Editors
E. Remf Aiyede
Babatunde Alayande
Azeez Mabawonku
UNIVERSITY OF IBADAN LIBRARY
lRJaiinos in (j)eveCopment CPolicy ani
. Capacity (}Juillino in g{ZOeria
A Book of Readings in Commemoration of the
Tenth Anniversary of the Development Policy Centre
Editors:
E. Remi Aiyede
Babatunde Alayande
Azeez Mabawonku
DEVELOPMENT POLICY CENTRE
OJETUNJI ABOYADE HOUSE
IBADAN, NIGERIA
UNIVERSITY OF IBADAN LIBRARY
Development Policy Centre,
Ojetunji Aboyade House,
5, Oba Akinyele Street, DPC Road
Agodi ORA,
Secretariat P.O. Box 30733,
Ibadan.
All rights reserved. Copies of this publication are available
for sale at (he Development Policy Centre
ISBN: 978-8003-09-5
First Published 2003
Produced by ally Communications, Ibadan, Oyo State, Nigeria
Tel: 02-8102826, 0802-3356279.
Printed in Nigeria by Daily Graphics Nigeria Limited, Ibadan.
0803-3108965
UNIVERSITY OF IBADAN LIBRARY
Development Policy Centre,
Ojetunji Aboyade House,
5, Oba Akinyele Street, DPC Road
Agodi ORA,
Secretariat P.O. Box 30733,
Ibadan.
All rights reserved. Copies of this publication are available
for sale at the Development Policy Centre .
ISBN: 978-8003-09-5
First Published 2003
Produced by ally Communications, Ibadan, Oyo State, Nigeria
Tel: 02-8102826, 0802-3356279.
Printed in Nigeria by Daily Graphics Nigeria Limited, Ibadan.
0803-3108965
UNIVERSITY OF IBADAN LIBRARY
CONTENTS
List of Tables v
List of Figures viii
Preface ix
1. lntroduction 1
Section I: Governance
2. The Practice and Standard of Corporate Governance
in Nigeria 11
3. Federalism Decentralisation And The Liberalisation Of
The Business Environment In Nigeria 41
4. Constitutional and Legal Bottlenecks to Privatisation
in Nigeria 67
5. Issues in Conflict Management in Nigeria 93
6. Reinventing Local Government in Nigeria 127
Section II: Macroeconomic Management
7. Attracting Foreign Investment Through Private Sector
Partnership: What Hope For Nigeria? , 159
8. Nigerian Trade Policy in the Context of Regional and
Multilateral Trade Agreements 185
9. A Review of Nigeria's Privatisation Programme 211
III
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10. Evaluation of Programmes and Policies for Supporting
Small~ScaleEnterprises in Nigeria .....................•.•.......................2.39
11. Building the Nigeria Private Sector Capacity: An
Afsessment of Problems and PolicyOptions 263
Section III: Poverty Alleviation and Rural Development
12. The Impact Of Government Poverty Alleviation On
Entrepreneunhip Development In Nigeria 293
13. Pension Schemes' Administration in Nigeria: Prospects,
Problems and Policy Options •••••.•••••...••.....•...•....•....••••..•..•.•3..1..9.•.••.
14. Rural Development in Nigeria: Too Many Programmes;
Too Little Results ......................•..................................................... 345
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LIST OF TABLES
Table 2.1 : Distribution of Establishment by Activity Group
and by Type of Ownership in Lagos State, 1997 14
Table 2.2: Ownership Characteristics of Nigerian Quoted
Companies, 1995-1998 (Average %) 16
Table 2.3: Nigeria: Scores of Measures of Corporate
Governance ..~ 28
Table 3.1: Business Environment Ranking of Countries
1998-2002 50
Table 3.2: Independently Sourced Revenue of the States in
Relation to Revenue Appropriated from the
FederationAccount: 1988-1999 (N Million) 57
Table 6.1: Revenue profiles of Local Governments
1996--2000 145
Table 7.1: Structural Change in the Nigerian Economy,
1960-1998 163
Table 7.2: Capacity Utilisation in the Nigerian Manufacturing
I Sector, 1981-1999 164
Table 7.3: Agricultural Productivity, 1979-81 and 1996-98
(US Dollar) ~ 164
Table 7.4: Seven Key Disputed Issues About the Role and
Impact of Foreign Direct Investment in Develop-
ing Countries 167
Table 7.5: Main Types of Fiscal Incentives for FDI ~ 169
Table 7.6: Foreign Direct Investment in Nigeria, 1970-98 172
Table 7.7: Flow of Foreign Private Capital into Nigeria by
Source, 1970-97 173
Table 7.8: Components of Net Capital Flow by Origin
(W= 'Million) 174
Table 7.9: Cumulative Foreign Private Investment in Nigeria
by Type of Activity, 1970-97 (W= Million) 175
Table 7.10: Cumulative Foreign Private Investment in Nigeria
by Type of Activity, 1970-97 (W= Million) Cont'd .. 175
Table 7.11: Cumulative Foreign Private Investment in Nigeria
by Type of Activity, 1970-97 (W= Million) Cont'd .. 176
Table 7.12: Top 12 Developing-Country Recipients ofFDI,
1970-96 177
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Table 8.1: Trade Movements, 1973-1999 183
Table 8.2: Structure of Trade (%), 1980 - 99 189
Table 8.3: Direction of Trade (%) 1990-1999 191
Table 4: Import TariffIndicators (%), 1990-2001 195
Table 5: Import Restriction and Local Sourcing of Raw .
Materials: 197
Table 8 6: Growth of Manufacturing Output, 1985 - 1999
(1985 = 100) 198
Table 9.1: Federal Government investment in various
Companies as at 1985 215
Table 9. 2.I Number of Privatised Enterprises 223
Table 9.3: Top Ten African Countries in Sales Value, 1997 224
Table 9.4: Profitability Level of Selected Privati sed
Enterprises 226
Table 9.5: Changes in Output of Selected Privati sed
Enterprises 228
Table 9.6: Employment Changes of Selected Privati sed
Entreprises 229
Table 9.7: Changes in Earning Per Share of Selected
Privatised Enterprises 230
Table 10.1: Structure of Industrial Establishments in Nigeria 241
Table 10.2: Sectoral Composition of SSEs in Nigeria
(percentage) '~242
Table 10.3: Geographical Distribution of SSEs L~243
Table 10.4: Prescribed and Actual Credit to the SSEs by
Commercial Banks , 251
Table 10.5: Prescribed and Actual Credit to the SSEs by
Merchant Banks : 252
Table 10.6: Indicators of Community Banks Performance
in Nigeria 252
Table 10.7: Indicators ofPerfotmance of NBC I in Nigeria 254
Table 10.8: NBCI Approvals and Disbursements (1981-1990) 254
Table 10.9: Indicators of People's Banks Performance in
Nigeria 256
Table 11.1: Distribution of Firms by Employment Size, Skill
Category, Gender and State , 273
Table 11.2: Sources of Skills Acquisition 273
Table 11.3: , Distribution of Firms by Identified Constraints
and by State ; 274
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Table 11.4: Nigeria: Size of the Informal Sector 276
Table 11.5: Status of Workers 276
Table 11.6: Educational Levels of Employees 277
Table 11.7: Sources of Skills Acquisition 278
Table 11.8: Sources Utili sed for Skills Upgrading 278
Table 11.9: , Number of Skilled and Unskilled Personnel 279
Table 11.10: Levels of Satisfaction with Skill Levels of Workers .. 279
Table 11.12: Skill Levels Adequate for Tasks on Hand 280
Table 11.13: Any Difficulty in Recruitment of Skilled
Personnel? 280
Table 11.14: Major Customers 281
Table 11.16: Assessment of Workers' Productivity 282
Table 11.17: Assessment of Work Habits of Employees 282
Table 11.18: Constraints encountered 285
Table 11.19: ' Sources of Raw Materials and of Tools 285
Table 12.1: Characteristics of Respondents 302
Table 12.2: Trend in Business Capital 303
Table 3: Government Poverty Alleviation Programmes
from which Entrepreneurs Benefited 305
Table 10.4: Benefits Received by Respondents 307
Table 12.5: Impact of Programmes on Machine Acquisition 308
Table 12.6: Impact of Programmes on Training 309
Table 12.7: Impact of Programmes on Production Process 310
Table 12.8: Impact of Programmes on Productivity 311
Table 12.9: Access to Bank Credit 3 11
Table 12.10: Interest Rate and Decision to Borrow 312
Table 13.1: Schedule vii ofthe Pension Act of Nigeria ; 320
Table 13.2: Trends of Public Expenditure on Pensions and
Gratuity in Nigeria (N'million) 327
Table 13.3: Percentage of Minimum Old-Age Pensions to
Minimum Wages (International Comparison) 329
Table 13.4: Age structure ofthe Nigeria's Population in 1991 331
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LIST OF FIGURES
Figure 2.1 Fair Conduct of Shareholders' Meeting ". 27
Figure 2.2 Effective Prohibition of Insider Trading .....1 •••••••••••••••••••••••••••••••••••• 29
Figure 2.3 Country Scores for Regular Publications of Directors'
Dealings., 29
Figure 2.4 Scores on Capital Changes Announcement with Due
Warnings and Participatory Opportunity : 30
Figure 2.5 Country Scores for Transparent Implementation of
Extraordinary Transactions 31
Figure 2.6 Country Scores for Regular and Consistent Publications
of Results 31
Figure 2.7 Scores for the Existence of Annual Independent Audits 32
Figure 2.8 Scores on the Existence of Equal Information Access to
all Shareholders 32
Figure 2.9 Scores on Shareholding Structure Information Freely
Available : 33
Figure 2.10 Scores of the Role of the Board of Directors 34
Pigure'z.I! Country Scores for Effective Shareholder Right
Enforcement 34
Figure Q.12 Scores for Quality of Access on Visits : 35
"Figure2.13 Overall Country Average Score 36
Figure 2.14 Nigeria's Overall Score Compared with those of East
European Countries 36
Figure 7.1 Proportions of Sources of Foreign Private Capital in
Nigeria, 1970-97 ............................................•................................. 173'\
. I
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PREFACE
DPC AS A THINK TANK AND ITS IMPACT
The Development Policy Centre is an independent, non-governmental
organisation founded by eminent Nigerian scholars as a development
policy think-tank representing a critical mass of intellectuals, scientists,
professionals and industrialists in Nigeria. The primary objective of the
Development Policy Centre as a private non-profit company limited by
guarantee, is to spearhead strategic long-range thinking on development
policy issues thereby generating alternative policy options.
Work in the DPC is organised around four programme units, namely:
Socio-Political Policy Unit, Economic Policy Unit, Environment and
Technology Policy Unit and Library and Information Management Unit.
Each of the Units also has specific areas of focus. The Socio-Political
Policy Unit concentrates on governance and administrative reforms and
r social development, population and gender issues. The focus of the
Economic Policy Unit includes fiscal reform, macroeconomic
management, and the real economy; while Environment and Technology
Policy Unit is concerned with energy and the environment, urban and
rural development, and science and technology development. The
Library and Information Management Unit focuses on library services,
data and information management. Each of the four Programme Units of
the DPC is involved in three categories of programme activities, namely
research, training, and outreach.
Outreach activities are designed to 'deepen knowledge about, and
stimulate policy concern for, promoting development at the grassroots.'
In the period under review, diverse outreach activities were carried out.
These include public lectures, policy dialogues, eminent persons
seminars, staff seminars, the policy articulation network and other
activities such as the city consultation and public symposia that were
organised occasionally.
The contributions of the programme activities of the Centre could be
evaluated in terms of the specific outputs of the programme activities.
The main output from research activities are research reports and project
reports. Presentations at the staff seminars are published as working
papers while public lectures are published as such. Papers presented at
the Eminent Persons Seminars and Policy Dialogues are also published.
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Development Policy Centre has since come a long way in its attempt
to assist in enhancing national effort in capacity building in policy
analysis and development management. It has also been active in bridge-
building betv.een the public and private sectors and between them and
civil society and the academia. Its effort to make some difference to the
quality of policy development in the country has been growing steadily
and receiving due recognition.
In 2002, DPC inaugurated research leading to the publication of
NIGERIA DEVELOPMENT REPORT with the maiden issue being that
for year 2001. Nigeria Development Report 2001 documents various
changes in the economic, political, social and technological
environments in the year 2001. The report is divided into three parts.
The first part on profile of development treats Nigerian economy along
ten sectoral lines. It examines the trend .in economic, human and
educational developments. Also issues of governance, rural and urban
development, rate of urbanization, environmental changes, science and
technology are discussed in the report.
Our outreach activities have been expanded in scope with the
launching of the Annual Lecture Series in 2001. Two of such lectures
have been delivered by the Governor of the Central Bank, Dr. Joseph
Sanusi and Senator Anyim Pius Anyim, former Senate President.
The table below gives a broad picture of the efforts of the Centre up
to year 2002.
Programme outrputr: Types andNurnbero fPubrleafIons 0fth e DPe
Types of Publications 1995 1$96 1997 1998 1999 2000 2001 2002 Total
Research Reports - - - 14 07 03 4 25 53
WorkinQ Papers 01 01 - 06 06 06 5 - 25
Policy Brief - - - - 07 03 1 2 13
Policy Dialoque - 01 02 02 - - 05
Policy lnsiqht - - - - - 01 01
Public Lecture 03 01 - - - - 1 1 06
Economic lntelliqence - - 03 04 04 02 - - 13
Project Reports - 01 03 01 04 08 8 10 45
Digest of Literature on
Contemporary P frican - 02 03 05 - 04 01 - - 15
Development
Book 1 1 02
Others - - - - 01 01 - - 02
ITotal 04 06 11 I 32 I 33 25 20 39 1§~
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We present in this volume a selection of publications which are
products of policy-oriented studies done by staff and associates of DPC
between 1995 and 2002. We hope the collection will give a useful
insight into the range of policy issues that has engaged the attention of
the Centre in its effort to influence the processes of policy formulation
and implementation on the basis of well-researched ideas.
We hope that making .the selection available in one volume will
facilitate access to the publications and enhance their usefulness in
contributing to informed discussion of the issues concerned.
Professor B. OJatunji Oloruntimehin
Managing Director
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1
INTRODUCTION
Since independence, development in Nigeria has been hampered by a
series of socio-political crises. These crises have resulted in the poor
performance of the economy. The nation's external trade relations, in
particular, reveal an important element of the weak underbelly of
Nigeria's economy. For instance, outside of the oil sector, the country has
lost much of its capacity for export. Its heavy import dependence largely
explains why the country has not been able to build up adequate external
reserves. Besides, the nation was for most of the 1990s unable to make
any appreciable impact on reducing its debt overhang, which remained at
well over US$27 billion by the end of the century.
For the average Nigerian family, the nation's poor economic
performance has meant greater difficulty in securing a good quality of
life. Thus, the end product of this unimpressive economic performance
has been a sharp deterioration in societal welfare. In the mid-1990s life
expectancy of Nigerians at birth was 51 years or only 83% of the average
for all developing countries; the proportion of Nigerians with access to
health services, safe water and sanitation was just over 50% compared to
an average of over 70% for all developing countries; Nigeria's daily
calorie supply per capita was about 83% of the average for all developing
countries; Nigeria's adult literacy rate estimated at about 53% was well
below the average of 70% for all developing countries; and gross school
enrolment ratio (at all levels) for all developing countries averaged 74%
compared to Nigeria's 51%. Social service delivery had become very
epileptic whether in respect of electricity, telecommunications, air
transportation or potable water supply. The quality of social services in
education and health-care has declined drastically. Poverty became
widespread and endemic. This extensive decline in economic
performance in Nigeria is often linked to the persistent gap between
policies and outcomes. Not only has Nigeria perhaps planned wrongly,
even its most promising plans have been poorly executed due partly to
inadequate skilled personnel for development policy management. The
inadequate supply of human resources has been worsened by the flight of
1
UNIVERSITY OF IBADAN LIBRARY
2 Readings in Development Policy and
Capacity Building in Nigeria
human capacity during the hey days of economic recession an4 the
declining quality of skills that followed falling educational standards
during this period. Thus, Nigeria cannot claim to have been able to rise
up to the challenge of bringing together its human and material resources
in a cohesive fashion that is capable of ensuring effective implementation
of its developmental programmes.
In addition, the excesses and wanton corruption of both civilian and
military regimes in the last 30 years pushed Nigeria out of the
international respect it had enjoyed in the days of the oil boom into the
status of a pariah nation. This resulted in tremendous damage to the
interest of the country and its peoples. The institutions of governance
whether at the federal, state or local levels were impaired beyond belief.
Policies and programmes were weakly conceived and poorly executed.
Manpower development especially at the higher level of policy making
further deteriorated and the relation between the public and private
sectors .as well as between government and civil society became highly
strained. The inefficiency, incompetence and unproductive disposition
of the administrative machinery of government had negative impact on
policy. outcomes. This, perhaps, informed the series of reforms
embarked upon by government and which, albeit, were half-heartedly
executed by successive governments.
It is clear that for Nigeria to attain sustainable growth and
development, effective policy intervention is required for efficient and
effegtive management of the country's resources. The intervention must
not stop at effecting some policy changes. Also very significant is the
need to rebuild the capacity to intervene in the policy process in a
holistic manner. Two challenges that follow are (i) the need to evolve a
visionary leadership that is able to appreciate the dimensions and
magnitude of the developmental problem, and (ii) the need for evidence-
based policy process that makes effective use of research and output of
policy analysis, while also encouraging open policy dialogues and
debates.
For a more rational and effective policy process, there was (and still
is) the need, not only to advance policy-based research, but also the
capacity to utilize the research output by the relevant public and private
sector agencies. Thus, fresh effort at capacity building in policy analysis
and development management has become a critical issue for Nigeria. It
has also become imperative to increase partnerships among the various
stakeholders in the development process.
UNIVERSITY OF IBADAN LIBRARY
Introduction 3
It was in response to such challenges that the idea of a Centre
dedicated to renewing and enhancing national capacity for policy
analysis and development management was conceived. The
Development Policy Centre (DPq has a mission to "enhance national
capacity in carefully articulating, realistically formulating, and
effectively implementing policy options calculated to promote overall
locally sustainable development".
The chapters of this book are a selection of the research works of the
staff and associates of the DPC in the three key areas of policy
intervention programme: governance, macroeconomic management and
poverty alleviation. Accordingly, the book in divided into three sections.
The first section deals with governance, the focus of this section is on
fundamental elements of corporate and public governance. The second
section is on macroeconomics. Issues dealt with include economic
liberalisation, trade and investment drive and small-scale industry
promotion. The third section is devoted to poverty alleviation and
related social security issues.
The adoption of various economic reform programmes in Africa in
the 1980s, in which privatisation of government-owned enterprises forms
a major plank, has heightened the corporate governance debate in the
continent. The bitter experience of massive failure of corporate
governance in some countries of Eastern Europe like the Czech Republic
and Russia that rushed into large-scale privatisation _without the
necessary corporate governance "infrastructure", suggests that Africa
needs to take stock of its corporate governance capacity. The second.
chapter therefore analyses the status of corporate governance in Nigeria
as part of the effort to contribute to this debate.
Nigeria has an elaborate institutional and legal framework for
effective corporate governance but with weak compliance and/or
enforcement. There is therefore a need to breathe life into this
framework for Nigeria to reap the benefits of corporate governance. The
role of the courts -is considered critical, as the state of corporate
governance merely reflocts the lack of confidence of the average
shareholder in the capacity of the judicial system to help him enforce her
rights. The rule of law must be established as the bastion of democracy.
Chapter three examines how federal restructuring and decentralisation
can be tailored towards the creation of an enabling environment for
business in Nigeria. It studies the implications of previous reforms for
the business environment in Nigeria and suggesting ways of making it
future political restructuring to improve the business environment.
UNIVERSITY OF IBADAN LIBRARY
4 Readings in Development Policy and
Capacity Building in Nigeria
Restructuring programmes in the past have had the effect of increasing
central control and reducing opportunities for citizen participation, and
stultified creativity.
Political regulation has been the major focus of the process as against
political participation. Territorial fragmentation and internal boundary
adjustments have resulted in a proliferation of states and local
governments, without local power that can attract and stimulate
participation.
Patronage politics and distributive federalism turned sub-national
governments into sources of funds for private and group enrichment.
The result is absence of accountability and responsiveness in government
and ultimately ineffective and inefficient state structures and service
delivery: poor state of infrastructure, political instability and slow
growth. The chapter calls for a clear-cut distribution of powers and
functions among the various governments with clearly spelt out
institutions of horizontal and vertical accountability. The government
should have economic competitiveness as a cardinal objective of political
restructuring, such that the country will be restructured into competing
governmental units and encourage public/private partnership in
productive activities at the lower levels to enable the exploration of
economic potentials of the various states.
Chapter four deals with the constitutional and legal environment that
has impacted upon the formulation of the policy of privatisation and the
process of its implementation from 1986. This chapter examined the
relevant constitutional provisions on privatisation and commercialisation
since 1986. Apart from constitutional and legal bottlenecks that are
identified, the study highlights other factors, which have contributed to
the faltering manner in which the privatisation exercise had been
conducted before the middle of 1999. It highlights the roles of socio-
political forces and interest groups that have supported or opposed
privatization. Generally, the chapter raises questions of militarism,
centralism and political despotism, as well as their cultural impact on
privatisation as posing major institutional challenges for Nigeria.
Chapter five attempts to tease out major conflicts that occurred in
Nigeria between 1984 and 2000, analyze Government's responses to the
conflicts and their consequences; and layout the policy and practical
implications of the conflict management processes of government.
Concerning conflict management, it notes that the Nigeria Police, widely
distrusted and not seen as an agency that can genuinely help resolve
conflict, seems to be the common state agency for dealing with a conflict
UNIVERSITY OF IBADAN LIBRARY
Introduction 5
situation in Nigeria. "There is thus a crisis of confidence in the existing
conflict resolution agencies sometimes buttressed by their keeping a
blind eye to stewing conflict, halfhearted intervention or plain partial
intervention, which explains the unwillingness to implement the
recommendations of commissions of enquiry, derived from thorough
investigation of past incidents of violent conflicts. The crisis of
confidence leads inexorably to lawless self-defence."
Chapter six reviews local government re-organisation in Nigeria with
a view to contributing to the effort at providing functioning local
participatory self-governing institutions in which democracy and
development can be anchored. Accordingly, it examines local
government re-organisation' s impact on democratic practice and the
trajectory of socio-economic development, teasing out new opportunities
and ideas for enhancing responsiveness, effectiveness and efficiency of
grassroots government. The chapter calls for structural and behavioural
changes to reinvent local government in Nigeria. Deploring the attempt
to uniformise local government across the country, it wants local
government to reflect specific cultural and service delivery peculiarities
across the states. Local government reforms must address the challenge
of making local government meet local needs by mobilising local
resources. Suggesting where to look in improving transparency and
accountability, it insists that strengthening local officials' link with the
citizens is an essential path to enhance local government autonomy vis-a-
vis the state governments. _
Chapter seven examines how to promote the inflow of Foreign Direct
Investment (FDI) through the private sector in Nigeria. It explores the
inflow of FDI in terms of its trend, sources and composition. It then
assesses the Nigerian investment climate. It further explores the basis for
partnership between the indigenous private sector and foreign investors.
The conclusion is that Nigerian private sector is not vibrant enough to
partner with foreign investors. The government needs to continue its
liberalisation policy to expand the private sector, improve infrastructure
and encourage cooperation and partnering between domestic and foreign
investors.
Chapter eight examines Nigeria's trade policy in the context of the
forces of globalisation. It argues that Nigeria's trade policy is shaped by
considerations relating to development strategy, the structure of the
country's exports and imports, as well as its obligations under the
various regional and multilateral trade agreements that the country has
entered into. As its development strategy appears to have shifted, from
UNIVERSITY OF IBADAN LIBRARY
6 Readings in Development Policy and
Capacity Building in Nigeria
the mid-1980s, from an inward-oriented to an outward-oriented stance,
trade policy has been liberalized gradually. This has occurred through
the gradual phasing out of quantitative restrictions and their replacement
with price-based measures, as well as through significant reductions in
the average tariff rate and narrowing of the variation of tariffs.
Regional trade agreements have not had much of an impact on
Nigeria's trade policy partly because the country has not fulfilled its
obligations under the ECOW AS Treaty. But multilateral trade
agreements are already impacting on Nigerian trade policy rather
significantly, especially since the Uruguay Round. Nigeria needs to
utilise the opportunities of multilateral trade negotiations to seek
improved market access for its exports and to ensure that resulting
agreements do not harm its own development strategy. These pose
specific capacity building challenges such as capacities for research,
trade policy articulation and negotiations.
Chapter nine reviews Nigeria's privatisation programme to provide an
assessment of its impact on enterprise performance. To achieve this
objective, it profiles the ownership structure of enterprises in Nigeria
before privatisation. It then analyses the Nigerian privatisation
programme and discussed its implementation. A brief analysis of data on
the effects of privatisation on enterprise performance, and subsequently,
private sector development shows that privatisation has led to some
improvement in the economic and financial position of the enterprises.
Firms that were profitable before privatisation have enjoyed an improved
performance after privatisation. But the results of output changes are
mixed, so also are changes in leverage. For most of the companies, cost
of borrowing remains high in spite of increased access to public equity
markets. The observed increase in share prices indicates strong
performance and high capital appreciation. Government provided no
direct government subsidies or subventions in the sampled companies
after privatisation. Nearly all the sampled firms recorded a significant
increase in payment of taxes to the government. Thus, privatisation has
been effective as a source of revenue to government.
Small-Scale Enterprises (SSEs) contribute to the creation of
employment opportunities, free competitive market environments, inputs
for large-scale industries, industrial innovations and the promotion of
indigenous technology. They are reputed to be flexible in terms of
response to market forces. In developing countries they are pervasive and
as such are very critical to any effort to promote growth and
development.
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Introduction 7
Chapter ten takes on the issue of promoting small-scale enterprises in
Nigeria. It studies two key policies and programmes that have been
initiated to support the development of small-scale enterprises in Nigeria:
those that seek to develop entrepreneurial skills of the SSEs and those
that aim to enhance access of SSEs to credits. It notes that there are too
many programmes and policies with government as the main financier of
most of them. Hence it calls for streamlining to reduce duplication of
efforts. It recommends that the virtual absence of a system of external
evaluation be addressed by instituting independent assessment free from
any involvement by the sponsors of the programme. Noting the lack of
interest by commercial and merchant banks in extending credit to the
SSEs, it calls for credit guarantee and insurance schemes for SSE. The
question of small-scale enterprises is taken up again in chapter twelve in
the context of poverty alleviation programmes. This is against the
realisation that poverty alleviation programmes often target elements that
promote entrepreneurship such as financial assistance, training,
technology use, marketing, general research services, institutional
brokering, and raw materials and other inputs supply. Several poverty
alleviation programmes in Nigeria which target entrepreneurship
development include Directorate of Food, Road and Rural Infrastructure
(DFFRI), Better Life Programme (FSP), Family Economic Advancement
Programme (FEAP), National Directorate of Employment (NDE),
Peoples Bank of Nigeria (PBN), Community Banks (CBs), National
Economic Recovery Funds (NERFUND), among others. The chapter
observes that old traditions of personal sources of finance still constitute
a major source of business finance. Resources from poverty alleviation
programmes constitute a small proportion of total finance to
entrepreneurs. Only marginal increment on productivity is noted in firms
that benefited from such programmes. Programmes initiated to support
SSEs have made modest contributions because the average Nigerian
entrepreneur is not aware of the existence of these supporting schemes
and where they are aware, they are unable to log onto the schemes.
Transparency and stakeholder involvement in programme design and
management can help the situation.
Nigeria moved away from central planning towards a market
economy with the adoption of neo-liberal economic policies in 1986. The
overall thrust of these policies was to make the economy private sector
driven. Almost two decades on, the aggregate contribution of the
Nigerian private sector to the economy is still very low. The eleventh
chapter takes on the question of building private sector capacity to enable
UNIVERSITY OF IBADAN LIBRARY
8 Readings in Development Policy and
Capacity Building in Nigeria
it play the envisaging role of engine of growth and development. This
chapter identifies the capacity gaps of both the formal and informal
private sectors in Nigeria, regarding access to education and learning
opportunities; the rules and regulations that characterize the operating
environment, infrastructural facilities; and the availability of capital both
in terms of financial resources and technologies. It then reviews
programmes to build the capacity of the private sector. Some of these
programmes include those that seek to improve the business
environment, reduce the drain of public enterprises, develop a robust
financial system, increase the supply and quality of human resources, and
providing functional infrastructure. This chapter contains elaborate and
interesting ideas on institutional and human resources development for
the private sector.
Chapter thirteen investigates the problem associated with Nigeria's
social security system, specifically pension administration, and argues
that there are urgent and necessary reforms to stabilize and strengthen the
system. The urgency of these reforms is underscored by demographic
changes, high payroll taxes, tax evasion, inflation and lack of linkage
between the money and capital markets. It calls for the integration of
defined benefit and defined contribution as well as the
institutionalization of the multi-pillar system in Nigeria.
Chapter fourteen examines the various efforts at bringing
development to the rural areas to enhance rural well-being. It also tries to
find out why past policies have failed and proffers suggestions on how to
achieve sustainable growth in the rural areas. Developing the rural areas
is very critical to alleviating poverty in the effort to stem rural-urban
migration and in the context of urban bias in service provisioning.
These chapters have been written by generations of Nigerian scholars
who have worked at the Development Policy Centre as full time staff or
as associates. They reflect diverse perceptions of important issues in
capacity building for development policy and intervention. Some of
these works have appeared as DPC research reports while others are
being published for the first time. Together they represent a sample of
DPC's work in the areas of macroeconomics, governance and poverty
studies.
E. Remi Aiyede,
Babatunde Alayande
Azeez'Nt abawonku
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Introduction 9
SECTION I
GOVERNANCE
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2
THE PRACTICE AND STANDARD OF
CORPORATE GOVERNANCE IN NIGERIAl
T. Ademola Oyejide and Adedoyin Soyibo
2.1. Introduction
Corporate governance, as a concept, can be viewed from at least twoperspectives: a narrow one in which it is viewed merely as being
concerned with the structures within which a corporate entity or
enterprise receives its basic orientation and direction (Rwegasira, 2000);
and a broad perspective in which it is regarded as being the heart of both
a market economy and a democratic society (Sullivan, 2000). The narrow
view perceives corporate governance in terms of issues relating to
shareholder protection, management control and the popular principal-
agency problems of economic theory. In contrast, Sullivan (2000), a
proponent of the broader perspective, uses the examples of the resultant
problems of the privatization crusade that has been sweeping through
developing countries since the 1980s, and the transition economies of the
former communist countries in the 1990s, to prove that issues of
institutional, legal and capacity building as well as the rule of law, are at
the very heart of corporate governance. Besides, the bitter experience of
Asian financial crisis of the 1990s underscores the importance of
effective corporate governance procedures to the survival of the
macroeconomy. This crisis demonstrates in no unmistakable terms that
"even strong economies, lacking transparent control, responsible
corporate boards, and shareholder rights can collapse quite quickly as
investor's confidence collapse'" and emphasizes the need for mutual
cooperation between the public and the private sectors in developing the
capacity to ensure effective corporate governance with a view to
ensuring the development of market-based economies and democratic
societies based on the rule of law.
The adoption of various economic reform programmes in Africa in
the 1980s, in which privatization of government-owned enterprises forms
11
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12 Readings ill Development Policy and
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a major plank, has heightened the corporate governance debate in the
continent. The bitter experience of massive failure of corporate
governance in some countries of Eastern Europe like the Czech Republic
and Russia that rushed into large-scale privatization without the
necessary corporate governance "infrastructure", suggests that Africa
needs to take stock of its corporate governance capacity. This paper is an
attempt to do just that, using Nigeria as a case-study. In the next section
we explore the principal agency theory to provide a perspective for the
analysis of Corporate Governance, while section three reviews the
current structure of ownership in the business sector in the country.
Section four, following Ricardo (2000), identifies and reviews the
different legislations governing corporate governance in Nigeria from
three perspectives: disclosure and transparency; minority and shareholder
rights; and oversight management. The fifth section evaluates the
standard of corporate governance in Nigeria using the OECD scoring
instrument in section IV. The last section is the conclusion.
2.2. Theoretical Framework
The relationships between ownership structure and firms'
performance are usually discussed within the context of the agency
theory. The principal/agency literature suggests that hired managers will
not have the same objectives as profit-oriented private owners; rather
they will use firm's specific rents to satisfy their own maximands. The
limitations on managers' discretionary powers, which tend to affect their
efficiency and profitability, are usually imposed in part on the external
constraints (e.g. posed by product and capital market) and also in part on
internal constraints (posed by statutes and governance mechanism by the
owners themselves). The main issue in the principal/agency literature is
centered on asymmetric information because outside owners do not have
access to full information on corporate performance or the reasons for
under-performance. The separation of ownership and control, which
occurs as a result of the introduction of external investors, brings to the
fore the agency problem: managers are expected to represent the interest
of the external owners.
Shleifer and Vishny (1996) were of the opinion that managers and
equity investors should be capable of entering into a binding contract,
which could ensure that investors' interests are fully represented. The
difficulty here lies in the possibility of specifying ex ante, what
accornmod: .es all, future contingencies. If unforeseen circumstances
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The Practice and Standard of Corporate Governance 13
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arise, managers assume contingent control rights that provide them with
potentials to operate against investors' best interests, by for example,
expropriating investors' funds or engaging in assets stripping. The
discretionary control rights of managers are further increased by the
existence of asymmetric information between themselves and external
investors. This advantage allows managers the freedom to conceal some
pieces of information from external investors. Such action serves to
increase the cost of monitoring and therefore enables managers to pursue
their own rather than those of the equity investors, by entrenching their
position or engaging in behaviour that could be sub-optimal for the
equity investors. The possibility of higher monitoring costs is particularly
strong if there are large number of dispersed external investors, because a
free-rider problem emerges if there are large costs to monitoring while
the benefits accruing to each individual are relatively small.
The free-rider problem could be minimized and internal constraints
on managerial discretion imposed if ownership is concentrated in the
hands of large blocks of shareholders (either individuals or investment
funds). In this event, the returns to monitoring will increase monitoring
activities, which may be subject to economies of scale. Large block
shareholders are more likely to be able to utilize their voting power to
influence managerial behaviour, although, as Shleifer and Vishny (1996)
noted, this will require share holding-voting rights. This leads to the
proposition that large block-holders will exercise more effective
corporate governance.
In the next sub-section, we assess the extent to which these concepts
can promote better corporate governance in Nigeria by analyzing the
ownership pattern of businesses in Nigeria. This will help to isolate the
extent to which the operations of Nigerian enterprises are subjected to
the provisions of company law and capital market legislation. The
provisions of these legislations are expected to mollify some of the
principal/agency problems referred to earlier.
2.3 Structure of Ownership of Private Businesses
In Nigeria, most businesses in the formal sector are not' publicly
listed. DPC (1999), in a survey of enterprises in six randomly selected
states' found that only 13.3% of the enterprises are listed on the Nigerian
Stock Exchange (NSE), while 48.5% are limited liability companies.
Thus close to 38% of companies operating in the formal sector operate
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\
Table 2.1: Distribution of Establishment by Activity Group and by Type
0fO wners hitnp iID Lagos State, 1997
Activity Sole Partner- Public Private Coopera- Statu- Others Total %
Group Proprietor- ship Ltd. Ltd. tive tory No
ship
Agric. &
Forestry 24 1 0 12 0 0 0 37 0.37
Mining
and 1 0 3 15 0 1 0 20 0.20
Quarrying
Manufact-
uring 1220 67 105 509 3 6 7 1923 19.43
Electricity
Gas & 9 1 2 11 0 3 0 26 0.26
Water
Building &
Construct- 43 6 14 80 0 1 0 144 1.45
Ion
Wholesale
& 918 75 132 614 4 4 3 1750 17.68
Retail
rade
Hotel and
Rest- 534 17 13 100 0 2 1 667 6.74
aurant
Land
ransport 27 1 0 24 0 0 0 52 0.53
Other
ransport 36 7 16 60 0 5 4 128 1.29
Private
Prof. 1055 371 271 723 5 9 9 2443 24.68
Services
Other
Iservices 1953 150 43 540 3 5 15 2709 27.37
[Total No.
Yo 5820 696 599 2688 15 36 39 9899 100.0
58.85 7.03 6.05 27.15 0.15 0.36 0.39 100.0 34.84
Source: Federal Office of Statistics: Directory of Establishment Lagos State
1997.
largely outside the provisions of the company law and nearly 87% of
formal sector businesses may be operating outside the legislation
governing the capital market. However, Lagos state leads in the number
of publicly listed companies. In fact, over 71% of firms surveyed in
Lagos operate under the company law while more than 20% operate
under capital market legislation. Based on this finding, and because of
the fragmentary nature of enterprise data in Nigeria, we shall use data on
Lagos State for our analysis in this subsection. Besides, being the
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The Practice and Standard of Corporate Governan. ,
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business and commercial capital of Nigeria, the insights gained from an
analysis of Lagos will reflect, to a large extent, the general structure of
ownership of businesses in Nigeria.
In 1997, there were 599(6.05%) public limited companies" in Lagos
State while private limited companies were 2.688 (27.15%). Sole
proprietorships form the bulk of businesses in the formal sector in the
state as they constitute nearly 59% of registered enterprises (Table 1).
Partnerships constituted about 7% of the enterprises. Thus, most
enterprises in Nigeria operate largely outside the provisions of the
company law and capital market legislation. This suggests that in
Nigeria, only a limited number of enterprises are subject to corporate
governance principles and norms. In the next section, we assess the
ownership structure of enterprises quoted on the Nigerian Stock
Exchange with a view to spotlighting its implications for corporate
governance in the country.
2.3.1 Ownership Characteristics of Quoted Companies
On average, between 1995 and 1998, government owned 8.1% of
companies quoted on the NSE (Table 2). Government dominance of
ownership of quoted companies is highly visible in sectors like
Agriculture (32%), Automobile and Tyre (30%), Banking and Finance
(21%), Petroleum Marketing (17%), Insurance (15%) and Building
Materials (15%). These companies are some of those slated for
privatization. Ownership by domestic individuals appears to be gaining
currency in many sectors like Insurance (61%), Footwear (57.3%),
Breweries (53%), Engineering Technology (53%) Petroleum Marketing
(53%), Banking (36%) and Food Beverages and Tobacco (36%). In fact,
on average, domestic individuals own nearly 35% of the shares of quoted
companies in Nigeria. Institutional ownership of firms quoted on the
NSE is quite significant. Overall, both foreign and domestic institutional
ownership constitute nearly 48% of quoted companies, 9% more than
both domestic and foreign individual ownership. This has wide
implications for effective corporate governance in that, ownership by
institutions, being usually in block, can exercise voting rights that
ensures the protection of shareholders from poor and unwholesome
management performance. However, domestic institutional ownership is
slightly less than foreign institutional ownership. In contrast, there is a
wide gap of more than 30% between domestic and foreign individual
ownership. This suggests that while the Nigerian economy seems more
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16 Readings ill Development Pulicy and
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relatively attractive to foreign institutional portfolio investors, there may
be certain factors present in the economy that inhibit individual foreign
portfolio investors. This may need to be investigated and ameliorated.
Ownership by management and staff, on average, is slightly less than 6%
and is highest in Packaging (14%) Textiles (12%), Industrial and
Domestic Products (9%), Conglomerate (6%) and Engineering
Technology (6%). This also has implications for corporate governance.
Table 2.2: Ownership Characteristics of Nigerian Quoted Companies,
1995-1998 (Average o/t0 )
Domestic Foreign Domestic Foreign Government Manage-
Sectors Institutions Institutions Individuals Individuals ment
and Staff
Agriculture 30.08 15.0 22.02 0 32.02
Food, Beverage
and 19.95 39.16 36.5 2.5 1.42 0.47
obacco
Footwear 20.00 20.00 57.3 0 0
Industrial/
Domestic 24.17 28.14 32.63 0.01 6.35 8.7
Products
Breweries 8.3 27.72 53.2 2.5 5.48 2.8
Buildino materials 23.73 26.06 35.09 0 15.04 0.08
Computer/Office 57.6 8.8 10.1 13.2 0 0.16
ecuiornent
Conolornerate 30 20 30.09 19.75 0 6.22
Construction 37.45 40.0 22.05 0 0 0.5
Engineering 10.8 29.65 53.33 0 0 6.22
echnoloqv
Petroleum 0 40 42.86 0 17.14 0
Marketing
Packaaina 21.2 28 33.84 2.56 3.34 14.4
Bankina & Finance 20 3.9 36.3 3.0 21.4 3.4
nsurance 11.3 24.1 60.5 0 15.4 0.53
Automobile and 3.4 44.3 22.3 4.0 30.0 0
Tvre
extiles 13 36.06 25.0 8.74 5.3 11.9
Healthcare 34.9 33.3 23.9 0 0 7.9
!AveraQe 20.60 26.68 34.90 3.96 8.05 5.78
Source: Computed using data obtainedfrom NSE Fact Book, 1998.
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The Practice and Standard of Corporate Governance 17
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2.4. The Legal Infrastructure of Corporate Governance
in Nigeria
2.4.1 Financial Performance
The basic company law is the Companies and Allied Matters Decree
(CAMD) of 1990. It provides that the directors of every company shall
prepare financial statements reflecting a true and fair view of the
operations of the company during the financial year. The financial
statements must include, among others, the balance sheet and profit and
loss accounts; the sources and application of funds, the value added
statement reporting the wealth created by the company during the year;
and the five year summary which provides comparative inter-temporal
performance information. The financial statement must be laid before the
shareholders at the annual general meeting (AGM). These statements
must reach the shareholders, who must decide whether to approve or
reject the financial statements, at least 21 days before the AGM.
The CAMD also provides for the annual preparation of the
Directors' Report, which should give shareholders a fair view of the
developments of the business of the company, its principal activities
during the year and any significant change in those activities. The
Directors' Report must also contain information about- the amount, if
any, recommended as dividend and the amount, if any, recommended as
reserves.
The company law also provides that directors must give information
about emoluments of directors, including emoluments waived, pensions
and compensation for loss of office to directors and past directors.
Information must also be supplied about employees remunerated at
higher rates. Also to be provided are disclosures, transactions and
agreements on loans, quasi loans and other dealings in favour of directors
and "connected persons".
The CAMD specifies additional disclosures such as disclosure of
particulars of the subsidiaries of the company and its shareholders;
disclosure of financial information relating to its subsidiaries;
arrangements and agreements made by the company or its subsidiary
who, during the year, were officers of the company.
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18 Readings in Development Policy and
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2.4.2 Auditing Matters/Required Accounting and
Auditing Standards
The Company Law specifies that all companies must appoint at its AGM,
auditor or auditors to audit the financial statements of the company and
hold office until the next AGM. In cases where no auditors are
appointed or re-appointed, the law empowers the directors to appoint a
person to fill the vacancy. It also provides for the procedure for
reappointing any retiring auditor without a resolution being passed at the
AGM. To ensure the independence of the auditor, CAMD prohibits any
officer or servant of the company from being an auditor, neither can
anyone who is a partner or is in the employment of any officer of the
company, nor is any person or firm that offers consultancy services to it.
Additionally, for a banks, no person who has any interest in the bank
other than as a depositor shall be an auditor. The BOPID also requires
that any auditor appointed by any bank must be approved by the Central
Bank of Nigeria (CBN). The auditor is expected to form an opinion as to
whether the company kept proper accounting records and neither proper
returns relevant for the audit have been received from the branches not
visited. The auditor will also tell whether the company's balance sheet
and profit and loss account are in agreement with the accounting records
and returns.
He or she is also required to make a report to the shareholders on the
accounts examined by them, on the balance sheet and profit and loss
account, and all group financial statements to be laid before the AGM.
The law requires that the auditors report be countersigned by a lawyer.
Besides, in the case of a public limited company (PIc), apart from the
auditors report, an audit committee comprising of equal number of
directors and representatives of shareholders (subject to a maximum of
six) shall examine the auditors report and make recommendations to the
AGM, as it deems fit6. Among the functions of the audit committee are
to: ascertain whether the accounting and reporting policies of the
company are in accordance with legal requirements and agreed ethical
practices; review the scope and planning requirements; review the
findings on management matters in conjunction with the external auditor
and departmental responses thereto; keep under review the effectiveness
of the company's system of accounting and internal control; make
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recommendations to the Board in regard to the appointment, removal and
remuneration of the external auditor; and authorize the internal auditor to
carry out investigations which may be of interest or concern to the
committee.
