The Economy: Still Wobbling and Fumbling

Fri, Dec 27, 2013

By publisher

8 MIN READ

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The criminal neglect of agriculture and its replacement by crude oil which proceeds have been poorly managed by successive governments over the years, have left the Nigerian economy standing on a shaky foundation

|  By Maureen Chigbo  |  Jan. 6, 2014 @ 01:00 GMT

THE story of the management of Nigeria’s economy in the past century has been one of ups and downs, twists and turns. Ironically, the economy made a lot of progress when it was mostly agrarian than when petro dollars flowed into it. There was the cocoa from the western axis ably supported by palm produce from the eastern region while the groundnut pyramids in the north and other agricultural produce generated a lot of money for the colonial masters to run the economy and had surplus to repatriate some back to their home government in Britain.

The regional governments managed whatever revenue they generated and paid taxes due to the central government. But all that changed with the attainment of independence and the departure of colonial masters. Since Nigeria’s independence in 1960, the economy has been transformed from a subsistence agrarian society into a largely monetised one. Thanks to crude oil. The transformation occurred mostly during the military regime. The civilian administration of former President Shehu Shagari managed the economy for only four years. With the oil boom, 90 percent of the country’s revenue came from oil. The poor state of the economy todav is traced to the poor management of the nation’s resources and the implementation of some economic policies meant to stabilise and engender its growth.

Between 1973 and 1978 oil boom had a pervasive effect on the growth and development of the economy. Nigeria’s new wealth radically affected the scope and content of investment, production and consumption patterns and government approach to economic management. Federal expenditure increased rapidly. Much of this increase in government expenditure went to investments. Measured at 1984 prices, the share of investments in the gross domestic economy product, GDP, increased from less than 12 percent in 1971 to more than 25 percent in 1977, says Rashid Faruqee, co-editor of a World Bank publication. Adjustment in Africa: Lessons from Case Studies.

Faruqee in his article. Nigeria: Ownership Abandoned said that the growth in oil revenue was largely absorbed by sector spending. particularly in infrastructure. The increase in public expenditure went largely to improving transportation and social services, especially roads and ports. “Yet many projects were undertaken without the requisite analysis of their long-term financial viability and the efficiency with which such projects were implemented in the past,” he said.

Huge spending on projects altered the underlying economy and necessitated an increase in wage and high demand for imported goods. An exchange rate policy that allowed the Naira to appreciate with rising oil revenues in combination with rising oil revenues meant a sharp deterioration in international competitiveness. The value of the real exchange rate increased by more than 100 percent from 1973 to 1973. As Naira appreciated with the growth in oil revenue, exports were placed at a particular disadvantage.

The negative impact of these policies on agriculture was particularly severe inspite of the fact that government introduced Operation Feed the Nation to boost agricultural production. The Green Revolution later introduced by Shagari also did not boost agriculture. Although the growth in oil was sufficient to maintain a federal budgetary surplus, yet in 1976, expenditures began to outpace revenue. State budgets also began to show deficits. And as expenditure of the federal government outpaced revenue, federal transfers declined from 40 percent to the federal revenues in 1973 to about 20 percent in 1979. Other governments that ruled the country after Shagari did not perform better with the economy

Suffice it to say that the Nigerian economy has had a truncated history. In the period 1960-70, the Gross Domestic Product, recorded 3.1 per cent growth annually. During the oil boom era, roughly 1970-78, the GDP grew positively by 6.2 per cent annually – a remarkable growth. However, in the 1980s, GDP had negative growth rates. In the period 1988-1997 which constitutes the period of structural adjustment and economic liberalisation, the GDP responded to economic adjustment policies and grew at a positive rate of 4.0 percent

In the years after independence, industry and manufacturing sectors had positive growth rates except for the period 1980-1988 where industry and manufacturing grew negatively by – 3.2 per cent and – 2.9 per cent respectively. The growth of agriculture for the periods 1960-70 and 1970-78 was unsatisfactory. In the early 1960s, the agricultural sector suffered from low commodity prices while the oil boom contributed to the negative growth of agriculture in the 1970s. The boom in the oil sector lured labour away from the rural sector to urban centres.

