structural adjustment program and agricultural …
TRANSCRIPT
STRUCTURAL ADJUSTMENT PROGRAM AND AGRICULTURAL PRODUCTION IN NIGERIA (1 970- 1 9%)
Bamidele S. Ileso
Submitted in partial fulfillment of the requirements for the degree of Master of Development Economics
Dalhousie University Haiifax, Nova Scotia
October, 2000
O Copyright by Bamidele S. Ileso, 2000
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DEDICATION
1 wish to dedicate this work to my parents, Col. and Mrs. Ileso, and to my brothers and
sisters, in appreciation of your support, love and sacrifice.
TABLE OF CONTENTS
List of Figures and Tables .......................................................................... vi
Abs Wct ............................................................................................... vii . . ... Abbreviations ....................................................................................... vail
Acknowledgment .................................................................................... ix
General Background ................................................................................. 1
Chapter One: The Nigerian Economy A Performance Review of Agriculture .............. 7
Chapter Two: Agriculture and Policy Reforms in Nigeria ( 1 970- 1996) ..................... 13
2.1 Pre-SAP Agiiculhiral Policies (1 970- 1985) ................................... 14 2.2 Austerity Measures ............................................................... 19 2.3 Structural Adjustment Program ................................................. 23
2.4 Main Components of Nigeria's SAP- Implications for Agriculture ........ 26
Chapter Three: Methodology ..................................................................... -34
3.1 Empirical Mode1 for the Three Sub-sectors .................................... 35
3.2 Estimation Results ................................................................ 36
............................................................... 3.3 SumrnaryofResults 41
....................................................... Chapter Four: The Consequences of SAP 44
............................................. 4.1 Agricultural Responses to the SAP 48
............................................... 4.2 Performance of the Export Sector 54
Chapter Five: Conclusion .......................................................................... 58
Appendix A .......................................................................................... 63
Appendix B .......................................................................................... 68
Bibliography ......................................................................................... 72
List of Tables
1 . 0 Operations of Agricdturai Credit Guarantee Scheme Fund (1 977- 1996) .......... 16
...................................................... 2.0 Selected Macro-economic indictors 22
3 . 0 Key Imports and Experts.. ................................................................ 55
............... 4.0 Impact of Structural Adjustment on the Production of Export Crops 57
5.0 Gross Domestic Product at 1984 Constant Factor (% of Total) ..................... 70
..................... 6.0 Federal Government Capital Expenditure (Economic Services) 70
............... 7.0 Average Rates of Growth in Indusaid and Agriculhiral Production 71
List of Figures
....................................... 1 . 0 Annual ûrowth Rate of Agricultural Production 1 1
......................................................... 2 . 0 Index of Agricuîturai Production 68
......................................................... 3.0 Index of Export Crop Production 68
............................................................ 4.0 Index of Livestock production 69
........................................................... 5 . 0 Index of Food Crop production 69
Abstract
The oil boom of the 1970s transfomed Nigeria fiom a relatively prosperous agrarian
economy to a major exporter of petroleum products. The discovery of the oil industry led
to a rapid expansion of urban biased activities, consequently agriculturai developrnent
was almost entirely neglected by policy makers and the sector entered a relative decline.
Both agriculture and economy wide policy meamres acted to create significant
disincentive for agricultural prduction, especially agriculnual exportables. The slump in
world pices of petroleum products in the early 1980s emphasized the need for changes in
ecoiiomic policy in the nation. nius, in 1986 the goverment introduced an IMF and
World Bank assisted SAP. Nigeria's SAP was partly airned at diversifying the production
base of the nation by placing more emphasis on the non-oil export sector, especially
agricultural export crops. This thesis applies a "with and without SAP" approach to
examine the impact of the various SAP measures such as exchange rate policy, trade
liberalization, price liberalization and the de-control of interest rates, on agricultural
production in Nigeria. Its findings support several other reports in the literature that the
SAP has improved prospects in the agricultural industry. Agriculture recorded positive
and steady growth rates between 1986 and 1996. However, some of the inherent
distortions in the economy are yet to be corrected. Emerging results nom the study
indicate that some of the SAP rneasures did not influence production in the entire sector,
especially in the export crop sub-sector. Part of the explanations for the modest
petformance of some of the SAP measures to significantly influence agriculnual
production in Nigeria is the stop-go approach to policy implementation, which lacked
consistency and continuity. This thesis, thus, emphasize the need for a more effective
implementation of reform policies in the Nigerian economy.
List of Abbreviations used
ACGSF- Agricultural Credit Guarantee Scheme Fund
ADP- Agricultural Development Program
B WI- Bretton Woods Institution
CBN- Central Bank of Nigeria
CMB- Cornmodity Marketing Board
ECA- Economic Commission For Afiica
FAO- Food And Agricdhiral Organization
GDP- Gross Domestic Product
IMF- International Monetary Fund
LBA- Local Buying Agents
NACB- Nigerian Agriculniral Credit Bank
NACPP- National Accelerated Crop Production Program
NALDA- National Agriculturd Land Development Authonty
NCB- National Commodity Board
OFN- Operation Feed National
OLS- Ordinary Least Squares
OPEC- Organization Of Petroleum Exporting Company
RBDA- River Basin Development Authority
SAP- Structural Adj ust ment Program
SFEM- Second-Tier Foreign Exchange Rate
SSA- Sub-Sahara Afiica
WTO- World Trade Organization
viii
Acknowledgment
1 am most grateful to God Almighty for seeing me through my masters' program and for
His mercies that endure forever. To God be the glory, for great things He has done.
Let me use this oppomuiity to thank my supe~sor , Dr. Jeff Dayton-Johnson, for
his encouragement and support throughout my program at Dalhousie. 1 am indeed
grateful for al1 the assistance you have rendered during the cause of my program and
throughout the different stages of this thesis. Thanks are also due to Dr. Barry Lesser
(who taught me how to write) and Dr. Alasciair Sinclair, for agreeing to read this thesis.
1 would also like to thank Mr. Ayodeji Aladejebi and Kemi Awosanya, my true
fiiends, for the financial, spiritual and mode support rendered to me since my very first
week in Halifax. Worthy of acknowledgrnents is my fnends and well wishers. I am
indeed grateful to the Ehigiators, Akpans, Ezeukwus, Adesanyas, Egbeyemis,
Awosanyas, Stephen Membe, Emma Wanzel, Myriam Ene, Oko Josephine, Nkoyo Faal,
Markson Jombo and Minnie Horace. 1 would like to express my sincere gratitude to Dr.
and Mrs. Taiwo for your love, prayea and support.
To my entire family 1 say thank you for al1 the support. 1 sincerely appreciate the
sacrifice you have made to ensure that 1 achieve my ambitions in life. 1 am also grateful
to my uncles, Mr. Taiye Ayibiowu and Duro Owoye. 1 wish to speciaily thank my
immediate younger brother Mr. Israel Ileso and my elder brother Mr. Toyin Ojumu, for
helping me with dl the materiais 1 needed to complete this thesis.
Finally, 1 wish to thank Mr. And Mrs. Nelson Tuedor who ensured that 1 made it
to Canada. 1 appreciate al1 the fhancial and morale support given to me al1 through my
program at Dalhousie.
Genenl Background
In the 1980s, the Nigerian economy, like many other developing economies, was
confionted with a crisis of economic management. Before this, the nation had enjoyed
rapid economic growth. Huge increases in foreign eamings fiom the export of
petroleum products between 1972 and 1982 were accompanied by changes in policy
approaches to economic management. Oil revenue accrued largely and almost
entirely to the federd govemment, which reacted with a massive increase in
expenditures. Federal govemment capital expenditures rose fortyfold, while state
capital expenditures grew by a factor of 16. Overall government spending increased
faster than GDP. As a result, total expenditures as a proportion of GDP jumped
sharply: starting at 6 percent in 1960, the ratio reached 15 percent in 1970 and then
doubled again within the next five years (Oyejide, 1993). This spending spree was
financed through the depletion of initially accumulated foreign reserves and increased
public, and publicly guaranteed, foreign indebtedness (to over US$12 billion in
1983). The Nigerian government, for a long time, treated the oil boom of the 1970s as
a permanent shock, embarking on a massive investrnent boom that had little effect on
output, believing that the nation's indebtedness could be easily repaid with fiiture
revenues fiom the export of petroleum products.
By 198 1, Nigeria's oil revenue started to collapse, due largely to a weakened
oil market. The collapse of world oil pnces and the sharp decline in peaoleum output,
the latter resulting fiom the lowering of Nigeria's OPEC quota in the early 1980s,
brought to the forefiont the precarious nature of the country's economic and financial
position. Two policy errors accompanied this decline in oil revenue. The MUii~try of
Petroleum adopted an overly optimistic pricing strategy (Nigerian oil k ing US $4 per
barre1 more expensive than North Sea crude), and there was a backlash fiom the
government's failure to honor its long-terni contracts to sel1 on the spot market during
1980 (Bevan, Collier, and Guniling, 1992). As a result of a reduction in oil export
revenue from US $24 billion to US $10 billion in 1983, the Nigerian govemment
found itself financially overextended, with insufficient revenue to finance major
development projects. Uncontrolled irnports of foreign goods and services increased
extemal bomwings by the govemment, and depression in the industrial sector and
large-scale mismanagement of public fùnds and government finances accompanied
the abysmal slump in national revenue, resulting in a decline in economic activities.
These imbalances forced the federal government of Nigeria to embark on a major
structural adjustment prograrn in 1986.
After a prolonged period of economic stagnation, a two-year comprehensive
structural adjustment prograrn (SAP) was introduced on July 1, 1986, in an effort to
rejuvenate the battered economy by reducing dependence on oil and placing greater
emphasis on the nonsil and traded goods sector of agriculture. The two-year time
fiame was M e r extended when the govemment realized that implementing many of
the reforms required more time. However, toward the end of 1990, the Govemrnent
began to retreat from the basic reforms of the initial program, and much of the
momentum of the reform effort had been lost by then (Moser, Rogers, and van Til,
1998). By this tirne, the administration had shifted emphasis from its economic
transition plans to the installation of democracy in the country. Babangida's regime
was rushed out of office in 1993 after it had failed to hand over power to the winner
of the Sune 12 presidential elections, late chief M.K.O. Abiola. Until recently the
Nigerian economy has been thrown into tunnoil, an aftermath of the annuiment of the
presidential elections of 1993. Widespread civil demonstrations against the annulment
and the subsequent incarceration of the acclaimed winner of the elections invoked
various forms of economic and political sanctions on the country. The political
instability also acted as a blockade to foreign investors who otherwise rnight have
invested in the economy during this period.
Various studies have been conducted on the impact of SAP on the economy of
Nigeria. These studies reveal that since independence in Nigeria, no socio-economic
andlor political policy has had such dramatic impact on the lives of the citizens as the
SAP. It is argued that in many adjusting economies, mostly the poor or low-income
groups have felt the short run hardships of the SAP (Liuksila, 1992). Many of the
effects of adjustment policies, such as the increase in the cost of irnports due to large
depreciation of the exchange rate, increases in the prices of petroleum products and
the elimination of subsidies for üansportation and other goods and services, could
potentially hurt the low income group in the absence of safety measures designed to
cushion these short nin effects. In Nigeria the low income groups are composed,
basically, of f m e r s or those employed in agriculturai activities.
This thesis seeks to evaluate the impact of the SAP on Nigeria's agriculture.
