Modern Nigerian Economic History and Policy Evolution: Some Reflections.

Chu S.P. Okongwu


Returning to Jos is always a pleasure and a privilege. For I am of Jos and Jos is of me. Few places within my knowledge and possibilities compare in its ambience which conduces to sober reflections and coeducation. Today, I want to share with you some reflections on our Modern Economic History and Policy Evolution.

Just last week, we celebrated the 40th anniversary of the independence of our dear nation from Britain, on a thankful note for our continued coexistence, but with the admission that, because Moses wandered in the wilderness for forty years before the Jews reached the promised land, we too may be forgiven for wandering in the wilderness of economic mismanagement for forty years. That may be so; but it is important that we get our act right and together so that we do not spend another forty years in the wilderness. I have decided to speak up at this time as my contribution towards moving us forward to that Promised Land.

I am also doing so now because as St Luke reminds us, in the preface to the Gospel named for him, it is healthy for those who may have participated to give direct testimony so that the truth may guide us to freedom.

“In as much as many have undertaken to compile a narrative of the things which have been accomplished among us, just as they were delivered to us by those who from the beginning were eyewitnesses and ministers of the word, it seemed good to me also, having followed all things closely for some time past (AND INDEED HAVING BEEN PART OF IT AT A CRITICAL PERIOD) to write an orderly account for you, most excellent Theophilus, that you may know the truth concerning the things of which you have been informed.”

As we commence the journey, let us understand and console ourselves in the knowledge that this is a field in which practically everybody believes himself to be the leading expert, for as Winston Churchill reportedly observed: “In no other field of human endeavour can you find so many people with so little knowledge speak with such maximum confidence as in the area of banking and finance.”

Considerably more difficulties, procedural and technical, still abound in our way, however. First, although the economy, which is of interest to us, is considered fundamental, it is everywhere densely embedded in the social super system, and political specifications as well as social relations majorise economic calculus or relations. These at least account for the complexity of (socio-) economic life. Second, there is selectivity (forced or voluntary) of data by the analyst, arising at least from limitations of knowledge (unknown, and unknowable) and of processing capacity; the need to make sense of the mass of detail; and limitations on the perspective of each observer, which, so to speak, depends on the observer’s location, the direction, horizon and texture (continuity or discontinuity) of vision/perspective. The essential attributes of memory add their complications. Human memory, you well know, has its pitfalls and plays us tricks: fancy, soon or late, becomes a fact or reality and fact soon dissolves from view.

Recall, you know how, if you say something which didn’t happen, some people get to believe you, and if you say it long enough, you yourself get to believe that it happened outside of your head? Or, how we tend to remember only certain things and forget others? Human memory is short, as we say. Ironically, and fortunately, it is in part due to the shortness of human memory that mankind owes its ability to procreate. Just imagine what would happen if our women were not able to forget the pains and pangs of childbirth. But we shall return to memory.

Fourth, the sheer immensity and dramatic process of change in the times we live in, especially for us in Africa none of which we can fully comprehend. Elsewhere, I have referred to this as the simultaneous coexistence of all history and its dramatic evolution (or is it revolution?).

Fifth, the luxury and thus dangers of retrospective analysis, and especially of instant history. Sixth, the dangers of advocacy bias. Finally, I would note the objective social reality, on the part of individuals and organizations, of deliberate concealment or distortion of facts in order to secure gains or pre-empt history in the competitive process. The foregoing listing in no way exhausts our sources of difficulty.

Regardless, I am fortified in the knowledge that whatever I say to you, particularly as regards the past, will be fully corroborated, first, by the records. The records are there, as they say in the civil service that is, for those who care to read (and ascertain the facts). I know, of course, that, particularly against the backdrop of non-acculturation in writing and record keeping, there is a high disincentive to reading and (accurate) record-keeping in a regime of short-termism, pervasiveness of rents and social banditry. Why bother to read and write when knowledge is not rewarded? Why bother to keep accurate records when the system rewards falsification or destruction of records?

Talking of reading skills, Abubakar Jika, a columnist with The Daily Champion underscores its importance to at least this part of the country. He argues quite persuasively on page 9 of the edition of October 6, 2000, that the Sharia imbroglio is a reaction of the Hausa – Fulani masses to their bewilderment and confused status within the Nigerian polity. The masses were not given education, a basic and fundamental tool for living even in ancient times. You can imagine how much more onerous the task has become in the internet age. And since the prescriptions of the Sharia affect mostly things which the affluent and the elite only can afford, Sharia may prove to be undoing of the northern elite. The problem of reading and writing skills may be more acute in the North but it also exists in the South.

Let me stress, however, that without acculturation in writing, reading, and accurate record-keeping, progress is impossible. Second, fortunately for me also, most of the dramatis personae in our recent economic history are still around and kicking. I name some of them. On the domestic front: Yakubu Gowon, Allison Ayida, Olusegun Obasanjo, who is no v our (civilian) president, he was there before as our military head of state, Shehu Shagari, Alex Ekwueme, Muhammadu Buhari, Ibrahim Babangida, Ebitu Ukiwe, Augustus Aikhomu: a fine corps of public servants and private sector individuals that I was privileged to serve within the reform drive on behalf of Nigeria, not limited to: U K Bello, Emmanuel Okin, Joseph Sanusi, Victor Odozi, Ramsey Mowoe, Akin Arikawe, Onyekwere Ogba, Isaac Guobadia, Benson Omomukuyo, Ignatius Olisaemeka, Patrick Archibong; members of the AFRC and the Council of Minister” especially Tony Momoh who helped to spread ideas, and, before then, the various SMCs; Rasheed Gbadamosi, Roseline Ukeje (Justice), Dennis Odife; my Labour comrades Paschal Bafyau, Adams Oshiomhole, Sylvester Ejiofor.

Abroad: Margaret Thatcher, Nigel Lawson, Geoffrey Littler, then in charge of international affairs at the UK Treasury, Tim Lancaster; David Mulford: Barber Conable, Ernest Stern, Wilfred Thalwitz, Caio Koch-Weser. Joanne Salop: Jacques de Larossiere, Michel Camdessus, Richard Erb, Alassane Ouattara, Marl Allen; Jean-Claude Trichet, Jean de Rosen, Chairman and Deputy Chairman of the then Paris Club; John Champion, Nony de La Osa, co-chairman of the then London Club; Mitsuo Donawaki, the UK High Commissioner and officials of the ECGD.

And, of course, you remember that Bill Clinton, President of the United States, the most powerful man in the world, was here just the other day, saying the same thing I have been saying these past 15 years. Since I am not aiming to tell you anything different from what I said, or did, or that happened/obtained, last year, five years ago, fifteen years ago, if you are in doubt about anything I say to you today, simply go and ask them or write to them.

The Dusting-Up Principle: A Warranted Approach

The first consideration I want to share with you is the conclusion I have reached through reflections over the past 30 years and more intensely over the past 8 years, through my experience in public service: Nigeria’s problem is essentially not due to the lack of new ideas but in the sustained, intelligent implementation of even existing ideas. Accordingly, in this connection, it would suffice, in my view, for the President to appoint a committee of some ten sound dusters: ten men and or women, wearing dusters and equipped with dusters. The task of such a committee would be to dust up the plethora of books, consultancy studies, and reports of workshops and talk shops, proposals for action, and such, in the offices, libraries and archives of our various ministries and departments, and update the relevant ones parameter-wise in accord with current and prospective realities. Sustained intelligent implementation of the output would, in my view, gain us much growth mileage.

Moreover, the approach recommends itself on the bases of cost savings, resources having been expended on the old ideas; connection of the system to history, which is stabilizing; and eventual approach to necessary new ideas through the updating task.

Now that I have mentioned it, I’d like to say a few words immediately on being connected-up with the past or history which is vital for survival. Because when you’re connected-up with the past you’ll better know your assets and liabilities and about others, their assets and liabilities, and the probable balance sheet. When you’re connected-up with the past, you will be like Francisco Pizarro, who knew all about Atahualpa before he met him, and thus was able to beat and capture Atahualpa, who wasn’t properly connected to the past and had no business, in the first place, meeting with Pizarro where, when and how he did because he knew nothing of Pizarro or the Portuguese or the Europeans. (Recall that, with a tiny band of 102 foot soldiers, 62 horsemen, equipped with guns and swords, Pizarro was able to rout the Inca force of some 4,000 men and capture the naive, hapless King Atahualpa).

When you are properly connected-up with the past, your memory won’t play tricks on you, fancies are clearly fancies and don’t become facts, and you can’t really ever forget because you have a basis for recall. And if there is any doubt, someone else you know can help you check out the facts. When you’re connected-up with the past, you are better prepared to meet, and survive in the future: You don’t miss the train. I like the way the great John Maynard Keynes, who was no historian, puts it: “the economist must study the present in the light of the past for the purpose of the future.” Imagine if that past were all made blank or filled with fancies and falsehood then that would be some strange economist and some weird future. From this vantage, you could say that our problems in Africa, especially Sub-Saharan Africa, arise essentially from the fact that we’re not connected-up with the past. But that’s another story. I shall apply the dusting-up principle in what follows.

