What is Diversification?
Diversification is a risk management technique that
mixes a wide variety of investments within a portfolio.
The rationale behind this technique contends that a
portfolio of different kinds of investments will, on
average, yield higher returns and pose a lower risk than
any individual investment found within the portfolio.
Diversification strives to smooth out unsystematic risk
events in a portfolio so that the positive performance
of some investments will neutralize the negative
performance of others. Therefore, the benefits of
diversification will hold only if the securities in the
portfolio are not perfectly correlated.
There is no doubt that petroleum (crude oil) has contributed substantially to Nigerian revenue since its discovery in 1956
and more especially, since 1970 when its price was on the upward trend. However, it is a known fact across the globe that
for a country to attain growth and development, its economy has to be diversified. Diversification does not occur in a
vacuum. Mono-economy needs to give way to the productive development of various sectors of the economy. Following the
supply and demand limitation of major importers from the country, which brought about the fall in the price of oil by more
than 40% since June 2014 when it was $115 a barrel, which now is below $36, it is a well-
known fact that Nigeria's continuous large earnings or revenue from this sector will be impossible. As a matter of fact,
there is an urgent need for the Nigerian government to begin looking into diversification of various sectors of the economy
so as to attain solid economic growth. The Neo-Classical Growth Model, some empirical researches and secondary data
collected and analyzed support our call for the diversification of Nigerian economy with an urgent need to decentralizing
concentration on mono-crude oil -economy. These studies have shown that there exists a positive relationship between
economic growth in Nigeria and diversification of other sectors because, when there were proper management of human
resources, huge investment and concentration on agriculture, Nigerian economy was recorded to be healthy and vibrant. In
those golden years, agriculture offered over 70% of Nigeria's teaming population job opportunities. Descriptive statistical
method likewise was employed in this paper. This article however, attempted to seek out how diversification of the
economy will enhance stable and viable economic growth in Nigeria.
For over four decades, the Nigerian economy has mostly depended on proceeds from the sale of crude
oil. The development of the solid
mineral sector could help to combat poverty in Nigeria via job creation; especially, given its forward
linkage with other sectors of the economy. Most importantly, it could help alleviate some of the
problems associated with “enclave” nature of the Nigerian economy that has for too long being
vulnerable to fluctuations in global oil prices. To realize these potentials, the paper highlights the need
for a strengthening of Nigeria’s existing solid mineral development policy. It also points out the need
for the government to create an enabling environment for the private sector to take the lead in the
sector.
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