Nigerian Oil Economy: Development or Dependence
by Chris Hajzler
The 1980s and 1990s are seen as a time of agrarian stagnation and crisis in Nigeria. Stagnant or declining output, large increases in food price inflation, the virtual disappearance of agricultural exports and the rapid increase in food imports, and massive external debts are considered a few of the many problems related to the Nigerian government’s growth strategy. However, while these problems may be attributed to undesirable government policies, it is necessary to interpret them in terms of the various domestic and international pressures that have thus limited the capacity of government to embark on an independent development plan, not to exclude the internal or institutional shortcomings of the government itself. The most prevalent of these forces, it can be argued, has arisen from Nigeria’s historic dependence on oil production and exports, which have been entrusted to the Multinational oil conglomerates that have the financial and technological means to invest in this sector. The dominant influence of these firms in Nigerian development and, by promising substantial immediate financial gains, fiscal economic policies meant that private business has prospered at the expense of long-term economic growth. However, the ways in which the oil export industry has hindered economic growth have been both direct and indirect. The major topics of interest can be broken down accordingly. First, literature highlights the direct effects of pollution resulting from oil production as the main source of poverty and low production in agriculture, contributing to the country’s current economic crisis. Secondly, the state’s reliance on oil and the consequent oversight of the agriculture and manufacturing sectors has left Nigeria defenseless against major international economic forces, particularly the decline in oil output during the second OPEC crisis. Both of these dilemmas are crucial to our study of underdevelopment in Nigeria, but they are associated with independent policy issues. It will therefore be conducive to our analysis to address each in turn, followed by an evaluation of the various reforms that they might incur on the Nigerian State. The first section of this dissertation is dedicated to a brief review of the development of the Nigerian oil sector.
I ECONOMIC SETTING
Nigeria is the largest oil producer in Africa, and the fifth largest in the Organization of Petroleum Exporting Countries (OPEC). Oil for the past three decades has provided 90 percent of the foreign exchange earnings of Nigeria, financing 80 percent of total government revenue. The first discovery of commercial quantities of oil in Nigeria was in 1956, with reserves estimated from sixteen to twenty-two billion barrels mostly found in various fields in the coastal regions of the Niger Delta. After Nigeria’s independence in 1960, oil production for export had risen dramatically as British and American oil corporations recognized increased investment opportunities. When the Mineral Act of 1914, vesting all land and minerals in the Nigerian State, was changed into the Petroleum Act of 1969, the government consolidated its new commitment to the growth of the oil industry. With limited capital and technical resources, however, the state was unable to transform the Nigerian economy into a major petroleum exporter overnight. Increased flows of investment from multinational firms made this transition possible. Through a series of contracts and new laws, Nigeria remodeled its domestic market to become more attractive to foreign investors. Indeed, many oil companies responded favorably to the new amendments, competing to take part in joint venture agreements with the Nigerian state. By 1975, Nigeria had the fifth largest stock of foreign direct investment in the developing world.
According to the Nigerian constitution, all minerals, oil, and gas are formerly considered the property of the federal government, which negotiates the terms of oil production with the private firm. Most exploration and production activities are carried out exclusively by multinationals, but they operate under joint venture contracts whereby the Nigerian National Petroleum Corporation (NNPC), the state oil company, contributes to 55-60 percent of production contracts and claims the same ratio of total revenues. Many European and American MNCs entered into joint venture agreements with the Nigerian government. The companies of Shell BP, Mobil, Chevron, Elf, Agip, and Texaco are all currently operating in Nigeria, although the Shell joint venture is clearly the most dominant operation, producing over half of Nigeria’s crude oil production. It is important to note, however, that Shell’s monopolistic presence in Nigeria is a historical one, dating back to 1937 when the Colonial Mineral Ordinance granted the company the entire onshore and
offshore oil exploration and prospecting rights. Leases for exploration by the company were most often provided for a minimum term of 99 years. The new terms for oil exploration as outlined in the Petroleum Act meant that new foreign companies could bid for contracts in joint operation with the NNPC.
