International

Journal of The labour market in Nigeria

Manpower
17,8
under regulation and
deregulation
46
Received August 1996
A comparative analysis
Revised June 1992
Augustus N. Gbosi
Department of Economics, University of Port Harcourt, Nigeria

Background to the study

International Journal of Manpower,
Vol. 17 No. 8, 1996, pp. 46-53.
MCB University Press,
0143-7720
The two extremes from which state policy can take in matters relating to
labour-management relations are complete laissez-faire and total state direct
control of the condition of labour. According to Rynolds (1974) unions
everywhere operate in an environment of legal and political controls.
Specifically through statute, through administrative regulation, and through
judicial decisions, the larger community enforces its will in public policy. A
review of Nigeria’s labour history shows that the country has undergone two
phases (Gbosi, 1985a). These are the periods of regulation and deregulation
respectively.
Regulation, in its broader sense, means the imposition of restrictions on the
various sectors of an economy. For example, prior to the introduction of the
Structural Adjustment Programme (SAP) in July 1986, regulatory controls were
the main approach to macroeconomic management in Nigeria. The term
“deregulation” found its place in the vocabulary of Western economists several
thousand years ago. However, it became more popular among (Nigerian) policy
makers and economists in 1986 with the introduction of the World Bank – IMF
SAP. Since 1986, economic deregulation had been the central framework of
macroeconomic management in Nigeria. Economic deregulation means
different things to different people. In the view of Odozi (1991), deregulation
does not mean the absence of regulation. Rather, it means the deliberate
informed process of removal or mitigation of restrictions which are obstacles or
non-deterministic and tend to reduce efficiency or competitive equities.
However, Ojo (1991) has defined economic deregulation as the deliberate and
systematic removal of regulation controls, structures and operational subsidies
which may have mitigated growth, operations and efficient allocation of
resources in an economy. Thus, the deregulation of an economy or its
component segments is the belief that the factors of production, goods and
services are optimally priced and allocated where other prices are freely
determined in a competitive environment. Consequently, the factor that usually
calls for deregulation is the imbalance between demand and supply in the
product and factor markets. No matter how one defines deregulation, the
underlying philosophy is that it tends to promote competition and efficiency in The labour
the allocation of resources in the economy. market in
With these conceptualizations at the back of our minds, this paper seeks to Nigeria
determine the stability of the Nigerian labour market under deregulation as
opposed to regulation. This comparative analysis will enable us to know how
the Nigerian labour market performed under the two phases. The study period
is from 1980 to 1993. Thus, the paper covers the following: first the general 47
performance of the Nigerian economy under regulation and deregulation is
examined. Then the performance of the Nigerian labour market under the two
phases discussed earlier is focused on and, finally, conclusions are drawn from
the analysis.

Macroeconomic performance in Nigeria, 1980-1993

As mentioned earlier, the Nigerian economy was deregulated in 1986 with the
introduction of SAP. Prior to SAP, the Nigerian economy was characterized by
mass unemployment, rising rates of inflation, huge public debt, disequilibrium
in the balance of payments and a severe shortage of essential raw materials.
One factor responsible for the economic crisis was the sharp decline in revenue
from oil, Nigeria’s major foreign exchange earner. Consequently, the
Government was unable to execute most of its economic and social
programmes. Furthermore, because of the shortage of raw materials, spare
parts and other factors of production, many firms were operating below their
installed capacity utilization. The situation, however, was very serious for the
marginal firms which had no other option, but to cut down on their workforce.
In order to remedy the situation, the SAP was introduced in July 1986. The
major objective of the programme was to restructure and diversify the
productive base of the Nigerian economy. It was also designed to establish a
realistic and sustainable exchange rate for the naira. These objectives were to
be achieved through the main instruments of SAP which include trade and
payments liberalization and tariff reforms (Gbosi, 1989).
We now analyse the performance of the Nigerian economy under regulation
and deregulation. Our major indicators of macroeconomic performance are:
• aggregate output;
• gross national savings;
• interest rate;
• inflation rate; and
• balance of payments.