Specifically it aims at investigating agicultural production behavior during the
adjustment era. A major objective of Nigeria's SAP was to encourage the production
of, and increase the emphasis on, agricdtural export goods as a means of diversiwg
the economy. This study seeks to investigate this shift in production patterns fiom
food crops to export crops. It will also attempt to examine and explain the
institutional and policy instruments that influenced the implementation of the SAP, as
these relate to the agriculhiral industry in Nigeria. With the aid of appropriate
descriptive statistics and econometric techniques, this study will attempt to provide
explanations for Nigeria's agricultural production behavior on a "with-SAP" and
"without-SAP" basis,
JUSTIFICATION OF THE STUDY
Previous impact studies on agricultural production in Nigeria have k e n concentrated
on the crop production sub-sector with little or no attention given to the livestock
industry. Many of these studies have often fallen into the temptation of equating
agricultural production in Nigeria to the crop production sub-sector alone. This thesis
attempts a holistic examination of the impact of the SAP on Nigeria's agricultural
industry, by investigating the impact of the SAP on both crop production and the
livestock sub-sectoa. Many of these previous impact studies have also been carried
out for the period between 1986 and 1990. Because this study is aimed at
investigating the shift in production patterns fiom food crops to export crops (which
take a relatively longer period from planting to harvesting), and because Nigeria's
SAP was extended until 1990, there is a need to adopt a longer time h e (1986-
1996). This is also necessary because of the general belief that many of the benefits of
Nigeria's Structural Adjustment Program started to manifest themselves after 1990.
To this end, this study will contribute to the fiontiers of howledge in the field.
ORGANIZATION OF THE STUDY
This thesis is structured in five different chapters. Chapter One provides a general
ovewiew of the Nigeria economy with special reference to the performance of the
agricultural industry . The objectives and main components of Nigeria's SAP as they
affect the agricultural sector are discussed in Chapter Two. It will examine the main
components of the different phases of economic reforms in Nigeria (1986.1988, 1989
and beyond) with the a h of ascertaining differences in policy reforms and their
impact on agricultural production. The chapter also examines various pre-SAP
policies as they affected the agricultural industry, with a view to ascertaining their
merits andor demerits. It attempts to find answers to questions relating to the impact
of both agriculture and non-agriculture related structural adjustment policies, such as
the exchange rate policy, pricing policies, agricultural input subsidy and agricultural
credit policy.
Chapters Three and Four have k e n devoted to the examination of agricultural
responses to the SAP. Chapter Three presents, analyzes and interprets relevant
agricultural production data. Agricultural production data fiom the Central Bank of
Nigeria publications and the FA0 yearbook (various issues) have been collected for
the period between 1970 and 1996. Using appropriate econometric techniques, the
impact of such variables as the interest rate, exchange rate, govemment investment
and output prices and rainfall on the output of the various sub-sectors will be tested.
An attempt has, therefore, been made at establishing a relationship between
agricultural production patterns and Nigeria's SAP. Using information from the third
chapter, Chapter Four aims at providhg explmations for both shoa and long run
performance of the agriculhiral sector. This chapter reviews this performance with the
aim of ascertainhg growth/shifts in production patterns between and within the sub-
sectors. The f i f i chapter is devoted to a summary of the study, conclusions and
policy recommendations.
CHAPTER ONE
THE NIGERIAN ECONOMY: A PERFORMANCE REVtEW OF AGRICUTURE (1970-1996)
Prior to the oil boom of the 19709, agriculture occupied a pride of place in the
Nigerian economy. The sector dominated the economy, providing employment to
over 75 percent of the nation's population. Export earnings fiom the sector financed
most of the irnrnediate pst-independence development programs. At that tirne,
Nigeria was a major exporter of agricuiturd products, including cocoa, cotton,
groundnuts, palm products, rtabber and timber. The sector accounted for almost 60
percent of the nation's GDP in the 1960s and over 70 percent of the nation's total
export earnings.
By the 1970s and the early 1980s, the Nigetian economy had undergone
massive structural changes. The development of the oil industry in the 1970s
transformed Nigeria from an agrarian economy to a major exporter of petroleum
products. The oil industry became the major determinant of Nigeria's economic
growth, accounting for over 90 percent of extemally generated revenue and about 80
percent of the entire governrnent revenue by 1974 (Colman, and Okone, 1998). The
growth of the oil industry led to rapid expansion of urban-based activities, most
notably in construction and services, and simultaneously, agricultural development
was almost entirely neglected and the sector entered a relative decline. The effect of
the boom on spending drew mobile resources, particulatly labor, into the government
sector (where ernployment expanded rapidly) and into construction. Much of this
labor was drawn out of agriculture, causing a decline in the production of both export
and food crops. A fail in the use of fertilizer and a sharp reduction in the replanting of
tree crops reinforced the effect of the labor shift on agricultural output.
Between 1970 and 1980, average antlual rates of growth of agricultural
production declined to -2.6 per cent, while the average annual growth rate of real
output for food crops fell to about -5.6 percent. Agriculture's share in Nigeria's non-
oil GDP, that averaged 60 percent during the 1960s, fell to about 30 percent, its
lowest average level between 1978 and 198 1. The sector's share of total employment
fell fkom 75 percent to 59 percent between 1970 and 1982, while export shares
declined from more than 70 percent in 1970 to less than 3 percent by 1982 (Forest
1995, p. 159). However, despite the dwindling performance of the agricultural sector,
Nigeria is still basically an agratian economy. Agiculture remains the largest single
sector of the economy, providing employrnent for a large segment of the nation's
workforce and constituting the mainstay of the nation's large rural population.
Although agriculture still plays a very important role in the economy of Nigeria,
agricultural production has failed to keep Pace with local demand, moving the
country from a position of self-sufficiency in basic foodstuffs to one of heavy
dependence on imports.
Several reasons have been given for the poor performance of the agricultural
sector. Prominent arnong these is the increased eamings in petroleum exports between
1972 and 1980, which resuited in a near cornplete neglect of the Nigenan agricultural
sector by policy makers. The oil boom of the 1970s was accompanied by changes in
the scope and content of investment, production and consumption patterns,
govemment policies and approaches to economic management. In order to take
account of the impact of a booming sector like oil, econornists adopted the term
"Dutch disease". The terni referred to the adverse effects on Dutch manufacturing of
natural gas discoveries of the 1960s, which operated to raise the real effective
exchange rate and worsen the cornpetitive position of other Dutch exports (Forest,
1995). In Nigeria the "Dutch Disease" effects rnight have k e n offset by government
policy but were not. During this period, there was no lobby for policies in support of
agriculture. Neither the military nor any of the political parties articulated peasant
interests, nor did peasants represent a homogeneous interest group. Public spending
on agriculture virtually ceased, falling to 2 percent of the total government budget and
averaging only 5.0 percent of the total govemment expenditure on economic activities
between 1977 and 1980 (see Table 6.0). According to the analysis of the oil syndrome
that began to appear in World Bank publications in the &y 19809, the massive
increase in state expenditwe was largely focused on urban areas and brought about a
transfer of labor out of agriculture into trading activities, tmnsport, construction,
service and industries, and state employment. By the late 1970s, the Unportance of the
agricultural sector to the Nigerian economy had been considerably reduced. The
sector was no longer seen as a fuhue source of economic development, paving the
way for a heavy reliance on export eamings from the petroleutn industry.
To a large extent the problem with the agriculniral sector in Nigeria has been
blamed on the role of government policies and programs. Agricultural policy in
Nigeria during the pre-SAP perîod was characterized by inconsistencies between
agricultural and non-agriculhiral macro-economic policies. For instance, a fixed
exchange rate and food import policy discouraged exports and production in the pre-
SAP era. Thus, while the government tried, on the one hand, to support agriculture
through fiscal, monetary and price policies, on the other hand, it aiso implemented
policies that encouraged a preference for imported food (Kwanashie, Garba, and
Ajilima, 1997). Potentially negative policies such as the importation of food and
urban-biased interests (e.g., restriction of social amenities to the urban centres, an
increase in urban income and food subsidies in urban centres), among others, left
rural producers exploited and politically isolated.
Other factors that played a part in the decline of the sector, during the pre-
SAP era, were the grossly inefficient commodity boards, the smuggling of produce
into neighboring Franc zone countnes and programs that approached the sector as an
isolated entity rather than an integral part of the Nigeria economy. There was also a
fundamental misconception in the articulation of agricultural policy. Agriculture was
seen as synonymous with crop production. As a result, fisheries and livestock, both
major sources of nutrition, were neglected. Policies that fnistrated their development,
such as the ban on imports of wheat and poultry feeds, were implemented without
consideration of their impact on the output of these sub-sectors. The next chapter of
this study is devoted to these different government policies (agriculture and non-
agriculture) and their impact on the agricultural industry in Nigeria.
The structurai adjustment program (SAP) was introduced in 1986 and the next
few years markedly improved prospects in the agricultural sector and helped to
reduce the share of food and live animals in total imports to 8.7% in 1991. However,
agricui~ai imports since resumed an upward trend to reach 13.5% in 1996 (see
Table 3). Generaily a steady growth has been observed in agricultural production of
both staple and other crops since 1990 (See Figure 1). Average growth of agriculture
from 1980 to 1992 was estimated to be 3.6%, compared to the decline of -2.3%
between 1976 and 1980. The aggregate index of agicultural production increased by
3.7 % in 1 996, while an average of 3.5% was recorded for the period 1993 to 1997
(Central Bank of Nigeria, 1997).
Source: Central Bank of Nigeria, Statistical Bullet in, 1997
Agriculture contributed 38.6% of GDP in 1993, 39.0 and 39.5 per cent in 1996 and
1995 respectively. Al1 the sub-sectors contributed to the growth in the level of output.
The livestock sub-sector recorded some positive growth rates between 1990 and
1996. Poultry output increased by 2.4 and 1.4 percent in 1997 and 1996 respectively.
Output of beef, goat, 1amWmutton and pork also increased in 1997 by 1.5, 3.3, 5.2
and 10.3 percent respectively. However, the role of the livestock sub-sector has been
limited. Outbreaks of disease have harnpered livestock fannllig, and the high cost of
f e e d M s has had an adverse effect on output pedormance.
According to a nationai s w e y conducted by the Central Bank of Nigeria
(CBN), the sustained growth in output in the 1990s was due largely to favorable
weather conditions. m e r reasons given for the growth in agricultural production
include the intensification of efforts by the National Agricultural Land Development
Authority (NALDA) in bringing more land/small holder hectarage under cultivation,
the intensification of on-fami adaptive research by some relevant agencies and the
closing down or privatization of rnany of the loss-making government parastatals. In
spite of the continued bcsatisfactory" performance of the sector, however, it continued
to fa11 short of the stipulated growth rate expectations. The performance of the sector,
as revealed in Table 5.0, suggests that the sector would have done better and perhaps
achieved the annual growth rate target of 5.5% stipulated in the National
Development Plans, had the structural adjustment policies been sustained after 1990.
CHAPTER W O
AGRICULTURE AND POLICY REFORMS IN MGERIA
For many years, the urge to foster sectoral growth and development, arnong other
things, often compelled govemments to intervene in Nigeria's agricultural sector.
Among the key areas of intervention were input supply, input subsidies, cash and
marketing services, policies directed at improving agriculnual infiastructure, and
agricultural credit policies aimed at making bank credit accessible to fmers . Various
attempts to revive agriculture were launched beginning in the 1970s, many of them
lacking the politicai force and the needed investment to make any appreciable impact
on the sector. Among the specific programs targeted at improving agriculhiral
production in Nigeria were: the National Accelerated Crop Production Program
(NACPP) in the early 1970s, the Operation Feed the Nation Campaign (OM) of the
Obasanjo regime between 1976 and 1979, the Green Revolution program of the
Shehu Shagari governrnent in 1980, and the structural reform policies of the
Babangida regime initiated in 1986. nKse programs had differential impacts on the
performance of the agricultural industry and the Nigerian economy in general, with
the SAP having the most far-reaching impact on the sector.
Due to the relatively greater impact of the SAP on Nigeria's agriculture, a
review of the impact of policy reforms on agriculturai production in Nigeria in the
past three decades cm be conveniently grouped into a pre-SAP and pst-SAP
framework. This chapter discusses policy reforms as they afTected Nigeria's
agricultural performance over the years 19704996. The chapter consists essentially
of two parts, an examination of policies directed at improving agricultural production
in the pre-adjustrnent era and a comprehensive exarnination of Nigeria's structural
adjustment policies as they relate to the agricultural industry.
