WEEK 3

NATURE OF THE NIGERIAN ECONOMY

The Nigerian economy is made up of all the economic activities carried out in the country. These
include production of goods and rendering of services.

Economic activities involve areas like oil and gas, banking, agriculture, insurance, trading, etc.
However, some of the economic activities are bigger than others and contribute so much more than
other areas. A typical example is the oil and gas [petroleum and Liquefied Natural Gas (LNG)] which
contributes about 85% of Nigeria’s foreign exchange earnings.

Nigeria is therefore said to operate a mono-product economy. That is, an economy which depends on
only one product – oil (petroleum) to finance its economy. This is dangerous because any slight change
in the price of crude oil in the world market is going to have an adverse effect on the economy. This
may even be worse than when the oil is finally exhausted.

Types of economy

A. Mono-product
B. Import Oriented
A mono-product economy is derived from the word ‘mono’ which means ‘one’. Therefore, a mono-
product economy has one major product to sustain its economy. For Nigeria, crude oil is its mono-
product.
Advantages of a mono-product economy
1. There is specification in production although this is disturbed by corruption.
2. There is no competition from similar products.
3. High rate of technological advancement through research e.g. Petroleum Training
Institute (PTI)
Disadvantages of a mono-product economy
1. NNPC, controller of Nigeria petroleum, earns abnormal profit at the expense of economic efficiency
and the welfare of consumers and society.
2. The cost of petrol and allied products are expensive as there is no competitor.
3. Under-consumption of the product because of cost e.g. people in villages use firewood to cook
instead of kerosene or gas because they cannot afford it.
4. Under-utilization of resources because of the cost of production such that it now exports crude oil
and import refined petroleum products like petrol, kerosene, etc.
5. Inefficiency as there is not much investment in research leading to us still having expatriates
operating our oil sector in Nigeria.
6. There is a lot of bribery and corruption in the oil and gas sector.

An import-oriented economy is the one that tends to buy things from other countries (import without
selling to other countries). Also, the things bought in most cases are not capital goods like tractors and
machineries but consumer goods like toiletries, clothing, footwear, drinks and other food items, etc.
Any country that is import oriented cannot grow because it will use its scarce foreign exchange to buy
things that do not matter.

Advantages of an import-oriented economy

1. There are varieties of already made products to buy from.
2. You can consume products that you do not produce.
Disadvantages of import-oriented economy
1. Waste of foreign exchange to purchase worthless things.
2. Indirect payment of tax in foreign countries through the things we buy. Thus we end up developing
foreign countries at the expense of our country.
3. Destruction of the indigenous producers who cannot compete both in quality and cost of imported
products.
4. A deficit balance of trade which is tilted towards imports.
5. A reduction in the standard of living of people because of increase in poverty, etc.
Diversified Economy
A diversified economy means to develop a wider range of products, interests, skills, etc. in order to be
more successful or reduce risk. Thus, instead of concentrating in petroleum alone, we need to look at
other areas like solid minerals (bitumen, limestone), agriculture, etc. so that we can earn foreign
exchange from other sources too.

Need for diversification of economy

In a diversified economy, one can earn foreign exchange from other sources apart from petroleum.
Thus we need to diversify our economy for the following reasons:
1. To prevent a sudden economic collapse because of over-dependence on one export commodity.
2. To create more business outlets.
3. To increase the capital income of the country.
4. To open more employment opportunities, and
5. To create more resources for the country.

SECTORS OF THE NIGERIAN ECONOMY

Sectors of an economy refer to the different areas of production or services with their particular
resources.

