Introduction:
British influence and control over what would
become Nigeria grew through the 19th century. A series of constitutions after
World War II granted Nigeria greater autonomy; independence came in 1960.
Following nearly 16 years of military rule, a new constitution was adopted in
1999, and a peaceful transition to civilian government was completed. The
government faces the daunting task of reforming a petroleum-based economy, whose
revenues have been squandered through corruption and mismanagement, and
institutionalizing democracy. In addition, the defusing longstanding ethnic and
religious tensions are a priority if Nigeria is to build a sound foundation for
economic growth and political stability. Although the April 2003 elections were
marred by some irregularities, Nigeria is currently experiencing its longest
period of civilian rule since independence. General elections in April 2007 were
considered significantly flawed by Nigerian and international observers but they
marked the first civilian-to-civilian transfer of power in the country's
history. President Umaru Musa YAR'ADUA took office on 29 May 2007.
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Geography
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Climate
ABUJA 9 25 N, 7 0 E, 1128 feet (344 meters) above sea level.
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PEOPLE
The most populous country in Africa, Nigeria accounts for over half of West
Africa's population. Although less than 25% of Nigerians are urban dwellers, at
least 24 cities have populations of more than 100,000. The variety of customs,
languages, and traditions among Nigeria's 250 ethnic groups gives the country a
rich diversity. The dominant ethnic group in the northern two-thirds of the
country is the Hausa-Fulani, most of whom are Muslim. Other major ethnic groups
of the north are the Nupe, Tiv, and Kanuri. The Yoruba people are predominant in
the southwest.
About half of the Yorubas are Christian and half Muslim. The predominantly
Catholic Igbo are the largest ethnic group in the southeast, with the Efik,
Ibibio, and Ijaw (the country's fourth-largest ethnic group) comprising a
substantial segment of the population in that area. Persons of different
language backgrounds most commonly communicate in English, although knowledge of
two or more Nigerian languages is widespread. Hausa, Yoruba, Igbo, Fulani, and
Ijaw are the most widely used Nigerian languages.
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HISTORY
In the northern cities of Kano and Katsina, recorded history dates
back to about 1000 AD. In the centuries that followed, these Hausa kingdoms and
the Bornu empire near Lake Chad prospered as important terminals of north-south
trade between North African Berbers and forest people who exchanged slaves,
ivory, and kola nuts for salt, glass beads, coral, cloth, weapons, brass rods,
and cowrie shells used as currency.
In the southwest, the Yoruba kingdom of Oyo was founded about 1400, and at its
height from the 17th to 19th centuries attained a high level of political
organization and extended as far as modern Togo. In the south central part of
present-day Nigeria, as early as the 15th and 16th centuries, the kingdom of
Benin had developed an efficient army; an elaborate ceremonial court; and
artisans whose works in ivory, wood, bronze, and brass are prized throughout the
world today. In the 17th through 19th centuries, European traders established
coastal ports for the increasing traffic in slaves destined for the Americas.
Commodity trade, especially in palm oil and timber, replaced slave trade in the
19th century, particularly under anti-slavery actions by the British Navy. In
the early 19th century the Fulani leader, Usman dan Fodio, promulgated Islam and
that brought most areas in the north under the loose control of an empire
centered in Sokoto.
A British Sphere of Influence
Following the Napoleonic wars, the British expanded trade with the Nigerian
interior. In 1885, British claims to a sphere of influence in that area received
international recognition and, in the following year, the Royal Niger Company
was chartered. In 1900, the company's territory came under the control of the
British Government, which moved to consolidate its hold over the area of modern
Nigeria. In 1914, the area was formally united as the 'Colony and Protectorate
of Nigeria.'
Administratively, Nigeria remained divided into the northern and southern
provinces and Lagos colony. Western education and the development of a modern
economy proceeded more rapidly in the south than in the north, with consequences
felt in Nigeria's political life ever since. Following World War II, in response
to the growth of Nigerian nationalism and demands for independence, successive
constitutions legislated by the British Government moved Nigeria toward
self-government on a representative, increasingly federal, basis.
