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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.