REPORT ON VISION 2010
ECONOMIC DIRECTION

Where We Are

This section presents the current economic situation in three sub-sections. Subsection 1 is an overview of Nigeria's economic performance. Sub-section 2 presents the basic economic philosophy that has guided such affairs to date, while sub-section 3 gives details of sector by sector performance.

Overview of Economic Performance

Table 1 below provides a profile of selected macro-economic aggregates for Nigeria.

Table 1 - NIGERIA'S SELECTED MACRO-ECONOMIC INDICATORS
	1980	1985	1990	1991	1992	1993	1994	1995	1996
Domestic Output
Real GDP (=N=Billion)	96.2	68.9	90.3	94.6	97.4	100.0	101.0	103.5	106.9
Real GDP (Growth Rate %)	5.5	9.4	8.1	4.8	3.0	2.7	1.3	2.2	3.3
GDP Per Capita (=N=)	1487	913	1042	1069	1071	1069	1053	1047	1051
Manufacturing Capacity Utilisation (%)	70.1	37.1	40.3	42.0	41.8	37.2	30.4	29.3	32.5
Inflation Rate (%)	9.9	5.5	7.4	13.0	44.6	57.2	57.0	72.8	29.3
Money and Credit (Growth Rate %)
Net domestic credit	21.7	4.3	17.1	45.3	69.1	91.4	29.2	12.4	5.0
Net credit to Government	4.4	4.8	14.9	82.9	109.7	121.6	27.7	(8.6)	(10.1)
Credit to Private sector	32.8	5.9	18.4	23.7	34.6	51.6	32.2	51.8	21.9
Narrow money (MI)	59.1	8.7	44.9	32.6	52.8	54.4	47.8	8.1	26.3
Broad Money (M2)	46.1	10.3	40.4	32.7	49.2	49.8	39.1	10.3	25.7
External Reserves(=N=Billion)	5.4	1.6	35.0	44.2	12.3	29.3	36.3	101.4	284.6
Fed. Govt. Finances(=N=Billion)
Fed. Govt. Retained Revenue	15.2	14.6	85.3	101.0	53.3	126.1	132.2	249.8	281.1
Fed. Govt. Expenditure	14	11	60	67	93	234	203	248	244
Overall Fiscal Bal. (% of GDP)	4.1	2.3	8.5	12.4	(7.2)	(15.4)	(7.7)	0.1	1.6
Actual Ext Debt Sm. (%of GDP)	-	-	-	-	7.5	5.6	3.9	6.3	6.4
Sch. Ext. Debt Serv. (% of GDP)	-	-	-	-	26.7	13.2	9.6	16.4	17.9
Actual Ext. Deft Serv. (% of Exp.)	-	-	-	-	20.1	17.9	17.3	15.2	13.3
Sch. Ext. Debt Serv. (% of Exp.)	-	-	-	-	71.3	42.0	42.6	39.3	37.4
Gross Fixed Capital Formation * (=N=Billion) (Real)	25.7	5.6	10.4	10.7	12.3	10.8	5.8	4.0	-
Gross National savings (=N= Billion)(Real)	26.7	3.9	25.7	21.7	15.4	5.9	2.5	1.6	-

* It excludes changes in stock

Source: FOS, CBN & NPC

The profile shows that after many years of declining growth, Nigeria's economic condition, as at the end of 1996, improved marginally. The tempo of economic activities, as measured by the growth of Gross Domestic Product (GDP), increased from 2.2 percent in 1995 to 3.3 percent in 1996, while inflation declined considerably from 72.8 percent to 29.3 percent during the period. In addition, other macro-economic indicators stabilised.

However, the international comparison, as shown in Figure 1, indicates that in 1995, Nigeria was ranked the 19th poorest nation in the world, with a per capita income of around $260 , almost the same as it was in 1972. This compares with $3,890 per capita income for Malaysia, $980 for Indonesia, and $390 for Ghana. In 1965, Nigeria's GDP was $5.8 billion, compared with $3.8 billion for Indonesia, $3.1 billion for Malaysia and $9.8 billion for Venezuela. Thirty years later, in 1995, Nigeria's GDP had increased to $26.8 billion (3.6 fold increase), Malaysia's to $85 billion (27 fold increase) and Venezuela to $75 billion (20 fold increase). The implication is that these countries have left Nigeria far behind in terms of productivity, income generation and general economic development.

