NATIONAL OPEN UNIVERSITY OF NIGERIA

SCHOOL OF MANAGEMENT SCIENCES

COURSE CODE: MGS 761

COURSE TITLE: THE NIGERIAN ECONOMY

 COURSE
GUIDE

MGS 761
THE NIGERIAN ECONOMY

Course Team Dr. Molem Sama (Course Developer/Writer) –

ABU, Zaria
Dr. O.J. Onwe (Programme Leader) – NOUN
Mr. M.A. Gana (Course Coordinator) – NOUN

NATIONAL OPEN UNIVERSITY OF NIGERIA

MGS 761 COURSE GUIDE

National Open University of Nigeria

Headquarters
14/16 Ahmadu Bello Way
Victoria Island, Lagos

Abuja Office
5 Dar es Salaam Street
Off Aminu Kano Crescent
Wuse II, Abuja

E-mail: centralinfo@nou.edu.ng
URL: www.nou.edu.ng

Published by
National Open University of Nigeria

First Printed 2005

Reprinted 2013

ISBN: 978-058-816-7

All Rights Reserved

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MGS 761 COURSE GUIDE

This course guide tells you in brief what the Nigerian economy is all
about. It is a semester, 3-credit, post graduate diploma in local
government (PGDLG) course. The course is made up of thirty units
and the units are collapsed in five modules.

The overall aim of the Nigerian Economy is to enable you understand

the characteristics of the various sectors of the economy. You will
learn about the features of the various sectors.

After that, the focus will be shifted to the challenges that impinge on
government efforts. Other issues you will cover include the strategies
and policies embarked upon by the government of each sector of the
economy.

To achieve the stated aims, the course sets specific objectives at the
beginning of each unit which you should read before studying the
unit. You should endeavour to look at the objectives after completing
each unit to ensure that they meet the requirements.

To complete the course, you are required to study the units, read the
textbooks and other materials which will be provided by the National
Open University of Nigeria. Each unit contains activities and tutor-
marked assignments for assessment purpose.

There is a final examination at the end of the course.

There are two parts of assessment of the course. First answering the
tutor- marked assignments, and second there is a written examination.
When computing the assignments, it is expected of you to apply the
knowledge required during the course. There are thirty tutor- marked
assignments in this course and you are encouraged to attempt all.
However, you only need to submit twelve of the thirty assignments.
The highest five of the twelve marks will be counted.

Each of the five assignments counts 8% toward your total course

marks (8% X 5) = 40%. The final written examination for this course
will be of three hours duration and will have a maximum value of
60% of the total grade.

The examination will consist of questions which reflect the course

content.

The time between completing the last unit and sitting for the
examinations will consist of questions, which reflect the course
content.
MGS 761 COURSE GUIDE
iii

4
MGS 761 COURSE GUIDE

The time between completing the last unit and sitting for examination
should be used to revise the course. It may be useful to review your
activities and tutor- marked assignments before the examinations.

The break down of the course marking scheme can be read from this
table.

Table 1: Marking Scheme

Assignment Marks

Assignments 1-12 Ten assignments, best five of the ten counts

8% each (8 X 5 = 40%) of course marks

Final examination 60% of overall course marks

Total 100% of course marks

One of the great advantage of distance learning is that you can read
through specially designed materials at your own pace, and at a time
and place that suit you best.

It may take place in an isolated village with a hurricane lamp or in an

urban centre with electricity but the lectures (replaced by study units)
is the same.

Just as a lecturer might give you an in-class exercise, your study unit
provides activities and tutored marked assignments for you to do at
appropriate points.

Each of the units follows a common format in this sequence:-

introduction to the subject matter, objectives (let you know what you
should be able to do by the time you have completed a particular
unit); the main body of the unit (guides you through the required
reading with activities), conclusion, summary, tutor-marked
assignments; and further readings. Activities are meant to help you
achieve the objectives of the unit and prepare you for the
tutor-marked assignments and the final examination. When you have
submitted an assignment to your tutor, do not wait for its return
before commencing work on the next unit. When the marked
assignment is returned, go through the comments of your tutor
carefully and mail any questions or any difficulty encountered to
him/her.

4
 MAIN
COURSE

CONTENTS PAGE

Module 1 …………………………………………….. 1

Unit 1 Agriculture and Economic Development in

Nigeria……………………………………... 1
Unit 2 Industrial Development in Nigeria……….. 12
Unit 3 Mining and Quarrying in Nigeria………… 23
Unit 4 Government Revenue in Nigeria………….. 29
Unit 5 Government Expenditure In Nigeria……... 34

Module 2 ……………………………………………... 40

Unit 1 Commercial Banking in Nigeria…………... 40

Unit 2 Central Banking and the Nigerian Economic
Development………………………………. 48
Unit 3 The Nigerian External Debt Crisis………... 56
Unit 4 Growth and Investment Opportunities in
Nigeria……………………………………... 65
Unit 5 International Trade in Nigeria…………….. 71

Module 3 ……………………………………………… 80

Unit 1 Structural Adjustment Programme in Nigeria 80

Unit 2 Financial System in Nigeria……………….. 86
Unit 3 Educational Sector in Nigeria……………… 91
Unit 4 The Health Sector in the Nigerian Economy 100
Unit 5 Nigeria's External Economic Relation…….. 109

Module 4 ………………………………………………. 117

Unit 1 Food Problem in Nigeria……………………. 117

Unit 2 Balance of Payment Disequilibrium in Nigeria 127
Unit 3 Unemployment in the Nigerian Economy…… 140
Unit 4 Inflation in Nigeria…………………………… 152
Unit 5 Fiscal Federalism in Nigeria…………………. 161
Module 5 ………………………………………………. 169

Unit 1 The Nigerian Money Market……………….. 169

Unit 2 The Nigerian Capital Market………………. 178
Unit 3 Fiscal Policy in Nigeria…………………….. 184
Unit 4 Monetary Policy in Nigeria………………… 192
Unit 5 Development Planning……………………… 200

Module 6 ………………………………………………. 215

Unit 1 Human Resource Development in Nigeria… 215

Unit 2 Indigenisation Policy in Nigeria…………… 224
Unit 3 Poverty in Nigeria………………………….. 228
Unit 4 Privatisation in Nigeria…………………….. 235
MGS 761 MODULE 1

MODULE 1

Unit 1 Agriculture and Economic Development in Nigeria

Unit 2 Industrial Development in Nigeria
Unit 3 Mining and Quarrying in Nigeria
Unit 4 Government Revenue in Nigeria
Unit 5 Government Expenditure in Nigeria

UNIT 1 AGRICULTURE AND ECONOMIC

DEVELOPMENT IN NIGERIA

CONTENT

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Significance of Agricultural Development
3.2 Reasons for Agricultural Development in Nigeria
3.3 Export Potential
3.4 Increase in Volume of Output
3.5 Employment Opportunity
3.6 Organisation of Agriculture Activities
3.7 Factors Responsible for the Poor Performance of
Agricultural Sector
3.7.1 Lack of Appropriate Technology
3.7.2 Inadequate Supply of Agricultural Inputs
3.7.3 Inadequate Extension Service
3.7.4 Poor Marketing Facilities
3.7.5 Diseases, Pests and Evasion
3.7.6 Labour Shortage
3.8 Strategies to Revamp the Agriculture Sector
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Agriculture is considered the backbone of economic activity in Nigeria.

This is because agriculture has some links with some other sectors, for
instance industrial sectors, thus, the deyelopment of this sector could be
expected to lead to development in the other sectors and consequently,
to economic development and growth.

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MGS 761 THE NIGERIAN ECONOMY

However, agriculture involves the cultivation of land, raising and rearing

of animals for purpose of food for man, feed for animals and raw
materials for industries. It involves cropping, livestock, and forestry,
fishing, processing and marketing of these agricultural products. You
can say that agriculture can be classified as crop production livestock,
forestry and fishing.

Further more, you can observe that the importance of agriculture in our
society cuts across being a source of food and raw materials for
industries to provision of job opportunities and the source of foreign
exchange earning. This is why the government places more emphasis on
developing the agricultural sector than other sectors.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o explain why agricultural development is very important in our

society
o identify the organisation of agricultural
activities
o outline the problems that inhibit the development of
agricultural
activities
o list the different strategies and policy measures that the
government has adopted over the years to improve this sector.

3.0 MAIN CONTENT

3.1 Significance of Agricultural Development

i. Five main areas of agricultural sector contributions include:

ii. Provision of food needs of the populace
iii. Export production to increase farm incomes and to provide
foreign exchange
iv. Expansion of domestic market for the growing industrial sector
through rising net farm incomes of the farm population
v. Provision of manpower for industries and other non-farm
activities
vi. Provision of capital for infrastructural development and the
expansion of secondary industries.

In Nigeria, we witness a case where agricultural sector contributions,

however, have been less than adequate in the five (5) main areas. We
can now link these reasons for the underdevelopment of Nigerian
economy. However, lets now discuss its contributions to economy.
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MGS 761 MODULE 1

(I) Food Provision: Food provides the basic human need and
energy. Before 1970, food supply in Nigeria was quantitatively
adequate. The problem by this time was poor quality. e.g. much
of carbohydrate and little or no protein. The abundance of food
by this time was due to low food prices. From then (1970
onwards) food shortage has been a permanent problem reflected
in high food prices and growing expenditure on food imports.
You could imagine how importation of food since 1970 has had
negative implications. This could be seen in relation to:
i. Waste of foreign exchange, the foreign exchange spent on
food ought to have been used for capital importation.
ii. Destruction of local production capacity. This is because
imported food tends to displace locally produced ones in
terms of quality.

(II) Export Production: Exports could be considered as a means of

increasing savings and investment level. Through sales, farmers
have normal incomes and can thus save. The essence of
purchasing capital goods is to raise productive capacity. In the
colonial days, agricultural export earnings did account for the
growth of investment within and outside the agricultural sector.
But from 1970 to date, earnings from agricultural exports have
dropped because of:
i. Poor performance of the export crops sub sector.
ii. Increased local demands for export crops. Local industries
now require same crops we formerly exported.

(III) Expansion of Domestic Market: The size of the market often

determines the optimum level for industrial production where
market is small industrial production is restricted and vice versa.
As of the present, owing to the poor performance of the
agricultural sector it is not a source for effective demand for
industrial goods. Most goods produced in the industrial sector
don't fit into the needs of farmers.

(IV) Manpower Provision: It is supposed that the agricultural sector

provides manpower for other sectors. In this connection, it is
expected that labour will be transferred from the agricultural to
nonagricultural sector.
The labour transfer could only take place if we have a high
production in the agricultural sector. In Nigeria, movements have
been registered but largely into the urban areas. This is, however,
not good enough to bring about development. The movement has
been but for economic, social, and even religious reasons. These
kinds of movements have both negative and positive effects on
both areas of original site and destinations.

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MGS 761 THE NIGERIAN ECONOMY

(V) Capital Provision: The agricultural sector is often looked up to

for providing funds for development because, considerable funds
exist in agricultural sector.

This surplus in the agricultural sector is to be extracted through taxation

by the government and the revenue from this source is used to provide
public goods and services e.g. in the Old Western regions and Northern
regions, infrastructures were provided through agricultural sector. In
those days, marketing board were used for such purposes.

As of now, the poor performance of agricultural sector doesn't guarantee

(show) a good government policy.

Activity 1: Do you think that agricultural development is necessary for

the economy development of Nigeria?

3.1 Reasons for Agricultural Development in Nigeria

In Nigeria, like in most developing countries, the agricultural sector is of

primary importance. This is because the sector has some links with some
other sectors of the economy. Thus, development in the sector could be
rightly expected to lead to development in the other sectors and,
consequently, to economic development and growth.

One of the means by which agriculture can contribute to the

development effort. Is through the provision of an adequate and
well-balanced food supply for the increasing Nigerian population. The
availability of an adequate food supply is vital because food shortages
will lead to higher prices, which in turn, may lead to demand for higher
wages. This could have some adverse effects on the level of investment
and therefore on the rate of economic growth. Additionally, an
inadequate local food supply means that massive importation of food
may have to take place. This, again, could be a drag on economic
growth as the nation's foreign exchange will be used to finance food
importation rather than for buying capital equipment which is necessary

3.2 Export Potential

It is important to note that the products of the agricultural sector are not
only food crops but also primary products that could serve as raw
material for many industries both at home and abroad, especially the
agro-allied industries. In these connections, products such as cotton,
rubber cocoa, coffees, timber, are processed by home industries and
serve as exports for the country. However, industries based on the
processing of these agricultural crops cannot thrive unless the crops are
adequately produced and this can only occur if the agricultural sector is

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MGS 761 MODULE 1

very well developed. It is, therefore, essential especially for a

developing country like Nigeria, that the sector be given very close
attention.

3.3 Increase in Volume of Output

Developments in the agricultural sector would make it possible for the

farmers to increase their volume of production, which would increase
the amount of surpluses that they have for sale. In this regard, the end
result of this is likely to be an increase in the income of the farmers.
This will also give them greater purchasing power for the products of
the industrial sector. In this end, this will lead to increased industrial
products and, hence, to the growth of the industrial sector.

3.4 Employment Opportunity

Development in the agricultural sector would provide more employment

opportunities for people. Some of the people would be directly engaged
in the production of the agricultural products and some others employed
in the industries that are based on the products of the expanding
agricultural sector.

3.5 Organisation of Agricultural Activities

Nigerian agriculture is traditional in nature. This is because it is

dependent on very low techniques reflected in the tools used.

In addition, the average farm size of about 1.2 hectares is very low. In
the developed world, the average is about 10 hectares. So, the small size,
combined with low technical methods makes it-traditional. To
understand the backwardness of the agricultural sector you have to look
at it from the angle of resource, utilisation.

Three different pattern of resources utilisation exist viz:

a) Land -Surplus Economy
b) Labour-Surplus Economy
c) Mixed Variable Proportion Economy

Land-Surplus Economy
This refers to low man-land ratio areas. That is areas of low population
densities. Specific example of such areas are; Borno State, Taraba,
Bauchi States etc. The farming technics applicable in these areas include
shifting cultivation and bush fallowing. These practices are appropriate
because they reflect sound economic reasoning, as land is abundant.

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MGS 761 THE NIGERIAN ECONOMY

The Labour-Surplus Economy

This refers to areas of high man-land ratio. Such areas include; Onitsha,
Owerri and Southern part of Cross River State. Population density in
these areas is about 1000 person/sq.km. Kano also exhibits such
characteristics. Farming technique in these areas is labour intensive. In
other words, an attempt to increase yields means employing more
labour.

Mixed Variable Proportion Economy

This refers to areas where both land and labour are variable proportion,
for example, Benue and Anambra States. In this category, to increase
production will require increment in both land and labour
simultaneously. The other features of the agricultural sector will include.

Communal Land Ownership

Under this, titles to land are invested to groups and families but not
individuals. Individuals only have the right to use land but they cannot
claim ownership of it. Consequently, one cannot sell land. In some parts
of the country, particularly the North, land belongs to the government.
The Nigerian government has, however, been making moves to control
land in all parts of the country in order to enhance the availability of
land to everybody. In essence, communal land owner-ship retards
productivity. Gradually, the situation (communal land ownership) is
changing.

Efficient Utilisation of Resources

Nigerian farmers are efficient in the utilisation of scarce resources.
Whenever it is necessary, farmers have been known to reallocate land
and labour in order to maximise profit, for instance, during the colonial
era and Structural Adjustment Programme (S.A.P.) farmers shifted to
cocoa production.

Farmers respond timely to changes. When new crops are available,

farmers embraced it, provided it is profitable. For instance, crops like
groundnuts and cocoa were brought from outside and farmers embraced
it because they were found to be profitable. The use of fertilizer is
another good example of positive reaction by the farmers.

In other instances, they reject changes in the introduction of single

cropping system. Farmers found that this was not profitable and it was
risky to put all eggs in one basket.

Regional Diversity in Production

Agricultural production in Nigeria exhibit great diversity in terms of
production and regional specialisation. These include:
- Roots crops e.g. yams, cassava etc.

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MGS 761 MODULE 1

- Grains e.g. rice, beans e.tc.

There is the grain economy of the North, and, the root crops economy of
the South. This variation is linked to variation in climatic conditions
in the country.

The implication of this variation is that, the potential for internal trade
and the possibility of famine in Nigerian is reduced because the failure
of one crop in one part of the country is supplemented by the other part
of the country.

Organisation of Production
The organisation of agricultural production in Nigeria reflects a shift
from unimodal to bimodal.

Bimodal is a situation of large mechanized farms existing side by side

with small farms. The small farms don't enjoy much government
support.

The ultimate intention is to porch out the small-scale farmers. In the

unimodal system, the emphasis is on the small-scale farmers. And
government usually provides essential facilities.

Studies have shown that unimodal is more important because it

generates a fair distribution of income and high level of employment.
Even in terms ofoutput the unimodal proves to be more important.

The Plantation Agriculture

This type of agricultural activities makes use of modern techniques. But
it's accountable for a relatively small proportion of the Nigerian
agricultural output.

Activity 2: What are the factors responsible for the poor performance of
the agricultural sector?

3.6 Factors Responsible for the Poor Performance of

Agricultural Sector

3.6.1 Lack of Appropriate Technology

Local (primitive) technology e.g. hoes and cutlasses do not support

agricultural production to a great extent. For the past years, the growth
rate of the agricultural sector has been deteriorating.

This problem could be solved using invention of new tools. The

alternative is for importation of these tools.
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MGS 761 THE NIGERIAN ECONOMY

3.6.2 Inadequate Supply ofAgricultural Inputs

Some reasons could be advanced for the inadequate supply of inputs:

- poor distribution network which prevents distribution of goods
manifest in poor road infrastructure
- a bias distribution policy in which case the big farmer is
favoured.
However, the government is trying to address this situation through
Agricultural Development Projects (ADPs) and other agricultural
programmes.

3.6.3 Inadequate Extension Services

These are designed to teach farmers how to manage input. The services
of the extension workers in Nigeria are inadequate because of:
o low extension ratio between the farmers and the extension
workers. The ratio of agent to farmers is about 1:20
o the extension agents themselves are poorly trained and
motivated.

In consequence, that there is lack of enough knowledge by farmers to

improve output. This problem of extension services is being addressed
through the establishment of agriculture institutions throughout the
country.

3.6.4 Poor Marketing Facilities

Staple food crops have always been marketed by the traditional methods
of marketing and distribution, the characteristics feature of which is the
need for a large number of middlemen between the producer and the
consumer. This method of marketing is, of course, beset with problems,
there is a dearth of storage and processing facilities; pricing is often
done by haggling, grades and measures are not uniform.

3.6.5 Diseases, Pests and Evasion

The effect of all these is the reduction in output. Measures to address

this problem include: afforestation programmes and introduction of
pesticides.

3.6.6 Labour Shortage

The rural urban migration experienced in the country has greatly

affected the agricultural activities in the rural areas. Hence, farmers in
rural areas have tended to pay highly for labour hired.

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MGS 761 MODULE 1

3.7 Strategies to Revamp the Agricultural Sector

As earlier indicated, given the relevance of this sector to the

development of Nigeria the federal and state government have as their
objectives to:

Increase Production of Food

The major objective of the government is to increase production of food
and other raw materials to meet the demands of the growing population
and the rising industrial sector. However, it is the intention of the
government to achieve self-sufficiency in food and to increase the local
contents of domestically manufactured goods, especially those that
utilise agricultural products as inputs.

Diversify Foreign Exchange Earnings

The government's intention here is to make efforts to achieve increased
production and processing of export crops with a view to expanding and
diversifying the country's foreign exchange earnings. This is to avoid the
danger of relying on crude oil as the only source of foreign exchange
earnings.

Employment Opportunities
The governments intend to expand the employment opportunities of the
sector in order to absorb the increased labour force of the economy.

Activity 3: What policy measures can be adopted to enhance the

productivity of this sector?

To achieve these objectives the following policy measure should be

adopted in order to address the problems constraining the development
of the agricultural sector.

Price Incentives
The government should give some price incentives by way of
guaranteed minimum prices to producers. Such prices should be kept
under constant review and the administration would be improved to
ensure that the desired purpose is achieved. A new marketing
arrangement is expected to address itself to this since under the new
arrangement the two - tier system of produce taxation (export duty plus
produce sales tax) has been cancelled and prices are now fixed with no
trading surpluses" in view.

Government Direct Involvement

Government should be involved directly in the production of agricultural
products. This is to be done through the establishment of food
production companies, through equity holding in purely commercial

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MGS 761 THE NIGERIAN ECONOMY

joint ventures with the private sector and by commodity Boards, Grain
Production Company and State Agricultural Development Corporation
going into partnership with foreign investors.

Fiscal Incentives
The governments should also give fiscal incentive to companies wanting
to go into large-scale agricultural production. Such incentives would
include income tax relief for pioneer enterprises, duty free importation
to farm machinery and provision for carrying forward losses.
Agricultural production and processing have been transferred from
schedule II of the Nigerian Enterprises Promotion Act (NEPA) to
schedule III. The effect is that foreigners can now own up to 60 per cent
of the capital of any of the companies engaged in this activity.

Credit Facilities
Efforts should be made to expand credit facilities to the fanners. Short
and medium-capital would be made available to farmers through the
Agricultural and Cooperative Banks and the Agricultural Credit
Guarantee Scheme. Furthermore, the state Agricultural Corporations
would be strengthened to enable them to perform their functions more
efficiently and effectively.

Agro-Allied Industries
Agricultural processing would be intensified by the setting up of agro-
allied industries, farmers would obtain higher and steady prices for their
products since middlemen would be eliminated.

Other Policy Measures

These will include subsidising of essential inputs like fertilizers,
pesticide and improved seeds; intensifying mechanisation of agricultural
production and providing wider extension services. If the governments
are able to implement these policy measures one would rightly expect
that agriculture would begin to play the key role in the development of
the nation.

4.0 CONCLUSION

Inspite of the importance of agriculture in the developmental process of

the Nigerian economy, the contribution of the sector to the Gross
Domestic Product has been on the downward trend. This situation has
been partly due to the emergence of oil as an important commodity and
partly due to the inadequate government support for the sector.

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MGS 761 MODULE 1

5.0 SUMMARY

The customary approach to the role of agriculture in economic

development is formulated in terms of the contributions the agricultural
sector can make or the functions it can perform during the process of
economic development in a country. Therefore agricultural development
can promote economic development of the our country through:

o provision of food needs of the

population
o export production to increase farm incomes and to
provide
foreign exchange
o expansion of domestic market for growing industrial sector
through rising net farm incomes of the farm populations
To achieve these, the government has to put in place certain policy
measures and programmes.

6.0 TUTOR-MARKED ASSIGNMENT

The agricultural sector in Nigeria has not made significant impact on the
economic developmental process of the country.
i. State the reasons
ii. Outline the government policies and strategies to restructure and
transform this vital sector.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. Structure

of the Nigerian Economy (1960-1997). Joanee Education
Publisher Ltd.

Iwayemi, A. (nd). Economy Growth in Nigeria since (1960). “Emerging

Issue and Evidence.” Unpublished Manuscript, Department of
Economics, University of Ibadan, 1981.

Iwayemi, A. (1979). The Military and the Economy, of Nigerian

Government and Politics under Military Rule. Oyeleye Oyediran
(Ed.). Chapter 5. Macmillan Press.

Molem, C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Olayide, S.O. (1976). (Ed.), Economic Survey of Nigeria, 1960-1975.

Aromolaran Publishing Co. Ltd.

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 MGS 761 THE NIGERIAN ECONOMY
Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.
Evans Brothers Nigeria Limited.

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MGS 761 MODULE 1

UNIT 2 INDUSTRIAL DEVELOPMENT IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Industrial Production
3.2 The Objectives of Industrialisation in Nigeria
3.3 Stages in the Nigerian Industrialisation
3.4 The Structure ofNigerian Industrial Expansion
3.5 Industrial Sector’s Contribution to Nigeria's GDP.
3.6 Changes and Growth in Nigeria's Manufacturing Sector
3.7 Problems of Nigeria's Industrial Sector
3.8 Nigeria's Industrialisation Strategies
3.8.1 Import Substitution Strategy
3.8.2 Export Promotion Strategy
3.8.3 Balanced Development Strategy
3.8.4 Local Resource-Based Strategy
3.9 Government Incentives to Industrialisation
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

An industry refers to a number of firms producing broadly similar

commodities. Industrialisation is the process of building up a nation's
capacity to convert raw materials and other inputs to finished goods and
to manufactured goods for other production or for final consumption.
There are four types of industries, which include processing,
manufacturing, craft and mining industries. Modern industrialisation in
Nigeria started in 1957 and the general goals of the industrialisation
development in Nigeria are to:
1. ensure an increase in the gross domestic product
2. increase employment
4. conserve foreign exchange
5. foster linkage with other sectors of the economy
6. ensure an adequate supply of goods to the population
7. help in minimizing the risk of over dependence on foreign trade
and ensure full utilisation of available resources.

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 MGS 761 THE NIGERIAN ECONOMY

2.0 OBJECTIVES

Industrial development is a necessity for the economic development of

Nigeria.

At the end of this unit, you should be able to:

o State the industrial production and structure in

Nigeria
o explain the industrialisation strategies and the problems faced
by
this sector.

3.0 MAIN CONTENT

3.1 Industrial Production

The relatively high growth in the index of industrial output in the 1970s
was traceable to the promotion of industries through high trade barriers
and incentive which offered protection and concession to the infant
industries. However, in the early 1980s, when Nigeria's economic crisis
deepened, the light on the industrial sector became more a parent. It thus
became obvious that the so-called big industrial base was built on a very
weak foundation. Structurally, most of the industries were planned for
the assembly of foreign products for the Nigerian market, while the
domestic resource content of the products of these industries was very
low. Moreover, due to the capital intensive nature of these industries,
little scope existed for them to explore and efficiently utilise the
abundant labour and other local resources in the country. What was
observed rather was the establishment of large plants with huge installed
capacities and an import dependent raw material requirement. The
foreign exchange scarcity of the 1980s worsened the problem of the
sector. Thus, the key features of the Nigerian industrial sector include:
loss of competitiveness, low rate of capacity utilisation due to foreign
exchange scarcity, obsolete machinery and equipment, high production
costs, failure to utilise to advantage the strength of labour- intensive
indigenous manufactures coupled with outright neglect of manufactured
exports in spite of the incentives provided by the government under the
comprehensive industrial promotion schemes. The sector's fortune was
further jeopardized by stiff competition with imported products from
parent companies in America, Europe and Asia.

Activity 1: State the objectives of industrialisation in Nigeria.

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MGS 761 MODULE 1

3.2 The Objectives of Industrialisation in Nigeria

The objectives, as stated clearly in the industrial policy of 1970-74, are

to:
1. promote even development and fair distribution of industries in
all parts of the country
2. ensure a rapid expansion and diversification of the industrial
sector of the economy
3. increase the incomes realised from manufacturing activities
4. create more employment opportunities all over the country
5. promote the establishment of industries which cater for overseas
markets in order to earn foreign exchange
6. continue the programme of import substitution, as well as raise
the level of intermediate and capital goods production
7. initiate schemes designed to promote indigenous manpower
development in the industrial sector and
8. raise the proportion of indigenous ownership of industrial
investments.

Therefore, the overall focus of the industrial policy plan of 1970-74 was
how to maximise value added to gross domestic product rather than
mere increase in the range of products manufactured locally.

The drive for Nigerian participation was to proceed simultaneously with

attracting foreign investments on mutually beneficial terms. The main
argument being that local and foreign investors can only work together
when the interest of the nation is assumed at all times. Thus, as a matter
of fact a number of industries were reserved for effective direct public
sector control and the industries concerned were Iron and Steel Basic
Complex, Petrol-Chemical industries, fertilizer production and
petroleum products. More specifically, the government intended to hold
at least 5% equities. Other large and medium scale participation were to
be as mixed ventures with government and private indigenous
participation at a minimum level or 35% of their equities and the
industries were plantation production of traditional cash crops and of
basic raw materials for propensity industry e.g. wheat and sugar; food
industries; forest product industries, building materials and construction
industries. In Nigeria, we have to look at the various stages of industrial
isation.

3.3 Stages in the Nigerian Industrialisation

For any one to understand better the industrialisation process the

organisation of industrialisation in Nigeria had passed through four clear
stages of development have been identified. The first stage is the
pre-independence era when manufacturing was limited to primary

15
 MGS 761 THE NIGERIAN ECONOMY

processing of raw materials for exports and the production of simple

consumer items by foreign multinational corporations anxious to gain a
foot hold in the growing market. During this period, industrialisation
was mainly resource-based but you could also find some elements of
import substitution and therefore, imported raw- materials based type of
industrialisation has been established from this period.

The second stage was the immediate post-colonial era of the 1960s. This
was characterised by more vigorous import substitution and the
beginning of decline for the export-oriented processing of raw materials.
Policy of import substitution which was introduced was meant initially
to reduce over-independence on foreign trade and save foreign
exchange, turned out to be a mere assemblage of those items rather than
manufacturing them domestically. This negated the original aim since, at
most, every item needed by the so-called manufacturing industries were
imported. At the same time, foreign ownership of manufacturing
facilities reached its peak.

The third stage was the decade of the 1970s. This was remarkable
because the advent of oil and the enormous resources it provided for
direct government investment in manufacturing made the government to
exercise almost a complete monopoly in the following sub sectors: Basic
steel production, petroleum refining petrol-chemical, liquidities natural
gas, edible salt, flat steel plants, machine tools pulp and paper (basic),
yeast and alcohol, and fertilizer (nitrogenous phosphoric). The period
was marked by the infraction of the indigenous programme and hence
intensive economic activity but poor results. Government's attempts at
diversification into non-traditional products such as steel,
petrochemicals, fertilizers and vehicle assembly yielded little success.

The last stage was the decade of the 1980s marked by dwindling
government revenue consequent upon he nose-diving of oil prices at the
world market hence many adhoc attempts at tinkering the economy were
made. These attempts include the adoption of export promotion strategy.
The SAP era beginning from July 1986 even emphasised this strategy
especially as it relates to non-oil exports, hence extension of export
promotion incentives ofvarious descriptions.

In addition, due to dwindling oil revenues and foreign exchange

(following Naira depreciation at the SFEM/FEM/IFEM) for importation
of raw materials and spare parts, the government decided to lay
emphasis on the strategy of industrialisation by local sourcing of raw
materials hence, the manufacturers were encouraged to find local
substitutes/alternatives of their raw materials. Apart from helping to
maximise local resource utilisation, it will also help in saving foreign
exchange earnings. It was partly because of this that a new industrial

16
MGS 761 MODULE 1

policy was enunciated in 1989 aimed at providing greater employment

opportunities to stem the social and political consequence of
unemployment; to increase export of manufactured goods; to improve
the nation's technological capacity, increase local content of industrial
output so as to promote greater linkages and backward integration in
order to raise the general level of economic activity, attractable foreign
investment for local industrial development, and increasing private
sector participation aimed at accelerated pace of industrial development.

3.4 The Structure of Nigerian Industrial Expansion

The structure has been largely biased in terms of low technology and
non-durable consumer goods such as agricultural products, shoes,
clothes, drinks, tobacco, jewellery, toiletries etc., against intermediate
and capital goods. However, the structure has been changing any how,
sometimes high and at times low. For example, the second half of 1970s
showed a rapid expansion and high technology in area of consumer
goods such as vehicles, machines, refrigerators and radio assemblies
industries.

During the 1957 to 1973 period, the food, beverage and tobacco
industries were responsible for at least 32% of total manufacturing value
added in each year at this period. Indeed in 1973, this growth
contributed 42% of total value added generated by the Nigerian
manufacturing industry. In contrast, the share of machinery and metal
products (i.e. intermediate and capital products) in total value added
increased slightly from 4% in 1962 to barely 7% in 1973. This structural
trend can be compared to those of other developing nations to
understand the relative backwardness of the Nigerian manufacturing
industry. For example, the food, beverage and tobacco industries
contributed 18.6% in the total manufacturing value added in Brazil n
1963 and the same Proportion was contributed in Pakistan in 1962-63.
In the same year, 1963 machineries and other capital products
contributed 32% and 23% of total manufacturing value added in Brazil
and Pakistan, respectively.

3.5 Industrial Sector Contribution to Nigeria's GDP

The table below shows the industrial sectors contribution to GDP. The
industrial sector's contribution stood at 11.10% in 1960, rising to
17.23% in 1965 to 22.40% in 1970 and to a peak of 40-80% in 1980.
Thereafter, it declined such that by 1986 it was only 25.70%. This
however rose to 33.30% in 1987 before falling again to 30.8% in 1988.

17
 MGS 761 THE NIGERIAN ECONOMY

Year % Contribution
1960 11.10
1961 12.50
1965 17.23
1970 22.40
1975 35.60
1980 40.80
1985 29.20
1986 25.70
1987 33.30
1988 30.80

3.6 Changes and Growth in Nigeria's Manufacturing Sector

Manufacturing share in Nigeria's GDP rose to 6.9% in 1965 and to 7.2%

in 1970. This, however, fell to only 5.6% in 1975. This rose to 8.3% in
1980 and 8.6% in 1985. In 1991 it rose to 8.5% from where it
maintained a continuous annual decline, such that in 1995 it stood at
6.88%. This poor manufacturing performance has been attributed to high
production costs as a result of high cost of foreign exchange, poor
demand, incessant power disruption, insufficient raw materials supply,
inadequate working capital and frequent machine breakdown.
Manufacturing capacity utilisation turned from 75% in 1980 to 42.7% in
1985 and 39.6% in 1990. By 1995, this had collapsed to 29.3%. In the
same view, growth rate of manufacturing rose from 23.6% in 1965 to
77% in 1975 but falling drastically to only 6.6% in 1980. The only rise
exceeding 10% since then was 20.5% growth rate of 1985. By 1993, it
had fallen to 4.2% and in 1994, it recorded 5.0%. Indeed, the industrial
sector as a whole grew by 5.2% in 1980-86 period and by 4.5% during
1986-97 period.

Activity 2: Highlight the problems that inhibit industrial development in

Nigeria.

3.7 Problems of Nigeria's Industrial Sector

1. Inadequate basic infrastructure e.g. good roads, electricity water

and so on.

2. Weak raw material base (i.e. raw materials are imported).

18
MGS 761 MODULE 1

3. Shortages of technological and managerial know how i.e. little

innovations and inventions in Nigeria's industry.

4. Strong competition from import i.e. goods produced abroad under

superior technology at low cost.

5. Excessive reliance on the external sector for capital goods and

raw materials i.e. total dependence on external source of capital
goods with partial dependence on raw material

6. Competition of resources from other high yielding sectors i.e.

diversification of resources of industries to other sectors.

7. Institutional and administrative bottlenecks in areas of processing

of application for licenses, expatriate's quota, and exchange
control measure etc.

8. Lack of developed industrial framework for managing the

individual sector.

9. Abandoned industrial projects that would have led to industrial

revolution in Nigeria, e.g., the Ajaokuta steel company.

3.8 Nigeria’s Industrialisation Strategies

The success or failure of industrialisation in a country is based on the

strategies adopted. It is the strategies that allocate right resources in
terms of quality and quantity to the right industrial activity. The
strategies of industrialisation depend on costs and benefits analysis of
deploying resources for industrial production or among various sectors
of the industry. In Nigeria, the following industrialisation strategies had
been adopted.

1. Import substitution strategy

2. Export promotion strategy
3. Balanced development strategy
4. Local resource-based strategy.

3.8.1 Import Substitution Strategy

The first national development plan 1962-68 adopted this strategy; it

involves channeling of resources into consumer goods production.
Nigeria changed from the policy of producing primary products
introduced by the colonial masters to that of producing those items
originally imported. The main aim was to lessen over-dependence on

19
 MGS 761 THE NIGERIAN ECONOMY

foreign trade and to save foreign exchange. However, what turned out
was mere assemblage of those items rather than manufacturing them.
This negated the original aim since almost every item needed by the so-
called industries was imported.

Problems faced by this strategy:

- structure of production emerged with impossible operation at

full-scale capacity without enough capital input

- high tariff on the imported raw materials led to high. The local
industries also faced high competition with foreign industries
because of the imported capital goods and raw materials

- dependence on foreign technology that was not available here.

And the products of the local industry didn't lead to any
technological advancement in the country.

3.8.2 Export Promotion Strategy

Realising the obvious pitfalls of the import substitution strategy, Nigeria

added the strategy of export promotion in the 3rd national development
plan, 1975-1980. This involved the production and exportation of new
products and those originally imported. To encourage and implement
this policy the Nigerian Export promotion Board (NEPB) was
established. This strategy could not succeed because of lack of
incentives and raw materials. However, there have been renewed
emphases on this strategy since 1986 by the export promotion
incentives.

3.8.3 Balanced Development Strategy

This policy was adopted as a result of the lopsided development of the

industrial sector. The main aim of balanced development of all
industries is to promote greater linkages within the sector. The
government wanted to create intra-industry linkages and intersectional
linkages so that intra-industry transactions could increase.

3.8.4 Local Resource-based Strategy

As a result of dwindling oil revenues and foreign exchange for

importation of raw materials and spare parts; the government decided to
lay emphasis on the strategy of industrialisation by local sourcing of raw
materials. Industries are thus encouraged to find local substitute or
alternatives of their raw materials. For instance, breweries are now to
grow and use local millet and maize. The ban on wheat importation has

20
MGS 761 MODULE 1

necessitated the baking of corn bread. This strategy was to bring in

maximum utilisation of local resources as well as help in foreign
exchange among other merits.

3.9 Government Incentives to Industrialisation

The government has encouraged industrialisation and the strategies

through a number of incentives. The aim is to protect domestic
industries from international competition and enable them build up
enough funds for expansion purposes.

The incentive includes:

Tarriff Protection

In some cases the government impose heavy import duties on foreign

goods so as to protect local industries from international competition.

Import Duty Relief

In some cases the government grants import duty relief to industries

particularly new ones for the importation of capital equipment.

Total Ban on Certain Foreign Goods

In Nigeria, the government has banned some foreign goods so as to

protect local industries engaged in the production of similar products as
well as to encourage increased local production.

Provision of Supportive Activities

The government also provided other incentives in the form of aids like
building of industrial estates.

Provision of Loans

In Nigeria, there are guidelines on credit allocation by financial

institutions such as commercial banks, merchant's banks and industrial
development banks to the industrial sector. Special industrial
development financial institutions like the Bank of Industries (BOI) and
Nl3CI have been established to aid industrialisation management.

Provision of Accelerated Depreciation Allowance

The government also allows another form of income tax relief by

allowing industries to set aside huge sums for covering wear and tear of

21
 MGS 761 THE NIGERIAN ECONOMY

their equipment and machines.

Direct Government Participation

The government has also come in to participate directly in certain

strategic industries either alone or through joint participation with
foreign or local entrepreneurs.

Approved User Scheme

This involved the giving of concessionary rates of duty to certain

selected items of industrial import.

Export Incentives

In Nigeria export promotion incentives include the return of import duty

on raw materials for production of export goods, refund exercise duty
paid on export manufactures, exception from import levy of 30% of raw
materials imported for export production, generous import license for
importing raw materials for export production, exporters retaining 25%
of their proceeds of foreign exchange earnings from export in their
foreign currency account with Nigerian banks, assistance on export in
costing and pricing, liberalized export license, and the establishment of
an export credit Guarantee and insurance scheme.

4.0 CONCLUSION

The industrial sector is the heart of economic development, the success

determines the economic growth and development of any nation. A
healthy industrialisation contains a web of relationships between owners
(interested in profit /dividend), consumers (interested in
reasonably-priced quality goods), the workers, foreign interest and the
public. Government therefore is expected to formulate policies relating
to this web of relationship while ensuring the attainment of societal
objectives.

5.0 SUMMARY

Industrialisation, which is the process of building up the country's

capacity to convert raw materials and other inputs to finished goods, and
to manufactured goods for other production or for final consumption,
has passed through four clear stages of development. Each stage has
been punctured with it's own peculiarity. However, inspite of the
shortcoming of the industrialisation in Nigeria, the government has
continuously made considerable efforts to improve the performance of
this sector.

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MGS 761 MODULE 1

6.0 TUTOR-MARKED ASSIGNMENT

The underdevelopment of the Nigerian economy could be attributed to

the poor performance of this sector in spite considerable governmental
effort. Discuss.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (1997).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem, C.S (2002). Growth and Development of Nigerian Economy.

Kaduna : Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy A Text of Applied Economy.

Evans Brothers Nigeria Limited.

23
 MGS 761 THE NIGERIAN ECONOMY

UNIT 3 MINING AND QUARRYING IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Role of various Minerals in the Economy
3.2 Petroleum
3.3 Natural Gas
3.4 Tin and Metal
3.5 Columbite
3.6 Limestone
3.7 Gold
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Natural resources form the base of the economic and social progress of
any country. You should be happy to note that Nigeria is richly endowed
with vast natural resources. Although these natural resources including
such mineral as petroleum, limestone, tin, columbites kaolin, gold and
silver, coal, zinc, etc are largely untapped. In this regard, you can say
that mining and quarrying are very central to the development process of
the Nigerian economy.

Modern mining activities have involved crude petroleum, solid minerals

and associated gas production.

It is interesting at this juncture to realise that the mining and quarrying

sector has since become the dominant sector in our economy, followed
by agriculture in terms of its contribution to the Gross Domestic Product
(G.D.P). The impressive performance of the mining and Quarrying
sub-sector in the share ofthe G.D.P. and its total monopoly of foreign
exchange earnings especially in the 1970s is, however, accounted for by
a major mineral product: crude petroleum.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o identify the various mineral resources available in the country

examine the role of various minerals in the economic

24
MGS 761 MODULE 1

development of Nigeria
o outline various constraints faced by this
sector
o enumerate some government policy measures aimed
at
overcoming these constraints.

The economic and social development of a nation depends strongly on

the availability of natural resources. The natural resources include
various mineral and energy resources. Fortunately for Nigeria, it is
blessed with different natural resources. These natural resources play
fundamental role in the development of the nation. The natural resources
available in a country could be classified into three broad categories:
Mineral fuel such as coal, oil and natural gas: firewood and peat, and
other sources of energy like waterpower and the thermal power from the
sun. The fundamental problem in the Nigeria society is the efficient
utilisation of these natural resources. The intention here is to look at the
role and characteristics of the sector in the Nigerian economy.

Activity 1: Mention the various minerals in the Nigeria Economy?

3.0 MAIN CONTENT

3.1 The Role of various Minerals in the Economy

1. COAL: Coal deposits were discovered for the first time in

Nigeria in the early 19th century near Yeli in Anambra state. This
discovery created further incentives that intensified the search for
coal, bearing in mind the increasing level of local consumption
and the possibility of establishing markets on other West African
countries. As a result of these investigations, several deposits of
coal were discovered around Enugu in Enugu state, and Kabba in
Kogi state. The Enugu coal deposits has been the only ones
mined until the Nigerian civil war when mining was closed down
temporarily. To meet local demand, the Kabba mine had to be
exploited for the first time. The actual reserves are in the order of
360 million tons and all of these are located around Enugu in
Enugu state and Kabba in Kogi state.

The Nigerian coal is of sub-bituminous class which has a high ash

content but is suitable for the production of tar and synthetic fertilizer. It
can also be used for ordinary steam raising purposes including the
generation of electricity, and also for the manufacture of chemicals and
liquid fuels. As a result of its richness in hydrocarbons, waxes and
resins, for over a decade, Nigeria coal was considered as non-coking,
but in 1961 Simon-carves Ltd. Of Britain disproved this by showing that
25
MGS 761 THE NIGERIAN ECONOMY
blending about 15% of pitch with the Enugu Coal, a high temperature

26
MGS 761 MODULE 1

coke suitable for metallurgical purposes could be obtained.

The two major consumers of coal are the Nigerian Railway Corporation
(NRC) and the National Electric Power Authority (NEPA). Coal is now
being consumed mainly by the Nigerian cement companies, particularly
in cement factory at Nkalagu in Enugu state, which found that coal is
still a cheaper source of fuel and energy because of its proximity to the
mines. The iron and steel complex which is under construction provides
a potential market also. It is estimated that about 200.000-270,000 tons
of it would be needed annually at the initial production period to
produce black and galvanised sheets by the iron and steel company.

3.2 Petroleum

Petroleum in all its forms, crude oil or natural gas, appears to every one
especially in developing countries to be a decisive factor in economic
expansion. It is for the producer an easily negotiable source of wealth,
an efficient source of power to be utilised and a good base for
industrialisation because of the processing chain and variety of products
that result from petrol-chemical industries.

Nigerian has large reserves of crude oil fields and natural gas, its oilfield
are located in a territory, South of a line that can be drawn through
Benin City, Owerri in Imo State and Calabar in Cross-river state. The oil
wells are all located in the tropical rain forest and mangrove swamps in
southern states.

Activity 2: Mention at least three effects of Petroleum Development on

the Nigerian Economy.

1. Petroleum development in Nigeria has three effects on the

economy.
2. It has had a stabilising effect on the revenue of the federal
government.
3. It has improved the negotiating position of the government with
the oil companies, placing the former in a position where it can
more or less dictate its terms.
4. The participation of big international oil companies such as Shell.
B.P Mobil oil, Elf oil, and Agip oil, reduces the danger of
oligopolistic arrangements and oligopolistic behaviour.

3.3 Natural Gas

Apart from crude oil, considerable reserves of natural gas have been
discovered. The present largest production sites of oil fields are the
production sites for natural gas largely because the latter is often found
with petroleum. Its production started in 1957 with an output of 2.014

27
MGS 761 THE NIGERIAN ECONOMY

million cubic feet and has since increased to about 800.000 million
cubic feet. All the natural gas produced is consumed locally by
industries as fuel and by the National Electric Power Authority for
electricity generation.

3.4 Tin and Metal

Various outliving deposits of tinstone, as it is sometimes called, have

been reported in Oyo, Plateau, Bauchi and parts of Kaduna, Kano and
Benue States. However, the most important deposit lies in an area
centred on the Jos Plateau in Plateau state. A larger area of this tin field
is covered by a thicker belt of volcanic basalt which renders the deposits
beneath it almost inaccessible. The first deposits to be worked in the
early 19thcentury were those in river beds. These have long been
exhausted and the companies have since turned their attention to the
older deposits which lie under a layer of earth many meters deep.

Initially, the mining of tin was mainly for domestic consumption until
the advent of the British. With increasing foreign participation in the
industry, tin has been mined both for export and domestic use.

Within the mining and quarrying sector, tin is an important earner of

foreign exchange, second only to crude oil, although its contribution to
the sector's total foreign earnings fell from about 60 percent in 1950 to
7.5 per cent in 1974. Domestically it had also been source of revenue to
the government, although its contribution in the period under review had
been marked with fluctuations as a result of changes in output and
reduction in rents and royalties. Unlike royalties from other minerals,
the royalty on it is progressively calculated by a sliding scale based on
the price of tin metal. The tin industries, like any other industry, had
suffered from lack of personnel and transportation facilities, especially
before 1963. Lack of good roads hampered the opening up of new
deposits because both machinery and labour could not be transported
easily to the new mining fields. And when new roads were built to
connect potential tin fields, they were never opened up because of the
inelastic demand and unstable world market price for tin. These factors,
in addition to the existence of good investment opportunities in the oil
industry, discouraged further investment in the new tin fields. It seems
that Nigeria's tin output in the future will continues to decline, given the
pattern it has taken since the last decade.

Columbite

This is a mineral which was formerly regarded as an impurity occurring

with tinstone from which it had to be removed by means of magnetic
separators. Its deposits are located at the tin fields, being a by-product of

28
MGS 761 MODULE 1

tin ore. The most important deposits lie in an area around the Jos
Plateau, which is the most important location of tin mining. The dumps
of certain tin mines in Nigeria have proved remunerative sources of
columbite.

Limestone

There are several deposits of limestone scattered all over the country.
The known deposits of significance are located in Ogun, Olo, Ondo,
Anambra, Imo, Edo, Kwara and all the northern states of the country.
This mineral became of importance only in 1960 when 240,000 tons
were produced for domestic use. Its production rose as a result of its
requirement as a raw material for cement plants which were established
in the country; the local demand for this mineral increased sharply, and
by 1974 its output was about 1.8 million tons.

Gold

Gold deposits are widespread in the country especially in Niger and

Sokoto States where the established fields lie today. Other locations,
though not as important as the Niger and Sokoto gold fields are the ones
around Ilorin, Kabba and Ilesha in Kwara, Kogi and Oyo State
respectively. Although lodes are known to exist, most of the output has
been won from alluvial and detritus deposits.

4.0 CONCLUSION

The gold industry in Nigeria developed rapidly as a result of the rise in

the price of gold in the World market and the sudden appearance of a
large well-trained labour force from the tin mines. Gold has been
produced both for export and domestic consumption.

5.0 SUMMARY

Nigeria is blessed with natural resources. These natural resources are yet
to be fully utilised. However, Nigeria has been mining minerals such as
petroleum, limestone, tin, columbine, kaolin, gold, and silver, etc. The
contribution of the mining and quarrying sub-sector to the economic
development process of the country only became significant after about
five years of independence. The impressive performance of the mining
and quarrying sub-sector in the share of the GDP and its total monopoly
of foreign exchange earnings especially since 1970s is, however,
accounted for by a major mineral product: crude petroleum. Crude
petroleum, the dominant mineral in the mining and quarrying sector of
the Nigerian Economy accounted for 91.8% of the output of the sector in
1981. 96.7% in 1985, 97.6% in 1985, 97.6% in 1987, 97.8% in 1990,

29
MGS 761 THE NIGERIAN ECONOMY

97.9%, 97.6% and 97.6% in 1992, 1994, and 1995 respectively. The
exploitation and sale of other mineral products in Nigeria remain very
low.

