MANAGING THE NIGERIAN ECONOMY: STRATEGIC OPTIONS

Introduction
Countries all over the world are blessed in diverse ways. As such,
they depend on each other for survival. Nigeria as a nation is endowed with
both human and natural resources. By virtue of its population of about
173.9 million people, the nation is the largest country in Africa by population
size and accounts for about 47 per cent of West Africas population. The
country is blessed with a lot of natural resources such as crude oil, gas,
fisheries and Gold, Limestone, Bitumen, Lead and Zinc etc. The extent of
crude oil and the largest natural gas reserve made her to be the biggest oil
exporter in Africa. Considering the abundance of these human and natural
resources, the country is expected to build a prosperous economy, where
the level of poverty would be extremely low with high standard of health
care delivery, excellent food security, qualitative education and good
infrastructural services to her teeming population.
Nigeria is one of the most developed countries in the African
continent. In 2015 for instance, it was ranked the largest economy in Africa,
beating Egypt and South Africa that were respectively the second and third
largest economies in the continent. The economy composing oil and non-oil
sectors, contribute to the Gross Domestic Product. Prior to the discovery of
crude oil at Oloibiri in 1959, agriculture was the mainstay of the Nigeria
economy. And most of the infrastructures in the country today were
developed with resources from agricultural production such as Cocoa,
Cotton, Palm Oil and Groundnut. However, the discovery of oil led to the
relegation of agriculture to the background, thereby making Nigeria to
depend solely on crude oil production.
Overview of Nigerias Economy
In the 1960s, agricultural products provided about 80 per cent of the
total export earnings from main cash crops such as cocoa, palm oil,
groundnut etc. In 1962, agriculture accounted for about N229.8 million or
82 per cent of the nations total value of export. A total of N356.4 million
was realized which represented 85 per cent of the countrys total export for
the year 1964. This development changed over the years and by 1976, out
of N274.2 million that came from export, agriculture accounted only for 4
per cent of the nations earnings. By the end of 1991, earnings from non-oil
exports which agricultural products dominated decreased. It only managed
to provide 3.8 per cent out of the total revenue. This was as a result of the
1

oil boom and excess dependence on its revenue or earnings. As a result of

revenue from oil, the consumption pattern shifted and became import
oriented. Thus, the insatiable desire for importation of goods became
widespread in the nation with its attendant economic problems.
According to the Statistical Bulletin of the Federal Bureau of Statistics
(1997), a drastic change of Nigerias economy was witnessed. For
instance, the contribution of agricultural sector to Gross Domestic Product
(GDP) dropped from about 40 per cent to about 20 per cent and even
16 per cent between the early 1970s, 1980s and 1990s respectively.
However, since the oil sector assumed a wider dimension to account for
about 20 per cent of GDP, it also accounted for 81 per cent of government
revenue and 96 per cent of export earnings. The period 2005 and 2012,
Nigerias GDP growth rate averaged 6.81 per cent, reaching an all-time
high of 8.60 per cent in December of 2010 and a record low of 4.50 per
cent in March of 2009. Although Nigeria's economy grew 6.6 per cent yearon-year in the first quarter of 2013 when compared with the first quarter of
2012, it however declined comparably with the 6.9 per cent recorded during
the fourth quarter of last year, due to slower growth in the non-oil sector.
Meanwhile, annual growth rates that averaged over 7 per cent in official
data during the last decade place Nigeria among the fastest growing
economies in the world. It is argued that the high economic growth
recorded within this period has not translated to much welfare
improvement for the generality of the countrys citizens as poverty
reduction and job creation have not kept pace with population growth.
As at October 2014, nominal GDP grew from $360 billion in 2010 to
$510 billion in 2013 and stands as $273.14 in the first half of 2014
correspondingly, per capita income rose from $2,258 billion in 2010 to
$2,938 billion in 2013. Inflation rate is at single-digit having fallen from 13.9
per cent in 2010 to 8.3 per cent in Sept 2014. Although the rebasing of the
economy in 2014 has revealed significant growth in the GDP, estimated at
US$510 billion. This, notwithstanding, Nigerias short term macroeconomic
outlook looks generally strong, with the likelihood of higher growth, lower
inflation, and reserve accumulation. This expectation was not realistic as
the GDP grew by 2.84 per cent year-on-year in real terms in the third
quarter of 2015. According to the Minister of Finance, Mrs Kemi Adeosun,
the growth recorded by the country in the 2015 fiscal period was the lowest
in the last 15 years. Despite this state the government still depends on oil
for about 65 per cent of its revenue. The 2016 Federal Government budget
2