The two major sectors of the Nigerian economy are:

1. Private sector
2. Public sector
The following areas of the economy can be found within the two sectors. These are:
1. Agriculture
2. Mining
3. Finance
4. Industries
5. Education
6. Insurance, etc.
The Private sector
This is made up of those who do not work with the government (public sector). They are found in all
areas of the economy like agriculture, mining, finance, industries, etc. Examples include Otta farm,
Livestock Feeds, Diamond Bank, Union Bank Plc, Unic Insurance, Thermocool, Cadbury, Mobil,
Shell Bp, etc.
The different types of companies under the private sector are: enterprises, limited liability companies,
public liability companies (PLC), Non-Governmental Organisations (NGO), Africa Independent
Television (AIT), Silverbird Television (STV), etc.
The Public Sector
The public sector of Nigeria’s economy has to do with areas that the government has a vested interest
and regulate the activities of such parastatals. Below are a list of such parastatals:
1. Nigerian Postal services (NIPOST): Mail delivery services among other communication services are
conducted by NIPOST. However, its continued existence is threatened by other communication
services like GSM, courier services, e-mail, etc.
2.Nigeria Telecommunication (NITEL): It handles telephone system for Nigeria and provides services
for Global System Mobile Communication (GSM).

The Public Sector

The public sector of Nigeria’s economy has to do with areas that the government has a vested interest
and regulate the activities of such parastatals. Below are a list of such parastatals:
1. Nigerian Postal services (NIPOST): Mail delivery services among other communication services are
conducted by NIPOST. However, its continued existence is threatened by other communication
services like GSM, courier services, e-mail, etc.
2.Nigeria Telecommunication (NITEL): It handles telephone system for Nigeria and provides services
for Global System Mobile Communication (GSM).

3. Power Holding Company of Nigeria

PHCN is responsible for the generation and transmission of electricity in Nigeria. The different
sources of energy for PHCN are water (Hydro-electric Power), gas (thermal electricity), coal (thermal
electricity). However, PHCN is very inefficient just as its predecessor, National Electric Power
Authority (NEPA).
Previously, President Goodluck Jonathan tried to privatise electricity generation, transmission and
distribution in the country. It was meant to take full effect from April 2011 but this has not effectively
been so up till 2020. Though prepaid meters are being sold, not every household within the country
has access to it. So some people are still using the old meter with estimated bills. Recently in 2019, the
government tried to increase the electricity tariff, but people kicked against it and so it has not been
fully implemented yet.

But it is worthy to note that VAT has recently been increased by the Buhari administration from 5%
to 7.5%. So this will automatically increase the price of electricity as electricity subscribers normally
pay VAT
4. Nigerian Television Authority (NTA):
The Nigerian Television Authority was first established at Ibadan. It broadcasts news, entertainment
and educational programmes. Its programmes are not only transmitted to Nigeria but globally.
5. The Nigerian National Petroleum Corporation (NNPC)
NNPC deals with the exploration, production, distribution and exportation of Nigeria’s petroleum
and natural gas.
Petroleum was discovered in 1957 at Oloibiri, Rivers State. It contributes more than 80% of Nigeria’s
foreign exchange earnings. Nigeria belongs to OPEC
(Organisation of Petroleum Exporting Countries). However, even though Nigeria is exporting crude
oil, it has been unable to adequately refine it for home consumption and so, it is now importing
refined petroleum products like petrol, kerosene, etc. This is very sad.
Other parastatals in the public sector include Independent National Electoral Commission (INEC),
Central Bank of Nigeria (CBN), etc.

Importance of different areas of the economy

A. Agriculture
1. Food supply
2. For construction of shelter e.g. wood
3. Raw materials for industries e.g. cocoa, cotton, etc.
4. Employment opportunities
5. Source of foreign exchange e.g. cocoa, palm kernel, etc.

B. Mining
1. Source of foreign exchange e.g. crude oil
2. Raw materials for industries e.g. limestone
3. Employment opportunities.
4. Aesthetics – jewellery e.g. gold
5. Infrastructural development in mining areas especially.
6. Source of energy/power e.g. petroleum, coal, etc

C. Finance (Banking/Capital Market)

1. Employment opportunities.
2. Enhances trading/investment transaction especially through e-banking.
3. Provides avenue for saving money for the populace.
4. Provides loans for investors for capital projects, etc.

