Nigerian Government Economy


I am required to suggest a programme or actions and policies which Nigerian government, could adopt to modernise a sector of its economy to support knowledge based enterprises.

Exciting trends are sweeping across the world. In the advanced economies “knowledge” is fast becoming a strategic asset for economic development. Technological advances and globalisation are gathering pace. Advances in information and communication technology are occurring on a tremendous scale. For countries tapping into the new ideas, innovations and technologies that proliferate in a knowledge-driven economy, there is a definite abundance of wealth and opportunities for all its people.

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Nigeria’s economy depends heavily on the oil and gas sector, which contributes 99 percent of export revenues, 85 percent of government revenues, and about 52 percent of gross domestic product (GDP). With its large reserves of human and natural resources, Nigeria has the potential to build a prosperous economy, reduce poverty significantly, and provide the health, education, and infrastructure services its population needs. Nigeria’s macro-economic performance over the last two years has been commendable. The economic reform efforts are showing positive results.

The economy never experienced double-digit inflation during the 1960s. By 1976, however, the inflation rate stood at 23 per cent. It decreased to 11.8 per cent in 1979 and jumped to 41 percent and 72.8 per cent in 1989 and 1995,

At independence in 1960 agriculture accounted for well over half of GDP, and was the main source of export earnings and public revenue. The oil sector, which emerged in the 1960’s and was firmly established during the 1970’s, is now of overwhelming importance to the point of over-dependence: it provides 20% of GDP, 95% of foreign exchange earnings, and about 65% of budgetary revenues. Competition between ethnic and regional groups for power and access to the country’s oil wealth are increasing in intensity as the 2003 elections approach.

Nigeria used to be one of the largest producers of tin in the world, with production based around the highland district of Jos. Production collapsed from an average of 10,000 tonnes per year in the 1970s to 300 tonnes in 1995. Tin reserves are estimated at 16,000 tonnes. Independent estimates place iron ore reserves at 800 million tonnes, averaging 37 % metal content. Iron ore mining began in 1984 and 1989 reported a stockpile of over 500,000 tonnes.

By 1997, it was unlikely that iron output was more than 50,000 tonnes per year. Iron ore deposits are being exploited with the long-term aim of supplying the requirements of the national steel industry. Deposits of uranium, lead, zinc, tungsten and gold are not yet exploited. There are 65 sites in Nigeria where gold has been located. By mid-1999, field appraisals had recommended nine as being ready for exploitation.

The petroleum sector is the mainstay of the economy, contributing 36% to annual GDP, 75% to government revenues and accounting for virtually all foreign exchange earnings. At end-1998, total oil reserves were estimated at 22.5bn barrels, sufficient to give close to another 30 years of output. Nigeria ranks as the sixth largest producer in the Organization of Petroleum Exporting Countries (OPEC) and by far the largest in Africa.

The US$4bn Nigeria Liquefied Natural Gas Scheme, Africa’s single biggest engineering project, started producing liquefied natural gas at the plant at Bonny Island, near Port Harcourt, in 1999, then civil unrest in the Niger Delta region interrupted production. During the course of 2000 the Paris Club agreed to reschedule US$23.4bn of Nigeria’s debt, with effect from April 2001, on condition that the government keeps to its agreed IMF reform programme.

Nigeria successfully negotiated with both the Paris and London Clubs and the country now has no major foreign debt. The US$750 million fiscal space created by the debt deal with the Paris Club creditors has been allocated for the achievement of MDGs and poverty reduction. The Budget classification has been amended to help monitor and track MDG expenditures.

“Exchange Rate Mechanism: The Current Nigerian Experience” is quite appropriate, given the central role of exchange rate in an economy generally, and its importance to international trade and investments in particular. Thus, a

gathering of this nature should be commended for providing an opportunity to review the current exchange rate mechanism in Nigeria, appraise its efficiency and where necessary, proffer suggestions for its fine-tuning.

Perhaps I should begin this address by noting that exchange rate arrangements in Nigeria have undergone significant changes over the past four decades. It shifted from a fixed regime in the 1960s to a pegged arrangement between the 1970s and the mid-1980s, and finally, to the various types of the floating regime since 1986, following the adoption of the Structural Adjustment Programme (SAP).

A regime of managed float, without any strong commitment to defending any particular parity, has been the predominant characteristic of the floating regime in Nigeria since 1986. I must quickly add that these changes are not peculiar to the Naira as the US dollar was fixed in gold terms until 1971 when it was de-linked and has since been floated.

Nigeria’s economic performance in the two decades prior to economic reforms was generally poor. Over the period 1992 to 2002, annual GDP growth had averaged about 2.25 percent. With an estimated population growth of 2.80 percent per annum, this implied a contraction in per capita GDP over the years that had resulted in a deterioration of living standards for most citizens.