Figure 1: NIGERIA'S GDP PER CAPITA INCOME AND INTERNATIONAL COMPARISON

GDP Per Capita Income and World Ranking, Nigeria compared with other countries (1995)

Per Capita GDP, US dollars
Ranking according to Per Capita Income (Out of 133 countries)

Source: World Development Report (World Bank ) - 1997

In addition, the overall quality of life of the average Nigerian, as measured by the Human Development Index (HDI), is low when compared with countries like Ghana, as depicted in Fig. 2. Nigeria's HDI for 1993 was 0.4, compared to 0.48 for Ghana, 0.68 for Indonesia and an average of 0.6 for developing countries. Figure 2 compares the HDI for Nigeria and other Third World countries. On the average, Nigerians have a life expectancy of 52 years, compared to 59 years for Ghanaians; 64 years for Indonesians and 71 years for Venezuelans and Malaysians. Eighty Nigerian children per thousand die at birth, compared with 73 Ghanaians, 51 Indonesians, 23 Venezuelans and 12 Malaysians.

The HDI is a composite of three key indicators namely, Life Expectancy, Education Index and Purchasing Power Parity (PPP) Per Capita Income.

HUMAN DEVELOPMENT INDEX (1993)

Source: UNDP Human Development Report (1996)

Economic Philosophy

Several strands characterised Nigeria's economic philosophy over the years. These include primary export-oriented philosophy during the colonial period, planned public sector-led economic development, import and thereafter substitution, indigenisation, Structural Adjustment Programme (SAP) and guided deregulation.

Primary Export Led Development Process

The colonial period was dominated by export led process, which reflected the basic policy of linking the Nigerian economy to the British economy. The 10-year development plan, 1946-1956 was an integral part of the process.

Public Sector/State Led Development

A combination of factors encouraged government to aggressively seek to play a dominant role in the economy since Independence. These were:

The consideration that government was better positioned to rapidly develop and industrialise the economy in a planned and balanced manner in the absence of a viable private sector

A genuine desire to rapidly improve the economic base and the well being of all citizens

Substantial inflow of revenue from oil since 1970s which made it possible for government to assume a dominant role in the economy.

Import Substitution Industialisation (ISI)

The idea behind the ISI strategy was to industrialise the country and to produce what was being imported, thereby conserving scarce foreign exchange. The importation of machinery and equipment would be paid for by the export of domestic raw commodities. The local industries would be protected from foreign competition by high import barriers. Consequently, government invested in heavy

industries including steel rolling mills, machine tools, vehicle assembly, fertilizer manufacture, sugar mills, aluminium ,plants, paper mills, development banks, textiles, insurance, etc. The private sector also went into the import substitution industries and in no time found that there was not enough foreign exchange to meet import requirements. ISI strategy did not succeed therefore, because protected industries became inefficient and import-dependent.

Indigenisation

Measures to assist Nigerian enterprises proactively have been going on from the 1960s, as a process of translating political independence to greater participation in the economy by Nigerians. Before the oil boom, banking and finance industries and significant sections of the retail trading business were dominated by foreign companies., Foreign companies also held 65% equity share in the oil industry.

The Indigenisation decrees of 1972 and 1977 gave Nigerians greater opportunities to effectively participate in the productive sectors of the economy. The idea behind indigenisation was to localise ownership through equity transfers to individuals, and direct government participation and listing part of the equity of foreign companies on the Nigerian Stock Exchange. In addition, the decrees sought to limit the sectors of the economy in which foreign companies could operate. The aim was to push foreign capital into higher technology areas, thereby creating opportunities for Nigerians in other areas. While successful in part, indigenisation did not generally shift control to Nigerians and it significantly reduced foreign direct investment and interest in Nigeria.

The Structural Adjustment Programme (SAP)

The SAP was a major departure from public sector led development process. It reintroduced market oriented development process with emphasis on smaller government, efficient resource allocation and market determined prices. The major instruments of SAP include, trade liberalisation, deregulation of interest rates, public sector reforms and privatisation.

Guided Deregulation

The philosophy of guided deregulation in which government still plays a major role in the economy but within the ambit of market forces and enhanced private sector involvement, was introduced in 1995.

Where We Are On Specific Economic Issues

Economic issues are presented below:

Macroeconomic Issues

Fiscal Policy, Monetary Policy International Trade, Trade and Distribution, and Policy Process.

Real Sectors

Agriculture, Solid Minerals, Industry,Petroleum-Upstream and Petroleum- Downstream.

Development Issues

Rural Development, Poverty Alleviation, Small and Medium-scale Industries and Infrastructure.

Capital Mobilisation Issues

Banking and Finance, Capital Markets, Domestic Savings, Debt Management.

