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TITLE PAGE
THE NIGERIAN TOURISM SECTOR AND THE IMPACT OF FISCAL POLICY; A CASE STUDY
OF THE 2000-2009 FEDERAL BUDGETS
BY
ATTAH ANDUNG NANBOL PETER
UJ/2006/SS/0478
BEING A PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR
THE AWARD OF A BACHELOR OF SCIENCE (B.Sc.) DEGREE IN THE DEPARTMENT OF
ECONOMICS, FACULTY OF SOCIAL SCIENCES,UNIVERSITY OF JOS, PLATEAU STATE,
NIGERIA
OCTOBER, 2011
APPROVAL PAGE
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DEDICATION
I dedicate this research work to the average Nigerian who battles to eke a living in this
chaotic scenery.
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ACKNOWLEDGEMENT
A wise man once said, “God is in everything”. I am overwhelmed with gratitude to
God for all the blessings bestowed upon me throughout this academic quest, especially for
sound health of mind and body. I am also thankful to my supervisor, Mrs R.I Umejiaku who
worked tirelessly to monitor and oversee this research work, in spite of the loss of her
loving husband. I am also appreciative of the contribution of Prof Akor, Prof. Akerele, Dr
Ademu and all of the lecturers in the department, for there advise and encouragement.
My parents, Mr Matthew A. Attah and Mrs Rosalyn J. Attah played a stellar role in
ensuring that I remained focused throughout this experience. Their concerned words of
“How is school?” were really therapeutic. You guys are the best ever. My siblings, Ferdinand,
Elizabeth (Mumsy), Abigail and Abraham (HAM) you have been my source of inspiration and
strength.
I treasure the families of Prof J.F Jemkur and Prof (Mrs) E. Chuwak for their warm
heartedness, hospitality, care, and support. They made this experience quite pleasant and
enjoyable. You will forever remain dear in my heart.
My friends, Ponfa, Kunkur, Esebom, Blessing, Vasty, Martha, Gloria, Hanmak, Nanko,
Danlami, Magaji, Churchill, Uju, Nankiyer, Wella, Bala, Ukwa, Tsenba, Anita, Daniel, Solo, Njo,
Joe, Sandra and Dungus. I am flattered by your company and enduring support, you people
mean a great deal to me.
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Table of Contents
Title Page .......................................................................................................................................... I
Approval page ................................................................................................................................. II
Dedication ..................................................................................................................................... III
Acknowledgement ......................................................................................................................... IV
Table of Contents ........................................................................................................................... V
List of Tables .............................................................................................................................. VIII
Abstract ...................................................................................................................................................................... IX
CHAPTER ONE
INTRODUCTION
1.0 Background to the Study .................................................................................................. 1
1.1 Statement of the Problems ............................................................................................... 3
1.2 Objective of the Study ....................................................................................................... 4
1.3 Methodology of the study ................................................................................................. 4
1.3.1 The Model .............................................................................................................. 4
1.3.2 Model Specification ................................................................................................ 5
1.4 Research Hypothesis .......................................................................................................... 6
1.5 Sources of Data ................................................................................................................... 7
1.6 Significance of Study .......................................................................................................... 7
1.7 Scope and Limitation of the Study .................................................................................... 7
References ........................................................................................................................... 9
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction .............................................................................................................................................. 10
2.1 Concept of Tourism ............................................................................................................................... 10
2.2 Tourism Sector ......................................................................................................................................... 11
2.3 Effects of the Tourism Sector ............................................................................................................ 13
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2.4 Historical Development of Fiscal Policy ......................................................................................... 16
2.5 The Concept and Objectives of Fiscal Policy ................................................................................ 18
2.6 The Nature of Fiscal Policy ................................................................................................................ 20
2.6.1 Government Revenue ............................................................................................................. 21
2.6.2 Government Expenditure ...................................................................................................... 22
2.7 Multiplier and Crowding out effects ............................................................................................... 23
2.8 Fiscal Policy Hypothesis ....................................................................................................................... 24
2.9 Fiscal Policy lags ...................................................................................................................................... 26
2.10 Tourism Sector and Fiscal Policy ...................................................................................................... 27
References ................................................................................................................................ 29
CHAPTER THREE
THE NIGERIAN TOURISM SECTOR AND THE IMPACT OF FISCAL POLICY
3.0 Introduction .............................................................................................................................................. 32
3.1 Nigerian Tourism Sector ...................................................................................................................... 32
3.2 Prospects of the Nigeria Tourism Sector ....................................................................................... 33
3.2.1 Employment Creation............................................................................................................. 34
3.2.2 Generation of Foreign Exchange ........................................................................................ 34
3.2.3 The Issue of Poverty Alleviation ........................................................................................ 35
3.2.4 Generation of Revenue........................................................................................................... 36
3.3 Reasons for Nigeria’s Underdeveloped Tourism Sector .......................................................... 38
3.4 Fiscal Policy in Nigeria ............................................................................................................................ 39
3.5 Fiscal policy Pattern in Nigeria Between 2000-2009 ................................................................... 41
3.6 Fiscal strategy for enhancing and sustaining Tourism ............................................................ 46
3.6.1 Improved Investments ........................................................................................................... 46
3.6.2 Reducing Structural leakages ............................................................................................. 47
3.6.3 Strategic Oversight .................................................................................................................. 47
3.6.4 Firm Regulations and Standards ........................................................................................ 47
References ..................................................................................................................................... 49
CHAPTER FOUR
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EMPIRICAL ANALYSIS
4.0 Introduction .............................................................................................................................................. 50
4.1 Data Presentation .................................................................................................................................... 50
4.2 The Model .................................................................................................................................................. 51
4.3 Model Specification ................................................................................................................................ 51
4.4 Research Hypothesis ............................................................................................................................. 53
4.5 Model Estimate......................................................................................................................................... 54
4.6 Discussion of Research Findings ...................................................................................................... 58
References ..................................................................................................................................... 61
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.0 Summary of Major Findings ............................................................................................................... 62
5.1 Conclusion ................................................................................................................................................. 62
5.2 Policy Recommendation ....................................................................................................................... 63
Bibliography .................................................................................................................................. 66
Appendix ....................................................................................................................................... 72
LIST OF TABLES
Table 4.1: Showing International tourism receipts, Federal government, Expenditure
Federally collected revenue and International Tourism Receipts in Dollars ................................45
Table 4.2: Regression Result ..............................................................................................................................47
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ABSTRACT
The promotion of the tourism sector in developing countries is heightened by the
numerous benefits of the sector, amidst the many problems typical to developing nations.
Unfortunately in Nigeria, the tourism sector is poorly developed, unorganised and non-
functional; hence the nation is eluded of the numerous benefits of the sector. On the other
hand, fiscal policy in developing countries is seen as the most potent tool of economic
planning, thus sectors that are critical or have the greatest linkages enjoy investment and
support from government. This is aimed at spurring private sector and foreign direct
investment in the nation, while the overall macroeconomic productivity is enhanced. This
research work investigates the effects of fiscal policy as shown by federal budgets particularly
at the tourism sector level, so as to shed light on the responsiveness of the tourism sector on
fiscal policies in Nigeria. This study uses multiple regression method of analysis in other to
measure the response of the tourism sector to the execution of fiscal policies in Nigeria. The
results reveal that federal government expenditure has a positive effect on the tourism sector,
while federally collected revenue has a negative effect on the sector. In this light, the study
proposes that in the quest for tourism development in Nigeria, fiscal policy should be designed
so that government expenditure is properly focused to ensure that facilities required by
tourism sector operatives are provided through public means, also the tourism sector needs to
be restructured and reorganized so as to be better poised to benefit from government
intervention.
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CHAPTER ONE
Introduction
1.0 Background of the study
Firms and operators in the tourism sector attempt to take advantage of the spirit of
human adventure and the desire for leisure so as to attain economic objectives. The tourism
sector is a service oriented sector which is very sensitive to issues of personal security,
comfort and convenience. These issues form the orientation of most developers and
promoters of the tourism sector. Ode (2001) and Okey & Ovat (2003) asserts that the
availability of tourism product and services as well as tourism destination stimulate tourism
development in any country. Implying that when the essential and optional components of
tourism products, are available in abundance the tourism sector will grow and develop.
Ode (2001) described a developed tourism sector to contain an adequate, well
packaged information for tourist concerning tourism products, which is complimented by
adequate physical infrastructure such as transport (air, land water), communication,
banking services, electricity and water supply. With assurances on the sensitive issues of
personal security, comfort and convenience, which are embed in a coordinated and
encompassing tourism policy.
Officially, The Nigerian government considers the tourism sector as a preferred sector;
with numerous incentives to attract and improve private sector investment, both local and
foreign. This is based on the realisation that the tourism sector is quite important in the
national economy, Okey & Ovat (2003) and Okpolo, Emeka, & Chris (2008) identified the
contributions of this sector in terms of generation of foreign exchange, government
revenue, promotion of tourism based rural enterprises, employment generation, the
integration of rural-urban areas as well as the enhancement of cultural exchanges. However,
examining the incentives that have mainly constituted of policies which promise to improve
the sector, but lack the necessary commitment on the part of government to actually pursue
these plans. As acknowledge by Anyanwu J. C., (1997) government policies have been
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ineffective in carrying out their intended objectives as government usually extricate itself
from the chosen plan.
The key function of government whether democratic or not, is to protect and promote
the welfare of its citizens. In doing this, the Government must choose the economic
approach to pursue. It may, for instance, decide to pursue a planned economic approach, a
free market economic approach or a synthesis of both. Whichever one it decides to pursue is
determined by the social, political and international politics of the time. It is important for
us to emphasize the fact that all forms of governments are essentially social constructs.
However it’s quite difficult to ascertain which form of government is “right” or “wrong”. The
important thing is that whatever form of Government that is in place, the objectives are
similar. Components of macroeconomic policy, monetary and fiscal policy are fundamental
in the promotion of the main government objective of promoting the welfare of its citizens.
Conventional, economic theory tends to suggest that a central bank uses monetary policy
instruments to predominantly influence the general price level. This broadly translates into
the monetary control of the price level, which implies monetary dominance in the
determination of the price level. In reality however, as identified by Oyejide (2003) fiscal
policy is sometimes dominant especially in Less Developed Countries (LDCs) with
underdeveloped securities markets. This is because the underdeveloped securities market
essentially limits the ability of a central bank to effectively develop and use monetary policy
instruments. Hence the Nigerian macroeconomic policy has always been fiscal oriented.
Fiscal policy in Nigeria is normally carried out by the three tiers of government, as
each level develops its own policy. However the size and range of the sub national fiscal
policies is mainly dependent on the federal or national fiscal policy. The bone of contention
here is given the economic effects of the tourism sector in Nigeria, objectives of fiscal policy
and the regard given to federal budgets in Nigeria. Can the macroeconomic environment be
stabilized so as to strengthen economic productivity and development in the tourism
sector?
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1.1 Statement of the problem
It is no longer news that the Tourism sector is relatively a budding enterprise in Nigeria,
even amidst the country’s endowed climate, vegetation and interesting natural features,
which is a factor component in most tourism industrious economies. Over the past decades,
the Nigerian economy been characterized by growing a dominance of the energy sector,
which is highly supported by several government policies. However, while this was justified
at the inception as the nation benefitted from global energy booms and international power.
These have lead to the collapse and choke off of other sectors in the economy. The resulting
effect has been serious inequality and lopsidedness in the economy as increasing use and
depletion of non-renewable resource, amidst redundant underutilized renewable resources.
As the government attempts to address these issues in its overall plan to diversify
the economy, certain questions are worth consideration.
• What impact has fiscal policy measures had on the development of the tourism
sector?