The Changed Global Environment: Shocks and Domestic Reactions

In the period 1950-1990 the volume of world production and trade expanded vigorously although not at the same tempo all the time. Accelerating from the first decade, world trade expanded with average annual growth rates of 9.2% in 1960-1970, 20.3% in 1970-1980, and 5.2% in 1980-1989. Spectacular growth rates of almost 26% and 18% were recorded for the years 1970-1975 and 1975-1980. Associated with this development were; changes in the structure of world production and trade (e.g., increased pluralism of economic production, with relative decline of Euro centricity; increased pluralism of global financial centres as well as ever increasing volumes, velocity and variegated menus of the aligned financial flows, which in turn promote transnationality of shock transmission regardless of state boundary. Of special note, the increased volume of production led to increased energy demand.

Largely as a result of this development, the 1970’s witnessed a dramatic transformation of the Nigerian economy from one dependent on agriculture to one heavily dependent on oil, which entered domestic production and trade from 1958. For instance, the share of agriculture in Gross Domestic Product (GDP) declined from some 40 percent in the early 1970’s to about 20 percent in 1980. By the latter year, oil accounted for some 22 percent of GDP, 96 percent of export earnings, and 81 percent of government revenue.

The so-called oil boom of the 1970’s brought about profound changes in the Nigerian economy. Efforts were made by the authorities during this period to use the relatively massive revenues in restructuring the economy, and some progress was actually made in the areas of social and economic infrastructure. (Recall 3rd National Development Plan, Revised 3rd plan, 4th plan). However, widespread distortions, imbalances and anomalies in the economy emerged during this period.

The increased intervention of government in the economy, which was fostered by the boom in revenues, resulted in a proliferation of parastatals and some public investments which were of doubtful design, viability, and, in retrospect, beyond the executive capacity of the relevant government agencies. There was also a proliferation of manufacturing activities which were heavily dependent on imported inputs with very low local value added. In reality, these activities were speciously based, with high cost structures, as confirmed by studies undertaken by the Central Planning Office in 1973.

Although not often appreciated, the increased role of government also encouraged the expectations of the polity that the state can and should enlarge its powers and role, (thus helping to legitimize the ever-expanding government absolutism inherited from colonial times).

The heavy dependence of the country on oil and imported inputs rendered the economy highly vulnerable to external shocks not limited to oil price volatility. Consequently, with the spectacular collapse of the world oil market which started in mid-1981, an economic crisis emerged in Nigeria, although its magnitude and duration could not be recognized at the time.

For example: Foreign exchange receipts plunged from some US$26 billion in 1980 to some US$12 billion in 1982 and 1985, and again to only some US$6 billion in 1986 and US$7.5 billion in 1987. In consequence, there was a severe compression of imports from about US$15 billion in 1980 to some US$7.5 billion in 1985 and further down to US$3.7 billion and US$4.1 in 1986 and 1987, respectively.

The country’s official foreign exchange reserves, which stood at some US$8.5 billion by end-May 1981, declined sharply to some US$2.85 billion by end-December 1981, US$0.665 billion by end-December 1983, and US$1.40 billion by end-December, 1985.

In consequence also, an external debt profile appeared and became massive. Leading from an initial 1978 purchase of two loans totaling US$250 million from the international capital market, a spate of external borrowings by State Governments, and a rapid buildup of trade arrears, as at end-July 1987, the total stock of outstanding Nigerian foreign debt for both the public and private sector was estimated at US$19.7 billion from all sources (Multilateral, Bilateral (Federal and State Governments), Direct Federal Loans, Guaranteed Debt (for Federal parastatals and States), Unguaranteed Debt, Short-term trade arrears (estimated)). Most of these were contracted between 1980 and 1985; in fact, over US$14 billion was contracted before September 1985 and some of the principal repayments were clue and remained unpaid prior to 1986.

Thus, not surprisingly, by 1985 and up to September 1986 (the eve of the introduction of the Structural Adjustment Program (SAP) (as trade arrears mounted and most overseas correspondent banks refused to extend confirming lines to Nigeria, the country’s creditworthiness was clearly in jeopardy. Consequently, most importers who had import licenses could not effectively use them for opening Letters of Credit, and the flow of essential imports was seriously impeded (reinforcing resource compression). The country was clearly in the domain of international financial illegality. On the domestic front, internal government debt owed to local contractors and domestic public debt. (Treasury Bills and Certificates, Development Loan stock) increased apace: while total debt owed to local contractors ascertained by the Federal Government stood at some N1.5 billion by 1986, domestic public debt amounted to some N25.8 billion by June 1985. (Remember when Federal Government cheques were bouncing?)

How did the public authorities respond to the deepening socio-economic predicament sketched above, and what was the result? As you know, the Economic Stabilization Act, involving stringent exchange and trade control measures, introduced in April 1982, proved ineffective. By end-1982 there was no significant improvement in the foreign exchange position nor in the economy. More stringent measures introduced in 1983 and 1984, and retained in the 1985 Budget, accomplished little.

In sum, the restrictive exchange and trade control measures pursued over (a period of) two decades in Nigeria failed to deal effectively with the fundamental economic (and financial) problems confronting the economy. Moreover, these stringent controls had serious social costs and other adverse effects not limited to supply shortages, gross underutilization of capacity, misallocation of resources, and the pervasiveness of rent-seeking. Clearly, a paradigm shift was required.

Equivalently, leading from the economy’s undesirable responses to the shocks of its evolving environment, and taking into account its fundamental structural imbalances (which also generate internal shocks), the Nigerian economy required to be stabilized and then launched on a self-developing process. And this approach is insightful. To be sure, the current concern with stabilization is not the first in modern Nigerian economic history. In historical perspective, it is at least the fourth major of such attempt in relation to our economy, and the third grappling with the entire economic system, at least in its essentials.

The first targeted on commodity prices (the received prices of our agricultural exports) and was orchestrated by the colonial power and economists of that industrial center almost five decades ago, with the subsequent introduction of the Produce Marketing Boards. It is true, of course, that this effort at commodity price stabilization did have much salutary economy-wide effects, including financing of higher education and railway extension; but its objective remained sectoral, even during later revisions of its underlying theory and practice by the economists of the imperial center and, later, by our public officials.

The second effort, this time targeted on the entire economy, was represented in the Second National Development Plan, a reconstruction plan: for its objective was, in essence, to enable the economy to resume, from the ashes of the civil war, its desirable progressive course which had been demonstrated at some points in the ante-bellum period. It was, in all fairness, too narrow in imagination and of faint application. At all events, it shared with its successors, the Third, Revised Third and Fourth Plans, an unfortunate embedding in an admissible policy framework.

It is constructive to note elements of discontinuity and unsustainability deriving from the plans. While the First and Second National Development Plans envisaged capital expenditure programs of N2.2 billion and 143.2 billion, respectively, the original Third Plan size was some 1430 billion (i.e. tern times that of the Second Plan), its revised version was 16.6 times as much as the Second Plan, while the Fourth Plan size was N82 billion, almost twice that of the Revised Third. Fueling these expenditure proposals were the boom in oil prices following the 1973 Yom Kippur war (a virtual quadrupling and its aftermath) and simplistic projections therefrom. But as public expenditure exploded so did private expenditure, and both, because of a high domestic propensity to import and weak policy controls, impacted heavily on the foreign trade sector.

Not surprisingly, in the absence of suitable stabilizers, they were nullified/derailed by shock and reverse shock of oil price volatility, which superimposed their deleterious effects on those of the political-administrative instabilities, the latter not being really independent events. Structurally, allured by the then unprecedented inflows into the treasury, Nigeria headed off in the wrong direction spending sprees and exchange controls, in a vain attempt to depart from its truly endogenously determined preferred status. It was as though the Nigerian society, somnolent and mentally exhausted from its civil war, encountered a radically changed and changing global environment and a transformed internal structure both of which it could not decipher but which enflushed it with unprecedented financial resources. In consequence, it took the simplistic path of spending sprees into debt.

As should be obvious from the foregoing, tire sequence of economic policy frameworks sustained from the end of the civil war especially since the oil boom has been largely inappropriate. The inadmissibility of the policy frameworks centered mainly on the incongruity of the stringent trade and exchange controls; emergence of a substantially overvalued naira exchange rate; later, disarray in the foreign exchange market; and failure of political will to pursue far-reaching reforms required to deal with the fundamental structural problems of the economy in a word: poor policy architecture. (Let me note, for the record that I am aware that there is no general agreement on this). But, equally I believe that it would be kind to describe the contrary views which have been expressed lately as ill-informed; indeed much of the confounding has been deliberately generated by rent-seeking interests.