The new contracts set up between the NNPC and foreign firms were in the spirit of improving Nigeria’s control of the oil industry, forcing multinationals to sell up to 60 percent of their equities to the state. However, this objective has been severely thwarted by domestic economic crisis, international pressures for privatization, and political instability. We will address each of these factors in turn, but it will suffice to mention here that oil production in Nigeria is still largely under foreign control, and the country as a whole has benefitted very little from the current government contracts. For example, Daniel Omoweh points out that the agreement between the state and Shell cannot be properly considered a joint venture since there is no equity participation involved, and Shell is still 100 percent owned by the parent company. The state has been, for the most part, unable to contribute the financial and technical cooperation that, in theory, recognizes Shell only as a partner. Thus Shell is, in practice, the sole technical operator of oil production, covering the entire costs. These costs are then calculated in terms of quantities of crude oil and its equivalent is subtracted from total revenues. Whatever is left is then shared in the agreed ratio. In another article Omoweh writes:
Though the Nigerian state owns the oil and gas sector, it lacks the technical capacity to operate, making its control of the oil companies difficult. Incapacitated by a weak technological base, and lack of energy and mining policies, the state has only intervened into the petroleum industry largely to collect rents.
More recent contracts relating to oil production have been “production sharing contracts” (PSC) which, due to the incapacity of the state to contribute to the capital intensive industry, does not recognize the government as a formal partner. The firm covers the entire costs of production and thereby absorbs most of the oil revenues, having only to pay the tax or “rent” on corporate profits.
The control over the operating costs of production has been repeatedly expressed as the key determinant in the high profits accrued by foreign oil companies, even during times of economic downturn. While production sharing contracts do not require the government’s investment in oil exploration and production, the state forgoes a considerable
portion of revenue, accruing as little as 20 percent of corporate profits. What is significant, is that Nigeria remains one of the poorest countries in the world, with a per capita GNP of only US $260 a year, and yet oil production and revenues have reached some of its highest figures. Without relying on inputs from, or having any real obligation to the government or its agencies, the oil companies can import all factors of production from abroad and continue to sell its oil on the world market, keeping oil production relatively constant. Table 1 indicates that although GNP per capita in the early 1990s is less than one quarter of its 1980 amount, oil exports have been maintained at constant levels. Moreover, severe economic crisis and political instability in Nigeria has not deterred foreign direct investment flows. It is necessary to address these distortions when confronting the issue of under-development in the Nigerian economy. We must examine why economic conditions have worsened while the country’s largest industry and export market have continued to grow, and evaluate what relationship, if any, has pulled the two to opposite extremes.
II OIL PRODUCTION AND THE ENVIRONMENT
Environmental Degradation and Rural Underdevelopment
The most obvious factor in Nigeria’s deteriorating economic position is pollution arising from careless and unmonitored oil production. It is often argued that oil production in Nigeria has resulted in severe strains on agriculture, fishing, and economic stability as a whole, with perhaps the most severe consequences to the social and political environment of the nation. In the absence of laws that govern methods of oil drilling and shipment, companies have persistently threatened the subsistence and livelihood of a vast number of local communities. The byproduct of gas flaring continues to destroy the ecosystems of surrounding areas, and pipelines that have been constructed through numerous farmlands have ruptured, causing damage to vast areas of agricultural land. Of all the identified causes of oil spillage in Nigeria, ruptured pipelines account for 70 percent of the incidents while the remaining 30 percent are caused by engineering errors, poor maintenance, and sabotage. In 1985 alone, 600 incidents of oil spillage were reported in which more that 3 million barrels were lost. Specifically, these disasters are responsible for an array of environmental problems facing the country, which include the destruction of the nitrogen cycle of the soil and plants, the contamination of water, and the extinction of plankton, fish, and other aquatic organisms. Taking agriculture and fishing industry into account as the primary source of subsistence for a large portion of the Nigerian population, making up about 40 percent of the nation’s labour force, the current destruction of the ecological balance translates into depressed income and widespread poverty.
