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EZE IKECHUKWU KINGSLEY PG/M.Sc/11/59819

THE POLITICS OF DEBT CANCELLATION AND ECONOMIC REFORMS IN NIGERIA

SOCIAL SCIENCES

A PROJECT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF MASTER OF SCIENCE (M.Sc)

DEGREE IN POLITICAL SCIENCE

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IJEOMAH CLARA

Digitally Signed by: Content manager’s Name

DN : CN = Webmaster’s name

O= University of Nigeria, Nsukka

OU = Innovation Centre

AUGUST, 2012

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TITLE PAGE

THE POLITICS OF DEBT CANCELLATION AND ECONOMIC REFORMS IN NIGERIA

BY

EZE IKECHUKWU KINGSLEY PG/M.Sc/11/59819

A PROJECT

SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF MASTER OF SCIENCE (M.Sc) DEGREE IN POLITICAL SCIENCE

DEPARTMENT OF POLITICAL SCIENCE

UNIVERSITY OF NIGERIA, NSUKKA

SUPERVISOR: DR KEN IFESINACHI

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AUGUST, 2012

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Approval page

This is to certify that this research work titled “The politics of debt cancellation

and economic reforms in Nigeria” has been approved by the Department of Political

Science, University of Nigeria, Nsukka.

___________________ ________________

DR. KEN IFESINACHI

(SUPERVISOR) Date

______________________ __________________

CHUKWU P.C

(HEAD OF DEPARTMENT) Date

______________________ ___________________

EXTERNAL EXAMINER Date

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DEDICATION

This project word is dedicated to my wife Joy Sochima and my children Emeka,

Nonso, Ezichi and kamsi for their patience and understanding.

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ACKNOWLEDGEMENT

My unreserved gratitude goes to GOD ALMIGHTY for giving me strength

especially during the period of writing this project work. My dear wife, Mrs Joy Sochima

Eze who gave me her support in all my academic pursuit. My children Emeka, Nonso,

Ezichi and Kamsi, thank you for your endurance.

I sincerely appreciate the efforts of my project supervisor Dr. Ken Ifesinachi who

carefully guided me and made useful suggestions. May God Almighty reward you

immensely.

My appreciation goes to the entire family of Late Chief Thomas Eze especially

my big brother Kent whose moral and financial assistance throughout my academic

pursuit can never be measured. I ever remain indebted. May

Also to my lecturers especially my H.O.D P.C Chukwu, Dr Edeh, Dr Okolie, Prof

Obasi Igwe, V.C Onah, Mr Asogwa and many others and finally to my mother Madam

Theresa Eze who encouraged me to embark on this journey. Mama, you are one in a

million thank you.

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ABSRACT

The study sets out to interrogate the relationship between debt cancellation and economic reform policies in Nigeria under President Obasanjo's administration. The aim of the research was to provide a framework that explains the effects of debt relief on Nigeria's economic development. The theory of Marxist Political Economy Paradigm was adopted as the analytical framework to demonstrate that Nigeria has followed a developmental strategy dictated by the interest of the imperialists and their local allies among the indigenous population. The method of data collection used was the secondary sources of data. Three hypothesis tested were: Nigerian government's demand for debt cancellation gave rise to the economic reform conditionality; the involvement of World Bank technocrats in President Obasanjo's deregulation programme influenced the 2005 Paris Club debt cancellation conditionality for Nigeria, and, the economic reform policies of Paris Club of creditor nations pressurized the Nigerian government to adopt privatization of public enterprises. The findings of the study revealed that Nigerian government's political and economic profile necessitated the conditionality for the adoption of economic reform policies of the Paris Club. Against the background of debt relief granted to Nigeria, the study recommends that a law should be made to avoid a relapse to the past and also to commit all the tiers of governments to a set of rules for efficient economic management in terms of planning, as well as control and monitoring of public borrowing and expenditure.

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TABLE OF CONTENTS

Title page - - -- - - - - - - - i

Approval page - - - - - - - - - ii

Dedication - - - - - - - - - - iii

Acknowledgment - - - - - - - - - iv

Abstract - - - - - - - - - - v

Table of content - - - - - - - - - vii

List of tables - - - - - - - - - vi

CHAPTER ONE

1.1 Introduction - - - -- - - - - - 1

1.2 Statement of the problem - - - - - - - 4

1.3 Objective of the study - - - - - - - 5

1.4 Significance of the study - - - - - - - 7

1.5 Literature review - - - - - - - - 7

1.6 Theoretical framework - - -- - -- - - 18

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1.7 Hypothesis - - - - - - - - - 21

1.8 Method of data collection - - - - - - - 21

CHAPTER TWO: NIGERIAN GOVERNMENT’S ECONOMIC AND POLITICAL

PROFILE AND ECONOMIC REFORM CONDITIONALITY

2.1 Nigerian Government’s Political profile and its demand for

Debt cancellation - - - - - - - - 25

2.2 Nigerian Government’s Economic Profile and its Demand for

Debt Cancellation - - - - - - - - 33

2.3 Nigerian Government’s Political and Economic in its Demand for

Debt cancellation - - - - - - - - 40

CHAPTER THREE: WORLD BANK TECHNOCRATS IN OBASANJO’S

ADMINISTRATION AND NIGERIA 2005 PARIS CLUB DEBT CANCELLATION

3.1 President Obasanjo’s Deregulation Programme

3.2 World Bank Technocrats in President Obasanjo’s Administration- - 55

3.3 World Bank Technocrats in President Obasanjo’s

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Deregulation programme and the 2005 Paris Club

Cancellation Conditionality for Nigeria. - - - - - 59

CHAPTER FOUR: ECONOMIC REFORM POLICIES OF PARIS CLUB AND

PRIVATIZATION PROGRAMME IN NIGERIA

4.1 The Economic Reform Policies of the Paris Club - - - 64

4.2 Privatization of Public Enterprises in Nigeria - - - - 69

4.3 Economic Reform Polices of Paris Club and Privatization of Public

Enterprises in Nigeria - - - - - - - 72

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary - - - - - - - - - 79

5.2 Conclusion - - - - - - - - - 84

5.3 Recommendation - - - - - - - - 84

Bibliography

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LIST OF TABLES

Table 2.1: Nigeria’s foreign Debt Burden Between 1999 and 2003 - 26

Table 2.2: Nigerian’s External Debt outstanding/Debt service payment - 27

Table 3.2: Summary of targets of the economic policy 1999-2003 - 30

Table 2.4: Comparison of selected targets of Nigeria Economic Policy & Actual

postings - - - - - - - - 35

Table 2.5: Selected macroeconomic indicators under NEEDS - - 39

Table 3.1: Prices of petrol (1978-2009) - - - - - 47

Table 3.2: Oil imports (1999-2006) - - - - -- - 51

Table 3.3: Price movement of petroleum products - - - - 52

Table 3.4: The Nigeria telecommunications market statistics as at 2006 - 53

Table 3.5: Flow of foreign private capital by region or country of origin

1999-2004 - - - - - - - 62

Figure 4.1: External Debt Outstanding by Creditor Category - - - 65

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CHAPTER ONE

1.1 Introduction

Recent history has seen acceleration in the breadth and depth of debt

cancellation or relief granted to heavily indebted nations. A number of researchers have

questioned the extent to which this relief has benefited debtor countries, arguing that

the financial gains are too small to have impact. (Chauvin and Kraay, 2005). Nigeria

began to borrow in 1978 and continued borrowing on a large scale in early 1980s. The

oil price was high and paying debt services was not a problem. However, when the oil

prices fell in 1982, macroeconomic policies did not adjust and the country continued

borrowing; new claims were used to pay old ones. After another oil price fall in 1985, the

country could not pay its debt services anymore. This led to the first rescheduling

agreement with the Paris Club in 1986, and as the country continued to accumulate

arrears, to other agreements in 1989 and 1991. All agreements were accompanied by

IMF programmes but these programmes were always quickly off track. The government

never implemented structural adjustment policies in a consistent way, which hampered

growth. (Iyoha and Oriakhi, 2008)

In 1992, Nigeria could agree on a Brady deal for part of its private debt. This led to

a reduction of 62% of the involved debt, from US$5.6 to US$1.2 billion. (Reiffel, 2005)

Nigeria expected a similar treatment from Paris Club for its much larger bilateral debt,

but this was impossible because the IMF programme was already off track, and

because Nigeria was not classified as a IDA – only country. As a result, arrears

continued to increase and the debt stock as well. In 1993, decided to limit debt payment

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to 30% of oil revenues, always paying multilateral and private creditors but

accumulating arrears with the Paris Club. The actual debt service burden was highest in

1986 at almost 40% of exports, and decreased in later years. The debt to GDP ratio

was highest in 1993. Except for the year 1980-1984, the period of elected President

Shagari, Nigeria ruled by military dictators until 1999. In that year President Obasanjo

was elected, who had previously ruled between 1976 and 1980 after a military coup.

Since the borrowing started in his first reign, he felt a special responsibility for solving

the huge debt problem when he returned as elected President. He immediately started

an international campaign for debt cancellation arguing that the country deserved a

‘’democratic dividend’’ and that debt reduction was necessary in order to carry out

economic reforms. However, the international community was not responsive to his

claim. Nevertheless, both Gordon Brown (UK) and Larry Summers (US) were telling

Nigeria that they would be willing to consider debt reduction provided Nigeria would

carry out economic reforms. (Callaghy, 2009)

In 1999 discussions with IMF and World Bank started and this led to an IMF

programme in 2000. This programme made a new agreement with the Paris Club

possible, implying extensive scheduling that reduced the debt service burden but not

the debt stock. However, the IMF programme quickly ran off track again due to

irresponsible microeconomic policies. There was also very little implementation of other

reforms and the country began to accumulate arrears again already in 2001. But this

changed after Obasanjo was re-elected and began his second term in 2003. He

appointed Dr (Mrs) Ngozi Okonjo-Iweala as Minister of Finance. She was Managing

Director at the World Bank and had briefly been the President’s Advisor in 2000 to help

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set up the Nigerian Debt Management Office (DMO). Along with her were Professor

Charles Soludo as Governor of the Central Bank of Nigeria and Dr Mansur Muhtar as

Director General of DMO. (DMO, 2005) www.dmo.gov.ng

The new economic management team embarked on an ambitious reform programme. It

introduced the oil price-based fiscal rule to stabilize government expenditure and

improve macroeconomic management. This rule implies that the budget is based on

estimates of the oil price and the oil production volume oil revenues in excess of these

estimates are transferred into an ‘‘excess crude account’’ at the Central Bank. A civil

service reform monetized benefits which is to eliminate thousands of ghost workers.

The reforms included the establishment of anti corruption agency, Economic and

Financial Crimes Commission (EFCC), the publishing of the amount transferred from

the Federal Government to States. The National Economic Empowerment and

Development Strategy (NEEDS) was elaborated which described the reforms that were

already implemented.

Nigeria’s debt as at December 2004 stood at about US$36billion and this was

unsustainable President Obasanjo campaigned. Nigeria spends more on interest

payment than it does health care and education and given this level, Nigeria cannot

achieve the Millennium Development Goals (MDGs). Interestingly, this debt relief effort

yielded fruit on June 29, 2005, when the Paris Club and Nigeria agreed on a

US$18billion debt cancellation package.

It is against this background that we intend to investigate whether the debt cancellation

and economic reform associated with it achieved any meaningful result given the fact

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that much of the talked about reforms and debt relief have not created serious positive

impacts in Nigeria.

1.2 Statement of the Problem

Nigeria after independence had a low ratio of external debt to gross domestic

product (GDP) of 3.4 percent. (Fajana, 1990) It was on this promising economic

condition that Nigeria launched its first five years National Development Plan that was

expected to usher in rapid economic development and emancipate it from the chains of

colonial legacy. But partly because of the ravages of the civil war (1967-1970) and

largely because of its burning desires for rapid socio-economic development, the

Nigerian government resorted to development finance from public funds mostly from

bilateral and multilateral lending bodies. Since the five year plan of early 1960 to date,

Nigeria had launched several Development Plans sourcing funds from international

capital market that is notorious for its high rates of interest and terms of repayment.

Nigeria is classified as one of the severely indebted low-income countries that

are greatly afflicted by underdevelopment, dependency, general poverty, and external

debt, in spite of its widely acknowledged oil wealth. Coupled with this is the magnitude

of capital flight from the country in the form of debt servicing payments that not only

absorbed a major proportion of export earnings, but also eat the funds that could be

used to provide essential facilities and improve the welfare of its citizens. (Aja, 2003)

The policy prescription of international financial institutions and the implementation of

Nigeria’s economic reform programmes from all indication is aimed at addressing the

reservations of the West as well as reassuring them of Nigeria’s preparedness to

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continuously chart the course of their democratic government of Africa and especially in

Nigeria. In other words, development of democratic process towards economic agenda

was not really in the platform of successive administrations in Nigeria. It appears that

the more nations such as Nigeria act under their own capability or supported

development umbrella by the international community, the more the underdevelopment

condition was deepening.

Tracing the constraints of Nigeria’s ineffectiveness and influence on issues of policy

prescription and implementation, the limitation could equally be perceived as the central

problem where the supper-structural perspective, is a state’s relative capability or

capabilities. Consequently, the study of input (internal) the process and output (external)

has confirmed the effects of Nigeria’s economic standard and the relative development

issue on policy statement on all forms of economic engagement.

In particular, the study shall be premised on understanding the phenomenon and its

consequences. Hence, the following research questions are articulated and equally

investigated.

Did Nigerian government’s demand for debt cancellation give rise to economic reform conditionality?

Did the involvement of World Bank technocrats in Obasanjo’s deregulation programme influence the 2005 Paris Club debt conditionality for Nigeria?

Did the economic reform policies of the Paris Club of creditor nations pressurize the Nigerian government to adopt privatization of public enterprises?

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1.3 Objective of the study

Every research work has some set objectives which it intends to accomplish.

Primarily, the purpose of every work is the identification of problem and proffering

solutions to it. The purpose of this work is to critically analyse the political economy of

debt cancellation in Nigeria and identify the reforms required for Nigeria’s debt relief.

Also, the research is set to analyse the political economy of these reforms in Nigeria

and ascertain the effects of these reforms on economic development and growth. It

intends to find out the kinds of reforms that are required for debt cancellation and

whether they are growth enhancing or self-defeating.

Finally, the study intends to evaluate the economic reform goals and objectives upon

which the debt cancellation was based. The study proposes strategies that Nigeria can

adopt to improve the living conditions of her citizens.

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1.4 Significance of the study

The research has both academic and social or policy significance. This work

serves as a source reference to students and scholars working on a similar topic.

Therefore, this study provides a theoretical framework or proposition that has practical

impact in analysing the politics of debt cancellation and economic reforms in the light of

its policy manifestations such as oil-price based fiscal rule, civil service monetized

benefits, the creation of anti-corruption agency and other economic policies which

include deregulation, privatization, National Economic Empowerment and Development

Strategy (NEEDS). Theoretically, the study provides a framework for understanding

liberalization generally as well as the influence of politics on the economy. Nigeria’s

economic reforms and debt cancellation have been given scholarly discourse. The task

of this study is to conceptualize the politics of debt relief that followed it. In the light of

programmes and policies implemented, their aspirations are drawn from the policies of

international financial institutions especially the IMF and World Bank. By doing so, the

study contributes to the existing debate and literature on the need for home grown

economic reform policies. Therefore, the work has both theoretical importance and

analytical contribution as it serves as a source of tracing the background study on

politics behind the cancellation of Nigeria’s debt and her economic reforms. Finally, the

study tends to enhance the living standards Nigerian’s.