• What is the present magnitude of the tourism sector in respect of other sectors,
especially the energy sector in Nigeria?
• Will a change in the magnitude of the tourism sector be beneficial to the economy of
Nigeria?
• Are fiscal policy measures capable of bringing about the necessary change in the
tourism sector?
In view of these research questions listed below it is worthy to note that these questions
presented are in no way exhaustive
1.2 Objectives of the study
The objective of the study is to examine the various issues of how the fiscal policy measures
could aid and enhance the tourism sector’s performance in Nigeria.
The specific objectives of this study include
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• To analyse the impact of fiscal policy measures on tourism sector’s performance
• To examine the roles the tourism sector in the economy
• To address and recommend appropriate policy measures aimed at enhancing the
tourism sector performance.
1.3 Methodology of the study
This research employed econometric method of linear regression analysis. This
involved estimation of the model in order to establish whether fiscal policy in form of
federal budgets has had any impact on the performance of the tourism sector in Nigeria
between 2000-2009 or not.
The econometric linear regression model was used to test the impact of total federal
government expenditure (� � � � � � � � ) and federally collected revenue (� � � � � � ), on the
tourism sector’s performance which will be measured by the amount of international
tourism receipts.
This estimation technique was aimed at achieving unique parameter estimates that
would enable us to interpret the regression co-efficient in terms of elasticity and
consequently give a slightly better fit.
1.3.1 The model
The econometric linear regression model specification of this study is specified
using the total federal government expenditure (� � � � � � � � ) and federally collected revenue
(� � � � � � ). The Ordinary Least Square (OLS) method is used for the estimation of the
parameters in the model.
1.3.2 Model specification
The relationship between tourism sector performance and the total federal
government expenditure (� � � � � � � � ) and federally collected revenue (� � � � � � ) can be
expressed as follows.
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� � � = � (� � � � � � � � , � � � � � � ) .................................................... (1)
The econometric linear model specification of equation (1) above is given as
� � � = β�
+ β�
� � � � � � � � − β�
� � � � � � + µ .................................................... (2)
Where
ITR = International Tourism Receipts (Proxy for tourism sector
performance)
� � � � � � � � = federal government expenditure
� � � � � � = Federally collected revenue
β� = the Intercept which represents the autonomous part of the tourism
sector’s performance when federal fiscal policy measures are zero, i.e.
federal government expenditure and federally collected revenue.
β� = parameter estimate which represents the coefficient of federal
government revenue.
β� = parameter estimate which represents the coefficient of federal
government expenditure.
µ = White noise, error term (stochastic term)
When estimated, the model becomes,
� � �� = β��+β�
� � � � � � � � � −β� 2 � � � � � � .................................................3
Given the relationship between tourism sectors performance (ITR), federal
government expenditure (� � � � � � � � ) and federally collected revenue (� � � � � � ). The apriori
expectation of equation (3) is thus
�> 0 ...................................................................................4
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-�< 0 ....................................................................................5
Therefore, �
> 0, �
> 0, �
< 0
1.4 Research Hypothesis
The research seeks to evaluate how the tourism sector in Nigeria is been influenced
by government fiscal policy, how its components contributes to the growth of the Nigerian
tourism sector. In this research, there is a need to make certain statements that will be
subject to scientific testing. The following hypothesis will be tested to determine the validity
to the research.
The basic hypotheses used for this research work are:
H0: �
i = 0 (null hypothesis)
H1: �
i ≠ 0 (alternative hypothesis)
Null hypothesis: The Nigerian tourism sector has not been significantly influence by
federal government fiscal policy within 2000-2009
Alternative hypothesis: The Nigerian tourism sector has been significantly influenced
by federal government fiscal policy within 2000-2009
Where �i= coefficient parameter for fiscal policy
1.5 Sources of Data
The data employed in this research work consist mainly of secondary data which are
relevant to the study, and will be obtained from both published and unpublished
sources.The published sources include data from textbooks, central bank publications,
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statistical bulletins, journals, magazine, newspapers, the internet (web) and other relevant
publications.
Unpublished works include seminar papers, government documents from ministries,
central bank of Nigeria (CBN) library, National Bureau of statistics (NBS) and personal
discussions.
1.6 Significance of study
The study is expected to broaden the scope of understanding and awareness of the
tourism sector in Nigeria, and how fiscal policy measures can be used to enhance this
segment of the economy.
The findings and recommendations of this research would enhance the forecasting
abilities of policy makers, to make necessary and more accurate adjustment to enhance
tourism sector performance in Nigeria, as the engine of economic growth and development.
This research work is intended to lay a good foundation for future research and will
equally serve as a reference to prospective researchers. It will assist professional bodies by
contributing to knowledge for future aid on research.
Finally, Nigeria as a whole will benefit from this work because the tourism sector
plays a very critical role in creating employment and infrastructural development in the
Nigerian society.
1.7 Scope and Limitation of the study
The research is focused on the impact of fiscal policy on the tourism sector in Nigeria.
The research covers the period between 2000 and 2009. While it is imperative to note that
the investigation will not be limited to Nigeria, especially in some instances when
investigating certain aspects of the research, generalizations will be made which will include
other countries especially where there exist similarities in the setting and operations of the
federal authorities. Whereas, this research intends to investigate the impact of fiscal policy
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on the tourism sector in Nigeria, it is imperative to note that some challenges were
encountered in the course of the research work which constitutes limitations of the
research. These include inadequate finance, lack of proper documentation and records by
both the tourism and financial institutions and finally epileptic power supply.
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CHAPTER TWO
Review of Literature
2.0 INTRODUCTION
In this chapter, an attempt is made to review the related literature to form a
background, and conceptual frame work for the study. This review also analyses the concept
of fiscal policy and the tourism sector, it also considers to a large extent the controversial
but critical views and opinions of intellectuals and experts on the two critical points. Also
an assessment of fiscal policy measures and systems, and the nature and structure of the
tourism sector in Nigeria shall be evaluated to determine the level at which past policies had
impacted and wedged the tourism industry in Nigeria. The purpose of this is to have an
understanding and put into perspective the issues concerning the research topic.
2.1 CONCEPT OF TOURISM
Tourism has been practiced since the beginning of human civilization even with the
problems associated with travel in earlier times, the barriers and difficulty on the modes of
travel, accommodation and services. There was barely enough time for leisure, but still time
to relax and wander was found by man. As the quality of life became higher and better due
to technological advancement people began to move easily from one place to another.
Shorter working hours, holidays and holy days contributed to mass travel, relaxation and
self-development. According to (Bhatia, 1983), tourism has gradually transformed to a
world-wide leisure experience due to technological, political and social events.
Etymologically, the word “tour” is coined from both a Latin and a Greek word tornare
and tornos signifying the movement around a central point. Hence, when the word “tour”
and the suffix “ism” is merged to indicate the action of movement around a circle, the
Dictionnaire universel du XIXiFme siecle in 1876 defined tourism as travelling out of
inquisitiveness and idleness (McIntosh, 1995)
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Over the years a lot of scholars and institutions have attempted to shed more light
on this thought-provoking phenomenon, and have drawn up many definitions to this regard.
According to Tribe (2009) tourism can only be contemporarily comprehended when; Truth
(Reality, Knowledge and Disciplines); Beauty (Well‐being, Aesthetics and Art); and Virtue
(Ethics, Values and The Good Life), are explored. Therefore, the use of three Aristotelian
transcendental entities, truth (verum) beauty (pulchrum) and virtue (bonum) are the means
to which tourism can be understood.
The World Tourism Organization developed a definition that disaggregates tourism
into two parts Domestic and international. It states that Domestic tourists are visitors from
within the country who stay a minimum of twenty-four hours and not more than one year
for pleasure, recreation, sport, business, visiting friends and relatives, missions,
conferences, health reasons, studies and religion. Whereas international tourists are
residents of one country visiting another for many or all of the same purposes as domestic
tourists (World Tourism Organization, 1994).
Feifer (1985) regarded tourism as the science, art and business of attracting and
transporting visitors, accommodating them and graciously catering to their needs and
wants. It is in this regard that the activities of the tourism sector are put into view, as
providing services to tourists.
2.2 TOURISM SECTOR
The tourism sector is mainly a conglomeration of service industries; it is based on many
different components and interrelated parts. Some of these components might span to more
than one sector. The tourism industry includes:
• Transportation services, which enable the tourist to travel to and from the
destination (for example travel agents, airlines, bus companies, tour operators and
rental car companies)
• Hospitality services. are part of the product at the destination (for example,
accommodation, facilities and attractions)
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• the human component of tourism (the labour force)
• public sector or government agencies, regional tourism organisations, professional
associations and industry training organisations (Wikipedia, 2010)
The link between these varied services and their individual growth reflects the
degree of the tourism sector in an economy. Also the overall output level of the tourism
sector is a constituent of the nation’s Gross domestic product (GDP)
Globally, the tourism sector has shown fait accompli seamlessly in the past five
decades, generating roughly $1 trillion in receipts in 2008 (reflecting a 1.8 percent growth
from 2007), and international tourism is ranked as the fourth-sector industry in the world,
after fuels, chemicals, and automotive products (UN World Tourism Organization (UNWTO),
2009). Thus the tourism sector has proven itself as a potent sector in the world economy,
with the participation rate greatly expanding in recent years. In 1950 just fifteen
destinations, primarily European accounted for 98 percent of all international arrivals. By
2007 that figure had fallen to 57 percent (UN World Tourism Organization (UNWTO), 2009).
More countries are availing themselves of this goldmine sector and developing countries
seem to be showing a lot of interest. The developing world has now become its major
growth area as tourism is a key foreign exchange earner for 83 percent of developing
countries and the leading export earner for one-third of the world’s poorest countries
(Mastny, 2001). Thus the impact of the tourism sector on the economy cannot be unstated.
However the story is not quite bliss in the African continent as the tourism sector is
largely primitive and unorganized in its operations, with few nations such as Egypt and
South Africa having an extensive and developed sector that can exploit the endless
potentials of this sector (Idowu & Bello, 2010). Consequently, the continent’s tourism sector
has been comparatively smaller and paltry in Gross Domestic Product (GDP) contributions,
than in South America, Europe or Asia where it a dominant contributor. In 2005, tourist
arrivals in Africa registered only 37 million (or 5 percent of the world) as compared to 444
million arrivals (55 percent) in Europe, 156 million (19 percent) in Asia/ Pacific, 133 million
(16 percent) in the Americas, and 38 million (5 percent) in the Middle East. In 2004, tourism
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receipts were $623 billion (100%) for the world, $326.7 billion for Europe (52.5%), $131.7
billion, $21 billion (3.4%) for the Middle East, and $18.3 billion (2.9%) for Africa (WTO, 2008).
2.3 EFFECTS OF THE TOURISM SECTOR
The economic might of the tourism sector has helped transform societies, often for
the better. It is on this information, that at the Lome III conference of less developed nations
in 1985, it was recognised that tourism promotes the development of several sectors of the
economy since it is consumed at the point of production and hence directly benefits the
communities that provides it.
Tourism can serve as a source of revenue generation, especially as the Nigerian
government tries to find alternative revenue sources in its diversification programme of the
economy. This is grounded on the fact that tourism has been an effective revenue source in
countries that have a proactive tourism industry (Olayinka & Bello, 2010). Mauritius has
benefited from this, with the sector contributing about $1billion as tourism receipts from
the period March 2010 to February 2011 (Daily Trust, 2011). This gives government a chance
to collect higher revenues and, via the expenditure side, to exert a stronger influence on the
development of the domestic economy. Government revenues from tourism are chiefly
derived from taxation and investment earning, which is based on the extent of government
involvement in the industry (Iwersen-Sioltsidis & Iwersen, 1996).
