nigeria's economic governance structures and growth ...

The Nigerian Journal of Economic and Social Studies, Volume 50, Number 1, March 2008

NIGERIA’S ECONOMIC GOVERNANCE STRUCTURES AND GROWTH PERFORMANCE IN PERSPECTIVE

Mike I. Obadan and Sam E. Edo

Abstract The structures of economic governance and the growth performance of Nigeria are discussed and analyzed in this paper. Several plans and strategies have been designed since independence to guide the economy towards attaining sustainable growth, beginning with the first National Development Plan (1962-68). This plan heralded largescale public sector intervention in the economy which eventually led to inefficiency in resource allocation and slow pace of development. The plethora of strategies and policies notwithstanding, the economy has continued to record low levels of savings, investment and economic growth. This is indicative of the need for paradigm shift in the style of economic governance towards minimizing public sector participation and allowing private sector play dominant role in the economy. More importantly, an enabling environment needs to be created, characterized by good governance structures consisting of well-designed, articulated and implementable programmes. This would enable Nigeria harness the vast human, material and natural resources needed to move the economy along the path of rapid economic growth and development, Keywords: Economic governance, growth performance, Nigerian economy

___________________ Mike I. Obadan, Professor, Department of Economics, University of Benin, Benin City, Nigeria. Email: [email protected] Sam. E. Edo, Professor, Department of Economics, University of Benin, Benin City, Nigeria. Email: [email protected]

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Nigerian Journal of Economic and Social Studies

Introduction

Overtime, and particularly after political independence in 1960, the development of the Nigerian economy has been guided by several structures beginning with the First National Development Plan (1962–68), heralding large-scale public sector intervention in the economy. The public sector engaged in import-substitution activities and direct production of goods and services that ought to be the concern of the private sector. This was premised on the notion that market failures could be addressed by public sector intervention in economic activity in order to enhance living standard of the citizens. However, the approach tended to create inefficiency in resource allocation and slow pace of development, in spite of the fact that the country had enormous endowment of human, material and natural resources. The Asian countries that were at the same or lower level of development with Nigeria in the early 1960s and had limited resources have achieved phenomenal growth and development that seem to suggest poor governance of the Nigerian economy over the years. The public sector intervention in economic activity through public enterprises has been a disaster as it has been characterized by conflicting objectives, poor management of resources, persistent losses in public enterprises, political interferences, etc (Obadan, 1998a). On the other hand, the private sector has also failed to live up to expectations, as shown by failures in the banking and financial services as well as manufacturing sectors. Adedeji (1996) observed that the private sector in Nigeria became infested with nonproductive entrepreneurs and dealers in foreign currencies, which was inimical to good performance of the sector. The poor performance of the public and private sector clearly became a source of concern to stakeholders in the economy, particularly multilateral institutions and donor agencies. A consensus gradually emerged that the roles of the public and private sectors needed to be re-defined by reducing the size of the public sector, which would ultimately free economic resources for more rapid economic growth. This led to a framework that emphasized private sector-led growth strategy, while the role of public sector shifts from owner of productive enterprises to that of policy maker and regulator. The public sector, therefore, only needs to encourage private sector development by providing an enabling environment that consists of elements such as macroeconomic stability, elimination of barriers to market forces, security of lives and property, efficient infrastructure, among others (Obadan, 1997). Thus, for the private sector to perform efficiently as the engine of growth in the economy, the public sector must be seen not to be competing in the market (Usman, 1996). This is the underlying philosophy of the economic governance structure in Nigeria today, and indeed most developing countries of the world, in contrast to the position of massive public sector intervention in the 1960s and 1970s. The various aspects of economic governance structures and growth performance of Nigeria over the years are discussed in this paper, but before doing this, it is important to first take a general look at economic governance and growth performance.

Nigeria’s Economic Governance Structure and Growth Performance

2.

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Economic Governance and Growth Performance

2.1 Theoretical Background The simple neo-classical growth model (Solow, 1956; Swan 1956) has established that output in the economy at any given time (Yt) can be produced using a combination of labour (Lt) and capital (Kt). The extended version of the model includes technical progress (At) to account for efficiency (Solow, 1957). The modern version of the model (the endogenous growth model) makes a distinction between physical and human capital (Romer, 1986; Lucas, 1988). Under the assumption of competitive markets, the growth rate of the economy (Gy) in the model is the weighted sum of the growth rates of technical progress (GA), labour (GL) and capital stock (GK). The growth accounting model can be represented as: Yt = At Ltβ Kt1-β

(1)

The contributions of technical progress, labour and capital to output are indicated by , β and 1-β, respectively. Alternatively, the model can be represented in a linearized form as: lnYt = lnAt + βlnLt + (1-β)lnKt

(2)

The growth rate of the economy can be obtained from (2) by taking time derivatives and simplifying to yield, Gy = GA + βGL + (1-β)GK

(3)

Expression (3) clearly states that the growth rate of the economy is the weighted sum of the growth rates of technical progress, labour and capital. It has been argued that the quality of economic governance, to a very considerable extent, explains differences in growth performance across countries (Agenor and Montiel, 1996). Macroeconomic stability and removal of structural distortion, especially in the financial sector, foster economic growth by improving the incentive to save and invest, as well as enhancing efficiency of investment. Indeed, fostering good governance through accountability, participation, transparency, and openness, is now thought to be as important in the promotion of economic growth as good macroeconomic policies (Ndulu, 1993). The rate of technical progress is generally taken to be strongly tied to the quality of economic governance () hence the economic growth rate may further be represented as; Gy = GA + βGL + (1 –β)GK