is based on the assumption that oil will account for 50 per cent of
government revenue and over 90 per cent of its foreign exchange earnings.
Amid growing calls for the introduction of economic stimulus in the
face of the current financial hardship, largely accentuated by the slide in
crude oil price and low production, Nigerias economy which is on the brink
of recession is expected to worsen, as the United States lifts its economic
sanctions on Iran, one of the worlds largest oil producing countries. Almost
all the economic indices were negatively affected and growth plummeted.
The year is the worst since the economic meltdown in 2008.
Government Efforts at Improving the Economy
The Nigerian economy was largely at a rudimentary stage of
development before independence. It started experiencing some structural
transformation immediately after independence in 1960 with the
introduction of the First National Development Plan, 1962 -1968. The plan
sought to put the economy on a fast growth path, by giving priority to
agricultural and industrial development. As at independence, agriculture
was the dominant sector in the Nigerian economy. It contributed about 70
percent of GDP, it employed about 85 per cent of the working population
and accounted for about 90 per cent of foreign exchange earnings and
Federal Government revenue.
The Second National Development Plan, 1970-1974, was launched
after the civil war, primarily to undertake reconstruction and rehabilitation of
the infrastructure damaged during the war. Within the period, agriculture
continued to dominate the countrys export trade, while manufactured items
dominated imports. The Third National Development Plan, 1975-1980,
was designed under a more favourable financial condition of huge oil
revenues which accrued to the nation from the mid-1970s. As a result of
the huge revenues from oil, the government embarked on Import
Substitution Industrialization Policy (ISIP) and indigenisation of the
economy. This led to massive industrialisation and infrastructural
development by government within this period. The period also marked the
beginning of Nigerias dependence on oil exports.

The Fourth National Development Plan, 1981-1985 emphasised

greatly on diversification and indigenization of the economy. However, the
implementation of the plan was adversely affected by the unexpected drop
in the international oil prices. The collapse of the oil market saw Nigerias
per capita income drop from about $1,000 to about $300.
This led to
drastic fall in the level of foreign exchange earnings and government
revenues. This was Nigerias first exposure to major oil price shock and it
exposed the inadequacy of some of the government policies. The policies
were highly import dependent, relying on the importation of major inputs,
such as spare parts, industrial raw materials, machinery and other capital
equipment.
This however paved way for the vulnerability of the
manufacturing sector and the economy in general, to fluctuations in oil
price. The objective of diversifying the economic base through the
expansion of the manufacturing sector in relation to the diversification of
the exportable was therefore, not achieved.
Structural Adjustment Programme (SAP) was adopted initially from
1986-1988 as a key reaction to the declining oil revenue and the increasing
need to diversify the productive base of the economy. SAP was the first
government policy with diversification of the economy as its main thrust.
The policy was to diversify the economy using deregulation, market
liberalization and floating of the exchange rate. It also emphasised the
promotion of agriculture and other rural based export oriented economic
activities. The floating exchange rate policy weakened the upcoming
manufacturing sector. The inability to stay the course of the reforms, low
levels of investment and large fiscal imbalances, among other reasons,
informed the extension of the programme from 2 to 8 years.
Consequently, the objective of diversifying the economic base through the
expansion of the manufacturing sector vis--vis the diversification of the
exportable was not achieved. As Olekah, et al put it:
Despite the high priority given to the promotion of non-oil exports,
particularly manufacturing sector, under SAP, the sub-sector has not made
a significant impact on Nigerias economic recovery process. The first
official record of manufactured exports was made in 1988, when it
4

accounted for only 0.4 percent of total export revenue with a low average of
0.3 percent for the period 1990 1998. The economy witnessed a number
of policy reversals between 1988 and 1989 in an attempt to cushion the
adverse effects of the cutback measures implemented in 1986 and 1987.
Nevertheless, there was no appreciable improvement in the performance of
the economy within this period particularly in terms of diversification. This
necessitated further economic reengineering for sustained growth and
national development which led to the Vision 2010. The vision featured
significant elements of SAP with economic diversification as its main thrust.
The Vision was also essentially reform biased but it got literally aborted
before its implementation ever began. Nevertheless, its elements were
captured in the National Economic Empowerment and Development
Strategy (NEEDS) document.
The NEEDS was launched in 2003. One of the main objectives of
NEEDS was sustenance of a high, but broad-based non-oil GDP growth
rate that was consistent with poverty reduction and employment
generation. The main thrust was diversification of the production structure
away from oil and mineral resources. NEEDS was designed to last from
2004 to 2007, with set targets. The growth targets for 2005-2007 were met.
For instance Real GDP Growth Rate targets for 2006 and 2007 were set at
6.00 per cent and 7.00 per cent respectively, but 6.03 and 6.45 per cent
growth rate were achieved. Non-oil Sector growth targets were set for 8.34
and 9.52 per cents, but 9.41 and 9.52 percent were achieved. Surprisingly,
this was not the true picture of the economy because, the performance was
due to the effect of increase in oil price within the period. The performance
of the NEEDS in terms of diversification could be put at about 20 per cent.
NEEDS was not able to achieve the level of diversification required, setting
the pace for its review and re-strategising, in the form of Nigerian Vision
20:2020.
Nigerian Vision 20:2020 (NV20:2020) was an articulation of the longterm intent to launch Nigeria onto a path of sustained social and economic
progress and accelerate national development. It was intended to place
the country among the top 20 economies in the world with a minimum GDP
5