In turn, the fundamental structural problems hinge precisely on this: We have a technological-economic dualistic structure; a highly advanced and productive petroleum enclave which is in the territory in a purely geographical-legal sense, and a low productive domestic economy whose production is supplemented by imports mediated through the export receipts of the enclave. Since no real linkages exist between the two partitions of the territorial economy, real growth impulses from the enclave cannot be imparted to the domestic economy. But there are financial links through which, on the one hand, the domestic economy makes, with increasing difficulty, its contributions (cash calls) for exploration and exploitation, and, on the other hand, payments to the public treasury and to other actors both with significant elements of economic rent (and importable) are introduced into the economy.

Particularly in the context of the largely inappropriate policy architecture, the results of such infusions have been traumatic: inflationary, corrosive of the will of the domestic society to produce, as well as marasmic of its productive base through distorted underlying factor price relations, essential discrimination against valid production endeavour, and the emergence and pervasiveness of economic rents as the main instrument for economic management. Thus it quickly abandoned its former primary exports, could not cater for the rise of valid activities for meeting ever increasing domestic demand, relying instead on imports, and departs progressively from its truly endigenously determined preferred states. (Appendix A, Table 3a and 3b on output of major agricultural commodities.)

For all intents and purposes, our crude oil and gas deposits might as well be located in an exclave of the national territory called Alaska or the moon, while the dominant “fiscal linkages are established with more or less regular shuttles to (i) make joint-venture cash call contributions, and (ii) pay tributes to the national treasury and other domestic agents. The persisting dual structure, predominant influence of petroleum, and essential refusal to change structure are evident from Table 2 on relative shares of GDP, and contributions to exports and government revenues, taking into account moreover the dramatic development of the oil sector in the economy.

It is noteworthy that the struggles for the pre-emption or distribution of the resultant economic rents manifest in the observed and persisting political-social instability.

The foregoing discussion comprehends both conjunctural and structural factors in explaining the process of Nigeria’s arrival at its grave socio-economic predicament on the eve, of the introduction of the economic reform program called the Structural Adjustment Program. It also validates the oppositeness of the paradigm shift in economic management entailed in the SAP particularly the institutional reform, a reform in foundations, targeted at creating the right incentives framework to enhance the resource base as well as allocative and use efficiency. The fact-sheets clearly underscore the courage of the Babangida Administration in dealing frontally with the crisis via the reform program, rather than pursuing half politically expedient measures which, as we have seen, were (indeed, are) at best futile.

Simply put: It is to the credit of the Babangida Administration that: it recognized that there was a need for a new orientation in national economic management based on creating the right incentives framework for productive endeavours, resource use and allocative efficiency; and it had the political courage to initiate the requisite reform moreso, in the difficult circumstances of severe resource compression and payments crisis.

Equivalently, structural adjustment was, indeed is, entirely unavoidable if we desire socio-economic recovery and progress thereon. I said so in 1983, in 1986, in 1987, in 1999; and I say so again today.

Main Policy Elements of the Structural Adjustment Program

You have heard this section so many times, that I bet by now you know it by heart unless of course you have forgotten. Or maybe you really didn’t think them through. At any rate, it won’t detain us.

The SAP combines a nexus of measures aimed at promoting economic efficiency and long-term growth, with stabilization policies designed to restore balance of payments equilibrium and price stability.

Recapitulating, the specific objectives are: to restructure and diversify the productive base of the economy in order to reduce dependence on the oil sector and on imports; to achieve fiscal balance of payments viability over the period; to lay the basis for a sustainable non-inflationary or minimal inflationary growth; and to reduce the dominance of unproductive investments in the public sector, improve that sector’s efficiency and enhance the growth potential of the private sector.

The main elements of the reform program are:

  • Strengthening of demand management policies;
  • adoption of measures to stimulate domestic production and broaden the supply base of the economy;
  • adoption of a realistic exchange rate policy through the establishment of a Second-Tier Foreign Exchange Market (SFEM)_ towards decontrol of the foreign exchange market;
  • rationalization and restructuring of the tariff regime in order to aid the promotion of industrial diversification;
  • progressive trade and payments liberalization;
  • reduction of complex administrative controls and fostering reliance on market forces;
  • adoption of appropriate pricing policies for public enterprises; and
  • rationalization and commercialization/privatization of public sector enterprises.

The core policies involve measures to:

  • correct for the serious overvaluation of the naira through the setting up of a viable second-tier foreign exchange market coupled with adjustments to the official rate and aimed at a convergence of the two rates as soon as possible;
  • overcome the observed public sector inefficiencies through improved public expenditure control programs and the rationalization of parastatals; and relieve the debt burden and attract a net inflow of foreign capital while keeping a lid on foreign loans. That is, the reform program is about Adjustment with Growth.

There are several useful ways of looking at the policies of the SAP One way is to categorize them under two sets of measures: those intended to create the right financial environment for economic growth; and growth-promoting policies designed to mobilize resources for development as well as ensure the most productive use of those resources.

Equivalently, they may be viewed as targeting first on stabilization of the economy and then driving the economy on a self-development process, which is the process of stable systems with internally specified trajectories of preferred states, as systems analysis teaches. In this regard, program experience may be partitioned somewhat loosely into a stabilization phase and a growth phase. Or, quite simply, they may be viewed as conducing to the emergence and sustenance of productive endeavours and management efficiency.

Utility and Disutility of SAP

Since the advantages/benefits of the SAP should be obvious from the preceding discussion, and, in any case, have been detailed elsewhere, for example, my Special Ministerial Press Briefing of September 23, 1987 which was made available as a public document, I shall simply summarize the main utilities here.

  • First and Foremost, the SAP abolished the obnoxious and inefficient import licensing scheme, and in its place democratized access to foreign exchange; through foreign exchange market reforms.
  • It abolished the marketing boards and their disincentive pricing.
  • The SFEM decree abolished surrender requirements for exporters’ proceeds.
  • The SAP corrected the urban-rural equation by redressing the price discrimination against agriculture and, of course, domestic production.
  • It helped to boost exports and rural incomes.
  • It brought Nigeria back to international financial legality and thus restored international credit-worthiness.
  • It permitted debt-rescheduling, and thus room for macroeconomic manoeuvre, with some minor debt cancellation.
  • It catalysed the urgent influx of necessary new money (e.g., the so-called quick-disbursing loans from the World Bank and Japanese co-financing (of Trade Policy Loans) totaling at least US$1.2 billion for 1986 and 1987 which helped in no small measure to finance CBN’s FEM auctions. Thus FEM funding and shoring up of the naira were facilitated. Bridging finance from the Bank of England should also be taken into account.
  • Also attracted was at least some US$700 million in multilateral financing from the ADB and the World Bank for the financing of SMEs via the NERFUND, Export Stimulation Loan and NEXIM schemes.

We liberalized the financial sector with free entry of new, and specialized banks into an underbanked system, especially in the rural areas.

  • It facilitated the institution of Stabilization Funds (autonomous and statutory), such that by end-1989 the cumulative autonomous stabilization funds had reached 415 billion.
  • The SAP abolished taxes (excise duties) on exports.
  • Effective 1988, we emplaced a less cascading, stable trade tariff matrix with a seven-year horizon to aid forward planning by enterprises.

Let me quote from my concluding remarks at the Press Briefing:

“The introduction of the SAP has brought about fundamental changes in our lives. The impact, although mixed, has been significantly positive in the various aspects outlined earlier in this statement. Nigerians are now a more rational, cost-conscious and efficient people. There has been an export boost and the revamping and re-integration of the rural sector within the national economy have been initiated. The pernicious overvaluation of the naira exchange rate has been successfully eliminated, as reflected in the present low level of the parallel market premium.

Even more significant is the restoration of international confidence in the Nigerian economy which the advent of the SAP has fostered. The restoration of international confidence and the consequent return to credit worthiness has made it possible for Nigeria to agree with the Paris Clubs on a comprehensive and durable debt rescheduling program. The debt relief and new money (external financing) to be provided are expected to play an important supportive role in Nigeria’s economic recovery and growth. This renewed confidence in our great country and external financing expected to come with it will be sustained only if we remain committed to the policy of rational economic reform and meet the performance targets which we had set for ourselves under the program.”

Although the SAP has had some short-term unpleasant side-effects. It should be emphasized that this country’s formidable and intractable economic problems, which were aggravated by the pursuit of largely inappropriate policies over a period of about two decades, needed the shock treatment measures embodied in the SAP Problems, malformations and traumas, created, sustained, indeed aggravated over two decades will not go away overnight.

It should be recalled that, on the eve of the introduction of the SAP, this country was on the verge of external bankruptcy as the inflow of essential imports became seriously impeded when overseas correspondent banks, whose claims for reimbursement were much in arrears, refused to extend further credit to Nigeria. Let us therefore not forget that, just before the introduction of the SAP, the country was truly on the edge of a precipice. All that has changed and there is now renewed confidence (the payments crisis has been averted) and the economy is in the transition from stabilization to recovery and growth. Without the SAP, economic collapse would most certainly have come with the further decline in oil receipts in 1986 and 1987.

