




































Economy 
ISSN: 2313-8181 
Vol. 2, No. 4, 71-81, 2015 
www.asianonlinejournals.com/index.php/Economy 

 

 

* Corresponding Author 

 

 

71 

 

The Battle of Sugar Imports and Domestic Sugar 

Production in Nigeria: Roles of Political, Policies, and 

Economic Environments  
 

Sunday B. Akpan
1* 

--- Glory E. Emmanuel
2
 --- Inimfon V. Patrick

3 

 
1,3

Department of Agricultural Economics and Extension, Akwa Ibom State University, Nigeria 
2
Department of Agricultural Economics and Extension, University of Uyo, Nigeria 

 

Abstract 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 
 

 

 
This work is licensed under a Creative Commons Attribution 3.0 License 

Asian Online Journal Publishing Group 

 

Contents 
1. Introduction ............................................................................................................................................................................... 72 

2. Literature Review ...................................................................................................................................................................... 72 

3. Theoretical Framework ............................................................................................................................................................ 73 

4. Materials and Methods ............................................................................................................................................................. 73 

5. Analytical Technique ................................................................................................................................................................ 73 

6. Results and Discussion .............................................................................................................................................................. 74 

7. Conclusion and Recommendations .......................................................................................................................................... 80 

References ...................................................................................................................................................................................... 80 

 

 

 

 

 

 

 

The study examined roles of political and economic environments on sugar import demand from 

1965 to 2014 in Nigeria. Time series data were obtained from FAO, Central Bank of Nigeria and 

National Bureau of Statistics as well as World Bank. Augmented Dickey-Fuller-GLS unit root 

test showed that all series were integrated of order one. The long-run and short-run elasticity of 

sugar import demand were determined using techniques of co-integration and error correction 

models. The trend in sugar import revealed an average positive exponential growth rate of about 

3.49% from 1965 to 2014. The empirical results revealed that, the long run import demand 

function of sugar responded negatively to the agro based capacity utilization rate, nominal 

exchange rate, real GDP and domestic price of sugar; whereas, it reacted positively to period of 

civilian rule, domestic production and per capita income. The symmetric adjustment coefficient 

of sugar import demand to a long run equilibrium stood at 33.26% per annum. In the short run, 

sugar import had a significant negative and inelastic relationship with the external reserves; while 

it has significant positive inelastic association with the world price of sugar. To improve domestic 

sugar production; it is recommended that, the Nigeria government should designed programmes 

and incentives to boost agro industrial capacity utilization in the country. Market determines 

nominal exchange rate should prevail in the economy, such that import demand will based on 

equilibrium market exchange rate and not subsidize or regulated rate. The country should 

regulate its foreign reserve policy by setting a threshold, above which excess deposit should be 

plough back to the domestic economy inform of investments rather than support excessive 

importation. Civilian regime in Nigeria should strive to reduce corruption and ensured policy 

tight from conceptualization to implementation. 
 

      Keywords: Sugar import, Macroeconomics, Agriculture, Sugar policies, Nigeria, Economy.  
 

http://creativecommons.org/licenses/by/3.0/


Economy, 2015, 2(4): 71-81 

 

 

 

 

72 

 

1. Introduction 
Sugar sub sector is one of the key providers of industrial employment in Nigeria (Akpan, 2013). The industry 

also plays an important role in food self-sufficiency policy of the federal government (National Sugar Development 

Council Document (NSDC), 2008). The sub sector provides critical raw materials for food and beverage, bakery and 

confectionery, soft drinks and pharmaceutical industries among others. The demand for direct household and 

industrial consumptions has continued to remain firm in Nigeria. The current domestic consumption of sugar in 

Nigeria is about 1.45 million tons per annum (Central Bank of Nigeria (CBN), 2014). Domestic sugar production 

however, has varied between 7,000 to 55,000 tons per annum from 1969 to 2010 (Wada et al., 2001; Savannah Sugar 

Company Limited (SSC), 2006). Nigeria’s sugar requirements are mainly met through imports of raw sugar that is 

refined locally. About 98 percent of all imports come in the form of raw sugar and is refined locally while the 

remainder of imports is refined sugar. Currently, domestic production of sugar is slightly less than 5% of the 

country’s annual requirement (CBN, 2010) and NSDC (2010). From 2001 to 2003 domestic sugar production in the 

country declines considerably reaching all time low value of less than 1% of sugar consumed in the country (CBN, 

2010; Food and Agricultural Organization FAO, 2014). 

Despite depending on import, the country is the largest consumer of sugar in West Africa and has a large area of 

cultivable land suitable for growing industrial sugarcane (Busari and Misari, 1996; ADB, 2000; ADF, 2000). Also, 

over the years the federal government has carried out policies that were aimed at boosting sugar production in the 

country. Some of the policies include; 50% tariff on the importation of white sugar, 5% levy on imported raw sugar, 

five year tax holiday to sugar refineries and privatization of major sugar firms in the country, as well as sugar 

expansion programme in collaboration with the African Development Bank and African Development Fund in 1989 

and 1991 respectively. These packages were meant to stimulate local sugar production and increase the commodity’s 

productivity as well capacity utilization in the sub sector. In spite of these provisions, Nigeria still imports above 

90% of its sugar consume locally (Nigerian Financial Business News, 2010). This implies that huge amount of 

foreign exchange is needed for sugar importation and this has a tendency to impact negatively on the country’s 

external reserves, development of other sectors of the economy and the welfare of sugarcane farmers in the country. 