Aggregate output
As can be seen from Table I, aggregate output, as measured by the Gross
Domestic Product (GDP), recorded negative growth rates of –2.9, –1.6, –0.3,
–5.4, –5.1 per cent in 1980, 1981, 1982, 1983 and 1984 respectively. However,
positive growth rates of 9.4 and 3.2 were recorded in 1985 and 1986 respectively.
International Between 1980 and 1986, the economy recorded an average growth rate of –0.40
Journal of per cent. However, in contrast, between 1987 and 1993, the GDP grew at an
Manpower annual average rate of 4 per cent.
17,8 Gross national savings
It is usually argued that savings are a positive function of interest rate.
48 Mathematically, we have:
ds
>0
dr
where s = saving; r = interest rates.
The above equation indicates that the lower the rate of return on savings, the
lower the level of savings in the economy. Table II shows that between 1981 and
1986, gross savings grew at an average of N =3.8 billion. During the period 1987-
1993, gross national savings grew at N =14 billion. A glance at Table II clearly
shows that gross national savings recorded a remarkable increase under
deregulation as opposed to regulation.

Year Percentage Year Percentage

1980 –2.9 1987 –0.6

1981 –1.6 1988 10.0
1982 –0.3 1989 7.3
1983 –5.4 1990 8.3
1984 –5.1 1991 4.5
1985 9.4 1992 4.1
Table I. 1986 3.2 1993 2.3
Average growth of real
Average –0.40 Average 4.0
GDP (at 1984 factor cost)
1980-1993 Source: Central Bank of Nigeria Publications, Lagos

Year Amount of savings Year Amount of savings

1981 3.9 1987 1.9

1982 4.5 1988 10.57
1983 4.8 1989 15.60
1984 2.7 1990 20.60
1985 3.6 1991 23.00
1986 3.8 1992 24.00
Table II.
1993 11.17
Gross national saving
=billion) (at 1984 market Average
(N 3.8 Average 14.00
prices) Source: Central Bank of Nigeria Publications, Lagos
Interest rate The labour
Interest rates are usually regarded as the rental payment for the use of credit by market in
borrowers and return for parting with liquidity by lenders. In an economy, the Nigeria
primary role of interest rate is to facilitate the mobilization of financial
resources for rapid economic growth and development. Prior to 1986, interest
rates were administratively determined by the Central Bank in Nigeria.
However, since 1987, interest rates have been freely determined by the market 49
forces of demand and supply. As can be seen from Table III, the levels of interest
rates were significantly lower under regulation than under deregulation. For
example, between 1981 and 1986, the average prime lending and savings
deposit rates stood at 9.58 per cent and 8.65 per cent respectively. Specifically,
the higher prime rates observed under deregulation obviously will have an
adverse effect on the labour market. This is because higher interest rates
usually discourage private investment thereby reducing the demand for labour.

Prime lending Savings deposit Prime lending Savings deposit

Year rate rate Year rate rate

1981 9.0 6.0 1987 14.0 12.2

1982 9.3 7.9 1988 16.6 12.1
1983 10.0 7.5 1989 25.5 16.5
1984 10.4 11.5 1990 25.3 18.0
1985 9.2 9.5 1991 20.0 13.8
1986 9.6 9.5 1992 24.8 15.3
1993 36.1 16.7
Table III.
Average 9.58 8.65 Average 28.6 15.7 Average interest rate,
Source: Central Bank of Nigeria Publications, Lagos 1981-1993

Inflation rate
Inflation is usually defined as a persistent increase in the prices of goods and
services in all sectors of an economy. As shown in Table IV, Nigeria’s inflation
rate rose to an average of 14.6 per cent between 1980 and 1986. However,
between 1987 and 1993, the inflation rate rose to an average of 30.2 per cent.
Inflation rates were relatively higher under deregulation compared with
regulation. The higher levels of inflation observed between 1987 and 1993 will
definitely have far-reaching implications for the labour market in Nigeria.