I also call attention to the economic indicators in the Statistical Appendix which speak loud and clear in favour of the utility of SAP

As to the disutilities, here the reform program naturally drew flak. I say naturally because if you were, say, an import license mediator then the Program put you out of business, and I would expect you to lose some weight before starting up in a productive endeavour. Although I also addressed the major ones in my September 23, 1987 Press Briefing, a few remarks are in order.

First, related to the difficulties of establishing causality in complex systems, it is nonetheless important to separate fact from fancy or malattribution or confounding. Every therapy has its adverse or undesirable effects (so-called side effects) somewhat more precisely, every therapy has its regimen or side conditions for optimum efficacy, and its adverse effects, which usually manifest or intensify with the violation of the regimen/side conditions. Consider then the much-touted inflation. The prices of imported items certainly increased, initially as a result of the speculative activities of traders and, later, as a consequence of the higher naira costs of foreign exchange. The observed increases affected customer durables, plant, equipment, spares, etc. But, overall, the inflation rate was only 5.4%r in 1986, 5.5% in 1985; the only lower or equal inflation rates over the period 1970 1986 were 3.2% in 1972 and 5..4% in 1973. And note that it dropped from a high of 39.6% in 1984. (See Table 4 in the Statistical Appendix A). The general spiraling of inflation thereafter is attributable not to SAP but to expansive fiscal and monetary policies (e.g., fiscal deficits) (on account of mis-implementation on derailment of SAP).

There was of course, a credit squeeze which drew complaints from the business community. But this was due to the initial stabilization program dictate of a tight fiscal and monetary stance. Additional to the maintenance of fiscal integrity, government borrowing was supposed to shrink in favour of credit to the private sector within the overall credit ceiling. Particularly in the context of a fragile external reserve position, prudence argues against unbridled monetary expansion.

As would be proven later, an imprudent net fiscal position, which is more over sustained, leading to undue liberalization of credit to government, via the financing of the huge budget deficits, and to the private sector, soon triggered inflationary repercussions which contributed in no small measure to program derailment. (See Statistical Appendix A, Table 4).

Simply put, by violating the targets and performance norms/criteria we had set for ourselves (no matter how occasioned), we secured also program failure, at least on this crucial account.

It is hardly surprising that those individuals and organizations, who were most vocal and intense in their pressure on government to violate the target norms and performance criteria by engaging in unwarranted/undue monetary and credit expansion (against my sustained counsel) turned round to lambast the administration for program derailment, or in terms of their mis-specification, the SAP itself. Broadly, the same experience obtained in the foreign exchange market, where extreme disorderliness soon secured program disarray. I am not happy that I was, and I am, vindicated. I had also, in that Press Briefing, satisfactorily disposed of other leading disutility issues, such as:

  • The observed increased importation of finished goods, and the related concern Mith tariff protection;
  • The conduct of FEM bidding sessions, pricing techniques and official intervention;
  • Funding of the Foreign Exchange Market and;
  • Exchange rate developments.

Here, I would merely add a -few words on the last two issues on behalf of which self-serving interests and ill-informed views have generated much unnecessary heat. It is also important to note that it is in these two key areas that, at least in my view, reform policy implementation exhibited the greatest sustained disarray, and thus failure, with serious damage to the national economy. In short, the SAP was not being implemented as designed.

Recall that while, from initial time, government was injecting funds into the FEM, and government used its best endeavours to fund the market, such funding was not supposed to predominate forever, having primed the market, government was supposed to progressively withdraw over the first year, intervene only occasionally to influence rates, and monitor and supervise the market to ensure its orderliness, competitiveness and depth. Recall also that a key tenet of the SAP was self-reliance, the SFEM Decree had abolished surrender requirements and granted a generous 100% exports proceeds retention allowance. Surely, if Mama Sikira, needful of U$1.00, exports goods to earn it, the banks and other business moguls can and should source their own foreign exchange, instead of relying on subsidies, by government, of oil-derived foreign exchange? At all events, it is hardly surprising that reduction of this subsidy, which however continues, helped to trigger banking collapse.

Also, is it prudent for a debt-distressed society to borrow in order to fund the FEM? Here is a 1990 version of my views on the matter:

Foreign Exchange Market

In accordance with earlier submissions, there should be a return to orderliness in the foreign exchange market, in particular, as follows:

  • The naira should be made fully and freely convertible and for all transactions. The CBN should stop the practice of allocating foreign exchange to banks.
  • Banks should be free to procure foreign exchange from any sources and to sell such foreign exchange to clients on presentation of approved documents which need not be different from the documents currently in use.
  • CBN should stand ready to buy or sell foreign exchange freely to licensed foreign exchange dealer banks at the going market rate.
  • Such banks should be free to sell their foreign exchange at rates they like with no price controls, save that they should publish such rates and the CBN should note such rates in future sales to such banks. All dealings in foreign exchange should be reported for statistical purposes only to the CBN on the prescribed forms. Capital transfers should -also be freed.

However, no one will be allowed to borrow money for the purpose of repatriating out funds and strict debt-equity ratios will be enforced for all foreign investors in Nigeria. It will be recalled that such restrictions on the borrowings by aliens were contained in the Exchange Control Act of 1962 but they now appear to have been neglected.

In this regard, the original SFEM guidelines are relevant. More below on this. Recall also that, in relation to the exchange rate, convergence of the First Tier and Second Tier rates was attained on July 2, 1987 at some N3.733 to the US$ 1. The parallel market premium (defined as the percentage by which the parallel market rate exceeds the official rate) fell sharply from 23817c in the immediate pre-SFEM period to some 12% in July 1987. (Note that it rose persistently from about 65% in 1980 through 174% in 1983 to 312% in the last quarter of 1985.) Thereafter the premium fell to some 5%, but, with official twiddling of the market process and resultant rates, it re-emerged significantly, exceeding 39% by end-February 1992.

The closure, at some 418 to the US$1, entailed in the further deregulation of the FEM of the March 5, 1992 action could not be sustained, so that by end-December 1992 it was some 14%, rising to some 74% by end-1993. The effective official introduction in early 1994 of a dual exchange rate regime of N22.00 to the USS 1. for special qualifying transactions/projects, and for others, a so-called AFEM rate, which was in a neighbourhood of some N84 to the US$1 effectively sanctioned not only accounting fictions, but, more to our present purposes, sustained parallel market premiums of up to 79% when the Naira depreciated to N104 to the US$ 1, grave resource misallocation, massive round-tripping and capital flight. Under this new economic principle, you could, starting off with $1 or N22, and the right connections/authorization/or power, make at least $3.50 without working; and note that you need not have the $ I at 122 in the first place, you could borrow it. But that’s another story.

I cap this section with the statement I made thirteen years ago: “It should also be emphasized that the adverse side-effects of the SAP are short-term and constitute the price we have to pay for future prosperity. Indeed, every rational individual will freely choose the path of short-term discomfort and long-term stability and prosperity instead of a path of short-term excitement and long-term depression. Structural Adjustment is entirely unavoidable if we desire growth. Indeed, I should quickly add that structural adjustment is a continuous process for any regularly progressive economy. This is the harsh fact of the competitive nature of global economic life today. Consequently, critics should adopt a broader national and long-run perspective in appraising the program and its effects rather than a short-term view and the narrow perspective of users of foreign exchange or borrowers of local currency.”

SAP Ameliorants and Adjunct Policies

Consistent with the knowledge that structural economic reform entails costs, government employed its best endeavours to grant wage and non-wage relief to workers and the general polity and emplaced specific policies to help willing economic agents to scale the wall of adjustment, from initial time (even pre-SFEM), despite the severe resource constraints.

Someone who apparently has been reading a lot of World Bank documents referred to these as Social Dimensions of Adjustment. However, I always titled them Economic Relief Measures or Packages, Fiscal Policy Ameliorants for the Most Vulnerable Groups, or SAP Adjunct Policies; and these were generally collaborated with labour and the private sector.

Since amnesia easily prevails after gratification, it may be helpful for me to recall some of them.

  • the administration abolished the obnoxious import licensing scheme;
  • access to foreign exchange was democratized through the SFEM and FEM; as earlier noted.
  • arrears of salary, which had bedeviled the system in the past, were cleared, with government becoming current on recurrent account.
  • the settlement of verified internal debts owed local contractors was vigorously implemented; in particular, the small contractor owed N20,000 or less was given preference in the resolution. Moreover, to facilitate this the Federal Government made a grant of N5 million to each state specifically for payment to small contractors. With the verified internal -debts to local contractors standing at some N1.5 billion, government paid out some N226 million byend-1986, and scheduled N700 million and 11500 million to be paid in 1987 and 1988, respectively;
  • the SFEM decree abolished surrender requirements for exporters proceeds; relatedly, government granted generous settlement rate for importers whose processes were caught by the SFEM decree (NB: This grant was abuged, doubtless); -we abolished the so-called locational approval for investors.