For instance, about N26billion or about $173.33million (at N150 for 1 dollar) was spent on sugar importation in 2008 

(NFBN, 2010). According to the National Sugar Development Council (NSDC), Nigeria has a land potential of over 

500,000 hectares of suitable cane fields that can produce over 5 million metric tons of sugarcane that when 

processed, can yield about 3 million metric tons of sugar. However, the sector has been neglected and depends 

almost totally on refining imported raw brown sugar from Brazil worth over $500 million per annum (Annual Sugar 

Report for Nigeria, 2013).  

Government has not relented in her effort to increase the productivity of the sugar sub sector in Nigeria. In 2013, 

government revised the sugar tariff structure to revitalize activities in the sugar industry, boost domestic raw sugar 

production and create jobs. New tariffs for raw and refined sugar were announced, as well as for sugar related 

production equipment and machinery. The government implemented a zero per cent import duty on machinery and 

spare parts destined for local sugar manufacturing industries; five year tax holiday for investors in the sugar value 

chain; 10 percent import duty and 50 percent levy on imported raw sugar and 20 percent duty and 60 percent levy for 

imported refined sugar (CBN, 2013). These measures were intended to re-direct investments back to the sub sector 

and promotes backward integration in the sugar value chain. Given this brief scenario in the Nigeria’s sugar industry, 

the need to promote domestic production and control importation of sugar will depends largely on the understanding 

of roles of political and economic environments on food importation in the country. Since importation is basically an 

economic activity that is modeled by categories of policy, there are needs to understand the relationship between 

both political and economic environments and food importation in the country. On this premise, the study 

specifically established the relationship between sugar import and the political and economic environments in 

Nigeria.  

 

2. Literature Review 
Literature on sugar import demand is scanty with respect to Nigeria. However, the study reviewed import 

demand functions of various economies. Frank and Maylene (2005) employed Stock‐Watson dynamic OLS (DOLS) 

model to derive the long‐run price, income and urbanization elasticity of import demand. The data covers the period 

1970‐2000. Results indicated that real GDP, relative price and urbanization are the key determinants of import 

demand for pulses in India. Also, Safoulanitou and Mathias (2007) identified factors that explained food imports in 

Congo. The analysis showed that the exchange rate of the local currency, armed conflicts, re-export trade, income 

and the domestic production index all represent the main factors that account for food imports in Congo in the short 

and or long term. In Nigeria, Ogundele (2007) examined the effects of various trade policy instruments such as tariff, 

import restrictions, outright ban on rice import and other determinants on the import demand for rice in Nigeria 

between 1960 and 2007. The long run equilibrium model revealed that, exchange rate, per capita income and local 

output of rice have positive significant relationship with rice import demand.  

The short run dynamic model (ECM) result further confirmed the significance of per capita income and local 

output as major positive determinants of rice import in Nigeria. In another empirical work (Lançon and Hélène, 

2007) posited that, policy measures are among the major determinant of expansion of rice imports in developing 

countries. In a similar manner, Fatukasi and Bernard (2010) assessed the determinants of import from 1970 to 2008 

in Nigeria. The long run model reveals exchange rate and external reserves have negative relationship with import in 

Nigeria. The GDP and trade openness impacted positively on import in the long run. In the short run, external 

reserves, GDP and trade openness were important decision variables. Nassr (2013) estimated import demand 

function in Palestine. The finding showed positive relationship between the demand for imports and GDP and 

negative relationship with the index of consumer prices. 

 



Economy, 2015, 2(4): 71-81 

 

 

 

 

73 

 

2.1. Research Gaps Identified in the Reviewed Literature 
Researches on sugar import demand are absent in the literature. The country is currently depending on sugar 

import for her domestic and industrial consumption. Hence there is an overwhelming need to link sugar import to 

macroeconomic variables for efficient policy formulation on sugar imports in the country. Also, it is evidenced that 

political environment has not been considered in the sugar import demand function in developing countries. This is a 

serious missing linked especially in Nigeria, where politic plays a significant role in the economic activities. Also, 

some of the studies stick to the traditional theoretical framework of import demand by incorporating few 

macroeconomic variables in the function. This study bridges that gap by expanding macroeconomic variables in the 

function.        

 

3. Theoretical Framework 
Following the work of Mayes (1981) a simple import demand function is explicitly shown as: 

       (
  
  

)
 

                      

Where M = Import, Y = Domestic income, Pm = international price of commodity i, Pd = domestic price of 

commodity i. Attaching log to equation 1 will yield: 

            (   (
  
  

)
 

)                  

Linearizing equation 2 and expressing it explicitly will yield: 

                         (
  
  

)                     

Where α and β are import elasticity of demand with respect to domestic income and own price of commodity. 

However, equation 3 has been expanded to include several explanatory variables such as exchange rate, per capita 

income; external reserve and liberalization dummy etc. (Ogundele, 2007; Igberi et al., 2012). The study further 

expands equation 3 by including dummies.  

 

4. Materials and Methods 
Study Area: The study was conducted in Nigeria; the country is situated on the Gulf of Guinea in the sub 

Saharan Africa. Nigeria lies between 4
0
 and 14

0
 North of the Equator and between longitude 3

0
 and 15

0
East of the 

Greenwich. The country has a total land area of about 923,769km
2
 (or about 98.3 million hectares) with 853km of 

coastline along the northern edge of the Gulf of Guinea and a population of over 140 million people (National 

Population Commission Website, 2006). Nigeria is bounded by the Republics of Benin in the west, Chad and 

Cameroon in the east and Niger to the north.   

