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Part 3: IMF/World Bank SAP policies and impact on Nigerian cocoa farmers (1-2 pages)

(JEFFREY/DANNY)
How do international economic institutions impact farmers lives? In constructing policies to stabilize
negatively impacted parts of Nigerias agricultural economy, how do these policies pose challenges to
Nigerian cocoa farmers?
What was the outcome of the implementation of IMF/ World Bank policies in terms of: (i). Raw
quantitative data (i.e. import/export levels, prices/revenues) and (ii). Qualitative data of Nigerian cocoa
farmers livelihoods (nutrition levels, stability of income, etc.)

Immediately after WWII the World bank and the IMF (international monetary institution) were
developed in order aid countries that were affected by the war. Their aim was to stabilize national
currency and balance of payments in order to encourage foreign investments. They also provided aid and
loans in exchange for structural adjustment policies (SAPs) the donor countries had to implement. The
policies include reduction in government expenditures, monetary tightening, elimination of government
subsidies for food, privatization of state owned enterprises, and reductions in barriers to trade, foreign
investment, and ownership.

(Paragraph 2 talk about the oil boom in Nigeria during 1970s and how did it affect agricultural
commodities. )(maybe break into two paragraphs first talks about inflation and the other about capital
flight.)
Paragraph 3 talk about when the Bank and IMF stepped into Nigeria and offered SAP to combat
inflation and capital flight.)(add pg.37 from the white book
Paragraph 4 talk about how more current SAP in Nigeria.

In the case of Nigeria, the war had caused a downward trend on its currency, the Nair, and
therefore they adopted a SAP, structural adjustment polocies, agreement. The agreement included

The international economic institution impacted the cocoa market by incentivizing its production.
The labor intensive techniques involved in producing and maintaining the capital goods meant that the
chief managerial requirement for successful cocoa cultivation was the ability to mobilize and organize
human resources.
Farmers have also been able to acquire the necessary resources through their participation in various
traditional institution or relationships which enabled them to draw on the resources and or labor of other
people. Some of these institutions, such as domestic slavery or traditional co-operative labor groups(owe

and aro among the Yoruba), were explicitly intended to serve economic ends, but other, such as the
etended family, ethinic group, or city state, were principally social political character.

The main economic problem involved in establishing cocoa farms in west


Africa was one getting labourers to the available land and supervising and
maintaining them while they worked(pg7 top). This implied migration and
organization of maintenance groups. in order to maintain the cocoa farm
farmers had to find cheap labor for at least the first two years before the farm
could produce enough cash to
Prior to the SAP of 1986, which occasioned a switch from fixed exchange rate
regime tomanaged floating with no predetermined path for the exchange
rate, one dollar exchangedfor 77 kobo. When SAP began later in the year, the
dollar exchanged for 1.756 naira andthe main complaint among corporate
executives was that there was too much naira chasingvery few United State
dollars. This trend was sustained to date as a dollar exchanged for 4.016
naira in 1987, 5.35 naira in 1988, 9.93 naira in 1991, 22 naira in 1993,
21.886 nairain 1998 and 132.56 naira in 2008. This scenario is an evidence of
the widening
gap between demand for and supply of foreign exchange, which underscores
the increasingeconomic stress which an economy and the people experience
when a nation is subjectedto mandatory devaluation programs as occasioned
by SAP in Nigeria. The exchange rate policy objective was derived from
the overall objective of macroeconomic management of achieving internal
and external balance in the medium term. Internal balance means thelevel of
economic activity consistent with the satisfactory control of inflation
(Williamson,1982), while external balance means balance of payments
equilibrium or sustainablecurrent account deficit financed on a lasting basis
by expected capital inflow (Komolafe,1995, 1996). The Structural Adjustment
Program (SAP) by its nature is inflationary because it increases the amount
of the domestic currency required in exchange for a unitquantity of local
goods and imports. It is also inflationary because SAP is based on thefallacy
that capital is the primary basis of economic growth, which by extension
impliesthat the mere establishment of banks in an artisan economy
automatically transforms itinto a monetized and advanced economy
(Ogbimi,2001)
http://www.academia.edu/3627738/Structural_Adjustment_Program_SAP_in_Ni
geria_An_Empirical_Assessment
Pg 76 on the SAP book. the effect that SAP had on agricultural was capital
flight on agricultural exports commodity prices following the devalution of
the Nair(Nigerian currency)
(capital flight- money leaving the country instead of it being locally invested)

first Monday and 3rd Monday of every month in front of the community center.

