Structural adjustment programme in Nigeria: causes, processes and outcomes
Structural adjustment program in Nigeria has gone down in history as one of the worst things that happened to Nigerian economy. But was it actually that bad? What happened to the Nigerian economy 30 years ago? Learn here what the structural adjustment programme actually was and why it did not work the way it was supposed to.
Structural adjustment programs
Before we go into it, let’s figure out what the term means. Structural adjustment programs, or SAPs for short, are a complex of loans that the World Bank (WB) and the International Monetary Fund (IMF) offer to a country suffering from an economic crisis. In order to improve the terms of the current loan or to get a new one, the country in question has to implement new policies.
The main goal of SAPs is to reduce the fiscal imbalances of the borrowing country. This is achieved by introducing short-term solutions to improve the situation with the economy in the long run. SAPs are mostly used for developing economies as a means of adjustment to the market economy.
Structural adjustment programme in Nigeria
You might ask:
What does it all have to do with Nigeria?
Well, Nigeria of the 80s struggled to keep its economy afloat. As you might know, the country’s economy relied heavily on oil production and export back in the day. It brought in easy money, and even when Nigeria’s agricultural and mineral exports dipped, no changes were made.
However, during that time, oil prices plummeted to less than $10 for a barrel. This caused an overall stagnation of the economy. The government had a problem with finding money for the budget. Naira was overvalued, but no one lifted a finger to remedy the situation.
Finally, in the year 1986, then-President Ibrahim Babangida launched SAP with the support from IMF and WB. It was supposed to exist until 1998 and be terminated after the objectives were achieved. However, when the sides considered the amount of wrongs they needed to get right, it was decided that they prolong it until 1993.
Objectives of structural adjustment programme in Nigeria
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Apart from the main goal we mentioned previously, the most important objectives of SAP in Nigeria were:
☑ The restructuring and diversification of the economy’s productive base in order to reduce the country’s dependency on the imports and oil sector.
☑ Achievement of the fiscal viability and the balance of payments in the medium term.
☑ Promotion of the economic growth without inflation.
☑ Achievement of a GDP growth of 3-4% in the next two years.
☑ Reduction of inflation to 9% yearly.
In order to achieve these objectives, a few key policies were designed to help Nigeria get out of the hole it dug for itself.
According to SAP, Nigeria had to:
☛ update and strengthen its demand management policies;
☛ adopt measures that would expand the economy’s supply base and encourage domestic production;
☛ set up a new mechanism of realistic exchange rates (in this case, it was the second-tier foreign exchange market);
☛ alter the relative prices in order to promote non-oil exports and domestic production, and to improve the efficiency of resource allocation;
☛ further rationalize and restructure the tariffs to encourage the diversification of the industry;
☛ liberate the external trade by dismantling the trade, exchange and price controls;
☛ stop controlling the interest rates;
☛ eliminate commodity boards;
☛ rationalise and restructure the enterprises of the public sector;
☛ and overhaul the administrative structure of the public sector.
Did it work?
Continue reading for the answer.
The aftermath of SAP in Nigeria
For the first couple of years, SAP did its job. Nigeria’s economy returned to the right track, agriculture flourished once again, and the country became less dependent on imported goods. In the years that SAP had been active, GDP rose to the 5% mark. Agriculture and related industries, as well as textile industry particularly benefited from the new policies.
Nevertheless, SAP was not benefitting everyone. While the rural classes and farmers rose from the ashes, Nigerian middle class and the civil servants dropped back down. In order to keep the fiscal policy in check, government reduced the expenditures on the social infrastructure. This meant that people’s wages grew much slower, and their living standards worsened.
SAP was working, but it was incredibly slow. The per capita income was rising 2% per year. This meant that it would take at least thirty years for the economy to reach its 1980 level. Naira depreciated up to 80% against the U.S. dollar. The inflation level barely improved.
But wait, there is more:
At the same time, people started to notice the corruption of their government. Nigerians saw that most of them were not benefitting much from the new policies. On the other hand, the President and his closest circle did not seem to get any poorer. Many citizens took to the streets to protest the unfairness of the situation.
However, as the government tried to keep its place by loosening the fiscal policy, it only made things worse. Inflation was erratic, jumping from 16% to 55% in 1987-1988, then dropping to 7% in 1990 and going back to 50% in 1992.
What was even worse was that Nigeria’s debt to the WB and IMF grew into an insurmountable amount. By the year 1993, it amounted to half of the total expenditure, coming at ₦51,616.9 million.
What can we take away out of all this?
Structural adjustment programme did not really work in Nigeria. It had great intentions and an even greater potential. Nevertheless, it was not very appropriate for the Nigerian situation. The tried-and-true approach failed, as the programme clashed with a tumult in the country, and the objectives were not reached.
Would it have worked in different circumstances? Maybe. However, one should never expect positive changes right away. Most of the time, countries that use SAP take years to get back on their feet and to repay their debts. If people do not keep that in mind, they might expect too much too soon and inadvertently sabotage the program.
Overall, SAPs are controversial. Many people think that they are too harsh and intrusive. The Nigerian case did not help to improve their image. But sometimes SAP are not the ones to blame for the issues that come after.
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Source: Legit.ng