NIGERIA ECONOMY

Nigerias economic structure is largely oil-based. The economy has stumbled for years due to political unrest, corruption and poor fiscal policies. However, since the restoration of democracy and introduction of economic reforms, the country is growing at a fast pace. According to the International Monetary Fund (IMF) projections, Nigeria is the second fastest growing economy in the world and will outperform other African economies in the near future.

Nigeria Economic Structure: GDP Composition Agriculture was central to Nigerias economic structure till the early 1990s. It was one of the main sources of foreign currency. However, over the years, the agricultural sector has become a grey area for the Nigerian economy. According to the 2009 estimates, the sector provides employment to more than 70% of the working population but contributes only 33.4% of the total national production. The country has not been able to satisfy internal demand and has to import a considerable amount of food products.

The Nigerian industrial sector primarily depends on oil extraction and refining. It employs approximately 10% of the labor force and accounts for 34% of the GDP. The service sector is also gradually emerging in the country. Almost 20% of the population is engaged in service sector jobs. This sector contributes 32.5% of the total GDP.

Nigeria Economic Structure: Business Climate Nigerias economic structure suffers from a lack of infrastructure and poor regulation related to foreign and private investments. To encourage foreign direct investment in the oil and natural gas sector, the country has aligned trade tariffs with the Economic Community of West African States (ECOWAS) standards. Prior to 2005, trade tariffs were the second largest source of revenue for the country. In the non-oil economy, there are several unexplored segments, such as the telecommunication and service sectors. However, to enjoy long term benefits, foreign investors must educate themselves about the local culture, traditions and trade laws.

The most conspicuous fact about Nigeria's economy is that the corruption and mismanagement of its post-colonial governments has prevented the channeling of the country's abundant natural and human resourcesespecially its wealth in crude oilinto lasting improvements in infrastructure and the construction of a sound base for self-sustaining economic development. Thus, despite its abundant resources, Nigeria is poorer today than it was at independence in 1960. Still one of the less developed and poorer countries of the world, it has the potential to become a major economic power if the leaders resolve to learn from past mistakes and to harness the country's rich natural and human resources for a productive and sustained effort to promote economic development.

Before the country was colonized by Britain, during the second half of the 19th century, the various nationality groups that currently make up Nigeria were largely an agricultural people. They were food self-sufficient and produced a variety of commodities that were exported overseas. British colonial administrators amalgamated (joined together) the nationality groups in 1914 into a larger economy for exploitation for the benefit of British industrial classes. Under colonial rule, Nigeria remained an agricultural country, exporting raw materials to Britain and importing from it finished goods. Therein lay the origins of the dependence of Nigerian economy on commodity markets of the industrialized Western world for its foreign exchange. While the industrialization of the country was discouraged, rudimentary foundations for a modern Nigerian economy, however, were laid. Colonial economic policies shaped future independent Nigeria's economy, particularly in marketing, labor supply, and investment. The process of colonial rule and formal economic exploitation ended in 1960 but left Nigeria a relatively strong but undiversified economy. Thereafter, Nigerians were poised to remedy this defect and to build a self-sustaining Nigerian economy comprising agricultural, industrial, and service sectors.

From independence in 1960, the state took up the direction and planning of economic growth and development. Education was progressively expanded at all levels to reduce the rate of illiteracy and to provide the requisite skills and labor force for development. Infrastructure of roads and communication networks were constructed far beyond what was inherited from colonial rule. Hydroelectric dams were built to generate electricity. Secondary industries and automobile assembly plants were established to create more employment opportunities. Because of the paucity (small number) of indigenous (native or local) private capital, these activities were undertaken and financed by the government, often with foreign assistance from such countries as Britain and the United States. Foreign oil companies, such as Shell-BP, Exxon-Mobil, Chevron and Texaco, operate in partnership with the government in the oil sector, the mainstay of Nigeria's economy. The capital-intensive oil sector provides 95 percent of Nigeria's foreign exchange earnings and about 65 percent of its budgetary revenues.