Data source: Secondary data were used for the study. These data were sourced from several publications of 

Central Bank of Nigeria (CBN), National Bureau of Statistics, records of Savanna and Bacita sugar companies, Food 

and Agricultural Organization (FAO) as well as the World Bank.  Data covered the period from 1965 to 2014. 

 

5. Analytical Technique  
5.1. The Trend Analysis of Sugar Import in Nigeria (1965 – 2014) 

The study investigated the nature of movement and growth rate in sugar import in Nigeria. An exponential trend 

equation was specified as shown explicitly: 

                                                    
Where ‘T’ is the time expressed in year; SUIt is the annual quantity of total sugar import (tons) in Nigeria. The 

exponential growth rate is given as: (r) =(     )                 
The exponential growth rate was adopted because several literature opine to the continuous increase in sugar 

imports in Nigeria (CBN, 2014). The study used quadratic exponential equation to ascertain whether the growth rate 

in sugar import assumes an accelerated or decelerated rate over increased period of time in Nigeria. Explicitly, the 

model is shown as:  

                    
                             (6) 

The inference implies that, if    > 0; then sugar import has accelerated positive or negative growth rate over 

increase time: when     < 0; the growth rate in sugar import is not significant.  

 

5.2. Long Run Sugar Import Demand Function in Nigeria   
To determine the long run sugar import demand function in Nigeria, a time dependent regression model was 

specified at the level of variables. The model is specified explicitly as thus: 

                                                                      

                        
Where; 

SUIt = Quantity of total sugar import in time‘t’ (tons)  

RGPt = Annual real GDP of Nigeria at current purchaser price (N) 

EXCt = Nominal exchange rate of Naira for Dollar  

ACUt  = Annual agro- industrial capacity Utilization as a proxy of Domestic Utilization (%) 

EXRt  = Annual volume of external reserve/GDP as enhancement of importation (N) 

POLt = Political stability Dummy (1 during democratic era and 0 during military period)  

DPSt = Domestic price of sugar (N/ton) 

RWSt = Real world price of sugar (N) 

DPRt = Domestic production or output of sugar (ton) 



Economy, 2015, 2(4): 71-81 

 

 

 

 

74 

 

PCGt = Per capita GDP as a proxy of household demand in Nigeria (N/Person)  

Ut  = Stochastic error term and Ut ~ IID (0, δ
2
U). β’s are long run import elasticity.   

To validate the existence of the long run stable relationship in the sugar import function in Nigeria, the study applied 

the Engle and Granger two-step technique and Johansen co-integration tests. Following the Granger Representation 

Theorem, the Error Correction Model (ECM) for the co-integrating series in the study was specified. This model 

represents the short run import function for sugar in Nigeria. The general specification of the error correction Model 

specified for the sugar import in Nigeria is explicitly shown below: 

              ∑         

 

   

    ∑         

 

   

                       

Variables are as defined previously in equation 7; and coefficients (  ) of the ECMt (-1<   < 0) measures the 

deviation from the long-run equilibrium in period (t-1).  

 

5.3. Augmented Dickey-Fuller (ADF) – GLS Test 
Stationary of time series is needed to avoid the incidence of spurious regression. It is therefore necessary to 

convert non- stationary series to stationary status in order to obtain reliable regression estimates. In estimating an 

Error Correction Model, this study applies the Augmented Dickey- Fuller (ADF) - GLS test to examine the stationary 

characteristics of the series. As suggested by Dickey and Fuller (1981) equation (9) is used to test the stationary of 

specified variables.  

               ∑  

 

   

                       

Where ‘y’ represents the variables to be tested,   represents the first difference operator; t is the time drift; k 

represents the number of lags used and   is the error term, which is assumed to be normally and identically 

distributed with constant means and variance;’   and    are the model bounds. It is a one-sided test whose null 

hypothesis is      versus the alternative    < 0. Following the work of Elliott et al. (1996) ADF-GLS unit root 

involves estimating the standard ADF test equation after substituting the Generalized Least Squares detrended   
  for 

the original    as shown in equation (10). The test variant offers greater power than the regular ADF test. 

   
      

  ∑ 

 

   

    
                       

 

6. Results and Discussion 
The descriptive statistics of variables used in the study is shown in Table 1. The result revealed high degree of 

volatility among specified variables. Variability was high in domestic price of sugar, per capita income and real gross 

domestic product. Also the finding shows that, variability was low in domestic production of sugar and capacity 

utilization in agro based industries in Nigeria.  

 
Table-1. Summary Statistics, of Variables Used in the Analysis 

Variable Mean Median Min. Max. Std. Dev. C.V. Skewness Ex. kurtosis 

SUI 4.05e+5 3.99e+5 32395 1.09e+6 2.52e+5 0.6233 0.4934 -0.2005 

RWS 14748 2504.2 133.97 80950 22418 1.5201 1.5624 1.2607 

PCG 2.70e+5 2698.1 69.257 4.99e+6 8.75e+5 3.2369 3.9899 16.439 

DPR 38176 36500 13000 69000 11816 0.3095 0.4326 -0.0182 

POL 0.4600 0.000 0.000 1.000 0.5035 1.0945 0.1605 -1.9742 

ACU 51.133 52.950 18.300 84.200 17.6220 0.3446 -0.1435 -1.0365 

EXC 46.394 7.7147 0.5464 158.55 61.1560 1.3182 0.8392 -1.1138 

RGP 4.54e+13 1.18e+13 4.64e+12 6.11e+14 1.13e+14 2.4944 3.6208 12.761 

DPS   42036 790.94 137.27 1.47e+6 2.09e+5 4.9613 6.6197 42.775 

EXR  0.08912 0.0499 0.0061 0.3119 0.0859 0.9644 1.1810 0.1621 
            Source: Computed by authors. Variables are as defined in equation 7. 