1.5 Literature review

Attempts to arrive at a broad consensus on the definition of debt relief or

cancellation seem to be an unending debates as scholars of both Political Science and

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Economics are sharply divided over its meaning. For the purpose of this study, we shall

try to give a scholarly definition of both debt and debt cancelation or relief. Debt

according to Ellyn and Flich (1990) is ‘’the amount at any given time of disbursed and

outstanding contractual liabilities of residents of a country to non-residents to repay

principal with or without interest or to pay interest with or without principal’’. On the other

hand, debt relief is the partial or total forgiveness of debt, or the slowing or stopping of

debt growth, owed by individuals, corporation, or nations. (Hutcheson, 1996) This is

purely an economic definition of debt, which concerns itself with interest to be paid in

addition to the capital disbursed. The implication of these definitions is that debt is an

aspect of business transaction that is profit oriented and uncharitable in nature.

In other to finance economic development and enhance the pace of economic

growth, countries especially from developing World, resorted to foreign borrowing to

supplement domestic savings which are generally low for investment. (Humphreys,

1989) Other external sources of such resources include Foreign Direct Investment (FDI)

and aid. These sources are not equally desirable in terms of their growth inducing

potentials. Rostow, (1971) observed that the right quality and mixture of savings,

investment and foreign aid are necessary for the developing economies to proceed

along an economic growth path which was followed by the advanced economies. Klein,

(1994) noted that a fundamental factor causing debt to rise is the reliance on external

resources to complement capital formation in the domestic economy. The higher the

interest payment and the heavier the deficit on the current account, the heavier the debt

burden.

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Available evidence particularly from Africa and Latin America shows that most

developing countries take to external borrowing because of low domestic private

savings in view of low per capital income and with most government operating fiscal

deficits. Consequently, the burden of external debt often aggravates the problems of

underdevelopment and further discourages foreign direct investment without which the

desired level and rate of growth and development may be difficult to achieve. External

debt management which may be defined as policy which seeks to alter the stock,

composition, structure and terms of debt with a view to maintaining at any given time,

sustainable level of debt service payment, has become an important issue in

macroeconomic management. It involves the planned acquisition, deployment and

retirement of external loans drawn either for developmental purposes or for balance of

payment accommodation. (Ojo, 1997) Accordingly, this involves functions relating to

policy, regulation, resourcing, recording analysis, control and operation activities. It is

against this background that we intend to investigate whether debt relief granted to

Nigeria created any positive effects on the economy of Nigeria.

The impact of debt relief on public sector spending can work through a number of

channels. It increases fiscal space by reducing debt repayments, increases the

incentives to gather taxes or improve the efficiency of public services by reducing debt

overhang, and can be utilized as a platform for economic reform. This research work

looks at the study of the last of these channels: debt relief or cancellation as a platform

for economic reform. Debt relief savings are often different from other public

expenditures and denoted in some way as ‘’special funds’’. In Uganda, debt relief

savings were committed to a ‘’Poverty Action Fund’’ and also in Zambia to ‘’Poverty

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Reduction Programme’’. These funds that are saved from debt relief can be managed

differently from other public expenditures, either focused on particular sectors, or spent

more transparently or efficiently. If spent through the standard channels of government,

they become an entry point to planning, budgeting, and implementing processes. Since

debt savings are often a small portion of the budget, challenges to implementing

reforms are minimized, providing an opportunity for experimentation, domestication, and

marketing of reforms. Key political actors who have fought for debt savings may provide

support for such reform and the highly politicized nature of debt relief can shield it from

potential challenges. (Alsop and Rogger, 2008)

In the case of Nigeria which our primary focus, the use of debt relief as a platform

for economic reform should have provided wider benefits. We begin by considering two

earlier episodes of debt relief. In the 1980s, debt cancellation under ‘’Brady Plan’’

helped to restore investment and growth in a number of middle-income countries

(developing). However, the debt relief plan for the Highly Indebted Poor Countries

(HIPCs) launched by the World Bank and the International Monetary Fund (IMF) in 1986

has had little impact on either investment or growth in the recipient countries.

Debt relief is unlikely to help the World’s poorest countries, because unlike the

middle-income Brady countries, their main economic difficulty is not debt overhang but,

an absence of functional economic institutions that provide the foundation for profitable

investment and growth. The Brady countries had functional economies, viable private

sectors something for foreign capital to be interested in but the low income HIPCs have

none of the above. Krugman, (1988) argues that debt relief can promote investment,

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and growth when debt overhang inhibits a county’s economic performance. A country

suffers from overhang if it owes more than it is able to pay.

Countries receive debt relief in return for committing to economic reforms. (Cline, 1995)

These reforms take four principal forms: inflation stabilization, privatization, trade

liberalization, and capital account liberalization and there is evidence that the stock

market responds to each one of them. (Megginson and Netter, 2001) All of the debtor

countries began implementing major economic reform before the Brady deal and

continued to do so after the deal was announced. For example, an official agreement

with the IMF immediately precedes or follows on the heels of every Brady agreement.

(Bruno and Easterly, 1996) Since IMF programmes follow all the Brady agreement,

Brady agreements may drive up stock prices because, they signal future IMF

agreements. Just as debt relief agreements may signal future IMF agreement; IMF

agreements may in turn signal countries’ commitment to future economic reforms.

(Collins, 1990) If debt relief agreements are a signal to future productivity-enhancing

reforms, then debt relief drives up valuations when, in fact, the anticipation of future

economic reform is instead responsible. (Henry, 2002)

Nigeria concluded a debt cancellation deal with the Paris Club on a US$30 billion debt

with these creditors in 2005. The country agreed to pay US$12 billion, while an amount

of US$18 billion was cancelled in accordance with OECD-DAC rules, most of the

US$18 billion has been registered as ODA by the fourteen creditors involved. This large

debt cancellation to Nigeria was heavily disputed at the time. An important argument

against it was that Nigeria was an oil-rich country that could pay its debts. Another

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objection was Nigeria’s poor track records in terms of policies and governance which

made it highly unlikely that the country would use the debt relief savings well. On the

other hand, it was argued that Nigeria was a low income country which in 2003, GDP

per capital was US$320 with 54% of its 150 million people living in poverty, and that the

debt cancellation was necessary in order to help the country achieve Millennium

Development Goals (MDGs). (Okonjo-Iweala, 2008) It was also maintained that most of

the debts were arrears and that the Paris Club creditors should have cancelled the debt

long time ago. (Rieffel, 2005) It is on this note that we intend to investigate the politics

involved in these debt agreements.

Earlier studies of the Nigerian debt agreements have focused on the background and

motive for the agreement or on the policy reforms induced by the agreement. (Nwozor,

2009) This research work assesses the results of the Nigeria debt agreements,

examines the three different channels through which debt relief theoretically can be

expected to have an effect on economic growth. These include a flow effect; operating

through annual savings in debt service, a stock effect; operating through a reduction of

the debt overhang, and a conditionality effect; via the policy conditions attached to a

debt relief agreements. The first two effects are based on the two channels through

which a high debt theoretically may affect economic growth; the liquidity channel and

the debt overhang channel. High debt service payments affect economic growth via

reductions in government expenditure and imports. (Cline, 2005) And a large debt stock

may create a debt overhang situation. (Krugman, 1988) If creditors do not expect that

debt will be fully repaid, the credit worthiness of the country is reduced thereby leading

to lower capital inflows including FDI and also lower private investment in general as

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investors fear that the returns of this investment will accrue to the creditors via high

taxes. A debt overhang may also reduce the incentives for policy reforms, as the

benefits of reforms are also likely to accrue to the creditor. (Corden, 1989) The third

channel is the conditionality channel. Debt cancellation from official creditors is usually

accompanied by policy condition. In practice, debtor countries can obtain an agreement

with the Paris Club after they have agreed on a programme with the IMF. It can be

assumed that the conditions accompanying debt cancellation, if implemented, and

provided the right conditions have been formulated, will also benefit economic growth.

(Dijkstra, 2008)

Nigeria transited to a democratic government under President Obasanjo in 1999 after a

decade and half of military dictatorship. The government structures inherited by the new

administration were characterized by a lack of accountability to the citizenry, and public

institutions that were ineffective at providing services worthy of the country’s huge

resource wealth. The government’s initial focus was on political stability, strengthening

democratic practices and tackling corruption. After winning a second term in office,

President Obasanjo appointed Ngozi Okonjo-Iweala as Minister of Finance and the

administration pursued macroeconomic agenda. This agenda was primarily embodied

within the National Economic Empowerment and Development Strategy (NEEDS).

(National Planning Commission, 2004) This focused on four main areas; improving the

macroeconomic environment, pursuing structural reforms, strengthening public

expenditure management, and implementing institutional and governance reforms.

(DMO, 2006)

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Effort to improve macroeconomic stability centred upon the introduction of an oil

price based fiscal rule to de-link public expenditure from oil revenue earnings. All

revenues earned from oil above a pre-determined benchmark price would be saved for

leaner times. The government introduced the fiscal responsibility bill which aimed to

formulize this rule, and bind all the three tiers of government to a medium term

expenditure framework in an effort to improve budgetary planning and execution.

Structural reforms included privatization, civil service reforms, consolidation of the

banking sector, and refinement of trade policy. Concerted efforts towards privatization of

state owned enterprises and concessioning of key ports were accompanied by the

deregulation of various economic sectors to encourage private sector participation,

notably in telecommunications, power and downstream petroleum sector, liberalization

of the telecom sector was particularly successful. (Okonjo-Iweala and Osefo-Kwaako,

2007) In 2004, the federal government adopted the ‘’service compact with all Nigerians’’

which is committed to good service delivery.

The Central Bank of Nigeria launched bank consolidation exercise in 2004. Trade

reforms centred on liberalizing Nigeria’s complex and opaque tariff regime by adopting

the common external tariff of the ECOWAS. Institutional and governance reforms

focused on public procurement, public expenditure management, transparency in oil

and gas sector and fighting corrupt practices. Nigeria also adopted the Extractive

Industries Transparency Initiative resulting in an independent audit of the oil and gas

sectors from 1999-2004. In addition, efforts to tackle corruption centred on the

establishment of two new bodies EFCC and ICPC. ‘Due process certification policy’ was

put in place to improve federal procurement processes.

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This background of economic reforms in Nigeria is an important context within

which we investigate whether they really impacted positively on the lives of ordinary

citizens of Nigeria and this gives rise to comments on the subject matter. Korner,

(1986), argues that contrary to the economic reform prodigy attributed to the IMF,

several of its proffered solutions have in many ways brought unemployment, rising

prices for basic items and a deterioration in health, education and social services all of

which conspire to fuel social up-heavals. He maintains that rather than improve the

living standards of people in developing countries, the IMF and World Bank economic

reform strategies have in most cases, fostered balance of payment crisis,

unemployment, domestic structural distortion etc.

Amadi, Sam (2004) contextualizing economic reforms, which was one of the

conditionality for qualification for debt relief, argues that the ideology behind the

neoliberal economic reforms is a structured ideological response of an organized

corporate and technocratic class whose interest are well served by the symmetrical

opportunities of global capitalism and that imposition of new policies and institutions

occurs because international technocrats invade domestic policy making area directly or

through domestic acolytes who share their world view and language and introduce

powerful ideologies and conditionality in support of change. From domestic policy

making, the international actors also find domestic allies among international oriented

economic elites who seek to talk advantage of new opportunities in international trade

and investment, financial intermediation and technological innovations and

advancements.

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Okpokpo, (1999) acknowledged that the Obasanjo administration inherited a

distorted foreign policy against the domestic policies. Nigeria’s image abroad and its

foreign policy in particular were given lethal blow by the Babangida Military

Administration. Okpokpo identified such blows as financial waste; human right abuses

etc. on that note, Obasanjo opened the doors of Nigeria when addressing the 54th

session of the United Nations General Assembly on 23rd September, 1999. He stated

that his regime had put in place policies aimed at revitalizing the economy in order to

create an enabling environment for investment and growth… also put in place

appropriate legal framework for the protection of foreign legitimate profits. (Olusegun

Obasanjo: Nigeria, Africa and World in the next Millennium on the 54th session of the

UN General Assembly Thursday 23rd September, 1999, New York). By 2000, Obasanjo

had authorized the preparation of a new trade policy under the aegis of the ministry of

commerce. All these are part of the conditionality for debt relief.

Amadi added that National Economic Empowerment and Development Strategy

(NEEDS) could pass a World Bank reform programme for two reasons. First, the content

and languages suggest it draws inspiration mainly or substantially from World Bank’s

development policies, especially as they relate to the cancellation of Nigeria’s debt. The

second reason was that actors who worked out the programme are affiliated with the

international financial institutions. Hence, the ideology that comes out from a critical

reading of the NEEDS documents is neo-liberalism which preaches a belief in free

market, the promotion of competitive market capitalism, private ownership, free trade,

exported growth, strict control on balance of payment and deficits and drastic reduction

in government social spending. In conclusion, Amadi remarked that NEEDS does not

29

explicitly and positively articulate any ideology because, even though it is described as

Nigeria’s home-grown poverty reduction strategy, it builds from the earlier two-year effort

to produce the interim PRSP (I-PRSP) strategy. Hence, it does not espouse any

particular ideology of economic development.

Ibeanu, (2004) argues in a similar line when he advanced reason why poverty

reduction is an ideology and poverty reduction strategy papers (PRSP) the continuation

of structural Adjustment programme (SAP) by other means. He posits that poverty

reduction is anchored on a number of myths designed to create among its supplicant

hope of a future in which life will be better than the present. It advanced the interest of

dominant groups and bears little reflection of the realities of the underprivileged, even as

it proclaims the common good. In conclusion, Ibeanu recommended an alternative to

NEEDS given its drawback. In other words, the democratic economic empowerment and

development strategy built on three related planks. He defines economic autonomy as a

constitution of truly national production/accumulation process. Secondly, the popular

ownership of that process through the deepening of democratic structure and culture

and thirdly, the making of the Nigerian masses the prime beneficence of the outcome of

national production in the process by addressing their most pressing welfare needs. He

argues that economic development strategies that are home grown are required for

economic development and growth rather than that dictated by foreigners especially IMF

and World Bank as part of the conditions for debt relief. From the foregoing, it is evident

that these works have addressed the problem under study in positive and negative

terms. There is still gap in the literature in spite of the volumes that have been written on

this subject. However, it is apparently surprising that none of the scholars bothered to

30

probe into the contents of these agreements that follow the debt relief deal. A probe in

that direction would have probably revealed why none of the economic reform plans

both locally articulated and international prescribed or imposed had been unable to

solve Nigeria’s economic problems. Most fundamentally, the scholars did not probe the

character of the Nigerian state knowing full well of their antecedents and finally, they

failed to suggest a better way of channelling the funds gained from the debt cancellation

deal.

1.6 Theoretical Framework

The idea of positing a theory in a study of this magnitude cannot be

overemphasized. This is fundamental because theoretical framework constitutes the

foundation or basis for/of analysis. For the purpose of this study, the theoretical basis

shall be narrowed to the analysis and propositions of the “Marxist Political Economy

Paradigm” which was propounded by Karl Marx and Fedrick Engels and later furthered

by V.I Lenin and other contemporary Marxist Scholars and faithful.