Inflation levels were high, averaging about 28.94 percent per annum over the same period. By 1999 (at the start of the first Obasanjo administration), most of Nigeria’s human development indicators were worse than, or comparable to, that of any other least developed country.

The implementation of monetary policy was similarly fairly disciplined, with the central bank adhering to various monetary targets and reducing inflation. End-year inflation declined from 21.8 percent in 2003 to 10 percent in 2004 but increased slightly to 11.6 percent at the end of 2005.3 Similarly, interest rates, although relatively high, are gradually declining: prime lending rates have declined from about 21.3 percent at the end of 1999 to 17.6 percent at the end of 2005.4 Finally, the adoption of the Wholesale Dutch Auction System facilitated the convergence of foreign exchange markets and the elimination of a previous black market premium.

The improved implementation of fiscal and monetary policies has provided a stable macroeconomic environment, which is crowding in private sector participation in the domestic economy. As an example, in 2005, credit to the private sector grew by 30.8 percent to N2.01 trillion (US$15.1 billion), exceeding the target growth rate of 22.5 percent.

In addition, net credit to the federal government declined by 37 percent to N306.0 billion (US$2.3 billion) compared with the target decline of 10.9 percent. The fall in lending to the federal government was attributed mainly to a decline in the central bank’s holding of treasury securities.

Overall, the attainment of macroeconomic stability has provided a platform for improved growth performance in recent years. Growth rates have averaged about 7.1 percent annually for the period 2003 to 2006. This is a notable improvement on the performance over the decade before reform when annual

growth rates averaged about 2.3 percent. More importantly, the recent strong growth rates have been driven by strong growth in the non-oil sectors, which is needed for employment creation. Growth in the non-oil sector for 2003, 2004, and 2005 was 4.4, 7.4, and 8.26 percent, respectively (see table 4 below). The country’s recent sovereign credit rating of BB- by Fitch and Standards & Poor further affirmed the recent progress made.

Donor Partnership and Coordination

Development partner coordination in Nigeria is strong. The Bank Group and DFID have prepared a joint Country Partnership Strategy (CPS) anchored on Nigeria’s home grown National Economic Empowerment and Development Strategy (NEEDS).. In the last two years, the partnership was extended to include USAID, particularly at the state level, and cooperation with UNDP, EU and ADB is being strengthened.

The partnership includes joint diagnostic, joint project preparation and supervision, and joint Country Portfolio Reviews. A joint progress report on the CPS is being prepared to take stock of implementation experiences, developments in Nigeria and reflect the new government’s priorities, and make the necessary adjustments going forward.

The World Bank Group

The International Development Agency (IDA) is the Bank’s interest-free lending arm for the poorest countries. The Nigeria portfolio currently supports twenty-three IDA projects, 2 GEF grants and total commitments of about US$2.6 billion. The Bank is the largest development partner in Nigeria and the country’s portfolio is the largest in the Bank’s Africa Region.

Through the implementation of the CPS (FY05-09), the World Bank has strengthened the policy dialogue, analytical and advisory assistance, as well as increased financial support to Nigeria. The strategy focuses on helping the government to achieve results in three main areas: (i) human development; (ii) non-oil growth; and (iii) better governance.

In order to ensure impact, the bulk of financial assistance in these three areas supports the reform efforts at the federal level and in 4 to 5 states where commitment to governance and fighting poverty is relatively strong. The Bank is already supporting state programs in governance, education, health and agriculture. Projects supporting basic service provision and community driven development are implemented in all of the states.

Projects currently under preparation include: Commercial Agriculture, Fadama 3, Rural Access and Mobility, Community Social Development, Federal Roads and others.Non-lending services are helping the Government to analyze policy options and strengthen the analytical base for the financial program under the CPS.

Over the last few years, this work included a Poverty Assessment, an Agriculture Sector Review, a Country Environment Assessment, a Public Expenditure Management and Financial Accountability Review, and Country Economic Memorandum. In FY08, work is being done in Health Financing, Financing Agriculture, Agriculture Public Expenditure Review, Niger Delta Social and Conflict Analysis, Investment Climate and Fiscal Federalism.

The Nigeria portfolio is still relatively young but a few investment operations have started to show results on the ground. Three community driven development projects have already demonstrated an impact on poverty and improved livelihoods (e.g. Fadama II project increased on average net incomes of fadama users by 59%). The Lagos Urban Transport Project has contributed to improved quality of roads, improved access and a 30% decrease in transportation costs.