Independence
Nigeria was granted full independence in October 1960, as a federation of three
regions (northern, western, and eastern) under a constitution that provided for
a parliamentary form of government. Under the constitution, each of the three
regions retained a substantial measure of self-government. The federal
government was given exclusive powers in defense and security, foreign
relations, and commercial and fiscal policies. In October 1963, Nigeria altered
its relationship with the United Kingdom by proclaiming itself a federal
republic and promulgating a new constitution. A fourth region (the midwest) was
established that year. From the outset, Nigeria's ethnic, regional, and
religious tensions were magnified by the significant disparities in economic and
educational development between the south and the north.
On January 15, 1966, a small group of army officers, mostly southeastern Igbos,
overthrew the government and assassinated the federal prime minister and the
premiers of the northern and western regions. The federal military government
that assumed power was unable to quiet ethnic tensions or produce a constitution
acceptable to all sections of the country. Its efforts to abolish the federal
structure greatly raised tensions and led to another coup in July. The
coup-related massacre of thousands of Igbo in the north prompted hundreds of
thousands of them to return to the southeast, where increasingly strong Igbo
secessionist sentiment emerged.
In a move that gave greater autonomy to minority ethnic groups, the military
divided the four regions into 12 states. The Igbo rejected attempts at
constitutional revisions and insisted on full autonomy for the east. Finally, in
May 1967, Lt. Col. Emeka Ojukwu, the military governor of the eastern region,
who emerged as the leader of increasing Igbo secessionist sentiment, declared
the independence of the eastern region as the 'Republic of Biafra.' The ensuing
civil war was bitter and bloody, ending in the defeat of Biafra in 1970.
Following the civil war, reconciliation was rapid and effective, and the country
turned to the task of economic development. Foreign exchange earnings and
government revenues increased spectacularly with the oil price rises of 1973-74.
On July 29, 1975, Gen. Murtala Muhammed and a group of fellow officers staged a
bloodless coup, accusing Gen. Yakubu Gowon's military government of delaying the
promised return to civilian rule and becoming corrupt and ineffective. General
Muhammed replaced thousands of civil servants and announced a timetable for the
resumption of civilian rule by October 1, 1979. Muhammed also announced the
government's intention to create new states and to construct a new federal
capital in the center of the country.
General Muhammed was assassinated on February 13, 1976, in an abortive coup. His
chief of staff, Lt. Gen. Olusegun Obasanjo, became head of state. Obasanjo
adhered meticulously to the schedule for return to civilian rule, moving to
modernize and streamline the armed forces and seeking to use oil revenues to
diversify and develop the country's economy. Seven new states were created in
1976, bringing the total to 19. The process of creating additional states
continued until, in 1996, there were 36.
The Second Republic
A constituent assembly was elected in 1977 to draft a new constitution, which
was published on September 21, 1978, when the ban on political activity, in
effect since the advent of military rule, was lifted. Political parties were
formed, and candidates were nominated for president and vice president, the two
houses of the National Assembly, governorships, and state houses of assembly. In
1979, five political parties competed in a series of elections in which a
northerner, Alhaji Shehu Shagari of the National Party of Nigeria (NPN), was
elected president. All five parties won representation in the National Assembly.
In August 1983, Shagari and the NPN were returned to power in a landslide
victory, with a majority of seats in the National Assembly and control of 12
state governments. But the elections were marred by violence, and allegations of
widespread vote rigging and electoral malfeasance led to legal battles over the
results.
On December 31, 1983, the military overthrew the Second Republic. Maj. Gen.
Muhammadu Buhari emerged as the leader of the Supreme Military Council (SMC),
the country's new ruling body. He charged the civilian government with economic
mismanagement, widespread corruption, election fraud, and a general lack of
concern for the problems of Nigerians. He also pledged to restore prosperity to
Nigeria and to return the government to civilian rule but was stymied in his
attempt to deal with Nigeria's severe economic problems. The Buhari government
was peacefully overthrown by the SMC's third-ranking member, Army Chief of Staff
Maj. Gen. Ibrahim Babangida, in August 1985.