(4)

The role of economic governance/institutions appears to be the missing link in explaining the poor growth performance in some countries (Ajayi, 2002). The role of economic governance in the growth process of a country cannot be over emphasized, because

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markets can only operate efficiently when adequate governance structure is in place to prevent collusion and disorder (Goldsmith, 1998). Thus, the state can influence economic outcomes positively by providing a conducive environment with the right incentives and infrastructure that encourage long-term investment and growth (World Bank, 1997). The state can also do enormous damage by putting in place rules that can discourage the creation of wealth. In literature, the various measures of governance quality include the level of corruption, democracy, income inequality, social unrest, contract enforcement, etc. North (1990) underscores the importance of institutional settings in creating an environment conductive to economic growth. The other works that exalt the role of governance and institutions in economic growth include Scully (1988), Barro (1991), Knack (1996), Brunntti (1997), Posen (1998) etc. A more elaborate survey of the works is contained in Aron (2000). The consensus view of the survey is that good governance is a pre-requisite for rapid economic growth and development in any country. 2.2

Corruption and Growth

Corruption is a major element of the poor governance and instability in most developing and transition economies. The exact cost of corruption may not be known and probably will never be known simply because it is a secret crime which goes unreported, but its implications for economic growth and development are not in doubt. It hinders proper resource management and undermines efforts to facilitate growth and reduce poverty by obstructing sound and sustainable private sector growth (African Development Bank, 2000). Corruption undermines the rule of law and the legitimacy of a state, and destroys the integrity of national institutions on which economic development depends (African Development Bank, 2001). It also accelerates crime, hurts investment, stalls economic growth, bleeds the national budget, burdens the poor disproportionately, and diverts scarce resources from basic human needs. Indeed, from the perspectives of several authors, corruption is associated with slow economic growth, reduced investment, lower public revenue, feeble property and contract rights, ineffective institutions, limited social interaction, weak rule of law, poor economic competitiveness, deep ethnic divisions and conflicts, social and political tension, low participation in politics, weak protection of civil liberties, low educational attainment, closed economic and political systems (Obadan, 2001: 15). Corruption impacts negatively on economic growth through a wide range of channels (Obadan, 2001):  

Lowering of incentives to invest (for both domestic and foreign entrepreneurs). Bribery not only raises transaction costs but also uncertainty. Reducing the quality of infrastructure and services, decreasing tax revenue, and causing talented people to engage in rent seeking rather than productive activities.


 

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Distorting the composition of public expenditure. Corruption may tempt public officials to choose government expenditures less on the basis of public welfare than on the opportunity they offer for extorting bribes and kickbacks. Distortion of the whole decision-making process connected with the investment budgeting. Widespread corruption will not only reduce the rate of return to new public investment, but will also affect the rate of return that a country gets from its existing infrastructure for reasons of contamination by past corruption and reduction of resources available for other spending, e.g. on operation and maintenance, as a reduction of higher spending on capital projects.

Table 1: Corruption Perception Index (CPI) and Real Growth Rates in African Countries Country

1998 CPI

Growth rate (%) 8.1 6.2

1999 CPI


2000 CPI


2001 CPI


Botswana 6.1 6.1 6.0 6.0 Burkina n.a n.a 3.0 n.a Faso Cameroon 1.4 5.0 1.5 4.4 2.0 4.2 2.0 3.9 Chad n.a 6.7 n.a 0.5 n.a 0.6 n.a 7.9 Cote 3.1 5.8 2.6 1.6 2.7 -2.3 2.4 -3.3 d’Ivoire Egypt 2.9 5.6 3.3 6.0 3.1 6.4 3.6 3.3 Equatorial n.a 18.5 n.a 25.1 n.a 16.8 n.a 40.7 Guinea Ethiopia n.a -1.4 n.a 6.2 3.2 4.6 n.a 6.2 Gabon n.a 3.5 n.a -9.2 n.a -1.9 n.a 1.0 Ghana 3.3 4.7 3.3 4.4 3.5 3.7 3.4 5.8 Kenya 2.5 2.1 2.0 2.0 2.1 -0.5 2.0 2.0 Mali n.a 5.0 n.a 6.6 n.a 4.3 n.a -0.6 Mauritius 5.0 5.8 4.9 2.1 4.7 8.9 4.5 5.6 Morocco 3.7 7.7 4.1 0.0 4.7 0.9 n.a 4.8 Mozambique n.a 11.9 3.5 7.3 2.2 2.1 n.a 13.3 Namibia 5.3 3.3 5.3 3.4 5.4 3.3 5.4 3.0 Nigeria 1.9 1.8 1.6 2.8 1.2 3.8 1.0 3.8 Senegal 3.3 5.7 3.4 5.1 3.5 5.5 2.9 5.0 South Africa 5.2 0.7 5.0 1.9 5.0 3.1 4.8 2.9 Tanzania 1.9 3.3 1.9 4.8 2.5 5.1 2.2 4.4 Uganda 2.6 4.6 2.2 7.6 2.3 4.6 1.9 4.5 Zimbabwe 4.2 2.5 4.1 -0.2 3.0 -5.5 2.9 -5.7 Note: CPI relates to perception of the degree of corruption as seen by business people, risk analyst and the general public, and ranges between 10 (highly clean) and 0 (highly corrupt). Sources: African Development Report (2001), African Economic Outlook (2001/2002)