An additional shock to rural communities has been the large amount of displacement that has occurred over the course of oil exploration and production. Under the Land Use Act of 1978, land falls under the direct control and management of the state governor, or under the local government of the rural areas. The act essentially allows designated government officials to grant statutory rights of occupancy to any land, and has been used to expropriate farmlands for the use of the oil multinationals. Since the law has been passed, it is estimated that some 10,000 families from each of the six major oil communities have lost their farmlands to claims on areas for oil production and transportation alone, while further displacement results from area pollution. As of the end of 1995, an additional 900 hectors of land not previously lost to exploration had been destroyed by Shell’s oil wells and flow stations. This translates into another 4,500 people removed from their traditional means of subsistence.
Rural land in Nigeria represents a fundamental safety net for a great number of people who have traditionally depended upon their narrow crops for subsistence agriculture and various indigenous medicines. According to Daniel Omoweh, the effects of unbridled and mismanaged oil production on Nigeria’s agriculture are momentous. He notes that important food crops such as cassava, pepper, garri, and cocoyam have all been subject to poor yields over the past few decades. Other crops such as yellow yam, one of the most commonly grown specie of yam in many communities, have all together disappeared from local markets, as evidence of serious pollution. To measure the extent to which the population has been affected by this crisis, the prices of these now relatively scarce commodities have been compared with earlier prices. Omoweh looks at the prices of various foods sampled at six different community markets in 1992, and finds that a 25-kilogram bag of garri was sold at an average price of 700 naira, an increase of 400 naira over its 1989 price. By 1993, it rose to 1000 naira and shot up to 2,500 naira in 1995. The price of fish, a main source of protein for many tribes, has also drastically risen, sometimes at a rate of 300 percent a year. What is curious about these findings, however, is that Omoweh has not given any mention to the effects of inflation, which has been significant during this period. The GDP deflator between 1992 and 1995 has also risen by about 250 percent. Another factor to consider is how agricultural policies, such as the conversion to cash crops or the introduction of other agricultural goods during the Green Revolution, have contributed to the scarcity of some of these foods. Nevertheless, it is evident that the impact of drastic price increases for basic food products is compacted by the erosion of income for most families who have previously relied on their now infertile or expropriated farmlands.
In addition to crude oil, there are industry wastes from exploration activities and refinery emissions, coupled with thermal pollution from gas flaring. Gas flaring is perhaps the most critical aspect of pollution due to oil production in Nigeria. The largest physical proportion of extracted petroleum products and, although it could be used as a source of energy, most of it is flared. In fact, Nigeria flares more gas than any other country in the world. The case might be that Nigeria lacks the general infrastructure to efficiently transform natural gas into a productive resource, or even the means to transport surplus gas to other countries, there are alternatives to flaring and environmental damage. The Associated Gas Reinjection Act in 1980 requires that every company producing oil or gas in Nigeria submit preliminary programs for gas reinjection (a process of redirecting unwanted gas back into the earth crust). However, the enactment of this law has been largely ineffective in the absence of any clear concessions for punitive action against gas flaring. In 1987 alone, 8.5 million cubic meters of gas was produced by Shell, 65 percent of which was flared. The continuous gas flaring by Shell in Nigeria even after the Act was implemented is seen as a clear manifestation of the hollowness of environmental standards and production agreements.
