Nigeria - ECONOMY

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Nigeria - The Economy

A MAJOR FEATURE of Nigeria's economy in the 1980s, as in the 1970s, was its dependence on petroleum, which accounted for 87 percent of export receipts and 77 percent of the federal government's current revenue in 1988. Falling oil output and prices contributed to another noteworthy aspect of the economy in the 1980s--the decline in per capita real gross national product (GNP), 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. In 1989 the World Bank also declared Nigeria 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).

Another relevant feature of the Nigerian economy was a series of abrupt changes in the government's share of expenditures. As a percentage of gross domestic product (GDP), national government expenditures rose from 9 percent in 1962 to 44 percent in 1979, but fell to 17 percent in 1988. In the aftermath of the 1967-70 civil war, Nigeria's government became more centralized. The oil boom of the 1970s provided the tax revenue to strengthen the central government further. Expansion of the government's share of the economy did little to enhance its political and administrative capacity, but did increase incomes and the number of jobs that the governing elites could distribute to their clients.

The economic collapse in the late 1970s and early 1980s contributed to substantial discontent and conflict between ethnic communities and nationalities, adding to the political pressure to expel more than 2 million illegal workers (mostly from Ghana, Niger, Cameroon, and Chad) in early 1983 and May 1985.

The lower spending of the 1980s was partly the result of the structural adjustment program (SAP) in effect from 1986 to 1990, first mooted by the International Monetary Fund (IMF) and carried out under the auspices of the World Bank, which emphasized privatization, market prices, and reduced government expenditures. This program was based on the principle that, as GDP per capita falls, people demand relatively fewer social goods (produced in the government sector) and relatively more private goods, which tend to be essential items such as food, clothing, and shelter.

<>THE COLONIAL ECONOMIC LEGACY
<>THE ROLE OF GOVERNMENT
<>LABOR
<>AGRICULTURE
<>MANUFACTURING
<>MINING, OIL, AND ENERGY
<>BANKING AND FINANCE

Nigeria

Nigeria - THE COLONIAL ECONOMIC LEGACY

Early British Imperialism

The European struggle to establish forts and trading posts on the West African coast from about the mid-1600s to the mid-1700s was part of the wider competition for trade and empire in the Atlantic. The British, like other newcomers to the slave trade, found they could compete with the Dutch in West Africa only by forming national trading companies. The first such effective English enterprise was the Company of the Royal Adventurers, chartered in 1660 and succeeded in 1672 by the Royal African Company. Only a monopoly company could afford to build and maintain the forts considered essential to hold stocks of slaves and trade goods. In the early eighteenth century, Britain and France destroyed the Dutch hold on West African trade; and by the end of the French Revolution and the subsequent Napoleonic Wars (1799-1815), Britain had become the dominant commercial power in West Africa.

The slave trade was one of the major causes of the devastating internecine strife in southern Nigeria during the three centuries to the mid-1800s, when actually abolition occurred. In the nineteenth century, Britain was interested primarily in opening markets for its manufactured goods in West Africa and expanding commerce in palm oil. Securing the oil and ivory trade required that Britain usurp the power of coastal chiefs in what became Nigeria.

Formal "protection" and--eventually--colonization of Nigeria resulted not only from the desire to safeguard Britain's expanding trade interests in the Nigerian hinterland, but also from an interest in forestalling formal claims by other colonial powers, such as France and Germany. By 1850 British trading interests were concentrating in Lagos and the Niger River delta. British administration in Nigeria formally began in 1861, when Lagos became a crown colony, a step taken in response to factors such as the now-illegal activities of slave traders, the disruption of trade by the Yoruba civil wars, and fears that the French would take over Lagos. Through a series of steps designed to facilitate trade, by 1906 present-day Nigeria was under British control.

The Colonial Period

Colonies such as Nigeria became part of British imperial expansion that focused on exploiting raw materials, minerals, and foodstuffs important to Western industrial development. Britain tried to encourage tropical export crops in Nigeria and to stimulate demand there for British manufactured goods. The colonies built a railroad network between the 1890s and World War II, and constructed roads at an accelerating rate after the 1930s. These developments, along with the introduction of the pound sterling as the universal medium of exchange, encouraged export trade in tin, cotton, cocoa, groundnuts, and palm oil. Britain maintained its economic hegemony over the colonies through military power, strategic alliances, and the collaboration of indigenous rulers.

Development of National Economic Interests to World War II

British rule exacerbated differences of class, region, and community in Nigeria. The emergent nationalist movement in the 19300s was spearheaded by a new elite of business people and professionals and promoted mainly by persons who expected to gain economically and politically from independence. The movement first became multiethnic--although limited to the south--between 1930 and 1944, when the real incomes of many participants in Nigeria's money economy fell as a result of a deterioration in the net barter terms of trade (the ratio between average export and import prices). During the same period, the Great Depression and, later, World War II, reduced Britain's investment, imports, and government spending in Nigeria.

Once the wartime colonial government assumed complete control of the local economy, it would issue trade licenses only to established firms, a practice that formalized the competitive advantage of foreign companies. Also, wartime marketing boards pegged the prices of agricultural commodities below the world market rate, workers faced wage ceilings, traders encountered price controls, and Nigerian consumers experienced shortages of import goods.

Labor activity grew during the war in reaction to the heavyhanded policies of the colonial government. Among the expressions of labor unrest was a strike by 43,000 workers in mid-1945 that lasted more than forty days. Aspiring Nigerian entrepreneurs, deprived of new economic opportunities, and union leaders, politicized by the strike's eventual success, channeled their sense of grievance into nationalist agitation. Educated persons, whose economic opportunities were limited largely to private business and professional activity, began to demand more participation in the colonial government.

National Economic Interests in the Postwar Period

Starting in 1949, when Nigerian's recently emergent labor, commercial, and professional elites were first consulted by the British as part of a constitutional review, the peoples of Nigeria engaged in ongoing debate over the pressure of decolonization, independence, and modernization. The two coups d'�tat of 1966 and the civil war of 1967-70 reflected economic as well as political elements.

Between 1951 and 1960, the major political parties played leading roles in unifying and locally mobilizing the economic elite. Elites from majority parties in the regional assemblies who cooperated with the ruling federal coalition dispensed a wide range of rewards and sanctions, thus retaining their own positions and power and keeping the masses subordinated. Positions in government services and public corporations, licenses for market stalls, permits for agricultural export production, rights to establish enterprises, roads, electrical service, running water, and scholarships were allocated by the governing group to its supporters. Each major party was backed by a bank, which assisted in the transfer of substantial public funds to the party.

At all levels--local and regional after 1951 and federal after 1954--political leaders could use a range of controls, extending over local councils, district administration, police, and courts, to subdue any dissident minority, especially in the far north, where clientage was the social adhesive of the emirate system. Political superiors offered protection, patronage, and economic security in exchange for loyalty and the obedience of inferiors.

The elites attracted clients and socially inferior groups not only in the far north, where Islam legitimized the traditional hierarchy, but even in Igboland, an area of southeastern Nigeria where power had been widely dispersed before the twentieth century. The elites of the three regions preferred to close ranks to share the fruits of office and to prevent challenges to their positions, but by the time independence was achieved in 1960, policies designed to enhance the security of one regional elite threatened the security of others.

Nigeria

Nigeria - THE ROLE OF GOVERNMENT IN THE ECONOMY

Some of Nigeria's political leaders have advocated African socialism, an ideology that does not necessarily coincide with the Western socialist concept of the ownership of most capital and land by the state. Instead, the African variety usually has included the following: a substantial level of state ownership in modern industry, transportation, and commerce; a penchant for public control of resource allocation in key sectors; a priority on production for domestic consumption; and an emphasis on the rapid Africanization of high-level jobs. Despite the socialist rhetoric of some politicians, in practice Nigeria worked toward a mixed economy, with the directly productive sector dominated by private enterprise, the state investing in infrastructure as a foundation for private activity, and government providing programs and policies to stimulate private (especially indigenous) enterprise.