Babangida moved to restore freedom of the press and to release political
detainees being held without charge. As part of a 15-month economic emergency,
he announced stringent pay cuts for the military, police, and civil servants and
enacted similar cuts for the private sector. Imports of rice, maize, and wheat
were banned. Babangida led a national debate on proposed economic reform and
recovery measures, which convinced him of intense opposition to an economic
recovery package dependent on an International Monetary Fund (IMF) loan.
The Abortive Third Republic
President Babangida promised to return the country to civilian rule by 1990;
this date was later extended until January 1993. In early 1989, a constituent
assembly completed work on a constitution for the Third Republic. In the spring
of 1989, political activity was again permitted. In October 1989 the government
established two 'grassroots' parties: the National Republican Convention (NRC),
which was to be 'a little to the right,' and the Social Democratic (SDP), 'a
little to the left.' Other parties were not allowed to register by the Babangida
government.
In April 1990, mid-level officers attempted to overthrow the Babangida
government. The coup failed, and 69 accused coup plotters were later executed
after secret trials before military tribunals. The transition resumed after the
failed coup. In December 1990 the first stage of partisan elections was held at
the local government level. While turnout was low, there was no violence, and
both parties demonstrated strength in all regions of the country, with the SDP
winning control of a majority of local government councils.
In December 1991, gubernatorial and state legislative elections were held
throughout the country. Babangida decreed in December 1991 that previously
banned politicians would be allowed to contest in primaries scheduled for August
1992. These were canceled due to fraud, and subsequent primaries scheduled for
September also were canceled. All announced candidates were disqualified from
again standing for president once a new election format was selected. The
presidential election was finally held on June 12, 1993, with the inauguration
of the new president scheduled to take place August 27, 1993, the eighth
anniversary of President Babangida's coming to power.
In historic June 12, 1993 presidential elections that most observers deemed to
be Nigeria's fairest, early returns indicated that wealthy Yoruba businessman
M.K.O. Abiola had won a decisive victory. However, on June 23, Babangida, using
several pending lawsuits as a pretense, annulled the election, throwing Nigeria
into turmoil. More than 100 persons were killed in riots before Babangida agreed
to hand power to an 'interim government' on August 27. Babangida then attempted
to renege on his decision. Without popular and military support, he was forced
to hand over to Ernest Shonekan, a prominent nonpartisan businessman. Shonekan
was to rule until new elections, slated for February 1994. Although he had led
Babangida's Transitional Council since early 1993, Shonekan was unable to
reverse Nigeria's ever-growing economic problems or to defuse lingering
political tension.
With the country sliding into chaos, Defense Minister Sani Abacha quickly
assumed power and forced Shonekan's 'resignation' on November 17, 1993. Abacha
dissolved all democratic political institutions and replaced elected governors
with military officers. Abacha promised to return the government to civilian
rule but refused to announce a timetable until his October 1, 1995 Independence
Day address. Following the annulment of the June 12 election, the United States
and other nations imposed various sanctions on Nigeria, including restrictions
on travel by government officials and their families and suspension of arms
sales and military assistance. Additional sanctions were imposed as a result of
Nigeria's failure to gain full certification for its counter-narcotics efforts.
Although Abacha's takeover was initially welcomed by many Nigerians,
disenchantment grew rapidly. A number of opposition figures united to form a new
organization, the National Democratic Coalition (NADECO), which campaigned for
an immediate return to civilian rule. Most Nigerians boycotted the elections
held from May 23-28, 1994, for delegates to the government-sponsored
Constitutional Conference. On June 11, 1994, using the groundwork laid by NADECO,
Abiola declared himself president and went into hiding. He reemerged and was
promptly arrested on June 23. With Abiola in prison and tempers rising, Abacha
convened the Constitutional Conference June 27, but it almost immediately went
into recess and did not reconvene until July 11, 1994.
On July 4, a petroleum workers union called a strike demanding that Abacha
release Abiola and hand over power to him. Other unions then joined the strike,
which brought economic life in around Lagos area and in much of the southwest to
a standstill. After calling off a threatened general strike in July, the Nigeria
Labor Congress (NLC) reconsidered a general strike in August, after the
government imposed 'conditions' on Abiola's release. On August 17, 1994, the
government dismissed the leadership of the NLC. Although striking unions
returned to work, the government arrested opponents, closed media houses, and
moved strongly to curb dissent.