Various empirical studies have shown that the amount of corruption is negatively linked to the level of investment, particularly private investment, and economic growth. Widespread corruption provides a poor environment, which discourages those investors most likely to make long-term contribution to development, and encourages those who seek quick profits through dubious ventures. Thus, the needed capital that could lead to sustained growth is diverted to other less productive areas. Corruption also hinders the

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growth of small and medium-sized businesses, which are the engine of job creation and economic growth. The negative impact of corruption falls mostly on the poor who are hardest hit when there is an economic decline. The poor are the most reliant on public services and are the least capable of paying the extra cost associated with corruption. Again, when public officials embezzle state funds, which are meant to provide services, the poor suffer more. Over the years, corruption has persisted in Africa as indicated by Transparency International corruption perception index (CPI), but the degree varies across countries, and by implication the quality of governance has been under severe threat of deterioration. The level of corruption is high in virtually all the countries, which probably explains the low growth rates, particularly in Nigeria, Kenya, South Africa, Zimbabwe, Gabon and Cote d’Ivoire (table 1). Economic Governance Structures in Nigeria, 1960 – 2007

3.

In this section, brief reviews of some key economic governance structures/strategies are provided. 3.1.

National Development Plans (Fixed Medium-term Plans)

In the early 1940s, Nigeria joined other countries using the development plan as a framework for economic governance by formulating and implementing the Ten-year Plan of Development and Welfare, 1946 – 1956. But what was christened as the First National Development Plan was later to follow in 1962. This plan which covered the period, 1962 – 68, had the following main objectives:    

Growth rate of 4 per cent per annum Growth rate of per capita consumption of 1 per cent Provision of more opportunities in education Self-sustaining future growth

The proposed total capital investment was N2.13 billion, in which the public sector was expected to contribute 67 per cent and private sector 33 per cent. In absolute terms, the total annual fixed investment for the economy as a whole in the first two years fell short of the average level of N394.4 million (Obadan, 2003). However, in subsequent years, the targets were considerably exceeded up to 1967 even with the political crisis which began in 1966, culminating in a civil in 1967. By that year, 85 per cent of the total planned investment for the economy as a whole was realized. Accounting for this notable performance was the contribution of the private sector beyond its target. The expected annual average public investment of N264.4 million was not realized in any of the years due to the diversion of resources to prosecute the civil war, besides a huge short fall in expected foreign exchange inflow. For the period 1963–66, the real growth rate of 4.7 per cent exceeded the minimum target of 4.0 per cent. However, with the out break of the civil war in 1967, the real growth rate for that year was negative at -7.6 per cent, thus reducing the average real growth rate for the period 1963–67 to only 2.3 per cent.


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The Second National Development Plan (1970–74) was designed mainly to reconstruct the war afflicted economy and to promote social and economic development. It was an ambitious economic development framework that envisaged Nigeria’s economic self-reliance in the long-run. It made the public sector to assume the role of economic driver, with the following broad objectives:     

High overall growth rate Rapid increase in food production Considerable reduction in unemployment Significant diversification of the economy Equitable distribution of income.

The planned total investment was N4.9 billion, and the public sector was to contribute 68.4 per cent while the private sector was to contribute the balance of 31.6 per cent. The planned real GDP growth rate was 6.6 per cent per annum. At the end of the plan period, the public sector had succeeded in undertaking only 66.8 per cent of the envisaged public sector investment, but the real GDP actually grew at the average rate of 8.2 per cent, exceeding the plan target of 6.6 per cent. There was considerable increase in primary school enrolment by 28.6 per cent between 1970 an 1973, while secondary school enrolment virtually doubled (Okojie, 2002) Table 2: Real GDP Growth and Investment Expenditure for the National Development Plans, 1962 – 1985 GDP Growth Rate/ 1962-68 1970-74 1975-80 1981-85 Investment Planned Actual Planned Actual Planned Actual Planned Actual Expenditure Real GDP Growth Rate (%) 4.0 2.1 6.6 8.2 9.0 5.0 7.2 1.2 Investment Expenditure (Nbn): Public sector Private sector Aggregate

1.352 0.780 2.132

1.073 -

3.3 1.6 4.9

Public Sector Expenditure Distribution (%): Economic activity 71.3 62.9 53.1 Social services 20.9 15.2 26.5 Administration 7.2 19.5 18.1 Financial obligations 0.6 2.4 2.2 Development Source: National Planning Commission, Abuja

2.237 -

43.3 10.3 53.6

24.434 -

42.2 40.0 82.2

17.33 -

49.0 27.6 21.3

61.5 11.6 13.0

58.4 13.8 17.3

62.9 11.3 10.6

60.9 12.5 21.5

2.1 -

13.9

10.6

10.1

5.0

The Third National Development Plan (1975–80), aimed at improving upon the good performance of the second national development plan. Initially, planned investment was estimated to be N30 billion, but due to a number of events, the nominal capital investment was revised upward to N53.6 billion. The public sector was expected to