None of the major Nigerian political parties controlling national or regional governments from 1951 to 1966 (or 1979 to 1983) was a socialist party or a party strongly committed to egalitarianism. Even the Action Group, led during the first republic by the ostensibly anticapitalist Chief Obafemi Awolowo, had as its foundation the rising new class of professionals, businesspeople, and traders.

After Nigeria's 1967-70 civil war, petroleum output and prices increased rapidly. The government's control of the extraction, refining, and distribution of oil meant that, the state became the dominant source of capital. By the mid-1970s, petroleum accounted for about three-fourths of total federal revenue. To the most vigorous, resourceful, and well-connected venture capitalists (often politicians, bureaucrats, army officers, and their clients), productive economic activity lost appeal. Manipulating government spending became the means to fortune. Because of the rapid growth of the state bureaucracy and the establishment of numerous federally funded parastatals, the size of the government sector relative to the rest of the national economy hit a peak in the late 1970s.

In an effort that culminated in the 1970s, the Nigerian government gradually expanded its controls over the private sector, levying differential taxes and subsidies, increasing industrial prices relative to farm prices, favoring investment in key sectors, providing tariff and tax incentives to vital sectors, protecting favored industrial establishments from foreign competition, awarding import licenses to selected firms and industries, and providing foreign exchange to priority enterprises at below-market exchange rates. While the ostensible reasons for this policy of favoritism were to transfer resources to modern industry, expand high-priority businesses and sectors, encourage profitable enterprises, and discourage unprofitable ones, in practice the government often favored urban areas by promoting production that used socially expensive inputs of capital, foreign exchange, and high technology. Market intervention helped political and bureaucratic leaders protect their positions, expand their power, and implement their policies. Project- or enterprise-based policies (unlike reliance on the market) allowed benefits to be apportioned selectively, for maximum political advantage. Government made it in the private interest of numerous individuals to cooperate in programs that were harmful to the interests of producers as a whole. However, market-clearing prices (for farm commodities or foreign exchange), whose benefits were distributed indiscriminately, inspired little or no political support among farmers and businesspeople.

Beginning in 1979, the policy prescription of the World Bank (and IMF) was for African countries to refrain from interfering in foreign exchange and interest rates, wages, and farm prices; to privatize state-owned enterprises (especially agro-processing, farm input distribution, insurance, and retail and wholesale trade); to relax restrictions on foreign capital; and to encourage indigenous business ventures. By the early 1980s, Nigeria faced substantial international payments deficits in the midst of declining export prices and rising import prices, rising external debt payments, and negative economic growth. The government consequently undertook an its own SAP that was patterned along World Bank guidelines in 1986, with World Bank conditions including devaluation of the naira, reductions in real government spending, abolition of official agricultural marketing boards, the sale of public enterprises, liberalized trade, and reduced quotas and licenses.

Planning

Before 1945 the colonial government undertook no serious comprehensive planning. Nigeria's earliest national plans, the 1946-55 Ten-Year Plan of Development and Welfare (with plan revisions, 1951-55) and the 1955-60 plan (later extended to 1962), were framed by colonial administrators. As the authors of the First National Development Plan, 1962-68 (henceforth, first plan) wrote, these "were not `plans,' in the truest sense of the word . . . [but] a series of projects which had not been coordinated or related to any overall economic target." After 1960, however, development planning had a broad scope, encompassing government policies to achieve national economic objectives, such as accelerated growth and higher levels of average material welfare. This planning affected the policies of such agencies as the central bank, state-owned enterprises, the Ministry of Education, marketing boards, state-level departments, and extension services.

Nigerian plans included economic forecasts, policies toward the private sector, and a list of proposed public expenditures. Plans did not constitute commitments by public departments to spend funds. Although Nigerian political leaders made decisions about general objectives and priorities for the first plan, foreign economists were the main authors of the actual document. Its authors favored decentralized decision making by private units, disregard of major discrepancies between financial and social profitability, and high economic payoffs from directly productive investments (as opposed to indirect returns from social overheads). They discouraged increased taxes on the wealthy (out of a fear of dampening private incentive), and advocated a conservative monetary and fiscal policy emphasizing a relatively small plan, openness to foreign trade and investment, and reliance on overseas assistance. Foreign aid was set at onehalf of public sector investment.

Nobel economist W. Arthur Lewis has suggested that the main weaknesses of the 1962-68 plan were incomplete feasibility studies and inadequate evaluation of projects, accompanied by meager public participation, followed by excessive political intervention in economic decisions. Moreover, insufficient attention was paid to the small indigenous sector, and the machinery for implementing developments in the public sector was unsatisfactory. Lewis noted that the most important aspects of Nigeria's 1962-68 plan were "how the government proposes to raise the money and to recruit the personnel to carry out its objectives."

Postwar reconstruction, restoring productive capacity, overcoming critical bottlenecks, and achieving self-reliance were major goals of the Second National Development Plan (1970-74). The replacement cost of physical assets damaged and destroyed in the civil war with the secessionist Igbo area in the southeast, then known as Biafra, was estimated to exceed N600 million (then about US$900 million).

The United Nations (UN) Center for Development Planning, Projections, and Policies observed that Nigeria's real growth in GDP between 1970 and 1974 was 12.3 percent per year. The annual target had been only 6.2 percent. Nigerian growth could be explained by factors largely outside the planners' purview--rapid oil industry growth and sharply increasing oil prices.

Announced in March 1975, the Third National Development Plan (1975-80) envisioned a twelvefold increase in the annual rate of public capital expenditures over the previous plan period. This document included the statement, "There will be no savings and foreign exchange constraints during the third plan period and beyond." The document outlined ambitious plans to expand agriculture, industry, transport, housing, water supplies, health facilities, education, rural electrification, community development, and state programs. The third plan also designated substantial funds for prestige projects, such as Festival of African Culture (FESTAC) in Lagos.

Amid the euphoria of the 1974 oil price boom, the Ministry of Economic Development approved and added numerous projects for other ministries not supported by a proper appraisal of technical feasibility, costs and benefits, or the technical and administrative arrangements required to establish and operate the projects. According to Sayre P. Schatz, who advised the Ministry of Transport while it prepared feasibility studies for the plan in 1974,

"Economic reasoning gave way before economic enthusiasm," and the necessary coordination and implementation were ignored.

Inflationary minimum wage and administrative salary increases after October 1974, in combination with the slowing of the economy, made budget shortfalls inevitable. In June 1975, several state and local governments did not receive their monthly subsidies from the federal government. Just before the July 29, 1975, coup in which head of state General Yakubu Gowon was toppled, government workers in several areas threatened to impair vital services unless their June wages were paid.

In March 1976, in response to an economy overheated by demands for new programs and higher wages, General Olusegun Obasanjo, then head of state, pointed out that petroleum revenue was not a cure-all. Many projects had to be postponed, scaled down, or canceled when oil-revenue-based projections made in 1974-75 later proved too optimistic. Projects tended to be retained for political reasons, not because they were considered socially or economically useful by the Central Planning Office of the Supreme Military Council.

The civilian government that tack office on October 1, 1979, postponed the beginning of the fourth plan (1981-85) for nine months. Whereas the plan's guidelines indicated that local governments were to be involved in planning and execution, such involvement was not feasible because local governments lacked the staff and expertise to accept this responsibility. The plan was also threatened by falling oil revenues and an increased need for imported food that had resulted from delays in agricultural modernization. Projected to rise 12.1 percent annually, exports actually fell 5.9 percent yearly during the plan, as a recession among the nations of the Organisation for Economic Co-operation and Development reduced demand for Third World imports. As exports declined, the capacity to import construction materials and related capital goods also fell, reducing growth in the construction, transport, communications, utilities, and housing sectors.