Since developing nations have rich natural attractions, and development based on
these attractions offers the tourism sector some comparative advantage vis-a-vis other
economic sectors. Vanhove (1997) expostulates that in addition to the above advantage,
tourism has a lower import content compared to other basic economic sectors, and has a
high growth rate potential. While tourism has become a major economic activity, “the ability
of the national economy to benefit from tourism depends on the availability of investment
to develop the necessary infrastructure and on its ability to supply the needs of tourists."
(Williams & Shaw, 1988)
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Tourism Improves employment opportunities in a country, the tourism industry not
only generates employment once in operation, jobs are also created during the construction
of the tourist facilities. When considering individual cases, one must not overlook the extent
to which tourism can also create secondary employment in other industries (indirect and
induced effects) (Stynes, 2011). It is particularly significant for developing countries that
tourism as a service industry should be relatively labour employment-intensive. The extent
of this employment effect depends on the size and nature of tourist facilities, the structural
depth of the tourism sector, the type of tourism (individual, package, mass, gentle)
Iwersen-Sioltsidis & Iwersen (1996) articulated that the development, completion and
use of tourist facilities in developing countries always go hand-in hand with infrastructure
measures. Although most infrastructural facilities are not intended exclusively for the
tourist trade, many infrastructure measures would not be realized, particularly in
developing countries, if there had been no tourism. In many respects such facilities bring
wealth creating effects for the country, both at the development and construction stages
and later on when they come into use. In general, the direct gross value added increases in
proportion with the increasing significance of the tourism sector (Ode, 2001). However one
must bear in mind that once a certain volume of tourist business is exceeded, increasing
social costs may develop which will then act as a damper on wealth creation
The enhancement of human resource is also a positive effect of the tourism sector,
as staff employed in the tourist industry need to be suitably qualified (Crandall, 1994). A
proportion of these qualified personnel will come from abroad; however, the more a
developing country has put its economic weight behind the tourist industry, the more often
training will take place local (Iwersen-Sioltsidis & Iwersen, 1996).
In an assessment of Nigeria’s potential for tourism, Francesco Frangialli, the former
head of the UN World Tourism Organization, opined that since tourism has the capacity to
spread its socioeconomic benefits to all levels of society, it can be a leading industry in the
fight against poverty. (Secretary-General: UNWTO, 2006) With its tendency to produce
flexible labour markets and offer diverse working opportunities in the Nigerian economy
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which is struggling with high unemployment and underemployment, tourism could serve as
an activation for economic development and there by become a tool in which
macroeconomic policies can be implemented, especially in the face of growing concerns
about poverty, unemployment and economic stagnation the Nigerian economy
Archer (1984) warned that it is misleading, when one just focuses on the positive
effects of the tourism industry without the recognition of the adverse effects tourism has
on the economy especially when non sustainable measures and techniques are practiced..
Small operators in the tourism industry in developing nations face stiff competition from
multinational companies (Sinha, 2002). Coupled with exposure of the domestic economy to
international trade, frequent fluctuations in the international would advertently affect the
domestic market, thus the fate of domestic economy would be imperially determined by the
neo-colonial powers. The volatility of the tourism sector to political, social, environmental
and economic disturbance makes it dangerously unsuitable for developing countries (Crick,
1996).
Tourism has led to increased urban-rural polarization as well as the concentration of
wealth in the hands of a few. According to Crick (1996) a developing nation's desire to
attach itself with the affluence of Europe or North America is naive, since it is their
affluence that produces the underdevelopment of the Third World. The structural
dependencies are visible in the case of tourism.
Tourist do not go to Third World countries because they are friendly, they go because a holiday there is cheap, and that cheapness is, in part, a matter of the poverty of the people, which derives in some theoretical formulations directly from the affluence of those in the formerly metropolitan centres of the colonial system. That affluence now produces conditions of work and life such that leisure activity is prized (Crick, 1996).
.
Also undesirable social effects like the development of miscreants or deviant
activities such as theft, begging Noronha (1979), prostitution Cohen (1983) and fraud Jones
(1978) are quite possible. In many developing countries such as Thailand and the
- 21 -
Philippines, tourism has generated thriving sex industries, which in turn have contributed to
the HIV pandemic in Asian countries.
Ultimately tourism has the potential to propel Less Developed Countries(LDCs) to
greater heights, though increase employment, revenue generation, competitive markets and
sustained output expansion. These promises do not completely bench the damaging deeds
of tourism, but it requires that LDCs that undertake the promotion of their tourism sector
should do so with great caution in other to have a planned and sustainable tourism sector.
2.4 HISTORICAL DEVELOPMENT OF FISCAL POLICY
After the historical economic slump of the 1930s which created a dent on the
capitalist pillar of free market (laissez faire) and resulted to increasing concern on the
distributive potency of the laissez faire system amidst reoccurring economic slowdowns in
the industrialised nations of the world. The state took centre stage in the response to the
fundamental economic questions of what to, How to and for whom to produce, in the
economy in other to augment the efficiency of the invincible hand. This brought about the
realisation that government financial operations had influences on the workings of the
national economy in terms of level of income and employment. It was John M. Keynes in his
General Theory of Employment, Interest and Money, that this link was first detected and
analysed. He suggested that the state should manipulate its finances to influence the level
and direction of economic activity by boosting effective demand (Keynes, 1936).
In most African countries fiscal policy measures are regarded as vehicles of
economic transformation since it plays a principal role in development plans of nations
(Anyanwu, 1997). During the post independence era in the 1960s, the former colonies
attempted to take charge of their economies by promising to provide a stable and self-
reliant economy, through increased employment and equality. Even though the economic
structure of colonial Africa was developed as a point of resource extraction, from the
colonies to the imperial town (Acemoglu, 2000), this is manifest in the dualistic
segmentation of the colonies with their transportation and mining (extractive) sectors being
developed and the other sectors being non-commercialised throughout the occupation of
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the colonies by imperialist. The present condition required a conscious and strategic effort
on the part of the state (newly independent state) to bring about balance in the economy.
The aspiration and struggle for independence borne the active use of fiscal policy measures
during the post independence period in Nigeria, with government indulging in conspicuous
national economic planning, all in a bid to bring about a balance in the economy (Federal
ministry of Economic Development, 1962).
Fiscal policy plays a dynamic role in underdeveloped countries. In fact an extensive
use of fiscal policy is indispensable for economic development (Jhingan, 2008). As
comparatively advantageous sections of the economy are being stimulated so as to ensure
efficiency of scarce resources. It also assumes a new significance in the face of the problem
of capital formation in underdeveloped countries. Since the wealthy engage in conspicuous
consumption which is unproductive, thus fiscal policy diverts all these consumption into
productive channels through its instruments of taxation and government expenditure.
2.5 THE CONCEPT AND OBJECTIVES OF FISCAL POLICY
The word fisc means ‘state treasury’ and fiscal policy refers to policy concerning the
use of ‘state treasury’ or the government finances to achieve the macroeconomic goals. To
Anyanwu (1993) it is any decision by government concerning the generation of funds
through taxation and other sources. It is mainly concerned with the critical management
decisions, in respect of the receipts generated by the state. It is critical because any form of
manipulation would affect the achievement of desired macroeconomic objective.
To the Central Bank of Nigeria, fiscal policy is to bring into perspective all revenue
and expenditure into the budgetary process with a view to ensuring transparency and
substantial reduction in fiscal deficit and also to combat domestic inflation, stimulate
economic growth, encourage diversification of Nigeria’ exports base (Central Bank of
Nigeria, 2000).Deciding on the amount, level and pattern of expenditure for the purpose of
influencing economic activities or attaining some desirable goals is thus regarded as fiscal
policy. Changing the level, composition or timing of government expenditure or varying the
burden, the structure or frequency of the tax payment is also considered as fiscal policy. In
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modern economies the rational of engaging in fiscal policy is an attempt to bring about
credibility and legitimacy in government financial operations (government revenues and
government expenditure).
According to Fan (2008) it essentially attempts to maintain a balance as much as
feasible, between the government revenues and government expenditures of liabilities in the
economic system, the underlying purpose being to achieve adequate and stable economic
growth. For Nigeria, this may translate into any or a combination of price stability, high level
of employment or an acceptable rate of unemployment, a sustainable growth rate over the
long term as well as balance of payments equilibrium.
Broadly speaking, fiscal policy is the changes witnessed in government expenditure
and government revenue. In Nigeria, the major fiscal policy instruments include changes in
taxation rates (on personal income, company income, petroleum profits, capital gains,
import duties, export duties and excise duties as well as mining rents, royalties, and NNPC
earnings) and government expenditure(Recurrent and Current) (Anyanwu, 1997). However
the importance of borrowing and financial aid as a fiscal policy instrument is gaining high
stance in certain Less Developed Countries(LDCs) like Madagascar, which generates about
50% of its revenue from such sources (Inside Africa, 2010). In economic theory Borrowing is
deferred taxation as debt must be repaid in the future, together with any interest payments
(Wickens, 2008). Therefore taxation is mainly seen as the independent component of
financing government expenditures. According to the following scholars (Mankiw, 2002)
(McDonald, 2003) (Jhingan, 2008), the main objective of fiscal policy is long-run
stabilization, which it achieves through the following goals.
1. To achieve suitable employment level: The efficient employment level is most
important in determining the living standard of the people. It is necessary for
political stability and for maximization of production in the economy. Thus fiscal
policy is carried out in other to ensure that this desired level is recorded
2. Increase in capital formation: In under-developed countries deficiency of capital is
the main reason for under-development. Large amounts are required for industry
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and economic development. Fiscal policy can divert resources from less important
(comparatively disadvantaged) sectors and increase capital
3. To achieve desirable price level: The stability of general prices is necessary for
economic stability. The maintenance of a desirable price level has good effects on
production, employment and national income. Fiscal policy is used to remove;
fluctuations in price level so that the ideal level is maintained
4. To achieve desirable consumption level: A desirable consumption level is important
for political, social and economic consideration. Consumption can be affected by
expenditure and tax policies of the government. Fiscal policy is used to increase
welfare of the economy by increased consumption.
Furthermore, for the fiscal policy to effectively perform as a tool of economic policy, the
composing measures (revenue and Expenditure) must be manipulated harmoniously and
aligned with monetary policy measures (Pardhan & Swaroop, 1993)
2.6 THE NATURE OF FISCAL POLICY
The nature of fiscal policy in most industrialised and developing countries has often
been procyclical in nature (Talvi, Ernesto, & Vegh, 2000). Governments tend to increase
public expenditures when oil revenues are high and maintain public spending even after
revenues fall, thus disproportionate spending increases combined with tax reductions
during expansions leaving little slack to cope with downturns. Procyclical tendencies occur
in most LDCs because it is characterized by political systems with multiple fiscal veto points
and high output volatility (Lane, R., & GianMariaMilesi-Ferretti, 2002).
In the present world economy fiscal policy has become an indispendable tool for
governance. Irrespective of the form of government existing in the economy, fiscal policy
measures are applied. Nonetheless, there are variations in the degree to which the public
sector is involved in the overall economic life of the nation. For instance, as reported by the
OECD Online Database and IFS Database (2003), the Swedish government spending has
accounted for around 60% of GDP, while in the United States it has been around 30%. Some
things that governments do are both essential and could not be done by the private sector,
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but it is hard to see how any entity but the government being responsible for the legal
system, the police force, and national defense. Some things that governments do in many
countries are essential, but the private sector could do them. For example, in many
countries, public sector health and education services comprise much of the public sector
and little contribution from the private sector. Also some government activities need not be
done, and until recently, were not. For example, in most developed countries, governments
provide various kinds of social security (unemployment and sickness benefits, old age
pensions). This kind of social welfare provision, or social insurance, is a relatively recent
phenomenon, but one that accounts for much of the rise in the role of government in
economies.
