IMPACT OF EXPORT PROCESSING ZONE (EPZ) ON ECONOMIC GROWTH IN NIGERIA

IMPACT OF EXPORT PROCESSING ZONE (EPZ) ON ECONOMIC GROWTH IN NIGERIA

ABSTRACT

The study of export processing zone and the Nigeria economic growth process was embarked upon to ascertain the extent to which export processing zones contributes to her economic growth and development and the need to on how to strength the export processing sub-sector with linkage to the rest of the economy as a safety not to reinvigorates earnings, the scope of the study with a review to answering the research questions employed ordinary least (OLS) regression methods on the data collect which ensured the amelioration of the impact of auto repressiveness of the error in the data used covering the period of study (1980-2007). The outcome of the results reveals that only export exhibited a negative sign, meaning that it does not contribute to the growth of the economy (GDP)but other rate determinations shows a positive sign i.e they are capable of improving the growth pattern of the economy. However, the explanatory variables accounted for 72 percent changes in economic growth. This reveals those variables are jointly significant in explaining changes in economic growth. The Durbin Watson statistics shows that there is absence of autocorrelation passed on the findings; the study recommends amongst other things that government enacts policies that should encourage the production of exportable capital goods which is capable of attracting price internationally.

CHAPTER ONE

1.0     INTRODUCTION

1.1      BACKGROUND OF THE STUDY

As one of the cost efficient tools for economic growth and development, export promotion policy has been taken by many countries since 1970. The role of export processing zone in economic growth and the relationship between these two have been subject of a wide rage of empirical and theoretical studies in international trade and economic development field

A state by Abou-stait (2005) the argument concerning the role of export processing zone as one of the main deterministic factor of economic growth goes back to the classical economic theories by Adam Smith and David Richardo. A free Trade Zone (FTZ) or Export Processing Zone (EPZ) IS ONE or more special area of a country where the conventional trade barrier such as tariffs and quotas are eliminated and bureaucratic requirement are covered with the objectives of facilitating trace, attracting new business and foreign investment amongst others. The major features of the current globalization phenomenon are openness, trades investment, finance, free flow of information and technological innovations. For Nigeria to participate actively and productively in this globalization process, it requires vibrant forward looking economic policies, particularly considering the fact that the present volume of trade and capital in flow into the country are relatively low thus resulting in high level of poverty, low per capital income as well as unfavourable balance of trade

Although most resent literatures claim that export processing zone promotes overall economic growth and that there is strong relationship between these two variable and that export expansion contributes to the rate of economic growth Usman and Salami (2008), this is not the cost for Nigeria. Osuntogun A (1997) noted that one major characteristic of Nigeria exports trade is the continued reliance on developed countries as market

This market concentration has been blamed, in part for the countries misfortune, as recessions in developed countries are usually transmitted to Nigeria. Osuntogun et al (1999) maintained that the negative effects from such shocks can be minimized by diversification of export markets; especially level of economic activity is likely to vary across regions. They agreed that the export processing zone policy stance, which also emphasizes the diversification of markets appears not to be yielding desired results because export to Organization of Economic Cooperation and Development (OECD) countries still dominate

So from the period structural adjustment programme (SAP) was introduced. Nigeria concerted efforts had been made to diversity Nigerian export sector by promoting non-oil exports. It is of note that man countries have successfully used the export processing zone (EPZ) development strategy to launch themselves on to the path of sustainable economic growth. Examples of such countries are; the republic of Ireland and the United Arab Emirates (Dubai). China’s current remarkable growth is also strongly linked to the free zone scheme. The importance of this sub-sector cannot be over-emphasized. Nigerians non-oil export which can broadly be classified into three namely; Agriculture Produce, Manufactured Exports and Solid minerals has great potentials. It is only of recent that the export potentials of solid minerals was brought to the force. The interest to promote non-oil exports was born out of not but also for its employment generation and poverty reduction ward linkages it offers as well as the desire to diversity the country’s production bases

According to Iyoha and Oriakhil (2002), in spite of SAP, the well publicized attempts to diversity to economy have not been successful

Although Harb (2008) found that toil revenue have no long-run effect on the macro performance of the economy and as such, cannot be blamed for bad performance for the economy. Zafar (2004) argued that volatility has become a prominent and endemic feature of the world economy and pronounced fluctuations in commodity prices, especially oil, have had a negative effect on the macroeconomic performance of many developing countries. The stressed that the management of volatility is very difficult in oil exporting countries in the developing world because fiscal revenue and macro economic performance are highly sensitive to frustration in the international oil price. The spiral effect of the global economic crisis on Nigerian. Economy continued in 2009 with the exorbitant lending rate mounting pressure on the stock market or a result of massive borrowed fund in the market. This decline was also driven by concerns over unrealistically high valuations in practically all sectors.

