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Presentation on Nigeria’s
Political Economy
Nigeria is the largest oil producing country in Africa. Oil constitutes
14% of its GDP but 90% of its income. Yet little petroleum income
goes to investments that give Nigerians jobs and raise their poor living
standards. Since over 80% of government expenditures are
dependent on oil revenues, the dramatic decrease in oil prices provides
a serious challenge for Nigeria’s political economy.
Oil Fields Map of Nigeria
Economic Activity Map of Nigeria
Economic Policy Formation and Implementation
In comparing Nigeria’s various civilian and military
regimes, the ultimate question to be asked is about
performance: how effective have been the decisions
of the government in raising revenues, dispersing
funds, and implementing programs?
An Interventionist State
An interventionist state acts vigorously to shape the
performance of major sectors of the economy. Since
the colonial period, the government directed the
economy. This pattern continued after independence
including government ownership of key industries
with only sporadic efforts at privatization.
Extractive Performance
• Nigeria inherited a fiscal system in 1960 that
depended mainly on taxes on international trade.
These indirect taxes contributed 64% of state
revenues while direct taxes contributed only 16.5%.
• Attempts to increase direct tax collection of peasants
led to widespread tax riots. From 1968 a lower,
simpler direct flat tax was implemented.
• During the First Republic federal tax revenues
declined as new states were created. Oil production
helped offset this. Nigeria joined OPEC in 1971 and
formed a national oil company which became the
Nigerian National Petroleum Corporation (NNPC).
• In the 1970s petroleum prices rose dramatically
from $3.30 per barrel in 1972 to $21.60 in 1979.
Thus the sale of crude oil directly by the Nigerian
government to multinational oil companies came to
provide the greater part of federal government
revenues and, through the federal government, to
state and local governments.
• In a pattern typical of Third World oil-exporting
countries, Nigeria depends almost entirely on
“rents” (spending of government earnings) from oil
revenues. “Rent seeking behavior”, (competition
over politically regulated economic gains) has
characterized Nigeria which can thus be termed a
rentier state.
• While Nigerians have been fortunate in not being
directly burdened with the cost of supporting
government programs, they are unfortunate that their
governments, especially authoritarian military
regimes, have been able to tap into this vast wealth
without being accountable to their citizens.
• While the percentage of non-oil revenues are
increasing, Nigeria’s government still depends
primarily on oil exports to fund its budget which
exposes it to downward trends in market prices.
Dependency on oil exports and the absence of
domestic refinery capacity means that Nigeria is
dependent on imports for 85% of it refined
petroleum products.
• Per the BBC, in order for Nigeria to balance its
budget, the international price of crude oil must be
at least $123 a barrel. Oil prices, as of December
2015, had fallen to $37 a barrel.
• The IMF is predicting severe economic
consequences for Nigeria which has a limited buffer
to withstand oil price declines and will need to
adjust fiscal policies accordingly.
• As of mid-2016 Nigeria’s economy registered a
negative GDP accompanied by drop in the value of
its currency, the “naira”. Energy sales account for up
to 80% of all government revenue and more than
90% of the country's exports. (see article)
Distributive Performance
• As a producer of high grade petroleum, Nigeria had
great potential to move into the ranks of middleincome nations. In the 1970s impressive projects,
such as road and irrigation development, creating of
a new federal city in Abuja, were signs of progress.
• Unfortunately, political corruption grew apace,
consuming ever higher portions of national wealth.
• In 1980s, corruption and mismanagement were
driving the country into economic decline. State
governments were unable to pay teachers and civil
servants or to purchase drugs for hospitals. Social
services, including schools, shut due to strikes.
• As of 2014 Nigeria ranked 152 out of 187 countries
in the UN’s Human Development Index (HDI). Per
capita GDP was only $2758 as of 2016
• Nigerians have a great enthusiasm for education
and the government has regularly promised
universal access to it. By 1990, Nigeria recorded
60% of its school age population in primary school,
but Nigerians can only expect 9 years of schooling.