2.1 Pm-SAP AGRICULTURAL POLICES (1970-1985)
The pre-SAP period was characterized by direct govemment participation in
agriculture and the extensive use of policies that afEected both the price and non-price
incentive structures of Nigeria's agriculture. The broad objectives of policy during
this penod were to stimulate the growth of output and improve the productivity of
agents in the sector. As will be discussed later in this section, however, policies were
formulated with a bias toward low urban food prices and maximizing govemment's
share of the rents on export crops through the activities of the different Commodity
and Marketing Boards.
First, the need for an effective distribution of f m products and the
stabilization of farm income led to the establishment of Commodity Marketing
Boards (CMBs), which were later replaced by seven National Comrnodity Boards
(NCBs). The major difference between the CMBs and the NCBs was that the latter
included food crops. The cornmodity boards were solely responsible for setting
producer prices for the country's major agriculhiral crops (Adegeye, and Dittoh,
1985). They offered guaranteed minimum prices, appointed licensed buying agents
(LBAs), and had exclusive rights to export produce. Theu activities were described as
exploitative, as they paid f m e n pnces that did not reflect either current market
prices (usually the Boards' prices were lower than the market prices) or production
costs. One problem for the Boards lay in the stagnation of exports and the growth of
the home market, which offered better prices. A different problem was the boards'
misuse of surpluses generated fiom producers for politicai or other individual
projects, with little or none of the profits generated reinvested in increasing the
productivity of fanners.
Second, there were several federai initiatives aimed at increasing food
production. Policies were targeted at improving infiastructure (e. g. rural feeder roads,
storage facilities etc.), provision of inputs at subsidized rates, and the importation and
distribution of fertilizer at simbsidized rates. The World Bank sponsored Agriculhiral
Development Projects (ADP) which began in the mid-1970s with initial projects at
Funtua, Gusau and Gombe. The projects later spread to other areas and becarne nation
wide projects. While originally emphasizing Cotton (the traditional cash crop of the
three pilot areas) and groundnuts, the ADPs increasingly favored maize, an
essentially new crop but with an expanding market in the south (especially in the feed
mi11 indusûy). The main project activity involved the distribution of inputs
(fertilizers), for which a series of Farm SeMce Centres were established with store
and extension staff. The package included the provision of potable water, the
construction of nuai feeder roads, the building of small earth dams for imgation
farming, and seed option and distribution, as well as some specialized services for
large-scale farmers (fami planning, tractor hiring services, etc.). Although the
Nigerian government and the World Bank declared the three pilot projects a success,
the failure of the projects in terms of their original objectives raised doubts about the
overall cost effectiveness of the pmjects. At Gombe, the total gain in crop production
was only 35 percent of that anticipated. On the Funtua ADP, where sorghurn was the
most important crop, covering 58 percent of the cropped area, the sorghurn package
with new unproven varieties, fertilizer use, and sole cropping made no headway
(Daplyn, and Poate, 1984).
Agricultural credit policies sought to rnake bank lending accessible to fmers .
This led to the establishment of the Nigerian Agricultural and Cooperative Bank
(NACB) in 1973, and the Agricultural Credit Guaranteed Scheme Fund (ACGSF) and
the Rural Banking program in 1977. The NACB was established to cater to the
financial needs of Nigerian f a e r s in ail States. Its declared objectives were rapid
transformation, expansion and modernization of Nigeria's agriculture in its various
facets (Iyere, 1986). In 1980, the NACB introduced the smallholder loans scheme as
an atternpt at solving the problem of famen' accessibility to Ioanable hinds. Under
the scheme, a maximum of N 5,000 could be granted to farmers for a period of two
years at a 6% interest rate with no collateral security.
Table 2.1 Annual Opentions of the Agricultural Credit Cuarantee Schcme Fund (ACGSF), 197749%
Food Crop sub-sector Cash crop sub-sector Livestock sub-sector Total (N'MiIlions) No of (N'Millions) No. of (N'Millions) No. of No. of (N'Millions)
Y ear 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
Loans 116 39 1 472 702 658 736 808 1909 4204 1367 4 2 1426 29669 271% 19320 20067 14103 14295 15252
Loans 3 5 6040.0
Loans 137 339 263 275 320 359 536 756 715 1 O05 866 540 427 509 432 390 669 753
Loans 34 1 1105 945 1295 1 O76 1333 1642 3337 5203 1 6209 24538 345 18 30704 220 14 22454 155 14 16572 18079
1996 171836.3 16980 15176.0 712 28198.4 1OOO 19438 19721 1.5 Source: CBN Statistical Bulletin VOL 8 NO. 1,199'7
The ACGSF, on the other hand, was established as an umbrella under which
commercial banks could gmnt loans guaranteed by the federal government through
the central bank. The number and value of loans guaranteed under the ACGSF, since
its inception in 1977, are presented in Table 2.1.
These programs, however, commeadable as they seem, had several loopholes
which rendered their services weak and of little significance to f m e r s in the country.
For instance, the NACB did not engage in savings mobilization, thereby aggravating
liquidity problems. This was largely responsible for the low volume of loans granted
by the bank. The NACB's activities depended entirely on annual subventions from the
federal government. The relative inaccessibility of the banks due to their limited
branches nation-wide, unsimplified and bureaucratic procedures, coupled with their
liquidity problems, rendered their services unsatisfactoty (Balogun, 1986). Other
constraints of the programs (especially associated with the nual banking scheme)
included a shortage of manpower and inadequate collateral security. Recovery rates
for many of the lending agencies were very low, as there was no well built-in checks
and balances with back up sanctions for default. Due to an ineffective monitoring and
evaluation system, loans were also granted to people other than famiers. Some
farmers reportedly spent their loans on unproductive ventures, thereby increasing the
rate of default.
Perhaps the most conspicuous government intervention in agriculture during
the pre-adjustment period was the launching of the Operation Feed the Nation
campaign (OFN) in 1976 and the Green Revolution program that replaced it. The
OFN was a hurried political initiative aimed at mobilising students and urban
dwellers to grow more food. It was designed to increase food production and widen
participation in an effort to achieve national food self-suficiency. The program
package included the distribution of fertilizers and other f m inputs at subsidized
rates. Previously subsidized prices of fertilizer, sold through government agencies at
N4.4O-N5.SO per bag of 50 kg, were further reduced to N 1.00-N 1.50 during this
period (Clough, and Wiliams, 1997). Although the OFN made some appreciable
impacts by removing bottlenecks in the importation and unloading of fertilizers, its
achievement in terms of increased food production was limited. The program ended
up where it began: on paper and as a mere political slogan. The disbursement of h d s
reportedly went into payments of student wages and into the pockets of agricultural
input merchants rather than to the producers of agriculturai outputs.
The Green Revolution program was initiated by the Shagari adminstration in
the early 1980s to replace the Operation Feed the Nation campaign (OFN) of the
Obasanjo regime. The program, fondly described as the watershed in agricultural
policy formation in Nigeria, aspired to revive agricultural production and achieve
zero food imports by 1985. The fundarnentals of the program- Agricultural
Development Projects (ADPs), River Basin Development Authorities (RBDAs) and
irrigation, tree crop prognuns, tractor hire, etc.- were already in place and acnially
predated the oil boom era. Like the OFN, government made loud noises about the
program but it failed to make any meaningful contribution to agricultural production
in the country. Besides the expensive nahue of the program, it failed to target ?he
srnallholder famien it was designed to influence.
In sum, the agricultural sector in the pre-refom era was characterized by
inadequate capital expendihve in the sector, a steady labor drift away fiom rural to
urban centres, increased consumer preferences for imported foodstuffs (particularly
rice and wheat) and the predominance of subsistence fanners with outdated f m i n g
techniques. As pointed out earlier in Chapter One, both agriculture and non-
agriculture related policies combined to hasten the decline in agricultural production
recorded during the period. The explicit taxation of agricuitural exports in the 1970s,
unfavorabie activities of the commodity boards, the inefficiency of credit and other
government agencies, and inadequate infi'astnrcture coupled with other, non-
agncultural, macro-economic policies (the food importation policy and the fixed
exchange rate), were largely responsible for the poor performance of the agricultural
sector.
2.2 AUTERlTY MEASWS (1980-1985)
When in 1981 oil revenues started to collapse (after almost a decade of rapid growth
in govemment revenue), the government responded slowly. By 1983, oil export
earnings had fallen fiom $24 billion to $10 billion. A needed economic adjustment
program was delayed until August 1986. The overall fiscal deficit rose fiom 0.5
percent of GDP in 1980 to about 9.5 percent in 198 1 (Clough, and Williams, 1997, p.
7). Foreign reserves became depleted, even as $6-7 billion of extemal payrnent
arrears were amassed. Stepped-up foreign borrowing by the federal and state
govemments and public enterprises fkom the late 1970s increased outstanding
medium and long-term public debt fiom less than $1 billion in 1978 to about $12.8
billion in 1983. D u ~ g this period, the governrnent maintained a fixed exchange rate
regime, keeping it in the range between U.S. $1.52 and U.S. $1.66 per Naira. A
steady appreciation of the effective exchange rate resulted in a pnce squeeze on
exports of agricultural commodities, leading to the depression of agriculhiral output.
The agricultural decline was dramatic, paving the way for a heavy dependence on
imported foodstuffs. In 1980 Nigeria was simultaneously Africa's largest food
producer and largest food importer. The percentage share of agriculture in GDP fell
fiom 45 percent in 1970 to 27 percent in 1980 (Watts, 1986).
The government of Shehu Shagari, through the enactment of the Econornic
Emergency and Stabilization Act of 1982, initiated Nigeria's first response to the
worsening economic conditions of the 1980s. The Shagari Administration, which had
assumed that oil prices would remain buoyant forever, was forced to introduce
significant budget cuts and measures to improve the extemal position. The latter
consisted of a severe tightening of import controls, the imposition of exchange
restrictions on current international transactions, substantial increases in customs
tariffs, the introduction of an advance import deposit scheme, and ceilings on total
bank foreign exchange disbursements. The tightening of fiscal policies consisted of a
freeze on capital expenditure, the curtailment of lower priority public investment
projects, an increase in petroleum product pnces and utility tariffs, and a fieeze on
wages and salaries in the public sector. There were no significant changes in
agncultural policy under the Shagari Administration, despite the rhetoric devoted to a
Green Revolution Program aimed at food self -suficiency by 1985. Although the
share of agriculture and natural resources in govemment capital expenditure increased
in absolute ternis during this period (1979-1983), the lavishly b d e d River Basin
Development Authorhies (RBDAs) and large-scale imgation schemes were given
greater pnority. The RBDAs were established in 1973 with initial projects in the
Chad and Sokoto basins in the north of the country. Although the functions laid out
for the RBDAs were very wide (irrigation, flood control, watershed management,
pollution control, fisheries and navigation, seed multiplication, livestock breeding,
and food processing), the RBDAs mainly concentrated on large-scale imgation
schemes. According to Forest (1995), the decision to invest in many of the large-scale
irrigation projects was as much political as econornic.
n i e austerity measures of the Shagari administration resulted in some easing
of inflationary pressures, but real GDP contracted in 1982-83, owing to the sharp
decline in oil production, the scarcity of imported inputs, and a worsening drought.
The enduring economic crisis, and the haràship it entailed, and widespread
allegations of fiaud, led to a military coup d'etat at the end of 1983. The new regime
of General Buhari sought to reinforce the 1982 austerity measures by m e r
tightening financiai policies and introducing more administrative controls. The
govenunent embarked on additional exchange and trade restrictions in rnid-1984,
including stricter import controls, higher tariffs, a more centralized system of foreign
exchange allocation, severe penalties for smuggling and hoarding and initiated an
anti-corruption cnisade (War Agakt Indiscipline- WAI), aimed at combating
corruption in both the public and private sectors of the economy.