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contribute 80.8 per cent of the total investment required to improve on the economic performance, while the private sector needed to contribute only 19.2 per cent. The planned GDP growth rate was 9 per cent per annum. At the end of the period, total capital formation in current terms stood at N42.3 billion with the public sector accounting for N29.4 billion (about 70 per cent). The realized growth rate was only 5 per cent per annum compared to the target rate of 9.0 per cent, because the economy had no growth momentum of its own and was therefore adversely affected by the oil price shock in 1978. The Fourth National Development Plan (1981–85) was designed to lay a solid foundation for long-term economic and social development of the country by placing emphasis on greater reliance on internal resources, development of technology and promotion of new national orientation to inculcate discipline and better attitude to work. The planned capital expenditure was N82.0 billion, out of which the public sector was expected to invest 50.2 per cent and the private sector 49.8 per cent. The planned GDP growth rate was put at 7.2 per cent per annum. However, only about 41 per cent of total planned investment was actually achieved. GDP growth rate averaged 1.2 per cent compared with the planned growth of 7.2 per cent. The great expectations of the plan collapsed suddenly in 1981 when a major oil glut emerged in the international market. Apart from the oil revenue instability, the economic stabilization measures of 1982 also took their toll on plan performance (Obadan and Ogiogio, 1992). The measures were clearly at variance with those needed to realize the growth targets set for the plan. Indeed, the economic crisis which followed the downturn in the oil market in 1981 shattered the plan and rendered it the most dismal plan in the economic history of Nigeria (Yesufu, 1996). The performance of the various plans is shown in table 2. 3.2.

Structural Adjustment Programme (SAP)

The structural adjustment programme was introduced in mid-1986 as a short-term reform programme that was expected to terminate by mid-1988, but it continued thereafter until it was abandoned in 1994. It was the most revolutionary approach to solving Nigeria’s long-standing economic problems and the most controversial economic governance framework ever instituted in the country (Obadan, 1996b). Two of its broad objectives are:  

Re-structuring of aggregate domestic expenditure and production patterns so as to minimize dependence on imports; and Diversification of the productive base of the economy in order to reduce dependence on the oil sector and enhance non-oil exports.

The objectives were to be achieved through private sector-led development strategy and reduction in the size of the public sector. Accordingly, the measures adopted included the following:


• • • • • • • •

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Exchange rate deregulation Liberalization of various sectors of the economy Abolition of agricultural marketing boards Cut in extra-budgetary spending Tight fiscal policy Reduction in subsidies Privatization and commercialization Staff rationalization in public sector.

The performance of SAP was a mixed package of outcomes. The gains include reversal of the negative economic growth trends of the early 1980s, substantial boost in government revenue, increase in agricultural exports in naira, improvement in external payments arrangements and international credit worthiness, etc. The negative effects of SAP include rapid depreciation of the local currency, high and volatile interest rates, near paralysis of the real sector, galloping inflation, heavy debt overhang, increasing unemployment, deterioration in living standards of the average Nigerian, among others (Federal Government of Nigeria, 1993). In the final analysis, SAP created enormous distortions in the economy and failed to redress the fundamental economic problems of the country (Table 3). Table 3: Economic Indicators in the Period of Structural Adjustment Programme, 1986-1994 GDP Inflation Investment/ Savings Growth Rate Growth Rate GDP /GDP of non-oil Rate (%) (%) (%) Exports (%) (%) 1986 3.1 5.4 6.0 11.3 -29.1 1987 -0.5 10.2 3.7 37.8 36.2 1988 9.9 38.3 4.0 12.5 13.9 1989 7.3 50.5 5.1 26.6 -34.5 1990 8.2 7.5 6.3 29.2 1.1 1991 4.7 13.0 5.8 17.6 16.5 1992 3.0 44.6 5.7 13.7 -48.2 1993 2.7 57.2 6.2 12.4 -6.8 1994 1.0 57.0 5.8 12.0 7.3 Source: Central Bank of Nigeria Annual Reports (1986 – 1995). Year

Growth Rate of Imports (%) -47.5 4.5 7.4 -33.3 34.4 -36.5 -11.1 -19.2 -3.6

Debt Service Rate (%) 35.4 39.7 27.6 25.9 26.8 29.1 20.1 16.9 18.7

Net Resource Transfer ($ bn) -1.5 -0.7 0.8 -3.4 -4.1 -3.6 -3.7 -3.3 -4.1

The failure of SAP can be attributed to several reasons including the following;  The application of IMF/World Bank structural reform measures in Nigeria without taking cognizance of the import-dependent nature of the industrial sector.  Lack of discipline and commitment in both the public and private sectors.  Poor vision of policy makers to the extent that long-standing structural problems were expected to be resolved within two years.  Market imperfections that impeded implementation of the deregulation policy and efficient resource allocation.

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 Weak private sector that was unable to manage the free enterprise economy contrary to expectations of the IMF/World Bank structural reform measures.  Non-integration of social safety nets into the programme to cushion the harsh short-term effects of the programme.  Contradictory fiscal and monetary policies. 3.3.

National Rolling Plans

The National Development Plan framework that was suspended following the adoption of SAP in 1986 was re-introduced in 1990 as National Rolling Plan, which is a flexible economic governance structure compared with the previous plans that had fixed terms. The first National Rolling Plan, 1990 – 1992, took its bearing from SAP. Accordingly, the plan’s general objective was to consolidate on the achievements made in the implementation of SAP as well as address the pressing problems of the economy. The specific objectives were:    

Attainment of higher level of self-sufficiency in the production of food and raw materials Laying a solid foundation for self-reliant industrial development as a key to dynamic and non-inflationary growth Creating ample employment opportunities and containing the unemployment problem Strengthening the base for a market-oriented economy.