In the years following WWII the World bank and the IMF (international monetary institution)
were developed in order aid countries that were affected by the war. Their aim was to stabilize national
currency and balance of payments in order to encourage foreign investments. They also provided aid and
loans in exchange for structural adjustment policies (SAPs) the donor countries had to implement. The
policies include reduction in government expenditures, monetary tightening, elimination of government
subsidies for food, privatization of state owned enterprises, and reductions in barriers to trade, foreign
investment, and ownership.
Nigerias involvement with the World Bank and the IMF was a result of the oil boom experienced
during 1980s. The discovery of oil in commercial quantity in the mid-1950s, coupled with the oil-boom
resulting from the Arab oil embar go on the USA in 1973, affected the agricultural sector adversely. The
economy became heavily dependent on oil. By this time, oil revenue represented almost 90 per cent of
foreign exchange earnings and about 85 per cent of total exports. While the boom afforded the
government much needed revenue, it also created serious structural problems in the economy and in
particular had a direct effect on agriculture.
One ongoing problem in Nigeria that can be traced back to the oil boom is inflation. According to
author Victor Alaofin, the GDP for oil went up from 10 percent in 1970 to 33 percent in 1980. In contrast,
the GDP for agriculture fell from 48 to 19 percent in the same years. Oil had become Nigerias main
export, standing at 96 percent, while agriculture remained low at 4 percent. As a result, Nigeria was
depending on one commodity to sustain the entire country. By 1974 the economy became heavily
dependent on imports from basic foods. The foreign exchange earnings, which mainly came from oil
exports, were utilized in importing food; as a result, the price of food remained high.

With inflation on the rise the Nigerian Naira began to quickly devaluate and agriculture
commodities, like cocoa, were heavily taxed. During the 1970s the exchange rate of the Naira versus the
U.S. dollar remained steadily at .65. However, by the 1986, right before the SAP agreement, the exchange
rate more than double to 2.02 (Victor Aloafin pg.31). In spite of this, the domestic average price of Cocoa
was priced at 11,000 Niara while the average world price was 7,169 Niara during the same years (pg76).
The high priced commodities, such as cocoa, essentially had no internal demand in Nigeria and were
primarily produced as an export commodity. In essence, Cocoa had a direct impact on government
revenues. According to Victor Aloafin, before 1986, Cocoa generated up to 20 percent of government
revenues. Consequently, this lead to various form of agricultural taxation, such as, direct tax, excise tax,
sales tax and others. Farmers naturally avoided these taxes and conducted illicit export sales, and further
devaluating the Naira.
In 1986 the structural adjustment policies, SAP, was introduced by the world Bank and the IMF
in order to regulate Nigerias economical downward trend. One of the main objective of SAP was to,
restructure and diversify the productive base of the economy in order to reduce the dependence on the oil
sector and on imports (Aloafin pg.37). Because Nigerias economy depended highly oil, which was not
excessively taxed, agriculture exports drastically went down. In 1970 agricultural exports represented 72
percent, however, by 1980 agricultrual exports had gone down to 4 percent.
One of the reasons that agriculture, and in particular cocoa production, had gone down was
because the amount of money needed to maintain the farm left little room for farmers to profit. By
contrast, Oil exports required less investment therefore returned more profits. SAP provided farmers with
the opportunity for aid and loans, in return they adopted the reform policies. Government also played a
role in increasing the production of agriculture by providing subsidies to farmers.

Read more: http://www.onlinenigeria.com/economics/?blurb=490#ixzz3hvTD6JlW

Read more: http://www.onlinenigeria.com/economics/?blurb=490#ixzz3hvEwniGy


(Paragraph 2 talk about the oil boom in Nigeria during 1970s and how did it affect agricultural
commodities. )(maybe break into two paragraphs first talks about inflation and the other about capital
flight.)
Paragraph 3 talk about when the Bank and IMF stepped into Nigeria and offered SAP to combat
inflation and capital flight.)(add pg.37 from the white book
Paragraph 4 talk about how more current SAP in Nigeria.

In the case of Nigeria, the war had caused a downward trend on its currency, the Nair, and
therefore they adopted a SAP, structural adjustment polocies, agreement. The agreement included

The international economic institution impacted the cocoa market by incentivizing its production.
The labor intensive techniques involved in producing and maintaining the capital goods meant that the
chief managerial requirement for successful cocoa cultivation was the ability to mobilize and organize
human resources.
Farmers have also been able to acquire the necessary resources through their participation in various
traditional institution or relationships which enabled them to draw on the resources and or labor of other
people. Some of these institutions, such as domestic slavery or traditional co-operative labor groups(owe

and aro among the Yoruba), were explicitly intended to serve economic ends, but other, such as the
etended family, ethinic group, or city state, were principally social political character.