6.0 TUTOR-MARKED ASSIGNMENT

State the various minerals that are found in the country and discuss the
importance of the mining and quarrying sub-sector in the development
of Nigerian economy.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A.(nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem, C.S. (2002). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

30
MGS 761 MODULE 1

UNIT 4 GOVERNMENT REVENUE IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Sources of Revenue Generation
3.2 Improving Revenue Generation Base
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Nigeria has a three-tier government system: The Federal, the State and
the Local Governments. The Nigerian Constitution spells out the
functions of each of the governments. Generally, however, it can be said
that government are responsible for the provision of collective goods
and services on a non-commercial basis as well as the provision of other
social and economic services. In order to do this, however, government
needs to collect revenue. Thus, it can be said that a government needs
revenue to meet its capital and recurrent expenditure.

Government revenue could come from many sources. In the case of

Nigeria, the chief sources include: taxes, gains from trade and
commerce, loans, fees, statutory allocations and grants, rents and
royalties and duties. There are many types of taxes. One type is that
referred to as 'indirect taxes', including: import and excise taxes, taxes
on extractive industries and sales taxes. Export taxes are imposed on the
items that feature in export basket while import taxes are levied on
imported items. Excise taxes are paid on some locally manufactured
goods. Examples are taxes on tobacco and beer. Taxes on extractiveUnit
industries consist of mining and mineral tax (e.g. mining rent and
royalties). Examples of sales taxes, purchase/sales tax on motor vehicle
fuel and general sales tax.

Another category of taxes is that commonly known as direct taxes,

anexample of which is the personal income taxes. In addition to direct
and indirect taxes, there are miscellaneous sources, which include
revenue derived from licenses, fees, rent on government property, and
earnings from government properties. Statutory allocations and grants
come from the Federal to the State and/or Local Government.

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MGS 761 THE NIGERIAN ECONOMY

Each level of government has jurisdiction over certain sources of

revenue. It is clear that the Federal Government has legal basis for the
collection of 11 out of the 21 sources of revenue, whilst the State and
Local Governments have legal basis in respect of the rest. The ones for
the Federal Government are: import duties; excise duties; export duties;
mining rents and royalties, petroleum profit tax; companies income tax;
capital tax; personal income tax of Armed Forces, Police, External
Affairs Officers and Federal Capital Territory; Radio and TV licenses
and fees; and stamp duties. The Federal Government does not administer
all these taxes. Rather, a few of them are administered by the State
governments and passed on to the local governments, for instance, radio
and television licenses and fees.

The state governments collect most of the other types of revenue and
either retain them or pass them over to the local governments or share
them jointly with the local governments.

It can be observed that it is the federal government that has jurisdiction

over the collection of revenue from the major revenue-yielding sources
in Nigeria. Little wonder then that there is need for the federal
government to share some of its revenue with the State and Local
governments because these may be in a position to provide some
services expected of them. Specifically, the federal account is shared
approximately 5 per cent to the federal government, 35 percent to the
state governments and 10 percent to the local governments.

2.0 OBJECTIVES

In order to appraise government revenue in Nigeria, you shoould be able

to:

o identify the various sources of government

revenue
o examine ways of achieving a more healthy revenue
base.

Activity 1: Think about the importance of the various sources of

revenue generation in Nigeria.

3.0 MAIN CONTENT

3.1 Sources of Revenue Generation

In the 1970s, we witnessed a great increase in the current revenue of the

federal government. This was mainly due to some structural changes in
the economy, particularly in those sectors that generate revenue for the
32
MGS 761 MODULE 1
federal government.

33
 MGS 761 THE NIGERIAN ECONOMY

A number of reasons can be advanced for the relative importance of the

respective sources of revenue viz:

- Direct taxes are now more important as a broad category of

revenue source than indirect taxes. This is primarily due to the
emergence of a new item of indirect tax, namely, petroleum profit
tax. Before this new item was added to the direct tax list, indirect
taxes had constituted a more important category than direct taxes.

- Petroleum profit tax is the most important revenue item not only
under direct taxes but also among all revenue items. For example,
this item alone provided more than 50 percent of the total current
Federal Government revenue for any of the years from 1970 to
1977.
- Although company tax has generally been on the increase, it
contributed only a small percentage in recent years. This could be
due to either the low relative growth in the industrial vis-a-viz the
oil sector or to the fact that some companies did not declare
accurate profits, or to both.

- Personal income tax is an insignificant source of revenue for the

Federal Government. A number of reasons could be adduced for
this among which are: the small number of people employed in
the public sector and tax evasion on the part of people in the
private sector, especially the self-employed.

- Import tax forms the most important item under indirect taxes.
For any of the years covered by the data, this item yielded more
than 50 percent of the revenue collected as indirect taxes. Its
importance and the increase in its contribution over the years
could be attributed to two major factors: increase in the volume
of imports as a result of the greater affluence of Nigerians and the
increase in the import duties on some imported items which did
not lead to a fall in the volume of imports (due to the relatively
price inelastic nature of the demand for imports).

- The contribution of export tax to government's revenue has

become less and less important over the years. This is primarily
due to the fact that the volume of exports of almost all items has
gone down. In some cases, certain export items have ceased to
appear on the export list.

- Excise tax is a more important source of revenue than export tax.

Its percentage contribution to total revenue fluctuated over the
years probably as a result of variations in the volume of
production of the commodities on which excise tax is imposed.

34
MGS 761 MODULE 1

- Royalties, rents, etc., have been increasing primarily because of

expansion in mining activities.

- The federal government has been highly dependent on the oil

sector for its revenue. This is dangerous, as recent experiences
have shown. It is this over dependence that led to the recent
financial crises and the austerity measures being adopted by the
government to arrest the situation.

Activity 2: Highlight the strategies for achieving a more healthy

revenue base in Nigeria.

3.2 Improving Revenue Generation Base

As pointed out above, the current over dependence of the government on

the oil sector for its revenue is not healthy. Efforts should, therefore, be
made by the government to move away from the current position. This
can be done in a number of ways. The government can try to intensify
its efforts in getting more revenue from personal income taxes. In this
case, the government should devise means that will help in assessing the
earnings of people in the private sector, especially the self-employed.
The government is losing a lot of revenue by not making adequate
efforts to 'reach' the self-employed.

Industrial development behind protective walls is another way of

moving the government's revenue source from its current oil bias. As we
noted above, the demand for imported items is fairly price inelastic.
Thus, if government increases import duties on them, the volume of
demand would be less than appreciably decreased. Thus, the government
can realize more revenue by increasing import duties. Higher import
duties should, to some extent, help to protect home industries. After
some time, such protected industries should be making profits that can
be taxed by the government. This should help to increase the
contribution of company's profit tax to government's revenue. Also
industrial development would increase the amount of revenue derived
from excise tax.

Agricultural development should also be a priority area of concern. If

this is achieved, it will help to increase the volume of exports and,
hence, the amount realised by government from export tax.

4.0 CONCLUSION

Nigeria's revenue sources have always been heavily skewed,

concentrated as they are on just one or two taxes, over the years. Though
the focus of concentration has changed over time from foreign trade

35
 MGS 761 THE NIGERIAN ECONOMY

taxation, especially import duties to oil-based taxes, but the heavily

skewed nature remains.

In addition, the tax revenue sources have always been largely based on
foreign activity-in the past three decades. Tax revenues are based
principally on imports, and since the mid 1970s, they have been based
largely on crude oil activity, the bulk of which (annually over 90%) is
export- oriented. This means that the effective incidence of Nigeria's tax
system is largely external rather than internal. In this regard, a tax
system with such an external incidence patterns is hardly one to compel
fiscal responsibility and prudence on the part of government, nor
encourage the citizens to keep a watchful eye on the level andpattern of
government expenditure.

5.0 SUMMARY

The federal, state, and local governments are obliged to carry out certain
functions which range from the provision of tradable goods to that of
non-tradable goods and services such as infrastructures like schools,
hospitals, roads etc. For the government to provide these goods and
services it needs to collect revenue. The basic sources of revenue are
taxes, loans, fees statutory allocations and grants, rents and royalties etc.
As pointed out, these are over dependence of the government on the oil
sector for its revenue generation.

6.0 TUTOR-MARKED ASSIGNMENT

i. Discuss the relative importance of the various sources of revenue

ii. Over the years the federal governments have been depending
solely on the crude oil for revenue generation. State other means
by which the Government can diversity its revenue base.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molam, C.S.(2002). Growth and Development of Nigerian Economy,

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

36
MGS 761 MODULE 1

UNIT 5 GOVERNMENT EXPENDITURE IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Need for Government Expenditure
3.2 Classification of Government Expenditures
3.3 Determination of Government Expenditure
3.4 Effects of Government Expenditure in Nigeria
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Government expenditure policy represents an overall aspects of fiscal

policies towards expenditure programmes to meet the goals of stable
long-term growth, economic efficiency and poverty alleviation.

Government expenditure affects aggregate resource use and, together

with monetary and exchange rate policies, influences the balance of
payments, the accumulation of external debt, and the inflation, interest
ad exchange rates. Government spending, taxes, user charges, and
borrowing also affect the behaviour of producers and consumers, and
influence the distribution of income and wealth in any economy.
Government thus, assumes a major role in promoting investment and
growth throughout the country.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o find out why the government should

spend
o classify government
expenditure
o look at the effects of government expenditure in
Nigeria.

3.0 MAIN CONTENT

3.1 The Need for Government Expenditure

37
MGS 761 THE NIGERIAN ECONOMY
Governments have the major functions of serving the citizens of the
country. By means of appropriate economic policies, a government is

38
MGS 761 MODULE 1

expected to promote the economic well-being and the general welfare of

the citizens. In addition to maintaining law and order, the government is
also expected to play an important role in economic affairs.

Governments intervene in the economy in a number of ways and for a

number of reasons. First of all, doing so, governments are able to
produce goods and services. Government expenditure represents the cost
of carrying out these activities. Thus, government expenditure refers to
the value of goods and services provided through the public sectors. The
expenses are incurred in the production and/or provision of
governmental goods and services.

Activity 1: Outline the things you think the government should spend
on.

There are number of items of government expenditure. The major ones

are with regards to the following:

o defence in order to ensure internal and external security and

maintain law and order
o general administration, i.e. managing and planning the running of
official administrative offices, ministries and parastatal
o provision of social infrastructures and services like roads,
harbours, hospitals, schools, transport, water, electricity supply,
education housing etc
o participating directly in economic enterprise, either by organizing
production or marketing itself or providing finance to help private
enterprise or combining with some private enterprises in some
way:
o implementation of development plans;
and
o payment of interest on national
debt.

Activity 2: Classify the forms of government expenditure?

Government expenditure takes two major forms i.e. recurrent and

capital. Recurrent expenditure refers to all running costs of government.
They involve all expenditures by the government for the maintenance of
existing or new institutions and services. Recurrent operating costs of
government include salaries and wages of public officers and their
fringe benefits and other expenses for servicing activities which involve
administration, defence and other social services like education, health
and pension schemes.

Capital expenditure, on the other hand, it the cost of bringing into

39
 MGS 761 THE NIGERIAN ECONOMY
existence new institutions, services and projects. It refers to all
government expenses on new buildings, roads, factories or schools and

40
MGS 761 MODULE 1

the equipment required for providing social and economic services.

3.2 Classification of Government Expenditures

For you to appreciate how the government expenditure is being made

you can easily classify them into four groups. These are: administration,
economic services, social and community services and transfers. The
major item under administration' is general administration and internal
security. The items under economic services' are agriculture,
construction, transport and communications and other economic
services. Education, health and other social and community services
belong to the social and community services' category. Transfers'
include public debt servicing (internal and external), statutory
appropriation to states, non-statutory appropriation to states, pensions
and gratuities and transfers to Development Funds.

The administration aspect of government expenditure is really meant to

keep the governmental agencies going and also to ensure internal
security and also to protect the country against external aggression.
Allocation to this group is usually regarded as non-productive and
ideally, its proportion of total expenditure should be minimal. Economic
services are required to act as 'organs' for achieving economic growth
and development. Thus, for a country that thinks seriously about
economic growth and development, the allocation of total expenditure
made to economic services should be larger and should continue to grow
over the years. Expenditure on social and community services is really
meant to raise the quality of life of people in a country as well as the
standard of living of the people. Transfers are, among other things,
usually necessary in a country like Nigeria where the Federal
government is regarded as 'Father Christmas'. The states are dependent
on it for the execution of their programmes. If states spend the transfers
made to them wisely, a good part of the transfer group of expenditure
could either be regarded as productive or contributory to raising the
standard of living of people. To this extent, therefore, a high proportion
of government expenditure in form of transfers would be beneficial.

3.3 Determination of Government Expenditure

There are a number of factors that might be expected to affect the extent
of government expenditure. One of such is the amount of revenue
available to the government. Although deficit financing is possible and
is adopted by a government, it could be said that usually the more the
revenue available to a government, the higher its aggregate level of
expenditure is likely to be. This is analogous to the usual expectation
that the higher the income of a person, the greater is his expenditure
likely to be.

41
 MGS 761 THE NIGERIAN ECONOMY

Since one of the major groups of government expenditure is social and

community services, the more populous a country, the greater would be
the amount of money to be allocated to this group. More schools and
colleges would need to be built, more health institutions to be provided,
and so on. Thus, there should be a positive correlation between
population growth and the rate of increase in total 'government
expenditure.

Government expenditure should also be expected to be related to

national income (which is different from revenue). The greater the
national income of a country, the more the government expenditure is
expected to be. Economic growth, which is only narrowly defined as
growth of national income, affects government expenditure. The growth
of modern industries contributes immensely to the growth of national
income as we have discussed in an earlier chapter. However,
accompanying the growth of industries are certain requirements and
results. For example, there will be need for improved infrastructural
facilities such as roads, port development, post and telecommunications,
electricity and water. The efforts of the government to meet these
concurrent requirements would consequently lead to increased
government expenditure.

The ideology of the government and its economic plan objectives will
also affect both the volume and the pattern of its expenditure. If the
stated objectives of the government is in the Plan, for example, include
such things as promotion of economic growth and raising standard of
living of the people, then it would be expected that this be reflected in
not only government's total expenditure but also in the sectoral
allocations.

Activity 3: Has the expenditure made by the Nigerian government had

any effects on the economic development ofNigeria?

3.4 Effects of Government Expenditure in Nigeria

A number of observations can be made about the effects of federal

government expenditure in Nigeria over the last three decades.

On the positive side, it can be said that federal expenditure has led to the
following:

i. Infrastructural Development: The most remarkable of the

infrastructural facilities is road network. Nigerian now has fairly
good road network when compared with some other African
countries. Developments have also occurred with respect to
seaports, airports and railways.

42
MGS 761 MODULE 1

ii. Establishment of Industries: As a result of government revenue, it

has been possible to establish a number of industries, a typical
example of which is the iron and steel industry.
iii. Establishment of More Institutions of Higher Learning: Within
the last decade, the number of Universities and other institutions
of higher learning has increased as a result of increase in
government expenditure.
iv. Provision of Better Health Facilities: As a result of increase in
government expenditure, it has been possible to provide better
health facilities. The Basic Health Services Scheme currently
embarked upon by the Government and which is expected to take
health care to the doorsteps of every Nigerian would not have
been possible without increase in government expenditure.
v. Successful Prosecution of the Civil War: Without the increase in
government expenditure, it would not have been possible to
successfully prosecute the Civil War as a result of which the
country is still one today.
vi. Development of New States: The allocation made to the state
governments has played a key role in enhancing development in
the newly created states.
vii. Increase in Standard of Living of Nigerians: All told, there has
been appreciable improvement in the standard of living of
Nigerians. This has been primarily due to increased government
expenditure over the years.
viii. Increase in Capital Formation: The increase in government
expenditure as well as the reversal of the bias in government
spending from current to capital expenditure has helped to raise
the extent of capital formation in the country.

On the negative side, however, there are at least three effects of

government expenditure worth mentioning. First, the government has
put up so many 'white elephants'. The expenditure on such things is, no
doubt, wasteful and is a gross violation of the rules of optimal allocation
of resources for a developing country like Nigeria. Secondly, increase in
government expenditure has played a key role in making some
Nigerians 'over-night millionaires'. This would not have been a
disadvantage if such people had been spending their money wisely. But
they have not. They engage, rather, in wasteful spending and
conspicuous consumption. It is even alleged that some of them spend
more of their over-night acquired wealth outside than inside this
country. This acts as a 'leakage' from the economy. Thirdly, it is
generally believed that increase in government spending has been a
major contributory factor to inflation in Nigeria.

43
 MGS 761 THE NIGERIAN ECONOMY

4.0 CONCLUSION

There is a degree of consensus in the public finance literature on

desirable criteria for government expenditure that will enable it achieve
it's developmental objective. However, in Nigeria there is strong
violation of the rules of optimal allocation of resources. Over the years
federal government of Nigeria has been engaged in wasteful spending
on projects that has no bearing in the economic development of the
country. This mis-allocation of the limited resources in countries is
alleged to be responsible for the slow pace of the economy development
ofNigeria.

5.0 SUMMARY

The government of Nigeria has as its major function, the promotion of

the economic well-being and the general welfare of the citizens. To
effectively achieve this, government makes certain expenditure on major
issues , such as defence, general administration, provision of social
infrastructures and service, participating directly in economic enterprise,
etc. These expenditures could be categorised into recurrent and capital
expenditure. Furthermore there are quiet a good number of factors that
determine government expenditure. The most important factor is the
amount of revenue available to the government. Also you have seen that,
the effect of government expenditure on the development of
infrastructural facilities, establishment of industrial provision of better
health facilities and soon on.

6.0 TUTOR- MARKED ASSIGNMENT

Discuss the functional determinants of patterns of government

expenditure in Nigeria.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A.(nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

44
MGS 761 MODULE 1

MODULE 2

Unit 1 Commercial Banking in Nigeria

Unit 2 Central Banking and the Nigerian Economic Development
Unit 3 The Nigerian External Debt Crisis
Unit 4 Growth and Investment Opportunities in Nigeria
Unit 5 International Trade in Nigeria

UNIT 1 COMMERCIAL BANKING IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Development of Commercial Banking in Nigeria
3.2 Implications of the Changing Structure of Ownership
3.3 Role of Commercial Banks in Nigeria
3.4 Utilisation of Funds by the Commercial Banks
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

The word ‘bank’ is derived from the Italian word bank-meaning bench.
This word has carefully been selected because; the Jews in Bombay who
were the early bankers conducted their business at benchers in the
market place.

However, as a form of financial institution, the commercial banks

otherwise known as joint stock banks act as an intermediary body
between those who are in need of fund and those who have surpluses.
But its function does not end at only accepting deposit from the public
and giving out advances to the public.

More so, they provide other functions which include, discounting bills
of exchange, act as customers agents in buying or selling of stocks and
securities. Also, they obtain foreign currency for customers and they
issue bank drafts, traveller's cheque, etc. You should be informed that
the relevance of these services provided by the commercial bank should
be emphasized because the development of the economy of a country
depends strongly on the efficient performance of its commercial banks
as one of the financial institution.
45
 MGS 761 THE NIGERIAN ECONOMY

2.0 OBJECTIVES
The significance of the role of commercial banks in the economic
development of our society can be better understood if, we look at the
evolution of the commercial banking in Nigeria, highlight the features
and problems challenging the efficient performance of the commercial
banks and identify the sources of funds and functions of commercial
banks in Nigeria.

3.0 MAIN CONTENT

3.1 Development of Commercial Banking in Nigeria

The historical evolution of the commercial banking in the country has
passed through different major era.

The first era could be regarded as the free banking era. It was the era of
monopoly of foreign banks. The first characteristic was the absence of
any banking legislation. Before 1952, anybody could set up a banking
company, provided he registered under the companies ordinance. The
second feature was that it was this period the three biggest foreign banks
and the two largest indigenous banks were established. Commercial
banking activities began in 1894 when the Bank of British WestAfrica,
now First Bank of Nigeria Plc. began operations. For the next two and a
half decades, this bank pioneered the development of banking in Nigeria
until it was joined in 1917 by Barclays Bank, now Union Bank of
Nigeria PLC. The third feature of commercial banks during the period
was that ofan indigenous banking boom.

However, beginning in 1929, indigenous entrepreneurs began to make

forays into the banking sector by incorporating and establishing formal
banking institutions. In the thirty year 1929 to 1959,25 of these banks
were established.

A number of factors contributed to this development. The initial impetus

could have derived from the attempt to redress the discrimination
suffered by indigenous entrepreneurs from the foreign banks. By 1954„
of the 23 banks established only 3 were still operational. The remaining
20 had failed with an average life span of less than 3 years. Of the three
established between 1958 and independence in 1960, only one survived
to give a total of four survival out of the 26 banks chartered during this
period. The four surviving banks are:

o National Bank of Nigeria

Limited
o Agbonmagbe Bank (Now Wema Bank
PLC)

46
MGS 761 MODULE 2
o Africa Continental Bank
PLC
o Bank of the North
Limited

47
MGS 761 THE NIGERIAN ECONOMY

There is one common feature among all the four survivors, namely
ownership by Regional/State Governments. In fact, it was the lifeline of
support from the three Regional governments that guaranteed the
survival of these banks.

In this regard, the Central Bank Act of 1958 has been enacted to control
the activities of banks and to specify entry conditions.
The 1972 Nigerian Enterprises promotion Decree amended the 1977
Decree. Here, banking was classified under schedule 2 of the Decree,
under which at least 60 per cent of the equity of such enterprises must be
Nigeria-owned. At the same time government decided to take control of
certain critical sectors of the economy including banking, insurance and
oil sectors.

Until 1991, the guidelines for establishing a bank required that within
the minimum 60% equity for Nigerians, no single individual could own
more than 5%. That, in effect means that for joint partnership between
Nigerian and foreigners at least a minimum of 12 Nigerians were needed
to form a bank. For a fully owned Nigerian bank the minimum numbers
of individuals is 20.

More so, the guidelines required a wide geographical spread of Nigerian

shareholders to reflect the country's diverse ethnicity. The ownership
structure recently has been subject to changes.

Activity 1: Can you say that the ownership structure change had effect
on the banking industry?

3.2 Implications of the Changing Structure of Ownership

1. Response of foreign shareholder

The immediate result of indigenisation Decree of 1977 was transfer of

60% ownership of the foreign banks to Nigerians. The transfer of
management was more gradual but one could safely say that today.
Nigerians have full control of the management of most of the banks
operating in the country.

However, there was backlash effect, with the loss of control, there
emerged a withdrawal attitude among the foreign banks that still persist
today. A gradual flight of good experienced personal followed and the
Nigerian banks no longer enjoyed the favoured treatment of being full
subsidiaries of these foreign banks. This must certainly have had some
effect on efficiency and optimum growth.

48
MGS 761 MODULE 2

2. Attitude of Government

The Nigerian experience in indigenisations of the banking sector has

some element of uniqueness. In most cases, indigenisation and
nationalization lead to the use of the banking system as a means of
implementing monetary policies or Government objectives that does not
seem to be the experience in Nigeria. In fairness, the Government has
shown the least conflict of interest in its position as both the regulator
and major shareholder in many of the banks. Its monetary policies and
regulations on the banking industry have regarded the banks as private
sector operators in a commercial setting. Government control of the
banking industry could be more optimal and effective if it relinquishes
the role of shareholder, especially in non-development banks.

3. Quality ofAssets

Before indigenisation, banks took any short-term positions in

theirlending portfolio to reflect a similar tenure in their deposits.
Theeffects of indigenisation seem to have changed that focus. The banks
were sort of transformed to developmental roles and they started taking
long-term lending positions. This orientation was subsequently
backed-up by CBN guidelines stipulating certain minimum maturity for
certain proportion of a banks risk assets. While it was easier for the
commercial banks to sustain this position, it was more difficult for the
merchant banks.

4. Quality of State-Owned Banks

The poor position of some state owned banks derived partly from the
structure of ownership. By and large, privately owned banks seem to
have lesser problems of management. In the past some state
governments have, for instance, used their banks as extension of their
treasuries. This ownership structure has also imposed constraints on the
part of the CBN to deal promptly and decisively with erring state banks
until a crisis situation of possible insolvency is reached.

5. Instability in Management

One effect of Government ownership of banks both at the federal and

state levels is the instability in the management of these banks. Since the
Nigerian Directors include those with Executive responsibilities of these
banks are appointed by the Government, they have become politicized
and the influence of lobbying and pressure groups on such appointments
is becoming increasingly manifest. The attendant insecurity in job tenure
arising from this situation no doubt has negative impact on the
management of these banks.

49
MGS 761 THE NIGERIAN ECONOMY

3.3 Role of Commercial Banks In Nigeria

You can divide the functions of the commercial banks into two broad
groups.

- The money creation function and

- The service rendering function.
The money creation function is undertaken not only to satisfy the
customers but also because it enable the banks to get some returns on the
money deposited with them by their customers. A number of factors
affect the extent to which an individual bank can create credit.

These are:

- The amount of deposit that is made with the bank (the greater
this, the more the credit creation capacity of the bank):
- The limitation imposed by legal reserve requirements.
- The volume of demand for currency of cash by the public (an
increase in currency requirement of the community would mean a
reduction in cash of the banking system and therefore in its
ability to create credit) and
- The extent of credit created by other banks in the banking system.

The service functions of commercial banks include the following:

- The collection of cheques, drafts, notes and other obligations for

their customers;
- The provision of facilities for domestic and foreign remittances;
- The provision of savings services, and the provision of facilities
for the safekeeping of valuables.

Besides these functions, the commercial banks have performed useful

functions in the country which include the following:

- They have extended credit to the group of people that the

expatriate or mixed banks would not have been able to cater for.
- They have contributed to the development of potential depositors
and banking habit by extending banking facilities to urban and
rural districts.
- The indigenous banks have large portfolios of local securities
and, therefore, have reduced the colonial practice of repatriation
of all in vestibule funds to the money and capital markets in
London.
- The aggressive mobilization of domestic savings through direct
contact with the people has contributed significantly to the pool
of funds available to national development.

50
MGS 761 MODULE 2

- They have developed local entrepreneurship.

- They have provided employment opportunities for many
Nigerians.

Activity 2: How do commercial banks utilize the funds generated from

the public?

3.4 Utilisation of Funds By The Commercial Banks

The commercial banks try to reconcile their liquidity with their

profitability drive. In doing this, they collect funds from the public.
There are two major sources of funds. Capital and Reserves, and
deposits. The capital and reserves of commercial banks in Nigeria rose
considerably since late 50's, from a little over 1 million in 1958 to over
N200 million by 1977. There are quiet a good number of factors that
were responsible for this shut-up. These include: The fact that the capital
and reserves requirement were applicable to only the indigenous banks
initially, changes and/or increase in the capital and reserve requirements
over time, the increase in the number of banking institutions, the
increased in economic activities in the country.

Capital and reserves of commercial banks provide funds for fixed assets
and the performance of such functions as meeting the statutory
requirements; acting as a confidence booster to the public and providing
cushion against risk. Deposit on the other hand provides the working
capital. The two types of deposits with commercial banks are demand
and time deposits. Thereafter, 1970 the increase has been due to a
number of factors among which are:

- Increase in money supply

- Increasing oil revenue to finance development plans,
- Wages and salaries payment under the Udogi awards.
- The deregulation of the economy under the Structural Adjustment
Programme (SAP).

The funds derived by the banks are used to acquire assets. These assets
could be classified into two broad categories:

1. Liquid Assets

Liquid assets are made up of cash, money at call, and bills discounted.
Cash includes cash in hand (i.e at the coffers of the banks) and balances
at the central banks. The cash asset serves two functions. Firstly, it is
used to meet depositors and lenders' cash requirements. The need for the
later is great in Nigerian because most of the transactions in the
economy are done in cash and money borrowers prefer to get cash.

51
MGS 761 THE NIGERIAN ECONOMY

2. Cash Asset

The importance of cash asset is that it enables banks to affect their

clearings at the central bank. The cash asset does not earn any income.

Money at call serves as a first line of defence against cash shortages.

Therefore, if banks are hard pressed for cash, their next line of action
invaluably is to draw on money at call. This is money lent to the
borrowing institution from over night to about seven days and that is
repayable on call. Thus, it is almost as liquid as cash. However, unlike
cash, it earns some interest. Call monies used to be invested in Treasury
Bills. However, the scarcity of bills made the central Bank abolish the
call money scheme in 1974.

Bills discounted serves as the second line yield income but usually at a
rate lower than that earned by money at call.

The other categories of assets (less liquid or hard) are investments,

which banks make mainly to meet profit expectations of the
shareholders. They are usually made in investments and loans and
advances. The latter constitutes the biggest component of the hard
assets. They are the most profitable in the most liquid of bank's assets. It
is important to add that, in spite of their high profitability their relative
obliquity coupled with bank's concern for their depositors and lenders
makes banks reluctant to invest all their funds in loans and advances.

4.0 CONCLUSION

As at the end of 1990, the federal government's equity participation in

the 58 commercial banks was 12.6% state governments, 24.5%. private
shareholders, 47.5% and foreigners 5.4%.

The banking sector shows a mix of government, private sector as well as

foreign participation, in terms of ownership. Although foreign
participation remains significant it is however, no longer dominant.

However, there is cause for concern in view of the increasing rancour

and discord that have characterised the indigenous new banks. There is
also the issue of who owns which shares.

It is therefore on this note that the well meaning Nigerian looks up to the
regulatory activities to instill discipline and ensure a sound and virile
banking industry in Nigeria.

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It is widely held that the soundness of any institutions is a reflective of

the effectiveness of its management. Thus, effective boards and
managements are indispensable in ensuring safe, sound and efficient
banking practices that will foster the expected role of the banking
industry in our economic development.

5.0 SUMMARY

Commercial banks refer to the joint stock banks which are financial
institutions that enhance the economic development of Nigeria. The
number of commercial banks have grown phenomenally over the last
two decades. Several factors account for the rapid expansion of
commercial banks over this period. Amongst these factors are:

- indigenisation policy the oil boom

- perceived increased awareness of the need for banking by the
populace
- higher profits declared by existing banks etc.

However, the commercial banks act as vital catalyst of Nigeria's

economic development by:

- encouraging saving
- providing capital needed for development
- encouraging trading activities through making the use of cheque
possible
- encouraging investment by providing direct loan to government
and individuals for investment purpose.

6.0 TUTOR-MARKED ASSIGNMENT

The commercial banks in Nigeria act as a vital catalyst for economic

development. Discuss.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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MGS 761 THE NIGERIAN ECONOMY

UNIT 2 CENTRAL BANKING AND THE NIGERIAN

ECONOMIC DEVELOPMENT

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Development of the Central Bank
3.2 The Role of the Central Bank of Nigeria (CBN)
3.3 Functions of the Central Bank
3.4 Regulatory Role of the Central Bank in the Nigerian
Economy.
4.0 Conclusion
5.0 Summary
6.0 Tutor- Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

In discussing the various financial institutions in a country, it should be

noted that the apex bank in the financial system is called the Central
Bank. The name differs from one country to another. In India it is called
the Reserve Bank of India, the Bank of England in England, the Federal
Reserve system in America, the Bank of France in France, the Risk bank
in Sweden etc, while in Nigeria it's known as the Central Bank of
Nigeria. A Central Bank is basically different from a commercial bank.
The central bank does not engage itself in ordinary banking activities
like accepting deposits and advancing loans to the public. It does not
aim at making profits like the commercial banks. The issue here is what
the central bank rather does is aimed at controlling the commercial
banks and implementing the economic policies of the government. The
central bank is generally owned by government and is managed by
government officials or those who are connected with the government.
But the commercial bank is owned by share holders like any other joint
stock company. It is worthy to note that every country has only one
central bank with only few offices.

2.0 OBJECTIVES

One can only appreciate the relevance of this apex bank, that is, the
Central of Nigeria (CBN)

At the end of this unit, you should be able to:

o explain the reasons for establishing the Central Bank of

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MGS 761 MODULE 2
Nigeria?

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 MGS 761 THE NIGERIAN ECONOMY

o identify the functions of the Central Bank of Nigeria, and

examine its role in the economic development of the nation.

3.0 MAIN CONTENT

3.1 Development of the Central Bank

The establishment of a workable monetary system including the basic

fundamentals of credit system and central bank is an essential condition
for economic growth in any country. In Nigeria, just like other countries
that were formerly under colonial masters, the establishment of the
central Bank was regarded as the outward symbol of attaining monetary
independence.

With the establishment of the Central Bank of Nigeria on July I. 1959,

the stage was set for a new era. The Act establishing the Central Bank of
Nigeria endowed it with a number of functiorts among which are: the
right to issue legal tender in Nigeria; the maintenance of external
reserves in order to safeguard the international value of currency and the
maintenance of the commercial banks minimum liquidity ratio.

Like the old Currency Board, the Central Bank of Nigeria is the main
issuer of currency for the whole economy. Bank's operations are,
however, wider and predecessor. The bank can, for example, expand or
decrease the currency in circulations without any corresponding increase
or decrease in the external backing of the currency. The bank can also,
through a number of policy measures, change their lending policies by
controlling deposits which, together with the currency in the hands of
the public make up the money supply. The central bank influences the
activities of the commercial banks.

Activity 1: Do you think the CBN plays any fundamental role in the
economic development of the country?

3.2 The Role of the Central Bank of Nigeria (CBN)

Since its establishment in 1958, the objectives of the CBN have

remained broadly the same, but the strategies for achieving these
objectives have changed in consonance with the varying legal,
institutional and macro-economic environment.

(a) The various amendments of the CBN Act of 1958 and the
Banking Decree of 1969 tended to erode the authority of the CBN
with regard to the execution of its primary mandate. However,
the CBN Decree No 24 of 1991 and Banks and other financial
institutions Decree (BOFID) No. 25 of 1991 which replaced the

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MGS 761 MODULE 2

previous attempt to strengthen the bank's supervisory role in

response to the widened scope of its activities and financial sector
forms initiated since 1986. It is noteworthy that the CBN Decree
of 1991 gave presidency in contrast to the practice, through the
minister of finance. However, these practices have been reversed.

(b) Owing to the rapid structural growth of the financial sector in the
last three decades, the bank has modified the nature and style of
its surveillance. It has systematically developed policy
instruments more relevant for a market-based financial sector.
The Bank's size and structure have also witnessed a
corresponding growth; and

(c) The Nigerian economy has recorded vast structural changes;

economic management moved from reliance on control
mechanisms in the late 1960s and up to 1985 to a system of
deregulation between 1986 and 1993 and back to control in 1994.
Presently, it had to revert to the system of deregulation. The
banks response has influenced its operations appropriately
through the establishment of the relevant bureaucratic structure
and technologies.

3.3 Functions of the Central Bank

The functions of the Central Bank of Nigeria can be broadly classified

into two categories, namely, service and issuing of legal tender currency,
and being both banker and adviser to the government. By status, the
central of Nigeria is the sole bank of issue in Nigeria. The Bank issued
the first national currency in 1959, hence, replacing those earlier issued
by the West African currency Board that was in existence before the
establishment of the central bank. The civil war led to the change of the
1959 notes in 1968. Finally, in order to conform with most monetary
standards the world over, the decimal currency was introduced in 1972.

To this end, the central bank has taken over the banking business of the
federal government and has been providing banking to state
governments and state owned agencies. The central bank can make ways
and means advances to the Federal Government up to 25 per cent of its
estimated current revenue. It can hold Treasury bills and Treasury
certificates up to 15 per cent of estimated revenue of all government
(Federal and State) and it can provide long-term loans, by way of long
term securities, to the governments.

In its role as adviser to the governments on financial matters, the central

bank tries to advice on coordination between the government's financial
policy and the main economic objectives within the context of monetary

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stability. One of the policy functions of the central bank is, thus, that
which relates to monetary policy. In this regard, the Bank has
responsibility for formulating and executing monetary policy. Its tools
are open market operations, the discount rate, the liquidity ratio or
reserve requirements, moral suasion and selective credit control.

A second aspect of the policy making function is the bank's exchange

rate policy. The Central Bank has responsibility for maintaining external
reserves in order to safe guard the international value of the country's
currency. In order to achieve this, the Central Bank keeps custody and
manages the country's gold and foreign exchange reserves. The
government and others surrender their foreign exchange earning to the
bank, which then meets foreign exchange requirements of the
governments and the commercial banks.

Activity 2: How does the central bank regulate the activities of the
commercial banks?

3.4 Regulatory Role of the Central Bank in the Nigerian

Economy

1. Open Market Operation

These involve the discretionary sale or purchase of government debt

instruments in the money market by the central bank. The bank engages
in open market operations with a view of regulating the cost (interest
rates) and availability of credit and, by so doing, influences commercial
banking system credit operations. The sales of government debt
instruments or securities are carried out to reduce the liquidity, on the
other hand, securities are bought. In an inflationary situation, the central
bank can decide to curtail expansion by selling securities in the money
market. The impact of this is to reface the cash reserve position on the
commercial banking system and thus limit the funds available to the
system in carrying out its credit expansion. This cause interest rates to
rise, which will discourage investment, lower aggregate spending and
result in ameliorating inflationary pressures.

Open market operations have not been effectively used by the Central
Bank of Nigeria because of the underdeveloped nature of the financial
markets. Other reasons, include insufficient supply of the necessary
securities in the economy and the fact that the interest rates on
government securities (forming 90 per cent of money markets) are not
variable. For this instrument to be effective, there should be existence of
a well developed financial system, an integrated and interest sensitive
financial markets in which the amount of government securities held by
banks, private corporation and individuals is large.

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MGS 761 MODULE 2

2. Rediscount Rate

The Central Bank, as a lender of last resort, stands ready to honour

demand for financial accommodation from the commercial banks. In
performing this role the Bank takes into account the financial
environment and the economic situation in general. Such temporary
financial accommodation is generally extended to the banks at the
"discount window" of the Central Bank. In operating the "discount
window", penalties are involved since commercial banks are not
expected to resort to it until it becomes absolutely necessary.

Rediscount rate, the cost of this last resort borrowing is very important
because changes in all interest rates charged by the commercial banks
follow those of the rediscount rate. If the rediscount rate is high, the
interest rate charged by commercial banks will also be high, and vice
versa. In the advanced and more sophisticated financial markets,
changes in the rediscount rate produce important announcement effects
in the credits markets. An increase in rediscount rate is an indication to
the credit institutions that they should raise cost, hence, restrain credit
availability to potential borrowers.

The rediscount rate policy has not played a significant role in

influencing the cost and availability of credit in Nigeria. A major
limitation to the effectiveness of interest rate charges, as a technique of
resource management in Nigeria, arises from the fact that investment
decisions are more dependent on the expected rate of returns on
investment than on the cost of borrowing. The returns on investment are
so high in Nigeria that the restraining rates of interest might be too high
for the monetary authorities to contemplate. Although an amendment to
the central bank of Nigeria in 1962 required bank lending rates to have a
specified and defined relationship with the rediscount rate, the rigidity
inherent in the administered structure of the Nigeria interest rates makes
rediscount rate an ineffective tool of control.

3. Reserve Requirement

All commercial banks are legally expected to have a certain percentage

of their deposit liabilities with the central bank. The bank has the right to
raise or lower the ratio depending on its credit policy at a particular
point in time. The cash and liquidity ratios are expressed as the ratios
between their deposit liabilities and their cash holding and selected
liquid assets respectively. The cash ratio was not emphasised in Nigeria
until recently. Rather, emphasis was placed, on the liquidity ratio which
has, nevertheless, oscillated between 25 and 40 per cent since it was
stipulated, although the composition of qualified liquid assets has been
veined over time.

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The cash ratio is designed to raise or reduce the liquidity of the banking
system by determining the level of cash reserve balances (the credit base
of the system) which commercial banks should maintain with the central
bank.

4. Special Deposit

These are supplementary reserves used to reduce the volume of

commercial banks' liquidity when it is fevered that excessive bank cash
balances may induce credit expansion. They are made by commercial
banks in the central banks and not allowed to be used as base for credit
expansion in that they are not allowed to be used as base for credit
expansion, in that they are not counted as liquid assets. Generally, these
deposits earn no interest.

Stabilisation securities, which also belong to the same class of

instrument as special deposits, are issued by the central bank to
commercial banks at given interest rates, and they serve the same
purpose as special deposits, in terms of instruments like special deposits
are issued by the central bank to commercial banks at given interest rate,
as well as serve the same purpose as special deposits, in terms of
squeezing the commercial banks' excess cash holding and restricting
their credit expansion. The securities are issued at the discretion of the
central bank based on the level of excess cash holdings of the
commercial banks as judged by the central bank.

Direct Credit Control

By far the most effective technique of control of commercial banks

relative to other techniques available has been through credit guidelines.
Starting from 1969/70 fiscal year, the central bank has consistently
issued guidelines to commercial banks particular in the area of loans and
advances to the various sectors of the economy.

Direct credit control involves the imposition of quantitative ceilings by

the Central Bank on the overall and/or sectoral distribution of
commercial banks' credit. The Central Bank of Nigeria is empowered to
fix ceilings on the volume as well as the rate of increase in bank credit,
which the commercial bank should maintain from time to time. It can
also prescribe a sectoral distribution of credit with or without a specified
rate of credit expansion. An important feature of this instrument is the
power to prescribe minimum ratios of loan and advances, which the
commercial bank must allocate to the preferred sectors of the economy
as opposed to the less preferred ones. This instrument is of great
relevance to the economic conditions of Nigeria in which the central
bank in co-operation with fiscal and planning authorities is called upon

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MGS 761 MODULE 2

to promote accelerated economic development. The sectoral allocation

of credit suffers from the basic defect that funds may be borrowed for
one purpose and diverted to other purposes.

Moral Suasion

This has been a traditional tool used by the Central Bank of Nigeria in
its dealings with its commercial banks. It involves the use of the power
of persuasion to influence the lending operations of the commercial
banks in the direction desired by the Central Bank. No official directive
is involved. However, some punishment of measures are observed with
this instrument, the governor of the central bank merely uses his position
to persuade and appeal to the commercial banks to exercise restraints in
credit expansion, under an inflationary situation. The banks normally
comply for fear that the central bank may use its statutory powers to
force them to behave accordingly. In addition all commercial banks
normally wants to maintain cordial relationship with the Central Bank.

4.0 CONCLUSION

Although the challenges ahead are enormous if not daunting, the central
bank will respond adequately ifgiven the support to carry out its
functions. Its contributions to the economy will be enhanced and its role
in creating a robust financial sector will increase. The bank should shed
off some of its developmental activities which can effectively be taken
over by other agencies. It should focus on its stabilisation functions,
which can sustain price stability and restore full confidence to the
financial sector. If given the autonomy, it should become more effective,
efficient and responsive institution, gaining greater
confidence of the general public.

5.0 SUMMARY

The Central Bank of Nigerian (CBN) is an institution owned by the

government of a nation, run by Board of Directors chaired by a governor
appointed by the government (prior to 1997) and charged with the
responsibility of managing the expansion and contraction of the volume,
cost and availability of money in the interest of the public welfare. In
doing this, it is the banker to the government. It controls, supervises, and
assists the activities of the commercial banks. Also, it carries out the
monetary policy of the country and acts as a lender of last resort to the
commercial banks.

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6.0 TUTOR-MARKED ASSIGNMENT

Discuss the policy-making functions of the Central Bank ofNigeria and

state how effective it has been carrying out these policy functions.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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MGS 761 MODULE 2

UNIT 3 THE NIGERIAN EXTERNAL DEBT CRISIS

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Nature and Genesis of Nigerian Debt Crisis
3.2 Origin of the Debt Problem
3.3 Approaches to the Analysis of the Causes of Nigerian
Debt
3.4 Nature, Size and Magnitude of External Debt
3.5 Strategies for Managing Debts
3.6 Consequences of Debt on the Nigerian Economy
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Public debt has been defined in several ways depending upon the
purpose of definition and the type of institutional arrangement thus, on
the extreme all kinds of obligation of a government; currency obligation
are included in public debt. However, a general dictionary definition of
debt is "payment which must be made but has not yet being paid to
somebody". When debt is seen in relation to a nation, it refers to a
national debt and it is defined as money owed by the state to those who
have lent it money.

According to Furness, debt is a major feature of a monetary economy.

This is because, as soon as the society abandons bartecing, the creation
of debt is introduced under the monetary economy. Whenever a person
acquires commodity without simultaneously given a commodity in
exchange he because indebted.

Therefore, public debt is a debt owed by government, whereas a private

debt is debt owed by private organisation. Moreover, debt can be
categorised into two viz: Internal and External debt. Internal debts are
debt owed to individual and organisation within the economy by the
government via sales of bonds, treasury bills, treasury certificate. While
external debts, on the other hand, are debts owed by government to
foreign governments and foreign organisations. Internal debt could be
looked at as the totality of the outstanding government borrowing
instruments such as savings certificates, currency, treasury bills and
certificates, federal government stocks, bonds which constitute the

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federal government public debt. On the other hand, external debt

includes loans and aids secured from foreign government and
institutions.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o know the genesis of the Nigerian debt

crisis
o origin of the debt
problem
o causes of the debt
crisis
o suggest debt management
option.

Activity 1: What are the causes of the debt crisis in Nigeria?.

3.0 MAIN CONTENT

3.1 Nature and Genesis of Nigerian Debt Crisis

During the first ten years of independence Nigerian total debt was very
insignificant. For instance, in 1970 the external debt of the country stood
at $567 million. However, certain development during the 70's totally
change the situation. Instead of owing very small we started owing very
much. Firstly, the 1972/74-oil boom in Nigeria (in 1972 barrel was
selling at about $4 dollars it rose to $14 dollars in 1973) has greatly
increased the resource available to the federal government, which in turn
encouraged reckless spending. Consider the following, Nigeria's first
development plan 1962-68 budgeted for =N=2.2 billion; the second
development plan 1970-74 budgeted for =N=3 billion. In this two
development plans, there was no significant increase. But third
development plan 1977-80 budgeted for =N=30.0 billion, that is, an
increase of ten times the earlier money spending of the second
development plan which is equivalent to 1000 per cent increase.

By 1978, due to the short-fall in oil receipts, Nigeria contracted a =N=26

billion jumbo loan from euro-dollar market (private lenders). This was
the beginning of massive borrowing by the federal government and
repayments were not being made as at when due.

Furthermore, the availability of oil money in the euro-dollar market

encouraged reckless borrowing by Nigeria and other third world
countries.
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MGS 761 MODULE 2

In addition, the inability to repay the loan as at when due together with
the sharp rise in interest rate compounded the problems of debtors,
Nigeria in particular, and third world economies in general.

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MGS 761 THE NIGERIAN ECONOMY

Therefore, there are three main reasons why Nigerian in particular and
third world countries in general found itself as it is today (i.e. in terms of
debt crises) viz:

(a) Reckless spending of available funds as well the borrowed loans.

(b) Availability of Euro-dollar in foreign banks for developing
countries to borrow.
(c) Inability to repay the loans as at when due and the sharp increase
in interest rate.

3.2 Origin of the Debt Problem

The factors which combined to bring external debt to its current level
comprise borrowing from the multilateral and bilateral institutions, the
accumulation of trade arrears, default in payment of debts, capitalization
of unpaid interest and depreciation of the US dollar against other
international currencies in which the loans were contracted.

The current debate on the origin of the debt crisis focuses on whether its
primary cause was international economic disruption or domestic policy
error. A related issue is whether the borrowed funds were used
productively or were aquanaut. The debt crises due external shocks
could be attributed to the oil shocks in 1973-80 or the consequence of
internal recession in 1981- 82, the excess of real interest rate in 1981-82
above their historical average. These are assumptions that arise because
of the debts owed by debtor nations.

Policy error is the second reason. It facilitated massive capital flight

from the country, the over-valued exchange rate encouraged capital
flight since domestic interest rate, were too low to keep capital at home.
The third reason is the domestic physical element in the debt problem.
The external debt is part of the total debt, which accumulated as a result
of both private and public borrowing, thus over-heating the economy.
Rising budget deficits play a significant role in the debt problem of
Nigeria. There is also the issue of mismanagement of the economy. A
more reasonable hypothesis is that of the balance of payment problem,
which arises as a result of international economic disruption. Indeed
external shocks eroded exports earning and tax revenue thereby
contributing to fiscal deficits.

Infact the origin of the debt crisis could be traced to three periods in
Nigeria's history viz:

1. Pre-colonial Period- This period is characterized by slave trade.

Slave trade took away able-bodied men that could have remained
to produce supply for the country.

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MGS 761 MODULE 2

2. Colonial period- When the entire African continent was shared

among the European countries. The main feature of this period is
the emerging activities of multinational corporations in the
exploitation of primary product for exportation and importation
of their manufactured goods at prices determined by them.

3. Post-independence Era- Though political independence was

granted to Nigeria, but economic independence still alluded her
(Nigeria). This period is characterized by intensive activities of
multinational corporations and their Nigerian collaborators.

Activity 2: What are the causes of Nigerian debt crisis?