Macroeconomic Issues

The Macroeconomic issues are:

Fiscal Policy

Although the government in recent years has moved towards a low tax regime, the current tax rates, both corporate and personal, are still relatively too high to promote compliance and attract investment. The tax administration is

weak and there is still a lot of tax evasion. There is also corruption in tax administration and at the ports. Refunds of taxes as well as duty draw-back administration are inefficient.

The Federal Government's expenditure in the years 1995-1997 amounted to 75 percent of total expenditure of all tiers of government, excluding parastatals. This gives a picture of high degree of centralisation. It is also observed that the Federal Government's recurrent expenditure is about 45 percent of total expenditure. Although this percentage is similar to those of some developed countries like UK, in the case of Nigeria, a substantial portion of the recurrent expenditure is for external debt serving. This position is not considered healthy and needs to be redressed.

Inadequate resources have been allocated to the maintenance of existing assets, while a lot is wasted on capital projects which are often abandoned or inefficiently maintained.

There has been a substantial increase in non-oil revenue in the years 1995-1997. This increase is mainly attributable to the improvement in the collection of Custom and Excise Duties and Value Added Tax (VAT) and not as a result of any marked increase in productivity in the real sectors.

Monetary Policy

The institutional arrangements for the execution of monetary policy have been severely constrained with the promulgation of the Central Bank of Nigeria (Amendment.) Decree No 3 of 1997. Attempts at deregulated interest rate and credit management since the 1980s have not really succeeded due largely to delays in policy reaction. Excess liquidity has remained an abiding feature of the system and has compromised picture stability.

International Trade:

In 1995, Nigerian exports accounted for about 0.3 percent of total world trade, compared to 1. 1 percent for Thailand and 1.3 percent for Malaysia. While other rapidly developing/industrialising economies, like Malaysia, have managed to increase their share of world trade, Nigeria has not. A key feature of Nigeria's exports is that in 1995, about 95 percent of export earnings was accounted for by oil alone. Whereas in 1970, about 36 percent of the total export earnings was accounted for by products other than oil, mainly agricultural produce. Nigeria is one of the few countries in the world where a single commodity accounts for such a large proportion of total export earnings.

Countries like Malaysia and Indonesia, which have a similar natural resource base as Nigeria, have managed to significantly improve their total exports by increasing the volume of value added manufactured goods in particular. Weak technological skill base, inadequate infrastructure, poor product quality, the persistence of Import Substitution Industrialisation and ineffective implementation of export incentives are among key reasons for the poor performance of Nigerian non-oil exports.

Trade and Distribution:

Nigeria has a very large market potential, with a population of over 100 million spread across 923,773 square kilometres of land with varied vegetation. The Trade and Distribution sector now accounts for about 13 percent of the GDP The market potential has remained underdeveloped due to the following:

Dilapidated infrastructure, over-dependence on road transport, which is in a bad state, and the lack of other cheaper transportation modes such as rail and waterways.

high cost of doing business due to too many layers of distribution, numerous and ever-changing tariffs, lengthy and cumbersome port procedures which require operators to pass through many "check-points" and "toll gates"

predominance of cash payment system and difficulty in accessing credit

poor quality of Nigerian products and presence of fake, adulterated, illicit and poorly copied products in the markets

inadequate preservation facilities such as cold stores, silos and warehouses have resulted in the loss of perishable goods and their high cost during off seasons

poor implementation of regulations, thereby inhibiting free trade but high incidence of smuggling

lack of integrity which erodes confidence and trust, thereby increasing the cost of doing business

low level of knowledge and skill of market operators.

Policy Process:

Many Nigerians believe that the country's economic problems arose more from poor implementation of policies than from poor policy formulation. The reality, however, is that policies have often suffered from both poor formulation and implementation for the following reasons:

Policies are made without consulting the institutions directly affected, such that inconsistencies often exist in their interpretations

poor co-ordination of government policies

use of parallel structures to implement government policies

rapid turnover of people in positions of authority has often led to policy inconsistency and lack of clear direction. Associated with this is the frequent change in governments at all levels

frequently changing policies which often cause confusion

corrupt practices, embezzlement and diversion of funds.

Real Sectors

The Real Sectors are:

Agriculture:

The agricultural sector in Nigeria is composed predominantly of small-holder subsistence farmers with only a small number of commercial farms. Farms below 10 hectares account for almost 95 percent of the total agricultural production. In 1996, the sector accounted for 30.1 percent of Nigeria's GDP Approximately two-thirds of the Nigerian population earn a living from the sector. Output from this sector has been extremely erratic in the last three and a half decades and the sector has been plagued by fundamental problems.