Table 2.2 Selected Macro-economic Indicators
Years Inflation Rate Growtb Rate CA Balance (Per cent) (%) of CDP Interest Rates (N' million)
1980 9.9 N /A 7.50 52 14.8
1996 29.3 3.3 19.12 242936.3 NIA - Not available Sources: Central Bank o f Nigeria, Statistical Bulletin 1997
CBN Major Economic, Financial And Banking Indicators, 1997
The austerity measures of the Buhari regime recorded some remarkable
payoffs between 1984 and 1985. During this p&od both public and private incomes
recovered modestly, inflation fell to 5.5 percent by 1985, the external current account
moved into balance, and real GDP growth jurnped to 9.4 percent (see Table 2.2). The
annual rate of growth of agriculturai production recovered fiom -4.5 percent in 1983
to 6.5 and 4.6 percent in 1984 and 1985 respectively (see Figure 1 .O).
These improvements, however, proved transitory and failed to establish a
basis for sustainable economic growth. The policy stance of the Buhan govement
was politically unsustainable. The combination of fiscal stringency and a failure to
liberalize the economy relied on a highiy repressive and authontarian stance by the
govemment and offered no obvious route to the resolution of the economy's structural
problems (Bevan, et. al, 1992, p. 20). The rescheduling of debt service payments was
also not possible due to the regime's policy stance with the international fuiancial
institutions. As a result of the failure of the regime to address many of the
dy s functional policies it inherited, the economy groaned under austeri ty measures. A
growing social and political discontent across the country paved the way for yet
another military coup in August of 1985.
2.3 STRUCTURAL ADJUSTMENT PROGRAM (1986-1990)
The administration o f General Buhari, which had refused to reach a blanket
agreement with the International Monetary Fund (IMF), was ousted in a palace coup
led by General Ibrahim Babangida in August of 1985. The Buhari regime had
disagreed with the M F on issues of Bade liberalization, de-subsidization, and
devaluation of the Naira. There were allegations that the long muscular hands of the
international financial institutions may have played a significant role in the ouster of
the Buhari-Idiagbon regime (Ihonvbere, 1994).
The incoming Babangida administration quickly initiated a national debate on
the desirability of an IMF sponsored structural adjustment program. Babangida lost
the debate, as Nigerians expressed their desire for a homegrown adjustment program
aimed at ensuring economic reconstruction, self-reliance and social justice. The
consensus at that time was that, if govemment checked corruption and waste, reduced
its expendinires on defense, checked the idation of contracts and irrelevant
allowances (especially within the military), and stimulated local production, it would
be unnecessary to take the IMF loan or implement its harsh conditionaiities. Despite
the outcome of the debate, the Babangida regime proceeded (against the wishes of the
public) to adopt a two-year comprehensive structurai adjustment program, approved
by the M F , while at the sarne time keeping the organization at ami's length. It is
widely argued by analysts in the field that the structural problems of the time did not
allow for an alternative to a structural adjustment progmm. The urgency of the reform
efforts was increased by the dramatic fa11 in world oil prices in early 1986. An
alternative view has it that because the Babangida administration was financially
banhpt , it really did not have a choice other than to dance to the tune of the Fund.
The centerpiece of Nigeria's SAP was the promulgation of a decree
establishing a second-tier foreign exchange market (SFEM) and the elimination of
irnport licensing in August of 1986. The broad objectives of the prograrn were to (1)
restructure and divers@ the productive base of the economy so as to reduce
dependency on the oil sector and imports; (2) achieve fiscal and balance of payments
viability over the medium terni; (3) promote non-intlationary economic growth; and
(4) lessen the dominance of unproductive investrnents in the public sector, improve
the sector's efficiency and intensiQ the growth potential of the private sector.
Nigeria's SAP was supported by a debt rescheduling and extemal financing package
to provide funds, involving commercial banks, the Paris Club and other creditors. The
World Bank supported the program with a Trade Policy and Export Development
loan in the amount of US $452 million. In January of 1987, the IMF approved a
standby arrangement of SDR 650 million (about US $ 830 million) in support of the
prograrn, though the Govemment had declared its intention not to draw on the IMF
standby (Tallroth, and Boje, 1987).
The key policy sûategies designeci to achieve Nigeria's SAP goals were the tightening
of financial policies, the adoption of a market-determined exchange rate, the
elimination of price controls and cornmodity boards; the decontrol of interest rates;
the rationalization and reshvcturing of public expenditure; the rationdization of the
tarin structure and the overall lowering of tariffs; and the privatization or
commercialization of most federal public enterprises (Moser, et. al., 1997).
The implementation of the SAP in Nigeria was greeted with unprecedented
public criticisms. There were widespread demonstrations (especially in 1988 and
1989) by university students, academia and labor unions, protesting the adoption of
SAP. There was the prevalence of doubts about the extent that the prograrn would
foster economic growth and development in Nigeria. For many Nigerians, the refusa1
to succurnb to the MF's dictates signified the independence of Nigerians and Nigeria
from Western economic Unpendism. ïhey acknowledged that an [MF agreement
might generate more capital inflow into Nigeria but questioned the purpose of such
funds and the price that the country would pay in exchange. Many were therefore
unable to detect the difference between the IMF's conditionality of fiscal and
budgetary prudence and the Buhari regime's austerity policy. The opponents of the
Fund also feared that with the devaluation of the naira and subsidy rernoval, food
prices would nse sharply (Okome, 1998). Manufacturers were not lefi out of the
opposition to the implementation of SAP in Nigeria. With the progression of
devaluation, memben of the Manufacturers Association of Nigeria (MAN), who
initially applauded the SAP, mounted greater opposition to the program and openly
criticized devaluation.
2.4 Main components of Nigeria's SAP- Implications for Agriculture
Nigeria's SAP was simuitaneously undertaken with a program designed to retum the
nation to civilian d e under a democratically elected government. The SAP package
dius consisted of policies designed to make the economy competitive through
measures including devaluation, subsidy removd and trade liberalization. It also
consisted of short-tem policies aimed at "jump starting" the economy into
productivity by slowing down inflation, reducing balance of payrnent deficits and
govemment budget deficits. 'ïhe declared goal of the SAP was to hilly integrate the
Nigerian economy into the capitalist world economy. These features of Nigeria's SAP
are discussed in some more detail in this section of the study.
Exchange Rate Reform Policies- The high point of Nigeria's SAP was the
promulgation of the decree establishing the Second-tier Foreign Exchange Market
(SFEM) and the subsequent devaiuation of the Naira in September of 1986. Prior to
this time, the demand for foreign exchange far exceeded the available supply, and the
quantity of Foreign exchange was subject to arbitrary rationing, through the import-
licensing policy of the Central Bank of Nigeria (CBN).
Throughout the oil boom erg the govemment maintained a fixed exchange
rate, keeping it in the range between US $1.52 and US $1.66 per Naira. In this it was
extreme, even within the group of oil producing counûies that postponed exchange
rate adjustment until the 1980s (Gelb, 1988). Colman and Okorie (1998) argue that
changes in exchange rate policy tend to have significant consequences for any
country's domestic relative prices and economic growth through theu effects on the
real exchange rate. Exchange rate policy affects domestic prices of traded and non-
traded agricuihiral commodities through its influence on the entire domestic cost
structure. Over-valuation of the exchange rate serves as an impediment to agricultural
exports and in the absence of offsetting import tariEs, as an implicit subsidy for
imports of agricultural and non-agicultural g d s and services. On the 26h of
September 1986, a dual exchange rate system was introduced, consisting of an
administratively determined officia1 rate and an auction rate. The officia1 rate ("first-
tier") was applied to external debt senice payments, official foreign capital infiows,
and other federal government transactions. The auction rate, determined in weekly
foreign exchange auctions by the CBN, applied to al1 other transactions. At the
inaugural SFEM auction in 1986, the value of the naira was discounted by 66 per
cent, trading at N4.20 per US dollar while the officia1 exchange rate was devalued by
25 percent, to NI ,538 per US dollar. The first-tier rate was gradually devalued and in
July of 1987, the two rates were unified in accordance with the program. All
transactions were then conducted ihrough a single foreign exchange market (FEM).
Bevan et al. (1992) argue that, had Nigeria depreciated the exchange rate during the
oil boom era, it would have moderated the price squeeze on exports of agricuitural
cornrnodities that (unintentionally) hastened agricultural decline. The overvalued
exchange rate made it extremely difficult for exporters to remain cornpetitive in world
markets that are priced in US dollars. Overvalued exchange rates are particuiarly
damaging for African counüies because exports account for a very high percentage of
the total economy. The successes achieved in agricultural production in Nigeria since
the introduction of the SAP in 1986 have been partly attributed to the irnprovements
in the incentive structures for Nigeria's cash crops brought about by the change in
exchange rate policy.
Pnce Liberaluation and Subsidy Policy- Market imperfections such as restrictions
on imports, barriers to entry, collusion among producers, lack of information etc.,
often hinder the fiee operation of the market mechanism in determining prices. The
existence of pnce distortions obstnicts the possibility of optimal resource allocation,
leading to situations of market faiiure. The decontrol of pices at the start of Nigeria's
SAP, thus, has been described as an important step in the liberalization of the
economy. At the start of SAP in 1986, the Price Control Decree of 1971 and the
Decree establishing the seven Cornrnodity Boards (Commodity Board Decree of
1977) were repeded. Prior to this period, the respective Cornrnodity Boards (CBs) set
domestic prices for the country's principal export crops. The dismantling of the CBs
coupled with the devaiuation of the naira improved the incentive structures for most
of the country's export crops.
One of the conditiodities attached to the SAP package was the de-
subsidization of goods and services in the economy. The de-subsidization policy of
the governrnent consisted, mainly, of the graduai withdrawal of subsidies fiom major
agricultural inputs (such as fertilizers) and petroleum products. This is essentially
based on the thinking that market efficiency leads to improved resource allocation.
The justification for the removal of the fertilizer subsidy, for instance, has been
adduced to its distortionary effect on production and supply. In Nigeria, the fertilizer
subsidy was 58.5 percent of the agriculhiral sector budget and as high as 3.3 per cent
of the total government expenditure. The argument against the fertilizer subsidy was
that the diversion of such a large proportion of the agricultural budget to meet the
desired level of fertilizer subsidy hampered much needed investrnents in other
priority areas like irrigation, f am land development, soi1 erosion and desert
encroachment control, production and distribution of seeds and other potent inputs
which would result in a higher and a more sustained agricultural growth (Akanj i, Ohi,
Essien, and Onwioduokit, 1999). In the case of the petroleum subsidy, the rationale
offered was that its removal would reduce waste in the domestic consurnption of
petroleum products, eam more revenue for the government through an increase in the
exportation of petroleum products, and release revenue for the government, which
was previously tied up in subsidies.
The new subsidy policy was greatly resisted by Nigerians because of the
perceived negative effect of such measures on the welfare of peasants in the economy
and on the output of fanners. Nigerians feared that the removd of the petroleurn
subsidy, for instance, would feed an infiationary spiral and contribute to the
imrniseration of workers by reducing their purchasing power significantly and by
extension, increasing their level of hardship that they experience with transportation.
De-subsidization of fertilizers, on the other hand, could lead to a product supply
bottleneck that might result in a much higher cost of fertilizers to f m e n . According
to a recent study canied out by Akanji et. al. (1999), the wi thhwd of subsidies on
fertilizer by the Federd Govemment hpacted significantly on the availability of the
product to fmers , especially smallholders.
TRADE LIBERALIZATION- Trade liberalization hvolves the lowering or
removal of tariffs, removd of quantity restrictions on imports, removal of protection
for local industries, and the removal of other trade barriers. Under the auspices of the
World Trade Organization (WTO), traôe liberalization facilitates the smooth ninniag
of the new world order. It aims at ensuring that protectionist policies become things
of the past.
