ABSTRACT
The study empirical examines the impact of commercial Bank Loan on Agriculture development evidence from Nigeria from 1980 to 2010. Our objective is to investigate the influence of commercial bank loan on agricultural development using interest rate, money supply and deposit mobilization as checks variables. We adopted econometric method of analysis using the ordinary least squares (OLS), co integration and Error correction mechanism (Ecm). The results from the OLS revealed a positive relationship between agricultural output and commercial bank loan. However the error correction mechanism showed a slow recovery rate between agricultural output and commercial bank loans leading to the conclusion that its impact has been insignificant. Based on the findings, we recommend that monitory authorities in Nigeria should step-up their supervisory role to ensuring that commercial bank increase loan facilities to the agricultural sector of the economy also, stake holders in agrio-business should develop appropriate policy towards increasing agricultural output as it a key determinant of economic growth in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Agriculture is the dominant sector in terms of the proportion of the population involved in it. It provides the means of livelihood for the majority of the population in Nigeria. It accounts for about 70% of employment in Nigeria. It is obvious that agricultural production particularly food is an economic issue in Nigeria today. Prior to the advent of petroleum in 1970s, agriculture was the mainstay of the Nigerian economy and performed many assigned roles in the overall economic growth. Among the contributions of agricultural sector in a growing economy are those of providing adequate food for an increasing population, supplying new materials to agro-based industrial sector, constituting a major source of employment, income and foreign exchange earnings and a market for the products of the industrial sector.
An evaluation of the performance of the agricultural sector from the 1980,s shows a declining productivity in all the subsectors of its activities including its share of the cross domestic product and contribution to the economy. Available CBN statistics shows that agricultural sector contributed about 64.3% on the average to the GDP in the early 1960’s. However, agricultural output declined negligibly to 12.3% in 2000,s. The deterioration in the country’s agricultural sector became glaring that the country depended on food imports to bridge domestics supply shorts falls.
The weak performance of the agricultural sector of the economy with its attendant socio-economic burdens as evidence on a widening food-supply and demand gaps, galloping food price and rising food import bill and declining revenue created a balance of payment problem.
The deterioration in the external balance was accompanied with increase in the level of external debts. Debts over-hang and serving became much more burden some that absent 30% of annual earnings was earmarked for debt servicing to external loanors.
In view of the foregoing and in an effort to check the dwindling agricultural sector performance in Nigeria, the Federal Government prioritized the agricultural sector and direct the Commercial Bank through the CBN to devote certain percentage of their loanable funds to the sector to enable it meets its production needs. Nevertheless, to enhance increase in agricultural production, farmers have to adopt a capital intensive strategy and this call for additional demand for loan. As a result, most farming activities is still been carry out with traditional method. Subsistence agriculture cannot feed a teaming and rapidly increasing population such as Nigeria. Several studies have shown that Nigeria is endowed with fertile agricultural land, rivers, streams, lakes forest and grassland, as well as large active population that can sustain a high production and profitable agricultural sector. Adubi (2000) admits that this enormous resource base, if well managed could support a vibrant agricultural sector capable of ensuring sufficiency in food and raw materials for the industrial sector as well as providing gainful employment for the teaming population and generating foreign exchange.
The renewed drive by government and individuals to resuscitate agriculture to play its leading roles in the economy adds credence to the assertion by Gunner in Todaro (1977) that it is in the agricultural sector that the battle for long term economic development will be won or lost. Thee government Nigeria have initiated a member of agricultural policies, programmes and projects largely within the framework of successive development and nothing plans. One of such policy measure taking and adopted is policy of agricultural loan financing to boost agricultural productivity.
But after three decades of the policy implementation, all relevant indicators have suggested that the recovery of the agricultural sector has been sluggish and slow. Mathew (2008) pointed out the in spite of the potentials and magnitude of deposit of primary resources for effective agricultural activities in Nigeria, the sector has continuously having diminishing productivity. The impacts of these polices (commercial bank loans) on agricultural output in Nigeria is still largely unclear. The question from the above is, have the loan institutions especially Commercial bank been able to impact positively on the level of agricultural productivity in Nigeria?
In light of the above, this paper explores the association between commercial bank loans and agricultural output in Nigeria. Specifically, it seeks to determine the impact of commercial bank loan on agricultural output in Nigeria.
Following the above stated objective, we hypothesized that commercial banks loan has no significant impact on agricultural output in Nigeria.
STATEMENT OF THE PROBLEM
In Nigeria, agriculture remains the mainstay of the economy since it is the largest sector in terms of its share in employment (Philip, Nkonya, Pender and Oni 2009). In an effort to diversify her oil base economy, Nigeria is placing much emphasis on financing other sectors most especially agricultural sector, since agriculture has the potential to stimulate economic growth through provision of raw materials, food, jobs and increased financial stability. It follows that agriculture financing is one of the most important instruments of economic policy for Nigeria, in her effort to stimulate development in all directions. Finance is required by agricultural sector to purchase land, construct buildings, acquire machinery and equipment, hire labour, irrigation etc. In certain cases such loans may also be needed to purchase new and appropriate technologies. Not only can finance remove financial constraints, but it may also accelerate the adoption of new technologies
OBJETIVE OF THE STUDY
The objectives of the study are;
- Ascertain the impact of commercial bank loan on Agricultural development
- Identify the constraints militating against the agricultural financing in Nigeria
- To ascertain the relationship between agricultural financing and Nigeria economic growth
- Examine whether the impact of agricultural financing have reflected on the growth and development of agricultural sector in Nigeria
RESEARCH HYPOTHESES
For the successful completion of the study, the following research hypotheses were formulated by the researcher;
H0: commercial bank loan has no impact on agricultural output in Nigeria
H1: commercial bank loan has impact on agricultural output in Nigeria
H02: there is no relationship between agricultural financing and Nigeria economic growth
H2: there is relationship between agricultural financing and Nigeria economic growth
SIGNIFICANCE OF THE STUDY
This study, which is primarily aimed at explaining agricultural financing and economic growth in Nigeria, will provide an insight into the problems associated with agricultural financing and Nigeria economic growth. This report would be of great benefit for agriculture sector and Nigeria, to expose them to benefit of financing agricultural sector for economic growth of the Nation. The findings will be useful for researchers to further generate knowledge in the field
SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers commercial bank loan and Agricultural output in Nigeria. The researcher encounters some constrain which limited the scope of the study;
- a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
- b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
- c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.
DEFINITION OF TERMS
AGRICULTURAL FINANCING: Agricultural finance refers to financial services ranging from short-, medium- and long-term loans, to leasing, to crop and livestock insurance, covering the entire agricultural value chain – input supply, production and distribution, wholesaling, processing and marketing
ECONOMIC GROWTH: Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.
1.8 ORGANIZATION OF THE STUDY
This research work is organized in five chapters, for easy understanding, as follows
Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study
