria economy has a truncated history. In the period 1990 – 2009 the Gross Domestic Product (GDP) recorded 3.1% during the oil boom. Agriculture has suffered from years of mismanagement in consistent and poorly conceived government policies, and the lack of basic infrastructure. Still, the sector accounts for over 26.8% of GDP and two thirds of employment in Nigeria is no longer a major exporter of Cocoa, groundnut, (peanuts), Rubber and palm oil etc., Nigeria land tenure system does not encourage long-term investment in technology or modern production (www.worldbank.com).

Agriculture has failed to keep pace with Nigeria rapid population  growth, so that the country, which once exported food, now relies on import to sustain itself. The oil boom of the 1970s led Industry Nigerian to neglect its strong agricultural and light manufacturing basis in a favour of an unhealthy dependence on crude oil. In 2000, oil and gas exports accounted for more than 98% of export earnings and about 83% of federal government revenue new oil wealth, the concurrent decline of other economic sectors and a lunch toward a statistical economic model fueled massive migration to the cities and led to increasingly widespread poverty, especially in rural areas. A collapse of basic infrastructure and social services. Service & communication, transport, utilities low power and telecom density has crippled the growth of this sector. World bank (2008) statistical Bulletin Vetica Research .

1.3       Aim

To examine the Relationship of building and construction sector- on Gross domestic products and the real sectors on the Nigerian Economy.

1.4       Objective

Based on the aim stated above the following are the objectives of the study

1.   To determine the relationship between construction and the real sectors.

2.   To determine the investment trends in the real sectors

3.   To determine the Relationship between GDP and the real sectors

4.   To determine the trends in GDP over the years..

1.5       Statement of the Problem

The research problem of this study is concerned with the identification of the interrelationship that exist between the building and construction and other related sectors of the economy that are responsible for domestic production over time. Construction related Sectors that generate the bulk of construction have suffered government neglect.

Interdependence between the building and construction sector and other related sectors need to be properly studied, understood and new trend in order to enhance the performance of the Nations Gross Domestic Products.

1.6       Need for The Study

The re-orientation and re-ordering of government public fiscal policies in a way that acknowledge the relative importance of sectors based on their contribution to the GDP will address most of the problems that plague the construction industry today. Such re- orientation will engender allocative efficiency in the system. To accomplish such re- orientation however, knowledge of the various interrelationship that exist between sectors of the national economy responsible for domestic production in Nigeria is an essential sine qua non. This study is concerned with the establishment of the magnitude of the degree of influence of economic sectors on the totality of domestic output in the country as measured by GDP.

1.7       Pilot Survey

A pilot survey was undertaken. The survey sought to establish the relationship and contribution of building and construction to eight activity sector – industry. Agric, health, Real-estate, education, utilities, communication and transportation, and the relationship exist between GDP and the nine sector of the economy-building construction, industry, agric, health, real-estate, education, utilities, communication and transportation.

The data were obtained from Central Bank of Nigeria Statistical bulletin 2009. Values in naira terms and naira dollar value for over 20 years period (1990 – 2009) were used. Simple linear regression and analysis of variance (Anova) were employed as statistical tools. The result of the experiment is displayed.

Experiment 1 – 8 all had positive correlation R2  for all the experiments were also generally very high between 69 -98% and experiment 9 and 17 had positive correlation R2 values of the f-calculated exceed those of the f-tabulated.

Inference were drawn that as the GDP rise so also the contribution of the sectors to the GDP rises, and as building and construction rises so also the contribution of their sector of the economy rises. Statistically significant relationship thus existed between building and construction and the dependent variables tested namely: real estate, utilities, transportation, communication, industry, health and agriculture. And statistically significant relationship exist between GDP and the dependent variable tested namely building and construction real- estate, utilities, transportation, communication, industry, health, agriculture.

However, there was need for further experiment and survey to ascertain the true picture of the study and what is really obtainable at the present times; the following questions were deduce.

The existing data of Gross Domestic Product of selected sectors from 1990 – 2009 were used for the anaylsis which shows that all the R2 value where significantly high ranging from 57 – 99%. Therefore if the same data is converted and expressed in dollar values and the same experiments is conducted, what will be the nature of the relationship.

SUMMARY OF PILOT SURVEY RESULTS

RESEARCH ANALYSIS

Analysis No	Variable		Model	Regression Equation	R2%	Ftab	Fcal	Strength of Relation ship	Remark
	X Independent	Y dependent
1	Total GDP	Building       & construction	Linear	Y= 1188580 +70x	98	8.29	1218	Strong	SS
2		Real Estate		Y=794022 +22k	99	8.29	1930	Strong	SS
3		Utilities		Y=868145 +409x	97	8.29	556	Strong	SS
4		Transportation		Y=907914 +31x	59	8.29	26	Strong	SS
5		Industry		Y = 449322 +2.66x	86	8.29	116	Strong	SS
6		Agriculture		Y  =  -5699 +2.88x	85	8.29	1054	Strong	SS
7	Bldrs constr	Industry		Y = 8412 + 0.04x	85	8.29	104	Strong	SS
8.		Real Estate		Y=-4197 +0.31x	99	8.29	1438	Strong	SS
9		Utilities		Y=-21101 +5.67x	95	8.29	306	Strong	SS
10.		Transport		Y=-6197  + 0.43x	57	8.29	24	Strong	SS
11		Agric		Y=-13394 +0.04x	94	8.29	304	Strong	SS

Source: Authors Anylsis of Data (Regression analysis)>

1.8       The Hypothesis

In order to answer this question put forward by the pilot survey, the following hypothesis were formulated.