3.3 Approaches to the Analysis of the Causes of Nigerian

Debt Crisis

The causes of Nigerian debt crisis could be looked at via two approaches
namely:

Orthodox Approach
Dialectical Approach

(1) Orthodox Approach- Nigerian debt crisis arose due to several

reasons, which include:
a. Low savings propensity which arises due to high
propensity to both consume and waste, because saving is
low, investment is also low which implies low level of
income.
b. Problem of proper statistics make debts difficult to
ascertain.
c. Exchange rate variation adds greater variability to debt
figures. This made the local currency to be over-valued
thereby resulting to mass-importation which leads to short
terms trade arrears, the effect here is that, a little rise in the
interest rate will change the overall size of the
indebtedness remarkably.
d. Loans contracted were used to finance peripheral
consumption rather than investment projects.
e. Harsh international systems and practices which make it
impossible for a nation to reduce its debt burden.
f. (0 External creditors, especially banks, encouraged debtor
nations to continue to borrow for projects of doubtful
viability.
g. Short-term loans were used to finance long term projects
and the loans get mature for employment while the
projects are half way completion. For instance, the steel

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MGS 761 THE NIGERIAN ECONOMY

and paper mill projects.

h. Poor economic management, coupled with acids use of
resources, corruption and wastage of public funds.
i. Inability of Nigerian government to fully utilise external
loans and aids to generate adequate surplus, to enable her
repay the loans as well as service charges.
j. Lack of coordination of aid donor policies at national level
to ensure maximum economic impact of aid and loans
packages on development.

The dialectical approach on the other hand traces the causes of Nigerian
debt crisis to when Nigerian and other third world countries began to
have contacts with the Western world. During slave trade, many able
bodied men and women between the ages of 20-35 were taken to various
plantations in Europe and America, as a result of various slave raids and
plunder, the environment was no more conducive for productive
activities. This was the beginning of the underdevelopment of many of
the African continent. Following the changes in the mode of production
from labour intensive to capital intensive in Europe and America, slave
trade was abolished. Consequently, Africans were encouraged t o
produce primary products to feed industries during industrial revolution.
The trade that ensured then was an un-equal trade because the price of
both the primary products and the imported goods were determined by
the imperialists. This led to the appropriation of surplus from the
continent thereby setting in the dependent nature.

3.4 Nature, Size and Magnitude of External Debt

Official statistical information on Nigeria's external debt is partly un-

reliable due to poor records keeping and corrupt practices. Nigerian
officials tend to rely on data and information computed by the World
Bank (W.B) and International Monetary Fund (I.M.F.). Paradoxically,
these are people we owe.

Officially, the estimated debt of Nigeria as at the end of 1990 stood at

$33billion U.S. dollars but independent sources, World Bank (WB) and
IMF put it at $35billion. This implies that there is no exact agreement as
to what we are owing. Presently. the amount the country is owing is a
round $28 billion U.S

There are two important features of Nigeria's debt that requires

attention. viz:

Firstly, the composition is more disturbing than its size because about
61% of total debt owed comes from private source s(i.e. international
commercial banks) and this explains in part the rapid growth and burden

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MGS 761 MODULE 2

ofNigeria's debt services obligation.

Secondly, Nigeria has been borrowing at concessional rate/terms. In

other words, a large part of the debt is concentrated at higher interest
rate, shorter in maturity (in years), shorter grace period, and reduced
grant element.

Therefore, the consequence is high debt service ratio. Debt service ratio
measures the burden of debt and is define as the ratio of scheduled debt
service to export earnings or total GDP.

Nigeria's debt service ratio rose from 1.3% in 1983 to an impossible

figure of 86% in 1987 and went down to 36% in 1990 and rose again to
48% by 1998.

Activity 3: What are the efforts that the federal government has put in
place to address the debt crises in Nigeria?

3.5 Strategies for Managing Debts

Many approaches have been made by Nigerian government for debt

management and all the measures have long time lapses because:

First, pumping in more money through emergency relieve package is not

the solution/answer and this will aggravate the problem and thereby
increasing inflation within the debtor nation.

Second, debt relief call for sweeping posterity reforms in poor countries
which result in further immiseration of the peasant as well as dash any
prospect for economic recovery, growth and development.

Nonetheless, there are several options that are open to Nigeria

inparticular, and an African countries general on how to manage their
debts.

Therefore, if properly taken, this may limit the countries external debt
burden. They include:

(1) Embargo on new loans- Directives to state governments to

minimize external borrowing, adoption of economic recovery
measures, loans refinancing, restructuring loans as well as loans
rescheduling.

(2) Repudiation: This implies the debtor nation should cancel the
debt, that is, it has nothing to do with the debt.

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MGS 761 THE NIGERIAN ECONOMY

(3) Fertilisation Cartelisation:- The debtor nations teaming up to

form debtors club mother to have a common goal and one voice
to face the creditor nations. The problem with cartel is that some
debtor countries are afraid of losing their favoured/preferential
treatment by the debtors. Thus, they may refuse joining such
clubs and hence their maximum cooperation.

(4) Forgiveness- When the debt becomes too large to remember, the
only option is to forgive the debtors.

(5) Debt Conversion Scheme- This requires the cooperation of both

creditor and debtor nation. There are different types of
conversion which includes:

(a) Amortisation - This refers to the process of ending a debt

by setting aside money for regular payment.
(b) Capitalisation of Debt- This is when debt is
converted/used as capital, that is, the conversion of debt
into wealth, money/property for the purpose of producing
more wealth or starting a new business.
(c) Debt for Cash Conversion- This refers to the conversion of
debt by the holder at its face value and at the prevailing
exchange rate for the currency of the debtor country. For
instance, multinational corporation/companies with
subsidiaries in debtor third world countries usually buy up
developing countries' debt from Western creditor banks at
dis-count and use the local currency proceeds acquired
from the debt to pay local taxes, repay local loans, and
provide working capital for their branches in the debtor
countries.

3.6 Consequences of Debt on the Nigerian Economy

The consequences of heavy indebtedness include:

a) drastic reduction in the ability to import capital

b) drastic reduction in domestic investment
c) reduced investment means increased under-capacity utilisation
and un-employment
d) drastic reduction in standard of living
e) decline in the economic activity.

High indebtedness implies high debt service ratio and hence low per
capital income.

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4.0 CONCLUSION

The Nigerian economy in the past three decades has been affected by
unsustainable burden of external debt. This burden has made the
restructuring of the economy without an intolerable fall in the standard
of living a difficult task to achieve.

Negotiations with the London and Paris clubs have constituted a major
element in Nigeria's strategy for debt management and the achievement
of the objectives of the deregulation of the economy.

Through the various agreements which the country concluded with the
clubs in the last couple of years, a substantial reduction in debt service
has already been achieved. This has enabled Nigeria to devote a greater
proportion than otherwise would have been possible of available foreign
exchange earnings to the promotion of economic growth and
development.

However, what worth mentioning here, is that, in a long-run, only the

pursuit of appropriate macroeconomic policies can guarantee the
avoidance of external debt problems.

5.0 SUMMARY

Public debt is a debt owed by government, whereas a private debt is

owed by private organisations. To facilitate your understanding of
public debt, you can categorize it into internal and external debt.

In light of our discussion on public debt you could further established

that the reasons why Nigeria is in a debt-trap are:

o recklessness in public fund

spending
o availability of international financial institutions, ready and
willing to loan fund to Nigeria; and
o the inability to pay the
loans.

The consequence of the above is high burden of debt hanging on the

nation's resources.

Nevertheless, the government of Nigeria has put in place various

strategies to revamp the situation. The reason being that the consequence
of debt-servicing has bad repercussion on the economic growth and
development of the nation, such as high reduction in its ability to import,
reduction in domestic investment which implies increased

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under-capacity utilisation, unemployment, low standard of living, and
soon.

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6.0 TUTOR-MARKED ASSIGNMENT

Discuss the origin of debt problem in Nigeria and mention the strategies
for debt management.

7.0 REFERENCES/FURTHER READING

Adebayo O. Olokoshi (1990). Nigerian External Debt Crisis. Malthouse

Press Limited.

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

ASUU, Nigeria Economic Crisis, Causes and Solutions

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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 MGS 761 THE NIGERIAN ECONOMY

UNIT 4 GROWTH AND INVESTMENT

OPPORTUNITIES IN NIGERIA

CONTENTS

1 .0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Investment and Growth Incentives
3.2 Tax Concession
3.2.1 Tax Relief
3.2.2 Tax Holidays
3.2.3 Corporate Income Tax
3.2.4 Tax Free Dividend
3.2.5 Investment in Economically Disadvantaged Areas
3.3 Tariff Concession
3.3.1 Tariff Restructuring and Concession
3.3.2 Custom Duties
3.4 Non Tax Financial Incentives
3.5 Key Infrastructural Development
3.6 Foreign Exchange Incentives
3.7 Problem of Growth and Investment
4.0 Conclusion
5.0 Summary
6.0 Tutor Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

The Nigerian economy has, over the years, witnessed economic growth
defined essentially in terms of an increase in the nation's output of goods
and services. But investment by economic agents in turn depends
strongly on the existence of investment opportunities and a conducive
atmosphere. This explains why nations consciously put in place
incentives to encourage prospective investors both local and foreign. An
examination of the sectoral contribution to Gross Domestic Product
(GDP) growth, however, reveals that Nigeria's economic growth was
agriculture-led. The contribution of the manufacturing sector was by no
means dominant. Yet long-run growthand development of an economy
demands that the economy be industry-led.

You would observe that the rear place occupied by manufactured

products in Nigeria's economic growth is largely explained by
inadequate investment in the economy. This could be directly traceable
to a number of problems that inhibit the rate and level of investment in
the economy.

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MGS 761 MODULE 2

High investment rates, as you could witness in developed society such

as America, generates high rates of capital formation, which helps to
fuel growth. In this regard we should bear in mind that capital formation
per se cannot fuel (encourage) growth. Rather, such other
(complementary) factors as favourable economic environment,
improved technology, and adequate and efficient infrastructural
facilities, a stable and predictable political environment, etc, are also
crucial factors that impinge directly or indirectly on the level of
investment.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o enumerate the investment and growth

incentives
o list the various tax
concessions
o identify the problem of growth and investment opportunities
in
Nigeria.

3.0 MAIN CONTENT

3.1 Investment and Growth Incentives

As you may be aware, the successive Nigerian government have put in

place a number of incentives to encourage both local and foreign
investors in the economy. You can classify these incentives into four
broad categories viz: tax incentives/concessions, tariff concession,
non-tariff concessions, non-tax financial incentives and key
infrastructural development projects.

3.2 Tax Concession

3.2.1 Tax Relief for Research and Development (R&D)

Here, a company which undertakes research and development activities

in a year is entitled to a tax-deductible allowance equal to say 120% of
the amount expended if the research is on raw materials. Also, the fruits
of such research could be patented and protected in accordance with the
internationally accepted industrial property rights. What is important
here to note is that the aim is to promote the development of locally
sourced inputs and hence create linkages in the production process.

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3.2.2 Tax Holidays

Tax holidays are granted to companies with "pioneer status". These

companies are entitled to tax holidays on corporate income for 3 years in
the first instance, and an extension of 2 years thereafter.

The aim here is to encourage the setting up of some industries which the
Government considers beneficial to the country.

3.2.3 Corporate Income Tax

As you may be aware, the government in its annual fiscal budget

specifies, incentives under corporate income tax. Such provisions are
meant to reduce the tax burden on corporate bodies. In this light, the rate
of companies income tax rate was reduced from 45 to 40% and later to
30% while taxes payable on dividends, interest royalties and rests were
reduced.

There is also the introduction of small business tax relief under which a
lower tax rate of 20% will be paid by small establishments.

3.2.4 Tax-Free Dividends

From 1987, the government of Nigeria stated that any individual or

company receiving dividends from any company is entitled to tax-free
dividends for a period of three years if:

- The company paying the dividends is incorporated in Nigeria.

- The equity participation was imported into the country between
January I, 1987 and December 31, 1992, and
- The recipient's equity in the company constitutes at least 10% of
share capital of the company.

In addition to the point above, if the company is engaged in agricultural

production within Nigeria or the production of petrochemicals or
liquefied Natural Gas, the tax-free period shall be 5 years.

3.2.5 Investment in Economically-Disadvantaged Areas

In order to enhance economic development in Nigeria, some areas have

been designated as economically disadvantaged. Thus, the following
policy measures have been designed to encourage investors to locate
their activities in these areas:

- Seven years income tax concessions under the pioneer status

scheme.

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MGS 761 MODULE 2

- Special fiscal concessions by the relevant state Governments.;

and
- Additional 5% (later 10%) on the initial capital, depreciation
allowance under the companies income tax.

It will be interesting to note that the country has been divided into three
zones for the purpose of administering the above incentive arrangement,
viz:

Zone I Industrially and economically developed urban areas of

Lagos, Kaduna, Port Harcourt, Kano etc.
Zone II Less industrially and economically developed areas
Zone III Leas industrially and economically developed areas.

3.3 Tariff Concession

3.3.1 Tariff Restructuring and Concession

The Nigerian government in its effort to create a conducive atmosphere

for investment frequently reviews the tariff structure of the country. This
is also to further the competitiveness of locally produced goods within
the local market, imported goods which compete with the local products
attract additional tax equal to the excise duty levied on domestically
produced substitutes.

3.3.2 Custom Duties

In order to encourage production for export and export diversification as

well as enhance the competitiveness of export goods in international
markets through increased local value added, this incentive was
initiated. Here, import duties paid on raw materials used for producing
export goods may be refunded. The repayment is in full if all the
imported raw materials are used for producing composite goods, some
of which are exported, appropriate computation is made to arrive at the
amount to be refunded.

3.4 Non-tax Financial Incentives

So far, you have been able to acquaint yourself with the tax concession
measures. Now, try to look at the case for companies whose shares are
quoted on the Nigerian Stock Exchange (NSE). The government could
encourage these companies by permitting the issuance of non-voting
equity shares to enable them attract capital from foreign investors. That
notwithstanding, a decree has formalised this incentive, which
authorises non-voting shares for sale on the Exchange. It is interesting to
note that the shares can be subscribed to by any person irrespective of

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nationality and place of residence. The aim here is to provide investment

incentives to existing foreign partners and individuals.

3.5 Key Infrastructural Development

In order to promote both indigenous and foreign investment in some

industrial sub-sector, the government has vigorously pursued the
establishment of some key and basic industrial projects like the two iron
and steel plant at Aladja and Ajaokuta, steel rolling mills, petrochemical
projects. LNG projects, fertilizer plans and paper mills etc. Government
is also pursuing, as a matter of priority, the maintenance and expansion
of existing infrastructural facilities e.g. roads, railways, sea and air ports,
water and telecommunication network, etc.

3.6 Foreign Exchange Incentives

It is very important to take note that, foreign exchange is necessary for

the importation of necessary inputs required by different industries. In
this connection the Nigerian government repealed, in 1995, the
restrictions placed on foreign participation in certain areas of the
economy. Moreover, the exchange control Act of 1962 was also
abrogated. The objective of the government here is to attract foreign
investment inflow as well as beef up capacity utilisation in the
productive sector of the economy.

3.7 Problems of Growth and Investment

Economic growth depends strongly on the level of investment. That

notwithstanding, a number of problems serve to inhibit investment in
Nigeria. These problems are:

- the low level oftechnical know-low

- inadequate supply of basic infrastructural facilities such as water,
electricity, transportation facilities etc.
- poor communication facilities
- inconsistent government policy
- political instability.

All these factors over the years have greatly affected the growth and
investment opportunities in Nigeria.

4.0 CONCLUSION

The Nigerian economy has not witnessed a meaningful growth and

expansion of its investment opportunities. However, considerable efforts
has been made by the respective government to foster the economic

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growth and eventual exploration of the available investment

opportunities such that the industrial sector will thereafter play a leading
role in the economic development of the country.

5.0 SUMMARY

The economic growth of Nigeria is derived from investment, both local

and foreign. In this regard, the respective incentives to encourage
potential investors who could fuel the economic growth are needed.
Although you should be aware that investment will generate high rate of
capital formation which is a necessity for economic growth. But it is not
a sufficient condition for economic growth as there is the need for
complementary factors such as adequate and efficient infrastructural
facilities, stable and predictable political environment. You should also
note that there are certain factors that inhibit the desired economic
growth and creation of more investment opportunities.

6.0 TUTOR-MARKED ASSIGNMENT

Discuss the problems inhibiting the economic growth and investment

opportunities in Nigeria.

7.0 REFERENCES/FURTHER READING

Aboyade, O. (1996). Foundations of an African Economy: Study of

Investment and Growth in Nigeria. New York: Praeger Publisher.

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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 MGS 761 THE NIGERIAN ECONOMY

UNIT 5 INTERNATIONAL TRADE IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Meaning of International Trade
3.2 Reasons for International Trade
3.2.1 Advantages of International Trade
3.2.2 Disadvantages of International Trade
3.3 Directions and Flow of Nigeria’s International Trade
3.4 Terms of Trade
3.5 Barriers to International Trade
3.6 Imports and Exports
3.7 Trends and Structure of Nigeria’s External Trade
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Random distributions of natural resources necessitate interdependence

among countries of the world. Since no country is self sufficient, that is,
no country can produce all the goods and services needed for it's
economies. Thus, different countries around the globe engage in the
production and exchange of different commodities. Therefore, countries
engage in international trade to obtain those goods which they do not
produce locally. Today, however, many nations buy from other
countries goods which they can produce themselves. This is because of
the fact that countries tend to specialise in the production of those
commodities which they have greatest comparative advantage.

In other words, trade between different countries develops first where

one country could produce something desirable which others could not.
International trade therefore owes its origin to the varying resources of
different regions. Not all resources are found in a particular part of the
world. And for each nation to consume what she doesn't produce, there
must be exchange between countries which has grown so far into a
complex network referred to as international trade.

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2.0 OBJECTIVES

At the end of this unit, you should be able to:

o define international
trade
o identify reasons for international
trade
o find out the merits and demerits of international
trade
o know the direction and flow of Nigerian's international
trade
o get familiar with terms of
trade

Activity 2: What is international trade?

3.0 MAIN CONTENT

3.1 Meaning of International Trade

International trade can be defined as the exchange of goods and services

between one country and another. In other words, the exchange of goods
and services between Nigerian and Ghana; Nigerian and U.S.A. is
known as international trade. This exchange becomes inevitable because
of the variations in the cost of productions between one country and
another, thus, exchange makes it possible for countries who cannot
produce the goods at lower cost to import them for the betterment of the
welfare of their citizens.

One of the basic questions that the theory of international trade has to
provide answer is "What determines trade"? This lies with the theory of
comparative advantage. In other words, this theory explains the basis of
trade between two or more countries. The theory of comparative
advantage was formulated by an English stockbroker named David
Ricardo. The theory is often referred to as "theory of comparative cost".

The theory of comparative advantage/cost states that increased

production obtainable from specialisation and exchange rather than from
a policy of self sufficiency and economic isolation will be maximised
under given technological conditions, when each country or region
specialises on production of those goods and services in which its
relative advantage is largest (i.e. its cost of production is least).
Although, this principle was first clearly started by Ricardo in 1817
when developing the theory of international trade, the doctrine/theory is
applicable to all territorial division of labour and exchange or form of
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specialisation between person/ business, Nigeria and any country of the
world.

The principle of comparative advantage/cost is illustrated below. In

illustrating this, we assume that there are only two countries in the

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World - Nigeria and Ghana, and that there are only two commodities -
petroleum and cocoa. Given cost of production, the two countries can
produce the quantities of commodities as given in the table below.

Table 1: Labour Cost of Production in Hours

1 Unit of Petroleum Product 1 Unit of Cocoa Product

Nigeria 80 90
Ghana 120 100

From Table 1 above, it takes only 80/120 X 100 = 67% of the Nigerian
efforts to produce a unit of petroleum and 90/100 X 100 = 90% to
produce a unit of cocoa, therefore Nigeria is more efficient in the
production of petroleum product than in the production of cocoa. Hence
its comparative advantage is greater in petroleum production than in
cocoa production. Similarly, Ghana has comparative advantage in cocoa
production because it takes only 111% (i.e. 100/90 X 100) efforts to
produce cocoa and it takes 150% (i.e. 120/80 X 100) to produce
petroleum, therefore, according to the theory of comparative advantage,
trade can exist between Nigeria and Ghana. Thus, each countiy should
export that product in which it has greater comparative advantage. And
hence, each country will consume more and the global welfare will be
maximized.

Activity 2: What are the reasons for international trade?

3.2 Reasons for International Trade

International trade becomes indispensable and inevitable due to the

following reasons.

(i) Differences in Factor Endowment: International trade owes it

origin to the varying resources of different regions. Resources are
not evenly distributed around the globe; some areas are blessed
with abundant supply of mineral resources, while others have
little or nothing. For example, Nigeria is blessed with abundant
petroleum resources, coal, tin and so on. These resources are
needed in countries of no supply and for each nation or country to
consume what she is not endowed with or can produce, the need
for international trade becomes necessary.

(ii) Differences in Climatic Condition: Many commodities can be

grown only under particular climatic condition and on certain soil
e.g. coffee in Mambila Plateau, rubber in southern Nigeria,
Lemon from Italy, etc.

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MGS 761 THE NIGERIAN ECONOMY

(iii) Differences in the Level of Technical Know-How: Developed

countries of Europe and America have acquired special skills due
to their development in technology and technical know-how.
They produce machines, and other advanced equipment which
are not obtainable in the less-developed economies of Nigeria and
others in sub-Saharan Africa. By exchanging or obtaining these
products, the country can enjoy a wider range of commodities,
than otherwise.

3.2.1 Advantages of International Trade

(1) Trade is an important stimulator of economic growth. It enlarges

the countries consumption capacities, increases world output and
provides access to scarce resources, and global market for
products without which Nigeria and other low developing
countries would not grow.

(2) Trade tends to promote greater international and domestic

equality by equalising factor prices, raising real income of trading
countries and ensuring efficient use of natural endowment and
world resource endowment in general.

(3) International trade makes possible a higher standard of living. It

makes possible the availability of necessary goods and services
for good living of the people within their reach. Since these
goods are mass-produced, they are likely to be cheap with the
result that individuals could buy them with their income. This in
effect brings about high standard of living.

(4) Finally, international trade promotes growth and development.

3.2.2 Disadvantages of International Trade

Unrestricted international trade may have the following effects on the

economy.

(1) Uncontrolled international trade may harm countries with infant

industries. Newly established industries need protection from
foreign competition. Many of the industries overseas are already
grown can stand competition by producing at low cost which is at
the detriment of local industries, which always produces at high
cost. If goods produced by foreign firms are allowed into the
economy to compete with that of the local industries, they will
out-compete the goods of the local industries. These infant
industries will eventually die off.

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MGS 761 MODULE 2

(2) If goods are allowed to flow across international boundaries, it

implies that every good needed in a country could be imported
without restriction. This will eventually drain the country's
foreign exchange reserves and eventually it would worsen the
balance of payment position of the country, particularly when
imports values are higher than exports.

(3) It is impossible for a country to attain self-sufficiency if

uncontrolled inter-national trade is allowed, since everything you
need you can obtain it within the international market.

(4) International trade will make the weak weaker and strong
seemingly stronger provided it is not restricted.

3.3 Direction and Flow of Nigeria's International Trade

One of the main features of Nigeria's international trade is the

predominance of developed countries as her customers or consumers for
its exports which mainly constitute of Agricultural products or raw
materials and petroleum. And also Developed Economies are the main
suppliers Nigeria's imports, which are made up of essential
commodities, manufactured goods machinery as well as equipment.

America has remained the largest buyer of Nigeria's exports, Western

Europe is ranked next. The Asia and African followed in that order. This
has remained the feature over the years, however, with some little
fluctuation.

3.4 Terms of Trade

Terms of trade measures the purchasing power of exports in terms

imports. We define a country's terms of trade as:

N = Where,

N = Commodity terms of trade; Px = price of export good and Pm =

price of import good. This can be referred to as commodity or net barter
terms of trade.

The country's terms of trade depends on the prices of commodities

entering into inter-national trade. The terms of trade is said to be
favourable to a country when the prices of its exports exceeds the prices
of imports.

So, Nigeria will have a favourable terms of trade when the prices of it
exports rises and vice versa.

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MGS 761 THE NIGERIAN ECONOMY

3.5 Barriers to International Trade

In spite of the relevance of international trade in the economic growth

and development, there are impediments in the ways in which this is
achieved and they includes:

1. Governments of many countries interfere in the free flow of

goods and services across the country's borders. For instance, a
country can impose import duties, import quota, tariffs, etc. This
in no small measure works against the attainment of principles of
comparative advantage/cost and thus serves as a barrier to
international trade.

2. Differences in currency: Each country has its own currency and

before a country can trade with other countries, it must obtain the
currencies of it trading partner. Due to foreign exchange
problems, it is not usually easy to obtain foreign currencies. And
this is harmful international trade.

3. Language problems make international trade difficult.

Communication is vital for any successful transaction to take
place. For instance, a British business man may not be able to
engage in international trade with his French- speaking friends
unless there is a possibility of eliminating this problem via the
use of interpreters.

4. Geographical Barriers: Many countries are very far apart, the

issue of mobility and accessibility make it difficult to reach some
area's or places, since it takes many days or even months before
traveling from one country to another. There have been however,
improvements in the means of transportation and information
technology. Geographical barriers serve as a major factor that
hinders international trade.

3.6 Imports and Exports

Imports simply refer to goods and services brought into a country from
other countries by importers. For example, if Nigeria buys goods from
U.S.A.. Nigeria is the importer. The goods could be manufactured or
agricultural products. Exports on the other hand are goods and services
which a country sells or provides to other countries. Payment for these
goods is usually made in acceptable foreign currency.

Agricultural products such as cocoa, groundnut, rubber, palm produce,

crude oil, e.t.c form the bulk of Nigeria's exports and other African
countries of less developed economies. The commodities or exports are

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MGS 761 MODULE 2

imported to developed industrialized countries of Europe and America.

On the other hand, manufactured goods form the exports of
industrialized countries with Nigeria and other African countries as main
importers

3.7 Trends and Structure of Nigeria's External Trade

1) Before the introduction of structural adjustment programme in

1986 and even after, Nigeria is faced with unfavourable balance
of trade with most countries of Europe, America and Japan.

2) This may be attributed to, among all other things, the fact that the
country has relied too much on oil as it major exports and source
of revenue earner which becomes very manifest during the oil
boom of 1974 to 1979. Unfortunately the oil glut of 1980 greatly
reduced our revenue base and this adversely affected our balance
of payments position.

3) The data and figures supplied by the Central Bank of Nigerian for
the month of April, 1988 show that outflow of funds was 50
million dollars more than inflow from trade which was 11.36%.
The total inflow for that month was 440 million dollars as against
the outflow of 490 million dollars. In the previous month of
March 1988 there was a total inflow of 496.81 million dollars as
against total out flow of 515.20 million dollars. The story is
similar in February and January 1988. But in 1987, the carrying
stood at 5.45 billion dollars as against outflow of 5.25billion
dollars.

4) Non-oil exports have been minimal since 1974, i.e. period of oil
boom. In April 1988, $2 million dollars was received in respect
of non-oil exports which were the lowest since government began
its campaigns in 1986 to boost non oil exports under S.A.P.

5) Under SAP, a new council called Export Promotion Council has

been formed to encourage general exports of non-oil goods.

6) Trading partners: Most West African countries concentrate their

trading activities with Europe, America, Japan, and recently Far
East. This is as a result of the fact that all African countries are
exporters of raw material and importer of finished products.

7) New trends: New trend is being initiated by ECOWAS. This is to

encourage trade among member countries.

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MGS 761 THE NIGERIAN ECONOMY

8) Nigeria is striving at bringing about a diversification of its

exports and to bring about increased earnings from non-oil
commodities. Emphasis is on manufacturing for exports and
encouragement of exports of agricultural goods.

9) Import substitution: While trying to increase exports earnings,

efforts are being made to increase imports substitution because of
the huge debts that accumulated over the years which leads to
balance of trade and payment problems in the economy.

10) The growth rate in exports of non-oil goods has been about
3%per annum since 1996 as a result of several structural reforms.

4.0 CONCLUSION

As an integral part of the international economy, the Nigerian economy

has not been free from the global crisis of capitalism. The Nigerian
economic crisis for the 1980s derived mainly from the dependent and
weak position of the country within the international economic system.
Furthermore, the Nigerian economy, like any other developing
economies, has operated within a rather hostile international
environment characterized by worsening terms of trade, increasing
international protectionism, and external debt.

In the light of these features, the case for diversification of the export
trade is even stronger today than it was many years back. It is important
for the current export promotion strategies to be re-focused in favour of
manufactured exports. This would require incentives such as a stable
and realistic exchange rate, export subsidies, cheap credit, low cost of
production and adequate infrastructural facilities.

5.0 SUMMARY

Differences in natural resource endowment, climatic condition and level

of technological know-how made trade between different countries
indispensable and inevitable. Apart from being an important stimulus of
economic growth, it tends to bring about higher standard of living and
promote economic development. Inspite of the advantages of
international trade, it could have serious damaging effect on infant
industry, balance of payments position, etc.

Nigeria is faced with unfavourable balance of trade with most countries

of Europe, America and Japan. This may be attributed to the fact that the
country has relied too much on oil as its major exports and source of
revenue.

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MGS 761 MODULE 2

6.0 TUTOR-MARKED ASSIGNMENT

Inspite of the relevance of international trade in the economic growth

and development of Nigeria, there are certain impediments. Discuss

7.0 REFERENCES/FURTHER READING

A. S. O. O. (nd). Nigerian Economic Crises, Causes and Solution.

C.B .N. (1994). Annual Reports and Statement of Accounts.

Kindleberger C.P., International Economics,

Sodersten, B.O. (1985). International Economics. Second Edition,

Macmillan.

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MGS 761 THE NIGERIAN ECONOMY

MODULE 3

Unit 1 Structural Adjustment Programme in Nigeria

Unit 2 Financial System in Nigeria
Unit 3 Educational Sector in Nigeria
Unit 4 The Health Sector in the Nigerian Economy
Unit 5 Nigeria's External Economic Relation

UNIT 1 STRUCTURAL ADJUSTMENT PROGRAMME

IN NIGERIA
CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Main Objectives of the Structural Adjustment Programme
(SAP)
3.2 Policy Measures of SAP
3.3 Implementation of the Macroeconomic Policy
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION
The Structural Adjustment Programme (SAP) adopted in 1986 was
meant to redress the economic problems confronting the Nigerian
society. The economic problems that SAP sought to attack are:
- excessive dependence of the economy on one commodity
- chronic lack of self-reliant growth and development
- serious balance of payments disequilibrium
- growing government budget deficits
- low productivity, etc.

SAP was one of the series of policy programmes directed at Nigeria's

economic problems listed above. In this regard, we are going to look at
the main objectives and the policy measures of the structural adjustment
programme.

2.0 OBJECTIVES
For you to appreciate how the Structural Adjustment Programme (SAP)
was to respond to the deteriorating economic conditions in the country,
you should be able to.
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MGS 761 MODULE 3

o identify the main objectives of

SAP
o examine the policy measures of
SAP
o explain the implementation of some of the macroeconomic
policies.

Activity 1: Highlight the main objectives of the Structural Adjustment

Programme?

3.0 MAIN CONTENT

3.1 Main Objectives of the Structural Adjustment

Programme

What distinguished SAP from previous efforts is the comprehensive

breadth, the greater depth,and the radical determination which
characterized the programme. Its preoccupation was the removal of the
perceived distortions which, for many years, have prevented the
economy from crossing the threshold to sustained self reliant growth and
development. Specifically, the main objectives of SAP are to:

1. restructure and diversity the productive base of the economy in

order to reduce dependence on the oil sector and on imports
2. lay the basis for a sustainable non inflationary or minimal
inflationary growth
3. achieve fiscal and balance of payments viability over the period
4. lessen the dominance of unproductive investments in the public
sector, improve the sector's efficiency and intensify the growth
potential of the private sector.

Activity 2: What are the policy measures of SAP?

3.2 Policy Measures of SAP

Before going into analyzing the implementation of the macro-economic

policy measures, you should be aware that, the major policyin the SAP
package consists of the removal of the perceived over-valuation of the
Naira through the establishment and operation of a Second-Tier Foreign
Exchange Market (SFEM). This mechanism for obtaining a realistic
Naira exchange rate is to be accompanied by several other policy
measures including:

1. Trade and payment liberalisation

2. Tariff reform and rationalisation to promote industrial
diversification
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3. Deregulation, reduction of administrative controls and greater
reliance on market forces

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4. Adoption of appropriate pricing policies for petroleum products

and public enterprise output that is, removal of subsidies
5. Rationalisation and privatisation of public enterprises
6. Strengthening existing demand management policies
7. Adoption of measures to stimulate production and broaden the
supply base of the economy.

3.3 Implementation of the Macro-Economic Policy

1. Realistic Naira Exchange Rate

The first, easiest and the fastest to be implemented was the downward
adjustment of the Naira exchange rate through Second-Tier Foreign
Exchange Market (SFEM) which took effect on September 29, 1986.
The downward side of the Naira exchange rate immediately pushed up
production costs in view of the high structure, import dependence of
existing production. The most immediate and visible impact of SAP has,
therefore, been the pervading and substantial increases in prices arising
from SFEM induced increases in costs, unlike the salutory impact on
exports, which has been much narrower and highly localised.

2. Demand Management Measures

The demand management measures have also been quicker to put

through monetary and credit limits, fiscal deficit limits, and income
limit. In fact, one of the main characteristics of SAP is the various
macro-economic limits which it seeks to impose on the level of
economic activity. For instance, the liquidity squeeze inevitably has
been one of the immediate results of SAP, with negative implications for
new investment, employment, capacity utilisation and overall economic
recovery.

Similarly, with regard to fiscal limits, government budget deficit was to

be limited to say 4 percent of the GDP in 1986. also, public sector wage
increases were limited to 10 per cent over the SAP period; the
implication of this was that, the significant withdrawal of government
from the circular flow of income also had 'speedy deflationary impact on
effective demand, incomes, employment, and overall macroeconomic
activity.

3. Tariff Reforms

Two interim attempts to redress the peculiarity of the external sector

have proved to be largely unsatisfactory as they have paradoxically
given greater incentive to importation of finished goods than to produce
locally with imported inputs. The first attempt shortly after SFEM took

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off, imposed only token increases (ranging from 5 to 10 per cent) on

raw material and capital goods. It imposed rates on finished goods that,
together with the excise tax structure and tariff on raw materials, it
became largely more profitable. This was aggravated by a number of
banned imports from 73 before SFEM to 16 immediately after the
inception of SFEM. The second attempt during the first quarter of 1987
did not significantly ameliorate the situation. It was clear by then, that,
tariff reforms so far under SAP have tended to be inspired principally by
the requirements of trade liberalization than those arising from the need
to effectively protect local industry and promote self-reliance.

4. Deregulation

Deregulation has so far been evident principally by the abolition of

import and export licensing schemes as a logical consequence of the
institution of SFEM, the abolition of the commodity board scheme, the
deregulation of interest rate, and the removal of price controls. The
bureaucracy continues, as before constituting the greatest bottleneck to
economic activity and still fighting shy of urgent institutional reforms
sought to deregulate the economy properly. It has so far been found that
reliance on market forces in an environment of inefficient government
bureaucracy, relatively narrow and weak private entrepreneurship, high
dependence on foreign factors and a general anti-developmental
environment may not produce the desired or optimal solutions sought
for as rapidly as desired.

5. Appropriate Pricing Policy

The adoption of appropriate pricing policies for petroleum products and

public enterprises is another element of SAP, which was speedily
implemented. So far, about 80 percent of the subsidy on petroleum
prices as at early 1986 had been removed, with consideration being
given to further subsidy removal, especially in view of the rise in crude
oil price. Since the beginning of 1987, air transport fares, National
Electric Power Authority (NEPA), Nigerian Telecommunications Ltd
(NITEL) and several other public enterprises charges have had an
upward revision of the user charges.

6. Rationalisation and Privatisation of Public Enterprises

The rationalisation and privatisation of public enterprises have proved

much more difficult to put in place. Five categories of public enterprises
have been demarcated namely, those to remain as treasury financed
public service organizations, those to be partially or fully
commercialized and those to be partially or fully privatized. The flow of
government funds into public enterprises had been drastically curtailed

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in line with the limit indicated earlier.

The impact, so far, of the on-going rationalisation of pubicenterprises

had been largely in the form of loss of employment (and real income) by
their employees and the role-vacuum created by the exercise. It is,
however, clear that the rationalisation of public enterprises is a medium
to long term exercise, and the full implementation and impact of the
exercise cannot yet be fully expected.

7. Stimulate Production and Broaden Supply Base of the

Economy

Supply-oriented policies as evident in most countries are easier to

implement and exert positive impact on production than demand
management measures aimed at controlling effective demand. SAP has,
as one of its basic elements, the measures to stimulate production.
However the activities of National Directorate of Employment (NDE),
Family Economic Advancement Programme, (FEAP) National
Economic Reconstruction Fund (NERFUND), Poverty Alleviation
Programme (PAP), are expected to exert much of their positive impact
on rural production. Also, the significant improvement in the production
and supply of food after the introduction of SAP could be attributed to
fine weather conditions than to deliberate government policy. In any
case, the apparent increase in food supply had paradoxically been
accompanied by generally high prices of food. In addition, at least two
factors which may discourage speedy improvement of the general
supply situation are already strongly in operation. One is the pervasive
increase in cost of production which has induced the second factor, and
the drastic curtailment of effective demand through other policies taken
under SAP.

Capacity Utilisation

The capacity utilisation during the first year of SAP averaged about 30
percent, lower than was achieved during 1985, the level of employment
was also lower. Moreover, inventory accumulation of finished products
had also been rising as high costs and reduced effective demand have
curtained markets. It is also now being realised that whilst the Naira
value of exports has been raised substantially; the Naira value of
production cost has also been raised substantially. After all, economics
is always a two-sided coin, and it is the net position, which really
matters. The solution to the problems of the Nigerian economy lies in
production, supply level and the structure.

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4.0 CONCLUSION

Structural adjustment calls for another development strategy that should

lay emphasis on development that is need-oriented, which will lead to
structural transformation. However, it should focus on promoting public
policy framework which looks inwards, attempting to improve social
amenities and natural endowment which are already in existence. Your
worry now should be whether the structural adjustment programme
actually addressed issues of poverty, attitude, structures and
infrastructures, basic needs, employment and general social welfare of
the population.

5.0 SUMMARY

Taking a cursory look at the economic problems confronting the

Nigerian society, you have been made to understand the main objectives
of the structural adjustment programme in Nigeria, alongside the
economic problems. There was the need for structural adjustment which
should have promoted sustainable growth and development. Such
programmes needed to incorporate demand management policy
measures, Tariff reforms, rationalisation and privatisation of public
enterprises, policy measures that would stimulate the production and
broaden supply base of the economy.

In conclusion, you would observe that the emphasis of the

macroeconomic policies within the context of SAP had been on
economic growth rather than development. Macroeconomic policy and
planning must go beyond growth emphasis to touch on people.

6.0 TUTOR-MARKED ASSIGNMENT

The Structural Adjustment Programme (SAP) was aimed at stimulating

production and broader the supply base of the Nigerian economy.
Discuss.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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MGS 761 MODULE 3

UNIT 2 FINANCIAL SYSTEM IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Meaning of F inancial System
3.2 The Structure of the Nigerian Financial System
3.3 What are Financial Institutions?
3.4 Types of Financial Institutions
4.0 Conclusion
5.0 Summary
6.0 Tutor -Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

A financial system is a collection of various financial market

instruments, operators and institutions that interact with each other
within an economy to provide financial services which will include
financial resource mobilisation and allocations, financial intermediation,
and facilitation of foreign exchange transactions.

To this end, that there are various financial institutions in the country.
The financial institutions serve the purpose of channeling funds from
lenders to borrowers. In other words, they act as financial intermediaries
between those who are in need of fund and those who presently have
surplus funds.

When you talk about financial institution you should be making

reference to bank financial institutions in the banking sector of the
economy or non-banking financial institutions.

The bank-financial institution will refer to:

Commercial Banks
Central Bank

Merchant and Development Banks. On the other hand, Building

Societies, Hire Purchase Companies Insurance Companies, Pension
Fund and Investment Trusts, are non-bank financial institutions.

The issue here is to emphasise on the framework that facilitates the flow
of funds in the economy.

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2.0 OBJECTIVES

The overall aim of this unit to enable us look at the financial system.
You should be able to:

o examine the functions of the Nigerian financial

system
o identify the features of Nigerian financial
system.

Activity 1: What is a financial system?

3.0 MAIN CONTENT

3.1 Meaning of Financial System

A financial system is a conglomerate of various markets, instruments,

operators, and institutions that interact within an economy to provide
financial services such as resource mobilisation and allocation, financial
intermediation and facilitation of foreign exchange transactions to
exchange foreign trade.

3.2 Structure of the Nigerian Financial System

The structure of the Nigerian financial system. It shows that it comprises

the regulatory/supervisory authorities, banks and non-bank financial
institutions. The regulatory/supervisory authorities are the Central Bank
of Nigeria (CBN) at the apex, the Nigeria Deposit Insurance Corporation
(NDIC), the Securities and Exchange Commission (SEC), the Federal
Ministry of Finance (FMF), the Nigerian Insurance Supervisory Board
(NISB), and Federal Mortage Bank of Nigerian (FMBN).

The CBN is the major regulator and supervisor in the money

market,with the NDIC playing a complementary role. The CBN
exclusively regulates the activities of finance companies and promotes
the establishment of development banks.

The National Board for Community Banks (NBCB) gives prior approval
for the setting up of community banks, while the final granting of
licence is the CBN's responsibility.

The SEC is the apex regulator/supervisor in the capital market, with the
NSE as a self-regulatory institution. The FMF and the CBN share
control over Bureaux de Change while the NISB is the regulatory
authority in the insurance sector. The FMBN regulates mortgage finance
business in Nigeria (CBN, 1996).
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Activity 2: What are financial institutions in Nigeria?

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3.3 What are Financial Institutions?

Financial institutions are institutions which serve the purpose of

channeling funds from lenders to borrowers. They hold money balance
of, or borrow from individuals and other institutions in order to make
loans or other investment. In other words, they act as financial
intermediaries between those who presently have surplus funds (those
in-the surplus savings unit) and those accommodation (those in the
deficit savings unit). Thus, they move funds from those in surplus
savings unit of the economy to those in the deficit savings.

Activity 3: Mention three types of financial institutions?

3.4 Types of Financial Institutions

Financial institutions can broadly be classified into two: banks or bank

financial institutions in the banking sector and non-bank financial
institutions, Commercial, Central, Merchant and Development banks are
institutions in the Companies. Pension Funds and Investment Trusts are
non-bank financial institutions. While liabilities of banks form part of
the money supply, the liabilities of non-bank financial institutions do
not, for they are simply classified as “near monies”.

The following types of financial institutions straddle the Nigerian

financial landscape:

a. Traditional Financial Institutions

b. Commercial Banks
c. The Central Bank
d. Development Bank
e. Merchant Bank; and
f. Insurance Companies.

The traditional financial institutions are traditional credit groups such as

“Esusu” which were originally the institutional agencies for credit
supply to members and particularly small scale farmers and
businessmen.

The traditional credit system still persists and indeed reigns supreme in
large parts of the rural areas of West Africa. However, the emergence of
bank credit and the direct intervention of the federal and state
government in commercial, industrial and agricultural finance have
diminished their importance in the modem economy. In addition, such
“Esusu” groups have low financial resources at their disposal. In some
cases they charge excessive interest and exploit borrowers as other
traditional lenders do.

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4.0 CONCLUSION

How can we rate the performance of the financial system so far?

One can conclude that the under-performance of the economy has partly
led to poor financing in spite of the efforts of the banks in deposit
mobilisation, the proportion of money that lies outside the financial
institutions stood at 67.5 per cent in 1995 and has increased since then.
This shows that the financial system has yet not succeeded in this
critical function. In the task of resource allocation there is also a dearth
of medium and long-term finance resulting in small-scale industrialists
and farmers being sidelined. Efforts of the government to meet the
funding requirements of the real sector through development finance
institutions have been crippled by insufficient funds. There is no doubt
that the system will hold and play effective role in the economy given
the necessary environmental supports.

5.0 SUMMARY

In a market or mixed economy like Nigeria, the mobilisation of funds is

the responsibility of the financial sector. It is also this sector that should
determine the allocation of the funds it mobilises among the various
competing needs of the financial sector. Historically, the financial sector
consisted mainly of the banking sub-sector with the establishment of the
first commercial bank in Nigeria in 1892. The financial sector was
therefore owned, managed and patronised mainly by the colonial master.
So, Nigeria inherited a financial system dominated by foreign owned
institutions-banks, insurance companies with limited branch network
that provided short term financing for trade.

However, the financial system presently shows a mix of

governmentprivate sector as well as foreign participation in ownership
with divergent interests such as the provision of :

- finance for government

finance for their private business enterprises
- finance purely on perceived project viability.

6.0 TUTOR-MARKED ASSIGNMENT

i. What are financial institutions?

ii. What are the various types of financial institutions?

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7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Sanusi, J.0. (1992). Development in the Banking and Finance Industry:

Bullion, C.B.N. Publication Vol. 16 No.2.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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MGS 761 MODULE 3

UNIT 3 EDUCATIONAL SECTOR IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Concept and Importance of Education
3.2 The Structure of the Nigerian Education System
3.3 The 6-3-3-2 System of Education
3.4 Trends in Education Growth in Nigeria
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

In the traditional Nigerian setting, various people and sectors of the

country had their own educational systems, which were mainly non
formal in nature. The young were taught to conform to social customs
and traditions of the community and to learn relevant trades or vocation
that would make them good citizens. Such education was aimed at
maintaining continuity in various vocations, especially in medical, arts
and crafts and the continuity of culture by transmitting to successive
generations not only accumulated knowledge but also the acquired
standards of values.

Formal education was introduced by the colonial masters. The objective

was mainly to service their commercial and religious interests; hence the
emphasis was on mumeracy and communication. The method Was role
learning based on the development of 3RS-Reading, Riting, and
Rithmetic.

After independence, the federal government had little influence

oneducational matters at primary and secondary school levels as that
wasthe constitutional responsibility of the states. This resulted in a
multiplicity of educational policies and practices and varying standards
of education in the country.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o identify the importance of

education
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o examine the structure of the Nigerian educational
system

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MGS 761 MODULE 3

o explain the trend of growth in

education.

Activity 1: What is the importance of education?

3.0 MAIN CONTENT

3.1 The Concept and Importance of Education

In its broadest meaning, education is any process by which an individual

gains knowledge or insight, or develops attitudes and skills. In its strict
sense, it is a process to attain acculturation through which the individual
is helped to attain the development of his potentialities, and their
maximum activation when necessary, according to the right reason and
to achieve his perfect self-fulfillment. It is concerned with the
cultivation of the whole person including intellectual, affective,
character and psychomotor development. It is the human resources of
any nation, rather than its physical capital and materials resources,
which ultimately determine the character ad pace of its economic and
social development. "Human resources constitute the ultimate basis for
the wealth of nations. Capital and natural resources are passive factors
of production; human beings are the active agents who accumulate
capital, exploit natural resources, build social, economic and political
organization, and carry forward national development. Clearly, in a
country which is unable to develop the skills and knowledge of its
people and to utilize them effectively, the national economy will be
unable to develop anything else". It is the formal educational system that
is the major institutional mechanism for developing such human skills
and knowledge.

In this connection, improving and widening access to education,

especially basic education, has been an objective of education policy in
developing countries over the past two 'decades. This reflects the broad
recognition that education contributes to development. Basic education
is often considered a right, which nations have a responsibility to
guarantee to each generation. And the benefits to education are by now
well established. The evidence iS overwhelming that education raises
the quality of life, it improves health and productivity in market and
non-market work, increases individual's access to paid employment and
often facilitates social and political participation.

Activity 2: What are the goals of the educational system of Nigeria?

3.2 The Structure of the Nigerian Educational System

The formal education system is made up of primary education,

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secondary education, and tertiary education. These are examined in turn.

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Nigerian Primary Education

Primary education is the first component of basic education, the other

component being junior secondary education. Basic education is often
considered a right which nations have a responsibility to guarantee to
each generation. This partly explains the adoption of the defunct
Universal Primary Education (UPE) in Nigeria in 1976 (later revised in
1981). This level of education is for 6 to 11 year-old children. The
growth in the number ofNigeria's primary schools from 15,703 in 1960
to 39,677 in 1995 has ben observed as a phenomenal growth.

While primary education is currently funded by the Federal Government

through the Primary Education Commission, its management rests with
the local governments and now states.

During the Second National Developing Plan (1970-74), expenditureon

primary education stood at N33.934 million or 24.4% of totaleducation
expenditure. During the Third National Development Plan (1975-80),
N501 million was spent on primary education, representing 20.1% of
total education expenditure. Also during the Fourth National
Development Plan (1981-85), a total of N1,126.535 million was spent
on primary education, representing 14.6% of total educational
expenditure. This means that primary education expenditure as a
percentage of total education expenditure has been on a downward trend
since 1970.