The contribution of agriculture to the GDP, which was 63 percent in 1960, declined to 34 per cent in 1988, not because the industrial sector increased its share but due to the neglect of the agricultural sector. It was therefore not surprising that by 1975, the economy had become a net importer of basic food items. The apparent increase in industry and manufacturing from 1978 to 1988, was due to activities in the mining sub-sector, especially petroleum. Capital formation in the economy has not been satisfactory. Gross domestic investment as a percentage of the GDP, which was 16.3 per cent and 22.8 per cent in the periods 1965-73 and 1973-80, respectively, decreased to almost 14 per cent in 1980-88 and increased to 18.2 per cent in 1991 -98. Gross National Saving has been low and consists mostly of public savings especially during the period 1973-80. The current account balances before official transfers were negative for 1965-73,1980-88 and 1991-98. The economy never experienced double-digit inflation during the 1960s. By 1976, however, the inflation rate stood at 23 per cent. It decreased to 11.8 per cent in 1979 and jumped to 41 percent and 72.8 per cent in 1989 and 1995, respectively. By 1998, the inflation rate had, however, reduced to 9.5 per cent from 29.0 per cent in 1996.

Unemployment rates averaged almost five per cent for the period 1976-1998. However, the statistics especially on unemployment, must be interpreted with caution. Most job seekers do not use the labour exchanges, apart from the inherent distortions in the country’s labour market. Based on some basic indicators, it appears that the economy performed well during the years immediately after independence and into the oil boom years. However, in the 1980s the economy was in a recession. The on-going economic reform programme is an attempt to put the economy on a recovery path with minimal inflation. The inflation is now at 7.9 percent as at November, according to year-on-year statistics released by the National Bureau of Statistics.

Over the years, Nigeria’s economy has been hobbled by political instability, corruption, inadequate infrastructure, and poor macroeconomic management, but in 2008, the government began pursuing economic reforms. This was necessary because previous governments especially during the military era, failed to diversify the economy away from its overdependence on the capital-intensive oil sector. Following the signing of an IMF stand-by agreement in August 2000, Nigeria received a debt-restructuring deal from the Paris Club and a $1 billion credit from the IMF, both contingent on economic reforms.

Nigeria pulled out of its IMF program in April 2002, after failing to meet spending and exchange rate targets, making it ineligible for additional debt forgiveness from the Paris Club. In November 2005, Abuja won Paris Club’s approval for a debt-relief deal that eliminated $18 billion of debt in exchange for $12 billion in payments – a total package worth $30 billion of Nigeria’s total $37 billion external debt. Since 2008, the government has begun to show the political will to implement the market-oriented reforms urged by the IMF, such as modernising the banking system, removing subsidies, and resolving regional disputes over the distribution of earnings from the oil industry. The GDP rose strongly between 2007 and 2011 because of growth in non-oil sectors and robust global crude oil prices.

President Goodluck Jonathan has established an economic team that includes experienced and reputable private sector members and has announced plans to increase transparency, diversify economic growth, and improve fiscal management. Lack of infrastructure and slow implementation of reforms are key impediments to growth. The government is working toward developing stronger public-private partnerships for roads, agriculture, and power. Nigeria’s financial sector was hurt by the global financial and economic crises, but the Central Bank of Nigeria, CBN, took measures to restructure and strengthen the sector to include imposing mandatory higher minimum capital requirements.

As Nigeria marks its 100 years anniversary, the economy is still wobbly even though it was said to have recorded a GDP growth of seven percent this year. But unemployment figures are still scary at a double digit rate of 56 percent with youth unemployment growing at 16 percent annually. The nation is still heavily dependent on crude oil even though it is reforming its agricultural sector to contribute more to the economy. It can only be hoped that the future will portend well for Nigeria’s economy and the economic managers and that the federal government will do all the needful to steer it away from being a mono-product economy to one whose agriculture and manufacturing sector will be revitalised. The poor contribution of the manufacturing sector to the GDP is hoped to be reversed with the privatisation of the power sector which has hobbled the economy over the years by epileptic power supply. The hope is that with all the reforms being done now by government minus corruption, the economy may recover from its delinquent state.