HO1: There is no significant Relationship between charges in GDP and changes in the investment of the real sectors.

HO2:   There  is  no  significant  Relationship  between  changes  in  constructions  and changes in the real sectors

1.9       Scope and Limitation

1.   The study covers Gross Domestic Product at current basic prices within Nigeria only.

2.   The study focuses only on the contribution of buildings and construction sector to other  related  sectors  of  the  economy namely real  estate,  utilities,  transport, industry.

3.   The study is applicable only within the stated time frame of 20 years period (1990 – 2009).

1.10     The study area (History of Nigeria)

Nigeria is situated in West Africa on the Gulf of Guinea and bounded by the countries of Cameroun in the Southeast, Chad to the Northeast, Niger to the North and Benin to West. These boundaries are relatively recent creation. Inspite of hill, rivers and plateau there are no natural boundaries, apart from the Atlantic Ocean to the south. However, the terrain is often difficult, with forest and swamps in the southern zone, thus, rivers and their tributaries form the natural arteries of communication.

Nigeria is at present the most populous nation in Africa and has long been one of the most prominent in terms of culture and civilization. At various times in its history it has been the site of civilization counted among the most powerful and prosperous of the continent with a consequent flowering of art and sophisticated workmanship in many fields.

Nigeria is a Federal republic, with thirty six states, having once been part of the British Colony in Africa it now participates as an independent and very important partner in the commonwealth. The present capital is Abuja, Which is more centrally placed within the country. Nigeria ranks as on of the most populous nation in the world summarily as seen from the forgoing, GDP is one of the most frequently used measures of economic performance or development and major change in the GDP of the nation may in fact reflect severe problems or impressive gains.

Similarly, the building construction industry is an essential sector contributing to the process of development of an economy. The products from this sector such as roads, irrigation works, schools, houses, hospital, factories and other contraction works are the very foundation on which development efforts and improved standard of living are established. The other sector of the economy depends largely on the construction industry to improve efficiency and productivity.

Therefore,  the  role  of  the  GDP  and  building  construction  industry to  the  nation’s

economic development can be over emphasized.

1.11     Assumptions of the Study

1.   There was continuity in government over the period studied social, political government policy were stable throughout the study period

2.   The sectors studied are assumed to have a substantial inputs on building and construction and naira dollar value is considered on each year.

3.   Change in macro-economic factors over the study period were assumed not to have any significant effects on the study.

4.   Data from Central Bank of Nigeria is reliably accurate

1.13     Summary of Chapter One

This chapter has looked at the Analysis of Relationship between trends and GDP in investment on real sectors in Nigeria economy 1990 – 2009). The objectives of this research study has therefore been to quantify the relationship between the real sector of the economy i.e  building  and  construction,  industry,  agric,  real-estate,  utilities  and transportation to the total GDP of the country. To also determine the relationship of building and construction sector to the real sectors of the economy i.e industry, agric, real-estate, utilities and transportation. The demand for construction projects is related to the level of domestic output and affected by the performance of the economic sectors of any country. Such performance is usually measured by analysis of the contribution of the sectors to the national economy. The construction industry usually account for between 3% and 8% of a developing country’s gross domestic product (GDP). About one-half of the gross fixed capital formation takes the form of construction output.

The data was collected from Central Bank of Nigeria Statistical bulleting 2009 and Federal Office of Statistics. The Gross Domestic Product (GDP) is an important measure of an economy’s performance. It measures the total output of all productive sector within a country over a specified period, usually one year, when output grows, it is very probable that standard of living  have improved.  Economics are affected by political, social, technological and economic instability and policies.

The research problem of this study is the problem of interdependence between the building and construction sector and the real sector is not static but change due to lack of proper resource planning. During the 20 years period 1990 – 2009. The study is necessitated by the need to provide some empirical guideline for cost planning project monitoring resource planning, advices to administration both in building and construction sectors and other related sectors of the economy, agric, industry, transport, utility and real-estate. The aim of these study is to examine the level of inputs of the building ad construction sector in relation to other related sectors of the economy. A pilot survey was carried out in order to identify particular areas to be tested, inferences were drawn from the pilot survey that as the building and construction sector rise, so also the other related sectors of the economy rises and as the GDP rises so also building and construction sector and other related sector raises.

The study was limited to Gross Domestic Product in Nigeria and with 20 years period of 1990 – 2009. Only the gross domestic products of these sectors considered Agric, utilities, transport, real-estate, industry and building and construction. The study assumed that the sectors studied are assumed to have a substantial inputs on building and construction sector. Data on all the above were obtained from Central Bank Statistical bulletin 2009, Federal Office of Statistics, Abuja. The study employed both descriptive and simple regressive analysis. Statistical inferences were drawn from the result (i) regression analysis.

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