 

6.1. Unit Root Test of Variables Used in the Analysis  

The stationary of specified variables in the study was tested with the standard Augmented Dickey–Fuller GLS 

unit root test. Test statistics for each variable in level and first difference involving trend and without trend ADF-

GLS equations were estimated and presented in Table 2. The ADF-GLS test result reveals that, at level all specified 

variables were non stationary, but were stationary at first differences.  

The critical value was kept at 1% significant level to ensure the best result. The result of the ADF-GLS unit root 

test implies that, the analysis of the specified variables at their levels could result in spurious regression estimates 

and hence unreliable policy variables. This therefor implied that, specified variables should be tested for the presence 

of co-integration and Error Correction mechanism (Johansen, 1988; Johansen and Juselius, 1990). 

 

6.2. Result of Trend Analysis of Sugar Import Demand in Nigeria (1965 – 2014) 

Estimates of the exponential trend equation for sugar import are presented in Table 3. The result revealed that, 

sugar import in Nigeria has a positive significant relationship with time. This implies that, sugar import increases as 

time increase. An average exponential growth rate of about 3.49% was obtained in sugar import from 1965 to 2014 

in Nigeria. This means that, sugar import demand has continuously witnessed upsurge over the years under 

consideration.  

 



Economy, 2015, 2(4): 71-81 

 

 

 

 

75 

 

Table-2. Result of the Unit Root test for Variables Used in the Analysis 

 

Variable 

 ADF-GLS Unit Root Test 

With Constant With Constant and Trend 

Lag Level 1
st
 Diff. OT Lag Level 1

st
 Diff. OT 

SUI 0 -1.3175 -8.2110*** 1(1) 0 -1.9851 -8.8653*** 1(1) 

RWS 0 0.3837 -5.3772*** 1(1) 0 -1.9164 -5.7131*** 1(1) 

PCG 0 1.6244 -8.2292*** 1(1) 0 -2.6281 -7.3762*** 1(1) 

DPR 0 -2.2052 -8.7119*** 1(1) 0 -3.0985 -11.628*** 1(1) 

ACU 0 -2.6854 -8.6332*** 1(1) 0 -2.9312 -8.7636*** 1(1) 

EXC 0 0.9061 -5.3757*** 1(1) 0 -1.3142 -5.5727*** 1(1) 

RGP 0 -0.1369 -7.7672*** 1(1) 0 -0.2453 -7.4163*** 1(1) 

DPS 0 2.3826 -6.5094*** 1(1) 0 -0.9048 -6.0099*** 1(1) 

EXR 0 -2.6208 -6.2957*** 1(1) 0 -2.6909 -6.4782*** 1(1) 

CV at 1%   -3.77   -3.77 -3.77  

 Test of Residuals from the long run estimates 

CV at 1% 0 -3.898*** ─ 1(0)  -4.254*** ─ 1(0) 
Note: OT means order of integration. Critical value (CV) is defined at 1% significant level and asterisks *** represents 1% significance level. 

Variables are expressed in logarithm and are as defined previously in equation 7.  

 

 
Table-3. Exponential Trend Analysis of Sugar Import in Nigeria 

Variable Coefficient Standard Error t-value 

Constant 11.7473 0.1967 59.71*** 

Time 0.0349 0.0067 5.208*** 

F- cal. 27.121***   

R-square 0.361   

Exp. GR (%) 3.49%   

Quadratic trend Equation estimates 

Constant  10.518 0.1948 52.98*** 

Time  0.1768 0.0176 10.03*** 

Time Square -0.0028 0.00034 -8.299*** 

F- cal. 67.177***   

R-square 0.7408   
 Note: Values in bracket represent t-values. The asterisk *** represents 1% significance level.  

 

Coefficient of the square time in the quadratic trend equation indicates that, there is a significant negative 

relationship between sugar import and square of time in Nigeria. The result showed marginal decrease in sugar 

import over doubled increase in time. Decline in sugar import over increase time implies that, government policies 

on increase domestic production of refined sugar has gained momentum over increase time. This result revealed the 

marginal efficacy of the long term policies in the sugar sub sector in Nigeria. Alternatively, the result means that, the 

various fiscal, monetary as well as trade policies in addition to incentives implemented by various government 

regimes in the country to reduce sugar import and intensify domestic production as well as promote backward 

integration of the sub sector marginally and adversely affected sugar imports in the long run.   

To further validate the trend behaviour of sugar import in Nigeria, Figure 1 shows the linear trend graphs of 

tonnage of total sugar imported in the country. Sugar import demand in Nigeria was insignificant in the 1960s and 

early 1970s as depicted by a low undulated trend line in this period. In this period, it is noticed that smuggling was 

very minimal and the policy of Import substitute were vigorously pursuit by the federal government. Following this 

policy thrust, two integrate sugar refineries (Bacita and Savanna) were established during this period. Also in his 

period, domestic and industrial utilization were minimal in the country. Interest of government then was focused on 

domestic production through government interventions. 