In the 1960s, primary agricultural exports accounted for an average of 62 percent of total export earnings and a similar proportion of GDP As oil output and prices increased during the 1970s, the share and role of agriculture in the Nigerian economy declined considerably. Windfall earnings from the oil sector encouraged the neglect of the nation's agricultural export potential. This led to a sharp decline in agricultural output during the 1970s. The SAP was, among other things, designed to reverse the decline in agriculture, but it was only partly successful. Although it improved the export of cash crops, the gains could not be sustained. Ineffective government support has prevented agriculture from playing the dynamic role it could have played in the development of the country, neither has it provided a source of rising income for most Nigerians.

The key constraints on the development of the nation's agriculture can be summarised as follows:

weak and poor funding and inadequate technological support for peasant farmers

failure to transfer technology to the sector has meant low productivity and low income growth

poor infrastructure, including the absence of road networks to move goods to the market

unclear land tenure and acquisition policy which prevents long-term commercialisation of agriculture

continued dependence on nature for performance

substantial rural-urban migration during the oil boom years which robbed agriculture of virile manpower

poor or non existence of preservation and storage facilities, often leading to substantial post-harvest losses

poor linkage to agricultural processing and transformation industries.

Industry:

The contribution of the manufacturing sector to GDP in Nigeria in 1996 was only 6.9 percent, compared to the very high percentage contribution recorded in some of the Asian tigers' economies such as South Korea, Malaysia and Philippines. Although Nigeria and the rapidly growing economies started out with the same Import Substitution Industrialisation policies in the 1960s, the Asian economies were able to successfully switch to an export-led growth strategy, while Nigeria got stuck in inward-looking strategies. The Nigerian economy is mono-cultural with oil dominating its export while agriculture and manufacturing have gradually stagnated. The reasons cited for the failure of the Nigerian industrialisation process include:

High import dependence for skilled manpower and industrial input

funding problems (lack of domestic savings and restrictions on foreign ownership)

poor implementation of plans

inadequate infrastructure

lack of an enabling environment (political, legislative, macro-economic, inconsistent policies, bureaucratic obstacles;)

failure to promote linkages with other sectors of the economy

lack of venture capital.

Solid Minerals:

The exploitation of solid minerals accounts for about 0.3 percent of Nigeria's GDP despite the considerable abundance of precious, semiprecious and industrial mineral deposits. Moreover, the country imports such minerals as salt and iron ore, which could be exploited commercially in Nigeria. The factors that have contributed to the sector's dismal performance include:

An absence of a policy framework

retrogressive and non-competitive laws and regulations

inadequate funding

lack of infrastructure

absence of an enabling environment

dearth of trained manpower and technological know-how

insufficient promotional activities.

Petroleum - Upstream:

Currently, Nigeria produces about 2.2 million barrels of oil per day (mbpd), including condensates, which is about 3 percent of world production. In addition, the country has a reserve base of 22 billion barrels of crude oil. The export of oil accounts for about 95 percent of Nigeria's export revenues and over 80 percent of the Federal Government's revenues. The industry is faced with five key challenges:

Poor funding inhibits the growth of output and future government revenues. Additional difficulties in the business environment include erosion of value of incentives due to inflation, lack of a level playing field in terms of the incentives offered to companies and lack of consultation with industry partners before making policy changes.

Lack of effective dialogue and openness between the government and stakeholders. This has created a climate of mistrust and prevented the development of an effective road map favourable for steady growth of the upstream sub-sector.

Community disturbances related to environmental pollution and inadequate compensation for loss of the means of livelihood have caused revenue losses and created a climate of uncertainty, thus discouraging new investments.

The development of gas, much of which is currently flared, is affected by inadequate pricing, markets, investments, timing cycles and incentives.

Although up to 75 percent of the professionals and management staff of oil companies are Nigerians, the absence of a linkage with local industries, infrastructure and skills inhibits the rapid domestication of the industry. Thus, there is no meaningful indigenisation and local content addition in the operation of the petroleum industry.

Petroleum - Downstream:

From 1970 to date, the nation has invested substantially in pipelines, refineries, petrochemical and fertiliser plants. The foregoing notwithstanding, the downstream petroleum sub-sector is in a state of decay, characterised by inadequate funding, poor operating conditions, insufficient and irregular supply of products and a highly regulated environment. Not only does the government allocate crude to the refineries, it also determines how much money is used for the maintenance of these facilities. Although the installed capacity of all refineries is 445,000 barrels, the operational capacity is much lower due to the lack of maintenance.

