Sometimes in life it is beneficial to look back into the past in order to move forward. As a historian, I’ve had recourse to “consult” the past when it comes to contemporary issues and it is often strange how past events are not really “buried in the past,” but are, in some instances, a striking reenactment of the present. In some of these instances, they even shape the present. Let’s take the current state of the nation’s economy as an example. What we are experiencing today is quite similar to what we experienced in the late 1980s.
Rewind to the 1980s. Between 1980 and 1986, oil prices crashed by 70% to below $10 per barrel. Expectedly, government revenues fell by 75% in the same period. The government ran consistent deficits to fund the civil service and sustain spending. Since there was little room to maneuver, the government had to borrow heavily after depleting foreign exchange reserves. Does this sound familiar? Yes it does, already states have been bailed out to pay salaries and it doesn’t appear that things would change in the immediate to short term.
Another striking feature of that period was the exchange rate brouhaha. Just like we are witnessing today, opinions differ of what to do with the naira. Should the naira be devalued? Some felt – like now – that the naira was clearly overvalued. Their argument was that the official rate was being artificially held at just under one naira to the dollar, despite the sustained fall in oil prices. That same argument still holds today.
The fallout was that the official and parallel market rates widened over time, reaching over 300% by 1985, when four naira traded for one dollar in the parallel market. The divergence was fueled in some part by Forex rationing which drove people to the black market. Still sounds familiar right? It does as there are restriction on how to access it.
The clarion call was to devalue the naira, but the government resisted fearing inflation. Instead, the Shagari administration implemented austerity measures, including forex rationing and import licensing restrictions. This failed to stem the tide of serious economic challenges. This was the singular reason for the military coup that brought Major General Muhammadu Buhari to power. That coup was one of the most widely accepted coups in Nigeria. However, by 1984, inflation had risen to around 40%, from roughly 10% four years earlier.
To further compound our woes, the non-oil sector growth equally collapsed. Manufacturers struggled under import restrictions and the overall economy slowed to negative growth. There was massive unemployment which was further compounded as people lose their jobs almost on a daily basis. Nigeria recorded a 2–3% per annum decline in the economy on average between 1980 and 1986, and incomes dropped to roughly $240 per capita from around $870.
Again, one of the reasons cited for the overthrow of the regime of Muhammadu Buhari by General Ibrahim Babangida (IBB) has to do with the state of the economy, especially the “rigid” measures adopted by Buhari and his government to put the economy back on track.
Economists were divided on how to come out of the economic mess. Economists of the right believed there was “no other alternative” for the nation order than to take the IMF/WB loan. Those on the left said we should look inwards because the answer lies within; buy made in Nigeria goods and products to grow the local economy. IBB thus threw the debate open, and for months Nigerians were debating.
It was for this reason that 1986 was a particularly tough year for the country for a very obvious reason: most of the falls in oil prices and household incomes happened in that year alone. It was the same year too that the IBB regime started the implementation of the Structural Adjustment Programme (SAP) abruptly ending the debate on the way forward for the economy.
At the core of SAPs strategy, or “conditionalities,” was an across the board withdrawal of government subsidies and the privitisation of government enterprises and parastatals. Ironically, this has continued till date, the latest being the “unbundling” of our hitherto power behemoth; the Power Holding Company of Nigeria (PHCN) and the emergences of Power Generation Companies (GENCOs) and Power Distribution Companies (DISCOs).
Another core issue in the SAP strategy was the exchange rate policy. The IMF/WB egghead’s idea was to allow market forces greater influence to determine the “appropriate rate of the naira.” According to them, this strategy will allow the naira to depreciate towards fair value. It won’t end there as it is also expected that import demand would restrain itself and as a consequence, domestic production and non-oil exports demand would be stimulated as Nigerian goods would price “more competitively” at home and abroad, and black market activity would fall.
Some – especially those on the right – argue that in the first two years, the results of SAP were a return to positive economic growth, a resurgence of agriculture, higher exports and lower import demand. GDP growth averaged 5% per annum between 1986 and 1992 and agricultural output grew by 4% a year. The textile and agro-processing industries did well. For example, it was accepted that there was modest growth in the Nigerian textiles industry one year into the post-SAP era.
This was where things got dicey. It was debatable that the growth favoured the farmers and rural populace checkmating the middle class and civil servants who felt a significant lowering in their living standards occasioned by slower wage growth and reduced government spending on social infrastructure as a result of fallout’s from the IMF “conditionalities.”
Those on the left argued that within that period, the naira struggled to find its “appropriate level” as it depreciated about 80% against the dollar in real terms between 1986 and 1992. This was after the introduction of the first/SFEM (Second Tier Foreign Exchange Market) window in September 1986. Remember the late Fela Anikulapo’s song: “government introduce second tier, everything come tear? Strangely though, inflation increased by about 10 percentage despite the 70% devaluation.
So why was SAP so unpopular? It was because Nigerians don’t trust their leaders. In essence, the people never supported it as everything was viewed suspiciously. There was also no clear-cut communication strategy in place to explain to the people why they have to “tighten their belts.” Majority said they didn’t even have the waist to put the belt in in the first place. They also perceived that their leaders weren’t tightening their own belts as IBB and his cronies enriched themselves at the cost of Nigerians.
Fast-forward to 2016. Is history repeating itself that a man familiar with a similar “plot” in the past is the same man at the helm of affairs today? We are back full circle and again we are officially and unofficially debating the “appropriate” rate of the naira. There is a huge disparity between the official and parallel market rate as it fell to about N500 to the dollar sometime last week in the parallel market while the official rate remained at N199 to the dollar.
As it was in 1986, so it is in 2016. In my opinion, there are no easy answers when it comes to the issue of devaluation. Proponents would say it is the best thing that could happen to the naira. On the other hand, opponents would want to know how a heavily import dependent nation like Nigeria can cope with a devalued currency. There is also an emotional side to the debate.
In 1986, another big issue was the diversification of the economy toward non-oil export. That is the same issue today! IBB told Nigerians that the task of economic diversification will be long and probably painful. The same applies today. Diversification will definitely take time, especially in the areas of agriculture and solid minerals development.
Do we have that patience and temperament, especially as we have been spoiled by oil over the past four decades? Are our youths ready for the “hard work” of tilling the land and waiting for delayed gratifications? With oil, we drill crude, extract; load into tankers and the dollars roll in. The arithmetic will not be that simple with agriculture, or is it?