In 1971, the share of agriculture to GDP stood at 48.23 per cent. By 1977, it had declined to almost 21 per cent. Agricultural exports, as a percentage of total exports, which was 20.7 per cent in 1971, reduced to 5.71 percent in 1977. 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 repre sented 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.
The agricultural sector was most hit. Rural urban migration increased, as people attempted to reap or benefit from the windfall from oil. Produc tion of agricultural commodities for export declined. Food production became a problem. Starting from 1974, the economy became a net importer of basic foods. Huge foreign exchange earnings were utilised in importing food. Nonetheless, prices of foodstuff remained high. Policies like the govern ment's Operation Feed the Nation (OFN) pro gramme could not reverse the deteriorating food situation. Government was involved in direct food production, provided subsidies to peasant farmers and created more commodity boards for various agricultural and food products. The growth rate of GDP was quite high, such that a growth rate of 10.5 per cent in 1976 was considered unimpressive. Government expenditure fuelled the inflation rate. Between 1975 and 1976, the rate of inflation reached 23 per cent. It reduced to 16 per cent in 1976 and 1977. For the same periods, unemploy ment rate was 4.3 per cent and 2 per cent respec tively. The discomfort index in 1976 stood at 27.3 per cent.
The neo-Keynesian type management of the economy was glaring during this period. Policy makers advised the government not only to embark on ownership and control of the commanding heights of the economy like the petroleum and min ing sectors, but also to be directly involved in bank ing, insurance, clearing and forwarding, among oth ers. With the promulgation of the Nigerian Enterpri ses Promotion Decree in 1972, Government became directly involved in virtually all aspects of the econ omy, especially as foreign exchange was thought to be no longer a constraint to development.
This era had its problems. Primitive accumulation intensified. Corruption, theft, real estate specu lation, outright looting' of government treasury and other fraudulent practices prevailed. The State, on its own, intensified the creation of a business class that depended solely on government contracts rather than on production. The gap between the rich and the poor widened considerably. Ad-hoc and ill-conceived government policies exacerbated the problem. For example, the 100 per cent salary increase of 1975, tagged the Udoii Salary Award, was disastrous tor the economy as prices increased by more than 100 per cent. The payment of a year's arrears of the increase in salary, further worsened the situation.
The exchange rate regime encouraged imports. The economy was heavily dependent on imports; almost everything was imported, from toothpicks to toothpaste dispensers. There was no serious attempt to invest the windfall from oil in viable proj ects. Except for the huge expenditures on educa tion and construction of dual carriage highways in some parts of the country, Nigeria would have had nothing to show from the oil boom era. The industrial sector also depended on import ed inputs, machinery and raw materials. Hence, the so-called manufacturing and mining industries (using 1972 as the base year), which indicate remarkable increases, appear misleading. The manufacturing sector increased by 82.2 per cent between 1972 and 1976 and by almost 94 per cent between 1972 and 1977.
The increases must be interpreted with caution, if industrialisation is seen to imply the process of developing the capacity of that country to master and locate, within its borders, the whole industrial production process, namely production of raw materi als, production of intermediate products for other industries; fabrication of the machines and tools required for the man ufacture of the desired products and of other machines and tools, skills to man age factories and to organise production processes. Declining oil revenues, disequilibrium in the balance of payments, growing unemployment, increasing rate of inflation and political instability, all confirmed that demand-induced policies were no longer effective. By 1978, a country which had thought that foreign exchange was not a constraint on development went borrowing on the Euro-dollar market.
Despite the oil boom, the private sector remained weak. The existing macroeconomic poli cies continued to encourage consumption rather than production. The economy was consuming what she was not producing. The austerity measures introduced by the mili tary administration under General Olusegun Obasanjo were short-lived because structural prob lems were not addressed. GDP, which grew at 10.5 per cent in 1976 declined by 5.7 per cent in 1978 and grew by only 5.9 per cent in 1979. Conse quently, the economy entered the recessionary phase, requiring further stabilisation measures to reverse the gloomy situation.