Nigeria’s Environmental Policy
It has been noted that, of the ten multinational oil companies operating in the country, Shell has been responsible for approximately 70 percent of total oil spillage. Nevertheless, few concrete measures have been taken by the government to prevent further oil pollution, and no limits have been placed on the amount of oil that the company could extract. Indeed, the limited extent of government regulation in oil production and environmental protection confirms Shell’s preferred presence and absolute advantage in the Nigerian oil industry. Shell has had only to respond to a few suggestive laws presented by the government, but this has not yielded any substantial changes. For example, the Petroleum Decree of 1969 requires that in accordance with “good oil field practice,” the licensees take all “practical” steps to prevent the escape of petroleum in waters or waterways and cause as little damage as “possible” to surface conditions. Despite the absence of any clear statement about what consists of “good oil field practice,” the Decree leaves considerable room for the interpretation of what is “practical” or even “possible” in terms of environmental goals. In 1988, the Federal Environmental Protection Agency (FEPA) was established to evaluate the environmental situation in Nigeria, but primarily to act as an advisory body and to merely make recommendations to the Federal government concerning pollution control.
Even where the laws have given people explicit rights or the power to limit environmental damage, Shell has been successful in circumventing any financial or legal liability for culminated pollution. Section 17(3)c of the Nigerian constitution states that: “The State shall direct its policy towards ensuring that… the health, safety, and welfare of all persons in employment are safeguarded and not endangered or abused.” The effects of ongoing oil spills and gas flaring on the ways of life of rural communities can certainly be categorized as an infringement on the right to life and health for a large portion of farmers. Especially considering that many can no longer afford basic food products and have no means of producing these goods themselves. As it stands, however, the Nigerian government has not been very responsive to these rights, and it has been primarily up to the individual communities, with limited financial resources, to defend their position in the courts. Legal action against Shell has been futile in most cases, primarily because the company has been able to put the blame for oil spills on incidents of sabotage, for which no compensation is paid. In 25 percent of the legal trials during the 1989-94 period, Shell convinced the courts that environmental damage was the result of sabotage. In 1996, 60 percent of all oil spills were attributed to sabotage, and in 1997, the figures rose to 80 percent. Even more significant is that in the remaining cases where Shell is deemed responsible for damages the company has been able to “right off” the fines as a production expense.
Indeed, environmental damage due to sabotage by indigenous protestors cannot be ignored as a violation to the company’s operations. It is doubtful, however, that Shell’s claims of sabotage-induced oil spillage are as extensive as the courts have provided. There is little benefit for community members that pollute their own farmlands, especially in consideration of the low chance of compensation. Other problems are also inherent in the company’s tactics. First, while claims of sabotage attempt to divert our attention from the remaining causes of oil spillage, it ignores the fact that incidents of sabotage are in protest against the initial lack of environmental management in the industry’s daily operations. According to the World Bank, oil spills are generally caused by the oil companies themselves, with corrosion of equipment and pipelines being the most frequent cause. The second problem is that the government is picking up the tab where compensation to local communities is due, as such transfers are deducted from taxable profits as a production expense. This means that any legal action seeking compensatory payments is, in essence,
a demand made upon the government, raising the question of whether any truly objective decision on the matter can be made.
The willingness of the state to absorb such costs indicates, according to Fyrnas, that there is a clear financial dimension to the problem of pollution. Governments will frequently seek to attract foreign investment by permitting ecological dumping or by keeping low environmental standards in general. There is a resounding fear that if governments should enforce such standards, multinationals would certainly invest elsewhere, resulting in the loss of benefits previously accrued. The Nigerian government’s hand in alleviating the costly burden of environmental management in company operations is clear, yet a valid question is who suffers the loss in the absence of these multinationals. If, as many economists suggest, the developing economy as a whole is typically dependent upon foreign direct investment for financing health, education and technology, public enterprise, and general infrastructure development, than this capital flight has definite implications on economic growth. The dilemma of Nigerian environmental policy, then, should be characterized by a potential loss along these lines, along with strong indicators of improvement in these areas since the introduction of Nigeria’s oil-export strategy of development.