The period 1975 to 1985 marked an era of oil boom and the corresponding Dutch disease as sugar import also 

witnessed remarkable increase during this period in Nigeria. The country external reserve escalated and there were 

incentives for importation. The per capita income of Nigerian increase remarkably. Preferences for imported food 

items during this era increase among Nigerian. During the early period of this era, tariffs on sugar were favorable. 

Following favorable environment for importation, the country witnessed large tonnage of sugar import as depicted by 

upward movement in the trend in this period. During this period, the import substitution policy in the sugar sub 

sector was not sustainable because domestic production was far below industrial and household demands. This 

forced sugar based industries to import sugar in order to sustain production. Towards the end of this period, the 

country witnessed increase volatility in macroeconomic variables, which resulted in the draining of her foreign 

reserve. In 1985, the country foreign reserves could not supports importation. Smuggling was predominant during 

this era.  

In the period 1986-1990, sugar import assumes a low and declining trend on average. Many analysts attributed 

the occurrence of this trend to restrictive trade policies on sugar. This policy direction was intended to stimulate 

domestic production through private initiatives and competitive market structure. The introduction of the Structural 

Adjustment Program (SAP) in 1986 reinforced the already restricted policies on sugar import in Nigeria.  

 



Economy, 2015, 2(4): 71-81 

 

 

 

 

76 

 

 
Figure-1. Trend in Sugar Import in Nigeria (1965-2014) 

         Source: Data from FAO, CBN and World Bank. Plot was done by authors using gretl software.  

 

Despite the stringent policies on sugar trade, significant quantity of sugar imports was still found in the Nigeria’s 

markets. Again, economists linked this scenario to the porous nature of the nation borders and issues on corruption 

(Akande, 2003). Also, during this period, the nation witnessed the highest level of macroeconomic volatility and 

continuous draining of the external reserves. During the early period of this era, importation was economically 

disabled, while domestic production shrink and this encourages massive smuggling through the boarders. Towards 

the end of the period, (i.e. 1990), restrictions on sugar import were lessen and this encourages gradual inflow of 

sugar imports.    

The period 1991 to 2002 saw a massive renaissance in sugar importation with lesser restrictions and more 

favorable tariff regimes. Sugar import trended upward during this period. In this era, the country economy was 

liberalized and some restrictions on sugar importation were lifted.  Several institution and fiscal policies were put in 

place to promote domestic production. Despite these programmes and policies, sugar import continues to grow 

upward. In 2002, privatization of major sugar companies begun in Nigeria. The rehabilitation of the privatized 

industries was delayed and this hindered domestic production. From 2003 to 2014, the country witnessed massive 

importation of semi processed sugar from Brazil. Tariff incentives and outright ban on cubed sugar encourage 

production of refined sugar from imported semi processed brown sugar. This policy direction drastically lowered 

importation of refined sugar in Nigeria during this period. As revealed in the graph, the trend exhibited average 

downward fluctuation in the period 2003 to 2014. In summary, it is observed that, trend in the sugar import in 

Nigeria has been consistence with the various trades, fiscal and institutional policy regimes in the country. The trend 

assumes undulated pattern with troughs and crests responding to several policies, economic and political 

environments in the country.  

 

6.3. Co-Integration Test for Sugar Import Function in Nigeria 
The study applied the Engle and Granger two-step technique and Johansen cointegration approach to examine 

the co-integration relationship among specified variables. The result of the Engle and Granger two-step technique of 

cointegration test is presented in the lower portion of Table 2. The results showed that at 1% significance level of 

critical value, the Engle–Granger cointegration tests rejected the null hypothesis of no cointegration. Hence, there 

exists a long run equilibrium relationship between the sugar import and selected macroeconomic variables in Nigeria. 

The results showed that at 1% probability level of significance, the Augmented Dicker-Fuller –GLS (ADF-GLS) test 

for the residuals at level is greater than the critical value at 1% probability value.  

 
Table-4. Unrestricted Johansen Cointegration Test Results 

Hypotheses 

(Null)          (Alternative) 

Eigenvalue Trace 

Statistic 

0.05 

Critical Value 

Max-Eigen 

Statistic 

0.05 

Critical Value 

r = 0  r ≥ 1   0.9940 493.926  197.371*** 245.929  58.434*** 

r ≤ 1  r ≥ 2   0.7862  247.996  159.529***  74.047  52.363*** 

r ≤ 2  r ≥ 3   0.7121  173.949  125.615***  59.769  46.231** 

r ≤ 3  r ≥ 4   0.6009  114.179  95.754***  44.091  40.078** 

r ≤ 4  r ≥ 5   0.4729  70.089  69.819** 30.736  33.877 

r ≤ 5  r ≥ 6   0.3397  39.353  47.856 19.922  27.584 

r ≤ 6  r ≥ 7   0.1834 19.431  29.797  9.722 21.132 

r ≤ 7  r ≥ 8   0.1458  9.708  15.495  7.566  14.265 

r ≤ 8  r ≥ 9   0.0436  2.142  3.841  2.142  3.841 
Note: Trace test indicates 12 co-integrating equations at 5% significant level. * denotes rejection of the null hypothesis at 0.05 level. ** MacKinnon 
et al. (1999) p-values.  