Nigeria was heavily dependent on agriculture, with the sector accounting for more than 40 percent of pre-1973 GDP. But in the decade up to 1983, agricultural output in Nigeria declined 1.9 percent and exports fell 7.9 percent. Agricultural imports as a share of total imports rose from 3 percent in the late 1960s to 7 percent in the early 1980s. Nigeria's unfavorable agricultural development resulted from the loss of competitiveness among farm exports as the real value of the Nigerian naira appreciated substantially from 1970 to 1972 and from 1982 to 1983.

Thanks in large part to the overthrow of Nigeria's second civilian administration, the Second Republic headed by President Shehu Shagari, at the end of 1983 and of the military government of General Muhammadu Buhari in 1985, the Fifth National Development Plan was postponed until 1988-92. Continuing the emphases of the SAP, the fifth plan's objectives were to devalue the naira, remove import licenses, reduce tariffs, open the economy to foreign trade, promote nonoil exports through incentives, and achieve national self-sufficiency in food production. The drafters of the fifth plan sought to improve labor productivity through incentives, privatization of many public enterprises, and various government measures to create employment opportunities.

In late 1989, the administration of General Ibrahim Babangida abandoned the concept of a fixed five-year plan. Instead, a three-year "rolling plan" was introduced for 1990-92 in the context of more comprehensive fifteen- to twenty-year plans. A rolling plan, considered more suitable for an economy facing uncertainty and rapid change, is revised at the end of each year, at which point estimates, targets, and projects are added for an additional year. Thus, planners would revise the 1990-92 threeyear rolling plan at the end of 1990, issuing a new plan for 1991-93. In effect, a plan is renewed at the end of each year, but the number of years remains the same as the plan rolls forward. In Nigeria, the objectives of the rolling plan were to reduce inflation and exchange rate instability, maintain infrastructure, achieve agricultural self-sufficiency, and reduce the burden of structural adjustment on the most vulnerable social groups.

Government Finance

A major cause of political conflict in Nigeria since independence has been the changing formula for allocating revenue by region or state. Before 1959 all revenues from mineral and agricultural products were retained by the producing region. But after 1959, the region retained only a fraction of the revenue from mineral production. This policy was a major source of dissatisfaction in the Eastern Region, which seceded in May 1967 as the would-be state of Biafra. By contrast, the revenue from agricultural exports was retained by regional marketing boards after 1959, but the agricultural exports of eastern Nigeria were smaller than those of the other major regions.

The rapid growth of petroleum revenue in the 1970s removed most of the severe constraints placed on federal and regional or state budgets in the 1960s. Total federal revenue grew from N306.4 million in 1966 to N7,791.0 million in 1977, a twentyfivefold increase in current income in eleven years. Petroleum revenue as a percentage of the total went from 26.3 percent in 1970 to more than 70 percent by 1974-77.

During the civil war, most of the twelve new states created in 1967 faced a revenue crisis. But a 1970 decree brought the states closer to fiscal parity by decreasing the producing state's share of export, import, and excise duties, and of mining rents and royalties, and by increasing the share allocated to all states and the federal government. Also, in 1973 the commodity export marketing boards, which had been a source of political power for the states, were brought under federal control. Other changes later in the 1970s further reduced claims to revenue based on place of origin. In the 1970s, the federal government was freed to distribute more to the states, thus strengthening federal power as well as the states' fiscal positions. Statutory appropriations from the federal government to the states, only about N128 million in FY1966, increased to N1,040 million in 1975 with the oil boom, but dropped to N502.2 million in 1976, as oil revenues declined.

The burgeoning revenues of the oil boom had encouraged profligacy among the federal ministries. Government deficits were a major factor in accelerated inflation in the late 1970s and the early 1980s. In 1978 the federal government, compelled to cut spending for the third plan, returned much of the financial responsibility for housing and primary education to state and local governments. Federal government finances especially drifted into acute disequilibrium between 1981 and 1983, at the end of President Shagari's civilian administration, with the 1983 federal government deficit rising to N5.3 billion (9.5 percent of GDP) at the same time that external debt was increasing rapidly. The state governments' deficit compounded the problem, with the states collectively budgeting for a deficit of N6.8 billion in 1983.

Falling export prices caused the military governments between 1983 and 1988 to continue cutting real spending, especially for capital, imports, civil service and armed forces salaries and consumer subsidies. Many parastatals also had their subsidies cut, while others were sold off entirely. The result of these actions was a substantial reduction in the federal deficit. The announcement of the spending reductions that would be part of the fifth plan coincided with the military coup of August 1985. Unlike earlier plans, the fifth plan (put back to 1988-92 party because of the coup) allocated the largest amounts of capital to agriculture and stressed the importance of private investment.

In 1988 the federal budget was still highly dependent on oil revenues (taxes on petroleum profits, mining rents and royalties, and Nigerian National Petroleum Corporation earnings). Altogether, oil receipts accounted for 77 percent of total federal current revenue in 1988. The federal government retained 62 percent of the revenue it collected in 1988, while the rest of the funds were distributed to the state and local governments by a formula based on population, need, and, to a very limited extent, derivation.

International aid designated for domestic Nigerian development constituted a minor source of government revenue. In 1988 such official assistance amounted to US$408 million, or US$1.1 per capita, which placed Nigeria lowest among low-income and lower-middle-income aid recipients. This aid represented 0.4 percent of Nigeria's GNP, far less than the average of 2.4 percent received by all low-income countries, a group that included much states as China, India, and Zambia.

Nigeria

Nigeria - Income Distribution

The reliability of Nigeria's national income statistics was limited by meager industry-wide information (especially for domestically consumed commodities), the questionable validity of data, and quantification based on subjective judgments by state officials. Despite deficiencies in aggregate economic statistics, a few general tendencies concerning growth, income distribution, prices, wages, and the employment rate could be discerned. The Office of Statistics indicated that GDP grew 6.0 percent annually (adjusted for inflation) between FY (fiscal year) 1959 and FY 1967. GDP shrank at an inflation-adjusted annual rate of 1.1 percent between FY 1967 (which ended two months before the secession of the Eastern Region) and FY 1970 (which ended three months after the war). However, because capital destruction such as occurs during wartime is not reflected in annual measures of GDP, the decline in net domestic production was probably severely understated.

Annual population growth estimates very considerably, but it is generally held that growth was roughly 2 percent in the late 1950s and early 1960s, 2.5 to 3.0 percent from the mid-1960s to the late 1970s, and 3.0 to 3.5 percent in the 1980s. Accordingly, annual GDP growth per person can be estimated at 4.0 percent in the late 1950s and early 1960s, 3.0 to 3.5 percent in the mid 1960s, -3.5 to -4.0 percent during the civil war, roughly 7 percent in the early to late 1970s, -6.0 percent from the late 1970s to the early 1980s, and -2.5 percent for the balance of the 1980s.

Nigeria's decline in real GNP per capita by 1988, to US$290, relegated the nation to low-income status below India, Pakistan, and Ghana. Other indicators of development--life expectancy, for which Nigeria ranked 155th out of the world's 177 countries, and infant mortality, for which Nigeria ranked 148th among 173 countries--were consistent with Nigeria's low ranking in income per capita.

The authors of the first plan had argued that a "very good case can be made that premature preoccupation with equity problems will backfire and prevent any development from taking place." Thus, Nigeria's first plan stressed production and profitability, not distribution. Yet people who already own property, hold influential positions, and have good educations are best situated to profit once growth begins. Thus, a society with initial income inequality that begins to expand economically is likely to remain unequal, or even become more so.

Although wealth appeared to be highly concentrated in Nigeria, the government had no comprehensive income-distribution estimates. From 1960 to 1978, the number of rural poor remained constant, but the rural poverty rate declined. During the same period, the urban poor roughly doubled in number, although the rate of urban poverty also probably declined. Federal civil service studies indicating a substantial increase in income concentration from 1969 to 1976 may have reflected a trend toward overall income inequality, exacerbated perhaps by the large raises given to high-ranking administrators by the Udoji Commission on wages and salaries in 1975. But this inequality probably eased from 1976 to the end of the decade, thanks to increased salaries for low-income workers, the abolition of subsidized automobile allowances for the wealthy, and a decline in economic activity, especially in the oil sector.