Nigerian Secondary Education

Secondary education in Nigeria is for the 12 to 18 year old children. It is

on the concurrent list in the Nigerian constitution. This explains the
existence of Unity Schools or Federal Government Colleges in the
country.

Expenditure on secondary education during the First National

Development Plan was N53.886 million or 38.7% of total education
expenditure. An allocation during the Second National Development
Plan was N1055.4 million or 43.4% of total education. During the Third
National Development Plan the sum of N3096.303 million or 40.2% of
total education expenditure went to secondary education. The allocation
to secondary education is yet to enable us witness a meaningful
structural changes in terms of capital recurrent expenditure such that it
could achieve its desired objectives

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Nigerian Tertiary/Higher Education

Post-secondary or higher education is synonymous with tertiary

education, covering colleges of education, Colleges ofAgriculture and
other similar Post-Secondary institutions, Polytechnics or Colleges of
Technology, and Universities. Higher education in Nigeria is aimed at
providing specialised manpower as well as nation building, promotion
of the economic and social well being of the nation, self-reliance and
self-sufficiency. Here, we examine the Colleges of Education,
Polytechnics, and Universities.

(1) Colleges of Education

In Nigeria, the goals and objectives of Colleges of Education are:

a. Teaching, encouragement of the spirit of inquiry and
creativity in teacher; and
b. Production of highly motivated, conscientious and
efficient classroom teachers for the primary and junior
secondary levels of the education system.

(2) Polytechnics and Colleges of Technology

The goals and objectives of Polytechnics in Nigerian are

teaching, research with emphasis on application and
development, and public service through:
a. The production of high level and middle level manpower,
as appropriate, in areas necessary for agricultural,
commercial and economic development:
b. The identification and solution of the technology problem
and the need of industry and
c. The production of technicians and technologists for direct
employment in industry.

(3) Nigerian University Education

The goals and objectives of Universities in Nigeria are teaching,

research and public service through:
a. encouragement of the advancement of learning in diverse
disciplines
b. the development of high-level manpower to meet the
identified needs of the economy
c. generation and dissemination of knowledge
d. research relevant to the national and local development
problems of the country
e. the maintenance and transformation of the cultural
heritage of the country through the preservation and

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adaptation of local traditions and value; and

f. Public service.

3.3 The 6-3-3-4 System of Education

(A)Brief outline of the system

The new National Policy on Education was introduced in 1977 to solve

some of the problems of education in Nigeria. It lays emphasis on
self-reliance through exposure to vocational and technical skills.

The primary school curriculum includes the inculcation of literacy and

numeracy, the study of science, social norms, and values of the local
community and of the country as a whole through civics and social
studies, health and physical education, moral and religious education,
encouragement of aesthetic, creative and musical activities, local crafts,
domestic science and agriculture.

The Junior Secondary School Curriculum, which is both prevocational

and academic, is structured as follows:

Core Subjects
Mathematics, English, Nigerian Languages (2), Science Studies, Art and
Music, Practical Agriculture, Religious and Moral Instruction, Physical
Education and Pre-vocational Subjects (2)

Pre-Vocational Subjects (2)

Wood-Work, Metal Work, Electronics, Mechanics, Local Crafts, Home
Economics, Business Studies.

Non-Vocational Electives:
Arabic Studies, French.

The Senior Secondary School Curriculum, which is comprehensive, has

the following curriculum structure:

Core Subjects

English Language, One Nigerian Language, Mathematics One of the

following alternative subjects Physics, Chemistry and Biology, One of
Literature in English, History and Geography, Agricultural Science or a
vocational Subject.

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MGS 761 THE NIGERIAN ECONOMY

Electives

Biology, Chemistry, Additional Maths, Commerce, Economics,

Book-keeping, Typewriting, Shorthand, History, English Literature,
Geography, Agricultural Science, Home Economics, Bible Knowledge,
Islamic Studies, Arabic Studies, Metal Work, Electronics, Technical
Drawing, Wood-Work, Health Science, Government, etc.

The sixth form was abolished under the new system while higher
education should focus on teaching, research, dissemination of existing
and new information, service to the community and act as a storehouse
of knowledge.

3.4 Trends in Education Growth in Nigeria

We noticed earlier that in the 1950s, education expanded rapidly in

Nigeria. In fact, the rate of educational expansion far outstripped the
population growth rate during those decades. While on the average, the
population growth rate was less than 3%, primary school enrolment
grow by an average of about 10% per annum between 1970-74.
Secondary school enrolment grew by a yearly average of about 15%
while enrolment in secondary technical and vocational schools grew by
about 10% for the same period. Polytechnics and Institutes of
Technology witnessed a yearly growth rate of over 15% while the rate
of enrolment in the Universities grew on an average rate of over 45%
between 1970 and 1974.

This rapid expansion in the educational system however, slowed down

during the 1980s. At the primary level, enrolment in schools only rose
marginally by 3.8% from 13,777,642 in 1980 to 14,3000,501 in 1983. In
the subsequent years that were to follow (1984-90) enrolment actually
declined (with the highest rate of decline or minimum number of
enrolment records in 1986-87). However, the enrolment rate began to
increase again in 1992 from 13,776,854 in 1991-1992 to 14,805,937 in
1992-1993.

Secondary school enrolment in Nigeria was rather unsteady between

1980 and 1985. However, from 1985, there was a positive and
progressive growth in the number of student enrolled in secondary
education in Nigeria. Like the primary schools there was a phenomenal
growth (a sort of explosion) between 1992 and 1996).

Enrolments in secondary vocational and technical institutions in Nigeria

witnessed a steady growth between 1980 and 1988. However, rather
surprisingly, it fell drastically by over 98% from 68,678 to a mere 1,179
in 1989-1990. Though adequate statistics is lacking in this regard, it is

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doubtful whether the enrolment rate into these institutions ever picked
up to the former level.

Enrolment into tertiary institutions (Colleges of Education, Polytechnic

and Universities) in Nigeria has been increasing progressively over the
years. The highest growth rate however, is recorded by the universities
(from 77,791 in 1980-1981 to 135,783 in 1985-1986 and 24,879 in
1991-92). The growth rate from 1980-1981 to 1991-1992 is almost
200%. This is followed by the Colleges of Education. Rate of enrolment
into the Polytechnics has bot been as impressive as the other two
(experiencing a decline of almost 1% from the 1980-1981 figure in
1987-1988 and almost 17% from the figure in 1986-1987). The increase
in enrolment from 1980-1981 to 991-1992 was only 40.8%.

Similar growth was witnessed in adult literacy enrolment. From 520,039

in 1987, it increased to 620,296 in 1991. The highest enrolment
(724,969) was experienced in 1998.

The proportion of females in education enrolment at all levels in Nigeria

has been significant and growing. As observed "the universal primary
education policies of the regional governments in the 1950s opened the
floodgates not only to males, but to females as well. Since then, the
proportion of females in educational enrolment at all levelshas been
rising". The proportion of females enrolled in primary schools rose from
42.4% in 1988 to 44.1% in 1992. at secondary schools, it rose from
41.2% to 45.0% for the same period, while it increased from 29.2% in
1988 to 30.0% in 1991 at the Polytechnics.

4.0 CONCLUSION

The trend in educational enrolment in Nigeria reveals a disturbing fact.

While enrolments into secondary, vocational, and technical institutions
in the country has declined precipitously, there is a massive growth in
the rate of enrolment in Universities and Colleges of Education.
Expectedly, most of the students seeking admission into the Colleges of
Education do not intend to stop at that level but to the Universities. In
addition, at the Polytechnics and Colleges of Technology, teaching and
enrolment had imperceptibly gravitated away from technology to
management and allied studies. The present craze for university
education and despise of technical and vocational education apart from
creating serious problems for the universities reveal a serious distortion
in the economic and social life of the nation. This may not be
unconnected with the persistent wide gap between the earning and
perquisites of University graduate and vocational/technical schools
graduates in the country, a gap that is established to be between the

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rations 1:12 and 1:3. Wage and employment policies thus have a central

in 1989-1990. Though adequate statistics is lacking in this regard, it is

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role to play in manpower planning. Equal concern and quite related to

the above is the emerging enrolment explosions in all levels of education
(except secondary vocational and technical institutions and
Polytechnics) since 1991. Unless, a serious attempt is made to expand
the employment base (capacity) of the nation so as to be able to
accommodate the labour force that shall emerge, the unemployment
problem in the country may be worsened.

In this connection and also in view of what has been observed earlier,
the present thought on the rationalisation (future) of tertiary education in
Nigeria is a belated one. Tertiary education must be directed towards the
developmental needs of the country while an appropriate remuneration
structure must be evolved for vocational and technical skills.

The present situation as observed some years ago is such that men who
could like to start work after secondary schools find that they are neither
employable nor prepared for self employment, and they carry on to
college, not because of a strong commitment but rather because there is
not much else they can do. This trend is further carried over to
post-graduate studies. "The problem is not only because there is no job,
but also partly because they have not learned anything which would be
useful on a job, because they have not learned how to fend for
themselves on self-employment. Their education has not trained them to
rely on their capabilities and potentialities, they have not learnt to be
self-confident, to take risks, to ask questions. The Nigerian educational
system therefore manages to cater for the needs of the happy minority
who will manage to reach the few jobs of which so many aspire but does
very little to make the great majority either employable or ready for
self-employment".

5.0 SUMMARY

Nigeria is at its lowest ebb in human capital development and utilisation

because of its inadequate educational system, which tends to produce
more of those who lack job skills for employment than those the
economy requires to remain vibrant. The country has been more
concerned with quantitative planning, which has led to linear expansion
in the size of the educational system without any broad and dynamic
conception of the qualitative dimensions of the system. Qualitative as
pact of education should be viewed as a living and moving thing whose
goodness resides not only in its excellence relative to certain "standards
but in its relevance and fitness to the changing needs of the particular
students and the society it intended to serve.

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6.0 TUTOR-MARKED ASSIGNMENT

Given the problems faced by the educational sector in Nigeria, how can
the government re-invigorate the technical and vocational education?

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C. (1987a). “The 6-3-3-4 System of Education and the

Unemployment/Underemployment Problems in Nigerian.” Paper
presented at the First Awka Annual Education Forum, Anambra
State College of Education, Awka, may 18-20, 1987.

Anyanwu, J.C. (1987b). “Self-Reliance and Polytechnics Education in

Nigeria.” Paper presented at a National Conference on Nigerian
Polytechnics and Implementation of the 6-3-3-4- Education
System, Anambra State Polytechnics, Oko, June 17-20, 1987.

Anyanwu, J.C. (1997a). The Determinants of Female Children's Schools

Enrolment in Rural Nigeria. Research Report Submitted to
WINROCK International, Viginia, U.S.A.

Anyanwu, J.C. (1997b). “Determinants of Gender and Rural-Urban

Differences in Secondary School Enrolment: An Economic
Investigation of the Nigerian Case.” Mimeo, University of Benin,
Benin City.

Anyanwu, J.C. (1997c). The Flow, Application, and Control of

Financial Resources in Nigerian University Governance.
Research Report Submitted to the SSCN.

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UNIT 4 THE HEALTH SECTOR IN THE NIGERIAN

ECONOMY

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Meaning of Health
3.2 Responsibility for Health Care in Nigeria
3.3 Levels of Health Care Facilities in Nigeria
3.4 Primary Health Care (PHC) in Nigeria
3.5 Primary Health Care in Nigeria: Initiative and
Programmes
3.5.1 Federal Government
3.5.2 The States
3.5.3 Local Government Authorities (LGAS)
3.6 Secondary Health Care (SHC) in Nigeria
3.7 Tertiary Health Care (THC) in Nigeria
3.8 Weaknesses in Past and Recent Health Policies
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Health is state of complete physical, mental, and social well-being and

not merely the absence of disease or infirmity. From this point of view,
one could simply say it is the ability for any human being to live a
socially and economically productive life. The implication here is that
health ensures adequate supply of labour force and high productivity
level by reducing lethargy and inattentiveness. To this effect, health care
provision in every society is the provision of conditions for normal,
mental and physical development and functioning of human being
individually or in-group to enhance economic growth and development
of the society. In this perspective, therefore, emphasis is placed on the
three health care levels in Nigeria.

2.0 OBJECTIVES

Since the emphasis here is to look at the different health care levels in
Nigeria and outline their problems and prospects, you will therefore,
identify the levels of health care facilities in Nigeria, look at the basic,
primary health care in Nigeria, and bring out the initiatives and
programmes, examine the secondary health care (SHC) in Nigeria, and

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outline the weakness in the health policies.

Activity 1: What is health?

3.0 MAIN CONTENT

3.1 Meaning of Health

Health is a somewhat nebulous condition, difficult to define and never in

a state of perfection since one can be "really sick" but never "perfectly
healthy". In the face of this, it might be useful to define health, good or
bad, in terms that can be measured, can be interpreted with respect to the
ability of the individual at the time of measurement to function in a
normal manner with respect to the likelihood of imminent disease. Thus,
we can say that health is a state of complete-physical, mental and social
well being, and not merely the absence of disease or infirmity and this
definition has also been interpreted as "the ability to lead a socially and
economically productive life (WHO, 1978; 1996).

Activity 2: Who is responsible for health care in Nigeria?

3.2 Responsibility for Health Care in Nigeria

Since you have now realised hat health is a necessity for anymeaningful
development, therefore health care implies “the provisionof conditions
for normal, mental and physical development” and functioning of the
human being individually or in a group". It includes health protection
measures; promotion of health; prevention of sickness; and curative and
protective medicine in all its ramifications.

Health care is a shared responsibility in all the Nigerian constitutional

setups, among the federal, state, and local governments. The local
governments are supposed to take care of the primary level
(emphasising preventive medicare-health clinics, dispensaries, etc)
while state governments are responsible for the secondary level
(emphasising curative medicare/first referral general hospitals, etc). The
federal government, on the other hand, is in charge of the tertiary level
of care (emphasising referral medicare) to which teaching and specialist
hospitals belong.

3.3 Levels of Health Care Facilities in Nigeria

There are basically three health care levels in Nigeria: Primary health
care, secondary health care, and tertiary health care.

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MGS 761 THE NIGERIAN ECONOMY

In a National Inventory of Community-based infrastructure just released

in May 1977, it was discovered that only 14.47, out of the 101,041
communities in Nigeria have any health care facility at all, representing
only 14.3% coverage of health institutions. This shows that the health
for all by the year 2,000 remains a mirage in Nigeria. This leaves 85.7%
of Nigerians unnerved. Also, only 86 general hospitals are serving over
104 million Nigerians. Also, there are 14 teaching hospitals, 7,027 and
7,231 dispensaries in Nigeria, most of which are urban based. There are
also 4,775 maternity homes, 3,004 rural health centers, 284 optometric
(eye) hospitals and 152 leprosaria in the country.

Lagos State tops the table of state with the highest presence of health
institutions with 25 general hospitals, 85 rural health centers. 73
maternity homes, 1.173 clinics, 254 dispensaries, one teaching hospital,
etc, bringing the total to 2,879. Plateau State ranks second highest with
55 general hospitals, one teaching hospital, 98 rural health centers, 119
maternity homes, 657 clinics, 463 dispensaries, etc, totaling 1,409 health
institutions. Other following are Ondo (1,193), Benue (1,139), Enugu
(986), Rivers (961), and Imo with 935 health institutions. While the
Federal Capital Territory has 164 health institutions, Yobe has the least
number among the states with 303- health institution made up of 12
general hospitals, 26 rural health centers, 10 maternities, 66 clinics 169
dispensaries, etc.

3.4 Primary Health Care (PHC) in Nigeria

1. Primary Health Care in Nigeria: Basic Health Care System

Primary Health Care (PHC) is seen by the 1978 Declaration at Alma-Ata

(WHO, 1978) as essential health care based on practical, scientifically
sound, and socially acceptable methods and technology made
universally accessible to individuals and families in the community
through their full participation and at cost that the community and
country can afford to maintain at every stage in their development, in the
spirit of self-reliance and self-determination. It is the first level of
contact of individuals, the family and the community with the national
health system, thereby bringing health care as close as possible to where
the people live and work, and constitutes the first element of a
continuing health care process. As the Commission on Health Research
for Development (1990) noted, PHC is an equity-oriented health and
development strategy focusing priority on the most appropriate health
interventions for the most common health problems of greatest need.

The Alma-Ata Declaration stated that the essential elements of PHC

included at least the following:
a) Education concerning prevailing health problems and the

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methods of preventing and controlling them

b) Promotion of food supply and proper nutrition
c) An adequate supply of safe water and basic sanitation
d) Material and child health care, including family planning
e) Immunisation against the major infectious diseases
f) Appropriate treatment of common diseases and injuries; and
g) Provision of essential drugs.

Thus, as embodied in the 'Health for All' (HFA) by the year 2000, it
implies the promotion of the highest possible level of physical, mental
and social well-being of individuals, within families, living in
communities. Its practical implementation strategies involve the
following inter-related activities:
a) the adoption of clearly defined policies, strategies and plans
b) the establishment/strengthening of health care delivery systems
based on the PHC approach; and
c) the definition and implementation of community-based activities,
involving many sectors and agencies.

It is not surprising, therefore, that the decade of the 1980s witnessed the
emergence of PHC initiatives of many kinds, including:

- Community-based health being pursued by diverse private

agencies were recognised and supported as PHC efforts
advancing that goal of HFA
- Many governments in both developing and industrialised
countries adopted PHC strategies in their health sectors
- The World Health Organisation (WHO) itself promoted HFA
objectives and PHC initiatives within its internal programmes as
well as with member governments
- United Nations Children's Fund (UNICEF) launched a "child
survival and development revolution", using mobilisation to
disseminate low-cost yet effective health technologies for child
survival, including universal childhood immunisation, mass
utilisation of oral rehydration and the "Bamako Initiative", to
provide essential drugs in Africa
- Several international PHC related initiatives were launched under
multiple-UN- Agency sponsorship, including safe motherhood
against maternal mortality; Better Maternal-Child Health through
Family Planning; and a Task Force for Child Survival.
- These actions were accompanied by increased investment by
some governments and development assistance agencies in PHC.

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3.5 Primary Health Care in Nigeria: Initiative and

Programmes

Being part of the Alma-Ata meeting in 1978 and being convinced of the
importance of good health in national development, the Federal
Government of Nigeria produced, during the last decade, a blueprint on
"National Health Policy and Strategy to Achieve Health for All
Nigerians" (Federal Ministry of Health, 1986). The document reaffirmed
the government's commitment to intensive action on the attainment of
the goal of health for all by the year 2000. Accordingly, government
embarked on a new direction of health care delivery which makes PHC
the focus. Before this period, the Basic Health Services (BHS) scheme
formed an important health programme of the Third Nation
Development Plan 1975-80) and Fourth National Development Plan
(1981-1985). Under the BHS, the government intended, in part, to
significantly improve the modern health care coverage of the country
within the framework of a three-tier national comprehensive health care
delivery system comprising the following:

a) Primary Health Care (PHC) at which basic health services would

be delivered in health centers, clinics and out-patient departments
of hospitals located in rural suburban and urban areas.

b) Secondary Health Care (SHC) designed to provide general and

specialist health care services mostly in general hospitals as well
as referral support to the Basic/Primary Health Care level.

c) Tertiary Health Care (THC) to be provided in specialist and

teaching hospitals and other similar institutions in support of the
basic and secondary levels of the health care delivery system
(Federal Republic of Nigeria, 1990).

In spite of these achievements, a number of problems remained and in

most cases persisted. Some of these problems include: increasing
demand on the health care system, misadministration of health
manpower and institutions, inadequate health support services,
inadequate funding, shortage of drugs, and poor preventive and
environmental health services. It was against this background that both
the National Health Policy and the First National Rolling Plan (1990-92)
made PHC the primary focus ofpolicy.

Experience from the unsuccessful implementation of the BHC

programme during the previous two successive plans had shown the
need for the close involvement of the local governments, local
communities, and individuals in the implementation of the PHC in
collaboration with the other two tiers of government which handled it

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almost exclusively in the past. Consequently, government's policy

changed to that of the Federal and States continuing to provide matching
grants while the implementation and delivery of PHC in the country
became the exclusive responsibility of local governments for 1990. In
the presence of financial constraints, a selective approach was adopted
in implementation, with more beneficial components given greater
emphasis. There was emphasis on sectoral and inter-sectional
cooperation for monitoring, evaluating and coordinating health-related
programmes in such areas as housing, environmental sanitation,
drinking water, as well as food and nutrition.

Based on the above, certain targets under the PHC were set for the years
1992 to 1996.

In the same vein, responsibilities were given to different levels of

government as follows:

3.5.1 Federal Government

a) The development of model LGAs in the country for PHC service

delivery
b) Completion of two comprehensive health centers for each of the
Federal University Teaching Hospitals
c) Rehabilitation of Federal-financed PHC units as well as schools
of Health Technology in the states
d) Contribute financially in support of the World Bank-assisted
Sokoto and Imo Health Projects and the National Essential Drug
and Vaccines programme
e) Development of the National Institute for Production of Vaccines
and other Biological Substances in Lagos and Abuja
f) The establishment of the National Primary Health Care
Development Agency (NPHCDA) for the development of PHC
nationwide
g) AIDs control and prevention programmes.

3.5.2 The States

a) Provision of additional PHC facilities and the improvement and

upgrading of existing ones in the states
b) Completion, furnishing and equipping of on-going and
abandoned basic health facilities
c) Provision of equipment, drugs and other supplies for the
improvement and sustenance of states' efforts in promoting such
services as the Expanded Programme on Immunization (EPI).
Oral Rehydration Teraphy (ORT) and Family Planning (FP)
services

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MGS 761 THE NIGERIAN ECONOMY

d) The prevention and control of communicable diseases. Emphasis

is placed on AIDs, small pox, yellow fever, tuberculosis, guinea
worm, malaria, leprosy, etc.

3.5.3 Local Government Authorities (LGAS)

The consolidated health projects of LGAs are essentially PHC is nature,

content and orientation. Specifically, they include:
a) construction of basic health clinics and centres
b) purchase of mobile clinics, ambulances, generating sets and other
PHC supporting equipment
c) provision of public conveniences
d) improvement and up-grading of existing health clinics and
centres.
e) provision of other equipment, drugs and other supplies to the
clinics.

Consequently, activities that formed integral parts of the Nigerian PHC

include: the Extended Programme on Immunisation (REPI): Oral
Rehydration Therapy (ORT); Safe Motherhood and Family Planning
Activities: Complication of an Essential Drug List: and the National
Formulary Decree which makes it an offence to manufacture, import sell
display for sale, or advertise any drug not on the list. Others are the
Guinea Worm Eradication (GWE), and National AIDs Control
Programme; (NACP), reduction of Tuberculosis and Leprosy; campaign
against River Blindness and the National Programme of Action for the
Survival, Protection and Development of Nigerian Child.

Apart from financial allocations to PHC, allocation to the Department of

PHC by the Federal Ministry of Health and Social Services (FMEISS)
stood at N10.0 million in 1990, falling to N9.6 million, N9.7 million in
1992 and N6.1 million in 1993.

3.6 Secondary Health Care (SHC) in Nigeria

The secondary health care level exists to "provide specialised services to

patients referred from the primary health care level through outpatient
and in-patient services at hospital centers for general, medical, surgical
and paediatric patients"

The level is also expected to provide administrative training and

technical support to and supervision for the subordinate level. It serves
as administrative headquarters supervising health care activities of the
peripheral units. It is available at the district, divisional and zonal levels
of the states. Specialised supportive services such as diagnostic, blood
bank, rehabilitation, and physiotherapy are often provided.

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At the end of 1995, the number of secondary health care institutions

stood at 790. Such government and private hospitals exist in threeelected
states-Anambra (in the East), Ogun (in the West), and Plateau (in the
North).

3.7 Tertiary Health Care (THC) in Nigeria

Tertiary health care, which is at the apex of the national health care
system consists of highly specialised services which provide care for
specific diseases, and conditions for specific groups. The institutions
which fall under THC are teaching hospitals, specialist hospitals,
orthopedic, eye, psychiatric, maternity and pediatric hospitals. THC
institutions are often centers of the high level research, training and the
source of provision of specialised services in the clinical, scientific,
diagnostic and technological spheres.

At the end of 1995, there were 47 tertiary health care institutions in

Nigeria.

Activity 2: Outline some of the weaknesses of Health Policy in Nigeria.

3.8 Weaknesses in Past and Present Health Policies

The National Health Plan of 1996-2000 identified the following major

weaknesses in past and recent health policies in Nigeria:
a) Inadequate coverage: It was estimated that by 1996 about 54%of
the population had access to modern health care services while
the urban poor and rural areas are not well served.
b) The orientation of the services is inappropriate with a
disproportionately high expenditure on curative services as
compared to promotive and preventive health services.
c) The poor management of the services results in waste and
inefficiency. Different levels of care are hence poorly
coordinated.
d) The involvement of the community is minimal at critical points in
the decision-making process; hence the communities are not well
informed on matters affecting their health.
e) There is lack of basic health data, acting as a major constraint at
all stages of planning, monitoring and evaluation of health
services.
f) The financial resources allocated to the health services, especially
to some priority areas, are inadequate to permit them to function
effectively.
g) The basic infrastructure and logistic supports are often defective
owing to inadequate maintenance of buildings, medical
equipment and vehicles, inadequate supply of potable water and

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MGS 761 THE NIGERIAN ECONOMY

electricity, and the poor management of drugs, vaccines and

supplies system.

4.0 CONCLUSION

In spite of the achievements made so far, a number of problems

remained and in most cases persisted. These problems include,
increasing demand on health care system, misadministration of health
manpower and institutions, inadequate health-support services
inadequate finding, shortage of drugs, and poor preventive and
environmental health services. There is the need to lay emphasis on
sectoral and intersectoral cooperation for monitoring, evaluating and
coordinating health-related programmes in areas such as housing,
environmental simulation, drinking water, as well as food and nutrition.

5.0 SUMMARY

The world's leading authority on matters relating to health (W.H.O.),

sees health as "a state of complete physical, mental and social wellbeing
and not merely the absence of disease or infirmity"

In Nigeria, successive federal government have in the past made

attempts to improve the quality of life of the citizens through policies
designed to provide qualitative medical services. Unfortunately, most of
these attempts failed to achieve their objectives owing to lack of
adequate medical facilities and infrastructures to provide the desired
services as well as the funds to procure the required equipment.

6.0 TUTOR-MARKED ASSIGNMENT

What are the weaknesses of the health policies in Nigeria?

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Sanusi, J.0. (1992). Development in the Banking and Finance Industry:

Bullion, C.B.N. Publication Vol. 16 No.2.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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UNIT 5 NIGERIA'S EXTERNAL ECONOMIC

RELATION

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Types of Formalizsed External Economic Relations
3.2 Objectives of Economic Integration
3.3 Economic Community of West African States (ECOWAS)
Establishment of ECOWAS
3.4 Aims of ECOWAS
3.5 Expected Benefits From ECOWAS
3.6 Achievement of ECOWAS
3.7 Nigeria's Expected Benefits from ECOWAS
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Economic integration refers to the merging of various degrees of

economies and economic policy of two or more countries in a given
region. In a sense, it implies factor-price equalisation which can be
produced by trade without factor movements, by factor movement
without trade, or by some combination of the two. Factor equalisation
here means that, because countries trade at a common international price
ratio, factor prices among the trading partners will tend to be equalised,
assuming identical technological possibilities for all commodities across
countries.

Hence, economic integration implies different degrees of economic

cooperation, merging, mingling and mix with neighbours in a number of
areas such as trade mobility of labour and capital payment, fiscal and
monetary policies, social welfare provisions, and coordination of
investment plans.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o specify the types of formalised external

relations
o identify the objectives of economic
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 MGS 761 THE NIGERIAN ECONOMY
integration
o explain how and why the Economic community of West
African

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States (ECOWAS) was established

o identify the benefits that could be derived from being a member
of ECOWAS.

3.0 MAIN CONTENT

3.1 Types of Formalised External Economic Relations

There are five types of economic integration which entail different

degrees of economic co-operation. These are:
1. Free Trade Area (Trade Integration): Under this arrangement
tariffs and other trade restrictions between the participating
countries are abolished while each country adopts its own
external tariffs and other commercial policies against nonmember
countries. The European free Trade Association (EFTA) formed
in 1960 is a typical example.
2. Customs Union: Custom union involves the abolition of all forms
of internal restrictions on trade within the union and the adoption
of a common external tariffs policy by all member countries. The
EEC achieved this status in the 1960s.
3. The Common Market (Factor Integration): The economic union
combines the abolition of restrictions and impediments of factors
movements among member countries.
4. Economic Union (Policy Integration): The economic union
combines the abolition of restrictions on both commodity and
factor movements with some degree of harmonisation of national
economic policies. A typical example is the European Economic
Community (EEC).
5. Total Economic Integration (Total Integration): This involves the
unification of monetary, fiscal, and social policies andrequires the
establishment of a Supra-national agencies whosedecisions are
binding on all member-countries. Achievement of total
integration has been difficult due to great concern for national
sovereignty.

Activity 1: What are the objectives of economic integrations?

3.2 Objectives of Economic Integration

- It aims at reducing the external vulnerability of the participants.

This thus improves their bargaining power with their third party
trading partners.
- It aims at promoting efficiency through specialisation and
smoothness of trade transactions. That is, it aims at bringing
about more efficient utilisation of resources while the

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and orderly system of trade among member countries.

- It aims at increasing the level of economic activity through
increased trade. This permits the exploitation of external
- economies, and inter-industry linkages. This, in the long-run,
lowers cost o fproducti on.
- It aims at enlarging the size of the market for firms producing
below optimum capacity prior to integration. This brings about
- economies of scale. Large markets so created also help to sustain
heavy industries.
- The resultant enlarged market and reduced unit cost will further
stimulate demand and consumption and ultimately lead to
increased investments and economic growth.
- It results in trade creation, that is, a shift in the geographic
location of production from high cost to lower coat
member-countries.
- It must be pointed out, however, that trade diversion (polarisation
effect) may result. That is the integration may cause the locus of
production of formerly imported goods to shift from a lower cost
non-member country to a higher cost member country.
- It is also a stimulus for competition. Effective competition makes
possible the existence of internal and external economies.
- It results in coordinated industrial planning.
- It increases job opportunities as a result of increased investment
and emergence of infant industries.

3.3 Economic Community of West African States

(ECOWAS)

ESTABLISHMENT OF ECO WAS

The initial moves at forming the organization were made by the then
Nigerian Head of State, General Yakubu Gowon (rtd) and the Togolese
Leader, Gnassingbe Eyadema at the time they signed a bilateral
agreement in April 1972. That agreement was seen by Eyadema as a
'embryo' of West African Economic Community. Other countries came
into the picture in 1973 at Lome, Togo when the council of ministers of
the organization of African Unity (OAU) agreed in principle to form a
West African Economic Community. On May 28, 1975, the treaty
establishing the ECOWAS was signed by fifteen (15) West African
nations in Lagos, Nigeria. These countries include the host country,
Nigeria, Benin Republic (formerly Dahomey). The Gambia, Guinea,
Guinea Bissau, Ghana, Cote d'ivoire, Senegal, Togo, Burkina Faso,
Cape Verde Later joined at her independence to make the number
sixteen

harmonisation of economic and trade policies ushers in a smooth

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MGS 761 MODULE 3
Activity 2: What are the goals ofECOWAS?

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MGS 761 THE NIGERIAN ECONOMY

3.4 Aims of ECOWAS

a. The community shall aim to promote cooperation and

development in all fields of economic activity particularly in the fields
of agriculture, natural resources, trade, monetary and financial
questions and social and cultural matters for the purpose of
raising the standard of living of its peoples, of increasing and
maintaining economic stability of 'fostering closer relations
among its members.

b. For the purpose of the above objective the treaty outlines a

programme which will be implemented in stages in fifteen years.
The community will ensure
i. The elimination between member states of customs duties and
other charges of equivalent effects in respect of the importation
and exportation of goods:
ii. Abolition of quantitative and administrative restriction on trade
among member states
iii. The establishment of a common customs tariff and a common
commercial policy towards third countries
iv. Free movement of persons, services and capital between member
states
v. Harmonisation of the agricultural policies and the promotion of
common projects in the member states
vi. The implementation of schemes for the joint development of
transport, communication, energy, and other infrastructural
facilities
vii. The harmonisation of the economic and industrial policies of the
member states and the elimination of differences in the level of
development of member states; and
viii. The establishment of a fund for cooperation, compensation and
development.

3.5 Expected Benefits from ECOWAS

The formation of a community would result in single enlarged market

for many commodities. Producers of those commodities would face
acute competition and the most efficient ones would outclass the less
efficient ones. Since production would be carried on by the most
efficient producers, there will be increase in the volume of production.
Furthermore, as a result of economies of scale from mass production, the
unit cost of production would fall and, hence reduction in supply with
ultimate increase in people welfare.

Members of ECOWAS, being principal raw materials producers, will

likely be able to cooperate with regards to the supply of those

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commodities to the world market. For example, ECOWAS countries

control an overwhelmingly large proportion of the world's output of
cocoa and groundnuts. Thus they, through cooperation, could have
monopoly power in the world market with respect to those commodities.
This power could thus enable member countries improve their terms of
trade as done by the members of EEC and OPEC.

Furthermore, the enlarged market size should bring specialisation,

economies of scale in production, management and research, infusion of
technical innovation and promotion of capital formation. As a result of
specialisation, there will be efficiency and greater use of machinery and
modern technology in the sub-region. Also, increased production will
boost greater employment and hence improvement in the subregion will
attract more capital and technology as well as innovation research.

If the economic sectors are organised in such a way as to generate

forward and backward linkages to other sectors, the impact of
industrialisation and technology would spread to other sectors. This
positive effect is a characteristics of the early stages of industrialisation
whereby the leading sectors trigger the development of other sectors.

Furthermore, the new and larger protected market under ECOWAS

should, in a distant future, give dynamic stimulus to domestic
investment as well as to the possibility of investment being induced
from abroad.

In addition, cooperation among the West African Central banks will

bring an integrated capital market. This will facilitate a more efficient
mobilisation of financial resources among the member states. It is
evident that shares are oversubscribed in some parts of the region.
Integration would, therefore facilitate mobilisation of hitherto idle
resources and generate huge capital in the sub-region.

In conclusion, the establishment of ECOWAS will tend to stimulate

economic development in the sub-region. With the increase in trade and
some coordinated industrial undertakings, there will be increased
interdependence of the economies of member states, thereby generating
linkages among their industries. The achievement of a West African
wide economic cooperation in several shares will tend to promote
intra-regional trade and economic development in the sub region.

3.6 Achievement of ECOWAS Easing the Movement of

Persons

This is the first phase of the protocol which entitles ECOWAS citizens

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to stay in any member state for 90 days without visa (but with other

likely be able to cooperate with regards to the supply of those

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residential and necessary documents)

The motor vehicle third party insurance, otherwise known as the Brown
card is one ofprotocols so far ratified and being implemented by member
states. It establishes a common settlement system of claims in
international motor traffic.

Right of Residence
Though this protocol has not been completely ratified, it enables citizens
to take up jobs in any member state without the need for work permits.
Nigeria has ratified it but restricted its application to certain professions.

Telecommunication Project
Work on the U.S. $35 million ECOWAS telecommunications is nearing
completion.

Road/Air Transport Projects

Road and Air transport projects worth U.S. $26 million embarked upon
to link up member states are in progress.

ECOWAS Headquarters
Construction of ECOWAS headquarters in Abuja has been completed.

Nigerian set aside N5 million in support of the community's budget

towards this project

Ecobank

The Ecobank Transnational Incorporate (ETI) and its Togolese

subsidiary (affiliate) were both officially opened in March 1988 in
home, Togo, the West Africa's first =1\1=50 million off-share bank,
specifically designed to mobilise convertible currency resources within
the 16-nation ECOWAS and, from the worldwide investment
community in order to establish major venture capital fund for equity
investments in the region, has thus materialized.

The project was officially presented by the present of the federation of

West African Chambers of Commerce (F.W.A.C.C.) to the summit
meeting of ECO WAS heads of state and Governments in May 1983 in
Conakry, Guinea, The Ecobank was subsequently given the go ahead in
November 1984 during the ECO WAS summit held in home Togo.

3.7 Nigeria's Expected Benefits from ECOWAS

- The nation will have access to a wider market, both for the sales
of products and for the purchase of its requirements at home.

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- Mobility of labour will result especially with the "free

movement" objective. However, the richer nations are likely to
suffer the socio-economic and political problems of even-influx,
such as the one Nigeria has been experiencing before the
expulsion of illegal immigrants.

- Rational division of labour is likely to result among the member

nations; this may therefore encourage the growth of industries
that have not yet been established.

- Coordinated industrial planning is likely to result, especially in

those industries where economies of scale are likely to exist.

- A corollary of the above (coordinate industrial planning) is that

this will result to accelerated industrial growth since certain
industries will be assigned to member nations. This will
materialize in so far as the fear of domination is eliminated.

- Trade creation may also occur as a result of the imposition of

external barriers and encouragement of internal free trade. Trade
creation here refers to a situation where production shifts from
high-to low cost member nations.

4.0 CONCLUSION

The establishment of regional economic organization such as ECOWAS

was intended to stimulate economic development in the West-Africa
sub-region. With the increase in trade and some coordinated industrial
undertakings, there will be increased interdependence of the economies
of member states, thereby generating linkages among their industries.
The achievement of a West African-wide economic cooperation in
several spheres will tend to promote interregional trade and economic
development in the subregion. Therefore, you could reiterate that the
primary objective of ECOWAS, like all regional economic organizations
is the unification of several diverse markets in order to foster free
movement of goods and services and free movement of largely
expanded market.

5.0 SUMMARY

External economic relations involve economic integration which could

be seen as several stages of economic cooperation between nations. The
stages of economic integration are: free trade areas, customs union,
common market, economic union and monetary cooperation. In this
regard, the efforts of economic cooperation in West African sub-region
could be said to have been sustained with the establishment of ECO

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WAS on May 23', 1978.

Among other purposes and objectives, the essence of establishing

ECOWAS was to aimed promote cooperation and development in all
fields of economic activity, particularly in areas of transportation,
industry, telecommunications, energy, agriculture, natural resources,
monetary and financial questions and social and cultural matters for the
purpose of raising standard of living of its people, of increasing and
maintaining economic stability, and of fostering closer relations among
its members.

6.0 TUTOR-MARKED ASSIGNMENT

What benefits would Nigeria derive from being a member of

ECOWAS?

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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MODULE 4

Unit 1 Food Problem in Nigeria

Unit 2 Balance of Payment Disequilibrium in Nigeria
Unit 3 Unemployment in the Nigerian Economy
Unit 4 Inflation in Nigeria
Unit 5 Fiscal Federalism in Nigeria

UNIT 1 FOOD PROBLEM IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Indication of the Existence of the Problem
3.1.1 Growth Rate of Food Supply and Demand
3.1.2 The Nigerian's Food Balance Sheet
3.1.3 Changes in the Level of Food Imports
3.1.3 Domestic Food Prices
3.2 Government Objectives, Policies and Programmes for
Combating the Food Shortage Problem
4.0 Conclusion
5.0 Summary
6.0 Tutor-MarkedAssignment
7.0 References/Further Reading

1.0 INTRODUCTION
Food provides the basic human need and energy. Before 1970, food
supply in Nigeria was enough given the population. The abundant food
at this time was due to low prices. From then onwards, food shortage in
the country has remained a permanent problem. This is reflected in the
high food prices, and growing expenditure on food imports. However, in
this unit you will find out that although Nigeria is an agrarian society
there is still shortage of basic food.

2.0 OBJECTIVES

A hungry person is an angry person. When you infer from this

perspective, you should be interested to know that there are indicators
that show the existence of food shortage in our society. Therefore, at the
end of this unit, you should be able to:

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• trace the indicators of food problem

• explain the reasons for food problem in Nigeria
• outline government's objectives, policies and programmes for
combating the food shortage problem.

3.0 MAIN CONTENT

3.1 Indicators of the Existence of the Problem

Food shortage is ironically becoming a major national problem in this

country, a country that is supposed to be agricultural. In this unit, we
intend to provide some evidence that attests to the growing acuteness of
the problem.

3.1.1 Growth Rate of Food Supply and Demand

For some time now, available data have indicated that the rate of growth
of food demand, estimated at 3.4 per cent per annum, far exceeds that of
food supply, which is estimated to be 2.2 per cent per rapid increase in
population, urbanisation and increase in incomes.

In the 1960s, the population growth rate of Nigeria averaged 2.5 per cent
per annum while in the 1970s this growth rate has been estimated to be
in the range of 2.5-3 per cent per annum. This show that the population
growth rate is greater than the growth rate of food supply in the same
period. The increase in the growth of population has been largely due to
a decline in the mortality rate resulting from improvement in public
health and nutrition.

Concerning urbanisation, the rate of growth of the rural population in

Nigeria between 1970 and 1975, was 1.6 per cent per annum compared
to that in respect of urban population, which was 7.8 per cent per
annum, more than double the growth rate of total population. The
increased urbanisation was a result of wider spread of education, better
communications, and better employment opportunities. Generally, better
levels of conditions of living increased the individual's economic
horizon beyond the rural areas.

The excess demand situation also resulted from increased income as a

result of the various salaries and wage increases, most especially the
Udoji awards. The salary increases have placed many more people
within high-income level bracket. More people were able to buy food
items of better nutritional value

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3.1.2 The Nigerian Food Balance Sheet

Alternative criteria for measuring the acuteness of food shortagehas

been suggested by the Food and Agricultural Organization (FAO) of the
United Nations. This is referred to as the analysis of Food Balance
Sheet. A Food Balance Sheet shows the estimated per capita supply of
food available to a country in a given period.
In 1972, a Food Balance Sheet for Nigeria was published in 'A
Quantitative Analysis of Food Requirement Supplies and Demand in
Nigerian 1968-1985' by S.O. Olayide. It was estimated that in 1968/69
about 61.2 grams of crude protein and 2203 kilo calories of energy per
day were available to the population. Minimum requirements, according
to the FAO, for meeting the food and nutritional needs of the population
are 2420 kilocalories and 65 grams of crude protein. Thus, the nutrients
from available food supply in Nigeria in 1968/69 were below the
minimum requirements.

In 1974/75, the position had deteriorated further as only 56 grams of

protein and 2023 kilo calories of energy were being derived from
available food supply. This gloomy picture is often covered by reference
to the national average since, in fact, practical experience shows that a
greater per centage of the population actually lives below the national
average just as a few rich ones live well above the national average. In
the more developed countries, the corresponding data for 1974/75
averaged 3,000 kilo calories for energy and 95 gram for protein.

3.1.3 Changes in the Level of Food Imports

Another, and perhaps the most appropriate measure of food supply

situation, is the changes in the level of food imports. Government
policies during the First Republic were geared towards increased
production of export crops to meet the requirement for increased foreign
exchange earnings for development purposes. Food production was,
therefore, often neglected. Thus, in the mid-sixties, it became apparent
that the country could no longer feed herself and a substantial amount of
food had to be imported, in the first stage, to supplement local
production. At a later stage, however, imports substituted for home
production.

If food import merely complemented domestic supply, it would be

difficult to link a growing food import volume with a deteriorating food
supply situation. But when imports become substitutes for domestic
supply, the inference would be justified. The latter is true in Nigeria's
case.

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3.1.4 Domestic Food Prices

A rise in domestic food prices generally implies a situation of excess

demand although prices can also be influenced by supply bottlenecks
and speculation. However, there were continuous rise in domestic food
prices situation. The result of a decline in growth rate of domestic food
supply in the face of increasing population and increased urban income
has been the increase in food prices.
Activity 1: Highlight the reasons for the food problems in Nigeria

Possible Explanations for the Food Problem in Nigeria, A number of

plausible explanations could be provided for the foodshortage problem
in Nigeria. These are discussed briefly in this section.

(a) The Effect of the Civil War

The political and military crises of 1966 to 1970 had devastating effects
on economic performance in the country. Apart from the fact that a large
amount of labour was lost to the armed forces and that huge resources
were diverted to prosecuting the war, considerable time and resources
were put to the rehabilitation, reconciliation and reconstruction of the
war-torn areas. These, no doubt, had some adverse effects on food
production in all parts of the country but especially in the war affected
areas.

(b) The Effect of the Sahelian Drought on Grain and Livestock

Production

The country's main grain and beef producing areas were badly hit by the
Sahelian drought of 1972/73. It was estimated that in 1973, the worst
year of the drought, the production levels of such crops as millets.
Guinea corn, groundnuts cowpeas, maize and rice were reduced by
between 25 and 40 per cent. It was also estimated that about 300,000
heads of cattle died of starvation and many thousands more were
slaughtered prematurely.

(c) Inadequacy or Lack of Effective Supporting Services

Only a small portion of total capital outlays was devoted to credit

programmes in the First National Development Plan by the southern
regional governments. Lack of adequate credit facilities has always been
a major constraint to agricultural development in Nigeria.

During the Second Plan period, however, the Nigerian Agricultural

Bank was established for the purpose of making loans available to

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farmers on more or less favourable terms. It was provided with N20

million capital.

A sum of N150 million was earmarked for the bank during the Third
Plan period. The 650 per cent increase in the bank's capital is in
recognition of the importance of easy credit facilities to the development
of agriculture. Since the bank's inception in 1973, it has carried out its
loan lending activities. One can presume that the loans of the banks are
never likely to reach the majority of Nigerian farmers since they will not
be able to fulfill the conditions for getting the loans.

(d) Marketing Facilities

As regards marketing facilities, the marketing system, especially that in

relation to staple food crops, is largely unorganized, very inefficient and
constitutes a disincentive to producers. State Marketing Boards used to
constitute the exclusive purchasers of Cocoa, groundnuts, palm produce
and a number of minor commercial crops like coffee. The major
commodities not controlled by Marketing Boards were the various food
crops.

However, a Grains Board was established to deal with storage and

marketing of products like maize and guinea corn and a Root Crops
Board was also established to deal specifically with tubers like yam,
coco-yam, cassava, etc. Commodity Boards have also replaced the
existing Marketing Boards. In spite of these changes, however, there is
still lack of adequate storage facilities, which is the most serious
problem regarding the marketing of staple food crops in Nigeria. One
implication of this is that virtually the whole farm output is brought to
the market for sale at harvest time, resulting in prices that do not give
the farmer sufficient incentive to expand output. The marketing of staple
foodstuff is also inefficient because of the inadequate transportation
facilities and the generally low infrastructural development of rural
areas. Poor transport links tend to cause seasonal price variations in
small isolated markets. Storage costs are as high as 2.5-3 per cent of the
value of the produce stored per month. The high cost of distribution of
foodstuff has probably contributed to the increase in urban food prices.

(e) Land Tenure

Land ownership system varies from one ethnic group to another.

However, there is a common characteristic feature, namely, the absence
of individual land ownership. Before the promulgation of the Land Use
Decree, land was owned by the community and individual holding was
consequently often very small. Such a system discouraged individual
investment in conservation and improvement of land, and makes it

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difficult for a farmer to obtain loans using his land for security. The
essence of the decree in the rural areas is basically to facilitate
large-scale farming. However, the lack of an effective law enforcement
agency to back up the decree coupled with the foot-dragging that has
accompanied the implementation of its provision has left it rather
ineffective up to date. Although the decree vests the ownership of all
undeveloped land in government, people are still selling land.

(f) Inadequate Supply ofAgricultural Input

The use of improved inputs is extremely limited. Procurement and

distribution of seeds, chemicals and other agricultural inputs are handled
by each state government. The distributive system has always been
bedeviled by inefficient handling. Not only are the quantities not enough
but also very often the limited quantities distributed do not reach the
farmers at all. Even when they do, they rarely get to the farmers at the
time they are most needed.

Though agriculture still employs a considerable proportion of the

Nigerian labour force, it still suffers from the problem of inadequate
labour supply, especially during the clearing, planting weeding and
harvesting seasons. The young ones are attracted to the urban areas in
search of employment and thus the rural population is often old and, as
one would expect, with declining productivity. As already narrated, the
civil war attracted some able-bodied young men into the Army and thus
their contribution to agriculture was lost while they consumed a high
proportion of the food products.

Activity 2: Given the problems of food shortage in the country what

effort has the government made to alleviate this problem?

3.2 Government Objectives, Policies and Programmes For

Combating the Food Shortage Problem

Given the persistent nature of various agricultural problems, the federal

and state governments had to be guided, from time to time, by certain
objectives which have been stated in development plans as well as
annual government budgets. The major stated objectives include:

i. Ensuring food supplies are adequate and quality to keep pace

with increased population and need for fair and stable prices.
These would be achieved by improvement of hoes and cutlasses
with harvesters, tractors, and the use of National Seed
Multiplication Scheme.
ii. Expanding the production of export crops with a view to
increasing and further diversifying the country's foreign exchange

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earnings. This was to be achieved by the rehabilitation of low

producing palms and the regeneration of cocoa. Hence, provision
was made for creation of incentives to producers by way of better
produce prices, loans incentive and extension services.
iii. Propagating the production of agricultural materials for extensive
domestic manufacturing activities especially in the field of
agro-based industries.
iv. Evolving appropriate institutional and administrative apparatus to
facilitate a smooth integrated development of agricultural
potentials of the country as a whole.