Similarly “ESSENCO,” with all its humiliation for the buyer and profit for only a few, disappeared from our vocabulary, and I dare say, our preoccupation and memory to the benefit of the consumer; government granted, effective July 1989, an economic relief package to workers covering enhanced fringe benefits e.g., transport allowance, overtime, meal subsidy, provision of buses, car refurbishing loans, increased employment through the National Directorate of Employment (NDE) (or 62,000 persons), Federal Ministry of Works, Agricultural Schemes in each State (at least 10,000ha each); duty-free importation for commercial vehicles, trucks, buses and their spare parts; elimination of excise duty for domestically produced varieties; special allocation of US$ 30 million for the importation of spare parts for commercial vehicles; easy access for importation of essential drugs, enhanced tax reliefs and allowances.

Account should also be taken of initiatives regarding: food self-sufficiency, urban mass transit, employment generation and housing; increased support for the ADPs and reforms of the RBDA; DFRRI, NALDA, NERFUND, the People’s Bank and Community Banks. A hundred million Naira loan to labour to finance and manage Labour Transport Services; and workers equity interests in public enterprises, not limited to the Urban Development Bank; the establishment of the Industrial Development Coordination Committee as a one-step approval agency for prospective investors; and relatedly, review and reform of the Nigerian Enterprises Promotion Decree; re-institution of matching grants to states for road maintenance and direct labour initiated, although it is true that they did not carry through. But we should not throw away the baby with the bath water.

Media and Other Diatribe against SAP

Why did the SAP attract so much flak in the media and public demonstrations? Indeed, why does it still evoke so much asperity, lampoonery and misrepresentation, both unintentional and deliberate?

Without entering into counterfactual retrospection, is it not amazing how times change and we change with them, or how we change with evolving time? I saw the newspapers the other day, a front lead story was all euphoria with the caption: “FG Nears Agreement on $1 bn Loan Package – IMF Board to meet on Nigeria.” The entire back page was devoted to an analysis of the utility of such agreement and announced that:

The good news now is that the IMF guys are back in the country. It is in the same light that one may perceive and ignore the example of a recent gross misrepresentation of the facts, contained in the back page of This day, Monday, August 14, 2000 captioned `IMF AGREEMENT: LET’S NOT BLOW THIS CHANCE..’ written by one Ijeoma Nwogwugwu. The story is clearly written to mislead the unwary and to deny credit to whom it is due. What one may ask is the meaning of trade arrears and what was the debate preceding the introduction of SAP all about?

I draw attention also to an advertisement by the Bureau of Public Enterprises in The Guardian on Sunday of November 7, 1999 on its cordial, close working relationship with the World Bank. It reads in part:

We want to state here categorically that the Bureau of Public Enterprises has continued to enjoy the best support from the World Bank and its affiliates and we have always considered them as partners in progress. Indeed, right now the International Finance Corporation (IFC), an arm of the World Bank, is currently serving as Sole Adviser to the Federal Government with respect to the privatisation of Nigeria Airways.

Long ago, I went visiting with some friends and saw a dramatic scene which struck me. A lively old man whom I had never met before came into the room. Upon his entry all present (except me) stood up and declaimed D.E.A.N! Someone then asked him the current state of his relation with a professional colleague, The old man’s response was simple and brief: Ohuna ihe kariri ya the man don see the thing wey pass am.

My late father was right when he said that a little suffering is good for sobering one up to realism. Let’s return to the question, why the diatribe, lampoonery and misrepresentation? We can point to some contributory factors, for example: the SAP was a relatively new idea, and,– doubtless, there was an element of misoneism; plain uninformed or ill-informed commentary or progressive illiteracy as evident, say, in the presumptions regarding the short tenor (1986-1988) of the program or the desirability of a fixed exchange rate or a multiple exchange rate regime or the new endowment factor theorem the very fact of reform itself, and thus the reformer’s dilemmatic nightmare so well sketched by Machiavelli: both the vested interests, which will lose by the reform even if only in the short run, and the probable future beneficiaries are oppositional to reform; structural economic reform involves pains and there is need at least for fair burden sharing, and mobilization of the polity to willingly yield up sacrifices. We must acknowledge too, elements of “mee-toosim” and striving for political-social relevance on the part of some critics.

We must admit too that the geo-ethnic centre of gravity of the Nigerian media, which dominates the prismatic view of the national economy, its management, and public discourse, was a significant factor, particularly in the light of current realities; the new culture of productive endeavour as well as the stabilizing coupled behaviour of policy makers, which it sought to build into the system, required discipline yet lacking in society.

Doubtless, there was poor program implementation which merited genuine criticism. But quite often the point was simply missed.

I end this section by sharing with you some words, with which I began, and with which I consoled myself in those lonely days. They were commended to me by a friend and are presumably attributable to that wordsmith Winston Churchill:

“In no other field of human endeavour can you find so many people with so little knowledge to speak with such maximum confidence as in the area of Finance and Banking.”


Why Program Failure?

We still have to explain why such a reform program, mandatory for national economic revival then and now, derailed in implementation. I believe that only General Babangida, who, as President, was in control of the critical variables and in any case had a wider perspective on the issues, can help resolve the question satisfactorily. I know for a fact that the Advisers were in disarray, some telling the leadership what they thought they wanted to hear. I also suspect that he needed to carry his colleagues in the hierarchy of the military collegiate system along with him through the complexities of banking and finance of which Winston Churchill reminded us that we are all experts.            –

From my perspective, I should say that the combined onslaught of the barrage of the allied forces of anti-reform, led by the human face advocates, rent seekers, policy negotiators, sociolists, and arbitristas, and drift towards populism, soon ensured that the multi-component policies were not allowed to work and the program was in disarray.

For example, with the disarray in the foreign exchange market, the reappearance and sustenance of a substantial parallel market premium, the sustenance of high budget deficits arising from an expansive fiscal stance, rising inflation and aggravation of the burden-sharing problem, implementation fatigue set in, certainly from 1989, and derailment was inevitable. However, I could see signs of policy disarray earlier on, from mid-1987 with the twiddling of the foreign exchange market and during the 1988 Budget process rounds, with the lobby for a more expansive fiscal and monetary stance. At all times, I did my best to constantly air my views regarding policy fidelity (plan control), consistency, persistence and patience, as well as course correction, as relevant. It would become clear in the fullness of time that several elements in the controllership, policy negotiators, and the arbitristas had personal agenda distinct from national economic revival.

Clearly, reform requires a constituency, which has to be sustained and enlarged, and a viable, committed cadre and this condition was lacking.

As I saw it then, Nigeria would experience maximally some four years of severe pain in the structural reform endeavour. Regardless, let me note that some of the inviolable gains scored in 1985 – 1988 sustain society today. The momentum continued through to 1992, during which period we undertook financial sector reform and liberalization, such as the licensing of more banks with over 100 banks. I had signed the licences of some 52 banks – establishment of new legal infrastructure for the banking sector in BOFID, the Banking Decree, The Companies and Allied Matters Decree (CAMD 90), preparations for Capital Market Reform, and Monetization of Fringe Benefits, on behalf of which we conducted the necessary study, introduction of VAT, among others. We also established the only real money-spinners for government today in the form of stand-alone projects such as the OSO condensate and the NLNG projects. On the NLNG project, it is noteworthy that after languishing as a project idea for over two decades, we adopted a more robust technology, with the help of our – Indonesian colleagues, and got the project going. Moreover, the chart-map of the SAP clearly remains the only viable option, as we shall reconfirm.

At all events, with sustained program derailment and no political will to undertake the strenous course correction required, the support of our genuine budgetary, final accounts and other statistical data, especially within the period end-1993 – 1998. Accordingly, the statistics should be taken with more than the proverbial pinch of salt.

We know also that it was in this period that the national economy and political-social life were virtually shut down with degradation of assets, inclusive of assets stripping: severe atrophy of infrastructure, organizations and institutions, which combination defines system failure. Recall that it was in this period that the nation’s vital assets suffered exponential decay or were stripped, for example: virtually all petroleum refineries ceased functioning, scandalous dummy contracts were awarded for repairs which were or could not be implemented, unprecedented imports of petroleum products of dubious (indeed, noxious) quality, at great profit to a few well-connected individuals; recall the fuel queues and the outlandish pump prices; the nation’s installed electrical generating plants, transmission and distribution facilities melted down, with sustained severe outages; standby facilities required further standby which were constrained by fuel scarcity; Education facilities were starved of adequate funding and eventually had to shut down; while hospitals indeed became worse than consulting clinics; lawlessness and terror reigned supreme such that a hyperpraetorian state of disorderliness prevailed; you couldn’t tell who was who and dared not tell your wife certain things; the concept of Tribunal was trivialized and employed for individual (personal) interest; public organizations ceased carrying out their statutory functions and became dangers to the citizens they were supposed to serve; the so-called political class exhibited amazing mendacity, pusillanimity, intellectual nullity and physical laziness. Recall the five chairpersons of the five political parties who would give Sani Abacha the crown which only fits his head, and you did not even see Sani Abacha campaigning for any office or hear him say he was interested in any office.