It is evident from the foregoing that the recent global economic crisis has further revealed that Nigeria economy is excessively exposed to external shocks. Although, various factors have been adduced to Nigeria’s poor economic performance, the major problem has been the economy’s continued excessive reliance of the fortunes of the oil market and the failed attempts to achieve any meaningful economic diversification, reflecting the affection of the so called “Dutch disease” the need to correct the existing structural distortions and put the economy on the path of sustainable growth are compelling.

Achieving cost reductions, maintaining and improving product quality while responding to customer demands require new business tools which will enable companies to improve their competitiveness in the global market. Manufacturing companies are therefore taking a greater interest in managing the total supply chain from multiple sourcing of raw materials to the production and final distribution of the finished product. Manufacturing companies are also taking steps to establish regional logistics/distribution centre, especially in Nigeria, to improve their competitiveness by reducing inventory and raw material procurement costs, and by providing swift, customer oriented Just In Time (JIT) service and value added logistic services. The concept of Export Processing Zone, (EPZ) differs slightly from one country to another when deciding upon establishing a successful export processing zone is to attract business investors, to bring capital and employment creation

1.2     STATEMENT OF THE PROBLEM

Export processing zone in Nigeria it is observed that, it has not in real terms been able to play such role as their counter parts in other parts of the world particularly as development strategy to launch themselves on to the path of sustainable economic growth, as observed in countries of the Asian Tigers, China, Republic of Poland and the United Arab Emirates (UAE) amongst others. While investment incentives provided are generous, restrictive provisions, corrupt and unwholesome practices as well as bureaucratic procedures erode their effectiveness. The interference of other government agencies with different regulations and diversities interpretations of the legal instrument establishing and guiding business operations in the zones have not been healthy for their success

Further more, the relatively obscure history of enterprises in the zones prevent them form utilizing international stock and bond market to raise funds, they have also not been able to make it to the customs territory by way of exportation. This means that only limited amounts of funds can be made available to them through guarantees provided by banks operating in the zones for them to borrow from abroad

A clear comparative advantage offered by the domestic economy to be exploited b export processing zones enterprises in also absent. The domestic economy offers so little in terms of supplies of skilled manpower, major raw materials for industrial manufacturing, and manufacturing support services (industry). the footnote nature of export zone enterprises that pre-deposes them to leave the zone any time does not create that feelings of permanence that gives investors confidence to invest in project

The performance of the export processing zones sector in the past three decade leaves little or nothing to be desired, in spite of the effort to promote the sector. The share of the sector (EPZ) in the country’s balance of payment, total export carrying has remained very low and it was29 percent in 2008 (CBN, 2008). The policy over the years has therefore to expand the operation of Export Processing Zone (EPZ) in a bid to diversify the Nations’ economic base. The diversification of the Nigerian economy is necessary for important reasons. The revenue generation capacity which gives credence to any argument for economic growth

The continued unimpressive performance of the sector (EPZ) and the unreliability of the external sector thus dictate the urgent need for a reappraisal of the thrust and contents of the development policies and commitments to their implementation. Indeed the need for a change in the policy focus and a shift in the export processing strategy in imperative

1.3     OBJECTIVES OF THE STUDY

The broad objective of this study is to appraise the viability of the Nigerian Export processing sector in the diversification of Nigeria economy.

The specific objective includes;

i.                   To analyze the contribution of export processing zone to the economic growth of Nigeria

ii.                 To evaluate the past efforts at revamping of export processing zone in Nigeria.

iii.              To identify the macroeconomic factors that are responsible for the performance of Nigeria export processing

iv.              To shed light on the extent to which export processing zone around the world have been the drives of economic activity

v.                 Highlight instance of economies with successful operation of export processing zone

1.4     RESEARCH QUESTIONS

According to the stated objectives above, the question that would be examined in the course of the study are as follows;

What has been the structure of the Nigeria’s Export processing Zone?