Allocation of crude to the refineries this year (1997) has been cut from the required 320,000 barrels per day to 250,000 barrels per day. Owing to their low level of capacity utilisation, the refineries were not able to refine even this reduced quantity. The output of petroleum products has thus been considerably reduced. The shortfall in supply has been met by continuous importation of refined products has thus been considerably reduced. The shortfall in supply has been met by continuous importation of refined products at great cost to the economy, while the importers enrich themselves. Moreover, the 40-day mandatory strategic reserve has been depleted and is yet to be replenished. Domestic supply has thus nearly collapsed and the government is considering alternatives such as turning over the management of the refineries, pipelines and depots network to the private sector. Also, two private refineries have been approved, but are yet to be built.

Development Issues

Small and Medium-scale Enterprises (SMEs):

In Nigeria today SMEs can be categorised in two ways, namely by size and by legal status. By size, SMEs can be divided into:

Cottage industries, which usually have less than (N1 million investment;

small-scale enterprises which usually have not less than N40 million capital
investment; and

medium-scale industries which usually have less than (N150 million capital
investment.

The SME sector:

- Is highly labour intensive, employing about 80 percent of the nation's labour force

- is a veritable source of mobilisation of small domestic savings

- locates readily anywhere in the country

- promotes indigenous technology

- enhances the dispersal of economic activities.

SMEs are categorised into formal and informal sectors. The formal sector SMEs are defined as those with capital of less than N150 million or a labour force of less than 35 where managers are also at least part owners. Informal sector SMEs are defined as those enterprises where the owner provides most of the capital and their mode of operations is not formalised. Mostly indigenous they hardly keep accounts or/any pay taxes.

Although the Federal and Regional Governments had been instrumental in promoting SMEs before independence, the Federal Government increased the tempo in the Second Development Plan (1970-74) when the Small-scale Industries Credit Scheme was started in the then 12 states. Since then, there has been a steady increase in the number of institutions and programmes that aid SMEs. Despite these laudable efforts, the contribution of the sector to the economic development of the country has remained low.

Key problem areas identified include the following:

Inconsistency in and poor implementation of policies

problems with access to credit and other incentives

poor account keeping habits, weak financial planning

dominance of political loyalty in the loans allocation process

lack of mutual trust amongst business partners

lack of infrastructure which significantly increases the cost of doing business

poor consumer purchasing power

poor linkages among vibrant SMEs, large-scale enterprises and the rest of the domestic sector of the economy generally

SMEs have to be located in the rural areas to qualify for NERFUND credit

policy incentives are tilted in favour of large-scale industries.

The Informal Sector:

The private sector can be sub-divided into the formal or organised private sector and the informal sector. Most official references to the private sector invariably but erroneously refer to the organised sub-sector. The informal sector has not attracted appropriate public policy attention.

The informal sector comprises the rest of the indigenous economy outside of the public sector and the organised private sector. It is made up largely of petty traders, artisans and peasant farmers, and market women to mention but a few. Available evidence suggests that the informal sector accounts for about 70 percent of economic activities in Nigeria. However, not much is known about its structure, strengths, weaknesses and mode of operations. This has a negative impact on accurate assessment of the size of the economy and the efficacy of national planning and economic development.

The attainment of the objectives of the Vision requires an articulation of the features of the informal sector. In this regard, a mechanism should be developed without delay to ensure effective integration of the informal sector is the national planning and development process. It also requires that the reasons for the neglect of that sector be understood. These reasons include:

The large and fragmented nature of this sector made up of numerous economic units with activities spread over equally numerous sectors (small scale).

Very little information about the sector to assist in the formulation of relevant
policies.

Low level of education, training and technological know-how of the operators
in this sector.

Notwithstanding the above constraints, the informal sector has, over the years benefited the economy in the following ways:

high unemployment. The sector is estimated to be responsible for 60 percent of total employment in the country. In particular, it employs that level of the population which, under the existing criteria, would not have been employed by the public or the organised private sector

it has provided the major source of capital formation, particularly in the rural areas of the economy

it has provided a cheap source of low level technical manpower to many industries

it is a reservoir of indigenous technical capacity

the sector has provided the major and sustained source of income generation in the country. It has, thus, provided the main elements of resilience in the economy and the society at large.