The government alleged in early 1995 that some 40 military officers and
civilians were engaged in a coup plot, including former head of state Obasanjo
and his deputy, retired Gen. Shehu Musa Yar'Adua. After a secret tribunal, most
of the accused were convicted, and several death sentences were handed down. The
tribunal also charged, convicted, and sentenced prominent human rights
activists, journalists, and others--including relatives of the coup
suspects--for their alleged 'anti-regime' activities. In October, the government
announced that the Provisional Ruling Council (PRC--see below: Abubakar's
Transition to Civilian Rule) and Abacha had approved final sentences for those
convicted of participation in the coup plot.
In an October 1, 1995 address to the nation, Gen. Sani Abacha announced the
timetable for a 3-year transition to civilian rule. Only five of the political
parties which applied for registration were approved by the regime. In local
elections held in December 1997, turnout was under 10%. By the April 1998 state
assembly and gubernatorial elections, all five of the approved parties had
nominated Abacha as their presidential candidate in controversial party
conventions. Public reaction to this development in the transition program was
apathy and a near-complete boycott of the elections. On December 21, 1997, the
government announced the arrest of the country's second highest-ranking military
officer, Chief of General Staff Lt. Gen. Oladipo Diya, 10 other officers, and
eight civilians on charges of coup plotting.
Abacha, widely expected to succeed himself as a civilian president on October 1,
1998, remained head of state until his death on June 8 of that year. He was
replaced by General Abdulsalami Abubakar. The PRC, under Abubakar, commuted the
sentences of those accused in the alleged 1997 coup in July 1998. In March 1999,
Diya and 54 others accused or convicted of participation in coups in 1990, 1995,
and 1997 were released. Following the death of former head of state Abacha in
June, Nigeria released almost all known civilian political detainees, including
the Ogoni 19.
During the Abacha regime, the government continued to enforce its arbitrary
authority through the federal security system--the military, the state security
service, and the courts. Under Abacha, all branches of the security forces
committed serious human rights abuses. After Abubakar's assumption of power and
consolidation of support within the PRC, human rights abuses decreased.
Abubakar's Transition to Civilian Rule
During both the Abacha and Abubakar eras, Nigeria's main decision-making organ
was the exclusively military Provisional Ruling Council (PRC) which governed by
decree. The PRC oversaw the 32-member federal executive council composed of
civilians and military officers. Pending the promulgation of the constitution
written by the constitutional conference in 1995, the government observed some
provisions of the 1979 and 1989 constitutions. Neither Abacha nor Abubakar
lifted the decree suspending the 1979 constitution, and the 1989 constitution
was not implemented. The judiciary's authority and independence was
significantly impaired during the Abacha era by the military regime's arrogation
of judicial power and prohibition of court review of its action. The court
system continued to be hampered by corruption and lack of resources after
Abacha's death. In an attempt to alleviate such problems, Abubakar's government
implemented a civil service pay raise and other reforms.
In August 1998, the Abubakar government appointed the Independent National
Electoral Commission (INEC) to conduct elections for local government councils,
state legislatures and governors, the National Assembly, and president. INEC
held a series of four successive elections between December 1998 and February
1999. Former military head of state Olusegun Obasanjo, freed from prison by
Abubakar, ran as a civilian candidate and won the presidential election.
Irregularities marred the vote, and the defeated candidate, Chief Olu Falae,
challenged the electoral results and Obasanjo's victory in court.
Government and Political Conditions
The PRC promulgated a new constitution, based
largely on the suspended 1979 constitution, before the May 29, 1999 inauguration
of the new civilian president. The constitution included provisions for a
bicameral legislature, the National Assembly, consisting of a 360-member House
of Representatives and a 109-member Senate. The executive branch and the office
of president retained strong federal powers. The legislature and judiciary,
having suffered years of neglect, are finally rebuilding as institutions and
beginning to exercise their constitutional roles in the balance of power.