CAMD requires that the financial statement prepared by each
company should conform with the accounting standards laid down by the
Statements of Accounting Standards issued from time to time by the
Nigerian Accounting Standards Board, provided such accounting
standards do not conflict with provisions of the decree. Where
information provided in the balance sheet or the profit and loss account
in the specified format would not provide sufficient information to give a
true and fair view of the operations of the company, the law requires that
necessary additional information be provided in the balance sheet or
profit and loss account or a note to the accounts. The law also specifies
standards for reporting consolidated accounts dealing with all or any of
the subsidiaries of the company. Only persons who belong to a body of
accountants in Nigeria established by an Act of the National Assembly
can be auditors.
2.4.3 Requirements for Equity Ownership Disclosure
The law requires that each company must keep a register of
members/shareholders where the shares held by each holder is recorded
as well as the amount paid or agreed to be paid. Whenever shares are
sold they must also be recorded in the register. For a PIc ...in addition to
the register, the law also requires that unless the register is in such a form
that it constitutes in itself an index, the company shall keep an index of
the names of the members of the company. In the case where any
alteration is made in the register of members, the company must within
14 days make any necessary alteration in the index. The index is
expected to have sufficient information to enable the account of any
member to be easily located. The register or index shall be open for
inspection during office hours except when the register of members is
closed, subject to such restriction that the company in general meeting
may impose and such that not less than 2 hours in each day. shall be
allowed for inspection.
CAMD also requires that members having at least 10% of the
unrestricted voting rights in the company shall belisted in alphabetical
order in a register of interest in shares in the case of a PIc. Such a person
is expected to give notice in writing to the company ~ithin 14 days of
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20 Readings in Development Policy and
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becoming a substantial shareholder. When the company ceases to be a
PIc, it shall keep the register for 6 years.
For a quoted PIc, the Securities and Investments Decree, 1999,
provides that all securities must be registered by the Securities and
Exchange Commission (SEC). Capital market operators, dealers or other
persons specified in Section 31 of this decree, are empowered by the
decree to keep a register in the prescribed form of the securities in which
they have an interest. Particulars of the securities in which capital market
operators or other qualified persons have interest in and particulars of
their interest in those securities shall be entered within 7 days of
acquisition or disposal of the interest.
2.4.4 Disclosure on Sundry Issues and Items
An important issue in corporate governance relates to the
requirements of the company law in relation to disclosure on identity,
compensation, background of directors and senior managers and of the
relationship between directors and senior managers, as well as disclosure
of related party transactions. As stated earlier any change in ownership
interest and values must also be updated and be made known to all
shareholders who have a right to ask for a copy of the register, or any
part thereof, albeit, at a fee. The company law requires that the identity
of directors, the size of their shareholding and their remuneration be in
the public domain and thus be known and available to all shareholders.
Accordingly, the law requires that a register of all members of the
company including its index, where appropriate, be maintained in its
registered office. In addition, Parts V and VI of Schedule 3 of CAMD
specifies that the compensation of directors and number of employees
remunerated at higher rates be made public. Besides, as mentioned
earlier, disclosures on transactions and agreements on loans, quasi loans
and other dealings in favour of directors and "connected persons" is
mandatory under the law.
2.4.5 Minority Shareholder Rights
2.405.1 Guarantee of Minority Shareholders' Right in
Meeting Participation
The provisions of CAMD specify the minimum length of notice to be
given to all those entitled? to receive notice of a general meeting of any
company as 21 days" from the date on which, the notice was sent out.
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u: lVtl!,t::1 tU
However, a notice is deemed to have been properly effected, if it is sent
to the member by post to him or his registered address and it is properly
addressed and prepaid. The law provides that failure to give notice of
meeting to any person entitled to receive it may invalidate the meeting
unless such failure is an accidental omission on the part of those
responsible for sending the notice.
For a PIc, the directors must prepare the statutory report for the
company's first meeting (called the statutory meeting), which must be
held within six months from the company's first date of incorporation.
The statutory report must be sent to all shareholders at least 21 days
before the holding of the statutory meeting. At this meeting all members
of the company present shall be free to discuss any matter relating to the
formation of the company and its commencement of business or arising
from the report. Besides, the law establishes that any member who
wishes a resolution to be passed or any matter arising out of the report
shall give further 21 day notice from the date of receipt of the statutory
report.
Some provisions of CAMD serve as protection of minority
shareholders against the "tyranny of the majority." For example, the law
requires that if a poll of members is taken, a member, entitled to more
than one vote need not use all his votes in the same way. The provision
that does not allow objections to the qualifications of any voter except at
the meeting or adjourned meeting at which the vote is objected to, and
the provision regarding the use of proxy at meetings, are such examples.
While the company is granted powers to close its register by giving a
notice in a daily newspaper circulating in the district where the company
has its it registered office, any member, may redress in the law courts, if
his name is, without sufficient cause, entered in or omitted from the
company register. CAMD also states that the company register shall be
prima facie evidence in all matters directed and authorized by it.
2.4.5.2 Shareholder Voting and Proxy Rights
Section 116(1a) of CAMD establishes and underscores the one-share-
one-vote system for Nigerian companies. Accordingly, a shareholder's
vote is proportional to the number of shares owned in the company.
However, this does not affect the issuance of preference shares as
defined by Section 143 of the decree and in particular, Section 119 of
CAMD prescribes that a company may issue any shares with such
preferred, deferred or special rights. But Subsection 1(b) of the Section
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The Practice and Standard of Corporate Governance 21
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However, a notice is deemed to have been properly effected, if it is sent
to the member by post to him or his registered address and it is properly
addressed and prepaid. The law provides that failure to give notice of
meeting to any person entitled to receive it may invalidate the meeting
unless such failure is an accidental omission on the part of those
responsible for sending the notice.
For a PIc, the directors must prepare the statutory report for the
company's first meeting (called the statutory meeting), which must be
held within six months from the company's first date of incorporation.
The statutory report must be sent to all shareholders at least 21 days
before the holding of the statutory meeting. At this meeting all members
of the company present shall be free to discuss any matter relating to the
formation of the company and its commencement of business or arising
from the report. Besides, the law establishes that any member who
wishes a resolution to be passed or any matter arising out of the report
shall give further 21 day notice from the date of receipt of the statutory
report.
Some provisions of CAMD serve as protection of minority
shareholders against the "tyranny of the majority." For example, the law
requires that if a poll of members is taken, a member, entitled to more
than one vote need not use all his votes in the same way. The provision
that does not allow objections to the qualifications of any voter except at
the meeting or adjourned meeting at which the vote is objected to, and
the provision regarding the use of proxy at meetings, are such examples.
While the company is granted powers to close its register by giving a
notice in a daily newspaper circulating in the district where the company
has its it registered office, any member, may redress in the law courts, if
his name is, without sufficient cause, entered in or omitted from the
company register. CAMD also states that the company register shall be
prima facie evidence in all matters directed and authorized by it.
2.4.5.2 Shareholder Voting and Proxy Rights
Section 116(la) of CAMD establishes and underscores the one-share-
one-vote system for Nigerian companies. Accordingly, a shareholder's
vote is proportional to the number of shares owned in the company.
However, this does not affect the issuance of preference shares as
defined by Section 143 of the decree and in particular, ,Section 119 of
CAMD prescribes that a company may issue any shares with such
preferred, deferred or special rights. But Subsection l(b) of the Section
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22 Readings in Development Policy and
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116 outlaws the issuance of non-voting shares in Nigeria. Company law
establis?es that any member entitled to attend a meeting ,$all ~~ ,entiged
to appomt another person (whether a member or not) as ..aproxy1to attend
and vote instead of him, and a proxy appointment to attend and "vote
instead of the member shall also have the same right to speak at the
meeting. The instrument appointing a proxy shall be in writing under the
hand of the appointer or of his 'attorney duly authorized in writing, or if
the appointer is a corporation, either under seal, or under the hand of an
officer or an attorney duly authorized. The law also stipulates that in
every notice of meetings of a company having a share capital, a
prominent statement indicating that a member entitled to attend and vote
is also entitled to appoint a proxy (and it is allowed two or more proxies)
to attend and vote instead of him, and stating that the appointed proxy
needs not be a member of the company. Besides the law stipulates that a
vote in accordance with the'terms of an instrument of-proxy shall be
valid notwithstanding the previous death or insanity of the principal or
the revocation of the proxy or the authority under which the proxy -was
executed, or the transfer of the share in respect of which the' proxy is
given.
2.4.5.3 Measures for Secure Shareholder Share-Registration '
Both CAMD and the Investment andSecurities Decree (ISD) provide
that only public companies satisfying some provisions of both. decrees"
or licensed banks can lawfully make an invitation to the public' to (a)
acquire or dispose of securities of a company; or to deposit money with
company for a period, whether it is interest-bel ring or not. KTlle law
requires that all securities offered for sale to or for subscription by the
public or to be offered privately shall be registered with the Securities
and Exchange Commission (SEC). A public company can' only" invite
people to acquire its share by publishing a prospectus containing the
following vital information: company' s proprietorship, mana~~m~nt and
capital requirements; details relating to the offer; property adihired 'or to
be acquired by the company; commissions, preliminary expensesetc.;
contracts; auditors; interest-of directors; and' other matters .': ' :;'';''
,~ ~r l i.s~r-
2.4.5.4 Ability to Transfer Ownership d~d:E;'fortementrof Rights'
Only shares of a quoted PIc cairbe tr n\(fefte~ r6yi~i1ar~holtlers'as
Section 32 of ISD states that only securities or investmen(fegistt~red 'by
SEC can be transferred electronically - oF" 'by" othef1 approved
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The Practice and Standard of Corporate Governance 23
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means/systems, or sold. Thus shareholders of quoted Pic have easier
access to share transfer. However, such transfer has to be effected
through a qualified person. Section 33(2 & 3) of the ISD requires that
such a qualified person'" should keep a register of securities acquired or
disposed by them. Information relating to the date of acquisition or
disposal, and the reason for the change shall be entered in the register
within 7 days of acquisition or disposal. Besides, that person shall give
to SEC notice, in the prescribed form, such particulars relating to the
.register as may be prescribed, including the location of the register.
To enforce rights, shareholders have to seek redress in the law courts.
For example, any member who feels aggrieved may ask the law court to
restrain the company. from the following:
oto entering into, any transaction which is illegal or ultra vires;
oto . purporting to do, by ordinary resolution, any act which by its
constitution or the law requires to be done by special resolution;
oto any act or omission affecting the applicant's individual rights as a
member; r
oto committing fraud affecting the company or the minority
shareholders where the directors fail to take appropriate action or
redress the wrong done;
oto where a company meeting cannot be called, in time to be of
practical use in redressing a wrong done to the company or
minority shareholders;
oto where the directors are likely to derive a profit or-benefit from or
have profited or benefited from their negligence or their breach of
duty.
Shareholders can also.seek redress in the law courts. Sections 310 -
312 of CAMB.,contain provisions of relief that can be sought by any
shareholder OQ the grounds of unfairly prejudicial and oppressive
conduct.
If the court is satisfied that the petition S,O made is founded, it may
make such orders as it thinks fit for giving relief to the petitioner. Such
order can include winding up the company; regulating the affairs of the
company in the future; the purchase of shares of any member' by other
members of the company; the purchase of the shares of any member by
the company and reducing the capital of the company accordingly;
among other ~rders:
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24 Readings in Development Policy and
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2.4.6 Oversight Management
2.4.6.1 Mechanism and Structures jot Prudent Management oj
Shareholders' Asset
There are many rules and, regulations for ensuring that management of
companies act in the interest of investors and of the firms. Among these
are the shareholders' meetings which have supervisory functions over the
companies; the requirements that financial accounts of companies be
certified by external auditors; the different returns the companies are
expected to send to regulatory agencies like the Corporate Affairs
Commission (CAC) which registers all incorporated companies; the SEC
which registers all shares of quoted PIes; the Central Bank of Nigeria
(CBN) and the Nigeria Deposit Insurance Corporation (NDIC) which
have regulatory and supervisory mandates for licenced banks and other
financial institutions like finance houses and community banks; the
National Insurance Commission of Nigeria(NAICOM), which has
regulatory mandate over insurance companies. Shareholders can use
their meetings to express and exercise their collective will as a corporate
body. It is in these meetings that all shareholders get to express their
opinions about the way the company is run and make suggestions about
how the company operations can be improved. In these meetings
shareholders have the right to speak and vote on resolutions concerning
the affairs of the company. In Nigeria, the CAMD provides for two main
types of meetings: Statutory and General Meetings. Statutory Meetings
are held within six months of the incorporation of the company and the
directors must, 21 days before the meeting holds, forward a copy of the
statutory report to be presented to all members. This report, which must
be certified by not less than two directors, must be about the formation
and commencement of business by the company. CAMD provides that
any member present at this meeting shall have the liberty to speak on any
issue concerning the formation and commencement of. business by the
company. General Meetings are also of two types, annual and
extraordinary. Each company is expected to hold an AGM each year, in
addition to its other meetings in the year. The AGM receives and
approves the Annual Report of the Company containing the balance
sheet, profit and loss account, the directors' report and the auditor's.
report. It also appoints the auditor, the directors as well as their
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The Practice and Standard of Corporate Governance 25
in Nigeria
remuneration, and approves the dividend proposed, among others. The
AGM provides a forum for shareholders to give their opinion about the
performance of the company, particularly in relation to their competitors
and whether they receive returns commensurate with their investment in
the company in form of dividend. An extraordinary meeting may be
convened by the Board of Directors whenever they deem fit and may be
convened by any director, if it is impossible for the directors to form a
quorum. Also an extra-ordinary meeting may be requisitioned by any
member or members holding not less than one-tenth of the shares of the
company at the date of the requisition. All businesses transacted in any
extraordinary general meeting are deemed special!'. CAMD provides
that all general and statutory meetings of companies incorporated in
Nigeria are to be held in Nigeria. By law, companies incorporated in
Nigeria are required to file certain returns to the CAC. In particular, for
licensed banks, the statutory returns they file to the CBN and the on-site
and off-site inspection conducted by both the CBN and the NDIC are
ways of exercising oversight management of financial institutions.
The use of external auditors to examine the books of companies is a
way of exercising oversight management. Section 357 of CAMD
provides that all companies must appoint a qualified person as external
auditors who must make a report to the all members of the company on
all accounts they examined, and on every balance sheet and profit and
loss account and on all group financial statement copies, which are to be
laid before the company at AGM during the tenure of _the auditor.
Besides, Section 29 of BOFID prescribes that auditors of licensed banks
must be approved by CBN.
This is another way of exercising oversight management on
management of banks.
In particular, Subsection 5 of the same section provides that every
auditor shall have a right of access, at all times, to the books, accounts
and vouchers of the bank and shall be entitled to require from directors,
managers, and officers of the bank such information and explanation that
he thinks necessary for the performance of his duty. Additionally,
Subsection 6 requires that two copies of the auditor's report and that of
the directors together with the auditor's analysis of bad and doubtful
advances in a prescribed form be forwarded to the CBN.
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26 Readings in Development Policy and
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2.4.6.2 Mechanism for Effective Oversight of the Audit Function
The use of the Audit Committee for Pies, elected annually at the
AGM, provides some measure of oversight for the audit function.
However, its effectiveness is an empirical question. The membership is
equally distributed between the, Board of Directors and other
shareholders subject to a maximum of six. Among the functions of the
Committee, which are germane to oversight of the audit functions are:
••• review of the scope and planning of the audit requirements;
••• review of the findings on management matters in conjunction with
the external auditor and the internal responses thereon;
••• keeping under review the effectiveness of the company's system
of accounting and internal control;
••• making recommendations to the Board regarding the removal and
remuneration of external auditors; and
or. authorizing the internal auditor to carry out investigation into any
activities of the company which may be of interest or concern to it.
For licensed banks, the fact the external auditors appointed by banks
have to be approved by the CBN, and the fact that reports of the auditor
and his analysis of the bad and doubtful accounts have to be submitted to
it, exercise some type of oversight on the audit function. The supervision
and regulatory functions of the CBN and NDIC for licensed banks can,
to some extent, play a type of oversight role of the audit functions
because auditors should know that other views may be taken into account
to determine performance of banks.
2.4.6.3 Liabilities and Sanctions for Directors who Fail to Perform
The AGM with its power to appoint and remove directors as well as
approve their remuneration is expected to act as check on the
performance of directors. Accordingly directors will endeavour to bring
to the AGM results that will win the approval and commendation of
shareholders. Besides, certain sections of the company law prescribes
penalties for erring directors and officers of the company. For example,
Section 348 of CAMD prescribes the penalty for each director of any
company that lays a faulty financial statement before any meeting of
shareholders. If the company is in liquidation, for example, Section 502,
prescribes the offences that can be committed by officers of the company
antecedent to or in the course of winding up. Section 503 prescribes
penalty for falsification of company books; Section 504, for frauds while
Section 505 . rescribes the liability for not keeping proper accounts.
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The Practice and Standard of Corporate Governance 27
in Nigeria
Section 507 prescribes the power of law courts to assess damages against
delinquent directors while the prosecution of delinquent officers and
members ofthe company is provided for in Section 508 of CAMD.
2.5.0 Practice of Corporate Governance in Nigeria
To evaluate the quality of practice of corporate governance in Nigeria,
we surveyed regulatory agencies in Nigeria like the CBN, SEC, NDIC,
the Bureau for Public Enterprises, which is in charge of the privatization
programme of government, other stakeholders in corporate governance
like the Chambers of Commerce, major firms by sectors, shareholder
organizations in major commercial centres like Lagos and Ibadan, fund
managers, issuing houses, stockbrokers, major auditing firms and
corporate lawyers. The survey instrument used was the OECD
Corporate Governance Assessment Instrument. A total of 31
questionnaires were distributed. For this analysis, 20 were retrieved and
used, representing a response rate of 64.5%. The OECD scoring guide
was used to score the responses of the questionnaires, which were then
analyzed. For this analysis, we compared the computed scores for the
different measures of comparing governance in Nigeria with those of
countries of Middle East and North Africa (MENA) and Eastern Europe.
This was to demonstrate the relative performance of Nigeria.
2.5.1 SHAREHOLDER RIGHTS
2.5.1.1 Fair Conduct of Shareholders' Meetings
The average score for the assessment of respondents on fair conduct
of shareholders' meetings is l.9 out of a maximum score of 3 (Table 3).
This score contrasts poorly with the average score recorded in three
Figure 2.1: Fair Conduct of Shareholders' Meeting
3
2.5
2
1.5
1
0.5
o
Egypt Greece Israel foIorocco Turkey Nigeria
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The Practice and Standard of Corporate Governance 29
in Nigeria
2.5.1.2 Effective Prohibition of Insider Trading
With regards to whether insider trading is effectively prohibited
Nigeria's score compares favourable with MENA countries. Its average
score is 2.1, which is similar to the score of Turkey, Greece, Israel and
Figure 2.2: Bfective Prohibition of Insider Trading
2.5
2
1.5
1
0.5
0
Egyp Greece Isreel Merreco Turkey Nigeria
Egypt each of which had an average score of 2. It is better than
Morocco's average score of l(Figure 2). However, 85% of our
respondents felt that while country's regulations require that this be the
case, compliance/enforcement is inconsistent in the country,
2.5.1.3 Regular Publication of Directors' Dealings
Nigeria's score as regards compliance with the requirements of
regular publications of directors' dealings is rather low: an average score
Figure 2.3: Country Scores for Regular Publications of Directors'
Dealings
Egypt Greece Israel Morocco Turkey Nigeria
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30 , Readings in Development Policy and '
Capacity Building in Nigeria
of lout of 3. The country is only better than Morocco out of the five
MENA countries studied by SG (2000). It is on the same footing with
Egypt with an average score of 1 (Fig..3). As many as 25% of our
respondents hold the opinion that there is consistent evidence of abuse in
this case by Nigerian companies while 30% felt that regulations in the
country require this, there is no meaningful compliance. The balance of
45% held the, view that there is no consistent compliance and
enforcement of the existing regulations.
2.5.1.4 Capital Changes Announcement withDue Warnings and
Participatory Opportunity
Figure 2.4: Scores on Capital Changes Announcement with Due
Warnings and Participatory Opportunity
Our respondents scored Nigeria rather loW' with regards to
announcement of changes in capital with due warnings and giving
potential sbareholders opportunities to participate, when compared with
MENA countries. The average score of 2.2 for Nigeria is lower than
even Morocco's score, but about the same score as Egypt (Fig 4). While
as many as 50% of our respondents felt that local regulations in this
regard are complied with, 30% held the opinion that
compliance/enforcement is inconsistent. Furthermore, as many as 15% of
respondents felt that there is no meaningful compliance while 5%
believed there is consistent evidence of abuse of this regulation.
2.5.1.5 Transparent Implementation of Extraordinary Transactions
Nigeria's average score, as a regard carrying out extraordinary
transactions at transparent prices is 1.8 out of a maximum of 3. This
performance compares with that of Egypt and better than that of
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The Practice and Standard of Corporate Governance 31
in Nigeria
Figure 2.5: Country Scores for Transpa.rent Implementation
of Extra-ordinary Transactions
'j
3
2
o
Egypt Greece M::lrocco Turkey Nigeria
Morocco but worse than those of Turkey, Greece and Israel (Fig. 5).
While 70% of our respondents felt that compliance with enforcement of
existing regulations is inconsistent, as many as 25% held the view that
there is no meaningful compliance to the existing regulations by Nigerian
companies.
2.5.2.0 Disclosure and Transparency
2.5.2.1 Regular and Consistent Publications of Results
Nigeria's performance compares favourably with MENA countries in
Figure 2.6: Country Scores for Regular and Consistent
Publications of Results
3
2
o
Egypt, Greece Israel M::lrocco Turkey Nigeria
this regard. Its average score of 2.0 is only lower than Israel's average
score of 3 but better than Morocco's average score of 1 (Fig 6).
Generally, respondents held the view of some positive action as regards
this regulation because only 5% indicated that there is consistent
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32 Readings ill Development Policy and
Capacity Building in Nigeria
evidence that this is an area of abuse. As many as 35% of our
respondents held the view that audited annual and interim accounts of
companies are promptly published in a consistent and reliable manner.
The same proportion of respondents felt that audited annual and interim
accounts are published promptly according to International Accounting
Standard (IAS).
2.5.2.2 Annual Independent Audits
The average score of Nigeria of 2.3 compares only with that of
Morocco (Fig.7). It is lower than the average score of other four MENA
countries studied by SO(2OO0). Most respondents (75%) felt that the
condition of independent audit is not required in Nigeria but audit is
Figure 2.7: Scores for the Existence of Annual Independent
Audits
Egypt Greece Israel M:>rocco Turkey Nigeria
Rgure 2.8: Scores on the Existence of Equal Information Access
to all Shareholders
Egypt Greece Israel M:>rocco Turkey Nigeria
done by most organizations. However, 25% of our respondents believed
that this is required in Nigeria and is consistently published.
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The Practice and Standard of Corporate Governance 33
in Nigeria
2.5.2.3 Equal Access to Information of all Shareholders
Respondents generally believed that all shareholders do not have equal
access to information. Nigeria's average score of 1.6equals the regional
average of MENA countries and is higher than the average score of 1 by
Egypt and Morocco (Fig. 8). As many as 95% of our respondents felt
that there is no meaningful compliance to this regulation or that
compliance/enforcement is inconsistent.
2.5.2.4 Shareholding Structure Information Freely Available
The average score for Nigeria is highest here. Its value of 2.6 is
higher than the regional average of 2 for MENA countries studied by
SG(2000). It compares favourably with the value 3 in Turkey and Egypt
and better than the value 2 in Greece and Israel and the value 0 in
Morocco (Figure 9). As many as 95% of our respondent held the view
that this is a requirement of the law in Nigeria and is consistently
Figure 2.9: Scores on Shareholding Structure Information Freely
Available
Countries
published or that, even if not required, it is done by major firms.
2.5.3 Role of Board ofDirectors
The average score of 1.4 regarding the role of the Board of Directors
compares favourably with the average score in MENA countries: It is
slightly higher than the regional average score of 1.2 for MENA
countries (Fig. 10). This shows that most respondents in Nigeria and
MENA countries believe that while notion of an independent board with
responsibility to shareholders is gaining acceptance, there is little
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34 Readings in Development Policy and
Capacity Building in Nigeria
evidence of this in practice. In fact, 65% of our respondents hold the
Agure 2.10: Scores of the Role of the Board of Directors
Egypt Greece Israel MJroco Turkey Nig.eria
1 •
-'" ~;~ .•t. j" t ~.. ( (1""'. ,~
2.5.4 Effective Shareholder Right Enforcement by the Courts
Generally, our respondents scored the courts low in enforcing
shareholders' rights effectively in Nigeria. The averagescore for Nigeria
is O. This is like the average score of Turkey and Egypt but surprising
much lower than the average score of 3 for Morocco (Fig. 11). A
majority of respondents (70%) fel.t that there is no evidence of any_
-x.~"
Figure 2.11: Couhtry Scores for Effective Shareholder Right
Enforcement
~'-' -'. • •• ,J ~1.'h./,,!, .•.•.•I; .. ~"a"f 'fi~;",,\..hJ\k .•. i'''";f 'f.
iegalhidminisrr.ati,ve syst~mj¥iJh-r~s~chtQ~~ha~~hoWe)1· rig,~tsp.:vhie~5%
believed, that ,thet~js dea{',evigenQ~·t\'lat tI)~§y;stern does r:tgt\yorJ<. Ii'"
t/ ...,1 " J.;. _' "'tL'~"; U ~·t·."" ("Hi!. ~,,' . J
t~ :I,~ rn .;"~JfI.G"'i'''Yli; ~ {'"tl"';'<:l~; ':I':)L!orl~i!r,ria
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The Practice and Standard of Corporate Governance 35
in Nigeria
Figure 2.12: Scores for Quality of Access on Visits
Egypt Greece Israel _ Morocco Turkey Nigeria
2.5.5 Quality of Accesson Visits.
Respondents tended to hold the view that while there is inconsistent
quality of information during company meetings in Nigeria, the situation
is not hopeless. Hence the average score for the measure of quality
access during visits is just 1.2 which compares only with the average
score of Morocco among the MENA countries studied by SG (2000)
(Fig. 12). A majority of respondents (75%) hold this view, while 15%
believe that companies p_ay regular visits abroad and/or make good
people available to' meet with Investors/analysts when they visit or the
company is readily available on telephone.
2.5.6 Sectoral and Overall Assessment
Nigeria's performance sectorally is best in disclosure and
transparency issues where the sectoral average score is 2.1 out of 3. In
contrhsf,l the average score for sharehblders'" rights is 1.8: Overall
country average of the cOl-por~te 'governance is l.6'''sUghtly better than
~ f".___' ~ -, • _ •.•••
average of 1A for Morocco and lowe than the value of'1.8 for Egypt
lFNs. 13). Howe, e~, the total, country sc?re or20.1' out '36 is. better, 'than
18.4 for Czech Republic and Morocco; and' 14.1 for Russia (Fig. 14).
• <,: t • f J .., .~ "
Wnehlt realized that Nigeria has armuch longer history 0 the Anglo-
A~encln, traditic;i\ '. 'of ~~orgorate" gov'einarrce' to rn the" transition
~Bo~tifhi~s ~{Ea~t~r~ Eulbpe~ tf{i~o~'~h1p1~'rforfriariCe ~eJerVes to be
itpprdvea on.\ 1f . '. '_. I J it', ,', ' t. • • )." ( •
~ .;;,
J •
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The Practice and Standard of Corporate Governance 35
in Nigeria
Figure 2.12: Scores for Quality of Access on Visits
Egypt Greece Israel Morocco Turkey Nigeria
2.5.5 Quality of Access on Visits.
Respondents tended to hold the view that while there is inconsistent
quality Of information during company meetings in Nigeria, the situation
is not hopeless. Hence the average score for the measure of quality
access during visits is just 1.2 which compares only with the average
score of Morocco among the MENA countries studied by SG (2000)
(Fig. 12J. A majority of respondents (75%) hold this view, while 15%
believe that companies pay regular visits abroad and/or make good
people available to meet with Investors/analysts when they visit or the
company is readily available on telephone.
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36 Readings in Development Policy and
Capacity Building in Nigeria
Figure 2.13: Overall Country Average Score
Egypt Greece Israel Morocco Turkey . Nigeria
Figure 2.14: Nigeria'S Overall Score compared with those of East
European Countries
Czech Hungary Poland Romania Russia Nigeria
2.6. Conclusion
This chapter has reviewed the practice of corporate governance in
Nigeria in view of the privatization of state owned enterprises as well as
analyzed the standard of corporate governance in Nigeria.
The review of the legislation relating to corporate governance and the
analysis of the standard of corporate governance in Nigeria, show clearly
that largely the institutions and the legal framework for effective
corporate governance appear to be in existence. However, compliance
and/or enforcement appear to be weak or non-existent. It is therefore
suggested that for Nigeria to reap the benefits of effective corporate
governance, there is need to strengthen the enforcement mechanism of
the regulatory institutions. The role of the courts in this regard cannot be
over-emphasized. It is important to restore the confidence of the average
shareholder in the capacity of the judicial system to help him enforce his
rights. The rule of law is the bastion of democracy.
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The Practice and Standard of Corporate Governance 37
in Nigeria
ENDNOTES
1. An earlier version of this paper was presented at the West
African Regional Conference on Corporate Governance,
Accra, Ghana 29 - 30 January 2001. The financial support
of the Center for International Private Enterprise,
Washington, DC and the research assistance of Kola
Olayiwola, Tunde Alayande and Semiu Alayande are
gratefully acknowledged.
2. M. R. Chatu Mongol Sonakul, Governor, Bank of Thailand,
"Corporate Governance and Globalization," Opening
Address at the "Asian Economic Crisis and Corporate
Governance Reform" Conference held on September 12 - 14,
1999, Bangkok, Thailand. Quoted in Sullivan (2000), p. 3.
3. The states surveyed were Abia, Bauchi, Kano, Lagos,
Plateau and Rivers.
4. An enterprise is a public limited company (PIc), if it has
more than 50 shareholders. However, a PIc can be quoted or
unquoted on the Stock Exchange.
5. In addition to the CAMD, a bank is subject to both the
provisions of the Central Bank Decree 26 of 1991 as
amended and the Banking and other Financial Institutions
Decree (BOFID) 26 of 1991.
6. However, the law also specifies that the members of the
audit committee be not entitled to any remuneration and are
subject to annual re-election.
7. This defines all those qualified to receive notice of meetings
as every member, every person upon whom the ownership of
a share devolves by reason of being a legal representative,
receiver or trustee in a bankruptcy of a member; every
director, every auditor appointed from time to time by the
company, and the secretary.
8. However, under some specific situation, a general meeting
of the company can be called at shorter notice, if itis so
agreed, as in the case of an AGM and any other general
meeting by a majority in number of the members entitled to
attend and vote, being a majority together holding not less
than 95% of the nominal value of the shares of the company.
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38 Readings in Development Policy and
Capacity Building in Nigeria
9. These provisions are Sections 548 to 560 of CAMD and
Sections 50 to 63 of ISD.
10. A qualified person as specified in the Decree is any of: a
capital market operator as defined in Section 30 of the
Decree, a dealer, a dealer's representative, an investment
adviser, an investment journalist, a financial journalist, an
insurer, a custodian or a depository.
11. In the case of an AGM, all businesses transacted are deemed
special except declaring a dividend, the presentation of the
financial statements and the reports of the directors and
auditors, the election of directors in place of those retiring,
the appointment and the fixing of remuneration of auditors
and the appointment of the members of the Audit
Committee, which shall be ordinary business (CAMD,
Section 214).
12. For each of the following tables, the scores for MENA and
East European countries were obtained from SG (2000) and
that for Nigeria were obtained from the survey conducted for
this study.
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The Practice and Standard of Corporate Governance 39
in Nigeria
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Bethel, J., Liebeskind, J. and T. Opler (1998): Block Share Purchases
and Corporate Performance Journal of Finance No 53 pp 605 -
634.
Development Policy Centre (1999) Capacity Assessment of The Private
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and Ministry of Finance. Abuja.
Demesetz, H. (1983) The Structure of Ownership and the Theory of
Firm. Journal of Law and Economics Vol. 26 No 2.
Fama, E. and M. Jensen (1983): Separation of Ownership and Control
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Friend, 1. and L. Lang (1988): An Empirical Test of the Impact of
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Debt. Journal of Financial Economics No 39 pp131 - 157.
Federal Republic of Nigeria (1991) Central Bank of Nigeria Decree.
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Federal Republic of Nigeria (1991) Banks and Other Financial
Institutions Decree. Decree No.25, 1991 Nigeria: FGN.
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Federal Republic of Nigeria (1999) Investment and Securities Decree
Supplement to Official Gazzette Extraordinary, No 33 Vol. 86
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Federal Office of Statistics (1997): Directory of Establishments: Lagos
State. Abuja
McConnell, J. and H. Serveas (1990): Additional Evidence on Equity
Ownership and Corporate Value Journal of Financial Economics
Vol. 27 no2 pp 595- 612.
Pound, J. (1988): Proxy Contests and the Efficiency of Shareholder
Oversight. Journal of Financial Economicsvoi.Zi) (1).
Rwegasira, K.(2000) Corporate Governance in Emerging Capital
Markets: Whither Africa? Empirical R~ ~arch-Bas d and Theory-
Building Papers. Vol. 8 No 3 July pp258-268.
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40 Readings in Development Policy and
Capacity Building in Nigeria
Ricardo, E.C. (2000) Report on Corporate Governance Issues in Chile.
Carey cia. Ltda. Sao Paulo April.
SG (2000): Standards of Corporate Governance. Emerging Markets
Equity Research. February.
Shleifer, A. and R. Vishny (1996): Large Shareholders and Corporate
Control. Journal of Political Economy No 94, pp461 - 488.
Sullivan, lD.(2000) Corporate Governance: Transparency Between
Government and Business. Paper Presented to the Mediterranean
Development Forum 3, World Bank Meeting Cairo Egypt. Mar.
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3
FEDERALISM DECENTRALISATION AND
THE LIBERALISATION OF THE BUSINESS
ENVIRONMENT IN NIGERIA
E. Remi Aiyede
Is the present obviously military constitution,
which masquerades as a federal one, conducive to
the development of the south, and indeed, the
entire country? - Tinubu, Bola (2000)
3.1 Introduction
Inthe early 1980s when Nigeria was thrown into economic crisis, thegovernment could no longer meet up with its expenditure
commitments in respect of its development programmes. The quest for
more revenue to meet these commitments pushed the government into
frantic borrowing from both local and international sources. This saw
the country's external debt increase to a hitherto unknown proportion .
.Unfortunately for the country, public parastatals had by this time,
become beehives of rent-seeking activities and constituted massive
wastes of public investment. They failed to yield returns and stifled
private initiative.
An assessment of the situation made it clear that the state's control of
the commanding heights of the economy and as the major provider of
social services have become unsustainable. The economic crisis
therefore unveiled the weak character of the overloaded state, and the
inefficiency that had become the hallmark of the state. Thus, like many
countries of the world, Nigeria was forced to rethink the role of
government in the economy by the protracted economic crisis that
followed the expansion of government in the 1970s.
The expansion of the public sector had occurred in a context of
growing centralisation of governmental management of the economy.
This was informed first by the logic of central planning and then more
41
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42 Readings ill Development Policy and
Capacity Building in Nigeria
pointedly by the dominance of the military in the governance of the
country. Centralisation and dictatorship did a lot to distort the Nigerian
federal structure that was very promising at independence when Nigeria
was looked at as a model for other newly independent and culturally
plural African countries. Military rule was characterised by an abuse of
the policy leadership role of the central government. Successive military
rulers manoeuvring to maintain social stability and regime sustenance
have embarked on states and local governments creation through
territorial fragmentation and the readjustment of intergovernmental
frameworks. By 1999 when the country returned to democratic rule, it
remained federal only in name. The states and local authorities have
become so dis-ernpowered that Nigeria could effectively be described as
an inefficient and unresponsive unitary state.
Since the return to civil rule, the country has witnessed several
intergovernmental conflicts over jurisdictional and tax powers. This is
not only occurring between states and local governments but also
between the states and federal governments. Several groups within civil
society have called for federal restructuring. The organised private
sector has also consistently been complaining of high and rising cost of
doing business and 'the plethora of taxes and levies from the three tiers
of government' arising from the efforts of the lower tier governments to
increase independently collected revenue. Public infrastructure remains
dismally poor; government agencies are inefficient and unresponsive to
popular needs.
Ethnic conflicts and social crimes have also multiplied in the first
year of democratic rule. The return to democratic rule has unleashed the
irrational underbelly of the decentralisation programmes in Nigeria under
the military. This has thrown up issues regarding the impact of these
programmes on the character of Nigerian federalism, their consequences
for economic growth, the quest for foreign direct investment, the effort
towards making the economy private sector driven, and making the
government more responsive and accountable to the populace.
The collapse of the state sector and the failure of economic
management have made political and economic liberalisation imperative.
Political liberalisation seeks to democratise government and make it
more effective, efficient, responsive and accountable. Economic
liberalisation seeks to retrench the state and open up the business
environment for private initiative to flourish. The essence is for the state
to create the enabling environment for competitive private sector
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Federalism Decentralisation and the Libcralisation ojthc 43
Business Environment in Nigeria
development. How can this be realised in the context of a deep-seated
legacy of politics of patronage, over-centralised government, and
inefficient and weak public institutions? What challenges is the
government facing in the effort to decentralise? How can the process be
made responsive to the effort to make Nigeria competitive in the global
market?
3.2 Objectives of Study
The broad objective of this study is to examine how federal
restructuring and decentralisation can be tailored towards the creation of
an enabling environment for business in Nigeria. The specific objectives
are to:
(a) Make a comparative assessment of the business environment in
Nigeria;
(b) Present a brief historical outline of the character of federalism and
decentralisation programmes in Nigeria;
(c) Examine the implications of this for the business environment in
Nigeria
(d) Determine what decentralisation reforms are required to enhance
government's efficiency and effectiveness; and
(e) Suggest ways of making it improve the business environment.
3.3 Theoretical and conceptual Framework
Three concepts are germane to discussion of political restructuring
and its impact on' business environment enquiry. These are federalism,
decentralisation and liberalisation. The three concepts have both
economic and political connotations and are located in the interface
between government and business.
Federalism is usually viewed as a 'form of governmental and
institutional structure, deliberately designed by political "architects", to
cope with the twin but difficult tasks of maintaining unity while also
preserving diversity' (Jinadu 1979: 15). It is essentially a form of
government where the component units of a political organisation
participate in sharing powers and functions in a cooperative manner in
the face of the combined forces of ethnic pluralism and cultural diversity,
among others, which tend to pull their people apart. This arrangement is
to provide room for the co-existence of centrifugal and centripetal forces
(Tamuno, 1998: 13). Within a federal arrangement, each state
government is usually saddled with specific responsibilities and so
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44 Readings in Development Policy and
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carries its own paraphernalia of administrative institutions like the civil
~er~ice: the police and parastatals. These co-exist and relate with national
tnstitunons. So, .relations ~etween the different tiers of government
affects the effective operation of the holistic administration of the
country as well as administration of the individual units. The nature of
these rel.ati.ons defin~s the particular type of federalism being practised.
Thus, within federalist studies, it is established that there are various
types of federalism, from strong and weak forms 10periodic "'Malians is
J1I'h1I1J#/'d vwahre'S'§' (Tamrmo i'fficf.j.
However, the defining feature of federalism is the distribution of
powers between the centre and the constituent units by constitutional
means (Osaghae 1990). 'Federalism can exist only where there is
considerable tolerance of diversity and willingness to take political
action through the political arts of negotiation even when the power to
act unilaterally is available. The usual prerequisite to action in federal
systems is the ability to build a consensus rather than the power to
threaten coercion' (Elazar 1977: 30-31). By setting constitutional limits
on central and regional governments, federalism disallows dictatorial
and authoritarian practices. Federalism demands the rule of law, respe~t
for fundamental freedoms and democracy. Although federalism is a
thoroughly political concept, it represents a decentralised arrangement in
the administration and organisation of a country with all the implications
that goes with it in economic management. More than this, it represents
a particular form of politicalliberalisation because it not only affirms the
diversity of peoples, it provides room for the expression of these
diversity by conceding substantial level of independence to the
constituent sub-national governments.
The character of decentralisation in a federation is usually represented
by the term devolution. In order to understand this import of federalism
it is relevant to explore the term decentralisation.
Decentralization is a concept that is usually related to political and
administrative purposes. It is usually used to refer to the transfer of legal
and political authority from the central government and its agencies to
field organizations and institutions. What is transferred often includes
authority to plan, make decisions, manage public affairs by agencies or
institutions below and apart from the central government or authority.
Decentralization programmes often carry elements of ideology, which
find articulation in such concepts as individual liberty, pluralist society,
grassroots democracy and local self-government. As a programme
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concept, decentralization calls for the distribution of powers, and
proposals for implementing it varies considerably (Theresa Rogers
(1978:177).
The United Nations defined decentralization as the 'transfer of
authority on geographical basis whether by deconcentration (i.e.,
delegation) of authority to field units of some department or level of
government or by devolution of authority to local government units or
special statutory bodies' (UN, 1965: 88-9). Forms of decentralization as
expressed in this definition are represented by the terms deconcentration
(delegation) and devolution. This method of classifying decentralization
departs from a legal standpoint. Devolution refers to the transfer of
authority to legally established, locally elected political authorities while
deconcentration or delegation involves the conferring of authority on
representatives of the central government agencies (UN, 1965, Maddick
1962, Wraith 1971). In the first instance, the activities of the central and
local authorities are clearly differentiated, each having its own legal
powers and responsibilities. In the second instance, deconcentration is
regarded as a more limited form of decentralization in which effective
control, particularly over what Faltas (1982) calls 'allocative decision',
remains at the centre; while only control over 'decision of
implementation' is decentralized. From this standpoint, two factors often
determine the character of decentralization, that is, the degree of political
or legal powers transferred to sub-national or semi-autonomous
institutions. These are (i) the nature of functions and powers transferred
and (ii) the extent of support the central government provides to other
sub-national agencies and organizations in performing the decentralized
activities.
A very useful contribution to our understanding of the concept is the
typology of decentralization espoused by Minis Henry, and Dennis
Rodinelli (1989) in their proposal for the promotion of economic
development and employment generation in Senegal. Minis and
Rodinelli identify three types of decentralization: Spatial, Market, and
Administrative decentralization. Spatial decentralization refers to the
process of diffusing urban population and activities geographically away
from large agglomerations. This appears to describe the character of
federal restructuring in Nigeria, which involves internal territorial
fragmentation and jurisdictional geographical boundary adjustment.
These have created several state and local government capitals for the
dispersion of infrastructure. Market decentralization refers to the process
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46 Readings in Development Policy and
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of creating conditions in which goods and services are provided by
market mechanisms rather than by government decision. Administrative
decentralization refers to the transfer of responsibility for planning and
management as well as the raising and allocation of resources from the
central government to its agencies, to field units of government agencies,
subordinate units and levels of government, semi-autonomous public
authorities or corporations, area-wide, regional or functional authorities,
or non-governmental, private or voluntary organizations. Therefore,
decentralization can be used to refer to four main processes: devolution,
deconcentration, delegation and privatisation.
Devolution involves creating or strengthening autonomous sub-
national units of government by transferring functions that are
implemented outside the control of central government to them. It is
essentially a political activity consisting of power- sharing between sub-
national governments and the central government. Devolution of
political, fiscal and administrative powers to sub-national tiers of
governments is now commonly taken as a step towards deflating states
that are considered over-bloated and riddled with inefficiencies. The aim
here is not only to improve efficiencies and responsiveness of the public
sector but also to accommodate explosive political forces (World Bank,
2000: 107-124; Njuguna Ng'ethe, 1998).
Deconcentration signifies the distribution of responsibility or
authority to lower levels within the central government. This usually
takes the form of setting up field offices at the provinces, regions,
divisions or districts of the country.
Delegation refers to the conferment of managerial responsibilities for
specific functions of the central government on organizations outside the
regular bureaucratic structure. Here the organisations enjoy varying
degrees of autonomy. This form of decentralisation may involve the
setting up of boards for schools and hospitals.
