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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. The erratic policies pursued by successive military regimes amid the chaos of Nigeria’s chaotic past led to the huge macroeconomic imbalances that still exist in Nigeria. The country’s historically agricultural economy was transformed almost overnight by the discovery of vast oil and gas reserves, which put pressure on hydrocarbons that ultimately hindered economic diversification. The oil boom of the 1970s brought further destruction to agriculture and traditional livelihoods, causing unemployment and food shortages throughout the country. Human development indices were among the lowest in the world at the beginning of the 20th Century, and the ‘Nigerian Paradox’ of extreme poverty despite significant national wealth was born. Even today, 54% of Nigeria’s 148 million people live in extreme poverty with a daily income of less than $11.

Government intervention in the economy during military rule was mostly through sporadic and often ill-informed policies that yielded few, if any, results. The IMF-funded Structural Adjustment Program (SAP) in 1986 was one of the first attempts to ease economic regulation in decades. However, there was little domestic consensus on the measures outlined in the program and the tough market reforms that the state of the economy demanded never materialized. Bureaucratic inefficiency and corruption were largely to blame for this bad experience in reforms which also strained Nigeria’s relations with international financial organizations including the World Bank. Some positive signs emerged in the mid-1990s, when trade liberalization lowered tax rates and import dependence while opening the economy to foreign investors. In addition, Abuja repealed laws that allowed monopoly public sector companies in oil, telecommunications and power to encourage private participation in key sectors. Together, these measures helped GDP growth reach 2.5% between 1993 and 1997, reversing an average decline of 2% recorded in previous years2. However, the recovery came at the price of low growth in the non-oil economy, which continued amid falling demand and a lack of liquidity.

A peaceful transition to civilian rule in 1999 brought political stability and paved the way for a series of more radical reforms. A resurgent Nigeria signed the United Nations Millennium Declaration for universal human rights by 2015 and adopted ambitious plans to temporarily accelerate economic growth. There have been several positive developments in the Nigerian economy since 2001:

* Under former President O Obasanjo, the government embarked on a massive privatization drive, investing in several major oil, steel, mining and port projects.

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

* Nigerian lawmakers passed the Fiscal Responsibility Bill in 2007, establishing oil price regulation. In the same year, the Draft Law on Public Procurement was also issued.

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

* Nigeria’s outstanding foreign debt burden was conditionally waived by the London and Paris Clubs, allowing government spending on poverty reduction programs to increase.

Perhaps the most optimistic of recent signs has been seen in the non-oil sector, which has doubled since 2001 and now 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 backbone of Nigeria’s economy, contributing 85 percent of all revenues, recent governments have balked at the idea that the country’s rising ambitions cannot be achieved without rapid economic diversification. The answer is the rapid business development in the SME sector due to the country’s human capital and natural resources. Nigeria has a great opportunity and an even greater responsibility to create a corporate revolution that will radically transform its economic landscape.

Below are some broad criteria that Nigeria should follow in this regard when economic policy interventions are made:

* Creation of a central body with responsibility for coordinating all policies related to startups and existing companies.

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

* Strengthening of micro finance institutions to increase the capacity to pay loans for small businesses.

* Reducing high operating costs through tax cuts and financial incentives for businesses.

* Removing institutional barriers that prevent most new and emerging companies from operating in the informal economy.

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

* Improving business productivity through tertiary skills development programs and vocational training programs.

Given the vagaries of its economic history, Africa’s second-largest economy faces major challenges in securing a better place in the global rankings. Nigeria has not had a particularly impressive track record of timely economic intervention, as demonstrated by the cluster banking crisis. What Nigeria needs today are aggressive, pro-active policies that benefit from both her past experiences and her future aspirations!

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