The external sector

Generally, exchange rate is the price of the domestic currency in terms of other
currencies. Prior to 1986, exchange rates were administratively determined by
the Central Bank of Nigeria (CBN). But since 1987, exchange rates have been
determined by the forces of supply and demand (Gbosi, 1995). The data in Table
V show that under regulation, the non-oil sector recorded an average growth
International Year Inflation rate (%) Year Inflation rate (%)
Journal of
Manpower 1980 9.9 1987 10.2
17,8 1981 10.8 1988 3.0
1982 7.7 1989 40.9
1983 23.2 1990 7.5
50 1984 29.6 1991 13.0
1985 5.5 1992 44.5
1986 5.4 1993 57.2
Table IV.
Nigeria’s inflation rate, Average 14.6 Average 30.2
1980-1993 Source: Central Bank of Nigeria, Annual Reports, various years, CBN, Lagos

Year Percentage Year Percentage

1981 10.3 1987 11.0

1982 6.7 1988 10.5
1983 7.5 1989 13.0
1984 5.5 1990 11.2
1985 8.1 1991 11.7
1986 11.8 1992 11.2
Table V. 1993 13.0
Non-oil export Average 8.3 Average 11.7
(including invisibles) Source: Central Bank of Nigeria Publications, Lagos

rate of 8.3 per cent between 1981 and 1986. However, between 1987 and 1993,
the sector recorded an average growth rate of 11.7 per cent (First Bank, 1996).
The above analysis showed that Nigeria’s external sector also performed better
under deregulation than under regulation.

Performance of the Nigerian labour market

In the preceding section, we analysed the performance of the Nigerian economy
under regulation and deregulation. The analysis showed the Nigerian economy
performed fairly well under deregulation as opposed to regulatory controls.
In this section, we try to show how fluctuations in the macroeconomic
indicators discussed earlier directly or indirectly influence the stability in the
Nigerian labour market. In order to determine labour market stability, we focus
on two major indicators: unemployment rate and industrial relations.

Unemployment rate
Unemployment rate is defined as the percentage of the labour force that is
willing to work but are unable to find jobs (Angagye, 1994). There is no precise
definition of unemployment in the economic literature. According to Briggs
(1973), unemployment is defined as the difference between the amount of labour The labour
employed at current wage levels and working conditions and the amount of market in
labour hired at these levels. However, Gbosi (1993) has defined unemployment Nigeria
as a situation in which people who are willing to work at the prevailing age rate
could not find jobs. No matter how one defines unemployment, the underlying
philosophy is that some people are without jobs. Unemployment is not a new
phenomenon in Nigeria. In recent years, however, the nation’s unemployment 51
problem has caused great concern not only to the policy makers but also the
general public.
As can be seen from Table VI, within the period, 1980-1986, the year 1983
was particularly bad. The nation’s unemployment rate was 10.2 per cent in 1983
(the highest within the ten-year period). Specifically, between 1980 and 1986, the
country’s annual average unemployment rate was 7.8 per cent. During the
period, 1987-1993, the annual average unemployment rate stood at 4.2 per cent
(see Table VI). This compares more favourably with the pre-SAP period.
However, the present author has argued that the figure on unemployment rate
put forward by government officials between 1987 and 1993 are downwardly
biased. Unemployment statistics in Nigeria are not well-documented. To a large
extent, statistics from the remote rural areas are apparently not available. If
these statistics were included, the unemployment rate would have been much
higher than those presented by government officials. If the official
unemployment rate is accepted, the problem of underemployment still persists.

Year Unemployment rate Year Unemployment rate

1980 7.4 1987 7.0

1981 7.2 1988 5.3
1982 8.7 1989 4.0
1983 10.2 1990 3.5
1984 8.9 1991 3.1
1985 6.1 1992 4.0
1986 5.3 1993 2.7
Table VI.
Average 7.8 Average 4.2 Nigeria’s unemployment
Source: Federal Office of Statistics; Central Bank of Nigeria, Lagos rate (1980-1993) (%)