In furtherance of these objectives, land tenure system was to be

vigorously pursued and National Agricultural Credit Scheme with
centralised control but decentralised operation was to be established. In
addition, Federal and state research centres were to be reformed. This
involves establishment of new ones and the improvement of existing
ones.

The Federal government also embarked on a number of measures aimed

at removing identified obstacles to rapid agricultural development and
crop production and encouraging more investment in the sector. These
measures include:
i. Guaranteed loan scheme in which the federal government
guarantees all agricultural loans given by commercial banks to
the tune of 75 per cent ofthe irrecoverable amount
ii. Five years tax holiday for investment in combined agricultural
production and processing.
iii. Abolition of import duties on tractors and other machinery and
equipment used for agricultural production.
iv. Increase of subsidies on fertilizer to 75 per cent.
v. Transfer of integrated agricultural production and processing
from schedules II to III of the Nigerian Enterprises Promotion
Decree.
vi. Treatment of agricultural production and processing and marking
of agricultural produce as favoured sector under the credit
guideline.
vii. All capital expenditure and equipment incurred in agricultural
production by individuals or companies will, apart from attracting
existing capital allowance, enjoy an additional investment
allowance of 10 per cent.
viii. Indefinite carry-forward of losses suffered by a company engaged
in agriculture until such losses can be written off against future
profits.
ix. Exemption from taxation of the interest payable on loans granted
to aid investment in agriculture.

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x. Granting of capital allowance for tax purposes to those wholease

out agricultural equipment.

Although most of the measures enumerated above are designed for types
of farmers-small, medium and large scale - it is a fact that small-scale
farmers who feed this nation hardly benefit from them. This is the major
defect of governments' efforts.

Certain specific programmes were pursued to enhance the realization of

improved agricultural system and productivity. Such integrated policies
include the following:

i. Price and Tax Incentives for Producers

The federal government has already abrogated the Marketing

Board System with a view to increasing producer prices,
producer incomes and the level of inputs. The highlights of the
reforms were as follows: price fixing has become the
responsibility of producer; the two-tier system of produce
taxation has been canceled; and prices were to be fixed with no
‘trading surplus’ in view.

ii. Infrastructure Programme

This constitutes the bulk of the subsectors' capital estimate with

an allocation ofN428.26 million consisting mainly of irrigation,
soil conversion, land use survey, agricultural research, manpower
training and storage and marketing.

ii. Federal government participation in direct production

iii. National Accelerated Food Production Project (NSFPP)

iv. Agro Service System

This system was designed to facilitate an expeditious delivery system

for inputs such as fertilizers, pesticides, herbicides. It also involves
storage schemes for combating scarcity in the event of crop failures.

vi. National Seed Multiplication Programme: The aim of the

programme is to provide farmers with improved seeds.

vii. Agricultural Credit: This is aimed at tackling the problem of

capital in Nigerian agriculture by establishing the Agricultural
Credit and Co-operative Bank in 1975.

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viii. Land Use Decree: The aim is to solve the problem of land
ownership and make vast land available for farming.

ix. The Operation Feed the Nation (OFN) of 1976 and the
Greenrevolution of recent years were major food production
programmes designed to promote self-sufficiency in food
supplies. The Green Revolution was formally launched in April
1980. It is a programme that was designed primarily to modernise
the agricultural sector and especially to achieve self-sufficiency
in food production by 1985. Under it, the federal government is
expected to allocate substantial funds for the resuscitation of
areas of food crop, livestock and fish production which had been
hinder financial handicapped. Various projects such as land
clearing schemes, the provision of farm mechanization centres.
Agro-service centers, river basin development schemes, the
national food production programme and tractor hire services will
receive priority treatment. The Green Revolution programme
included the increased supply of fertilizers and other materials
inputs, and the expansion of credit facilities under the credit
guarantee scheme, to farmers.

4.0 CONCLUSION

Food policy in Nigeria has so far gone along times that will create and
intensify dependency between Nigerian agriculture and the agricultural
products and technology of external economies. This is because its
strategy for food production is biased towards sowing the urban food
crisis. It is that capital intensive and focuses on transferring investment
into the hands of elite farmers and not mobilising the creative powers of
the millions of small rural farmers. It also ignores meaningful
investment in livestock sector which is in the hands of or the bush
environment of rural farmers and normadic groups. This policy is
brought with the internal contradiction of intensifying the poverty and
migration of rural people into urban area.

5.0 SUMMARY

Food shortage is becoming a major national problem in this country.

The growth rate of food supply and demand of food are growing
disproportionately. This could be because of some fundamental
problems such as the Sahelian drought on grain and livestock, lack of
effective supporting services, marketing facilities, land tenure system,
etc. However, supply of agriculture input has been a major strategy of
the federal government. The federal government also embarked on many
other measures aimed at removing identified obstacles to rapid
agricultural development and crop production. These include,

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guaranteed loan scheme, tax holiday, abolition of import duties, amongst

others.

6.0 TUTOR-MARKED ASSIGNMENT

The federal government of Nigeria embarked on certain programmes to

improve food production in the country. Outline some of the
programmes.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Okello Oculi (1986). Food and the African Revolution. Zaria: Gaskiya
Corporation Limited,.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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UNIT 2 BALANCE OF PAYMENT DISEQUILIBRIUM

IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Meaning and Possible Causes of Balance of Payment
Disequilibrium
3.2 Measurement of Balance of Payments
3.3 Traditional Balance of Payments Adjustment Mechanisms
(Measures)
3.3.1 Expenditure-Reducing Policies
3.4 The Use of Policy Measures in Nigeria
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

When a country interacts with another country there is bound to be some

economic transactions between them. Therefore, balance of payments of
a country is a systematic record of all economic transactions between the
residents of the foreign countries during a given period of time. The
major reason for keeping such an account is to inform governmental
authorities of the international position of the country so that appropriate
decision on monetary and fiscal policy can be taken. In theory, the
balance of payments is kept in standard double entry format. There are
two entries for each transaction. The first indicates the goods, services,
and securities that are imported or exported while the second entry
shows how this transaction is financed. As a result of the underlying
double entry structure, the payments to foreigners, by Nigerian residents
must be equal to the value of domestically produced goods, services and
securities sold to foreigners. It is this fact that accounts for the well
known holism that the balance of payment always balances.

2.0 OBJECTIVES

The balance of payment in a country could be in equilibrium or

disequilibrium. What should be very interesting to you to know is that
our country has always been suffering from balance of payment
disequilibrium.

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At the end of this unit, you should be able to:

• the meaning and possible causes of balance of payments

• the measurement of balance of payments Adjustment
mechanisms
• the use of policy measures in Nigeria.

3.0 MAIN CONTENT

3.1 Meaning and Possible Causes of Balance of Payments

Disequilibrium

You should be told that balance concept of the balance of payments,

equilibrium exists when a country's receipts and payments are equalised
during the period under review. When receipt is greater or smaller than
payments, then disequilibrium exists.

Activity 1: What are possible causes of balance ofpayment

disequilibrium

Having defined the terms equilibrium and disequilibrium in the balance

of payments, it will be pertinent to consider the traditional causes
ofdisequilibrium situations in the balance of payments. These causes are
discussed in turn.

1. Changes in Demand Conditions: When there is a change in

demand conditions, there is going to be disequilibrium in the
balance of payments. When the change is favourable in terms of
export commodities, then a surplus arises; whereas a deficit
results if the change is in favour of imports.
2. International Competition: Here it is assumed that the domestic
economy is either sold out of the market or outsells competitors
out of international market because its cost of production is
higher or lower than that of its rivals. When either of these
situations arises, there will be disequilibrium in the balance of
payments situation of the domestic country.
3. Exchange Rate Valuation: This affects the equilibrium situation
of the balance of payments to the extent that the, exchange rate is
over-valued or under-valued. An over-valuation of the exchange
rate will lead to a deficit while an under-valuation of exchange
rate may lead to a surplus in the balance of payments. Since
either a deficit or surplus is a deviation from equilibrium,
therefore, disequilibrium exists in the balance of payments.
4. Tax Regulations: an unfavourable export tax regulation leads to a
deficit in the balance of payments while an unfavourable import
tax regulation could lead to a surplus in the balance of payments
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and hence to a disequilibrium situation.

5. Inflation: Inflation in the domestic economy causes exports to be
relatively more costly in the world market and this leads to a loss
of exports and its attendant deficit in the balance of payments.
Conversely, inflation in rival countries' domestic economies
causes more to be bought from the domestic country since her
exports will be relatively cheaper. When this happens, a surplus
exists in the country's balance of payments and hence it could
cause disequilibrium.
6. Transfer: When out-transfer payment exceed transfer receipts
from other countries or when in-transfer are greater than out-
transfer payments, there will be disequilibrium in the balance of
payments.
7. Heavy reliance on services performed by firms owned by other
countries: This leads to excess of invisible imports over exports
and, hence disequilibrium in the balance of payments. Conversely
when services performed by firms owned by the domestic
country are relied upon by foreign countries, there will result a
surplus in the balance-of-payments situation of the domestic
economy.
8. International Commitments: When a country has more
international commitments (e.g. United States of America) than it
receives in the form of foreign aid, scholarships, payment to
troops stationed abroad etc, there might be excess of invisible
imports over exports and this could throw the balance of
payments out of equilibrium if there are no favourable balance in
other accounts of the balance of payments.
9. Development Programmes: The incidence of development
programmes and the wish to finance it through importation of
goods and services and capital provided by foreign countries
could throw the balance of payments into disequilibrium.
10. National Income: A country's export will depend on the national
incomes of its trading partners. An increase in income abroad will
have a favourable effect on the country's exports. Similarly, if
income increase in the domestic economy, imports would likely
increase. All these cause disequilibrium in the balance of
payments.
11. Tastes: A change in tastes in favour of imports from abroad
would have unfavourable effects on balance of payments while
an unfavourable change in tastes in connection with imports from
abroad could lead to a favourable effect on balance of payments.
Once any of these happens, there is going to be disequilibrium in
the balance of payments of the domestic economy.

Activity 2: How do you measure balance of payment?

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3.2 Measurement of Balance of Payments

The balance of payment situation of Nigeria could be viewed in one of

three possible ways. These are discussed, in turn.

i. Basic Balance Approach: This approach tries to consider as

autonomous the current account and long-term capital account
while regarding the other items of the balance of payments as
accommodating transactions for financing the balance in the
autonomous accounts. This approach is of relevance when
determining the role of the foreign trade sector on the economy
and the long-run movements of resources. Similarly this approach
is justified on the ground that short-term capital may be
accommodated. Also some items are prone to volatile and
possible erratic shifts. To the extent that above the line,
transaction is fairly stable in the short run but changes only
gradually in response to the broad forces at work in the domestic
and international economy in the long run, this definition is
appropriate. However, the approach has been seriously criticized
on the ground that the concept is defective for the dichotomy
underlying the distinction is quite artificial. Similarly, not all
short-term capital flows are responsive to monetary policy. Many
are not accommodating at all. In like manner, some basic items
(e.g. merchandise trade account) appear to be responsive to
monetary policy.
ii. Net Liquidity Balance Approach: This approach considers as
autonomous the current account and long-term capital account
transactions, short-tem capital assets, errors and omissions as
well as Allocation of Special Drawing Rights (SDRs) while
regarding all other items as accommodating.
This approach is of particular appropriateness when we want to
determine the net liquidity position of a country. However, the
approach has been critised on the ground that liquidity of any
country does not need to correspond with the concept of net
money flows. Also the approach draws too sharp an artificial
distinction between private foreigners and private domestic
residents, while not distinguishing between private foreigners and
foreign financial authorities. Apart from these, the approach
implies that domestic reserve assets are needed to protect the
domestic currency only against withdrawals of foreign holding,
whereas historical experience demonstrates that outflows of
domestic capital typically play a leading role in payments deficits
and speculative runs on a currency. Finally, the approach is
criticized on the ground that it implies that all foreign holdings
represent an equal change in the domestic currency.

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iii. Official Settlement Balance: The official settlement balance

approach distinguishes between types of transactions. Therefore,
it regards as autonomous the current account, longterm capital
account, while regarding as accommodating items such as the net
change in official monetary reserves and the net change in
liabilities to foreign official institutions. It is the International
Monetary Fund definition of balance of payments equilibrium. It
is recommended for use of member countries of the IMF. This
approach is defended on the ground that only official reserve
transactions represent official intervention in the foreign
exchange market. It truly represents accommodating flows under
the present international monetary system. Only financial
authorities have the responsibility for maintaining stable
exchange rates. Their gains and losses of reserve assets and
liabilities to foreign official authorities provide the best index of
the financing required by surpluses and deficits and hence
constitutes the most accurate measure of balance.
The fact that certain official transactions have nothing at all to do with
financing gaps in the balance of payments in the current period stands as
the strongest criticism against this approach. Similarly, Central Bank
Occasionally decides to borrow in foreign capital market to augment
their reserves or to sell reserves to domestic commercial banks when
they want to drain internal liquidity

Activity 3: What do you mean by traditional balance of payments

adjustment mechanism?

3.3 Traditional Balance of Payments Adjustment

Mechanisms (Measures)

You will then find out that a Balance of Payments adjustment

mechanism should be defined as any balance of payments disturbance
which can be deliberately initiated in order to correct some other
disturbances. The traditional mechanisms, based on changes in exchange
rates, prices and income, can no longer be applied effectively because
they are domestically unpalatable.

Some traditional measures are temporary and do not seek to remove the
underlying causes of the disequilibrium but rather to arrest a
deteriorating situation. They are called stop-gap measures which enable
policy makers to 'buy time' and design more permanent solution to the
problem.

However, it will be appreciable if we can ignore a balance of payments

surplus situation since it calls for no problem and concentrates on

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balance of payments deficit with its attendant unpalatable consequences

for policy makers. Thus all measures to be discussed in this 'section are
those relevant to correcting balance of payments deficit situations.
Deficits make a country to lose foreign reserves and perhaps gold.

A country faced with a balance of payments deficit will normally

employ the tight monetary policy under the gold standard and, in
modern times. Policy, instruments open to such a country include
exchange restriction, licensing, quotas, rationing, selective granting of
foreign exchange, raising of bank rate, decrease in money supply,
changes in custom duties and total ban. However, these policy
instruments will be considered under two major headings: namely,
expenditure reducing and expenditure switching policies.

3.4.1 Expenditure-Reducing Policies

In light with our discussion on Traditional Balance of Payment

Adjustment, the expenditure-reducing policies can be divided into two
broad categories. These are monetary and fiscal policies

a. Monetary Policy: Here the major approach to curing a balance

of payments deficit is the raising of interest rate. This affect
investment since the cost of money (borrowing) increases and as
the availability of credit becomes more scarce, producers borrow
and invest less. Similarly, a conscious effort of the monetary
authority to reduce expenditure is by going to participate in the
bond or securities market. Here the government sells bond to the
commercial banks, households and other financial institutions. As
a result of this transaction, the liquidity of the banking system
falls and the availability of credit decreases. The sale of bonds
will also lead to a fall in their prices and to an upward pressure on
interest rates. The decrease in availability of credit, coupled with
an increase in interest rate, can have a negative influence on
investment. Thus producers may now find it impossible to
borrow money. With this condition, investment will definitely be
curtailed. However, the efficiency of the open market operation
depends on the fact that commercial banks keep a given stated
ratio between their liquid and their loanable funds. In the final
analysis, a fall in investment will affect income and once this
happens, there will be less disposable income for people to spend
on imports. The deficit in the balance of payment will be reduced
if not cured. It is also believed that NEUTRAL monetary policy
will automatically work to curb a deficit. A deficit implies that
payments by residents of the country are larger than receipts by
residents. This means that residents are depleting their cash
balance. The neutral monetary policy assumes that the deficits

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should be left to continue. In this case cash balances will

eventually become depleted, and payments will be brought in line
with receipts. This means that the deficit will be self-correcting.
Neutrality in this sense means that the Central Bank does not
increase the money supply despite the depletion of cash balances.

In real life, Central Banks will not adopt this method of neutrality
because they will not wait until reserves totally areexhausted for
the policy to be implemented. However, as cash holdings become
scarcer, the interests rate increase, which will also work toward
curing balance of payments deficits. For a central bank that does
not want to tolerate an increase in interest rates, it has to increase
the money supply, and the deficit is no longer self-correcting.

b. Fiscal Policy: Fiscal policy measures can be divided into two

broad categories. These are the instruments of taxation and of
government budget. In the case of taxation, an increase in direct
taxes will reduce household incomes. A decrease in decrease in
disposable income may lead in part to a reduction in savings and
certainly lead to a reduction of consumption and consequently a
decrease in imports. An increase in indirect taxes, especially sales
taxes, will produce identical effect. Here the effect on savings
may be relatively smaller since indirect taxes, as opposed to
direct ones, are sparingly progressive. Fiscal measures curtail
investment. A decreased investment will, through the multiplier
effect, lead to a decrease in the national income and to a fall in
imports. A fall in imports will have a favourable effect on the
balance ofpayments.

Government expenditures include public consumption,

investment and transfer payments. A cut in government
expenditure especially with respect to transfer payments will
reduce income of the beneficiaries of such transfer payments.
This will in the final analysis lead to a fall in imports and a
favourable situation in the balance of payments. A decrease in
public investment produces the same effect on national income as
a fall in private investment, and leads to a fall in national income
and imports.

However, of the two policies, monetary and fiscal policies, the

latter is more efficient and effective than the former. A country
with a deficit in the balance of payments can pursue a tighter
monetary policy or a more restrictive fiscal policy. This will have
a deflationary effect on the national income and lead to a fall in
imports, or at least act as a brake on the increase in imports. It
will also have a positive effect on exports and on

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import-competing industries. A fall in activity level will lead to a

downward pressure on factor prices, wages may fall or, at least,
be stable. The result is that export and import competing
industries will be in a more competitive position. Thus an
expenditure reducing policy will have a positive effect on the
balance of payments both by reducing imports and by promoting
export expansion.

c. Expenditure-Switching Policies

Expenditure-Switching policies can take one of two forms.

These are exchange rate changes and direct control.

An exchange rate change takes the form of a devaluation or a

revaluation of the domestic currency. Devaluation means a
lowering in value of a currency with respect to gold while
revaluation is a rise in the value of currency with respect to gold.
Depreciation and appreciation mean a fall and a rise in the price
of domestic currency in terms of foreign currency respectively.

Devaluation causes a change in relative prices. It leads to an

increase in import prices and thus a fall in the demand for
imports. Similarly, import-competing industries will be in better
competitive situation. There will be increased earnings for
exporters who can now lower their prices. This places them in a
more competitive situation. However, their sales expansion
abroad will depend on the foreign demand elasticity for their
goods. For a devaluation to have a positive effect on a country's
trade balance, Marshall-Lerner condition, which states that the
sum of the elasticity's of demand for a country's exports and of
her demand for imports has to be greater than unity must be
satisfied.

If it is less that unity, an appreciation should be used to cure a

deficit in the trade balance instead of a devaluation. However, the
magnitude of the elasticity depends on whether the goods are
primary goods or manufactured goods and the conditions of the
market. One unpleasant effect of devaluation is inflation which
can of course be limited by joint pursuance of devaluation with
tight monetary and fiscal policies. We must not, however, lose
sight of the income redistributing effect of devaluation. The use
of monetary or fiscal policy or of payments presupposes that
income is sensitive to policy measures or that price changes will
lead to changes in consumption and production. This may not be
so because adjustment through these channels may take too long

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if ever it would be possible. A way to get out of this ugly

situation is to use direct controls.

These operate through quantitative and exchange restrictions. The

essence of direct trade controls is usually a wish to restrict
imports since factors affecting exports are purely exogenous to
the domestic economy. Direct controls can equally be considered
in terms of commercial and financial controls. However, policy
measures under direct controls include the following:

Import Restriction: Here the government can decide that only a

given per centage of the previous volume of imports can be
imported in the current year. Such a restriction of imports will
make their internal value higher than their external value.

Import Licensing: Here the government puts the importation of

certain commodities under license. This will reduce imports if
managed effectively and hence have a positive impact on the
balance of payments.

Quotas: This is when the government puts a limit to the amount

of imports from each of its trading partners.

Foreign Exchange Regulation: A government trying to hold

complete control over all dealings in foreign exchange may state
that exporters should sell their foreign earnings to a central board
e.g. the Central Bank, and that importers have to buy their foreign
currency from the same board. If this arrangement is successful,
the government would hold complete control over foreign trade.
It would then be able to cure any deficit in the balance of
payment by equating sales of foreign exchange with export
earnings.

Selective Granting of Foreign Exchange: This happens when the

government permits only those imports, which. are deemed
desirable such as necessities, capital goods, military equipment,
but does not permit luxury goods.

Bilateral Trade Agreements: Under this arrangement the

government enters into terms under which it will trade with its
trade partners.

3.4 The Use of Policy Measures in Nigeria

Nigerian authorities, both civilian and military, have adopted various

measures to arrest deterioration in her balance of payment situations.

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a. Fiscal Measures

i. Government Budget: The various governments of the Federation,

having realised the impact of excessive government spending,
had on many occasions cut down on the size of government
budgets overtime. This was particularly true of the civil war years
and the low profile budget of 1978/79-budget year.

ii. Tariffs: The goverment introduced various tariff policies over the
years with a view to arresting the adverse balance of payments
situations. Thus in 1964, the Federal Government increased
indirect taxes on a wide range of imports and domestic
manufactures to protect the balance of payments position. Also,
additional indirect taxes have been imposed on luxury
commodities in high demand. Super tax was introduced during
the war. All these were intended to improve the adverse balance
ofpayment situations.

b. Monetary Measures

In 1964, the Central Bank of Nigeria adopted a measure ofselective

control and moral suasion and certain general regulatory measures to
restrain private spending without discouraging capital formation. This
has also been done in some recent years. Other measures include the use
of guidelines. The Central Bank in 1964 limited the rate of increase of
aggregate advances by commercial banks. In 1965 and 1966 and also in
other years, the Central Bank of Nigeria placed a ceiling on the rate of
expansion of commercial bank advances over a given period to aid
balance of payments and to create relative credit scarcity and to lead,
therefore, to credit rationing.

c. Foreign Exchange Regulation

In 1962, the Federal Government felt the need to regulate her foreign
exchange policy. To this effect, the Nigerian Foreign Exchange Control
Act was passed in 1962. This Act had provision covering a wide range
of activities such as foreign exchange permission on selected items.
However, this Acthas been abrogated in 1968, the Exchange Control
regulations and procedures were further tightened. Thus transfers in
respect of dividends, profits and other capital transfers were suspended.
Payment for certain invisible items including management agency fees,
royalties, technical charges and commissions, and expenses due from
Nigerian firms to their agents and representatives in countries outside
Nigeria were suspended. Reduction of cash gifts to charitable
organisations abroad were reduced from 500 to 100 per cent year. All
shipping companies were required to give at least one month's notice of

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their foreign exchange requirement for charter-fees to the Federal

Ministry of Finance, giving all relevant information in respect of vessels
and the terms of charter.

In 1970, it was required that payments for current transactions be met

only out of current receipts as foreign exchange became available and it
was an offence to export Nigeria currency. Personal remittance by
foreign nationals residing in Nigeria was limited to 50 per cent of their
gross taxable income in Nigeria and was subject to prior approval by the
central bank. Basic travel allowance of N500 per annum per person was
reduced to N200 a year (N100 a year for children) in 1970. All these
were further reduced in 1971. Following a strong wave of foreign
exchange scandals, the Federal Government promulgated the foreign
Exchange Anti-Sabotage Decree under which some highly placed
Nigerians were persecuted and convicted.

d. Export Promotion

The government felt the need to improve her balance of payments

situation through export expansion. To this effect, the government
embarked on massive export drive. To do this she adopted the
following:

i. Protection for Domestic Industries: In doing this, the

government restricted the importation of goods whose local
supplies were found adequate both in terms of price and quality
in 1972. This policy was equally introduced in 1978 when total
ban was placed on certain category of consumer commodities e.g.
frozen meat.
ii Granting of Incentives: Right from time, the Government
embarked on the giving of incentive to domestic businessmen and
industrialist. In 1965 the government introduced the granting of
incentives to attract further investment in the private sector. In
1970, industrial concessions were granted industrialist in Nigeria
in respect of certain capital and initial allowances. Similarly,
special assistance has been rendered to Nigerian businessmen to
enable them to expand their activities. The super tax introduced
during the civil war was abolished in 1972. In the same year,
1972, import duties on raw materials for industrial production
were reduced by between 10%. The two-tier tax on marketing
board produce was abolished and replaced by a single tax of 10%
(an valorem). The Federal government in 1971 started to buy
"made in Nigeria" goods. In the same manner, the government in
1972 exempted companies earning a profit of less than N6,000
from company tax. Similarly, the 25% import duty on paper used
for manufacturing exercise books was abolished.

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e. Trade Agreement and Economic Cooperation

The need to protect her balance of payment led Nigeria into entering
various trade agreements and economic cooperation's right from 1961.
In 1962, Nigeria entered into International Tin Agreement to arrest the
declining commodity's prices. In 1972, the Nigerian National Oil
Corporation signed an agreement with SAFRAP, through which the
government acquired 35% of the company's operations. Also an
agreement was signed with a Soviet technical firm whereby the Soviet
firm will undertake to establish an oil production-training centre at
Warri. Nigeria also joined the Organization of Petroleum Exporting
Countries with a view to earn more on her petroleum export and to
improve her balance of payments. The motive behind the formation of
the Niger Basin Authority, the Chad Basin Authority and the Economic
Community of West African States has balance of payments undertones.

f. Exchange Rate Policy (Devaluation)

For a developing country like Nigeria, exchange rate is not a powerful

instrument for influencing the outlook of our balance of payments,
particularly in the short run. The main reasons are obvious. First, our
trade position may not be improved. Indeed, currency depreciation
worsens the terms of trade and adjustments to the altered international
trade could take a long time to materialize. Second, in the short run, the
prices of our export of primary export commodities, including
petroleum, might have been determined in the world markets. In this
case, exchange rate depreciation is not likely to confer any important
benefits in terms of increased export receipts. Third, owing to our
growing need for imports, exchange depreciation would have caused
inevitably, higher import prices, including the import of raw materials.
Also, the fear is always there that devaluation would add to inflationary
forces either directly through the effects of higher imports prices on
domestic price level or indirectly by encouraging excessive wage
claims. It is important to add that the short-run results of devaluation in
a country like Nigeria could be partially offset by increased value of
external assets especially in cases where devaluation does not provoke
equiproportionate devaluation by the major reserve centres.

4.0 CONCLUSION

Nigeria's balance of payments has been under persistent pressure since

1982 when the second oil shock occurred and the debt burden became
pronounced. Attempts at managing the balance of payments, involved
restrictive exchange and trade control practice to achieve the policy
objectives. The liberalisation of exchange controls and the institution of
a market-based exchange rate mechanism with the commencement of

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the Structural Adjustment Programme (SAP) temporarily stabilised

international payments. However, slippages in policy-in particular, the
reflation of the economy in 1988-intensified pressure on the external
sector. Non-oil exports that initially rose at the inception of SAP
declined in 1989 and have remained depressed ever since.

More so, the disproportionate size of oil exports vis-a-vis non-oil

exports, the excruciating debt burden, and the unfavourable domestic
and international economic environments have constrained the
achievement of a balanced and sustained economic growth that could
foster balance ofpayments viability.

5.0 SUMMARY

Balance of payment equilibrium is a situation whereby a

country'sreceipts and payments are equalised. However, factors such as
demand conditions, international competition, exchange rate valuation,
tax regulation, etc, are responsible for the balance of payment
disequilibrium in the country. In this regard, the government has put in
place over the years certain policy measures such as, fiscal policy,
monetary measures ,foreign exchange regulation, export promotion to
address this problem.

6.0 TUTOR-MARKED ASSIGNMENT

What were the policy measures that respective governments in Nigeria

have employed to ameliorate the balance of payment position?

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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UNIT 3 UNEMPLOYMENT IN THE NIGERIAN

ECONOMY

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Causes of Urban Unemployment in Nigeria
3:1.1 Wage Rate
3.1.2 Expansion in Education and the Supply of Labour
3.1.4 Factor Proportion and Demand for Labour
3.1.3 Population Growth and Labour Supply
3.1.4 Institutional Factors Contributing to Urban
Unemployment
3.1.6 Government Expenditure Policy
3.1.7 Attractiveness of the Urban Centres
3.2 Effects of Urban Unemployment in Nigeria
3.3 Possible Remedy for Urban Unemployment in Nigeria
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Unemployment as a phenomenon, is a situation whereby people who are

professionally qualified, able and willing to work are unable to find
employment.

Ativity 1: What is unemployment?

This situation presents itself in different ways.

Seasonal Unemployment

A situation whereby people are laid off seasonally due to the nature of
job they do e.g. agricultural jobs.

Technological Unemployment
- Unemployment caused by technological changes or new methods
of production in an industry or business e.g. a non-computer
literate accountant may not be able to get a desired job in a bank.

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Disguised unemployment
- A situation whereby people take up jobs unrelated to their area of
specialisation when the job they are qualified for is not
forthcoming.

Under employment
- a condition where people are employed in less-skilled jobs than
they are qualified to do.

Sectoral Unemployment
- A situation that affects certain professions because of over
production of graduates in such areas. This can also happen as a
consequence of rural-urban migration.
Up to the early eighties, university graduates had jobs waiting for
them on graduation, at times more than one offer. What obtains
now is a situation whereby graduates of ten years or more are still
seeking for employment. What then went wrong and where?

2.0 OBJECTIVES

At the end of this unit, you should be able to:

• state the meaning of the unemployment

• identify the courses of the urban unemployment
• look at the government policies towards solving unemployment
in the country.

Activity 2: You now imagine that there is high level of unemployment

in urban centres, what is actually responsible for this problem?

3.0 MAIN CONTENT

3.1 Causes of Urban Unemployment in Nigeria

The general cause of urban unemployment in Nigeria is the fact that

supply of labour is greater than the demand and, therefore, they're in a
disequilibrium in the urban labour market. The imbalance between
supply of labour and demand for labour can be said to be the result of
several factors, which affect both the supply of and demand for labour.
Some of these factors are now discussed.

Activity 3: What factors are responsible for urban unemployment in

Nigeria?

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3.1.1 Wage Rate

The classical or the Keynesian analysis of wage rate and unemployment

would be sufficient if the rate of unemployment was relatively uniform
as between urban and rural centres. But the unemployment problem in
Nigeria is mainly urban in nature. In discussing the relationship between
wage rate and unemployment, the critical explanatory variable is the
wage rate differential between urban and rural workers. Since public
expenditures can be regarded in some cases as wage payment in kind,
the effective differential between urban and rural workers should take
into account the wage effect of public expenditures.

Now, if the rural-urban migration will increase and unless employment

opportunities are created in the urban areas equal to the increased
migration, unemployment in urban areas will increase. The Todaro
labour migration and employment model seems to explain the Nigerian
situation, to some extent. The rural-urban income differential has been
in favour of urban workers.

From the above, we may rightly conclude that the increase in the
rural-urban wage differential during the 1960s must have contributed to
increase in urban and total unemployment during the 1960s. to buttress
this, for example, the Adebo Commission found that the average income
of fanners ranged from N68 to N144 per annum in contrast to the
minimum pay of the urban worker which ranged from between N168
and N216 per annum. Thus the minimum wage for urban workers was
found by this Commission to be from 1.5 to 2.5 times the average
income of the farmers.

Activity 4: Does education affect the supply of labour in Nigeria?

3.1.2 Expansion in Education and the Supply of Labour

The very rapid upsurge in unemployment can be traced, to a very large

extent, to the rapid development of primary education which does not
give the recipients any skill that could enable them get good jobs. The
supply of primary school graduates far outstrips the demand for this
category of workers. Unfortunately, only a small proportion of the
primary school leavers were absorbed by the secondary schools. For
example, according to the Second Plan document, out of an estimated
out-run of 240,000 primary school leavers in 1966, only 70,00 could be
offered places in secondary schools. A further dropout rate of 400,000
students contributed to the pool of youths who had no skill to offer
employers and yet they were in search of wage employment. The supply
of secondary school graduates has also been out of proportion with the
demand for their labour.

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The problem of unemployment among university graduates and high

level manpower has begun in the southern part of Nigeria and this is
attributable to the fact that university and technical college education
has little or no practical work content. The private sector, for instance,
has tended in recent years, to recruit 1 out of 8 university graduates.

The problem of youth unemployment is much greater in the south than

in the north where primary school education was generally not taken
much advantage of. With the countrywide Universal Primary Education
(UPE) scheme becoming compulsory in 1979, it has been projected in
the Third National Development Plan that primary school enrolment will
be 11.5 million by 1980. It is even estimated that during this period
(1975-80) about 849,000 young persons would be turned out yearly
from primary schools. And on the basis of 70 per cent primary to
secondary school transition rate expected towards the late 1970s, it has
been estimated that about 255,900 primary school leavers in addition to
thousands of primary and secondary school drop-outs would join the
labour force annually. The situation might be worse than what the 'Third
Plan' would lead one to believe. This is because some states in the
country have embarked on free education at all levels. We may not see
the uncontrollable effect of this until these new sets of students graduate
from secondary schools.

Activity 5: A part from wage differentials and education, what other

factors affect the supply of labour?

3.1.3 Population Growth and Labour Supply

Population growth as a factor that influences the supply of labour. The

size of labour force is a function of total population. Labour force in
Nigeria is comprised of people in the 15-55 year age bracket. However,
an increasing number of organisations are increasing their retirement age
to 65 years so that in the near future, the potential labour force will
increase further because of a change in definition of labour force. In the
face of limited labour demand, the acceleration in the growth of the
labour force has led to increased urban and total unemployment problem
in Nigeria and this will continue to be so unless corrective measures are
evolved to halt it.

3.1.4 Institutional Factors Contributing to Urban

Unemployment

Moreso, there are institutional factors that contribute to the problem of

urban unemployment. Geographical immobility of labour causes
unemployment. In the Nigerian setting, the unemployment problem,
especially among high-level manpower, is due, in large measure, to

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institutional factors which lead to a restriction of human resource flow

among various parts of the country. While it is now apparent that the
southern states are over-producing some categories of high-level
manpower with consequent urban unemployment (since most of them
remain in the cities), it is also clear that most of the northern states suffer
from acute shortage in almost all categories of high-level manpower.
Some northern states, after two years of independence still prefer
expatriate labour to local labour even when expatriate labour is not as
good as local. If a free flow of high-level manpower were permitted
between the states, the problem of unemployment among high-level
manpower would be reduced. The major institutional factors restricting
the free flow is the policy of state governments that stipulate that civil
servants must be state indigenes. This policy is now being extended to
the private sector as some of the state government pressurize private
companies to ensure that no non-state indigenes are employed in
companies operating in the state.

Other institutional factors such as the ineffective operation of Labour

Exchange (Labour Offices) and the "influence system" (or long leg
system) of recruiting and the operation of the expatriate quota system
tend to compound unemployment problem. Labour exchanges are few.
The "influence system" of employment operates in such a manner that
unless the potential employee knows somebody of importance he or she
may not be able to secure a job compatible with his skill even when a
vacancy exists.

The expatriate quota, which makes influx of foreigners into Nigeria

possible, clearly contributes to urban and total unemployment of
high-level manpower. Many university graduates, even those in some
scientific fields and engineering, have been known to remain
unemployed in Nigerian cities while expatriates who are not better
qualified perform such jobs.

3.1.5 Factor Proportion and Demand for Labour

It is sometimes suggested that the production functions in modern sector

of developing countries reflect fixed factor proportions. There is need
for a careful application of this theory in Nigeria. It is true that in
Nigeria, the expatriate firms generally use a production function that
reflects high capital intensity and fixed factor proportions. Accordingly,
a reduction in wage, it is thought, may not increase the amount of labour
demand. However, there is a large intermediate sector where the
production function shows more variable factor proportions-this refers
to the small scale industries, repair shops where more labour-intensive
technology is used and the same applies to the government sector which
is even the greatest labour employer.

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Because of this, the factor proportion in these sectors will be more

sensitive to wage rate changes. The possibility is high that the Udoji
awards, which led to higher wages, has helped to press down the
employment rate and, therefore, increased urban unemployment.

The Nigerian situation, to an extent, therefore, seems to corroborate a

hypothesis that 'in the last two and half decades, there had been a high
degree of negative correlation between rises in real wages and growth of
employment in several African countries'.

3.1.6 Government Expenditure Policy

The government expenditure policy whereby most of government

projects (industries and public utilities) are concentrated in urban areas
at the utter neglect of the rural encourages mass exodus of rural
unskilled labour from villages into the urban towns and, therefore,
causes urban unemployment.

Various government policies (e.g. the numerous and sometimes over-

generous industrial incentives) tend to encourage capital intensive and
labour saving techniques of production in most of the urban industrial
establishments. This aggravates the urban unemployment problem.

3.1.7 Attractiveness of the Urban Centres

Apart from the marked differences between urban and rural earnings,
many potential migrants usually have little or no valid information about
urban unemployment conditions.

There is the deceptive display of 'prosperity' by many city dwellers

(even when unemployed) whenever they visit their homes in the rural
areas. This gives a wrong impression and encourages some youths to
migrate to the cities.

The Nigerian 'Social Security System' emanating from the extended

family system whereby a relative may cater for a new migrant who may
be unemployed for some time normally lessens the fear of joining the
unemployed people in the urban areas.

3.2 Effects of Urban Unemployment In Nigeria

For you to understand the effects of urban and total unemployment you
could roughly separate it on the basis of the individual and the nation.
For the individual, the young and active Nigerian, hoping to place
himself in the modern world-a long period of unemployment in the city
may undermine his self-confidence and turn his optimism to

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disillusionment. For him, unemployment means lower standard of living

resulting from no income and it carries a suggestion of failure which is
often accompanied by loss of prestige and status. In a competitive
economy such as ours, the psychology of failure can lead to complete
loss of self-respect and indulgence of otherwise unacceptable behaviour
and attitude.

Urban unemployment has high social and economic costs. Those

unemployed reduce the disposable income of those who are working and
they distort the expenditure and savings patterns of their immediate
families with whom they are staying and in this way they help to retard
the rate of capital formation and development of the economy.

Another consequence of urban unemployment is its effect on the

industrial sector. A high level of urban unemployment does not
constitute a factor conductive to the instruction of innovations designed
to bring about a rapid increase in labour productivity in industry.

As indicated earlier, most of the urban unemployed are young persons

with levels of education ranging from a few years of primary schooling
to full secondary school training. Their state of unemployment,
therefore, constitutes a double loss to the society, in view of the
tremendous amount of resources that had been invested in their formal
education and the consumption demands they themselves make on the
economy. They consume but do not produce.

Unity may be elusive because of the existence of urban unemployment

of high-level manpower. You could now say that, the slogan of ‘one
Nigeria’ means nothing to an unemployed and hungry man who knows
that he could obtain employment and satisfy his hunger in a part of the
country, but cannot do so because of the accident of his birthplace, very
often, not even of himself, but of his parents and great grand parents.

3.3 Possible Remedy for Urban Unemployment in Nigeria

Our economy has often assumed that economic growth per se would be
accompanied by employment growth and, hence, until 1975 no special
provision have been made for employment in any of the development
plans. You could argue that the acceptance of the employment
objectives as a cornerstone in Nigeria's economic and social
development policies has become imperative. The authors of the Third
National Development Plan also took note of this by saying 'the inability
of economic growth to generate adequate employment opportunities for
the masses has, in particular, called for a reexamination of the
philosophy and strategies of development planning'. This awareness is
praiseworthy when we remember that the ultimate goal of economic

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development is the welfare of the individual. Employment creation must

be a conscious objective of the development planners even if it means a
reduced overall growth in the short-run. The problem, therefore, is how
can unemployment rate be reduced to a minimum acceptable rate?

It is a fact that should be emphasised that education as such does not

create employment. Rather education merely enhances the quality,
employability and productive capacity ofthe labour force.

The basic policy and administrative problems lie in designing the

optimum balance between levels of education, curriculum content and
skill mixes, geared to the needs of the economy as a whole. At present
the feelings of manpower and educational administrators as well as of
parents and pupils tend to be education and training for wage-earning
employment in the formal (modern) sectors of national life. It is for this
reason that education has tended to exacerbate rural population exodus
to towns and cities, creating the well-documented problem of urban
unemployment. It is, therefore„ very important that primary, secondary,
technical, vocational and university education must all reflect the
ascertained needs of the economy. Secondary education in particular,
should be designed to hold the balance between twoextremes and
should, therefore, emphasise flexibility through a systemof comparative
education that combines some acquisition of skills with academic
learning.

In dealing with the problem of rural-urban migration and, therefore,

urban unemployment, the governments must focus their attention on
urban-rural wage differentials. Government should embark on
developmental policies, which involve the provision of social amenities
and industries in the rural areas.

In the area of population policy and its possible effect on the size of the
labour force as well as overall capacity to undertake more development
expenditure, Nigerian governments have shown very little interest.
There was no population policy until the time of the Second
Development Plan. Even then, the acuteness of the population problem
was still discounted by statements such as 'the magnitude of the
country's population problems is unlikely to be such that calls for
extensive, emergency or panic action'. The present high youth
dependency ratio is, of course, serious from the viewpoint of mobilizing
domestic savings and, hence, capital formation. It is expected that the
National Population Council will take more urgent view of the function
of population planning and control than even the Third National Plan
stipulates. It should engage in more rigorous and more meaningful
national campaigns in favour of family planning, provide enough
advisory and treatment services, facilitate sale of subsidized birth

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control devices, and draw as much as possible, on the experience of

Japan and Taiwan.

Policy has in the past been focused on what has been happening to the
real wage of urban workers alone. While there is no doubt that the real
value of minimum wage has fallen, there is also good reason to believe
that the real wage of comparable group of workers in the rural areas has
fallen more. If the government is interested in improving the lot of all
low-income groups and not just those of urban workers, then the income
of the rural groups must be increased as well. This can be done by
reducing export tax or income tax rate and increasing primary products'
producer's prices. An increase in rural wage, through higher prices for
their products, will reduce rural-urban migration and cause urban
unemployment rate to decline.

Since rural-urban migration is accentuated by disparities in the supply of

public goods in urban and rural areas, it would be desirable to
compensate for this disparity in public goods by adjusting up the wage
rate in rural areas relative to that in urban areas. This is of particular
importance among high-level manpower who put a higher valuation on
the relative provision of public goods. They can then buy some of the
facilities that are not provided by government with their money.

The rural sector reflects factor proportion conducive to the increased

employment generation. Although it was loudly stated (by the former
Head of State, General Olusegun Obasanjo in the 1977/78 budget titled
the 'Agricultural Budget') that agricultural sector was to be given high
priority, there are indications that in the past and even now, the
agricultural sector has not got the priority attention it deserves. Judging
from the employment generation (about 60 per cent of the total labour
force is employed by agriculture) of the agricultural sector, it could be
argued that more resources could have been devoted to this sector. The
projects in agricultural sector compared with industrial sector seem to be
less carefully articulated. If the government is interested in reducing
urban unemployment or total unemployment, it is necessary for it to
have an integrated development approach to the rural areas.

Rural development should begin to replace the concept of agricultural

development in development priorities. Rural development encompasses
but involves much more than an increase in agricultural and livestock
output and productivity-it includes small towns and villages
development, extension of health and educational services, expansion of
local credits, the creation of local industries for processing agricultural
products, improvements of housing, water supply, sanitation, roads and
communications. Broadly based, rural development, in short, means the

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transformation of stagnant traditional societies into dynamic rural

economies.

In Nigeria, rural development has not been sufficiently thought of as an

integrated programme of action directed to creating employment in rural
areas, making life more attractive, generating additional income and
thereby creating conditions which will facilitate holding rural labour on
the land, since employment opportunities in urban areas are limited.

The increases in wages and salaries have had unfavourable effects on

employment. When labour becomes expensive (as has been the case
after Udoji awards), employers naturally lie to economise its use. This in
turn affects the volume of employment. Thus, in Nigeria with rising
wages it might not be possible for the modern sector to absorb the
growing labour force.

There is, therefore, the need for a comprehensive wage policy in which
wage and salary rises should, among other things, be strictly related to
productivity gains. Minimum wages and salaries should not be
artificially determined as had been the case hitherto. With selective price
reductions, increased social benefits and services, the minimum wage
rates could be reduced below the present level without necessarily
lowering the living standards and conditions of workers.

We need to change the existing demand, which is now met by imports,

towards the acceptance of indigenous products. The present ban on most
imported items, to some extent, could be seen as a step in the right
direction. The generation of demand for local products would be
primarily accomplished by the creation of comprehensive indigenous
institutions trading in products manufactured and assembled in Nigeria
and harnessing these institutions to the task of economic development.
There should be effective utilisation of what already exists and import
substitution industries should be given all the urgent attention and
encouragement they deserve. Towards this therefore, and to be really
effective, these programmes would have to be powerful and supported
by government efforts such as 'Buy Nigerian Campaign', government
purchase policies in favour of local products of reasonable quality at all
levels, tariff protection and general and administrative measures to
promote local industries. There should also be an expansion of the base
of operation of these local industries by introducing new lines of
products, which, with present technology, could be conveniently
manufactured and marketed. Most of them (the products) are more
labour-than capital-intensive, and, therefore, their expansion, hopefully,
will lead to increased employment.

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Deficiency of capital has been identified as one of the causes of the

investment deficiency and prevalence of urban unemployment.
Ironically, the relatively rich Nigerians derive high social pleasure in
wasting the scarce money resource. Through their consumption patterns,
they display low propensity to save and, therefore, retard capital
formation and investment. This does not enhance the creation of
employment opportunities. Government should stop such wasteful
spending.

It is a fact that vacancies exist and are not filed while there are numerous
jobless people, some with relevant skills. What is responsible for this is
that such people are usually unaware of the existence of jobs they seek.
There is no efficient system of Federal and/or state employment
exchanges. We need to note that an efficient system of Federal and/or
state employment exchanges provides one way of dealing with labour
immobility. An important function of such a system is the collection and
dissemination of information regarding employment opportunities. It
should make data available to the entire labour force including those
now in the isolated or rural communities.

One other way of combating the present urban unemployment in Nigeria

is to encourage and assist the development of high-level manpower.
Nigeria is in the category of countries which lack skilled manpower and,
therefore, getting them from abroad at rates very prohibitive and
exorbitant. These raise production costs and reduce reinvestible profits
and funds and, hence, reduce the chances of creation of more
employment opportunities. The current effort of the government in the
introduction of Universities of Technology is a step in the right
direction. The graduate of these Universities should find ready markets
in our growing industries.

One of the reasons for the decline of agriculture is the wrong emphasis
accorded capital-intensive and labour restrictive import substitutions,
which as experience has shown, are even more costly to produce here
than to import. We need to boost our traditional export commodities
since these are more labour-intensive in production and, therefore, can
help to reduce the rush of youths into urban areas where they are hardly
employed.

As a way of keeping the youths in rural areas, Nigeria can learn a lot
from the example of Kenya where work programmes such as
construction of dams and roads done by human labour during off season
periods or from the example of Republic of Benin where service centers
(these are centers in rural areas where different creative and imaginative
trades e.g. modern carpentry, tailoring, mechanical works, and
agriculture are taught those who are unable to take or follow the

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academic line) are operated by the government. These could be

established at low costs. They will even generate more employment
since people will be employed as staff in such centres.

4.0 CONCLUSION

There is a strong need for institutional collaboration and improved

coordination of policy measures for dealing with unemployment. While
there are some discernable lapses, the overall policy direction for
employment promotion appears to be adequate. What is required is the
political will to pursue the policies that work, as well as transparency in
programme implementation.

5.0 SUMMARY

Unemployment is when a person who is able and willing to work, and is

available for work, does not have work. Therefore, unemployment
causes misery, social unrest and hopelessness for the unemployed.
However, unemployment could be frictional unemployment, structural
unemployment, etc. In event time you will witness urban
unemployment. This could have been caused by, high-wage rate,
educational facilities, and social attractiveness in the urban centers. But
the government has put in place summary facto to resolve this problem.

6.0 TUTOR-MARKED ASSIGNMENT

What are the causes of urban unemployment in Nigeria?

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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UNIT 4 INFLATION IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Measurement of Inflation
3.2 Kinds of Inflation
3.3 Sources of Structural Inflation in Developing Countries
3.4 Effects of Inflation
3.5 Control of Inflation
3.6 Efforts Made at Controlling Inflation in Nigeria and their
Effects
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Inflation may be defined as a high and persistent rise in the price level.
This means that not every price increase is regarded as inflation. For
example, a once-for-all rise in the price level may not be regarded as an
inflationary phenomenon. Some polices designed to control demand,
e.g., increase in indirect taxes and interest rates, which policy makers
believe would curtail effective demand, may be manifested in higher
consumer prices and high production costs. Also, the price of goods and
services may not rise simultaneously or by the same proportion.

Even if the increase in price level occurs over a long period of time, it
may not be considered inflationary if the rate of increase is considered
minimal. For an economy that is growing, some rise in price may be
inevitable and may even be acceptable. Indeed, some economies have
argued that upward movement in the general price level may be ideal for
business. What increase in price constitutes inflation is thus a difficult
question to answer. This may vary from country to country. Whilst there
seems to be a consensus of opinion that a continuous annual growth rate
of price above two per cent in advanced countries could be regarded as
inflationary situation, there is not such agreement in the case of
developing countries. From this, the definition given earlier on should,
therefore, be regarded as, at best, a working definition.