 

For the Johansen co-integration approach, the tabulated trace and maximum eigenvalue test statistics were 

significant at various rank levels. The result as presented in Table 4 revealed that the calculated trace test and 

maximum eigenvalue test statistics are greater than the critical values at various conventional probability levels. This 

result confirms the presence of cointegration between sugar import and some determinants of sugar imports in 

Nigeria. Following the presence of cointegration in the sugar import demand function in Nigeria, the long run sugar 

import demand function was estimated and presented in Table 5. The estimated coefficients represent the long run 

sugar import demand elasticity with respect to each specify macroeconomic variable.  
 

 



Economy, 2015, 2(4): 71-81 

 

 

 

 

77 

 

Table-5. Long run Sugar import demand estimates in Nigeria 

Variables coefficient Standard Error t-test 

Constant 24.8668 6.7075 3.707*** 

PCG 0.75688 0.1646 4.598*** 

DPR 

ACU 

0.71040 

− 0.6590 

0.2370 

0.2566 

2.997** 

− 2.568** 

EXC − 0.4968 0.1957 − 2.538** 

RGP − 0.7092 0.2483 − 2.856*** 

DPS − 0.2862 0.1139 − 2.511** 

POL 0.3058 0.1794 1.704* 

RWS 0.1131 0.2079 0.544 

EXR − 0.0388 0.1101 − 0.353 

Diagnostic Tests 

R- Square 0.7678   

F-Cal. 14.6966***   

LM(1)  9.9589***   

Normality Test  1.3789   

RESET test 11.6172***   

DWatson   1.1719   
                     Note: Variables are expressed in logarithm 

 

6.4. Stability of the Long Run Sugar Demand Function in Nigeria  
Testing the stability of the long run sugar import demand function is very important especially when formulating 

policies to promote trade and domestic production. In testing the model stability, it is observed whether the estimated 

sugar import demand function remain stable within a certain probability over the specified period of time. The study 

used CUSUM tests and Recursive coefficients to check the sugar import demand function. The CUSUM test is based 

on the cumulative sum of the recursive residuals.  

 

 
Figure-2. CUSUM plot with 95% confidence band 

            Source: Product of analysis using E-view software. 

 

Figure 2 shows that, the long run sugar import demand function is stable during the sample period specified 

because the cumulative sum revolves between the two critical lines. The result of the stability test shows that all 

estimated coefficients of the explanatory variables revolve within the two critical bands, so all coefficients estimated 

in sugar import demand function are stable in the long run.  

 

6.5. Generating Optimal Lag- Length for the Co-Integrating Variables 
Appropriate lag length for the co-integrating series is needed to generate the error correction model (ECM) for 

the co-integrating variables. The Akaike criterion (AIC), Schwarz Bayesian criterion (BIC) and Hannan- Quinn 

criterion (HQC) tests were employed to determine the appropriate lag length.  The test result as shown in Table 6 

indicates that the optimum lag length appropriate for generating the ECM is at lag 1.  

 
Table-6. Determination of Optimum Lag length 

Lag Loglike P(LR) AIC BIC HQC 

1 -10.101 ─ 0.938* 1.379* 1.102* 

2 -9.743   0.398    0.966   1.448    1.146 

3 -9.009   0.226   0.978 1.500 1.173 

4 

5 

-8.902 

-8.320 

0.643 

0.281  

1.018 

1.036 

1.579 

1.639 

1.227 

1.261 
The asterisks below indicate the best (that is, minimized) values of the respective information criteria, AIC = Akaike criterion, 
BIC = Schwarz Bayesian criterion and HQC = Hannan-Quinn criterion. 

 

6.6. Error Correction Model for Sugar Import in Nigeria 
The primary reason for estimating the ECM model was to capture the dynamics in the sugar import and identify 

the speed of adjustment as a response to departure from the long-run equilibrium.  
 



Economy, 2015, 2(4): 71-81 

 

 

 

 

78 

 

Table-7. Short run Demand Function of Sugar Import in Nigeria 

Variables coefficient Standard Error t-value 

Constant 0.0829 0.1056 0.785 

∆ln SUIt-1 -0.0935 0.1194 -0.783 

∆lnRWSt 0.0129 0.1614 0.080 

∆lnPCGt 0.1191 0.3749 0.318 

∆lnDPRt -0.0737 0.2461 -0.299 

∆lnACUt -0.3090 0.2124 -1.455 

∆lnEXCt 0.0813 0.1577 0.516 

∆lnRGPt -0.1679 0.3721 -0.451 

∆lnDPSt -0.2177 0.0818 -2.662** 

∆lnEXRt -0.1894 0.0638 -2.969*** 

POLt -0.0619 0.1084 -0.571 

ECMt-1 -0.3326 0.1410 -2.359** 

Diagnostic Tests 

R- Square  0.3588 F-cal 5.5342*** 

Loglik. -13.8607  Normality test 3.8295 

DW test 1.8397 RESET Test 0.5397 
                                       Note: Variables are expressed in logarithm 

 

The study adopted Hendry (1986) approach in which an over parameterized model is initially estimated and then 

gradually reduced by eliminating insignificant lagged variables until appropriate model is obtained. The result of the 

exercise is presented in Tables 7. The slope coefficient of the error correction term is negative and statistically 

significant at 5% significant level. The result validates the existence of a stable long-run symmetric equilibrium 

relationship in the specified sugar import demand function in Nigeria, and also indicates that sugar import is sensitive 

to the departure from its equilibrium value in the previous periods. The slope coefficient of the error correction term 

(-0.3326) represents the speed of adjustment and also is consistent with the hypothesis of convergence towards the 

long-run equilibrium once the equilibrium status of sugar import demand is disturbed. The stronger the negative 

value of the ECM, the shorter the period it takes sugar import demand to adjust to equilibrium position amidst 

specified explanatory variables in the long run and vice versa. 