Marxist conception of Political Economy is basically pinned down to his original

conception of capitalism. According to Gilpin (1987) “Marxism characterizes capitalism

as the private ownership of the means of production and the existence of wage labour”.

It furthered by saying that capitalism is driven by capitalists striving for profit and capital

accumulation in a competitive market economy. Labour has been dispossessed and has

become a commodity that is subject to price mechanism. In Marx’s view, these two key

characteristics of capitalism are responsible for its dynamic nature and make it the most

productive mechanism yet. This fundamental attribute of capitalism in accordance to the

31

Marxist school of thought is the basis for the inherent contradiction in the capitalist

society. The irreconcilability of class antagonism is responsible for the persistent conflict

between the bourgeoisie that is the class that owns and controls the means of

production and distribution and the proletariat which constitute the class that depends on

the sale of their labour power as a means of livelihood.

Besides, this contradiction that has rendered so many people powerless and

alienated from the means of production and distribution causing so many people to be

frustrated and hence accounting for the proliferation of the inequality between the

national bourgeoisie and the proletariat as classes, and the technological end of

globalization, which it describes as the manipulation of the global society for the pursuit

of narrow individual and elite interest. In the context of this work, this manipulation is

done through the institutional framework of the international financial institutions in

collaboration with the ruling classes. The global society is seen as one huge market, in

which the logic of commodity production and exchange derived at the economic level

(globalization, liberalization, and deregulation). Two classes are discernable in such

society. These classes are as follows: the national bourgeoisie in collaboration with

international financial institutions which manipulate and control the national economy by

setting the rules and terms of the national economies and the global proletariat which

are manipulated, and thus the losers of the manipulation which take the form of

privatization, deregulation, cutting of public expenditure, etc.

The object of labour and the means of labour constitute the means of production.

The means of production is very important to man’s existence. Without the means of

32

production, man cannot produce its needs. A person deprive of the means of production

become helpless because his labour power cannot be of use to him. There is always

conflict between the bourgeoisie and the proletariat in any society as it is exemplified in

the Nigerian economic reforms and the perception in terms of the ability of the

international financial institutions to influence the national bourgeoisie, represented by

the Nigeria state to accept certain economic policies, which impoverished the poor that

the future would be better than the present, even though there could be short term pains

but long terms gains.

The political and economic structure functions according to the norms of formal

equality defined ability to cast vote, but inability to determine the electoral outcome. And

ability to produce for the market without enjoying the up-coming moves. Thus, at the

economic level of liberalization, privatization and deregulation are the agency at

economic reform. Hence, the agency is the liberal democratic state supported by experts

and technocrats having connection with the international financial institutions. In

Nigeria’s context, the political economy paradigm sees economic reform only as the

fiscal crisis which was imposed on Nigeria as a condition for getting her debt cancelled.

In order words, as the premium on the interest of the capitalist private sector of the

economy rose higher and higher with the intensity of the policies implemented, the more

the masses get poorer.

Due to the inherent contradiction in the society which eventually leads to conflict

between the bourgeoisie and the proletariats, the need for a dialectical and organic

relationship between debt cancellation and economic reforms and development crisis on

33

the development of nations such as Nigeria should be practicalized through individual

participation than an ordinary notion of good governance. The theoretical insight provide

both conceptual and analytical framework through which debt cancellation and economic

reforms in Nigeria and the involvement of the international financing institutions could be

understood.

34

1.7 Hypothesis

i. Nigerian government’s demand for debt cancellation gave rise to economic reforms conditionality.

ii. The involvement of World Bank technocrats in President Obansanjo’s deregulation programme influenced the 2005 Paris Club debt cancellation conditionality for Nigeria.

iii. The economic reform policies of the Paris Club of creditor nations pressurized the Nigerian government to adopt privatization of public enterprises.

1.8 Method of data collection

To generate the relevant data and validate our hypotheses, this study is based on

qualitative data generation technique. According to Nnabugwu (2006), qualitative

method is used to obtain in-depth information and concept clarification so as to facilitate

instrument designs. Essentially, there are three major sources of data for qualitative

research study-interviews, observations, and documents. The data collection strategy

used is determined by the questions of the study and by determining which source(s) of

data will yield the best information with which to answer the questions (Merriam, 2002).

Qualitative method is considered appropriate for contextual analysis but also

useful when the task is to glean, illuminate, interpret and extract valuable information to

draw inference from the available evidence so as to reach a conclusion. Obikeze (cited

in Nnabugwu 2006) argues that the advantage of qualitative method lies in the fact that

it is “able to gain access to organizational structure, bureaucratic processes…… it can

35

more readily lead to the discovery of the unexpected phenomenon”. The adoption of this

method of data collection, therefore, becomes imperative since, on the one hand, the

study largely made use of qualitative data generated from secondary sources and on the

other, the method is helpful in charting the course of analyses.

Due to the nature of evidence required to test and validate our hypotheses, this

study relied on secondary sources of data. Secondary sources of data, as explained by

Ikeagwu, (1998) and Asika (2006, refer to a set of data gathered or authored by another

person, usually data from available data, archives, either in the form of document or

survey results and code books. Selltiz et al (1977) articulates the advantages of

secondary sources of data to include that of economy. Again, the information of this sort

is collected periodically thereby making the establishment of trends over time possible.

More importantly is the obvious fact that the gathering of information from such sources

does not require the co-operation of the individual about whom information is being

sought.

Research design

Ex post facto research design will be adopted for this study. The term ex post

facto according to Landman, (1988) is used to refer to an experiment in which the

researcher examines the effect of a naturally occurring phenomenon after it has

occurred. In other words it is a study that attempts to discover the pre-existing causal

conditions between groups. In social and educational research, the phrase means: after

the fact. Ex post facto research method refers to those studies which investigate

36

possible cause-and-effect relationship by observing an existing condition or state of

affairs and looking back in time for valid casual factors.

The research design of this study is based on ex post facto analysis of

documentary evidence. Ex post facto or after-the-fact research design is based on the

examination of the dependent and independent variables after the events have taken

place and the data already in existence. In ex post facto designs, the test of the

hypotheses involves observing the independent and dependent variables at the same

time because the effects of the former on the latter have already taken place before the

investigation. As Cohen and Manion further clarifies the phrase ex post facto means

‘after the fact’ or ‘retrospectively’, and refers to those studies which investigate possible

cause-and-effect relationship by observing an existing condition and searching back in

time for plausible causal factors. The theoretical model of Marxian Political Economy

adopted in this study reinforces the ex post facto design. The ex post facto or single-

case design assumes the form of an experimental design where an existing case is

observed for some time in order to study or evaluate it.

The analytical routines involved in testing structural causality base on ex post

facto analysis of the independent variable (X) and the dependent variable (Y) is based

on concomitant variation. This is to demonstrate that (X) is the factor that determines

(Y). This legitimately infers that (X) does or does not enter into the determination of (Y).

This infers that whenever (X) occurs there is likelihood that (Y) will follow at same time

later.

37

The criterion for inferring causality has been summarized by Selltiz et al as

follows:

- Co-variation between the presumed cause and presumed effect

- Proper time order, with the cause preceding the effect.

- Elimination of plausible alternative explanations for the observed relationship.

In testing hypothesis (i) which states that: Nigerian government’s demand for debt cancellation informed the conditionality of economic reforms, we see “debt cancellation” as (X) and “conditionality for economic reforms” as (Y).

In hypothesis (ii) we see “World Bank technocrats” as (X) and “deregulation” as (Y).

In hypothesis (iii) we see “economic reform policies of the Paris Club” as (X) and

“Privatization of public enterprises” as (Y).

Method of Data Analysis

For the purpose of data analysis, we relied on qualitative descriptive analysis.

Qualitative descriptive analysis means summarizing the information generated in the

course of research verbally, while quantitative analysis implies a summary of a mass of

information generated in the study, so that appropriate analytical method could be

applied, where necessary, to further discover relationship among the variables (Asika,

38

(2006). The adoption of the foregoing analytical method became inevitable because the

study principally relied on secondary sources of data.

39

CHAPTER TWO

NIGERIAN GOVERNMENT’S ECONOMIC AND POLITICAL PROFILE AND

ECONOMIC REFORM CONDITIONALITY

2.1 Nigerian Government’s Political Profile and its Demand for Debt

Cancellation

The autocratic nature of successive military regimes in Nigeria created domestic

and international problems that undermined Nigeria’s political profile. As at 1999 when

President Obasanjo assumed office as a democratically elected President, the military

had ruled Nigeria for a total of twenty-nine years and consistently for sixteen years

(1983-1999). It was in the course of military rule that the contradictions that manifest in

the Nigerian polity were spawned. The Nigeria that was handed over to Obasanjo on

May 29th 1999 was a very sick country. The worst was that those countries who could

help it had ostracized it making it more or less a pariah state. The effect of the various

sanctions on the country was gradually asphyxiating. As the government of president

Obasanjo confessed: [We] inherited declining capacity utilization in the real sector, poor

performance of major infrastructural facilities, large budget deficit, rising level of

unemployment and inflation. In addition, the economy had grave problems of imports

dependence, reliance in a single commodity (oil), weak industrial base, low level of

agricultural production, a weak private sector, high external debt overhang, inefficient

public utilities, low quality social services and an unacceptable rate of unemployment.

(Federal Ministry of Information, Nigeria Returns to Democracy 2000).

40

The task before the Obasanjo administration was to clear the heap of mess that

threatened the country. He embarked on what has been dubbed shuttle diplomacy to

the industrialized countries to beg them to lift the sanctions against the country. Yahya,

(2005) argues that President Obasanjo’s shuttle diplomacy is primarily to reintegrate

Nigeria into the World and to bring about Foreign Direct Investment (FDI) into the

country. Besides, it has enabled him to persistently campaign for debt reduction and

cancellation. Owing to Nigeria’s huge debt burden, resources which could have been

used to tackle poverty and support economic growth are diverted to servicing external

debts. This drain on sources constituted a major threat to the consolidation of the

country’s nascent democracy. Accordingly, the quest for debt relief was declared a

priority of the Obasanjo Administration. To achieve this objective, a Debt Management

Office (DMO) was established in October 2000 as the sole agency for the management

of the country’s debt. (DMO, 2005).

Table 2.1 Nigeria’s foreign Debt Burden Between 1999 and 2003

Holder 1999 2000 2001 2002 2003/a

Multilateral 361,194.9 379,043.0 313,504.7 375,700.1 413,877.7

Paris Club 1,885,664.8 2,320,269.0 2,475,509.4 3,220,823.5 3,737279.9

London Club 187,627.1 223,832.6 228,950.2 185,964.4 196,156.9

Provisionary Notes

136,532.8 158,486.0 144,746.2 146,341.1 123,994.6

Others 6,363.8 15,753.3 13580.5 7055.6 70203

Total 2,577383.4 3,097,383.8 3,176,291.0 3,932,884.8 4,478,329.3

a) Provisional

Note: The figures for the different years were calculated based on the average

exchange rate of the years.

41

Source: Central Bank of Nigeria Annual Report and Statement of Accounts for the

year Ended 31st December 2003

42

Table 2.2 Nigeria’s External Debt outstanding/Debt service Payment

The 1st category for calendar year 2000-2005 (in thousand of U.S, dollars)

All loans 2000 2001 2002 2003 2004 2005

Central Government disbursed outstanding debt

19,557,906 7,767,548 7,200,480 6,553,016 5,874,059 5,182,728

Total debt service 79,481 1,220,525 1,082,063 1,048,134 1,048,134 986,631

Public corporations disbursed outstanding debt service

1,099,9934,695 394,279200,265 259,869166,310 58,77966,440 119,310156,225 48,22818,631

Private sector disbursed outstanding debt

47,136 0 - - - -

Total debt service 5,693 - - - - -

Total disbursed outstanding debt

20,705,036 9,161,827 7,460,340 5,932,837 5,932,837 5,229,56

Total debt service 94,177 1,428,382 1,248,374 1,204,389 1,080195 1,005,262

Source: Central Bank of Nigeria Annual Reports and statement of Accounts for the year ended 31st December 2005

In march 2005 under the then Senate President, Adolphus Wabara, a roundtable

on debt relief was organized by the Senate, with the assistance and support of the Debt

Management Office of the Presidency. Flowing from the recommendations of the

roundtable conference, it was agreed that a team from the Senate should visit Nigeria’s

Principal Creditors to seek support for the total cancellation of Nigeria’s debt. Prior to

the convening by the Senate of that roundtable, the House of Representatives had

conducted a debate on the issue of Nigeria’s debt and had unanimously passed a

resolution urging the Executive to cease any further foreign debt payments. Given the

shared objectives of both Houses of the National Assembly for 100% debt cancellation,

it was agreed that for greater effectiveness, the parliamentary delegation which should

43

visit the creditor nations should be a combined National Assembly delegation.

(DMO,2005).

Accordingly, a team consisting of two Senators and two Members, of the House

of Representatives was constituted as follows:

Senator Udona Udo Udoma, Senate Chief whip and team leader.

Senator Patrick Obsakwe, Chairman, Senate Committee on Local and Foreign Debts.

Hon Farok Lawan, Chairman, House Committee on Finance.

Hon Sadiq Sanua, Chairman, House Committee on Aids, Loans and Debt Management.

(Udoma, 2005) Given the importance of the mission, the National Assembly team was

accompanied by officials of the Debt Management Office. The team carried out the

campaign in two sets of visits. The first visit was to United States, United Kingdom,

Germany and Italy, the second was to France and Japan.

The main purpose of the campaign was to solicit support through the various

parliaments, non-governmental organizations, and other decision makers in the creditor

countries, for debt cancellation for Nigeria. (DMO, 2005) The key objectives were to

solicit support for the cancellation of Nigeria’s debt owed to creditor countries and to

urge countries to use their leadership and influence to persuade other creditor partner

nations, particularly within the Paris Club, to support the call for total debt cancellation

for Nigeria. President Obasanjo gave his full backing to the ambitious debt relief

44

campaign carried out by the National Assembly, the DMO, Ministry of Finance, and

Advocacy groups in Nigeria and abroad.

Throughout the campaign for debt cancellation for Nigeria, these groups pressed

the Nigerian case by insisting that Nigeria’s debt is unsustainable, even at current oil

prices, given its pressing social and developmental objectives. Nigeria’s US$ 36 billion

debt stock is an enormous burden, draining much of the government’s resources and

severely limiting programmes in support of economic and human development and

poverty reduction, including its inability to meet the Millennium Development Goals

(MDGs). (Okonjo-Iweala, 2005) The National Assembly team argued that nearly all of

Nigeria’s foreign debt is odious, much of it incurred by military dictators who ruled the

country for most of the 80’s and 90’s. many of these loans were spent, not on public

welfare, health, and economic development, but on phantom ‘projects’ and because the

people of Nigeria did not benefit from the foreign loans then, nor did they have a say in

their procurement, the team argued that it is immoral to expect these loans to be repaid.

(Udoma, 2005).

The campaign for debt cancellation also insisted that Nigeria is strategically

important to the West. Western countries have a national interest in Nigeria becoming a

strong democracy, a stable economic partner and a regional force for political and

economic reforms. A strong Nigeria would also be better placed to continue its peace

keeping role thereby maintaining security in the West African region and beyond.