The Obasanjo Administration
The emergence of a democratic Nigeria in May 1999 ended 16 years of consecutive
military rule. Olusegun Obasanjo became the steward of a country suffering
economic stagnation and the deterioration of most of its democratic
institutions. Obasanjo, a former general, was admired for his stand against the
Abacha dictatorship, his record of returning the federal government to civilian
rule in 1979, and his claim to represent all Nigerians regardless of religion.
The new President took over a country that faced many problems, including a
dysfunctional bureaucracy, collapsed infrastructure, and a military that wanted
a reward for returning quietly to the barracks. The President moved quickly and
retired hundreds of military officers who held political positions, established
a blue-ribbon panel to investigate human rights violations, ordered the release
of scores of persons held without charge, and rescinded a number of questionable
licenses and contracts let by the previous military regimes. The government also
moved to recover millions of dollars in funds secreted in overseas accounts.
Most civil society leaders and most Nigerians saw a marked improvement in human
rights and democratic practice under Obasanjo. The press enjoyed greater freedom
than under previous governments. As Nigeria works out representational
democracy, there have been conflicts between the executive and legislative
branches over major appropriations and other proposed legislation. A sign of
federalism has been the growing visibility of state governors and the inherent
friction between Abuja and the various state capitols over resource allocation.
In the eight years since the end of military rule, Nigeria has witnessed
recurrent incidents of ethno-religious, community, and resource-related
conflicts. Many of these arose from distorted use of oil revenue wealth, as well
as from flaws in the 1999 constitution. In May 1999, violence erupted in Kaduna
State over the succession of an Emir, resulting in more than 100 deaths. In
November 1999, the army destroyed the town of Odi in Bayelsa State and killed
scores of civilians in retaliation for the murder of 12 policemen by a local
gang. In Kaduna in February-May 2000 over 1,000 people died in rioting over the
introduction of criminal Shar'ia in the state. Hundreds of ethnic Hausa were
killed in reprisal attacks in southeastern Nigeria. In September 2001, over
2,000 people were killed in inter-religious rioting in Jos. In October 2001,
hundreds were killed and thousands displaced in communal violence that spread
across the Middle-Belt states of Benue, Taraba, and Nasarawa. On October 1,
2001, President Obasanjo announced the formation of a National Security
Commission to address the issue of communal violence. In 2003, he was re-elected
in contentious and highly flawed national elections and state gubernatorial
elections, which were litigated over two years. Since 2006, violence,
destruction of oil infrastructure, and kidnappings of primarily expatriates in
the oil-rich Niger River Delta has intensified as militants demanded a greater
share of federal revenue for states in the region, as well as benefits from
community development. For many reasons, Nigeria's security services have been
unable to respond to the security threat, which is both political and criminal.
In May 2006, the National Assembly soundly defeated an attempt to amend the
constitution by supporters of a third presidential term for President Obasanjo.
This measure was packaged in a bundle of what were otherwise non-controversial
amendments. Nigeria's citizens addressed this issue in a constitutional,
democratic, and relatively peaceful process.
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ECONOMY
Trade
Nigeria is the largest U.S. trading partner in sub-Saharan Africa, based mainly
on the high level of petroleum imports from Nigeria. Total two-way trade was
valued at $30.8 billion in 2006, a 19% increase over 2005. Leading U.S exports
to Nigeria were machinery, wheat, and motor vehicles. Leading U.S. imports from
Nigeria were oil and rubber products. Nigerian exports to the United State under
the African Growth and Opportunity Act (AGOA), including its Generalized System
of Preferences (GSP) provisions, were valued at $25.8 billion during 2006, a 15%
increase over 2005, due to an increase in oil exports. Non-oil AGOA trade
(leather products, species, cassava, yams, beans, and wood products) totaled
$1.4 million in 2006, almost double the amount in 2005. The United States was
the largest foreign investor in Nigeria.
In June 2006, the United States met with Nigeria under the existing Trade and
Investment Framework Agreement (TIFA) to cooperate on investment issues and to
develop a strategy for Nigeria to diversify its export base, especially in
manufactured goods. Under the TIFA, the United States and Nigeria pledged to
work together on critical issues such as World Trade Organization (WTO) Doha
Development, intellectual property rights, and trade capacity building.