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2.0 OBJECTIVES

It is important to know that a high and persistent rise in the price level
will affect the growth and development of every society.

At the end of this unit, you should be able to:

• explain the meaning and type of inflation

• identify the causes and effect of inflation
• outline efforts made at controlling inflation in Nigeria.

Activity 1: How do we measure inflation?

3.0 MAIN CONTENT

3.1 Measurement of Inflation

It is necessary to measure inflation. There are usually three commonly

used measures of price changes, which are referred to as a price indexes.
They are: the wholesale price index (wpi), the consumer price index
(cpi), and the implicit price index (ipi) or the GDP deflator. Each price
index is a weighted index of prices of selected commodities in a basket
and its behaviour is taken as representative of the average behaviour of
prices of such goods and services in general.

Included in wpi are prices of goods like machinery and equipment, raw
materials, and other intermediate inputs. Prices of goods sold directly to
consumers or government are usually excluded. The advantages of wpi
include the following it could be a good indicator of future trends in
consumer goods prices; it includes more items than any of the other
indexes; as it responds more directly to changes in the pace of economic
activity, it is therefore a very valuable indication of emerging trends;
finally, it makes possible the tracing of price rises through successive
stages. The major disadvantages, however, are that: its coverage is
narrow; and since it covers products at different stages of production,
the could significantly affect the entire index.

The most widely used measurement is CPI. This measures the changes
in prices of goods and services, which are sold directly to consumers.
This index covers wider range of items than wpi since it includes
services. Cpi is usually used to deflate nominal incomes and when this is
done the result reflects changes in standard of living. Its major defects
include the following: it does not measure the extent of price inflation
experienced by business enterprises; as a measure of incipient inflation,
it is less useful than wpi since it is the more sluggish of the two; and it

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does not attempt to measure price trends for a large section of the
population (e.g. the non-urban).

The ipi (or GNP/GDP deflator) has the broadest coverage. It measures
price behaviour of the gross domestic (national) product, i.e. of the total
output of goods and services in a country, thus including those of
households, business enterprises and government. When ipi is used,
inflation indicates when national money income is rising faster than
national real income. The problem with using ipi is that its availability is
less frequent-annual for some countries and quarterly for others.

It has to be emphasised, however, that none of these three indexes

accurately measure inflation for a number of reasons. In the first place,
not all transaction are included even in the most comprehensive measure
ipi. Second, an observed rising level of general prices may not
necessarily reflect an inflationary situation as the quality of the products
may have improved.

Activity 2: Identify the various kinds of inflationary situations.

3.2 Kinds of Inflation

There are four major types of inflation. These are: the demand-pull, the
cost-push, the mark-up and the structural types.

According to the demand-pull theory, what prompts a rise in the price

level is the emergence of excess demand over supply. Usually in this
case, full employment is assumed; otherwise, it should be possible to
increase supply to eliminate the excess demand. The speed and
magnitude of inflation, in this theory, depends on the size of the excess
demand. Classical economists have argued that excess demand is caused
by expenditures out of excess cash balances. However, Keynesians
argued that it is due to autonomous increase in aggregate demand
(consumption or investment, private or government). Excess demand in
a closed economy with full employment conditions would easily lead to
a rise in the price level. However, if the economy is an open one, excess
domestic demand may not lead to a rise in the price level if the exchange
rate is unchanged and if external reserves are available to finance the
increased imports prompted by excess demand.

You can again notice here that it is also possible for inflation to be
initiated by increases in costs following the successful move by the
factor(s) of production to raise their share(s) of the total product. This is
the case of cost-push inflation. The underlying assumption of this theory
is that there exists imperfect competition both in the product market and
in the labour market. Cost-push inflation is, however, usually considered

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in relation to autonomous increases in wages. If the rate of growth of

wages exceeds that of productivity of labour, producers may have to
raise the prices of their products in order to maintain the level of
employment. Otherwise, the result would be a decrease in employment
and output. It is important to add that the inflationary impact of wage
increase depends on: the proportion of wages in the factor costs (the
impact being greater in proportion to the labour intensiveness of the
enterprises); the extent to which increases in wage rates exceed
productivity growth (the larger the gap, the greater the impact), and the
amount of offset by the decline in other costs.

Also, in mark-up inflation models, product prices and wages are both
assumed to be cost-determined. Business men mark-up prices of their
goods over and above the rise in costs of raw materials and labour
directly involved in the production of the commodities. Such mark-ups
usually cover estimated overhead costs and desired profit margins.
When workers realise this, they demand and usually obtain increases in
wages to offset the rise in the cost of living. An inflationary spiral can,
therefore, be initiated if labour or business or both try to protect real
income against an autonomous rise in cost, or if they try to increase their
share of national income, which can only be at the expense of some
other social groups.

Furthermore, a fourth type of inflation is referred to as structural

inflation. Economists argue that inflation may not be the outcome of
excess demand, high and rising costs or the willful desire of producers to
realise more profits by raising the prices of their products. It could, in
fact, be the result of basic structural factors which create supply
shortages and deficient government revenue. These structural factors are
themselves regarded as reflections of the state of economic under-
development.

Many economists have argued that the major type of inflation in

developing countries is the structural type, which we intend to examine
in some detail in the next section.

Activity 3: What are the source of structural inflation in developing

countries?

3.3 Sources of Structural Inflation in Developing Countries

The phenomenon of supply rigidities has been noted in developing

countries. Such rigidities are usually attributed to the following:
agricultural production may fail to keep pace with population growth as
a result of primitive method of cultivation, bad land tenure system,
rural-rural migration, poor transport and distribution system, vagaries of

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the weather; and low level of the country's capacity to import due to
shortage of foreign exchange.

Instability of export prices in developing countries does not only limit

the capacity to import, it also induces deficit spending, which is one of
the structural problems of developing countries. Such deficit spending is
usually done through increase in money supply. This consequently leads
to inflationary pressures.

Developing countries usually do not produce enough locally to meet

aggregate demand. They thus rely heavily on importation of many
commodities. The countries are, therefore, prone to imported inflation.
Most developing countries usually pay attention to import-substituting
industries in the course of their industrial developments. Such industries
are usually given a high degree of protection and they usually become
'monopolies' that do not often look for ways of achieving efficiency. The
result is that most of them produce at high unit costs and hence have
high prices

Finally, developing countries have the characteristic of low savings

ratio. This is due not only to low incomes but also to the fact that people
have high spending habits as a result of which expenditure is usually
high. The level of aggregate expenditure is usually greater than that of
aggregate supply and this could fuel inflation, ifnot actually cause it.

Activity 4: What are the likely effects of inflation?

3.4 Effects of Inflation

There is no consensus about the effect of inflation on economic growth.

Some argue that it promote economic growth whilst others assert that it
retards growth. The arguments for and against the proposition of
whether inflation retards or promotes growth have been articulated by
two schools of thought the monetarist and the structralists. The former
maintain that successful economic development requires increases in
price levels as natural consequence of economic development and, that,
therefore, such price increases are a necessary part of economic growth
in developing countries. While there may be no agreement on this issue,
there are other generally accepted effects of inflation on an economy.

It is agreed, for example, that inflation affects production. As costs of

production are generally believed not to rise as rapidly as prices, profit
margins of producers tend to be greater than expected. Because of the
higher profit levels, producers become optimistic and are, therefore,
encouraged to expand production.

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When there is inflation, the incomes of different groups of people are

differently affected by rising prices. The advantages of inflation to some
group become disadvantages to some other groups. Profits receivers
gain at the expense of consumers. Wages lag behind prices. Thus, at
times of rising prices, wage earners find that their real wages would fall.
People who receive fixed incomes and salaries suffer most from
inflation. These include retired people and pensioners. In addition,
debtors gain in an inflationary situation while creditors lose.

Inflation could also affect the balance of payment of a country

adversely. As prices of exported goods increase at home, it becomes less
competitive in the world market. Under these circumstances, a balance
of payment problem would likely arise.

Inflation creates distortions in the economy. It could, for example, lead

to price speculation and the hoarding of commodities. These and other
distortions do not make for efficiency in the allocation of resources.

Inflation moreover usually has a negative effect on the currency of a

country as with rising prices, the value of money falls and gradually the
currency may become worthless.

Inflation adversely affects savings. This is because with rising prices,

people will have fewer surpluses to save and even the expectation of
further inflation may make people to spend all they have immediately.
Less saving will, in turn, affect the amount of investment that business
men and financial institutions can undertake. This may eventually affect
the level of development.

An inflationary situation, finally, usually brings in its wave of industrial

discontent. Labour reacts to a rise in prices by asking for higher wages
and it may resort to strikes., lock-outs, etc., in order to back its demands.

3.5 Control of Inflation

From the effects of inflation discussed above, it is clear that inflation is

not a desirable thing and must therefore be checked or contained in
order to avoid these undesirable effects. The control can be affected in a
number of ways.

One method is the use of monetary policy. This involves taking actions
to reduce the volume of purchasing power in the economy through
reductions in money supply. This is usually done by the central bank
using certain instruments at its disposal to affect this.

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Another way is the use of fiscal policy. This involves measures to

reduce aggregate demand. Such measures include increased taxes of
individuals and enterprise. The budgeting policy of government with
respect to budget surplus is another way of achieving this.

The incomes policy is another measure that can be adopted. This could
take the shape of a general statement by the public authorities about the
way in which income and prices should develop in the interest of the
country or alternatively, a specific and full-scale statutory freeze of
wages and prices.

Measures could furthermore be adopted to increase importation of

goods, for example, through import liberalisation. This is a short-run
policy measure and can only be adopted if the country has foreign
exchange reserves to pay for increase imports.

Measures could be adopted to increase the volume of production in the

country. This could be done by granting subsidies to producers or by
making credit facilities readily available to producers.

3.6 Efforts Made at Controlling Inflation in Nigeria and

their Effects

Fiscal measures taken to contain inflation have included tax reduction or

abolition to stimulate industrial production and import liberalisation to
increase the domestic supply of goods in the economy. As these efforts
failed to yield any significant result on supply, trade controls and tariffs
were reimposed in 1977 because of lean government financial resources.
Operation Feed the Nation (OFN), the National Accelerated Food
Production Programme, direct food importation by the National Supply
Company and the Price Control Board, which was recently abolished,
were unsuccessful efforts made to bring food prices down. An
anti-inflation task force was set up in 1975 and its findings led to the
setting up of the productivity, Prices and Incomes Board. This Board
was to provide guidelines for income, price and wage increases in the
economy. Not much positive result has been achieved from the efforts of
the Board. Wage freeze in the economy before and after the Udoji
Award has also had little or no impact on inflation.

The monetary policy was initially geared towards easy money through
credit regulation and credit priority to sectors, which will decrease
supply bottlenecks. In the last three years the Central Bank has switched
to a tight monetary policy because of persistently rising inflation and
excess liquidity in the economy. The impact of monetary policy on
inflation in the economy has not been significant because of the relative

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underdevelopment of the monetary and financial sectors of the

economy.

It is pertinent to note here that the lack of policy coordination between

the actions of the Finance Ministry and the Central Bank has further
compounded the inflationary situation. For example, while the Central
Bank has been trying to tighten credit in the economy, the government
has encouraged fiscally-induced monetary expansion through its rising
budgetary activities. For instance, budget deficits nearly doubled
between 1975 and 1977 rising from N1.8 billion. The impact of this on
domestic inflation in an economy with limited absorptive capacity
cannot be overemphasised.

The inflation problem in Nigeria needs rather drastic measures if any

serious impact is to be made in correcting the situation. If the present
trend continues unabated it may generate social and political tensions,
which would be harmful to the future development of the economy. Real
resources wasted by frivolous government expenditure must be stopped
and government's fiscal activities should be governed by the absorptive
capacity of the economy. The inflationary problem can be linked with
the oil and food problems. A successful resolution of these two pressing
problems would greatly enhance the effort to find a lasting solution to
the problem of inflation in the economy.

4.0 CONCLUSION

The persistent rise of the general price level of the country is yet to be
tackled. Besides, government fiscal and monetary policy measures have
failed to address this problem. The inflationary pressures keep mounting
as the price of goods and service do move upward. This has been
primarily as result of excess domestic liquidity and continuous imported
inflation. Lack of policy coordination between the action of the finance
ministry and the central bank has further compounded the inflationary
situation. Thus, while the central bank has been trying to tighten credit
in the economy the government has encouraged fiscally induced
monetary expansion through its rising budgetary activities.

5.0 SUMMARY

The persistent and appreciable rise in the general level of price could be
seen as inflation. The inflationary phenomenon could be identified as
demand-pull, the cost-push, and the mark-up and structural types. There
is this general consensus that inflation affects production of goods and
service, income of different groups of people, balance of payments of
the country, the currency of a country and it brings about distortion in
the economy and a were of industrial discontent.

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However, the government of Nigerian has made considerable efforts to

curtail inflationary pressures. These concerted efforts could be observed
with the fiscal and monetary policy measures yet to generate enough
absorption capacity that places the economy within an economic growth
and development that is inflationary free.

6.0 TUTOR-MARKED ASSIGNMENT

Efforts are being made by developing countries to curb structural

inflationary situation because of its economic distortion effect. With
reference to Nigeria, discuss the various efforts made by the federal
government.

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).

Structure of the Nigerian Economy (1960-1997). Joanee
Education Publisher Ltd.

Molem C.S.(nd). Growth and Development of Nigerian Economy.

Kaduna: Silver Bond Publisher.

Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.

Evans Brothers Nigeria Limited.

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UNIT 5 FISCAL FEDERALISM IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Nigerian Experience of Fiscal Federalism: 1960-1996
3.2 Allocation of Functions
3.3 Revenue Allocation Commissions
3.4 Revenue Allocation Principles
3.5 Independent and Internally-Generated Revenue
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

From colonial administration to independence in 1960, revenue

allocation in the Federal Republic of Nigeria has had a chequered
history. It has been subject of intensive lobbying by politicians in the
attempt to have their wishes engrained in the Constitution. The
frequencies with which military administrations rewrite decrees to
distribute revenue among the tiers of government or simply make
fundamental ad-hoc changes in the statutory allocation formulae, clearly
shows that revenue allocation in Nigeria is yet an unfinished business.
The National Constitutional Conference of 1994 examined the history of
revenue allocation in Nigeria with the main objective of reviewing the
current revenue allocation formulae being used. The continuity in the
unfinished business of revenue allocation in Nigeria is underlined by
three issues:
(i) New states and local governments might still be created in
Nigeria
(ii) Much of the functions currently being performed by the federal
government might be transferred to state and local governments,
to de-emphasise the desire by politicians to win at the federal
level by all means; and
(iii) The revenue allocation formulae would be reviewed by providing
13 per cent of the revenue from mineral sources to be distributed
according to derivation principles. These proposals would have
far reaching consequences for revenue allocation in Nigeria. And
it may in itselflead to further agitation for review.

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2.0 OBJECTIVES

At the end of this unit, you should be able to:

• understand the Nigerian experience of fiscal federalism

• identifying the allocation functions of the revenue allocation
commission
• highlight the revenue allocation principles
• outline the weakness of the existing revenue allocation system.

3.0 MAIN CONTENT

3.1 Nigerian Experience of Fiscal Federalism 1960-1996

Nigeria became independent in 1960 and adopted the Federal form of

administration with three tiers of government in 1963. These were the
federal, regional and local governments. The number of the second-tier
units was increased in 1967 from 4 regions to 12 states. In 1976, the
number rose to 19; 21 in 1987, 30 in 1991and 36 in 1996 After the
reforms introduced in 1976, following the restructuring of the country
into 12 states, the federal government established 300 local
governments. The number of local government units rose progressively
to 589 in 1991, and 778 in 1996. Prior to 1989, the administration of
local governments was placed under the state government. However,
under administrative reforms introduced in 1989, local governments
were given some measure of autonomy, including direct funding from
the Federation Account.

Although Nigeria retains the physical structure of federalism,

theconstitutions over the years. have remained suspended with every
military take-over from civilian regimes. The Nigerian experience of
fiscal federalism has been influenced largely by the transposition of
military rule. Under military administrations, the prevailing command
system tends to reduce the administration of the country into a unitary
state, as all the state governors receive instructions from the military
leader at the centre, who is also the Head of State and Commander-in-
Chief of the Armed Forces. The report of the Committee on Revenue
Allocation observed with respect to the impact of military intervention
on federalism:

“Since the military took over to power, the practice of federalism and
power structure between the states and the centre have undergone
fundamental changes. In the first place, Decree No. 1 of 1966 vests the
Federal Military Government with power to make laws for Nigeria with
respect to any matter. A state Governor, an appointee of the Supreme
Military Council, derives his authority from the Head of State and must
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obtain prior permission from him before creating legislation on matters

in the concurrent legislative list. Such subordinate-sup ordinance
relationships do not of course exactly enhance the free play of
inter-governmental relationships normally associated with federal
political arrangements. This scenario does not hold under civilian
regimes where a state may be under a different political party and
ideology from the government at the centre.”

The taxing and expenditure functions as provided in the suspended

Federal Constitutions are reviewed below:

3.2 Allocation of Functions

The 1963 Federal Constitution allocated the functions to be performed

by the federal and regional governments under two main headings.
These are exclusive federal and concurrent legislative lists. Local
governments were treated implicitly as part of the regional and later,
state governments. However, the 1979 Federal Constitution identified
functions to be performed by the local governments under the fourth
schedule. These functions are summarized below:

i. Exclusive List

All functions under the exclusive list are to be performed by the federal
government and include accounts of government of the federation; issue
of legal tender currency; external affairs; defence, etc. Over the years,
there have been amendments to the contents of the exclusive legislative
list, but the overriding principles remain that these functions are to be
performed by the federal government alone.

ii. Concurrent Legislative List

All subjects listed under the concurrent legislative list are to performed
by both the federal and state/regional governments. These include
antiquities, census, higher education, industrial development, prisons,
national parks, etc.

iii. Functions of Local Governments

The functional roles of the local governments are listed in the Fourth
Schedule of the 1979 and 1989 Federal Constitutions. The local
governments are expected to provide public goods and services, such as
primary schools, maintenance of markets, cemeteries, home for the
destitute and infirm, public conveniences, refuse disposals, etc, as well
as other functions that may be conferred on them by the State Houses of
Assembly.

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Under the military administration, however, there has been a blurring of

the lines between the allocation of functions among the tiers of
government in the Federation. For instance, the military administration,
had tended to take more responsibilities in the area of education, health,
housing, agriculture, water supply, etc., such that the demand for more
revenue for the execution of these projects nationwide has been the
rationale for higher revenue allocation to the federal government. Also
from the late 1980s, it was the cause of ad-hoc changes in the revenue
allocation formulae resulting in transfer of revenue from the federation
account to the federal government.

Activity 1: State some of the revenue allocation commissions that have

been instituted in the country.

3.3 Revenue Allocation Commissions

Our search for equitable revenue allocation formulae in support of the

functional roles to be performed by the governments pre-dated
independence. The first commission was established by the colonial
administrators in 1946, when Nigeria was being ruled as a unitary state.
This was the Philipson Commission. Three other commissions were:
appointed by the British government to help proffer solutions to the
problems of revenue allocation in the country. These were Hicks
Philispson Commission (1951), Chicks Commission (1953), and
Raisman Commission (1958), the last before independence. The issue of
revenue allocation re-occurred immediately after independence and the
old method of appointing commissions was resorted to by the federal
government

Between 1960 and 1979, there were four different revenue allocation
commissions appointed to provide equitable revenue allocation formulae
for the country. These were the Binns Commission (1964), Dina
Commission (1968), Aboyade Commission (1977) and Okigbo
Commission (1979). Between 1979 and 1994, may ad-hoc changes or
amendments were introduced in the revenue allocation formulae by the
military administrations through various Decrees impacting on the
statutory share o f each tier of government.

Activity 2: What are the determinants of revenue allocation to the

respective tiers of government?

3.4 Revenue Allocation Principles

Revenue allocation in a Federation involves two distinct strands. First is

the vertical allocation of revenue between the three tiers of government
i.e. federal, state and local governments, and, second is the revenue

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sharing horizontally among the component states and the local

governments. The various fiscal commissions based their
recommendations for changes in the revenue allocation system on some
principles. Some of these principles are reviewed below:

i. The Derivation Principle

This is old as the Federal Republic of Nigeria, and is based on the

argument that a state from which revenue is derived deserves to be
compensated reasonably according to its contribution. The establishment
of the Federation Account by which all revenues are pooled to be shared
in accordance with statutory allocation formulae had tended to
minimise, although not to a significant degree, the importance of the
derivation principle in the country. Derivation is accorded some
recognition currently in the statutory allocation formulae under special
fund, by providing 13.0 per cent for development of mineral producing
areas and 1 .0 per cent directly to derivation.

ii. Financial Need, Even Development, Minimum National

Standards

These are subjective principles that had been recommended in the past
but do not influence the present revenue allocation formulae. This is as a
result of the fact that these principles cannot be quantified to enhance
their application for sharing revenue.

iii. StatutoryAllocation among States and Local Governments

The major principles of revenue allocation among the states/local

governments are equality, population, social development, and land
mass/terrain. The importance attached to each of these principles is
reflected in the weight given to each principle as shown below:

40.0%
Equality
Population 30.0%
Social Development Factor 10.0°/0
Land Mass/Terrain 10.0%
Internal Revenue Effort 10.0%
Total Revenue Formulae 100.0%

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3.5 Independent and Internally-Generated Revenue

The Federal Constitution provides for the generation of revenue

independently by the three tiers of government in addition to statutory
allocations from the federation account. The independent revenue of the
federal government comprises personal income tax of personnel in the
armed forces, and Ministry of External Affairs, operating surpluses of
federal parastatals, dividends from federal government's investment in
publicly quoted companies, including those under the Federal Ministry
of Finance Incorporated (MOFI), rent on government properties, interest
and capital repayment on loans on-lent to state governments and
parastatals, etc. Over the years, the share of revenue from independent
sources have been very low and averaged only 6.5 per cent of the
retained revenue of the federal government between 1990 and 1995.

The major sources of state government's internally-generated revenue

are personal income tax of citizens resident in their state, fees for
registration and licensing of vehicles, charges and levies with respect to
land development, etc. For most of the states, total receipts from internal
sources cannot finance about 30 per cent of their annual budgets,S and
hence, there is a high dependence on statutory allocations in performing
their functions.

Up till 1995, sales tax was administered by individual states and the
proceeds accrued to each state government as revenue from internal
sources. However, the sales tax was repackaged as Value-AddedTax
(VAT) in 1994, and the federal government assumed responsibility for
its administration in order to ensure uniformity nationwide. Under the
enabling decree, the federal government was to receive 20 per cent for
its administrative and collection costs. However, this arrangement was
reversed in 1995 with the federal government decision to take 50 per
cent of the proceeds, while state and local governments were to receive
25 per cent each. This was later revised to 40, 35 and 25 per cent for
federal, states and local government, respectively. The statutory share of
the VAT pool account in 1996 now stands at 35,40 and 25 per cent, to
the three tiers of governments. The major sources of internally generated
revenue by local government in Nigeria are property tax within their
localities, licencing of bicycles, trucks (other than mechanically
propelled trucks), canoes, wheelbarrows and crafts. Collection of rates,
radio and television licenses, etc. A review of local government finances
between 1993 and 1995 showed that revenue from internal sources
accounted for an average of 6.5 per cent of the total current revenue,
while statutory allocations from the federal government accounted for
84.9 per cent. Thus, there is also a high dependence on statutory
allocation from the federation account by the local governments in
performing their functions.

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4.0 CONCLUSION

It is imperative that all the three tiers of government should have

revenue to perform the duties allocated to them. A number of revenue
allocation commissions have been set up in Nigeria. Although federal
allocation has declined over time, its share is still very high, because not
all federally collectable revenue goes into the allocation pool. States and
local governments have found it difficult to perform their roles as a
result of limited resources. Conventionally, resource allocation should
follow the system of administration adopted by respective government.

It is pertinent to note the agitation for more states and local governments
does not take into consideration that the revenue allocated would not be
enough for economic development. More than 90 per cent to per cent of
states and local governments depend on the federation account.

5.0 SUMMARY

Fiscal federalism is the inter-government fiscal relations as enshrined in

a federal constitution, providing for the functional responsibilities to be
performed by the multi-levels of government and the financial resources
that can be raised for provision of goods and services.

However, Nigeria has retained the physical structure of federalism. The

constitutions, over the years, have spelt-out the functions, in addition to
a search for equitable revenue allocation formulae in support of the
functional roles to be performed by the various tiers of government
various allocation commissions have been instituted to work out
equitable revenue allocation formulae for the country. These
commissions based their recommendation for changes in the revenue
allocation system on some principles.

The review of Nigerian experience of fiscal federal constitution had

remained suspended for most of the years. Hence, inter-government
fiscal relations that occur under military administrations do not conform
strictly to the conditionality of fiscal federalism. However, the fiscal
relations under the military administrations have resulted in blurring of
the lines of divisions of the taxing and expenditure functions. These
have adversely affected fiscal management and economic performance
in Nigeria.

6.0 TUTOR-MARKED ASSIGNMENT

Give a critic of the existing revenue allocation system.

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7.0 REFERENCES/FURTHER READING

George F. Break (1980). Financing Government in a Federal System.

Washington D.C. : The Brookings Institutions.

George F. Break (1967). Inter-governmental Fiscal Relations in the

United States Institutions, Washington D.C. 1967.

Okunroumu (1996). To Fiscal Federation, Revenue Allocation System

in the Federal Republic of Nigeria, CBN/World Bank
Collaborative Study. Proceedings of the Workshop on Nigeria's
Prospect for Development.

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MODULE 5

Unit 1 The Nigerian Money Market

Unit 2 The Nigerian Capital Market
Unit 3 Fiscal Policy in Nigeria
Unit 4 Monetary Policy in Nigeria
Unit 5 Development Planning

UNIT 1 THE NIGERIAN MONEY MARKET

CONTENT

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Reasons for the Establishment of the Nigerian Money
Market
3.2 The Instruments of the Nigeria Money Market
3.2.1 Treasury Bills (Tbs):
3.2.2 Treasury Certificates (TCs):
3.2.3 Call Money Fund Scheme Money at Call or Short
Notice
3.2.4 Commercial Paper or Commercial Bill
3.2.5 Certificates of Deposits (CDs)
3.2.6 Bankers Unit Fund (BUF)
3 .2.7 Stabilization Securities
3.2.8 Ways and Means Advances
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Money market refers to a collection, or group of financial institutions or

exchange system, set up for dealing in short-term credit instructions of
high quality, such as treasury bills, treasury certificates, call money,
commercial paper, bankers' unit fund, certificates, ways and means
advances, as well as the dealing in gold and foreign exchange. These
short-term instruments involve a small risk due to loss, because they are
issued by obligors of the highest credit rating and they mature within
one year.

While denoting trading in money and other-term financial assets, the

money market comprises all the facilities of the country for the purchase

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and sale of money for intermediate and deferred delivery, and for the
borrowing and lending of money for short periods of time. It is a
manifestation of dealing in short-term financial instruments (their sale
and purchase, and also, borrowing and lending for short period) on the
one hand, and a collection of the dealers in these assets on the other. It is
thus a collection of financial institutions set up for the granting of
short-term loans and dealing in short-term securities, gold and foreign
exchange.

2.0 OBJECTIVES

At the end of this unit, you shouldbe able to:

o identifying the nationals for establishing money

market
o looking at the instruments ofNigerian money
market.

3.0 MAIN CONTENT

3.1 Reasons For The Establishment of The Nigerian Money

Market

1. To provide the machinery needed for government's

short-termfinancing requirements.

2. As an essential step on the path to independent nationhood,

hence, it is part of a modern financial and monetary system to
enable the nation to establish the monetary autonomy, which is
part and parcel of the workings of an independent, modern state.

3. To Nigerianize the credit base by providing local investment

outlets for the retention of funds in Nigeria, and for the
investment of funds repatriated from abroad, as a result of
government persuasions to that effect.

3.2 The Instruments of the Nigeria Money Market

3.2.1 Treasury Bills (TBs)

TBs are money-market (short-term) securities issued by the Federal

Government of Nigeria. They are sold at discount (rather than paying
coupon interest), mature within 90 days of the date of issue, and are
default-free. These instruments are promissory notes to pay the bearer,
90 days from the date of issue. They provide the government with a
highly flexible and relatively cheap means of borrowing cash. They also
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provide a sound security for dealings in the money market, and the

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Central Bank of Nigeria in particular, can operate on that market by

dealing on treasury bills.

TB rates were fixed prior to the deregulation of interest rates in Nigeria,

but since 1989, they have been offered on auction basis and hence,
market determined.

Thus TB s, mere IOUs are used by the federal government to borrow for
short periods of about three months, pending the collection of its
revenues. Their issue for the first time in Nigeria in April 1960, was
provided for under the Treasury Bill Ordinance of 1959. Among other
things, the ordinance stipulated: That treasury bills would be issued in
Nigeria in multiples of 2,000 (later reduced to 100 in order to expand the
coverage of holders) for 91 days and at fixed discount; that subscription
would be accepted from the general public, and only through licensed
banks in Lagos (later spread throughout the country), that the issues
would be monthly (later made fortnightly, and weekly) and that the total
outstanding at any time should not exceed 10 per cent of the federal
government estimated revenue for that financial year (the 1970
amendment-Treasury Bill Act, 1970, raised the maximum to 150 per
cent of the estimated revenue retained by the federal government, and
the gross revenues of all the state governments). The CBN absorbed
those not taken up by other institutions-providing for rediscount at par.

The main investor in TBs is the commercial banking system and this is
partly related to the fact these bills form part of the assets statutorily
specified for liquidity ratio purposes. In April 1960, TBs were first
issued to the tune of 18 million. By the end of 1995 total issues
amounted to 88,103.3265 million.

3.2.2 Treasury Certificates (TCs)

These are similar to TBs but are issued at par or face value and pay fixed
interest rates. These fixed interest rates are called coupon rates. Thus,
each issue promises to pay a coupon rate of interest and the investor
collects this interest income by tearing coupons off the edge of the
certificate and cashing the coupons at a bank, post office, or other
specified federal offices. Each coupon is imprinted with its naira value
and the date it is eligible to be cashed. They mature within a year from
the date of issue. In the Nigerian context, their rates became
market-determined like TB rates following interest rates deregulation.

Thus, treasury certificates are medium-term government securities

which mature after a period of one to two years and are intended to
bridge the gap between the treasury bill and long-term government
securities. They were first issued in 1968, at a discount of 4 per cent for

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one-year certificates, and 41/4 percent for two-year certificates. Like

treasury bills, treasury certificates are eligible for rediscounting at the
CBN. It is popular with banks which use the opportunity of their use to
diversity their asset holdings. Because of its buoyant oil revenues, the
government declared in the 1975-76 budget speech that no new
certificates would be issued and that outstanding issues would be retired
as they mature. Due to dwindling oil revenue of the 1980s, the decision
had to be reversed. The maiden issue of the instrument amounting to
N29 million was over-subscribed by the commercial banks by N24.0
million. At the end of 1987, treasury certificates outstanding had risen to
N654.1 million (and only N639.1 million issues) but reaching N6.944
million in 1989. By 1990, it stood at N34214.6 million, rising to
N36584.32 in 1993, N37342.7 million in 1994, but declined to
N23596.5 million. In 1995, it averaged N392302 million. The main
holders of treasury certificates are the commercial banks with CBN
ranking second.

Activity 1: What is the function of call money fund scheme?

3.2.3 Call Money Fund Scheme: Money at Call or Short Notice

This refers to money lent by the banks on the understanding that it is

repayable at the bank's demand, or at short notice (eg. 24 hours or over-
night). It used to be lent at relatively low rates of interest to financial
firms and institutions that use it to finance their everyday business.

Overnight loans between commercial banks arise when banks hold

reserves in excess of the minimum amount that the central bank require
all banks to hold. They are simply bank reserves that are loaned from
banks with excess reserves to banks with insufficient reserves. One bank
borrows money and pays the overnight interest rate to another bank in
order to obtain the lending bank's excess reserves to hold as one day
deposit. The borrowing bank needs these one day deposits in order to
acquire the legal reserves the CBN examiners require banks to maintain.

They act as a cushion which absorbs the immediate shock of liquidity

pursuers in the market. In 1962, the call money fund scheme was
introduced in Naira. Under the scheme, a call money fund was created at
the CBN and the participating banks had to agree to maintain a
minimum balance at the CBN. An surplus above the minimum balance
was then lent to the fund. The CBN administered the fund on behalf of
the banks and paid interest at a rate fixed somewhere below the treasury
bill rate. The CBN then invested the funds in treasury bills.

Initially limited to the banks, but later extended to other financial

institutions, the call money scheme proved very popular. In addition to

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earning interest for the banks, it acted as a cushion absorbing immediate

liquidity pressures on the marker. A noticeable feature is that the funds
employed in the market exhibited a definite pattern, usually rising
during the first half of the month and peaks around mid-month, but
reducing thereafter at month ends. This follows the monthly salary and
wage payments cycles. Thus banks pressed for cash balances towards
month's ends for salary and wage payments, drew down their balances in
the fund, and began to build them up from early in the month as the cash
payments travel back to the banking system. The scheme was abolished
in 1974, due to buoyant oil revenue of the federal government,
consequent upon the oil boom. By 1970, investments in treasury bills
under the call money fund scheme had averaged N12.7 million monthly,
but in 1973, outstanding investment in the fund averaged N15 million
monthly compared with N5 million in 1963, the first full year of its
operation.

3.2.4 Commercial Paper or Commercial Bill

These are short-term promissory notes issued by the Central Bank of

Nigeria, and their maturity vary from 50 to 270 days, with varying
denominations (some times N50,000 or more). They are debts that arise
in the course of commerce.

Commercial papers may also be sold by major companies (blue-chip,

well-known, national companies) to obtain a loan. Here, such notes are
not backed by any collateral; rather, they rely on the high credit rating of
the issuing companies. Customarily, issuers of commercial papers
maintain open lines of credit (i.e. unused borrowing power at banks)
sufficient to pay back all of their commercial papers outstanding. Issuers
operate in this form since this type of credit can be obtained more
quickly and easily than bank loans.

In the Nigerian context, there were two forms of commercial bills the
Ordinary Trade Bill and Marketing Board Bills. The ordinary trade was
drawn by ordinary reputable commercial firms and accepted by a bank
or acceptance house and secured on stocks of manufactured goods or
other stocks in trade. But these were note eligible for rediscount at the
CBN and hence ,not popular with banks, except when secured on export
produce. The Marketing Board Bills originated with the inception of the
Bill Market Scheme in 1962. Under that scheme, the Marketing Board
met its requirements forecast by drawing a 90- day commercial bill of
exchange, supported by a sales contract on the Nigerian Produce
Marketing Company Limited, the then sole exporter for all the
Marketing Boards (now disbanded). Upon acceptance by the company,
the Board then rediscounted the bills with the participating commercial
banks and accepting houses, which, if they chose, could rediscount the

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bills with the CBN. Three separate consortia of banks and other
financial institutions operated the scheme for the three marketing
boards; and at the height of the scheme, nearly all the commercial banks
were involved.

The scheme provided adequate credit for the marketing of the crops
concerned and provided a vehicle for short-term investment. However,
the scheme began to crack in 1964/65 cocoa crop season and other
members of the Cocoa Producers Alliance withdrew from the World
Cocoa Market, in an effort to get the cocoa produce manufacturers to
raise the price of cocoa to at least £380 per tone. With the withdrawal of
sale contract, finance was no longer available. In 1968 the CBN took
over the responsibility for Marketing Board crop finance and hence, the
demise of the bill market. What remains today of the commercial paper
market, following the disappearance of produce bills, are import and
domestic trade bills.

By 1968, commercial paper outstanding was N5.1 million, from 36.4

million in 1967. However in 1989, commercial paper outstanding
averaged N868.8 million. Between 1990 and 1995, it averaged 2219.05
million with a high of N5252.5 million in 1993, and a low of 953.4
million recorded in 1990.

3.2.5 Certificates of Deposits (CDs)

These are inter-bank debt instrument meant to provide outlet for the
commercial bank's surplus funds. It was introduced in Nigeria by the
CBN in 1975. it was also meant to open up anew source of funds for the
merchant banks who are the major issuers. Two types of certificates of
deposit are the negotiable and the non-negotiable certificate of deposit.
Negotiable Certificate of Deposits (NCDs) have a maturity range of
between 3 and 36 months, and wholesale unit issue of not less 50,000.
Those maturing within 18 months are classified as liquid assets, and are
eligible for the purpose of satisfying the liquidity ratio requirements.
They are also rediscount able at the CBN.

In addition, they are claims to specified sums of money deposited with a

merchant bank named on them, i.e., they are receipts from merchant
banks for a deposit of 50,000 or more, with certain provisions attached.
The banks issuing the NCDs are said to have bought deposit' by selling
CDs' with high interest rates ,in order to induce large depositors to make
cash deposits not to be withdrawn from the banks before some specific
date. Usually 3 to 36 months.

In Nigeria, in most cases, they are issued to fellow-bankers within that

maturity period, as one of the deposits they accept. The non-negotiable

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certificates of deposits (NNCDs) on the other hand, are issued in

denominations ranging between 1,000 and 50,000, and are normally
held till maturity.

Whereas interest charges on NCDs were by negotiation, rates on

NNCDs complied with the rate of interest of deposits as stipulated from
time to time by the CBN (before August 1987 when interest rates were
deregulated). The CDs outstanding by 1989 averaged 2079.2 million
while it averaged 590.15 million between 1990 and 1995. The decline in
average is due to the steep decline in the value of this money market
instrument between1992 and 1995 when it declined to a mere 15.2
million in 1994.

3.2.6 Bankers Unit Fund (BUF)

This was introduced by the CBN in 1975. Initially, it was meant to mop
up excess liquidity in the banking system. It was also designed to
smoothen the market for federal government stock. To this end,
commercial banks' holdings of the stocks are accepted as a part of their
specified liquid assets and are repayable on demand. Under the BUF,
federal government stocks of not more than 3 years to maturity were
thus designated "Eligible Development Stocks" (EDS), for the purpose
of meeting the banks' specified liquid assets requirements. This placed
banks in a position to earn long-term rates of interest on what is
essentially a short-term investment. Though, initially designed to mop
up excess liquidity in the banking system, by conferring on instruments
cash-substitute status repayable on demand or acceptable in meeting
reserve requirements, the capability of the banks for credit expansion
was unaffected.

In effect, the BUF was intended to provide avenue for the commercial
and merchant banks and other financial institutions to invest part of their
liquid funds in a money market asset linked to federal government
stocks. Participants in the scheme invest in multiples of N10,000, and
the fund is in turn, invested in available government stocks of various
maturity periods. The operation of the scheme was subject to the
availability of stocks. Interest is payable every twelve months, from the
date of initial investment of funds in the scheme (Onyido, 1986). At the
end of 1975, total CDs BUF and EDS outstanding stood at 49.8 million,
constituting only 5.1 per cent of total money market assets then. This
went up to 258.2 million in 1985. However, in 1989, BUF alone
outstanding averaged 3.9 million, while EDS outstanding averaged 23
million. However, by September 1988, BUF ceased to be used as a
money market instrument, following divestment by the investing banks
in the instrument, in the wake of the squeeze on their liquidity,
occasioned by the transfer of government accounts from these banks to

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the central bank. While EDS (government development stock of not

more than three years to maturity designed for purposes of meeting
specified liquid asset requirement) were dropped out of the portfolios of
the merchant banks that invested in them inApril, 1991.

3.2.7 Stabilization Securities

These were issued since 1976 by the CBN, ideally to mop up idle ,cash
balance of participating banks. Participation was mandatory for banks
with saving deposits of N50 million and above. The amount they are
required to invest in stabilization securities is fixed at 50 per cent of the
increase in savings deposits over the level of the preceding year. The
savings deposits relate to individual accounts not exceeding 20,000
each. In 1976, when the scheme was introduced, interest rate paid was 4
per cent per annum and revised to 5 per cent by 1979.

Activity 2: In what ways and means do the federal government grant

advances?

3.2.8 Ways and Means Advances:

Section 34 of the CBN Act 1958 (Cap. 30 as amended

1962-1969),empowers the CBN to grant temporary advances in the form
of ways and means to the federal government up to 25 percent of
estimated recurrent budget revenue. Ways and means advances averaged
about Ni million yearly between 1960 and 1962. The federal
government did not use this facility from 1963 to 1966, except on two
occasions only, in December 1963, and January 1966, when relatively
small amounts of 400,000 and 240,000 respectively were borrowed.

However, the financial pressures arising from the prosecution of the

civil war led to increased use of the instrument by the government.
Therefore, from 1.9 million in 1967 ways and means advances rose to a
monthly average of 44.5 million at the end of the war in 1970. The
instrument was not use between 1971 and 1976, following government's
unprecedented revenue from oil. However, the reemergence of financial
pressures in 1977 led to the rise in ways and means to a hard-core level
of over Ni billion in 1977, and 1978. By 1979, way and means advances
outstanding was N65.4 million, while the average monthly amount
outstanding in 1987 was N739.9 million, rising to N5,278.0 million in
1988, and to 5,794.4 in 1989. It rose again to a monthly average of
17,791.4 million in 1991, N21,701.2 million in 1992, 43,065.3 million
in 1993, but declined to N3,925.2 million, and further to 24,970 million
in 1994 and 1995 respectively, reflecting an average of 29,355.96
million between 1991 and 1995.

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4.0 CONCLUSION

The performance of the money market in Nigeria can better be assessed

within the framework of the objectives for its establishment, or the
functions it is expected to perform on the Nigerian economy. In this
regard, the achievement of the Nigerian money market is not too
impressive. This is because there still exist much idle funds in the
economy, although chief among its functions, is that of borrowing and
lending money of short-term funds and, hence promote an efficient
allocation and utilization.

5.0 SUMMARY

The money market is a market where money instruments are bought and
sold. It is a market where short-term securities are important. The
market is, therefore, important for governments and institutions in need
of short-term funds and suppliers of short-term funds, who, because of
the character, maintain part of their assets in relatively liquid form. To
carry out its functions successfully, the money market in Nigeria
employs four major instruments. These are: treasury bills, call monies,
treasury certificates, and commercial bills.

The Nigerian money market has grown both in the number and value as
a result of money market instruments that were introduced during the
period 1960-1998. The commercial banks and the other providers of
short-term funds now have a local investment outlet for their funds, and
this has helped them to check the outflow of funds to foreign banks.

6.0 TUTOR-MARKED ASSIGNMENT

Does the money-market play any significant role in the economic

development ofNigeria?

7.0 REFERENCES/FURTHER READING

Anyanwu J.C., Oyefusi A., Oaikhenan H.O., Dimowo F.A.. Structure of

the Nigerian Economy (1960-1997). Joanee Education Publisher
Ltd.

Molem C.S.(2002). Growth and Development of Nigerian Economy,

Silver Bond Publisher Kaduna.

Tayo Lambo (1982). Nigerian Economy A Text of Applied Economics

Evans Brothers Nigeria Limited.

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UNIT 2 THE NIGERIAN CAPITAL MARKET

CONTENT

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Nigerian Stock Exchange (NSE)
3.1.1 The Primary Market
3.1.2 The Secondary Market
3.2 Developments in the Nigerian Capital Market
4.0 Conclusion
5.0 Summary
6.0 Tutor Marked Assignment
7.0 References

1.0 INTRODUCTION

The capital market is a market for the mobilization and utilization of

long-term funds for development. The instruments traded in the market
include: government securities, corporate bonds and shares (stocks) and
mortgage loans. The market consists of an inner capital market (market
for new securities) and the outer capital market (not directly concerned
with the issue of new securities, but engaged in the business of
long-term borrowing and lending, upon which the issue of new
securities depends). The capital market embraces therefore, both the new
issues (primary) market and the secondary (seasoned securities) market.
Participants in the Nigerian capital market include: the Nigerian Stock
Exchange (NSE), discount houses, development banks, investment
banks, building societies, stock broking firms, insurance and pension
organizations, quoted companies, the government, individuals and the
Nigerian Securities and Exchange Commission (NSEC).

Activity 1: What is the Nigerian Stock Exchange?

3.0 MAIN CONTENT

3.1 The Nigerian Stock Exchange (NSE)

The stock exchange is a market where those who want to buy or sell
shares, stocks, government bonds, debentures, and other approved
securities, can do so (though only through its members (stockbrokers).
The NSE thus provides the essential facilities for companies and
government, to raise money for business expansion and development
projects (through investors who own shares in the companies), for the
ultimate economic benefit of the society. Such securities traded openly
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at the SE, refer to documentary evidence of ownership of entitlement to

claim upon the assets of the issuing organization, which may be a
government, quasi-government institution or agency, or a business firm.

The Nigerian Stock Exchange (NSE) earlier called the Lagos Stock
Exchange (LSE), was registered on 1 March, 1959, incorporated on 15th
September 1960, and started business on 5th June, 1961. In December
1977, its name was changed firm the Lagos Stock Exchange to the
Nigerian Stock Exchange (NSE), and additional branches were opened
in Kaduna and Port-Harcourt, in order to meet the aspirations of the
users of its services.

The major functions of the NSE include:

o providing appropriate machinery to facilitate further offerings of
stock and shares to the general public;
o Promoting increasing participation by the public in the private
sector of the economy; and
o Encouraging the investment of savings, as soon as its is clear that
stocks and shares are readily available.

Like all stock exchanges, the NSE is made up of many markets,

including a market for new issues (primary market), market for existing
securities (secondary market), and markets for debt securities and
equities. There are in fact, markets for each of the sectors of the
economy.

3.1.1 The Primary Market

The market is concerned with the offering of new issues or the initial
insurance and sale of securities in the NSE. Previously quoted
companies can seek expansion funds through the issuance of
supplementary securities in this market while 'new' companies
(companies not hitherto quoted on the exchange) will have to go public
before they can issue sell securities to the public through the market.
Types of instruments/securities issued in the primary market include:
debt instruments (comprising federal government development stocks
(FDSs), and industrial loans, preference stocks and bonds issued by
corporate concerns), and equity capital (ordinary share of corporate
entities which confer upon the holder some ownership rights to the
business concern).

3.1.2 The Secondary Market

The existing issues or secondary market, in a strict sense, constitute the

stock exchange, since it is the mechanism which gives liquidity to the
securities listed on the exchange.

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The Second-Tier Securities Market (SSM)

The Second-Tier Securities Market, was established on 30th April, 1985,

to assist small and medium-sized companies that are unable to meet the
requirements of the first-tier market (NSE) in raising long-term capital.
To encourage the development of the SSM, the stringent conditions for
enlistment in the first-tier market were relaxed for indigenous
enterprises seeking to raise funds through the SSM. The simplified
listing requirements, which constituted the basic distinguishing features
of the SSM, were that prospective companies should:

o Have a three-year trading record, instead of the five years

required for full listing at the NSE;

o Thereafter, submit audited half-year and annual

statements,without the quarterly statement required for listing in
the first-tier market;

o Make at least 10% of their equity available for public

subscription as against the 25% minimum required for full listing;

o Have not less than 100 shareholders, compared with the 500
prescribed minimum for full listing in the NSE;

o Make flat annual subscription of 2,000 to the stock exchange,

instead of the graduated annual quotation fees based on the
companies share capital in the NSE; and

o Raise a maximum sum of 5 million in the market, whereas there

is no limit to the amount that could be raised in the NSE.

The Nigerian Securities and Exchange Commission (NSEC)

It is the respnsibility of the Nigerian Securities and Exchange

Commission to determine, among others:

o The price at which shares or debentures of a company are to be

sold to the public, either through offer for sale, or direct issue;

o The timing and amount of sale;

and
o In the case of a quoted company, the price, amount and time
any
subsequent or supplementary offer of shares or debentures are to
be sold.

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However, only public companies (quoted or unquoted) fell within the
sphere of the NSEC. In other words, private companies were not obliged

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to seek the approval of the NSEC before raising funds through the
securities market.

In 1976, following the realization of the need for an apex capital market
regulatory body, the Financial System Review Committee recommended
the establishment of the Securities and Exchange Commission. The
commission was later established by the Securities and Exchange
Commission Act of 27 September„ 1979 (effective retrospectively from
April 1978), with an autonomous and legal status. As an apex regulatory
body, the NSEC was legally empowered to ensure:

o That resources are allocated into their most efficient and

profitable uses, That is, to accelerate the use of capital by helping
to increase the amount of domestic savings flowing into
productive investments;

o That investors are protected from fraud and deceit and hence
instill the confidence needed for orderly growth and development
of the market. This implies the regulation of the Nigerian Stock
Exchange, stock brokers, issuing houses, and employees;

o The easy transfer of securities by removing bottlenecks which

may breed inefficiencies and impair impair the possibility of
adequate liquidity, so that funds may freely find their way into
productive channel vital for economic and industrial
development; and

A wider spread distribution of equities by discouraging the

concentration of securities in a few, but powerful hands.

These are in addition to the usual functions of the commission such as,
determining the amount of and time at which securities of a company
are to be sold to the public, and registering all securities proposed to be
offered by the public, etc.

Activity 2: Outline the development that has taken place in the Nigerian
capital market.