of $900 billion and a minimum per capita income of $4000 per annum.
This implies that the Nigerian economy must be diversified and grow at an
average of 13.8 per cent during the period. The economy was to be driven
by the agricultural and industrial sectors over the medium term while a
transition to a service-based economy was envisaged from 2018. These
aspirations were defined mainly around economic diversification.
Nigerias economy, since the oil boom era till now has remained
structurally imbalance. The oil sector is the major producer of foreign
earnings and contributor to government spending in the country. However,
the economy is composed of many productive sectors such as agriculture,
manufacturing, trade and industries and services. While these sectors
contribute about 80 per cent of the GDP, leaving the oil sector to contribute
the remaining 20 per cent, the economic value of these non-oil sectors in
terms of their contribution to Nigerias earnings is only about 5per cent.
Consequently, Nigerias entire budgetary spending is heavily dependent on
the foreign revenue generated from crude oil exports. It also means that the
non-oil sector, though evidently productive within the borders of Nigeria and
representing the sum total of Nigerias domestic production are yet to
contribute significantly to the economy. Hence, Nigeria is a major importer
of much needed goods and services. This system of mono-product
economy needs to give way to the productive development of various
sectors of the economy to engender meaningful economic growth.
In an effort to develop the economy over the years, successive
governments (both military and civilian alike) have initiated different
policies, reforms and programmes of short, medium and long term
frameworks. For instance, the 4 National Development Plans (between
1962 and 1985) and the Structural Adjustment Programmes (between 1986
and 1988) were some government efforts at economic development in the
past. The SAP was initiated during the time of depressed oil prices in
1980s. Under the SAP, the government tried to eliminate inefficient state
intervention and obtain budgetary relief by abolishing agricultural
commodity marketing boards and liberalizing cash-crop exports. These
measures, together with devaluation, increased the naira prices of export
6

crops, especially cocoa. The state also privatized many public enterprises
by selling equity to private investors, while restructuring other parastatals to
improve efficiency. The federal government encouraged private investment
in the late 1980s, allowed foreign ownership in most manufacturing, and
liberalized and accelerated administrative procedures for new investment.
The government in 1999 introduced macroeconomic and structural
reforms to manage the economy better. Debt relief obtained by the former
President Obasanjo Administration lifted a $30 billion debt burden while
providing fiscal environment for capital investments. In addition, importation
reforms in the Telecom and banking sectors were consolidated and
privatized. Furthermore, the government also initiated the 7- Point Agenda
which formed the Transformation Agenda and focused on building gains of
the reforms and develop critical infrastructure for economic benefits. The
Transformation Agenda led to improvement through rehabilitation and
construction of additional road networks. For instance, the rehabilitation of
the 1,124 km Western line from Lagos to Kano was completed, while work
on the Port Harcourt to Maiduguri 1,657km Eastern line was 47.5 per cent
completed as at 2014. As a result of developing the railway lines, the
railway sector experienced an increase in the number of railway
passengers. The number of passengers traveling by rail from Agege to
Ebute Metta increased from 6,000 to 15,000 daily. However, In spite of the
huge resources committed to the rail projects, work in the sector was about
58 per cent completed and behind schedule by end of 2014.
As a result, the macroeconomic performance of the nation was robust
as at 2014. For instance, inflation rate remained single digit at 7.9 per cent
within the range of N155-160. Furthermore, the fiscal deposit was low at
1.85 per cent of the GDP. Aside from the reforms, efforts were made to
improve infrastructure especially in the area of transportation, water
resources, aviation, power, services and communication sectors. Other
areas include housing, industry and agricultural sectors. One noticeable
area of achievement is the agricultural sector where farmers input and food
production increased exponentially. Annual rice production has risen from
2.2 million tonnes five years ago to 3.1 million tonnes, and the private
7

sector has responded by developing 14 new industrial-scale rice mills. The

laudable achievements made in the agricultural sector during the period
were best captured by the former President, Olusegun Obasanjo, in a
guest commentary curated by Forbes Opinion as stated below:
Ive seen close-up how hard it can be to succeed in agriculture not only
when I was president but also during the 35 years that I have been a
farmer myself. So Im proud that Nigeria is emerging as a leader in
agricultural transformation in Africa. However, Nigeria needs to spend much
more on agriculture than its current commitment of only 1.6 per cent of the
national budget. But the Agricultural Programme is already proving its
potential to produce a dramatic turnaround that sets an example for other
African countries, as we show in the Africa Progress Report 2014, Grain,
Fish, Money Financing Africas Green and Blue Revolutions.
In 2015, Nigeria became Africas largest economy with Egypt and
South Africa being the second and third largest economies respectively.
However, the country is currently at the brinks of economic recession
following the fall in oil prices in the international market, which has plunged
the nation and citizens into economic hardship. The Federal Government is
currently developing plans to diversify the economy. It is also encouraging
new investments in mining, agriculture and manufacturing sectors. The
government is expecting that with the on-going economic diversification
process, particularly leveraging on agricultural development, Nigerias
economy will improve by creating multi-sectoral sources of revenue for the
country. Hence, there is need for a coherent policy to be developed that
goes beyond the mantra of diversification that will outline specific and
selected elements for such an effort.
Current Challenges
It will be a mistake to attribute Nigerias problems to the immediate
past and present administration alone as the economic problems has
accumulated over a long period. The current dismal economic trends can
be traced to many sources, including corruption, over-dependence on oil,
inadequate infrastructure, weak institutions, lack of transparency, high