III OIL, INVESTMENT AND DEVELOPMENT
Physical Vs Human Capital Formation
Foreign direct investment is widely hailed as the quickest, most efficient solution to the fundamental shortage of capital in the developing country. The activities of multinationals can, with minimal inputs from local governments, stimulate domestic production, attract investment, contribute to government revenues and foreign exchange reserves, and improve the general infrastructure of the economy. The operations of oil multinationals in Nigeria have generally contributed to Nigerian development along these lines. The increased oil production throughout the 1970s had revived exports, fortifying Nigeria’s balance of payments. Foreign direct investment in Nigeria had also risen sharply during this period. National current accounts increased substantially from a deficit of US $412 million in 1970 to a surplus of US $5,295 million in 1980. Long-term capital also grew steadily throughout the 1970s and early 1980s. Oil companies have linked rural communities by constructing various access roads throughout the country, although these have been built to facilitate transportation of crude oil and are therefore limited to the oil producing areas. Rising government revenues flowing in from the oil sector has facilitated an array of other public projects. All of these improvements are indicators of a decade of rapid growth, with a GNP in 1980 five times its level in 1970. The development success just
briefly mentioned here has, however, experienced sharp setbacks throughout the 1980s, resulting in the severe recession that characterizes Nigeria’s economic situation still today. One of the main causes of this downturn, it will be argued, is the uneven attention given to physical and financial capital accumulation in Nigeria, and the overall neglect of indigenous training in education in other sectors of the economy.
The accumulation of capital is indeed a crucial variable in the process of long-term development. However, the appraisal of physical or fixed capital in terms of economic growth is relatively hollow without the proper evaluation of human capital formation, the driving force that puts all other factors of production into motion. The emphasis on capital accumulation through foreign direct investment implies more than simply importing machinery and technology from abroad; it assumes that the country concerned has developed the capacity to transform these factors into a productive national labour force. Developing countries need to work to improve indigenous technical skills alongside the growing use of modern processes. The question, therefore, is not just whether the use of new technologies by MNC’s increases the productivity and competitiveness of local industry. It is important to evaluate, rather, who essentially benefits from the increased profitability of these industries. Where access to advanced modes of production is strictly limited to foreign companies, as is often the case in developing countries, it is difficult to concede that the general population will experience rapid growth in output and standards of living in the future. Sustainable development requires the advancement and progress of all sectors of the economy, not just the capacity of firms to accrue profits by contracting out labour from abroad.
Many proponents of foreign direct investment suggest that MNCs always improve the position of a developing nation, even if the level of indigenous employment and technology sharing is low. The government will often tax MNC profits, sometimes up to 60 percent, generating substantial revenue for funding community based projects, education, and investment in research and development. Moreover, the demand for inputs and primary resources by MNCs boosts production in other sectors of the economy, creating a “trickle-down” effect of corporate profits to the rest of the population. Others have argued, however, that the presence of foreign corporations has had a substantively negative effect on economic growth. Bade Onimode has suggested, for example, that the imposition of foreign technologies for production by MNCs has hindered Nigeria’s technological growth for two fundamental reasons. First, the cheap import substitutes rendered traditional trades and techniques obsolete, putting many people out of work, and; second, the depletion of raw resources has drastically diminished the capacity of local producers to improve the quality of their own products. Meanwhile the local communities have no opportunity to adjust to the new competitive market since much of the imported technology required for large-scale, low-cost production came under the system of restrictive patent and license.
Indeed, one of the chief complaints in Nigeria is that the level of technological transfers and sharing is far too low, leaving the country’s reserve of human capital largely
underdeveloped. Indigenous communities often complain that, despite the dominant presence of oil production related activity in their respective regions, none of their members are hired as permanent staff for the oil companies and that not enough casual labour is used. Oil conglomerates have responded that it is not possible to employ community members without the appropriate qualifications, while there are only a limited number of jobs available. Yet these companies have not displayed any interest in augmenting the amount of casual labour used in production, and have not been eager to train new employees so that they might meet the expected qualifications. An examination labour force statistics in 1980 indicates that a meager 5,000 employees conduct the operations of Shell in Nigeria, most of them hired from abroad. Although oil production accounts for 97 percent of all exports, less than 1 percent of the total labour force is employed in this sector, the largest number being employed in traditional sectors such as agriculture.