At the start of SFEM in 1986, Nigeria implemented a major reform of the
vade and tariff system. Vimially all price controls and import licensing were
abolished, and the nurnber of items subject to import prohibition was reduced fiom 74
to 16 and the number of export bans from 11 to zero. Under the program, the
Government also abolished the temporary 30 per cent import surcharge introduced in
January of 1986 and adopted an interim import duty and excise schedule.
Consequently, the dispersion of rates and the trade -weighted average customs duty
fell from 35 to 25 percent. Reduced tariffs were applied to agricultural inputs, basic
raw materials and selected agricultural commodities but higher rates were introduced
on capital goods, essential consumer goods, and agricultural machinery. Most tarins
were set in a range of 10-30 per cent but for agricultural and industrial imports that
competed with major domestic producers, high rates of 100 percent or more were
maintained (Moser, et. al., 1998).
Overall, Nigeria's policy on tmde liberalization has been described as very
inconsistent (Eboh, 1998). Many goods were banned and unbanned from importation
or exportation and tariffs on selected imported goods were lowered or raised on
several occasions. Many of these meamres have been taken without justification or
consideration for their implications on international trade. Many policy
pronouncements were not implernented. At other times they were haphazardly
implemented. Such a policy environment makes international tmde problematic.
POLITICAL STABILITY - Political and policy stability is very important in
attempts to encourage domestic investment and to a m c t foreign investors to any
country. Political stability gives investors the confidence to put their money into any
country at minimum risk of losing it. And policy stability allows investors to know
ahead of time the rules under which they will be operating for a reasonable time into
the hiture. Not so many people will invest in a politically unstable country, even if the
retums to capital are fabulous. This is because the risk of losing their investment in
the case of any eventuality may be unacceptably high (Eboh, 1998). Policy instability
also fnghtens investors away for fear that the d e s may be changed in the middle of
the game and cause them to incur losses. lronically not much has k e n written about
the political implications of the SAP and the impact of political stability on the
sustainability and implementation of the adjustment efforts in Nigeria.
The Nigerian economy has suffered for a long time from political and policy
instability. The many sudden and unpredictable changes in government have made
the political terrain very volatile. And every change in government often gives birth
to new policies that most times contradict past ones. This state of affain does not
allow investors to develop confidence in the hture of the country. This is responsible
for the consistent lack of considerable investment in the Nigerian economy and the
de-industnalization that was taking place. The agricultural sector has k e n most
affected as both domestic (government and private) and foreign investment in the
sector, have remained low. Inconsistency in policy formulation has k e n partly
responsible for the failure of some of the agricultural and economy wide policies
adopted during the pre-SAP and even during the pst-SAP periods. Political
instability in Nigeria reached its peak in the 80s and 90s, coinciding with the
implementation of the SAP. During the period the nation experienced four military
regimes, two civilian administrations and an illegitimate interim govemment. nie
political imbroglio that ensued, due to the failure of the Babangida regime's transition
to civilian rule program, had severe intemal and extemal consequences for the
nation's economy.
CONCLUSION- The objectives of agricultwai policy during the SAP and pre-SAP
period have not been significantly different, except for a preference for a change in
output mix in favour of agriculiural export crops (Kwanashie, et. al., 1998). Although
the major objective of policy in the country was to increase production, the emphasis
in bath periods was to increase government revenue through increased agricultural
export revenue. Until very recently, and even under the SAP, policies aimed at
restnicturing the sector per se did not exist. In the pre-SAP period, govemment
merely criss-crossed the country with various sector specific rneasures that did little
to improve the output of famiers. Many of the economy-wide policies, such as the
fixed exchange rates and the importation of certain agricultural comrnodities, had
negative impacts on the agricultural sector. The sector was also characterised by the
prevalence of subsistence fwers with cmde production techniques and fiagmented
holdings. On the other hand, the various measures adopted during the SAP period
included the changes in exchange rate policy, trade liberalization, de-subsidization
and price libemlization policies. Although these measures are important for sustained
growth in the sector, the= are arguments that they might not lead to the revival of the
agricultural sector if unaccompanied by the relevant non-policy measures.
Thus, while exchange rate policy and trade liberaiization play an essential role
in the recovery of the agricultural sector, other supporting measures are equally
important. Policy ref'oms that focus on pnce changes alone are unlikely to make a
significant contribution to the improvement of agricultural performance
(Diakosawas, and KUkpatrick, 1990). With the continued decline in world prices of
major agricultural export crops, the impact of these rneasures on the export crops sub-
sector has been limited. Nigeria's share of the world cocoa market has been
substantially reduced in recent years, due partly to lower world prices of the
commodity. Until recently there was no attempt at encouraging domestic processing
of agricultural expon crops. Measures such as the development of domestic industries
for the processing of export crops have been argued to provide higher-value products
for exports, as well as a "shock absorbing" measure for fluctuating exchange rates
and world prices of agricultural exports.
This chapter has examined the different sector-specific measures and
economy-wide interventions ahed at reviving the agricultd industry in Nigeria.
Based on previous impact studies, the chapter has aiso made some broad statements
about the impact of some of these policies on the agicultural industry. Later in this
study, an attempt will be made at detennining the actual impact of the different
structural adjustment policies on agriculnual production in Nigeria.
METHODOLOGY
The analytical framework applied in this study to examine the impact of the
structural adjustment program on agricdturai production in Nigeria is a three sub-
sector model- livestock, food crops and export crops. The three sub-sectors have been
modeled to detemine the relative impact of the SAP within the sub-sectors and
between the three sub-sectors.
Some of the methodologies that have k e n used in evaluating the impact of
the SAP include (1) the before-and-after approach or a with and without approach, (2)
a corn parison of performance with targets and (3) a comparison of the performance of
the adjusting economies to a reference group not adjusting (Kwanashie et. al., 1998).
The approach adopted for this study is the with-or-without SAP approach. The other
two approaches codd not be used for the following reasons. First, the apparent lack
of information on production targets for the various sub-sectoe and the entire
industry rendered the second approach unsuitable for this study. Second a comparison
of SAP'S performance in Nigeria with that of a reference country was not used
because of the complexity that might be encountered with such an approach, and also
because the approach is subjective and arnenable to fiaudulent (or biased) assessrnent
(Garba, 1989). The with-SAP and without-SAP approach have been employed
because it is important, and it is an objective of this study to examine the state of the
economy before adjustment in order to obtain a clear picture of the prevailing
conditions before the introduction of the SAP in Nigeria.
3.1 EMPIRICAL MODEL FOR THE THREE SUB-SECTORS
The primary objective of this study is to measure the impact of the SAP on Nigeria's
agriculhiral production. Production in economics is the process by which variables
and fixed inputs are used in order to produce an output. Usually, a production
function states the quantity of output as a function of the quantities of variable inputs
(Xi, Xz, X,). Production, therefore, is influenced by the different combinations of Xi .
. .. X, for the production of a given level of output. The pnce and non-price factors,
X,,, influencing agriculturai output behavior in this sîudy include; interest rates,
exchange rates, world prices and domestic prices of major agricultural outputs,
inflation rates, total governrnent expenditure in agriculture, and average annual
rainfall. Due to the lack of sufficient information, input prices, such as the pices of
fertilizen, agricultural machinery, herbicides, livestock feeds etc., could not be
rnodeled in this study. The variables selected for estimation in this sttidy have been
defined as follows:
GINV = Total Government Expenditure in Agriculture
EX = Exchange Rates, expressed in Naira per unit of US dollars
MF = Inflation (Percent)
OP = Output Pices (Domestic food prices and World prices of major
agicultural export crops)
RF = Average Rainfall
INTR = Nominal Interest Rates
SAP = SAP Dummy Variable
U = stochastic error term
The a priori expectations of the sigm of these variables are given in equation (1)
(signs in parenthesis).
Qn=(+)GMV(+)OP(+)RF(+)SAP(+)EX(-)MF(-)INTR+u (1)
where, Q. is the output level (tonnes) in the different sub-sectors. A dummy variable
(DM) has k e n used in order to capture the impact of stnictural adjustment policies on
the output of the entire agiculturai sector, with the value zero for the period 1970 to
1985 and 1 for the period 1986 to 1996. Though the SAP formally ended in 1 990, the
dummy was included for later years to capture the enduring effects of the policy
change.
Various publications of the Central Bank of Nigeria (CBN) served as the main
source of data for estimating the specified models in this study -that is, the CBN
Statistical Bulletin, Annual Reports and Statements of Accounts and the CBN major
econornic, financial and banking indicators. The CBN publications were used because
(a) CBN data are based on sweys carried out by Nigeria's federal office of statistics,
and other international sources of data derive their information fiom the CBN data
and (b) since economic policy in Nigeria is formulated using the CBN data, the
source is, arguably, the most credible source of information for a study on Nigeria.
However, a number of ambiguities were encountered as some of the relevant
information required for this study was either inconsistent or did not exist altogether.
3.2 ESTIMATION RESULTS
For the purpose of this study, the Nigerian agricultural sector has been subdivided
into three sub-sectors- livestock, food-crop, and export-crop sub-sectoa -and
modelled accordingly to determine shifts in production patterns between the sub-
sectors. Three major crops fiom each of the sub-sectors food crops and export crops
have aiso been modelled separately in order to determine the impact of the SAP
within the sub-sectors. The crops are rice, maize and cassava, for the domestic food
crop producing sub-sector and cocoa, rubber and palm oil for the export crop sub-
sector. Due to the unavailability of suffcient production data on the different
livestock in Nigeria, the same approach could not be applied to the livestock sub-
sector as to the other wo sub-sectors.
Al1 the models specified in this study have k e n estimated using Ordinary
Least Square (OLS) methods. The impacts of the SAP policies and an exogenous
variable (rainfall) have been estimated with crop and livestock production as the
dependent variable. Except for the Livestock sub-sector, where actual production data
were unavailable, the dependent variable is represented by actual output values
(measured in tones) of the different sub-sectoa and the respective crops obtained
from the CBN statistical bulletin. An index of output performance (1984 = 100) was
taken as the dependent variable in the case of the Livestock sub-sector.
Three different relationships were assumed for this study- a linear production
function, a Cobb-Douglas function and a Semi-log function. Many of the estimated
models performed very well with the semi-log and linear production fùnctions. The
best results in ternis of R-square, F values and t values fiom the linear production
functions, have been presented below. Results for the other two functions have also
been presented in the appendix of this study. Al1 the models have been estimated for
the petiod 1970- 1990.
FOOD CROPS
CONSTANT
EX
Gnw
INF
INTR
OP
SAP
RF
R-SQUARE
F
D.W.
ESTIMATION Tl
ALL SUB-SECTOR 18408 (5.32) '
CASSAVA -20 15.4 (-0.29)
71 8.7 (2.30) '
-0.9 (0.57)
-
197.57 (0.89)
3.81 ( 1.06)
6923 (2.5 5) '
2.72 (0.58)
.9 1
45.60
1 .S4
CONSTANT
EX
GLNV
LNF
INTR
OP
S A P
RF
R-SQUARE
F
D.W.
EXPORT CROPS
ESTIMATION TECHNïQUE = OLS
COCOA RUBBER 90.19
(6.94) ' 7.70
(2.12) ' -2.09
(-0.76)
-0.59 (-0.72)
-0.002 (-0.0 1 )
-0.004 (-0.29)
96.70 (2.69)
-
.73
12-95
1.82
LIVESTOCK
ESTIMATION TECHNIQUE = OLS
CONSTANT
EX
GINV
INF
INTR
OP
SAP
RF
R-SQUARE
F
D.W.
* Figures in Parenthesis are t-values. ' Significant at 5% * Significant at 1 O%, otherwise not significant R- Square values are adjusted values.