Privatisation is about transfer of activities from the public to the
private sector. It is more generally located within the context of
economic deregulation and liberalization. One very important
characteristic of these processes is that they are state-focused. And, as
we have noted, such movements are justified on grounds of efficiency
and democracy.
Decentralization as part of political liberalisation is usually embarked
upon to provide avenues for the people to express their real needs and to
take greater interest in realizing them. Certain advantages result from
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Business Environment in Nigeria
expanding access to decision-making points and increasing
representation and participation. They reduce conflict, promote
geographical equity, reduce the clout of large units and thereby promote
national unity. They also solve problems of congestion and over-load of
central governments, promote efficiency and effectiveness, improve
service delivery, invent and promote national development (Mukandala
Rwekaza 1998:3). Thus, decentralisation within a federal system would
involve shifting responsibilities from the central to state, or local
governments, or from the state to local authorities or from these
governments to non-governmental or private or civil society
organisations. This usually occurs as part of the process of opening up
(Iiberalisation) both in the economic and political sense.
Liberalisation in the economic sense refers to the relaxing of
government grip on the economy, transforming the legacy of antagonistic
relations between private sector and the government in order to prop up
the private sector as the engine of economic growth. Liberalisation
involves the dismantling of barriers in the trade and payments system,
the removal of price, trade and exchange controls. This creates an
environment for trade, capital and investments to flourish by avoiding
price distortions. This is underlined by the belief that price controls
'discourage necessary investment, divert effort into unproductive
activity, and encourage inefficient use of resources,' (World Bank 1997:
48). Divesting state holdings in the economy through privatisation then
supports liberalisation by providing room for private initiative to thrive
in a market environment.
There are specific challenges within the federal system either in terms
of the constitutional and legal bottlenecks that have to be reviewed in
order to carry out these reform programmes and achieve the goal of
economic liberalisation that leads to effective and efficient service
delivery. Since decentralisation assumes that the constitution of the
powers of government affect the capacity of the state to perform, a more
fundamental question for democratising contexts as we have in Nigeria
would then be whether federal systems or devolution have advantages
over non-federal systems in economic policy-making. Also significant is
whether there are basic principles that guide the process of devolution to
facilitate the market system.
John Kincaid (1999) has noted that modern federalism emerged at
about the same time as the concept of the market economy and that one
very important reason for the formation of the federal union was the need
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3.4 The Business Environment in Nigeria
In Nigeria the business environment calls for serious intellectual
attention as the country strives to establish a market oriented economy in
which the private sector will be the engine of growth. The general
political and economic environment under which business decisions are
made and business activities undertaken have to be made friendly for
business if the country is to attract foreign direct investment (FDI) as part
of the wider effort to build up a large stock of productive assets and
diversify the economy. Key determinants of the flow of private
investment have to be given serious attention in political and
administrative reforms. These include profitability of investment,
macroeconomic uncertainty, external shocks and the associated factors
such as political and social stability, quality of institutions, level and
structure of public investment and important factors that affect the
business environment. This is the case because Nigeria has performed
poorly on each of these factors.
In a recent analysis of the business environment of countries, the
Economic Intelligence Unit provides a ranking of the business
environment of countries between 1993 and 1997 and projected this to
2002. The determinants of the condition of the business environment are
categorised into two broad groups of factors. The first is the political
environment. This refers to such factors as political stability and
political effectiveness. Political stability is usually measured by the
frequency of armed conflict, social unrest, frequency in change of
government,· terrorism and international disputes. While political
effectiveness is measured by the presence of appropriate government
policy, the efficacy of these policies, bureaucratic competence in terms
of degree of red tape, legal system, corruption and the rate of crime. The
second is the economic environment. This refers to the macroeconomic
environment, policy towards foreign investment and the financial
architecture. Macroeconomic environment is measured by price
stability, budget balance, government debt, exchange rate volatility, and
external balance. The foreign investment policy and environment is
measured by the size of foreign investors already in the economy,
openness of national culture, expropriation risk, and investor protection.
Health of the banking sector, state of the stock market, levels of financial
distortions, financial regulations, and foreigners' access to the capital
market and access to investment finance measure the strength of the
financial system. These key elements of the business environment
change over time. Nigeria's rating is presented in Table 1.
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50 Readings in Development Policy and
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Table 3.1: B -----~~ E--_. -- ---------- R---a--n-k- i •...b....,,-fC - ----- --- 1998-2002
la Ib I II III IV VI VII IX VIII IX X Total Rank
Political Political Polilical Economic Market Private" ent. FDI policy Foreign Tax regime Financing Labour Inlrastruc- score
slability effectivenes environment slability opportunitie Policy trade & market ture
- -'.
Netherlands 9.6 9.3 9.4 9.2 7.2 9.2 9.4 9.4 7.7 10.0 7.6 9.1 8.82 1
UK 8.2 9.6 9.0 9.8 8.1 9.4 9.4 8.9 7.5 10.0 7.4 8.2 8.77 2
Canada 8.2 8.5 8.4 9.6 8.4 8.9 8.9 9.4 6.7 9.3 7.3 9.6 8.63 3
USA 8.2 7.4 7.8 8.9 8.4 8.9 8.9 8.9 7.1 10.0 7.9 9.3 8.59 4
Singapore 6.0 8.5 7.3 9.6 6.0 8.0 9.4 10.0 7.9 9.3 7.9 8.7 8.40 5
Switzerland 9.6 9.3 9.4 9.7 6.0 8.3 7.8 8.9 8.2 9.3 7.4 9.1 8.39 6
Denmark 9.1 8.9 9.0 9.8 6.1 9.4 8.9 7.8 6.6 9.6 7.0 9.6 8.37 7
Sweden 10.0 9.3 9.6 9.6 7.3 8.3 9.4 9.4 5.4 8.5 6.5 9.6 8.36 8
Ireland 9.1 8.1 8.6 9.1 6.7 9.2 8.9 9.4 8.0 8.1 7.4 7.5 8.28 9
Germany 8.2 8.1 8.2 9.2 8.4 8.6 8.9 8.9 6.1 8.9 6.3 9.3 8.27 10
New 9.6 9.3 9.4 8.7 4.7 9.2 7.8 8.9 8.0 9.6 7.2 8.9 8.23 11
France 7.8 7.8 7.8 9.2 8.4 8.0 9.4 8.9 5.3 9.3 6.7 9.3 8.22 12
Hong Kong 6.9 7.4 7.1 6.3 6.4 8.3 8.3 10.0 10.0 9.3 8.0 8.4 8.21 13
Australia 9.6 8.9 9.2 8.7 7.7 8.6 8.3 9.4 6.8 8.9 6.8 7.8 8.21 14
Finland 9.6 8.9 9.2 9.8 6.2 8.9 8.3 8.3 7.1 8.9 5.7 9.3 8.17 15
Belgium 8.7 7.0 7.8 8.8 7.2 8.0 9.4 9.4 5.6 9.3 7.0 9.1 8.16 16
Norway 9.6 8.5 9.0 9.8 6.3 8.6 6.6 8.3 7.8 9.3 6.2 8.9 8.07 17
Spain 8.7 7.4 8.0 9.2 7.8 7.8 8.9 8.9 5.7 8.9 7.1 8.2 8.04 18
Taiwan 6.9 7.0 6.9 8.7 7.9 8.0 7.8 8.9 8.0 8.1 8.1 7.3 7.97 19
Austria 9.1 8.1 8.6 8.5 6.6 8.3 8.9 8.9 5.7 8.1 7.0 8.4 7.91 20
Chile 7.8 7.8 7.8 8.0 6.6 9.2 8.9 6.6 8.2 8.9 8.5 6.2 7.88 21
Portugal 9.1 7.4 8.2 9.1 5.7 8.6 8.9 8.3 6.0 8.5 7.2 7.3 7.77 22
Italy 9.1 6.3 7.5 8.8 8.1 7.5 8.9 8.3 5.2 8.5 7.0 7.1 7.68 23
Japan 9.6 7.4 8.4 8.1 7.6 7.5 7.2 7.8 5.1 8.5 7.0 8.7 7.57 24
Argentina 6.9 6.3 6.5 8.7 7.5 7.8 8.9 7.2 5.1 8.1 6.4 5.5 7.16 25
South Korea 6.4 6.6 6.5 7.0 6.9 6.9 7.8 8.9 6.6 7.4 6.3 7.3 7.15 26
Malaysia 8.7 5.9 7.1 7.8 6.1 6.1 7.2 8.9 7.6 7.0 7.3 5.7 7.08 27
Israel 4.2 6.3 5.3 6.3 5.2 7.5 10.0 6.6 6.5 7.4 6.8 7.5 6.90 28
Poland 8.7 5.9 7.1 6.1 6.9 7.5 7.8 8.9 5.4 7.0 6.6 5.7 6.88 29
Philippines 6.9 4.8 5.7 7.2 5.7 6.9 7.8 8.9 7.4 6.6 7.6 4.6 6.83 30
Hungary 7.3 5.9 6.5 5.2 5.1 7.5 8.3 8.3 6.1 7.4 7.5 6.4 6.82 31
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Table 3.1- cont'd.
la Ib I II III IV VI VII IX VIII IX X Total Rank
Political Political Political Economic Market Private ent. FDI policy Foreign Tax regime Financing Labour lntrastruc- score
stability effectivenes environment stability opportunitie Policy trade & market lure
Czech 8.2 5.9 6.9 7.0 5.3 7.2
Reoublic 7.8 8.9 4.6 6.3 7.5 6.6 6.79 32
Mexico 5.5 4.8 5.1 6.7 8.2 7.2 7.2 8.9 6.0 7.4 6.3 4.8 6.78 33
Thailand 6.4 5.5 5.9 8.3 5.8 6.6 7.8 8.9 7.2 6.6 6.2 4.4 6.76 34
Greece 7.3 6.6 6.9 7.4 5.1 6.9 7.8 7.2 5.7 7.8 6.2 6.2 6.71 35
Brazil 8.7 4.8 6.5 5.4 7.4 6.9 7.8 6.1 4.6 7.8 5.9 4.8 6.32 36
South Africa 6.0 5.1 5.7 6.7 6.3 6.3 6.6 7.2 6.1 7.8 3.8 6.6 6.31 37
Peru 6.0 5.1 5.5 6.3 4.7 6.3 8.3 6.1 6.8 6.3 7.0 4.6 6.19 38
Colombia 5.1 5.1 5.1 4.9 5.2 6.1 8.9 6.6 5.6 7.8 7.2 4.4 6.18 39
Turkev 5.1 5.1 5.1 2.9 6.5 6.1 7.2 8.3 5.5 6.6 6.3 5.3 5.97 40
Eavot 5.5 5.1 5.3 6.6 5.3 5.5 7.8 6.1 5.5 6.3 6.2 4.6 5.91 41
Slovakia 6.4 5.5 5.9 5.7 3.9 5.2 6.6 8.3 4.4 5.5 7.5 6.0 5.90 42
Saudi 4.6 5.5 4.9 8.3 5.3 6.6 4.9 6.6 5.7 5.5 5.6 5.3 5.88 43
Sri Lanka 4.6 5.1 4.9 5.8 4.2 6.1 7.2 7.2 6.5 5.5 6.8 4.2 5.83 44
China 5.1 4.8 4.9 7.0 8.4 4.4 6.6 7.8 4.6 4.8 5.6 3.7 5.76 45
India 6.4 5.1 5.7 6.2 7.5 5.2 6.6 6.1 6.0 5.9 5.9 2.4 5.75 46
Indonesia 3.3 3.6 3.5 6.1 4.4 5.5 5.5 8.9 6.6 5.9 6.2 3.9 5.63 47
Bulcaria 6.4 4.4 5.3 7.5 3.3 5.8 6.6 6.6 4.1 5.1 6.3 5.7 5.63 48
Russia 5.5 3.6 4.5 6.7 7.1 4.9 4.4 7.8 4.1 5.1 6.8 4.8 5.62 49
Romania 7.3 4.8 5.9 4.6 3.9 5.8 6.6 6.6 4.8 5.5 6.7 5.5 5.60 50
Venezuela 5.5 3.6 4.5 5.6 5.9 4.4 6.1 6.6 6.0 5.5 5.6 5.3 5.54 51
Vietnam 5.5 4.0 4.7 5.8 4.7 4.7 6.6 6.6 5.7 4.4 6.7 2.4 5.23 52
Pakistan 3.3 3.6 3.5 4.5 4.7 5.5 6.6 6.6 5.5 5.5 5.8 3.9 5.21 53
Kazakhstan 6.0 3.6 4.7 6.0 4.8 4.4 5.5 6.1 4.1 4.4 6.2 4.2 5.02 54
Ecuador 5.5 4.0 4.7 3.9 3.5 5.5 5.5 6.1 6.1 5.1 5.5 3.5 4.94 55
Ukraine 6.0 3.6 4.7 6.0 4.0 4.4 4.9 5.5 3.8 4.4 6.6 4.4 4.86 56
A1aeria 4.2 4.0 4.1 6.3 4.4 4.1 5.5 6.6 5.3 2.9 4.2 3.9 4.73 57
Niaeria 2.4 1.8 2.0 5.5 5.3 3.0 4.9 4.4 6.9 2.9 5.0 1.9 4.17 58
Iran 4.6 3.6 4.1 5.3 5.6 2.7 2.7 2.7 2.8 2.9 2.6 3.7 3.51 59
Iraa 1.5 1.8 1.6 3.7 3.1 1.0 1.6 1.0 1.3 1.0 2.5 3.5 2.03 60
Averaae 6.9 6.1 6.5 7.3 6.1 6.8 7.5 7.7 6.0 7.1 6.5 6.3 6.78
Median 6.9 5.9 6.5 7.1 6.1 7.0 7.8 8.3 6.0 7.4 6.7 6.1 6.83
Sources: The Economic Intelligence Unit
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52 Readings in Development Policy and
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From this table, Nigeria takes the ss" position of the 60 countries
surveyed. Its total score of 4.17 is far below the average score of 6.78
and the median score of 6.83. It ranks only above Iran and Iraq. Of the
four African countries, South Africa, Egypt, Algeria and Nigeria
incl.u~ed in the survey, Nigeria i~ the J;'0or~st. .So~th Africa takes. the 37th
position, Egypt 41st and Algena 57 . Nigeria did very poorly in terms
of political stability scoring 2.4 below the average score of 6.9. The
reasons for this are not far fetched. The country has become politically
volatile since 1993 when a presidential election was annulled. In that
year alone Nigeria recorded two undemocratic changes of government.
Under the tyrannical rule of General Sani Abacha (1993-1998)
governance witnessed unprecedented arbitrariness and political
assassinations became the order of the day. Unfortunately the return to
democratic rule did not immediately return peace to the country. Rather
democratisation provided room for the explosion of bottled up
grievances. The country witnessed the proliferation of militant youth
movements who engaged the police in violent conflicts in several cities.
The current elected government has taken steps to check these groups.
Nigeria also falls below average in regard to political effectiveness.
It falls below the three other African countries. The economic policy
environment is also dismal. The only indices that appeared good is tax
regime where Nigeria scores 6.9 above the average score of 6.0 and the
median score of 6.0. This has been made possible by the adoption of
neoliberal reforms from 1986. Nigeria's poorest score is the area of
private enterprise promotion policy (3.0) and Financing (2.9) against an
average score of 6.8 and 7.1 respectively.
In a recent survey done by the Development Policy Centre (DPC) on
the private sector, it was discovered that the following were responsible
for the high cost of doing business in Nigeria: ' ... uncertainties and
frequent changes in government policies, corruption and bureaucratic
bottlenecks, harassment by government officials, and virtual
powerlessness in getting redress through the judicial system in the event
of contractual default' (DPC, 1999:69). •
Although the Federal government has provided a list of approved
taxes to be collected by the various tiers of government via Decree No.
21 of 1998, private business continue to suffer from the unauthorised
actions of sub-national governments striving to increase revenue, and
who refuse to comply with the list. The judiciary is very weak and there
is little or no confidence in the court system. Corruption is rife. One of
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the most challenging problems is at the ports and the borders. Apart
from the prolonged transit time, custom agents collect illegal levies and
taxes at roadblocks and harass business people at the borders. At the
ports, customs agents hoard information and charge unofficial fees
rendering the movement of goods through Nigerian ports costlier than
those of neighbouring countries. These have hampered export promotion
within the Economic Community of West African States (ECOW AS)
market.
The private sector also complains of undue delay in the refund system
on the recovery of input VAT on raw materials used for non-VAT able
goods. The ineffectiveness of government has resulted in very high
transaction costs (MAN, 1999:7).
3.5 Federal Restructuring, Governance and the Business
Environment in Nigeria
The origin of the federal structure in Nigeria is traced to the
Constitutions of 1946 and 1951 which provided for a decentralised
administrative structure consisting of Eastern, Western and Northern
regions. Although it has been argued that the colonial authorities had no
intention of complementing this administrative decentralisation with
federal practice (Ayoade 1988:21), Nigerian rulers and politicians
seemed to be enamoured of the federal idea since then. Indeed, the effort
to improve federal practice has translated into repeated restructuring of
the country.
The first restructuring of the country after independence was done in
1963 under democratic rule; the Mid-West was excised from the west,
one of the three regions existing then. The second occurred in 1967 at
the beginning of the civil war under military rule. Unlike the first, which
was done after a referendum as prescribed by law, it was done by
military decree. It also involved a radical departure from the first in
terms of its implication for the status of sub-national governments in
relation to the centre. Successive military governments turned territorial
fragmentation into an instrument of political control that saw the country
move from a twelve-state structure in 1967 to 19 in 1976,21 in 1987,30
in 1991 and 36 states from 1996. The number of local governments has
moved from 301 in 1979 when the central government intervened in the
local government system to 774 in 1996.
The 1963 state creation exercise was to deal with fears of domination
by minority communities and interests. It was thought that creating a
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54 Readings in Development Policy and
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state for minority groups would protect these groups 111 regions
dominated by major ethnic groups by expanding the room for self-
determination. The second reason (particularly relevant to the 1967
exercise) was to restructure the federation in such a way that no one state
or group of states could threaten the corporate existence of the country or
hold the country to ransome. In carrying out the exercise, particular
consideration was to be given to economic viability (Gowon, 1996:27).
As time passed by, economic reasons became completely overshadowed
by political expediency. For instance the 1987 and 1991 exercises were
informed by three principles according to the views of the prime actors in
the process. The first was the principle of social justice, which implied
the mollification of those who have been cheated by previous state
creation exercises. The second was the principle of even spread of
development centres across the country, since new states and localities
were to have direct access to federal funding. The third was the principle
of equal distribution of units between the north and south, and between
the east and west. In doing this adequate recognition was to be given to
historical, socio-cultural and geographical relationships among the
country's over 250 ethnic groups (Suberu 1994: 16, Aikhomu, 1996:53).
However, states and local government creation exercises in Nigeria have
centralized the control of resources and stripped the powers of the lower
tiers of government. These exercises have reduced states and local
governments to mere channels for the distribution of revenue from
centralised sources, albeit inequitably, to the constituent communities. In
doing this, it carried away the independent revenue ·sources of sub-
national governments, weakened administrative effectiveness and
undermined accountability of the lower tiers of government to their
populations.
Once the war began in 1967, the federal government divided the
country into twelve states and centralized the management of resources
in order to support the war effort. According to Decree No 27 of 1967
the 'Legislative and Executive powers of the newly created states in
Nigeria were limited for the time being to residual matters.' Although,
General Yakubu Gowon, the then Head of State, had assured the country
that national institutions will be redefined after the war through a
constitution that would be drafted by representatives of all sectors of the
country, he later announced in 1974 that the implementation of the third
national development plan had made it imperative that resource
management remained centralized. According to him, 'If we are to rely
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Federalism Decentralisation and the Liberalisation ofthe 55
Business Environment in Nigeria
on existing revenue allocation formula, no state government except two
will be in a position to finance even a single year's program on the basis
of the projected surplus.' The centralization of the management of
resources was also accompanied by greater intervention of the central
government in the economy.
Asobie (1998: 18) has identified three manifestations of the
centralisation trend in Nigeria under the military. The first is the
increasing capacity of the central government to alter unilaterally and in
its favour, the existing distribution of power between it and other tiers of
government while the second is the increasing accretion to the federal
government of functions that are previously allocated to the lower tiers
of government. The third form is the reduction in the range and quantum
of resources - coercive, bureaucratic, ideological and financial - that are
directly available to the lower tiers for carrying out constitutional
functions and the increase in those at the disposal of the federal
government.
The repeated exercise of territorial fragmentation since the
centralisation of economic management and the emergence of the
country as an oil rentier state has put a question mark on the claim of
territorial fragmentation as a development strategy. Suberu (1994: 3)
has described it as 'a distributive policy that enhances access to federal
resources for some of the nation's cultural territorial segments.' This is
because the sub-national governments not only derive a huge amount of
their revenue from oil revenue collected by the federal government, the
central government has unilaterally appropriated or abolished the
independent revenue jurisdiction of the these governments. The few left,
such as personal income tax, vehicle licensing fees, land charges and
sales tax, are inherently limited as sources of public revenues and are
often weakly or inefficiently exploited by state administrations or
sometimes legulated, restricted or even brazenly appropriated by the
centre.
While, as Asobie has noted, the Constitution under which the military
handed over to the elected government in 1979 provided for a high level
of concentration of power at the centre, it is less so than the current 1999
Constitution under which the Fourth Republic operates. True, many
matters which were previously in the concurrent list were transferred to
the exclusive list and even those that were still left in the concurrent list
were treated as though they were exclusive to the federal government in
the 1979 Constitution. Indeed, under that constitution, the federal
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56 Readings in Development Policy and
Capacity Building in Nigeria
government acquired powers over the direction and management of the
whole of the Nigerian economy and the promotion and enforcement of
the observance of the fundamental objectives and directives principles of
the Nigerian federation (Asobie, 1998:27). But the 1979 Constitution
contained a residual list of matters reserved for sub-national
governments. This list has been abolished by the 1999 Constitution
bequeathed by the military. Centralisation is taken so far by this
Constitution that marriages apart from those under customary and
Islamic laws are placed under federal jurisdiction!
One very important political practice that has coloured the
decentralisation programme is the practice of giving considerable
importance to inter-state/local area equity in the distribution of allocation
from federally collected revenue to sub-national units. Derivation as
factor in the distribution of revenue among the various sub-national
governments, which used to be emphasised in the period when
agricultural export was the main stay of the economy had become
insignificant by 1978 when non-oil export had all but disappeared (Tobi
1991). What is more, the federal character principle is interpreted and
operationalised as a means of distributing federal amenities and
opportunities including public employment on an equal basis among the
states and local government areas of the federation. This principle works
against rational decision-making that can produce a competitive and
efficient system. The heavy financial dependency on the centre under
the military gave 'the state every incentive to get more funds from this
source, encourages financial irresponsibility and sets up strong forces for
the creation of new states.' (Tom Forrest as cited by Suberu 1994:3).
Indeed, states creation under the military became a by-product of
pressures for greater avenues for political and material advancement by
local elites and their communities (Suberu 1998:280). Thus, the political
economy of state creation exercises show that they reflect the politics of
patronage and were done without spelt out basis that reckon with need to
promote both equity and competitive growth.
States and local governments creation exercises have also paid little
premium on accountability and local preferences. They involved the
unilateral splitting of states by the federal military governments. through
the issuance of decrees rather than by consultation and participation of
those who were affected by the exercise. They therefore resulted from
the usurpation of the powers of the federating units by the national
government. Done under military rule, they constituted an arbitrary
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Federalism Dccentralisation and the Liberalisation of tire 57
Business Environment in Nigeria
exercise. No constitutional procedures were observed. The fall out of
arbitrariness has not only affected the legitimacy of the exercises, it has
also affected social stability arising from agitations by discontented
communities. They have, in some instances, generated inter-ethnic
violence over the location of local government headquarters and
inclusion of communities in states they never wanted to join.
Worse still, they have created a situation where sub-national
governments suffer deficit in revenue powers that should enable them to
prosecute their constitutional functions. The exercise has therefore
amounted to a process of political and economic disempowerment for
sub-national units. The states continue to rely heavily on allocation from
the federation account to meet basic responsibilities. Table 2 shows the
movement towards increased centralisation in Nigeria's fiscal federalism
following the state creation exercises in the 1980s and 1990s.
Table 3.2: Independently Sourced Revenue of the States in Relation to
Revenue Appropriated from the Federation Account: 1988-
1999 (N Million)
Year Independent Appropriation from Total Extent of
Revenue (a) the Federal Dependence of
Government (b) States on (b) %
1988 2,169.0 8,823.0 10,992.0 80.3
1989 2,760.0 10,785.6 13,546.2 79.6
1990 2,726.2 15,943.8 18,670.0 85.4
1991 3,147.1 19,434.3 22,581.4 86.1
1992 5,244.7 27,428.9 32,673.6 83.9
1993 5,726.2 32,014.4 37,740.6 84.8
1994 10,929.8 38,576.3 49,506.1 77.9
1995 17,287.3 118,714.7 69,641.6 75.6
1996 19,467.1 159,562.5 88,882.4 78.8
1997 27,368.2 166,557.0 193,925.2 85.9
1998 29,213.9 257,191.1 286,405.0 89.8
1999 34,109.0 303,871.2 337980.2 89.9
Source: Calculated from Central Bank of Nigeria (CBN) Annual Report and
Statement of Account, several years.
Here we see increasing dependence of the sub-national governments
on national government for meeting their basic expenditure obligations.
Federal allocation accounts for up to average of 80 per cent of total
revenue of the states against the highest point of 55.7 under the four-
region structure. The 'nature of the revenue (sources) assigned to the
different levels of government and by the principles of allocation
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58 RCI/dings ill Development Policy and
Capacity Building ill Nigeria
employed by the federal authorities' determine the revenue conditions of
the various governments (Asobie, 1998: 47). It is quite vivid that the
decentralisation programmes have not improved the administrative
effectiveness of sub-national units. With ineffective and incompetent
governments, it is no wonder that Nigerian governments have not been
able to provide an effective and stable environment for private initiative
to flourish. The few private sector operators continue to complain of the
prohibitive cost of doing business in Nigeria owing to weak
infrastructural base. This is why Nigeria is unable to attract foreign
investment in the non-oil sectors in spite of its large market. Clearly,
state and local government creation has not attained most of the gains of
decentralization; it has brought several disadvantages. Nigerian physical
infrastructure has collapsed. The transport system is terrible. Electricity
supply is epileptic. Educational standards have fallen and other social
services supplied by the state have witnessed a down turn. These are
precisely what decentralisation measures were expected to prevent.
Suberu sums up the negative impact of states and local government
reorganisation exercises thus:
The promotion of the 'cake-sharing syndrome;
the augmentation of the centre's political and
economic hegemony via the erosion of the size
and resource base of sub-national governments;
the proliferation of unproductive, corrupt,
wasteful and unviable political and
administrative units; the intensification of
ethnic, regional and communal tensions over
the beneficiaries and modalities of territorial
restructuring; the stimulation of 'neoethnicity',
or new forms of parochial, divisive and
exclusionary identities; and the legitimisation
of autocratic military rule (Suberu 1998:292)
These political problems have direct impact on the strength of the
state as an enabler. Indeed, the decentralisation programmes are
themselves expressions of the governance crisis that has affected the
management of the economy.
The communal unrest and the feelings of discontent that have
attended the series of decentralization programmes have worsened the
problem of order and security that affect the environment of business.
Indeed the 1996 reorganization occasioned series of communal unrest in
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Federalism /)1'("(·II/I'lIIi.l"lIlioJl cuu! IIII' l.ibcratisanou ojtlu: :'it)
Business Environment ill Nigeria
almost all parts of the country. The way and manner the decentralization
programmes were done further deepened distrust among ethnic groups in
Nigeria. Political discontent has thrown up ethnic militias that have
become prominent in the post military era. In Lagos, Nigeria's
commercial nerve centre, the activities of Oodua People's Congress'
(OPC) virtually reduced some sections of the city into war zones.
Also, the changes that have attended the repeated reorganization
exercises, which usually involved the redefinition of territorial
jurisdictions, have made the regulatory environment of business highly
unpredictable. In fact, within a short period business organisations find
themselves having to relate with different governments at both the state
and local governments even though they have not relocated their offices
and plants.
Moreover, the multiplication of administrative structures placed
greater regulatory demands on the central government far beyond the
capacity of the central administration. The transfer of items like the
registration of business names, labour and trade union matters, police,
tax of incomes, profits and capital gains, incorporation of companies, and
trade and commerce from the concurrent list to the exclusive list since
1979 worsened this. For instance in order to register a company in Port
Harcourt, River State, an investor has had to relate with the Corporate
Affairs Commission (CAC) in far away Abuja. It was not until the 1990s
that branches of the CAC were opened in the state capitals. Registering a
business can be a complicated issue indeed. Apart from having to deal
with the federal government, with motley of conflicting laws, the
weakness of the judiciary present a challenge of its own. Indeed the
frequent recreation of states also worsens the legal institutions at the
lower levels of government. The courts were weakened by ouster clauses
included in military decrees and the penchant to disobey court orders by
government officials. Judges are also known to have connived with
dictators and sold justice to the highest bidder. Thus; private actors have
no basis for confidence in the power and capacity of the courts to judge
objectively and get their judgment enforced.
In terms of the macro-economic environment, the reduction of
territorial reorganization into an instrument of political control and
regime legitimacy has undermined budgetary discipline that was
supposed to ensure stabilization and support economic liberalisation.
This is the case because the possibilities of arbitrary behaviour by
dictators were given full rein in the exercises. Extra budgetary
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60 Readings in Developtnetu Policy and
Capacity Building in Nigeria
expenditures were usually incurred as the central government tried to
provide take off grants for new states and localities. Because such grants
were often un-programmed into the budgetary system they engender
deficits and inflationary pressures.
The federal character principle which is interpreted and
operationalised as a means of distributing federal amenities and
opportunities on an equal basis among states and local government areas,
works against rational decision-making in public investment. All that the
ruler has to do is to think out a programme and distribute it evenly across
the country even when it is not needed in some parts. The implication of
this for public investment as Utomi (2000:93) has explained, is 'the
dispersion of inappropriate industries to zones where their
uncompetitiveness is heightened. Instead of locating factories as per the
factor of endowments of these regions of the country, the need to get the
same things evenly spread has stymied possibilities of growth and
development. '
Although government has continued to remove barriers to foreign
investment and expand the room for private actors through the series of
liberalization measures since the late eighties, lack of transparency and
unpredictability of the regulatory environment that were occasioned by
the ill-conceived restructuring exercises have adversely affected business
decision making and limited growth.
The failure of public infrastructure is particularly telling on private
sector development. Private businesses incur large overheads in
providing water and electricity thereby reducing the competitiveness of
Nigerian firms. In fact, a survey by the Nigeria Institute for Social and
Economic Research (NISER) attributes the non-competitiveness of
Nigerian exports to 'low quality and astronomical domestic production
cost traceable to infrastructural deficiencies' (NISER~ 2000:75). Yet the
provision of infrastructure could benefit from popular participation and
broad involvement of private and non-governmental organisations in
their provision and maintenance.
Overall, poverty has deepened in the last decade, while social crime is
on the rise. These, coupled with the public unrests that have
characterised arbitrary rule of the military, made the Nigerian
environment the investors' nightmare. There is need for Nigeria to come
out of the infrastructural neglect and institutional failures that were
inherited from the military and redefine its federal structure to minimise
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Federalism Dcccntralisauun iuu] {/I,' I.JiJ,·m!J.I{/fiOIl oftlic 61
Business Environment ill Nigeria
intergovernmental conflicts over functions and jurisdiction of
government and improve the effectiveness of the state.
Indeed, the imperative of federal restructuring has been widely
recognised. The weakness of the 1999 Constitution has also been
recognised by the government and a review process is on. Such an
exercise should be part of the overall process of promoting efficiency,
effectiveness and responsiveness of government to popular needs. It
should be such that would engender competition for the promotion of
productive activities within the jurisdiction of the various tiers of
government for development initiatives. It is clear that the way the
Nigerian state has been organised has had remarkably negative effect on
the opportunities and incentives for business development. It is little
wonder that the informal sector has become the dominant sector of the
Nigerian economy.
3.6 Summary and Conclusion
Decentralization programmes in Nigeria began from the colonial era.
But they have largely taken the form of deconcentration. As a result,
they have had the effect of increasing central control and reducing
opportunities for citizen participation, and stultified creativity. The
restraint in devolving power is attributable to the effort at regime
sustenance in the face of limited state legitimacy, the problem of fragile
national unity and the prevalence of military dictatorship with its
centralizing tendencies.
Political regulation has been the major focus of the process as against
political participation. Territorial fragmentation and internal boundary
adjustment have resulted in a proliferation of states and local
governments; but such levels of government have been without local
power that can attract and stimulate participation. Spatial
deconcentration has resulted in a bloated states sector, with minimal
private sector development, and a suppression of innovative and
entrepreneurial energy. The limited decentralisation and the resultant
dependence of -the various sub-national units on oil revenue from the
centre has been one of the major reasons for the failure to diversify the
economic base of the country. The competition that had characterised
inter-state relations under the three and four-region systems in which
derivation was a significant factor of horizontal revenue sharing gave
way to political struggles for federal funds.
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62 Rcaditn;» ill f)('I'c/(I/III/CI/I Policv 1I11d·
Capacity Building ill Nigeria
Further, patronage politics under authoritarian military rules
culminated in the clarnour for more states and localities in the bid to
corner more funds from the centre. This was worsened by the de-
emphasis on derivation in revenue sharing among governments at the
sub-national level. Once a state is split into two its allocation from
federal revenue quickly multiplies. Thus, local spending became
completely separated from local resources in the name of even
development across the country's geography. While it has ensured
spatial distribution of physical infrastructure by multiplying capital cities
of concentration, the attendant weakened state capacity had affected the
quality and maintenance of these infrastructures.
Gradually sub-national governments became a source of funds for
private and group enrichment. States and local governments created as
largesse or patronage to sectional elites and their communities for
loyalties by military dictators naturally owed their accountability to the
military rulers rather than the communities in which they exist. The
result is absence of accountability and responsiveness in government.
Nigeria is paying heavily for its current ineffective and inefficient
state structure: poor state of infrastructure, political instability and slow
growth. Thus, further decentralization is an imperative considering the
need to deflate the state, liberalize the economy and politics. But this will
have to be done democratically. Such a programme should be preceded
by wide spread consultation and negotiation. The aim of which is to
reach a consensus on an ideological base that would determine the
character of the envisaged decentralisation programme. It should also
involve a clear cut distribution of the powers and functions of the various
governments and clearly spelt out institutions of horizohtal and vertical
accountability that will enable effective and responsive governance.
The programme envisaged should be to transform the constituents of
the country into relatively independent units with economically
empowered governments that can carry out development programmes
and attract private investment (foreign and local). In other words, it
should be informed by a more practical concern about economic
competitiveness, such that the country will be restructured into
competing governmental units by providing room for public/private
partnership in productive activities at the lower levels to enable the
exploration of economic potentials of the various states. This has been
made imperative by the high poverty rate in the country.
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lcdcrul isrn luvcnt tulisation and the lihcrulisinion ojtlu: 63
Business Environment ill Nigeria .
It is clear that the centralisation of resources control and the adoption
of a general revenue allocation formula provide no incentive for
competitiveness among the various sub-national governments. Rather, it
has deepened inequality and heightened feelings of injustice in the
distribution of revenue from these centralised resources. There is need to
reconsider this formulae to promote competition hand in hand with the
drive for equity and accountability. However, caution should be taken
during the process to avoid fanning the embers of centrifugal forces.
Even so, making very clear institutional arrangement for managing the
process as well ensuring a realistic distribution of functions based on the
principle of subsidiarity should make it predictable. Finally, Nigeria
stands to gain from successful decentralisation efforts in other lands.
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64 Reading» III Development Policy and
Capacity Building in Nigeria
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4
CONSTITUTIONAL AND LEGAL
BOTTLENECKS TO PRIVATIS ATION
IN NIGERIA
B. Olatunji Oloruntimehin
4.1 Introduction
Sil~ce 1985/86, it has been~'incre~singly accepte~ in Nigerian p~licycircles that the path to sustainable economic development IS to
open up the business environment for private initiative to flourish, and
de-ernphasise direct government investment in and management of
enterprises. That path will lead government to concentrate on creating
and sustaining a physical, legal and regulatory environment that will
conduce to good corporate practices.
Since the beginning of the process in 1986, governments have
pursued its privatisation programme with an obvious lack of consistency,
transparency and accountability. Implementation has been halted, and by
1995, under the Abacha-Iedjunta, termination of the process appeared to
have been contemplated. Not much happened between J 995 and mid-
1999 when a new policy regime came into force with the promulgation
of the Investment and Securities Act 1999.
This study examines the constitutional and legal environment that has
impacted upon the formulation of the poiicy of privatisation and the
process of its implementation from 1986. The study involves an
examination of the relevant constitutional provisions on privatisation and
commercialisation since 1986; the policies of the succeeding regimes, the
decrees or laws established to provide the framework for conducting the
privatisation process and reports of relevant regulatory institutions over
the period. Focus group discussions were held with selected officials of
the Bureau for Public Enterprises (DPE) Ahuja, the Central Bank of
Nigeria, (CBN), Federal Ministries of Industry and Commerce, Abuja;
leaders of the organised private sector, especially officials and members
67
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68 Readings in Development Policy and
Capacity Building in Nigeria
of such umbrella private sector organisations as the National Association
of Chambers of Commerce, Industry, Mines and Agriculture
(NACCIMA), the Manufacturers Association of Nigeria (MAN), the
Lagos Chamber of Commerce and Industry (LCCI) and some business
law experts.
The analysis of the information is set in the context of the experiences
of other countries that have been involved in privatisation of SOE's,
account being taken of varying constitutional regimes under which
privatisation processes have been conducted in such countries.
Apart from constitutional and legal bottlenecks that are identified, the
study highlights other factors, which have contributed to the staccato
manner in which the privatisation exercise had been conducted before the
middle of 1999. It highlights the roles of socio-political forces and
interest groups that have supported or opposed privatisation.
4.2 The Rationale For Privatisation
Privatisation is used to describe an array of actions designed to
broaden the scope of the private sector activity, or the assimilation by the
public sector of efficiency enhancing techniques generally employed by
the private sector. It embraces therefore, not only the outright or partial
transfer of assets from the public to the private sector, but also all
arrangements designed to involve the private sector in the design,
construction, operation, maintenance and financing of public services.
Variants of these arrangements include management contracts, leasing,
investment concessions, building operates transfers (BOT) and related
versions such as Rehabilitate-Operate-Transfer (ROT), Build-Own-
Operate-Transfer (BOOT) and Build Operate and Own (BOO). Under
such arrangements generally known as Public-Private Partnerships
(PPPs), the government's role remains vital but is more focused on the
provision of an adequate legal and regulatory framework.
There are several reasons why countries decide to privatise
enterprises that were previously publicly owned. In Nigeria, one critical
consideration has been the general realisation that state-owned
enterprises (SOEs) have not only failed to deliver the benefits that were
expected of them; they have become heavy drains on the national
treasury. When SOEs provide the public services that are expected of
them, they do so at far too high a cost. They have generally been
crippled by massive corruption perpetrated by public officials and
bureaucrats. All of these problems have generally led the enlightened
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Constitutional and Legal Bottlenecks to Privatisation in Nigeria 69
public to the conclusion that there should be other approaches to
attaining the purposes for which SOEs were created.
The need to redress the rather unsatisfactory and disturbing
development, whose genesis is traceable to government's acquisition of
company securities in the era of indigenisation, has made the call for
privatisation possible.
By 1985, statistics relating to government investments in parastatals
revealed a disturbing picture, which called for urgent attention. Nigeria's
public expenditure sector grew rapidly during the oil boom years into a
vast array of sectors, including prospecting, exploration, refining and
marketing of oil, sugar, fertilizer, cement, paper and steel industries,
hotels, transportation, banking and insurance. There are an estimated
1500 public enterprises, of which about 600 are under the Federal
Government of Nigeria. The remainder are under state and local
governments. As at the end of 1993, Federal Government of Nigeria's
equity investment in public enterprises was 25.83 billion Naira. At the
same time, public enterprises held an outstanding stock of loans from the
Federal Government amounting to 11.79 billion Naira. The existing
public enterprises represents about 30-40% of fixed capital investment
and about 20% of formal sector employment.
The majority of the public enterprises are inefficient and many show
poor financial results. The burden that the public enterprise sector has
imposed on public finances has been considerable. Financial transfers
from the Federal Government to these public enterprises have taken the
form of direct subsidies, but equity contributions and loans have been the
most important means of support to the public enterprises sector. In
1990 alone, the Federal Government invested about 9.76 billion Naira in
the public enterprises, thus doubling its equity portfolio in the public
enterprises. Again in 1993, there was an increase of 34%. These
transfers were concentrated on a few public enterprises, all of which have
not been privatised. For instance, the following gives the increase in
equity between 1990 and 1993: Ajaokuta Steel (W529 million), National
Fertilizers Company (W375.5 million), NAFCON II Project (W444
million), Savannah Sugar Co. (W336 million), NNPC (W4.92 billion),
Aluminum Smelter of Nigeria Ltd. (W331 million), NIDB (W377
million), NITEL (W5.0 billion), NEPA (W3.5 billion), and Nigeria
Airports Authority (W208 million). Transfers also took the form of loans,
with a very poor record on repayments by public enterprises. (Nzekwu
1999).
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But, it took over two years before its intentions were actualised with
the promulgation of the Privatisation and Commercialisation Decree on 5
July 1988. Early in 1991, a Study Group on the Legal Aspects of
Privatisation and Commercialisation was appointed by the Technical
Committee on Privatisation and Commercialisation (TCPC). In its report
submitted on 6 May, 1991, the Study Group made wide-ranging
recommendations some of which formed the basis of certain sections of
the Bureau of Public Enterprises Decree, 1993 (BPED), which repealed
and replaced Decree No. 25 of 1988.
The objectives of the current phase of privatisation in Nigeria are
succinctly stated in an official document titled: Blueprint of the
Privatisation Programme (December 1999 - March 2003) published by
the National Council on Privatisation.
According to the blue print, the primary goal of the privatisation and
commercialisation programme is to make the private sector the leading
engine of growth of the Nigerian economy, to reintegrate Nigeria into the
global economy, as a platform to attract direct to foreign investment in
an open, fair and transparent manner.
The specific objectives of the Programme include:
(i) to move substantial ownership, control and operations of
certain key economic enterprises from the public to the
pri vate sector;
(ii) to attract the private investment necessary as a catalyst for
economic growth, so as to close the supply and efficiency
gaps in the Nigerian economy;
(iii) to check the present absolute dependence on the Treasury for
funding by otherwise commercially oriented parastatals and
so, encourage their approach to the Nigerian and
international capital markets to meet their funding needs;
and .
(iv) to create jobs, acquire new knowledge, skills and
technology, and expose Nigeria to international
competition.
The 1979 and 1999 Constitutions, maintained the trend towards
centralisation, even though they were made "by the people" for the
operations of a democratic and federal system of government. Thus,
instead of the 45 items in the Exclusive Legislative list as in the
1960/63 Constitutions, there were 66 items in the 1979 Constitution and
68 in the 1999 Constitution. Basic State matters like (i) Drugs and
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Constitutional and Legal Bottlenecks to Privatisation in Nigeria 71
Poisons, (ii) Election of State Governors and State Houses of Assembly
(iii) Finger print identification and criminal records (iv) Labour and
Trade Union matters, (v) Meteorology, (vi) Police, (vii) Prisons, (viii)
Professional occupations, (ix) Stamp duties (x) Taxation of incomes,
profits and capital gains, (xi) The regulation of tourist traffic, (xii)
Registration of business names, (xiii) Incorporation of companies (xiv)
Traffic on Federal Trunck roads passing through States, (xv) Trade and
Commerce and census, were transferred from the concurrent to the
exclusive list.
This unitary absolutism in the political sphere has been
complemented by unitarism in the economic sphere since 1966. Thus by
the petroleum Decree (No. 51) of 1969, the Federal Military Government
declared that the entire ownership and control of all petroleum resources
in, .under or upon any lands in Nigeria was vested in itself. For the
avoidance of any doubt, Section one spells out in detail the type of
territory covered by this exclusive Federal Government ownership.