Industrial relations
Industrial relations can be defined as the interaction between workers and
employers, each playing a definite role to ensure that agreements are accepted
and their terms respected (Gbosi, 1992). At this stage of our analysis, we try to
compare and contrast the nature of Nigeria’s industrial relations system under
regulation and deregulation. As Kilby (1966) put it, one conventional index to
the success of a system of industrial relations is the extent of industrial unrest
as measured by the number of strikes and total man-days lost, therein.
International Data in Table VII are used for the comparative analysis. As shown, an
Journal of average of 2,191,215 man-days lost and 219 trade disputes were recorded
Manpower between 1981 and 1986. However, between 1987 and 1992, the incidence of
labour market unrest fell to 932,985 man-days lost and 161 trade disputes
17,8 respectively (see Table VII). This compares more favourably to the pre-SAP
period, 1981-1986. On the basis of this result, one is led to say that even
52 industrial relations deteriorated with regulation controls. To put it another way,
as measured by labour market unrest, the Nigerian industrial relations system
also stabilized under deregulation as opposed to regulation.

Year Man days lost Trade disputes Year Man days lost Trade disputes

1981 2,218,223 258 1987 142,506 65

1982 9,652,400 341 1988 230,613 156
1983 404,822 184 1989 579,968 144
1984 301,809 100 1990 1,339,105 174
1985 118,693 77 1991 2,339,105 204
1986 461,345 87 1992 966,611 221
Average 2,191,215 219 Average 932,985 161
Table VII. Source: CBN Annual Reports (various issues); CBN Statistical Bulletin (various issues); CBN,
Industrial relations Nigeria, Major Economic and Financial Indicators, April 1993 and June 1995

Conclusions
In this paper, the performance of the Nigerian economy under regulation and
deregulation has been analysed. Specifically, we focused on the performance of
the labour market in Nigeria under regulation and deregulation. It is not
possible to cover all aspects of the topic within the confines of a study of this
nature. However, the major aspects of labour market performance, namely,
unemployment rate and industrial relations have been covered.
It is often argued that deregulation is associated with high levels of
unemployment. During the period, 1980-1993, covered by this study, our
analysis showed that Nigeria’s unemployment rate declined marginally under
deregulation as opposed to regulation.
However, unemployment still remains a critical issue in Nigeria today. The
analysis also showed that even industrial relations deteriorated with regulatory
controls. On the basis of these developments, we have concluded that the labour
market in Nigeria did stabilize in the period 1987-1993, as opposed to the period
1980-1986.

References and further reading

Anagagye, G.S. (1994), Socio-economic Development in Nigeria, Pam Unique Publishers, Port
Harcourt, Nigeria.
Briggs, J.E. (1973), “Unemployment statistics and what they mean”, Monthly Labour Reviews, The labour
USA, Department of Labor, Bureau of Labor Statistics, Washington, DC.
Central Bank of Nigeria (various years) Annual Reports, CBN, Lagos.
market in
Central Bank of Nigeria, Major Economic and Financial Indicators, April 1993 and June 1995. Nigeria
Central Bank of Nigeria Publications, Lagos.
Federal Office of Statistics.
First Bank (1995), Monthly Business and Economics Report, First Bank, Lagos. 53
Gbosi, A.N. (1985a), Fundamentals of International Economics and Finance, Upper Standard
(Nig) Ltd, Lagos.
Gbosi, A.N. (1985b), “Labour policy in Nigeria”, Quarterly Journal of Administration, April/July,
Ife.
Gbosi, A.N. (1989), The Economics of Labour and Public Policy in Nigeria, BELK Publishers, Port
Harcourt, Nigeria.
Gbosi, A.N. (1990), “Nigeria’s contemporary industrial relations policies: a critical review”, Indian
Journal of Industrial Relations, India.
Gbosi, A.N. (1993), “The nature, causes and consequences of Nigeria’s current unemployment
problem”, Anvesak, Vol. 1 No. 1/2, June/November, India.
Kilby, P. (1966), Industrialization in an Open Economy: Nigeria, 1964-1966, Oxford University
Press, Cambridge.
Odozi, V.A. (1991), “Welcome address on deregulation of the Nigerian Banking Industry”,
Financial Institution Training Centre, Lagos.
Ojo, M.O. (1991), “Deregulation of the Nigerian Banking Industry: a review and appraisal”,
Economic and Financial Review, Central Bank of Nigeria, Lagos.
Rynolds, L.G. (1974), Labour Economics and Labour Relations, Prentice-Hall, Englewood Cliffs,
NJ.