C. Finance (Banking/Capital Market)

1. Employment opportunities.
2. Enhances trading/investment transaction especially through e-banking.
3. Provides avenue for saving money for the populace.
4. Provides loans for investors for capital projects, etc.

D. Industries
1. Manufacturing of goods e.g. Cadbury
2. Reduces wastage of foreign exchange on things that can be produced within the country.
3. Employment opportunities
4. Utilisation of agricultural raw materials, thereby encouraging farming.
5. Development of infrastructural facilities in areas of production.

E. Education
1. Train the future leaders of the country.
2. Provides employment opportunities.
3. Develop the technological know-how of the country.
4. Takes care of the social/emotional development of the children.
5. An avenue for passing on the ideals of Nigeria through the National Curriculum, etc.

Insurance
1. Insures the risk of investors and their businesses.
2. Insures people’s life.
3. Serves as an investment for insurers.
4. Provides employment opportunities.
5. Infrastructural development in areas of operation, etc.

ECONOMIC REFORM MEASURES IN NIGERIA

The economic reform measures that Nigeria has adopted are:

A. Privatisation
B. Commercialisation
C. Deregulation
Privatisation is the transfer of public sector resources to the private sector.
It can also be defined as the relinquishment (to stop having control) of part or all the equity and other
interests held by the Federal Government or its agency in enterprises whether wholly or partly owned
by the Federal Government.
Reasons for privatisation
1. To invite private entrepreneurs to participate in the running of government owned enterprises.
This is with a view of generating more funds for the government business.
2. It is also aimed at reviving Nigeria’s dwindling economy.
3. It is believed that with the private hands in the management of public enterprises, these business
concerns would be efficiently managed for increased productivity.
Advantages of Privatisation
1. It brings about competition: With the involvement of the GSM companies such as MTN,
Airtel, Globacom, 9Mobile, etc. in the Nigerian Telecommunications Business NITEL which cannot
compete has somehow been grounded.
Competition in the sector has consequently forced down prices of telephone services.
2. Better working conditions for workers
Workers’ welfare is better cared for when an establishment is privatised.
3. Positive attitude to work: The negative notion that government work is nobody’s work is
completely removed. Work is taken more seriously. Workers show greater commitment and
dedication to their duties.
4. Better Supervision: In the public sector, workers are seen as not being very committed because they
are not adequately monitored. But in the private sector, workers are made to have a sense of oneness
and belonging so that they can be committed to their work.
5. Improved innovation: Competition and better remuneration make the workers to be committed. In
a bid to outdo other companies in the sector, workers develop fresh ideas and innovations that are
aimed at enhancing their competitive edge.
6. It brings about a more eager work-force: No one invests money and watches it go down the drain.
That is why privatised establishments first of all determine, then get rid of lazy workers and employ
fresh and energetic young men and women that hunger for the success of the establishment. They
motivate them adequately to achieve company goals of maximum profit.
7. Increased profit: With privatisation, new products and services are developed, marketed widely
and sold in the open market to generate profit for the company.
Disadvantages of privatisation
A. Forced retirement: As a result of privatisation, some workers are forced to retire. This causes
hardship for those who do not have any business to fall back on.
B. Resignation: Some personnel in the establishment that has been targeted for privatisation might
resign their appointment because of fear of victimisation by the new management.
C. Down-sizing: The new management of the establishment may reduce the staff strength so as to save
expenditure. They may also remove positions that are not seen to be relevant thereby making some
people to lose their jobs.
D. Inter-company conflicts: Privatisation encourages fierce competition between companies. Where
this is the case, it could lead to all sorts of wars: media war, trade war, price war, or even physical war
especially in a society that has a weak policy on inter-company relations.
5. Inflation: The government owned establishments subsidizes the goods and services they provide to
curb inflation. But in the private sector, profit is the basic consideration that drives production.
6. Unemployment: Privatisation brings about massive unemployment, pre-mature retirement and
sacking of employees due to its down-sizing policy.