Nigeria is crucial to the economic and environmental stability of the West African region

as it accounts for 47 percent of West Africa’s population and 41 percent of the region’s

45

GDP. Within Africa as a whole, one in five Africans is Nigerian, so if Nigeria fails, Africa

will likely fail as well.

46

Table 2.3 Summary of targets of the economic policy 1999-2003

Targets 2003 Actual 1999

1 GDP growth rate 10% 2.4%

2 Inflation growth rate Single digit 13%

3 Employment rate gainfully employed labour force both formal & informal

70% 50%

4 Population Access to safe water 60% 40%

5 Household Access to Electricity 60% 34%

6 Functional telephone lines per 1000 persons

30% 4%

7 Population of school age children in school

90% 50%

8 Population literacy level 80% 57%

9 Nutrition level (daily calories) 2500 2120

10 Other Basic Human Needs (level of satisfaction

Medium/high Low

11 Reduction in child malnutrition of total population of children

20% 46%

12 Infant mortality (per 100 Births) 50 76

13 Maternal mortality (per 100,000 Births)

400 800

14 Promotion of women’s participation in informal sector and food processing and subsistence Agriculture

Recognition and inclusion in the National accounting system of the economy

Invisible

Source: Federal Ministry of Information, Nigeria Returns to Democracy 2000:131

The economic management team of President Obasanjo’s administration

embarked on reform programmes. It introduced the oil–price based fiscal rule to

stabilize government expenditure. A Civil Service reform monetized benefits. Corruption

was given a zero tolerance among other measures.

Given Nigeria’s history and perception of governance, as well as rising oil prices and

accumulation of reserves, it was an immense task to convince the creditors to write off

47

any portion of Nigeria’s debts. It is therefore, important to note the unique combination

of factors that led to the achievement of the Paris Club agreement.

First, there were several technical criteria that it was necessary to address prior to

negotiating debt cancellation with the Paris Club. Specifically, Nigeria’s “borrower”

status within the World Bank Group prevented her receiving and debt cancellation, only

rescheduling of existing debt on new terms. Similarly the lack of a formal International

Monitary Fund (IMF) programme for the country prevented the Paris Club from granting

any debt cancellation deal. (Alsop and Rodger, 2008)

Another requirement for any country seeking to negotiate debt cancelation with

the Paris Club is to have a place, and on track, a formal programme with the IMF.

www.inf.org/external/np/sec/pr/2005/pr05.229.htm. Nigeria had not had a formal IMF

programme in some years, and did not wish to enter into the borrowing relationship that

a standard poverty reduction and growth facility entailed. The IMF board therefore

approved a new “Policy Support Instrument” (PSI) which was first used with Nigeria.

The IMF’s PSI framework is designed for low income countries that may not need or

want IMF financial assistance, but still seek IMF advice, monitoring and endorsement of

their own policies. (IMF, 2005) This new instrument from IMF provided the formal

endorsement Nigeria needed to reach an agreement with the Paris Club.

Similarly, the Nigerian authorities engaged the Paris Club on issues of Nigeria’s

need for additional funds, and ability to use them effectively and transparently. To

highlight the scale of need in the country, the government worked with the World Bank

to make detailed estimates of the cost of meeting the MDGs in Nigeria. All members of

48

the Paris Club had agreed to assist developing countries achieve the MDGs target, and

thus they were a useful focus. These costs were then built into a standard IMF debt

sustainability analysis- an assessment of a country’s ability to achieve its development

targets given present and predicted debt stock to make case that the debt burden,

combined with the increased public expenditures require to meet the MDGs by 2015,

was unsustainable. The exercise indicated the current level of debt was not consistent

with the country’s achieving the internationally agreed targets.

With the efforts of President Obasanjo, the Ministry of Finance, National

Assembly, DMO, the Economic Management Team, NGOs and other stakeholders, the

implementation of the country’s National Economic Empowerment and Development

Strategy (NEEDS), as well as the securing of an IDA only status for Nigeria, (a factor

very supportive for debt relief), thus making Nigeria eligible to borrow on very soft and

favourable terms, the creditors and multilateral financial institutions began to positively

consider Nigeria for debt cancellation.

Consequently, President Obasanjo’s debt diplomacy finally paid off. In 2005, the

campaign for debt relief reached a climax when Greek Britain, acting as Chair of the G8

brought to the fore Third World, and particularly, African debt issues. The G8

Communiqué, in recognition of the progress made by Nigeria in the implementation of

economic and governance reforms, agreed to support a sustainable debt treatment for

the country within the framework of the Paris Club (DMO) At their meeting in June 2005,

the Paris Club of Creditor Nations announced the decision in principle, to grant a debt

49

relief package amounting to about US$ 18 billion out of the US$30.84 billion outstanding

as at December 2004.

50

2.2 Nigerian Government’s Economic Profile and its Demand for Debt

Cancellation

The poor run of the Nigerian economy since the 1980s occasioned by

contracted earnings from oil due to oil glut and over-bloated imports due to the

burgeoning taste of the elites and the structure of the Nigerian economy, the deliberate

derailing of the transition programme by the Babangida military junta attracted political

and economic reprisals from the international community. The flagrant abuse of human

rights by the succeeding junta of Sani Abacha attracted severe sanctions from the

international community. (Ekekwe, 2004) On assumption of duty on May 29, 1999 as

President, Obasanjo inherited an economy that was on a shambles. The various

sanctions imposed by the international community were already asphyxiating the

country’s political economy as the interchanges within the international system

necessary for its economic well being and progress were truncated. The effect of the

various sanctions was the deepening of the economic crisis that has characterized the

Nigerian economy. As the Federal Executive Council observed on December 8, 1999,

the Obasnjo government:

.....inherited an economy with the following characteristics: declining capacity utilization in the real sector, poor performance of major infrastructural facilities, large budget deficit, rising level of unemployment and inflation. In addition, the economy had grave problems of import dependence, reliance in a single commodity (oil), weak industrial base, low level of agricultural production, a weak private sector, high external debt overhang, inefficient public utilities, low quality social services and an unacceptable rate of unemployment.

(Federal Ministry of Information, Nigeria Returns to democracy 2000: 128).

51

The restoration of the Nigerian economy and its placement on the path of

economic wellbeing and progress therefore required a radical surgical operation in the

form of firm domestic programme of reforms. The domestic political and economic

reengineering had the added effect of reinforcing the diplomatic contacts which

Obasanjo spear-headed. Therefore, as Obasanjo reached out to the western countries

in an attempt to make them rescind their hostility towards Nigeria by dismantling the

web of sanctions imposed on it, he also show cased his administrations domestic

reform packages even though at its incipient stage to buttress his preparedness to steer

the Nigerian ship on the right course. The prescriptions of neo-classical theoretical

position provided the compass for the right course for the Nigerian economy. Having

shown the predilection to align Nigeria’s economic policies to neo-classic the West

began to systematically lower its banner of sanctions. As the historian recorded:

The end of Nigeria’s “international pariah” status was symbolized by President

Obasanjo’s official visit to the U.S. in October 1999. In the same month, U.S secretary

of State, Madeleine Albright visited Nigeria and announced a proposal to increase US

aid four-fold in support of the domestic transition. (www.e.nigeria.net/hitory.html) More

importantly the World Bank which had suspended further investment in Nigeria in the

wake of political, economic and social crisis that engulfed Nigeria came back in 1999. In

an opening address on the occasion of National Congressional Conference on

Economic and Development Issues in Abuja, Nigeria organized by the World Bank,

Obansanjo triumphantly acknowledged that “I'm pleased to note that the Bank (World

Bank) is now back and in a very big way, under Mr Wolfensohn’s kind leadership”

52

(Federal Ministry of Information, Nigeria returns to Democracy, 2000) He went further

and assured that:

Overall, this administration is committed to the pursuit of sound economic policies which promote structural reforms and growth as well as macro framework which rapidly downsizes unemployment at home and encourages exports, especially of manufactured, solid minerals and hydrocarbons.

(Federal Ministry of Information, Nigeria Returns to Democracy: 231).

Preparatory to the production of a new trade policy by the Ministry of Commerce,

Obasanjo had told the 54th session of the UN General Assembly that:

Our administration has initiated policies aimed at revitalizing the economy in order to create an enabling environment for investments and economic growth. We have also put in place appropriate legal framework for the protection of foreign investment and reparation of legitimate profits… other measures we have taken include: A vigorous anti-corruption campaign, the promotion of transparency and accountability in public life, the abolition of decrees and regulations which hindered the inflow of foreign investment, the generation of opportunities for employment and income savings for domestic investment, the privatization of key state enterprises such as electricity and telecommunications etc.

(Selected speeches of Obasanjo vol. 1 2000:192).

Table 2.4 Comparison of selected targets of Nigeria Economic Policy & Actual

Postings

Target 2003 Actual 2003

53

1 GDP Growth Rate 10% 10.2%

2 Inflation Single digit 14.0%

3 Population literacy level 80% 57%

4 Maternal mortality (per 1000 live births) 4 10

5 Infant mortality (per 1000 live births) 50 100

Sources: Federal Ministry of Information, Nigeria Returns to Democracy 2000: 128-129

CBN Annual Report 2004: xxxiv; 65

The policy which Obasanjo packaged had the ambition of reversing the

deplorable trend of the Nigerian economy. The guiding principles of this economic policy

included the perception of the state of the Nigerian economy as appropriating national

emergency and therefore deserving the total commitment of both the leadership and the

citizens; the enthronement of the lean, efficient, transparent government under the

operating principle of devolution of power and government partnership with the private

sector for the provision of infrastructure that will drive productivity (Federal Ministry of

Information, Nigeria Returns to Democracy).

In 2000, President Obasanjo authorized the preparation of a new trade policy

through the Federal Ministry of Commerce. According to Ikpeze (2004), the objectives

of the new trade policy were consistent with Obasanjo’s Economic Policy. The New

Trade Policy envisioned to address the fundamental basis of the contradictions that

characterized the Nigerian economy. The urgent need to address such impediment was

necessitated by Obasanjo’s conviction that it was the only effective strategy to open the

floodgate of foreign capital. The new Trade Policy was designed to address such issues

as poor national record in non-oil, especially manufactured exports, prohibitive

54

transaction cost occasioned by poor transport facilities, uncoordinated structure of

protection amongst ECOWAS countries, dumping of substandard goods and so on.

The new Trade Policy was a springboard to bring the Nigerian economy into the vortex

of neoclassical whirlwind. Its objectives exemplified it: the attraction of foreign capital

inflow, progressive liberalization of the import regime to enhance competitiveness of

domestic industries, integration of the Nigerian economy through the establishment of

liberal market economy, promotion and diversification of exports, promotion of region

integration and cooperation and effective participation in negotiations to enhance the

achievement of national economic gains. (Ikpeze, 2004)

Nigeria’s Economic policy could be said to be an instrument of compromise. At

the inception of the Obasanjo administration, he expressed open hospitality to the

prescriptions of the IMF and World Bank. His hostility centred on his narrow definition of

sovereignty and independence. However, his realization that suchconcepts were almost

non-existent for a heavily indebted poor country like Nigeria which was in dire need of

FDI led to the reconsideration of his hard-line opposition to these two institutions. The

reality was that Nigeria needed a one year stand –by agreement that world produce

US$ 1billon loan and likely lead to debt relief or partial cancellation. The impasse

between the IMF team and Nigerian Officials about certain polices of government which

they (IMF Officials) considered incongruent with their policy prescriptions threatened the

expectations of the economic policy of Obasanjo and therefore required closer review.

Indeed Obasanjo became a champion of the philosophy of trade liberalization and

55

domestic economic reforms. As he argues at the 40th Anniversary of the Nigerian

Institute of International Affairs (NIIA):

Nigeria must demonstrate the preparedness to exploit the inherent opportunities

Nigeria offered by the phenomenon of globalization in the area of technology

acquisition, trade expansion, manpower development and capital transfer through

Foreign Direct Investment (FDI). Nigeria should also adopt creature negotiations with

the relevant international agencies (cited in Asobie 2004).

The preparedness of Nigeria to join the train of globalization manifested in the

strict adherence of the government to the IMF dictates. Asobie (2004) criticizes

Obasanjo’s economic diplomacy on account of its “emphasis on qualitative integration

with global capitalism to avert marginalization”. It could be said that this preponderance

on neoclassical strategies to resuscitate the Nigerian economy endeared the

government to the IMF resulting in the wide latitude of freedom granted to implement its

programmes. Nigeria introduced the National Economic Empowerment Development

Strategy (NEEDS) in 2003 as a medium –term strategy to consolidate the Economic

Policy. Its focus is to address the macroeconomic contradictions that characterized the

Nigerian economy. NEEDS is anchored on four pedestals for its effectiveness:

reforming the way government and its institutions work, growing the private sector,

implementing a social charter for the people and reorientation of the people through the

inculcation of positive values. Even though government officials have designated

NEEDS as “home grown” and claimed that it is a “plan…founded on clear vision, sound

values and enduring principles (CBN Brief 2003), the truth however, is that it bears the

56

imprimatur of the IMF. Its major components are the same components of SAP. Nwozor

(2006) argues that NEEDS shares in the vision of SAP, indeed it is SAP by other

means. There is nothing to suggest that NEEDS is home grown as it incorporates all the

extant irreducible basics that make up standard IMF and World Bank prescriptions.

The reforms represented instruments to address the uncompetitiveness of the

Nigerian economy through such strategies as privatization of state owned enterprises,

liberalization of key sectors of the economy, debt management, restructuring of the

public service, export drive and investment promotion, review of government budgeting

and taxation laws and adherence to due process in government business.

57

Table 2.5 Selected macroeconomic indicators under NEEDS

1999-2002

Average

2003

Actual

Target

2004

Actual

Target

1 Real GDP growth rate % 3.62 10.2 8.6 6.1 5.0

2 Oil sector (%) 0.8 23.9 15.0 3.3 0.0

3 Non oil sector (%) 4.9 4.5 5.8 7.5 7.3

4 Percentage reduction in poverty incidence %

N/A 11.2 5.0 11.2 5.0

5 Minimum number of new jobs created (million)

N/A 2.0 N/A 1.2 1.1

6 Growth rate in real capita consumption

N/A NA 0.0 0.1 2.0

7 Growth in real private consumption expenditure %

4.35 9.38 0.0 3.0 4.8

8 Inflation rate % 11.3 14.0 11.0 15.0 10.0

9 Growth in agriculture % 2.7 6.1 7.0 6.1 6.0

10 Manufacturing sector % 2.4 1.1 0.0 9.1 7.0

11 Manufacturing capacity utilization

38.98 46.2 53.0 45.0 -

12 Communication teledensity

NA 3.38 0.07 7.77 -

13 Oil production Mbd 2.13 2.30 2.21 2.5 2.51

Source: African Economy, Oct-Dec. 2005:31

Inherent in the strategy of liberalization of key sectors of the economy was the

dismantling of government dominance in certain sectors of the economy. The

dismantling of government dominance is what is called deregulation. The commitment

of Obasanjo in the implementation of his economic reforms sent very strong signals to

the international community. These signals were favourably interpreted hence the US$

18 billion debt cancellation package of the Paris club which resulted Nigeria’s exit from

58

debt peonage and restoration of international confidence in Nigeria manifesting in the

inflow of Foreign Direct Investment (FDI). .