The U.S. goods trade deficit with Nigeria was $25.7 billion in 2006, an increase
of $3 billion from $22.6 billion in 2005. U.S. goods exports to Nigeria in 2006
were $2.2 billion, up 38% from the previous year. U.S. imports from Nigeria were
$27.9 billion in 2006, up from 15% from 2005. Nigeria is currently the
50th-largest export market for U.S. goods.
The stock of U.S. foreign direct investment (FDI) in Nigeria in 2005 was $874
million, down from $2.0 billion in 2004. U.S. FDI in Nigeria is concentrated
largely in the mining and wholesale trade sectors.
Dominated by Oil
The oil boom of the 1970s led Nigeria to neglect its strong agricultural and
light manufacturing bases in favor of an unhealthy dependence on crude oil. In
2002 oil and gas exports accounted for more than 98% of export earnings and
about 83% of federal government revenue. New oil wealth, the concurrent decline
of other economic sectors, and a lurch toward a statist economic model fueled
massive migration to the cities and led to increasingly widespread poverty,
especially in rural areas. A collapse of basic infrastructure and social
services since the early 1980s accompanied this trend. By 2002 Nigeria's per
capita income had plunged to about one-quarter of its mid-1970s high, below the
level at independence. Along with the endemic malaise of Nigeria's non-oil
sectors, the economy continues to witness massive growth of 'informal sector'
economic activities, estimated by some to be as high as 75% of the total
economy.
Nigeria's proven oil reserves are estimated to be 36 billion barrels; natural
gas reserves are well over 100 trillion cubic feet. Nigeria is a member of the
Organization of Petroleum Exporting Countries (OPEC), and in 2006 its crude oil
production averaged around two million barrels per day. Poor corporate relations
with indigenous communities, vandalism of oil infrastructure, severe ecological
damage, and personal security problems throughout the Niger Delta oil-producing
region continue to plague Nigeria's oil sector. Efforts are underway to reverse
these troubles. In the absence of coherent government programs, the major
multinational oil companies have launched their own community development
programs. The Niger Delta Development Commission (NDDC) was created to help
catalyze economic and social development in the region, but it is widely
perceived to be ineffective and opaque. The United States remains Nigeria's
largest customer for crude oil, accounting for 40% of the country's total oil
exports. Nigeria provides about 11% of overall U.S. oil imports and ranks as the
fifth-largest source for U.S. imported oil.
The United States is Nigeria's largest trading partner after the United Kingdom.
Although the trade balance overwhelmingly favors Nigeria, thanks to oil exports,
a large portion of U.S. exports to Nigeria is believed to enter the country
outside of the Nigerian Government's official statistics, due to importers
seeking to avoid Nigeria's excessive tariffs. To counter smuggling and
under-invoicing by importers, in May 2001 the Nigerian Government instituted a
100% inspection regime for all imports, and enforcement has been sustained. On
the whole, Nigerian high tariffs and non-tariff barriers are gradually being
reduced, but much progress remains to be made. The government also has been
encouraging the expansion of foreign investment, although the country's
investment climate remains daunting to all but the most determined. The stock of
U.S. investment is nearly $7 billion, mostly in the energy sector. Exxon-Mobil
and Chevron are the two largest U.S. corporate players in offshore oil and gas
production. Significant exports of liquefied natural gas started in late 1999
and are slated to expand as Nigeria seeks to eliminate gas flaring by 2008.
Agriculture has suffered from years of mismanagement, inconsistent and poorly
conceived government policies, and the lack of basic infrastructure. Still, the
sector accounts for over 41% of GDP and two-thirds of employment. Agriculture
provides a big chunk of non-oil growth, which in 2006 reached 9%. Nigeria is no
longer a major exporter of cocoa, groundnuts (peanuts), rubber, or palm oil.
Cocoa production, mostly from obsolete varieties and overage trees, is stagnant
at around 180,000 tons annually; 25 years ago it was 300,000 tons. An even more
dramatic decline in groundnut and palm oil production also has taken place. Once
the biggest poultry producer in Africa, corporate poultry output has been
slashed from 40 million birds annually to about 18 million. Import constraints
limit the availability of many agricultural and food processing inputs for
poultry and other sectors. Fisheries are poorly managed. Most critical for the
country's future, Nigeria's land tenure system does not encourage long-term
investment in technology or modern production methods and does not inspire the
availability of rural credit.