The diagnostic test for the ECM model revealed R
2
 value of 0.3588. The Durbin-Watson value for the sugar 

import demand equation indicates significant effect of serial correlation. The ECM model has been shown to be 

robust against residual autocorrelation. Therefore, the presence of autocorrelation does not affect the estimates 

(Laurenceson and Chai, 2003).  

 

6.7. Stability of the Short Run Sugar Demand Function in Nigeria  
The test result revealed that all estimates of the short run model are stable at 5% probability level within the 

period under consideration. The CUSUM test is based on the cumulative sum of the recursive residuals. Figure 3 

show that the long run sugar import demand function is stable during the sample period specified because the 

cumulative sum revolves between the two critical lines.  

 

 
Figure-3. CUSUM plot with 95% confidence band 

        Source: Product of analysis using E-view software. 

 

The CUSUM of Squares Test indicates that residual variance is stable over the sample period because 

cumulative sum of squares line does not go outside the 5% critical lines. The result of the stability tests show that all 

estimated coefficients of the explanatory variables revolve within the two critical bands, so all coefficients estimated 

in sugar imports demand function are stable in the short and long runs. 

 



Economy, 2015, 2(4): 71-81 

 

 

 

 

79 

 

 
Figure-4. CUSUMSQ plot with 95% confidence band 

                 Source: Product of analysis using E-view software. 

 

6.8. Discussion of the Long Run Elasticity of Sugar Import Demand Function in Nigeria  
The Long run model results revealed that, sugar import has a significant negative and inelastic relationship with 

respect to the agro industrial capacity utilization rate in Nigeria. This means that, 1% change in the agro based 

capacity utilization rate will lead to less than 1% change in the quantity of sugar imported in Nigeria. This implies 

that, the rate at which agro based capacity utilization rate change is greater than the rate at sugar import demand 

changes in Nigeria. The result also indicates that, the volume of sugar import has a negative causal relationship with 

the agro based capacity utilization rate in Nigeria. This result is contrary to a priory expectation. However, the 

finding could suggest that, some agro based industries have backward integration policy with some sugar firms in the 

country. Also, issues related to increase smuggling of sugar through the country porous border could cause this 

relationship. In another perspective, it could be the inefficiency of the agro based firm or increase in the used of 

sugar substitute in their production processes or even the case of diversification in production.  

Similarly, the quantity of sugar import exhibited inverse and inelastic relationship with the nominal exchange 

rate in the long run in the country. Explicitly, 1 unit change in the nominal exchange rate will result at less than I unit 

change in sugar import demand in Nigeria. This means that, as the exchange rate (N/$) decreases, it becomes cheaper 

to import sugar and vice versa. As the value of Naira appreciates, it strangles the availability of foreign exchange 

resulting in the reduction of the quantity of sugar import. It is also noted, that within the period under consideration 

several exchange rate policies were implemented to reduce sugar import and give buffer to the domestic economy. 

This result is in line with the findings of Safoulanitou and Mathias (2007); Ogundele (2007) and Fatukasi and 

Bernard (2010).    

In a similar manner, sugar import showed significant negative and inelastic relationship with the country’s real 

GDP. This means that, 1% change in the country’s GDP will result to a less than 1% change in sugar import demand 

in Nigeria. This result suggests the prevalence of high rate of sugar smuggling along the country’s international 

borders. This is because, the country has enunciated several tight trade; fiscal and monetary policies to check 

excessive sugar import; but it seems these measures were not very effective or implemented adequately. The 

negative relationship between these variables could also be explained by the fact that, Nigeria’s government has 

invested heavily on the development of the domestic sugar sector and issues related to corruptions. Several 

institutional frameworks, programmes and policies have been enunciated and implemented to upsurge domestic 

sugar production in the country. Hence, as GDP increases, more domestic investments are initiated to reduce capital 

flight which certainly has an inverse impact on sugar import in the country. This result corroborate he findings of 

Frank and Maylene (2005) as well as Nassr (2013). 

In the same direction, sugar import has an inelastic and negative correlation with the domestic price of sugar in 

Nigeria. This means that, 10% increase in the domestic price of sugar will lead to less than 10% increase in sugar 

import. This means that a change in domestic price of sugar is greater than a change in sugar import. This result 

could be substantiated by the fact that, the domestic price of sugar is not competitive relative to international price of 

sugar in Nigeria. This is because currently the domestic production constitute less than 5% of the total sugar 

consume in Nigeria. The quality of domestic sugar production and the preference as well as the utility of consumers 

could also help to explain this relationship. For instance, if consumers prefer imported sugar to domestic sugar, 

irrespective of price change in the domestic sugar, the demand for imported sugar will increase. This result agrees 

with the finding of Frank and Maylene (2005).  

On the other hand, sugar import has a positive and inelastic correlation with the political environment (i.e. the 

civilian regimes in Nigeria) in the long run in Nigeria. This means that, variation in the political environment in the 

country is more compared to changes in sugar import demand in the long run. The causation relationship shows that, 

periods of civilian rules promoted sugar import in Nigeria. This could be due to the porosity of most trade and tariff 

policies in this era. The issue of corruption among government officials played a very important role in this 

relationship. Lançon and Hélène (2007) have reported similar result earlier. 