During the 1960s and 1970s, Nigeria's degree of income concentration was average for sub-Saharan Africa, which, after Latin America, had the highest income inequality of any region in the world. Income concentration in Nigeria was probably higher than in Niger or Ivory Coast, about the same as in Tanzania, and lower than in Kenya and Cameroon.

Because the rural masses were politically weak, official income distribution policies focused on interurban redistribution. More than 80 percent of Nigeria's second plan (1970-74) investment was in urban areas. The third plan (1975-80) emphasized more even distribution, but did not mention urbanrural imbalances.

The ratio of industrial to agricultural labor productivity, 2.5:1 in 1966, increased to 2.7:1 in 1970 and 7.2:1 in 1975. (Urban-rural per capita income ratios showed greater differentials for succeeding years, largely because incomes from capital, property, and entrepreneurial activity were far larger for city dwellers than for rural residents.) The sharp rise in industrial productivity between 1970 and 1975 was due largely to phenomenal increases in oil output, prices, and tax revenues rather than to technical changes or improved skills. Without oil, 1975's labor productivity ratio would have been 3.0:1, as the terms of trade shifted away from agriculture. Moreover, emigration drained the rural areas of the most able young people, attracted by the Udoji commission's doubling of government minimum wages. The loss of the superior education and skills of these rural-to-urban migrants resulted in a decline in inflationadjusted agricultural productivity between 1970 and 1975. Average rural income was so low by 1975 that the richest rural quartile was poor by urban standards.

Rising debt and falling average income in the 1980s had a particularly severe effect on the poor. Consumption per capita fell 7 percent annually during that decade, material standards of living were lower in the mid-1980s than in the 1950s, and calorie and protein intake per capita were no greater in 1985 than in 1952. In effect, the economic crisis of the 1980s canceled out the progress of the previous two decades.

Urban real wages fell rapidly between 1982 and 1989 as a result of a minimum wage freeze in the formal sector. Rural real wages also fell, but more slowly because few employers had previously paid as much as the minimum wage on the farm. Beginning in 1986, the liberalizing effect of the SAP on agricultural prices and the exchange rate also redistributed income from urban to rural areas, especially in the agricultural export sector. In the 1980s, the urban self-employed, a group which included many in the low-income informal sector (e.g., cottage industries, crafts, petty trade, and repair work), had lower incomes than urban wage earners. Even the rural selfemployed (smallholder farmers, sharecroppers, and tenants, as well as a few commercial farmers) had lower incomes than rural wage earners, who ranged from unskilled, landless workers to plantation workers.

During the 1980s, the urban-rural gap narrowed--a result of rising urban poverty rather than of growing rural affluence. A World Bank/International Finance Corporation study estimated that 64 percent of urban households and 61 percent of rural households were in poverty in FY 1984. Because 70 percent of Nigeria's population was rural, most of the poor were to be found in rural areas. By the late 1980s, with structural adjustment and agricultural price decontrol, the average income of all rural households exceeded the average for urban households. Ironically, rural household income levels in the late 1980s only improved relative to levels for city households, as real income in both urban and rural areas had fallen throughout the 1980s. The result was that, for the first time since independence, more Nigerians migrated to the country than to urban areas.

Rapid inflation, 20 percent yearly between 1973 and 1980 and more than 20 percent per year between 1980 and 1984 (as measured by the consumer price index), dropped to 5.5 percent in 1985, 5.4 percent in 1986 (years of good harvests), and 10.2 percent in 1987, before rising to 38.3 percent in 1988 and 47.5 percent in 1989. Under a World Bank SAP, 1986 and 1987 were years of tightmoney financial policy. But a poor harvest in 1987 put pressure on 1988 food prices, and authorities lifted the wage freeze and eased fiscal policies in 1988 in the face of rising political opposition to austerity. Inflation abated somewhat in late 1989, as food supplies grew and the Central Bank of Nigeria tightened monetary policy.

Real wages fell significantly in the l980s following a statutory wage freeze (1982-88), salary cuts in the public sector in 1985, and a constant nominal minimum wage that started in 1981. From 1986 to 1989, real wages fell almost 60 percent.

Nigeria

Nigeria - LABOR

The size of Nigeria's labor force was difficult to calculate because of the absence of accurate census data. The labor force increased from 18.3 million in 1963 to 29.4 million in 1983. Census data apparently understated the number of self-employed peasants and farmers, but estimated that the proportion of Nigerians employed in agriculture, livestock, forestry, and fishing fell from 56.8 percent in 1963 to 33.5 percent in 1983. The percentage of the labor force employed in mining rose from 0.1 percent in 1963 to 0.4 percent in 1983. Exactly comparable data were lacking on manufacturing, but from 1965 to 1980 industry's share of the labor force rose from 10 percent to 12 percent whereas the services sector grew from 18 percent to 20 percent of the labor force.

Unemployment

The national unemployment rate, estimated by the Office of Statistics as 4.3 percent of the labor force in 1985, increased to 5.3 percent in 1986 and 7.0 percent in 1987, before falling to 5.1 percent in 1988 as a result of measures taken under the SAP. Most of the unemployed were city dwellers, as indicated by urban jobless rates of 8.7 percent in 1985, 9.1 percent in 1986, 9.8 percent in 1987, and 7.3 percent in 1988. Underemployed farm labor, often referred to as disguised unemployed, continued to be supported by the family or village, and therefore rural unemployment figures were less accurate than those for urban unemployment. Among the openly unemployed rural population, almost two-thirds were secondary-school graduates.

The largest proportion of the unemployed (consistently 35 to 50 percent) were secondary-school graduates. There was also a 40- percent unemployment rate among urban youth aged twenty to twenty-four, and a 31-percent rate among those aged fifteen to nineteen. Two-thirds of the urban unemployed were fifteen to twenty-four years old. Moreover, the educated unemployed tended to be young males with few dependents. There were relatively few secondary-school graduates and the lowered job expectations of primary-school graduates in the urban formal sector kept the urban unemployment rate for these groups to 3 to 6 percent in the 1980s.

Labor Unions

Labor unions have been a part of Nigerian industry since 1912, when government employees formed a civil service union. In 1914 this organization became the Nigerian Union of Civil Servants after the merger of the protectorates of Northern Nigeria and Southern Nigeria. In 1931 two other major unions were founded--the Nigerian Railway Workers Union and the Nigerian Union of Teachers (which included private-school teachers). Legalization of unions in 1938 was followed by rapid labor organization during World War II as a result of passage by the British government of the Colonial Development and Welfare Act of 1940, which encouraged the establishment of unions in the colonies. The defense regulation of October 1942 made strikes and lockouts illegal for the duration of the war and denied African workers the cost-of-living allowances that European civil servants received. In addition, the colonial government increased wages only modestly, although the cost of living rose 74 percent from September 1939 to October 1943. In June and July of 1945, 43,000 workers, most of whom were performing services indispensable to the country's economic and administrative life, went on a strike that lasted more than forty days. In large part as a result of the strike's success, the labor movement grew steadily and by 1950 there were 144 unions with more than 144,000 members.

Although the labor movement was federated in 1941, the period from the end of World War II to 1964 was characterized by numerous splits, regroupings, and further fragmentation. Factionalism was rampant, engendered by the reluctance of the Colonial Office to strengthen union rights, dependence on foreign financial support, the thwarting of labor's political objectives by nationalist leaders, and intramural ideological differences. The most visible manifestation of labor problems was the dispute over whether to affiliate with the East European socialistoriented World Federation of Trade Unions, based in Prague, or the more capitalist-oriented International Confederation of Free Trade Unions, headquartered in Brussels.

