Thursday 22 January 2009

The Nigerian Economy

Oil is a major feature in the Nigerian economy and has been since the oil boom in the 1970s.At its independence in 1960 agriculture accounted for well over half of GDP, and was the main source of export earnings and public revenue. The oil sector however, which emerged in the 1950's and firmly established itself during the 1970's, is now of overwhelming importance to the point of over-dependence.

The increasing dependence on the oil sector, which now provides 20% of GDP, 95% of foreign exchange earnings, and about 65% of budgetary revenues, was accompanied with a decrease in investment and size of the agricultural sector. Nigeria once, a major export of agricultural produce, now has to rely on food imports.

Nigeria has struggled with the daunting task of reforming a petroleum-based economy, whose revenues have been squandered through corruption and mismanagement, and institutionalising democracy.

This has played a major role in Nigeria’s economic fortune as the sporadic growth in the Nigerian economy is largely dependent on the rise and fall in the price of oil. Falling oil prices, along with decreased output in the late 1970’s and 1980’s contributed to decline in per capita real gross national product, which persisted until oil prices began to rise in 1990.

Indeed, GNP per capita per year decreased 4.8 percent from 1980 to 1987, which led in 1989 to Nigeria's classification by the World Bank as a low-income country (based on 1987 data) for the first time since the annual World Development Report was instituted in 1978. It also declared that Nigeria was poor enough to be eligible (along with countries such as Bangladesh, Ethiopia, Chad, and Mali) for concessional aid from an affiliate, the International Development Association (IDA).

The classification also saw, along with the economic reform efforts made by the then Olusegun Obasanjo led government, part of the country’s US $31 billion debt being written off by the Paris Club of debtor nations in 2005.

The rise of the price of oil from 1999 to its peak price in July 2008 has seen growth in the Nigeria economy, making it one the fastest growing in the world with the International Monetary Fund projecting a growth of 9% in 2008 and 8.3% in 2009.

Despite it recent economic largess, the failure of successive Nigerian governments to diversify the economy beyond the capital intensive oil sector bore its head again when the Nigerian government announced that it will reduce its budget for 2009 amid a recent fall in oil prices.

The failure also masks a more serious situation in the country – poverty. Nigeria has one of the highest poverty levels in the world, with 70% of its 140 million living on less than US$ 1 a day. The poor infrastructural development in the inefficient non-oil sectors have been a big contributor to the levels of poverty in country.

The inefficiency of relying on the oil sector did not escape the Obasanjo government when it implemented an economic reform program called the National Economic Empowerment Development Strategy (NEEDS). The purpose of NEEDS is to raise the country’s standard of living through a variety of reforms, including macroeconomic stability, deregulation, liberalisation, privatisation, transparency, and accountability.

However the implementation of the reforms has not been without their problems. In January, 2008 Nigeria's new President Umaru Yar'Adua announced that between 1999 and 2007, the administration of his predecessor Olusegun Obasanjo spent $10 billion on the power sector without building any new power plants. The figure was later revised up to $16 billion.

The UN has also sponsored a longer-term economic development program called National Millennium Goals for Nigeria. Under the program, which covers the years from 2000 to 2015, Nigeria is committed to achieve a wide range of ambitious objectives involving poverty reduction, education, gender equality, health, the environment, and international development cooperation.

The UN however found that while Nigeria was making progress toward achieving several goals but was falling short on others, in a report it released in 2004. Specifically, Nigeria had advanced efforts to provide universal primary education, protect the environment, and develop a global development partnership. However, the country lagged behind on the goals of eliminating extreme poverty and hunger, reducing child and maternal mortality, and combating diseases such as human immunodeficiency virus/acquired immune deficiency syndrome (HIV/AIDS) and malaria.

When the current president was elected into office he revealed a seven point agenda which he said would be his immediate attention. The seven point agenda involves implementing reforms regarding power and energy, food security and agriculture, wealth creation and employment, mass transportation, land reform, security and finally, education.

For many Nigerians, the country is presents something of a paradox that a nation blessed with many natural resources seems unable to reach the potential that many believe it should have by now. They have seen so many economic reform policies come and go, with little or no effect. It is too early to determine the effectives of the reforms being proposed by the current administration.

Nigeria has been listed amongst the Next Eleven (N-11), a group of nations identified by investment bank, Goldman Sachs as having potential to be world's largest economies in the 21st century along with the BRICs (Brazil, Russia, India and China). One of the telling points in the report was the question of how high energy prices have helped some of the N-11 and what will whether recent growth and market performance can be sustained if there was a challenge to that environment.

The report also stated that present economic reforms would need to be carried out, if not stepped up, for Nigeria to fulfil its potential. This is especially important in Nigeria’s case for if the current global economic slow down continues, it is likely to have a downward effect on current oil prices.

While Nigeria is approaching the status of an emerging economy, its dependence on oil receipts poses a serious threat to wipe out gains made in recent years and further hinder any effort to alleviate poverty in the country.

The present Nigerian regime should look no further than the Asian Tigers (Hong Kong, South Korea, Singapore, and Taiwan) and BRIC economies for inspiration and ideas of how to go from a third world country to become a bristling global and diversified economic power and change the status quo in the league of economic powers in the World.

It should also look at these countries to avoid making some of the mistakes they made, like those that led to the Asian Financial Crisis in 1997, the environmental problems that China is currently faced with or the South Korea’s weak financial sector. There is also something to be learnt from the real estate problems facing economies like Ireland, Spain and Dubai.

The ongoing global financial crisis will also present a challenge as financing will be needed for some of the infrastructural development recommended but it is also hoped that this will act as a deterrent to wasteful spending and white elephant projects.

2 comments:

  1. try hader in explaining the causes and of nigerian's instability.

    ReplyDelete
  2. i need Nigeria to get better n better, didn't say want but need!!!

    ReplyDelete