2.6.1 GOVERNMENT REVENUE
Government financial obligation spans on to a variety of things, from the military
and police to services like education and healthcare, as well as transfer payments such as
scholarships and unemployment compensations. This expenditure is funded using mainly
taxation, and the tax potential of a nation determines the degree in which the other forms of
funding would be applied. It is worth noting that these forms which range from Seigniorage,
domestic or foreign borrowing, consumption of fiscal reserves and sale of fixed assets are
all forms of financing.
Taxation is the act of charging against a citizen's person or property or activity for
the support of government. Revenue for government is generated when taxes are leived, but
just like price it does not guarantee maximum revenue for government at all levels of tax
rates. Thus according to the Laffer curve theorem, the revenue that the government raises
from taxes increases as the tax is imposed or increased from zero, but it will ultimately fall
as taxes deter further production expansion. Therefore in the short run, Government
revenue is expected to increase as tax rates are hiked.
An inverse effect is usually created in the economy when taxes are levied as
economic decisions concerning output are influenced. Talvi, Ernesto, & Vegh (2000) argue
that tax cuts encourage business growth and reassure consumer confidence, thereby helping
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to stimulate the economy. Thus when there is a tax hike, firms hold back output as
individuals also cut down spending. .
2.6.2. GOVERNMENT EXPENDITURE
Most LDCs are saddled with responsibility of using their present resources to achieve
sustained economic growth within very short time periods and amidst low level of capital
stock which is mostly crude and primitive. Thus the state needs to carry continuous and
coordinated investments in the various segments of the economy, which is expected to be
well structured in other to ensure efficiency. Government expenditure is classified by (Barro
& Grilli, 1994) into two main types.
• Government acquisition of goods and services for current use to directly satisfy
individual or collective needs of the members of the community is classed as
government final consumption expenditure.
• Government acquisition of goods and services intended to create future benefits,
such as infrastructure investment or research spending, is classed as government
investment (gross fixed capital formation), which usually is the largest part of the
government gross capital formation. These acquisition of goods and services are
made through own production by the government (using the government's labour
force, fixed assets and purchased goods and services for intermediate consumption)
or through purchases of goods and services from market producers
A lot of empirical studies have been conducted on the effect of government
expenditure on the growth of the economy. Such studies include that of (Cooray, 2009),
(Folster & Henrekson, 2001), (Schaltegger & Torgler, 2007), (Ghosh & Gragorious, 2008), to
mention a few. There is however no unanimous verdict on the productivity of government
spending even though unproductive spending generally impacts negatively on growth while
productive spending impacts positively.
Maku (2009) in his study posit that government expenditure in Nigeria and
economic growth found that private and public investments have insignificant effects on
economic growth during the review period 1977-2006. In his Bayesian analysis of
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government expenditure in Nigeria (Olayeni, 2010) found that government expenditure was
unproductive in Nigeria and that this conclusion is independent of macroeconomic
environment. And neither is it dependent on the external circumstances, (Udah, 2010)
Showed that government size did not complement private investment initiative in Nigeria.
On the contrary Donald & Shuanglin (1993) investigated the differential effects of
various forms of expenditures on economic growth for a sample of 58 countries; their
findings indicated that government expenditures on education and defence have positive
influence on economic growth, while expenditure on welfare has insignificant negative
impact on economic growth. While (Niloy, Emranul, & Osborn, 2003) used a disaggregated
approach to investigate the impact of public expenditure on economic growth for 30
developing countries in 1970s and 1980s. They authors confirmed that government capital
expenditure in GDP has a significant positive association with economic growth, but the
share of government current expenditure in GDP was shown to be insignificant in explaining
economic growth.
2.7 Multiplier and Crowding out effects
The Multiplier is a Keynesian concept whereby the final impact on demand of an
increase in expenditure is greater than the initial impact. (Mankiw, 2002) reckoned that
when government increases spending or reduces revenue (expansionary fiscal policy) in the
economy there is an additional shift in aggregate demand that occurs due to increased
income and increases in consumer spending. When government spends there are certain
repercussions. The immediate impact of the higher demand from the government is to raise
employment and profits, which further raises the demand for the products of many other
firms in the economy. This multiplier effect continues even after the first round. When
consumer spending rises, the firms that produce these consumer goods hire more people
and experience higher profits. This multiplier effect arising from the response of consumer
spending can be strengthened by the response of investment to higher levels of demand.
This positive feedback from demand to investment is sometimes called the investment
accelerator.
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However, the crowding out effect is the tendency of extra government spending to
cause reductions in private spending through inducing increases in interest rates. (Mankiw,
2002) described it as the offset in aggregate demand that results when expansionary fiscal
policy raises the interest rate and thereby reduces investment spending.
When there is a fiscal deficit, it reduces the amount of funds available to borrowers,
including the corporate sector. This leads to higher interest rates, which leads to lower
investment and consumption. The expenditure plans of the private sector have to be
reduced in order to provide the financing for the fiscal deficit
When the government increases its purchases, the aggregate demand for goods and
services could rise by more or less than the increase in government spending, depending on
whether the multiplier effect or the crowding-out effect is larger
2.8 Fiscal policy hypothesis
Within fiscal policy thought, it is often assumed that a government determines both
revenues and expenditures in ways that maximize the social welfare of the society. However,
four alternative hypotheses have been advanced to ascertain the nature of the causality
between these variables in the budgetary process.
The tax-and-spend argument proposes that changes in government revenues lead to
changes in government expenditures. Friedman (1978) and Buchanan and Wagner (1978)
were early proponents of this view but differed in their perspectives. Friedman argued that
increasing the resources available to government by increasing tax revenues will only lead to
increases in government expenditures. The Friedman version of the tax-spend hypothesis
suggests that government revenues have a positive effect on government expenditures.
Alternatively, Buchanan and Wagner argued that increases in government revenues may lead
to decreases in government expenditures through fiscal illusion. In particular, if the
government is financing expenditures by means other than direct taxation, the fiscal illusion
occurs because the public pays less in direct taxation but more in the form of indirect
taxation (e.g., crowding-out effects and bracket creep caused by inflation). If indirect
- 29 -
taxation declines while direct taxation increases, this trend could reduce government
expenditures.
The spend-and-tax hypothesis suggests that a government first makes expenditure
decisions and then adjusts tax policy and revenues as necessary to accommodate
expenditures. From a Ricardian equivalence perspective, Barro (1994) argued that increased
government expenditures financed by borrowing will translate into higher future tax liability
for the public. In the context of fiscal policy response to "crisis" situations, Peacock and
Wiseman (1979) argued that temporary increases in government expenditures in response to
such crises will lead to higher permanent taxes. Under either perspective, higher
expenditures would lead to higher taxes.
Under the fiscal synchronization hypothesis, a government simultaneously chooses
the desired package of spending programs and the revenues necessary to finance such
spending programs. Musgrave (1966) and Meltzer and Richard (1981) are proponents of this
view of the budgetary process. In addition, Miller and Russek (1989), Hasan and Sukar
(1995), and Owoye (1995) found evidence to support the fiscal synchronization hypothesis.
Finally, under the institutional separation hypothesis, government decisions to
spend are independent from decisions to tax. Hoover and Sheffrin (1992) and Baghestani
and McNown (1994) have provided evidence of this view.
2.9 Fiscal Policy Lags
According to (Miles & Scott, 2005), the lags in the effect of any policy change on the
economy can be characterized into an inside lag and an outside lag. The inside lag is the
time it takes to formulate and execute a policy change. It can be separated into three
components:
• Recognition lags – the time between an economic disturbance and the recognition by
policy-makers that a policy response is required. The recognition lag occurs because
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a) Forecasting is not reliable enough to use as a basis for a major change in
policy;
b) Data on macroeconomic developments are not immediately available and do
not immediately present an unambiguous picture. Estimates of the
recognition lag suggest that it is usually about 3 to 6 months.
• Decision lags – the time it takes for the policy-makers to make a decision about
policy. For fiscal policy, the decision lag can be lengthy because National assembly
(congressional) action is necessary.
• Implementation lags – the time it takes for a policy change to be put in place. A task
as simple as promulgating and putting into action new withholding rates can take at
least several weeks.
All in all the inside lags are likely to take at least six months. Once policy has been
changed there is an outside lag or the time it takes for the policy change to effect the macro
economy. A fiscal policy change leads to a multiplier effect, which takes several quarters to
get going, and the full effect is not felt for about a year.
In the case of an economy entering a slowdown, it would typically take 3 months after the
peak in activity to recognize that a recession has begun. The decision lag is likely to be at
least another 2 or 3 months.
The implementation lag for fiscal policy is another 2 or 3 months. Finally, several
months pass before the multiplier process has a significant effect on aggregate demand.
Thus, the fiscal policy lag is about a year. But in the post-war period, recession has on
average lasted only about 11 months. Thus, fiscal policy is hardly a useful tool for short-run
stabilization policy.
2.10 TOURISM SECTOR AND FISCAL POLICY
Fiscal policies involves the use of taxes and changes in government expenditure to
influence the level of economic activity .Undoubtedly, fiscal policy is central to the health of
any economy, as government’s power to tax and to spend affects the disposable income of
- 31 -
citizens and corporations, as well as the general business climate. In this regard, the
interrelationship between public finance and the tourism sector performance is of
paramount importance. On one hand, Government expenditure can provide an impulse for
tourism sector growth, while on the other, it can be harmful if budget deficits leads to
competition for scarce financial resources from the banking sector as the government seeks
to finance its projects. In such circumstances, the crowding out of the sector by the
Government can outweigh any short-term benefits of an expansionary fiscal policy. It is
based on this that (Okonjo-Iweala, 2003) observed that the key to all these lies in striking a
good balance in fiscal management thereby having enough expenditure outlays to meet the
needs of Government and support growth, but not so much as to deny the private sector the
resources it needs to invest and develop.
It is usually argued that the combined effect of revenue and expenditure, fiscal
policy may have effects on aggregate output which are separate from those related to the
absolute level of either taxation or public expenditure, (Tanzi & Zee, 1997). Thus the
consequence of just government spending might be completely different when it is grafted
with a tax policy. Also the tourism sector itself possesses a long term effect on fiscal policy,
especially in huge tourism exporting countries, as it contributes immensely to the
government revenues.
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CHAPTER THREE
THE NIGERIAN TOURISM SECTOR AND THE IMPACT OF FISCAL POLICY
3.0 INTRODUCTION Investment and the subsequent expansion in the tourism sector in Nigeria has been
largely influenced by fiscal policy. This policy is quite significant because it sends long and
short run indicators to investors and customers alike, concerning the direction of
government’s commitment and how it intends to manage the economy. The tourism sector
is that of great importance to most economies because of its capacity to deflate many
macroeconomic problems, which most governments have an obligation to solve. The
tourism sector assumes a new significance in Nigeria and other Less Developing Countries
(LDCs) as they pursue economic development through diversification of revenues and
increased employment. However, this can only be made possible if the government is able to
remove social, institutional and economic bottlenecks.
3.1 NIGERIAN TOURISM SECTOR The general story of the Nigerian economy is a tale of wasted potentials on all fronts,
with the tourism sector also bearing this loss. It is quite evident that, tourism in Nigeria has
the potentials to generate significant foreign exchange earnings, employment and
investment towards economic development (Okey & Ovat, 2003). This is because the country
even with its comparative advantage in tourism, shown by its numerous ethnic groups, rich
cultural background, natural awes, wildlife, and a signatory to the General Agreement on the
trade and services (GATS), which requires a very liberal policy on tourism, is in spite of all
these the least developed as compared to others like finance and telecommunication
services and this has reflected in the large deficits indicated by tourism receipts and
expenditures over the 1994-1996 period (Ode, 2001), Nigeria accounted for an annual
average of 17% of international tourism expenditures in Africa, spending a cumulative total
of US$2,794 million, it was second only to south Africa in international tourism. However
South Africa accounted for an annual average of 24.1% of international receipts on tourism
in Africa over the same period, Nigeria’s annual average share was 0.73% (World Tourism
Organization (UNWTO), 2011).
