Between 1978 and 1986, except for 1979 and 1985 when GDP showed positive
growth, the economy continued to register negative growth rates. There were
also high inflation, high unemployment rate and fiscal imbalance. The stabilisation
and austerity measures of the Shehu Shagari regime (1979-83) did not arrest
the deepening crisis.
The balance of payment did not improve. There was an increase in external loans
which further accelerated the debt over-hang situation. It was clear that the
economy was suffering from stagflation. The country's industrial capacity utilisation,
which was 73.6 per cent in 1981, declined consis tently during the period such
that by 1989, it was 31 per cent. Manufacturing which grew at 14.6 per cent
in 1981 reduced to 3.2 per cent in 1989. This poor performance occurred despite
various stabili sation policies of the 1980s. The structure of the economy made
it vulnerable to external shocks and policies. The problems were so severe that
restruc turing of the economy was inevitable.
Consequently, a comprehensive economic reform package was introduced in 1986.
The package aimed at changing and realigning aggregate domestic expenditure
and production patterns so as to minimise dependence on imports; enhance the
non-oil export base, and bring the economy back on the path of steady and balanced
growth. Specifically, the objectives of the programme were designed, amongst
others:
- to restructure and diversify the produc tive base of the economy in order
to reduce dependence on the oil sector and on imports;
- to achieve fiscal and balance of pay ments viability;
- to lay the basis for sustainable non-inflationary or minimal inflationary
growth; and
- to lessen the dominance of unproduc tive investments in the public sector,
improve the sector's efficiency and intensify the growth potential of the
private sector.
Some of the policy measures adopted in pursuance of these objectives were:
a. adoption of a realistic exchange rate policy;
b. further rationalisation and restructuring of tariffs in order to aid the
promotion of industrial diversification;
c. improved trade and payments liberalisa tion;
d. reduction of complex administrative controls simultaneously with a greater
reliance on market forces;
e. adoption of appropriate pricing policies, especially for petroleum products
and public enterprises; and
f. commercialisation and privatisation of public sector companies.
The economic reform programme appeared to have intensified speculative and
trading activities rather than increasing production. The proliferation of merchant
banks, finance houses, de-regulation of interest rates, privatisation of the
economy and the new industrial policy did not bring in the needed foreign direct
investments. The private sector did not live up to expecta tions, despite the
then favourable environment. During structural adjustment, the private sector
was supposed to serve as an engine of growth. Rather sadly, after eight years
of structural adjustment measures, the private sector was not able to respond
adequately to the desire for increased pro duction, employment and stable prices.
The share of manufacturing in GDP was still low, while capac ity utilisation
was a little above 30 per cent.
Essentially, the performance of the Nigerian private sector vitiated the major
assumption that underlies an IMF adjustment programme to the effect that the
private sector has the capacity to respond to sup ply-side incentives. Regarding
privatisation and commercialisation, the public utilities had taken them to
mean increased prices without corresponding efficiency and productivity. The
unjustifiable price hikes (sometimes in the range of 500-2000 per cent) compounded
problems for the industrial sector and the provision of social services.
The increased prices paid by consumers further reduced the lat ter's already
declining real wages. It is not clear why imports were liberalised in an economy
that was suffering from inadequate for eign exchange. The reform programme had
sought to encourage export promotion, but traditional exports could not bring
in the much-needed foreign exchange. Commodity prices fell and for a crop like
cocoa, there was a glut in the market. Furthermore, the prices of export commodities
were outside the control of the Nigerian economy.
Hence, eight years into the adjustment programme, non-oil exports remained
insignificant. The persistent depreciation of the Naira vis-a-vis other major
currencies creat ed further distortions in the economy. The instabili ty in
the exchange rate created uncertainty and fuelled inflation. Indeed, there was
a direct correla tion between movements in the exchange rate and inflation.
The external balance remained in disarray despite the devaluation of the domestic
currency, while external debts mounted. The mismanagement of the foreign exchange
market resulted in huge profits for the financial sector. This was due to the
wide differential betwee the official and the parallel market rate Consequently,
there was a boom in the financi sector, although not in the other sectors of
the eeoi omy. For example, there was paralysis in the re sector.
Manufacturers were unable to procure fo eign exchange tor their imports nor
could they rais funds generally, given the high cost of borrowir money. While
there was a fair consensus that the slic of the Naira needed to be halted, opinions
on ho best to stop the further decline of the domestic cu rency differed. There
were those who preferred th intervention of government either in 'fixing' tt
exchange rate and/or creating a multiple exchanc rate regime. This option could
be likened to the o system of import licensing with its attendant corrui tion.
In the torex system, the banks and other final cial outfits did not have a precise
criterion for sellir torex to their customers; hence, corruption. Another opinion
quarrelled with the mechanisi for determining the exchange rate. It argued th,
the introduction of the Foreign Exchange Marki (FEM) was improper and that what
was needed ; that time were minor adjustments for inflation whic would have
resulted in a variable exchange rate f( the Naira, and urgent action to reduce
the budgi deficit.
The budget itself, it was suggested, ought I be prepared in both domestic and
foreign currel cies. That way, government's use of torex would 1: limited to
what is allocated to her in the foreig exchange budget. If Government wished
to us more torex, then she would obtain it from the fre market, like other economic
agents. A reduction the budget deficit, all things being equal, woul increase
investment, production and growth. Th same scenario would have positive impact
on exte nal debts. A situation in which 50k out of MI earne was used to service
external debts could not help i reducing the budget deficit. Instead, resourc
mobilisation would assist in determining a viabi exchange rate for the Naira.