In 1963 union members numbered 300,000, or 1.6 percent of the labor force. Despite this low level of organization, labor discontent worsened as the gap widened between the wages of white-collar and those of blue-collar workers. In FY 1964, supervisors were paid thirty-three times as much as daily-wage workers and semiskilled workers in public service. After independence, many workers had begun to feel that the political leadership was making no effort to reduce the inequalities of the colonial wage and benefit structure. Corruption and conspicuous consumption were perceived to be widespread among politicians. An April 1963 pay raise for ministers and members of parliament further fueled labor resentment because rank-and-file civil servants had been doing without raises since 1960. The five superordinate central labor organizations consequently formed the Joint Action Committee (JAC) to pressure the government to raise wages. Numerous delays in the publication of a government commission report on wages and salaries provided partial impetus for a JAC-mobilized general strike of 800,000 supporters, most of them nonunionists, which lasted twelve days in June 1964. Although the strike demonstrated the government's fragility, the JAC could not translate its victory into permanent political strength; labor unity disintegrated in the face of overtures by political parties to segments of organized labor as the federal elections of December 1964 neared.

Political parties and communal associations were banned during the military rule of the late 1960s, so labor unions posed a potential organized threat to the government. The military government's decree in 1969 forbidding strikes was repeatedly defied during the next four years, most notably in 1973, when the regime gave in to demands by striking postal and telecommunications workers, about one-fifth of the federal civil service. Labor activities and internal strife among four central labor organizations continued up to 1975, when the military government attempted, unsuccessfully at first, to merge the four bodies into one unit, the Nigerian Labour Congress (NLC). The government dissolved the four central unions, prohibited union affiliations with international labor organizations, and in 1977 banned eleven labor leaders from further union activity. Under terms of a 1978 labor decree amendment, the more than 1,000 previously existing unions were reorganized into 70 registered industrial unions under the NLC, now the sole central labor organization.

In the early 1980s, the civilian government found itself losing control of organized labor. Numerous wildcat strikes occurred in 1980-81, and in May 1981, the NLC mobilized 700,000 of 1 million unionized Nigerian workers for a two-day strike, despite the opposition of a government-supported faction.

Working days lost through strikes declined from 9.6 million in 1982 to 200,000 in 1985 in the midst of a decline in national income that had begun in 1983. Industrial unrest resulted, however, in demands by larger number of workers for payments of salary arrears and fringe benefits as real wages fell by almost 60 percent. The causes of the decline in real wages were the World Bank-advised SAP and the unfavorable terms of trade that resulted from the collapse of the world oil market between 1986 and 1989.

Nigeria

Nigeria - AGRICULTURE

As economic development occurs, the relative size of the agricultural sector usually decreases. Accordingly, Nigerian GDP originating in the agricultural sector shrank from 65.7 percent in FY 1959 to 30.9 percent by 1976. The overall economic decline reversed this trend, and by 1988, 39.1 percent of GDP was derived from agricultural activity.

The contribution of the agricultural sector increased 3.8 percent yearly between 1983 and 1988, and the percentage of export value in agriculture grew from 3 percent in 1983 to 9 percent in 1988, although much of this growth resulted from the fall in oil export receipts. Food production also increased rapidly during the 1980s, especially after exchange-rate reform restricted food imports in 1986.

Land Use, Soils, and Land Tenure

In 1990, estimates indicated that 82 million hectares out of Nigeria's total land area of about 91 million hectares were arable. However, only about 34 million hectares (or 42 percent of the cultivable area) were being cultivated at the time. Much of this land was farmed under bush fallow, a technique whereby an area much larger than that under cultivation is left idle for varying periods to allow natural regeneration of soil fertility. Another 18 million hectares were classified as permanent pasture, but much of this land had the potential to support crops. About 20 million hectares were covered by forests and woodlands. Most of this land also had agricultural potential. The country's remaining 19 million hectares were covered by buildings or roads, or were considered wasteland.

Nigeria's soil is rated from low to medium in productivity. However, the Food and Agriculture Organization of the United Nations (FAO) concluded that most of the country's soil would have medium to good productivity if this resource were managed properly.

Traditional land tenure throughout Nigeria was based on customary laws under which land was considered community property. An individual had usufructuary rights to the land he farmed in his lineage or community area. He could possess the land as long as he used it to his family's or society's benefit, and could pass the land on to heirs and pledge its use to satisfy a debt, but could not sell or mortgage it. The right of disposal belonged only to the community, which, acting through traditional authorities, exercised this right in accordance with customary law.

The Fulani conquest of much of northern Nigeria in the early 1800s brought a change in land tenure in areas under Fulani control. The conquerors bestowed fiefs on certain individuals, who sometimes appointed overseers with the power to allocate unused land without regard for local community interests. One result was a growing number of grants to strangers during the nineteenth century because overseers sought to increase the revenue from their landlords' holdings. This practice gradually reduced the extent of bush land and encouraged the migration of farmers to urban areas that began toward the end of the nineteenth century.

In the early 1900s, the British established hopemony over the Fulani and declared all land in the former Fulani fiefs to be public property. Subsequently, in contrast to southern Nigeria, where the community owned land in the north the government required occupancy permits. However, at the same time the northern authorities were charged with supervision and protection of the indigenous population's traditional rights, and a general reversion to customary land-tenure practices occurred. In predominantly Muslim areas, traditional land inheritance laws were allowed to remain in force. As a result of the government's support of local customary laws, encroachment by outsiders appears largely to have been halted. In 1962 the government of the Northern Region placed formal restrictions on landholding by individuals who were not members of a northern community.

In the south, colonial authorities introduced the concept of individual ownership of property and authorized the legal conveyance of land that could be registered with the government. Various laws and ordinances gave government the power to expropriate statutory landholdings in return for compensation. Expansion of the money economy and the resulting emphasis on commercial crops encouraged farmers to seek private ownership of land. Nonetheless, customary tenure remained the principal form of landholding throughout Nigeria as late as the early 1970s. During the 1970s, however, individuals and business enterprises drove up land prices, especially in newly urbanized areas, by investing heavily in real estate. In the south, customary owners turned from land sales to more profitable high-rent leasing arrangements. In the north, where land was held only by permit, farmers on the outskirts of cities became victims of developmental rezoning. Their permits were revoked, and, only minimally compensated, they moved to other areas. The land was then subdivided and sold at high prices.

In response to a potential crisis in land distribution, the Federal Military Government promulgated the Land Use Decree of March 1978, establishing a uniform tenure system for all of Nigeria. Subsequently incorporated in the constitution of 1979, the decree effectively nationalized all land by requiring certificates of occupancy from the government for land held under customary and statutory rights and the payment of rent to the government. However, the decree stipulated that anyone in a rural or urban area who normally occupied land and developed it would continue to enjoy the right of occupancy, and could sell or transfer his interest in the development of the land.

The main purpose of the 1978 decree was to open land to development by individuals, corporations, institutions, and governments. The decree gave state and local governments authority to take over and assign any undeveloped land. Occupancy or possession of undeveloped land by individuals was restricted. To prevent fragmentation, the statutory right of occupancy could be passed on only to one person or heir.

<>Crops
<>Irrigation
<>Livestock
<>Forestry
<>Fisheries

Nigeria

Nigeria - Crops

Nigeria's climate permits the cultivation of a variety of crops in a pattern that emerged in earlier centuries in response to local conditions. As in other West Africa states, rainfall is heaviest in the south, where the forests and savannas benefit from abundant precipitation and relatively short dry seasons. The staples are root crops, including cassava, yams, taro (cocoyams), and sweet potatoes. Tree crops--cacao, oil palm, and rubber--constitute the area's main commercial produce. Cacao, from which cocoa is made, grows mostly in the southwest. Oil palms (whose kernels can be made into palm wine) predominate in the southeast and are numerous in the south-central area. Rubber stands are common in south-central and southeastern Nigeria.