2.3 Nigerian Government Political and Economic Profile in its Demand for Debt

Cancellation

Debt cancellation granted to Nigeria was both politically and economically

motivated. Giving the rising oil revenues, the debt was not unsustainable for Nigeria and

could have been paid. However, the debt to a large extent was politically unsustainable.

There was a large repudiation movement in the country, and the Economic

Management Team has a hard time in convincing the National Assembly and Civil

Society organizations that recognizing the debt and aspiring for an orderly workout with

the Paris Club was the preferred strategy. On the creditor side, several motivations and

circumstances played a role leading Callaghy (2009) to call it a “perfect storm”

First debt relief and aid were high on the international agenda in 2005. The U.K.

government was an important driver of this agenda, and the UK happened to be

chairing the G8 in 2005. The report of the African Commission, chaired by Tony Blair,

had just been published. A second factor was strategic importance of Nigeria as ally in

the war against terrorism and as important oil supplier. In particular, in the US, there

were fears that Nigeria would become a “failed state” and debt relief was considered

instrumental in avoiding this from happening (Nwozor, 2009).

While on one hand the rising oil price made it difficult for Nigeria to prove that it

had an unsustainable debt, on the other hand, it helped to consider a debt buyback,

59

because, Nigeria had money available (Callaghy, 2009). This modality of debt relief

was more acceptable to the creditors because they would get some repayments, which

they probably would not have received otherwise in the near future. When the Ministers

of Finance of G8 met in London in June 2005, they agreed on the contours of a deal

with Nigeria that a debt reduction of about 60%. A buyback formed part of this

provisional agreement. When the full Paris Club members met, the non-G8 members

proved to have strong objections but after several meeting and lobbying by high-

Nigerian government officials they agreed but insisted that Nigeria signs an IMF

programme first and that guarantees were needed that the debt relief savings would

have to be used for poverty reduction (Djikstra 2011). Nigeria eventually singed a PSI

on October 17, 2005. Then after intensive negotiations, the final agreement with the

Paris Club was signed.

With respect to the conditions to the deal, it was proven to the creditor nations

that Nigeria had ''put its house in order” before the UK and the US were willing to

propose a debt reduction to the Paris Club. The deal was linked to the PSI agreement.

The content of the agreement was based on Nigeria’s reform. Programme (IMF, 2005b).

The National Economic Empowerment and Development strategy (NEEDS) was

instituted by the Obasanjo administration in 2004 as a working framework for the reform

of the Nigerian socio-political and economic structure. Its aims are to promote

macroeconomic stability through transparent, rule-based and sound fiscal, monetary

and foreign exchange policies, improve public sector efficiency and promote private

sector development by upgrading infrastructure, privatize hitherto unviable state

60

enterprises, and to reform the financial sector. (DMO, 2005) Nigeria's quest for debt

cancellation was strengthened by the introduction of NEEDS. From its inception,

NEEDS implementation was been monitored quarterly by the IMF on the invitation of

the government in order to give the international community an objective assessment.

NEEDS anti-corruption, due process, transparency, and prudence in government fiscal

activities was instrumental to reversal of Nigeria's image problem abroad. Under

NEEDS, reforms were implemented to mobilize additional domestic resources and

improve the efficiency of public spending to achieve the MDGs.

Nigeria embarked on a major programme of reform to increase the efficiency of public

service delivery and expenditure management, cut corruption and promote the rule of

law. This was important because Nigeria needed to address head-on the concerns of

creditor nations that savings from the debt relief would be managed or that it would

simply open up another avenue for corruption. Creditor nations need to be assured that

savings would go to the neediest of areas, in education, health, and other critical

sectors that impact directly on poverty alleviation, and that a transparent and effective

system for the allocation of the resources would be put in place.

(http://www.cgdev.org/publications/?pud1d=147

Specific actions the Federal Government embarked on towards this end were:

A public expenditure management programme and the establishment of a Virtual

Poverty Fund (VPF), to provide a frame work for a transparent and effective system of

resources allocation.

61

The formulation of a Fiscal Responsibility Bill, the aim of which was to ensure

transparency and accountability in public governance, and the setting up of government

agencies like the EFCC and ICPC to deal with corrupt practices.

The representatives of the Paris Club of creditor nations welcomed the economic

programme implemented by the Nigerian authorities since 2003 and their desire to

secure an exit treatment from the Paris Club. The agreement took place after the

approval by the Executive Board of the International Monetary Fund (IMF) of the Policy

Support Instrument (PSI) on 17th October, 2005 and included a debt reduction under

Naples terms on eligible debt after reduction and the agreement was implemented in

two phases in consonance with the implementation of the PSI. In the first phase, Nigeria

undertook to pay arrears due on all the categories of debts and Paris Club of creditor

nations granted a 33% cancellation of eligible debts:- In the second phase, after the

approval of the first review of the PSI by the Executive Board of IMF, in march 2006, the

Nigerian government paid amounts due under post-cutoff date debt and Paris Club

granted another tranche of cancellation of 34% on eligible debts then, the Nigerian

government bought back the remaining eligible debts.

In total, the agreement allowed Nigeria obtain a debt cancellation estimated at

US$ 18b representing an overall cancellation of about 60% of its debt to the Paris Club

of around US$30 billion plus a balance of US$ 6.16 that was used to complete the exit

strategy (www.clubdeparis.org/2).

62

63

CHAPTER THREE

WORLD BANK TECHNOCRATS IN OBASANJO’S ADMINISTRATION AND NIGERIA

2005 PARIS CLUB DEBT CANCELLATION

3.1 President Obasanjo’s Deregulation Programme

The Nigerian economy was embroiled in crises when Obasanjo assumed

office in 1999. Obasanjo’s economic policy incorporated several strategies for the

revamping of the Nigerian ailing economy. Central to these strategies were the

privatization and commercialization of public enterprises, and deregulation of the major

sectors of the economy, Oil, Power, Telecommunication and Aviation. Privatization and

commercialization are part of deregulation. Deregulation programme essentially refer to

the introduction of competition by ''de-monopolizing” sectors hitherto operated by

special government parastatal. Belzer (1994) conceptualizes deregulation as the

“reduction or elimination of government’s direct involvement or intervention in a given

industry”. In other words, deregulation connotes divestment of government’s

management and control of a given industry and the transference of such control to the

organized private sector. Ugban (2004) introduces certain elements to what

deregulation means. According to him, it is a “deliberate and systematic removal of

regulatory controls, structures and operational guidelines in the administration and

pricing system in the economy”. This deliberate dismantling of monopolistic controls

throws the sector to the vagaries of market forces. One salient point to note is that while

the state control is circumscribed, the sector is thrown open to all interested players

whose operations are guided by the forces of demand and supply.

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The extent of governments divestment is tied to its holding and control in a

particular sector or sectors. The government still retains and indeed exercises authority

with regards to extent rules governing the conduct of business in the sectors of the

economy. Under deregulation, the government surrenders its rights to manage

businesses or enterprises directly but exercises authority in the promulgation of laws

and rules. In exercising this responsibility, it balances national interest with market

forces. Deregulation policy, since its introduction in Nigeria has been a source of

tension between the government and the citizens represented by the Nigeria Labour

Congress (NLC). The pro-deregulation school rationalizes it on the ground that it saves

money for the country as the money often pumped into the sector as subsidies are

saved and diverted to the provision of infrastructure. Using the petroleum sector,

Obasanjo explained what deregulation meant to him thus.

Deregulation means that, at the moment, the price at which the product is being

sold is not cost price. Deregulation means simply paying what it costs to produce fuel at

the pump price so that the N200 billion that is being used to subsidize is no longer used

to subsidize fuel. That money is available to do other things (cited Ugban 2004).

Secondly, it contends that deregulation provides room for efficiency. With the

entry of the private sector, the inefficiency, corruption and waste associated with

government management of public enterprises are replaced with result-oriented, private

sector management style that transforms the services in the affected sectors positively

(Babarinsa, 2001). Thirdly, they see deregulation as the rolling back of the domineering

influence of the state. In other words, deregulation redirects the attention of the state to

65

its traditional responsibilities of providing security, maintaining law and order and

providing the enabling environment for economic growth and development.

On the other hand, the anti-deregulation school does not oppose the introduction

of deregulation on the grounds of its inability to plug wastes in the system but rather on

its effect on the citizens. According to Balogun et al (2003)… deregulation has not

always encouraged market forces to move prices in the desired direction. For example,

with the divestment of government interest in public enterprises, there has been a

general increase in prices due largely to the naira exchange rate depreciations resulting

in a deficit in real wage, a rise in unemployment and the inevitable lowering of the living

standards of workers. The antagonism of workers to deregulation stemmed from fear of

loss of means of livelihood and higher, unaffordable cost of services in the face of

stagnant income.

66

Table 3.1 Prices of petrol (1978-2009)

Date Price per litre Regime % increase

October 1, 1978 151/3k Gen. Obasanjo 73.86

April 20, 1982 20k Shagari 31%

March 31, 1986 391/12k Gen. Babangida 99.5

April 10, 1988 42k Gen. Babangida 6%

January 1, 1989 42k (commercial vehicles) Gen. Babangida 43%

January 1, 1989 60k (other vehicles) Gen. Babangida 43%

December 19, 1989 60k Gen. Babangida 43%

March 6, 1991 70k Gen. Babangida 16.6%

November 8, 1993 N5.00 Shonekan 614%

November 22, 1993 N3.25 Gen. Abacha -

October 2, 1994 N15.00 Gen. Abacha 316.5%

October 2, 1994 N11.00 Gen. Abacha 316.5%

December 20, 1998 N25.00 Gen. Abubakar 1257%

January 6, 1999 N20.00 Gen. Abubakar -

June 1, 2000 N35.00 Obansanjo 50%

June 8, 2000 N25.00 Obansanjo -

June 13, 2000 N22.00 Obansanjo -

June 17, 2000 N26.00 Obansanjo 18.2

June 20, 2003 N40.00 Obansanjo -

September 2004 N48.00 - -

April 11, 2005 N52.00 - 18.2

May 28, 2005 N75.00 - -

June 25, 2007 N70.00 Yar’Adua -

January 15, 2009 N65.00 - -

Source: Eme and Onwuka 2011: 12

Several factors made the introduction of deregulation policy by Obasanjo

administration imperatives. The principal task before the administration was the

reintegration of the Nigerian economy into the main stream of the international

economic system. The formulation of an economic policy was one step. Another step

67

was its implementation. Obasanjo took a third step. He traversed the World Capital

Cities several times explaining his economic policy and beckoning on the international

community to come to the country and invest.

The objectives of the economic policy were tailored to address the contradictions

in the economy and extend its frontier for international competition. Apart from reviving

the economy, the policy was also directed at repositioning the Nigerian economy to

participate beneficially in the global economy and raise the standard of living of

Nigerians through gainful employment and make Nigeria the hub of the West African

economy. To achieve these, the government proposed to utilize several instruments,

these included amongst others:

To stabilize market responsive exchange rate;

Reduced interest rate (with the target of single digit)

Reduced total tax burden (setting a minimum of 30% on corporate and personal incomes)

Shift in government expenditure structure in favour of productivity, economic and social sectors;

High priority to agriculture, manufacturing, small/medium enterprises and the informal sector ;

Privatization.

68

Reduction of Nigeria’s external debt burden through negotiation.

(Federal Ministry of Information, Nigeria returns to democracy 2000).

It was with this policy that Obasanjo started a systematic creation of investor friendly

environment for the marketability of the Nigerians economy. As the World Economic

Forum (2001) records: Obasanjo emphasized that Nigeria is open to foreign investors

and that his government is striving to make condition ripe for them. He said some

people mistakenly believe Nigeria’s only source is oil, but it also has mineral wealth as

well as market of 125 million potential employees and consumer. The President’s first

circular was to Nigerian Embassies ordering them to approve visa application to visit

Nigeria within 48 hours.

Three factors seem to have emboldened the implementation of deregulation: first,

the preference of Obasajo’s government for a market-oriented; private sector-led

economy, demanded dismantling of government predominance hegemony in the

economic realm; Second was the unequivocal emphasis of IMF/World Bank on market

economy as basis of its continued assistance to Nigeria’s intractable debt crisis and;

third was the realization that unless government retreated from the economic sphere

and played only the role of rule-provider, the much hoped for Foreign Direct Investment

(FDI) might be a mirage. The adoption of deregulation was, therefore, a sound

economic judgment from the prism of pro-deregulation agents. Deregulation reinforced

the theoretical underpinning of Obasanjo’s economic policy and also sent unmistakable

reassurance to Nigeria’s creditors both Paris and London Clubs of the administration's

69

preparedness to put the country through the furnace of reforms. The international

community especially the World Bank President Mr Jame Wolfensohn encouraged the

efforts of government at reforms by pledging US$ 1 billion in support of reform. (African

Economy 2005)

The sectors that felt the impact of deregulation were the real sector and financial

sector. In the real sector, the focus of deregulation was to downsize the public sector

with the aim of reducing fiscal deficit. According to Obadan, (2005) available data and

estimates show that in 1998, Nigerian PEs (Public Enterprises) enjoyed about N265

billion in the form of subsidized foreign exchange (59%) loans/guarantees (6%) tax

exemption/arrears (6%) and import duty exemption (5%. In other words, government's

involvement in the commanding heights of the economy was counter-productive as the

inefficiency of their companies resulted in the subsidization of their operations to make

them remain afloat. Indeed, PEs decelerated economic growth through their

inefficiency, corruption, parasitism and other vices detrimental to economic growth and

development.

As noted by Obadan, The inefficiencies and monopolistic pricing of NITEL before the

deregulation of the telecommunication sector did not only undermine the efficiency of

the Nigerian economy, but also hampered the development of information technology

and related high-tech industries, despite Nigeria’s large market and reservoir of

educated labour.

70

According to the Bureau of Public Enterprises (BPE) as at may 1999, the federal

government investments in public enterprises were worth something in the region of

US$ 100 billion. (www.bpeng.ng/10/03176565326. ASP? dOC id = 230$ menuid- s).

The deregulation in the downstream sector of the petroleum industry had the most

impact. This is understandable considering that the entire edifice of the Nigerian

economy is motorized by petroleum. As such, adjustments in the prices of petroleum

products had a multiplier effect on the economy. The NNPC, a government parastatal,

built and operated the country’s four refineries, namely Old Port-Harcourt Refinery, New

Port Harcourt Refinery, Warri Refinery and Kaduna Refinery, which had a combined

production capacity of 445,000 barrels per day. Adjuncts to this were 500km product

pipelines, 21 storage depots, 9 LPG depots and numerous retail outlets. Government’s

involvement in the ownership and structure of these refineries gave rise to a regulated

sector which was characterized by inadequate supply and distribution of petroleum

products, monopolitistic practices and inappropriate pricing, low capacity utilization of

the refineries and non competitiveness. (Oluleye, 2004)

The actual deregulation in the downstream petroleum sector followed the

recommendations of a 34-Member Special Committee on the Review of Petroleum

Products Supply and Distribution whose report was submitted in October 2000. Oluleye

identified the core characteristics of the policy of deregulation in the downstream sector

as:

i. Decontrol of petroleum products prices;

71

ii. Removal of restrictions on the establishment and operation of petroleum products;

iii. Importation and exportation of crude oil and petroleum products;

iv. Lifting of government controls on downstream sector;

v. Allowing market forces to prevail in the pricing of petroleum products.

