The early post-independence Nigerian economy was mainly agriculture, exports and commercial activities based. The export was mainly of raw material, as such, there was no viable industrial sector. Despite fluctuations in world prices, agriculture
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contributed about 65% of the gross domestic product (GDP) and constituted nearly 70% of total exports (Ekundare, 1973). Agriculture provided the foreign exchange earnings which were used in importing raw materials and capital goods. The economy was self-sufficient in term of food. The government set up various marketing boards which generated considerable revenue. The surplus proceeds were used to improve the basic infrastructure necessary for long-term development. The key economic policy objective then was to make the most of the benefits of the export-led growth strategy (Ekundare, 1973).
Raw materials which comprise of agricultural produce and minerals were exported to the industrialised countries in Europe and America. Import substitution industrialisation (ISI) strategy was adopted. Therefore, many consumer items, which were previously imported, were produced locally. Dumping protection measures like tariffs, quotas, prohibition, etc. were used to ensure that local industries were allowed to grow (Ekundare, 1973).
Throughout this period, the rates of growth, inflation and unemployment and productivity go on the reasonably acceptable level. The economic policy was geared towards strong demand management. Increased productivity preserved stability in prices within the economy. The Nigeria currency’s average exchange rate during the period was 0.71 per US dollar. The average annual GDP growth was 2.9%, while the average per capita GDP was USD118. The average annual inflation (Consumer prices) during the period was 4.93%, (see Table 2.1). The Nigerian civil war during 1967-1970 has impacted negatively on the GDP growth and the inflation during the period.
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The average real interest rate was negative (-7.32%) during the 1960-1970 period despite the low average inflation rate of 4.93%. The foreign direct investment as a percentage of GDP was also at low 1.63% (See Table 2.2).
The First National Development Plan 1962-1968 ensured that the government engaged in economic activities, directly and indirectly. The Plan maintained that government needs to provide the essential infrastructure. Due to the high poverty rate, the government offered incentives to speed up the rate of economic growth and development. Private savings were still low; therefore, the level of private investment was small. Foreigners still control the manufacturing, trading and services sub-sectors. Multinational companies still dominate until the mid-1960s when some Nigerians began to occupy high-ranking positions in the multinational corporations (Ekundare, 1973).
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Table 2.1: Average GDP growth, GDP per capita and consumer price Inflation
Period Average GDP growth (Annual %) Average GDP per capita (current USD) Average Annual Official exchange rate (Naira/USD , period average) Average Inflation, consumer prices (Annual %) Exchange rate policy/Financial policy Regime 1960 - 1970 2.90 118 0.71 4.93 Fixed/Controlled 1971 - 1977 6.28 364 0.65 15.84 Fixed/Controlled 1978 - 1986 -1.83 543 5.03 14.01 Fixed/Controlled 1987 - 1993 2.56 263 10.48 34.06 Managed Floating/Liberalised 1994 - 1998 2.22 269 21.91 35.53 Fixed/Liberalised 1999 - 2013 7.48 1241 130.67 11.61 Managed Floating/Liberalised
Source: Researcher’s computation based on World Bank data.
The average of the annual GDP growth increased tremendously to 6.28% during the oil boom period of 1971-1977 from the average of 2.9% in the period 1960-1970 which is also reflected in the average GDP per capita which rises to USD364 from USD118.
The improved GDP growth could be due to the increased capital inflow because of rise in the international oil price.
The Nigeria’s currency exchange rate appreciated due to the excess foreign exchange in the market.
The boom of the 1971-1977 seems to have fueled the inflation which rises to annual average of 15.84% at the time from the 4.93% of 1960-1970.
However, the rise in inflation rate during the period could not be attributed to
exchange rate pass-through as the exchange rate appreciated during the period but to excess money supply in the economy.
The oil boom period of the 1971-1977 was followed by a drop in the average GDP growth to negative -1.83% during 1978-1986.
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The fall in the GDP growth could be attributed to the oil price collapse during the period which led to a drastic drop in the foreign exchange inflow.
The collapse of the oil price also led to the fiscal deficit as the oil export is the major source of government revenue.
The inflation rate slightly drops to a period average of 14.01% during the 1978-1986 from the 15.84% of 1971-1977.
There were a serious fiscal crisis and structural imbalance which compelled the government to adopt the IMF’s structural Adjustment programme (SAP) in 1986. The five year period of 1987-1993 saw a tremendous improvement in the GDP growth to 2.56% from the negative -1.83% of the period 1978-1987.
However, the inflation rate rises significantly to 34.06% in the period 1987-1993 from the 14.01% of 1978-1986.
The rise in the inflation rate could be due to the severe exchange rate depreciation that followed the floating of the Naira exchange rate.
The Naira exchange rate depreciated to a period average of 10.48 per USD from the 5.08 per USD of 1978-1986.
Hence the rise in the inflation rate during the period 1987-1993 was probably due to exchange rate pass-through.
The government was compelled to put a hold on the depreciation of the Naira exchange rate and its impact on the consumer by introducing a fixed exchange rate regime in 1994.
The period average of the GDP growth slightly dropped in the fixed exchange rate regime period of 1994-1998 to 2.22% from the 2.56% in the period 1987-1993. However, the inflation trend continuous as it slightly increases to 35.53% in the period 1994-1998.
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But the excessive increase in the inflation rate of the previous period 1987-1993 was not witnessed in the fixed regime period 1994-1998.
From 1999, Nigeria reverted to the managed floating exchange rate.
In the period 1999 to 2013, the period average of the annual GDP growth immensely improved to 7.48% from the 2.22% of the period 1994-1998.
The improvement was also reflected in the GDP per capita as it tremendously increases to USD 1247 from the USD 268 of the 1994-1998 periods.
The period average inflation rate also drastically dropped to 11.61% in the period 1999-2013 from the 35.53% in the 1994-1998 periods.
The drastic decrease in the inflation rate could be partially due to a reduction in exchange rate pass-through to consumer prices.
The Naira exchange rate jumped immediately after the 1999 reversion to the managed floating regime but the year-after-year depreciation during the period 1999-2013 was low compared to the period after the first adoption of floating exchange rate regime.
The average Naira exchange rate during the period 1999-2013 was 130.67 Naira per USD.
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Figure 2.1: Annual Inflation (consumer price) and GDP growth
-20 0 20 40 60 80 60 65 70 75 80 85 90 95 00 05 10 GDP growth (annual %)
Inflation, consumer prices (annual %)
P e rc e n ta g e (% ) Year
Source: Constructed based on World Bank data
The movement in the GDP seem to have been followed by a move in the same direction by the inflation from the 1960s up 1974.
From 1974 to 1985 the inflation rate appears to be rising even when the GDP is falling.
The effect of the major policy change in 1986 is visible in both the GDP and the inflation rate.
Relative stable growth and inflation were achieved in the period 1997 to 2000. The steady increase in GDP after 2000 seems to have fuel the inflation between 2000 and 2005.
Between 2007 and 2013 there was relative stability both in the growth rate and inflation rate.
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