VARIABLE FOOD CROPS RICE MAIZE CASSAVA EXPORT CROPS COCOA RUBBER PALM OIL
DEPENDENT VARIABLES UNITS MEAN SD tonnes 38445 25000 tonnes 1 179.3 1280.1 tonnes 2770.7 2482 tonnes 11448 11555 tonnes 8905 2059 tonnes 213.67 63 .56 tonnes 128 85.63 tonnes 6 14.70 125.01
MIN 14240
1 O5 988 513
6024 100
45 430
MAX 88080
3303 693 1 3950
1289 1 323 320 837
LIVESTOCK Index(1984=100) 108.01 36.30 73.60 176
VARIABLE UNITS MEAN SD MIN MAX EX NairaNS S 5 .90 8.10 0.55 22.63 RF mm 1282.40 188.70 897 1597 DM O 0.4 1 0.50 0.00 1 .O0 INF Percent 24.70 20.03 3.20 72.8 INTR Percent 1 3.64 8.5 1 6.00 36.09 GINV Naira (million) 919.79 1180.1 5.60 469 1.7 * SD- Standard Deviation Source: Estimation results
3.3 SUMMARY OF RESULTS
Results fiom this study reveal that the food crop sub-sector responded more
favourably to policy variables than the export crop sub-sector. The Livestock sub-
sector also performed well with many of the variables and in terms of R-square, F
values and the response of output to various reform policies, the livestock sub-sector
recorded better results than the export crop sub-sector.
First, two of the three main policy variables considered for estimation in this
study (nominal exchange rate and output prices) and the dummy variable were
significant and appropnately signed in the food crop sub-sector. On the other hand,
except for the dummy variable, al1 three policy variables (output prices, interest rates
and nominal exchange rate) were insignificant with the export crop sub-sector. Within
the export crop sub-sector, policy variables were also insignificant, except for cocoa
where exchange rate and interest rates had very significant impacts on production.
Interestingly, the dummy variable was insignificant with the cocoa model. However,
rubber had a positive and significant relationship with the exchange rate and dumrny
variables.
Second, in conformity with previous impact studies and contrary to a priori
expectations of the signs and magnitudes of the parameters in the estimated models,
the estimated coefficient of the total government expenditure variable had a negative
sign with many of the estimated models. Although, the sign of the estimated
coefficient was positive for the entire export crop sub-sector, it was insignificant with
al1 of the crops considered in the sub-sector. This variable was also insignificant with
both the entire food crop model and the respective crops within the sub-sector. The
livestock sub-sector, however, responded positively and significantly to the total
government expenditure variable.
The estimated coefficient of the exogenous variable (rainfall) was surprisingly
not significant with the entire food crop sub-sector. Except for rice production, the
variable was not significant in the maize and cassava models. The rainfàil variable
was significant in the export crop and livestock models but was insignificant with
many of the crops in the export crop sub-sector. It had to be removed from many of
the models in order to obtain better results. In the livestock sub-sector, the total
annual rainfall was significant ody at 10%.
Generally, the models of the food crop sub-sector and the respective crops
within the sub-sector perfonned better than the other two sub-sectoa in terms of R-
square, t-statistics and F-values. Surpisingly, the livestock sub-sector also performed
better than the export crop sub-sector. The results show that there was no auto-
correlation in the error tem with many of the models, as the D.W. statistics were ail
significant. In cases where heteroskedasticity was recorded, appropriate measures
were taken to correct for it. A summary of the results from the Cobb-Douglas and
semi-log fictions are presented in the statistical appendix.
Chapter Four
THE CONSEQUENCES OF SAP
Almost two decades &er the implementation of the SAP in many Afncan countries,
the appropriateness of many of the policy measures for overcoming the continent's
economic crisis remains as controvenial as when they were first initiated. The
econornic performance of many of the adjusting countries has raised questions about
the essence and impact of the SAP. According to Husain lshrat (1 994), the continent's
economic climate still remains unclear and uncertain, with the overall results modest
relative to original expectations.
Has adjustment helped Afnca's quest for prosperity? How successful are the
IMF-supported adjustment programs? Why did some economies respond faster than
others? These are some of the many questions that have been fiequently asked in the
literature. Thus, two very strong opposing views on the extent and efficacy of the
policy reform efforts in Africa can be easily identified. These are the proponents (or
optimists) of the SAP, of which the iMF and the World Bank, both sponsors and
implementers of the programmes, are the chief pmtagonists, and the opponents
(sce pt ics). The Bretton Woods Institutions (B WIs) argue that the strategies have
already achieved considerable positive results in many adjusting economies. The
Bank claims that the economies of sub-Sahara Afirican (SSA) countries grew at the
rate of 4 per cent during the 1988-1990 period compared to 2.2 per cent for non-
adjusting economies. The IMF claims that countries such as Ghana, one of the early
adopters of the SAP in SSA, have recorded significant economic rehabüitation as a
result of the adjustment programme. Cher the years, several other studies have
confinned the findings of the BWIs, that the SAP has had positive impacts on
adjusting econornies. Husain lshrat, in his study, Resuits of Adjusment in Afiica:
Selected Cases, c o h e d that those countries that have pumied adjustment
prograrns in a consistent and sustained manner, such as Ghana and Tanzania, have
s h o w results in terms of resurgence in growth. His study contirms that the average
growth rate over the adjustment period (1986-1991), of six out of the seven countries
examined by the Bank's study, was 4.5 per cent a year- a strong improvement
compared with an average growth rate of 1 per cent during the crisis period (198 1-
1986). The biggest tumarounds in Afkica were registered in Nigeria (8 percentage
points), Ghana (8.8 percentage points) and Tanzania (4 percentage points).
According to Logan and Kidane (1995), the positive commentaries on the
SAP have been questioned by many sceptics, including the Economic Commission
for Africa (ECA). The ECA argues that there has been little difference in the
economic performance of strong and weak reform countries. The SAPs have not
corrected the basic imbalances in any Afncan country while maintainhg output, nor
have they generated the needed fimdamental conditions needed for economic
recovery and sustainable growth. Rather, because of their narrow focus on macro-
economic aggregates within a limited time perspective, and a mechanical stance that
demands an unvarying approach to the designs of adjustment programs, the SAPs
have depressed the incomes of a wide range of groups, most especially those in the
poorest sectors (Tenba, 1996).
To many Nigerians, the acronym SAP has becorne synonyrnous with various
forms of socio-economic and political ills. Thus, SAP means hardships, enslavement,
impoverisation and the suppression of the fundamental rights and privileges of the
Nigerian people. Without doubt, the SAP has not been without its costs and
deprivations. But, do these perceptions of the SAP necessarily imply that the
programme has completely failed to address the economic crisis in Nigeria and
several other adjusting AErican economies? To a very large extent the answer has
been no. Persistent economic problems notwithstanding, the evidence suggests that
the Nigerian economy recorded some remarkable achievements under the SAP,
especially the agriculNral sector. According to Moser (1998), the SAP has brought
about a reorientation of the economy in which deregulation and liberalization are the
guiding principles. In terms of results, and despite reversais and setbacks, the analysis
shows that the SAP paid off. In the fvst place, it brought to light the depth of the
economic and social crisis and exploded the myth of the oil boom. Nigerians are now
conscious of the fact that, although their country is an oil-producing nation, it is
vulnerable to the vagaies of the international system and subject to pressures fiom
the internal mismanagement of resources. Second, the program has encouraged the
rational utilisation of resources while at the sarne tirne promoting local creativity, by
extension reducing the inherent xenocentnf tendencies in Nigerians. Third, some of
the changes in macro-econornic policies effected during the adjustment era, like the
devaiuation of the naira and trade reforms, have improved the incentive structures
facing local producers, especially in agriculture.
Despite the overall favourable results of structural reforms in Nigeria, the
momenturn of many of the refom measures could not be sustained afier 1990.
Several possible expianations have k e n given for the adjustment fatigue that set in
afler 1990. First, the inability to effectively bring infiation under control, and the
attendant substaatial depreciation of the naira, fed the popular belief that the
introduction of a market determined exchange rate, one of the government's most
difficult decisions, and the ensuing rapid depreciation of the naira, were the driving
forces behind rising domestic prices (Moser, et. al., 1998). Second, the failure of
General Babangida's administration to honour its pledge to rehun the nation to
democratic rule by 1990 increased nation-wide suspicion of the true intentions of the
administration and played a very big role in the erosion of support for the refoms.
The inconsistency that characterised the implementation of the SAP in Nigeria and
the inability of govemment to sustain the reform efforts acted to erode many of the
initial gains of the prograrn and dso makes a comprehensive assessrnent of the impact
of the reform efforts dificult.
Due to the govement's inability to sustain the momentum of the SAP d e r
1990, many structural reform m e m e s did not take place and in cases where they
have taken place, progress has kquently been slower than expected. Thus, there is
need for adjusting economies to persevere with strong efforts for many years.
According to Dani Rodrick (1996), good economics often turns out to be good
politics, but only eventuaily. Policies that work become popular but the time lag can
be so long that would-be refomers cannot exploit the relationship. One of the most
striking aspects of economic policy making in Nigeria is its distaste for gradualism.
Policy mesures are often taken in a big way; as a result, policies ofien generate
internai shocks that tmnslate into an extreme volatility in economic and financial
variables, with profound impact on the domestic economy. Many good policies have
been prematurely discarded when progress was slow or fell short of general
expectations, resulting in fiequent policy changes in the economy. It is only by
steadfast implementation of disciplined macmeconomic policies and fundamental
structural reforms, particularly those that allow private initiative and entreprenuership
to flourish, that countries will achieve strong growth over the medium and long term.
What then has been the achlal impact of the SAP on the Nigerian economy?
Specifically, what is the impact of the SAP on the agricuihual industry in Nigeria?
Did the SAP achieve its objective of diversifying the production base of the nation?
With the aid of information derived h m the analysis in Chapter Three, we will
attempt to detemine the achial impact of the SAP on Nigeria's agriculture in the
rernaining part of this chapter. Specifically we will attempt to examine the
performances of the three sub-sectors with the aim of determining the impacts of the
various policy measures as well as shifts in production patterns between the export
crop sub-sector and the domestic food-producing sub-sector.
4.1 AGRICULTURAL RESPONSE TO THE SAP
In the preceding chapter, econometric techniques were employed in order to measure
the responses of the different agricultural sub-sectors to the various refonn policies in
Nigeria. The resdts that emerged fiom the analysis in Chapter Three in many cases
validate earlier assertiondassumptions, while in other cases they diverge significantly
from the expected. Overall the results confhned that the SAP has significantly
improved performance in the agricultural industry, especially the domestic food
producing and livestock sub-sectors. A steady growth has been observed in the
production of both staple and other crops, as well as livestock production, since the
inception of the SAP in 1986 (see Figures 2,3 & 4). However, the empirical evidence
also suggests that there has not been a significant shift in production patterns,
especially between the domestic food-producing sub-sector and the export crops sub-
sector. In other words, the results suggest that refonn measures have done Iittle to
improve the output of Nigeria's agricultural exports relative to food crop production.
In the pre-SAP era, the combined effect of trade policy and exchange rate
management created significant disincentives for Nigeria's agriculhiral exporters. The
sector was taxed explicitly (through export taxes and commodity board pice
decisions) and implicitly (through industrial protection and macro-economic policies
unfavourable to agriculture), while domestic production of staple foods was protected
through import bans and high nominal rates of protection. Over-valuation of the naira
inevitably neutralized some of the protection to the latter, but nonetheless the relative
distortion of incentives was extreme and worked strongly against the expon crops
sub-sector (Coleman, and Okorie, 1998). Thus, in the post-SAP era, the main policy
reform task in agriculture was to continue reducing explicit and implicit taxation of
f m e r s by reducing the bias against tradeable crops created by overvalued exchange
rates and by liberalizing the pncing and marketing of exports and food crops. The
devaluation of the exchange rate, coupled with the dismantling of commodity boards
in Nigeria, was intended to eliminate the significant disincentive to export crops.
