Abstract
Nigeria is endowed with huge expanse of fertile agricultural land, rivers, streams, lakes, forest and grassland, as well as a large active population that can sustain a high productive and profitable agricultural sector; yet the country is an import dependent nation even of the commodities she would have ordinarily produced, given her natural endowment. The study then investigates the impact of Deposit Money Banks on the Agricultural sector with this question in mind: “does it mean that deposit money banks are not advancing adequate credit that will boost the productivity of the agricultural sector?”We developed two models, in line with economic theory. The first model investigates the impact of Commercial Bank credit and Government expenditure on agriculture on the level of Agricultural productivity in Nigeria. The second model looks at the contribution of agricultural productivity on the Gross Domestic Product with interest rate as a control variable. The study found that deposit money banks’ credit and interest rate does not have impact on agricultural productivity in Nigeria. Other findings of the study are agricultural output has significant impact on economic growth Nigeria; and Government spending on agriculture in Nigeria has impact on agricultural productivity. The study recommends that government should map out long-tenured fund for agricultural purpose in commercial banks and disbursement of such fund adequately monitored.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
In the early stages of economic development of most developing countries including Nigeria, agriculture and the agrarian population generates a greater proportion of the gross domestic product (GDP) and invariably stimulates the development of other sectors of the economy. The place of agriculture, in Nigerian’s economy has remained critical over the years since independence .This is because prior to the political crisis of 1967-1970, the country’s food demand was satisfied from domestic production thereby obviating the need to utilize scarce foreign exchange resources on food importation. Prior to growing fortunes of the petroleum sector in the 1970’s , agricultural played enormous role in the Nigerian economy in terms of its contributions to labour force employment and GDP as shown by Tomori (1979), Agriculture is still the main stay of the Nigerian economy , without 70% of the country’s labour force employed in this sector . At independence in 1960 the percentage contribution of the sector was about 70% as indicated by the CBN Publication. Also, substantial amount of capital were derived from the agricultural sector through tax revenue as shown by Hewlleiner (1966) between the periods of 1950-1967. The accumulation of marketing surplus from the agricultural sector was also used to finance many other developmental projects, for example University of Nigeria Nsukka was established with the revenue accumulated by the marketing board in the eastern and western Regions of Nigeria. With the political crisis and the rising fortunes of the petroleum sector in the 1970’s ,available statistical publications indicates that the agricultural sector’s contributions to the economy in terms of output growth (GDP), labour employment ,adequate food supplies , investment capital and linkages with the rest of the economy became low (CBN Publication).This development in the sector resulted in rising food prices and inflation, increased food importation and agricultural raw materials for the nations local industries, a relative decline in agricultural export earnings and deteriorating standard of living of the common man .The socio-economic and political implication of this situation can be better imagined as any nation that cannot feed its people apparently becomes a beggar Nations and politically Volatile. Given the enormous and strategic importance of the agricultural sector to the economy, the urge to foster the sector’s growth and development in terms of producing both quantity and quality agricultural commodities to meet the nutritional requirements of our people as well as industrial need ,has often compelled governments to intervene in the areas of extension ,input supply ,credit and marketing services . According to CBN (2000), Nigeria is endowed with huge expanse of fertile land, rivers, streams, lakes, forests and grasslands, as well as a large active population that can sustain highly productive and profitable agricultural sector which can ensure self-sufficiency in food and raw materials for the industrial sector and as well provide gainful employment for the teeming population and generate foreign exchange for the economy. Ironically, the reverse is the case. Several factors account for the poor performance of the agricultural sector in Nigeria; these include virtual neglect of the sector, poor access to modern inputs and technology, and lack of optimum credit supply. (Enyim, et al, 2013). Aside the problem of poor access to modern technology, the major bane of agricultural development in Nigeria is low investment finance. (Salami and Arawomo, 2013).
Qureshi, Akhtar and Shan (1996), in their contribution argued that Banks credit has the capacity to remove the financial constraints faced by farmers, as it provides incentives to enable farmers to switch quickly to new technologies which can enhance the achievement of rapid productivity and growth. Umoh (2003) maintained that banks’ credit constitutes the power or key to unlock latent talents, abilities, visions and opportunities, which in turn act as the mover of economic development. Banks’ credit has a significant contribution to economic development by enhancing production and productivity and thus higher income and better quality of life to the people. However, from available statistics of deposit money banks total sectoral credit distribution in Nigeria, the allocation to the agricultural sector, given the importance of the sector, is insignificant. For instance, credit allocation to the sector fluctuated between 6.98% and 10.66% in 1981 to 1985; between 10.66% and 16.15% in 1985 to 1990; between 16.15% and 17.5% in 1990 to 1995. It declined sharply to 8.07% in 2000, 2.46% in 2005, 1.67% in 2010, and fluctuated between 1.67% and 3.44% in 2010 to 2013,and also fluctuated between 3.4% and 3.7 % in 2014 and 2015 (Source: CBN Annual report- 2015).
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