Oil dependency, and the allure it generated of great wealth through government
contracts, spawned other economic distortions. The country's high propensity to
import means roughly 80% of government expenditures is recycled into foreign
exchange. Cheap consumer imports, resulting from a chronically overvalued Naira,
coupled with excessively high domestic production costs due in part to erratic
electricity and fuel supply, have pushed down industrial capacity utilization to
less than 30%. Many more Nigerian factories would have closed except for
relatively low labor costs (10%-15%). Domestic manufacturers, especially
pharmaceuticals and textiles, have lost their ability to compete in traditional
regional markets; however, there are signs that some manufacturers have begun to
address their competitiveness.
Arguably the government's biggest macroeconomic achievement has been the sharp
reduction in its external debt, which declined from 36% of GDP in 2004 to less
than 4% of GDP in 2007. In October 2005, the International Monetary Fund (IMF)
approved its first ever Policy Support Instrument for Nigeria. On December 17,
the United States and seven other Paris Club nations signed debt reduction
agreements with Nigeria for $18 billion in debt reduction, with the proviso that
Nigeria pay back its remaining $12 billion in debt by March 2006. The United
States was one of the smaller creditors, and received about $356 million from
Nigeria in return for over $600 million of debt reduction. Merrill Lynch has won
the right to take on $509 million of Nigeria's promissory debt (accrued since
1984) to the 'London Club' of private creditors. This arrangement saves Nigeria
about $34 million over a simple prepayment of the notes. Nigeria owes some
bilateral loans and multilateral institutions over $101 million in oil warrant
instrumental debts, which soon might be redeemed via a cash tender offer.
Consequently, Nigeria faces intense pressure to accept multibillion dollar loans
for railroads, power plants, roads, and other infrastructure.
In the light of highly expansionary public sector fiscal policies during 2001,
the government has sought ways to head off higher inflation, leading to the
implementation of stronger monetary policies by the Central Bank of Nigeria (CBN)
and underspending of budgeted amounts. As a result of the CBN's efforts, the
official exchange rate for the Naira has stabilized at about 127 Naira to the
dollar. The combination of CBN's efforts to prop up the value of the Naira and
excess liquidity resulting from government spending led the currency to be
discounted by around 20% on the parallel (nonofficial) market. A key achievement
of the Policy Support Instrument has been closure of the gap between the
official and parallel market exchange rates. The Inter-Bank Foreign Exchange
Market (IFEM) is closely tied to the official rate. Under IFEM, banks, oil
companies, and the CBN can buy or sell their foreign exchange at government
influenced rates. Much of the informal economy, however, can only access foreign
exchange through the parallel market. Companies can hold domiciliary accounts in
private banks, and account holders have unfettered use of the funds.
Expanded government spending also has led to upward pressure on consumer prices.
Inflation, which had fallen to 0% in April 2000, reached 14% by the end of 2003.
Inflation was estimated at 8% in early 2007. High world oil prices have resulted
in the government now holding $45 billion in foreign exchange reserves. State
and local governmental bodies demand access to this 'windfall' revenue, creating
a tug-of-war between the federal government--which seeks to control
spending--and state governments desirous of augmented budgets, preventing the
government from making provision for periods of lower oil prices.
One of Nigeria's greatest success stories has been the completion in early 2006
of a major overhaul of its banking system, although some have criticized the
pace of consolidation and aggressive CBN supervision. Reforms have reduced the
number of banks from 89 to 25, increased a bank's minimal capital requirement to
$190 million, and required banks to hold 40% of their deposits in liquid assets.
Retail, corporate, and Internet banking are seen as intensively competitive, and
the home loan market is considered moderately competitive. Less than 10% of
lending is believed to be made to individuals. About 65% of the economically
active population is serviced by the informal financial sector, e.g.,
microfinance institutions, moneylenders, friends, relatives, and credit unions.