The coefficient of per capita income in the long run model shows significant positive and inelastic relationship 

with the volume of sugar import in Nigeria. It means that, a percentage change in sugar import is less than equivalent 

change in per capita income. The causation relationship satisfies a priori expectation, as increase in the per capita 

income will likely increase incentives for consumers to either buy more or go for more superior quality of sugar in 

the market. Alternatively, increase in per capita income will likely increase effective demand for sugar in the 

country. Where domestic supply falls short of demand, the economy will be force to import in order to fill the supply 



Economy, 2015, 2(4): 71-81 

 

 

 

 

80 

 

gap in the country. Continuous increase in per capita income can even encourage smuggling in a situation of 

restrictive trade policies or quantitative restriction as well as outright ban in the country. The finding is in 

consonance with Ogundele (2007) result. 

The result also revealed that, the sugar import has significant positive inelastic association with the domestic 

production of sugar in Nigeria. This means that, sugar import demand expanded less than proportionate increase in 

the domestic production of sugar in the country. The insignificant proportion of the domestic production in the total 

quantity consume in the country could be responsible for this result. It also reveals that, the domestic sugar industry 

is not competitive relative to the internal market. Reasons for this result could also be linked to the low installed 

capacity and obsolete technology in the country’s sugar refineries. The low productivity of sugar cane and low 

technical know-how in the industry are worth mentioning. Issues such as policy insincerity in the part of government 

and corruption contributed to this relationship in Nigeria. Safoulanitou and Mathias (2007) have reported similar 

result elsewhere. 

   

6.9. The Short Run Elasticity of Sugar Import Demand Function in Nigeria  
The short run elasticity of sugar import demand showed the responsiveness of sugar import demand to changes 

in factors that affect it. In this regards, the sugar import demand has an inelastic and negative relationship with the 

domestic price of sugar in the short run. This connotes that, 1% increase in the domestic price of sugar will result to 

less than 1% increase in sugar import demand in the short run in Nigeria. The causation relationship revealed 

negative significant association between sugar import demand and domestic price of sugar. This means that, as 

domestic price of sugar increases, demand for imported sugar decrease in Nigeria. This implies that domestic sugar 

and exotic sugar are substitute goods. Similar relationship has been reported by Frank and Maylene (2005) as well as 

Nassr (2013). 

Similarly, inelastic and adverse relationship exists between the sugar import demand and the external reserves in 

the short run. This implies that 10% increase in the country external reserve will result in less than 10% increase in 

quantity of sugar import in the short run. The several ad hoc trade and monetary policies enunciated by the federal 

government to reduce sugar import and boost domestic production could help to explain this finding. Following these 

policies, increase in the country’s external reserve did not have strong positive relationship with sugar import in 

Nigeria. This result also connotes that, large proportion of imported sugar in the country’s economy enter through 

illegal ways. If all imported sugar should pass through the legal ways, it will definitely be determine positively by the 

external reserve. The result coincided with the finding of Fatukasi and Bernard (2010). 

 

7. Conclusion and Recommendations 
Sugar import is a reoccurring phenomenon in Nigeria. Nigeria has form several policies and programmes to 

boost domestic sugar production. Despite these several attempts by the government of Nigeria, sugar import has 

continuously trended upward in recent years. The study has been able to identify the role of political and economic 

environments on sugar import demand in Nigeria. The study revealed an exponential growth rate of about 3.49% 

from 1965 to 2014. The coefficient of time in the quadratic trend equation was negative which connotes that, over 

increase time the policy trust on domestic sugar production paid up marginally in the country. The long run import 

demand function of sugar had a negative significant inelastic relationship with agro based industrial capacity 

utilization rate, nominal exchange rate, real gross domestic product and domestic price of sugar. The long run sugar 

import demand also reacted positively to period of civilian rule, per capita income and domestic production of sugar. 

The study discovered symmetric adjustment coefficient of 33.26% per annum in sugar import demand in the country. 

In the short run, sugar import had a significant negative and inelastic relationship with the domestic price of sugar 

and external reserves of Nigeria. 

Based on the findings, the following recommendations are proposed; 

 The federal government as a matter of urgent policy should designed programmes and incentives to boost 

industrial capacity utilization in the sugar industry in the country. Such policy should encourage backward 

integration between industries and sugar firms in the country.  

 Market determines nominal exchange rate should be maintained in line with the liberalization policy in the 

country. In this regards, sugar import demand will be based on equilibrium market determine exchange rate 

and not at subsidize or intervene rate.  

 The country should regulate its foreign reserve policy by setting a threshold, above which excess deposit 

should be plough back to the domestic economy inform of investments rather than support excessive sugar 

importation 

 Civilian regime in Nigeria should strive to reduce corruption and ensured policy tight from conceptualization 

to implementation. This will remove some of incentives that encourage sugar import and encourage domestic 

production.   

 Government should also ensure full commercialization of all privatized sugar refineries in the country. This 

will allow the domestic price of sugar to float on market determined level.  

 Government should develop the economy and maintained increase GDP and should endeavor to invest on 

the agro sector such as sugar industry in order to boost domestic production.  

 

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Views and opinions expressed in this article are the views and opinions of the authors, Economy shall not be responsible or answerable for any loss, damage 

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