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The Nigerian tourism sector is structurally faulty and in need of a coherent
modification plan, this is based on the fact that the sector has only been able to attract
tourist from low income countries, thereby exacerbating its low tourism receipts. In 2005
Nigeria received more than 2.7 million tourists. The largest contingents came from Niger
(620,658), Benin (393,215), Liberia (107,401), and Cameroon (107,108) (Library of Congress,
July 2008).
According to Fapohunda (1975), the informal economy is estimated to range between
50 to 75 percent of the total economy. Hence most segments of the sector are swallowed in
the pervasive underground economy in Nigeria; this has rendered this vital sector out of
government control and regulation. Thus tourists are left at the mercy of crooks and goons.
3.2 PROSPECTS OF THE NIGERIAN TOURISM SECTOR In some countries, tourism and related recreation activities play a significant role in
the generation of income, foreign exchange, provision of employment opportunities and a
host of other indirect benefits. In fact, the tourism industry is one of the most crucial
tradable sectors in the world. Furthermore, tourism plays a crucial role in the attaining
macroeconomic stability.
The extent to which Tourism contributes to the socio-economic and political
development of any country is still a subject of debate. The Tourism sector in Nigeria is a
non-agricultural economic sector but has a substantial role to play in expanding and
diversifying Nigeria's economic base. Arguably, Tourism stimulates the exchange of
educational, recreational and cultural values in Nigeria. As mass tourists travel to distant
places, they bring with them their own value system and learn the ways of life of Nigerians.
As visitors travel to Nigeria to stay, they seek to meet and understand the different cultures
and background of the various ethnic groups. As they meet with their host, an exchange of
educational and cultural ideas takes place. Hence, the travels help to widen their horizon
and appreciate other people’s culture
3.2.1 Employment Creation
Tourism provides jobs in Nigeria, especially with the mass amount of unemployed
youths in the economy looking for jobs. The Tourism sector has proven itself to be a
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distinguished source of employment in the global scene. In the case of Nigeria, Tourism
provides a great deal of employment opportunities for a large majority of people, being
labour intensive with higher capacity for employment generation. Fortunately, these jobs
can be increased if the sector is expanded and enhanced. Abiodun & Odularo (2006)
reckoned that a developed tourism sector has the potential to absorb a high percentage of
teeming millions of people who are not gainfully employed. This is because, the operations
in the Tourism Industry are mainly labour intensive, and the development of new
infrastructures provides opportunity for job creation. Indeed, the Tourism sector and its
sub sectors employ a large number of people, and provide a wide range of jobs ranging
from the unskilled to the highly specialized. The construction of roads, airports or airport
maintenance, water supply, electricity, construction and renovation of hotels and other
accommodations units create jobs for thousands of workers, both skilled and unskilled.
3.2.2 Generation of Foreign Exchange
The significance of tourism in Nigeria lies in its great potentials for foreign exchange
generation. According to Dieke (1997), a country can retain most of the foreign exchange it
receives from tourism. According to the World Bank International tourism receipts in
Nigeria were reported to stand at $139 million in 2005, $90 million in 2006, $ 337 million in
2007, $959 million in 2008 and $791 million in 2009. The UNWTO maintains that in 2010
international tourism receipts increased slightly around 4 percent in Nigeria (World Tourism
Organization (UNWTO), 2011). International tourism receipts are expenditures by
international inbound visitors, including payments to national carriers for international
transport. These receipts include any other prepayment made for goods or services received
in Nigeria. Globally, the number of tourist arrivals has been increasing, and Nigeria has been
getting its own fair share, going with the World Bank, international tourist arrivals
increasing from 1010000 in 2005, to 1111000 in 2006, to 1212000 in 2007 and 1313000 in
2008. The UNWTO records show that in 2009 international arrivals was 1414000, also for
2010 the organisation claims that arrivals increased by 7 percent in Nigeria (World Tourism
Organization (UNWTO), 2011). Nigeria has numerous tourist attractions located in the
various parts of the country, although only a few of them are being exploited at present.
When fully developed, the sub-sector has the potential of generating significant amounts of
- 35 -
foreign exchange, which would be quite critical in the nations stride to economic
independence, through a stable and reliable currency stance.
3.2.3 The Issue of Poverty Alleviation
Poverty has become one of the most compelling challenges of our time. It is more
than a lack of income and it is multidimensional and complex phenomenon with an intricate
relationship to issues such as disease, illiteracy, infant mortality, environmental degradation
and many other aspects.
Presently, Tourism in Nigeria has been focused at the macro level, on international
promotion, attracting inward investment, major hotel and resort developments and on
national and regional master planning. However this has not been effective in bring about a
significant improvement in the lives of ordinary Nigerians. The development of appropriate
complementary products in accordance with the pro-poor tourism (PPT) philosophy, which
is tourism that generates net benefits for the poor, can increase the attractiveness of Nigeria
and increase tourist spending (Okech, 2010). This is because it makes tourists feel closer to
nature and better understand how they are connected to it so that they make a more
proactive stand for sustainable tourism while accruing benefits to the millions of poor locals
living in or close to the Tourist Destination Areas (TDAS).
3.2.4 Generation of Revenue
Sindiga (1999) in a review of quantitative data on governments’ direct earnings from
tourism and found that qualitative generalisations can be made concerning benefits from
tourism. Apart from injecting foreign exchange earnings into the economy, tourism
generates government revenue through various taxes. Such include customs and excise
duties for imports; sales tax and value added tax for goods bought in the local market;
accommodation taxes and training levies on hotel guests; concession or rental fees paid by
game lodges and camp sites; and trade licenses and company taxes paid by various
enterprises. The government also charges income tax on the personal earnings of the
employees in the tourism sector
In Nigeria, government earns some proportion of its revenues from tourism.
However, revenues can be enhanced by introducing positive measures to encourage the
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growth of both domestic and international tourism. Use of selective taxes, sales tax, etc, are
now common. By encouraging a wider tourism sector, government will be expanding its tax
base, and therefore allow itself the possibility of increasing revenues. Another measure is to
adopt a balanced approach so that tourism activity is not stifled by an excessive tax. Also a
dual tax structure can be implemented, where residents pay a lower charge to that imposed
on foreign tourists, or pay no charge at all. This approach will help to encourage domestic
tourism but might antagonise foreign visitors. According to the Central Bank of Nigeria
(CBN), the significance of tourism as an export product in Nigeria is gradually increasing
from a meagre 0.38% in 2005 to an estimated 1.3% in 2009 and much higher by 2010,
particularly given the stabilising democratic dispensation in the country (Central Bank of
Nigeria(CBN), 2009)
Furthermore, tourism is a great economic force in Nigeria (Abiodun & Odularo, 2006).
Tourism enthusiasts argue that tourism is a catalyst to economic development. It
encourages the financial flow of funds from developed and developing countries into
Nigeria. Another major benefit of Tourism is it capacity to stimulate infrastructural
development. Perhaps, the benefits from infrastructural development justify the primary
reasons for implementing Tourism programmes and activities in most states in Nigeria. Like
the former Governor of Cross River State, Donald Duke, undertook the development of new
infrastructures and the improvement of the existing infrastructures such as airports, roads,
water supply, electricity, hotels and business village like Tinapa and the ranch resort (Obudu
Cattle Ranch). Also it provides opportunities for the establishment of new products,
fertilities and services and expansion of existing businesses which would not otherwise be
justified solely on the resident population.
Thus, we can sum the potentials or contributions of tourism development in Nigeria
as posited by Abiodun & Odularo (2006) as follows;
• Tourism serves as a valuable training ground for the creation and development of
local entrepreneurs in several areas of economic activity e.g. hospitality
management.
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• Tourism aids the process of income redistribution since it impacts more positively
on the bulk of low income earners.
• Tourism is the most effective means through which structural transformation can be
attained in the rural areas.
• It serves as a veritable avenue for attracting FDI. There has been an increasing role of
Tourism in foreign direct investment flows, making those enterprises to enter
international markets.
• Tourism has a better capacity to reduce poverty, inequality and social vices.
• The contribution of Tourism in the Nigerian economy to GDP has relatively been on
the increase since independence.
• Tourism provides a good preparatory ground for the development of indigenous
entrepreneurs; which drives the wealth creation process at all levels.
3.3 REASONS FOR NIGERIA’S UNDERDEVELOPED TOURISM SECTOR Over the years scholars have tried to bring about justifications for the present state
of the tourism sector in Nigeria. Even with its inclusion in UNESCO’s World Heritage List and
other prominent tourist catalogues, Nigerian tourism record on the whole has been
unsatisfactory. Insecurity and Infrastructural absence and collapse have been attributed to
this present difficulty. According to Ojowu inadequate infrastructure support which
embodies institutional arrangement, communication, transportation and information for the
tourism sector is the prime cause (Ode, 2001)
According to Adeleke (2008), the investing environment for tourism is not there. For
international tourism to boom, a nation needs to be peaceful and safe. For most of its post
independence history, Nigeria has been a byword for political instability, violence, ethnic
rivalry, and crime. Thus Nigerian system seems not to be suitable for tourism investments
based on this criterion.
The challenges of marketing Nigeria’s tourist credentials are laid bare by the U.S.
State Department advisory for the country, which gives even the most intrepid traveller
pause. U.S. citizens are warned of the dangers of “violent crime in Lagos and other large
cities as well as on roads between cities,” the prevalence of “armed muggings, kidnappings
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and carjacking,” and the risk of ethnic conflict. They are urged to avoid “all but essential
travel” to the Niger Delta, the scene of years of violence among local citizens, international
oil companies, and the Nigerian military (Gilpin & Honey, 2009).
An important barrier to tourism is the absence of organization and institutional
capacity at a national level. For most of its history, Nigeria has not had a national tourism
strategy, and government departments overlap at the national and regional levels regarding
responsibility for the sector, making it difficult to devise a coordinated plan. The
government does not even possess reliable figures on the numbers of international arrivals
to and departures from the country (Gilpin & Honey, 2009). Corruption is another serious
deterrent, as it undermines government efficiency, deters potential investors in the tourism
industry, and scares off visitors (Tanzi, 1998).
According to Christie & Crompton (2001) the dearth of academic literature concerning
tourism in Nigeria is also a huge obstacle to the development of the tourism sector. The lack
of appropriate empirical studies on tourism in Nigeria and Africa as whole is responsible for
the inadequate policy formulation by policy makers, thus the needed guidance to the
industry is never achieved by government policy.
3.4 FISCAL POLICY IN NIGERIA In Nigeria, total government spending and revenue comprise of certain interrelated
and interacting elements, these elements form the fiscal system, which is the arrangement
of institutional framework which exists for making budgetary decisions of raising revenue,
incurring expenditure and engaging in debt borrowing operation, consists of the federal
(national), and sub national governments (state and local).The sub national governments
(state and local) derive revenues mainly by receiving allocations from a common pool of
federally collected revenues, most of which come from petroleum exports. These allocations
are supplemented by a small amount of internally generated revenues, mainly locally
collected taxes. The federally collected revenues are usually smaller than the federal
retained revenues because of the allocations given to sub national governments. According
to the ministry of finance (2006) the federally collected revenues was N 5.9 trillion but the
federal retained revenue was N 1.8 trillion.
