For most of its existence since independence in 1960, Nigeria’s economic development has been determined by state planning and direct government involvement. The harsh policies pursued by successive military regimes amid the fall of Nigeria’s chaotic past resulted in massive macroeconomic imbalances that are still inherent in Nigeria. The country’s historically agrarian economy was transformed almost overnight with the discovery of vast oil and gas reserves, forcing a guilty overreliance on hydrocarbons that ultimately blocked economic diversification. The oil boom of the 1970s caused further devastation to agriculture and traditional livelihoods and led to mass unemployment and food shortages across the country. Human development indices had sunk to 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 with a daily income of less than $11.
Government intervention in the economy during military rule was characterized primarily by sporadic and often misinformed policies that yielded little, if any, results. The 1986 IMF-funded Structural Adjustment Program (SAP) was one of the first attempts to relax decades of economic regulation. However, there was little internal consensus on the measures outlined in the program and the harsh market reforms that the state of the economy demanded never materialized. Bureaucratic incompetence and corruption were largely to blame for this bad experience in reforms that 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 tariff rates and import dependency while opening up the economy to foreign investors. In addition, Abuja repealed laws that allowed public sector monopoly companies in oil, telecommunications and energy to encourage private participation in important areas. Together these measures helped boost GDP growth to 2.5% between 1993 and 1997, reversing an average fall of 2% recorded in previous years2. However, the recovery came at the price of low growth in the non-oil economy, which continued to flood amid falling demand and low liquidity.
The peaceful transition to civilian rule in 1999 brought relative political stability and paved the way for a more aggressive set of reforms. A resurgent Nigeria signed the UN Millennium Declaration for universal basic human rights by 2015 and adopted ambitious plans to accelerate economic growth within a given timeframe. There have been a number of positive developments in the Nigerian economy since 2001:
* Under former President O Obasanjo, the government embarked on a massive privatization campaign, divesting from several major oil, steel, mining and port operations.
* International reserves experienced healthy growth from $41 billion in 2006 to over $52 billion in 2009. The average inflation rate fell from about 18% in 2005 to 11% in 20083.
* Nigerian legislators enacted the Fiscal Responsibility Bill in 2007, institutionalizing the deregulation of oil prices. That same year, a public procurement bill was also passed.
* In 2004, a banking consolidation plan was implemented to strengthen financial institutions and improve their credit capacity for private sector companies.
* Most of Nigeria’s outstanding external debt was conditionally forgiven by the London and Paris Clubs, allowing increased public spending on poverty alleviation programmes.
Perhaps the most optimistic of the latest signs has been seen in the non-oil sector, which has 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 in 2008. Although oil remains the mainstay of the Nigerian economy, contributing 85% of all revenue, recent governments have gone crazy with the idea that high ambitions cannot be met 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 foster a business revolution that will radically transform its economic landscape.
The following are some of the general parameters by which Nigeria should be guided when formulating economic policy interventions in this regard:
* Create a central body with responsibility for coordinating all policies related to start-up and existing businesses.
* Create a massive base of viable companies throughout the non-oil economy by promoting private sector capital participation.
* Strengthen microfinance institutions to improve loan disbursement capacity for small businesses.
* Reduce high operating costs with tax breaks and financial incentives for entrepreneurs.
* Remove the institutional deterrents that drive most start-ups and start-ups to operate in the informal economy.
* Improve technical support for rural businesses that continue to operate with obsolete practices.
* Improve business productivity through the development of tertiary skills and professional training programs.
Given the vagaries of its economic history, Africa’s second-largest economy faces daunting hurdles to secure a better place in global rankings. Nigeria has not had a particularly impressive record in terms of timely economic intervention, as evidenced by the growing banking crisis. What Nigeria needs today are aggressive and proactive policies that reap the full benefits of both its past experiences and its future aspirations!