The priority programmes of the plan included integrated rural development, provision of basic infrastructure, and development of small and medium scale enterprises. The cumulative total investment was N144.2 billion at current prices, with public sector contributing 65.3 per cent and private sector 34.7 per cent (table 4). The plan lacked adequate coordination and orientation, and according to Yesufu (1996), it was only developed to package the myriads of uncompleted public sector projects. The plan also suffered from other problems, among which are:  Resource constraints due to rising recurrent expenditures  Cost overruns that made nonsense of plan/budget provisions and prevented several projects from taking off  Extra-budgetary expenditures which exerted a crowding out effect on planned programmes  High incidence of non-planned programmes being executed  Problem of providing counterpart funds on projects under external financing. Since the launching of the rolling plan in 1990, it had been rolled over yearly, and at the end of about twelve rolling plans in 2003, Nigerians were not better off than they were during the years of fixed medium-term planning.


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Shortly after adopting the national rolling plan strategy, the preparation of a longterm perspective plan that would encapsulate the rolling plans over a period of twenty years was inaugurated. The plan preparation had made considerable progress before it was jettisoned in favour of the vision 2010 framework. The vision 2010 document, 1997, represented a framework for guiding the country toward economically prosperous, politically stable and socially harmonious system in the long-term. Annual budgets and rolling plans were to be used to implement the vision 2010, which was expected to cover the period 1997 – 2010. But it was jettisoned by the new democratic government in 1999 in favour of adhoc market-based approaches and later the National Economic Empowerment and Development Strategy (NEEDS). Table 4: Distribution of Projected Gross Capital Formation of National Rolling Plans 1990–92 Amount Share (N bn) (%) 94.2 65.3

Sector

1991–93 Amount Share (N bn) (%) 109.8 65.3

1992–94 Amount (N bn)

Share

(%) Public sector 112.0 65.3 Federal Government 66.9 46.4 82.9 49.3 86.8 50.6 State Government 20.4 14.1 18.2 10.8 7.5 10.2 Local Government 6.9 4.8 8.7 5.2 7.7 4.5 Private Sector 50.0 34.7 58.3 34.7 59.4 34.7 Total 144.2 168.1 171.4 Source: National Development Planning Commission, Abuja.

3.4.

1993–95 Amount Share (%) (N bn) 330.8 76.4

1994–96 Amount Share (N bn) (%) 362.6 82.9

1997-99 Amount Share (N bn) (%) 1619.4 70.5

284.1

65.6

282.6

64.6

1048.9

45.6

26.3

6.1

45.0

10.3

176.8

7.7

20.4

4.7

36.0

8.0

137.5

5.9

102.4 433.2

23.6 -

74.9 437.5

17.1 -

365.0 2298.7

15.9 -

The National Economic Empowerment and Development Strategy (NEEDS)

This development strategy was developed in 2004 to guide Nigeria’s development in the desired direction. It effectively replaced the previous plans in the country, namely the fixed medium-term plans and rolling plans. It identified the problems of the country and accordingly prescribed strategies for developing various sectors of the economy such as agriculture, industry, infrastructure, social services, etc. The NEEDS framework was essentially an articulation of planned policy actions of the federal government, which was expected to be complemented at the state level by State Economic Empowerment and Development Strategy (SEEDS) and at the local level by Local Economic Empowerment and Development Strategy (LEEDS). The broad goals of NEEDS are:    

Re-orienting values Reducing poverty Creating wealth Employment generation

In order to gauge the achievement of the set goals, the NEEDS document provided targets over the 2003–2007 period for various segments of the national economy. The

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target minimum annual GDP growth rates were 5 per cent in 2004, 6 per cent in 2005 and 2006 and 7 per cent in 2007 based on the assumption that these were the minimum needed to achieve adequate per capita income and improvement in welfare. Inflation rate, on the other hand, was targeted to be 10 per cent in 2004 and less than 10 per cent up to 2007. The fiscal deficit/GDP ratio was targeted at no more than 3.2 per cent per year. In the external sector, external reserves were projected to increase from US$ 7.7 billion in 2004 to US$ 10.7 billion in 2007. Poverty incidence was expected to reduce by 5.0 per cent per year up to 2007. In the infrastructure sub-sector, power generation in megawatts was projected to be 4,000mw in 2004, 5000mw in 2005, 7,000mw in 2006, and 10,000mw in 2007. Progress in achieving the millennium development goals was also expected to be substantial. Aggregate investment was expected to increase from N2,071.2 billion in 2004 to N4,663.7 billion in 2007, with the private sector expected to contribute the lion’s share of the investment. In broad terms, NEEDS was expected to achieve its goals through the following measures:       

Privatisation and deregulation/liberalisation of key sectors of the economy Coordination of national and sectoral development strategies for agriculture and industry, with emphasis on small and medium scale enterprises (SMEs) as well as tourism Development of infrastructure, particularly electricity, water supply and transport Strengthening the financial sector for mobilisation of savings toward long-term investment Targeting programmes that promote private sector growth and development Creation of effective regulatory system Special support to agriculture in irrigation, mechanization and crop varieties.