- 39 -
McDonald (2003) classified Nigeria’s government revenue into two groups Oil and
Non Oil sources, as he assessed the issues concerning government revenue generation. In
2000 Oil accounted for about 70 percent of the Federal Government revenue. (Central Bank
of Nigeria (CBN), 2000) And its percentage share in government revenue has continually
grown since 1970 (Adedipe, 2004). Also since 1970, revenue has been very volatile while
increasing over time. In periods with high oil prices, such as in 1979-82, 1991-92, 2000-02
and also in 2006-07, revenue has increased sharply. The implication of this boom-bust in
revenue include the transmission of oil volatility to the rest of the economy as well as
disruptions to the stable provision of government services (Baunsgaard, 2003)
However this condition has led to the over reliance on the oil sector by government
for receipts and the renunciation of the agricultural and manufacturing sectors which were
formally prized. Thus invigorated the collapsed of these sectors, even under the structural
Adjustment programme (SAP), the high priority given to the promotion of non-oil exports,
did not result into any significant change in the situation, rather it was worsen
Similarly Baunsgaard (2003) reckoned that the progress of the Nigerian economy in
the 21st century solely depends on its ability to increase the productivity of the non oil-
sector; because it is only through it that a cushion against the transmission of oil price
volatility from the rest of the world can be provided.
Links between government revenue and output growth has traditionally been
associated with tax policy. According to Obi (2007) a major difficulty exist in isolating the
impact of taxation on output growth, which arises because key non-tax variables such as
public expenditure that are often not independent of tax policy can also affect output
growth. Also, the complex interactions among the fiscal and other macroeconomic variables
create difficulties.
3.5 FISCAL POLICY PATTERN IN NIGERIA BETWEEN 2000-2009 The fiscal policies in Nigeria for the last ten years have retained certain common goals
and policies, namely:
• Alleviate poverty by fostering opportunities for job creation
- 40 -
• Achieve high economic growth through better mobilisation and prudent use of
economic resources
• Build a strong economy by encouraging private sector participation
• Ensure good governance by transforming development administration into a service
and result-oriented system.
The policy objectives of the year 2000 budget were designed to foster growth in the real
sector of the economy and maintain macroeconomic stability. The policy thrust of the
budget was to achieve low inflation rate, lay solid foundation for private sector-led
economic growth, improve education and agricultural production and reduce
unemployment. The fiscal policy measures included a low income tax regime, generous tax
incentives and relieves.
The total federally collected revenue for the year was N1,906.2 billion made up N1,591.7
billion as oil revenue and N314.5 billion non-oil revenue. Total expenditure by the
government amounted to N701.1 billion of which N461.6 billion or (65.8%) was recurrent
while N239.5 billion was capital expenditure. The fiscal operations resulted in an overall
deficit of N103.8 billion (2.9% of GDP) which was largely financed by borrowing from the
banking system and the non-bank public (Central Bank of Nigeria, 2010).
The policy thrusts of the 2001 budget were restructuring of the Nigerian economy to
make it market-oriented, private sector- led and technology driven; reducing unemployment
and raising productivity; improving the performance of major infrastructures and enhancing
transparency and accountability in governance to ensure value for money in public
expenditure. Fiscal measures included tax relieves and allowances, a low income tax regime
and exemption of public pensions from taxation, and exemption of locally produced basic
food items from the Value Added Tax (VAT) to encourage production.
The total federally collected revenue for the year 2001 was N2,231.5 billion made up
N1,707.6 billion as oil revenue and N903.5 billion, non-oil revenue. Total expenditure by the
government amounted to N1,018.0 billion of which N579.3 billion or (57%) was recurrent
while N438.7 billion was capital expenditure (Central Bank of Nigeria, 2010). The fiscal
- 41 -
operations resulted in an overall deficit of N221.0 billion (4.7% of GDP) which was largely
financed by borrowing from the banking system and credit from the domestic economy.
The fiscal policy of the 2002 budget were derived from a macro-economic framework,
which sought to maintain disciplined fiscal policy, continue the liberalization of the
economy to attract support from the international community and the multilateral
institutions as well as sustain transparency, accountability and obtain value for money in
government expenditures. Other broad objectives were to eradicate poverty by fostering
opportunities for job creation; achieve high economic growth rate through better
mobilization and better use of economic resources; build a strong economy by encouraging
private sector participation while continuing the reforms.
In 2002, the total federally collected revenue was N1, 731.8 billion. Total expenditure
was N1, 018.2 billion, while the overall fiscal operations resulted to a deficit of N301.4
billion. This was 3.9 % of GDP and was financed mainly by the Central Bank of Nigeria.
The main fiscal policy thrusts of the 2003 Federal Government budget were to pursue a
growth strategy that would achieve fiscal stability; improve non-oil sector competitiveness;
reduce inflation; maintain a fiscal deficit of not more than 2.5% of GDP; deepen and broaden
fiscal incentives to further encourage industrial and manufacturing sector; attract foreign
investment; highlight tariff reform and liberalization in line with regional incentives; These
goals were to be achieved through the diversification of the productive base of the economy,
concentration of public sector investment in a few priority sectors where production would
be supported and welfare of the people optimized.
However, the total government revenue during 2003 was N2, 575.1 billion, made up of
N2, 074.3 billion from oil and N500.8 billion non-oil sources, respectively. Actual
government expenditure was N1, 226 billion, made up of N984.4 billion recurrent and
N241.7 billion capital expenditures, respectively. The fiscal operations of the Federal
Government resulted in an overall deficit of N202.7 billion, which was financed mainly from
the domestic banking system (Central Bank of Nigeria, 2010).
- 42 -
The main thrust of the 2005 federal budget was to build the physical and social
infrastructure necessary for job creation and maintain fiscal discipline. The government
sought to maintain a fiscal deficit of 2.9% of GDP, pay contractor debt arrears and complete
on-going projects. The emphasis was on involving the private sector in the management of
public investment and also provides safety-nets targeted mainly at the youth, women and
children to cushion the impact of the reforms.
The budgeted total revenue was N3, 619 billion made up of N2, 902 billion from oil and
N563 billion from non-oil sources. After making allowance for Federation accounts
allocation, the Federal Government retained revenue was estimated at N1, 304 billion. Total
estimated expenditure was N1, 618 billion, which resulted in a projected deficit of N314
billion. The actual gross revenue earned by the country was N5, 547.5 billion, out of which
oil accounted for N4, 762.4 billion (85.84%) while non-oil revenue was N785.1 billion
(14.15%). Federation account revenue was N2, 657.2 billion, while Federal government
retained revenue was N1, 660.7 billion. Total expenditure was N1, 822.1billion, made up of
N1, 223.7 billion for recurrent and N519.5 billion for capital expenditures, respectively. The
fiscal operations of the Federal Government led to a current account surplus of N437.0
billion and an overall deficit of N161.4 billion or1.1% of GDP. This deficit was financed
through domestic non-bank sources. (Central Bank of Nigeria(CBN), 2009)
The 2006 budget was a continuation of the NEEDS reform agenda which started in
2004.The fiscal policy thrust for the year was anchored on giving a boost to infrastructural
development in order to empower the private sector to create wealth and protect the poor in
Nigeria. Measures were focused on diversifying and strengthening the economy in order to
improve the well being of Nigerians. This would be achieved given that the budget was
crafted in the context of a Medium Term Expenditure Framework that is forward looking.
The projected total revenue was N3.7 trillion made up of N2.8 trillion from crude oil sales,
oil taxes and income from gas (76.1%), N230 billion from Companies Income Tax (6.3%),
N197 billion from Customs and Excise Duties (5.4%); and N450 billion from Value Added Tax
(12.2%). The larger receipts from Value Added Tax were based on an increase in the rate. The
projected revenue from the Federation Account was N1.57 trillion while the estimated
- 43 -
federal disposable revenue was N1.52 trillion as a result of provisions made for certain
strategic projects and government agencies. (Central Bank of Nigeria(CBN), 2009)
The projected aggregate expenditure in 2006 was N1.88trillion, comprising Statutory
Transfers (N86billion), Domestic and External Debt Service (N290billion), and Spending of
Ministries and Agencies (N1.5trillion). A total amount of N290billion was budgeted for
domestic and external debt service. In all, the projected fiscal deficit was N357 billion,
representing 2.4 percent of GDP. Financing of the deficit was expected from sale of
government properties, privatization proceeds and domestic borrowing
In 2007, The Federal budget focused on the theme: “to accelerate Investments in Basic
Physical and Human Resource Capital”. Thus, government expenditure was to be channelled
towards completing on-going projects in the power, water, roads, security, education and
health sub-sectors. These investments aimed at improving the quality of life of Nigerians
and addressing the infrastructural deficiencies that constrained the ability of indigenous
businesses to optimize their operations and generate employment.
The Federal Government in 2007, proposed to spend the sum of N2.3 trillion in 2007
compared with N1.9 trillion in 2006. The Ministries, Departments and Agencies ( MDA's)
were allocated the sum of N1.8 trillion while Statutory Transfers, and Debt Service were
allocated the sum of N102 and N326 billion, respectively. The Federal Budget provided for a
deficit of N0.5 trillion, an equivalent to 2.9 per cent of GDP, which was to be financed from
proceeds of sale of Government properties and Domestic borrowings.
In 2007 the tax system was reformed through measures including the restructuring of
the Federal Inland Revenue Service (FIRS) to improve revenue collection, broaden the tax
base and address tax evasion and avoidance. Efforts were also made to strengthen
interagency co ordination on revenue collection as well as to simplify and harmonise tax
procedures. The auditing powers of the FIRS were also strengthened. This policy measure
helped to contribute to the domestic-revenue mobilisation in 2008. In 2008, tax revenue
rose to 5.8% of GDP and it further rose to 6.9% of GDP in 2009. (Central Bank of
Nigeria(CBN), 2009)
- 44 -
In the 2009 fiscal year, more emphasis was placed on increasing remittances from
public corporations and agencies, accounting for about N306billion in Independent Revenue
from various sources. While the tariff bands under the new 2008-2012 Nigeria Customs and
Tariff Book were lower than what was previously obtained and the fifth band of 35% was
maintained so as to give modest protection for key local industries
In a bid to build a strong economy by encouraging private sector participation government
spent 340 billion.
On the whole few important improvements have occurred over previous budgets. For
instance, looking at the percentage of aggregate Expenditure between 2007 and 2009, it is
clear that there has been a decline in the percentage personnel costs (staff emolument) from
36.46% in 2007 to 29.88% in 2008 and has now further going down to 27.63% in 2009. This
shows that government is responsive to suggestions to reduce personnel costs and to
channel money saved from this area to improve infrastructure nationwide. There is
undauntedly an urgent need to do this Also, the total overhead budget (running cost) has
crashed, from 16.62 per cent in 2007 to 12.00 per cent in 2008, reaching an all time low of
10.81 per cent in 2009. In the same vein, in realisation of the need to increase budgets for
capital expenditure, which is seen as the sign of growth, government has also gradually
raised capital spending from 23.52 per cent in 2007 to 29.66 per cent in 2008 and to 32.96
per cent in 2009.
3.6 FISCAL STRATEGY FOR ENHANCING AND SUSTIANING TOURISM Fiscal policy strategies for the enhancement and sustenance of the tourism sector in
Nigeria have been put forth by Gilpin & Honey (2009), and they considered Improving
Investments, Reducing Structural leakages, Strategic oversight, Reducing Bad neighbourhood
effect and Firm Regulations and standards.
