Countries of the World/COUNTRYS.BIN/dp/0263/02635.txt

Text File | 1991-06-25 | 15KB | 236 lines

$Unique_ID{COW02635}
$Pretitle{357}
$Title{Nigeria
Chapter 3E.   Foreign Trade and Balance of Payments}
$Subtitle{}
$Author{Robert Rinehart}
$Affiliation{HQ, Department of the Army}
$Subject{percent
government
imports
nigerian
oil
labor
unions
trade
goods
1970s}
$Date{1981}
$Log{}
Country:     Nigeria
Book:        Nigeria, A Country Study
Author:      Robert Rinehart
Affiliation: HQ, Department of the Army
Date:        1981

Chapter 3E.   Foreign Trade and Balance of Payments

     Until the mid-1950s agricultural commodity exports-mainly cocoa,
groundnuts, palm oil and palm kernels-had earned more than the cost of
merchandise imports, the demand for which remained limited by the country's
low per capita income, lack of industrialization, and negligible use of
foreign inputs in agriculture. As the 1950s progressed, however, the growth of
manufacturing, expenditures on the country's infrastructure, and increasing
demand for consumer goods-particularly in the expanding urban
centers-necessitated heavy imports of capital equipment, raw and intermediate
materials for industry, and consumer goods. From 1956 through 1965 there were
regular deficits in the merchandise trade. This situation changed in the
mid-1960s when petroleum became a major source of export receipts; in 1966 the
latter increased to almost a third of export earnings, resulting in a trade
surplus. The civil war disrupted petroleum output and export, but a favorable
trade balance was maintained, largely by stringent import and foreign exchange
controls. Large-scale oil production was renewed in 1969, and petroleum became
the most important foreign exchange earner, accounting that year for 58
percent of total export values. In 1970 its share rose to 74 percent and by
1974 was over 90 percent, a proportion maintained thereafter into the early
1980s. From 1974, however, the high receipts from petroleum were chiefly a
result of rising world petroleum prices, rather than an increase in export
volume.

     Because of the country's development effort, the great bulk of imports
have been capital goods, raw materials, and intermediate goods for industry,
which together accounted for an average of 70 percent of imports between 1974
and 1979. Machinery and transport equipment constituted the largest single
category (see table 8, Appendix). Consumer goods, of which two-thirds were
nondurable items, averaged close to 30 percent. Foodstuffs represented a
significant share of imports and in the late 1970s made up more than 10
percent of the total, in part a result of domestic agriculture's failure to
keep up with growing demand.

     Nigeria trades worldwide with about 100 countries and territories.
Traditionally its chief trading partner was Britain, and in the late 1970s the
latter remained the largest purchaser of Nigerian non-petroleum exports and
the largest supplier of Nigerian imports. Britain had also been an important
purchaser of Nigerian oil until North Sea production began in the late 1970s
(see table 9; table 10, Appendix). The most significant change in export
destinations in the 1970s was the dramatic rise in oil exports to the United
States, which increased from 29 percent of the total in 1974 to 47 percent in
1979. The European Economic Community (EEC-also known as the Common Market)
dropped to second place as its imports of Nigerian oil declined from 50
percent in 1974 to an average of about 35 percent in the late 1970s. The EEC,
including Britain, was the destination, however, of three-quarters or more of
Nigerian non-petroleum exports, whereas the United States accounted for only
about 11 to 12 percent. In Europe the Federal Republic of Germany (West
Germany) was second to Britain in purchases of non-oil goods, followed by the
Netherlands. In the late 1970s France was reported to be pushing aggressively
for increased trade, and Nigeria's exports of non-petroleum products to that
country rose substantially in the 1978-80 period. Trade with African
countries, mainly members of the Economic Community of West African States
(ECOWAS), was relatively small, ranging between 3 and 4 percent of the total
for both exports and imports. Trade has grown over the years with the East
European communist countries but has nonetheless remained small (see Communist
Countries, ch. 4). No oil was exported to those countries in the late 1970s,
and exports of other items-mainly cocoa and rubber-accounted for only about 4
percent of Nigeria's total non-oil exports. Nigeria's promotion of trade with
Eastern Europe appeared in large part to be an effort to diversify economic
ties.

     Nigeria's balance of payments-the summary in money terms of transactions
with the rest of the world-was closely tied during the 1970s to surpluses in
the oil sector and the extent to which those surpluses balanced or exceeded
the deficit that regularly characterized the rest of the economy (see table
11, Appendix). Earnings from commodity exports, which two decades earlier had
more than covered the cost of imports, were relatively stagnant and annually
far short of current expenditures on imports. Net services were constantly in
deficit, affected principally by payments to foreign contractors for oil
exploration and development as well as for services required for the
implementation of an increasing number of government projects, and by a
reduction in payments from abroad resulting from the government's acquisition
of major equity holdings in the oil companies. From early in the decade, net
transfers were also negative; the deficit grew annually thereafter through
1980. Capital transactions-direct investment in petroleum and other sectors,
external borrowings-regularly failed to meet the shortfall in the non-oil
economy (the need for foreign capital was influenced, however, by the oil
account surpluses).

     In 1971 many of the import restrictions of the civil war period were
removed. Through 1973, however, imports remained moderate, and growing oil
receipts somewhat exceeded the deficit in the rest of the economy permitting
slight additions to be made to external reserves (then equivalent to the cost
of about three months' imports). In 1974 oil export receipts rose dramatically
as major increases took place in international petroleum prices and, except in
1975 and 1978 when setbacks in production occurred, they continued to increase
through 1979. Imports also rose rapidly from 1974, however, and from 1976
reserves had to be used to cover a growing balance of payments deficit. Near
mid-1978 the government banned thirteen categories of imports, required
licenses for fifteen others, and introduced new import duties and rate
increases. But the principal impact was not felt until 1979, when a drop in
imports and larger oil export earnings resulted in a substantial balance of
payments surplus. External reserves at the end of the year, totalling [N]3.154
billion, could finance five months imports. Some relaxation of the 1978
import restrictions occurred in 1980, but oil earnings increased as world
prices were again raised. Information in mid-1981 indicated that a favorable
balance of payments had been registered in 1980, and external assets were
reported to have risen to [N]5.445 billion at the end of 1980.

Prices, Wages, and Employment

     The Nigerian economy has experienced a high rate of inflation since 1974,
when the effects of greatly increased expenditures by both federal and state
governments and a resultant very large expansion of the money supply began to
be felt. At the same time, in December 1974 the government granted large wage
increases to its employees, only the third raise since independence (the first
was in 1964, the second in 1971 after the civil war). This so-called Udoji
Award (the chairman of the wage commission was Chief Udoji) was also adopted
by the modern private sector for increases to workers. Individual incomes
improved, and demand for goods rose. Unable to handle increased consumer
demand, the distribution system created scarcities that added further