Smallholder farmers, who use simple production techniques and bush-fallow cultivation and cultivate areas of one-half to two hectares each, contribute two-thirds of farm production. In most areas, some noncash crops are grown, such as sorghum, yams, cassava, cowpeas, millet, corn, cocyams, sweet potatoes, and rice.

The northern third of Nigeria, which experiences a dry season of five to seven months, during which less than twenty-five millimeters of rain falls, lies mostly in the Sudan savanna and the arid Sahel zone. There, the staples are millet, cowpeas, and a drought-resistant variety of sorghum known as guinea corn. Corn is also cultivated, as well as rice in suitable lowland areas. The north's principal commercial crops are cotton and groundnuts.

Between the arid north and the moist south lies a Guinea savanna region sometimes referred to as the middle belt. This area produces staples such as yams, sorghum, millet, cassava, cowpeas, and corn, with rice an important crop in some places. The middle belt's southern edge represents the lower limits of the northern grain-dominated economy. The most significant commercial crop of the middle belt is sesame (or benniseed).

Most Nigerians eat grains, but the production and consumption of sorghum (guinea corn) and millet are heavily concentrated in the savanna north. In 1980 the two grains accounted for 80 percent of Nigeria's total grain production. Corn production in the savanna middle belt benefits from heavier rainfall, which frequently permits two crops a year. The demand for rice, much of it imported, increased dramatically during the affluent 1970s, but had to be cut back during the foreign exchange shortages of the 1980s.

Cocoa and groundnuts were Nigeria's two major exports until petroleum surpassed both in 1965. Cocoa, cotton, groundnuts, oil palm products, and rubber were the principal export crops in the 1960s and early 1970s, but with export reorientation, only cocoa remained of any importance after 1975. Although Nigeria was the world's largest exporter of groundnuts in the early 1970s, groundnuts fell from the export list by the end of the 1970s as a result of the severe Sahel drought of 1972-74 and a viral disease in 1975. With assistance from the World Bank, the government restored cocoa production in the late 1970s and 1980s through replanting programs and producer price supports. The resulting increase in cocoa output (to 200,000 tons in 1988) kept Nigeria in third place among world cocoa producers, after Ivory Coast and Ghana.

Although the devaluation of the naira and the abolition of agricultural marketing boards in FY 1986 were intended to increase cash-crop output, the results were disappointing. The failure to significantly increase output was caused partly by the lack of incentives for producers to invest in maintenance.

In the late 1980s, Nigeria reduced the structural bias against agricultural activity by decontrolling farm prices, maintaining subsidies on fertilizer and farm exports, and maintaining import bans on some food items. Despite the granting of increased incentives to the domestic farming industry, agricultural output rose slowly because of inadequate transportation and power networks, a lack of appropriate technology, and the ineffective application of rural credit. Although the domestic production of food did not decline, on a per capita basis food became less available during this period.

Nigeria

Nigeria - Irrigation

Traditional cultivators throughout Nigeria used elemental irrigation systems long before the colonial period. These systems included seasonally inundated depressions in upland areas of the south and parts of the middle belt that received heavy rainfall, shallow swamps, and seasonally flooded riverine land. In the north, shadoof irrigation was also used along rivers, and some use was made of wells. Smallholders were using traditional methods to irrigate about 120,000 hectares in the 1950s and about 800,000 hectares in the late 1970s.

In 1949 the Northern Region established the first government irrigation agency. By the end of the 1960s, government projects-- all relatively small--brought 9,000 hectares under irrigation. The severe Sahel drought of 1972-74 resulted in the expenditure of large sums for irrigation development by the federal government and by some state governments during the third plan, 1975-80. In 1975 the federal government established the Ministry of Water Resources and in 1976 created eleven river basin development authorities with responsibility for irrigation and the comprehensive development of water resources. Major irrigation projects after the mid-1970s included the South Chad Irrigation Project in Borno State, the Bakolori Project in Sokoto State, and the Kano River Project.

Nigeria

Nigeria - Livestock

Reliable statistics on livestock holdings did not exist, but careful estimates suggested a total of 10 to 11 million cattle in the early 1970s and, after the severe drought, 8.5 million in the late 1970s. Although an epidemic of rinderpest killed more than a million cattle in 1983, production recovered by the end of the 1980s. The UN Food and Agriculture Organization estimated that in 1987 there were 12.2 million cattle, 13.2 million sheep, 26.0 million goats, 1.3 million pigs, 700,000 donkeys, 250,000 horses, 18,0000 camels found mostly in the Sahel savanna around Lake Chad, and 175 million poultry nationally, owned mostly by villages rather than by commercial operators. The livestock subsector accounted for about 2 percent of GDP in the 1980s

Until the 1990s, cattle-raising was limited largely to the northern fifth of the country that was free of the tsetse fly. A program of tsetse-fly research and eradication was somewhat successful during the 1970s and 1980s, but 90 percent of the national cattle herd was still found in the northern states in 1990. About 96 percent of these animals were zebu-type cattle, most of which were tended by Fulani pastoralists. Traditionally, the Fulani moved their herds during the dry season to pasture in the moister Guinea savanna, returning northward when the rains began and danger from the tsetse fly increased. During the 1970s and 1980s, the expansion of cultivated areas and irrigation seriously obstructed this migration by cutting off access to usual travel routes.

Most of Nigeria's remaining cattle, 3 to 4 percent, are smaller than the zebu type and less valuable as draft animals. However, they possess a resistance to trypanosomiasis that makes it possible to raise them in the tsetse-infested humid forest zone. The government improved these herds in early 1980 by importing breeding stock of a particularly disease-resistant strain from The Gambia.

By the early 1970s, as the general standard of living improved, the demand for meat in Nigeria exceeded the domestic supply. As a result, 30 to 40 percent of the beef consumed in Nigeria was imported from Niger, Chad, and other neighboring countries. In the mid-1970s, Nigeria began importing frozen beef in response to export restrictions initiated by its neighbors. The National Livestock Production Company established domestic commercial cattle ranches in the late 1970s, but with poor results.

Most of Nigeria's sheep and goats are in the north, where the Fulani maintained an approximate ratio of 30 percent sheep and goats to 70 percent cattle. About 40 percent of northern nonFulani farming households are estimated to keep sheep and goats. Most pigs are raised in the south, where the Muslim proscription against eating pork is not a significant factor.

Almost all rural households raise poultry as a subsistence meat. Chickens are predominantly of indigenous origin, and there is some crossbreeding with foreign stock. Egg production is low. Private commercial poultry operations increased rapidly during the 1970s and 1980s near urban areas, providing a growing source of eggs for the cities. But commercial operations remained largely dependent on corn and other feeds imported from the United States.

Nigeria

Nigeria - Forestry

Nigeria's forests can be divided into two principal categories: woodlands and forests of the savanna regions (fourfifths of the country's forest area) that are sources of fuel and poles, and rainforests of the southern humid zone that supply almost all domestic timber and lumber, with fuelwood as a byproduct. Nigeria's forests have gradually shrunk over the centuries, especially in the north, where uncontrolled commercial exploitation of privately owned forests began in the late nineteenth century. Toward the end of the 1800s, the colonial government began establishing forest reserves. By 1900 more than 970 square kilometers had been set aside. By 1930 this reserve had grown to almost 30,000 square kilometers, and by 1970 to 93,420 square kilometers, mostly in the savanna regions.

Through the 1950s, forest regeneration was largely by natural reseeding, although the government established some small plantations near larger towns for fuelwood and poles. In the early 1960s, the government began emphasizing the development of forest plantations, especially ones planted with fast-growing, exotic species, such as teak and gmelina (an Australian hardwood). By 1976 about 115,000 hectares had been planted. During the late 1970s and 1980s, state plantations became an important source of timber, paper pulp, poles, and fuelwood. Despite these developments, forestry's share of Nigeria's expanding GDP declined from 6 percent in the late 1950s to 2 percent in the late 1970s and 1980s. Earnings from the export of timber and wood products--6 percent of export income in 1960-- declined to 1 percent of export income in 1970 and virtually nothing in the late 1970s and 1980s, as domestic needs increased rapidly. The oil boom of the 1970s slowed exports further, as more and more wood was diverted to the domestic construction industry.