3.6.1 Improved Investments:
Solid infrastructure is another precondition for any country wishing to develop a
strong and vibrant Tourism industry. There is a huge dearth of infrastructure in Nigeria so
the Nigerian government needs to prioritize its contribution to capital investment so as to
invigorate private investment and hence lead to a mass variety of capital projects in the
- 45 -
form of roads, airports, hotels, and leisure facilities needed to attract visitors in large
numbers. Investments in human capital, in the form of formal education, workshops and
training programmes are equally important. Local communities need special training to
work in the international hospitality industry. Local drivers may have to meet more exacting
safety standards to chauffeur tourists around than might be expected of them in the
domestic market. The hotel industry expects that people who work with foreign visitors be
culturally aware of and sensitive to the expectations and foibles of a wide range of
nationalities. All of this requires training.
3.6.2 Reducing Structural leakages:
Nigeria must try to capture more Tourism spending and limit leakage if they are to
maximize their revenues from Tourism. An international hotel chain that opens up in
Nigeria may create jobs in the local community, but it repatriates the profits. In a similar
way, host communities might decide that, to keep tourists happy, they have to offer them
food and drink they are familiar with, which have to be imported. Home-grown Tourism, on
the other hand, allows revenue to remain in the domestic economy rather than seep across
borders. The Nigeria tax system should be developed in such a way that firms pursuing
Home-grown tourism should be encourage by tax waivers in the form of tax deductions,
write offs and allowances
3.6.3 Strategic oversight
Tourism cannot grow into a thriving sector of the economy without constructive
leadership from the national government. Nigeria has failed to reap the rewards of Tourism
because of poor planning, poorly thought-out strategies, and fragmented policies. Strategic
oversight includes everything from overall budget planning and encouraging outside
investment to educating host communities. Without guidance from local and national
governments, host communities are likely to find the experience unsettling and negative.
3.6.4 Firm Regulations and standards
Tourism needs to be subject to robust laws and regulations if it is to benefit local
communities and prevent them from being exploited. Laws must protect the environment
from overdevelopment and safeguard the land, property, and livelihoods of communities
- 46 -
affected by Tourism. But laws in themselves are insufficient: They must be applied and
enforced. This requires the presence of strong and effective institutions, at national and
local levels. These regulations could be embedded within tax policy, with fines for any act in
disregard of regulation, rules, or standards.
- 47 -
Chapter Four
EMPIRICAL ANALYSIS
4.0 INTRODUCTION
This chapter is an empirical appraisal of the tourism sector in Nigeria and the
corresponding effects of the federal government budgets on its performance for the period
of 2000-2009. This study will employ econometric method of regression analysis; to explore
and establish the extent to which changes in fiscal policy factors has affected the
performance of the tourism sector in Nigeria between the periods of 2000-2009. The
method will enable us interpret the regression co-efficient in terms of elasticity, which is
appropriate for the empirical analysis. The study will use the following variables, which are
total capital expenditure, total recurrent expenditure and total federally retained revenue, as
independent variables to examine the impact of federal budgets on the Nigerian tourism
sector’s performance as it pertains tourism receipts in Nigeria..
Data used is mainly from the publication of the central bank of Nigeria (CBN), National
Bureau of Statistics (NBS), and other secondary sources published by federal ministries and
agencies.
4.1 Data presentation The data used for the empirical analysis covers the study period of (2000-2009) and
were collected from secondary sources. This is because of the availability of data for the
period state above. The table below shows the data used for the analysis of the study.
- 48 -
Table 4.1: Showing International tourism receipts, Federal government Expenditure,
Federally collected revenue and International Tourism Receipts in Dollars
4.2 The model The econometric linear regression model specification of this study is specified
using the total federal government expenditure (� � � � � � � � ) and federally collected revenue
(� � � � � � ). The Ordinary Least Square (OLS) method is used for the estimation of the
parameters in the model
Year
Federal government expenditure
(� � � � � � � � )
(N Million)
Federally collected revenue
(� � � � � � )
(N Million)
International tourism receipts
(ITR )
(Current US$)
2000 701,059.40 1,906,159.70 186,000,000.00
2001 1,018,025.60 2,231,532.90 168,000,000.00
2002 1,018,155.80 1,731,837.50 256,000,000.00
2003 1,225,965.90 2,575,095.90 58,000,000.00
2004 1,426,201.30 3,920,500.00 49,000,000.00
2005 1,822,100.00 5,547,500.00 139,000,000.00
2006 1,938,002.50 5,965,101.90 90,000,000.00
2007 2,450,896.70 5,715,500.00 337,000,000.00
2008 3,240,818.50 7,866,590.10 959,000,000.00
2009 3,456,925.40 4,057,499.20 791,000,000.00
- 49 -
4.3 Model specification The relationship between tourism sector performance and the total federal
government expenditure (� � � � � � � � ) and federally collected revenue (� � � � � � ) can be
expressed as follows.
� � � = � (� � � � � � � � , � � � � � � ) .................................................... (1)
The econometric linear model specification of equation (1) above is given as
� � � = β�
+ β�
� � � � � � � � − β�
� � � � � � + µ .................................................... (2)
Where
ITR = International Tourism Receipts (Proxy for tourism sector
performance)
� � � � � � � � = federal government expenditure
� � � � � � = Federally collected revenue
β� = the Intercept which represents the autonomous part of the tourism
sector’s performance when federal fiscal policy measures are zero, i.e.
federal government expenditure and federally collected revenue.
β� = parameter estimate which represents the coefficient of federal
government revenue.
β� = parameter estimate which represents the coefficient of federal
government expenditure.
µ = White noise, error term (stochastic term)
When estimated, the model becomes,
� � �� = β��+β�
� � � � � � � � � − β�
� � � � � � � .................................................3
- 50 -
Given the relationship between tourism sectors performance (ITR), federal government
expenditure (� � � � � � � � ) and federally collected revenue (� � � � � � ). The apriori expectation of
equation (3) is thus
�> 0 .............................................................................4
�> 0 ...................................................................................5
-�< 0 ....................................................................................6
Therefore, �
> 0, �
> 0, �
< 0
4.4 Research Hypothesis The research seeks to evaluate how the tourism sector in Nigeria is been influenced
by government fiscal policy, how its components contributes to the growth of the Nigerian
tourism sector. In this research, there is a need to make certain statements that will be
subject to scientific testing. The following hypothesis will be tested to determine the validity
to the research.
The basic hypotheses used for this research work are:
H0: �
i = 0 (null hypothesis)
H1: �
i ≠ 0 (alternative hypothesis)
Null hypothesis: The Nigerian tourism sector has not been significantly influence by
federal government fiscal policy within 2000-2009
Alternative hypothesis: The Nigerian tourism sector has been significantly influenced
by federal government fiscal policy within 2000-2009
Where �i= coefficient parameter for fiscal policy
- 51 -
Decision Rule:
The Null hypothesis is accepted when the values of the chosen statistic-T is compared
with the theoretical (tabular) value that define the critical region. If the observed value of the
statistic falls in critical regions, we reject the null hypothesis (H0) and accept the alternate
hypothesis (H1), otherwise, we accept the null hypothesis (H
0)
4.5 Model estimation
For the estimation of the parameters in the model and computation of β�
, β�and β
� it
is assumed that the assumption of ordinary least square (OLS) holds. These assumptions
are:
i. E(u)=0-----------------------------------------------------------7
ii. E(ui,uj)=0-----------------------------------------------------------8
iii. E(X1,X2, X3, X4)2=0-----------------------------------------------------------9
iv. E(X,U)=σ2-----------------------------------------------------------10
v. U~N (0, σ2) -----------------------------------------------------------11
vi. E(u2)= σ2 constant-----------------------------------------------------------12
These assumptions are critical in explaining the extent to which the independent
variables explain the dependent variable (Koutsoyiannis, 1997). In the econometric linear
regression model earlier stated, and the data in table 4.1, key fiscal policy variables, federal
government expenditure and federally collected revenue were regressed against the tourism
sector performance
The significance and the relative explanatory power of the variables were tested
using Ordinary Least Squares (OLS) estimation on the data for the period 2000-2009. The
estimation and evaluation of the linear regression model results were generated by feeding
the data in table 4.1 into a computer software programme called SPSS Statistics 17.0 and the
results are presented thus.
- 52 -
Table 4.2:Regression Result
Explanatory
Variables
Coefficient
Standard Error
Estimate (SEE)
T- Statistic (T*)
� � � � � � � � 351.123 99.353 3.534
� � � � � � -46.020 45.658 -1.008
β�(Constant) -148126225.8
143658469.6
-1.031
R- Squared (R2) = 0.728
Adjusted R- Squared (R-2
) = 0.651
S.E of Estimate= 186969893.4
Durbin Watson(D.W) statistic= 1.850
F- Statistic(F*)= 9.381
The estimated linear regression model now becomes
� � � = -148126225.8+351.123 � � � � � � � � −46.020 � � � � � � -------------------------------
13
SEE = (143658469.6) (99.353) (45.658)
T* = -1.031 3.534 -1.008
R2 = 0.728
R-2 = 0.651
D.W = 1.850
F* = 9.381
- 53 -
The values in parentheses are the standard errors of the parameter estimated, R2 is
the coefficient of multiple determination, R-2 is the adjusted coefficient of multiple
determination, D.W is the Durbin Watson test for the presence of serial correlation and F*
refers to the fishes correlation coefficient.
From the result of the empirical analysis, tourism sector’s performance is positively
related to federal government expenditure and inversely related to federally collected
revenue and the autonomous level of the sector’s performance. The autonomous level of
tourism sector performance did not conform to the economic apriori expectation, while
Federal government expenditure and federally collected revenue conformed to our economic
apriori expectations.
In order to understand the signs of each of the variables and determine the degree of
confidence in the validity of the parameter estimates, the standard error test and the
student T- test will be carried out. These tests are quite necessary because their results will
help determine if the parameter estimates of �
, �
,and �
,are statistically different from
zero.
The standard error test is executed when we compare the standard error estimate
(SEE) of each variable with the result of the estimated value of each variable divided by two.
If the standard error is smaller than half the estimated value of the parameter estimate (that
is if, � (�) <
�
�β�
�), we conclude that this estimate is statistically significant. This means that
we reject the null hypothesis (H0) and accept the alternative hypothesis (H
1), which is
equivalent to accepting that the true population parameter β�is different from zero. If we on
the other hand, the standard error of the parameter estimate is greater than half its
numerical value (that is if, � (�) >
�
�β�
�), we conclude that the parameter estimate β
�is not
statistically significant. This means that we accept H0 that the true population parameter β
�is
equal to zero and then reject H1.
- 54 -
The standard error estimate from our regression results shows that, for the estimate of
autonomous level of tourism sector performance (�
), we have 143658469.6 >
−74063112.9� � (β��
) >�
�β�
�� ; for β�
� we have 99.353 < 175.5615 � � (β�
�) <
�
�β�
�� ; for β�
�, we
have 45.658 > −23.010 � � (β��) >
�
�β�
�� .
The results show that the parameter estimate � is statistically significant at 5
percent (5%) level of significance. This implies that the explanatory variable federal
government expenditure and to which the estimate relate to does as a matter of fact
influence the dependent variable, tourism sector performance. Therefore, we reject the null
hypothesis (H0) and accept the alternative hypothesis (H
1) for parameter β�
�.
However, parameters β��and β�
� (coefficient of autonomous level of tourism sector
performance and federally collected revenue), are statistically insignificant, thus
autonomous level of tourism sector performance and federally collected revenue do not
affect the dependent variable. We thus, accept the null hypothesis (H0) and reject the
alternative hypothesis (H1) for parameters β�
�and β�
�.
The T-statistic test indicates whether the degree of variation in the dependent
variable is associated with the regression on the independent variable (Koutsoyiannis, 1997).
We use the T-statistic to test the hypothesis at 5% level of significance with N-1 degree of
freedom. Using the student T*-test (T-Statistic), we say that a variable is statistically
significant if T* (T-Calculated) is greater than the table value of 2.262(T0.025, 9
), and it is
statistically insignificant if the T*is less than the table value of 2.262 at 5 percent (5%) level
of significance.