What extent has it contributed to her economic growth?

What has be the past government policies and at revamping the export processing sector?

To what extent is the export processing zone being the driver of Nigerian economy?

1.5     STATEMENT OF STUDY HYPOTHESIS

i.                   Ho: Export processing zone not contributes to the growth of the Nigerian economy

Hi: Export processing zone contributes to the growth of  the Nigeria economy

ii.                 Ho: Government effort does not revamp export processing zone in Nigerian

Hi: Government effort revamps export processing zone in Nigeria

iii.              Ho: Macro economic factors are not responsible for the performance of export processing zone

Hi: Macro economic factors are responsible for the performance of export processing zone

iv.              Ho: Export processing zone are not the driver of world economic activities

Hi: Export processing zone are the driver of world economic activities

v.                 Ho: Successful operation of economic activities does not promoter export processing zone

Hi: Successful operation of economic activities promotes export processing zone

1.6     SIGNIFICANT OF THE STUDY

The efforts of the recent global economic crisis in Nigeria have reaffirmed the argument need for economic diversification in the country. Although, no country is immune to such global crisis, the over reliance on oil and agricultural revenue by Nigeria exposes her economy excessively to external shock. Therefore, is the need to conduct a research of this nature to examine how to strengthen the export processing zone sub-sector with linkages to the rest of the economy as safety nets to reinvigorate earnings. Which includes the contribution of export processing zone to the economic growth of Nigeria, provision of detailed composition of the activities of the export processing zones in recent times and also identification of other factors that are responsible for the poor performance of the EPZ in Nigeria over the years?

1.7     SCOPE OF THE STUDY

The scope of the study is essentially done to shed light on the extent to which the export processing zone have been driver of economic activities thereby facilitating growth and development by launching our economy in which they are located into global economic recognition. This is intend to do by analyzing in conceptual, theoretical as well as empirical terms the efficacy of export processing zone to invigorate the Nigerian economy.

Further more; the study examines its impact on economic growth and development in Nigeria, which it also takes a closer look at the responsibilities of government and nature of regulation

The study with a view to answering the research questions would employ ordinary least square regression method on the data collection. The data would cover the period 1990-2012. The procedure employed would ensure the amelioration of the impact of auto-repressiveness of the error in the data used covering the period of study. Particularly with a view that majority of the determinants factor in the model are suspect of “extraneous”

1.8     ORGANIZATION OF THE STUDY

The study is partitioned into five chapters. Chapter one consists the background of the study, problem statement, objectives of the study, significance of the study, research questions, and the scope of study. Also contained in the same chapter comprises hypothesis statement, limitation of the study, organization of study. Chapter two of the study presents the literature review which includes its theoretical and conceptual framework of the Export Processing Zone (EPZs). Chapter three is the methodology used in the study, sources of data, analytical tools engaged and model specifications while chapter four in the presentation of data and discussion of results obtained from the analysis. Finally chapter five gives the summary of the major findings, conclusion and recommendation of the study.

CHAPTER TWO

2.0     LITERATURE REVIEW

2.1     CONCEPTUAL REVIEW

The literature of this study is premised on the role of export Nigeria processing zone (NEPZ) and it impact as an engine of economic growth in the 1960s, the Nigeria economy depended on the non-oil sector, particularly agriculture and some solid mineral exports for its revenue. With the advent of and the boom is crude oil exports in the 1970s, the oil sector took over as the leading sector of the economy. The huge foreign exchange accruing from oil export led to massive public sector investments, especially in the area of infrastructural development. Agriculture and solid minerals sub-sectors which use to be the back borne of the economy were neglected as resources were not adequately extended to them (Abubakar 1999)

Export processing zone (EPZs) are special enclaves usually (but not always) fenced in an area of Ten (10) to Thirty (30) hectares which firms, mostly foreign companies, enjoy a special status in terms of exports and imports, taxation, provision of infrastructure and a liberal regulatory environment (Hogan and Onwioduokit 1996). The setting up of export processing zone (EPZ) resulted from the disappointing performance of the import substitution industrialization strategy. This had led to a shift o emphasizes among developing countries towards an export oriented development. Current economic reform programmes emphasizes trade reform policies as being essentials for developing countries to become integrated into the world economy. Trade policy measure include exchange rate policy, export policy and import policy (Tadaro and smith 2009).