In the 1980s, Nigeria's demand for commercial wood products (excluding paper pulp and paper) threatened to exhaust reserves before the year 2000. To reverse this process, especially in the northern savanna, the government needed to double the rate of annual plantings it set in the 1980s. In June 1989, the government announced receipt of a World Bank loan for afforestation to stabilize wood product output and forest reserves.

Nigeria

Nigeria - Fisheries

Data on fisheries output were meager in 1990. In the mid1960s , estimates indicated that Nigerian fisheries brought in 120,000 tons of fish per year and imported 180,000 tons, mostly air-dried fish. Domestic production through the 1970s ranged from 600,000 to 700,000 tons annually.

Nigeria has declared an exclusive economic zone extending 200 nautical miles from its coast. These waters include the continental shelf along more than 800 kilometers of coastline, a large area of brackish lagoons and creeks, and freshwater rivers and inland lakes, including fish-rich Lake Chad and Kainji Reservoir, among other artificial bodies of water. In the early 1980s, the bulk of the catch was taken by small businesses using large canoes (some motorized) along the coast, smaller canoes in the creeks and lagoons, and similar small boats in freshwater areas. The modern commercial fishing fleet consisted of about 300 licensed craft ranging in size from 20 tons to more than 6,000 tons; about one-third were vessels under 265 tons that engaged in inshore fishing and shrimping. In the mid-1970s, the government set up the Nigerian National Fish Company jointly with foreign interests to operate a deep-sea fishing fleet. In 1975 the Nigerian National Shrimp Company was established in partnership with a North American firm. But deep-sea fisheries were, and in 1990 continued to be, dominated by foreign-owned trawlers, despite substantial investment in fisheries development, including the provision of fishing supplies and outboard' motors to small local enterprises in the late 1970s.

Nigeria

Nigeria - MANUFACTURING

While agriculture's relative share of GDP was falling, manufacturing's contribution rose from 4.4 percent in FY 1959 to 9.4 percent in 1970, before falling during the oil boom to 7.0 percent in 1973, increasing to 11.4 percent in 1981, and declining to 10.0 percent in 1988. Whereas manufacturing increased rapidly during the 1970s, tariff manipulations encouraged the expansion of assembly activities dependent on imported inputs; these activities contributed little to indigenous value added or to employment, and reduced subsequent industrial growth. The manufacturing sector produced a range of goods that included milled grain, vegetable oil, meat products, dairy products, sugar refined, soft drinks, beer, cigarettes, textiles, footwear, wood, paper products, soap, paint, pharmaceutical goods, ceramics, chemical products, tires, tubes, plastics, cement, glass, bricks, tiles, metal goods, agricultural machinery, household electrical appliances, radios, motor vehicles, and jewelry.

From 1982 to 1986, Nigeria's value added in manufacturing fell 25 percent, partly as a result of inefficient resource allocation caused by distorted prices (especially for exports and import substitutes) and prohibitive import restrictions. Between 1986 and 1988, World Bank structural adjustment program (SAP) measures contributed to larger increases in manufacturing's contribution to GDP, which grew 8 percent in 1988. These measures included liberalized regulations governing the import of capital, raw materials, and components; the creation of importsubstitution industries; and, beginning in 1988, privatization. The SAP increased production efficiency, cut into the black market, and reduced factory closures resulting from import bans on essential inputs.

The Nigerian Enterprises Promotion decrees of 1972, 1977, and 1981, by limiting foreign ownership shares in various industries, shifted the manufacturing sector from foreign majority ownership in the 1960s to indigenous majority ownership in the mid-1970s and late 1970s. Businesspeople participated in economic policymaking, influencing the government's implementation of indigenization. "Nigerianization," in which foreigners were obligated to sell ownership shares to Nigerians, became an instrument by which a few civil servants, military leaders, businesspeople, and professionals amassed considerable wealth. In 1985 the government selectively relaxed the indigenization decrees to encourage foreign investment in neglected areas, such as large-scale agrobusiness and manufacturing that used local resources. After March 1988, foreign investors were allowed to increase their holdings in a number of other sectors.

Nigeria

Nigeria - MINING, OIL, AND ENERGY

Petroleum products accounted for two-thirds of the energy consumed in 1990, but Nigeria also had substantial resources in the form of hydroelectricity, wood, subbituminous coal, charcoal, and lignite. In the 1980s, most cooking was done with wood fuels, although in urban areas petroleum use increased. Coal, originally mined as fuel for railroads, largely had been replaced by diesel oil except in a few industrial establishments. Coal production fell from 940,000 tons in 1958 to 73,000 tons in 1986, only a fraction of 1 percent of Nigeria's commercially produced energy.

Tin and columbite output fell from the 1960s through the 1980s as high-grade ore reserves became exhausted. A fraction of the extensive deposits of iron ore began to be mined in the mid1980s , and uranium was discovered but not exploited. Almost none of these minerals left the country, however, as petroleum continued to account for virtually all of Nigeria's mineral exports.

Mining contributed 1.0 percent of GDP in FY 1959, on the eve of independence. This sector's share (including petroleum) stood at more than 14 percent in 1988. Mining's general upward trend since l959, as well as the fluctuations in the size of its contribution to GDP, can be attributed to the expansion and instability of the world oil market since 1973.

<>Oil and Gas

Nigeria

Nigeria - Oil and Gas

Nigeria's first oil refinery, at Alesa Eleme near Port Harcourt, began operations in late 1965 with a capacity of 38,000 barrels per day, enough to meet domestic requirements at the time. The refinery expanded production to 60,000 barrels per day after the civil war but failed to satisfy the demands of a rapidly growing economy. An additional refinery, delayed by political maneuvering over its location, was constructed at Warri, opening in 1978 with a capacity of 100,000 barrels per day. This plant was entirely owned by a parastatal, the Nigerian National Petroleum Company (NNPC), which starting in 1979 also held an 80 percent interest in the earlier plant. Technical problems and shutdowns for routine maintenance reduced production, and the combined total of petroleum processed by the two plants in 1979 averaged 89,000 barrels per day--about 83 percent of the domestic requirement.

In the late 1970s and early 1980s, the NNPC had substantial amounts of oil refined abroad (mostly by Shell) to make up the shortfall, and some oil was also processed in Cameroon, Ghana, and Ivory Coast. In October 1980, a third refinery, with a capacity of 100,000 barrels per day, began operations at Kaduna, but did not become fully productive until the mid-1980s. A fourth refinery was completed in March 1989 at Alesa Eleme, increasing Nigeria's refining capacity to 445,000 barrels per day. Domestic petroleum demand stood at 250,000 barrels per day, so a portion of the output of the four refineries could now be exported. However, by the early 1990s gasoline output was sufficiently short of the growing domestic demand to require that the NNPC still refine some gasoline abroad.

In 1988, about 96 percent of the oil Nigeria produced came from companies in which the NNPC held at least 60 percent of the equity. The NNPC also was responsible for 75 percent of total investment in petroleum. In the late 1980s, the major Western oil companies exploring oil resources in Nigeria (primarily in midwestern, southeastern, and nearby offshore wells) were (in descending order of importance) Shell, Chevron, Mobil, Agip, Elf Aquitaine, Phillips, Texaco, and Ashland. In 1985-88, 11 percent of all extracted oil (about 66 percent of domestic requirements) was refined in Nigerian refineries, where the NNPC owned majority equity shares.