Rural Development:

Over the years the government has undertaken several integrated rural development programmes such as Operation Feed the Nation (OFN), Green Revolution, Agricultural Development Projects (ADPs), Directorate of Food, Roads and Rural Infrastructure (DFRRI), Better Life Programme (BLP), Family Support Programme (FSP) and Family Economic Advancement Programme (FEAP). In spite of these laudable efforts, the conditions in the rural areas leave much to be desired. Sixty-two percent of Nigeria's population lives in the rural areas. Moreover, 70 percent of the nation's poor and 95 percent of the extremely poor live in the rural areas. Five key factors affect the development of these areas, namely. healthcare, education, communications, land tenure and technology.

The provision of healthcare in the rural areas is affected by endemic shortage of drugs and clinics. Uncompleted infrastructure and cuts in recurrent expenditure have resulted in drastically reduced levels in the quality of services rendered to the populace.

The quality and quantity of educational facilities in the rural areas is inadequate, compared to that in the urban areas. Poor education and ineffective use of research findings have inhibited the ability of rural dwellers to acquire and utilise technology, thereby reducing their ability to improve productivity and income. Rural dwellers' access to land is still limited. Poor telecommunication links, postal services, television reception and virtual non-existence of road networks in most areas hinder the access of rural dwellers to a better quality of life.

Urban Development:

Thirty eight percent of Nigeria's population is urban. Although urbanisation is a global phenomenon, Nigeria's urban growth rate of 5-7 percent makes it one of the most rapidly urbanising countries in the world. By present trends, the proportion of urban population is estimated to reach over 50 percent of the country's population by the year 2010.

This very rapid rate of growth has overwhelmed the capacity of urban management agencies and is compounded by cumbersome land resource allocation for provision and maintenance of infrastructure. As a result, urban centres in Nigeria have become chaotic. The infrastructure have nearly collapsed; and there is increasing homelessness and congestion due to housing shortage; environmental pollution due to poor waste management facilities; inadequate and poorly maintained public utilities and social facilities; and rising level of insecurity due to crime and the breakdown of law and order. Government effort at managing urban centres so far appears inadequate.

During the Vision period, Nigeria should attain a controlled and manageable urban growth; an improved urban economy to support poverty alleviation and create employment. To achieve this, the Nigerian Urban & Regional Planning Commission should be established in line with the provisions of Decree 88 of 1990.

Poverty Alleviation:

Poverty is a condition in which a person is unable to meet minimum requirements of basic needs of food, health, housing, education and clothing. The current legal minimum wage of N250 per month and the minimum pay of N1,250 per month in the public services, are far below the N3,920 per month required by an individual Nigerian for minimum sustenance. A family of five would also need N13,462 per month just to live above the poverty line. The level of poverty in Nigeria is further assessed by the aggregate low quality life of Nigerians as follows:

About 50 percent of Nigerians live below the poverty line despite the country's vast resources

only 40 percent of the population has access to safe water

about 85 percent of the urban population lives in single rooms with about 8 occupants per room on the average

about 62 percent of the population has access to primary health care

about 50 percent of Nigerians are illiterate

most Nigerians consume less than one-third of the minimum required protein and vitamins intake due to low purchasing power.

There are wide differences in the distribution of the poor. The majority of the poor live in the rural areas and within communities with serious ecological and climatic problems. The government over the years has embarked on many poverty alleviation measures with little impact on poverty levels, mainly due to poor programme design and implementation and the declines in general economic growth indices.

Infrastructure:

Infrastructure include all facilities that support economic and social activities. These include power, communication (telecommunications and postal services), water, transportation (railways, inland waterways, seaports, airports and roads) and information (e.g. data, maps). These infrastructural facilities are dilapidated, unreliable, uneven in distribution and in a general state of disrepair and even on the verge of collapse in some sub-sectors. While the government has invested substantially in these facilities, they have proved to be inadequate to sustain the rising population and economic growth.

Far instance:

Only 34 percent of the population has access to electricity and its consumption per capita is barely sufficient to light a 40-watt bulb for a few hours a day

the number of telephone lines in Nigeria is only 4 per 1,000 persons as most of the lines are confined to the major urban areas

although Nigeria has an extensive road network, the quality is generally poor, thereby imposing a high cost in terms of vehicle operating costs.

Captal Mobilisation Issues

The capital mobilisation issues are:

Banking and Finance:

The banking and finance sector grew phenomenally with the increase in the number of banks from 26 in 1980 to 120 in 1990 before decreasing to 115 by December 1996. During the same period, the Central Bank of Nigeria (CBN) took on some non-core functions such as retail banking. These developments, together with the inability of the CBN to expand its regulatory capacity to cope with the phenomenal expansion in the banking and finance sector as well as its inability to resist political intervention, impaired its regulatory functions. The degree of direct control on banking operations was very high.