The performance of the economy under NEEDS in terms of macroeconomic indicators may be described as an improvement on previous periods (table 5). The inflation targets for 2004 and 2006 were achieved, but the rate increased to 11.6 per cent in 2005. National savings improved, but gross capital formation remained low at11.9 per cent and 12.0 per cent in 2004 and 2005, respectively, which implies that the relatively high savings rate could not be translated into investment. The fiscal position of government improved in the first two years with reduced fiscal deficits in relation to the targets, but the recurrent expenditure/total budget ratios were still more than the targets. The performance of the external sector improved significantly. The overall balance of payments recorded huge surpluses compared with the projected deficits, while external reserves shot up significantly from the target value of US$ 7.7 billion in 2004 to the actual value of US$ 28.3 billion in 205. The outstanding performance of the external sector is due to positive developments in the international oil market. In the financial sector, the growth rates of major monetary aggregates recorded values below the prescribed targets in 2004, with credit to government actually recording negative growth. In the area of infrastructure, power generation is still very low and below the prescribed targets, which slowed the growth in various sectors of the economy that depend on electricity supply. Unemployment remained intractable, although the economy recorded


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appreciable growth in GDP, which also failed to impact positively on standard of living in the country. Table 5: Performance of the Nigerian Economy under NEEDS Selected indicators

2004 Target Actual

2005 Target Actual

Macroeconomic Growth in real GDP (%) Gross national savings (% of GDP) Reduction in poverty incidence (%) Inflation rate (%) Minimum number of new jobs (mn)

5.0 14.1 5.0 10.0 1.0

6.5 18.4 n.a 10.0 n.a

6.0 17.2 5.0 9.5 2.0

6.2 19.4 n.a 11.6 n.a

2006 Target Actual n.a 6.0 23.9 5.0 9.5 20.0

Federal Govt. Finance Overall fiscal balance (% of GDP) Total expenditure (% of GDP) Recurrent expenditure (% of total budget)

-1.9 23.5 65.0

-1.5 12.5 72.4

-3.2 23.4 60.0

-1.1 12.5 69.2

-3.2 22.9 60.0

External sector Overall BOP (% of GDP) Current account balance (% of GDP) External reserves ($m) Growth in imports (%) Growth in exports (%)

-10.8 -2.9 7,687 15.0 10.0

9.6 17.7 16,950 -4.4 49.1

-9.2 -2.3 8,687 18.0 20.0

9.3 22.8 28,279 13.8 36.6

-4.4 -0.5 9,687 25.0 25.0

Financial Sector Growth (%) Net domestic credit Net credit to Government. Credit to private sector Narrow money. (M1) Broad money (M2)

24.5 29.9 30.0 10.8 15.0

12.0 -17.9 26.6 8.6 14.0

24.6 29.9 30.0 8.3 15.5

-14.5 37.0 30.8 15.5 16.0

22.5 23.5 30.0 16.7 15.5

n.a

n.a

n.a

Infrastructure n.a Power generation (megawatt) 4,000 2,765 5,000 2,687 7,000 Roads(rehabilitation, maintenance and new roads) (km) 3,500 n.a 3,500 n.a 4,000 Source: National Planning Commission, Abuja (NEEDS Document); Central Bank of Nigeria Annual Reports 2004 – 2006

4.

The Fostering of Good Governance in Nigeria

Two notable strategies geared towards achieving good economic governance relate to the Due Process Compliance mechanism and the proposed Fiscal Responsibility Law. 4.1.

The Due Process Compliance (DPC)

The DPC mechanism is designed to enforce compliance with due process of budgeting, procurement and expenditure by all federal government ministries, parastatals, agencies and units. The Budget Monitoring and Price Intelligence Unit (BMPIU) of the presidency provides the institutional framework for the implementation of DPC. The due process

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approach is a major extant financial rule and guideline of the federal government introduced in 2001. Its major attraction is that it helps ensure that government spending is not only based on authentic and reasonable costing, but is also appropriately geared toward the realization of set priorities and targets that were generated from medium range strategic plans. The DPC is implemented at three levels: (Obadan, 2003):   

Preparatory works on projects have to be completed before they are included in the budget. Contract award processes have to be followed before award is made. Payments for contracts are made based on satisfactory progress toward the completion of projects.

The certification of a project for budget preparation presupposes that it has fully satisfied all the due process requirements for implementation to start. This is to ensure that planning is linked to budgeting. Once a project is included in the budget, relevant government agencies are expected to comply with the due process guidelines for the award of contracts consisting of invitation to bid, bid opening, bid evaluation, etc. Once the project is initiated and down-payment is made, further payments are conditional upon the certification by the resident due process team that satisfactory progress has been made toward completion of the project. There is no doubt the DPC is a veritable and commendable approach to budget reform, in the attempt of government to enhance quality of governance. The features of the approach are such that can minimize corruption in public expenditure and yield substantial value for money. It has been observed that within the period of its existence, the DPC has reduced cost of projects and accumulated savings running into billions of naira, while public officials who attempted to circumvent the process have been appropriately sanctioned (Ezekwesili, 2002). The new approach is quite laudable, but there is need for administrative reform of the process to eliminate bureaucratic bottlenecks and delays. Again, there is need for closer collaboration with the National Planning Commission (NPC) to ensure that the projects included in the budget are in consonance with the priorities in the national planning framework. 4.2.