These are, all lands in Nigeria, including land covered by water, land
under Nigerian territorial sea and land forming part of our continental
shelf.
Ownership of minerals by the Federal Government is thus absolute.
Not only are individuals on or under whose land minerals are found
denied any right to them, so too are mineral producing communities,
local government areas and states. This wholesale expropriation of the
properties of people, communities and state governments could only
have been contemplated in the context of military absolutism over the'
nation-state. It runs counter to the pluralistic nature of the nation and its
constitutional status as a federation.
The Federal Government's assumption of absolute ownership of all
minerals in Nigeria's land and maritime territory was progressive. The
claim to absolute and total ownership of all minerals, no mater where
they were found or located only reached its climax in 1971. By Section
140(6) of the 1963 Constitution, all minerals, both solid and oil, found in
the continental shelf 'Of a region of Nigeria, belonged exclusively to that
region. For the purposes of exploitation of minerals, including mineral
oil, the continental shelf of a region was deemed to be part of that region.
But by offshore oil Revenue Decree 1971 (No.9 of 1971), the rights of
the regions (states) in the minerals in their continental shelves were
abrogated, and ownership and title to the territorial waters, and
continental shelf as well as royalties, rents and other revenues derived
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from or relating to the exploration, prospecting, or searching for, winning
or working of petroleum from these seaward appurtenances of the states
became vested in the Federal Government.
This has been replaced in all subsequent constitutions. Thus, in
Section 44(3) of the 1979 Constitution (repeated in Section 44(3) of the
1999 Constitution), it is stated as follows:
Notwithstanding, the foregoing provisions of this
Section, the entire property in and control of all
minerals, mineral oils and natural gas, under or upon
the territorial waters and the exclusive economic
zone of Nigeria shall rest in the Government of the
Federation and shall be managed in such manner as
may be prescribed by the National Assembly.
Currrently, both the state and federal governments
may make laws for the purpose of privatising any of
the items listed in the concurrent list such as
electricity-generation and distribution, industrial,
commercial or agricultural development, university,
technological and post primary education. The on-
going privatisation programme engages the
commitment primarily of the central government,
because of the increased centralism bequeathed by
the military rule.
The capacity of states to privatise is undermined partly by the 1999
constitution, which denies them, substantially, of control over resources
within their boundaries.
4.3 Legal And Institutional Framework For Privatisation
The primary legislation which dealt with privatisation until 1993 was
the Privatisation and Commercialisation Decree of 1988 (PCD of 1988).
Although the Decree has been repealed by the Bureau of Public
Enterprises Decree 1993 (BPED), the PCD of 1988 remains relevant in
this report on issues in privatisation law. Appropriate references will
also be made to some other cognate enactments such as the Nigerian
Investment Promotion Commission Decree 1995 (NIPC Decree) and the
Foreign Exchange (Monitoring and Miscellaneous Provisions) Decree
1995 (FEMP Decree).
It is believed that these enactments combined to alter the complexion
of the primary legislation on privatisation in terms of their scope and
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intendment. A general analysis of the PCD will be juxtaposed with the
provisions of the BPED with a view to highlighting the effect of the two
enactments on the process and likely effect of privatisation in Nigeria.
The Privatisation and Commercialisation Decree (PCD) dealt with
two distinct subjects, namely privatisation and commercialisation.
Section 14 defines "Commercialisation" as "the reorganisation of
enterprises wholly or partly owned by the Federal Government in which
such commercialised enterprises shall operate as profit-making
commercial ventures and without subventions from the Federal
Government".
Section 1 of the 1988 Decree dealt with enterprises to be partly
privatised as listed in Part 1 of the First Schedule to the Decree, while
Part II of the said schedule contained a list of enterprises to be fully
privatised. The second schedule contained the list of enterprises slated
for commercialisation. It is considered appropriate to Ill/ate in extenso
Madaki Ameh's comments on the two schedules.
In a recent publication, he declared:
An analysis of these chedules confirms the
alarming quantum of Government holding in
virtually all facets of commercial enterprises,
ranging from banking and insurance, sugar
manufacturing and distilleries, to such enterprises
as poultry production and salt manufacturing. It
also reveals the Government's reluctance to
relinquish its shareholding, as it opted to maintain
its percentage shareholding, in all the commercial
banks and motor vehicle assembly plants, and
marginally reduce its holding in development
banks, oil marketing companies, steel rolling mills
and fertilizer companies to mention a few.
A rrieh. Privatisation: (June 1997), p. 88
The above-quoted comments concisely mirror the pervasive influence
and rather obtrusive involvement c,l' the j~l:deral Government in certain
sectors of the economy where its tole :-!'()'Jld be merely regulatory and
certainly not participatory. T. ': '. i,le r: 1 lllg nature ·')f governrnenrs
involvement in such h rg,o ,l 01:,1" of to.;; .' .. o-tiviricswas clearlvi m: ' r
factor in revealing the :!rJS~ : I; (1<:(" il,C' .ireaucrat i; n .ethods for l c
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running of business concerns. This, in turn, gave prominence to the call
for the privatisation of such enterprises.
The second Schedule to the BPED, which contains the list of
enterprises to be partially or fully privatised, still reflects "the alarming
quantum of Government holding in virtually all facets or commercial
enterprises". For example, Part 1 of the said Schedule relating to
enterprises slated for partial privatisation includes oil marketing
companies, steel rolling mills, fertilizer companies, newsprint, sugar and
cement companies and a transport company. Listed under Part II of the
said Schedule are enterprises slated for full privatisation. These include
thirteen commercial and merchant banks, thirteen insurance companies,
four hotels, eleven food processing companies, and six motor vehicles
assembly companies. The third Schedule to the Decree contains twenty-
three enterprises slated for partial commercialisation, while fourteen
others are to be fully commercialised.
While Section 1 of the BPED established the Bureau of Public
Enterprises (the Bureau), Section 2 provides for a Management Board
comprising a part-time chairman and ten other members "who shall be
persons with requisite experience and knowledge of the Nigerian
economy". Under the repealed PCD, the members of the TCTC were
required to be "persons with detailed knowledge and wide experience".
It has been observed that there are no precise parameters for determining
the said "detailed knowledge" and "wide experience". There is thus a
potential danger that appointments to the Committee could easily be
made without regard to the skill and/or expertise required for such fairly
specialised assignment, as evidenced by its functions, which are outlined
in Section 4 of the 1988 Decree.
It is difficult to see any material difference between the criteria in the
repealed Decree and the ones in Section 2(2)(b) of the 1993 Decree vis-
a-vis the functions of the Bureau. Accordingly, there is a potential risk
that appointments made with reference to such nebulous criteria as
"requisite experience and knowledge" of the Nigerian economy may not
necessarily produce members who are well-equipped to deal with the
functions of the Bureau, as outlined in Section 3(1) of the 1993 Decree.
The Bureau is empowered to recommend to the Federal Government
the mode of disposal of any enterprise that is considered not suitable for
disposal by public issue of shares (Section 3(3). Also, the prior approval
of the Federal Government for the price of any share issue in respect of
any designated enterprise and the pattern of its allotment must be sought
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and obtained (Section 3(4). Section 13(3) of the BPED requires shares of
enterprises slated for privatisation to be offered for sale in the Nigerian
Capital Market. To guarantee a good measure of openness in the
disposal of such shares, the Section further makes it mandatory for the
offers of the sale of shares to be by public issues. However, where the
circumstances warrant a sale by private placement, the Federal
Government, on the advice of the Bureau could so decide.
The provision relating to private placement is to be expected in view
of the need to cater for relatively small enterprises, which may not be
able to cope with the expenses of a public issue. To underscore this
point, Section 13(5) empowers the Bureau, on approval of the Federal
Government to privatise an enterprise through a willing seller or willing
buyer basis or through the process of asset stripping where such
enterprise is not fit for privatisation by public issue of shares or by
private placement. The question can be raised whether this procedure
could not be open to abuse.
At this juncture, it is considered appropriate to take a look at Section
16 of the decree before proceeding to the consideration of the allotment
of shares of privati sed enterprises, addressed by Section 15, the
corresponding provisions of which have perhaps attracted more
comments and analysis than any other part of the 1988 Decree. Section
16 provides that "the membership of the Board of Directors and the
control and management of privati sed enterprises shall, as from the date
of privatisation, reflect the ownership structure of the enterprises."
It is obvious that the purport of the section is to give, for example,
about 60% of "the membership of the Board of Directors and the control
and management" of any privati sed enterprise to the holder(s) of 60% of
the equity capital of the said enterprise. While it is relatively easy to
practicalise this concept in relation to the composition of the Board of
Directors, the same can hardly be said of "control" and "management" of
privati sed enterprises. Anyone who is familiar with company law and
practice will readily agree that a 30% holder of the equity capital of a
company could be in effective control of the company. In saying this,
account has been taken of the provisions of Section 116 of the
Companies and Allied Matters Decree 1990 (CAMD), which prohibit the
issue of non-voting and weighted shares in Nigeria.
Even with section 116 of CAMD, a holder with less than 50% of the
equity capital of a company can be in control of the said company.
Where individual holdings are so widely dispersed and fragmented in
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this country, it only requires a fairly substantial holder of shares in a
company to be properly focused before he is in effective control of the
company. It is believed that this fact, coupled with the general apathy
amongst shareholders, must have been the major reason for the
government's regular breach of the laws and regulations relating to
companies in which it has holdings. A typical example is the Daily Times
of Nigeria Pic where the Federal Government not only dissolved the
Board but also proceeded to appoint a sole administrator without calling
a general meeting of the company. Cases have been known where the
boards of such companies were dissolved and reconstituted by
government without any reference whatsoever to the generality of other
shareholders whose combined holdings were sometimes equal, if not in
excess to that of the government.
It is difficult to comprehend the rationale behind the inclusion of
"management" of privatised enterprises in Section 16 of the Decree. To
require the management of a company to reflect the ownership structure
of the company amounts to a negation of the reality of the operations of
modern day companies. The twentieth century has witnessed a growing
divorce between the managerial and financial power in companies, so
much so that the great majority of members of management are either
non-members or shareholders with relatively small holdings. The fact
has not resulted in any adverse effect in the fortunes of such companies.
Also, given the complexity and diversity of the shareholdings of the
average privatised enterprise, the requirement that the management shall
reflect the ownership structure of the enterprises appears rather
unrealistic.
With regard to the importance of its provisions to privati sed
enterprises, Section 14, which is similar in some respect to Section 7 of
the repealed Decree, will be reproduced in extenso before we proceed to
discuss its implications. The Section provides as follows:
i) "14. (1) Subject to any direction of the Federa1 Government, the
shares of the enterprises to be privati sed under this Decree by
public offer shall be allotted in accordance with the provisions of
subsections (2) to (6) of this Section.
ii) Not less than 10 per cent and not more than 20 per cent of the
total shares on offer on an enterprise set out to be privatised shall
be allotted to an association of individuals or an interest group
such as, but not limited to, State investment agencies, market
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womens' organisations, universities, friendly societies, local and
community associations.
iii) In the case of an over-subscription for the purchase of the shares,
not more than 1 per cent of the shares on offer shall be allotted to
each state through its investment agency.
iv) Not more than 10 per cent of the shares on offer shall be
reserved for the staff of the enterprise.
v) The remainder of the shares not distributed in accordance with
the provisions of Subsection (2), (3) and (4) of this section shall
be proportionately allotted to the indigenes of each State of the
Federation and the residents of the Federal Capital Territory,
Abuja.
vi) In the case of over-subscription, no individual shall be allowed
to hold more than one per cent equity in any enterprises."
The above-quoted provisions relating to the allotment of shares of
privatised enterprises raise a few problems, some of which are traceable
to inelegant drafting, while others relate to inherent difficulties in
applicability.
It is significant that 'workers' and 'trade unions' have been omitted in
Section 14(2) of the 1993 Decree. Furthermore, the said subsection now
makes it very clear that the reserved percentage range is applicable to the
shares of each enterprise set out to be privatised (Akande, Privatisation
(1988) p. 35). In spite of the attempt to address the shortcomings in the
repealed PCD of 1988, there are still certain problems posed by the
provisions of Section 14(2). In the very apt words of Akande while
commenting on the similar provisions in Section 7(2) of the 1988
Decree:
By prescribing the maximum that should be reserved
(allotted) to this category of pur-chasers, the Decree
may be unwittingly discriminating against the
interest groups in this category. As it is, all the
interest groups combined may not purchase more
than 20 per cent of the shares offered for sale in
respect of an enterprise. This is irrespective of their
proportional subscription vis-a-vis other persons
(individuals and corporate bodies).
Akande, Privatisation (1988).
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Going by the strict interpretation of Section 14(2), an issue may well
end up being under-subscribed even though there was in fact an over-
subscription for the shares of the enterprise. For example, what happens
if the interest groups in Section 14(2) subscribe over 20% of the total
shares on offer while other investors outside the group subscribe
marginally below 80%, but the totality of all the subscriptions results in
an over-subscription? If the strict words of section 14(2) are to be
followed, the resultant effect in the scenario described above would be an
under-subscribed issue.
In its attempt to ensure that the ownership of shares in privatised
enterprises was as widely-spread as possible and also in consonance with
the spirit of the legislation on privatisation, the Technical Committee was
said to have required, among others, the state of origin of each applicant
for shares.
In a normal democratic setting, there is a lot to be said for the view
that the requirement regarding state of origin in the offer forms is
offensive against the provisions of Section 39(2) of the Constitution.
However, having regard to the clear provisions of Section 1(1) of the
Federal Military Government (Supremacy and Enforcement of Powers)
Decree, 1994, the provisions of the two major enactments on
privatisation would appear to override the constitutional provisions in
respect of the individual's right to freedom from discrimination. Decree
No. 12 of 1994, reaffirms the provisions of earlier decrees to the same
effect that "the provisions of a Decree shall prevail over those of the
unsuspended provisions of the 1979 Constitution."
It needs to be pointed out that the requirement of an applicant's state
of origin would only have any serious meaning in respect of holdings in
non-quoted companies. For the quoted companies, such requirements
can only give succour to the protagonist of Federal character in the short
run. Once the securities of such companies are listed in the stock market,
the only constraint of a prospective investor is the regulatory apparatus
of the stock market. Accordingly, shares owned by the indigenes of
State A can readily be sold and transferred to the indigenes of other
States without the need to adhere to the inhibiting requirements of the
enactments of privatisation.
Indeed, it could easily happen that in a non-quoted company, an
indigene of a state who is hardpressed for funds or who for other reasons
wants to dispose of his shares in such a company would certainly
proceed to do so subject, of course, to the regulations of the company.
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Therein lies the basic contradiction between the demands of business and
those of politics.
One aspect of the BPED, which deserves some attention is Section
15 which insulates the implementation of certain decisions of the Bureau
from any judicial proceeding in any court of law "where the Bureau has
sought and obtained the approval of the Federal Government on the
mode of privatisation under the relevant provisions of (the) Decree". It
should be recalled that by Section 1(2) of the Decree, the Bureau may
sue or be sued in its corporate name. Furthermore, provisions are made
in Section 6 to limit access to court against the Bureau by an aggrieved
party. Even where judgment is obtained against the Bureau, "No
execution or attachment of process in the nature thereof shall be issued
against the Bureau". All of these are complemented by Section 9, which
provides indemnity for officers of the Bureau. The fact that the Decree
then proceeds to exclude judicial proceedings in respect of the subject
covered by Section 15 has weakened the efficacy of the power to sue the
Bureau as contained in section 1(2) of the Decree.
We will briefly consider, the implications, if any, of the provisions of
the Nigerian Investment Promotion Commission Decree 1995 (NIPC
Decree) and the Foreign Exchange Monitoring and Miscellaneous
Provisions Decree 1995 (FEMP Decree). The two 1995 Decrees will be
examined under the sub-title of Cognate Decrees on Privatisati
4.4 The Legal Framework: Under Democratic Rule
The current privatisation programme is spelt out in the Blueprint of
the Privatisation Programme (December 1999 - March 2003), an official
publication issued by the National Council on Privatisation (NCP). The
Blueprint provides information on State Owned Enterprises (SOEs)
slated for privatisation, the nature of the respective SOEs, the level of
public ownership, the manner of divestment of public (government
holdings) - whether by privatisation or by commercialisation) and the
legal framework within which concerned SOEs were brought into the
diversment processes. Laws listed for various SOE's include Decree 39
of 1972; laws of the federation of Nigeria (LFN) Cap 299, LFN Cap 323,
LFN Cap 361, LFN Cap 396, Decree 40 of 1973; Decree 19 of 1976;
Decree 33 of 1977; Decree 8 of 1978; Decree 60 of 1979; Decree 41 of
1972; Decree 82 of 1993 etc. A large number of enterprises listed for
privatisation or commercialisation are to be dealt with in accordance with
the specific provisions in their respective Memorandum of Association
and articles of incorporation as limited liability companies.
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The Blueprint also provides information concerning broad guidelines
for the Privatisation/Commercialisation programme. The programme is
spelt out in phases, and sector by sector. Obviously, one major bottleneck
in the privatisation process has been the multiplicity of laws and
regulations that have to. be considered for appropriate application. A
determi ned attempt to overcome the bottlenecks seems to have been
found in the enactment of a comprehensive legislation, which
encapsulates within it the essence, as well as major provisions, of those
previously disparate laws and regulations. The new legal framework is
provided in the Public Enterprises (Privatisation and Commercialisation)
Act 1999, which repeals the earlier laws. It came into being as Decree
No. 28 of 1999 and was promulgated a few days before the exit of the
last military regime in May 1999.
In essence, the 1999 Enabling law absorbs previous laws on
privatisation and commercialisation, together with their socio-political
policy objectives, which are deemed imperative for a generally
acceptable privatisation programme and process. The observations made
in the first part of this section on the legal framework for the period 1988
to 1999 remain therefore relevant and valid.
The law spells out the lists of SOEs for privatisation or
commercialisation, establishes institutions to take charge of the
privatisation programme, mechanisms and instruments for resolving
conflicts in the process, and provides for regulations to guide the
activities of the bodies charged with implementing the programme.
Attention needs to be focused on (a) mode of privatisation as defined
notably in Part A, Section 2(1) - (3); and 5 (1) - (4) on allotment of
shares of privati sed enterprises. In particular, Section 5 (1) - (4)
replicates the provisions of earlier legislations on privatisation regarding
the application of the federal character provision and the limit to what
shares individuals can acquire. As in previous laws, no individual can
acquire more than 1% of the value of shares on offer. In essence, the
analysis of the impact of these provisions and the prescribed
mode/process of privatisation under earlier laws remains valid for the
current situation.
The formula for privatisation reserves 40% maximum for strategic
investor participation; 40% for Federal Government Parastatal
participation and 20% for Nigerian individual investors. The law puts a
limit of 1% for any single investor on individual shareholding in order to
avoid monopoly control by individuals.
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First schedule Section 1(1) Part II lists "Enterprises on which Equity
held shall be fully privati sed". These are mainly Infrastructure Utility
Companies in which Federal Government ownership varied form 100%
(1 hotel company), through 47% (1 hotel company), 40% (Petroleum
marketing companies (three); one Cement company; 30% (three Cement
companies) 27% (one cement company); 10% (one cement company)
35% (in each of six motor assembly companies) to 25% (in each of 3
agro-allied companies). Second schedule, Section 6(1) Part 1 lists
twenty-four companies for partial commercialisation while Section 6(2)
contains a list of nine companies for full commercialisation.
With regard to companies for partial privatisation in which the
Federal Government still intends to hold on to 40% through its
parastatals, while individual Nigerian investors would share a total of
20%, thereby leaving a maximum of 40%. The issue of control still lying
with Government on account of its assumption of proprietary rights, not
only over its own 40% shareholding, but over the additional 20% to be
held by individual shareholders who are dispersed, and therefore lack an
effective voice in managing the companies', is still a major hurdle to
either overcome by any strategic investor - individual or institutional.
With regards to the 100% divestment of Federal Government
minority shareholding, the problem will be of a different order. Some of
the problem resides in the structure of ownership and management of the
individual companies. Some of the companies are currently held in
partnership with state governments and foreign investors (such as the
cement companies and certain banks), while some are held in partnership
with foreign institutional investors, some of whom have even divested by
selling their holdings to other investors, and have done so with or
without prior consultation with the Nigerian Government. There is also
the fact that most state governments are yet to buy the idea and
programme of privatisation and therefore, continue to be obstacles in the
wheel of privatisation.
In states where allotments of shares to the citizens could not be taken
up on account of poverty and/or ignorance, governments are buying up
such allotments, presumably in fiduciary trust for their citizens. Thus,
privatisation through divestment of Federal Government holdings carried
with it the contradictory development that it is expanding the state
control of the enterprises, albeit at the lower tiers of government.
-""oj-
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4.5 Constitutional Issues in Privatisation
Nigeria attained sovereign independent statehood on October 1, 1960.
Since then, it has been governed under several constitutional regimes,
starting with the federal constitution that created a central government
with restricted jurisdiction and three strong regions with extensive
responsibilities and powers, to the current highly centralised state with
rather dependent constituent states.
Each of the constitutions under which the country has been governed
has been rather ephemeral in duration. Thus, the 1960 Constitution with
which the country assumed nationhood was amended in 1963, to make
the country technically a republic. The 1963 Constitution survived until
January 1966 when the military first seized power. The military ruled
the country, until September 1979. Another Constitution was
promulgated to herald in a second civilian republic in October 1979.
That Constitution lasted till December 1983 when, again the military
struck with a coup d'etat. From January 1984 till May 29 1999, the
military, ruled the country. The current civilian regime assumed position
under a constitution, which the last military regime foisted upon the
country.
In between the listed constitutions, there were also unconcluded
experiments in constitution making such as those of 1989, and 1994-
1995. On each of these occasions, the military ruler in charge was
merely wasting public resources playing hide and seek with their real
goal being the perpetuation of their regimes.
Apart from various individual Decrees, the very first Decree issued by
every successive military regime usually destroys the foundations of
Federalism.
Thus, the first Federal Military Government, completely undermined
the Federal status of Nigeria by giving itself the power to make laws for
the peace, order and good government for the whole of Nigeria with
respect to any matter whatsoever. It is as if the Regions or later, the
states, did not exist.
The matter reached its apogee in the Abacha era, when by Decree 12
of 1994, the Federal Military Government declared itself as being
established "with absolute powers to make laws for the peace, order and
good governance of Nigeria or any part thereof (including of course all
the states) with respect to any matter whatsoever".
Part II (A) of the law created the (I) National Council on
Privatisation, and invested it with powers spelt out in Part II (B). Under
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Constitutional and Legal Bottlenecks to Privatisation in Nigeria 83
the chairmanship of the Vice-President of the Federal Republic of
Nigeria, the National Council on Privatisation (NCP) is invested with
wide powers to carry out its functions.
Part II (A) lists membership of the NCP with the Vice President as
Chairman. It comprises:
(a) the Minster of Finance, as Vice Chairman;
(b) the Attorney-General of the Federation and Minister of Justice;
(c) the Minister of Industries;
(d) the Minister of National Planning;
(e) the Secretary to the Government of the Federation;
(f) the Governor of the Central Bank of Nigeria;
(g) the Special Adviser to the Head of State, Commander-in-Chief
of the Armed Forces on Economic Affairs; and
(h) the Director-General of the Bureau of Public Enterprises.
Notwithstanding, the provisions of subsection (2) of this section, the
Council may co-opt the supervising Minister of an affected public
enterprise to attend relevant meetings of the Council.
The supplementary provisions contained in the Third Schedule to this
Decree shall have effect with respect to the proceedings of the Council
and the other matters contained in the Schedule.
The functions and powers of NCP notably include the following:
$ determine the political, economic and social objectives of
privatisation and commercialisation of public enterprises;
$ approve policies on privatisation and commercialisation;
$ approve guidelines and criteria for valuation of public enterprises
for privatisation and choice of strategic investors;
$ approve the legal and regulatory framework for the public
enterprises to be privatised;
$ determine whether the shares of a listed public enterprise should be
by public or private issue or otherwise and advise the Government
of the Federation accordingly;
$ determine the time when a public enterprise is to be privatised;
$ review, from time to time, the socio-economic effect of the
programme of privatisation and commercialisation and decide on
appropriate remedies;
$ approve the appointment of privatisation advisers and consultants
and their remuneration;
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$ supervise the activities of the Bureau and issue directions on the
implementation of the privatisation and commercialisation
programme;
$ receive regular and periodic reports from the Bureau on
programme implementation and give appropriate directions; and
$ perform such other functions as may, from time to time be
necessary to achieve its objectives.
Part III of the Enabling law creates the Bureau of Public Enterprises
(BPE) defined in 12(2) as
... a body corporate with perpetual
succession and a common seal and may
be sued in its corporate name.
The functions are defined in Part III (B) 13- (1) (a)-(j) with regards to
privatisation. We need to highlight the following functions:
13 (1) (a) implement the Council's policy on privatisation;
(b) prepare public enterprises approved by the Council for
pri vatisation;
(c) make recommendations to the Council on the
appointment of consultants, advisers, investment
bankers, issuing houses, stock brokers, solicitors,
trustees, accountants and other professionals required for
Il:e purposes of privatisation;
(d) advise the Council on the allotment pattern for the sale
of the shares of the public enterprises set out for
privatisation;
(e) ensure the success of the privatisation exercise, taking
into account the need for balance and meaningful
participation by the Nigerians and foreigners in
accordance with the relevant laws of Nigeria; and
(f) perform such functions with respect.to privatisation as
the Council may, from time to time, assign to it.
The Enabling Law (1999) replaces previous laws concerning
regulatory authorities. It is explicitly stated in Art. 32 that "The Bureau
of Public Enterprises Decree 1993 is here repealed" and in Art. 33 that
"The statutory functions, rights, interests, obligations and liabilities of
the Bureau, existing before the commencement of this Decree under any
contract or instrument, or in law or in equity shall, by virtue of this
Decree, be deemed to have been assigned to and vested in the Bureau
established by this Decree".
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The first phase of the privatisation programme involves the
divestiture of the Federal Government's interests in banks, oil marketing
companies and cement plants. Most of .these are already quoted on the
Stock Exchange.
The divestiture strategy is sale to core investors, (which attracts a
premium-for preferential allotment control) combined with public offer.
This strategy allows the government to maximise revenue and ensure that
no leadership vacuum is created by the privatisation. The BPE advertises
core investor sales in national newspapers .and foreign publications.
Tenders from qualified prospective core investors are opened publicly.
The Technical Committee of' the NCP conducts negotiations with
qualified prospective core investors and makes recommendations to the
NCP for approval.
In line with the provisions of the privatisation.act, the shares 'offered
to the general public inthese.offers were.allotted on-the basis of equality
of Federal constituencies.. hence, predetermined. numbers of shares were
assigned to each state of the federation. Upon collation and analysis of
the various returns, it was discovered that.indigenes of quite a number of
states did not fully subscribe to the shares', set aside for them.
Consequently, the NCP directed-the BPEto.write to the affected state
governments and their investment companies to purchase the shares. A
deadline of 12th September 2000 was given after which the BPE would
sell all unsubscribed shares to institutional investors: In the WAPCO
offer, seventeen states recorded under-subscription, as against ten states
in respect .of FSR Ashakacem recorded the highest, level-of under
subscription-with eighteen-states not-applying fullYfor their entitlement.
The southern states' participated, actively in-.the -privatisation of
WAPCO, they showed- less. enthusiasm; in' the privatisation of
Ashakacem, which is located in the north; The .situation was reversed in
the northern states, which showed a lot of enthusiasm in the privatisation
of Ashakacem. They did not participatedactively-inthe WAPCO offer.
The FSB offer recorded a more even- participation' iruboth the north and
the south, presumably because as a commercial, bank with modest but
nation-wide branch' network, it was perceived as a.national, rather than
zonal institution.
State governments inthe.northwere more active in the acquisition of
shares than their citizen. Conversely, individual investors bought: more
shares in the south rather than state governments. Whatds-of, concern to
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the NCP is the relatively poor performance of the south east zone. The
chairman of NCP has therefore decided to embark on a special mission
to the south east to increase awareness and enlightenment to improve
participation in the programme.
The second phase is concerned with public enterprises engaged in
sectors where the prices of their respective output/services are largely
determined. Accordingly, a total number of thirty nine (39) public
enterprises would be involved under this phase.
This phase of the programme will involve enterprises that can be
broadly grouped into two:
i) those operating in competitive markets where no regulation of
price or market behaviour is of primary concern to government;
and
ii) those utilities and other firms operating in monopoly or near-
monopoly markets where public interest regulation is necessary.
Accordingly, the implementation of the privatisation programme
would in some cases require sector reform and restructuring, prior to or
side by side with the divestiture transaction. In the monopoly sectors
like electric power and telecommunications, sector reforms are being
undertaken in a logical sequence as follows:
Xpolicy formulation or review;
Xlegal/regulatory framework design;
Xrestructuring and liberalisation; and
X privatisation transaction. _
The National Council of Privatisation (NCP), the apex policy body
charged with the responsibility for the implementation of the current
privatisation and commercialisation programme of the Federal
Government has established the 'Transaction Marketing Committee'
with the following broad mandate and terms of reference:
• Liaise with the BPE and the Technical Committee to review the
design and timing of each transaction;
• Review and discuss the situation analysis of each enterprise
prepared by the Communications and Marketing consultants;
~ Identify and suggest ways the council could address the key issues
identified and otherwise reach the key people who could influence
the transaction;
In conjunction with the consultants, assist in marketing the
transactions through activities complementary to the overall
n~·i"af-is"tion marketing plan; ancl
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Constitutional and Legal Bottlenecks to Privatisation in Nigeria 87
• Submit a report at the end of the transaction to appraise the Council
on the lessons learnt and report any special issues that would
enhance the marketing efforts of other enterprises; and
• Perform such other functions as may be directed by the Council.
4.6 Conclusion
The constitutional and legal bottlenecks, which this report has dealt
with, are a reflection of the intricate problems involved in transiting from
one form of economic management to another. In the case of Nigeria,
the intricacy is a factor of the socio-political divergencies, which define
the polity. The analysis is illustrated with the insight provided into how
privatisation is being pursued, showing the delicate balance being
maintained between the primacy of the objective of keeping the nation-
state stable and united, and the need to transform the economy into a
market-oriented one through the instrumentality of privatisation.
Komai, cited earlier in this report, has rightly made the point that the
transition from a planned state-controlled economy to capitalism has to
be an organic process. It is a curious amalgam of revolution and
evolution, a trial and error process, with which some old companies will
survive while others vanish, and new firms are tested before being
accepted or rejected. Some developments are rapid, others slow. Some
call for a one-stroke intervention, while many others come about through
incremental changes.
Constitutional obstacles identified in the study include:
• ephemeral nature of constitutional regimes, signifying instability
of the state and governments;
• the preponderance of unitary despotism and severe undermining
of the rule of law, a situation that was not conducive to building
and sustaining investor confidence, whether within or outside the
country;
• a shift from federalism which had determined the structure of the
Nigerian state and its governance up until January 1966 to an
increasingly unitary one with an over-centralised governance,
controlled for most of the time by the military;
• constitutional imposition on government and its institutions of an
ideology of state and economic management that made it
mandatory to ensure public sector control of the "commanding
heights" of the economy; and
~ federal character in the conduct of public affairs.
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88 Readings in Development Policy and
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The legal obstacles derive from the constitutional obstacles. Laws and
regulations that are set for privatisation have to conform to the provisions
of the constitution regarding the fundamental principles and objectives of
state policy, and of the federal character principle that is stipulated. The
bureaucracy and regulatory institutions that control the processes of
privatisation were also handicapped by the necessity to conform to the
constitution.
• As defined at the beginning of this study, privatisation is a much
wider concept and process than has been implied by the procedures
adopted so far by the government. The primary objective of
privatisation is to empower the private sector. The reality that the
private sector in Nigeria (especially the organised private sector) is
still in its infancy. The approach to privatisation needs to be
widened to embrace other arrangements that would involve private
sector investors in the design, construction, operation, maintenance
and financing of public services.
• The private sector in Nigeria needs to be weaned from its
c1ientelist relationship with a prebendal state system. Investors
who are stakeholders in the development of the country will work
for the enhancement of the democratic values of openness,
competitiveness, accountability and transparency, and will join in
demanding the same of political office holders and bureaucrats.
• In particular, we recommend that as in other countries, efforts
should be made to grow and deepen Public-Private-Partnership
(PPP) as part of the framework for privatisation. A recent
development in that direction is the coming together of private
companies with some state governments to jointly buys over
federal government shares in public enterprises. A notable
illustration is the recent arrangement for selling Nigeria
Telecommunications Limited (NITEL).
• It is generally acknowledged that with recent developments,
especially with the Investment and Securities Act 1999, Nigeria
has an up-to-date legal and regulatory framework not only to
continue with privatisation, but for effective control and
management of the economy in all aspects. However, there is still
the need to tackle corruption critically. It has become a cancerous
force in the management of both the public and the private sectors.
Vigilance is needed to ensure that the campaign against corruption
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Constitutional and Legal Bottlenecks to Privatisation in Nigeria 89
through the anti-graft law and the anti-corruption commission is
sustained.
Commitment to good corporate governance needs to be deepened and
made to spread across layers of public and private sector operators. The
policy recommendations proposed here raise challenges that need to be
tackled in the future. Although democratisation has begun with the
transition from military autocracy to civilian governance under the 1999
Constitution, governance system still bears negative imprints of years of
rule by military juntas.
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REFERENCES
Aguda, T. Akinola (ed.) (1985), The Challenge of the Nigerian Nation.
An Examination of Its Legal Development 1960-1985. Ibadan
Published for Nigerian Institute of Advanced Legal Studies.
Heinemann Educational Books (Nigeria) Limited.
Akande, Oluwole (1988), "Privatisation: The Background and the
Decree", The Gravitas Review of Business and Property Law, No.
l.
Ameh, Madaki (1997) "Privatisation: A Blueprint for Successful Im-
plementation in Nigeria", Law and Business Quarterly, Vol. 2,
No.2.
Balogun, M. J., (1997), "Enduring Clientelism, Governance Reform and
Leadership Capacity: A Review of the Democratisation Process in
Nigeria" Journal of Contemporary African Studies. 15, 2.
Constitution of the Federal Republic of Nigeria, 1999.
EI-Rufai, Nasir (2000) "We Prefer to Build Local Capitalism". THIS
DAY, Vol. 6, No. 1914 Wednesday, July 19,2000.
El-Rufai, Nasir (2000), "Mass Participation is a Measure of Success".
The Comet, Thursday, October 12, 2000.
Enweze, Cyril (2001) "The Role of Privatisation and Liberalisation"
Vanguard, Wednesday, November 28,2001. p. 18.
Eso, Kayode (1999), "The Place of Law in a Democracy": The Comet
Wednesday, December 29, 1999.
Federal Republic of Nigeria, National Council on Privatisation (n.d)
What you should know about Privatisation
Blueprint of the Privatisction Programme (December 1999-
March 2003) The Enabling Legislation.
Hadenius, Axel (1992). Democracy and Development, Cambridge
University Press.
Levy, Brian and Pablo T. Spiller (eds) (1996). Regulations, Institutions
and Commitment.
Nzegwu, Greg (1999), "Privatisation and Public Sector Management: An
Overview". (Unpublished Mimeo).
Obike, Uche "CAMA Cedes Powers to ISA courtesy of Decree 45 of
1999" THIS DAY, Vol. 6, No. 1914, Wednesday, July 19,2000.
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Rural Development in Nigeria: Too Many Programmes; 91
Too Little Results
Olawoyin, G. A (1999). IssuesIn Privatisation Law. (Unpublished
mimeo).
Onalaja, Hon. Justice (1991) "The Lawyer and Privatisation and
Commercialisation" in Commentaries from the Bench.
Plane, P. (1994), "La Privatisation dans les pays en Developpement:
Qu'avons nous appris?
Revue Francaise d'Economie, Vol. Ix, 2, Printemps.
Sagay, Itse (2001) "Nigeria: Federalism, the Constitution and Resource
Control". (2) in The Guardian, Thursday, May 24, 2001.
Varoudakis, A. (1996), "Regimes non Democratiques et Croissance:
Theorie et Estimations", Revue Economique, No 3, mai
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5
ISSUES IN CONFLICT MANAGEMENT
IN NIGERIA
Dauda Abubakar, V. Adefemi Isumonah and
E. Remi Aiyede
5.1 Introduction
Conflict research in Africa is still at a developing stage largelybecause of the presumption that conflict is mostly ethnic in
character. In other words, not much effort has beeh devoted to unraveling
the multifaceted nature of conflict in Africa. Without groundwork, it is
understandable that conflict research has not benefited policy much
(Osaghae 1999).
The dominant view that conflict in Africa is ethnic permeates
individual African countries particularly Nigeria, which is reputed both
for ethnic diversity and ethnic conflicts. It is not surprising that research
is focused almost exclusively on ethnic conflict either to determine its
nature, or the effectiveness of the management strategies that have been
adopted to address its negative effects (e.g. Nnoli 1978, Osaghae, 1995,
1998). This gives the impression that other kinds of conflict are nOI1"
existent or at best, derivatives of ethnic identity. It is clear from this
narrow focus and fragmented approach to conflict that a comprehensive
documentation of the patterns and distribution of conflict in Nigeria is
yet to be undertaken. The result is that local conflicts and their peculiar
problems of management strategies have been neglected. This study
represents an effort to fill this gap by investigating issues in contention in
major conflicts that occurred in Nigeria between 1984 and 2000, analyse
the Government's responses to the conflicts and their consequences; and
layout the "\policy implications of the conflict management strategies
adopted, the responses they elicited and make recommendations.
93
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94 Readings in Development Policy and
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.5.2 Framework of Analysis
As earlier pointed out, conflict study is at a rudimentary stage in Nigeria
and almost entirely preoccupied with ethnic conflict. The result of this is
that several manifestations of conflicts and the issues involved in their
management have not been systematically investigated. To achieve this,
issues in conflict management are here conceived as conflict factors or
sources of conflict, which necessitate the search for management
strategies and the conflict-generating attributes of management strategies
in practice. In a sense, the two strands of this conceptualisation have an
organic connection in that the second reflects the transformation of the
first. Strategies deployed against the causes of conflict transform them
from raw matters of concern to individuals or groups to political matters
as decisions, which as the input-output analytical framework indicates,
are not often settled once and for all (Easton 1960). The reason is that
political decisions elicit feedback from dissatisfied sections and
continuously reflect the dynamics of power relations in the polity. This is
particularly true where group interests are involved. Equity and propriety
of management strategies become as important to dissatisfied groups as
the response embodied by them. Thus, it is relevant to speak of issues
even beyond the threshold of response to a conflict situation, that is, after
decisions have been made to deal with it just as it is in the course of
implementing decisions because of the inherent difficulty in the
implementation process.
One of the most important common issues in conflict management in
Nigeria is revenue allocation, whose dimensions are vertical and
horizontal sharing patterns. Vertical revenue sharing describes the
proportion of federally collected revenue that goes to each level of
government, while horizontal revenue sharing relates to the distribution
among the states their share of federally collected revenue. "Although
now partly eclipsed by vertical revenue sharing conflicts, the debate over
horizontal revenue sharing has never been far from the epicenter of
Nigeria's federalism" (Suberu 2001:57). The overwhelming salience of
vertical revenue sharing is evident from the various layers of contention
between sub-federal levels of government and the federal level.
The first layer of this conflict is the demand for greater share of
federation account by all states and local governments against the federal
government. The second is the demand for resource control. The third,
which is the most salient, considering its intensity and moral issues
raised, making it the most illustrative of revenue allocation conflicts, is
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the conflict over the control of oil resources and benefits in which the'
minority states in the oil-producing areas are pitched against the federal
government. This conflict has passed through all but one phase of
insurgency identified by Zartman (1995). There are four insurgency
phases, which for him, do not follow a unidirectional sequential path,
"The first phase is one of cultural protest led by groups of educated elites
petitioning the government for political reform with political means,
Such groups express many different and specific grievances and expect
redress. The second phase involves the formation of a single movement
led by charismatic organisers who seek to unite the disparate groups and
force the attention of the government to the grievances by means of
coercive civil action. The third or insurgent phase turns from political to
violent means of pressure through a mass movement with a more
ideological and action-oriented leadership that contests the ability and
legitimacy of the government to meet its demands" (p. 14).
As the sequence indicates, conflict involving the minorities in the
Niger Delta was on the verge of entering the fourth phase of military
confrontation when the military handed over power in 1999, It went as
far as the third phase, obviously because the dominant group(s) in
Nigeria were, not disposed to adopting management strategies that were
from the viewpoint of the minorities, equitable. It is recalled that the Oil
Mineral Producing and Development Commission (OMPADEC) was set
up in 1992 with 3% of oil revenue for financing the provision of social
infrastructure and development of human resources for the benefit and
apparently in response to the growing mobilisation of the minorities in
the Niger Delta. The 3% allocation fell far short of the demand of the
minorities for control of natural resources exploited from their homeland.
To make matters worse, inadequate funding, administrative bottlenecks
arising from the centralised structure of the Commission and charges of
corruption seriously hampered OMPADEC's ability to discharge its
responsibilities. The Federal Government responded to the charges of
incompetence and inadequacy against OMPADEC only by changing its
leadership and repression in response to hardening of position of the
minorities and in the process stimulated violent protest embracing
sabotage, hostage-taking and murders,
At the root of the issue of revenue allocation is the unilateral
approach favoured by the federal government in a supposedly federal
political framework where dialogue should reign and serve as an adjunct
instrument for conflict resolution. Over the years, the federal government
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has not only fixed revenue allocation formulas for vertical sharing
between the centre and the component units: states and local
governments, but has also determined the principles for horizontal
sharing among the lower levels of governments without regards to the
expectations and the different conditions of the states, especially those
states where most of the national revenues are derived. The principle of
derivation for the horizontal sharing nose-dived from 50% in 1967,45%
in 1969, 20% in 1975, becoming non-existent in 1979/83 period of
civilian dispensation. This de-emphasis is beside the distinction the
federal government at various times made between onshore and offshore
that gave 100% offshore revenues to it (Human Rights Watch 1999). It
arbitrarily chose January 2001 as the effective date of implementation of
the allocation of 13% derivation to the oil producing states, given that the
1999 Constitution took effect on 29th May 1999. However, this new
derivation principle has certainly contributed to the reduction of violent
protest in the oil bearing Niger Delta since it engenders the stake of state
governments and communities in this region in the continuity of oil
production. This is evident from the comparison of the current and past
situations by Shell Petroleum Development Company's (SPDC) External
Affairs Division, "State governors are now joining Oil firms to ensure
that Oil production is not disrupted. And when we complain of
difficulties in certain host communities, they participated actively in
resolving the problem. This was not the case two years ago" (Warri
Mirror, 31, March 2001, p.18).
However, the implementation of the 13 % derivation has raised the
new issue of the proper recipient or beneficiary of the accruing revenues.
Some have argued that the derivation revenue should go to local
governments in whose territories oil is produced or spent exclusively to
develop them (Edevbie 2001). Ijaw-Isoko-Itsekiri Traditional Rulers and
Leaders Forum demanded to the contrary that derivation income should
be shared among the oil-bearing communities and their traditional rulers.
This contention is fiercest in Delta state, which is currently the largest oil
producing state in Nigeria. For example, Delta State's 2000 budget based
on expected revenue from the federation account and internal sources
was Wl8 billion, while revenue from the derivation principle in the same
year was W28.9 billion (The Punch" Lagos, 18 Sept. 2000, p.18). Pitched
against the state in the debates over the proper beneficiary are traditional
rulers and chiefs ofIjaw, Isoko and Itsekiri, reflecting old class divisions
and aspects of ethnic conflict in the state.
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Crisis of authority at any level is prejudicial to conflict resolution. It
is worse if the legitimacy of state power is under attack. As Zartman
(1997) has observed, in contrast to America, the African assumption is
that conflict exists between groups and government, suggesting that
government is viewed as a party to conflict. This notion of conflict
makes conflict management difficult for two reasons. First, the notion
turns conflict management from "third party exercise into a direct
exercise between conflicting parties." Second, the notion creates a
"situation that weakens and de-legitimises government, since
government is seen by large parts of society as part of the problem, not
part of the solution" (p. 15). To these may be added three more reasons
equally derived from the partisanship of government in a situation of
conflict. First, is the fact that state actors will be slow to intervene
positively where they are themselves implicated in a conflict situation.