From 1974 to 1981, while real oil prices remained high, lending to major oil exporting countries, such as Nigeria, was considered very safe. Indeed, Nigeria did not borrow extensively abroad until 1978, when a fall in the price of oil required Lagos to borrow US$16 million on world capital markets. Thereafter, Nigeria continued international borrowing for an ambitious investment program, anticipating an oil-price recovery. The world's sixth largest oil exporter and the leader in oil exports in sub-Saharan Africa, Nigeria nonetheless experienced an external trade surplus only from 1973 to 1975 and 1979 to 1980, during two oil price peaks, and in the late 1980s, when debtservicing burdens forced import reductions, especially in services.

Besides oil, Nigeria had substantial reserves of natural gas. Although the consumption of natural gas increased steadily in the late 1970s and 1980s, and in 1990 constituted more than 20 percent of Nigeria's total energy from commercial sources, the quantity of gas used was only a fraction of what was available. In 1988, with the largest natural gas reserves in Africa, Nigeria produced 21.2 billion cubic meters per day, with 2.9 billion cubic meters used by the National Electric Power Authority (NEPA) and other domestic customers, 2.6 billion cubic meters used by foreign oil companies, and 15.7 billion cubic meters (77 percent) wasted through flaring. Small amounts of gas were also consumed by petroleum producers to furnish power for their own operations and as fuel for some equipment. Domestically, there remained a large potential market for bottled liquid petroleum gas (LPG), which was produced primarily at the Kaduna refinery.

In the early 19900, Nigeria was undertaking a major project to market liquefied natural gas (LNG) (instead of flaring gas produced in the oil fields) by building a gas liquefaction plant on the Bonny River. Four companies signed an agreement in May 1989 to implementthis plan: NNPC (60 percent share)), Shell (20 percent), Agip (Azienda generale italiana dei petroli--10 percent), and Elf Aquitaine (10 percent), with plant construction scheduled to begin in 1991. Other aspects of the project involved Nigerian government construction of gas pipelines for distribution to domestic, residential, and commercial users and a supply of gas to the NNPC chemical complex at Port Harcourt. Much of the gas was intended for export, however, and the first LNG tanker was launched in October 19900 through the cooperative efforts of Nigeria and Japan.

Nigeria

Nigeria - BANKING AND FINANCE

In 1892 Nigeria's first bank, the African Banking Corporation, was established. No banking legislation existed until 1952, at which point Nigeria had three foreign banks (the Bank of British West Africa, Barclays Bank, and the British and French Bank) and two indigenous banks (the National Bank of Nigeria and the African Continental Bank) with a collective total of forty branches. A 1952 ordinance set standards, required reserve funds, established bank examinations, and provided for assistance to indigenous banks. Yet for decades after 1952, the growth of demand deposits was slowed by the Nigerian propensity to prefer cash and to distrust checks for debt settlements.

British colonial officials established the West African Currency Board in 1912 to help finance the export trade of foreign firms in West Africa and to issue a West African currency convertible to British pounds sterling. But colonial policies barred local investment of reserves, discouraged deposit expansion, precluded discretion for monetary management, and did nothing to train Africans in developing indigenous financial institutions. In 1952 several Nigerian members of the federal House of Assembly called for the establishment of a central bank to facilitate economic development. Although the motion was defeated, the colonial administration appointed a Bank of England official to study the issue. He advised against a central bank, questioning such a bank's effectiveness in an undeveloped capital market. In 1957 the Colonial Office sponsored another study that resulted in the establishment of a Nigerian central bank and the introduction of a Nigerian currency. The Nigerian pound, on a par with the pound sterling until the British currency's devaluation in 1967, was converted in 1973 to a decimal currency, the naira (N), equivalent to two old Nigerian pounds. The smallest unit of the new currency was the kobo, 100 of which equaled 1 naira. The naira, which exchanged for US$1.52 in January 1973 and again in March 1982 (or N0.67 = US$1), despite the floating exchange rate, depreciated relative to the United States dollar in the 1980s. The average exchange rate in 1990 was N8.004 = US$1. Depreciation accelerated after the creation of a second-tier foreign exchange market under World Bank structural adjustment in September 1986.

The Central Bank of Nigeria, which was statutorily independent of the federal government until 1968, began operations on July 1, 1959. Following a decade of struggle over the relationship between the government and the Central Bank, a 1968 military decree granted authority over banking and monetary policy to the Federal Executive Council. The role of the Central Bank, similar to that of central banks in North America and Western Europe, was to establish the Nigerian currency, control and regulate the banking system, serve as banker to other banks in Nigeria, and carry out the government's economic policy in the monetary field. This policy included control of bank credit growth, credit distribution by sector, cash reserve requirements for commercial banks, discount rates--interest rates the Central Bank charged commercial and merchant banks--and the ratio of banks' long-term assets to deposits. Changes in Central Bank restrictions on credit and monetary expansion affected total demand and income. For example, in 1988, as inflation accelerated, the Central Bank tried to restrain monetary growth.

During the civil war, the government limited and later suspended repatriation of dividends and profits, reduced foreign travel allowances for Nigerian citizens, limited the size of allowances to overseas public offices, required official permission for all foreign payments, and, in January 1968, issued new currency notes to replace those in circulation. Although in 1970 the Central Bank advised against dismantling of import and financial constraints too soon after the war, the oil boom soon permitted Nigeria to relax restrictions.

The three largest commercial banks held about one-third of total bank deposits. In 1973 the federal government undertook to acquire a 40-percent equity ownership of the three largest foreign banks. In 1976, under the second Nigerian Enterprises Promotion Decree requiring 60-percent indigenous holdings, the federal government acquired an additional 20-percent holding in the three largest foreign banks and 60-percent ownership in the other foreign banks. Yet indigenization did not change the management, control, and lending orientation toward international trade, particularly of foreign companies and their Nigerian subsidiaries of foreign banks.

At the end of 1988, the banking system consisted of the Central Bank of Nigeria, forty-two commercial banks, and twentyfour merchant banks, a substantial increase since 1986. Merchant banks were allowed to open checking accounts for corporations only and could not accept deposits below N50,000. Commercial and merchant banks together had 1,500 branches in 1988, up from 1,000 in 1984. In 1988 commercial banks had assets of N52.2 billion compared to N12.6 billion for merchant banks in early 1988. In FY 1990 the government put N503 million into establishing community banks to encourage community development associations, cooperative societies, farmers' groups, patriotic unions, trade groups, and other local organizations, especially in rural areas.

Other financial institutions included government-owned specialized development banks: the Nigerian Industrial Development Bank, the Nigerian Bank for Commerce and Industry, and the Nigerian Agricultural Bank, as well as the Federal Savings Banks and the Federal Mortgage Bank. Also active in Nigeria were numerous insurance companies, pension funds, and finance and leasing companies. Nigeria also had a stock exchange (established in Lagos in 1961) and a number of stockbrokerage firms. The Securities and Exchange Commission (SEC) Decree of 1988 gave the Nigerian SEC powers to regulate and supervise the capital market. These powers included the right to revoke stockbroker registrations and approve or disapprove any new stock exchange. Established in 1988, the Nigerian Deposit Insurance Corporation increased confidence in the banks by protecting depositors against bank failures in licensed banks up to N50,000 in return for an annual bank premium of nearly 1 percent of total deposit liabilities.

Finance and insurance services represented more than 3 percent of Nigeria's GDP in 1988. Economists agree that services, consisting disproportionately of nonessential items, tend to expand as a share of national income as a national economy grows. However, Nigeria, lacked comparable statistics over an extended period, preventing generalizations about the service sector. Statistics indicate, nevertheless, that services went from 28.9 percent of GDP in 1981 to 31.1 percent in 1988, a period of no economic growth. In 1988 services comprised the following percentages of GDP: wholesale and retail trade, 17.1 percent; hotels and restaurants, less than 1 percent; housing, 2.0 percent; government services, 6. percent; real estate and business services, less than 1 percent; and other services, less than 1 percent.

Nigeria