Under World Bank structural adjustment, the government tried to eliminate inefficient state intervention and obtain budgetary relief by abolishing agricultural commodity marketing boards and liberalizing cash-crop exports. These measures, together with devaluation, increased the naira prices of export crops, especially cocoa. The state also privatized many public enterprises by selling equity to private investors, while restructuring other parastatals to improve efficiency. The federal government encouraged private investment in the late 1980s, allowed foreign ownership in most manufacturing, and liberalized and accelerated administrative procedures for new investment.
The Babangida government, which came to power in August 1985 at a time of depressed oil prices, undertook its structural adjustment program between 1986 and 1988. In September 1986, the government introduced a second-tier foreign exchange market (SFEM), sold on auction for a near equilibrium price and used for export earnings and import trade requirements. Under SFEM, the naira depreciated 66 percent to N1=US$0.64 (N1.56=US$1), and declined further in value through July 1987, when the first and second tiers were merged. When adopting the SFEM, Nigeria abolished the ex-factory price controls set by the Prices, Productivity, and Incomes Board, as well as the 30 percent import surcharge and import licensing system. It reduced its import prohibition list substantially and promoted exports through fiscal and credit incentives and by allowing those selling abroad to retain foreign currency. Although this action opened the way for an IMF agreement and debt rescheduling, the military government declined to use an allocation of Special Drawing Rights (see Glossary) in IMF standby funds.
Meanwhile, the naira continued depreciating, especially after the relaxation of fiscal policy early in 1988. The effect of the SFEM in breaking bottlenecks, together with the slowing of food price increases, dampened inflation in 1986, but the easing of domestic restrictions in 1988 reignited it. Real interest rates were negative, and capital flight and speculative imports resumed. In 1989 the government again unified foreign exchange markets, depreciating--but not stabilizing--the naira and reducing the external deficit. Manufacturing firms increased their reliance on local inputs and raw materials, firms depending on domestic resources grew rapidly, and capacity utilization rose, although it was still below 50 percent. Concurrently, nonoil exports grew from US$200 million in 1986 to US$1,000 million in 1988. This amount, however, represented only 13 percent of export value at the level of the 1970s, and cash crops like cocoa dominated the export market. Large firms benefited from the foreign exchange auction and enjoyed higher capacity use than smaller ones. Despite dramatically reduced labor costs, domestic industrial firms undertook little investment or technological improvements.
Structural adjustment was accompanied by falling real wages, the redistribution of income from urban to rural areas, and reduced health, education, and social spending. The decrease in spending on social programs contributed to often vociferous domestic unrest, such as Muslim-Christian riots in Kaduna State in March 1987, urban rioting in April 1988 in response to reduced gasoline subsidies, student-led violence in opposition to government economic policies in May and June 1989, and the second coup attempt against General Babangida in April 1990.
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Current reliable information on the Nigerian economy is scarce. Central Bank of Nigeria periodicals, Annual Report and Statement of Accounts, Economic and Financial Review, the Economist Intelligence Unit's annual Country Profile, and irregularly issued Office of Statistics publications are the major sources, but income and employment statistics are subject to a wide margin of error. The World Bank's annual World Development Report and frequent studies on sub-Saharan Africa include Nigerian statistics. African Business, Financial Times, West Africa, Africa Research Bulletin (Economic Series), and Africa Report include informative articles on the economy. Pius N.C. Okigbo's National Development Planning in Nigeria is an excellent update. (For further information and complete citations, see Bibliography.)
Data as of June 1991