Except in a few cases, estimation results in Chapter Three indicate that
agnculturai output responded favourably to exchange rate depreciation in Nigeria,
especiall y in the food crop and livestoc k sub-sectoa. Interestingl y, however, the
estimated mode1 for the export crop sub-sector reveals that the exchange rate policies
in the post-refonn era did not infiuence production in the sub-sector overall. Although
the output of cocoa and mbber (Nigeria's main export crops) responded positively and
significantly to changes in exchange rates, the estimated coefficient for the exchange
rate was greater in the case of cassava and the overail food crop sub-sector where it
was also found to be :rignificant. The results in Chapter Three suggests that a
devaluation of the exchange rate by 1 naira to the US dollar c m be expected to
increase overall food crop output and cassava output by 177 1 and 71 8.7 metric tonnes
respectively. On the other hand, the same percentage devaluation of the exchange
rate would lead to a 7.7 and 11.7 metric tonnes increase in the output of rubber and
cocoa respectively. The model for the livestock sub-sector suggests that a 1 percent
devaluation of the naira would lead to a 2.2 percent increase in the growth of
livestock production. These results confïrm that the food crop sub-sector responded
more favourably to changes in exchange rate policies during the SAP period. The
devaluation of the naira helped to increase the cost of imported food crops (such as
rice and wheat) thereby lowering the volume of imports in agricultural commodities.
This served to boost domestic production of imported food crops during the
adj ustment era.
Besides the impact of devaluation, other policy measures such as pnce
liberalization and interest rate liberalization did not achieve the intended results in the
export crop sub-sector. Except in the model for cocoa where it was found to be very
significant and appropriately signed, the decontrol of interest rates did not have the
expected effects on al1 the estimated models in the different sub-secton. In the case of
cocoa, a 1 percentage point decrease in the interest rate leads to a 0.5 metric tonnes
increase in output. Although the interest rate was found to have significantly
influenced output in the case of rice, it wasn't appropriately signed. The coefficient on
the interest rate variable suggests that a 1 percentage point increase in interest rates
would lead to an 83.2 metric tonnes increase in the output of rice. Generally, an
examination of the operations of the ACGSF (see Table 2.1) shows that the value of
loans guaranteed under the scheme has been increasing since its inception in 1977.
However, a breakdown of the activities of the scheme reveals that the number of
loans guaranteed increased significantly between 1987 and 1992. This corresponds
with periods of high interest rates in the country. Available statistics in Table 2.1 also
shows that the nurnber of loans guaranteed in the export crop sub-sector has been
very low compared to the food crop sub-sector.
Perhaps, the most interesting and surprising results of this study were recorded
with the SAP dummy and inflation rate variables. As expected, the estimated
coefficient of the SAP dummy variable was significant and appropriately signed in al1
of the models except the cocoa (the most important traditional export crop in Nigeria)
and rice models. This is likely due to the prevafence of senescent cocoa trees in the
country and the apparent lack of a tree replacement program, factors that reduce the
responsiveness of cocoa output in the short tem. Another factor that was not captured
in the analysis that might have contributed to the slow growth rate tecorded (with the
export crop sub-sector) during the adjustment era is the outbreak of diseases (such as
black pod disease). Also the estirnated coefficient of the SAP dummy was higher in
the overall food crop mode1 than the export crops and livestock sub-sectors. In
general the agricultural sector has perfonned relatively better in the pst-SAP penod.
However, available statistics reveal that the sector recorded better growth rates during
the periods of strong commitment to dereguiation and fiscal discipline, namely 1986-
1988 and 1994-1997. This might likely be responsible for the overwhelming
significance of the SAP dummy in many of the estimated models. On the other hand,
and contrary to a priori expectations of the signs and magnitudes of the parameters in
the estimated models, the inflation variable was not found to be a significant factor in
explaining output movements in virtually al1 the sub-sectors.
Somewhat surprising was the relationship between government expenditure
and output in the export crops sub-sector. Although government expenditure was
discovered to be a significant factor in the overall export crop model, the output of al1
the crops considered in this study (in both sub-sectors) was not influenced by the
variable. Even in the livestock sub-sector, where it was also found to be significant
and appropriately signed, the estimated coefficient shows that govemment
expenditure had only a marginal effect on output performance. This appears to
support the contention that although govenunent expenditure has been increasing in
relative terms, it has not translated into a corresponding increase in agricultural
production (see Table 5.0). This is because agiculturai spending in Nigeria has not
been appropriately channelled. A sectoral breakdown of expenditure reveals that
much of the investment has been channelled to the activities of the RBDAs and the
development of irrigation facilities in country. Also govenunent budgetary allocations
to the sub-sectors often never get to &osse who have been targeted to benefit from
such allocations. Another explanation that has been given for the relationship between
governent expenditure and output is the substantial reduction in expenditure (in
absolute terms) during the SAP pend For instance the removal of subsidies on
various inputs such as herbicides and pesticides has harnpered fanners' ability to
combat the outbreak of diseases like the black pod disease, thereby lowering
production.
The overall results fiom this study indicate that the SAP had a salutary effect
on the agriculhiral industry as the sector recorded an annual average growth of 10
percent and 4.7 percent in the periods 1986- 1990 and 1991 - 1995 respectively. This
compares favourably with the average of -2.3 percent and 2.6 percent in the periods
1976-1980 and 1981-1985 respectively (see Table 7.0). The study also reveals the
significance of the various SAP variables in explaining output performance in the
three sub-sectors. n ie SAP dumrny was significant in the overall models for each of
the sub-sectots and in the models for the different crops considered in this study,
except for coma and rice. in some other cases, however, the analysis reveals the
failure of the SAP variables to influence output movements in the various sub-sectors
(especially the export crop sub-sector). in ternis of the significance and magnitudes of
policy variables, the SAP had greater impact on the performance of the domestic food
Oproducing and livestock sub-sectors. This can be explained by a combination of
factors. First, the domestic food-producing sub-sector, in contrast to agriculturd
exportables, remained highly protected despite the SAP refoms. Although the
number of goods subject to import prohibitions was reduced from 73 to 16 under the
SAP, import bans continued to cover a substantial portion of agriculnual production
of tradeable commodities, such as wheat, flour and malt. in general, the depreciation
of the exchange rate and the reductions in excise tax rates served to increase
protection levels, while the reductions in the variation and levels of tariff taxes
worked in the opposite direction (Robertson, 1992, p.185). Thus, as mentioned by
Coleman and Okorie, on average, there was an increase in output of food crops, due
partly to the incentives which nominal pnce increases provided to the famiers and
partly to the speciai government subsidies on targeted crops such as wheat, maize and
rice. Second, the lack of complementary non-policy measures remained a big problem
affecting agricultural production, even in the pst-adjusmient era.
4.2 EXPORT SECTOR
Another good indicator of the response of the Nigerian economy to reform measures
is the performance of the export sector. In Nigeria, the export sector is essentially
composed of petroleum products and agricultural comrnodities such as cocoa, rubber
and palm oil. Pnor to the 1970s, Nigeria exported substantial quantities of cocoa
beans, groundnuts and groundnut oil, palm kemels and palm oil, rubber, Cotton and
timber, with agriculture accounting for over 70% of export revenue. This trend
changed during the 1970s, with the extensive erosion of the nation's agricultural
export market shares. By contrast, Nigeria became a large importer of crops such as
rice, wheat and palm oil. Since the oil price increases of the 1970s, the oil sector has
dominated Nigeria's foreign trade, generaily accounting for over 95% of total
merchandise exports, while cocoa and 0 t h agriculhual products account for most of
the balance.
One of the principal objectives of the SAP was to increase non-oil exports
fkom $3 15m in 1986 to a target of $Ibn annuaily by 1990. In order to achieve this
objective, the government put in place a set of trade and foreign exchange policies
that wouîd change the structure of relative prices and boost the production of the
agricultural export sector. Thus, government provided additional encouragement for
non-oil exports, notably by lifüng the majority of previous bans on export products.
along with export duties and licence procedures, permitting the reduction in
domiciliary accounts of foreign-exchange eamings fiom non-oil exports (25 per cent
in 1986 and then 100 per cent in 1987) and introducing an impon duty àrawback
scheme, whereby non-oil exporters c m qualify for the r e h d or waiver of duties on
inputs imported for export production (E.LU, 1993-94).
Table 3.0 Key Exports and Imports (N' m)
1990 1991 1992 1993 1994 1995 1996
Exports fob
Petroleum 106627 1 16857 20 1384 2 13779 2007 10 929684 1286248
Cocoa beans 1047 1746 1558 1684 1816 6227 12078
Cotton and Yarn 79 120 232 1310 1704
Rub ber 95 29 875 876 699 4718 2986
Export Crops (./O of total) 2.9 3.8 2.1 2.3 2.6 2.4 1.8
Total exports & othen 109886 121534 205612 218ûûl 206059 952884 1309584
Imports c.i.f.
Manu factured goods 10062 21030 32925 39751 36302 175826 158275
Machinery & transport 18619 36775 59837 70227 50790 208414 131802
Food & live animals 3764 7786 1173% 13913 16767 88671 76040
Animal /vegetable fats & 136 7 16 1002 1325 1628 8337 7322
oils
O/O of Food & live anirnals 8.2 8.7 8.2 8.4 10.3 11.7 13.5
Total Imports 45718 89488 143151 165629 162789 757869 563255
Source: The Economist Intelligence Unit, E.1.U Country Report
Despite government's efforts to diversify the export base of the economy, the
predominance of the oil sector has grown in importance, while non-oil exports
continue to languish, totalling oniy S 472m in 1991, more than 20% below the 1988
level, and accounting for only 2.6% of the total in 1995 (see Table 4.0).
Thus, in terms of diversifying the export base of the economy, the SAP has
not done much. Only cocoa remains signifcant in export terms, with the value of
output recovenng to an estimated N1816 million in 1994 and accounting for about 0.9
percent of total export revenue (see Table 3 .O).
Several factors have contributed to this rather unimpressive performance of
the entire non-oil export sector in Nigeria. First, despite the SAP and the improved
opportunities it brought, Nigeria's trading system is still beset with restrictions and
high import duties, which act as a deterrent to an eficient cornpetitive trading
environment. Other reasons include: (1) the sizeable amount of smuggling of
Nigeria's exports to neighbouring Franc zone countries, (2) political uncertainties
which retumed in the 1990s, eroding many of the advances that had been recorded in
the second half of the 1980s, (3) the prevalence of ageing trees (in the case of
agricultural exports) and the outbreak of diseases such as the black pod disease, (4)
declining global demand for many of the non-oil exports (Yeats, et. al., 1996)
(especially agricultuml products) and low producer prices.
However, this study notes that, in terms of output performance, agricultural
exports have generally experienced significant irnprovements relative to the pre-
adjustment era (see Table 4.0). Nigeria was the world's fourth exporter of cocoa
beans in 1990191, with sales of 135,000 tons, accounting for about 7.1% of world
trade in this commodity. in the same period, Nigeria also overtook Liberia as the
largest rubber producer in Afnca. Production rose fiom 55,000 tons in 1986 to
147,000 tons in 1990 and 255,000 tons in 1995. Output in 1997 was 250,000 tons
(FAO, 2000). According to the FA0 report, palm oil production was estimated at
730,000 tons in 1990, and increased to 837,000 tons in 1994. Production estimates for
1997 were put at 780,000 tons. Despite a sharp fdl in the world prices of major
agricultural export crops, Nigeria's exports have been increasing in relative ternis
since the adoption of the SAP in 1986. Table 4.0 below shows the performance of the
sector shortly before and after adjustment was introduced.