More relevant to our concern here is that it was in this period that government in 1994 engaged the economic train to move backwards only to reverse gears in the 1995 Budget on a presumed forward drive on the arcane tracks of guided deregulation. As part of this enterprise, government introduced a multiple-exchange rate system N22: US$1 for certain qualifying official transactions/projects and some N84: U$ l (so-called AFEM rate), and the parallel market of course in tow. Thus, at one and the same time, Sani Abacha fulsomely gladdened the hearts of fixed and multiple-exchange rate theorists/advocates.

As follows from our previous discussion, under this regime you could realize the age-long dream of magically spinning money: starting off with $I or N22 you could instantly make at least $3.5, via round-tripping, without lifting a figure; and, what’s more, you needn’t have the $1 or N22 in the first place (you could borrow it or direct the monetary authorities to loan it to you. Observe that government could have pegged the special qualifying official rate at N2.50 to the US$1, thus further gladdening the hearts of the duo of fixed – and multiple-exchange rate theorists (particularly those who divined that the correct value of the naira was or should be: N2.50 to U$1).

Clearly, the manifest scandalous abuses of the prevailing multiple-exchange rate system during this period, if nothing else, serve to discredit fixed – and multiple-exchange rate theorists in the current global realities. In this wise, Sani Abacha was a good thing, just as he served to expose the so-called political class.

I advert attention also to the banking failures during this period, due to several causes not limited to weak monitoring, controls and supervision by the CBN, inadequate capitalization, over-reliance by the banks on government injected foreign-exchange trading.

As regards the 1999 Budget, which operated for some nine months, it served as a bridge to the democratic dispensation. More relevant to our purpose, much to my fortification, it signified government’s intent to return the economy to the path of structural economic reform after divagations for at least a decade (only this time at a more acute degree of socio-economic predicaments. For example: the Head of State cautioned at the outset that: “Some of the decisions we have taken are hard and they will be painful in the short run. However, in the medium and long-term, the national economy and ourselves would be better off. Having noted, among other things, persistent crumbling infrastructure which diminished the potential for raising non-oil revenues and structural imbalances. A major development goal for the country, therefore, is to diversify the productive foreign exchange and revenue base of the economy. The National Rolling Plan for 1999 – 2001 and the Budget for 1999 provide the basis for achieving this goal. However, growth prospects for 1999 will continue to be undermined by persistent structural problems in the economy. The support of the international community is required to ensure successful implementation of our political transition but also our economic reform programs. Relatedly, substantial capital inflows will be required to complement domestic resources in order to revamp the economy.”

The Minister of Finance was even more pointed. “Having noted some structural problems and constraints in the economy, the policies and programs enunciated in the 1999 Budget therefore, are aimed at tackling these structural problems. As noted elsewhere, I had thought then that the Abubakar regime would initiate dialogue with the Fund (and the Bank) on the long-standing Medium-Term Economic Program. But, as indicated, the Abdusalami Abubakar regime was soon replaced by the Obasanjo Administration under democratic governance.

Naturally, the reincarnation of Olusegun Obasanjo in the national helmsmanship raises interesting questions for us, particularly from the viewpoint of structural economic reform which, as we have seen, is indispensable for economic stabilization and self-development, and which we have asserted is entirely unavoidable. After all, in his first coming, as military head of state, (1976-1979), he had espoused and practiced economics of control par excellence, administering a policy architecture which we have argued was largely inappropriate for sound economic management. Also, he had failed to implement the requisite structural reforms under the prevailing conditions of relative resource abundance when the pains would have been considerably ceased. (Recall that crude oil prices attained their highest level in this phase US$41.00 a barrel). Moreover, as the human face advocate, given his stature, he naturally galvanized and led the allied forces of anti-reform.

Admittedly, it may be too early to make firm judgement, and information is scanty, but we can rightly inquire as to the thrust of Obasanjo’s present policy. However, we can glean something from two basic documents which have been made public: Obasanjo s Economic Direction (1999-2003) and the Memorandum on Economic and Financial Policies signaling agreement on a Stand-By Arrangement with the IMF.

This is not the place to enter into a detailed analysis of both documents, particularly the Economic Direction. I limit myself to simply observing that: both documents acknowledge the inherent fundamental structural defects which persisted, among other ailments of the national economy which presumably are to be addressed; the Memorandum of Economic, and Financial Policies in its introduction and review of 1999, adverts to initiating structural change, notes that the implementation of structural reforms was delayed and notes that other major initiatives were announced to promote structural change and build institutional capacity.

Its Economic Program for 2000 sets out elements which are broadly identical with those of the SAP, in particular our Fund Programs for 1986, 1989 and 1991. At all events, although President Obasanjo still tries to distance himself from structural economic reform (SAP) (presuming that he is implementing Poverty Alleviation Program, or Deregulation or Privatization (it is clear that he is on a structural reform drive, particularly in the light of the Stand-By Arrangement with the Fund and World Bank support programs. A rose by any (other) name is a rose. And I warmly welcome President Obasanjo to the, Economic Reform Club. I hope that he will implement the structural reform program with maximal vigour, fidelity and intelligence, avoiding capture by any special interest groups.

Deregulation, privatization, fiscal-monetary prudence, economic restructuring, growth (in adjustment), poverty alleviation and such, I may point out, are all elements of SAP. True poverty alleviation, if I may re-stress, is the objective of growth and is only attainable through growth. Lest the unwary be misled, it is not a drug: it entails hard productive endeavour.

I am also fortified by the confirmation attributed to Vice-President Atiku Abubakar just the other day in This Day, (Friday, October 6, 2000, pp I. 4) that economic reform is the bedrock of good governance. We need not be told that the economy is in shambles. This was in the context of the admission that government had underestimated the nation’s economic problems and that the growth targets for the year may be unrealised.

I should say though that I am pleased that the guns of the anti-reform battle group are, so to speak, now silent. That would permit society to concentrate on the urgent task of economic construction.

The Outlook

What is the outlook over the medium term? Frankly, 1 think that for a variety of reasons principally flowing from the immense (prospective) global challenges and internal weaknesses, in particular, the now more acute socio-economic predicament and severe hyperpraetorian disorderliness, the outlook is dismal, even daunting. I have explored this prospect elsewhere and will not go over the ground again.

Essentially, the arduous tasks revolve around the concept of: reconstruction or overhaul of the Nigerian (and indeed African) economies to get and keep the domestic system right; and the formation/construction of larger political-economic spaces; while successfully meeting the challenges of the global system.

Here is a dimension of our predicament: Suppose there obtains somehow a magical situation whereby Nigeria and the rest of sub-Saharan Africa enjoy a phenomenal growth rate of some 8 per cent per annum per capital in real GNP, while the rest of the world, especially the set of industrial centres, stands still. From a base of some US$470 (1988) that would just place Nigeria and sub-Saharan Africa after 50 years at a point (US$22,044) in a neighbourhood where North America was in 1988 (US$19,850). This supplies a crude measure of our predicament and the indicated effort in the global context.

However, we know that the rest of the world will not stand still, and we can legitimately query the information content of such a construct.


The Way Forward

Let us now set down some essential attributes of an efficacious stabilization package which sums up the essential ideas previously noted. This summary package constitutes, in essence, a prescription of minimal requirements for success. As the listing is only indicative, the interested reader may supplement it in line with the preceding discussion.

