Macroeconomic Reports

Nigeria country report

Country studies present comprehensive description and analysis of the following sections:

Historical Setting:  Like so many other modern African states, Nigeria is the creation of European imperialism. Its very name, (after the great Niger River, the country’s dominating physical feature) was suggested in the 1890s by British journalist Flora Shaw, who later became the wife of colonial governor Frederick Lugard. The country’s 250 to 400 ethnic groups of widely varied cultures and modes of political organization dates from the completion of the British conquest in 1903 and the amalgamation of northern and southern Nigeria into the Colony and Protectorate of Nigeria in 1914.

Nigerian history is fragmented in the sense that it evolved from a variety of traditions, but many of the most outstanding features of modern society reflect the strong influence of the three regionally dominant ethnic groups–the Hausa in the north, the Yoruba in the west, and the Igbo in the east.

There are several dominant themes in Nigerian history that are essential in understanding contemporary Nigerian politics and society. First, the spread of Islam, predominantly in the north but later in south western Nigeria as well, began a millennium ago. The creation of the Sokoto Caliphate in the jihad (holy war) of 1804-8 brought most of the northern region and adjacent parts of Niger and Cameroon under a single Islamic government. The great extension of Islam within the area of present-day Nigeria dates from the nineteenth century and the consolidation of the caliphate. This history helps account for the dichotomy between north and south and for the divisions within the north that have been so strong during the colonial and postcolonial eras.

Second, the slave trade, both across the Sahara Desert and the Atlantic Ocean, had a profound influence on virtually all parts of Nigeria. The transatlantic trade in particular accounted for the forced migration of perhaps 3.5 million people between the 1650s and the 1860s, while a steady stream of slaves flowed north across the Sahara for a millennium, ending at the beginning of the twentieth century. Within Nigeria, slavery was widespread, with social implications that are still evident today. The Sokoto Caliphate, for example, had more slaves than any other modern country, except the United States in 1860.

Third, the colonial era was relatively brief; lasting six decades or so, depending upon the part of Nigeria, but it unleashed such rapid change that the full impact was still felt in the contemporary period. On the one hand, the expansion of agricultural products as the principal export earner and the corresponding development of infrastructure resulted in severely distorted economic growth that subsequently collapsed. On the other hand, social dislocation associated with the decline of slavery and the internal movement of population between regions and to the cities necessitated the reassessment of ethnic loyalties, which in turn continue to be reflected in politics and religion.

In the three decades since the independence of Nigeria in 1960, a period half as long as the colonial era, Nigeria has experienced a number of successful and attempted military coups d’état and a brutal civil war, let corrupt civilian governments siphon off the profits from the oil boom of the 1970s, and faced economic collapse in the 1980s. Nigeria is the most populous country in Africa, and one of the ten most populous countries in the world.

Geographical distribution:​Much of Nigeria’s surface consists of ancient crystalline rocks of the African Shield. Having been subject to weathering and erosion for long periods, the characteristic landscape of this area is extensive level plains interrupted by occasional granite mountains. These features form a major landscape type of Nigeria and of West Africa as a whole. There are also smaller areas of younger granites found, for example, on the Jos Plateau

The elevational pattern of most of Nigeria consists of a gradual rise from the coastal plains to the northern savanna regions, generally reaching an elevation of 600 to 700 meters. Higher altitudes, reaching more than 1,200 meters in elevation, are found only in isolated areas of the Jos Plateau and in parts of the eastern highlands along the Cameroon border. The coastal plain extends inland for about ten kilometers and rises to an elevation of forty to fifty meters above sea level at its northern boundary. The eastern and western sections of the coastal plain are separated by the Niger Delta, which extends over an area of about 10,000 square kilometers. Much of this is swampland, separated by numerous islands. The coastal plain region penetrates inland about seventy-five kilometers in the west but extends farther in the east. This region is gently undulating with elevation increasing northward and a mean elevation of about 150 meters above sea level. Much of the population of southern Nigeria is located in these eastern and western coastal plains and in some of the contiguous areas of the coast and the lower Niger Basin.