The banking sector is plagued by a host of institutional, operational and legal difficulties. Amongst the key operational difficulties are poor management and technical skills, dominance of short-term funding, high transaction costs, a dearth of financial products in the market and high rate of default. Institutional difficulties include uneven geographical spread of financial institutions, banks and branches. and low professional ethics. Legal difficulties include insufficient enforcement powers, restrictive legal procedures, government interference and inconsistent. policies and poor knowledge base of regulators. In addition, the insurance industry suffers from weak supervision and poor image.

The foregoing, together with asset-liability mismatch, capital inadequacy, weak internal controls, fraud and poor management, among others, contributed to the emergence of a lingering distress syndrome in the banking sector.

Capital Market:

The Nigerian capital market is yet to be fully developed. compared to those in the countries indicated in the following table:

Table 2 - COMPARATIVE STOCK MARKET STATISTICS (1996)
Country	No. of Listed Companies	Market Capitalisation ($bilion)
Nigeria	184	13.0*
India	5,999	153.2
Malaysia	621	296.7
South Africa	626	233.4

*($1 =N22)

Source: IFC Fact Book, 1997

Unfavourable investment climate and laws since 1972 when the Nigerian Enterprises Promotion Decree (NEPD) was promulgated, coupled with an unstable political climate, have contributed to slow growth of the Nigerian capital market. The problems of the Nigerian capital market include call-over trading system, as well as the cumbersome and unacceptable procedures for managing foreign portfolio investments.

Accordingly, the Nigerian capital market is shallow and narrow relative to the economy it is supposed to serve. The stock market is relatively illiquid and largely unsophisticated in its current form to serve as a source of long-term business finance.

Domestic Savings:

The level of domestic savings is low and inadequate to fund and sustain the level of investment consistent with the country's economic growth targets. For example, Nigeria's current ration of Gross Domestic Savings to Gross Domestic Product averages 11 percent , compared to Malaysia's 37 percent . Indonesia's 31 percent , South Korea's 36 percent and Chile's 28 percent .

Nigeria's level of domestic savings is comparatively poor due to a combination of socio-cultural and economic factors. Some of these factors include:

Harsh macroeconomic environment that is characterised by high inflation and unemployment rates

low nominal disposable income

inconsistent tax regime

undeveloped savings mechanisms

prevalence of conspicuous consumption.

Debt Management:

How judiciously Nigeria manages her debt impacts significantly on the development process. The debt is divided into two - domestic and external.

The demands of servicing the public sector's domestic debt reached such high levels in 1992 that it led to a higher level of budget deficits. The debt service ratio reached a record 27 percent of total public sector expenditure in 1992. Since then, as a result of low interest rates, declining inflation and tight fiscal policy, the proportion of debt in 1996 came down to 17.3 percent of GDP and debt service ration has since declined to 9.9 percent of public sector expenditure.

Total external debt at the end of 1996 stood at $28 billion, of which $19 billion was owed to the Paris Club of creditors. If Nigeria were to fully service all maturing debt obligations as and when due, the debt service would absorb more than 35 percent of her total export revenues. In 1996, the government sought to limit the country's total debt servicing to 12 percent of total exports in order to release funds for development. While Nigeria has been able to successfully re-negotiate the London Club debt, the Committee notes that the country is having difficulties in renegotiating a debt reduction programme with the World Bank/IMF and the Paris Club of creditors.

Where We Want To Be

In view of the lessons of the present global and Nigerian economic realities, Nigeria's economic aspirations shall henceforth be

to make Nigeria a moor industrialised nation and economic power that continually strives for sustained economic growth and development towards improving the quality of life for all Nigerians.

Elements of these aspirations include the following:

Development of a strong public and private sector partnership which fosters a strong economy that is private sector-driven with the government as the enabler

Enhancement of exploitation of the nations hydrocarbon, agricultural and mineral resources, tourism and sporting talents

Promotion of entrepreneurship and competition within the ambit of fair, equitable and enforceable laws

Massive investment in education, health, technology and infrastructure

Involvement of the community project from conceptualisation through execution to maintenance

Movement towards export-oriented production, manufacturing and industrial sectors

Promotion of indigenous entrepreneurship and building of a strong and viable indigenous private sector

Opening up the economy to participation by more indigenous and foreign investors.

How To Get There

The overall economic policy targets are:

GDP growth rate of not less than 10 percent per annum through the period to 2010

inflation rate of not more than 5 percent per annum through the period to 2010.