Nigeria is International Finance Corporation (IFC)’s largest commitment portfolio in Sub-Saharan Africa US$683.9 million which represents about 37% of the region’s portfolio and focuses on: (i) financial markets, infrastructure, manufacturing & services, indigenous oil-gas-petrochemicals, agribusiness and healthcare; (ii) diversification within financial markets to include trade finance, housing finance including mortgages and securitizations, insurance, MSME finance, microfinance; and (iii) improving the investment climate and developing the local fixed income capital market. IFC is also the lead adviser to the government for the privatization of Nigeria airports.

The Multilateral Investment Guarantee Agency (MIGA)’s gross exposure in Nigeria is US$102.9 million and consists of five projects (11 contracts of guarantee) in support of the manufacturing and services sectors. The FY08 pipeline consists of three additional investments in the agribusiness, manufacturing and services sectors. These projects, to be sponsored by investors from Russia, South Africa and the Cayman Islands, have an anticipated combined gross exposure of US$163 million.

The Nigerian financial system has undergone some remarkable changes in recent times. Some of these developments include the promulgation of failed Banks (Recovery of Dept) and financial malpractice in Banks Decree No. 18 of 1994. This is to facilitate the prosecution of those who contributed to the failure of banks and to recover the debt owned to the failed banks. Another major development was the inauguration of a financial services Regulatory Coordinating committee (FSRCC) by the CBN in 1994.

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The aims granted for bearance to financial companies opening in Nigerian where by they were given a maximum of four years to amortize their classified assets portfolio against their current profits. The minimum borrowing of financial companies had been reviewed downward from N100,000.00 (Hundred thousand Naira) to N50,000.00 (Fifty Thousand Naira) since 1994.

Commission Decree and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree. The Money Laundering Decree is focused mainly to prevent drug money and other illegally acquired assets from entering the Nigerian financial system in order to forestall the damaging effects of such money. The Decree limits the maximum amount of cash payments that can be made or accepted to N500,000 for an individual and N2 million for corporate bodies, respectively. Amounts in excess of these limits are to be reported to appropriate authorities.

The Nigerian Investment Promotion Commission, among other things, is charged with the responsibility of encouraging, promoting and coordinating investment activities in Nigeria. The Commission is empowered to initiate and support measures which would enhance the investment climate in Nigeria for both citizens and foreign investors. The Commission is also empowered to register any enterprises in which foreign participation is permitted and to allow foreign enterprises to buy shares of any Nigerian enterprises in any convertible foreign currency.

The Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree established an autonomous foreign exchange market. The Decree empowers the Central Bank of Nigeria, with the approval of the Finance Minister, to issue guidelines to regulate the procedures for transactions in the market as well as other matters which may enhance the effective operation of the market. The decree provides for any convertible. foreign currency to be traded in the market. It also allows an individual, resident in or outside Nigeria, to invest in any security in Nigeria.

In 1997, the CBN Decree 24 and BOFI Decree 25 both of 1991 were amended. The highlights of the amendments include the withdrawal of the autonomy of the CBN with its supervision placed under the Federal Ministry of Finance. However, the powers of the Bank over the institutions within the financial system were enhanced. All financial institutions are now under its supervision, including the Developmental Financial Institutions.

A new insurance decree was also promulgated which stipulates new capital requirements for insurance companies and also created the National Insurance Commission as the regulatory organ in the industry. A computerized trading system was introduced in the Nigeria Stock Exchange to facilitate trading on the floor of the Exchange and enhance processing and settlement of transactions and facilitate the internationalization of the Exchange.

The Nigeria Deposit Insurance Corporation Decree 22 of 1988 was amended to give more powers to the Corporation to deal with insured banks and to act independent of the CBN on some matters affecting problem banks.

Programme or actions which the Nigerian Government can adopt to modernise the financial sector to support knowledge based enterprise are as follows.


Perhaps the most important change that needs to occur if Nigeria is to partake in the new global economy is the cultivation of a spirit of openness and transparency. Without doubt, corruption has become the bane of all aspects of Nigerian life, and according to Transparency International, Nigeria sits top of the scale as the second most corrupt country in the world. However, no country, no matter the amount of knowledge embodied in its people can prosper if corruption rules as king. Especially in the financial sector where integrity is watch word.

Fostering the Growth of Science and Information and Communication Technology (ICT).

In the area of communication technology, the competitiveness of the country in today’s information rich world will depend on it’s ability to access and exchange information both locally and globally. Through appropriate government regulations and private and international funding, telecommunications networks can be designed and implemented to suit the needs of the country. Recent announcement to provide seven million new telephone lines by the end of Year 2003 is a good step in the right direction. But of course, this is not enough.

More important is for the government to ensure that access to a working telephone and fax line for the average individual and business does not remain a privilege but is seen as a necessity. At present, Nigeria is the most expensive place on earth to make an international phone call. Access to communication in a knowledge economy however cannot be a privilege. It is a great necessity.