Therefore, from equation (12) the T-value for the estimated coefficient of the
constant term or intercept was -1.031 < 2.262, meaning that the autonomous level of
tourism sector performance is statistically insignificant. The T-value for federal government
expenditure � � � � � � � � was 3.534 >2.262, which shows that federal government expenditure
- 55 -
was statistically significant. Also, the T-value of federally collected revenue � � � � � � was -
1.008 < 2.262, meaning that the federally collected revenue was statistically insignificant.
Using the F-statistic to investigate the stability of the coefficient estimates as the
sample size increases, we say that a variable is statistically significant if F*(F-calculated) is
greater than the Ftab
(table value), and it is statistically insignificant if F* is less than Ftab
at 5
percent (5%) level of significance with V1=K-1= 3-1= 2; V2= n-k = 10-3=7 degrees of freedom
(DF), therefore, F0.05,2,7
= 4.74, thus 9.381 > 4.74; this implies that the coefficient estimates
are stable overtime as the sample size increases.
R2 = 0.73, and this shows a better goodness of fit, meaning that there is a strong
relationship between the variables used. Thus it shows that 73 percent (73%) of the
variations in tourism sector performance are explained by federal government expenditure
and federal government revenue, leaving 27 percent (27%) of the variation in tourism sector
performance to the white noise error term.
For the Durbin Watson test, there is no serial correlation (of the first-order), this is
because D.W is approximately 2. Therefore, as a rule of thumb, if d is found to be 2 in an
application, one may assume that there is no first-order autocorrelation, either positive or
negative.
4.6 Discussion of research findings The results obtained in the research, showed that the autonomous part of the
tourism sectors performance (the intercept) and federally collected revenue, related
negatively with tourism sector performance, while federal government expenditure
positively related to the performance of the tourism sector in Nigeria. The negative intercept
representing the autonomous part of tourism sector performance in Nigeria shows that the
existing structure, composition and framework of the tourism sector negatively affects the
performance of the tourism sector in Nigeria. Major attractions of Nigeria such as old Oyo
National Park, Yankari Games Reserve in Bauchi; Obudu Cattle Ranch, in cross River State
and the Jos Wildlife Park in Plateau State are not optimally used as “honey pots” to attract
- 56 -
and spread tourists to other attractions and experiences in Nigeria and also to create a
distinctive branding identity for Nigeria, also Nigerians are not fully aware of and
appreciative of the value of major tourism attractions and experiences in Nigeria, combined
with the fact that at some of the current
“magnet” attractions in Nigeria environmental pollution and waste management are
becoming an increasing concern. These induce a damaging effect to the overall performance
of tourism in the Nigerian economy. This can be addressed only by pursuing sustainable
tourism, with the incorporation of local communities, and concerted education and
awareness programmes need to be launched from school to the community level to create a
tourism awareness, pride and involvement on the part of all Nigerians.
However, the negative federally collected revenue coefficient agrees with the apriori
expectation, as the sector’s performance is inversely related to the revenue generated by
government from taxes. This is explained by the classical assumption of no government and
tax, as taxes tend to create deadweight loss in the economy, through market imperfections
that widening the gap between the demand and supply curves (Mankiw, 2002). The
implication is that the prevailing federal government revenue (Tax) structure in Nigeria has
deprived the performance of the tourism sector in Nigeria, which is mainly characterised by
large deficits indicated by tourism receipts and expenditures streams. The function thus
shows that a 0ne million naira increment in federal government revenue, leads to a decrease
of 46 dollars of international tourism receipts.
The positive federal government expenditure, which agrees with the apriori is
expected, as the sector’s performance is directly tied to the availability of certain
infrastructure support, which Ode, (2001) broadly stated to include institutional
arrangement, transport (air, road, rail, water), Information and communication (telephone,
broadband, data) and healthcare and sanitary condition. Since a large part of government
expenditures are targeted to these issues, directly and indirectly, an appreciation in
government expenditures tends to skyrocket the performance of the tourism sector in
Nigeria. This is as a result of to the intensive infrastructure policy of the Yar’adua
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administration, which was centred on the completion of projects and commencement of
operations for programmes and the liberal policies of the obasanjo administration, which
gave private operators the enabling environment to invest. The function thus shows that a
million naira increment in government expenditures will cause the international receipts to
increase by approximately 351 dollars. However this is still not satisfactory as the amount
of international receipts is not quite commensurate to the millions of naira spent by
government. This is because of the pervasion of corruption in the public sector, especially
as it concerns allocation of contracts to contractors, and remuneration of personnel.
Accordingly, the sanctioning of projects and adopting due process in allocations of projects
will augment the performance of the tourism sector in Nigeria.
The impact of federally collected revenue on the performance of the tourism sector
in Nigeria has been confined during the period under consideration and this could be
attributed to unstable macro-economic conditions, fluctuations in the international market,
endemic tax evasion and avoidance culture and unsustainable government revenue streams.
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CHAPTER FIVE
Conclusion
5.0 Summary of major findings The major focus of this study was to examine the impact of federal government
fiscal policy on the performance of the tourism sector in Nigeria. In carrying out the
research, relevant literature in the areas fiscal policy and the tourism sector were reviewed.
Also, the appraisal of both fiscal policy application and the performance of the tourism
sector in Nigeria was also examined and overviewed. The study revealed that poor physical
and social infrastructure, and a faulty structure and framework of the tourism sector,
combined by fiscal policy spillages as well as political instability accounted for the sub
optimal performance of the tourism sector in Nigeria.
The empirical analysis of the study further revealed that the insignificant impact of
fiscal policy on the performance of the tourism sector in Nigeria may be explained by the
variations in federally collected revenue, which tourism enterprises only contribute a tiny
and decreasing segment, thus the social cost within the tourist communities, will be
expanding beyond the private cost of tourism enterprises. More so, the present deficiency of
physical infrastructure, particularly electricity, transport networks and security system
makes the autonomous component of the performance of the tourism sector in Nigeria
negative.
5.1. Conclusion On the whole, it is pertinent to note that the overall performance of the tourism sector in
Nigeria has been far from being satisfactory in spite of efforts made by the government. The
under developed nature of the tourism sector is due to political instability, insecurity, poor
state of infrastructure, erratic power supply, low implementation of federal budgets,
unreliable revenue streams widespread corruption and fiscal policy inconsistency has made
the tourism sector to malfunction, and not attract the expected kind of investment and
tourist. This has held back economic progress and social well being. Therefore, there is the
- 59 -
need to articulate effective policies that will improve the performance of the tourism sector
in the Nigerian economy.
5.2. Policy Recommendation Considering Nigeria’s rich cultural heritage and abundant natural and manmade
attractions, the country can be among the foremost destinations for both international and
domestic tourists. However, there is the need for cohesion in fiscal policies and the enabling
environment for the country to achieve its full potentials in terms of growth through a well
developed tourism sector. Other specific policy recommendations are;
The quality and adequacy of infrastructural facilities are important determinants of
how successful the tourism sector will be able to deliver products and services of high
quality and at low prices. Poor public infrastructure increases the cost of providing tourism
services, and a drag on market efficiency by creating barriers to entry, shrinking
competitiveness and curtailing access to markets (Ode, 2001).
Therefore, the government should as a matter of necessity, make infrastructural
development on high priority in its short and medium plans; also incentives need to be
dedicated to firms who are contributing to this means. Also public-private partnerships in
infrastructural progress should be selected and they should follow should follow the
approach advocated by (Western, 2008). So that the enormous potential that travelers’
philanthropy presents can be acquired.
Public sector investment, though limited, can be made more efficient through the
intersectoral convergence of policies and programmes supportive of tourism. An integrated
inter-sectoral investment plan that provides effective infrastructural support to tourism
through the Ministries of works and Health the Nigerian Railway Corporation, Federal
airports authority of Nigerian, Central bank Nigeria, the Nigerian Tourism Development
Corporation (NTDC), the can be achieved through the preparation of a tourism component
plan. Private sector investment can be enhanced by removing the barriers to growth and
expediting critical policies that are being evolved. Public and legislative support will be
essential for the sustainable development of the sector
- 60 -
The need for efficient and effective co-ordination of fiscal and monetary policies is a
necessary condition that must be met in order to facilitate the effectiveness of fiscal policy
management in Nigeria. When an appropriate stance of expansionary fiscal policy has been
taken, the monetary authorities have to lend support by not adopting a restrictive policy.
Safety and security is a prerequisite to a developed tourism sector, this is because
tourist are easily put off by security and safety issues. The Nigerian police in collaboration
with other security agencies should be proactive in addressing security threats in Nigeria, so
that they can clamp down crime before it manifest. As effective policing measures are
exercised, government should also show commitment through adequate funding. However,
communities should also be involved in crime fighting by reporting suspects and
cooperating with security agencies to reduce crime. The government should ensure that
there are emergency teams in hospitals, which are equipped with all the medical apparatus
to cope a variety of health issues.
In Nigeria, tourism is undermined because no single government branch has overall
responsibility for it. The government should ensure that the tourism sector is not
undermined by competing or overlapping departments, at either the national or local levels,
so the Nigerian Tourism Development Corporation (NTDC) should be empowered to address
issues within the sector. Also a creative marketing strategy for the tourist industry should
be put in place as the global tourism trade is highly competitive. Nigeria needs to think
about what sets it apart from other potential destinations and focus on marketing these
distinctive qualities. Having a clear focus will also make it easier to attract foreign
investment and visitors.
A major impediment to the growth of tourism in Nigeria has been the lack of
awareness about the benefits that it can bestow upon the host population. Unless the host
population, both in the rural and urban areas, is supportive of tourism, it cannot become a
vibrant economic force. The rural sector, in particular, has been largely ignored in tourism
development and has consequently been deprived of the benefits of employment and
income generation accruing from tourism. The Nigerian government needs to rectify this,
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particularly in view of the worldwide interest in rural tourism. While an awareness campaign
that raises local support for tourism is essential for the long-term growth of the sector, it is
also important to create awareness about the environmental impact of tourism by
generating respect for the carrying capacities of tourist sites.
- 62 -
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Appendix
Regression
Variables Entered/Removed
Model
Variables
Entered
Variables
Removed Method
1 Fed Col revenue,
Gov expena
. Enter
a. All requested variables entered.
Model Summaryb
Model R R Square
Adjusted R
Square
Std. Error of the
Estimate Durbin-Watson
1 .853a .728 .651 1.8697E8 1.850
a. Predictors: (Constant), Fed Col revenue, Gov expen
b. Dependent Variable: IT
ANOVAb
Model Sum of Squares df Mean Square F Sig.
1 Regression 6.559E17 2 3.279E17 9.381 .010a
Residual 2.447E17 7 3.496E16
Total 9.006E17 9
a. Predictors: (Constant), Fed Col revenue, Gov expen
b. Dependent Variable: IT
- 71 -
Coefficientsa
Model
Unstandardized Coefficients
Standardized
Coefficients
B Std. Error Beta t Sig.
1 (Constant) -1.481E8 1.437E8 -1.031 .337
Gov expen 351.123 99.353 1.057 3.534 .010
Fed Col revenue -46.020 45.658 -.301 -1.008 .347
a. Dependent Variable: IT
Residuals Statisticsa
Minimum Maximum Mean Std. Deviation N
Predicted Value 1.031E7 8.790E8 3.033E8 2.6995E8 10
Residual -1.6783E8 3.3122E8 .0000 1.6489E8 10
Std. Predicted Value -1.085 2.132 .000 1.000 10
Std. Residual -.898 1.772 .000 .882 10
a. Dependent Variable: IT
- 72 -