• The government’s expenditures on health care, is
one of the lowest in Africa. Indicative of this: The
infant mortality rate is 70 per 1000 compared to
Mexico of 21 per 1000 and one of the highest death
rates in the world with life expectancy of 52 years.
• Distribution of wealth from oil revenues has been
disproportionate and politically oriented through
clientelism. The lower 40% of Nigeria’s population
benefits very little from oil revenues.
• The “Big Men” of the federal government and large
states get the lions share of oil revenues, while small
states get negligible amounts. This has led to
conflicts: e.g. the popular revolt in the delta region.
• Nigeria has periodically faced problems with
inflation with rapid increases in the money supply
due to increased oil revenues. The government
attempted to deal with this by enforcing an official
exchange rate for its currency the naira.
• Exchange rate controls led to chaos in financial
markets due to the difference between official and
black market rates. As a result, since 1999, the
government has reduced its role in stabilizing the
currency, allowing the value of the naira to be
largely determined by supply and demand.
Debt and Structural Adjustment Program
The debt problem for Nigeria became more acute in
the Second Republic (1979-1983). Buhari
approached the IMF and World Bank for relief,
initially rejecting its severe conditions which were
later accepted by Babangida in 1985 as part of a
Structural Adjustment Program (SAP):
The SAP involved free floatation of/devaluation of
the naira, dropping of trade restrictions, elimination
of some subsidies, and privatization of some parastatals. As part of the SAP the government was to
sell off a number of these but Nigeria’s political
instability and corruption scared off foreign
investors. As a result the government continues to be
Nigeria’s largest employer.
• As the program’s austerity measures began to be
felt, the SAP became extremely unpopular. In his
promise to bring back civilian rule, Babangida
forbade candidates from criticizing the SAP,
attempting to co-opt or repress various social forces
• The SAP did garner better terms for borrowing and a
slight increase of GDP followed, but it did not
initially reduce debt and did affect sovereignty. By
1995 the country’s total external debt reached $8
billion and NNPC owed over $1 billion.
• Periodic efforts to remove price subsidies on
gasoline continued to be highly controversial due to
the impact not only on the cost of public
transportation but on food and other daily essentials.
• Economic restructuring continued to be complicated
by prebendalism, the particularly extreme form of
corruption in Nigeria in which state offices are used
for the benefit of officeholders and their clients .
• One of the accomplishments of the Obasanjo
government was to pay off most of Nigeria’s heavy
foreign debt.
• President Obasanjo developed goals of a preexisting Vision 2010 program into a National
Economic Empowerment and Development Strategy
(NEEDS) which President Yar’Adua promised to
continue….to rebuild education, pursue meaningful
privatization, diversify exports, support intellectual
property rights, central bank autonomy, etc.
• After Yar’Adua’s death, President Goodluck
Jonathan has not pursued these aggressively and his
regime was characterized by increased corruption.
• President Muhammadu Buhari had, since taking
office in 2015, promised to attack corruption. But
the release of the Panama Papers in 2016 revealed
that some senior government officials funneled
assets to offshore tax havens. On April 9, an
independent NGO, Coalition Against Corrupt
Leaders, condemned Buhari’s silence on the issue.
• Other economic challenges are a) increased foreign
debt through borrowings from China with yen
denominated bonds b) overreliance on imports that
impede diversification of domestic industry c) a
thriving black market that evades taxes. All of these
factors feed continued corruption.
Conclusions on Performance
Compared to other countries with equivalent natural
resources, Nigeria has not done well. The problem is
one of leadership. Until Nigerians can settle on a
constitutional arrangement that provides responsive
leadership from the national to the local level, the
country will continue to fall short of its potential.
Nigeria’s “curse of oil” is the distribution of the rents
from this “national cake”: distributed in slices to
match the political influence of various
constituencies. The government must shift
responsibility so that extractive and distributive
performance come from the same budget.
Of the countries we study, Nigeria has the lowest level
of both extraction (from taxes) of 4.7% and
distribution, 29.2% as a percentage of GDP.
Specifically, Nigeria’s expenditures on health and
education rank at the bottom of all six countries we
study. This implies problems with the inefficiency
and corruption of Nigeria’s government.