The latest edition of IT World magazine carried on its cover page’ Hackers target ATM cards’ and another one: ‘Banks plunge e-business into confusion’. If Hackers could penetrate and delete about 1300 files of FBI in 2004 in the United States, I wonder which organization is immune from Hackers in Nigeria. There will be no abatement of security threats in 2008.

Most companies now morph security threats into risk management rather than treating it as an IT issue. Issues like money launderings and internal fraud will not abate. There is no choice for financial institutions: eternal vigilance against smart hackers’ notorious cyber criminals and disgruntled and clueless employees remain part of cost of doing business in an electronic age.

The seven major IT issues which will continue to affect our lives for good or bad in 2008 include: Strategy, Information Security, Management, Technology, Local content, IT human resources and IT education. First, strategy. For companies, process improvement is the most critical job next year. Over the last century, we have witnessed a remarkable evolution in the way organizations deal with their customers.

The 1900s was product driven companies i.e. take it or leave it; the 1950s was the sales driven company, i.e. differentiation through advertising and distribution; the 1980s was the database marketing company; the 1990s up till now has been customer focused company i.e. what the customer wants. Tomorrow’s question will obviously be: ‘what the customer will want’.

Tomorrow belongs to the real time companies’ i.e. online, personalized, virtual show room. Organizations that will thrive in 2008 will be the ones that can answer the following four questions correctly and design a product that meets the expectations of the customers: What will the customer want, where will he want it, when will he want it and how will the customer like it packaged.

Encouraging the Development and Growth of Education and Training

Success in the knowledge driven economies of both the UK and US has been due largely to the skilled workforce. Workers everywhere are more highly educated. In most hi-tech companies like computer software the value of a company or its intangible assets resides almost entirely in the knowledge and creativity embodied in its patents and its staff. It is not surprising therefore that in most countries, even in Nigeria, graduates earn twice as much on average as those with no qualifications.

In an increasing knowledge important Nigerian economy, the average salary of those highly educated and highly skilled is bound to grow even faster. Unfortunately, for those with no qualifications and no skills, the chance of getting a proper job will be non existent. This might lead to a new generation of haves and have-nots, depriving some of the benefits that come with a knowledge driven economy. How these people will be integrated into the new economy will also be a key role for government.

Finally, IT education. Without massive investment in training, e-banking and e-commerce will bring more ruins than gains in 2008 and even send some companies to early grave. For instance, why should banks continue to spend billions of naira in building more branches every day in every corner when internet and telephony banking services are cheaper to operate and more convenient for customers? Why can’t financial institutions organize mass e-business awareness seminars for their customers? Awkwardly, companies feel training their staff will make such staff become target of head- hunters. So! The germane question for CEOs in 2008: is it cheaper to use idiots and ignoramus to staff a company simply because head-hunters may snatch such staff?

Fostering the Spirit of Enterprise

All over the world, the private sector is at the forefront of wealth creation and employment generation. So will it be in the new economy. At present, so is it in Nigeria where 97 percent of all employment is generated by small businesses. As Nigeria’s main wealth creator and job generator, small businesses will form the bedrock of a knowledge driven economy. It is therefore the government’s paramount role and responsibility to enable the right macro-economic conditions to make them prosper.

This then negates the current practice in the country where the government attempts to do everything by itself, including the recent announcement to create 1 million jobs. Apart from the negative effect of this on entrepreneurship and innovation, there is a stifling effect on the growth of knowledge as there is no place for a welfarist government in a knowledge driven economy.


Knowledge holds the key to modernising the Nigerian economy. However, to achieve this, the government needs to put in place a proper economic framework to help drive the country forward. Essentially this must involve tapping into the wealth of knowledge embodied in its 120+ million people, encouraging enterprise, private sector involvement, innovation and creativity, putting the necessary business support programmes in place to help the growth of its small businesses and the development of both its physical and social infrastructures.

It involves a change of culture and attitude, and in particular in fostering a new spirit of transparency and openness in all aspects of Nigerian life. It also involves collaboration – between the government itself, the private sector, the education sector and the Nigerian populace as a whole, both at home and abroad. Only then can Nigeria aim to successfully compete in the fast moving global economy

Selected References

Business world .Economic intelligence delivered

African Economic Analysis. Developing a knowledge-driven Nigerian economy: an economic framework for the 21st century. (

Brookings news.


Thomson.Tsiakkiros A (2002) “Strategic planning and education: The case of Cyprus”, The International Journal of Educational Management Bradford 2002. Emerald Group Publishing Limited.l: Journal of Manufacturing Technology Management Year: 2008 Volume: 19 Issue: 1 Page: 73 – 91.,


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