Second, where they do, their measures will be half-hearted or entirely
biased. Third, objective recommendations by a judicial commission of
enquiry will not be faithfully implemented toward an equitable resolution
of the conflict, leaving it to stew on.
Related to this is the issue of divine right to rule mentality the "core
north" comprising Hausa/Fulani is believed to maintain toward state
power. This mentality, whether as an affliction of an individual or power
bloc, presents both fundamental and practical problems in the conflict
resolution process. First, it stultifies constitutional development and the
power of the constitution as a tool for conflict resolution by blocking a
people-derived constitution from emerging. As a consequence, it
bequeaths what Okoth-Ogendo (1991) has referred to as "constitutions
without constitutionalism," which expresses constitution-making that is
not accompanied by political leaders' commitment to society and the will
to comply with the provisions of the constitution.
The demand for a new constitution in Nigeria remains loud precisely
because the military architects of the 1999 Constitution were
preoccupied with it as an instrument for perpetuating the status-quo or
defence of class privilege rather than instrument for ensuring
accommodation of wider interests for better conflict management. Both
in terms of process and content, the constitution is very flawed. General
Abdulsalami Abubakar Administration's appointed Constitution Review
Committee received written submissions from 405 un-elected people,
who, nevertheless, generally favoured a return to the 1979 Constitution.
The administration instead, decreed a constitution with an immunity
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clause for the military class (Ogowewo 2000). Not being process-led,
involving the participation of important demand-bearing groups either
through a Constituent Assembly or Sovereign National Conference
(SNC) as desired by many regional blocs and large segment of the
Nigerian populace, the constitution failed to serve as a genuine social
contract by not resolving momentary conflicts and laying the rules for
resolving future ones (Zartman 1997). The federal government has
turned away from the persisting demand for a conference or SNC, which
its advocates hope to use to achieve the political restructuring of the over
centralised state with cosmetic measures. It recently set up a National
Security Committee to help, among other responsibilities, identify
measures for controlling violent ethnic clashes which advocates of
conference or SNC believe are the result of lack of a popular constitution
after its own appointed Constitution Review Committee failed to calm
the quest for constitutional reform.
Second, the divine right mentality leads to flouting of electoral rules
and uneven or unequal participation in the political domain to the extent
that certain offices- political and administrative, are seen as the preserve
of the regional bloc that is afflicted by it. As Gboyega (1997: 150)
observed about Nigeria, "electoral victories are only expected to confirm
the North's- predetermined right to rule, and if they do not, they are
treated as illegitimate and subject to reversal." Third, it is not
accommodating: whenever it emerges, of the underdog's demand for
equal participation in the political process. The conflict situation
generated is mature for resolution only when the divine right mentality is
infected by the tactical problem of sustaining it. This is evidently why a
southerner is in the saddle of power in Nigeria today (Isumonah 2001).
Religious fundamentalism is an obstacle to conflict management.
This is because it denies others the freedom to a religious opinion. Its
only weapon of evangelism is force, which others who are jealous of
their religious beliefs will resist with force, leading inexorably to violent
hostility.
Total commitment of parties to conflict poses a serious problem in
the management of conflict. With such a commitment, conflict tends to
be very destructive. This is unfortunately, the attitude to conflict in many
African states. As Dorn (200 1) observes, , "the ultimate reversal of
development is the scorched earth policy applied by some combatants" in
Africa, In Nigeria, it has been observed that protest for equitable
distribution of resources' is' often characterised by the destruction of
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Issues ill Conflict Management in Nigeria 99
public property. Why is inter-group conflict in developed multicultural
western societies not characterised by the inclination to destruction of
even public property as in Nigeria, for example? Why is there so much
commitment to conflict in Africa, and to the detriment of desirable
development?
Absolute commitment to conflict, without doubt, lacks a feeling of
collective loss as much as the realisation that the destruction of public
property depletes collective wealth available for redistribution. It thus
stems from absence of a national or sub-national idea/ideology, and
values formulated from broad consensus if as Dudley (1982) has
observed, both values or beliefs define behaviour patterns in a society.
Without common values, there is no national project and without which
conflict easily degenerates into spoiler activity, prejudicial to the safety
of public property. Existence of a national project imbues a sense of
collective treasure and the restraint on the individual not to take action
that is detrimental to it. Parties to a conflict constantly relate this national
project to other national projects out of fear of being overtaken,
surpassed or humiliated or left behind in development in the prosecution
of internal conflict. Broad agreement on political and economic
orientation in the United States of America helps explain the acceptance
of the Democratic Party of the inexact presidential victory of the
Republican Party of November 2001 and contrasts sharply with the
annulment of the .Tune 12 1993 Presidential Election, carried out without
regards to the cost to the Nigerian body politic.
Acceptance of a national ideology also helps demand-bearing groups
recognise that conflict is both inevitable and functional, and therefore,
that the political terrain is a contested one. Seen in this light, state
authorities countenance and view demands by groups for redress as
reminders of uneven development; inter-group inequalities; the need to
improve upon accountable and responsible leadership; as well as
constructive challenges to power holders that are not liable to violent
repression. Without denying the persistence of racial problems in
America and the repressive response to the black civil rights movement
of the 1960s, America provides an example for countenancing the
message of this movement and legislating to deal with the problem.
Total commitment of parties to conflict is influenced by the
dominant response of state authority to internal challenges, which is
itself determined by type of regime. Institutionalised democracies'
dominant response to internal challenges from "practical as well as
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normative consideration" is "compromise", embracing non-coercive
conflict management techniques such as "increased channels of political
participation, redistribution, symbolic and substantive shifts in public
policy, cooptation of opposition leaders, diversion of affect and attention
onto external targets" (Gurr 1988:54). On the other hand, the dominant
response of autocracies to internal challenges is repression.
As well illustrated by the search for redress in respect of oil
exploitation activities, a cumbersome legal process is unhealthy for
conflict resolution. Frynas (1999: 123) has observed that compensations
for oil-related grievances are often based on "the tort of negligence, tort
of nuisance and the rule in Ryllands v. Letcher." Except for the principle
of res ipsa loquitur (the facts speak for themselves), which shifts the
burden of proof of negligence from the plaintiff to the defendant and
makes success of plaintiff in claiming damages high, "proving
negligence is very difficult because of the technical nature of oil
operations" (p. 124). Of the two types of nuisance: private and public,
damages can only be claimed for public nuisance if it can be proved that
an individual is peculiarly affected. In this regard, group action is ruled
out. In oil-related complaints, it is the Attorney General who can press
charges against an erring oil company, a very unlikely action given the
dependence of the government on oil revenue.
The issues that very well illustrate conflict management practice in
Nigeria include struggle for land, and state benefits, intra- and
intercommunity competition over benefits from hosting of oil companies,
assertion of ethnic identities or autonomy in intra and inter forms, and
legitimacy of traditional and modern state authority. Each of these is the
thrust of subsequent sections. Each of those conflicts will be illustrated
by examples drawn from particular parts of Nigeria.
5.3.1 Struggle for Land
Land is the most important resource in Nigeria given her predominant
agrarian economy. As a result of population explosion, land tenure
practice and penetration of capital of the agricultural sector, land is
invariably the main object of competition and conflict especially in the
rural areas (Ewgu 1998, Nnoli 1995). This chapter documents the pattern
of this competition and the conflict resulting from it.
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Taraba State
The combination of fertile plains with ample water resources and
different mountain ranges with flat top overgrown with grasses, trees,
and numerous streams endowed the Adamawa region of Adamawa State
with the greatest potential for supporting large numbers of people and
animals (Polngri 1987). The rich fertile soil for agricultural practice
attracted immigrants in large numbers. Intermarriages, mutual
understanding and trade reinforced cultural fusion and diffusion.
Differences in religion and ethnic background were not a barrier to
harmony in a mixed population of animists (traditional religionists),
Muslims and Christians. Eventually, population explosion resulting in
scarcity of land began, raising the issue of indigene-settler questions.
In a similar vein, the bank of Gongola River in Guyuk LGA of the
state attracts, yearly, from October of the dying year to March of the
following year, the cattle Fulani of Chadian, Cameroon and Niger origin,
leading their cattle to Guyuk in large convoys for pasture. Invariably, the
migrant Fulani cattle herders come into conflict with the indigenous
ethnics. These migrants are alleged to be inconsiderate while leading
their flocks round for grazing by allowing them to trample down
agricultural fields with impunity.
It was alleged that in 1998, a cattle Fulani cut off the hand of a
Longuda man, Mallam Timo of Banjiran village, for pointing a finger at
him over the destruction of the former's plants during grazing. The
children of the victim rushed home to raise alarm. In response, the
villagers mobilised and headed for the location of the incident for
vengeance. They killed the Fulani and some of his cows while others
strayed. They also attacked some other settlements of the Fulani in the
area. A counter-offensive by the Fulani in 1999, led to more casualties in
property and human life. Majority of the about 1,600 lives lost in the
conflict were Fulanis mobilised from Chad, Cameroon, Niger and within
Nigeria. There is clearly a lack of an institutionalised mechanism for
conflict resolution in this context (interview with informants March
2000).
Overwhelming number of Rausa immigrants from the 1950s
onwards has come to dwarf the population of indigenous Bachamas and
overstretched the marshy farmlands in Tingno and Waduku in Larmurde
LGA of Gongola State to the extent that there is no more virgin land in
the area. The growing concern of Bachama elite comprising civil
servants, public officers, retired military and police officers over this
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situation led them to mobilise an awareness among the rest of Bachama
populace using the Waduku Group Farmers Club as their platform in
1986. Its specific objective was to recover farmlands in and around
Waduku from their Rausa neighbours. To make matters worse, the
Hausas were alleged to be desecrating traditional ritual places and failing
to pay tribute to their landlords.
Thus in 1986, one Elam Kachalla dispossessed over seventy Rausa
farmers of their farmlands while one Sergeant Militus Daniel (Rtd.)
dispossessed sixteen others. These acts strained the relationship between
the Bachama and the Rausa to the point that they stopped trading with
each other. In 1987, Mr. Kachalla seized another 60 Rausa farmlands.
An exchange of offensive language between five Bachama youth in
search of farm job and an Rausa potential employer resulted in a clash
that claimed the Village Read of Waduku, Mr. Ndewode Kotohula Kleru
and Mr. Lasco Miwa, a retired civil servant, invoking reprisal killings
and looting and burning of houses and other property on August 19 1987.
The crisis spread to other villages such as Fadama, Gyakan, Tingno,
Kogi, Rigange, Cheto, Sabon Garin Kabawa and Mai Chibi.
Skirmishes between Wurkun, Bandawa, Jonjo on the one hand and
Fulani nomadic cattle herders on the other hand have been recurrent
since the 1970s. In 1992, a Wurkun man, Mr. Daura reported to the
Police that nomadic Fulanis had overrun his farmland and they allegedly
took no action. He and his folks took the law into their hands by
launching an offensive against the nomadic Fulani in his part of Taraba
State, resulting in the loss of several lives and property. It escalated into
a full-scale war with the full backing of the warring factions by
influential individuals and organisations such as Miyeti Allah Cattle
Association and Karim Lamido Group Farmers Union. The conflict
resurfaced again in the worst forms in 1997 and 1998. These
re-occurrences led to 150 estimated deaths and destruction of property
and food crops worth ten million Naira. The recommendations of a
Judicial Commission are still to be implemented as other past
recommendations. Violent clashes occasioned by destructive grazing
activities are also common between the Kambu, Kaka on the one hand
and Panso Fulani on the other in the Sardauna LGA of Taraba State. The
same is true of the relationship between the Tiv and Fulani herdsmen in
Ardo LGA of Taraba State. In 2000, a re-occurrence claimed five lives
and several huts in Sunkani.
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Land disputes between the Jukun-Chamba and Tiv, later settlers in
Wukari area of Taraba State resulted in the death of about 1,000
including the Chief of Nyankwala, Alhaji Umaru Sule (Chamba), Miss
Kasuwa Agbu (Jukun lady member of the Taraba State House of
Assembly) and the destruction of the following villages: Sonid, Kente,
Feyi, Riti, Akwana, Sukundi, Gidan Idi Chunku, Bye Pyi Gindin Waya,
Bakyu, Nwuban (Jukun) and Iboa, Varse, Tor Musa, Bantaju, Gindin
Dutse, Tunari, Nwuko, Ando Iko, Uhwe, Ndo Daa and Anyii (Tiv)
between 1990 and 1994. Several peace initiatives including the Wukari
Local Government Peace Committee comprising the Tiv and Jukun; Tiv
Culture Association and religious leaders; two separate peace resolutions
aided by the Office of the Vice-President; Taraba State Government Ad-
hoc Committee and the federal government delegation comprising
eminent traditional rulers like the Sultan of Sokoto, Alhaji Ibrahim
Dasuki, Shehu of Borno, Alhaji Mustafa Umar El-Kanemi, Emir of
Kano, Alhaji Ado Bayero, Gwom Gong Jos, Fom Bot, Emir of Zazzau,
Alhaji Shehu Idris, Tor Tiv, Alfred Akawe Torkula, and Ukwe Takum,
Alhaji Ali Ibrahim failed to yield fruits.
Peace was restored only after the Tiv were forced to accept their alien
status in Wukari with re-settlement conditions including respect for the
Wukari traditional institution and permission before embarking on the
use of any piece of land in the area.
Land disputes between the Kuteb and Jukun-Chamba have resulted
in the death of several people and destruction of huts and other valuable
property since 1979 in the Takum area of Taraba State. These disputes
are said to be often triggered by unemployed youth who loot and plunder
the property of the people of other ethnic groups. The contention over
land is intertwined with the chieftaincy dispute between the two, ethnic
groups over the throne of Takum to which both have historical s6Pport to
claim.
Historically, the Kuteb who are the first settlers in Takum lived on
the mountains and caves and were ruled by spiritual leaders known as
'Kwen Kwens' while Jukun-Chamba, the later settlers who migrated from
the Cameroons as a result of the pressure of the Fulani jihads in about
1830, lived in the plains including Takum with their paramount rulers.
However, in 1914, the British colonial authority deposed two Chamba
traditional rulers based in Ibi for their continued involvement in the slave
trade and appointed a Kuteb as the paramount ruler of the newly
amalgamated Zumperi and Takum Districts (Temple 1901). Before the
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amalgamation, Zumperi District was predominantly Kuteb while Takum
District was a mixture of Jukun-Chamba, Kuteb, Itchen and other
minority ethnic groups.
Postcolonial state politics has compounded the chieftaincy dispute.
In 1963, the Northern Nigerian Government enacted a legislation which
established two exclusively Kuteb ruling houses: Akente and Likam. The
resistance of the Chamba through petitions forced an investigation and a
public hearing leading to a revised Order giving right to the Takum
throne to Chamba ruling houses as well but to the eternal displeasure of
the Kuteb. This land-cum-chieftaincy dispute was aggravated by the
dissolution in 1997 of USSA LGA, which had been created from Takum
LGA in 1996.
The Federal Government's White Paper that followed the creation of
USSA placed all the Kuteb villages in the new USSA LGA, while
Jukun-Chamba villages were to remain in the old Takum LGA. The
Kuteb saw this boundary adjustment as an attempt by the Jukun-Chamba
to displace them from Takum. However, the dissolution of the new LGA
failed to calm frailed nerves but even provoked an unprecedented
carnage in the history of hostility between the two groups. At the end of
it, over 1,000 people died, 500 people in serious body harm and 20
villages were left in ruins. Another carnage followed the attempt by
Kuteb youth to invade Takum in 1998.
Delta State
The creation in December 1996 and take off by March 1997 of south-
west Warri Local Government in Delta State was the immediate cause of
the violent hostility between the Ijaw and Itsekiri, which is yet to be fully
resolved. The new local government was in a predominantly Ijaw district
with a sizeable Itsekiri minority. When its creation was first announced
in 1996, Abuja had announced Ogbeh-Ijoh as its headquarters. But there
appeared to have been second thoughts on the part of Abuja with
Itsekiri's influence when the military administrator of Delta State
changed the headquarters from Ogbeh-Ijoh to Ogidigben, an Itsekiri
town. This change made sense in terms of equity: having a minority town
of Itsekiri as headquarters of a local council predominantly Ijaw in
population. But the Ijaw were outraged that what they perceived as an
Ijaw local government should have its headquarters outside Ijaw area.
They allegedly started an ethnic cleansing war against the Itsekiri not
only in the new local government but wherever Itsekiris were in the
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ward area. The Itsekiri claimed that by May 1997, the pogrom had
engulfed not less than 32 of their communities from a systematic
campaign of extermination by prominent Ijaw leaders. The Itsekiri
organised a counter attack on the Ijaw but later also on the Urhobo.
Periodic attacks and counter attacks continued over the two
subsequent years. It degenerated after the creation of four autonomous
ethnic communities each with its own traditional ruler in early 1999. The
youth on both sides got arms via access to funds extracted from oil
companies. For example, Ijaw youth were said to be disrupting oil
operations and had become a menace to oil production activities in Odidi
communities by causing spills and then negotiating what they should be
paid as compensation for those spills. Part of the proceeds is suspected to
have gone for arms purchases. Thus, when the soldiers of the 7
Amphibious Battalion Effurun attacked the youth in the Pessu, Macaiver
and Ogbe-Iioh areas of Warri in December 1999 killing five and
arresting 50, their mission was to rid the area of rifles allegedly
stockpiled by the youth (The Guardian, December 7,1999).
Related incidents occurred in other communities, a ripple effect of
the Warri showdown. For instance, some youth from Ekpan community
in Uvwie Council on Wednesday, 18 August 1999, invaded and
vandalised the Warri office of Texaco Overseas Petroleum Company,
Nigeria (TOPCON). Claiming to represent the Ekpan Development
Committee, the youth numbering about 1,000, chanting war songs and
carrying a coffin wrapped in red linen, invaded the expansive office
complex, destroyed the glass doors and windows of the first floor,
ransacked the visitor's reception office near the gate, locked up all the
workers and barricaded the gate. Their grouse was that the company had
been deceiving the community since 1995 over issues relating to
employment. They alleged that at several meetings with the company's
representatives and the local council officials, no jobs had been offered
as promised. They were determined to barricade the complex for three
days until the management addressed their grievances (see The
Guardian, 19 August, 1999 p. 56).
Similarly, Itsekiri youth insisted that oil companies operating in their
areas must quit so as to make the Itsekiri less vulnerable to attack by
their militant Ijaw neighbours. They pointed to the alleged killing of
September 17 and September 24 respectively of two Itsekiri youth, one
Chris Ikomi, a Chevron staff, and Isaa Charley a staff of an oil servicing
company owned by the Olu ofWarri. Furthermore, they passed a vote of
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no confidence in the government of James Thori for failing to guarantee
the security of their lives and property (The Punch, October 1, 1999
p.40). Soon thereafter (November 1999), the Niger Delta Itsekiri
Liberations Youths raised an alarm over the disappearance since May 29
of four of their kinsmen after alleged raid on Escravos by an armed
group suspected to be made up of Ijaw youth. The Ijaw had attacked a
group of Itsekiri who were defending oil installations in the Escravos
area of Warri. The Liberation Youths claimed that this was part of a
systematic plan to eliminate the Itsekiri by the Ijaw in the Niger Delta,
necessitating their organising a civil defence group to defend themselves
as government appeared incapable of dealing effectively with the menace
confronting them (The Punch, November 17,2000 pAO).
These were the trying circumstances in which Delta Governor James
Ibori explored several ways to ease tension and ensure a permanent
resolution of ethnic feuds in Warri city. He imposed curfew on the city
for months and threatened that any person who engaged in acts of
violence, arson, hijacking of vessels, piracy, illegal blockade of
waterways or victimisation would be treated as a common criminal. He
conferred with Olu of Warri, Ogiame Atuwase on August 17 and
subsequently on what could be done as he was anxious to lift the over
two months old curfew to ease the untold hardship on the citizens and
avoid further socio-economic damage. He incessantly appealed to the
Warri people to desist from violence, which apart from the monumental
destruction it caused, had had ripple effects on investment (The
Guardian, Thursday 19 August, 1999 p.5).
Community leaders responded with reconciliatory moves. Mid-
January 2000, Ijaw and Itsekiri leaders finally made peace for the first
time in years. The peace brokers, Chief Joseph Popo, Chief (Dr) Roland
Oritsejafor, Chief Mabiaku and Mr. Walter Odili for the Itsekiri, Chief E.
E. Ebinami, Chief Bare Etolor for the Ijaw were lent a mediatory hand by
the Isoko represented by Chief Etaluku and the President-General of the
Isoko Development Union, Chief A. P. J. Okpaakpor. The team visited
Chief Edwin Clark, the Ijaw national leader and the Itsekiri monarch, the
Olu of Warri Ogiame Atuwase II to symbolise end of hostilities
(ThisDay, January 18,2000 p.3).
Urhobo/ltsekiri conflict over land is long-standing. The Itsekiri claim
superiority over all of Warri and in fact got the old Western Region
under Chief Awolowo to change the traditional ruler's title from Olu of
the Itsekiri to Olu of Warri. This has never been acceptable to the
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Urhobo and other stakeholders in Warri. The Delta state government in
recent times tried to resolve the problem of Warri by creating different
autonomous communities in the city. The last Military Administrator,
himself an Ijaw man, came up with the idea of four autonomous
communities based on the four major ethnic groups in the city with a
traditional ruler each. Accordingly, there is the Ovie of Agbara waterside
(for the Urhobo of Agbara Otor descent); Ovie of Okere for the other
Urhobos who dominate the Okere area of Warri, the Amayanowei of
Ogbeh-Ijoh for the Ijaw and Olu of Warri for the Itsekiri.
The Itsekiri are allegedly unhappy with this development, hence the
ethnic violence between them and Urhobo that visited Warri in 1999 and
2000. In the Urhobo/Itsekiri mutual annihilation, it is alleged that in a
surprise attack of the Itsekiri on Okere, the Ovie's palace and many
houses were destroyed besides loss of lives and millions of Naira in other
property. However, the Urhobo soon regrouped and fought back.
Assisted by the Ijaw, the Urhobo devastated the Itsekiri in a counter
attack, forcing most to run away to Sapele and environs. Intervention by
combined military and police forces and appeal by the Presidency and by
other well-meaning Nigerians in high places helped to restore peace at
the time.
5.3.2 Demand/Competition/or State and Hosting Benefits 0/
Mineral Mining Companies
This section presents the various manifestations of competition for
benefits at the local level and shows how in some instances they shape
identities and define the "indigene" or "stranger."
The conflict between the Sayawa and Hausa in Tafawa Balewa LGA
of Bauchi State is over state appointments and positions and quest for
autonomy by the Sayawa. The Sayawa, the older settlers had for long
alleged marginalisation in the distribution of state appointments and
positions both at the state and federal levels. Besides, they have felt
marginalised that the District Head of Tafawa Balewa appointed by the
State Government over their predominantly Christian population was
always a Muslim. Their quest for equity in state appointments and
autonomy by means of their own District divided Tafawa Balewa along
religious lines. Thus, it took only a controversy over the sale of meat
considered offensive by Muslims for the bad blood between the
Hausa-Fulani and Sayawa to explode into a full-scale violent conflict that
claimed from official sources, the lives of over 500 people and property
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worth more than 100 million Naira destroyed in 1991. This conflict
spread to Bauchi, Ningi, Toro, Dass, and Daraqzo, all in Bauchi State in
violent clashes between Muslims and Christians.
The Choba 1999 conflict, which attracted national attention for the
sex scandal accusation against soldiers deployed there to restore peace,
goes back to 1989 when for the first time, the youth confronted Willbros
over employment opportunities and provision of social services like
water, light, roads and a secondary school for the village. Willbros
agreed to offer some employment, a promise it did keep. It trained
several Choba indigenes in its school for welders and offered them jobs
with high pay. Choba became rich in experienced welders and in high
income for its people. But the company agreed to and did little in the
area of social services besides periodic grading of one untarred street,
annual post-rainy season filling of a couple of gullies on the main street,
and award of some scholarships and minor contracts. Even these awards
were on what was called "landlord basis," that is to say that only
members of families that actually own the land Willbros leases benefited
from the scholarships and contracts. These families formed a strong
landlord association that ensured this.
Three things impacted on the youth in those years that shaped the
confrontation in 1999. First, it was observed that although Choba boys
were usually the last to be hired, they were the first to be relieved of
duties during slack periods. Disproportionate sacking was often justified
on the ground of stealing on the part of the sacked employees. This was
hardly arguable because nearly everybody stole at Willbros. As a former
employee there (now an assistant lecturer in a university) put it: "To
work in Willbros without stealing is seen as queer." Secondly,
competitors such as Nissco came and with initial, and as it turned out,
temporary higher pay, attracted away to Warri and other places, current
and previously sacked Willbros workers. Returning Choba boys who
were discriminated against by Nissco and other oil servicing companies
in favour of indigenes became a rallying point for those they left at home
in a renewed effort to get Willbros adopt the new morality in full.
Funding was hardly their problem! They had money to organise meetings
and attend to "juju oracles" and get "juju power".
It is not surprising that all the officers of the Choba Youth
Association since the late 1990s have been Willbros trained welders at
some point in their careers. Under the impetus of this Association, Choba
youth, alleging marginalisation of the community in terms of
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employment, provision of social amemties and welfare packages,
mounted a blockade of Willbros gates on September 7, 1999. They set
some of the workers' buses on fire and looted gadgets and machine parts.
This halted operations at the base. Thirdly, the events leading to, and
following the declaration of, the Ogoni Bill of Rights in 1993 (and the
ensuing Kaiama Declaration), had made company obligation to host
communities, including employment of the youth, the new morality and
political correctness.
The Rivers State Government brokered an agreement in which
Willbros was to build a modern secondary school in the town; abide by
all applicable state and federal laws relating to employment (an oblique
reference to giving preference to indigenes in the low cadre or junior
staff categories of employment); construct street roads, provide water,
patronise Choba indigenes as vendors/suppliers/contractors, award four
each of Secondary and University scholarships to Choba indigenes,
recruit a Choba indigene to fill the vacant post of Administrative
Manager; pay W20, 000 monthly to the Nyewe-Ali Choba or his regent
and W5, 000 monthly to each of the 19 members of the Choba Council of
Chiefs with effect from October, 1999. An implementation committee
on the agreement comprising three members of Choba community, two
of the State Government and two of Willbros to work under the
arbitration of the Rivers State Government as represented by the
Commissioner of Environment and Natural Resources was set up. It was
provided that terms of the agreement shall be subject to review after
every two years.
Problems started almost immediately with implementation, largely
on the Choba community side. With regards to the position of
Administrative Assistant that was to be filled within one month, Choba
preferred to present Willbros with their own choice rather than send
several nominees and let the company select the most suitable. Internal
wrangling made consensus difficult. Choba had zoned their choice to the
Rumuati sector of the village comprising Chakara and Rumuocha
compounds. Between them the two compounds agreed the nominee
should come from Chakara, which incidentally is the compound of the
immediate past Nyewe-Ali (Traditional Ruler). The Choba youth
preferred a competent person who had shown boldness in character,
morally upright, knowledgeable, understanding and active in their
movement. The Chiefs who thought the young man was already a "big
shot" at the University of Port Harcourt and should be left there to grow
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bigger for the future benefit of the community opposed their choice
based on these qualities. Instead, they proposed two candidates both of
them fresh graduates still serving in the National Youth Service Corps.
One of them had earlier had his appointment at Willbros terminated for
stealing. The other was a fine gentleman, one of the 35 signatories of the
Agreement with Willbros, but like the Co-nominee, he was of the direct
family of the Igwes (one of the royal families of which the late Igwe was
immediate past Nyewe-Ali). Because of these blood ties, the youth saw a
sinister motive by the Igwes to impose one of their own on the village.
The Igwes had not been in the good books of many because they were
viewed as selfish and oppressive. The feeling was "not another Igwe,
please". In these circumstances, and through no fault of Willbros, the
recruitment of an Administrative Assistant for the company was put on
hold.
A similar problem attended the secondary school matter. The
Owhipa sector of the town, which had promised to give land for the
project suddenly changed their mind. The community therefore had to
turn to the University of Port Harcourt, which occupies much of Choba' s
land (courtesy of federal government might) to come to its rescue. For
this reason, and the fact that the design of the school had not been agreed
upon, "the process of building the school with effect from October 1999
(less than two weeks after the agreement was signed) became clearly
unrealistic.
The youth, however, took umbrage and accused Willbros of bad faith
and engaging in divide and rule tactics to scuttle implementation of the
agreement. In 1999, using women as human shields, they blockaded the
Willbros gate and occupied its premises for days. Initial negotiations
failed. The speaker of the Rivers State House of Assembly who came on
a peace mission was said to "make some careless remarks" that revealed
him "as having been bribed" and was declared persona non grata in
Choba. Occupation soon degenerated into a rampage as the youth
engaged in the worst looting and destruction to date. In response, the
mobile police were sent in to bring the situation under control.
The conflict took several twists before long. First, was an attack on
national morality when newspaper reports across the country flashed
news of soldiers terrorising residents, raping women in broad daylight,
sometimes in front of the women's children. Second, was inter-ethnic
conflict between Chobas and Igbos in Choba. Choba community was
reported to have strongly urged Willbros to sack all Igbo natives in the
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company's employ and had followed this up with the harassment of non-
natives (mostly Igbos) living in that community, charges, which Choba
community deployed as half-truths, mischievous and meant to create
unnecessary sense of enmity between the Igbo and Choba people. It also
claimed never to have asked for the retrenchment of all Igbo natives
working in Willbros, although it did demand the removal, for security
reasons, of the company's Administrative Manager, Mr. John Nwasuruba
(an Igbo), and its Security Consultant, retired Brigadier-General Sam
Oniyide (a Yoruba). It may be true that at the height of the Choba crisis,
a number of non-indigene shops were looted and most non-indigenes
could have fled the village for their safety as a result of breakdown of
law and order.
Following this series of events, Willbros abrogated the agreement
with Choba. It instead, offered the community W15millipn for the
building of their school and the provision of the agreed services and
threatened to pull out and relocate elsewhere as Nissco did Ii few years
back. It took the intervention of the state government to get Willbros to
rescind its unilateral decision to abrogate the agreement and not to carry
out its threatened pull out. However, it has relocated its office far away
from the village center, and with round-the-clock mobile police
protection (Discussion with a Choba Chief, other indigenes and activists
in the struggle and with a highly placed Willbros worker. Also see The
Punch May 6, 2000 p.35, The Punch March 21 2000 p.lO).
The Nembe in Rivers State are a host to SPDC. From the beginning,
Shell, Agip and the other oil companies had dealt with the Amanayabo
and the chiefs in respect of community relations. Projects and
programmes for the community were discussed and selected in
conjunction with the chiefs; money appropriated for these and those for
general public relations were paid to the chiefs; relevant contracts were
awarded by the chiefs, often to their own companies or to cronies; local
candidates for employment were selected and recommended by the
chiefs. In the last few years, however, the local youth hijacked these
functions and entitlements. The youth would use intimidating tactics
such as seizing oil workers or locking them out, shutting down oil flows
etc., and "negotiating" terms with the oil company executives. Often,
they ended up with 60 to 80 million Naira in Ghana must go bags to be
shared among themselves. They spent this money ostentatiously on
clothes, shoes, gigantic electronic gadgets, women and alcohol. At first,
they also demanded and got jobs for their members. Later, however,
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because of a combination of glut in employment in the oil companies and
inadequate qualifications, emphasis shifted to a "waiting list system" by
which the youth were simply placed on the payroll but doing no work for
the oil company.
It reached a point, however, when the oil companies could no longer
cope with the wages of youth demanding their turns on the payroll. In
late 2000, some second and third generations youth (medium fish and
little fish as they were referred to in local dialect), apparently with the
connivance of the oil companies, decided to deal with the first generation
youth. When the latter went to Yenagoa the state capital to collect their
"entitlement" from the oil companies, the second and third generation
youth took over Nembe. Armed with machine guns and other deadly
weapons, they banned the first generation youth activists from entering
Nembe for five to ten years and generally terrorised the residents until
the community decided that enough was enough.
The state Governor set up a peace commission comprising stake
holders in the community to resolve the problem and prevent further
bloodshed. A solution, which seemed to be supported is to set up an
independent body to liase with the oil companies, take necessary
decisions on behalf of the community, collect all money and decide what
community projects or programmes it will be spent on and how.
The Epebu and Emadike are Ogbia communities in Avarna LGA of
Rivers State, engaged in conflict over ownership of where Nigerian Agip
Oil Company (NAOC)'s exploitation is taking place. In early 1999, the
two villages were locked in a war over Pregbene B oil well in their
common boundary. Hostilities were so intense (because of sophisticated
weapons) that NAOC had to suspend operations to stem loss of lives and
property. For fear of further attack, residents who fled in the wake of the
crisis are yet to return. This is particularly true of Emadike, the worst hit,
which remains a ghost town.
Because of the huge amount that it is losing, NAOC decided to
resume operations at Pregbene B but has met with stiff opposition from
the youth supported by certain politicians. The Member of the National
Assembly representing Ogbia Federal Constituency, for example, has
appealed to NAOC not to resume operations for security reasons until
permanent peace and security is restored to the area. Meanwhile, security
agents have been placed on alert to forestall further killings and
destruction as a result :gf the renewed NAOC interest in the disputed oil
location (ThisDay, Felfnlary 6,2001 p. 8).
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Evwreni is a town just east of Ugheli of Delta State. Shell has a
number of oil flow stations around the area and had been giving a lot of
money to the community for various social and development
programmes. In 2000, some Ewvreni youth accused the Ovie (traditional
ruler) of misappropriating such donations for his own private use. Some
other youth defended the Ovie but the arguments and disagreement soon
degenerated into clashes. During one clash, it was alleged that the group
supporting the Ovie killed two members of the opposing group. The
latter group retaliated, killed and tied the Ovie to a car and dragged the
body all over the town in the ultimate humiliation of the monarch.
Meanwhile, the Urhobo Progressive Union, church groups and eminent
traditional rulers have made several moves for reconciliation. There is
peace now, but there are occasional skirmishes too.
5.3.3 Chieftaincy/Autonomy, Local Democracy Disputes and Crisis
of Authority
This section focuses on chieftaincy, local autonomy and governance
and crisis of authority both traditional and state (modem), in relation to
conflict generation and management.
The chieftaincy dispute between two ruling houses in Longuda
(Guyuk) in Guyuk Local Government Area of Adamawa state was
created by the disruption of the succession order of the people when in
1984, the Military Governor of Gongola State, Major-General
Muhammadu Jega, imposed his close friend, the Late Alhaji Jibril Grema
(of Bwankubebe House) on the Longuda as Chief. Resistance of this
imposition led to a violent clash that claimed several lives between the
ruling houses. The conflict was temporarily checked through
consultations and more or less permanently resolved in 1999, when the
rightful heir to the throne in 1984, Mr. Wilfred K. Kimde of the
Bwansibe ruling house, was installed following the death of Alhaji
Grema.
The Ogbakiri community of six villages in the Emuoha LGA of
Rivers State had periodically been engaged in violent chieftaincy
struggles. The latest violent conflict, which virtually wiped out Ogbakiri
community stemmed from the demand of community youth for
accountability from their elders. The fighting claimed more than half a
dozen lives. The Community Development Committee (CDC) was set up
to supervise the sale of Oduoha community sand. Some youth who
tagged themselves "Dodan Barracks", accused the CDC of
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misappropriating the nearly W6 million realised from the sale and
insisted that the Chairman, then Registrar of the University of Port
Harcourt account for the stewardship of his committee. When they
perceived that they were being ignored, they started to destroy houses
belonging to the CDC members. The elders and all others who urged the
youth to exercise caution and use peaceful means also had their property
destroyed. The political undertone to this was the support given to
"Dodan Barracks" by one McClaude Amamina, former Chairman of the
Emohua Local Government and a staunch party member in the early
1990s. Amamina had had family problems with his half-brother,
Innocent Enyi, the Vice-Chairman of the CDC, over the living conditions
of their mother. He had had political problems as well with Enyi who
was a strong Social Democratic Party (SDP) (Political Party) member in
the early 1990s, and a vocal voice opposing Amamina's political
ambition in the latter years of the decade. (Personal communication with
Choba indigenes in the University of Port Harcourt). The conflict
acquired its own dynamics resulting in the destruction of more lives and
property.
The Obeakpu is a community in Oyigbo LGA of Rivers State. Its
inter-communal dispute has been festering since November 1999. The
ostensible cause of the crisis is the demand of the Abam Uruogu people
for autonomy from Obeakpu among the Ndoki. Such a demand came as a
surprise to the rest of the Obeakpu community. As the Chairman of the r
Oyigbo Local Government put it: "The issue of autonomy was a
surprising thing to the entire people of Obeakpu community because we
have been living as a community, doing our things together as a
community. Furthermore, in Rivers State we don't talk of autonomy. It is
only Abia and the Imo States that create autonomous communities. It is
not applicable in Rivers State". (Independent Monitor, November 20-22,
2000 p.S).
The real reason appeared to be who should collect compensation
money paid by oil companies. The conflict emerged when an oil
company, Elshcon Engineering came to the community. Some youth
from Abam Uruogu wanted the company to pay them compensation. At
the same time, the youth wrote Shell Petroleum Development Company
and discussed a compensation of some NSO million for what they termed
long neglect, another NSO million as yearly bonus to themselves and
WlOO,OOO as bonus to their leader. The community leadership found the
demand on spec ridiculous. It also raised objection to the demand of
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Elshcon, arguing that once the company pays compensation to a
particular group, other groups will also make similar demands and there
will be no end in sight. It was suggested instead that the company pay
compensation to the Abam and the Amobi youth jointly. Apparently,
some of the youth were dissatisfied with this decision.
Shortly thereafter, there was an armed robbery attack on one Dr. C.
Nworgu, in which he allegedly lost property worth millions of Naira.
When the youth suspected to have committed the crime were arraigned
before a Magistrate Court and no bail was granted them, their colleagues
attacked the Divisional Police Office, smashing vehicles there. The
police ran away and had not returned at the time of field work. Eminent
personalities of Obeakpu who condemned the criminal activities of the
youth have suffered vandalisation of their houses and disruption of their
personal business. The SPDC, which has three major contractors in the
community who incidentally are also among the youth leaders, vainly
tried to ensure peace. That appeared to incense some of the other youth
even more as one of the contractors, Eze S. N. Nwaeke was accused by
the Abam youth of having taken what they perceived as the entitlement
of the entire Abam people.
On November 19, 1999, the youth of Abam Uruogu descended on
Shell Afam flow station, vandalized and looted it. Consequently, Shell's
operation in Afam oil field was suspended leading to a hitch in economic
activities. Attempts by the Local Government Chairman to set up a peace
committee have not worked out for lack of cooperation on the part of
Abam Uruogu people. The Governor was, therefore, requested to wade
in. Meanwhile, the community remained unsafe for people as
intimidation and harassment became the order of the day.
Okujagu-ama and Azubie villages in the Okrika community of
Rivers State have since 1997 been embroiled in periodic violence
ostensibly arising from chieftaincy disputes. One Adolphus Okujagu
apparently had been installed a chief of the Okujagu War Canoe (ruling)
House in November 23, 1996 after due permission from the Okrika
Divisional Council of Chiefs. Chief Dennis I. Fingesi who claimed to
have installed chief of Kpeya War House on November 27, 1987 by the
entire community challenged this. Okujagu, he claimed had tried to take
the same chieftaincy by changing the name to Okujagu War Canoe
House. Although, an existing war canoe house cannot be changed,
another house can be created from an existing one if the necessary
permission and approval are given. This Okujagu had not done and for
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which the king makers had declared the chieftaincy title of Adolphus
Okujagu null and void. Whereupon, Okujagu got his supporters to
destroy Fingesi's property beginning March 15, 1999. Accordingly,
Fingesi sought a court injunction against Okujagu. The latter claimed
that Fingesi followed up the court injunction with the destruction of
property of Okujagu's kinsmen at Okujagu-ama beginning March 15,
1999 and that he had to respond in kind. Whatever the basis for either's
action, sporadic attacks and counter attacks continued until June 19, 1999
when the Okrika council of chiefs succeeded in causing the two sides to
swear to an oath to stop all hostilities. Despite the oath, property
destruction occasionally occurred including a recent one that led the
Rivers State Government early in February 2001 to set up a fact-finding
committee under the auspices of the Bureau of Local Government and
Chieftaincy Affairs. The committee, led by the Eze Oha Evo 11, Eze Dr.
Frank Eke, the Eze Gbakagbaka of Evo Kingdom, was empowered, inter
alia, to conduct physical inspection of the area to identify damaged
property on both sides (The Tide, February 12,2001 p.3).
In the Omolema rural community of about 1.5 hours drive by road
east of Port Harcourt and south of Ahoada, Abua/Odua LGA, Rivers
State, a disturbance occurred at a burial ceremony in November 1999.
The police arrested one Kiipoye Nwocha and took him to the police
station in Abua. His supporters then invaded the police station and
vandalised it. In consequence, anti-riot policemen were dispatched to
Omolema where they arrested and detained 25 members of the
community. The community thereafter wrote a petition to the Inspector-
General of Police signed by one Mr. Thankyou Ogini and one Mr. Umor
Edum, protesting detention of these people without formal charges
against them. The petition also alleged that those arrested were not the
actual hoodlums who vandalised the police station, but innocent people
indiscriminately rounded up when the police swooped on the community.
Furthermore, the crisis involved two factions but only people of one
faction appeared detained (The Punch, January 21,2000, p.lO).
Crisis of state authority played out in a chain of events leading to the
ruins of Odi in Bayelsa State in 1999. In November 1999, a battalion of
soldiers was dispatched to Odi, a town of about 60,000 people inhabiting
some 1500 houses in the Kolokuma/Opokuma Local Council Area where
hoodlums allegedly captured and killed seven (other sources say twelve)
policemen.
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The-soldiers sent on the orders of the President literally levelled Odi
in what' was cleanly a vengeful destruction. Only a church building and
the branch of First Bank in the town stand as a reminder that a town once
stood QJl. that area 'beside armed security personnel standing guard.
It has been suggested that at the bottom of the crisis was demand that
an oil firm give the indigenes a fairer deal and that the killing of the
seven policemen-was intended to press home the demand. This is hardly
logical, According to Senator (Chief) Felix Oboro, Secretary to the
Bayelsa.State government, the incident had its genesis in the destruction
of a placecalled~lack market" in Yenagoa, the Balyesa State capital.
The state government had been receiving reports of incidents where
hoodlums terrorised innocent people by mounting illegal road blocks in
the night to extort money from unsuspecting motorists, seizing wares
from traders an4 injuring anyone who would not cooperate. In
September 1999,.,.Government instructed the police and the ministry of
works to demolish the "Black market". The police first mounted
surveillance over. the market and arrested some hoodlums who were
charged to court .. The court ordered that they be remanded in prison
custody at Ahoad~. On their way to Ahoada in a Black Maria, colleagues
of the suspects aecosted them. One attempted to snatch a gun from the
police and was s~t dead. The rest ran away, but a few days later, they
allegedly attacked soldiers guarding the Shell ramp, killing one. This
angered-the soldiers who moved in and burnt down the hoodlum's
hideout, the "BlaCk Market". In the process, some of the hoodlums were
reportedly killed,:. while those who escaped found their way to Odi,
another 'town notorious for hoodlum activities including harassment of
travellers on the nearby east-west highway. At Odi, they linked up with
one Ken' Niweigha, a wanted man by the police for a robbery committed
some years back, who was in hiding but was apparently the head of the
Odi hoodlum gang, They planned to avenge the burning of the black
market and the death of their colleagues at the hands of the police and the
soldiers. Indeed, there were reports that these hoodlums were planning to
attack the state Governor and other high ranking members of government
because of the destruction of the "Black Market" and the killing of their
members. Meanwhile, they kidnapped some policemen and took hostage
'those who went to look into how best to solve the problem with little or
no loss of blood (The Punch, January 21, 2000, p.12).
