The Growth-Promoting Institutional Structures That Involve Banks And The Stock Government Intervention and the Nigerian Economy: Present, Past and Future

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Government Intervention and the Nigerian Economy: Present, Past and Future

For most of its existence since independence in 1960, economic development in Nigeria has been determined by state planning and direct government participation. Inclement policies pursued by successive military regimes amid the rough of tumble of Nigeria’s chaotic past resulted in massive macroeconomic imbalances that are still inherent to Nigeria. The country’s historically agrarian economy was transformed almost overnight with the discovery of vast oil and gas reserves, forcing a culpable overdependence on hydrocarbons that eventually blocked economic diversification. The oil boom of the 1970s brought further devastation to agriculture and traditional livelihoods and ushered in massive unemployment and food shortages across the country. Human development indices had plunged to among of the lowest in the world by the turn of the 20th Century, and the ‘Nigerian Paradox’ of extreme poverty despite substantial national wealth was born. Even today, 54% of Nigeria’s 148 million people live in extreme poverty on a daily income of less than $11.

Government intervention in the economy during military rule was mostly characterised by sporadic and often ill-informed policies that delivered meagre, if any, results. The IMF-funded Structural Adjustment Programme (SAP) of 1986 was one of the first attempts to relax decades of economic regulation. However, there was little domestic consensus on measures outlined in the programme and the tough market reforms that the state of the economy demanded never really came through. Bureaucratic incompetence and corruption were largely to blame for this bad experience in reforms which also strained Nigeria’s relations with international financial organisations including the World Bank. Some positive signs emerged in the mid 1990s, when trade liberalisation brought down tariff rates and import dependence while opening up the economy to foreign investors. Further, Abuja revoked laws allowing monopoly public sector enterprises in petroleum, telecommunications and power to encourage private participation in important areas. These measures together helped push GDP growth up to 2.5% between 1993 and 1997, reversing an average decline of 2% registered over earlier years2. However, the recovery came at the price of low growth in the non-oil economy, which continued to flounder amid falling demand and low liquidity.

The peaceful transition to civilian governance in 1999 brought with it relative political stability and paved the way for a more aggressive set of reforms. A resurgent Nigeria signed the UN Millennial Declaration for universal basic human rights by 2015 and adopted ambitious plans for accelerated economic growth in a time-bound manner. A number of positive developments have occurred in the Nigerian economy since 2001:

* Under former President O Obasanjo, the government embarked on a massive privatisation drive, disinvesting in several major oil, steel, mining and port operations.

* International reserves saw healthy growth from $41 billion in 2006 to well over $52 billion in 2009. The average inflation rate dropped from close to 18% in 2005 to 11% in 20083.

* Nigerian lawmakers enacted the Fiscal Responsibility Bill in 2007, institutionalising the deregulation of oil prices. A Public Procurement Bill was also passed the same year.

* In 2004, a bank consolidation plan was executed to strengthen financial institutions and improve their credit capacity for private sector businesses.

* Nigeria’s bulk of outstanding foreign debt was conditionally waived off by the London and Paris Clubs, allowing for increased government spending on poverty alleviation programmes.

Perhaps the most optimistic of recent signs have been observed in the non-oil sector, which doubled since 2001 and currently accounts for 7% of GDP. Another success story is the revival of agriculture and its growth to 42% of GDP by 2008. Although oil continues to be the mainstay of the Nigerian economy, contributing 85% of all revenues, recent governments have wizened up to the idea that the country’s tall ambitions cannot be fulfilled without rapid economic diversification. The answer, given the country’s abundant human capital and natural resources, is rapid business development in the SME space. Nigeria has a great opportunity and an even greater obligation to foment an enterprise revolution that will radically transform its economic landscape.

The following are some of the broad parameters Nigeria must be guided by while formulation economic policy interventions in this regard:

* Creating a central body with responsibility to coordinate all policies relating to start-ups and existing enterprises.

* Creating a mass base of viable enterprises across the non-oil economy by promoting private sector equity participation.

* Reinforcing micro-finance institutions to enhance loan-disbursement capacity for small businesses.

* Cutting down on high operating costs with tax breaks and financial incentives directed at entrepreneurs.

* Removing institutional deterrents that lead most new and emerging enterprises to operate in the informal economy.

* Improving technical support for rural enterprises that continue to operate using outdated practices.

* Improving entrepreneurial productivity through tertiary skills development and vocational training programmes.

Given the vagaries of its economic history, Africa’s second largest economy faces tremendous hurdles in securing a better place for itself in global rankings. Nigeria has not had a particularly impressive track record in terms of timely economic intervention, as the gathering banking crisis demonstrates. What Nigeria needs today are aggressive, pro-active policies that have the full benefit of both its past experiences and its future aspirations!

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