Since 1999, the Nigerian Stock Exchange has enjoyed strong performance, although
equity as a means to foster corporate growth remains underutilized by Nigeria's
private sector. Rural communities remain largely unbanked, the real estate
sector and small businesses receive a low level of lending, and the credit card
market remains at an early stage of development.
Nigeria's publicly owned transportation infrastructure is a major constraint to
economic development. Principal ports are at Lagos (Apapa and Tin Can Island),
Port Harcourt, and Calabar. Docking fees for freighters are among the highest in
the world. Of the 80,500 kilometers (50,000 mi.) of roads, more than 15,000
kilometers (10,000 mi.) are officially paved, but many remain in poor shape.
Extensive road repairs and new construction activities are gradually being
implemented as state governments, in particular, spend their portions of
enhanced government revenue allocations. The government implementation of 100%
destination inspection of all goods entering Nigeria has resulted in long delays
in clearing goods for importers and created new sources of corruption, since the
ports lack adequate facilities to carry out the inspection. Four of Nigeria's
airports--Lagos, Kano, Port Harcourt and Abuja--currently receive international
flights. There are several domestic private Nigerian carriers, and air service
among Nigeria's cities is generally dependable. The maintenance culture of
Nigeria's domestic airlines is not up to international standards.
Gradual Reform
Nigeria made progress toward establishing a market-based economy in 2006. It
privatized Nigeria Telecommunications and its mobile subsidiary as well as the
only government-owned petrochemical company. The government also sold its
interest in eight oil service companies. Nigeria continued implementation of the
Economic Community of West African States (ECOWAS) Common External Tariff.
Nigeria's implementation of non-tariff barriers has been arbitrary and uneven
and continues to violate WTO prohibitions against trade bans. However, the
government removed some textile items from its list of prohibited imports in
2006. Enforcement of criminal penalties against intellectual property rights (IPR)
violations is weak, and firms that are successfully countering IPR piracy have
generally done so through civil court cases. The government has recently created
an intellectual property commission.
A co-member of the International Advisory Group of the Extractive Industries
Transparency Initiative (EITI) initiated by the G8, Nigeria's federal government
is playing an important role in having volunteered to pilot the new disclosure
and validation methodologies. It has completed a comprehensive audit of oil
sector payments and government revenues from 1999-2004. However, it is perceived
that government contracting remains rife with corruption and kickbacks, and that
many state and local officials continue to steal public monies outright.
Nigeria's economic team has enjoyed an excellent reputation in the international
community. The team produced an encouraging body of work, notably budgets
described as 'prudent and responsible' by the IMF and a detailed economic reform
blueprint, the National Economic Empowerment and Development Strategy (NEEDS).
Other positive developments have included: (1) government efforts to deregulate
fuel prices; (2) Nigeria's participation in the EITI and commitment to the G8
Anticorruption/Transparency Initiative; (3) creation of an effective Economic
and Financial Crimes Commission (EFCC), which has earned 150 convictions and
recovered over $5 billion in mishandled funds; and (4) development of several
governmental offices to better monitor official revenues and expenditures.
Nigeria is not on track to meet its Millennium Development Goals because of a
lack of policy coordination between the federal, state, and local governments, a
lack of funding commitments at the state and local levels; and a lack of
available staff to implement and monitor projects on health, poverty, and
education.
Investment
Although Nigeria must grapple with its decaying infrastructure and a poor
regulatory environment, the country possesses many positive attributes for
carefully targeted investment and will expand as both a regional and
international market player. Profitable niche markets outside the energy sector,
such as specialized telecommunication providers, have developed under the
government's reform program. There is a growing Nigerian consensus that foreign
investment is essential to realizing Nigeria's vast potential. Companies
interested in long-term investment and joint ventures, especially those that use
locally available raw materials, will find opportunities in the large national
market. However, to improve prospects for success, potential investors must
educate themselves extensively on local conditions and business practices,
establish a local presence, and choose their partners carefully. The Nigerian
Government is keenly aware that sustaining democratic principles, enhancing
security for life and property, and rebuilding and maintaining infrastructure
are necessary for the country to attract foreign investment.
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