By sheer coincidence, news came that Ijaw people in Lagos were
being' killed and their houses destroyed by Yoruba Oodua Peoples
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Congress (OPC) members. There were frantic signals from the
Government Liaison Office in Lagos that Ijaws were hiding in fear and
that they wanted to be repatriated home. At the same time, refugees in
their thousands arrived in Gbaraun to escape Ilaje-Ijaw feud in Ondo
State. The Egbesu boys, already a phenomenon in the Niger Delta, were
breathing fires of revenge. The killing of the policemen may, therefore,
be interpreted as the first step in this regard, especially as the most senior
officer in the lot was a popular, well respected Yoruba man who had
received his letter of transfer but had accepted the Odi assignment as a
duty call. Indeed, the OPC and Egbesu phenomenon led to widespread
speculations about possibility of declaration of a state of emergency in
Lagos and Bayelsa states. In this context, the Bayelsa government spared
no effort in trying to save the lives of the policemen. This led to the
decision of the Bayelsa state government to give the kidnappers
N500,OOO (some put the figure at N700,0(0) as ransom (ibid and
discussions with high ranking police officers and the relatives of the late
Yoruba officer in Port Harcourt). The police disputed the claim of the
government that the ransom money had been released to them (The Post
Express, January 19, 200 p.6). Whatever the case, the seven policemen
had been killed before the ransom arrangement got off the drawing board
while the invasion of Odi on the orders of the President is now history.
Three local governments in Bayelsa and Delta states set up a task
force to effectively patrol the waterways in parts of the states to stop
criminal activities of militant youth that have crippled navigation in the
Ekeromor council area of Bayelsa state and parts of Bomadi and Burutu
council areas in Delta state. The militants had been robbing, extorting
and even killing passengers of commercial boats. Ostensibly organised to
export patronage from multinational organisations, especially the oil
prospecting and producing companies with cooperation from Ijaw
leaders and the governments, the militant groups soon turned to piracy
and intimidation. It was such a militant group that killed the seven
policemen and precipitated the events leading to the devastation of Odi.
Expectations were high when the President visited the state in March
2001 that he would announce a package of compensation to the people of
the town and to the state in the spirit of rapprochement, reconciliation
and reconstruction. But there was nothing of the sort. As an editorial of
This Day put it, "even the request for the establishment of a polytechnic
..in the community, landing jetty, construction of houses, electrification,
... and upliftment of Federal Government College Odi did not attract any
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categorical statement from the President. It was all admonition,
preaching, talking down bordering on intimidation and blackmail as if he
was addressing a conquered people" (ThisDay 21 March, 2001, p.1S).
Not surprisingly, the matter is being used to score political points by the
South-South political zone whose Ideological Forum at the end of a
meeting in Port Harcourt issued a communique "urging the president in
the name of God to raise money through a supplementary budget to
rehabilitate the town (of Odi)". (ibid. p.7).
Motor park riots in Effurun district of Warri, Delta state is just an
example of challenge to modem state authority by park touts in most
parts of Nigeria. Following the law, which empowers local governments
to control motor parks, members of the Uvwie Local Government
Council Revenue Committee in November 1999, went to the Effurun
central motor park on a revenue drive. Members of the militant faction of
the National Union of Road Transport Workers (NURTW) opposed
them. The disagreement led to a major clash as touts and militant youth
paralysed activities at the park. Carrying machetes, knives, pistols and
other dangerous weapons, the touts barricaded major roads in Effurun,
forcing motorists to turn back, smashing windscreens and extorting
money. Four people were killed and six others critically wounded. The
government in response closed all motor parks in the town. (The
Guardian, November 11, 1999 p.3).
On 8 March 2001, some youth invaded the Afikpo LGA of Ebonyi
State and destroyed some projects in apparent confrontation with the
state government, which had opposed the illegal attempt to impeach the
chairman of the local government. The chairman alleged that the youth
were external hoodlums acting on the instruction of a few disgruntled
political elements bent on destabilising the government. The police
apparently had not intervened so as to appear non-partisan in a partisan
political crisis. The Governor, Sam Egwu intervened by visiting the LGA
headquarters where he condemned the political crisis and warned against
deliberate confrontation with any arm of the state government without
due process of the law. He pointed out that impeachment must follow the
laid down rules in the constitution. He also decried the role of the police
in the crisis and warned that they would be held responsible in the event
of further breach of the peace (The Post Express March 21, 2001 pp.3).
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5.3.4 Response Rate to Potential Conflict-Generating Situations
and Religious Intolerance
This section documents the few incidents of religious intolerance and the
possibility that violent conflict could have been averted had state
authorities responded to early warning swiftly.
The violent hostility between the Maitatsine Muslim sect and others
in Gombe, Kano, Maiduguri, Yola and other northern cities in 1985 was
provoked by the order of the Maitatsine leader, the Late Mohammed
Marwa, to his followers to put to death anyone who did not belong to
their sect. Hundreds lost their lives before the soldiers deployed to
conflict areas brought the situation under control. In a similar vein, the
plan to introduce the Sharia legal system in many northern states such as
Niger, Zamfara, Kaduna and kano was greeted with violent conflicts
because the Christians feared that their religious freedom will be
curtailed under such a legal system.
Owerri youth in the last days of February, 2000 unleashed violence
on residents as reprisal for the Sharia related killings of Igbo Christians
in Kaduna state. Buildings were torched, northerners and other non-
indigenes suspected to be Moslems were attacked. The Deputy
Governor's appeal to keep the peace angered the youth who attempted an
attack on his entourage in the city. A dawn to dusk curfew was largely
ignored. At least two persons were officially acknowledged dead.
The deputy governor, the security agencies, traditional rulers and
leaders of the Christian Association of Nigeria held meetings to find
ways to stop the violence (The Guardian, March 21, 2000, p. 1,2).
On January 12, 1998, some 40,000 barrels of crude oil spilled from
the rupture of a 24-inch pipeline that ran from Mobil's Idoko production
platform to the Qua Ibo terminal in Akwa Ibom state. The spill affected
some 120 communities and fishing ports all the way from Akwa Ibom to
Rivers state. Mobil neither offered the affected communities a timely
warning of the danger nor took immediate action to stop and clean up.
The negligence resulted in huge economic losses. It led to the destruction
of thousands of hectares of farmlands and fishing grounds, tons of
marine life, millions of Naira worth of fishing nets, traps and other
fishing gears. It also led to the pollution of the environment with oil
slime and noxious fumes. In short, it paralysed economic and
commercial activities in the area. Even with these obvious effects, Mobil
had the effrontery to deny that the spillage affected marine life and
economic activities and consequently was slow on the matter of
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compensations. Consequently, Eket youth and those of neighbouring
local government areas embarked on massive demonstrations.
Neighbouring state governments, particularly those of Delta and Ondo
and even Lagos also complained before Mobil paid serious attention to
the matter (The Post Express, March 27,2000 p.31).
Umuleri-Aguleri inter-communal clashes in Anambra State could
have been averted if state authorities acted with dispatch. War began
between these two communities in Anambra East local government area
on April 2, 1999. Six months later, the war was still raging, more than
1000 lives were lost and the villages levelled.
The Mobile Police detachment sent from Awka by the military
government of Wing Commander Emmanuel Ukaegbu claimed they
were not given specific instructions and so simply watched the carnage.
The civilian government of Chinwoke Mbadiniju held several meetings
with the two sides without solution emerging even as at the time of this
field work.
5.4.1 Conclusion
This report has highlighted the fundamental issues involved in the
outbreak and management of conflict in Nigeria. In several of the
conflicts reported, the issues were intertwined, meaning two or more
conflict-generating factors such as identity and struggle for political and
economic resources reinforced each other to produce a particular pattern
of conflict. Hence, the presentation of conflicts in distinct categories in
this Chapter does not necessarily mean that a single factor produced each
given conflict situation.
The policy implications of these conflicts are as follows:
a) Some of the conflicts indicate the absence of a conflict resolution
mechanism. The police force seems to be the common state
agency for dealing with a conflict situation in Nigeria. When
they are unable to cope with a particular situation, members of
the armed forces are called in. Apart from being an inadequate
agency for conflict resolution, the police are by large, distrusted
and not seen as an agency that can genuinely help resolve
conflict. Indeed, the police make both the complainant and the
accused bear the brunt of investigation by extortion of both
parties and in the process compromise their competence.
b) There is thus a crisis of confidence in the existing conflict
resolution agencies sometimes buttressed by their keeping a
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blind eye to stewing conflict, halfhearted intervention or plain
partial intervention, which .explains the unwillingness to
implement the recommendations of commissions of enquiry,
derived from thorough investigation of past incidents of violent
conflicts. The crisis of confidence leads inexorably to lawless
self-defence, which in its own way escalates a conflict.
There is the sheer mischief of individuals who display a lack of
regard for the rights and property of others. In other words, a
problem of criminality exists in Nigeria. This may well be a
structural problem inherent in the legal and economic foundation
of the country.
d) State intervention by way of administrative re-organisation -
creation of local governments and states has sparked discontent
between rival cultural groups leading sometimes to violent
encounters.
e) Lack of institutionalised and transparent channels for distributing
benefits - state and non-state (oil companies) has many a time
created volatile situations of conflict. This includes the
unresolved issue of authority, between traditional and state
authority, to confer citizenship.
5.4.2 Recommendations
1) The government and its agencies should be more committed to
conflict resolution. In this regard, it should act promptly on early
warning signals to nip potentially destructive conflicts in the
bud. It may be necessary to mandate existing peace and conflict
studies centres and institutions to supply government with early .
warning information for its use.
2) Administrative re-organisation or intervention in chieftaincy
disputes should as far as possible be based on wide consultation
before it is carried out. It may be necessary to conduct a
referendum to determine the preferences of all concerned as part
of such consultations.
3) Boundary disputes should be approached systematically. Those
requiring a pragmatic solution should be handled accordingly
while those that have deep historical roots such as the dispute
over who is an indigene or settler may require a developmental
approach, which replaces current objects of competition such as
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Issues in Conflict Management in Nigeria 123
land with new economic possibilities that reduce unhealthy
rivalry between communal groups.
4) The Nigerian Immigration Service should be strengthened and
well equipped to deal with illegal immigration for preventing
irresponsible behaviour and break down of law and order
especially on the northern borders.
5) The citizenry should be socialised to respect the rights of others
and their property.
6) Government needs to establish more conflict resolution
mechanisms that have substantial representation of the
communities that they are intended to serve.
7) Effort should be made to encourage, through transparent
leadership at all levels, democratic political participation as an
efficacious non-violent conflict resolution mechanism.
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Issues in Conflict Management in Nigeria 125
----- (1995), Structural Adjustment and Ethnicity in Nigeria (Upppsala:
Nordiska Afrika Institutet).
(1998), "Managing Multiple Minority Problems in a Divided
Society: The Nigerian Experience", Journal of Modern African
Studies, Vol. 36, No.1
Human Rights Watch, The Price of Oil: Corporate Responsibility and
Human Rights Violations in Nigeria's Oil Producing Communities
(New York: Human Rights Watch, 1999.
Suberu, R. T. (2001). Federalism and Ethnic Conflict in Nigeria
(Washington, D. c.: United States Institute of Peace).
Temple, C.I. (1901) "Notes on the Tribes, Provinces, Emirates and States
of the Northern Provinces of Nigeria" Compiled from Official
Reports by O. Temple, 2nd Edition.
Zartman, I. William (1995) "Dynamics and Constraints in Negotiations
in Internal Conflicts" in Zatman ed. Elusive Peace: Negotiating an
End to civil Wars (Washington, D.C.: The Brookings Institution).
Zartman, I. W. (1997). " Governance as Conflict Management in West
Africa" in Ed. I. W. Zartman, Governance as Conflict
Management: Politics and Violence in West Africa (Washington,
D.C.: Brookings Institution Press, 142-195).
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6
REINVENTING LOCAL GOVERNMENT
IN NIGERIA
E. Remi Aiyede
6.1 Introduction
Local reorganization has always been a difficult policy issue inNigeria. Before 1976, local reorganization was a region/state
responsibility because local government was on the residual legislative
list. Under the 1976 reforms, the Federal Military Government in
consultation with the states established principles to guide states in
reorganizing their local governments.
During the Second Republic (1979-83), the state governments more
than trebled the number of local governments in the country. Because
they exercised their constitutional authority without recourse to the
federal government, the creation of new local governments became
embroiled in political controversy. Besides, some local governments
were obviously created to gerrymander electoral constituencies, while
others were perceived to be too small to be economically viable.
Nevertheless, state control over local government policy was preserved
during the Second Republic.
In 1984, the Buhari administration abolished all the new local
governments created by the states during the Second Republic. In 1985,
the Dasuki Committee tried to rationalize the timing and criteria for
creating new local governments. It prescribed that new local
governments should be created after ten years interval and also suggested
the minimum taxable population necessary before a community could be
constituted into a Local Government. By 1989, however, the federal
government had taken over local government policy formulation. With
the promulgation of Decrees No. 15 and 32 of 1989, the states
127
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completely lost any initiative in local government policy. Only President
Babangida had authority to create new local governments and to dissolve
them.
The 1999 Constitution appeared to place local government in the
concurrent list, thereby crystallizing the ambivalence that has trailed the
history of local government development in Nigeria. Under the current
dispensation, states have in the bid to prove their power over local
governments issued guidelines for administrative and financial activities
of local government. In several states elected local government
chairmen have been suspended by state houses of assembly. A few
states went ahead to create new local government councils, although the
national government refused to recognize these newly created councils
for the purpose of statutory revenue allocation. These intergovernmental
conflicts came to a head when the 200 1 Electoral Act extended the tenure
of elected local government officials from three to four years, an
extension that was challenged by the Speakers of the Houses of
Assemblies in the states.
The issues raised in respect of local government have been very wide
ranging including the appropriate internal structure for local government,
financial procedures and accountability, checks and balances,
supervision, and the question of which tier of government enjoys or
should exercise the power to reorganise local governments, and
climaxing the Supreme Court judgement on the 2001 Electoral Act. The
Supreme Court= s decision confirms the powers of the state governments
over local government reorganisation. Subsequently, many state
governments have commenced processes of local government
reorganisation within their various territories, especially by multiplying
them and through referenda. However, the yardstick for determining the
particular local governments to be split are unclear. It is also not certain
that these moves have been inspired by the goals of democratic
deepening and socio-economic development. Indeed, some of these
initiatives have witnessed public protests and violence.
There is a need, therefore, to revisit local reorganization if only to
ensure that the process deepens democratic practice at that level.
While a lot of work has been done to capture the processes and
politics of local government reorganisation in Nigeria, the same cannot
be said of an effort to understand the question of the relationship between
the current structure of local government, organisational processes of
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Reinventing Local Government in Nigeria 129
local government and actual challenges of democratisation and service
provisioning at that level of governance.
One very important work in this area is that done by Gboyega (1998).
In that work he assessed decentralisation effort in Nigeria from colonial
period through independence to the end of the Babangida regime. His
basic concerns were patterns of political participation promoted by the
programme and the benefits accruing to different stakeholders in
governance. He emphasised the centrality of military dictatorship and
centralism to the successful implementation of a programme that
devol ves substantial powers from the states to local governments,
thereby pointing to likely abuses of decentralised powers and the
possibility of reversals under a democratic government. The failure of
the Babangida democratisation programme, the crisis in the aftermath of
the annulled June 12 1993 presidential elections, the persisting clamour
for political restructuring, coupled with the revival of judicial
intervention under the current democratic period justify a revisit of local
government reorganisation in Nigeria.
The study reviews local government re-orgnanisation in Nigeria with
a view to contributing to the effort at providing functioning local
participatory self-governing institutions on which democracy and
development can be anchored. Accordingly, it examines local
government reorganisation's impact on democratic practice and the
trajectory of socio-economic development, teasing out new opportunities
and ideas for enhancing responsiveness, effectiveness and efficiency of
grassroot government.
6.2.0 Theoretical Issues
Recent discussions of local government portray a wide spectrum of
theoretical traditions in local government representing a diverse range of
schools and approaches. Thus, as Stoker (1991) has noted, it is no longer
possible to achieve a comprehensive review of theories on local
government. In spite of these, two approaches can be used in a
complimentary manner to examine local government in Nigeria. These
are the localist view and the public choice approach. The one provides
the value base of local government while the other enables us to examine
interests and behaviours of actors in local government.
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6.2.1 The Localist Perspective
John Stuart Mill is credited to be a major contributor to the development
". of this perspective in local government theory. This perspective seeks to
provide justifications for the existence of local government. According
to Mill (1975), there are certain interests or concerns, which are peculiar
to only a section of the community. These interests are better served
when only those who share these interests participate in promoting and
servicing them.
In his view, "the very object of having local representation is in order
that those who have any interest in common, which they do not share
with the general body of their countrymen may manage that joint interest
themselves" (as cited by Gboyega 1987:2). This theory draws from
liberal democratic analysis of the state and politics. Local government
according to this perspective exists to provide services for the local
community, to meet needs whose recipients dwell in a particular locality.
Thus, local government is a device for local choice, for participation in
local service delivery and local politics. Local government provides
political utilities of popular control, local participation and
responsiveness and accountability.
Jones and Stewart (1983) provide a four-fold argument for local
government according to this tradition.
(1) Local government provides an avenue for the dispersion of
legitimate power through the institution of elected bodies at
the local level. The assumption here is that spread of power is
a fundamental value to be sought.
(2) Local government enables the political systems to
accommodate differences in needs, wishes and concerns from
locality to locality. Besides, the diversity of responses enables
local authorities to learn from each other different experiences
in service provision. This promotes innovation and learning.
(3) Local government, because it is local, is accessible and within
reach of citizens. Councilors and officers live close to the
people who are affected by the decisions they have to make.
Local government enhances government responsiveness.
(4) Local government makes government accessible to the people
promotes legitimacy because it better meets local needs using
local resources.
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6.2.2 Public Choice Perspective
This perspective belongs to the class of theories that perceives little
compatibility between local democracy and local government. Indeed, it
represents a new right critique of liberal democratic analysis of local
government. Public choice perspective emphasises the market as the
optimal mechanism for allocating resources. It seeks very limited role
for the state in the economy. This is because it is believed that the
expanded role of the welfare state has been responsible for the excessive
growth in public sector expenditure; representative democracy leads to
the multiplication of inefficient structures and waste of resources.
As self-interested politicians seek to maximise their votes and
powerful organized groups jostle within the state in pursuit of private
ends, public sector agencies become prone to excessive growth.
Ultimately, the silent and unorganized majority who actually finance
public expenditure suffer from poor and inefficient services.
The public choice theorists maintain that the bureaucracy tends
toward the abandonment of collective goals in preferences for the self-
interested goals of officials. This weakness which has become present in
local government has driven local government towards wastes and
inefficiency. Thus, this perspective recommend the fragmentation of
existing bureaucracies in the form of a large number of local
governments that can respond to the diverse preferences of citizens. It is
recommended that competition among local governments should be
encouraged - to minimise the inefficiency that attend monopolistic
delivery of public goals. Public choice exponents maintain that
democratic arrangements as they currently exist are poor predictors of
citizen's preferences and demands.
Public choice recommends the use of a series of private sector ideas
for cost and efficiency savings. These include performance related pay
for local government officials and contracting out of services.
Although each of these theories of local government has its own
weakness and strengths, the local view remains the dominant perspective
in local government studies and practice in Nigeria. This is because the
processes of local government formation in the post-colonial period have
largely been influenced by 'developmentalism' and liberal democratic
values (Gboyega, 1987). The reforms of local government since the
1970s have also been sustained by this liberal democratic ideology.
However, an understanding of dynamics of the failures of local
government in achieving set developmental objectives requires the
.......
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applications of the public choice perspective. This is because it has
dominated public sector management globally and its prescription for the
practice of local government has become very influential. Besides, it
provides a powerful tool for analyzing local politics as it became
entangled with national politics since the intervention of the national
government in local government from 1976. Both perspectives together
enable us to understand the contexts, dynamics and future direction of
local government in Nigeria.
6.3 Local Government Reforms in Nigeria
6.3.1 From the 1950s to early 1970s
Local government in Nigeria developed from the native authority
system introduced in the colonial era. The native authority system was
one in which the traditional ruler was a go between in the relation
between the colonial government and their people. By the 1950s the
local administration reforms began to be effected in the southern part of
the country as the two regions of the south started to enjoy some measure
of self-rule. In both regions three basic layers of councils were
introduced. In the West there were local councils, district councils and
provincial councils. These corresponded to local, district or urban and
divisional councils introduced in the East. According to Gboyega
(1987), these reforms were introduced to promote liberal values of
participation and efficiency in local administration.
In the North the case was different. The emirate system provided a
good environment for the thriving of the native authority system. At
independence the native authority system came to its own, and the
emirate councils became the de facto local administration. Thus, in 1960
when the country became independent, separate development patterns in
local government had emerged between the north and the south. In fact,
within the south there were variations in the internal management of
these different layers of local administration.
The intervention of the military in the governance of the country was
to have a lasting impact on the direction of local administration in
Nigeria. When the military took over government in 1966, it dissolved
alI local councils and appointed sole administrators to head the districts
in the south. It also abolished the native authority system in the north.
The military created 12 states in 1967 and introduced two-layered
administrative system below each of the 12 state, I~·oveniments. This
'Z't '"j,j
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Reinventing Local Government in Nigeria 133
brought about some uniformity in the governance of the various states of
the country and reduced the differences in regional patterns of local
administration.
It however gave the state governments free hands to determine the
internal management arrangement of these authorities. By 1973 some
states had embarked on some forms of experimentation with local
management. Most of this experimentation was affected by the mood of
the nation (coming out of civil war in 1970) and the way national
challenges were perceived or interpreted by the ruling military junta.
Local government became enmeshed in the drive for social and political
integration and conceived as instruments for the implementation of the
country's development plans designed by the national government at the
grassroots.
These experimentations with local government in the states did not
escape the attention of the Public Service Review Commission set up in
1972 by the national government as part of the effort to secure adequate
development and optimum use of manpower for meeting the challenges
of developing the country. The commission in its report submitted in
1974 made two important submissions 'relating to local government that
had influence on the 1976 reform. Lhe first was the proposal for a single
tier local government and the second was its recommendation of a
financial and functional review of state-local relation in favour of local
government.
6.3.2 The 1976 Reforms
The 1976 reforms changed the face and direction of local government
as well as its politics. The 1976 reforms (1) created a multipurpose
single-tier local authority to be called local government; (2) increased the
functions of local governments; (3) abolished the old divisional
administrations; (4) recognised local government as the third tier of
government in the Nigerian federal structure and granted five percent of
federally collected revenue to local governments and 10 percent of their
states total recurrent revenue to guarantee adequate revenue source for
local governments from both state and federal governments; (5)
maintained local government as representative bodies; (6) gave it
constitutional guarantee (1979 Constitution); and (7) improved the
working conditions of local government staff and secured their tenure by
establishing the local government service Board (Nigeria, 1986;
Gboyega, 1987; Yahaya , 1989).
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But several issues relating to the political context of the local
government service were left unconfronted and undefined. It was
assumed that the financial and functional independence of local
governments would secure good quality service delivery-at that level.
The short sightedness of this assumption is shown in the.Iimitation of
horizontal accountability to democratic participation through the election
of local government chairmen in the reforms. Not only that, the reform
had no answer to important problem of reducing local government into
an epiphenomenona of the struggle for power (politics) at the state level
under civil rule in the first republic. It retained vertical control and
supervision of local governments by the state governments and paid little
attention to the likely erosion of the weak democratic content of local
government, occasioned by the inevitable dependence of that level of
government on statutory allocation for revenue. It was therefore not
surprising that this problem resurfaced in the second republic when the
country returned to civil democratic rule.
During that period, there was massive interference of state
governments in local government affairs. Many State Governments
disregarded the essence of local governments and failed to pass statutory
allocation from the federation account and other revenues accruing to
local governments to them. The States further destroyed the democratic
foundation of local government by appointing management committees.
They multiplied the number of local governments in the country by
creating several new ones. Many of which were created to gerrymander
electoral constituencies. Most of them were clearly too small to be
economically viable. Because they exercised their constitutional
authority without recourse to the federal government, the creation of new
local governments became embroiled in political controversy, Therefore,
once the military returned there was enough justification available to the
national government to buttress an intervention in local government
(Osaghae, 1989; Yahaya, 1989; Adeyeye 1995, Gboyega, 1989, 1998).
6.3.3 The Babangida and Abacha years
In less than six months on assumption of office, General Buhari, who
took over power on eve of 1984, abolished all the new local governments
created by the states during the Second Republic and set up the Dasuki
Committee to look into local government. This committee observed that
the problem with local government was operational, "arising directly
from the behaviour and attitudes of the persons who operated the
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Reinventing Local Government in Nigeria 135
system." Against this background, the committee suggested that
replacing sole administrators with representative management
committees would preserve the participatory element of local
government.' It approved the national government intervention in local
government and asked the government to formalise its role by
establishing a National Local Government Service Commission to
oversee local government. It also suggested that the creation of new
local government be done at an interval of ten years and should be based
on a minimum taxable population. It also recommended the creation of a
maximum of seven field offices for local government.
The report was however to be received by the Babangida
government which succeeded the Buhari regime. The Bureau, whose
terms of reference included local government, approved many of the
recommendations of the Dasuki Committee. The General Babangida
regime also carried out exclusive reforms in local government as part of
the long experimental transition from military to democratic rule, from
1987 to 1993 when the transition process collapsed.
Early in 1986, the regime had inaugurated a Political Bureau to
organise a national debate towards determining a viable future political
philosophy and structure of government for Nigeria. The Bureau did not
fail to deal with the issue of local government. In fact, the Bureau
endorsed the views of the Dasuki Committee on the need for local
government to concentrate on the performance of some basic services
only. It also upheld the proposal that local governments should further
decentralise their operations through the creation of development areas.
But it underscored the political role of local government in promoting
political mobilisation and popular participation. In the opinion of the
Bureau, "political objective have tended to be ignored, efficiency tend to
be regarded as an end in itself' in local government reform in Nigeria.
While recommending a management and organisational format for all
local governments, it stressed that the village clan or autonomous
community or urban neighbourhood should be the primary unit of local
government and should be organised for productive and community
action. It recommended the delegation of responsibilities to committees
at the level of these subordinate units of local government, emphasising
the need to apply the presidential system of separation of powers to local
government and the use of elections to fill political positions in local
government councils. Furthermore, it stressed the need to improve the
autonomy of local government, which had suffered from the excessive
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136 Readings in Development Policy and
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state government control and interference in the performance of their
duties (Nigeria, 1987). Thus, the recommendations of the Dasuki
Commission came to have a strong bearing on local government in
Nigeria through the effort of the Political Bureau. Babangida described
the type of local government that his reforms sought to bequeath to
Nigeria in the following words.
Local governments are no longer there just to pay
salaries. They are there to ensure collective
participation in governance, create the conditions
for employment opportunities, and provide social
services which can improve the well-being of our
people ... (with) necessary freedom and authority
to operate ... not as mere adjuncts of the state but
as a true coordinate and effective local of
government.
While these words portray a very strong concern about the state of
local governments and a clear expression of commitment to local
government as an autonomous level of government, the Babangida
regime seemed to be unsure of what should constitute autonomy as
demonstrated in the series of changes and reversals that the local
government system experienced during the period. Thus, Gboyega has
correctly described the Babangida reforms as "crossing the stream while
searching for the pebbles." Following the report of an l l-man
committee, officers on grade levels 07 and above were put under the
control of a unified local government service in each state of the
federation. This was to promote professionalisation, to protect career
local government officials from the fallouts of partisan politics, ensure
maximum use of available manpower at the local level, and ensure that
the local government service is able to attract, retain and maintain
qualified people.
The structure of internal management of local government was
redesigned to ensure accountability. Each local government was to have
a Junior Staff Management Committee (JSMC) with responsibility for
the appointment, promotion and discipline of officers on Grade levels
01-06. Any officer in this cadre who is dissatisfied or aggrieved as a
result of any decision of the Junior Staff Management Committee was to
appeal first to the Chairman of the Local Government Council and later
to the Local Government Service Commission, and then the Governor of
the state.
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Reinventing Local Government in Nigeria 137
To ensure that the local government system further reflects the
presidential system, separation of powers was introduced through Decree
23 of 1991. Legislative powers were vested in the Local Government
Council who will exercise those powers by passing byelaws. Similarly,
the executive powers of a local government were vested in the Chairman
of the Local Government who could exercise the powers directly or
through the vice-chairman or supervisors of the local government or
officers in the service of that local government.
Although the various reforms under Babangida were designed to
strengthen the capacity of local governments to initiate and carry out
development programme, it did not quite succeed. In the first place,
advocates of local government autonomy found some aspects of the
reform very circumscriptive of local government freedom. The powers
of supervision, control and monitoring of local government by state
governments were particularly decried. This was also said of the
spending limits, based on annual internally generated revenue imposed
on local governments.
Besides, after operating for several years, it became clear that there
was inadequate provision for intergovernmental mechanisms concerning
conflicts between the Executive and the Legislature in the Councils. As
the elected occupants of these arms strove to keep to their often divergent
party programmes and guard their constitutional powers, they
increasingly went into conflict, thereby undermining democratic practice.
Instead of creating an effective mechanism of intergovernmental
conflict resolution, the rules of operation were changed as the president
deemed fit. The internal workings of local government became subject
to the politics of patronage. Local Government Chairmen endeavoured
to win the military president's favour by conferring on him the title of
"Grand Redeemer of Local Government in Nigeria". These chairmen
lobbied the military president to extend their tenure of office by 12
months, in outright disregard of the constitution and the limits of the
democratic mandate they received in December 1990 when they were
elected into office. This behaviour was to be repeated in 2002, when the
local government lobbied the National Assembly to commit the illegality
of extending the tenure of elected local government officers by one year
through the year 2001 electoral Bill. The Supreme Court subsequently
declared the action null and void.
Generally, between 1985 and 1993, the Babangida administration
executed drastic structural changes by creating additional local councils
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three times. The local government creation exercises were purportedly
done to match federal constituencies with local government areas in the
first instance and to right the wrongs of the preceding re-organisations in
the second and third instances. Later on, the drive for autonomy became
the ideology used to promote the series of reforms carried out in that
sector by the Babangida government. However, under that regime local
governments began to be created around personalities (Roberts, 1997:46-
47) and became immersed in the Babangida personal rule project that
was underplayed by an instrumental use of corruption. The regime
picked and chose from the recommendations of these bodies set up to
examine the local government system only to the extent that they would
strengthen its hold at the grassroots. Rather than set up committees at the
neighbourhood and village clan level to strengthen local government as
grassroots government as recommended by the Political Bureau for
instance, Babangida incorporated local government reorganisation into
the politics of distributive federalism by direct allocation of local
government and expanding federal involvement in local government
operations to extend his grip on the country to the grassroots.
In 1988, the Ministry of Local Government was abolished and
replaced by a Department of Local government in the Office of the
Governor. The new department was "not to control but to provide
guidance and supervision of local governments." States were to
incorporate local governments into their planning process. Statutory
allocations were then sent directly to the local governments to avoid
them being diverted by states as has been the case in the past. It was also
mandatory that states should remit 10 percent of their internally
generated revenue to local governments. Babangida emphasised his
commitment to reinforcing the autonomy of local government and his
aversion to any effort by the states to undermine his efforts. All of these
moves were to strengthen his reach at the grassroots even though they
were purportedly done to promote local government autonomy. Thus,
under the Babangida regime the federal government took over local
government policy formulation and local government became a delicate
policy arena where it was safer for state governments not to act
independently of the centre (Gboyega, 1998:33). But the conversion of
local government reorganisation into an instrument of regime sustenance
served to entrench arbitrariness in the process.
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In July 1989, Babangida removed the elected chairman of Enugu
local government for allegedly becoming a security risk and in the same
year he dissolved all councils elected in 1987 (Fajonyomi 1997:40).
In January 1992, the Local Government Service Commission was
abolished to put all local government staff under the firm control of the
Chairman. However, the National Union of Local Government
Employees (NULGE) members' protests against high handedness and
witch hunting by the local government chairmen led to the resuscitation
of the Commission six months later.
The same year, the supervisory roles of state governments were
removed when the federal government introduced a model financial
memorandum to guide the financial operations of local government.
According to the circular "it shall no longer be necessary to maintain
spending limits for the Executive Committee of Local
government. .. subject to the following conditions: (a) the provisions of
the Financial Memoranda should be scrupulously adhered with,
particularly those relating to the control of expenditure as well as
contract, purchases, payments and personal advances procedures; (b) the
projects should be contained in the approved budget or approved
supplementary estimates of the Local Government for the year; (c) for
the avoidance of doubt, it shall no longer be necessary to refer any
contract, whatever it size, to any organ or functionary of the state
government for approval provided it had received prior approval of the
Legislative arm of the Local Government during the normal process of
the annual budget" (as cited by Gboyega, 1998:). For the purposes of
accountability, an office of the Auditor General of Local Government
and an audit alarm committee were establish.
Finally, relief came concerning conflicts between the chairmen and
councillors i9 the Handbook of Local Government introduced in 1992 to
define the scope and limits of the functions and responsibilities of each
arm of government at the local level. The essence was to reduce areas of
tension and conflict in the operations of the government at the local
government level.
It is important to note that during General Abacha's administration,
additional local governments were created in 1996 raising the number to
774. The exercise was markedly arbitrary and was trailed by widespread
inter-communal conflicts over the location of local government
headquarters and/or the inclusion of communities in local governments
they never wished to join. Chairmen of Local Governments were
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removed as the Accounting officers, and Career officers became
secretaries to the Local Government as well as the Accounting officers
and the Chief Administrative officers of Local Governments. The
regime through the Central Bank of Nigeria, continued the practice of
directly paying monthly Statutory Allocation from the Federation
Account into the bank accounts of each Local Government. However,
local government elected officials were removed and replaced by
caretaker committees largely headed by retired military officers. In the
bid to ensure loyalty and personal accountability, General Abacha
insisted on a veto right over candidates for appointments as chairpersons
of local government caretaker committees. Later on five percent of
statutory allocation to local governments were paid to traditional rulers to
secure their support for the Abacha self-succession project. Local
government powers and structures have to be repeatedly modified as
civilian and military governments have replaced one another for forty
odd years in post independence Nigeria.
Thus, at the inception of the fourth republic the developmental goals
(local democracy and responsiveness to local needs) of local
governments had paled into insignificance. Local government process
became submerged in the personal rule that characterized military
governance under Generals Babangida and Abacha, as the regimes
combined shrewd management of patronage with systemic application of
terror to consolidate their hold on power. As we shall see presently the
decline and de-institutionalization at the local level was very grave
indeed. Hence it is appropriate to talk about reinventing local
government rather reforming local government in Nigeria.
6.4 Local Government Effectiveness and Accountability
In a survey of three local governments (Mushin, Shomolu and
Ajeromi-Ifelodun local governments) in Lagos, both citizens and local
government officials were asked to evaluate and rate local government in
terms of performance, operational activities, project execution, conduct
and administration in a survey carried in three local governments in
Lagos State. The results show a wide disparity in the perception of local
government performance between citizens and local government
officials. On a 5 point descending order scale with 5 as excellent
performance and 1 as poor performance, the average score from citizens
for local government performance was 2.1. The three local governments
recorded 2.0, 21 and 2.3 respectively i.e. between fair and poor.
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According to the report, "neither the upper-middle-class nor the lower
social class citizens see the Local Governments as doing well. This
perception is the same across gender lines". On the contrary local
government officials recorded an average score of 3.4 for local
governments. This is a favourable score of very good (Integrity 1998).
A detailed review showed that local government is anything but local.
The citizens are clearly alien to the activities of local government. They
hardly directly participate in local government budget process nor
determine through other means what the local government does or fails
to do.
From another survey conducted in 2002 by the Development Policy
Centre in collaboration with the United Nation Economic Commission,
60.3% of an expert panel believe that local governments have poor or no
capacity to manage decentralised responsibilities. Also, 57.7% of
respondents maintained that service delivery institutions in local
governments have inadequate or no mechanisms for involving
community participation, while few Nigerians (4.1%) think they have
effective mechanisms for involving community participation. 38.4%
believe they have moderately or fairly effective mechanisms that enable
parti.c.ipatio.n".1
Correspondingly, more than half the population (63.0%) insist that
local governments rarely or do not respond to basic needs of the
community in an efficient manner while 12.3% of the populace think
they moderately respond to the needs of the community. None think they
fully respond to the needs of the community.
Also, as we have noted earlier, the derivation of a large chunk of
revenue from the Federation Account had created a disjunction between
the location of local government expenditure and the sources of local
government revenue, thereby undermining public accountability. Local
governments have been reduced to mere instruments with which
politicians and interested groups at the local level enrich themselves and
organise to impact on decisions at the federal centre.
Only recently, the Chairman of the Independent Corrupt Practices and
other Related Offences Commission, Justice Mustapha Akanbi,
announced that his Commission has established prima facie cases against
78 council chairmen out of the over 300 petitions received in respect of
local government councils. He however lamented that the commission
has been hindered from carrying out its functions because of poor
staffing and funding, poor public enlightenment and more importantly,
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142 Readings in Development Policy and
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the spate of litigations challenging its constitutionality (Ogbodo, 2001: 1).
In Lagos State, the Attorney General reported to the House of Assembly
in November 2002 that of the 37 billion naira disbursed to local
governments, the dissolved councils accounted for only 20 billion naira.
Recently Obasanjo has decried the level of corruption at the local
level saying "chairmen and councilors just share the allocations for
councils among themselves" (as cited by Ezomon, 2001: 11). The local
government chairmen continue to contest the claim that corruption is
prevalent in local government. Some have even argued that the
prevalence of corruption was not enough justification for state
government encroachment, insisting that local government is an
autonomous tier of government. Why has the national government not
taken over any state government because of corruption? They
questioned. In a discussion with some senior local government officials,
the bureaucrats believe corruption at the local government level is being
overstressed. They insist that a comparative analysis of corruption of
level of government will show that corruption is not more prevalent in
local government than in the higher levels of government.
Even so, accountability mechanisms put in local government has not
proven to be very effective (this is also the case at the higher levels of
government). Neither the audit alarm committee has been of significant
use in any part of the country even though claims of corrupt practices by
local governments are perpetually published in the dailies.
Commenting on these accountability bodies, Gboyega (1998:40) has
this to say:
The impact of the Auditor-General of local
government has not been felt at all. There is no
state in the country where it has demonstrated
that he was effective. Their offices are
understaffed, and their itinerary, if they have
one, is too slow to move them where they are
needed urgently, e.g. where there are
allegations of impropriety and impeachment
process are threatened. Nor can the situation
be remedied easily as there are a general
scarcity of qualified professional accountants
and auditors in the country.
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Reinventing Local Government in Nigeria 143
As for the audit alarm system, he noted, "there is no known record of
this 'system having been activated to check irregular payments." The
point is that these provisions were never made to promote accountability
given the ethos underlying the reorganisation process. At best they were
made to provide the needed veneer of public accountability to give the
regime a positive image. In any case, these provisions like the other
provisions relating to democratic processes in local government were
subject to the disposition of the military junta that was clearly above the
law in Nigeria.
The survey of three local governments (Mushin, Shomolu and
Ajeromi-Ifelodun local governments) in Lagos state revealed that most
citizens do not even know the functions of local governments regardless
of their gender and social status. More disturbing is the discovery that
even local government official themselves are not apprised of the
statutory functions of local government (Integrity 1998:15-16). What is
more, citizens are not aware of how local governments derive their
budgets. Most citizens felt that corruption "constitute a problem in local
government administration and many were convinced that little could be
achieved by citizen's seeking services from local government officials
without making illegal payments or bribes." (Ibid.: 53)
Furthermore, in the same survey, 75% of citizen respondents, across
gender and social classes, claim to be unaware of any avenues for
consultation in local governments. On the contrary a large percentage of
local officials claim there are several avenues and that these avenues are
in fact available to the citizens. Among the avenues mentioned were
Community Development Associations/Centres, market associations,
through community leaders/rulers/area chiefs. The report noted that only
11% of staff surveyed mentioned Ward Forum (a system whereby local
officials meet with the people), was mentioned by only 7% of the
population. Going directly to see the Chairman was mentioned by only
5% of respondents and as low as 2% in a local government. The
impression correctly inferred by the report is that avenues for
consultation in local governments are secondary avenues, information
handed down to community groups or market associations (ibid.).
A World Bank commissioned study on local government in Nigeria
has this to say on accountability:
Informants generally saw government servants as
self-serving, high-handed and unaccountable, and
believed the misuse of public funds to be
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144 Readings ill Development Policy and
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widespread, even general. The monitoring and
evaluation of projects appeared to be non-existent.
In discussion, local government officers often
seemed unfamiliar with their own areas, and rural
communities attested that, like the councillors,
they rarely, if ever, visited (Francis et al 1996).
The bottom line is that the stakes for local government were raised
with the increase in statutory allocation to local governments from 10 to
15 per cent in 1990 and to 20 pes cent in 1992. The multiplication of
local governments did not only increase the number of openings for the
position of local government chairmen but also for councillors and other
local government employees. Furthermore, there emerged absentee local
government officials, people who have been elected or appointed into
positions in local governments in their areas of origin even though they
are not resident in those localities, as patrons install their clients at the
local level. More significant is the emergence of organised groups
(strong forces) within local government councils pressing for more
autonomy for local government in relation to the state and pressing for
further national government intervention in the internal management
arrangement in local government in order to protect their peculiar
interests. There are three noticeable groups. The first is the National
Union For Local Government Employees (NULGE). The second is the
National Conference of Local Government Chairmen (now Association
of Local Governments of Nigeria (ALGON). The third is the National
Councillors' Forum (NCF). Thus, local politics have been reduced to
politicking between these groups for a good share of the "national cake."
In one instance, councillors in Cross Rivers State have demanded for
a monthly pay of N120, 000 blackmailing the governor with a threat that
he would lose their support in the contest of the 2003 elections if he fails
to do so (Eno-Abasi, 2001: 1,2). This was occurring at a time when the
federal government issued a circular requiring that all monies paid to
councillors in excess of the N53,803 approved by the Revenue
Mobilisation and Fiscal allocation Commission be recovered from the
beneficiaries in the public interests (Egede at al 2001:1,2). It is public
knowledge that councillors in some local governments have been able to
extort a monthly salary of up to N125,000 from their local government, a
sum that is considered outrageous considering the general wage levels in
the country, the demands of the job, and the general level of skills of
councillors across the country.
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Reinventing Local Government in Nigeria 145
Indeed, the conference of speakers of state Houses of Assembly have
decried this state of things but could only begin to revise downwards the
emoluments of local government political officials after the Supreme
Court's judgments of March 28 2002 which establish the power of states
over local governments.
The persistent Federal Government tinkering with local government
under the military has been accompanied by a diminished importance of
internally generated revenue and state allocations as sources of revenue
to local governments. The table below show the revenue profile of local
governments in Nigeria. From this table, it is clear that local government
rely on the federation Account for over 70 percent of its revenue.
Table 61.. Revenue pro fiIles 0fL ocaIG overnments 1996- 2000
Year 1996 1997 1998 1999 2000
Total revenue (TR) 23,789.6 32,795.8 44,952.7 60,800.6 129,635.6
Federation Account 17,586.5 22,300.5 30,199.3 43,870.3 102,521.3
Allocation (FAA)
FAA as % ofTR 73.93 68.0 67.18 72.15 79.08
Internally Generated 2,211.1 2,734.0 4.448.6 4,683.8 7,030.0
Revenue (IGR)
IGR as a % of TR 9.29 12.26 14.73 10.68 6.86
Tax Revenue 253.4 416.4 698.4 1,209.1 2,115.0
Non Tax Revenue 1,957.7 2,317.6 3,750.2 9,187.3 1,056.3
Value Added Tax 3,306.9 6,826.1 9,187.3 9,559.8 12,357.9
(VAT)
State Allocation .681.9 703.5 1,097.8 419.8 681.9
Stabilization Fund 0.0 0.0 0.0 1,056.3 4,311.1
and General Ecoloqv
Grants and Others 0.0 231.7 19.7 1,210.6 2,734.0
Source: Central Bank of Nigeria Annual Report and Statement of
Accounts 2000
Under the Nigerian tax system, tax powers of local government
depend largely on the discretion of state governments. The state
government regulates such important source of local government revenue
like the property tax. These ensures that local governments have limited
tax powers, and as such rely on external sources for revenue.
This poor state of IGR does not owe only to the weak tax powers of
local governments but also to their weak tax collection capacity. Local
government do not pay much attention to ways of increasing internally
generated revenue largely because it is politically costly to do so. Yet
effective local taxes remain the missing link that will promote
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146 Readings in Development Policy and
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accountability at the local level because of the pervasiveness of
representation without taxation.