Before deregulation, the downstream petroleum sector was almost comatose as the

four refineries were out of order. Nigeria depended on the importation of refined

petroleum products for its domestic use.

Table 3.2 Oil imports (1999-2006)

(In naira million)

Value of oil 1999 2001 2003 2005a 2006b

Imports 211,661.73 217,231.20 398,922.31 182,754.78 221,086.37

Notes: a = Revised

b = provisional

Sources: CBN Annual Reports (2003:156); (2006:252)

What has changed is the dismantling of the monopoly of the NNPC in the

downstream petroleum sector. All the major marketers and other interested importers

72

now have access and approval to import refined petroleum products. This does not

satisfy the requirements of deregulation. The effect of this is that the pump prices of

refined products succumb to the vagaries of volatile international oil prices. With the

price of crude oil on the rise in the international oil market and the price of refined

petroleum product still constant, it means that the Nigerian government still massively

subsidizes petroleum products. Obviously, this is not healthy for the economy as Nigeria

still expends scarce foreign exchange that would have been saved if the system were

efficient.

Table 3.3 Price movement of petroleum products (per litre)

PMS AGO DKP

1997 11.00 9.00 6.00

1999 20.00 19.00 17.00

2000 22.00 21.00 17.00

2002 26.00 26.00 24.00

2003 40.00 38.00 38.00

2004 53.00 62.00 60.00

2006 65.00 - -

2007 70.00 - -

2008 65.00 - -

Source: Aigbokan, 2004:170

Deregulation recorded its most impressive outing in the telecommunication

sector, NITEL before deregulation, was a classic example of a monopoly with all its

short comings. The teledensity of Nigeria was not only very low but the quality of

services rendered by NITEL was below standard. Because of the inefficiency of NITEL

73

resulting in narrow base of subscribers, there was an erroneous belief in certain

quarters that telephony was a luxury. This mindset must have informed the exasperated

outbursts of the then Minister of Communications, Brig-Gen. David Mark in the face of

epileptic services by NITEL that telephony services were not for the poor.

The effect of deregulation in the communication sector was the expansion of subscriber

base occasioned by the adaption of new telephony technology. The deployment of the

new telephony technology, Global System of Mobile communication (GSM) by the news

entrants-MTN, Econet, Mtel and Glo- expanded both the subscriber base and the area

of coverage. According to CBN Annual Report (2003), the combined subscriber network

of the first two private operators (MTN and Econet) within their first year of operation

closed at 1,660,000 lines.

Table 3.4 The Nigeria telecommunications market statistics as at 2006

1999 2002 2003 2004 2005 2006

No of connected fixed lines (‘000)

450 702 850 1,120 1,223 1,538

No of connected digital mobile lines (million)

None 1.59 3.10 9.20 18.59 24.14

No of national carrier 1 2 2 2 2 2

No of operating ISPs 18 30 35 40 60 90

No of active licensed fixed line operators 9 16 30 17 20 27

No of licensed mobile operators 1 4 4 4 4 10*

Investment (US$ million) 50 2,100 4,000 6,000 7,500 8,150

* Including operators with a unified licence who are licensed to do both fixed and mobile

Source: CBN Annual Report (2006:86).

74

Under the transportation sector, the port sub-sector witnessed deregulation as

the Nigerian Port Authority (NPA) underwent massive restructuring. Deregulation

facilitated the entry of the private sector in port management on concessionary basis.

Not only did government make money from these concessionaires, there was also a

marked improvement in cargo handling in Nigerian ports which had the effect of

lowering costs after incurred as a result of the inefficiency of the NPA.

An aspect of deregulation which the Obadsanjo administration pursued with vigour was

the monetization policy of Public Officers’ entitlements. Monetization policy is a

framework designed to eliminate waste in resource allocation in the public sector. The

money saved is thus channelled into infrastructure development.

Another sector that witnessed deregulation was the financial sector. Though the policy

of deregulation was first introduced in the financial sector in 1986 following the adoption

of SAP, it was characterized by policy inconsistency. For instance, the Dutch Auction

System (DAS) of the foreign exchange management was first introduced in April 1987

and was jettisoned after three months of operation. The DAS was reintroduced in 1990

(CBN Economic and Financial Review 2003). The run of policy trials continued after

that. According to Aigbokhan (2004) in 1994 a policy of guided deregulation was

introduced which saw the reintroduction of temporary and minimum controls. Though

the cap on exchange rate was removed in 1998, circular No. 34 of 2000 recognized and

retained the underlying features of guided deregulation for further consolidation of its

gains. This entailed free operation of inter-bank foreign exchange market (IFEM) and

the retention of Das as the main mechanism for foreign exchange management and

75

exchange rate. The forward and backward movements of the naira against other

currencies are therefore attributable to deregulation.

Even though the deregulation of the aviation sector commenced before the

Obasanjo administration, the liquidation of the Nigerian Airways in 2003 signaled its

completion. The sector is currently driven by the private sector in both domestic and

international routes.

The deregulated sectors of the Nigerian economy have shown strong commitment and

made enormous contributions to Nigeria’s quest for economic development.

3.2 World Bank Technocrats in President Obasanjo’s Administration

When Nigeria transited to a democratic government under president Olusegun

Obasanjo in 1999 the new administration inherited structures that were characterized by

lack of accountability to the citizenry and public institutions that were ineffective.

The government’s focus was on strengthening democratic practices and tackling

corruption. The Obasanjo administration pursued a wide-reaching micro economic

agenda that was primarily embodied within the National Economic Empowerment and

Development Strategy (NEEDS)

Efforts to improve macroeconomic stability centred upon the introduction of structural

reforms which included privatization, civil service reform, consolidation of the banking

sector and refinement of trade policy. (Okonjo-Iweala and Osafo Kwaako: 2007).

Concerted efforts towards privatization of state owned enterprises and concessioning of

76

key ports were accompanied by the deregulation of various economic sectors to

encourage private sector participation.

To achieve this economic reform agenda, President Obasanjo appointed highly qualified

professionals in his new economic management team who embarked on an ambitions

reform programme notable among them were Dr Mrs Ngozi Okonjo-Iweala, Minister of

Finance, Dr. Obiageli Ezekwesili. Head of the Budget Monitoring and Price Intelligence

Unit (Due Process Unit), Professor Charles Soludo Governor of the Central Bank of

Nigeria (CBN). On this note, we shall briefly discuss these World Bank technocrats in

President Obasanjo's Administration.

Dr. Ngozi Okonjo-Iweala is a globally renowed economist best known as Finance

Minister of Nigeria under President Olusegun Obasanjo’s administration and for her

work at the World Bank. She briefly held the position of Minister of Foreign Affairs in

2006. Prior to her ministerial career in Nigeria, Ojonjo-Iweala was vice President and

Corporate Secretary of the World Bank group. She left it in 2003 after she was

appointed to President Obasanjo’s cabinet as Finance Minister in 2003. In Octobers

2005, she led the Nigerian teams that struck a deal with the Paris Club, a group of

bilateral creditors, to pay a portion of Nigeria’s external debt. Prior to the partial debt

payment and write-off, Nigeria spent roughly US$ 1 billion every year on debt servicing,

without making a dent in the principal owned. She introduced the practice of publishing

each state’s monthly financial allocation from the federal government in the

newspapers. This action went long way in increasing transparency in governance.

77

During her confirmation as a Minister, she stressed the need to reduce the

country’s recurrent expenditure which was 74% of the National Budget and embark on

capital projects which could improve the 14% unemployment rate in the country.

Okonjo-iweala also serves on the Advisory Board of Global financial integrity and on the

Board of Directors of the World Resources Institute. She resigned as Minister of Foreign

Affairs on August 3rd 2006 following her sudden removal as head of Nigeria’s Economic

team by President Olusegun Obasanjo.

Dr. Obiageli Ezekwesili is a chartered accountant. She was a co-founder of

Transparency International, serving as one of the pioneer Directors of anti-corruption

body based in Berlin, Germany. She served as Minister of Solid Minerals and then as

Minister of Education during the second term presidency of Olusegun Obasanjo.

Oby Ezekwesili started off in the Olusegun Obasanjo administration as the pioneer head

of the Budget Monitoring and Price Intelligence Unit (Due Process Unit). It was in this

position that she earned the sobriquet of “Madam Due Process” for the outstanding

work she led a team of professionals to do in sanitizing public procurement or

contracting at the federal level. She was the architect of the Bureau for Public

Procurement Legislation, the NEITI legislation and the new minerals and mining

legislation during her six and a half years stunt in government. She was appointed the

Minister of Solid Minerals (mines and steel) in June 2005 during which time she led a

vibrant reform programme that led to Nigeria’s global recognition as a credible mining

investment destination. She was also the chair person of the Nigerian extractive

industries transparency initiative (NEITI) and led the first ever national implementation

78

of the global standards and principles of transparency in oil, gas and mining sector. In

June 2006, Ezekwesili was appointed the Minister of Education, holding this post until

she took up her World Bank appointment in May 2007.

Prior to working for the government of Nigeria, Ezekwesili was working with Professor

Jeffrey Sachs at the centre for international development at Harvard.

Professor Charles Soludo has worked at the World Bank and served as Senior

Technical Advisor/Consultant as well as a Visiting Scholer at the IMF since 1994, and

also taught IMF's Financial Programming and Policy course to senior staff of Central

Banks in West Africa and other developing regions. He has served as: Member,

Technical Committee that drafted economic and trade policies for the Federal

Government of Nigeria; and Executive Director of the African Institute for Applied

Economics (AIAE). He is a Member of the International Advisory Group for the UK-

DFID. In 2003, Prof Soludo joined the Federal Government of Nigeria as the Chief

Economic Adviser to the President and Chief Executive of the National Planning

Commission. His key achievements include leading the team that prepared the National

Economic Empowerment and Development Strategy (NEEDS). He restructured the

National Planning Commission (NPC) and the Federal Office of Statistics (FOS) prior to

his appointment as Governor of CBN in 2004. The history of Nigeria's banking sector

has now been categorized into pre-Soludo and post-Soludo era. His tenure as Governor

and Chairman of CBN, he led to the consolidation of over 80 weak banks into 25 strong

entities which subsequently transformed banking in Africa, especially in Nigeria's

banking sector with concurrent accelerated boom in financial services, mortgage

79

banking, insurance, pension and micro-banking. He also launched the first indeginous

multinational development banking institution, African Financial Corporation (AFC) and

also launched the Financial System Strategy 2020 (FSS2020) with a view to positioning

Nigeria as a banking and financial hub in Africa. Soludo was subsequently appointed

Member of the Chief Economist Advisory Council of the World Bank and was also

appointed by the President of the UN General Assembly as a member of the 10 man

Commission of Experts on the Reform of the International Monetary and Financial

System. He has been visiting scholar at the International Monetary Fund, the University

of Oxford, University of Cambridge, Brookings Institute, and a visiting professor at

Swarthmore College USA. He has worked as a consultant to a number of international

organizations, including The World Bank, the United Nations Economic commission for

Africa, and the United Nations Development Programme (UNDP).

Chukwuma Soludo is a core professional in the business of macroeconomics

3.3 World Bank Technocrats in President Obasanjo’s Deregulation programme

and the 2005 Paris Club Debt Cancellation Conditionality for Nigeria.

Deregulation of a country’s economy could be conceptualized as privatization,

divestiture, and marketization of the economy. In essence no government but private

participation in the country’s economic activities. Deregulation of an economy entrails

according greater weight to the private sector as the prime mover of the economy as

opposed to the emphasis on the dominance of public sector.

80

Ernest and Young (1988) posit that deregulation and privatization are elements of

economic reform programmes charged with the ultimate goal of improving the overall

economy through properly spelt out way. For example, freeing government from

bondage of continuous financing of extensive project which are best suited for private

investment by the sale of such enterprises; encouraging efficiency and effectiveness in

resource utilization; reducing government borrowing while raising revenue, promoting

healthy market competition in a free market environment; improving returns from

investment and broadening enterprises share ownership thus engendering capital

market development. (Izibili and Aiya, 2007)

According to Ayodele (1994), privatization in other words deregulation is one

essential aspect of price and market reforms which entrails both unshackling private

sector development through removal of government restrictions on private economic

activity and divestiture of the state assets particularly State Owned Enterprises (SOEs)

into private hands.

The deregulation of the downstream sector of the Nigerian oil industry was pursued with

single mindedness by the Obasanjo administration. The campaign by his administration

for deregulation of the downstream sector especially product marketing and distribution

started in February 2001 but was slightly resisted by labour and coalition of civil society

groups. With much persuasion, enlightenment and promise of what should accrue from

the deregulation programme, the government began a partial deregulation in 2002

leaving only the price of petroleum regulated

81

The deregulation of the downstream sector of the oil industry was necessitated by acute

shortages of petroleum products, which characterized the economy even before

President Obasanjo took over in 1999. The Obasanjo administration set up a 34-man

committee to review all aspects of petroleum products supply and distribution and

recommend:

A structure of petroleum supply and distribution system to be developed over this

and next financial year, which is self financing and sustainable. This will be

characterized by absence of monopoly and freedom of several competing

marketers to import and export products while encouraging private ownership of

refineries;

Phased reforms and price adjustments, which will achieve the necessary self-

financing and sustainable system and prevent the trauma and economic

disruption usually associated with adjustment to petroleum products pricing;

A programme of consultation and public enlightenment to facilitate the smooth

implementation of the necessary reforms; and

Any other measures which the committee may deem necessary or appropriate in

the circumstance (Report of the special committee on the Review of petroleum

products 2000)

This committee was the watershed in the deregulation of the downstream sector of the

oil industry. Since its report, the domestic price of the petroleum products became

directly linked to and responsive to international prices of crude oil. The result has been

incessant increment in the prices of petroleum products.

82

The pro- deregulation policy posits that the liberalization and deregulation of the

downstream sector of the oil industry would actualize the objective of ending perennial

fuel scarcity and maintaining sustainable fuel supply across the country.

Notable among the protagonists of deregulation in President Obasanjo’s

administration and World Bank technocrats include Ngozi Okonjo- Iweala the Minister of

Finance and Professor Charles Soludo, the Governor of the Central Bank of Nigeria.

According to Okonjo-Iweala, Nigeria is one of the most volatile economies of the world

and highly undiversified. Successful macroeconomic stabilization is necessary to

restore economic growth. To get the per year growth rate targeted in NEEDS, and

sustain it, we needed to complement macroeconomic stabilization with a set of

microeconomic reform designed to change the direction and structure of the economy.

To achieve this, deregulation and liberalization of the telecommunications sector, the

downstream petroleum sector, and the power sectors, privatization of hundreds of

public sector enterprises, reform of civil service, trade, tariff, customs regime and

restructuring and consolidation of banking sector must be achieved. (Okonjo-Iweala,

2005).