Because the established, government-owned industries and businesses were often inefficient and corrupt, productivity was low at best. In particular, mismanagement and corruption were endemic (characteristic of) in the successive governments and throughout the nation. However, the gravest problem was caused by the government's decision to stress the industrial sector above all others. Caught in a web of competing demands for scarce resources, the officials took the path of rapid, large-scale industrialization at the expense of the agricultural sector, as well as light manufacturing. They directed the bulk of investment capital towards the promotion of what Western advisers captioned "industrial take off." This decision to abandon the known agriculturefor the unknownrapid large-scale industrializationwas a fundamental error. The capital and the skill needed for rapid, large-scale industrialization were not sufficiently available. Thus, an unskilled workforce and insufficient funds severely handicapped the industrial sector. Also, Nigeria's neglect of the agricultural sector aggravated already problematic food shortages. Nigeria had raised enough food to meet domestic needs during its colonial period and in the decade following independence. However, it experienced food shortages in the 1970s and 1980s, which necessitated the importation of food from foreign countries. Among the imports were palm oil (from Malaysia), of which Nigeria had been the world's largest producer and exporter, and rice (from the United States) which was considered less nutritious than Nigerian brown rice. Once Africa's largest poultry producer, Nigeria lost that status because of inefficient corn production and a ban on the importation of corn. Furthermore, it is no longer a major exporter of cocoa, peanuts, and rubber.

Several forces compounded the problems of the agricultural sector. The migration of labor from the rural areas to the urban centers reduced the traditional agricultural labor force. Ecological constraints such as poor soil, erosion, drought, and the absence of agricultural research added to the problem. Other constraints on agricultural production include the use of antiquated technology due to a lack of capital, the low status given to agriculture in the education of the youth, inefficient marketing, an inadequate transportation infrastructure, lack of refrigeration, trade restrictions, under-investment due to unavailability of credit, low prices, and unstable pricing policies which resulted in farmers literally subsidizing urban dwellers and other sectors of the economy. In addition to these handicaps, import constraints limit the availability of many agricultural and food-processing plants. In general, land tenure discourages long-term investment in technology and modern production techniques.

The problem of food shortages and imports was addressed in the late 1970s and early 1980s. In the late 1970s the military government of Olusegun Obasanjo embarked upon "Operation Feed the Nation." His civilian successor, President Shehu Shagari, continued the program as the

"Green Revolution." Both programs encouraged Nigerians to grow more food, and urged unemployed urban dwellers to return to the rural areas to grow food crops. The government provided farmers with fertilizers and loans from the World Bank. The food situation has stabilized, although Nigeria still imports food. A related problem which has not been completely resolved is the pollution of water in the Delta region and Ogoniland by oil companies. Water pollution disrupts farming efforts and has been a source of friction between farmers on one side and the national government and the oil companies on the other.

The oil boom which Nigeria experienced in the 1970s helped the nation to recover rapidly from its civil war and at the same time gave great impetus to the government's program of rapid industrialization. Many manufacturing industries sprang up and the economy experienced a rapid growth of about 8 percent per year that made Nigeria, by 1980, the largest economy in Africa. The growth, however, was not sustained. The new oil wealth did little to reverse widespread poverty and the collapse of even basic infrastructure and social services. The iron and steel industry, started with the help of the Soviet Union, still has not achieved a satisfactory level of production. The oil boom also provoked a shortage of labor in the agricultural sector as members of the rural workforce migrated to jobs in the urban construction boom and a growing informal sector . When the price of crude oil fell and corruption and mismanagement still prevailed at all levels, the economy became severely depressed. The urban unemployment rate rose to 28 percent in 1992, and crime also increased as 31.4 percent of the population lived below the poverty line.

Nigeria's debts mounted as administrators engaged in external borrowing and subsidized food and rice imports and gasoline prices. In the 1980s, economic realities forced Ibrahim Babangida's military regime to negotiate a loan with the World Bank and to reschedule Nigeria's external debts . His regime undertook an economic structural adjustment program (ESAP) to reduce Nigeria's dependence on oil and to create a basis for sustainable non-inflationary growth. However, external borrowing to shore up the economy created more problems than it alleviated. Much of the borrowed money never reached Nigeria. The portion that reached the country often went towards abandoned or nonperforming public sector projects. External loans escalated Nigeria's debts to US$30 billion during the Babangida regime and consumed external earnings in debt servicing . Similarly, the ESAP prescribed by the International Monetary Fund (IMF) failed to advance the economy, and aggravated the problems of inflation and unemployment. It caused a reduction of state spending on education and health care. Continuing political instability due to Babangida's annulment of the presidential election results in June 1993 and the subsequent authoritarian rule of Sani Abacha (1993 to 1998) made the general economic situation worse. The gross corruption by the Abacha regime and its violations of people's fundamental rights turned Nigeria into an international pariah for 6 years, and thus discouraged foreign investment

in the economy. Many industries and manufacturing companies could not obtain raw materials and closed down. Others operated under severe handicaps, including rampant power outages and refined petroleum scarcity. Not enough had been done in the years of plenty to diversify the economy or to sustain the development. Military coups and political instability worsened the situation.