  1. First, the helmsman should have an admissible and enabling system world view to permit rational steering and exploitation of maximal opportunity niches for the system in different time horizons.
  2. The helmsman should commit irrevocably to the reform process, and thus exhibit political will/resolve in the difficult intertemporal process.
  • The helmsman should be endowed with political acumen and sagacity as regards system management, including:
  1. choice of dedicated operationalistic management team with -accent on excellence and merit;
  2. incentives for attraction and retention of such management team;
  3. effective utilization of management team;
  4. imbuing society to accept this world view via at least coeducation;
  5. establishment of solidarity function with the polity via at least a convincing mechanism, perception of shared burdens/-means and objectives, and, most importantly, release of the factor of social mobilization.
  6. Accordingly, the helmsman should anchor governance on:
  7. distinction between the public and private interests;
  8. justice with fairness and firmness;
  9. decentralization and deregulation;
  10. encouragement of productive endeavours and destruction of the instrumentality of economic rents;
  11. encouragement of competition, enterprise and innovation;
  12. encouragement of education, skills acquisition and the spirit of learning and inquiry for all citizens;
  13. distinction between patronage and rents; simplification of laws, regulations and processes
  14. certainty, ease and sanctity of titles and property rights, and
  15. the institution of the adjudication of contracts
  16. accent on excellence for system managers and the public service
  17. leanness and efficiency of the public service;
  18. transparency and adherence to laws and regulations with the application of sanctions (positive and negative costs) firmly and fairly across agents with no sacred cows or persons.
  19. System managers should share the helmsman’s vision and have the important attributes and tasks earlier noted. In particular, they should: continually monitor the institutional context, especially the statute law components, usages, rewards system and enforcement modalities, advising the political authorities thereon, to ensure that it conduces to the desired stabilization and development process; ensure that the society’s (evolving) stock of knowledge and skills, methods and practices is not dated through the encouragement of education, training and updates; ensure that the compensation framework for the public service bureaucracy is realistic and attractive; if necessary load shedding should be implemented via intelligent redeployment strategies.
  20. Given the primacy of security (law and order), the Judiciary, the Police and their support systems need to be urgently strengthened, expanded and upgraded. It is not often appreciated that enforcement of laws perceived to be unjust, non-enforcement of just laws and blockages in the administration of justice, all raise transaction costs and impede development. As well, all those who administer laws need enabling insulation to permit just administration of those laws. Rendering them mendicant is clearly counterproductive.
  • There should be an urgent address of the rapid attainment of food security and affordable shelter, on the basis of truly internally determined preferred states (internal efforts) rather than vain reliance on external supplies. This should be better achieved by redressing the subsisting effective discrimination by public policy (macroeconomic and sector policies) against agriculture and the rural sector.
  • Similarly, there is required an urgent resolute attack on mass unemployment.
  1. The informal sector, comprising the majority of the broad mass of our citizenry, should be intelligently legitimated to join the economic mainstream and, through democratization of access to assets, have a stake in society. In this regard, the special assistance/loan schemes NERFUND, SME, NDE, Peoples Bank, micro-credit and rural development schemes would need to be strengthened and redirected in accord with the original goals.
  2. In the above regard also, the moribund extension services and training for agriculture, industry, education and health would need to be revitalized.
  3. There is a need to redesign and implement a stabilizing financial flow mechanism which would:
  4. cushion the impact of the external/oil cycle; afford the planner at any level of government relative certainty and adequacy of resources; and
  5. accord with maintainable and absorbable rates of investment.
  • As regards the accumulated residual funds, the stabilization component of the Federation Account, strict rules should be developed for borrowing therefrom. In particular, the amounts standing to the credits of the states and local authorities which have been expended, frozen, or otherwise pre-empted by the Federal Government should be fully reimbursed them.
  • Relatedly, FG pre-emptions of Federation Account revenues, whether in the form of the Petroleum (Special) Trust Fund or the National Primary Education Commission, should be discontinued and the revenues fully restored to the respective tiers of government.
  • Most importantly, the package should provide for the genuine and rapid, internalization of the oil enclave. This should encourage the oil enclave operators to make significant economy-wide investments and thus permit society to achieve more rapid scientific-technological progress, diversify production and better internalize the gains from the export trade.
  1. Firm urgent actions are required to: reverse the observed degradation of quality and facilities at all levels of formal education; vigorously pursue adult and continuing education; encourage specialization in scientific technological education; link and draw far more than currently from reinvigorated academic, research and technical institutes; permit the spirit of enterprise, innovation and discovery to flourish; encourage skills acquisition and their continuous update; and to implement a rewards system which conduces to the sustenance of excellence.
  • Similar considerations apply to the health sector.
  • The severely atrophied state of the national infrastructural asset — roads, bridges and utilities – commands urgent redress: continuous maximal maintenance, extension and sound management. This would call for focalized mass mobilization, and could provide one natural element of a bold reconstruction plan.
  • Our key parastatals — NEPA, NITEL, NNPC, etc. — have become parasitic on the treasury or have failed in their mandates. It should be admitted that government itself has co-responsibility for the present state of affairs. For it has failed to capitalize them appropriately, or to fund them adequately and timeously, and has played political-economic football with their management and operations. Government has used them to practice eleemosynary or charity economics. For example, in the case of the NNPC it is clear that the past administration, over the last five or six years, deliberately and methodically deconsructed that agency and its subsystems in preference to product imports.

Here are a few things which can be done while developing and thinking through intelligent commercialization and privatization policies:

  1. their respective appropriate capital bases, structure and financing can be established;
  2. they may be directed to meet their mission statements, goals and performance targets;
  3. they may be driven to patronize the domestic capital market for long-term development funds, which would require them to be commercially viable;
  4. government should search for and deploy only well-proven and innovative corporate managers, through management contracts, who can more than meet agreed performance targets – without the introduction of our main theorems;
  5. government can and should ensure that the Ministry of Finance Incorporated is reconstructed and reorganized to effectively monitor public sector enterprises, and collect operating surpluses and dividends for government;
  6. their monopolies can be broken and their operation areas opened up to competition by private sector agents. This way private capital can flow into and augment state resources in achieving the public interest;
  7. They should be allowed warranted autonomy in accord with established goals and regulations.
  • That said, let me clarify what privatization is not. Privatization is not:
  1. externalization of key national assets;
  2. carpet-bagging of assets which have been seriously eroded, deliberately or otherwise, and are then sold off at rock-bottom prices;
  3. farming of taxes and tolls;
  4. absolution of the state from efficient conduct of its proper functions – whether in the maintenance of law and order, delivery of infrastructural services, or valid social redistribution – regardless of the minimalism of Reagan -Thatcher ultra-doxy.

Otherwise, we might as well privatize the state or, what is the same, abolish the state.

  1. There should be a courageous, sustained return to orderliness on the foreign exchange market, and prudential behaviour by a debt-distressed country, at least through:
  2. preclusion of the re-emergence of a significant parallel market premium;
  3. all transactions to be conducted at the market rate:
  4. the CBN will withdraw immediately from (mandatory) funding of the FEM through (weekly or daily) auctions of public sector (oil derived) forex (Note reasons why.) Hence-forward, the CBN will stand as would any authorized dealer, only occasionally intervening in the market to influence the rate(s);
  5. banks should be free to procure foreign exchange from any sources and sell same to any clients on the presentation of approved documents;
  6. hence forward the public sector will reserve to itself its foreign exchange earnings with no obligation to fund the market. With the abolition of surrender requirements and the 100 per cent export proceeds retention granted under the SFEM Decree 1986, there is no warrant for the public sector to continue to fund the market (that is, grant subsidies to the banking system) 14 years on.
  7. development of market depth (e.g. spot and forward rates, practices, regulations) in line with the original guidelines. As a minimum, there should be a courageous review of the revenue allocation formula aligned with redistribution of functions within the three tiers of government. For example, arranging matters such that local governments have full and firm legislative and administrative responsibilities for primary education and literacy campaigns, primary health care and health extension services, water supply, primary roads (class C), urban subsystems and such, backstopped with adequate resources and financing possibilities, would enhance capacity utilization and building and local development. Furthermore, it would put the authorities in more direct contact with reality and the problems to be solved. (Hernando de Soto, The Other Path, Tauris, 1989, p-248) Efficient delivery of these services should improve the polity’s perception of government and lower transaction costs. It should also tap idle local resources, not least of which is desirable emulousness and competition. All these are in accord with our previous remarks on decentralization. In reality, -the construction of the exact weighting scheme and its correct alignment with function distribution would require superhuman faculty.

However, since this relates to desirable changes in ownership of assets — reform in foundations earlier noted — the correct, simple resolution would be full reversal to the derivation principle, whereby, for example, with regard to petroleum mineral rights, the states retain on-shore revenue rights and the Federal Government off-shore revenue rights. Similar considerations apply to VAT collections and distribution. This would also encourage the central, state and local authorities to develop viable revenue sources and prudential resource management, among other bonuses.

Undoubtedly, in the short term, the issue would generate much unnecessary political heat, as prospective losers cannot be expected to calmly yield their gains under the present incongruous arrangement; moreso in the context of long-lived fiscal indolence and pervasive free-rider localism. But this in no way destroys the correctness of the solution or its healthful prospects for the fiscal integrity of the three tiers of government under true federalism, the rise of desirable emulousness everywhere, and long-term political stability. To be sure, fiscal centralism and presumed cake-sharing therefrom have engendered fiscal indolence and irresponsibility, political instability and economic retardation. Indications are that the Land Use Decree/Act, which needlessly masks the correct solution, would need revisiting.