The summary of objectives required to achieve these goals is presented below:

Core Economic Objectives

The overall economic goal for Nigeria is to achieve an average of 10 percent annual GDP growth rate and inflation rate of not more than 5 percent through the period to 2010. This may appear to be an ambitious goal, considering that between 1976 and 1996 the average annual growth rate was only 1.6 percent per annum.

However, if the quality of economic management does not improve significantly the growth rate of GDP may not exceed an average of 2.2 percent per annum between now and the year 2010. A combination of low (2.2 percent per annum) growth rate and high population growth rate (2.83 percent per annum) with a high debt overhang portends great danger for the Nigerian economy in the years ahead.

About 45 percent of the population is below the age of 15 years, whilst only 3 percent of the population is above 64 years. About 52 percent of the population is in the 15-64 age group which constitutes the labour force. The critical school age of 5-24 years constitutes about 48 percent of the population. Basically, in the next five years over 50 percent of the population would be in the job market.

Per capita income and consumption will decline, while the proportion of those who live below the poverty line will increase. With likely social discontent and dislocation, greater effort and resources have to be expended in maintaining law and order as the economy moves into deeper and deeper recession. Thus, Nigeria has no choice but to record a higher growth rate to meet the basic needs of her people and ensure security of life and property.

A 10 percent average GDP growth target is perceived as the minimum for sustainable growth and development of the Nigerian economy. While this target is

achievable, it will not be easy to accomplish. It will require a fundamental shift in the ways things are done and a lot of sacrifices in the short term.

The shifts required will be from a society

Where corruption is prevalent to one where positive values are adequately rewarded and recognised

where there has been significant under-investment in the acquisition of skills required to compete globally to one that has drastically reshaped expenditure patterns to give education and skills acquisition the pride of place they deserve

which has over time become closed to the outside world to one which eagerly embraces the new global realities, and has a more liberalised environment where competition is encouraged

where infrastructure in near ruins to one where infrastructural development is a major priority

where the level of domestic savings is low to one where domestic savings are significantly boosted to provide a veritable source of funding required to build the future for Nigerians.

These shifts will not come easy, but they have to be made. The core objectives required to achieve these targets and goals are to:

Reduce the dominance of the public sector in the economy and develop a viable, dynamic, highly motivated, socially and environmentally responsible private sector. Develop a strong public and private sector partnership which fosters a strong economy that is private sector-driven with the government as the enabler.

use Nigeria's wealth of gas, petrochemicals, agriculture, solid minerals, cultural and other resources to diversify the economic base through the development of an internationally competitive and export-oriented production, manufacturing and industrial non-oil sector. Nigerian products must meet international standards and be able to compete in the global market-place, thereby significantly increasing the volume and proportion of non-oil exports so that the country can reduce the current dependence on oil.

develop and/or acquire production technologies to accelerate the growth and development of small and medium-scale businesses to provide wider economic opportunities and employment, and alleviate poverty.

develop fully the oil and gas sector to provide the launching pad for the development of the rest of the economy.

develop a modern, well-structured, efficient and competitive financial system that provides for the long-term funding needs of the economy.

put in place an effective macroeconomic framework that attracts investments, promotes economic stability, sustains non-inflationary (single digit inflation rate) growth and social justice.

invest massively in and develop education, health, technology, information systems and infrastructure as drivers of quantum leap forward to support economic development needs in both urban and rural communities as this will serve as a lever for attracting investment, generating employment.

opportunities and meeting the basic needs of the people (See Table 6).

maintain all assets effectively.

make Nigeria a preferred country for investments by both Nigerian and foreign investors and increase significantly the level of domestic savings as a source of sustainable funds for development.

achieve food security.

reduce population growth rate from the current 2.83 percent to under 2.0 percent.

In sum, during the Vision period, Nigeria's development process will be people-centred, broad-based, market-oriented, highly competitive, self-reliant and private sector-driven. Since the well-being of all the people is the ultimate purpose of the economy, it is envisaged that as a minimum by 2010, the people's conditions would have improved significantly in many areas, as exemplified by the data in the tables below:

The implied appropriate growth rates of the key sectors of the: economy needed to achieve these targets are as follows:

Table 3 - TARGET SECTORAL GROWTH RATE)
	Real growth Rate %p.a	Investment Growth Rate %p.a.
Petroleum and Gas	7	24
Manufacturing	22	40
Agriculture	6	18
Transport and Communication	15	25
Mining	9	26
Building and Construction	25	22
Education and Health	14	30
Utilities	13	28

 

Table 4 - TARGET SECTORAL COMPOSITION OF GDP AT 1989 FACTOR COSTS (%)
	1996	2000	2005	2010
Crops	24.8	24.3	19.5