Table 4.0 IMPACT OF STRUCTURAL ADJUSTMENT ON THE PRODUCTION OF
EXPORT CROPS ('000 TONS) COCOA PALM SEED GROUND- RUBBER
KERNEL COTTON NUTS 1982 156 310 38 458 50 1983 140 279 120 396 45 1984 150 340 1 08 591 58 1985 110 360 114 62 1 60 AVERAGE PRE- 139 322 95 517 53 SAP 1986 123 350 1 O0 640 61 1987 105 353 80 696 56 1988 230 545 1 94 686 68 1989 256 600 186 815 80 AVERAGE SAP 179 462 140 709 66 % Change 29 43 47 37 25 (S AP/PRE-SAP) Source: The Economist Intelligence Unit, Nigeria- E.LU Country Report,
CHAPTERFIVE
CONCLUSlON
In the preceding chapters of this study, an attempt bas k e n made to analyze the
impact of adjustment measures on Nigeria's agriculture. Specifically, we have
attempted to determine shifts in production patterns between the export crop and
domestic food crop producing sub-sectors. In order to obtain an objective
exarnination of the extent and efficacy of the SAP and its impact on the nation's non-
oil export (agicultural export) sector, a comprehensive exarnination of the prevailing
economic conditions of the Nigerian economy before adjustment and at the onset of
economic refoms was attempted. The findings of the study emphasize the need for a
more effective implementation of reform policies in the Nigerian economy. However
emerging results confinn that Nigeria has achieved a remarkable tumaround in
aggregate performance of the agriculniral sector in recent years. Under the SAP,
economic growth accelerated and improvements in economic conditions contrasted
rather sharply with the pre-SAP period. Annual rates of growth of agricultural
production recovered fiom an average of -2.3 percent between 1976 and 1980 to an
average of 10% in the period 1986 and 1990.
Despite the relatively favourable developments, especially as reflected in
increased agriculturai output, several of the inherent pre-SAP distortions in the
economy are yet to be corrected. The SAP also failed to achieve one of its major
objectives of diveaifj4ng the productivelexport base of the economy. The results
from this study indicate that some of the SAP mesures did not influence production
in the entire sector, especially in the export crop sub-sector. The domestic food
producing and livestock sub-sectors responded more favourably to reform measures
than the export crop sub-sector. Surprisingly the livestock sub-sector performed better
than the export crop sub-sector.
Several lessons can be drawn fiom Nigeria's experience with the SAP. First,
part of the explanation for the weak performance of the SAP, as reflected inter dia in
its failure to address some of the structural distortions in the economy, was the stop-
go approach to policy implementation, which laclied consistency and continuity.
Sustainable refom requires continuity and coherence in economic policies, in which
the achievement of macro-economic stability is a sine qua non for raising the
productivity of human and physical capital. It is only by steadfast implementation of
disciplined macro-economic policies and fundamental structural reforms that
countries will achieve strong growth over the medium and long terms (Moser et. al.,
1998). The absence of a built-in safety net to cushion some of the unintended adverse
effects of the program, particularly on low-incorne groups in the society, resulted in
widespread public dissatisfaction with the various reform efforts. Consequently,
modifications in the original arrangement, especially in fiscal and monetary policies,
were made in response to public pressure. Perhaps in continuation of the stop-go
approach, the policy of direct controls and regulations of the pre-SAP era was re-
introduced in 1994, as interest aad exchange rates were fixed at relatively low levels
(Central Bank of Nigeria, 1997). This lack of continuity, rather than reform measures
themselves, has been Iargely responsible for the modest performance of the
agriculhual sector (especially the export crop sub-sector) relative to the desired
results. The fiequent banning and un-banning of several apicultural exports and
imports during the SAP created considerable distortions in the sector. Many of the
reform efforts were also discontinued after 1993. With hindsight, we can conclude
that the SAP would have achieved considerably better results if the momentum of the
reform efforts had k e n sustained. As mentioned earlier, the average muai growth
rates of agricultural production jumped fiom 2.6 percent between 198 1 and 1985 to
10 percent between 1986 and 1990 (the actuai period of the SAP in Nigeria). The
average annual growih rate in the pst-SAP period (1990 and 1995) was 4.7 percent.
By this time adjustment fatigue had started resulting in a decrease in the rate of
growth of the sector.
Second, the various measures adopted during the SAP, though necessary for
sustained growth, cannot alone revive the agricultural sector. According to Cleaver
(1 985), these measures would have relatively smaller impact if unaccompanied by
other non-policy factors such as government involvement in f m input supply,
population growth, provision of basic amenities to nual areas, and the govemment's
ability to operate and maintain its agricultural investment. The evidence fiom this
study confirms that government investment in agriculture has not influenced
production, even though expenditure has been growing in relative terms. The
consistently low level of govemment capital expenditure in agriculture has hit the
export crop sub-sector the worst, even in the post-SAP period. The nual sector, which
contributes the greatest proportion of total agricultural output, continued to s a e r
from the apparent lack of social amenities such as rural feeder roads, potable water
and electric power supply. The evideace suggests that reform policies need to be
accompanied by other complementary policies, particularly institutional,
technological and infiastructure policies, in order to achieve agriculturai output
targets.
Third, the overall objective of agricultural policy in the pre-SAP and post-
SAP periods has not k e n significantly different, except for a preference in
production mix in favour of the traded goods sector of agriculture. Until recently,
there were no deliberate policy measures per se designed to restructure agricultural
production in the country. The objective of agricultd policy in the country, even
during the SAP, has been to increase agicultural output and by extension, agricultural
expon revenue. Traditional smallholder fmers , who use simple techniques of
production and a bush fallow system of cultivation, still account for over two-thirds
of total agricultural production in Nigeria. Output in the export crop sub-sector has
suffered from labour shortages, inefficient harvesting rnethods, lack of vital inputs
and the lack of domestic markets for many export crops. However, with the recent
substantial reduction in Nigeria's share of the world market for major agriculnual
commodities, emphasis has been placed on encouraging the development of local
processing of the nation's export crops, though so far with minimal comrnitment.
Such a measure, it is aigued, will lead to the development of hi& value products for
export. The results h m several other studies confrm that over the years, the
agricultwal policy stance of increased output as a means of maxinising revenue
generated fiom the sector has not k e n optimal. There is a dire need for the
articulation of policy measws that will change the entire face of the sector both in
the medium and long term. As meationed above, such measures include the provision
of basic arnenities (like elecüicity, water and access roads) aod the development of
local agro-allied industries. These measures, arnong others in the short terrn will
check the rurai-urban drift that has contributed to the withârawd of agricultural
labour over the years and in the long terni, serve to build a more solid agricultural
production base for the nation. Related to this is the restoration of the agricultural
sector as a pnority sector in the economy. Some of the changes in the agricultural
sector in Nigeria have been attributed to the normal course of development, or even
an efficient response to a booming resource sector and appreciating real exchange
rate. According to Nyatepe-Coo Akorlie (1993), even a growing agicultural sector
will be expected to lose share if oil and GDP grow at a faster rate, as is likely in a
booming oil market. The experiences of the past few decades have show that the
consequences of a complete dependence on oil export revenue cm be severe for any
economy in the face of muent fluctuations in world prices of petroieum products.
CONSTANT
EX
GINV
INF
LNTR
OP
SAP
RF
R-SQUARE
F
D.W.
APPENDIX A (ESTIMATION RESULTS)
FOOD CROPS ESTIMATION TECHNIQUE = OLS
(COB&: ALL CROPS
OUGLAS F IUCE -18380 (-5.5 1) ' 1256.7 (4.79) ' 38.1 (0.5 1)
187.67 (1 .go) ' 733.6 (2.09) ' -23 1.8 (- 1.36)
-1 325.2 (-2.95) ' 2472 (6.34) ' .94
55.5 1
2.07
NCTION) MAUE 3.6 1 (1.19)
0.3 5 (O. 10)
-0.26 (-2.27) '
0.56 (1.98)
0.39 (1.63)
0.64 (1.19)
0.27 (0.63)
.89
18.7
1.87
CONSTANT
EX
GINV
INF
INTR
OP
SAP
RF
R-SQUARE
F
D.W.
SEN
ALL CROPS 4406 1 (5.68) ' 24697 (8.33) ' -323 1 (-2.78) ' 1668 (O. 17)
-6042.7 (-2.62) ' 4397.7 (1.55)
-25044 (-7.44) '
.98
205.8
1.62
CASSAVA 4852.7 (0.73)
729 t .4 (3.26) '
-2 130 (-2.73)
- 1008.7 (- 1.20)
-734.5 (-0.3 6)
481 1.6 (2.60)
-7334.6 (-2.73) ' .96
1 17.93
1.12
EXPORT CROPS ESTIMATION TECANIQUE = OLS
CONSTANT
EX
G W
INTR
RF
OP
rNF
SAP
R-SQUARE
F
D.W.
COBB
ALL CROPS 5.96 (1 1.3) ' 0.03 (0.9 1)
O. 12 (2.82) ' 0.04 (4.49) ' 0.32 (4.59) ' 0.05 (1.58)
-0.02 (-0.08)
0.005 (0.09)
.9 1
40.23
2.07
DOUGLAS
COCOA 2.40 (1.54)
0.77 (6.80) ' -0.3 1 (-2 66) ' -0.07 (- 1 -76)
0.65 (3.09) ' 0.22 (-3.15) ' 0.07 (2.23) ' -0.89 (4.38) ' .77
13.3
2.34
PAI'M-OIL 5.8 (5.69) ' 0.06 (0.7 1)
0.09 (1 S2)
0.03 (2.32) ' 0.1 1 (0.85)
-0.02 (-0.33)
0.003 (O. 12)
0.06 (0.45)
.74
11.81
1.54
CONSTAN T
EX
G W
INTR
RF
OP
INF
SAP
R-SQUARE
F
D.W.
! ALL CROPS - 18793 (-4.54) ' 706.55 (2.25) ' 894.73 (2.49) ' 3 1 1.93 (4.19) ' 3004.5 (5.32) ' 368.78 (1.48)
-53 3.49 (- 1.22)
.93
58.97
2.09
LIVESTOCK PRODUCTION (SUB-SECTOR OVERALL)
CONSTANT
EX
GINV
INTR
RF
OP
[NF
SAP
R-SQU ARE
ESTIMATION TECHNIQUE = OLS COBEDOUGLAS 2.63
* Figures in Parenthesis are t-values Significant at 5%
SEMI-LOG 69.27 (4.89) '
Significant at 1 O%, otherwise not significant R- Square values are adjusted values.
Source: Estimation results
APPENDIX B (FIGURES AND TABLES)
Table 5.0 GROSS DOMESTIC PRODUCT AT 1984 CONSTANT FACTOR COST
(Peirentage of Totai) Agriculture Mmnufacturing Crude Pctroleum Buiîdiag and Hovsing Total
and gas Construction (N' billion) 1981 34.7 9.9 14.0 4.7 2.6 70.4
1996 39.0 6.5 13.1 2 .O 2.4 106.9 Source: Statistical Bulletin, Central bank of Nigeria,
Table 6.0 FEDERAL GOVERNMENT CAPITAL EXPENDITURE
(ECONOMIC SERVICES) (N' million)
Manu facturing, Transportation Total of Craft, Mining & Economic Agriculture
Agriculture Quarrying communication Services (% of Total) 1977 105.5 355.4 2300.4 4387.0 2.4 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 I W O 1991 1992 1993 1994 1995 1996 3892.8 1741.2 88 19.7 2 1036.7 18.5 Source: Statistical Bulletin, Central Bank ofNigeria, Abuja
TABLE 7.0 AVERAGE RATES OF GROWTH M INDUSTRIAL AND AGRICULTURAL
PRODUCTION (1966-1995)
PERIODS AI1 Industria Manrfacturing Food (Staples) Export All Cm ps Agriculture
1966-1970 25.9 11.4 19.2 -0.6 1971-1975 12.4 14.4 -4.4 2.2 -2.9 1976-1 980 13.4 19.4 -6.7 4.1 -2.3 1981-1985 -2.8 17.6 3.9 0.24 2.6 1986-1990 10.4 12.5 13.1 6.5 10.0 1991-1995 4.8 -2.4 8.9 -0.14 4.7 Overall 10.7 12.2 5.7 - 1.9 Sources: Computed fiom Index of Agricultural and Industrial Production, Statistical Bulletin, CBN, Abuja
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