The protection of production technology by the private firm is not a trivial matter. Because advanced technical skills are treated as capital by most MNCs, the transfer of technical knowledge to the indigenous population is interpreted as a potential threat to the firm’s competitiveness. Logically, when local firms acquire advanced technologies they are more readily able to secure a portion of the local and international markets, and therefore the dissemination of such information comes at a very high cost. Moreover, the absence of any patent laws or licenses would result in low levels of technological development, since profit incentives for the company are necessarily diminished. For Shell in Nigeria, the largest oil and petroleum exporter in the country since 1937, the transfer of technical knowledge would undermine the monopolistic advantage of the company. There is also the issue of patronage among the elite of both government and company managers. Since the colonial era, Shell has built a network of personal contacts in Nigeria, and managers will often become bureaucrats and vice versa. Opportunities for employment and training in state and corporate business have been largely limited to the elite few. There is a need for the development of a competitive, well-trained indigenous labour force in Nigeria. In turn, education and health should be a primary focus of the policy makers, with particular attention made towards the underdeveloped sectors of the economy such as agriculture and manufacturing. Where there is a fundamental lack of technology sharing and a shortage of indigenous manpower in the fastest growing industry in the country, it is essential for the government to promote the cultivation of engineers, scientists, technicians, agrarian experts,
and teachers. There is a fundamental need for a conscious effort towards the development of indigenous technology if Nigeria is to overcome its dependence and reliance on foreign investors. Substantial financial support should also be given to the health of domestic workers, as well as working towards self-sufficiency in food production. However, the contributions of the government over the past few decades has been limited, raising the question of whether the state is committed to such goals.
During the 1980-87 period, Nigeria has consistently lagged in its investment in education, health, and agriculture. Nigeria’s fiscal budget for these services as a percentage of total expenditure falls well below the average contributions made by all African countries. In fact, Nigeria is ranked in the bottom 8 percent of reported African country contributions every year. This general lack of support for these sectors has not changed over the years. In 1995, Federation Account revenue, which is comprised almost entirely of proceeds from the NNPC and foreign oil corporations, along with other petroleum revenue amounted to US $6.73 Billion. Government expenditure in the three areas previously mentioned, including spending on other social and community projects totaled $1.1 Billion, only 16 percent of revenues acquired from oil production related activity. Government administrative costs, defense spending, and debt payments have absorbed the bulk of these funds. The result has been insufficient food production, poor health and education of the working population, and an overall lack of diversification in local industries. These shortcomings culminated in widespread poverty for most of the 1980s and 1990s when, as severely low oil prices and reduced output eroded Nigeria’s only export market, strong agricultural and manufacturing output might have redeemed the country’s trade balance.
The Oil Crisis: Internal and External Imbalances
The 1978 oil put Nigeria in a tight political and economic position. With the OPEC prices held high above the market level, the consequent decline in exports prevented Nigeria from affording its usual shipment of much needed imports. Since its 1960 membership in OPEC, Nigeria has channeled oil revenues into the shipment of agricultural and industrial commodities from abroad rather than supporting local production of these goods. By 1981, oil exports had dropped from an average of 2.2 million barrels per day to 708,000 barrels, and Nigeria’s current account balance reached a deficit of US $6.1 billion, compared to a surplus of $5.2 billion in 1980. It was expected that the balance of payments problem would lead Nigeria to opt out of OPEC and sell its oil on the open market. The Nigerian government did not take this route and, by contrast, devised a development budget proposal which reflected the expectation that oil export levels would recover at the current prices. Unfortunately one could not forecast that excess production in Saudi Arabia would fill the demand gap and bring down the world price for oil, while forcing Nigeria’s production quota down another 70,000 barrels per day.
