The Royal Niger Company establishes stringent trade controls, including high tariffs on imports and exports and on foreign companies operating in the area. Large-scale processing enterprises spring up as focus shifts from food crops to cash crops in an export-oriented environment. Millions are put to work, migration is limited, and some Nigerian merchants begin to gain wealth, status, and power.
Emphasis on production of cash crops for export rather than food crops for sustenance benefits British colonial governors; local farmers, however, struggle to meet demand spurred by modernization of transportation and communication. Capital investment and long-term planning are ignored, as are Nigerian traditions. The South's socioeconomic development and modernization outpace the North's.
As Western markets boom, "developmental economics" policies become deeply rooted and centralized. They are embodied by the establishment of state-run marketing boards that artificially regulate the price farmers are paid for their crops. The colonial administration fails to develop a self-sustaining economic infrastructure or to create vehicles that equitably distribute wealth and social services.
The Great Depression reduces Britain's willingness to commit new money to the colony. The introduction of the pound sterling as the universal medium of exchange encourages export trade in tin, cotton, cocoa, groundnuts, and palm oil, but agricultural production continues to slide. Other than a handful of elite local businessmen, most Nigerians are excluded from economic participation.
Resource shortfalls in Europe brought on by the war effort temporarily increase the demand for raw materials, in particular tin and rubber. Prosperity is short-lived as artificially inflated demand ends with the war itself. Nigeria's strategic importance as a staging area and supply line during the war effort results in rapid development of airports and military bases, and roads to connect them.
The economy shows signs of life following a postwar lull. The colonial government's policy of "Nigerianization" opens jobs in the civil service and expands education. Reforms allow businesses to benefit from access to banks, loans, and government contracts. Exports increase dramatically, and new industries are established. Public spending on roads, energy, industry, and education grows.
Petroleum exports, firmly under state control, begin in 1958, two years after its discovery. Local officials work with foreign companies to produce and export what becomes the country's dominant economic resource. Nigeria realizes the enormous potential for revenue generation, but at the expense of the agricultural and manufacturing sectors. The Central Bank is created to monitor monetary policy.
Nigeria joins the IMF in 1961 and adheres to the Bretton Woods Agreement, which limits exchange restrictions and controls. A huge increase in government expenditure on administrative, social, and economic services and in revenue from taxes and loans follows. Inflationary pressures emerge as money supply increases by almost 30 percent and the cost of living rises at upwards of 5 percent a year.
The transition to the First Republic is difficult, largely because of an inherited colonial legacy that left an export-driven economy, a private sector dominated by foreign interests, and a widening gulf between a small elite class and a growing rural peasantry. Monetary restraint is implemented to curb inflation and stabilize the Naira, and imports are curtailed.
Economic focus is war-based, not long-term. Capital expenditure and manufacturing and agricultural sector growth rates fall. Crude oil accounts for 58 percent of total exports by 1970. Inflation continues to rise. Military rule turns a blind eye to abuses in the oil and manufacturing sectors as officials routinely engage in corrupt contract awards, kickbacks, and fraudulent joint enterprises.
Oil-generated revenues drive economic recovery and unprecedented budget surpluses. The government undertakes a Second National Development Plan to reconstruct facilities damaged during the war and to promote social and economic development. The economy is increasingly dependent on petroleum, which accounts for 81 percent of Nigeria's total exports by 1974 and is subject to wild price fluctuations.
Extreme government spending leads to a bloated money supply, which in turn spawns a food crisis, unemployment, swollen defense budget, and widespread inflation. A Third National Development Plan aims for greater control over oil production, processing, and distribution. A "Nigeria First" campaign encourages foreign business ventures to sell outright to Nigerians or to work as joint ventures.
The Second Republic's constitution calls for a mixed economy, but President Shagari helms an administration, like the colonial ones of the past, in which those in power maintain absolute control of all profitable sectors of the economy to ensure personal gain. Global recession, combined with a sharp drop in oil prices in 1981, puts further pressure on the economy. A period of stagflation follows.
Despite an economic downturn, public-sector government spending continues unabated as the budget deficit climbs. Significant domestic and external loans taken out to meet basic needs and the subsequent servicing of those loans further drain the economy. Military government leader Buhari fails to negotiate debt rescheduling, refusing IMF austerity measures which include devaluing the Naira.
The World Bank-sponsored Structural Adjustment Program (SAP) is launched, emphasizing economic discipline, deregulation, and austerity. SAP allows market forces, not government, to dictate the economic environment. Measures include devaluing the Naira, slashing public spending, stimulating exports and the private sector, removing import licenses, reducing tariffs, and selling parastatals.
SAP collapses under the weight of severe currency devaluation and dramatic surges in inflation and the cost of living. External debt skyrockets, and subsequent debt servicing results in public-expenditure cutbacks. Attempts at privatization allow wealthy individuals to gain ownership of previously state-run enterprises, intensifying the inequality of wealth distribution.
Oil dependence peaks under Abacha at more than 90 percent of total exports. Oil production and the accompanying environmental degradation devastates other economic sectors, particularly agriculture. Abacha officially abandons SAP and, in keeping with his autocratic regime, favors state control of foreign exchange, finance, and trade. Corruption is unchecked at all levels of the failing economy.
As the 1998 federal budget reveals a huge deficit, a devastated economy hits a 20-year low in both manufacturing and industrial output. Inflation is well into the double digits, and Nigeria ranks as the world's 13th poorest country. The Abubakar administration enacts policies aimed at privatizing state-run businesses, reducing government spending, and opening the country to foreign trade.
A legacy of mismanagement greets Obasanjo on his return to power, with external debt topping US$30 billion. Facing rising inflation and continued currency devaluation, he legislates macroeconomic programs to liberalize the economy. Most significantly, he promises a firm commitment to "guided deregulation," specifically privatization of state-owned industries, including energy and transportation.
Public spending exceeds revenues and results in suspension of foreign debt repayment. Failure to reach agreement with the IMF imperils new international support. As striking oil workers take hundreds hostage on foreign-owned offshore rigs, oil production plummets, wiping out hoped-for short-term gains from hikes in oil prices due to war in Iraq. Obasanjo's efforts finally free the hostages.
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