interest rates by bank, high cost of governance and militancy in the Niger
Delta.
Nigerias continued high dependence on oil is a major problem to the
economy. This oil-based economic system has dire implications for the
economy as currently being witnessed today. Nigeria is at the brink of
economic recession and the 2016 budget is already threatened. The FGN
has resorted to borrowing from countries like China in an attempt to avert
huge budget deficit. According to President Mohammadu Buhari, the sharp
drop in the price of oil globally in 2016 is making the economy to shrink into
recession. Mono-based economy of Nigeria has exposed the nation to
adverse effects of volatile crude oil prices in the international market.
Coupled with this is the attendant oversupply of crude oil globally when Iran
commenced oil trade. Iran, which has the fourth largest oil reserve in the
world (160 billion barrels), was sanctioned in 2012 from oil trade deals
globally by the comity of nations for developing a nuclear weapons
programme. With the lifting of the sanctions, Iran is expected to flood the
international oil market with more oil which could worsen the ongoing glut
that has reduced the price of crude from $105 per barrel to about $30 per
barrel and pushing Nigeria into economic recession. Furthermore, the reentry of Iran into the international oil trade could also see India, Nigerias
top buyer of crude (India currently imports 750,000 barrels per day from
Nigeria), look towards neighbouring Iran for its oil needs thereby dipping
Nigerias economic recession. According to former minister of finance,
Ngozi Okonjo-Iweala, Nigeria must plan differently in order to generate
non-oil based revenues by working towards developing infrastructure and
roads for businesses to strive. Development of the non-oil sectors, such as
manufacturing and agriculture, may help to alleviate Nigerias reliance on
the oil industry, ensure sustainable economic growth and attract
investment.
A critical analysis of the Nigerian economy from the period of the oil
boom, through the Iraqi crisis to the present time indicates that the
expected growth was never experienced. There are a lot of factors
responsible for this problem, one of which is corruption. Corruption is a
persistent phenomenon which has assumed an alarming dimension in
Nigeria. Corruption in Nigeria has continued to attract attention and
comments both locally and internationally. Lack of transparency in
accounting is the arrow head of this problem. According to the latest report
of Transparency International, Nigeria ranks 33 most corrupt countries in
the world. It also stated that Nigeria losses between $4 billion and $8
9

billion annually to corruption due to capital flight which is a leakage from the
economy. Another report of the World Bank revealed that corruption
increases the cost of doing business in Nigeria to the tune of 40 per cent.
This has eroded foreign investors confidence in the Nigeria economy.
Corruption has scared away the much sought after Foreign Direct
Investment, which made Nigeria to lose several investment opportunities
from the global investment community.
The level of systematic corruption increased geometrically negating
the proper utilization of accrued resources to develop the Nigerian nation.
This problem is the major cause of the slow economic growth in Nigeria.
The oil and gas sector is one of the areas where corruption is said to be
most prevalent in Nigeria. Oil and gas companies operating in Nigeria are
said to have given out up to US$3.2 billion in bribes to public officials from
2010-2011. Nigeria also lost up to $7.17 billion in revenue to other
fraudulent activities within the same period. Furthermore money laundering
proceeds accounted for an estimated US$11.5 billion in 2010-2012. The
culminating effect of these nefarious activities is a drastic reduction in
revenue generation by government, thereby impacting negatively on the
economy.
Refining capacity is determined by number of refineries and
capacities of these refineries to produce refined products. Nigeria has 4
refineries with a combined installed capacity of 445,000 barrels per day
(bpd). At optimum capacity, the output of the refineries will be 18 million
litres daily. The combined average refining capacity utilization for year
2013 was 22 per cent as against 21 per cent in the previous year. In 2014,
the local refineries received a total of 25,839,373.09 barrels (3,491,903
metric tonnes) of (dry) crude oil, condensate and slops and processed
23,360,372.27 barrels (3,156,914 metric tonnes) into various petroleum
products.
Eleme Petrochemicals Company Limited (EPCL) received 266,355
metric tonnes of Natural Gas Liquids (NGL) and processed 264,044 metric
tonnes. Out of 448 metric tonnes of Propylene Rich Feed (PRF) received
from PHRC, 50 metric tonnes was processed. The Polyethylene Plant (PE)
and Polypropylene Plant (PP) of EPCL produced 5,815.04 metric tonnes
and 5,716.40 metric tonnes of resins respectively, while 52,014.74 metric
tonnes of Pyrolysis Liquids was also produced from the Olefins Plant. The
refineries are currently operating far below their installed capacities due to
inadequate funding for their routine maintenance and sabotage of oil
10