Between 1982 and 1987, the country’s overall GDP fell from over US $100 Billion to about US $30 Billion, and the balance of trade deficit provoked the rapid deterioration of foreign exchange reserves. Moreover, the government took no steps to guard against future revenue falls by investing abroad or creating an oil stabilization fund. Currency appreciation and domestic inflation hindered the competitiveness of local industries in the international market, extending the trade deficit beyond the oil sector. Regardless of how small exports in other sectors of the economy were, the rising exchange rate had adverse effects just the same. Agricultural output remained at levels below those achieved in the 1970s, and the price of imports rose in real terms. The eventual deterioration of international credit provoked the World Bank to step in, pressing for major policy reforms through the implementation of the Structural Adjustment Program (SAP) in 1986. The objective of the SAP was to address Nigeria’s lopsided reliance on the oil sector and the misdirected capital investment projects of the Federal government. Specific reforms emphasized the reliance on market forces for determining prices and output levels, control over inflation, the devaluation of the naira, and deregulation of public enterprise and financial markets, all geared towards boosting domestic production and stimulating exports.
By the end of 1990, approximately fifty public enterprises had been sold, and eleven parastatals were to be commercialized. They included the NNPC, Nigerian
Telecommunications, and the National Insurance Company. In 1986, the Price Control Decree was repealed. According to the IMF, the elimination of price controls, in conjunction with currency devaluation, was instrumental in augmenting non-oil production and exports, which increased substantially during subsequent years. In particular, agricultural exports responded favorably to the improved trade conditions. Cash crops such as cocoa increased from an average of 154,000 tons in 1981-85 to an average of 200,000 tons during the SAP period; rubber and palm kernel crops grew even more rapidly, which more than doubled their 1980-85 production levels. This evaluation of economic performance following structural adjustment appears somewhat generous, however, and falls short of addressing what was initially stated as the cause of Nigeria’s underdevelopment, namely, its reliance on oil exports.
Reforms were initiated under the pretence of diversifying “the productive base of the economy so as to reduce dependency on the oil sector and imports.” In turn, the IMF celebrates the achievement of augmenting non-oil production and exports as a result of currency devaluation and eradicated price controls. Indeed, these adjustments contributed to a slight increase in general exports, but oil as a percentage of total exports has not declined by any significant amount. Table 4 indicates that fuel exports were only reduced from an average of 96.22 percent of exports in the 1980-85 period to 95.04 percent in the 1986-91 period. Meanwhile agricultural exports grew only slightly, hardly reflecting a reduced dependence on oil. Moreover, the emphasis of the SAP on export growth has encouraged government policies that have perhaps reinforced Nigeria’s dependence on imported agricultural goods. In an attempt to push a large portion of the agricultural sector towards the production of higher value-added cash crops, such as rubber and cocoa, the government in 1989 imposed export restrictions on cassava, yams, and beans. The ban would have certainly made the production of these goods less profitable and therefore might have been, at least in part, responsible for Omoweh’s findings of the increased scarcity and price distortions of these goods. The unfortunate consequence of this policy is that while these goods represent a necessary source of nutrition and subsistence for much of Nigeria’s population, the cash crops that enjoyed incentives for exporting during this period do not. In effect, this export strategy for agricultural development only increased the overall demand for necessary food imports.