The inability of local government to source for a substantial part of
their revenue creates a disjunction between the source of revenue and the
locus of expenditure. This has made local government look like a gift
from the federal centre to local communities. Thus, by the time the
transition that led to the current democratic government came on stream,
the local government system had largely become devoid of its local and
democratic content of governance. Local governments were therefore
reduced to grassroots satellites of the national government, a strong
leverage for the national government in its dealings with the state
government.
6.5 Local Government Reorganisation in Fourth Republic
Under the current democratic experiment local government creation
exercise became complicated, not just by distributive federalism and
electoral politics but also by the tension that arose from the distorted
intergovernmental relation that characterised military federalism.
The root of these problem is to be found not only in the flux and
tension that come to characterise the exercise of power and control over
local government involving both states and national governments, but
also in the ambivalent provisions of the 1999 Constitution concerning
local government creation process. This was why during the larger part
of the first term of the fourth republic local government became mired in
intergovernmental power struggles between the national and the state
governments. The battle of wits between the state Houses of Assembly
and the National Assembly had been fuelled by the failure of the
Independent National Electoral Commission to prepare the ground for
election into local government councils before the expiration of the
three-year term of elected local government officials.
Indeed, the Association of Local Governments of Nigeria (ALGON)
lobbied the National Assembly to extend the tenure of local government
chairman from three years to four years. This was going to be effected
through the Year 2001 Electoral Act before the Supreme Court in
Landmark judgment on 28 March 2002 declared that:
(1) No law enacted by the National Assembly can validly increase or
otherwise alter the tenure of office of elected officers or as
chairman and councillors of local government councils in
Nigeria except in relation to the Federal Capital Territory alone.
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Reinventing Local Government in Nigeria 147
(2) The National Assembly has no power except in relation to the
Federal Capital Territory alone to make any law with respect to
the division of Local Government Areas into wards for purposes
of election into Local Government Councils in Nigeria; the
qualification or disqualification of a person as a candidate for
election as chairman, vice-chairman or councillor or member
thereof vacates his seat in the Local Government Council; and
the prescribing of the event upon the happenings of which a local
government stands dissolved or the chairman or vice-chairman
of a local government council vacates his office or a councillor
or member thereof vacates his seat in the Local Government
Council.
The above pronouncements by the Supreme Court gave the States
the leeway and confidence to assume full control of local governments.
When the tenure of elected officers in local governments expired in June
2002 many state government replaced them with caretaker committees.
6.6 Summary and Conclusions
Nigeria has embarked on a series of local government reforms and
restructuring that dates back to the 1950s. In the early period, the reform
of local government was essentially underlined by the need to introduce
participatory government at the grass root. In this phase, the need for
participation and accountability enjoyed pre-eminence, this was because,
the reforms were motivated by liberal values of popular participation.
The second phase, which was part of the reconstruction programme
after the civil war (1967-1970), was informed by the perception of local
government as engines for transforming the society towards economic
development. Local government was seen as an instrument for realising
the contents of the national development plans at the grassroots.
The third phase was informed by the complex factors that emerged
from economic decline, structural economic reforms and the transition to
democratic governance. The multifaceted, incremental, experimental
and rapid (changes, including reversals) nature of these reforms reflect
the instability and uncertainty and de-institutionalisation that came to
characterize local government as Nigeria entered this new millennium.
Through these reforms local government has moved from the position
of being under strict control by state governments, in terms of finance
and personnel, to a point where they now operate the presidential system
with separation of powers at the local level. Efforts have been made to
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148 Readings in Development Policy and
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restructure the management of local governments and provide financial
guidelines of accountability.
In spite of these, the reforms did not achieve the stated goals of
improving on the performance of local governments. This is because the
reforms were undermined by the use of local government reorganisation
to achieve distributional objectives. The use of local government
reorganization to achieve redistributional objectives has made nonsense
of public service accountability at the local level, because of dependence
of local governments on statutory allocation for the bulk of their revenue.
In the main, local elected officials and workers try to expand their
influence and clout at the centre where power and resources are
concentrated. The focus of local government therefore became the
federal centre. There has been a radical erosion of the local content of
government at that level, such that for most local governments,
participation by and accountability to the local population has failed.
This follows from the logic of the politics of di-stributive federalism in
which rents from oil are distributed through federal governance
structures to the populations and communities of the constituent units,
albeit as booties of political warfare.
Under nascent democratic governance, the incorporation of local
government into the politics of distributive federalism has reflected in the
persisting struggle between the states and national government over
control of local government, transforming intergovernmental politics in a
way that frustrates local government as grassroots government. Apart
from the violence and conflicts that have trailed recent efforts to create
additional local governments by several states, some of these local
government creation exercises have come under severe criticism. The
National Assembly and opposition parties in the States in question have
been at the forefront of those objecting to the exercise.
The National Assembly, which had tried unsuccessfully to abrogate
the powers of the states over local governments have consistently
opposed the effort with a two-fold argument. The first is that it is being
done for political reasons, as part of the efforts of incumbent state
governments to increase their chances at the 2003 elections. The
approval of these councils will mean the approval of gerry meandering.
Opposition parties in Kogi, Lagos and Ogun States have also complained
that the move is designed to further marginalize the strongholds of the
opposition parties by gerry meandering. In Kogi State, for instance, with
the creation of additional local governments, the All Nigerian Peoples'
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Reinventing Local Government in Nigeria 149
Party in government took 33 local government councils up from its
original 11 while the Peoples Democratic Party, the second largest party
in the state, took control of 13 local councils, up from its original 10.
The second is that the inclusion of the new councils in the
constitution will mean more money to states from the allocation to local
governments. Every state will therefore increase its number of local
government to increase its share of the allocation from the Federation
Account, leading to their proliferation.
At any rate, local government creation has replaced practical effort to
build the capacity of local governments and shore service delivery. A
review of the Hansards of various State Houses of Assembly show that
key problems and challenges of local governments did not feature on the
debates that preceded the local government creation exercises. Debates
in these Houses of Assembly have centred mainly on the location of local
government headquarters, and the appropriate names for the new local
government areas being proposed. This was inspite of the fact that
investigation into the state of local governments by the Houses of
Assembly in almost all states reveal serious problems of corruption,
inadequate funds, over bloated staff, weak ability of political office
holders (especially councillors) to understand and effectively participate
in the operations of local government, and the general non-performance
of local governments in service delivery.
Although Nigeria's constitutions have always provided for a
democratically elected local government council since 1979, local
government political positions have not always been filled through
elections, even under civil democratic rule. For instance, in the second
republic state governors freely dissolved local governments councils and
held no fresh elections to fill local government posts. Furthermore,
several local governments were created bringing the number to almost a
thousand from the three hundred and one (301) local government
bequeathed by the 1976 reforms. Under the current democratic
dispensation, local government has been under control of state
government appointed caretaker committees since the expiry of the
three-year tenure of officials who assumed office in June 1999. Thus,
the assumption by democratic theory that the prospect of removal will
cause officials to be accountable in the conduct of public affairs have not
had the chance of being realised in local government even under
democratic rule in Nigeria.
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150 Readings in Development Policy and
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Structural and behavioural changes are required to reinvent local
government in Nigeria. To do this with success, the changes have to be
gradual and deep rooted. Efforts should be made to learn from previous
experiences in Nigeria as well as draw on best practices from across the
world. First, it must be noted that the attempt to uniformise local
government across the country has not only failed, it has become counter
productive to stated goals of local governments. As such local
government should reflect specific cultural and service delivery
peculiarities across the states.
While autonomy remains critical to an effective local government
system, it has to be redefined. So far autonomy has meant freeing local
government from the control of the state. It has also meant the securing
of funds to local councils by direct allocation from the Federation
Account. This idea of autonomy is wrong headed as it fails to reckon
with financial independence and democratic accountability. The
question that should define autonomy is: How can local government
reflect local needs being met by local resources? As a minimum a local
government should be able to pay for its main bureaucracy.
Concerning transparency, a lot of lessons can be learnt from practices
worldwide. Each state government could provide a clear and practical
procurement and accounting procedures that meet international
accounting standards for its local governments. Citizens of local
governments should be free to make complaints concerning any matter
connected with the business of the localgovernment at a council meeting
of the local government. A copy of the minutes of the proceedings in a
council of a local government area should be made available to a citizen
at the payment of the required cost of photocopy. Any duly registered
elector of a local government should deposit a copy of the annual
estimate of a local government in a suitable place in the office of the
local authority for inspection. These are some of the ways transparency
and accountability has been promoted in Mauritius (Dukhira, 1994: 185).
Local government should be made legal creatures of states and be
subject to the exclusive monitoring and control from the states. It is clear
that the idea of local government as a third tier of government has failed.
It merely expanded politicking while diminishing performance of local
government as grassroots government.
However, the constitution should make it mandatory for states to
ensure that occupants of local governments political positions are
-mployed by direct elections. Where states fail to conduct elections after
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Reinventing Local Government in Nigeria 151
a given period of time then the federal government can intervene through
the judicial process. It is our strong belief that local officials' link with
the citizens remain the only way to enhance local government autonomy
vis-a-vis the state governments.
Finally, one of the major problems in Nigeria is the absence of a
merit-based approach to filling government posts across every level of
government. Coupled with this is the associated problem of corruption.
These twin issues have to be addressed in the effort to transform the
culture of governance generally. They have had severe consequences on
the performance of government, especially at the local government level.
Critical institutions like the office of the Auditor General of Local
Government that will promote public service in the local governments
should be revisited with a view to enhancing their effectiveness.
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ENDNOTES
1. The one for councillors did not emerge until the current
democratic dispensation for obvious reasons.
2. This survey was conducted in 2002 by the Development Policy
Centre in collaboration with the Federal Office of Statistics. The
survey which was part of an effort to prepare the Nigeria
Country Governance Report was done for the United Nations
Economic Commission for Africa .
.'
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Reinventing Local Government in Nigeria 153
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7
ATTRACTING FOREIGN INVESTMENT
THROUGH PRIVATE SECTOR
PARTNERSHIP: WHAT HOPE FOR NIGERIA?
M.O. Kayode and O. Oyeranti
7.1 Introduction
Attracting Foreign Direct Investment (FDI) has become a policypriority in many countries, both developed and developing.
Unfortunately, debate over the right route towards the attainment of this
priority remains inconclusive. This is principally because; most host
economies of foreign investment often see the route from an angle that is
different from the key factors that influence the decisions of foreign
investors. For governments in the host countries, the age-long belief on
how to attract FDI is by employing foreign direct investment incentives I,
especially as governments can manipulate them more easily than other
factors that are associated with the investment decisions of foreign
investors.
For an investment partnership to be consummated, that is, in order to
effectively attract foreign investment, the host countries and the foreign
investors must both use a common route to their destinations. Two
preliminary issues arise which are discussed and dismissed in this
introductory section. The first relates to the 'destinations' and the second
to the 'routes'. The resolution of both issues as discussed and in practice
provides the answer to the question, what hope for Nigeria?
The destinations: A common route is possible if the destinations of
foreign investors and host countries are the same. Where the destinations
diverge, there must be a common stop before the different destinations.
The common 'stop' or the common destination for actors in a partnership
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160 Readings in Development Policy and
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is essentially profit, which is specified in most partnership acts. For
example, The Partnership Act (1890) of the UK defines 'partnership' as,
"the relation, which subsists between persons carrying on a business in
common with a view of profit." In the U.S., the Uniform Partnership Act
defines 'partnership' as, an association of two or more persons to carry
on, as co-owners, a business for profit". To be successful, there are a
number of partnership requirements, including:
$ the existence and knowledge of profit potentials; and
$ the existence and knowledge of investment incentives and other
determinants of FDI motivations.
The Route: The route has several components, which are viewed
differently by the major actors. For foreign investors who are often
multinational corporations (MNCs), three broad categories of factors
influence their foreign investment decisions:
(a) Firm specific (or ownership) advantages (Hymer, 1960), which
give a firm competitive advantage in global markets, including,
technological assets, product differentiation, management skills,
production efficiencies, size and concentration.
(b) 1nternalisation advantages (Buckley and Casson, 1976). These
advantages exist when the internalisation of cross-border
transactions within a firm becomes a more efficient form of
servicing markets than arm's length transactions.
(c) Locational advantages (Vernon, 1966). These occur when the
local conditions of potential host countries make them a more
attractive site for FDI operations than the home country.
According to a United Nations Report on incentives and FDI,
incentives do not rank high among the determinants of FDI motivations.
For example, in a study of 247 United States foreign investors, only 10
per cent listed fiscal incentives as a ·condition for FDI. In contrast,
currency inconvertibility (57 per cent), political instability (39 per cent),
and limited markets or sources of supply (26 per cent) were more
important factors determining investment decisions (Barlow and Wender,
1955). In yet another survey of 205 companies involving 365
investments in 67 countries, investors revealed that the key non-policy
determinant of their investment decisions was maintaining market share
(or expanding into new markets). To actualise this major objective, the
policy variables considered as against foreign direct investment-
incentives were: market size, labour costs, productivity, non-
discrimination against foreign-controlled enterprises, political stability,
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Attracting Foreign Investment Through Private Sector Partnership: 161
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economic stability, and more importantly a favourable government
attitude towards the private sector (IFC, 1997).
The question of what manner of relationship should exist between
would-be foreign investors and the host country's private sector, ably
represented by private firms or enterprises, is also part of the route.
Informed opinion from the International Finance Corporation (IFC)
reveals that FDI provides more than just finance. It. provides an
operational link between an enterprise in the host country and a foreign
partner. This implies that a private sector partnership with foreign
investors is a probable means of attracting FDI by the former into an
economy.
The focus of this paper is, therefore on, how to effect inflows of FDI
through the private sector in Nigeria. Following this introduction, the
paper examines investment opportunities in Nigeria. It also discusses
investment opportunities In Nigeria with respect to FD( The paper
briefly explores the basis for partnership between the indigenous private
sector and foreign investors. The paper then shifts focus to an analysis of
the inflow of FDI in terms of its trend, sources and composition,
followed by an assessment of the Nigerian investment climate. The
paper ends with some concluding remarks.
7.2 Investment Opportunities
Nigeria's enormous investment potential, which exists in virtually all
sectors of the economy are measured not only by the magnitude of
resources, but by the structure of the economy and its discernible trends.
The gap between the possible and the actual is a good proxy for
measuring the potential for investment in an economy generally, in a
sector specifically, and in a product particularly. Table 7.1 brings out
some of the structural changes in the Nigerian economy since
independence. The highlights of the table include:
$ The declining and, to some extent, unstable contribution of
agriculture to GDP. Agriculture, which accounted for about 63%
of the GOP in 1960, contributed 47 per cent in 1970 and less than
30 per cent from 1974 to 1984. It picked up again from 1986 to
almost 33 per cent and has hovered around 32 per cent ever since
until 1998 when it inched up to 35.5 per cent.
$ The increasing contribution of petroleum to GDP which changed
the structure of the economy from being predominantly
agricultural-based to a predominantly petroleum producing
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162 Readings in Development Policy and
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country. The contribution of petroleum to GDP exceeded
agriculture in 1974. It has also become the largest single
contributor to the Federation Account.
$ The performance of 'manufacturing has not been impressive,
representing less than 10 per cent at any time. And yet, hope has
always been placed on this sector to pull up other sectors,
especially agriculture.
" The business potential in Nigeria is demonstrated by other measures
that are not shown in Table 7.1. For the manufacturing sector, the
capacity utilisation has remained at such a low level that the contribution
of the sector would be significantly raised simply by greater utilisation of
the already installed capacity. As shown in Table 7.2, raising the
capacity utilisation from the current level of a little over 30 per cent to
the 1981 level of 73 per cent can double the volume of manufacturing
activities.
Nigeria's business potential is perhaps highest in agriculture.
Agricultural productivity is low and progress in agriculture is slow, as
Table 7.3 clearly illustrates. The Table shows an improvement of 50.7
per cent in agricultural productivity between 1979-81 and 1996-98,
compared with over 200 per cent for Singapore and South Korea over the
same period. It may sound like day-dreaming but the Singapore/South
Korea figure, or even higher, is achievable in Nigeria. Such an increase
can be brought about by increased industrialisation of agriculture.
Indeed, industrialisation of agriculture is the only route to a sustained
high increase in agricultural productivity and a similar increase in the
contribution of agriculture to the economy. As of now, the relationship
between agriculture and manufacturing is very weak. A strengthening of
the relationship will greatly expand the opportunities for a private sector
partnership. Indeed; and interestingly, the relationship would be better
strengthened by a partnership:
The relationship between petroleum and manufacturing is also weak.
At present, the petroleum sector supplies fuel to manufacturing plants
and a limited variety and quantity of inputs through the petrol-chemical
sub-sector. Yet, petroleum is the source of synthetic fibres being what is
used for all manner of manufactured products.
, That the relationship between manufacturing and other sectors of the
economy, especially agriculture, could be strengthened is well brought
out by Okigbo (1999). He asserts that:
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Attracting Foreign Investment Through Private Sector Partnership: 163
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From a single person, it is now possible through
biotechnology to produce In eight months 2
million tubers on 40 hectares, while tissue culture
and cloning are changing the cultivation of
cassava, yams, etc. The major players are the
multinationals like UpJohn, Pfizer, ICI, Sandoz,
DuPont, American Cyanamid, Ceiba Geigy,
Montsanto, etc. All these together control more
than 42 per cent of the patents. In another
ten/fifteen years, we, as Africans, will have to go
to these companies abroad to buy the licence to
obtain and use the seeds with which to grow the
food we eat but which their nationals do not eat.
Edward de Bono is right In proclaiming,
"technology is the grammar of the future."
Table 7.1. Structural Change m the Nigerian Economy, 1960-1998
Contribution to GDP
at Current Prices (%) 1960 1965 1970 1974 1980 1983 1984 1986
Agricultural 62.9 54.4 47.0 23.0 21.4 26.7 26.9 32.8
Oil 0.6 4.6 10.4 45.0 16.3 29.0 15.2 17.0
Manufacturing 4.8 6.9 7.3 5.1 5.0 8.4 8.6 8.0
Trade 12.4 13.1 12.9 19.1 16.9 14.7 19.5 11.9
Government 3.3 3.1 3.3 6.3 8.5 8.6 7.3 6.8
Contribution to GDP
at Current Prices (%) 1989 1990 1991 1992 1994 1995 1996 1998
Agricultural 31.2 30.1 30.4 30.2 30.7 31.6 30.7 35.5
Oil 35.4 33.4 37.5 46.8 26.8 40.4 43.6 35.7
Manufacturing 8.2 8.1 8.5 7.4 6.9 4.6 4.2 4.6
Trade 14.6 13.9 13.D 14.6 16.1 14.0 13.0 14.7
Government 3.1 3.1 2.7 2.6 2.5 1.1 0.9 0.9
Source: Federal Office oj Statistics
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164 Readings in Development Policy and
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.r ' '
Table 7.2: Capacity Utilisation in the Nigerian
Manu facturin.a Sector, 1981-1999
Year .Capacity Utilisation' (%)
1990 40.3
1995 29.1
1996 36.8 '.
1997 34.0
1998 34.9
.,.
1999 34.3 ~ - ..
Source: Central Bank of Nigeria .
Table 73. : A19r.1cuItura IP roductivit , 1979-81 and 1996-98 (USDoIIar )
Country 1979-81 _ 1996-98 %Change
Nigeria 414, . 624 50.7
Japan 15,65~ 30,272 93.4
Singapore· 13,937 42,~51 207.5
South Korea 3,745 11,760 214
Brazil 2,047 4,081 99.4
Chile 3,174 5,039 58.4
Malaysia 3,275 6,061 85.1
Source: Co,,!,piled and computedfrom World Bank (200Pb)
Demonstrating the relevance of the assertion, especially to
agriculture, Okigbo further observed:
Nigeria has:23 institutions that do research in agriculture
in addition to 8 Universities of Agriculture. But
-altogether, Nigeria devotes only 0.3 per cent of the GDP to
science and technology whereas the average in the
Western world is over 3 per cent. In the developing world,
India dedicates some 2 per cent, the Philippines 1.5 per
cent, Brazil 2 per cent, Thailand 2 per cent, and South
Korea 2.1. to 3 per cent. In Africa, (excluding South
Africa), Cameroon takes the lead with 0.8 per cent
followed by Egypt with 0.5 per cent. But science and
technology in the abstract is not relevant nQW for our
progress as what we need is to bring to bear on our
development the fruits of research in science and
technology undertaken world-wide and already' well
known and documented.
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A factor that can greatly assist the actualisationof Nigeria's business
potential is a carefully managed partnership within and beyond the
country. More can be said on this. For now, it is enough to observe that
a private sector partnership can put into more effective use Nigeria's vast
expanse of idle land, and thereby raise the productivity of the small
holder farmers and turn into a "Prairie" of Canada such large and idle
farms as the "Mokwa-Bida Junction Project".
7.3 Tapping The Potentials
The investment potentials of the resources demonstrated in section
two of this chapter is virtually limitless. In the final analysis, it is the
tapping of the potentials that determines the position of a country in the
development hierarchy. Therefore, a country's potentials remain mere
potentials, until they are tapped. We focus here on FDI and the
incentives offered by host countries to facilitate it. For both partnership
and FDI, the critical consideration is their perceived usefulness and
effectiveness.
Foreign Direct Investment (FDl)
The International Monetary Fund's (IMF) Balance of Payments
Manual defines foreign direct investment as investment made to acquire
a lasting interest in a foreign enterprise with the purpose of having an
effective voice in its management. The World Trade Organisation
(WTO) (1996) observes that FDI occurs when an investor based in one
country (the home country) acquires an asset in another country (the host
country) with the intent to manage that asset. The IMP and the WTO
have given a similar definition, which suggests that the management
dimension is what distinguishes FDI from portfolio investment in foreign
stocks, bonds and other financial instruments. FDI, therefore, comprises
three components as follows:
(a) new equity from the foreign company in the home country to
the company in the host country;
(b) reinvested profits earned from the company; and
(c) long- and short- term net loans from the foreign to the host
company.
Accepting the meaning of FDI, as defined by the IMP ancI the WTO
carries a number of conceptual ancI practical implications, which wi II be
-of little interest for now. It is important however, to ensure that, actual
acts of investments as, implied by the IMPfV1TO definition, have
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166 Readings in Development Policy and
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occurred. It is also necessary to note that an increase in measured FDI
does not necessarily signify that expenditure has been incurred to
increase the capacity of plant and machinery.
We should conclude this section by highlighting an approach that
could increase the mutual benefits of FDI, especially to the host country.
It is important that partnership should be demand-driven at least from the
viewpoint of the host country. That being so, FDI must be decomposed
into partnering requirements which, as may be inferred from our
discussion so far, could include: finance, technology, man igernent,
market, marketing, material inputs, labour, etc. The requirement(s) for
each sector, or even sub-sector, should be studied with appropriate notes
made of modifications that size may dictate. It is important that this
exercise should be done at least for the real sectors. A matrix such as the
one shown in Appendix 4 would be the outcome of such exercise. This
would provide useful information to potential foreign investors, at the
very least.
A decomposition of FDI will help correct the impression that FDI is
only a source of capital funds, rather than the optimal use of funds. The
following reasons help to understand in a better way why host countries
to FDI should have a correct perception of its value:
(a) Recorded inflows of new equity or debt into the host country
may be undertaken for purposes of buying up an existing firm or
merging it with an existing one. In this case, FDI fails to add to
plant and machinery or stocks. •
(b) The profits of a subsidiary in a host country, whether repatriated
or not, are notionally regarded as an inflow in the current
account of the host country's balance of payments. For
undistributed profits, these are regarded as an inflow of FDI
from the home country to the host country and recorded as a
national inflow in the capital account of the host country's
balance of payments.
Conceptual and practical problems in appreciating the meaning of
FDI notwithstanding, South Centre identifies the following as plausible
explanations for FDI in any economy:
$ the transfer of technology to individual' firms and technological
spill-over to the wider economy;
$ increased productive efficiency due to competition from
multinational subsidiaries;
$ improvement in tile quality of (he factors of production including
management ill other firms and not just tile host firm;
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$ a healthy balance of payments through the inflow of investment
funds;
$ increases in exports;
$ increases in savings and investment;
$ faster growth of output and employment; and
$ welfare improvement due to lower prices of go?ds and the
introduction of new or better quality goods.
For a fuller assessment of FDI, Biersteker (1978) raised seven key
disputed issues about the role and impact of FDI in developing countries.
A number of questions can be raised on each of the issues, as shown in
Table 7.4.
Table 7.4: Seven Key Disputed Issues About the Role and Impact of
Forei"gn D"rrec tItnves men t mi Deve Iopi"ng Coun trries
SIN Key Issue Source of Dispute
a. Do FDls bring in much capital (savings)?
1. International capital movements (income b. Do FDls improve the balaoce of
flows and balance of payments) payments?
c. Do FDls remit 'excessive' profits?
d. Do FDls employ transfer pricing and
disguise capital outflows?
e. Do FDls establish few linkages to the
local economy?
f. Do FDls cenerate siqnificant tax revenue?
a. Do FDls buy out existing import
2. Displacement of indigenous production competing industries?
b. Do FDls use their competitive advantages
to drive local competitors out of
business?
a. Do FDls keep all R&D in home
3. Extent of technology transfer countries?
b. Do FDls retain monopoly power over
their technoloqy?
a. Do FDls use only capital-intensive
4. Appropriateness of technology technologies?
b. Do FDls adapt technology to local
factor endowment?
a. Do FDls encourage inappropriate
5. Patterns of consumption patterns of consumption through elite
orientation, advertising, and superior
marketing techniques?
b. Do FDls increase consumption 01 their
products at the expense 01 other
(perhaps more needed) coods?
a. Do FDls develop allied local groups
6. Social structure and stratification through higher wage payments, hiring
(displacing) the best 01 the local
entrepreneurs, and fostering elite
loyalty and socialisation through
pressures lor uniformity?
b. Do FDls foster alien values, imoges, and
life-styles incornpalible witll local
---_. customs and beliefs?
a. Do FDls conlribute to the wideninG gap
7. Income distribution and dualistic between rich and poor?
development b. Do FDls exacerbate urban lJiClS and
I"!iden rural-urban differentials? --
Source: Biersteker, (1978)
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168 Readings in Development Policy and
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The best use to which Biersteker's seven key disputed issues can be
put is to apply them as relevant premises for the assessment of FDI in
developing countries, as well as using them to .suggest appropriate
guidelines or criteria that a private sector-foreign investor partnership
should satisfy.
The Incentives
At the incentive level, UNCTAD (1996) presents three classifications
of incentives for PDI as fiscal, financial, and other incentives. Table 7.5
enumerates the major elements of the fiscal incentives.
Putting all these incentives together appears complex. Unfortunately,
there are strong indications that incentives tend to become less effective
as they become more complex and are more frequently altered. This is so
because, intermittent changes in incentives will increase the information
costs and uncertainty facing potential investors. Worse still, since many
developing countries rely on the same set of incentives, it may be
somehow difficult for a country to attract significantly more foreign
direct investment by small increases in its existing incentives, especially
if other countries competing for the same investment match such
incentives. In effect, it will indeed be wise for a group of countries to
agree on limiting competition in granting incentives. This could be done
through regional organisation rather than the multilateral route.i
However, the regional route might pose more practical problems for
developing countries that are in a perpetual state of struggle against
economic stagnation.
A major puzzle that revolves around the use of foreign-direct-
investment-incentives is the question of where they belong in the course
of attracting FDI. This is more so if incentives are seen as incremental
ingredients. In the face of mounting empirical evidence that
determinants of PDI are more relevant than PDI incentives in our
understanding foreign investors' behaviour (Guisinger and Associates,
1985; Fry, 1993; Harrison, 1996; and IFe, 1997), it is going to be a
question of 'a stitch in time saves nine' for developing countries like
Nigeria to shift attention to guaranteeing the country's attractiveness to
PDI via a different route. One obvious way of attracting PDI is to work
towards the emergence of a competitive private sector charged with the
responsibility of providing the domestic foundations required for a
successful contacl with FDI in an economy. If investment determinants
'11\' perceived as survival ingredients, then they become a sufficient
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condition, while the incremental ingredients become a necessary
condition.
Table 75, ,Mam' Trvpes 0fF'isca I Ineen fryes tor FDI
Profit-based Reduction of the standard corporate income-tax
rate; tax holidays; allowing losses incurred
during the holiday period to be written off
against profits earned later (or earlier).
Capital investment- Accelerated depreciation, investment and
based reinvestment allowance.
Labour-based Reductions in social security contributions,
deductions from taxable earnings based on the
number of employees or on other labour-related
expenditure,
Sales-based Corporate income-tax reductions based on total
sales.
Value-added-based Corporate income-tax reductions or credits
based on the net local content of output;
granting income-tax credits based on net value
earned.
Based on other Corporate income-tax reductions based on, for
particular expenses example, expenditures relating to marketing and
promotional activities.
Import-ba~ed Exemption from import duties on capital goods,
equipment or raw materials, parts and inputs
related to the production process.
Export-based a) Output-related, e.g., exemptions from export
duties; preferential tax treatment of income
from exports; income-tax reduction for
special foreign-exchange-earning activities or
for manufactured exports; tax credits on
domestic sales in return for export
performance.
b) Input-related, e.g., duty drawbacks, tax
credits for duties paid on imported materials
or supplies; income-tax credits on net local
content of exports; deduction of overseas
expenditures and capital allowance for export
industries.
Source: UNCTAD, (1996)
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170 Readings in Development Policy and
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7.4 Foreign Direct Investment Through Partnership
We learn from microeconomics that one way for a business enterprise to
grow is to have more than one owner contributing to its operations. The
source of growth is expected to be in the heterogeneity of skills that
contributors will bring into the firm. This underlines the practice and
concept of partnership. For FDI, the existence of operational links
between foreign investors and local partners is sometimes a precondition
for successful cross-border investment. Such joint venture arrangement
suggests that each side has comparative advantages in the relationship to
be evolved by coming together.
Like all ventures, FDI is exposed to a range of risks. Weak markets,
weak management, government controls, and cost overruns are among
the principal ones. Unfortunately, FDI by its very nature, increases these
risks in several ways. Firstly, cross-border investments pose additional
informational challenges. Implementation delays, cost overruns, and
misjudgement of market prospects are likely problems that foreign
investors may face because they are less familiar with the host
economy's business environment. Secondly, cross-border business has
extra hurdles to navigate especially trade, capital and labour restrictions.
Sometimes, policies specifically directed at facilitating FDI can equally
pose entry problems to other types of foreign investors.
In contrast to the limitations confronting foreign. investors,
Blomstrom and Kokko (1997) reveal that local firms have superior
knowledge of local markets, consumer preferences, and business
practices. While it is difficult to believe that local businesses are
problem-free, it is reasonable to expect that marketing advantages will
cut both ways: foreign partners will have superior access to international
marketing channels, while their local counterparts will provide better
access to the local market. The need for partnership is evidently clear
here. The foreign partners will share with the domestic partners' market
advantages, and vice-versa. A number of other reasons for partnership
between foreign investors and the domestic private sector may be put
forward, in addition to those already discussed.
Firstly, partnership, or joint ventureship as it is sometimes called ill
practice, ensures a means of sharing control, risks, and rewards through
equity holding by both parties. For the local investors, partnership
guarantees the suppliers' (foreign investors) interest in the success of the
enterprise in question. For foreign investors, bringing ill local partners
helps to achieve [he following:
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• reducing the risks to the venture through greater familiarity
with the local business climate, government policies, and
economic conditions;
• reducing the financial commitment of the foreign investors
and cross-border transfers of resources; and
• local partners can help mobilise additional local financing
and may have better access to land resources.
Secondly, because many countries restrict entry by foreign investors
without local partners, foreign investors may have to find local partners
so as to comply with domestic legal requirements, as against meeting a
business need. The result is the emergence of large joint ventures with
minority FDI partners. This reflects policy restrictions on foreign
ownership, as foreign investment and the technology associated with it
can only come through such minority partnerships with local companies.
In Nigeria for example, international dry battery manufacturers did not
set up a local production facility until sometimes in the 1980s when a
local investor established a successful manufacturing plant with technical
support from a foreign battery producer who held a minority equity stake
(IFe, 1997).
In recent years, the effects of globalisation have added one important
dimension to partnership arrangements between foreign investors and
local private firms: the international integration of production, supply,
and marketing chains makes companies more reliant on their partners'
performance.
From the foregoing, one deduction that can be made for partnership
between the local private sector and FDI is that, it is mutually beneficial
to both parties, if allowed. Indeed, opinions in the literature converge on
the fact that FDI can only promote economic development through
spillovers that are passed on to their host countries. However, FDI's
ability to affect host economies is dependent upon the extent of its
linkage with the domestic firms. Spill overs are expected to occur when
local firms benefit from the foreign investor's superior knowledge of the
product or process technologies or markets, without incurring a cost that
exhausts the whole gains from such partnership. As identified by
Blomstrom and Kokko (1997), linkages can take two forms: backward
andforward linkages. The former arises from FDI's relationship with the
suppliers ill the host economy, while the latter develops from PDI's
contacts wi th the consumers.
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172 Readings in Development Policy and
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In summary, it is safe to argue along with the IMP that FDI can only
be mutually beneficial by cooperating with a host country's chosen
development strategy and show a willingness to consider alternative
arrangements, such as partnership and minority equity participation. For
developing economies like Nigeria, preparing their private sectors for
partnership with foreign investors ought to fitwell into their calculations
of how to attract FDI. In fact, a recent empirical study of foreign
investment and productivity growth in Czech enterprises found that joint
ventures and foreign direct investment appear to have negative spillover
effects on firms that do not have foreign partnerships. The same study
also found that with FDI alone, the magnitude of the spillover becomes
much smaller and loses significance (Djnakov and Hoekman, 2000).
7.S Inflow of Foreign Direct Investment (FDI) And Assessment
of Nigeria's Investment Climate
Table 7.6 details Nigeria's FDI flow for the period 1970-98. It shows
the highest FDI value of NIl1, 295.0 million in 1996 and the lowest
value of N74.52 million during the period of 1976-98. By coincidence,
these values correspond to the highest and lowest proportions of FDI in
GDP of 4.1 and 0.3 per cent respectively. The Table indicates that, of
late, the annual percentage change in FDI has been declining absolutely,
with the result that the percentage change for 1997 against 1996 value
stood at -0.8. The decline increased in 1998 to -26.9 per cent of 1997
level. It is equally clear from Table 6 that FDI constitutes only a small
percentage of the nation's GDP. The proportion of FDI in GDP, which
stood at 4.1 per cent in 1996, has been declining steadily, with the 1998
figure being 3.0 per cent.
Tabie 76 :Foreizn D'irect Investment I'NII' igerra, , 1970-98
Year Nominal FDI Growth Rate
(W'm) FDI As A % of GDP of FDI
1991 6916.1 2.2 47.6
1992 14463.1 2.7 109.1
1993 29675.2 4.3 105.2
1994 22229.2 2.4 -25.1
1995 75940.6 3.9 241.6
1996 111295 4.1 46.6
1997 110456.2 3.9 -0.8
1998 80751.2 3.0 -26.9
Source: Computed by Authors
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The overall net inflows of FDI in Nigeria increased from W2, 731.0
million in 1996 to W5,731.0 million in 1997. This increase represents
109.8 per cent. A closer look at Table 7 reveals that companies of U.S.
origin contributed the bulk of the net flow as they accounted for W3,
768.7 million or 65.8 per cent of the total. However, the net flow of
foreign private capital from the other regions fell in 1997 (See Table 7
and Fig. 1 for the details).
Table 7,7 FIowo fF oreian P'rrva te Can 'tal' 10t0 NI' gerl,a b'Y Source, 1970-97
Year United USA WesternKingdom Europe Others Total
1991 419.5 -1035.9 1330.2 1094.2 1808.0
1992 560.5 6836.8 747.4 124.5 8269.2
1993 3633.3 6041.7 22558.3 761.1 32994.4
1994 1136.7 1387.6 -267.4 1650.3 3907.2
1995 3216.0 5043.6 38285.0 2132.5 . 48677.1
1996 1194.8 -288.2 1249.4 575.0 2731.0
1997 232.6 3768.8 1437.6 292.0 5731.0
Source: Computed by Authors
Figure 7,1: Proportions of Sources of Foreign Private Capital in Nigeria,
1970-97
lCXlO.,..------------------------,
00.0
lD.O - - ----
-4).0 -- ---- -
-lD.0 - -.--
-00.0 "-r=======================-----j
o USA D WESTERN EUROPE DOll-IERS
Source: Drawn Based on Data in Table 2
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174 Readings in Develupment Policy and
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A further breakdown of the net flows reveals that 'liabilities to head
office' component contributed the lion share, amounting to W4062.9
million or 70.9 per cent of total net inflow of N5, 731.0 million. Again,
the volume of investment through this component is associated with the
U.S., which increased its outflow of N194.8 million in 1996 to a record
N2, 045.5 million in 1997. For unremitted profit, it rose slightly to Nl,
942.5 million in 1997 from Nl, 758.2 million in 1996 (Table 8).
One way of analysing the flow of foreign private capital is by
sectoral aggregate. The economic sectors/sub-sectors that are often
considered are mining and quarrying; manufacturing and processing;
agriculture comprising forestry and fisheries; and transport and
communication. Others are building and construction; trading and
business services; and miscellaneous. Cumulative foreign investment in
the manufacturing and processing, transport and communication and
other miscellaneous activity sectors/sub-sectors increased by 5.0, 38.6
and 7.9 per cent respectively in 1997 over the preceding year's levels.
Table 78, , Components 0fN et Capi'ta I FIow by 0'rIgm, eN= 'M'1I1'Ion
Year UNPROT DFSK TR&SSCR OTHOLAB LABHDO Total
1970-75 80.4 13.7 95.5 -31.2 75.9 234.3
1976-80 168.2 49.1 100.2 -14.1 -37.0 266.5
1981-85 289.0 62.0 268.0 43.9 -26.2 636.8
1986-90 773.4 315.1 1860.4 -743.1 -1481.5 724.3
1991 2101.5 669.1 707.2 -664.3 -1005.5 18Q8.0
1992 889.5 227.0 8964.4 -110.7 -1700.9 8269.2
1993 2734.5 5011.4 17803.1 -4305.7 11751.1 32994.4
1994 1749.7 429.5 214.8 209.4 1303.8 3907.2
1995 4428.8 10858.1 16936.4 8342.8 8111 .0 48677.1
1996 1758.2 707.7 -535.5 579.0 221.6 2731.0
1997 1942.5 461.5 1071.8 -1807.6 4062.9 5731.0
Source: Computed from Appendix 3
NOles:
UNPROT means Unremitted Profit
DFSK means Changes in Foreign Share Capital
TR&SSCR means Trade and Supplier Credit
OTHOLAB means Other Foreign Liabilities
LA[][-lDOmeans Liabilities to Head Office.
However, the shares of cumulative investment in 1l1111l11g (me!
quarrying, agriculture consisting of forestry and fisheries; building and
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construction; trading and business services declined to 46.1,0.9, (0 and
2.8 per cent from 46.3, 1.0, 1.5 and 3.0 per cent in 1996, respectively
(See Table 9 for the details). These are the sectors, which, we have
argued earlier, need a faster rate of development than at present. Thus,
the need for urgently reviewing the contributions of PDI cannot be
overemphasized.
Table 7.9: Cumulative Foreign Private Investment in Nigeria by Type of
Activity, 1970-97 (N = Million)
Agriculture, Forestry &
Mining and Quarrying Manufacturing &Processing Fisheries
% % %
Year Total % Distribut- Total % Distribut Total % Distribut-Change Change
ion -ion
Change ion
1991 -810.0 -140.9 -6.6 8692.4 103.9 71.0 382.8 126.8 3.1
1992 6417.2 -892.2 31.3 9746.3 12.1 47.5 386.4 0.9 1.9
1993 27686.9 331.4 41.5 12885.1 32.2 19.3 1214.9 214.4 1.8
1994 26680.0 -3.6 37.7 14059.9 9.1 19.9 1208.5 -0.5 1.7
1995 56747.3 112.7 47.5 27668.8 96.8 23.2 1209.0 0.0 1.0
1996 56792.3 0.1 46.3 29814.3 7.8 24.3 1209.0 0.0 1.0
1997 59221.4 4.3 46.1 31297.2 5.0 24.4 1209.0 0.0 0.9
Source: Computed by the Authors
Table 7.10: Cumulative Foreign Private Investment. in Nigeria by Type of
Activity, 1970-97 (N = Million) Cont'd.
Transport & Communication Building & Construction Tradin & Buz. Services
% % %
Year Total %
Change Distribut- Total
% Distribut- Total % Distribut-
Change Changeion ion ion
1970-75 15.7 1.0 47.3 2.6 304.2 18.3
1976-80 45.0 186.4 1.5 214.1 352.4 7.1 551.3 81.3 19.2
1981-85 74.7 65.9 1.4 416.9 94.8 7.5 1969.2 257.2 33.4
1986-90 143.1 91.5 1.4 536.5 28.7 5.2 2898.2 47.2 27.9
1991 373.2 160.9 3.0 1471.6 174.3 12.0 1452.2 -49.9 11.9
1992 391.5 4.9 1.9 1406.6 -4.4 6.9 2.1 7.2
1993 426.4 ---8.9 -o:s-- 11482.571.2 -94.9 0.1 1864.5 25.8 2.8
1994 429.6 0.8 0.6 170.0 138.8 2.4 12247.6 20.5 3.2
1995 374.8 -12.8 0.3 1553.0 813.5 1.3 2990.7 33.1 2.5
1996 485.6 29.6 0.4 1864.3 20.0 1.5 3668.7 22.7 3.0
1997 673.0 38.6 0.5 1259.8 -32.4 1.0 3625.7 -1.2 2.8
Source: Computed by the Authors
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176 Readings in Development Policy and
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Table 7.11: Cumulative Foreign Private Investment in Nigeria by Type of
Activity, 1970~97(W= Million) Cont'd.
Miscellaneous Total
Year Totai % % Total % %Distribution Distribution Change Distribution
1970-75 50.9 2.9 1626.7 100
1976-80 199.9 292.5 6.7 2901.4 78.4 100
1981-85 356.7 78.4 6.4 5662.5 95.2 100
1986-90 406.6 14.0 4.0 10396.4 83.6 100
1991 682.0 67.7 5.6 10243.5 -1.5 100
1992 682.2 0.0 3.3 20512.7 100.3 100
1993 22638.0 3218.4 33.9 66787.0 225.6 100
1994 24381.1 7.7 34.5 70714.6 5.9 100
1995 28848.0 18.3 24.2 119391.6 68.8 100
1996 28766.7 -0.3 23.5 122600.9 2.7 100
1997 31046.2 7.9 24.2 128331.9 4.7 100
Source: Computed by the Authors
The result of the suggested analysis should bring out two important
revelations. Firstly, that there is no sector that cannot benefit from FDI.
The analysis will cast doubt on the finance component of FDI, especially
if handling the issue of capital flight and the repatriation of the wealth of
Nigerians abroad were to recognise the 'pull' and 'push' factors by
tactfully managing the following variables:
• protecting or promoting the interests of key actors, including the
interests of the country of;
• lodgement's finance institutions, as well as the interests of
Nigerian owners; and
o carefully reconciling probable conflicts between the demands of
ethics and effectiveness.
The actual estimate of the total Nigerian wealth involved is not
known, but it is assumed to be substantial. This situation would seem to
reinforce the perception "that Africa has more of its assets in proportion
to the total located outside the region than elsewhere in the world". A
related observation "that Africa relies more heavily on foreign resources
(aid and investment) relative to total investment than any other region of
the developing world" (Oyejide, 2001) reinforces the urgent need for
more effective partnering mechanisms between companies in developed
and developing countries.
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At this point, it may be necessary to ask one question: How has
Nigeria faired in terms of inflow of FDI? Available records show that a
fairly stable group of countries have been the largest hosts of FDI in
three successive lO-year periods, from 1970-96. While Nigeria occupied
the third position among the top twelve developing-country recipients of
FDI in the period of 1970-79, her position went down to tenth in 1980-
89. Disappointingly, Nigeria failed to make it in the list of the top 12 in
the period of 1990-96 (See Table 7.12).
