By JVINN Okafor (Managing Editor/ Head, Business & Economic Desk)
Nigeria's economic history can almost be divided into five chapters: agriculture before oil; oil boom; oil dependence; structural adjustment; and the present search for diversification.
The oil boom of the 1970s transformed government finances. Petroleum revenues created resources for roads, universities, airports, industries, dams, government buildings and other infrastructure. The Third National Development Plan was particularly ambitious. Planned expenditure eventually rose to more than N43 billion, while oil revenues became increasingly important to government finances.
But the oil boom also changed Nigeria's economic incentives. Agriculture lost attention. Imports became easier to finance. Government expanded rapidly. Public enterprises multiplied. The economy became increasingly dependent on petroleum. The result was what development economists describe as the "resource curse" or "Dutch disease": the dominance of petroleum revenues weakened incentives for diversified production and contributed to rent-seeking and public-sector dependence.
World Bank analysis has linked Nigeria's development difficulties to oil-revenue mismanagement, weak accountability, rent-seeking and the weakening of agriculture and manufacturing. When oil prices fell and external pressures intensified in the 1980s, the weaknesses became obvious.
THE BABANGIDA'S SAP YEARS
General Ibrahim Babangida's administration introduced the Structural Adjustment Programme in 1986. Just at the same time the martial regime introduced Second-tier Foreign Exchange Market (SFEM). Its philosophy was radically different from the previous era of heavy state controls. The programme emphasised market forces, exchange-rate reform, financial-sector liberalisation, reduced controls and greater private-sector participation. The Central Bank records that foreign exchange controls were abandoned in September 1986 and the Second-tier Foreign Exchange Market was introduced.
SAP remains one of the most controversial economic episodes in Nigeria's history. Its defenders point to the need to correct structural distortions already existent in the economy. But its critics point to the social consequences: inflation, falling real incomes, unemployment and pressure on public services. The deeper lesson, however, was that economic reform without adequate social protection can become politically and socially unsustainable. NNL.