facilities. The shortfall for petroleum products is, therefore, met through
importation. Additionally, the foreign exchange for importation would have
to e initiated for other areas of development.
The inadequate and poor state of infrastructure in Nigeria is due to
poor construction, bad maintenance and underinvestment among others.
Nigerias huge population exerts extra pressure on available infrastructure
as most of roads and electricity projects were provided to serve a
population much smaller than the current population estimate. Nigeria total
electricity generation is about 4,000 MW. However, the national has an
installed capacity of about 5,900. For a population of about 180 million
people, the current electricity generation is grossly inadequate. South
Africa, with a population of about 53 million and a GDP of $350 billion,
generates 44,000 megawatts. Spain has a GDP of $1.4tn and generates
102,000 megawatts of electricity for her 47 million people. Therefore,
restructuring Nigerias economy without addressing the problem of power
first is an effort bound to fail. Nigeria is well endowed when it comes to
wind, sunshine and natural gas, which is the logical way to generate the
bulk of its power needs, but there is a shortage of infrastructure for gas and
near absence solar and wind infrastructure. This in partly due to
underinvestment as energy infrastructure is expensive to install. A typical
LNG project may require more than US$10 billion of investment and lead
time of 6-10 years from conception to completion. LNG tanker ships cost
about US$200 million. This has caused severe infrastructural deficiency in
the oil and gas sector thereby affecting mineral exploitation for economic
growth in Nigeria. This deficiency is due to inadequate investment and
funds to facilitate infrastructural development in the sector.
According to Mr Ihenacho, MD Seven Energy, there are opportunities
in gas supply via pipelines and road. He noted his company recently
invested $100m in gas-to-power infrastructure, in partnership with the
NSIA. For companies like his to prosper, the pricing of gas must be
addressed by government. To date, it has not been competitive enough to
incentivize investors to supply the domestic market. The government has
gone some way towards tackling that by increasing the price of gas-topower from $1.50/mcf to $2.50, but private investors say that will have to
rise still further to make their business viable. Deteriorating transmission
networks can lose up to 30 percent of generated electricity, and are
preventing Nigeria from being lit up, even if more electricity is generated.
They will also open up to private investment, Nigerian officials say.
11

The Naira dollar exchange rate has become the symbolic

representation of all that is currently wrong with the Nigerian economy. The
way the present government is handling the issue demonstrates the
absence of a long-range strategic plan for addressing the structural
imbalances in the Nigerian economy that have led to this crisis. The
government has to recognize that in a real market economy, a currencys
exchange rate is not set by the government. It can be influenced by the
government through fiscal policy, economic policy, and monetary policy
but ultimately it is the markets that determine the exchange rate.
The Niger Delta region largely made up of 9 oil and gas producing
states in the country which are Delta, Ondo, Akwa Ibom, Bayelsa, Cross
Rivers, Rivers, Abia, Imo and Edo states. While Akwa Ibom produces the
highest volume of oil with production from 8 different local governments,
Ondo state is the lowest. There are over 60 host communities that are
responsible for oil and gas production in these states. Despite the
significant importance the host communities to mineral exploitation in the oil
and gas sector, they have remained grossly socio-economically
underdeveloped amidst the immense oil wealth owing to systematic disequilibrium in the production exchange relationship between the state, the
transnational companies and the people. The government, oil companies
and communities have had conflicts and confrontations arising from
petroleum exploitation in the Niger Delta region. As a result, various militant
groups sprang up in the region. However, the tension was doused with the
Amnesty Programme introduced by the Federal Government. The latest
attack by the militants was the blowing up of key crude oil delivery line
belonging to the Nigerian Petroleum Development Company (NPDC) in
Delta state on 19 September 2016. One of the active militant groups is the
Niger Delta Avengers (NDA). The new groups just coming up include the
Niger Delta Greenland Justice Mandate, Egbesu Boys of the Niger Delta,
Egbesu Red Water Lions and Egbesu Mightier Fraternity. The effects of
current militant activities have caused Nigerias production to drop by more
than 300,000 barrels per day. This has led to the shutdown of export
terminals which halted production and exportation of crude oil thereby
reducing the revenue to finance the 2016 budget which is already in deficit.
Additionally, this effort also increased oil pollution which endangered
human lives, plants and fisheries in the region. The NDA have attacked oilproducing facilities in the Delta, causing the shutdown of oil terminals and a
fall in Nigeria's oil production to its lowest level in twenty years. The attacks
caused Nigeria to fall behind Angola as Africa's largest oil producer. The
12

reduced oil output has hampered the Nigerian economy and destroyed its
budget, since Nigeria depends on the oil industry for nearly all its
government revenue.
The high cost of governance is another challenge in Nigeria
economy. The main sources of revenue of Nigeria are proceeds from oil
sales (over 80 per cent) taxes and duties. All these funds are paid into a
Centralized Account (The Federation Account) and shared by the
Federating Units. In efficient economies, revenues go into the hands of
businesses and individuals, who then pay taxes to the government. The
Nigerian structure promotes waste, lack of accountability and high cost of
governance. The political system and its manner of remunerating political
appointees make the cost of governance prohibitive and probably
unsustainable. It is the residue of the revenues devoted to office holders
and public employees that is available for development and this is usually
about 40 per cent. Even of great concern to Nigerians is the quality of
spending of the 40 per cent in terms of value for money. The United States
of America (USA), from where the Presidential system of government
evolved has a population of 308 million (2010 census). GDP of $14.256
trillion and Per Capita Income of $47,701. It operates a Federal Cabinet of
only 22 members and 15 Ministries. But Nigeria, with a population of 152
million (2010 estimate), GDP of $341.572 billion and Per Capital Income of
$2,249 has a bloated Federal Cabinet of 42 members with 29 Ministries,
under former Governments. The creation of Special Advisers, Senior
Special Advisers and Presidential Assistants with various portfolios, at both
Federal and State levels, are in themselves avoidable drains on the coffers
of the State. The size of Cabinet is therefore, too large and cumbersome.
On the Legislature, the US Congress consists of 100-member
Senate, and 435-member House of Representatives, According to Sections
48 and 49 of 1999 Constitution, the National Assembly in Nigeria has 109
members in the Senate and 360 members in the House of
Representatives. Furthermore, in the US, the Vice President doubles as
the Senate President, whereas Nigeria has a separate Senate President,
whose salaries and emoluments contribute to drain the Federation Account
13