Nigeria’s dependence on imports has had severe implications for the country’s output and general welfare. A devalued exchange rate, coupled with declining terms of trade, would eventually lead to massive balance of payments problems. Exports of overall domestic goods and services had risen somewhat during the post SAP period, but these have been largely in terms of oil. At the same time, imports of much needed industrial and food items would be even more difficult to supply with a devalued naira. Meanwhile the manufacturing sector, which was expected to raise exports under the new reforms, contributed very little to Nigeria’s overall terms of trade. This can be attributed to the fact that the manufacturing sector is relatively insignificant in terms of its size, accounting for
only 0.32 percent of total exports on average. The combined effect of low levels of manufacturing and agricultural exports is reduced foreign exchange reserves that are needed to purchase inputs for the development of these sectors. Indeed, available data on exports and output indicate that domestic demand for consumption or industrial goods during the 1980s and 1990s exceed output growth, resulting in an increase in imports to supplement low domestic output. Nigeria’s total external debt rose substantially during this period, and debt servicing made development objectives even more difficult to obtain. While Nigeria adamantly refrained from accepting direct loans from the IMF or World Bank, trade imbalances incurred debt increases from US $8.9 billion in 1980 to $18.9 billion in 1985 and to $30.4 billion in 1989. Monetary developments were dominated by the monetization of rising government deficits, and the rate of inflation reached 57 percent in 1994. To summarize, the economic situation in Nigeria has not improved, the only major differences since the 1970s being a decline in revenues and increased balance of payments problems.
IV CONCLUDING REMARKS
Clearly, the financial and economic setting in Nigeria has deteriorated considerably during the post SAP years, and there does not appear to be any evidence of short-term recovery. In fact, it could be argued that it has been the IMF and federal government’s preoccupation with short-term financial and trade objectives that has hindered any real improvement since the early 1980s. Market deregulation, currency devaluation, and the monetization of government debt are all manifestations of such strategies, and in the expectation of immediate results. However, this is putting the cart before the horse; reforms focussed on the need to make local industries more competitive, stimulate demand for exports, and to temporarily stabilize debts without ensuring that the necessary domestic structural and technological foundations were first in place. In order for exports in the non-oil sectors to respond to improvements in trade conditions, it is fundamental that the industries concerned are stable and potentially competitive. The virtual absence of investment in education and labour intensive industry throughout the 1970s, however, is attuned to the general the failure of SAP reforms. An unproductive agricultural sector, low levels of value-added output in manufacturing, and a scarcity of technology have incapacitated non-oil export growth, and the consequent reliance on importing these goods made the devaluation of domestic currency counter-effective. The only viable strategy for development, then, appears to be a commitment towards strengthening the agricultural and manufacturing sectors while investing in the health and education of the domestic labour force. This long-term objective would substantially increase the country’s financial and capital resources, reduce its overall dependence on oil export revenue, and most importantly provide a sufficient stock of consumption goods that may be used as substitutes for imports during periods of high inflation.
An import substitution strategy of development might also be conducive to the long-term protection of agricultural and manufacturing production which, in turn, could be competitively exported to offset the current reliance on oil revenues. On the other hand, protectionist measures are deemed unfavorable in terms of capital formation since a purely export orientated strategy stimulates the build up of capital due to the greater weight being placed on manufactured goods rather than raw materials. As it stands, however, exports have been dominated by petroleum, a primary commodity rather than a manufactured one, and as such has disproportionately benefited the landowners who are usually the oil companies themselves. It is thus necessary to temporarily abandon the popular notion of producing according to one’s comparative advantage, which dictates the continual recourse to oil production. There is a need to diversify the domestic market, an event that requires the protection of small-scale production in sectors that have not traditionally yielded competitive exports. It raises the question, however, as to whether agricultural output can be effectively raised to the required self-sufficiency level given the current strain of pollution due to oil production. It is perhaps optimistic to expect, in consideration of the current state of the rural environment, that food production could make up for what would be inevitably lost in imports once the protective barriers are in place. The problem with this assessment is that it is impossible to measure the concrete impact of pollution in terms of future rural production and income, making it difficult to determine what particular strategy might best serve both present and future improvements. Nevertheless, it is possible to concede that
effective environmental policies are in order.
These developments present a very general overview of the dilemma in Nigeria, while each particular problem is part of a complex web of events popularly associated with “underdevelopment,” and could be discussed at great length. It was hopefully made clear, however, that while the few development issues addressed in this analysis deal directly with governmental policies and action (or their absence), the decisions brought to bear on the Nigerian state have not been simple ones, especially vis a vis dominant international pressures.
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