At any rate, with the collapse of the world oil market, crude oil prices which had reached record levels in 1980 [above $38 per barrel] began their decline through 1982 to 1985 and then more steeply to 1986, with prices below $10.00 per barrel and the wide use of so-called ‘netback pricing’ contracting to effect sales.It was also the same time an unsustainable debt burden emerged and debt management became an issue.

It was as though the Nigerian society, in its recovery from the civil war, encountered a radically changed and changing global environment and a transformed internal structure both of which it could not decipher but which infused it with unprecedented financial resources. In consequence, it took the simplistic path of spending sprees and, when confronted with a sustained resources squeeze, unconsciously went into debt and financial collapse.

Here are some key aspects, including quantitative dimensions of the situation. For example:

  • The country’s total foreign exchange receipts from some US$26 billion in 1980 to some US$12 billion in 1982 and US$13 billion in 1985, and again to only some US$5 billion in 1986 and US$7.6 billion in 1987;
  • In consequence, there was a severe compression of imports from about US$16 billion in 1980 to some US$8.9 billion in 1985 and further down to US$4.2 billion and US$4.5 billion in 1986 and 1987, respectively,
  • The country’s official foreign exchange reserves, which stood at some US$8.5 billion by end of May 1981, declined sharply to some US$2.85 billion by end- December 1981, US$0.665 billion by end-December 1983, and US$1.40 billion by end-December, 1985;
  • In consequence also, an external debt profile appeared and became massive. In historical perspective, the debt trap for Nigeria opened in 1978 with an initial exceptional purchase in that year of a so-called Jumbo Loan of US$1 billion from the international Capital Market (ICM) from 74 banks in 4 continents. Now this loan was exceptional in at least the sense that it was quite out of tune with the county’s external finance profile till then; for the bulk of Nigeria’s external debt prior to 1978 consisted mainly of loans obtained from “soft” sources such as bilateral sources, multilateral sources, and development finance institutions; moreover, the Jumbo Loan was not project specific. At all events, leading from this exceptional ICMloan, a spate of external borrowings by State Governments, and a rapid build-up of trade arrears (estimated). Most of these were contracted between 1980 and 1985, in fact, over US$14 billion was contracted before September 1985 and some of the principal repayments were due and remained unpaid prior to 1986,
  • Thus, not surprisingly, by 1985 and up to September 1986 – the eve of the introduction of the Structural Adjustment Program (SAP) – as trade arrears mounted and most overseas correspondent banks refused to extend confirming lines to Nigeria, the country’s creditworthiness was clearly in jeopardy. Consequently, most importers who had import licenses could not effectively use them for opening Letters of Credit, and the flow of essential imports was seriously impeded. This blockage reinforced the squeeze on the already severely limited national resources, and had grave consequences for our industrial capacity utilization.
  • On the domestic front, internal government debt owed to local contractors and suppliers and domestic public debt (treasury) bills and certificates, development loan stock) increased apace; while total debt owed to local contractors ascertained by the Federal Government stood at some N5 billion by 1985, domestic public debt amounted to some N25.8 billion by June, 1985. Although human memory is short, for those old enough to remember, this was the period when Federal Government [that is, Central Bank] cheques were bouncing.

The country was clearly imperiled and in the domain of both financial collapse and international financial illegality.How did the public authorities respond to the deepening socio-economic predicament sketched above, and what was the result?

As you know, the Economic Stabilization Act, involving stringent exchange and trade control measures, introduced in April 1982, proved ineffective. By end-1982, there was no significant improvement in either the foreign exchange position or in the general economic situation. More stringent measures introduced in 1983 and 1984, and retained in the 1985 Budget accomplished little.

In sum, the restrictive exchange and trade control measures, which were pursued for over two decades but especially in the period 1981 – 1985 in Nigeria, failed to deal effectively with the fundamental problems confronting the economy. Moreover, these stringent controls had serious social costs and other adverse effects not limited to supply shortages, gross underutilization of capacity, misallocation of resources, and the pervasiveness of rent-seeking. Clearly, a paradigm shift was required.

The fundamental problems of the economy, as we all know now, hinge on its essential over-reliance on crude oil [for export receipts and government revenues] and thus its full exposure to the dynamics of the international oil market. In turn, over-reliance on oil is due to the basic structural problem posed by a persisting [technological-economic] dualistic structure: a highly advanced and productive petroleum enclave, which is in the territory of a purely geographical – legal sense, and a low productive domestic economy whose production is supplemented by imports mediated through the export receipts of the enclave. Since no real linkages exist between the two partitions of the territorial economy and growth impulses from the enclave cannot be imparted to the domestic economy. But there are financial links through which, on the one hand, the domestic economy makes, with increasing difficulty, its contributions (joint-venture cash calls) for exploration and exploitation, and on the other hand, payment to the public treasury and to other actors – both with significant element of unearned income, what economist call economic rent – and imports are introduced into the economy. It is noteworthy that the struggle for the preemption or distribution of the resultant economic rents manifests in the observed and persisting political – social instability.

Particularly in the context of the largely inappropriate policy structure, the results of such infusions have been traumatic inflationary, corrosive of the will of the domestic society to produce, as well as destructive of its productive base through distorted underlying factor price relations, essential discrimination against valid domestic productions endeavors [particularly Agriculture], and the emergence and pervasiveness of economic rents as a major instrument for economic management. It is from this perspective that we can better understand the country’s quick abandonment of its former primary exports [for example cocoa, cotton, groundnut, palm oil]; the failure to cater to the rise of valid activities for meeting ever increasing domestic demand, and its over-reliance instead of imports.

It was clear that the sequence of economic policy frameworks sustained from the end of the civil war – especially since the “oil boom” – was largely inappropriate. The inadmissibility of the policy framework centered mainly on the inaptness of the stringent trade and exchange controls; emergence of a substantially over-valued naira exchange rate; later, disarray in the foreign exchange market; and failure of political will to pursue far-reaching reforms required to deal with the fundamental structural problems if the economy – in a word, poor policy architecture.

It was imperative that the Nigerian economy required something akin to a surgical operation to address its basic structural maladjustment in its undesirable response to both external and internal shocks. Such a stabilization operation should then launch the economy on a self-developing process.