and add to the cost of governance. Whereas an American Senator earns

$174,000 yearly, his Nigerian counter-part receives $1.7 million (N240
million) a year and a member of the Federal House of Representative
receives about $1.45 million (N203.8 million). Whereas Section 70 of the
1999 Constitution states that, A member of the Senate or of the House of
Representatives shall receive such salary and other allowances as the
Revenue Mobilization Allocation and Fiscal Commission may determine
the National Assembly in 2010 allocated to themselves such bloated
salaries and allowance in contravention of the same Constitution they have
sworn to uphold. This is illegality and abuse of power as the fixing of these
levels of salaries and allowances did not follow due process.
It is however worrisome that the Nigerian populace do not have the
exact figures of what it costs the tax payers to run the government. While
some claim that it costs them N290 million yearly to maintain each member
of the National Assembly, no one has been able to specifically state how
much they earn.
Signs of Economic Rescission
Presently, Nigeria could be assessed to be in economic recession
going by the key pointers below.
GDP Decline Consecutive declines in quarterly real gross
domestic product below zero. For example if the real GDP of
Nigeria declined in Q1 2016 into the negative and also declines
or remains in the negative territory in Q2, Nigeria is in a
recession.
Decline in economic activity spread across the economy, in
both the manufacturing and non-manufacturing sectors and
lasting more than a few months. Production level, business
activity, new orders, employment level and raw material
inventories all decline at a faster rate.
14

 Decline in income and profits reported by businesses Another

very good sign of a recession are when publicly quoted
companies mostly declare a drop in their revenues or profits. In
fact, most companies post massive losses during a recession.
Dip in Government Revenue As explained, a dip in
government revenue is also a very good sign that a country is
sinking into recession. In Nigeria for example, we have seen
government revenue dip so much that most states have to seek
for a bailout to enable them pay for something as basic as
salaries.
Job losses There are massive layoffs as most companies cut
cost to remain afloat. Since consumer and government
spending has dropped, businesses can no longer produce at
same level and therefore cut back to remain in business. The
National Bureau of Statistics revealed a few months ago that
over 4.6 million jobs have been lost
Inflation rate drops or gallops Developed countries who
experience a recession also record low inflation numbers. This
occurs because both consumer spending and production drop
simultaneously. However, in developing economies like Nigeria,
reverse is the case. Because we mostly import, cost of goods
and services sold locally increase forcing consumers to even
spend less. In Nigeria, the drop in oil prices triggered capital
outflows and then a loss in value of the Naira. This meant
imported goods and services recorded a hike in prices.
Nigerias inflation rate is currently 16.5, the highest since 2005.
Companies go bust Another major sign of a recession is that
companies in key sectors of the economy such as
manufacturing, financial services and insurance typically go

15

bankrupt. Industries that also rely heavily on government

expenditure suffer from a recession.
Strategic Options
In spite of the current state of the economy and hardship in the country,
there are strategic options that the federal government could embark upon
to lift the nation out of the doldrums. One of the strategic options is the full
diversification of the economy. The FGN, since 1999 have embarked of
deliberate efforts to diversify the economy. This has led to numerous
policies reforms and programmes among others to improve the non-oil
sector revenue accruable to the government. Based on the general trend of
Nigerias economic diversification, it can be extrapolated that Nigerian
economy exhibited very low level of diversification. Over the last 26 years
there has been very little change towards improved diversification in
Nigerias economy. Also, the Nigerian diversification experience has been
volatile as the diversification trend lacks a clear and definite direction. And
thirdly, relative to the volatility above, Nigerian economy have been unable
to register any sustainable movements towards intensifying diversification
in our economy. As such, a clear cut or blue print programme should be
rolled out on diversification of the Nigeria economy. In the present
dispensation, diversification of the economy should not be limited to the
agricultural sector alone, other areas such as solid minerals, small and
medium scale enterprises, manufacturing, and transportation sectors etc
need to also be considered.
Another strategic option is for the Federal Government to boost
power supply. Availability of constant power supply is a significant factor to
consider in making an economy to thrive. However, Nigeria with her huge
population cannot boast of uninterrupted power supply for 6 hours in a day.
While countries like China, India, Egypt and South Africa are exploring
alternative power generation from wind and solar sources, however, Nigeria
is yet to embark on any solar or wind projects to boost power supply.
Nigeria needs to adopt solar and wind alternatives power generation to
boost the current power generation from hydro dams and thermal plants
across the nation.
16