The Proposed Fiscal Responsibility Law

A Fiscal Responsibility Bill prepared by the Executive branch of the Federal Government is at present with the National Assembly awaiting passage into law. This law is expected to usher in a new system of managing public funds. Under the law each tier of government would subject its medium-term economic plans and budgets to debate in public hearings, prepare and appraise budgets in accordance with international standards, publish budget implementation reports, and provide audited statements of account to the legislative arm (Federal Ministry of Finance, 2004). To ensure efficient management of revenue, federal and state governments are expected to establish accounts at the Central Bank of Nigeria (CBN), where excess revenue from commodities/natural resources above predetermined price would be saved to cushion effect of revenue volatility. The savings


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from excess revenue would be prudently invested by the CBN. The fiscal responsibility council which is expected to have eleven members would enforce the law and forward violations to the Attorney-General of the federation for prosecution. The goals of the law include:     

Improvement in inter-government fiscal coordination Promotion of greater macroeconomic stability Promotion of fiscal prudence and sound financial management Enhancement of transparency and strengthening of accountability Provision of conducive climate for generating growth and reducing poverty

The proposed law is an imperative in the Nigerian situation, where corruption and mismanagement of public funds have become endemic for so many years and no serious sanctions have been applied to culprits. This is due to the inadequate legal framework that made it possible for government and individuals at various levels to engage in reckless spending (Okonjo-Iweala, 2004). The law is also firmly anchored on the National Economic Empowerment and development strategy (NEEDS) in the areas of fiscal behaviour and project implementation and reinforces the Due Process Compliance (DPC) principle. The passage of the law is very critical to wise and prudent management of national resources by all tiers of government in order to maximize benefits to the people of Nigeria. It will go a long way to contain the culture of inconsistency, indiscipline, waste and corruption which have caused grave harm to the economy and impoverished the citizens. Similar laws have been introduced in countries such as Britain, India, Brazil, Argentina, South Africa, etc, to re-order priorities and re-focus their economies toward improving the welfare of citizens. 5.

Growth Performance of the Nigerian Economy, 1960 – 2005

The various economic governance structures and strategies were expected to result in respectable economic growth rates and significant reduction in poverty and improvement in standards of living. The Nigerian economy has witnessed some growth in its gross domestic product (GDP) over the years, except in periods of numerous social, political and economic crises that the nation had to grapple with, such as the civil war of 1967–70 and global economic crisis of early 1980s. But the growth has been grossly inadequate to significantly reduce poverty and enhance welfare of the majority of the citizens. This tends to suggest ineffectiveness of the various economic management strategies and policies. In the first decade after political independence in 1960, the leading source of growth was agriculture which accounted for about two-thirds of GDP and labour employment, substantial supply of raw materials for industries, and the largest proportion of non-oil export (Obadan and Edo, 2004a). During this decade, the first national development plan (1962–68) was formulated and implemented and was characterized by the state’s deep participation in economic activities. Specifically, there was rapid expansion in general

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economic activity, but the growth impetus weakened by 1964 such that the political crisis which began in 1966 only fuelled an already deteriorating situation. In spite of the deterioration, the civil war period of 1967–70 recorded an impressive average GDP growth rate of 10.9 per cent, due mainly to the remarkable recovery of economic activity toward the end of the civil war, when real growth rates of 30.5 per cent occurred in 1969 and 29.6 per cent in 1970. Overall, however, the average growth rate for 1960–70 was only 5.1 per cent (table 6). Table 6: GDP and Sectoral Growth Rates in Nigeria, 1960 – 2005. 2002 19982001

2003 (at 1984 prices) 3.8 2.6 n.a

2003(at 1990 factor cost) 10.2 6.5 21.3

2004 (at 1990 prices)

GDP and 1960-70 1970-80 1980-85 1985-97 sectors Real GDP 5.1 7.8 -5.5 2.3 3.3 4.1 6.6 Agriculture 3.2 4.3 -1.0 2.9 4.1 3.8 6.5 Industry 19.4 7.2 -4.2 1.0 0.05 -3.6 4.1 Crude petroleum n.a n.a 0.2 3.6 2.8 5.2 -7.0 3.4 3.3 Manufacturing 15.3 5.6 -3.8 2.3 1.9 4.2 9.0 9.3 9.6 Services 3.4 6.1 -0.2 5.3 4.0 5.9 n.a 0.4 8.8 Note: Growth rates for 2003 are at 1984 and 1990 constant prices. Those for earlier years are at 1984 prices while those for 2004 and 2005 are at 1990 prices. Sources: Central Bank of Nigeria-Major Economic and Financial Indicators, Annual Reports, and Statistical Bulletin (various issues); Federal Office of Statistics-Annual Abstract of Statistics and Gross Domestic Product of Nigeria. (Various Issues); Obadan (2007).

The decade of 1970s marked a turning point in the Nigerian economy and its growth performance. The main source of growth changed from agriculture to crude petroleum and oil became the major contributor to GDP, government revenue and foreign exchange earnings. The share of oil in exports jumped from 57.6 per cent in 1970 to 96.1 per cent in 1980, while its share in government revenue rose from 26.3 per cent in 1970 to 81.4 per cent in 1979. As crude oil earnings rose and eased the financial constraint on development, government became the prime mover of the economy. The positive impact of oil resulted in an average GDP growth rate of 7.9 per cent, which was much higher than the 5.1 per cent recorded in the previous decade. However, the economic prosperity of this period was mismanaged, causing radical changes in production and consumption patterns with grave implications for long-term economic growth (Edo, 2002a) The early 1980s witnessed a rapid deceleration of real GDP growth rate, caused by devastating shocks from the global economic environment, such as recession, declining commodity prices (especially the collapse of crude oil prices), increase in protectionism by the developed economies, and declining capital inflow. The collapse of crude oil prices adversely affected the nation’s revenue and hence the collapse of the Fourth National Development Plan (1981–85). The weak oil prices also gave rise to large fiscal deficits, huge current account deficits, and rapid depletion of foreign reserves. This led to massive external borrowing to fill up the resource gap created by the oil market shock, and consequently the accumulation of external debt and its burden on the economy (Edo, 2002b). The net effect of the crisis on GDP was devastating as negative growth rate of

