The Effect of Oil Production on Financial Market Development Among Countries in Africa

Abstract

Financial market experts have frequently cited oil production stability as a significant requisite for increasing financial markets development. The appropriate operating financial institution enables expansion of the economic market by bringing together and directly involving entrepreneurs in viable opportunities within the continent. This research aimed to establish the effect of oil production on financial sector development in Africa. The study was guided by the following research hypotheses: H01: There is no statistical significant effect between exchange rate of oil production and the financial sector development in Africa. H02: There is no statistical significant effect between quantity (Barrels) of oil production and financial sector development in Africa and H03: There is no statistical significant effect between quality of oil production and financial sector development in Africa. The study employed the Solow neoclassical model of economic growth and the Keynesian Model by utilizing their models of economic analysis to explain the correlation between oil production and financial sector development. The study adopted an analytical research design where comparative investigation was utilized to discover the correlation between the study variables and to establish the relevance of oil production to financial market development by comparing financial market development in oil producing countries in comparison to non-oil producing countries in Africa. This research utilized second hand data on financial market development indicators and oil exports data that are largely available on the internet. The researcher collected data on market capitalization value trends in each country for a period of ten years from 2008 to 2017. The quantitative data was gathered from the annual reports of the listed oil producing countries in Africa from World Bank. The data collected was analyzed using descriptive and inferential statistics. Descriptive statistics employs frequencies and percentages while inferential statistics was done through multivariate regression. The study results found that the country with the highest inflation rate in the economy is Malawi with 19.1% while the country with list interest rate is Gabon with a moving average of 1.5% interest rate. The study also concluded that Nigeria produces the highest barrels of oil in Africa with quantitative figure of 4,017,117 barrel per annum while the list producing oil country in Africa is Tunisia with quantitative value of 24382 barrel per annum spread over 10 years from 2008 to 2017. Finally, the study findings concluded that all the oil producing countries in Africa produces light crude oil. The study recommends that that a more stable economy is needed in all the oil producing countries because they have resources that contributes greatly to the real gross domestic product. Another recommendation is that the oil producing countries in Africa should form a market block that controls oil production. Statistically, the β coefficients were all significant to be used for multiple regression exchange rate (β1=0.521, p<0.000), quality of oil (β2=0.069, p<0.017) and quantity of oil (β3=.108, p<0.001).