Aside from boosting power generation by adopting alternative and

clean energy sources, Nigeria needs to put in place efficient power
transmission and distribution systems. According to the National Energy
Commission, about 40 per cent of the power generated from hydro dams
and thermal plants are lost during transmission due to leakages caused by
infrastructural deficiencies. Most transformers are obsolete and overloaded
making them unable to operate optimally. In this regards, the Government
needs to ensure that electricity Generating Companies GENCOMs and
Distribution Companies (DISCOs) provide necessary facilities to effectively
distribute electricity. These include distribution transformers and prepaid
meters among others.
To implement this strategy, the FGN needs to firstly engage the USA
and China through bilateral agreements, to transfer solar and wind power
generation technologies to the nation. It needs to setup solar farms in
states such as Sokoto and Katsina which have all-year round sun shine
and wind mill in the Atlantic Ocean in Lagos and Cross River State.
Secondly, to fix the power sector deficit of about 15,000 MW alone, FG
would need to provide about $100 billion which the country is currently
unable to provide. As a result, power equipment manufacturing companies
like GE, ABB, and Siemens can finance the purchase and installation of
their own equipment in return for long term contracts (10-20 years) during
which they manage and operate those assets under Build Operate
Transfer (BOT) contracts. After the contractual period, the asset is turned
over to the state. Nigeria does not need to pay a dime if it negotiates these
deals well. With the right policy framework in place, the Nigerian consumer
will be protected as well.
In addition to boosting power supply, the next strategic option for the
federal government is localizing refining of petroleum products. Nigeria
spends about $10 billion (about 19 per cent of annual official import
spending of $54 billion) on the importation of about 300,000 barrels of
refined petroleum products per day. This is simply absurd. Why does a
nation that produces about 2.3 million barrels of oil a day and sells it a price
of $30 per barrel, need to import about 10 per cent of its exports at the
effective cost of about $100 per barrel? Why doesnt any oil producing
company have a single refinery in Nigeria, even though they refine
extensively in other countries? The reason is simple. There is no policy
that spells out the rules of engagement in the petroleum sector in Nigeria.
Why should ExxonMobil, Shell, AGIP and other firms refine petroleum
17

products in Nigeria if the government will turn around and force them to sell
at subsidized rates? The Petroleum Industry Bill (PIB) which should
effectively establish the ground rules for how to conduct business across
the petroleum value chain in Nigeria has languished for over a decade in
the National Assembly.
The present government should make the passage of the PIB a
priority, and should go further by amending the bill to require that all oil
production companies in Nigeria refine at least 10 per cent of their
production locally, with the guarantees that whatever they produce within
Nigeria will not be subject to price caps, or other sales restrictions. They
should also be given the right to sell their refined output in the global
markets should they so choose. Market forces will dictate that local sales
within Nigeria will make the most sense. In return, all of the benefits of the
$60 per barrel value created in the refinery process can be retained within
Nigeria in the form of new jobs and retained earnings. Additionally, local
production would mean that Nigeria would have effectively eliminated about
17 per cent of its annual dollar demand, easing the pressures on the Naira
by about $10 billion per year.
Another strategic option is Promoting Infrastructural Investment in
Gas Sector. The promotion of gas infrastructural investment in Nigeria is
crucial in addressing the deficit in the sector. This can be achieved by
creating a conducive operating environment that would entail appropriate
fiscal terms that would lead to competitive and attractive rates of return, in
its attempt to encourage investment in the countrys oil and gas sector and
to effectively reposition the oil and gas sector. These facilitate the
establishment of modular refineries in Nigeria which will increase the
refining capacity as it improves mineral exploitation in the oil and gas sector
for economic growth. Although, modular refineries are mini-refineries with
capacities ranging from 1,000 to 10,000 barrels per day, (bpd) which can
be assembled and separated easily for enhanced performance and
efficiency, there are also cost effective.
Access to credit is also another strategic option for the federal
government. Total consumer credit in Nigeria stands at less than $10 billion
dollars in a $500 billion economy. This is a paltry 2 per cent of GDP. In
most major economies, consumer credit ranges from about 20 per cent
(USA) to 50 per cent of GDP. South Africa, Africas second largest economy
has a consumer spending to GDP ratio of 66 per cent. Nigeria should aim
for a consumer credit to GDP ratio of about 10 per cent over the next 5
18