2005 (at 1990 prices) 6.2 6.8 1.7 0.5 1.9 7.8


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-3.9 per cent was recorded for the period 1981 – 84, as well as sharp decline in living standard of the citizens. However, the introduction of SAP in 1986 brought some improvement to GDP growth rate, which averaged 6.3 per cent in the period 1986–90. In the 1990s and early 2000s, the growth performance of the economy, although positive remained weak (Obadan and Edo, 2004b). The economic growth rate which averaged 3.5 per cent over the period 1990–2003 is very low in relation to targets, particularly the Vision 2010 target of not less than 10.0 per cent per annum. It is also low in relation to the minimum 6–7 per cent required to reduce poverty by half toward the year 2015. Even with the extra-ordinary growth rate of 10.2 per cent reported for 2003, due to the change in the base year from 1984 to 1990, the average growth rate for 1999– 2003 was only 4.9 per cent (Obadan, 2006). The subsequent years of 2004 and 2005 recorded growth rates of 6.6 per cent and 6.2 per cent, respectively, which were considerable improvement on the growth performance of the 1990s, but were still relatively low and incapable of alleviating poverty. Thus, the decades of the 2000s had advanced, but the incidence of poverty remained high at over 50 per cent. And the subsisting challenge then is to achieve and sustain high growth rates as well as translate such growth rates into poverty reduction and increased employment opportunities to ensure that the majority of the people reap the benefits of growth. In summary, it is very clear in table 6 that the growth performance of the economy and its key sectors was most outstanding in the decade of 1970–80, as a result of the oil boom. However, the Nigerian economy is yet to achieve consistent, respectable and optimum growth rates. The NEEDS document of 2004 acknowledges that annual growth rate in Nigeria which averaged less than 3.0 per cent for the period 1960–2003 has been disappointing. This is more so, considering that some of the world’s fastest growing economies have for some time now boasted of growth rates of 8 -10 per cent per annum. 6.

Concluding Remarks

Forty-six years after Nigeria attained political independence her economy has been characterized by low levels of economic growth, savings and investment, the plethora of economic governance structures, strategies and policies notwithstanding. The economic base has yet to be diversified while structural imbalances continue to plague the economy. No doubt, in some years, the performance of the economy with respect to economic growth rates has been higher than projected, for example, during the second National Development Plan period. The SAP era also witnessed high growth rates of the GDP. However, the overall economic growth rate has not been inspiring, very much below potentials and targets, and too low to make a significant dent on poverty. Moreover, periods of growth have not been accompanied by much development. Growth had been accompanied, rather sadly, by a general neglect of human development, product quality, asset maintenance, conservation of non-reproducible resources and promotion of socially relevant tastes (Obadan, 2007). Indeed, some macroeconomic and social indicators do not provide cheering news. For example, GDP per capita has declined sharply from about US$1,000.00 in 1980 to about US$300.00 in 2004. The state of the quality of life and social indicators has been such that Nigeria continues to grapple with the challenge of meeting the Millennium Development Goals (MDGs).

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As Okojie (2002) correctly observes, several socio- economic indicators show that the quality of life has worsened, especially since SAP, the implementation of many rolling plans and policy packages notwithstanding. The incidence of poverty which declined from 70 per cent in 2000 to 54.6 per cent in 2004 is still very high, just as income inequality is also high. Unemployment is threatening social cohesion, security and democracy while the HIV/AIDS scourge has yet to be controlled. This has potential dire consequences for productivity in the economy. The other health indicators are also worrisome. For Nigeria to move out of the present poor state of the economy into a sustainable and quality growth and development, lessons must be learnt from the success stories of the High-performing Economies of East Asia (HPAEs), namely, Japan the four tigers (Hong Kong, Republic of Korea, Singapore, Taiwan-China), and the three newly industrializing economies of South East Asia (Indonesia, Malaysia and Thailand). One of the key lessons relates to government commitment and active intervention in development through effective economic governance structures. In Africa, Botswana is a small country that is reputed internationally to have achieved rapid growth and significant improvement in the welfare of her people over the years. Good governance and proper development planning, among others, have been identified as the success factors in the Botswana story (Obadan, 1998). In that country, development plans are approved by the parliament and enshrined in the law such that a development project cannot be implemented if it is not in the plan, which itself is subject to periodic modifications and approval by the parliament. Why can’t Nigeria have proper development plans that are backed by law in order to ensure discipline, tackle structural imbalances effectively, and achieve orderly development of the country. Nigeria, with vast endowment of human, material and natural resources, does not deserve to remain in the present unsatisfactory economic state. The country requires welldesigned, articulated and implementable programmes, to move forward along the path of rapid economic growth, sustainable and balanced economic development. For the programmes and policies to yield the desired results, there must be sane and good governance, civilized political behaviour, political stability and societal discipline. Again, there must be a political leadership that is committed to development and the management of the nation’s vast resources for the benefit of the entire people. References Adedeji, A. 1996. Address Presented at the Opening of the 8th Banking Conference of Maryland Finance Company Ltd, Lagos, September 26. African Development Bank. 2000. African Development Report. Cambridge University Press, New York. African Development Bank. 2001. Fostering Good Governance in Africa, In: African Development Report. Cambridge University Press, New York. Agenor, P. and P. Montiel. 1996. Development Macroeconomics. Princeton University Press, New Jersey.


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