Population:​The size of its population is one of Nigeria’s most significant and distinctive features. With probably more than 100 million people in 1990–the precise figure is uncertain because there has been no accepted census since 1963, although a census was scheduled for the fall of 1991–Nigeria’s population is about twice the size of that of the next largest country in Africa, Egypt, which had an estimated mid-1989 population of 52 million. Nigeria represents about 20 percent of the total population of sub-Saharan Africa. The population is unevenly distributed, however; a large percentage of the total number live within several hundred kilometers of the coast but population is also dense along the northern river basin areas such as Kano and Sokoto. Population densities, especially in the southwest near Lagos and the rich agricultural regions around Enugu and Owerri, exceed 400 inhabitants per kilometer. None of the neighboring states of West or Central Africa approaches the total level of Nigerian population or the densities found in the areas of greatest concentration in Nigeria. Several of Nigeria’s twenty-one states have more people than a number of other countries in West Africa, and some of the Igbo areas of the southeast have the highest rural densities in sub-Saharan Africa. In contrast, other areas of Nigeria are sparsely populated and have apparently remained so for a considerable time. This pattern of population distribution has major implications for the country’s development and has had great impact on the nation’s post-independence history.  

The absence of virtually any reliable current demographic data has not prevented national and international bodies from generating estimates and projections of population and population growth in Nigeria. The World Bank estimate of Nigeria’s 1990 population was 119 million, with an estimated annual growth rate of 3.3 percent. Although other sources differed on the exact figure, virtually all sources agreed that the annual rate of population growth in the country had increased from the 1950s through most of the 1980s. The government estimated a 2 percent rate of population growth for most of the country between 1953 and 1962. For the period between 1965 and 1973, the World Bank estimated Nigeria’s growth rate at 2.5 percent, increasing to 2.7 percent between 1973 and 1983. Projections about the population growth rate were uncertain, however, in view of questions concerning the accuracy of Nigerian census statistics.  

Migration from rural to urban areas has accelerated in recent decades. Estimates of urban dwellers reveal this shift–in 1952, 11 percent of the total population was classified as urban; in 1985, 28 percent. One-sixth of the urban population, or approximately 6 million people, lived in Lagos, and in 1985 eight other cities had populations of more than 500,000.

Demographics data, i.e. the characteristics of the human population over the past five years and forecast to 2020 are as follows:

Gender,

Race,

Age,

Income,

Disabilities,

Mobility (in terms of travel time to work or number of vehicles available),

Educational attainment,

Homeownership,

Employment status, and even

Location

Trends over time

The Economy:​​A MAJOR FEATURE of Nigeria’s economy in the 1980s, as in the 1970s, was its dependence on petroleum, which accounted for 87 percent of export receipts and 77 percent of the federal government’s current revenue in 1988. Falling oil output and prices contributed to another noteworthy aspect of the economy in the 1980s–the decline in per capita real gross national product (GNP), which persisted until oil prices began to rise in 1990. Indeed, GNP per capita per year decreased by 4.8 percent from 1980 to 1987, which led in 1989 to Nigeria’s classification by the World Bank as a low-income country (based on 1987 data) for the first time since the annual World Development Reportwas instituted in 1978. In 1989 the World Bank also declared Nigeria poor enough to be eligible (along with countries such as Bangladesh, Ethiopia, Chad, and Mali) for concessional aid from an affiliate, the International Development Association (IDA).

Another relevant feature of the Nigerian economy was a series of abrupt changes in the government’s share of expenditures. As a percentage of gross domestic product (GDP), national government expenditures rose from 9 percent in 1962 to 44 percent in 1979 but fell to 17 percent in 1988. In the aftermath of the 1967-70 civil war, Nigeria’s government became more centralized. The oil boom of the 1970s provided the tax revenue to strengthen the central government further. Expansion of the government’s share of the economy did little to enhance its political and administrative capacity, but did increase incomes and the number of jobs that the governing elites could distribute to their clients.

The economic collapse in the late 1970s and early 1980s contributed to substantial discontent and conflict between ethnic communities and nationalities, adding to the political pressure to expel more than 2 million illegal workers (mostly from Ghana, Niger, Cameroon, and Chad) in early 1983 and May 1985.

The lower spending of the 1980s was partly the result of the structural adjustment program (SAP) in effect from 1986 to 1990, first mooted by the International Monetary Fund (IMF) and carried out under the auspices of the World Bank, which emphasized privatization, market prices, and reduced government expenditures. This program was based on the principle that, as GDP per capita falls, people demand relatively fewer social goods (produced in the government sector) and relatively more private goods, which tend to be essential items such as food, clothing, and shelter.

After Nigeria’s 1967-70 civil war, petroleum output and prices increased rapidly. The government’s control of the extraction, refining, and distribution of oil meant that, the state became the dominant source of capital. By the mid-1970s, petroleum accounted for about three-fourths of total federal revenue. To the most vigorous, resourceful, and well-connected venture capitalists (often politicians, bureaucrats, army officers, and their clients), productive economic activity lost appeal. Manipulating government spending became the means to fortune. Because of the rapid growth of the state bureaucracy and the establishment of numerous federally funded parastatals, the size of the government sector relative to the rest of the national economy hit a peak in the late 1970s.