83

Table 3.5 Flow of foreign private capital by region or country of origin 1999-2004 (N million)

Country/Region of origin Year Inflow

(1)

Out flow

(2)

Net flow(3)

(1-2)

United kingdom 1999

2000

2001

2002

2003

2004

1,251.8

191.2

2,680.0

4,029.6

6,050.5

7.2271

16.2

15.4

5.0

2.3

5.0

19.9

1235.6

175.8

2,675.0

4,027.3

6,045.5

7,207.2

USA 1999

2000

2001

2002

2003

2004

255.0

14,103.7

285.0

2148.9

3223.3

3023.2

1744.4

12248.1

776.0

386.9

304.7

36.2

-1489.4

1855.6

-491.0

1762.0

2918.0

2987.0

Western Europe (Excluding UK) 1999

2000

2001

2002

2003

2004

1,463.8

1418.9

861.0

1429.6

2211.8

3115.0

202.8

511.2

120.0

129.3

50.6

49.9

1261.0

907.7

741.0

1300.3

2161.2

3065.1

Asia2 1999

2000

2001

308.0

508.7

458.0

246.8

322.9

654.0

61.2

185.8

-196.0

84

2002

2003

2004

674.5

1011.7

NA

244.0

9.9

NA

430.2

915.8

NA

Other (unspecified) 1999

2000

2001

2002

2003

2004

756.9

231.1

653.0

705.9

1033.9

6699.1

46.2

9.0

5.0

18.9

18.9

49.7

710.7

222.1

648.0

689.0

1015.0

6649.0

Total 1999

2000

2001

2002

2003

2004

4035.5

16453.6

4937.0

8988.5

13531.2

20064.4

2256.4

13106.6

1560.0

781.7

475.1

155.7

1779.1

3347.0

3377.0

8206.8

13056.1

19908.7

1. Western Europe comprises mainly France, Germany, Netherlands, Switzerland and Ireland.

2. Asia: India, Hong Kong, China, Singapore and Taiwan

Source: CBN Statistical Bulletin Vol. 15, 2004:416-418

President Obasanjo launched and reinvigorated the privatization and

commercialization programme including the modification of Decree 25 on privatization

and its enactment as the privatization Act. Obasanjo on the inauguration of the National

85

Council on Privatization in 1999 accused public enterprises of gross incompetence and

complacency. The Bureau of Public Enterprises (BPE) was strengthened under the

leadership of Mallam El. Rufai and Irene Chigbue. Methodology and institutional frame

work were put in place to guide the deregulation, privatization and liberalization

programmes.

Banking sector reform was part of the Obasanjo deregulation programme. The nature of

the Charles Soludo’s banking sector reforms and their outcomes can be categorized

into the following

(i) Banking sector consolidation, (ii) foreign exchange market stabilization (iii) interest

rates restructuring (iv) the pursuit of stabilization as against structural adjustment

policies for momentary and inflation control and (v) currency restructuring.

All the banking reforms are part and parcel of the NEEDS document which the

economic reform polices of Obasanjo revolved around

86

CHAPTER FOUR

ECONOMIC REFORM POLICIES OF PARIS CLUB AND PRIVATIZATION

PROGRMME IN NIGERIA

4.1 The Economic Reform Policies of the Paris Club

To reach a deal with the Paris Club, a country must implement an IMF economic

programme for three years, develop an interim Poverty Reduction Strategy Paper

(PRSP) and clear any outstanding arrears.

Conditions that Highly Indebted Poor Countries (HIPCs) must meet on the path to

completion point of the IMF include a wide range of reforms regarding public

expenditure management and governance targets as well as structural reforms which

involve instructions on how to run various sectors of the economy or government,

privatization of selected industries or utilities, trade and financial sector liberalization

through removal of tariffs or deregulation.

In 2004, Nigeria under President Obasanjo was willing to restore its relations

with the international financial community after years of financial mismanagement. The

democratic regime asked for an exceptional support from the G8 to benefit from a

democratic dividend’’. In the past, Nigeria had benefited from four Paris Club debt

treatment under the Houston terms and this was not sufficient to help the country exit

the rescheduling cycle (1986,1989,1991,2000) www.clubdeparis.org. In 2005, there was

intense lobbying and negotiations by Nigerian government officials aimed at alleviating

various hurdles to debt treatment. The Nigerian authority wanted to implement their own

87

Multilateral 7.86%

London Club 4.01% Non Paris

Bilateral 0.13% Promissory

Notes 2.18%

Paris Club 85.82%

reform programme (NEEDS) without a full –fledged IMF support programme but this

was resolved through the creation of the IMF “Policy Support Instrument “,(PSI)

The IMF/World Bank determines a group of ten to twenty conditions called the

‘’trigger conditions” that a country must meet in order to advance to ‘’completion point”

at which time the country will receive irrevocable 100% cancellation of it debt stock and

in addition to trigger conditions, in order to reach completion point the debtor country

must develop an IMF /World Bank-approved Poverty Reduction Strategy Paper (PRSP)

and be on ''track” with the conditionalities outlined in an IMF ''Poverty Reduction and

Growth Facility'' (PRGF) loan.(Davesh, 1998)

Figure 4.1 External Debt Outstanding by Creditor Category as at December

31, 2004

88

Source: Debt Management Office 2005:4

Clearly, the largest proportion of Nigeria’s debt is owed to the Paris Club. The Paris

Club is an informal group of official money lenders that was created to find coordinated

and lasting solutions to the payment difficulties experienced by countries that owe its

member country. Before Nigeria sat down with the Paris Club of Creditor Nations and

discussed debt cancellation deal, Nigeria reached an agreement with the IMF on an

economic programme that was supported by IMF's PSI. The programme was Nigeria’s

Economic Empowerment and Development strategy (NEEDS).

It is against this background that we intend to outline and discus the structural

adjustment polices required for qualification for debt cancellation.

PRIVATIZATION: Has frequently been required in order for debtor country to receive

debt cancellation. Privatization has several meanings. Primarily, it is the process of

transferring ownership of a business, enterprise, agency, service or property to the

private sector, either to a business that operates for a profit or to a non–profit

organization. It can also mean government outsourcing of services or functions to

private firms e.g. revenue collection, law enforcement and prison management.

Proponents of privatization argue that in competitive industries with well–

informed consumers, privatization consistently improves efficiency. The more

competitive the industry, the greater the improvement in output, profitability and

efficiency. They also say that private market factors can more efficiently deliver many

89

goods or services than governments due to free –market competition and that over time

this tends to lead to lower prices, improved quality, more choices, less corruption and

quicker delivery. Some of the proponents of privatization do not argue that everything

should be privatized. According to them market failures and natural monopolies could

be problematic. Privatization leads to high performance, corruption free accountability,

security etc.

FREE TRADE: This is a policy by which a government does not discriminate against

imports or interfere with exports by applying tariffs to imports or subsidies to exports.

Under a free trade policy, prices emerge from supply and demand and are the sole

determinant of resource allocation. In a general sense used in economics and political

economy, open market refers to a market which is accessible to all economic

players/actors. In an open market, all economic actors have an equal opportunity of

entry in that market. Openness of a market is judged by the amount of government

regulation of those markets, the scope of competition and the absence or presence of

local cultural customs which get in the way of trade.

DEREGULATION: Is the act or process of removing or reducing state regulations. It is

the opposite of regulation which refers to the process of the government regulating

certain activities. The stated rationale for deregulation is often that fewer and simpler

regulations will lead to a raised level of competitiveness.

Deregulation simply means the removal of government interference in the running of a

system. This means that government rules and regulations governing the operation of

the system are relaxed or held constant in order for the system to decide its own

90

optimum level through the forces of supply and demand (Ajayi and Ekundayo, 2008).

Deregulation allows enterprises and services to be restricted as little as possible.

Deregulation is the total or partial withdrawal of government controls in the allocation

and the production of goods and services.

AUSTERITY MEASURES: Refer to policies of deficit- cutting by lowering spending via

reduction in the amount of benefits and public services provided (Elmlirst, 2010).

Austerity policies are often used by government to try to reduce their deficit spending

and are sometimes coupled with increases in taxes to demonstrate long-term fiscal

solvency to creditors. Monetary austerity is policy adopted by governments to tighten

up the money supply to increase internal interest rates to whatever heights needed to

stabilize the value of the local currency, while fiscal austerely increases tax collection

and reduces government spending dramatically (Hanhel, 1999)

ECONOMIC LIBERALIZATION: Is a very broad term that usually refers to fewer

government regulations and restriction in the economy in exchange for greater

participation of private entities. The doctrine is associated with classical liberalism. The

arguments for economic liberalization include greater efficiency and effectiveness that

would translate to a ''bigger pie'' for everybody. Thus, liberalization in short refers to “the

removal of controls” to encourage economic development (Chaudhary, 1991).

Similarly, economic liberalization or liberalism is the ideological belief in organizing the

economy on individualist lines, such that the greatest possible numbers of economic

decision are made by the private individuals and not by collective institutions. (Adams,

2001)

91

It includes a spectrum of different economic policies, but it is always based on

strong support for a market economy and private property in the means of production.

Although economic liberalization can also be supportive of government regulations to a

certain degree, it tends to oppose government intervention in the free market when it

inhibits free trade and open competition. However, economic liberalization may accept

government intervention in order to remove private monopoly, as this is considered to

limit the decision power of some individuals must often the poor. Economic liberalism

emphasizes that individuals should make their own choices with their money, so long as

it does not infringe on the liberty of others.

Economic liberalization includes support for equality of opportunity due to the belief that

a lack of equality of opportunity will lead to an increase in private monopoly and

therefore infringed liberty of individuals. Theories in support of economic liberalism were

advocated in the enlightenment, and believed to be first fully introduced by Adam Smith

who advocated minimal interference of government in a market economy, though it

does not necessarily oppose the states provision of a few basic public goods with what

constitutes public goods. (Eric, 2003)

The Paris Club of creditor nations has consistently advocated for this kind of

economic reform policy arguing that most first world countries, in order to remain

globally competitive, have pursued the path of economic liberalization; partial or full

privatization of government institutions and assets, greater labour-market flexibility,

lower tax rates for businesses, less restrictions on both domestic and foreign capital,

open markets etc.

92

4.2 Privatization of Public Enterprises in Nigeria:

A Focus on President Obasanjo’s Administration.

The participation of the state in enterprises in Nigeria dates back to the colonial

era. The task of providing infrastructural facilities such as railways, roads, bridges,

water, electricity and port facilities fell on the colonial government due to the absence of

indigenous companies with the required capital as well as the inability or willingness of

foreign trading companies to embark on these capital-intensive projects (Iheme, 1997

For a large part of the twentieth century, there were countries in the world that promoted

state ownership of the means of production while others promoted private ownership of

the means of production. A good number of countries practiced what was termed a

mixed economy i.e. a combination of public and private ownership of the means of

production. However, at the end of the twentieth century with the end of cold war

between the eastern and western blocs, private ownership of means of production took

ascendancy. Today, the argument is that the state should recede and that private

ownership of the means of production is the only viable approach to efficient production

of goods and services, economic growth and development.

The concept of privatization is an emotive, ideological and controversial one

evoking sharp political reactions. Though its political origin, meaning and objectives are

not ambiguous. Iheme (1997) defines privatization as … any of a variety of measures

adopted by government to expose a public enterprise to competition or to bring in

93

private ownership or control or management into a public enterprise and accordingly to

reduce the usual weight of public ownership or control or management.

However, in a strict sense, privatization means the transfer of the ownership (and all the

incidence of ownership including management) of a public enterprise to private

investors. In a similar vein, Starr (1998) defines privatization as shifts from the public to

the private sector not shifts within sectors. According to him, the conversion of a state

agency into an autonomous public authority or state owned enterprise is not

privatization neither is conversion of a private non- profit organization into a profit

making form. Privatization in Nigeria was formally introduced by the privatizations and

commercialization Decree of 1988 as part of the Structural Adjustment Programme

(SAP) of the Ibrahim Babangida administration

McGrew (2000) argued that SAP is a neo-liberal development strategy devised

by international financial institutions to incorporate national economics into the global

market: The vision of a global market civilization has been reinforced by the policies of

the major institutions of global economic government mainly up to the mid 1990s.

Underlying them, structural adjustment programme has been a new liberal development

strategy–referred to as the Washington consensus which prioritizes the opening up of

national economics to global market forces and the requirement of the limited

government intervention in the management of the economy. One of the main

objectives of SAP was therefore to purse deregulation and privatization leading to

removal of subsidies, reduction in wage bills and the retrenchment of the public sector

ostensible to trim the state down .(Egwu, 1998)

94

In December 1999, the government of President Olusegun Obasanjo picked

interest in the privatization exercise and gave it a boost by establishing the National

Council on privatization (NCP) with the Vice-President, Alhaji Atiku Abubakar, as its

chairman. The council was empowered among other things:-

i. To determine the political, economic and social objectives of the privatization and commercialization programme.

ii. Approve guidelines and criteria for valuation of public enterprises marked out for privatization –including choice of strategic investors.

iii. Identification of enterprises to be privatized or commercialized.

iv. Determining the timing of privatization of particular enterprise.

v. Interfacing with the public enterprises, together with the supervising ministries, in order to ensure effective monitoring and safeguard of the managerial autonomy of the public enterprises.

The Act also established the Bureau of public Enterprises (BPE) as the

secretariat of the National Council on Privatization. The functions of the Bureau include:

Implementing the councils’ policy on privatization and commercialization.

Preparing public enterprises approved by the council for privatization and commercialized.

Advising council on further public enterprises that may be privatized or commercialized.

95

Ensuring the update of accounts of all commercialized enterprises for financial discipline.

Making recommendations to the council in the appointment of consultants, advisers, investment bankers, issuing houses stockbrokers, solicitors, trustees, accountants and other professionals required for the purpose of either privatization or commercialization.

Ensuring the success of the privatization and commercialization exercise through effective post transactional performance monitoring and evaluation.

Providing secretarial support to the council.

Privatized public assets during Obasanjo’s regime (1999-2007) include Ajaokuta

Steel Mill; Delta Steel Complex; Jos Still Rolling Mill; Oshogbo Machine Tools and

Itakpe Iron Ore Company. Others include Nigeria Airways; Nigeria Telecommunication

company (NITEL) and its Mobil’s phone subsidiary company- MTEL; NICON Hilton

Hotel (Transcorp Hotel); African Petroleum Limited (AP)

National Oil and Petrochemical Company, National Fertilizer Company (NAFCON),

Cement Companies, Oil blocks and Banks to mention but a few.

4.3 Economic Reform Policies of Paris Club and Privatization of Public

Enterprises in Nigeria

96

Economic policies at any time in a country represent a set of contract between

government and various socio-economic groups that address problems of market failure

and demand for redistribution (Adeyemi, 2007).

Compos and Esfahni (1996) argue that policy reform means “a renegotiation of

contracts that entail direct government involvement in production towards more

efficient, market oriented ones”, they add, however, that there is a political dimension to

the reform decision because, consenting to the reform package means “interest

groups that currently support or could support the ruling coalition must know what they

will gain from the reform, how the gains will be distributed and whether the distribution

of rewards will be honoured by the government.”

The preparedness of Nigeria to join the train of globalization manifested in the

strict adherence of the government to the IMF dictates. Asobie (2004) criticized Nigeria

economic reform policy on account of its emphasis on qualitative integration with global

capitalism to avert marginalization. It could be said that this preponderance on

neoclassical strategies to resuscitate the Nigeria economy endeared the government to

the IMF resulting in the wide latitude of freedom granted Nigeria to implement its

programmes.