3.2 Developments In The Nigerian Capital Market

The finance and insurance sector is one that has experienced about the
highest growth in the Nigerian economy, especially after the
introduction of the Structural Adjustment Programme (SAP). This has
had positive and far reaching implications on the activities of the capital
market in Nigeria.

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The total number of securities transacted in the capital market (bothfirst

and second-tier) was 334 in 1961. Of this, government securitieswas 92,
while industrial securities was 242 (72.5% of the total). In 1965, the
total number of transaction had increased to 1,018 (204.79% over the
1961 figure). Of this, industrial securities still dominate with a
percentage share of 61.6.

The number of transactions, however, dropped in 1970 to 643 (47.8% of

which were government securities). Again, the value of total transaction
in the year was N16.6 million (with government though more in number
were valued at only (98.78%). Industrial securities though more in
number, were valued at only 0.2 million.

Developments in the markets in the 1970s, however, witnessed a steady

growth in the number of value of industrial securities traded vis-a-vis
government securities. In 1974 for example, the number of industrial
securities was 2,807, as compared to 256 for government securities.
Although these still had a relatively small value of N1.3 million
compared to 49.4 million for the latter. From 1976, however, the share
of industrial security in both number and value of transactions, increased
tremendously. (from 97.0% and 2.03% for 1990, to 97.31% and 3.29%
for 1985, and 98.85% and 11.11% respectively in 1987). Also, the total
number of transaction in the capital market increased steadily, growing
by 916.4% in 1980 and 97.7% in 1995.

4.0 SUMMARY

The capital market is seen as the institutions and mechanisms whereby

intermediate and long-term funds (loans of longest maturity, government
and company stocks), are pooled together and made available to
businesses, governments and the individuals, and also through which
instruments already outstanding are transferred through the capital
market.. Funds raised by businesses and individuals are invested in fixed
assts and inventories. It is also through the market that new capital, by
offer of new securities, is made available to the public.

5.0 CONCLUSION

With the present move at sanitizing the Nigerian financial system,given

the rate of growth of the financial and insurance sector, it is obvious that
the capital market in Nigeria has yet a greater role to play in the
promotion and channeling of investment into productive activities, with
greater growth effect on the economy, and in the growth of indigenous
enterprises in the country.

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6.0 TUTOR-MARKED ASSIGNMENT

In the Nigerian capital market, the major participant is the Nigerian

Stock Exchange (NSE). Discuss the role of NSE in the economic
development of Nigeria.

7.0 REFERENCES/FURTHER READING

Anyanwu J.C., Oyefusi A., Oaikhenan H.O., Dimowo F.A.. Structure of

the Nigerian Economy (1960-1997). Joanee Education Publisher
Ltd.

Molem C.S., Growth and Development of Nigerian Economy, Silver

Bond Publisher Kaduna.

Tayo Lambo (1982). Nigerian Economy A Text ofApplied Economics

Evans Brothers Nigeria Limited p. 12-19.

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UNIT 3 FISCAL POLICY IN NIGERIA

CONTENT

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Meaning
3.2 Objectives of Fiscal Policy in Nigeria
3.3 Fiscal Policy Measures in Nigeria
3.3.1 Taxation Policies
3.3.2 Public Expenditure Policies
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Fiscal policies in its broadcast sense, embrace all aspects of the volume
and composition of government revenue and expenditures. When used
in the macro-economic context, we speak of compensatory fiscal policy,
by which is meant the alteration of the relationship between aggregate
federal revenue and expenditure ,in conscious efforts at influencing the
aggregate demand for the Gross National Product. (GDP).

Appropriate fiscal measures can provide the control desired in three

principal ways. The first is that the level of government spending can be
raised without any changes, or lowered taxes. Secondly, the tax rates can
be lowered without changing the level of government spending. Thirdly,
the level of both spending and taxes can changed by the same amount.
The above three measures can be combined in any desired form to
achieve the stimulus need in the economy.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o the objectives of fiscal

policy
o the tools of fiscal
policy
o how effective the fiscal policies have been in
Nigeria.

Activity 1: What is the difference between system and fiscal policy?

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3.0 MAIN CONTENT

3.1 Meaning

A fiscal system refers to the kind of arrangement or institutional

framework which exists in a society for making budgetary decisions of
raising revenue, incurring expenditure, and engaging in debt/borrowing
operations. The fiscal system of a country may be decentralized or
centralized, depending on whether the political constitution/structure is
federalist or unitary. In a federation such as Nigeria, the fiscal system is
decentralized, such that there is a division or sharing of fiscal powers
and responsibilities among the federal (central), state, and local
governments. However, in a unitary government such as Britain, greater
fiscal powers are concentrated with the central government.

Fiscal policy is taken to refer to that part of government policy

concerning the raising of revenue through taxation and other means, and
deciding on the level and pattern of expenditure for the purpose of
influencing economic activities or attaining some desirable
macroeconomic goals. Fiscal policy can be used for allocation,
stabilization, and distribution. In essence, a primary objective of fiscal
policy is to balance the use of resources of the public and private sectors
and, by so doing, avoid inflation, unemployment, balance of payments
pressures, and income inequity.

One the other hand, public finance refers to that branch of Economics
that is concerned with the revenue, expenditure and debt operations of
the government, and the impact of these measures. It identifies and
assesses the effects of government financial policies. That is, it tries to
analyze the effects of government taxation (and other sources of
revenue) ,and expenditure on the economic situations of individuals,
institutions and the economy as a whole. It also examines the
effectiveness of policy measures directed at some objectives, and
develops techniques and procedures to increase that effectiveness. In
effect, it looks into the financial problems and policies of the
government at different levels and studies the inter-governmental
financial relations.

Activity 2: What are the objectives of fiscal policy in Nigeria?

3.2 Objectives of Fiscal Policy In Nigeria

Nigeria's fiscal policy objectives during the period 1970 to 1993, can be
distilled from the Second (1970-1974), Third (1975-1980), and Fourth
(1981-1985) National Plans; First (1990-1992) and Second (1991- 1993)
Rolling Plans, and from the various annual federal budgets. From these

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sources, one can summarize Nigeria's fiscal policy objectives for the
period 1970-2002 as follows:

a) Generation of significant additional revenues;

b) Diversification of revenue sources away from crude oil-based
revenues;
c) Reduction in the tax burden on individuals and corporate bodies;
d) Maintenance of economic equilibrium, particularly to contain
inflationary pressures, accelerate economic growth, reduce
balance of payments deficits; and generate increased
employment;
e) Guaranteeing effective protection of domestic industries
f) Promotion of self-reliant development;
g) Substantial progressive reduction and elimination of government
budget deficits;
h) Cost recovering by social services and public enterprises,
including the streamlining of the process of deregulation;
i) Integration of the informal sector of the economy into the
economic mainstream;
j) Improving the transparency and accountability in the
management ofpublic finances;
k) Fighting the twin issues of low productivity in agriculture and
low capacity utilization in manufacturing.
l) Reduction of the heavy burden of both internal and external
debts;
m) Correction of the distorted patterns of both domestic consumption
and production; and
n) Minimization of existing inequalities in wealth, income and
consumption standards, which tend to undermine production
efficiency, offend a sense of social justice and endanger political
stability.

Indeed, in 1997, the broad policy objectives are to:

a) Ensure price stability;

b) Attain job creation and employment opportunities;
c) Achieve balance of payments equilibrium; and
d) Achieve exchange rate stability.

Specifically, the 1997 budget objectives are:

a) Growth and development of the economy;

b) Continuous reduction in the rate of inflation;
c) A realistic and appropriate monetary and credit policy stance;
d) Ensuring fiscal balance and curtailment of extra-budgetary
spending;

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e) Intensive revenue collection drive;

f) Co-ordination of fiscal and monetary policy to ensure
macroeconomic stability;
g) Curtailment of wasteful expenditure and maintenance of general
fiscal discipline;
h) Improvement of the external value of the Naira; and
i) Fiscal transparency and comprehensiveness of the
conceptualization of projects.

These objectives are based on sustainable growth and development, with

the policy thrust as the stimulation of private investments so as to
substantially raise the level of production.

These are anchored on:

i. Encouragement of private foreign investments for growth and

development;
ii. Agricultural and food production;
iii. Family economic development; and
iv. Privatization and liberalization of key growth-induced ventures.

It is important to note that the simultaneous pursuit of some of the above

objectives could result in conflicts or trade-offs. This is more so in the
case of accelerated economic growth and higher employment on the one
hand and inflation reduction on the other. However, it is the recognition
of the fact that fiscal policy affects the economy in many different ways
that these objectives are pursued simultaneously. For instance, revenue,
expenditure, and the public sector deficit they imply are essential, while
at the same time, they affect adjustment and growth. At the
microeconomic level, taxes, subsidies and government purchases of
goods and services encourage the production and consumption of some
commodities and discourage the production and consumption and
consumption of others.

3.3 Fiscal Policy Measures in Nigeria

In Nigeria, the major fiscal policy instruments include: changes in

taxation rates (on personal income, company income, petroleum profits,
capital gains, import duties export duties and excise duties, as well as
mining rents, royalties and NNPC earnings), and government
expenditure (recurrent and capital). These taxes along with interests and
repayments, and licences and fees constitute government revenue. Such
taxes are imposed not only to generate revenue, but also to provide
incentives and/or disincentives in certain specific socioeconomic
activities. Tariffrates are also varied, not only to regulate the external

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sector of the economy, but also to encourage domestic production as

well as to protect domestic (particularly infant) industries.

On the other hand, government expenditures constitute an instrument for

direct resource allocation while generating employment opportunities
and influencing the general price level, as well as determining the extent
of fiscal deficit or surplus each fiscal year.

3.3.1 Taxation Policies

The basic personal income tax (PIT) law in Nigeria is the ITMA (1961),
with subsequent amendments. Before 1975, the determination of PIT
rates and personal relief and allowances, was under the jurisdiction of
the regional/state governments.

In 1975, uniform rates of tax and deductions were imposed throughout

the country via Income Tax Management (Uniform Taxation Provisions,
etc.) Decree, 1975. The major changes in the 1975 rate structure
occurred in 1977 and 1990.

In the area of company income tax, in 1975 and 1997 profit less than
6,000 were tax-free, profits in excess of 6,000 but less than 10,000 were
taxed at 45%. The rate was increased to 50% in 1978, but reduced to
45% the following year. In 1982, it took the form of maximum of 2%,
based on turnover or 45% of taxable profit, which ever was higher. The
turnover tax was abolished in 1985. But in 1987, the rate of company
income tax was reduced from 45% to 40% while graduated tax free
dividends were allowed to individuals. In 1992, the rate of company
income tax was further reduced to 35% with the provision of% for small
companies.

Of all the fiscal policy tools, it is the tariff measures that have been most
often changed. Such fluctuations reflect similar trend in the nation's
external earning. In fact, when prospective earnings are high, a
liberalization approach is adopted ,but restrictive measures are taken
when induced import demand exceeds the import capacity.

Thus, in order to reduce the inflationary pressure, consequent upon

increased aggregate demand on the economy, imports were liberalized
in 1971 though a six months ban was in force on some selected items. In
1977, some import duty rates were raised, while others were lowered.
These lasted until 1980 when there was reduction in rates from 10-25%
to 5-15% was made to liberalize imports for certain specific
commodities. From 1979, some other commodities were placed on the
prohibition list. In 1981, duties were once more increased until 1984,
when the range of import duties was reduced and allowed to last for

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three years. In 1986, adjustments were made in customs and excise tariff
to give advantage to locally assembled agricultural equipment, while
some items were place under ban. In 1987, three import duty surcharges
earlier abrogated in 1986 were reintroduced, while a comprehensive
customs and excise tariff review was completed in 1987. Though a more
liberalized trade regime came into force, a number of items were placed
on import and export prohibition. In 1988, the comprehensive tariff
structure was adopted (designed to last for seven years), partly to
provide higher degree of protection to local industries, and make for
continuity. There was a reduction in the number of excisable products
from 412 to 182. The harmonized commodity and coding system (H.S)
was incorporated into the new tariff structure, while anti-dumping tariff
on certain items came into force.

3.3.2 Public Expenditure Policies

The Second National Development Plan (1970-74), accorded a leading

role to government just as it considered public enterprises as crucial to
growth and self-reliance due to capital scarcity, structural defects in the
private sectors and perceived dangers of foreign dominance of the
private sector. The Third National Development Plan (1975-80),
advocated some shift in resource allocation in favour of rural areas
which were said to have benefitted little from the economic growth of
the 1970s. Thus, small farmers and the rural population were expected to
benefit from public expenditures. In addition, the poorer sections of the
population were to be provided subsidized facilities such as water
supply, health services, electricity, etc. We should note that an exception
was the 1977/78 to 1979/80 fiscal year, which was essentially
restrictive. However, against the background of the austere fiscal
outlook of the government, under the Third National Development Plan
(1981-85), the role of fiscal policy was viewed mainly as the generation
of revenue through increased tax effort, and the control of public
spending.

The Structural Adjustment Programme (SAP), introduced in July 1986,

recognized that the financial resources for public expenditures for the
rest of the 1980s and beyond, were likely to be less than was previously
envisaged. And given the uncertainty in the oil market, and substantial
debt repayment falling due, there was need to curtail government
expenditure, especially those involving foreign exchange.

In the main, as with other IMF-World-backed programmes, measures

were to be taken to reduce government expenditure. Such measures
include the reduction of the growth of government wage bill, reduction
in government subsidies on fertilizer, food, petroleum and petroleum
products, limiting or delaying new investments, and the rationalization,

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and hence the privatization and commercialization of public enterprises,

thereby improving the efficiency of investment and expenditure control
and administration.

During the first National Rolling Plan (1990-92), government aimed at

efforts to combat inflation. Large budgetary deficits were to be avoided,
hence government expenditures were to be made more cost-effective
and kept at levels that were consistent with the nation's resources,
realistic growth targets and general economic stability. In the main
therefore, the government was to promote efficiency in the allocation of
scarce development resources through emphasis on private sector
participation, and privatization/commercialization. In this regard, the
public sector was to place greater emphasis on promotional activities,
including provision of an appropriate policy environment, basic
infrastructures and adequate institutional support for private investment
to thrive (Federal Republic ofNigeria, 1990).

On the other hand, the Second National Rolling Plan (1991-93), went
forward at targeting a balanced budget in 1991, and a surplus in 1992,
coupled with continued selective withdrawal from commercial activities
and increased privatization and commercialization of public enterprises
(Federal Republic of Nigeria, 1991).

Thus, fiscal policy in Nigeria generally has oscillated, on balance,

between liberalization and restrictiveness during the period 1970 to
2001.

4.0 CONCLUSION

Fiscal policy measures have played an important role in creating a

favourable climate for rapid development in the country. In the area of
measures to contain balance of payments pressures in particular, the role
fiscal policy has been crucial. The fiscal measures adopted continues to
reflect the financial requirements of the government and those of the
balance of payment.

5.0 SUMMARY

o Revenue sources in Nigeria have always been heavily sl

concentrated, as they are, on just one or two taxes, ovethe past -
two decades.
o The tax revenue sources in Nigerian have always been largely
based on foreign activity.
o The Nigerian tax system is highly unstable, dependent largely on
oil.
o The Nigerian tax system is deceptively characterized by
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the

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predominance of direct tax revenue and high tax/GDPratio.

o While there is ample scope to increase the rates of some of the
existing taxes, as means of generating additional revenue,
emphasis should be on improving the administration of existing
taxes, as well as introducing new services to be paid for by the
users, as against introducing new forms of taxation not directly
related to benefits received by the tax payer.
o Finally, the recent tax reform should be supported by stronger tax
administration (and simplicity of tax design), including better
training, salaries, and conditions of service of revenue collection
personnel. This should involve not only the creation of an
autonomous revenue service, but also ,the development and
implementation of better salaries and special bonuses or revenue-
sharing for meeting specified revenue targets.

6.0 TUTOR-MARKED ASSIGN M ENT

How effective has the fiscal policy instruments of Nigeria been to the
economic growth and development objectives of the nation?

7.0 REFERENCES/FURTHER READING

Anyanwu J.C., Oyefusi A., Oaikhenan H.O., Dimowo F.A.. Structure of

the Nigerian Economy (1960-1997). Joanee Education Publisher
Ltd.

Molem C.S. (2002). Growth and Development of Nigerian Economy,

Silver Bond Publisher Kaduna.

Tayo Lambo (1982). Nigerian Economy A Text of Applied Economics

Evans Brothers Nigeria Limited.

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UNIT 4 MONETARY POLICY IN NIGERIA

CONTENT

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 What Is Monetary Policy?
3.2 The Framework of Monetary Policy in Nigeria
3.2.1 Legal Basis of Monetary Policy in Nigeria
3.2.2 Objectives of Monetary Policy
3.3 Coordination of Monetary Policy With Other Policies
3.3.1 Monetary Policy Formulation
3.3.2 Monetary Policy Instruments/Tools
3.3.3 Monetary Policy Implementation
3.4 Monetary Policy In Nigeria
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
70 References/Further Reading

1.0 INTRODUCTION

Monetary policy can be defined as one which has the objective of

influencing economic activity, through variation in money supply,
availability of credit, or interest rates. Opinions vary among economists
as regards the proper role of monetary policy in an economy. Contrary
to the view of the fiscals, the monetarists strongly believe that it is the
sole means of stabilizing the price level, and general economic activity.
The true position is somewhere between these extremes. In the
complexities of present-day conditions, an economy cannot thrive
without the aid of monetary policy, while it is equally true that no
community can prosper on monetary policy alone.

Monetary policy constitutes a part of the general macro-economicpolicy

with the main long-term objective of maintaining a high and stable level
of employment, reasonable stability of prices, rapid but steady economy
growth, a satisfactory balance of payments and an equitable balance
with one another.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o define monetary
policy
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o highlight the framework of monetary policy in
Nigeria

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o identify the monetary policy

instruments.

Activity 1: Define monetary policy.

3.0 MAIN CONTENT

3.1 What Is Monetary Policy?

Monetary policy involves measures designed to regulate and control the

volume cost availability, and direction of money and credit in an
economy, to achieve some specified macro-economic policy objectives.
That is, it is a deliberate effort by the monetary authorities (the central
bank), to control the money supply and credit conditions for the purpose
of achieving certain broad economic objectives. Monetary policy in the
Nigerian context encompasses actions of the Central Bank of Nigeria
that affect the availability and cost of commercial and merchant banks'
reserve balances, and thereby the overall monetary and credit conditions
in the economy. The main objective of such actions is to ensure that
over time, the expansion of money and credit will be adequate for the
long-run needs of the growing economy at stable prices.

3.2 The Framework of Monetary Policy In Nigeria

The framework of monetary policy in Nigeria can be organized around

five elements: the legal basis of monetary policy, objectives of the
policy, its coordination with other policies, policy formulation process,
and its implementation.

3.2.1 Legal Basis of Monetary Policy in Nigeria

The history of the Nigerian Securities and Exchange Commission dates

back to 1962, following the establishment of the Capital Issues
Committee (an ad hoc committee devoid of any legal status), whose
primary function was to see to the orderly development of the capital
market, by regulating share prices and determining the timing of issues.
The committee functioned essentially as an advisory body under the
umbrella of the Central Bank ofNigeria (CBN)

After the civil war, however, given the recognition of the important role
the committee can play in the successful implementation of the 1972
Nigerian Enterprise Promotion Act, the Capital Issues Act was
promulgated by the federal government in 1973. The Act established the
Capital Issues Commission (CIC) vested with the power to determine
???????

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The authority to formulate and implement monetary policy is vested in

the Central Bank of Nigeria (CBN), as outlined in the Central Bank Act
of 1958 (and subsequent amendments), the CBN Decree No.24 of 1991,
and the Banks and other Financial Institutions Decree (BOFID) No. 25
of 1991. These laws enjoin the CBN to promote monetary stability and a
sound financial system in Nigeria, under the overall guidance of the
federal government. The CBN is required to make proposals to the
President (or Head of State), through Ministry of Finance, who has the
power to accept or amend such proposals. In turn, the CBN is obliged to
implement the policy approved by the President or Head of State,
through the Ministry of Finance.

3.2.2 Objectives of Monetary Policy

As in other economies, monetary policy in Nigeria is a aimed at

moderating the inflation rate, promotion of growth, reducing pressures
on the external sector, stabilizing the Naira exchange rate, and inducing
increased financial savings investment and employment. However, due
to conflicts in the attainment of these objectives, priorities are usually
set in this direction. Thus, the ultimate targets are:
o Sustained increase in
outputs/growth
o Price
Stability
o Full
Employment
o Sustainable balance of
payments
o Exchange Rate
Stability.

These can be summed as economic stabilization (growth, price stability

and full employment), and external balance (sustainable BOPs and
stable exchange rates). To attain these ultimate goals, policy makers
identify variables that have stable, certain, and strong relationship with
the ultimate goals, which are referred to as proximate targets/goals. The
conventional wisdom is that the terms to liquidity (or terms of credit and
some measures of the quantity of liquidity) are possible proximate target
variables commonly used target variables in Nigeria are:
o Interest Rates Money
Supply
o Narrow Money Supply (M,)-currency plus demand
deposits
o Broad Money Supply (M2)-M1 plus quasi-money (time and
savings deposits)

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o Domestic
Credit
o High-powered Money or Monetary Base/Reserve
Money

3.3 Coordination of Monetary Policy With Other Policies

Government economic policies (monetary, fiscal, income, and exchange

rate policies) must be coordinated so as contain an inbuilt consistency

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and hence, be able to achieve desired objectives. The CBN makes

assumptions and projections with respect to GDP growth rate,
unemployment rate, fiscal deficit, and the implied banking system
financing of government borrowing requirement, the balance of
payments, etc. However, the CBN as the initiator of monetary policy,
must consult government agencies so as to attain these targets. For
example, it must consult the National Planning Commission on GDP
growth and inflation rates forecasts, the Federal Ministry of Finance on
government's fiscal operations, the NNPC on expectations in the oil
sector, especially on the net external position, etc. Conflicting proposals
are usually ironed out at inter-ministrial levels.

3.3.1 Monetary Policy Formulation

In formulating monetary policy, the CBN relies on the technique of

financial programming, whose starting point is a comprehensive review
of recent economic performance, as well as the current and anticipated
economic problems. Functions are usually made on money supply, GDP
growth, inflation rates, and position on the basis of optimum money
supply, The economy's absorptive capacity for domestic credit is derived
so as to permit growth targets to be determined for the key policy
variables of money supply and aggregate domestic credit. The
permissible aggregate domestic credit is then allocated between the
public and private sectors. The size allocated to the public sector is
determined the size of the fiscal deficit to be financed by the banking
system. The residua is al located to the private sector.

Activity 2: Outline the various monetary instruments.

3.3.2 Monetary Policy Instruments/Tools

Variables that are under the control of the monetary authorities,and have
influence on the proximate targets are known asmonetary instruments or
tools. Monetary tools can be direct or indirect. The direct tools include:
o Aggregate Credit
Ceilings
o Deposit Ceilings Exchange
Controls
o Restriction on the Placement of Public
Deposits
o Special
Deposits
o Stabilization
Securities.

On the other hand,indirect tools include:

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o Open Market Operations
(OMO)
o Cash Reserve
Requirements
o Liquidity
Ratio
o Minimum Rediscount
Rate

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o Parity Changes Selective Credit

Policies

Direct monetary control tools which had been in vogue in the 1960s, and
also in the 1980s, up to June 1986. Such direct controls were used not
only to control overall credit expansion, but also to determine:
o Proportion of bank loans going to the preferred
sectors;
o Merchant banks' asset
portfolio;
o Proportion of bank loans to indigenous
borrowers;
o Proportion of bank loans to small scale indigenous
enterprises;
o Proportion of rural bank deposits granted as loans to
rural
borrowers;
o Categories of banks exempted from credit ceilings; Cash deposits
for imports;
o Lid on interest rates,
etc.

However, the prolonged use of the direct tools have had adverse effects
on both the economy and the effectiveness of monetary policy in
Nigeria. Thus, a decision was taken to change the strategy of monetary
management, to the indirect approach, involving the use of market-based
tools. The plan in this direction involved the deregulation of interest
rates, partial deregulation of the market for government debt
instruments, and institutional frameworks, and the reduction of excess
liquidity in the economy.

3.3.3 Monetary Policy Implementation

After the CBN's monetary policy proposals are approved by the

President/Head of State, the relevant proposals are outlined in the form
of a monetary policy circular for implementation by banks and other
financial institutions. Penalties for malfeasance with specified
guidelines, are stipulated in the circular. In order to monitor the
activities of financial operators. the CBN conducts periodic and special
examinations of books of all licensed banks which are also required to
submit regular/periodic returns on their operations to the CBN. Both the
results of the examinations, the returns and current developments in
economy, enable the CBN to evaluate the extent of compliance with the
circular the overall policy effects on the economy, and hence the need or
otherwise of policy revisions.

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3.4 Monetary Policy In Nigeria

As noted earlier, direct monetary control techniques were in vogue in

the 1960s, 1970s, and the 1980s, until June 1986. The main objectives of
monetary policy then were the maintenance of relative price stability,
and a healthy balance of payments position. The major tools were:

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administered interest rates, special deposits, administered exchange

rates, prescription of cash reserve requirements, selective credit controls,
credit ceilings, etc. Then, it was not feasible to use the market-based
tools, because of the narrowness and underdeveloped nature of the
financial markets, the inadequate supply of the relevant debt
instruments, and the deliberate restraint on interest rates. The most
popular instrument of monetary policy, was the issuance of credit
rationing guidelines, mostly in the form of setting the rates of change for
the components and aggregate commercial bank loans, and advances to
the private sector. The control of interest rates at relatively low levels
was done to promote investment and growth. Occasionally, special
deposit requirements were imposed to reduce the amount of free
reserves, and credit-creating capacity of the banks. The sectoral
distribution of bank credit in CBN guidelines, was to stimulate the
productive sectors and thereby stem inflationary pressures. Minimum
cash ratios were imposed on the banks in the mid-1970s on the basis of
their total deposit liabilities, but since such cash ratios were usually
lower than those voluntarily maintained by the banks, they were less
affective as a restraint on the banks' credit operations.

However, in line with the general philosophy of the Structural

Adjustment Programme (SAP) introduced in July 1986, monetary policy
is aimed at inducing the emergence of a market-oriented financial
system for effective mobilization of financial savings and efficient
resource allocation. The objectives of monetary policy remained the
stimulation of output and employment, and the promotion of domestic
and external stability.

In line with the principle of phased approach to the use of indirect

control, a series of indirect measures to control the ability of banks in
extending new credit were applied alongside credit ceilings. Those
measures include:

a) Deregulation of interest rates in August 1987, though in 1991 an

upper limit of 21% was imposed on lending r,ates while a floor of
13.5% was fixed for savings, prescribing also a spread of 4
percentage points between savings and lending rates.

b) Due to concern of the adverse effects of high interest rates on

growth of productive investments, early in 1992, interest rates
were again deregulated, though this has been reversed since
November 1993.

c) In 1986 and 1987, the naira counterparts of all external payments

outstanding with banks were recalled.

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d) Commercial banks' cash reserve requirements were increased in

1989, 1990 and 1992, and merchant banks hitherto excluded,
were subject to cash reserve requirements in 1990.

e) In January 1988, the liquidity ratio of merchant banks' was varied

from 30% of demand deposits and call money to 20% of total
deposits. This was raised to 30% in 1990.

f) In May-June 1989, public sector accounts were transferred from

banks to the CBN, and the banks were prohibited thenceforth,
from accepting foreign guarantees and/or foreign currency
deposits as collaterals, for domestic loans denominated in naira.

g) Since October 1990, banks' excess liquidity are periodically

mopped up through the issuance of stabilization securities
(though suspended since March 1993).

h) In 1991, the basis for calculating cash reserve requirement was

extended beyond demand deposit, to include time and savings
deposits.

Effectively from the first week in September, 1992, the CBN on

selective basis, lifted credit ceiling on individual banks which observed
CBN guidelines in respect of statutory minimum paid-up capital
adequacy ratio, cash reserve, liquidity ratio requirements, prudential
guidelines, sectoral credit allocation, and sound management.

4.0 CONCLUSION

In general, the choice of a policy instrument should depend on:

1. The economic objectives to be achieved;
2. The lag associated with the instrument;
3. The relative strength of the instrument in relation to the
objectives to be achieved; and
4. It's effect on resource allocation.

Of course, faced with a given situation, the tools can be used singly or in
combination. While they need not all be used in every case, their proper
coordination is necessary in order to achieve the best possible results.
Without proper co-ordination, the controls can work at cross purposes,
and become counter productive.

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5.0 SUMMARY

It be could be said that the monetary policy has the objective of

influencing economic activity, through variation of money supply,
availability of credit, and interest rates. However, monetary policy
constitutes a part of the general macro-economic policy, with the main
long-term objective of maintaining a high, and stable level of
employment, reasonable stability of prices, rapid but steady economic
growth, a satisfactory balance of payments, and an equitable distribution
of income.

In this regard, the effectiveness of monetary policy in Nigeria has been

hampered by: the lateness in diagnosing the ills to be remedied,
improper and wrong diagnosis of the problems. The application of half
measures, or the over dose of the measures applied, the conflicts created
for the achievement of one objective by another that is opposed to it (in
direction and character) and the appearance of unforeseen conflicting
economic problems in the finance industry, the under-development
nature of the financial markets, and the related ineffectiveness of central
bank instrument in controlling money supply, especially where
government expenditures are excessive.

6.0 TUTOR-MARKED ASSIGNMENT

What are the objectives of monetary policy in Nigeria. To what extent

has the monetary policy achieved these objectives?

7.0 REFERENCES/FURTHER READING

Anyanwu J.C., Oyefusi A., Oaikhenan H.O., Dimowo F.A.. Structure of

the Nigerian Economy (1960-1997). Joanee Education Publisher
Ltd.

Molem C .S.(2002). Growth and Development of Nigerian Economy,

Silver Bond Publisher, Kaduna.

Tayo Lambo (1982). Nigerian Economy A Text of Applied Economics

Evans Brothers Nigeria Limited.

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UNIT 5 DEVELOPMENT PLANNING

CONTENT

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Ten-Year Plan of Development and Welfare
(1945-1955)
3.2 Post-Independence Development Planning Efforts
3.2.1 Implementation of the Plan
3.3 The Second National Development Plan (1970-1974)
3.4 The Third National Development Plan (1975- 1980)
3.5 The Fourth National Development Plan (1981-85)
3.5.1 Cause of Failure of the Plan
3.6 Rolling ofNational Plan in Nigeria
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Economic planning is process by which a society mobilizes, organizes

and programmes the use of its resources, so as to attain specific
objectives. However, in a country like Nigeria, there is the general belief
that planning is an institutional mechanism, which is capable of
overcoming all the obstacles of development, and it helps to ensure a
sustained and balance economic growth.

Development planning in Nigeria is necessary because it makes it easier

to get people's support for government policies. This is because, plan is
usually based on a number of objectives. If these objectives are clearly
stated and they represent what the people want, then it would be
relatively easy to win people's support, in order to execute the plan that
would ensure achievement of the objectives

However, planning exercises in Nigeria bear strong relationship to

change in political structure of the country, and consequential change in
the planning machinery.

2.0 OBJECTIVES

You will better appreciate the history of planning in Nigeria, when you
phase out the planning exercises in the country.

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At the end of this unit, you should be able to:

o identify the major objectives of development

plans
o examine its success and weaknesses of each development
plan.

Activity 1: What is development planning?

Planning exercises in Nigeria bear strong relationship to changes in

political structure of the country, and to consequential changes in the
planning machinery.

3.0 MAIN CONTENT

3.1 The Ten-year Plan of Development and Welfare

(1945-1955)

The first attempt at development planning for the country was the
'ten-year plan of development and welfare for Nigeria', introduced at the
instance of the colonial office in London in 1945, and contained in the
government's seasonal paper No. 24 of 1945. It was prepared and co-
ordinated under the general direction of a small central development
board, consisting exclusively of senior colonial government officials.
Moreover, area development commissions were set up in each province,
to be assisted by advisory bodies. Considerable effort was made to
obtain inter-department and central provincial consultation and
co-ordination. In this regard, the plan was an example of a coordinated
and integrated plan at the local level, rather than of sectoral planning, as
subsequent development plans in Nigeria were. However, the
conception, formulation, and implementation of the plan was done
entirely by colonial civil servants. In 1951, the plan was revised to cover
the period 1951-56. In the revision contained in the colonial
government's seasonal paper No.6 of 1951, 'new and unrelated projects
were substituted for earlier ones'. The constitutional development of
1954, however, brought the plan to a premature end.

The plan has been criticized as being no plan at all ,in the sense of being
a combination of projects, rather than a single-valued objective oriented
plan. Indeed, it was more of a 'regulatory' plan with welfare ingredients
than a development oriented plan. The plan concentrated mainly on
social and physical infrastructures such as construction of rail-roads,
motor-roads, seaports etc. as these were to facilitate the much
unbalanced trade between Britain and the colony. Generally, the plan
suffered from the following drawbacks.

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1. Its objectives were not relevant and meaningful to the needs of
the citizens. Emphasis was rather on the maintenance of law and

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order. In other worlds, the plan did not identify the aspirations of
the people.
2. Absence of articulate press to monitor opinion and development
in different parts of the country. As a result, the plan did not
satisfy the fundamental requirement of good planning by falling
to involve the people for which it was being made.
3. It was difficult to reconcile the execution of the plan in the three
groups that constituted the country then, where different systems
of administration, with varying objectives were in vogue. Despite
the centralized nature of the planning process, there was no
national direction and aspiration. The plan suffered greatly from a
lack of consistency and coherence.
4. Paucity of essential data for planning, and acute post-war
shortage of high level administrative personnel for plan
implementation, constituted the major bottleneck for the planning
exercise and implementation.
Despite the above however, 'the ten-year plan, together with its
revised edition, made possible the expansion of public health,
education services, and building of some public facilities as road,
ports, and water supplies... That private sector of the economy
also participated in, and benefitted from the expansion; and
productive capacity of the economy rose to a higher level'.
Additionally, the plan laid the foundation for the
pre-independence economy. The production and expansion of
export crops were promoted. Ambitious agricultural programmes,
such as the National Agricultural Projects, the irrigation projects
on rivers Niger and Benue, were embarked upon. Finally, many
feasibility studies of proj ects carried out in subsequent
development plans were also undertaken.

The Second Plan (1955-1960)

With the introduction of the Richardson constitution in 1954, Nigeria

was divided into four regions: North, East, West and the Cameroon's.
The second development plans was introduced as a consequence of the
visit and advise of the World Bank officials to Nigeria in 1954. Each
region was to prepare its own development plan, and there was to be the
'federal plan'. No effort was, however, made at coordinating, integrating,
or aligning the regional plans with the federal plan. Many of the
individual schemes proposed under the plans were no more than an
expansion of existing normal development activities, and the main
emphasis were confined to the building of economic and social services
in the country. Moreover, there was competition between the regions
such that there was enormous duplication of projects and programmes.
Entirely new and unrelated projects were readily substituted for the
original programmes, without proper analysis and co-ordination with

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other projects under the guise of flexibility, since no rigid targets were
fixed during the plan period. In sum, the plans "fell short of the standard
of true perspective planning. No conscious attempt seems to have been
made to accelerate economic growth by laying down national goals and
objectives". Despite the above, however, the economy witnessed some
growth during the plan period.

3.2 Post-Independence Development Planning Efforts The

First National Development Plan (1962-1968)

In spite of social, political and economic constraints inherent in the

formulation of a national plan, both the regional and federal
governments in the newly independent Nigeria, recognized the need for
one as an ideal way of setting out the nation's development objectives,
and also 'to demonstrate initiative in tackling the country's economic
problems'.

3.2.1 Implementation of The Plan

The implementation of the plan however revealed a case of serious

under fulfillment of target. Public sector capital expenditure
underfulfilment stood at an average of 20.7% at the end of the plan
period. More disturbing, however, is the fact that underfulfilment in
capital expenditure was more pronounced in those sectors that have
more direct bearing on the welfare of the citizens. While in areas of
public administration such as information. Judiciary and general
administration, for example, recorded over fulfillment. Under-fulfilment
was 32.6% in education, 63.3% in communication, 42.8% in primary
production, and 56.3% in health. For the federal government.
under-fulfilment in water supply was 63.1% (compared to a 31.8%
over-fulfilment in the Northern region, and in health, a staggering 71.1%

Activity 2: What factors accounted for failure of the plan.?

There are many factors that accounted for the measurable 'failure' of the
plan vis-à-vis the objective(s). First and most importantly, the
dependence of the plan on the foreign allies for 50% its capital
expenditure, was both a misnomer and contrary to its stated objectives.

The attainment of political independence in 1960 did not, in the

Nigerian case, imply an immediate or sudden change in the management
of the country's economy despite the expectations created by the
nationalism of the colonial era. The extension of the 1955-60 plan to
1962, the dependence on Britain for advisers, consultants, management,
capital etc, the surveillance of Nigerian monetary management
,consequent upon the link between the Nigerian pound and British

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sterling; and the dependence on Nigerian import and export trade ,which
was skewed in Britain's favour. All these were indicative of the degree
to which Britain's influence and control prevailed over economic
decision-making and policy formation in the early post independence
phase. The country's submissive economic dependency beyond 1960,
was a function of the absence of effective and acceptable leadership
committed to internal reforms, capable of ameliorating the foreign
control. The economic reforms necessary in order to loosen the
imperialist economic ties, was undoubtedly enormous, if a national
economy was to be evolved. Reforms in civil administration, the
monetary system, law, education, economic management etc., were all
an integral part of laying a new foundation for national economic
progress. Such revolutionary changes would mean a radical departure
from colonial economic policies, but the country's leadership was either
unwilling or unprepared to undertake such changes. Instead, it was
content to let sleeping dogs lie, while concentrating attention on the 'the
distribution of economic power and public patronage among individuals,
ethnic and racial groups' in an attempt to avert possible social conflict.
Consequently, the issue of equitable allocation of federal resources, and
class conflict between the 'haves' and 'have-nots', became the
pre-occupation of the early post-independence leadership.

Closely associated with the above is what Yesufu (1996),described as;

the continuous and most unedifying wrangling between the regional
governments' on the one hand, and them and the federal government, on
the other. It was such adventures that eventually led to the coup of 1966,
and to the civil war. Other factors that constituted drawbacks to the
accomplishment of the plan objectives include the fact that:
o The different ministries hardly acknowledge the co-ordinating
role of the ministry of economic development.
o In the conception and implementation of the plan, the local
authorities were not sufficiently brought into the process, in spite
of their importance and activities as development agencies in
various parts of the country.
o There was limited opportunity for public debate and participation
in the process of development planning. Hence, the plan failed to
fire the national imagination of the average Nigerian.

However, considering the limitations in terms of resources, planning

experience, and administrative capacity, as well as the diversionary
nature of the national crisis, the plan was on balance, measurably
successful, and a number of important projects such as the Kainji dam,
the Niger bridge, the first oil refinery, and a number of roads and
industries, were completed during the plan period. More importantly, is
its "recognition and acceptance of a common objective ,as well as in
laying the administrative and institutional framework essential for future

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growth". Thus, 'the acceptance of a national economic objective by the

Federal, East, West and Northern governments, facilitated planning for a
common national development target, and made possible the
reorganization of the federal public sector administration into such
ministries as finance, development, industry, trade etc., and the
establishment of a National Economic Council'... 'In addition, the
establishment of such private sector-oriented development institutions as
the Nigerian Industrial Development Bank (NIDB), the Nigerian
Institute of Management (NIM), the Lagos Stock Exchange, and the
various chambers of commerce, assumed a national character' (Usoro,
1983).

In sum, the first National Development Plan (NDP) ,provided a lot of

lessons to be learnt in the conception, organization and implementation
of development planning in Nigeria.

3.3 The Second National Development Plan (1970-1974)

The plan had five principal long-term objectives, which were to

establish Nigeria as:
1. a united, strong and self-reliant nation
2. a great dynamic economy
3. a just and egalitarian society
4. a land of bright and full opportunity for all citizens and
5. a free and democratic society

Even though the objectives were not operational guidelines, against

which success of a plan can unambiguously be measured, the designers
of the plan stressed the need for both government and the people to seek
to give concrete meaning to the objective, and ensure their full
realization at all times. The plan further stressed the need for promotion
of balanced development between one part of the country and another,
and especially between the urban and rural areas.

It was indeed an era of state-regulated economy. On the monetary side,

the credit guidelines of the Central Bank of Nigeria (CBN) led to the
achievement of the following:
a) Maintenance of confidence in the Nigerian currency
b) Support for increasing level of agricultural and industrial output.
The support was given, but increasing productivity was not really
achieved.
c) Supplementing government's revenues and provision of deficit
financing.

In February 1972, the Nigerian Enterprise Promotion Decree (NEPD),

came into being. This was aimed at indigenizing most sectors of the

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economy by providing for Nigerians to assume greater control of

enterprises within the country. The establishment of the Nigerian
Enterprise Promotion Board (NEPB), Capital Issues Commission, and
The Bank for Commerce and Industry, led to the achievement of
reasonable success in the implementation of the decree.

It is worth noticing the basic three areas of social and economic reforms,
viz:
1. The improvement of knowledge about the economy's resource
endowment through the establishment of schemes for resource
inventory.
2. The reorganization, strengthening and establishment of new
institutions aimed at improving the quality of planning and
optimum utilization of human and material resources.
Twenty-three such institutions, established during the plan period
are: The Central Planning Office; The Joint Planning Board ;
National Economic Advisory Council; Federal Administrative
Staff College; Nigerian Agricultural Bank; Nigerian National Oil
Corporation; National Electric Power Authority, Road
Construction Company of Nigeria; Nigerian Engineering and
Construction Company, Agricultural Planning Unit; Industrial
Training Fund; Nigerian Standard Organization, Industrial
Development Consultancy Services; National Supply Company;
Centre for Management Development; Sokoto Rima Basin
Development Authority; Lake Chad Basin Development
Authority; Nigerian Mining Corporation; Nigerian Population
Council;National Co-ordinating Committee on the Environment;
Nigerian Enterprise Promotion Board; Capital Issue Commission,
and Nigerian Bank for Commerce and Industry
3. The reduction in inequalities in inter-personal incomes, and
promotion of balanced development among the various
communities in the different geographical regions in the country.

The plan was said to be 'guided by a well-articulated system of national

accounts. The planners were able to determine the most appropriate
measures for achieving those objectives within certain constraints'.

In sum, the second National Development Plan was 'a watershed' in the
economic planning history of the country. It was both 'radical and
revolutionary' ,and opened the nation to 'the first tides of industrial
revolution and the attendant growth of modern capitalism.

3.4 The Third National Development Plan (1975 -1980)

The Third National Development Plan 'was essentially a continuation of

the development process and policies begun in the preceding plan.

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Noticeable changes were largely the result of experience gained in the

planning and implementation process, rather than in objective. The
Central Planning Office, with a professional planning body, assumed
responsibility for a continuous planning exercise. Its emphasis was the
achievement of rapid increase in the nation's productive capacity. And
with the experience gained about the importance of the private sector in
the development process, the planners effort centred on directing the
private sector, though appropriate policies, towards the attainment of
national objectives' (Usoro,1983).

In the light of the above, it is evident that the third NDP ushered in the
era of greater scientific planning in Nigeria. Development plan was
prepared for the first time by a professionalized planning body (the
central planning office), in conjunction with the National Economic
Advisory Council (NEAC) which included members drawn from the
private sector. In order to foster greater efficiency in the implementation
of the plan, the planning studies programme of the University of Ibadan,
in alliance with the Economic Development Institute of the World Bank,
went further to organize intensive course for civil servants.
'Comprehensive list of approved projects, highlighting the physical
targets as well. as associated financial allocations, was prepared and
efforts were made to identify sectors with direct effect on welfare of the
citizens, i.e. he housing, water supplies, health facilities, education, rural
electrification and community development. The aim was that by the
end of the plan period, every Nigerian should experience a definite
improvement in his overall welfare.

Apart from the objectives contained in the Second National

Development Plan, other specific short-term objectives of the Third
National Development plan were to achieve:
o increase in per capita
income;
o more even distribution of
income;
o reduction in the level of
unemployment;
o increase in the supply of high level
manpower;
o diversification of the
economy;
o balanced development;
and
o indigenization of economic
activity.

Thus, unlike the preceding plan, the first four additional objectives of
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the third NDP reveal goals that are measurable and quantifiable. The
estimated capital expenditure under the plan was an ambitious 30 billion
(over thirteen times the actual expenditure under the preceding plan).

Shortly after the launching of the plan however, certain events of

considerable national importance made a review of the plan inevitable.
These included the change of government in July 1975, the creation of

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new states in February, 1976, and the decline in the level of oil
production and its price, during the 1975/76 fiscal years. With the
change of government in July, 1975, came also re-appraisal of the
nation's'priorities, so as to make them reflect more adequately the
philosophy of the new military administration. Greater emphasis was
placed on water supply, health, agriculture and co-operatives. These by
their very nature, have a direct bearing on the welfare of the common
man, as against prestigious projects of doubtful social relevance.
Specifically, the government decided to increase the target number of
hospital beds from the 87,000 originally approved for the plan period, to
a new level of 120,000 by 1980. The housing programme was also
increased from 60,000 to 200,000.
The creation of seven new states in February, 1976, and the decision to
move the federal capital to Abuja, made the original plan grossly
inadequate. To be able to function, the new states needed infrastructural
facilities such as administrative and residential buildings, increased
water and electrical supplies, etc. These meant increase in capital
expenditure to accommodate the essential requirements of the new states
and capitals. The federal capital, Abuja, was voted 500 million during
the plan implementation period.

The major source of finance for the plan was based on oil earnings. The
industry, however, began to suffer substantial decline in production and
posted price. The crude oil output fell from a peak of 2.3 million bpd in
October. 1974, to 1.5m bpd in May, 1975. While the posted price also
fell from $14.661 to $12.633 in April, 1975. This unexpected sudden
development, coming just after the launching of the plan, had serious
implications for plan implementation and invariably ,called for a
realistic review.

Activity 3: What are the factors that mitigated against the achievement
of the objectives of the plan?

Generally, factors that militated against the fuller realization of the

objectives ofthe plan included:
1. Unexpected fall in oil prices;
2. Rapid increase in recurrent expenditure due to state creation and
local government reform;
3. The inflation rate of 24%, occasioned by the Udoji award, meant
a corresponding 24% reduction in the size of the budget surplus
of the various governments;
4. Shortage of materials and manpower. Activity 4: Outline the
major achievements of the plan.

The immediate achievements of the plan however includes the

following:
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1. The establishment of over 147 farm centres in the country

2. Many projects were completed, while new ones were
commenced. These included the cement works at Calabar,
Ukpilla, Nkalagu, Shagamu, Vander and Ashaka; the pulp and
paper projects at Jebba, Calabar and Iwopin; four commercial
vehicle assembly plants; two passenger car assembly plants; two
petroleum refineries at Warn i and Kaduna, two iron and steel
plants at Ajaokuta and Aladja and three steel rolling mills at
Katsina, Jos and Oshogbo.;
3. Over 10,000 km of roads were built or rehabilitated, e.g. the
Lagos-Ibadan express way, Lagos-Badagry express road,
Enugu-Port and Benin-Sagamu expressways. New airports were
built in most state capitals. New seaports were also developed in
Lagos, Warn, Calabar and Port-Harcourt. Telephone lines
increased from 52,000 to 200,000.
4. The Universal Primary Education (UPE), was launched in
September, 1976, during which period, school enrolment
increased. The number of universities was also increased from 6
to 13 during the plan period.

3.5 The Fourth National Development Plan (1981-1985)

The objectives of the Fourth National Development Plan were to

promote economic growth and development, price stability and social
equity. Appropriate fiscal and monetary policies were to be combined
under the plan to attain rapid economic growth, and structural changes
with relative stability ofprices. The general rate of increase in the price
level was to be kept below 10%, while the plan was to induce an
economic growth rate of 7.2% per annum, and a 25% increase in per
capital GDP from 427 to N535.

Estimated public capital expenditure under the plan was 70.5 billion (an
increase of over 230% over the actual expenditure in the preceeding
plan). 56.74% (40 billion) of this was to be borne by the federal
government, 39.72% (28 billion) by the state governments, and 3.5%
(2.5 billion) was to be fulfilled by Federal Development Authority.
24.2% of the estimated public expenditure was to come from loans.
Private sector expenditure was estimated to be 11.5 billion.

The plan accorded priority status to agriculture, education, manpower

development, infrastructures, housing and health.

It is not very clear to what extent the provisions of the fourth national
development plan was implemented. Yesufu (1996), has observed that
there is no evidence that systematic effort was ever made to implement
the plan. However, on November 30, 1983, the government set up a five

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man committee headed by G. Onosode, to review the plan as a result

dwindling resources, consequent upon the global oil glut, and falling
prices.