In an effort that culminated in the 1970s, the Nigerian government gradually expanded its controls over the private sector, levying differential taxes and subsidies, increasing industrial prices relative to farm prices, favouring investment in key sectors, providing tariff and tax incentives to vital sectors, protecting favoured industrial establishments from foreign competition, awarding import licenses to selected firms and industries, and providing foreign exchange to priority enterprises at below-market exchange rates. While the ostensible reasons for this policy of favouritism were to transfer resources to modern industry, expand high-priority businesses and sectors, encourage profitable enterprises, and discourage unprofitable ones, in practice the government often favoured urban areas by promoting production that used socially expensive inputs of capital, foreign exchange, and high technology. Market intervention helped political and bureaucratic leaders protect their positions, expand their power, and implement their policies. Project- or enterprise-based policies (unlike reliance on the market) allowed benefits to be apportioned selectively, for maximum political advantage. Government made it in the private interest of numerous individuals to cooperate in programs that were harmful to the interests of producers as a whole. However, market-clearing prices (for farm commodities or foreign exchange), whose benefits were distributed indiscriminately, inspired little or no political support among farmers and businesspeople.

Beginning in 1979, the policy prescription of the World Bank (and IMF) was for African countries to refrain from interfering in foreign exchange and interest rates, wages, and farm prices; to privatize state-owned enterprises (especially agro-processing, farm input distribution, insurance, and retail and wholesale trade); to relax restrictions on foreign capital; and to encourage indigenous business ventures. By the early 1980s, Nigeria faced substantial international payments deficits in the midst of declining export prices and rising import prices, rising external debt payments, and negative economic growth. The government consequently undertook an its own SAP that was patterned along World Bank guidelines in 1986, with World Bank conditions including devaluation of the naira, reductions in real government spending, abolition of official agricultural marketing boards, the sale of public enterprises, liberalized trade, and reduced quotas and licenses.

Oil Prospecting license (OPL):​​This is the first step in the process.  Governments issue oil blocks of given size (in acres or otherwise) to oil majors – International oil operators/companies (IOC) to prospect for oil.  These companies will engage in exploration (costing up to US$8million) and appraisal of oil wells (costing up to US$15million).  On completion of the exploration and appraisal, the companies would then apply for oil mining lease.

Oil Mining Lease (OML):​These are issued by governments, following completion of OPL as above.  Should the exploration and appraisal process result in positive oil findings, oil mining lease is issued to the IOC, but the size of the OML is much less than the OPL.  Governments would then add the unallocated OPL back into their pool of block.

International operating companies (IOC)​then prepare work programmes complete with the cost of development and production of the OML.  These are shared with governments in line with the joint venture operating cost agreements or memorandum of understanding.  Some of these oil majors in the course of exploration and appraisal process may have come across sites/fields/blocks/wells with reserves which may not be cost effective under their own work programme to pursue.  These are called marginal fields/wells.  The IOCs often do not bother to envelope these fields.

Marginal Fields:​Government took a decision in 2004(?) to auction out these marginal fields to indigenous companies, which must be at least 60% Nigerian owned (as per the PIB).  The 24 marginal fields auctioned were won by some 32 indigenous companies as some were paired up with others.  The lease was for 5 years during which time they were required to produce.  Of the 24 marginal fields awarded, only 5 were in production, and 19 leases expired in November 2009.

Department of Petroleum Resources (DPR)​The expired licenses are currently under review by the DPR.  License renewal will be based on level of work done since license issuance, with possible extensions of up to 2 years.  Signature bonus (usually in thousands of US$) will be required for the renewed licenses.

New Round of Marginal Oil well bidding:​‘Nigeria 2005 Licensing Round for Oil & Gas Exploration and Production Blocks- March 2005’, via DPR web link.  Obtain list of companies that were awarded marginal oil fields in 2005; those currently in production and those whose leases have lapsed/expired?  List of those whose leases have been renewed and the tenure of such leases?   ‘Nigeria 2010 Licensing Round for Oil & Gas Exploration and Production Blocks ‘guidelines.

Local Content Bill:​This is required for oil service companies.

Petroleum Industry Bill (PIB):​​This is required for the oil operators.

Issues for Consideration:​

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List of companies granted Approval to Construct (ATC) Refineries

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Analysis of the Nigerian Oil and Gas Industry sector