years. This would be the equivalent of injecting a stimulus of $50 billion per
year into the economy.
The new found access to credit should be utilized to develop made in
Nigeria goods. To minimize the risk that the new-found access to credit will
simply be diverted towards foreign goods, it can be eased in gradually,
starting with local agricultural, automobile and appliance manufacturers
(e.g., Peugeot, etc.) and the mortgage market. The major condition for a
healthy credit market is the ability to set credit ratings and track consumer
activity. Nigeria has five biometric databases that can be used as a basis
for establishing a viable consumer credit market. These biometric datasets
are from NCC (cellphone registration), BVN (Bank verification), INEC
(polling cards), FRSC (drivers license) and the National ID card scheme.
There is enough information in these databases to serve as the foundation
for developing computational algorithms for the comprehensive credit rating
and tracking of individuals.
A strategic option federal government could adoption is to promote
agricultural policies to drive self-reliance and reduce imports. Nigeria
spends about $10 billion a year on the importation of agricultural and forest
products. This is about 19 per cent of our total imports. While it is noble for
the present government to be making case for Nigerians to look inwards,
talk alone will not do the job. We cannot eliminate the $2.2 billion per year
we spend on animal products and derivatives if we rely exclusively on
Fulani herdsmen that have to walk across the whole country looking for
grass for their cattle. We cannot eliminate the $1.5 billion per year on the
importation of wheat alone if we do not resuscitate our agricultural sector.
Wheat farmers in Northern Nigeria can produce all the wheat Nigeria needs
if the policy is enacted to support them by introducing varieties that can
enhance yields from the current 2 tons per hectare to global benchmarks of
4-5 tons per hectare. Financing has to be provided to the farmers to
support the mechanization of their farms. Fertilizers have to be made in
Nigeria and distributed to farmers.
The government will have to step in albeit temporarily, to create
marketing boards that will help establish market exchanges that will ensure
that farmers are matched up with purchasers. Instead of creating grazing
corridors across all of Nigeria as the Agriculture Minister recently
announced, Nigeria should be working to mechanize and commercialize
the work of Fulani nomads. The nomads roam the country looking for grass
19

for their cattle. However, grass can be farmed year-round along the banks
of the Niger and Benue States. And by the way, those millions of youth that
the government plans on giving N5,000 per month as unemployment
payments can be gainfully deployed to support these agricultural initiatives
in Nigeria.
As another strategic option is that the Government needs to allow the
Naira to float to promote made in Nigeria goods and service. The
government can start by weakening the Naira to stimulate local substitution
for imported goods. In order to maintain the Naira at a value of less than
N200 per year, Nigeria must do one of two things: Firstly, Nigeria can plug
the $25 billion per year shortfall by using its reserves. However, the
reserves currently stand at about $27 billion which can only serve for one
year before it is completely exhaust. Secondly, the government can reduce
dollar demand for imports by the amount of the deficit to relax the pressure
on the Naira. This can only be achieved by reducing imports by about $25
out of $60 billion in order to stabilize the exchange rate. As a result, the
government needs to allow the Naira to float.
The government has to develop measures for eliminating inflation
while addressing the potential impact on the public. Nigerian government
will need to restore subsidies for petroleum products because petroleum
imports currently accounts for about $10 billion per annum. While at official
exchange rate of N197 per dollar, this annual imports will amount to about
N2 trillion per year but at the real exchange rate of about N300 per dollar, it
is about N3 trillion. Therefore, a subsidy of N1 trillion will be required to
offset inflationary pressures that are linked to the importation of petroleum
products which is much suitable than the current price tag of $25 billion per
year that will be required to maintain the official and parallel exchange rates
at about N200 per dollar.
A strategic option for the federal government is to see the end of the
Niger Delta crisis. Since the crisis erupted in 2016, Nigerias crude oil
production has dropped from 1.8 barrels per day in 2015 to 1.4 barrels per
day as at September 2016. The Niger Delta region is increasingly facing
military action as the government responds to a new wave of militancy led
by some groups including the Niger Delta Avengers which has claimed
responsibilities for a series of attacks on oil and gas facilities in the region.
The resultant effect of militant activities in the region has led to significant
decline in oil production thereby contributing to the factors which has
20

pushed Nigeria into economic recession. Nigerias oil production output is

currently stands about 1.1 million barrels per day, a whopping 50 per cent
reduction in output. Oil still remains the major source of revenue for Nigeria
without which much cannot be achieved particularly as the present
government is seeking to deepen and broaden economic diversification. If
the present government needs to pilots Nigerias economy out of recession,
it needs to urgently resolve the Niger Delta crisis for good. To allow the
Niger Delta crisis linger more that it has dragged would spell doom for the
nation and frustrate any efforts at bring Nigeria out of recession. Therefore,
it is imperative that the Niger Delta crisis be resolved as quickly as possible
to improve oil production and put Nigeria on the quickest route to economic
recovery.
The quick resolution of the Niger Delta crisis would enable Nigeria
produce more oil than the usual 2.2 million per day before the current
decline to 1.1 million barrels per day thereby generating revenue from the
excess crude oil revenue. The crude oil price at the international market is
currently about 50 dollars per barrel and Nigerias budget is pegged at 38
dollars per barrel. This will create excess crude revenue of about 12 dollars
per barrel which can be used to enhance investment in other economic
sector.
Conclusion
The country has been depending oil crude revenue for many to fund
the budget while neglecting to develop the non-oil sectors such as
agriculture and infrastructure among others. The high dependence on oil
coupled with systemic corruption, low refining capacity, inadequate
infrastructure, protection of the Naira and Niger Delta crisis as well as high
cost of governance among others has contributed to the current economic
woes, Therefore, the way forward is for the current government to do the
needful and implement necessary policies that can stir Nigeria out of
economic recession.
By
Adesoji Babalola

21