In assessing the Fourth National Development Plan, Yesufu (1996) has

observed the issue of using the 1991 census population figure of 88.5
million in 1990, as opposed to the projected 120 million, for the same
year. This gives a very significant difference of 35.6%, and determines
not merely the rate of economic growth, but the path of development in
real terms'. He concluded, however, judging by the actual performances
of the economy, the period 1981-85 proved to be relatively the most
dismal in the economic history of the country, at least since planning as
a strategy of growth and development was introduced in 1945'. The
growth rate of GDP p.a. was only 1.25% (compared to 5.3%, 13.2% and
1.6% under the first three National Development Plans). The situation is
even more severe when it is calculated in U.S. dollar terms. Only
agriculture, government services, real estate business, and housing
sectors recorded positive growth rate per annum. All other sectors,
including mining, recorded negative growths. The devaluation of the
naira increased the imbalance in the external trade, and the external
reserves stagnated and declined. While money income was falling, the
cost of living was escalating, corroding further the welfare of the
citizens. The composite consumer index rose by 95.5%, an average
increase of 23.8%. It was only in agriculture that the plan recorded some
success (average annual growth rate of 3.4%). This, however, fell below
the plan target of 4%. Moreover, the growth rate of agriculture barely
match the population growth rate,such that the dream of turning the
economy into a self-reliant and self-sustaining growth oriented economy
never materialized. Over N300m was spent on food importation alone
between 1981-1984, in spite of the much celebrated Green Revolution
Programme. Agriculture, however, came in to dominance viz-a-viz
mining as a contributor to G

The achievement of more even distribution of income also remained a

mirage. Some government workers (eg. in Imo State) were even owed
up to eight months salary during the period. Primary per capital
consumption that was expected to rise from N27.5 in 1980, and maintain
a steady growth rate of 6% per annum, shot up to N257.8 in 1983. This
made savings and investment difficult. Moreover, it was not possible to
reduce unemployment level, as many enterprises operated below
capacity, and some had to lay off some of their staff because lack of raw
materials. Compounding the problem was the increase in the availability
of skilled labour as a result of increase in the number of universities
under the Third National Development Plan. Graduate unemployment
thus became a common phenomenon in the society. Finally, even
development remained an illusion, as development projects were

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considered, to a large extent, on ethnic and political grounds. Neither

was it possible to attain better attitude to work, greater discipline,
cleaner environment or a new national orientation.

3.5.1 Causes of Failure of The Plan

Some of the factors that militated against the implementation of the plan
were:

1. Large scale corruption, even in high quarters, during the civilian

regime. Corruption, abuse of office, nepotism, political chicanery
and clannishness, reigned supreme and grew into a culture,
robbing the society at large the moral fibre to stand up for the
development of self-reliant economy. Strategies designed to
check corruption and re-awaken national consciousness, like the
'ethical revolution' and the WAI, failed to make the required
impact or only scratched the surface of the problem.
2. High level inflation made a mess of cost projection
3. Non-evolution of coherent policies designed to give the plan the
direction it requires. Rather, there were erratic and ad hoc
policies and programmes designed to meet one political or ethnic
demand or the other.
4. Feed-back and progress report came late.
5. Effective data base was lacking in the plan formulation.
6. Financial projections were too optimistic and simplistic, and
therefore the revenue targets were easily frustrated by external
shocks in the world oil market. By the end of 1984, the nation
was indebted to the tune of 21,384.5 million in external debts
alone. By August 1987, it stood at about 78.8 billion.
7 Over-invoicing, over-valuation of contracts and indiscipline
inhibited effective implementation.

3.6 Rolling of National Plan In Nigeria

Development plans in Nigeria before 1986 have been medium term in

nature. By 1986 however, it was 'realized' that adopting a five-year
planning model has become unrealistic in the Nigerian situation, and the
government decided to adopt a three-tier planning system for better
economic management. This included:

1. A 15 to 20-year perspective plan, which will provide a clear

vision of where the economy should be at the end of the period.
The plan was to also address the key policies and actions that will
be required to translate this 'vision' into reality.
2. The three-year national rolling plan.
3. One year annual budgets.

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The instrumentality of rolling plans was adopted in 1988,

following which the First National Rolling Plan was launched in
January, 1990, for the period 1990-1992. It was intended to
replace the five-year plan. While the annual budgets were to be
tool for its implementation, the rolling plan was to constitute the
tool for implementing the 'perspective plans'. The main objective
of the National Rolling (plan), was to consolidate the
achievements of SAP, and address the pressing problems still
facing the economy.

Thus, the objectives of the National Rolling Plan were as follows:

1. Attainment of higher levels of self-sufficiency in the production
of food and other raw materials:
2. Laying a solid foundation for a self-reliant industrial
development, as a key to self-sustaining dynamic and non-
inflationary growth, and promoting industrial peace and
harmony;
3. Create ample employment opportunities, as a means of
containing unemployment problem; and
4. Enhancing the level of socio-political awareness of the people,
and further strengthening the base for a market-oriented
economy, and mitigating the adverse impact of the economic
downturn, and the adjustment process on the most affected
groups.

In order to achieve these objectives, the plan placed emphasis on the

following priority programmes:

a) Integrated rural development, including the Agricultural

Development Programmes (ADPs) in the states, the programmes
of the River Basin Development Authorities (RBSAs), and rural
access roads;
b) Provision of basic infrastructures including roads, mass
transportation facilities, power supply, and potable water supply;
c) Completion of on-going basic industries and the strengthening of
exiting ones;
d) Development of small scale industries
e) Strengthening the on-going programmes of the National
Directorate of Employment (NDE), maintenance of industrial
peace and harmony intensification of co-operative awareness,
promotion of productivity consciousness;
f) Improvement of efficiency of the administrative/bureaucratic
framework for the co-ordination of public sector intervention in
the economy; and
g) Laying the foundation for gradually reducing growth rate of the
population.

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(iii) The major thrusts are agricultural development, provision of

infrastructural facilities, and key programmes benefiting the
segment of the society more adversely affected by SAP.

The strategies and programmes that will ensure the realization of the
above objectives of the National Rolling Plan are as follows:
i. Rehabilitation of economic and social infrastructures, especially
with regard to urban and rural roads and highways, power supply,
potable water, communications, health care delivery, and
educational facilities at all levels;
ii. Agricultural development programmes, including sustenance of
the ADP's Fadama Development Programmes, and NALDA
programmes;
iii. Establishment of Employment-oriented Agricultural Programme
to stem the rising tide of unemployment;
iv. Completion of on-going irrigation projects of the River Basin
Authorities, and maintenance of existing dams;
v. Enhanced involvement of the private sector towards the
resuscitation of ailing government industries;
vi. Completion of Ajoakuta Steel, the Itakpe-Warri Ore rail line, and
rehabilitation of Delta Steel, Aladja;
vii. Completion of teaching hospital projects at Ahmadu Bello
University, Zaria, University of Nigeria, Nsukka, and Ado
Beyero University, Kano, and rehabilitation of facilities at the
University of Ibadan Teaching Hospital, existing Federal Medical
Centres and Primary Health Centres;
viii. Resuscitation of the oil-refineries, and completion of
Petrochemical Phase II, Eleme and Oso Condensate Phase II;
ix. Resuscitation of the Nigerian Railway Corporation;
x. Enhancement of aviation safety, and rehabilitation of facilities at
the Murtala Muhammed, Aminu Kano, Abuja, Port-Harcourt,
Calaba, and Owerri airports;
xi. Developmeutof solid minerals, including coal, bitumen,
kaolin,gold, and feldspar, among others; and
xii. Encouraging private sector participation in the areas of power
supply and telecommunications.

4.0 CONCLUSION

With the searchlight beamed on the goals of development plans in

Nigeria, it is imperative to note that, in order to improve plan
implementations in the country, the executive capacity must be
strengthened. There should also be some form of feed back mechanism
which will enable people to find out whether the plans achieve their
objectives or not during implementation.

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5.0 SUMMARY

Development planning is conscious government efforts to influence,

direct, and in some cases, even control changes in the principal social
and economic variables (such as consumption savings, exports, health
education, infrastructures, etc), of a country over the course of time in
order to achieve a pre-determined set of obj ectives.
However, the history planning in Nigeria can be very interesting if we
notice the features in the respective plans, starting with the Ten Years
Plan of Development and Welfare (1945-1955 through the second pal of
1955-1990, the post independence development plan of 1962-1985,
1970-1974, 1975-180, 1981-85 to the first rolling plan, 1990-1992, and
national rolling plan 1997-1999).

Each of this plans made considerable effort to redress the social and
economic problem facing the nation at different times in history.

You would still be anxious to question why inspite all these efforts made
through the respective plans, not much, at least in certain areas, has not
been achieved in this connection. Certain problems could have been
militating against the successful implementation of the development
plans.

These include:
o Lack of proper feasibility
studies;
o Lack ofsuitable economic and political
environment;
o The bureaucratic bottleneck in administrative
machinery

6.0 TUTOR-MARKED ASSIGNMENT

Compare and contrast the peculiarities of any two-development plans in

Nigeria.

7.0 REFERENCES/FURTHER READING

Anyanwu J.C., Oyetbsi A., Oaikhenan H.O., Dimowo F.A.. Structure of

the Nigerian Economy (1960-199 7) , Joanee Education Publisher
Ltd.

Molem C.S.(2002), Growth and Development of Nigerian Economy,

Silver Bond Publisher Kaduna.

Tayo Lambo (1982), Nigerian Economy A Text of Applied Economics,

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Evans Brothers Nigeria Limited.

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MODULE 6

Unit 1 Human Resource Development in Nigeria

Unit 2 Indigenisation Policy in Nigeria
Unit 3 Poverty in Nigeria
Unit 4 Privatization in Nigeria

UNIT 1 HUMAN RESOURCE DEVELOPMENT IN

NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Human Resources Planning in Nigeria
3.2 Human Resources Development
3.2.1 The Role of Education in Manpower Development
3.2.2 Assessment of Manpower Planning and
Development in Nigeria
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

According to Harbison, human resources constitute the ultimate basis

for wealth of nations. Capital and natural resources are passive factors of
production. Human beings are the active agents, who accumulate
capital, exploit natural resources, build social, economic, and political
organisations, and carry forward national development. Clearly, a
country which is unable to develop the skills and knowledge of its
people, and to utilise them effectively in the national economy, will be
unable to develop anything else. Therefore, "human resources", often
used interchangeably with "manpower", refers to the "totality of the
energies, skill, knowledge and experience available in a country". It is
the managerial, scientific, engineering, technical, craftsmen and other
skills, which are employed in creating, designing, developing
organisation managing and operating productive and service enterprises,
and economic institutions. They are a nation's most valuable resources.
They constitute a nation's human capital. Without the required human
capital (that is, stock of skills possessed by human beings), physical
capital (in the form of machineries and other technologies) will not give
rise to rapid economic growth.

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2.0 OBJECTIVES

At the end of this unit, you should be able to:

o define human
resources
o identify the role of education in manpower
development
o assess manpower planning and development in
Nigeria.

Activity 1: What constitutes human resources planning in Nigeria?

3.0 MAIN CONTENT

3.1 Human Resources Planning in Nigeria

Human resource planning is the process of determining the policies and

programmes that will develop, distribute, and utilise human resources,
with a view to attaining a nation's broader goals of soci-economic and
political development. The principal aim of such planning ,is to ensure
that the right people are available for the right jobs, at the right time. In
this way, manpower shortages/surpluses are eliminated, while labour
resources are efficiently allocated,beside the development of suitable
educational programmes.

The planning of human resources in Nigeria dates back to 1959, with the
federal government's setting up a panel to look unto the nation's
manpower needs in the field of post-secondary and higher education
over the next two decades. The report of the commission referred to as
the Ashby Report (1960), came up with some projections of enrolment
figures in Nigerian university system for a decade (1960-1970) instead,
due mainly to dearth of data. Even at this, the estimates contained in the
Report were based on assumptions. For instance, the report assumed that
employment would grow at 50 per cent as was the case in the 1950s, the
ratio of senior and intermediate level manpower requirement would be
8% and 13% respectively. This was referred to as rules of thumb,
because the estimates were not based on concrete data and as such, were
full of flaws.

Human resources planning requires accurate data based on demography,

education, and the labour market mechanisms. The demographic data
required include, population size, and age/sex structure. Before the 1991
census, the last officially accepted national census was conducted in
1963. This state of affairs led to faulty planning and consequently, faulty
executions. For instance, when the Universal Primary Education
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programme took off nationally in 1976, provisions were made for
7,985,000, compared to 9,492,000 children who turned out to be
registered.

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It is important to note that three important aspects of the machinery for

human resource planning grew out of the recommendations of the
Ashby Commission. These are, the National Universities Commission
(NUC), the National Manpower Board (NMB) and its Secretariat, and
the Regional (State) Manpower Committees. NUC was formed to
initiate and consider, in consultation with universities, plans for such
balanced development as may be required to enable universities to meet
national needs. It is also to examine the financial needs of the
universities, receive block grants annually from the federal government,
and allocate such grants to the universities on the basis of laid down
criteria. In 1974, the NUC was reconstituted and changed to a statutory
body with executive powers. In the same manner, the NMB was
established in 1962, but its governing council was dissolved in 1983,
while its secretariat became a division of the Ministry of Budget and
Planning (later National Planning Commission). However, NMB was
later reorganized as a parastatal with the promulgation of the enabling
Decree No.18 of 1991, and formal inauguration in October, 1992. In the
main, the NMB is mandated to research into, advise on, coordinate and
promote the optimal planning, development (training) and, utilization
(employment) of Nigeria's human resources (manpower). On the other
hand, the then regional (later state) manpower committees became
moribund during the civil war period. New state manpower committees,
which could not be sit until October 1993, were charged with the
responsibility of human resources planning, development and utilization
in their respective states.

Unfortunately, human resources planning and its machinery in Nigeria,

had been bedeviled by lack of research on planning and manpower
utilizations; low per centage of response from establishments selected
for manpower surveys; lack of current and comprehensive information
on the stock of skills available in Nigeria; incapability to evaluate
manpower contents of development projects; lack of guidance to
educational planners; little evidence of coordination in matters relating
to employment education and manpower planning; inability to attract
and retain competent professional staff; use of inadequate estimation
techniques; lack of data; lack of coordination between manpower
planners and the educational system; and lack of coordination among the
agencies charged with the responsibility of human resources planning.

Furthermore, a situation where almost all secondary school beneficiaries

received the same type of education (grammar school type) is an
indication of planlessness.

The non-linkage of the educational output to labour market remains the

bane of economic recession in this country. This is particularly true,
when one realizes that the greatest proportion of the nation's

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unemployed are youths, between ages of 15 years and 24 years. Their

continued unemployment constitutes a huge waste of human and
financial resources investment, both private and public. More than that,
it fuels anti-social behaviour.

The federal and state governments recognize the above facts, and have
instituted a number of programmes for the unemployed, particularly the
youths. For instance, in 1982, the River State set up a school-toland
programme; Anambra and Imo States implemented the Skills
Acquisition Authority Scheme in 1985; and Oyo State embarked on a
programme tagged Oyo State Integrated Self-Employment Scheme
(OSISES).

The federal government on its part, set up the National Directorate of

Employment (NDE), with four cardinal programmes namely, Vocational
Skills Development Programme, Small-Scale Enterprise Programme,
Agricultural Sector Employment Programme, and Special Public Works
Programme.

The aim of these progremmes, is to equip the unemployed with basic

skills for effective living in the society. Upon successful completion,
some of these programmes provide soft loans and some other facilities
to trainees.

The programmes of NDE, and those of the states, appear to have

planning and implementation problems. Inadequate provisions of
facilities as actual participation rate, overshot target participation for all
the programmes of the NDE, with the exception of Small-Scale
Enterprises Programme. It has been suggested that government should
not be directly involved in employment creation. Government's
involvement is ineffectual, as there exists the likelihood of substituting
underemployment for viable unemployment, particularly with respect to
graduates of the tertiary institutions. Thus, while such schemes might
prove adequate for primary and secondary school leavers, they might be
inadequate and unviable in scope and effectiveness, as means of
combating graduate unemployment.
Government should not be involved in job generation activities, rather it
should concentrate efforts on giving incentives to the private sector to
enable it become a major actor in employment creation, an approach
which would prove much more cost-effective, and result in permanent,
rather than transitory achievements.

3.2 Human Resources Development

Human resources development involves the improvement and/or the

transformation of a nation's human resources by better medicare,

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nutrition, accommodation, environment, education and training. Here,

emphasis is placed on education and training.

The development of human resource is achieved through formal and

informal means. These could be through education (primary, secondary
and tertiary), skill training (formal or informal), self-development, and
improved health and health facilities.

3.2.1 The Role of Education in Manpower Development

Manpower development relates to the training and development of

nation's human resources, to achieve the highest productivity, and most
efficient interaction with the other factors of production. It has to do
with channeling a nation's human resources towards the growth and
development needs of the nation.

Manpower planning is thus an important factor in the development of a

nation's human resources. Manpower planning aims at projecting the
manpower requirements of a nation for a given period, and the
composition thereof, developing suitable educational programmes, to
developing the needed labour skills, and efficient allocative labour
resources ,so as to eliminate labour shortage or surpluses.

The basic problem of most of the underdeveloped countries is not

poverty of natural resources, but the underdevelopment of their human
resources. The first step in development, therefore, is the building up of
human capital. According to Habison, this means "improving the
knowledge, skills, motivation, capacities, hopefulness and the mental
and physical health of all members of the community". There is close,
almost proportional relationship, between education and training, and
production capacity (productivity), income and development. Historical
records show that the industrial revolution of the eighteenth century, was
preceded by a growth in knowledge and literacy among the populace.

Indeed, much of the economic growth and development that has taken
place in the world, can be accounted for by human resources
development through education rather than by the increase in capital,
land and other classical factors of growth. Again, political development
is largely a factor of educational development. The success of
democracy, for instance, depends as much on enlightened followers, as
on progressive leaderships. The national policy on education in Nigeria,
in recognition of this, "categorically assigns to education the
responsibility for skill, professional and technological developments".
The problems (however), of educational planning as an integral part of
manpower analysis, basically involve three controversial issues, the
source of education, whether formal or based on practical experience,

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the content of education instruction that shouldbe given, and, the per
centage of the population that should be educated at any given point in
time.

Activity 2: How do you assess manpower planning and development in

Nigeria?

3.3.2 Assessment of Manpower Planning and Development in

Nigeria

Manpower planning in Nigeria began with the appointment of the Ashby

Commission in 1959. This was precipitated on the need to fill an
existing gap between the supply and demand for high-level manpower,
to serve at the top echelons of the expanding administrative systems of
regional governments. The commission recognized the need for
manpower planning in Nigeria, and went ahead to prepare the first
Nigerian manpower projection. The Commission's report established
minimum high level manpower needs in Nigeria for the period 1960-70,
based on the pre-independence national growth rate. It further
recommended that inter-regional machinery be started, to assess on a
continuous basis, the manpower needs of the nation and formulate
affective manpower programmes.

The approval of the report of the Ashby Commission led to the

establishment of the National Manpower Board (NMB) in 1962, with
the functioning arm, The secretariat, as a branch of the Federal Ministry
of Economic Development. Included in the terms of reference of the
Board were:
o The determination of the nation's needs in all
occupations
o The formulation of programmes for manpower
development
o The co-ordination of policies and activities of the federal
and
regional ministries primarily concerned with manpower
problems, ; and
o The development of employment
policies.

In addition, the Board was to be composed of representatives of the

Federal and Regional Ministries of Education, the Ministry of Economic
Planning and Development, the Ministry. of Labour, the National
Universities Commission, the Universities, the Labour Unions, the
Nigerian Employers Consultative Association, and private employers,
while the operational secretariat was designated as both a research and a
manpower development agency.
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Despite the above, it is evident that there has been little, or virtually no
significant manpower planning at both federal and state levels in
Nigeria. This may not be unconnected with the various problems that

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has almost crippled the NMB since its inception. This is unfortunate, as
the absence of effective manpower planning poses potential and actual
problems ,for the management of the economy and nation's resources.
The western region's experience illustrates some of the problems in a
hastily-planned introduction of a programme (UPE), without manpower
planning. First, since there was no universal birth registration in the
region, it was impossible to know how many children were eligible for
the scheme. The western region was forced to drop the compulsory
nature of the scheme, as registration far exceeded estimates. Second, as
the demand for new teachers was so great that the admission standards
for teacher training colleges were lowered. Education standards also fell
because the supply of instruction in these institutions was limited.
Thirdly, money was used for political purposes. As a result, poorly built
buildings deteriorated rapidly. Fourth, the Banjo Commission reported
to the regional government that primary education standards had fallen,
for candidates who passed the primary six school leaving certificate
examination during the period 1960-64 declined. Fifth, the per centage
of pupils who never completed their course (primary six), increased
from 52.5% in 1964 to 58.0% in 1966. Finally, the greatest problem of
the scheme was the unemployment of primary schools leavers.
According to some estimates, 81% of the school leavers became
unemployed, as secondary school opportunities were limited. The
educational philosophy, based on the British elitist model, also
deprecated farm activity, and glorified clerical occupations. '

The above scenario has not really changed. For example, while the
government saw investment in education as a worthy (economically and
socially profitable) venture (from the national perspective), the
enrolment explosion at all levels of education, however, meant an
increasing financial burden on all the governments - state, and federal,
which led to much rethinking on their part-. This led to the removal of
the ban on private institutions (in the 1980s with respect to primary and
secondary schools, and in 1993, with respect to universities). "The effect
of total assumption by government of responsibility for education at all
levels had not been a happy one. It led to different standards of
developments in various states. The number and types of institutions
varied, as well as the relevant age groups that were enrolled. The overall
financial burden on every state government became obvious and
unbearable. But their varying capacity to establish and fund institutions
began to pose serious political problems, and led to classification of
some states as "educationally disadvantaged".

In most instances, the states have had to depend on the federal

government for funds, even in areas where they were directly
responsible, and have eventually had to re-introduce some form of cost
recovery measures, especially at the primary and secondary school

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levels. For example, it is noted that the decline in primary school

enrolment in the 1980s, was a result of various cost recovery measures
introduced by the various state governments, which included
reintroduction of school fees, examination fees, various compulsory
contributions by students, and shifting the onus of providing chairs and
tables unto parents, etc. The condition was compounded, but the
non-availability of any machinery to enforce compulsory primary school
enrolment and retention of enrolled pupils at the secondary and tertiary
level, lack of equipment and instructional materials, and shortage of
teachers (science and technical teachers to meet the requirements of the
6-3-3-4 system in the case of secondary schools), bedeviled the systems.

4.0 CONCLUSION

The present situation of human resources planning and development in

Nigeria calls for a more deliberate, forceful and effective approach to
manpower planning and development. This implies that there is a
glaring need for greater co-operation among various arms of the
government who are directly concerned. For instance, the ministries of
education economic planning and development, and Labour
Employment and productivity at both local state and federal levels,
should engage more in effective dialogue and cooperation, between
government and the private sectors.

5.0 SUMMARY

Human resources development is a necessity for any meaningful

development. This is because, this constitutes the totality of the energies,
skill, knowledge and experience available in a country. So, human
resource planning is the process of determining the policies and
programmes that will develop, distribute and utilize human resources,
with a view to attaining a nation's broader goals of socio-economic and
political development.

Three important aspects of the machinery for human resources planning

grew out of the recommendation of the Ashby commission.

Furthermore, the role of education in the development of human

resources, is too crucial that the national policy on education has taken
this into cognizance before designing respective education programmes
such as the National Open University (N.O.U). However, there is clear
indication that the country lacks effective manpower planning. In this
connection, human resource management in Nigeria needs to confront
critical issues related to pay, employment and personnel management.

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6.0 TUTOR-MARKED ASSIGNMENT

What are the problems that affect adequate manpower planning in

Nigeria?

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.,& Dimowo, F.A. (1997).

The Structure of the Nigerian Economy (.1960-1997). Joanee
Educational Publisher Ltd.

Ashby Commission Report (1960). Investment in Education. Lagos:

Federal Ministry of Education.

Harbison, F.H. (1972). Human Resources as the Wealth of Nations. New

York: Oxford University Press.

Yesifu, M.T. (1962). Nigerian Manpower Problems: A Preliminary

Assessment. Nigerian Journal of Economic and Social Studies,
Vol. 4 No. ,3 November, 207-277.

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UNIT 2 INDIGENISATION POLICY IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Reasons for the Indigenisation Policy in Nigeria
3.2 Disadvantages of Indigenisation
3.3 Functions of the Nigeria Enterprises Promotion Board
3.4 Advantages of Indigenisation
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Indigenisation can be seen as 'evolutionary process by which the natives

of a country are enabled, and are seen, to acquire ownership, control and
management of the economy of their country'. In this sense, it involves
the elimination, or reduction of foreign ownership, control, and
management of the native economy. The aim in Nigeria, is thus to
achieve and retain for Nigerians the ownership, control, and
management of the Nigerian economy. It is a policy meant to promote
local participation in all industrial, commercial and financial activities in
the country. In Nigeria, therefore, indigenisation involves government
intervention of 'acquire and control, on behalf of the Nigerian society,
the greater proportion of the productive assets of the country'

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o discuss the transference of ownership control to Nigerians, in

respect of those enterprises formerly wholly or mainly owned,
and controlled by foreigners
o foster widespread ownership of enterprises among Nigerian
citizens
o foster the development of the Nigerian capital
market
o create opportunities for Nigerian indigenous
businessmen
o raise the level of intermediate capital goods production in
the
domestic economy
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o encourage foreign businessmen and investors to move from the
unsophisticated area of the economy to the area where larger
investment in terms of managerial skills, and capital, are more

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needed, e.g. the intermediate and capital goods production sector.

Activity 1: In your own opinion, what are the reasons for indigenisation
in Nigeria?

3.0 MAIN CONTENT

3.1 Reasons for the Indigenisation Policy in Nigeria

a. Before the indigenisation policy in Nigeria, foreigners dominated

the ownership and management of firms in the country.
b. The cost implications to Nigerian economy and inimical to her
development were the concerns of the government.
c. Those foreign firms proved irresponsive to many years of moral
suasion by successive governments of the country for
employment of qualified Nigerians, for the moderation of their
pricing and wage policies, for managerial and technical training,
and the development of their Nigerian employees.
d. The operations of foreign-owned firms in the country became
increasingly costly to the Nigerian economy.

Activity 2: Do you now think there are disadvantages in changing the

ownership structure of industries in Nigeria?

3.2 Disadvantages of Indigenisation

a. Indigenisation could be misinterpreted by aliens as a crippling

nationalisation
b. Reduction in foreign ownership may reduce the volume of funds
for industrial investment
c. Fear of further indigenisation in the future might deter potential
foreign investors
d. The resulting exodus of some skilled alien manpower reduced
total jewellery, including imitation jewellery for the general
public; fish and shrimp; trawling and processing; garment
manufacture; industrial cleaning; internal air transport; insurance
of all classes; lithe rage; manufacture of dairy products, butter,
cheese, milk and other milk products; manufacture of plastic
products; manufacture of tyres and tubes for bicycles,
motorcycles, motor vehicle, etc.

3.3 Functions of the Nigeria Enterprises Promotion Board

a. To advance and develop the promotion of enterprises in which

citizens of Nigeria shall participate fully and play a dominant
role.

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b. To advice the commissioner or minister on clearly defined

policy/guidelines for the promotion of Nigerian enterprises.
c. To determine any matter relating to business enterprises in
Nigeria generally, in respect of commerce and industry which
may be referred to in accordance with any directive of the
commissioner or minister.
d. To perform such other functions as the commissioner or minister
may determine, or as may be conferred on it by the Nigerian
Enterprises Promotion Act or any other enactment.

3.4 Advantages of Indigenisation

a. Indigenisation ensures economic self-determination, or self-

reliance and available skilled manpower, especially in the
management and technical cadre
b. It may reduce entrepreneurial intercourse with the outside world,
thus impeding 'technological transfer'
c. Greater indigenous control (especially in Nigeria), leads to
increased corruption
d. The foreign countries adversely affected may be less interested in
technical co-operation
e. Retaliatory price increases might result
f. There may be decreased inflow of foreign tourists
g. Dislike of the indigenisation policy may lead to less enthusiasm
for goods made in the indigenized economy
h. Scarcity of certain goods may occur, thus encouraging foreign
exchange malpractices, including smuggling and hence, reduced
government revenue
i. There is no guarantee that share equity ownership will not be
concentrated in few rich hands, thus widening the gap between
the rich (the 'haves') and the poor (the 'have-nots').
j. It encourages 'fronting', thus defeating the initial objectives.

4.0 CONCLUSION

a. The objective of transferring ownership and control of enterprises

to Nigerians has been largely achieved, since major enterprises
concerned have complied with the indigenisation requirements.
b. The objective of fostering the development of the Nigerian
capital market has been achieved to some extent since many
industries and firms had quoted their shares on the Nigerian
Stock Exchange.
c. It awakened the need for the "transfer of technology" in the form
of technical, managerial, and entrepreneurial capability.
d. It stimulated investment consciousness among Nigerian citizens
and associati

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e. ons.

However, the objective of fostering widespread share ownership has not

been achieved, since increase in share ownership took place essentially
among the rich and the well-to-do individuals, or groups in the country.

5.0 SUMMARY

Indigenisation invariably is about a situation whereby the natives of a

country are encouraged to acquire ownership, control and management
of their economy.

However, the reasons cut across avoiding a situation whereby foreigners

dominate the ownership and management of firms in the country, to
where resources are repatriated by foreign based firms to their respective
home countries.

Furthermore, the government promulgated in 1972, Nigerian Enterprises

Promotion Act (NEPA), which ushered in the implementation of the
indigenisation policy in Nigeria.

6.0 TUTOR-MARKED ASSIGNMENT

What are the objectives ofthe Nigerian indigenisation policy?

7.0 REFERENCES/FURTHER READING

Anyanwu, J.C. (1993). Monetary Economics: Theory, Policy and

Institutions. Hybrid Publishers Ltd. Pp.17-22.

CBN. (1995). Annual Report and Statement of Accounts, December

1995, CBN. Lagos.

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UNIT 3 POVERTY IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Poverty Situation in Nigeria
3.2 Strategy for Poverty Reduction
3.2.1 Economic Growth
3.2.2 Access to Social Services and Infrastructure
3.2.3 Targeting
3.2.4 Facilitating Strategies
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

Nigeria has a human population of nearly 110 million people, which is

more than 15% of the total population of all ofAfrica, and almost equal
to the total population of the 5 countries of North Africa (Algeria,
Egypt, Libya, Morocco and Tunisia). The country also has a land area of
about 900,000 sq. km, more than one third of which is arable with
minimal irrigation. The country is endowed with a wealth of
underdeveloped and untapped water and mineral resources. Recent
figures from the government shows a gross domestic product valued at
103 billion for 1995,and 108 billion for 1996. It is therefore a glaring
paradox when this great potential is contrasted to the state of the people,
with a GNP per capita of $300, life expectancy of about 50, illiteracy
rate of about 45%. Infant mortality, maternal mortality, and malnutrition
prevalence are all high and increasing.

In contrast to other developing economies, the trend is more

disturbing.While Nigeria ranks in the same life expectancy and per
capita total consumption brackets with countries like Pakistan, Indonesia
and Lesotho in the late 70s, the country is either stagnating or
retrogressing in the 90s. These countries now have life expectancy in the
range of 60-65 and per capital income between $450 and $900.

The bottom line is that ,there is increasing poverty and deprivation in the
country, and it is perhaps a slight relief to note that the government has
come to the recognition of the situation (of 1996 budget). Poverty
alleviation has been listed as one of the objectives of the 1996 budget, as
well as a key element of the rolling plan.

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As the government, civil society, and the international community

embark on the search for the most appropriate and practicable way to
tackle the issue of poverty, it becomes crucial to consider the size, form
and dynamics of the "beast" called poverty, with a view to designing or
inventing the right type of "ammunition" to "destroy" it. This in essence
is the approach of this presentation.

2.0 OBJECTIVES

At the end of this unit, you should be able to:

o identify the level of poverty in the country

o look at the government's panacea for poverty reduction.

3.0 MAIN CONTENT

3.1 Poverty Situation in Nigeria

Major changes in welfare and poverty in Nigeria can be summarised as

follows:

With the first positive oil shock in 1973, there was a dramatic positive
impact on most indicators. Real per capita income and per capita private
consumption rose sharply, and there was a dramatic increase in real
wages, particularly in the non-agricultural sector. Clearly, welfare
improved sharply for many Nigerians, and poverty declined during this
period.

The picture is mixed, and the welfare and poverty implications areharder
to identify. Average real per capita income continues to riserapidly until
1980, but private consumption per capita remained stable, except for a
brief rise in 1978. Real wages in agriculture continued to rise until 1976,
after which they remained relatively constant until 1980. But there was a
sharp fall in real wages in the non-agricultural sector. The rapid
expansion of social services during these years, may have contributed to
some overall improvement in welfare, but the proportion of people
living in poverty probably did not decline significantly.

There was clearly a serious deterioration in welfare, and an increase in

poverty during this period. Average per capita income plummeted after
1980, as did private consumption per capita after 1981. Real wages in
both agriculture and non-agriculture fell after 1980, and by 1985, were
identical, wiping out the large differential between the two that has
existed for decades. There is no doubt that the welfare of many
Nigerians fell sharply throughout that period, and the poverty also

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increased. Life expectancy at birth in 1982 was 49 and infant mortality

was 96 per thousand.

Annual average caloric intake, which was about 2170, went down to
about 2100. However, towards the end of this period, a supply response
from agriculture began which generated increased revenue for the rural
sector.

There was a broad-based recovery in the economy, fostered by policy

reforms. Per capita household expenditures increased by 34 per cent,
and poverty declined by 9 per cent. But real incomes did not even get
close to their 1980 levels, nor did real per capita private consumption.
Real wages in agriculture and non-agriculture fluctuated, but remained
low. Thus, while poverty was reduced, the welfare of many Nigerians
remained below what it had been in 1980. There were improvements in
broad social indicators such as life expectancy, level of literacy, and
infant mortality but primary school gross enrollment ratio which was
104 in 1980, went down to about 70 in 1990. In essence, this period
recorded a broad decline in poverty, while core poverty continued to
worsen.

With a reversal of policies, economic growth again slowed, incomesand

welfare declined, and poverty both broad and core,
undoubtedlyincreased. Real wages in agriculture and non-agriculture
have fallen significantly since 1987 for agriculture ,and since 1990 for
nonagricultural workers. By 1994, real per capital income, real per
capita consumption, and real wages were all lower than they were in
1970. Literacy rate is now 52% ,with infant mortality estimated at about
9 per thousand live births. Thus, in 1995 welfare is lower, and poverty
higher than in the pre-oil boom years of the early 1970s.

Activity 1: What could have been responsible for the increase in poverty
in Nigeria between 1971-1995?

3.2 Strategy for Poverty Reduction

A successful poverty reducing strategy in Nigeria will require a strong

and focused emphasis on economic growth, access to social services,
and infrastructure and targeting.

Activity 2: Do you think economic growth will reduce poverty without

increasing the access ofpoor people to quality social service?

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3.2.1 Economic Growth

The growth and poverty reduction experienced shows that modest

growth on its own can bring about a small reduction in the number of
poor people, although the proportion of those in poverty is reduced
significantly, given the relatively high population growth rate.
Simulations of the projected growth shows that a rate of growth of total
consumption of between 5-7% would be required to reduce
significantly, the proportion of the poor population.

To gradually reduce the number of people in poverty, growth must not

only be rapid, but also broad-based, and employment generating. To
generate such growth, removal of price distortions, liberalisation of the
trade regime, and investment in technology and physical capital, are
obvious stimulants. Government may want to maximise its position by
focusing its efforts on the policy aspects of improving the welfare of its
human resources, and rely more on the informal and private sectors to
increase capital investment. Land laws, property rights, and tax structure
are vital policy instruments in this regard, particularly for farming,
mining, and manufacturing. Improved access to credit technology and
materials, and markets, as well as ancillary incentives, to increase output
and income are vital to poverty reduction.

3.2.2 Access to Social Services and Infrastructure

Sustained long-term growth depends critically upon increasing the

access of poor people to quality social services and essential
infrastructure, in order to enable them to increase their human capital
and make full use of their main asset, namely their labour. Key priorities
are health, education, water supplies and sanitation, rural roads, and
urban transport. This requires an increase in funding, in order to expand
the number of facilities, and to improve service at each facility.
Increasing the supply of and access to, potable water is an important
poverty reducer, not only because of the health benefits, but also
because many household members (mainly women and children) spend
significant amounts of time seeking good water, when they could be free
to engage in other gainful activities. Provision and maintenance of rural
roads and affordable and timely mass transportation to urban areas, are
important to provide people with access to jobs and to markets. Access
could be made sustainable through increased community participation in
the development and maintenance of infrastructure, and provision of
services.

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3.2.3 Targeting

Targeted recourse transfers for those who remain in poverty should

complement the first two strategy elements. The government can target
the delivery of some services and resources to reach poor areas, and to
communities living in poverty, building on existing community-based
organisations and activities, where possible. Targeted programmes are
obviously imperative, given the level and profile of poverty in Nigeria.
Some elements of targeting should be introduced into public
expenditure, particularly for social sector spending. Primary education,
health care, and basic infrastructures should command larger share of
their sectoral allocation.

In making a strong case for a new initiative on poverty alleviation in

Nigeria, the Poverty Alleviation Programme Development Committee of
the National Planning commission did suggest that, "a poverty
programme should contain a large number of relatively small, well
targeted, demand driven projects and sub-projects that can be
implemented by the communities themselves". The new initiative is
named Community Action Programme for Poverty Alleviation
(CAPPA). A core element of CAPPA will be the provision of a support
mechanism of finance projects which are initiated, proposed, and
implemented by the intended beneficiaries (poor groups and
communities), with the support of CBO's and NGO's ,where necessary.

3.2.4 Facilitating Strategies

The, effectiveness of the strategy outlined above will depend critically

upon increasing the institutional capacity and degree of accountability
within each level of government, and or, intervention agencies,
decentralisation and good governance. In this regard, three key issues
need to be noted. Reforming the role of the public sector, civil society
and private sector participation and decentralisation.

Limitations on government resources highlight the need for government

to rely more on the private sector, NGOs, and community-based
organisations (CBO) to undertake activities for which they are better
suited. The PPA has shown that NGO's, CBOs, and even profit making
private sector agencies have comparative advantage over government
agencies in ensuring wder participation in needs identification, project
planning and implementation, for effectiveness. These organisations and
their leaders generally share the value of their constituencies and retain
their confidence. Relying more on these groups, will require a
considerable reform and reorientation away from direct government
provision of some services toward demand-driven policies. Public sector
institutional accountability and capacity, particularly for monitoring and

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coordination, must be strengthened. NGOs and CBOs will also need

substantial strengthening to contribute meaningfully to equitable
development. As their deep knowledge of the communities is being
tapped, their ability to render assistance also needs to be amplified
through the provision of financial resources and training.

The PPA has shown the necessity for understanding local situation, if
development efforts are to be effective. Projects planning must be based
on locally perceived needs and implementation preferences, as well as
capability, rather than on a blueprint developed at a higher level. This
implies a need to examine the roles played by each level of government,
or intervention agencies. They key issues here include: the fiscal and
expenditure responsibility of each level of government, resource control
and transfers, and programme coordination. The current distribution of
responsibilities and authorities in Nigeria presently does not make for
effectiveness of local level based institutions.

4.0 CONCLUSION

It is notable from the above, that Nigeria now faces enormous

development challenges that are key to both welfare improvement for
the general population and to poverty reduction in particular. Given the
state, magnitude and dynamics of poverty in the country, it is imperative
that government makes a firm commitment to poverty reduction, making
it the core element of the development strategy. There is the need to
establish a viable and stable macro-economic framework ,and to
streamline the incentive regime to promote broad-based economic
growth with equity. This implies adopting sectoral policies, and
re-arranging priorities in public expenditures, to promote efficient
economic growth, increase productivity ,and target the poor. Secondly,
there is the need to reform the public sector, work in partnership with
the private sector and the civil society. These challenges point to the
need for Nigeria to make a fundamental shift away from policies and
institutional arrangements that promote rent seeking, to policies,
programs and institutions that promote efficient, sustainable, and
broad-based growth and poverty reduction.

To address these challenges, there is a broad consensus within the

country that a new approach to poverty reduction is needed. A rapidly
growing economy is a must. The cake has to be baked first. Sharing the
cake must, however, be equitable. Participation in the growth process is
the surest way of ensuring poverty- reduction growth. Participation in
the planning and implementation processes of development programmes
can be widened and deepened. This can be achieved through
decentralisation and the formation of new arrangements with
community-based organisations,and with nongovernmental

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organisations, as well as with the private sector. This arrangement

should also build on the initiatives and existing practices of the intended
beneficiaries of the development programmes.

5.0 SUMMARY

The paradox of Nigeria's development is thought provoking to planners,

policy makers, and particularly, to development workers, both within
and outside the country. The country is rich ,but the people are poor,
Nigeria is rich in land, people, oil and natural gas resources, but the
people could hardly eat, drink or clothe themselves, not to talk of being
largely unhealthy and uneducated. To reduce poverty in Nigeria will
require a strong focus and emphasis on economic growth, access to
social service, and infrastructure and targeting.

6.0 TUTOR-MARKED ASSIGNMENT

How can economic growth be brought about in Nigeria which will

eventually reduce poverty?

7.0 REFERENCES/FURTHER READING

Foluso Okunmadewa (1996). Poverty Reducing Growth Strategies and

Options. C.B.N/ World Bank Collaborative Study.

Molem, C.S. (2002). Growth and Development of Nigerian Economy.

Silver Bond Publishing Ltd.

World Bank (1990s). A Continent in Transition: Sub-Saharan Africa.

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UNIT 4 PRIVATISATION IN NIGERIA

CONTENTS

1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Basic Features of Public Enterprises
3.2 Sources of Failure in Parastatals
3.3 Advantages of Privatisation
3.4 Disadvantages of Privatisation
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Reading

1.0 INTRODUCTION

One is aware of the on- going privatisation exercise under the auspices
of Bureau of Public Enterprise. This is probably because overtime, the
public or state-owned enterprises (SOES), started showing
inefficiencies, which translated into huge losses to be financed from
public treasury. This led to the conviction that (SOES) has failed, this
thinking crystallised into the concept of privatisation.

This embraces a set of policies, which emphasise the role of market

forces in place of statutory restrictions and monopoly power.

With respect to Nigeria, the need to privatise arose from the fact that, by
the beginning of the 1980s, the public sector alone had accounted for
about 50 per cent of GDP and 67 per cent of modern sector employment.
Furthermore, by 1986 the federal government alone had about 100
commercial and to non-commercial ventures, raging from heavy iron
and steel industries, to abattoirs. Consequently, in 1988, government
promulgated Decree No. 25, known as the Privatisation and
Commercialisation Decree, which provided legal forces for the
implementation of this policy. Therefore, government set-up a technical
committee on privatisation and commercialization to work on 135
enterprises listed in the decree by March, 1989

Privatisation simply refers to the transfer of public resources,

management, or ownership from government to private ownership or
management. Privatisation of government parastatals is aimed at
reducing government equity participation, and bringing in private
individuals to the ownership and running of these parastatals.

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2.0 OBJECTIVES

To understand the programme of privatisation of state-owned

enterprises, you have to :

o examine the sources of failures of the

SOES
o look at the advantages and disadvantages of
privatisation.

3.0 MAIN CONTENT

3.1 Basic Features of Public Enterprises

Parastatals or public enterprises, embrace all undertakings which are

directed by a branch of government itself, or by a body that is set up by
government to direct such undertakings in the public interest. Public
enterprises, therefore, include public corporations, public companies and
companies in which government equity holding is less than 100 per cent.
The precise extent and nature of government involvement in such
enterprises differ from country to country. While some countries prefer
public ownership of the assets of strategic industries, others prefer to
handle the same problems through the public regulation of enterprises,
so that their assets are left in private ownership. The simultaneous
application of the two forms of government involvement with
enterprises is characteristic of most less developed countries. Thus, this
simultaneous intervention by government has been dictated by the need
to direct the economy in the path of economic development. However,
with the worldwide depression and the resultant desire to find solutions,
government intervention in enterprises has attracted criticisms. Yet, it
has to be noted that these play a critical role in the development of these
countries. The notable features of parastatals in these underdeveloped
countries include:

o Provision of social services at prices lower than market

rates.
o Reduction of regional inequality or structural imbalance in
national development
o Promotion of national pride and feeling of economic
independence
o Contribution of a major share of the gross domestic
product
(GDP)
o Major employment of
labour
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o Maintenance ofa large share of fixed capital
formation.
Pioneering of strategic and technology intensive fields
o Low prices charged by public enterprises for their output also
enhances the profitability of private enterprises, for example,
electricity.

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o Requirement for satisfy economic, political,and even social goals

simultaneously.

3.2 Sources of Failure in Parastatals

o High cost of production and inadequate

capitalisation
o Price controls on inputs and
outputs
o Poor management of production patterns and marketing of the
product
o Civil service control and regulation of managerial decision Lack
of clear objectives on the part of management
o Obscure and sometimes conflicting managerial goals Inadequate
management accountability
o Poor personnel and incentive
systems
o The looting of their assets, through their conversion into
conduits
for siphoning public funds into private accumulation.

From this long list of sources of failure in parastatals, it is necessary to

draw out a particular sub-set comprising the main causes of the
persistent failure of these enterprises, to operate as functional units with
a teleological basis. Through time, these public enterprises have been
allowed to be neither public nor private, neither production nor
consumption units and, therefore, neither companies nor ministries. The
fundamental political factors responsible for this chaotic and socially
wasteful state of affairs in Nigeria are:

o The conversion of parastatals into sources of primitive capital

accumulation by a nascent petty-bourgeoisie under a kleptocratic
system of neo-colonial and bureaucratic state capitalism
o Stifling civil service
control
o Multiple and conflicting objectives not reflected in the funding
and evaluation ofpublic enterprises
o Undercaptialisation of strategic parastatals; imposition of non-
competitive prices, output and staffing.

3.3 Advantages of Privatisation

a) It is major shift in the economic orientation of our people and our

nation, through the commencement of divestment of federal
government shareholding in companies being privatised e.g.
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Flour Mills of Nigeria, African Petroleum Company PLC etc.
This thinking is currently gaining an increasing popularity as
preferred economic ideological companies are in the pipeline for
privatisation.
b) It offers a window of opportunity for the redistribution of income

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and wealth in this country, a major ingredient in the creation of a

satisfied and prosperous citizenry.
c) It offers a window of opportunity to valuers and professionals to
widely and legitimately invest part of their discretionary income.
It is a major opportunity to many Nigerians to commence the
cultivation of a culture of thrift, a culture which is almost absent
among most Nigerians.
d) Privatisation is bound to tremendously increase indigenous
ownership of enterprises.
e) It is a good opportunity for Nigerians to have extra sources of
income by receiving dividends in form of returns on their
invested capital.
f) Given the scarcity of resources available to the government, one
expects frugality and optimality in resource allocation and
utilisation. Resources have alternative uses. To sustain an
inefficient corporation, implies shifting of resources from more
productive investments which has negative implications for
economic growth and development. The problems is bound to be
obviated by privatisation, as there will be more efficient
management of resources and more room for productive
investment. Irrespective of ownership, the society as a whole will
gain.
g) Only a private entrepreneur is motivated by profit. Maximisation
would attract the right labour at the right, price and take prompt
financial decisions without bureaucratic headaches. However, as
resources management improves through greater efficiency and
minimisation of resources wastage, the savings could be used in
the creation of more labour intensive industries, thereby
generating employment, especially in the agro-based industries.

3.4 Disadvantages of Privatisation

a) It is argued that few rich Nigerians, or rather the transnational’s

already dominating the economy by their multifarious activities,
would benefit, while majority of Nigerians who cannot afford the
initial huge capital and financial requirement would participate.
b) Even though government has appealed to banks to make loans
available to their customers to assist them in purchasing shares,
financial constraints imposed on banks by Central Bank of
Nigeria tend to negate the objective
c) The price of some of the shares of privatised companies seem to
be high for ordinary citizens to pay in this harsh economic
climate. Purchasing power of the citizens has definitely gone
down as a result of persistent inflation
d) There is fear of unemployment which privatisation might
generate at the initial stages, given the fact that a profit

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maximized would only employ labour up to the point where its

marginal product is equal to the price of the product especially in
the short run.

4.0 CONCLUSION

Privatisation appears to be the latest in the series of movements to

strengthen the economy. The present calls for privatisation have gained
impetus for the liquidity problems, which the government in Nigeria is
facing today. It would appear that so long as funds were abundant, waste
in the parastatals and corporations was not noticeable.

However, the shortage of funds is forcing government to re-examine

their priorities, and to allocate funds increasingly along economic lines
and also to extend the principle of accountability to corporations.
Privatisation therefore, appears to be both an opportunity and a
challenge.

5.0 SUMMARY

Privatisation has been as a result of the failure in the performance of

parastatals. Also, it offers opportunity for redistribution of the income
and wealth in this country. Furthermore, it is seen as a way of increasing
indigenous ownership of enterprises.

Given these advantages of privatisation, there is the fear that it will

result to unemployment of the already employed people in the
parastatals.

6.0 TUTOR-MARKED ASSIGNMENT

State the advantages and disadvantages of privatisation.

7.0 REFERENCES/FURTHER READING

Mandal, R. (1994). Privatisation in the Third World. VIKAS Publishing
House PVTLTD.

Molem, C. S. (2000). Growth and Development of Nigerian Economy.

Kaduna : Silver Bond Publisher.

Joel D. Wolfe (1996). Power and Privatisation, choice and competition

in the Remaking of British Democracy. Macmillan Press Ltd.

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