In 2000, President Obasanjo authorized the preparation of a new trade policy through

the Federal Ministry of Commerce. According to Ikpeze (2004) the objectives of the new

trade policy were consistent with Obasanjo’s economic policy. The new trade policy

envisioned to address the fundamental basis of the contradictions that characterized the

Nigerian economy. The urgent need to address such impediments was necessitated by

97

Obasanjo's conviction that it was the only effective strategy to open the floodgate of

foreign capital. The new trade policy was designed to address such issues as poor

national record in non-oil, especially manufactured exports, prohibitive transaction cost

occasioned by poor transport facilities, uncoordinated structure of protection against

ECOWAS countries, dumping of sub-standard good and so on (Ikpeze 2004) .

The legal frame work for the second phase of privatization exercise which was

laid down by General Abdusalam Abubakar’s regime (1998-1999) was continued by

Obasanjo President Obasanjo continued with the removal of subsidies on petroleum

products (Deregulation) etc. The guiding principles of these economic policies included

the perception of the state of the Nigerian economy as approximating national

emergency and therefore deserving the total commitment of both the leadership and the

citizens, the enthronement of lean, efficient, transparent, government under the

operating principle of devolution of power and government partnership with the private

sector for the provision of infrastructure that will drive productivity. (Federal Min of

Information, Nigeria returns to democracy 2000).

As in most developing countries, Nigeria, until recently, witnessed the growing

involvement of the state in economic activities. The expansion of State Owned

Enterprises (SOEs) into diverse economic activities was viewed as an important

strategy for fostering rapid economic growth and development. This view was reinforced

by massive foreign exchange earnings from crude oil, which fuelled unbridled

government investment in public enterprises. Unfortunately, most of the enterprises

were poorly conceived and economically inefficient. They accumulated huge financial

98

loses and absorbed a disproportionate share of domestic credit. By 1985, they had

become an unsustainable burden on the budget. With the adoption of Structural

Adjustment Programme (SAP) in 1986, privatization of public enterprises came to the

fore front as a major component of Nigeria’s economic reform process at the behest of

the world Bark and other international organizations including the Paris Club which

insists on implementing IMF reform policies.

General Abduslam Abubakar (1998-1999) laid the legal framework for the

second phase of the privatization exercise that continued under Obansanjo.

Privatization has frequently been required by Paris Club in order for HIPCs to receive

debt cancellation. Scholars perceive the impact of privatization differently. These

differing perspectives correspond to the underlying raison detre put forward for

desirability or otherwise of privatization in the Nigerian economy. While some perceive

privatization and its impact on the Nigerian economy through the lens of anti-neo-liberal

activism, in which case they see it as a neo-imperialist ploy to deepen the subservience

of the Nigerian economy through the imposition of free market ideology, others perceive

privatization as an inevitable panacea to putting the Nigerian economy on the path of

economic growth. These contending perspectives have their high points to substantiate

their different positions on Nigeria’s privatization policy.

According to the proponents of privatization policy in Nigeria, privatization is

driven by the desire to increase competitiveness and efficiency and the belief that the

powers of the market place can achieve this better than state control. However, given

the antecedents of government’s participation in goods and services production in

99

Nigeria, and the long history of crisis bedevilling these public enterprises, privatization in

Nigeria is expected to achieve the following objectives:

Inject market discipline at board level since the board is expected to reflect the share holding interests of private sector investors who are interested in the maximization of profits

Result in closer monitoring of the performance of management.

Greater accountability and evolution of better management practices.

Acts as catalyst for the revitalization of the capital markets.

Fund raising avenue for the government from the divestment exercise.

Encourage share ownership by members of the public leading to a new efficient mobilization of savings within the economy.

Attraction of foreign capital into the country

Deepening the domestic market

Skills technology transfer etc

100

Critics have condemned privatization in Nigeria arguing that when resources are

transferred to foreign corporations and /or national elites, the goal of public prosperity is

replaced with the goal of private accumulation. Furthermore, state-owned firms may

show fiscal losses because they fulfil a wider social role, such as providing low-cost

utilities and jobs. Many scholars have argued that neoliberal policies have negatively

affected many developing countries.

Privatization makes essential needs such a water and health care a commodity and

those who are poor are unable to access such basic necessities because they are

unable to pay for those communities (McPake, 2009). In other words privatization is

extremely detrimental for poor countries that have structural adjustment programmes in

place, as many people cannot afford to pay for health care or education, leaving

populations sicker and more uneducated. This causes negative consequences, as sick

people are not productive and cannot work to bring themselves out of debt, therefore,

the privatization of a previously social service is actually counter-intuitive.

Sufficient time has elapsed since the start of reforms to allow assessment of the

extent to which privatization has realized its intended economic and financial benefits,

especially since the commencement of the second phase of privatization under

President Obasanjo. This is particularly important in view of the lessons of experience

revealing interesting features that may alter earlier notions as to the most appropriate

way to implement privatization programmes. Concerns about the failed privatization in

some economies and disappointment with infrastructure privatization in Nigeria is

spawning critiques of privatization. Among the pertinent questions we asked are: what is

101

the extent and pattern of privatization, what have been the results of privatization in

Nigeria, has privatization improved enterprise performance as anticipated? The answer

is NO

Despite the extensive adoption of privatization in Nigeria, it has from the outset been

highly controversial and politically charged. This relates to the agency and credibility

problems that are unlashed by the exercise as well as its income distribution

implications. In managing state-owned enterprises, politicians and bureaucrats enjoy

rents and are also able to exercise political patronage, for example, creation of jobs for

their supporters as well as targeting credit and other benefits to them.

The answer from the positive theory is that privatization only goes ahead when

politicians see in it clear-cut economic and political benefits. In their application of the

model on Sub-Saharan Africa, Laffont and Meleu (1999) conclude that the sped of

privatization is directly related to the shares that politicians or their relatives can fetch in

the privatized firms to compensate themselves for the loss of rents previously enjoyed

under state ownership.

From the foregoing, it can be evidently seen that privatization exercise under

President Obasanjo did not achieve expected goals regardless of the way and manner it

was campaigned.

102

103

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary

The objective of this research work was to critically analyse the political economy

of debt relief granted to Nigeria under President Obasanjo’s administration and to

identify the economic reform conditionality that was attached to it. Secondly, the

research work interrogated these reforms with a view to ascertaining the effects they

have on the economic development and growth in Nigeria. It also evaluated the

economic reform goals and objectives upon which the debt cancellation was based. The

specific objective of this work is to examine whether Nigerian government’s demand for

debt cancellation was implicated in the economic reform conditionality. To find out if

World Bank technocrats in President Obasanjo’s deregulation programme influenced

the 2005 Paris Club debt cancellation conditionality. To interrogate if the economic

reform policies of the Paris Club pressurized the Nigerian government to adopt

privatization of public enterprises. These questions were attempted using the following

hypothesis: the Nigerian government’s demand for debt cancellation gave rise to

economic reform conditionality. The involvement of World Bank technocrats in President

Obasanjo;s deregulation programme influenced the 2005 Paris Club debt cancellation

conditionality for Nigeria. The economic reform policies of the Paris Club of creditor

nations pressurized the Nigerian government to adopt privatization of public enterprises.

Attempt was also made in this study to discover the origin of Nigeria’s debt and its

consequences and the efforts made by successive regimes of the country to manage it.

104

As at December 31, 2004, Nigeria owed a total of US$1.00994 billion. At the

official exchange rate of N134 to USS1.00 which is equal to N4.82 trillion. The largest

proportion of Nigeria’s debt is owed to the Paris Club of creditor nations. The source of

Nigeria’s Paris Club debts are loans insured through export credits agencies of creditor

governments or their appropriate institutions, extended to the Federal Government, the

States and other public entities and which are covered by the guarantee of the Federal

Government (DMO, 2005). These debts also include commercial credits or trade arrears

incurred by private entities which have been verified by the Federal Government of

Nigeria. Nigeria is required to settle arrears owed to the Paris club. These are amounts

of principle, interest and late interest that have fallen due, but have not been paid. It is a

standard requirement of the Paris Club for a debtor to clear its arrears prior to

commencement of any debt relief.

One of the issues that instigates negative reactions to debt relief is the fear that

the government may not deliver on promises to channel savings to the targeted sectors

for the realization of dividends. References are made of illegal capital flight by past

political leaderships and the mismanagement of previous oil revenue windfalls.

Other conditions that ignited the anger of the international community were rooted in the

domestic area. For Obasanjo, therefore, the core tasks were reversing the socio-

economic and political conditions in order to pave way for Nigeria’s reintegration in the

comity of nations. Okpokpo (1999) captures it thus: President Obasanjo and Foreign

Minister Sule Lamido’s task is to bring Nigeria out of this dead end by consolidating

democracy home, respecting fundamental human rights and encouraging liberal

105

economic reforms, good governance and transparency with a view to boosting

international economic cooperation with G7 countries as well as the dynamic Asian

economics.

The reintegration of Nigeria into the mainstream of the international arena was

imperative to Obasanjo for some reasons. First, the major thrust of his reform policy

was anchored on economic determinism. Second, for his economic expectations to be

realized, the skyscraper of debts owed to international financial institutions by the

country must be cleared. The concentration of efforts to achieve a reprieve from

sanctions for the country was in consonance with the national interest of Nigeria as

articulated by Obasanjo in his various speeches. As Asobie (2004) has pointed out, the

national interest of Nigeria as defined by the Obasanjo administration is “to make

Nigeria a major industrialized nation and economic power that continually strives for

sustained economic growth and development toward improving the quality of life of all

Nigerians”. A major plank upon which Obasanjo expected these national aspirations to

be realized was the influx of Foreign Direct Investment (FDI). Because FDI thrives in an

environment where economic conditions are favourable, the success of Obasanjos

economic reform policy initiatives depended on the resolution of certain policy

challenges.

At the heart of these policy challenges was the issue of reforming the Nigerian

economy to address structural rigidities, infrastructural deficiencies and macro-

economic instability with a view to making the Nigerian economy attractive for the influx

of FDIs. The reform package of Obasanjo administration was tagged National Economic

106

Empowerment and Development Strategy (NEEDS). NEEDS was a medium-term

strategy anchored on four pedestals: reforming the way government and its institutions

work growing the private sector, implementing a social charter for the people and

reorientation of the people through the inculcation of positive values. Through NEEDS,

Nigeria embarked upon a number of economic reforms spanning the whole gamut of the

economy.

Nigeria’s economic reforms especially the deregulation of key sectors of the

economy were aimed at strengthening these sectors to make them worthy of

consideration for investment by prospective local and foreign investors. This was in

tandem with Obasanjo’s reassurances locally and internationally of the preparedness of

his government to create the necessary safe environment for investment. Deregulation

targeted both the real and financial sectors. The sectors that got the most impact were

the oil and telecommunications. The deregulations of the downstream petroleum sector

had the most impact as it pitched the government against the people who were

represented by the Nigeria Labour Congress (NLC). Although increased cost of refined

petroleum products was the necessary outcome of the inefficient monopolistic holds of

the Nigerian National Petroleum Corporation (NNPC) on the importation of refined

petroleum products and ready availability of the products.

Another area where the impact of deregulation was deeply felt was in the

telecommunication sector. Before deregulation, NITEL was a classic example of a failed

monopoly. It created the mindset amongst Nigerians that telephony was a luxury

reserved for the super-rich. The major impact created by deregulation in the

107

telecommunication sector was the expansion and modernization of telephony

technology and subscriber base. According to CBN Annual Report (2006), deregulation

led to the growth of the telecommunications sector from 450,000 lines worth US$50

million in 1999 to 29.9 million lines worth US$8.1 billion as at August 2006. At the

inception of President Obasanjo’s administration in 1999, the Federal Government

owned a total of 590 Public Enterprises (PEs).

The government controlled most of the petroleum, minerals, development,

banking, telecoms, power and steel sectors of the economy. These sectors alone

constituted at least 40% of the entire National GDP. About one third of the money the

country realized from the sale of oil since 1973 had been expended on PEs. Estimates

of the vision 2010 committee indicate that the Federal Governments investment in

public enterprises stood at over US $100 billion in 1996. It was also estimated that

about 55% of Nigeria’s external debt with the Paris Club of creditor nations were due to

funds sourced to establish these public enterprises. According to the Technical

Committee on Privatization and Commercialization (TCPC) survey, public enterprises

accounted for between 30 & 40% of fixed capital investment and nearly 50% of normal

sector employment.

The programme of privatization is a major opportunity for reform of Nigeria’s

ailing public enterprises and to prepare them to serve the needs of the Nigerian

economy in the 21st century. Enterprises will be made more efficient, more accountable

and more responsible to the needs of the clientele. It is meant to be serving the Nigerian

public. The Nigerian private sector will also benefit tremendously in the creation of new

108

investment opportunities and a better investment climate. A lot of new shareholders

have been created and a better investment climate. A lot of new shareholders have

been created and now have a say in the affairs of the organized sector. The

performance of the Nigerian stock market will be enhanced greatly as well the growth

potentials of the Nigerian economy. Privatization has far reaching effects on the Nigeria

economy. The effect is an admixture of positive and negative. After everything has be

said and done, the positive effects of privatization far outweigh its negative backlash.

Privatization created stability in the sectors where it was duly implemented. This stability

is demonstrated by such indices as availability of the products in the sector, improved

services and profit.

5.2 Conclusion

From our study, it is glaring that the Nigerian government’s demand for debt

cancellation gave rise to economic reform conditionality. This reform policy created the

necessary environment that triggered off the Paris Club debt cancellation. The data for

the support of this conclusion is embedded in chapter two of this work. Thus our

hypothesis one which states that “Nigerian government’s demand for debt cancellation

gave rise to economic reform conditionality”. Hypothesis two which contends that “the

involvement of World Bank technocrats in President Obasanjo’s deregulation

programme influenced the 2005 Paris Club debt cancellation conditionality for Nigeria is

supported by evidence provided in chapter three. The privatization programme in

Nigeria is one of economic reform policies of the Paris Club. Hypothesis three holds that

“the economic reform policies of Paris Club of creditor nations pressurized the Nigerian

109

government to adopt privatization of public enterprises. The evidence is presented in

chapter four.

5.3 Recommendations

The dream of President Obasanjo to put Nigeria on the path of economic

development depended on the thrust of his economic reform policies. But a country’s

economic policy is neither formulated in isolation nor conducted alone. The thrust of

Obasanjo’s economic reform programmes was such that it needed active assistance

from western countries. First, they were the mastermind of the huge external debt

against Nigeria, second, they constitute the bulk of Nigeria’s creditors and third, the

FDIs that are expected as the catalyst for Nigeria’s economic development depended

on them.

Having examined the challenges confronting debt cancellation and economic

reform programmes, a number of recommendations were put forward. Prominent

among these are:

The introduction of a national social security system to take care of the unemployed.

The ploughing back of extra revenues from the removal of oil subsidy into developing social and economic infrastructure and the need to pay adequate attention to the provision of quality education at all levels to facilitate the production of skilled manpower.

The Fiscal Responsibility Bill should be designed in such a way to lock in the gains of the economic reform and prevent relapse to the past

A law should commit all tiers of government to a set of rules for efficient economic management in terms of standardized planning, as well as control and monitoring of public borrowing and expenditure.

110

The government should set up a special fund, which should be a framework for monitoring and tracking expenditure related to meeting the MDGs and finally.

This monitoring should involve representatives from the civil society, the media and organized private sector.

111

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