  • It would be desirable to improve the effectiveness of local authorities through the encouragement of staff development schemes, especially in public administration, financial methods and regulations, works management and economic planning. Federal assistance through mutualized staff secondments and coeducation with the National Planning Commission and Ministry of Finance would be helpful.
  • For planning purposes, experience suggests that it would be beneficial to shift from the present rolling plan mechanism, which is burdensome, rather disruptive of focus, and, in any case, not well attended, to the old medium term plan frames. At the same time, the planning agencies (Planning, Finance, CBN, Industry, Agriculture, and Trade) should be strengthened to enhance the quality of economic management.
  • As regards trade policy (internal and external), there should be eliminated all anomalies and inconsistencies which may have developed particularly in the context of:
  1. the resumed steering by the instrumentality of economic rents, and
  2. policy disarray. Clearly, in respect of external trade, the tariff coefficients matrix should be non-rent inducing, growth stimulating, and conducive to stable expectations and forward planning by economic agents. As regards internal trade, all measures which impede domestic production and trade should be abolished; it should be made a federal offence to impede domestic trade. In this connection, excise duties on domestic production should be abolished. Also, impeding of internal trade by customs personnel and by local and state governments in collecting a multiplicity of oft conflicting and unwarranted taxes, fees, and licenses should be eliminated. Note that these activities not only impede domestic production and trade but bring government into disrepute with citizens at the grassroots, particularly in the context of poor delivery of services by government and doubtful validity of authorization and application of such taxes.
  • The package should also contain specific micro or sectoral policies to aid the urgent development of those sectors (e.g., agriculture, manufacturing, industry, education, science and technology, housing, urban and growth centers, oil and gas). All these policies need to be cohered at the macro level for consistency.
  • Doubtless, the external debt overhang must be seriously addressed. My own thinking is that satisfactory timeous resolution of this apparently intractable problem can be realized only in the context of sound committed development policy and its macroeconomic management. Precisely: while the debt problem will eventually die by semantics this facility will be available to only:
  1. pure basket cases, e.g., non-viable countries, and
  2. potentially viable countries which seriously organize themselves, embark on sustained structural reform and intelligently engage in the requisite dialogue. Capital flight reversal will be essential in this regard. Otherwise, the debt problem will provide an instrument for pressure, resulting in the extreme in severe resource compression and possible national disintegration or trusteeship status.

xvii. As well, there should be desirable financial-monetary reforms to:

  1. strengthen the domestic financial system, and
  2. better permit the economy tap into the global financial system with due protection from the external cycle.

Concluding Remarks

Evidently, the foregoing is a formidable bill of requirements. But it indicates that the design of an efficacious stabilization package, although difficult, is a perfectly resolvable affair. Careful review of the elements teaches that we have essentially recovered the Structural Adjustment Program, true in the light of new realities.

But our problem still remains, as with, previous experience, in the implementation of sound reform ideas. To be sure, this is a function of sound sagacious, committed leadership, backstopped with sustained mass support and continuously updated quality human capital core for system management, to steer the system through an immensely difficult process whose initial phase is characterized by grave socio-economic predicaments and political fragility. Moreover, there is every indication that the new initial phase will now extend to at least two medium-term planning horizons.

At all events, as earlier noted, success is not guaranteed: we increase the chances of success by treading the correct path. But that is no cause for despair: that is life. First correct things must be done first, and correctly too.

As patriots, we are naturally optimists regarding the future stable states of our society. But we are also realists: such future states are only attainable through intelligent hard work — sound committed leadership which provides a convincing mechanism to excite and found on sustained social mobilization, and an evolving institutional matrix which at all times encourages acquisition of knowledge and skills, productive endeavours, competition, innovation and creative activity, and the resolution of society’s presenting and prospective problems. In other words, these requirements are prime stabilizers.


In the light of the foregoing, and based on my considerable experience in government, I must admit that leadership is often distracted from the correct path it should resolutely follow. These distractions, which often culminate in policy derailment, may arise from: acts of omission or commission of the leadership; the machinations of powerful interest groups of late, however, we have witnessed uprisings, sometimes spontaneous, representing the reactions of hitherto not so powerful groups, the youth and others who consider themselves marginalized by the rest of the polity. The MOSOP, OPC, APC, Egbesu, Bakassi, Sharia and the MASSOB, may be seen as aspects of this phenomenon and as possible manifestations of government failure.

There is also a curious aspect of Nigerian public life in which facts assume different complexions depending on the proponent. Cries for return to true federalism, for example, dodge the fact that even though a former Head of State was killed for daring to decree a unitary Nigeria, all leaders after him till the present have continued to practice essentially a unitary, system of government. Clearly, we all agree, I believe, that democracy is based on consensus (majority rule); such consensus is only possible if we share a common lexicon in what is good for the goose is also good for the gander. Just as the West has good roads, let the North have good roads, but let the parts of the country, which produce the resources with which the roads are built, also have good roads. Let all Nigerians have potable water, power, and above all let social justice prevail.

These are weighty issues that deserve to be thrashed out at a Conference of Nigerian Nationalities. Frankly, I now see no way of avoiding such a Conference of Nigerian Nationalities, sovereign or whatever. There would clearly be difficulties in selecting viable delegates to represent the 400 or so Nigerian nationalities, but a basic assumption regarding their sense of justice, their equality and the inalienability of their fundamental human rights should be a first right step in this regard.

Relatedly, with due respect to the eminent citizens now seized with Constitutional Review, a (National) constitution, as the highest or basic written law/contract, is or should be a people’s document, produced by the delegates of the people. It is not a document produced and or amended by a recondite few. From the political-economic viewpoint, it is in reality a mobilizational document. The people of Nigeria should produce their constitution through their own delegates.

The condition of the roads/infrastructure in the Southern States, especially the South-East and approach corridors, aggravated by erosion (soil and gully), merits urgent, specialized/differential attention. This is further recommended on grounds of social justice and national development. Magnanimity on the part of the victors in the civil war, deprived of nobility, rings hollow mockery. The mockery is underscored if it takes the funeral of a prominent citizen or papal visit to make a road (temporarily) passable.

Since progress cannot be made without step-by-step acceptance and consolidation of inter-generational capital bequests, especially of human capital, I would recommend that: 420 billion should be granted to the universities to reconstitute themselves, and their infrastructures towards independence. (I had earlier in 1989 recommended 11 F2 billion; Mr. President graciously approved N0.5 billion).

Similar reconstitutive grants be made to the Police and the Judiciary, with implementation of requisite Police reform (Note that the NYSC provides a viable pool for new recruits and improved pay. All in line with previous recommendations, efforts and plans. Intelligent dialogue with the Fund and the Bank on the Public Expenditure numbers-game would, I feel, be positive.

The study on MONETIZATION OF FRINGE BENEFITS, which I commissioned and which has been gathering dust in the archives, should be dusted up, updated and courageously implemented. I understand President Obasanjo has indicated his intention to so do. If so, he has my full support and the support of all labour.

Mr. President should stop making a distinction without a difference and presumably distancing himself from economic structural reform. Now that he is an ardent convert to the reform course, he should tell the populace frankly that the reform path is strewn with difficulties, and mobilize society on the urgent structural reform task. In particular, he should declare a bold national reconstruction plan to mobilize the citizens, their enterprise and imagination. In this regard, I appeal to my labour comrades and the general society to fully support Mr. President in the transfer process. Also in this regard. I appeal to the political shariarists to hold their fire, for religious fervour cannot be wound up and down, like an oil-lamp wick, without unpredictable damages. Mr. President should ensure that Nigerians own the reform program and are fully involved and carried along in its implementation. Nigeria can only be progressed by Nigerians. As follows from earlier remarks, Mr. President should avoid capture by special interest groups (such as ethnic forces, fixed – and multiple – exchange rate advocates, foreign forces). That has been, is, and will always be one sure road to failure. Accordingly, he should implement the structural reform program vigorously, faithfully and intelligently.

On behalf of our desired rapid economic advancement in general and of SME enterprises and the informals, in particular, I enter a plea regarding NERFUND. The recommendation and reported decision to merge the agency with others such as NIDB, NACB, etc, is ill-advised, and should be reversed. Rather NERFUND should be strengthened and directed to operate in accord with its original goals and design. Reflection on nature’s economy of the human body is instructive.

Finally, foreign and local investors are the proverbial two peas in a pod. Accordingly, the macro environment has to be made attractive to the local investor, then the foreign investor will surely come. See Tables 5 to 12 in Appendix A).       ‘

Selected References

The interested reader may find the following useful reading:

  1. Cipolla, Carlo M; Between Two Cultures, Norton, 1991.
  2. Okongwu, C; The Nigerian Economy, Fourth Dimension, 1986.
  3. A Review and Appraisal of the Structural Adjustment Program, July 1986 to July 1987, Special Press Briefing by the Minister of Finance, Federal Government Printer, 1987.
  4. The Policy Thrust of the 1991 Budget, Cabinet Office, The Presidency, October 1990.
  5. Stabilization of the Nigerian Economy, Centre for Public and Business Policy, 1997. Report of the Study Group on the Monitization of Fringe Benefits in Nigeria, The Presidency 1992.
  6. Hernando de Soto; The Other Path, Tauris 1989.