Table 7 12:Top 12Deve Iopm. g- C.ountry Recipients 0fFDI ,1970-96
RanK 1970-79 1980-89 1990-96
1 Brazil Mexico China
2 Mexico Brazil Mexico
3 Nigeria Chma Malaysia
4 Malaysia Malaysia Brazil
5 Indonesia EQypt Indonesia
6 Greece Argentina Thailand
7 South Africa Greece Argentina
8 Iran . Thailand Hungary
9 Ecvot Colombia Poland
10 Ecuador Nigeria -Colornbla
11 Thailand Indonesia Chile
12 Alqeria Chile Czech Republic
Source: [Fe. (1997) p.17
A look at the major macroeconomic indices in Nigeria shows that
Nigeria's flow of FDI has not on1y been low in proportion to GDP but
declining. Major indicators of economic performance, such as the
growth rate of the economy, budget deficitlGDP ratio, price level
captured by inflation rate, manufacturing capacity utilisation rate, and
growth-inducing variables, such as the gross domestic investmentlGDP
ratio, among others have been performing poorly in recent years. Where
there have been improvements, they have been essentially in terms of
maintaining a positive, but low level of performance, such as the gross
domestic investment/GDP ratio, which increased from 17.4 per cent in
1997 to 28.3 per cent in 1998 (ADB, 2002).. .
It therefore becomes appropriate to raise the issue of how to attract
I'DI through the private sector. At the moment, a distinct shift has
emerged in the role of government in the development process,
characterised by renewed interest in (he private sector as (he engine of
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178 Readings in Development Policy and
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growth and a greater reliance on market mechanism. Elements of a
private sector-led economic growth, as spelt out in the current
administration's economic blueprint include: divestiture, deregulation,
de-bureaucratisation, democratisation of decision-making processes,
provision of an enabling environment and frontier shifting.
While the current civilian administration deserves credit for
encouraging efforts to produce a vibrant Nigerian private sector, Emery
et al (2000) have observed that all countries in sub-Saharan Africa
countries (including Nigeria) are pursuing various elements of
adjustment reforms. These policy reforms appear adequate to put the
private sector firmly in the driver's seat of Nigeria's development vehicle.
The question remains, however, whether the government is, indeed,
going to be a catalyst that provides the enabling environment for the
private sector to thrive, as well as being the creator of enabling
macroeconomic environment? A comparative analysis would be useful in
addressing the question.
According to the World Development Report (2001), domestic credit
provided by the banking sector (a proxy for financial sector efficiency
and depth) as a percentage of GDP declined from 23.4 in 1990 to 15.4 in
1999 in Nigeria. Corresponding figures for South Africa3 are 97.8 and
73.4 per cent respectively. While it is true that the figures show a
downward trend for both countries, the absolute value of the ratio for
Nigeria is not investment-friendly, to say the least. At the level of energy
consumption, Nigeria had a record of 38 per cent of transmission and
distribution losses of its energy output in 1990. This figure managed to
decline to 32 per cent in 1999. In South Africa, the comparative figure
for 1999 was 10 per cent. All indicators of investment risks that foreign
investors often rely upon to define the health of an economy are not in
favour of Nigeria when compared with South Africa, or indeed, when
compared with the average for the low-income countries. For example,
composite incremental country risk guide (ICRG4) as at March 2000 for
Nigeria was 53.3 per cent, for South Africa 70.5 per cent, and the
average for low- income countries was 57.9 per cent. The story is not
different when one considers the institutional investor credit rating:
Nigeria hacl 18.3 per cent in March 2000, while South Africa had tlj,2
per cent. What is more disturbing is that, in December 2000, the figure
for Nigeria declined to 18.1 per cent while South Africa improved ill her
credit worthiness to 55.1 per cent in December 2000. And perhaps, I'D!
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as a percentage of gross capital formation in Nigeria declined from 14
per cent in 1990 to 11.8 per cent in 1999.
A conclusion from all this is that, the management of the Nigerian
macro economy is beset with serious problems, which may make it
difficult, if not impossible, for its private sector to induce FDI, a
necessary precondition for partnership formation with foreign investors.
In addition, the public sector, or whatever remains of it, must be made to
function effectively and efficiently. Obadan (1997) observed that the
public sector had failed in Nigeria. The provision of goods and services
has been a disaster owing to a culture of poor management as a result of
the following problems identified by Usman (1996):
• inadequate or conflicting objectives,
• poor human resources management,
• lack of strategic planning,
• weak capital structures of public enterprises,
• poor and inadequate systems and procedures,
• poor debt management,
• persistent loss-making by public enterprises,
• inappropriate tariff (or pricing) policies,
• absence of an audit culture and accountability in partie ular,
and
• lack of transparency in general.
Attracting foreign investment through the private sector will involve
conscious effort on the part of the government to tackle the factors
identified as responsible for public sector failure in Nigeria. If this is
done, the government would not have to only surrender its involvement
in direct production of goods and services to the private sector, but also
ensure the viability of the private sector to attract regular and substantial
foreign investment.
All said and done, the bottom line is that the public sector should
avoid the temptation of competing with the private sector. Rather,
government should rigorously pursue its liberalisation policy with greater
urgency. The dominance of state enterprises in any economy is not FDI-
friendly. Yet, because of Nigeria's sentimental attachment to state
enterprises (arising largely from equity considerations), privatisation and
liberalisation must be properly aligned if the former is to be effectively
pursued. Appropriate lessons on this should be learned from the
Aviation sector. It appears that privatisation is easier to handle if a sector
is first liberaliscd With this approach, opposition tends to reduce
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180 Readings in Development Policy and
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because the efficiency benefit from a market-driven system becomes
. more appar~nt.
7.6 Concluding Remarks
This paper examines the question of how Nigeria's private sector can
be used to attract more foreign direct investment. A review of what it
takes to have a steady and substantial inflow of FDI has revealed that
FDI incentives are not as important as FDI fundamentals. Such
fundamentals must guarantee the profitability of FDI in the host
economy, as well as ensure that it would be mutually beneficial to
foreign and local partners. Aware that investment generally stimulates
economic growth and development, and that the potential of FDI's
contribution to the economic growth and development of its host country
is a function of the linkages between foreign investment and local firms,
a case is made for partnership arrangements between foreign investors
and private local investors in the host economy. The firm position of this
paper is that the state (government) must play the all-important role of
strengthening the private sector by first eliminating anti-investment
forces, particularly infrastructural and policy, that can weaken the
domestic private sector, thereby making it inhospitable to FDI. The
extent to which the state succeeds in creating a private sector-friendly
environment, which promotes private sector partnership, is the extent to
which Nigeria's hope will be high. The hopes would dim considerably if,
as in the past, the state is bugged down with politics and undue
preoccupation with short-run gains. The trade-off between
effectiveness/efficiency and equity will, in the final analysis, be the light
switch of Nigeria's hope of a rapid economic recovery.
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ENDNOTES
1 Three broad classifications of FDI incentives are found in the
literature. They are fiscal incentives, financial incentives, and
other incentives. These incentives are examined in chapter two
of this paper.
2 For more detailed discussion see, T. Ademola Oyejide,
Negotiating African Integration into the Global Economy
(2001)
3 The choice of South Africa is informed by the need to relate
Nigeria with an African country with more traits of growth and
development. .
4 ICRG: The index is based on 22 components of risks (political,
financial and economic) and converts the information into a
single numerical risk assessment figure ranging from 0 to 100.
Rates below 50 indicate very high risk and those above 80
suggest 'very low risk'. This implies that while Nigeria is close
to 'very high risk, benchmark, South Africa is close to the
'very low risk' benchmark
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182 Readings in Development Policy and
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REFERENCES
Barlow, E. R. and I.T. Wender (1955) "Foreign Investment and
Taxation". Englewood Cliffs, Prentice Hall.
Biersteker, Thomas (1978) "Distortion or Development: Contending
Perspectives on the Multinational Corporation". MIT Press,
Cambridge, Mass.
Blomstrom, M. and Kokko, A. (1997) "How Foreign Investment Affects
Host Countries". The World Bank, Washington, D.C. (Policy
.Research Working Paper 1745).
Bukley, P. J. and Casson, M.C. (1976) ''The Future of the Multinational
Enterprises". Macmillan, London.
Central Bank of Nigeria, Statistical Bulletin (Various Issues).
Djankov, S. and B. Hoekman (2000) "Foreign Investment and
Productivity Growth in Czech Enterprises". The World Bank
Economic Review, Vol. 14, No.1, pp. 49-64.
Emery, J. James, Melvin T. Spence, Jr., Loius, T. Wells, Jr., and
Timothy, S. Buehrer (2000) "Administrative Barriers to Foreign
Investment: Reducing Red Tape in Africa"., The World Bank,
Washington, D.C. Foreign Investment Advisory. Service,
Occasional Paper, No. 14.
Fry, M. (1993) "Foreign Direct Investment in a Macroeconomic
Framework: Finance, Efficiency, Incentives, and Distortions". The
World Bank, Washington, D.C. Policy Research Working Paper
114.
Guisinger, S. and Associates (1985) "Investment Incentives and
Performance Requirements". Praeger, New York
Harrison, A. (1996) "Determinants and Consequences of Foreign
Investment in Three Developing Countries" In: Mark Roberts and
James Tybout eds., 'Industrial Evolution in Developing Countries:
Micro Patterns of Turnover, Productivity, and Market Structure.'
Oxford University Press, Oxford ..
Hymer, S. H. (1960) "The International Operations of National Firms: A
Study of Direct Foreign Investment". MIT Press, Cambridge,
Mass.
I~.
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What Hope For Nigeria?
IFC - International Finance Corporation (1997) "Foreign Direct
Investment: Lessons of Experience" The World Bank,
Washington, D.C. IFC and Foreign Investment Advisory Service.
Obadan, M. 1. (1997) "Striking Objective Balance Between the Public
and Private Sectors in the Management of the Nigerian Economy".
Policy Analysis Series, Vol.3, No.2.
Okigbo, Pius (1999) The Nigerian Economy: An Appraisal.
(Unpublished Paper).
Oyejide, T. Ademola (2001) "Negotiating African Integration into the
Global Economic Order". Department of Economics, Staff
Seminar Paper, 26th July.
South Centre (1992) "Foreign Direct Investment, Development and the
New Global Economic Order: A Policy Brief for the. South".
Geneva.
United Nations Conference on Trade and Development- (1996)
"Incentives and Foreign Direct Investment" UNCTAD Studies,
Series A, No. 30, New York and Geneva. (UNCT AD Studies,
Series A, No. 30).
Usman, S. (1996) "Private Sector Initiative for Nigeria's Socio-economic
Turnaround". Management in Nigeria, Vol. 32, Nos.3&4, July.
Vernon, R. (1966) "International Investment and International Trade in
the Product Cycle". Quarterly Journal of Economics, Vol. 80, pp.
190-2Q7.
World Bank (2001) "World Development Report: Attacking Poverty".
Oxford University Press, Oxford.
World Trade Organisation (1996) Annual Report: Trade and Foreign
Direct Investment, Vol. 1, WTO, Geneva.
UNIVERSITY OF IBADAN LIBRARY
8
NIGERIAN TRADE POLICY IN THE
CONTEXT OF REGIONAL AND
MULTILATERAL TRADE AGREEMENTS
T. Ademola Oyejide
8.1 Introduction
Trade policy is increasingly shaped by the forces of globalization anddetermined largely in the context of regional and multilateral trade
agreements. Nigerian trade policy is not an exception to this general and
universal trend. The extent to which Nigerian trade policy reflects this
global trend has, of course, varied over time. The trade policy regime
that prevailed in Nigeria between the early 1960s and the mid-1980s can
be described as inward-looking. Combined with the emergence of the
dominant oil sector, this regime appears to have generated considerable
anti-export bias, which stifled incentives for non-oil exports. As a result,
Nigeria's export of non-oil products has stagnated and the opportunity to
participate in and benefit from the growth of international trade missed.
The policy reforms embedded in Nigeria's structural adjustment
programme of the mid-1980s recognized this problem and explicitly
accepted the superiority of a more outward-oriented trade regime as a
key component of a growth-enhancing strategy for the country. Hence,
the broad objectives of Nigeria's trade policy since the mid-1980s can be
expected to reflect this strategic shift.
But the stance of a country's trade policy is affected not only by
domestic concerns but also by globalization. This is one of the key
factors shaping the current environment for economic development in
many countries. The process of globalization is advanced by rapid
improvements in communication and transportation technology that have
185
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186 Readings in Development Policy and
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reduced the cost of moving people, goods, money and information across
political frontiers, increasing global integration of markets for goods,
services and factors of production and increasing convergence of policies
and institutional environment which .constitute the rules and context
within ~hich international ec'onomic interactions occur.
By providing enhanced access, to, world markets, finance and
technology, globalization could enable countries accelerate their
development process. But these opportunities can be most fully realized
by countries that pursue outward-oriented policies. In addition, the
benefits of globalization depend on the nature and form of integration;
the process of globalization is also. associated with risks. In particular,
the costs of globalization can be high, especially in the short term for
small and fragile economies as they are suddenly exposed to external
shocks.
Regional and multilateral trade agreements may be viewed as
arrangements designed, in varying degrees, to enhance the benefits of
liberalization while also moderating the costs associated with
globalization. In this context, regional trade agreements could represent
preliminary steps to full liberalization; a sort of controlled experiment
which may be used by a country to prepare itself for the more demanding
competitive pressures in the global arena. While multilateral trade
agreements tend to widen a country's exposure to global competition
they also often contain special arrangements or safeguards which enable
participating countries to protect themselves against disruptions. In the
more positive sense, commitments made in the context of regional and
multilateral trade agreements can be used to shield rational trade policy
from the onslaught of domestic special interests, which typically seek
protection.
8.2 TradeStructureandPerformance
The Nigerian economy experienced radical structural changes during
the 1970s and 1980s. These changes were particularly significant in the
external sector of the economy. For instance, agriculture was the most
important sector of the Nigerian economy in the 1960s. It provided the
largest share of the country's gross domestic product (GDP),
employment as well as export earnings. This picture changed
dramatically in the 1970s, as crude petroleum became the economy's
leading sector by accounting for more than 90 percent of the country's
export earnings and about 70 percent of total government revenue. This
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Nigerian Trade Policy in the Context of 187
Regional and Multilateral Trade Agreements
dramatic structural shift had an additional effect. The resulting heavy
reliance on crude petroleum exports made the economy highly
vulnerable to external shocks, which were periodically transmitted
through sharp changes in the world demand for and prices of petroleum
products. In other words the agricultural-based Nigerianeconomy of the
1960s was considerably less vulnerable to external shocks than the
petroleum-dominated economy of the 1970s and beyond. The greater
vulnerability of the economy since the 1970s was dramatically
demonstrated in the early 1980s with the collapse of the world oil
market, which generated large negative growth of Nigeria's GDP. It also
led to huge trade, current account and fiscal deficits as well as massive
increase in external debt. The ultimate response to these crises was a
series of structural and policy reform efforts, beginning in the mid-1980s,
whose main aim was to diversify the productive base of the economy
away from its heavy reliance on crude petroleum.
A more detailed analysis of the country's trade structure and
performance should help to put these developments in better perspective.
Tobegin with an indicator of performance, Table 1 shows that the value
of exports rose rapidly from US$ 3.47 billion in 1973, to a peak of
U~$26.1O billion in 1980. Export earnings then fell, almost as
dramatically from this peak to only US$l3.49 billion ten years later. This
performance worsened further to US$12.65 billion in 1995 before rising
marginally to US$12.88 billion in 1999. These sharp shifts are, perhaps,
more vividly portrayed by the movements of export earnings index (also
shown in Table 8.1). According to this performance indicator, which is
100 in 1980, export earnings of 1973 had an index only l3.30 in 1973,
although this rose more than two-fold over the next two years to reach
30.61 in 1975. It subsequently increased more than three-fold between
1975 and 1980. Having peaked in 1980, the index fell sharply by more
, .than 40 percent over the next five years. It remained less than half of the
1980 'peak figure through the second half of the 1990s.
This pattern- of sharp increases up to a peak and dramatic declines
, thereafter is exhibited by export earnings movement to some extent,
,replicated by the movements in imports. This value of imports rose from
US$1.8Tbillion to itspeak figure of US$14.30 billion in 1980; an almost
eight-fold increase, which roughly parallels the percentage increase
experienced by export earnings over the same period. This suggests the
prevalence of what has been described as 'autonomous' trade policy in
which imports are determined largely by the availability of foreign
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188 Readings in DeveLopment PoLicy and
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exchange generated by export earnings rather than by changes in the
standard instruments Of trade policy, such as tariffs.
Table 8.1: ·Trade Movements, 1973-1999
Exports Imports
Value Index Value Index
US$ US$ Billion
Billion
1973 3.47 13.30 1.87 13.08
1975 7.99 30.61 6.04 42.24
1980 26.10 100.00 14.30 100.00
1985 15.63 59.89 6.19 43.29
1990 13.49 51.69 7.18 50.20
1995 12.65 48.47 8.22 57.48
1999 12.88 49.35 8.59 60.07
Source: Central Bank of Nigeria, Annual Report and Statement of
Accounts, various years
Within the first five years after its peak in 1980, the value of imports
fell sharply, reaching US$6.19 billion in 1985, almost the value it
achieved first ten years earlier. But unlike export earnings, the value of
imports subsequently rose gradually and maintained its small upward
trend through the 1990s.
A sharper picture is, again, presented by an analysis of the movement
of import value index. This was only 13.08 in 1973 compared to the
peak value of 100.00 in 1980. In between the two years, the import
index rose faster than that of exports, the former was 42.24 in 1975
compared with 30.62 for the latter. Imports also experienced a sharper
descent after the 1980 peak; by 1985, import index was down to 43.29
compared to 59.89 for exports. However, the import index also
recovered faster than exports such that by the end of the 1990, it had
risen to 60.07, i.e. only 40% percent below the 1980 peak value. At that
point in time, export index remained less than 50 percent of the peak
value. Apparently, trade policy and associated changes from the mid-
1980s through the 1990s have had a more expansionary impact on
imports than exports. This result should not be surprising, given the
structure of Nigerian exports. The dominant sector of exports, i.e. crude
petroleum, is generally not amenable to the manipulation of standard
trade policy instruments since its value depends more crucially on
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movements in world demand and prices as moderated by the production
decisions of the Organization of Petroleum Exporting Countries (OPEC).
This also partly explains why the structure of exports remained
virtually unchanged through the 1980s and 1990s. Table 2 presents the
relevant data. As the table shows, the mining sector's contribution to
export earnings was more than 90 percent throughout this period. There
was a marginal decline from 96 percent in 1980 to 93 percent in 1990;
but this was subsequently reversed through the second half of the 1990s.
Correspondingly, the shares of agricultural products and manufactures
rose marginally between 1980 and 1990; the former from 2.4 percent to
2.8 percent and the latter from 1.8 percent to 4.2 percent. But both of
these relative gains were reversed during the second half of the 1990s.
By 1999, the share of agricultural products had fallen back to 1.5 percent
while that of manufacturers was down to just over 2 percent.
Table 8.2: Structure of Trade (%),1980 - 99
(a) Exports 1980 1985 1990 1995 1999
Agriculture 2.4 2.1 2.8 1.2 1.5
- food 2.2 1.7 1.7 0.8 1.0
- raw 0.2 0.3 1.1 0.4 0.5
materials
Mining 95.7 96.0 92.9 97.6 96.4
- crude 95.4 95.8 92.7 96.8 95.7
petroleum f
Manufactures 1.8 1.9 4.2 1.2 2.1
Chemicals 1:5 1.2 2.5 0.8 1.3
(b) Imports
Agriculture 15.5 16.4 9.1 11.9 12.5
- food 15.1 15.1 8.3 11.0 11.9
Manufactures
- chemicals 82.6 80.2 88.5 85.5 81.4
- machinery 17.6 23.5 18.7 22.3 22.9
and transport 40.2 36.8 42.9 35.9 34.2
equip.
Source: Central Bank of Nigeria, Annual Reports and Statements of
Accounts, various years
The structure of imports also appears to have largely remained
unchanged during the 1980s and 1990s. Manufactured products
accounted for at least 80 percent of the value of total imports throughout
this period. This sector typically contributes in the range of 80-82
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percent, but its share increased further to between 86 percent and 89
percent in the 1990-95 period before reverting to the typical range during
the second half of the 1990s. The historical dominance of this sector by
machinery and transport equipment imports continued through the 1980s
and 1990s as they accounted for close to 50 percent of the share of
manufactured products in total imports. The share of food in total
imports has usually attracted policy attention due to concerns about food
prices and food security. This share was steady at around 15 percent
during the first half of the 1980s, then fell to about 8 percent at the start
of the 1990s, but subsequently rose again to reach almost 12 percent at
the end of the 1990s.
Questions regarding the destinations of a country's exports and the
sources of its imports matter for the country's trade policy, especially as
it relates to regional and multilateral trade agreements whose
negotiations are usually influenced by such questions. Data on the
destination of Nigerian exports and sources of its imports during 1980-
99 are shown in Table 3.
The destinations of Nigerian exports were more diversified in 1999
than they were in 1980. Europe and America accounted for 95 percent of
these exports in 1980. By 1999, these two dominant destinations of
Nigerian exports had their share reduced to about 78 percent. But the
major drop in relative contribution was experienced by Europe. Thus:
while the share of the Americas remained fairly steady at around 45
percent, Europe's share suffered a twenty percent decline during the
1990s. The major gainers, in relative terms, were Asia and Africa. The
former had a share of Nigeria's export market which was less than one
percent up to 1990; it then experienced a 16-fold increase in relative
share between 1990 and 1995, anda doubling of its 1995 share in 1999.
Africa's share of Nigerian exports remained below 2 percent over much
of the period between 1980 and 1995; but this share experienced a five- ..
fold increase between 1995 and 1999. Clearly, therefore, only Asia and
Africa achieved relative market share increases and much of these
occurred in the second half of the 1990s.
Just as Europe and the Americas have constituted the-largest-markets
for Nigerian exports during 1980 - 1'999';they were also the ri'ialn'sources
of Nigerian imports. Together, these two regions provided about 80
percent of Nigerian imports in 1980, which declined to 74 percent in
1999. Over this period, however, the contributions of the two regions
moved in opposite directions. While that of the Americas increased from
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11.3 percent in 1980 to 20.2 percent in 1990; Europe's share declined
from 68.9 percent to 53.4 percent over the same period. But in terms of
regional ranking, Asia rather than the Americas was in fact the second
most important source of Nigerian imports. Asia's share was 18.6
percent in 1980; although it declined to 10.8 percent in 1~85, it resumed
its upward climb, which reached 24.3 percent in 1999. Africa was the
least important among the regional sources of Nigerian imports. Its less
than 2 percent share of the Nigerian import market in 1980 fell sharply to
only 0.3 percent in 1985. However, its share experienced an
approximately two-fold increase during the 1990s.
Table 8.3: Direction of Trade (%) 1990-1999
(a) Exports estination 1980 1985 1990 1995 1999
Americans
• United states 45.9 37.5 53.4 49.8 43.8
42.5 19.9 47.2 40.0 33.7
Europe 49.2 60.7 44.7 36.1 22.8
• European Union 45.2 59.5 43.9 34.3 20.5
Asia 0.9 0.5 0.8 12.7 24.8
Africa 2.0 1.2 1.2 1.4 8.6
(b) Import Sources
Americas 11.3 26.7 15.0 18.1 20.2
• United States 7.9 10.4 10.5 12.2 16.1
Europe 68.9 62.1 66.1 57.3 53.4
European Union 62.9 57.8 61.8 53.3 50.1
Asia 18.6 10.8 17.7 22.3 24.3
Africa 1.1 0.3 1.2 1.8 2.1
Source: Central Bank of Nigeria, Annual Reports and Statements of
Accounts, various years
8.3 Trade Policy Trends
The evolution of trade policy and the trade regime in Nigeria over the
last four decades has had its twists and turns. But underlining the
observed periodic changes appears to be the pivotal principle that views
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trade as an engine of growth; a perspective, which presumes that the
trade regime can be influenced by trade policy changes as a means of
promoting overall economic development. This perspective borrows
from the trade and development literature the policy lesson associated
with the observed, and apparently robust, relationship between increasing
manufactured exports and rapid economic growth.
Various national development plans designed and implemented in
Nigeria during the 1960s and 1970s attempted to translate this principle
into a development strategy through a set of mechanisms linking the
growth objective to trade regime and structure. These plans typically
argued that established overall economic growth and development targets
would be achieved by promoting greater linkages in the domestic
economy and by increasing and stabilizing export revenue. These
intermediate objectives would, in turn, be achieved by promoting the
growth of manufactured exports and by diversifying Nigeria's export
basket and market. Manufactured exports are more closely related to
economic growth because they are associated with greater linkages with
the rest of the economy and because they tend to have more dynamic and
growing markets abroad. In general, it is typically assumed that the
expansion of manufactured exports can be achieved most rapidly through
the processing of the country's large endowment of agricultural and
mineral resources. The need to diversify Nigeria's export basket reflects
concerns about the inherent instability associated with its market. The
desire to diversify Nigeria's export markets is to take advantage of
changing dynamics of the global economy.
This more outward-oriented trade policy stance emerged most
forcefully as part of the structural and policy reforms adopted by the
Nigerian government from the mid-1980s. In the context of these
reforms, the broad thrust of trade policy was to restructure and diversify
the productive base of the economy in order to reduce the country's
dependence on the oil sector and on imports. The aim was to promote
economic efficiency in the process of expanding non-oil exports and
reducing the import content of locally manufactured products.
Within this broad thrust and aim of trade policy, it is useful to
distinguish several sectoral components. In relation to imports, the
primary objectives were to protect existing. domestic industries and
reduce the country's dependence on imports. By focusing on ensuring
the availability of intermediate inputs and capital goods that cannot be
obtained from domestic sources. In relation to the export sector, the
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central objective of trade policy was the expansion and diversification of
non-oil, and particularly manufactured exports. The industrial focus of
trade policy with respect to exports included the desire to increase local
content of manufactured products on the assumption that an increase in
the level of locally sourced raw materials and intermediate products is
important for raising capacity utilization of domestic industries. In
comparison, the focus of trade policy with respect to agriculture was to
discourage food imports and encourage local production of agricultural
raw materials for local industry.
Before the trade policy reforms that were initiated in the mid-1980s,
Nigeria's main instruments of trade policy were quantitative import and
export restrictions, including import and export prohibitions as well as a
comprehensive system of import licensing. The import prohibitions
affected key agricultural and industrial sectors in which domestic
production was being promoted. The major prohibited items' included
most livestock products, major grains, vegetables, fruits, some
beverages, processed wood, textile fabrics, and plastic products. Two
important components of subsequent trade .policy reform included the
elimination of the import and export licensing system and the reduction
in the number of import - prohibited items. In addition, the commodity
marketing boards were abolished and import procedures were
considerably simplified. The number of items in the import prohibition
list was reduced, in 1986, from 72 to 17 broadly defined product
categories. Two years later, further review produced a list of 20 product
categories under absolute import prohibition and 18 under conditional
prohibition. At the beginning of 1989 import prohibition applied to
roughly 29 percent of agricultural products and 20 percent of industrial
products, in terms of tariff line numbers.
Export prohibitions have typically been applied to a wide range of
primary and processed agricultural and forestry products on at least two
grounds. One concern has been to avoid shortage in the domestic market
and the other has been expressed in terms of the desire to promote local
processing so that higher value-added- items could, subsequently, be
exported. This is a practice that continued in spite of the trade policy
reforms of the mid-1980s. Thus, processed or unprocessed timber and
wood in the rough were placed under export prohibition in 1988. These
were followed by export prohibitions on cassava tuber, maize, yam tuber,
beans, rice and their derivatives as well as other imported food items (in
1989), raw hides and skins (in 1990), and raw palm kernels (in 1991).
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The trade policy reforms have also gradually reduced average import
tariffs in Nigeria. The process began in 1986 when interim reductions in
tariffs were introduced, pending the results of a comprehensive tariff
review exercise. In January 1988, a completely new tariff system was
introduced. This was designed to rationalize, harmonize and restructure /
the tariff system. It established the structure of tariffs to be applied for
seven years from 1988 to 1994. The length of time over which the tariff
structure was established was meant to provide a more stable and
predictable tariff regime over the medium to long term. Frequent
changes in specific tariff rates over the period substantially reduced the
stability and predictability features built into the tariff regime by the
reform. These changes included considerable increases in import duties
for a wide range of finished goods and sizable. reductions in duties on
intermediate products used in local industries. The new tariff structure
specified fairly low rates for a number of import-banned products,
products that were thought to be abundantly available locally and those
that were considered difficult to obtain in local markets. But much
higher rates were specified for those product groups which were meant to
be protected from import competition. Thus, while the 1988 review
reduced average tariffs to about 36 percent from well over 40 percent,
the tariff structure retained fairly wide variations across products.
A further liberalization of Nigeria's tariff regime was set in motion
with the introduction of a new tariff schedule in 1995. This new
structure was meant to cover the seven - year period of 1995-2001 and
was designed to increase efficiency through further exposure of domestic
industries to import competition. It reduced the variation of tariffs across
products by increasing duties on raw materials, intermediate inputs and
capital goods, while slightly reducing tariffs on final consumer goods.
Indicators of the gradual liberalization of the tariff regime are shown
in Table 4. Overall average tariff declined by 23 percent between 1990
and 2001, while its range fell by 50 percent. Over the same period, the
average tariff rate applied to consumer goods fell by 31 percent, while
the average tariff rates for intermediate inputs and capital goods declined
by 19 percent and 6 percent respectively. As noted earlier, however,
since the 1995 tariff review attempted to reduce the variation of tariff
rates across product groups by increasing tariffs on intermediate and
capital goods, the comparisons above may be somewhat misleading. In
fact, between 1990 and 1995, average tariff rates declined as follows:
consumer goods (30 percent), intermediate inputs (33 percent) and
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capital goods (34 percent). But between 1995 and 2001, the scheduled
changes in average tariff rates are as follows: consumer goods (- l.3
percent), intermediate inputs (+ 19 percent), and capital goods (+ 42
percent).
As Nigerian trade policy evolved in the general direction of gradual
import liberalization from the mid-1980s, it also articulated explicit
export promotion measures. One of these measures is not particularly
new. A duty drawback scheme was first introduced in 1959. It
permitted exporters to claim reimbursement of import duty paid for
materials used in producing export goods. A new duty drawback and
suspension scheme was established in 1986, aimed specifically at non-oil
exporters. Under this scheme, an exporter is entitled to 50 percent
repayment on import duties, levies, surcharge and excise duties paid in
respect of all imports used in export production. The duty suspension
component of this scheme allows recognized exporters to import raw
materials and intermediate inputs free of customs duties, excise taxes and
other surcharges provided they are used in export production.
Table 4 : Import Tariff Indicators (%), 1990-2001
1990 1995 2001
(a) Import Duties
>~ Average 35.7 24.4 27.5
»·Aange 0-200 0-150 0-100
(b) Consumer Goods
» Average 55.2 38.6 38.1
(.c) Intermediate Inputs
» Average 31.3 21.1 25.2
(d) Capital Goods
»Average17.1 11.3 16.1
Source: World Trade Organization (1998), Trade Policy Review: Nigeria,
WTO, Geneva.
Several other export incentive measures exist. There is, for instance,
an export expansion grant fund which offers cash incentives to exporters
who have exported a minimum of N50, 000 worth of semi-manufactured
or .manufactured products. The cash inducement is equivalent to 4
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percent of confirmed and repatriated export proceeds. The export
adjustment scheme provides compensation to exporters for high cost of
production arising from infrastructural deficiencies and other factors
beyond their control. The manufacturing-in-bond scheme is an
alternative to the duty drawback. It permits 'exporters to import their raw
materials and other inputs free of duty provided they are backed by bank
bonds which guarantee that all of the end-products will be exported.
This scheme is applicable to the manufacture of exported products with a
minimum value-added of 20 percent.
In addition, non-oil exporters can access a wide range of tax
incentives. Manufacturers who export at least half of their turnover
qualify for corporate income tax holiday of up to five years. Profits on
exports are exempted from corporate income tax. Such profits are
repatriated to Nigeria and used for the purchase of raw materials,
equipment and spare parts. Similarly, profits of firms exclusively
producing inputs for manufacturing non-oil exports are tax-exempt.
Finally, there are special capital asset depreciation allowances for
qualified exporting firms, while interest income on loans and advances
granted by banks to non-oil exporters is tax free. Many of these special
incentives are available to firms that operate under the export processing
zones and factories scheme established in 1992. In 1996, approval was
given that export processing factories can be set up in any part of the
country to benefit from all the incentives that are applicable in
designated export processing zones. Finally, the Nigerian Export Credit
Guarantee and Insurance Corporation (NEXIM) was established in 1991
to provide a range of financial services to exporters. Included among
these are the refinancing and rediscounting facility, which offers credit
for pre-and post-shipment finance and the stocking facility, which
enables exporters to procure stocks of raw materials.
Whether and the extent to which Nigerian trade policy succeeded in
achieving its objectives over the period covered by this analysis are
questions of considerable policy significance. As far as export
promotion measures are concerned, it would appear that limited progress
has been made in implementing the various schemes; many of which are
underfunded and extremely difficult to access. Import restriction
measures and very high tariffs have been more actively used in pursuit of
the policy objectives of increased local sourcing of industrial raw
materials as well as increased capacity utilization. Since these
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constituted two of the key objectives of Nigerian trade policy during this
period, they deserve a closer examination.
In 1985, for instance, the Nigerian government established minimum
local sourcing targets for a number of manufactured products over a five-
year period of compliance. The products groups covered and the
corresponding minimum local sourcing targets are : soft drinks and
breweries (100%), agro-food industries (80%), agricultural processing
(70%), chemicals (60%), petrochemicals (50%) and machine tools
(50%). Table 5 shows the share of import-banned items for a number of
industrial products and their corresponding local sourcing rates at the end
of the 1980s. The table suggests a weak relationship between import
restrictions and local sourcing of raw materials.
Table 5: Import Restriction and Local Sourcing of Raw Materials:
Selected Products, 1989 Import Ban (%) Local Sourcing Rates (%)
Textiles/Clothinq 95.8 58.0
Furniture 92.6 82.0
Wood and Cork 45.2 82.0
Chemicals 1.1 66.0
Sources: eBN, Annual Report and Statement of Accounts, various years.
More direct evidence comes from the various annual surveys
conducted by the Central Bank of Nigeria during the 1980s and 1990s.
The results of these surveys suggest a definite pattern that can be
summarized as follows. First, local sourcing of raw materials in the
Nigerian manufacturing sector rose, on average, from about 40 percent in
the mid-1980s to around 45 percent at the end of the 1980s. Second, the
actual rates of local sourcing achieved during the second half of the
1980s fell considerably short of the targets established in 1985 for almost
all the specified product groups. Third, while some product groups (such
as food, beverages and textiles) managed to increase local sourcing of
raw materials, others (such as electrical and motor vehicle assemblies)
suffered from increase difficulties in obtaining imported raw materials.
Fourth, it may be concluded that despite the incentives provided to
encourage the use of local raw materials, Nigerian manufacturing sector
remained heavily dependent on imported raw materials.
The trade policy objective of increased capacity utilization ill the
manufacturing sector was also largely not achieved. On average,
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capacity utilization in Nigeria's manufacturing industry rose to around
45 percent during the second half of the 1980s but fell back to around 34
percent during the 1990s. The trend in industrial capacity utilization can
be linked to the use of local raw materials. It has been shown, in this
connection, that 'the industrial groups which depended largely on local
raw materials operated above the average (capacity utilization) rate
(CBN, 1989, p.30).' Examples of such product groups include tyres and
tubes (64.4%), leather products (63.3%), beer and stout (59.2%), textiles
(53.6%) and sugar confectionery (51.7%).
To what extent have increased local sourcing of raw materials and
above-average capacity utilization rates generated increase output?
Table 8.6 provides data that can be used to address this question.
Table 86 : Growt h0fM anu raeturina output, 1985.1999(1985= 100)
All Manufactur- Soft Beer & Textiles Vehicle Radio &
ing Products Drinks Stout Assembly Television
1985 100.0 100.0 100.0 100.0 100.0 100.0
1990 162.9 364.4 97.8 118.0 24.1 12.2
1995 136.3 153.2 103.3 89.6 11.7 6.0
1999 137.7 170.5 125.5 91.8 15.8 3.5
Source: Central Bank of Nigeria, Annual Report and Statement of
Accounts, various years.
Three products that have been more successful in using local raw
materials are represented in the table. These are soft drinks, beer and
stout, and textiles. At the other extreme are two product groups (i.e.
vehicle assembly, and radio and television products) that rely more
heavily on imported raw materials. The soft drinks group has been
particularly successful in translating its local sourcing of raw materials
and high rate of capacity utilization into increased output. Its output
index increased by 71 percent between 1985 and 1999 compared to 38
percent for all manufacturing products. The beer and stout product group
also increased its output index by 26 percent over the same period. The
textiles product group was relatively less successful; its output actually
declined by about 9 percent over this period. But this is nothing
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compared to the performance of the vehicle assembly and radio and
television product groups whose output declined by 80-95 percent over
the same period.
8.4 Regional Trade Agreements and Trade Policy
Nigeria is involved, in varying ways, in the full range- of formal trade
relations with other countries in the framework of bilateral, regional and
multilateral trade cooperation arrangements and agreements. Thus,
Nigeria has maintained bilateral trade arrangements with several
countries, including such African countries as Benin, Equatorial Guinea,
Niger, Uganda and Zimbabwe, European countries such as Bulgaria,
Romania and Turkey, as well as Jamaica in the Caribbean. These
bilateral trade arrangements have not included trade preferences and,
therefore, have had no significant impact on Nigeria's direction of trade
or its trade policy.
There are three distinct dimensions to Nigeria's involvement with
regional trade agreements. First, the country has been encouraging and
participating in efforts aimed at creating and sustaining intra-African
regional and sub-regional economic groupings and in the process,
developing and expanding intra-African trade. Second, Nigeria has
sought economic cooperation through trade with other developing
countries (African and non-African) in the context of the Agreement on
the Global System of Trade Preferences (GSTP). Third, Nigeria has
been engaged in regional trade linkages with developed countries in the
context of the Lome Convention (which brings together many African,
Caribbean and Pacific - ACP - states with the European Union) and more
recently in the context of the Africa Growth and Opportunity. Act-
AGOA - aimed at establishing closer trade and investment relationships
between the United States and a range of African countries.
The second of these three dimensions has been the least important in
terms of the focus of Nigerian trade policy. The GSTP Agreement was
signed by 48 developing countries on 13 April 1988; it enterecl into force
on 19 April 1989 for the first 15 countries, including Nigeria. In
. accordance with the articles of the GSTP Agreement, Nigeria conceded
lower tariffs on imports from other participating countries on a range of
products. These tariff rebates cover about 10 I-IS-Four Digit product
groups, including pharmaceuticals, machinery, cars and trucks. Although
Nigeria has continued to honour these commitments, the benefits
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associated with the tariff preference arrangement have been substantially
eroded by the reduction in Nigeria's applied tariffs since the mid-1980s.
The primary focus of Nigeria's regional trade policy has been on
intra-African economic cooperation. This has been pursued in the
context of two regional agreements; the first is the treaty establishing the
Economic Community of West African States (ECOWAS) signed in
1975 while the second is the agreement, which created the African
Economic Community (AEC) that was signed in 1991.
Nigeria is a founding member of ECOW AS, which was established as
a preferential trade arrangement. Quite early in its existence, ECOW AS
articulated a trade liberalization scheme (TLS) as the key component of
its market integration programme. This scheme was scheduled to take off
in 1979; but it was postponed at least three times before it was finally
launched over a decade later in 1990. Beginning from 1 January 1990,
the TLS was supposed to be implemented in the following four stages:
immediate and full liberalization of trade in unprocessed goods and
traditional handicrafts; consolidation of customs and charges of
equivalent effect and non-tariff barriers; liberalization of trade in
industrial products originating in member states and establishment of a
common external tariff (CET). Implementation of the third stage of TLS
was itself phased such that the four most developed ECOW AS member-
states (i.e. Cote d'Ivoire, Ghana, Nigeria, and Senegal) would eliminate
all duties and taxes against intra-ECOW AS trade within the six years at
annual reduction rates of 16.6 percent. The least developed countries in
the group were given up to ten years to achieve the same objective.
Thus, total elimination of all duties and charges on intra-ECOW AS
trade was scheduled to occur by January 2000. By the end of 1999,
however, the TLS remained virtually unimplemented. In December
1999, the Nigeria-Ghana 'fast-tract' initiative on ECOWAS trade
liberalization was launched, essentially as an attempt to rescue the TLS.
This initiative included the decision to implement the TLS fully by 15
April 2000 and to implement an ECOWAS common external tariff of
four rates (0, 10, 15 and 20%) with effect from January 2001. If ancl
when these decisions are fully implemented in Nigeria, the country's
tariff regime will change dramatically as the tariff rates are compressed
to four ancl zero preferential rates apply to imports from all ECOW AS
countries.
The ABC Treaty was expected to lead to the creation of a pan-African
economic and monetary union over a 34-year period' beginning f!'0111
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1993. But no concrete measures have been taken to implement the trade
component of this treaty partly because the sub-regional integration
institutions (such as ECOW AS) which are to serve as the building blocks
of the ABC have, themselves, not been fully implemented. In other
words, the ABC has not been reflected in Nigeria's trade policy and tariff
regime in any practical way.
Trade linkage between Nigeria and developed countries in the context
of regional agreements has been most prominent in terms of the Lome
Convention and the succeeding Cotonou Partnership Agreement.
Nigeria was a 'signatory to the Lome Convention, which linked the
European Union' (EU) countries with ACP countries over a 25-year
period ending in February 2000. The Lome Framework enabled the ACP
countries, including Nigeria, to gain non-reciprocal duty-free access to
the EU for their exports of a wide range of agricultural and industrial
products. But several elements of its export structure made it difficult
for Nigeria to take full advantage of the benefits offered by Lome
preferences. Although Nigeria was the largest single ACP exporter to
the EU from the rnid-1980s through the 1990s, its exports were made up
of mostly crude oil, which normally entered the EU duty free on a most-
favoured-nation (rnfn) basis. Thus, over 95 percent of Nigeria's exports
to the EU attracted no Lome preferential margin. For the export
products, which qualified, Nigeria's average Lome preference margin
was only 0.2 percent.
Three factors account for Nigeria's inability to benefit substantially
from Lome preferences. First, the country has not developed significant
production and export capacity in the sectors where Lome preference
margins have been significant such as chemicals (5.0%), footwear
(5.5%), and textiles (7.0%). Second, Nigeria's agricultural exports have
not been centred on those products associated with large Lome
preferential margins such as live animals and animal products (7.4%),
prepared foodstuffs, beverages and tobacco (8.3%). Third, large
preference margings apply in the cases of processed fishery products and
fish and Nigeria's fisheries exports (shrimps, crabs, oysters, perwinkles,
and sharle fins) have grown considerably during the 1990s, but stringent
EU sanitary and phytosanitary (SPS) measures have effectively
prevented the country's processed fish products from reaching the EU
markets.
Since Lome Convention provided non-reciprocal market access, it has
had no effect 011 Nigeria's import tariff structure. But the trade
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arrangement envisaged in the successor Cotonou Partnership Agreement
(CPA) will be reciprocal and would therefore directly affect Nigeria's
import tariff concessions to imports from the EU. Negotiations with
respect to the trade arrangement to be embedded in CPA are scheduled to
begin in September 2002 and become effective in 2008. To the extent
that Cotonou results in substantial opening up of Nigerian market to EU
imports, it could be associated with significant costs to Nigeria in terms __
of de-industrialization, loss .of fiscal revenue and balance-of payments
deficits.
Nigeria's trade relations with the United States is also in the process
of being formalized in the context of a regional free trade agreement.
The vehicle for this formalization is the African Growth and Opportunity
Act (AGOA), which was enacted by the United States Congress in 2000.
Prior to this, Nigeria - US trade relations have experienced at least two
difficulties. First, Nigeria was excluded from benefiting under the
generalized system of preferences (GSP) of the U.S because of its
membership of the Organization of Petroleum Exporting Countries
(OPEC). Second, Nigeria has had its export of textiles and clothing
products restricted in the U.S market. In particular, on 30 August 1990,
the U.S imposed restrictions on imports of Nigerian textiles by invoking
Section 204 of its Agricultural Act of 1956 to protect its textile market.
In February 1991, a memorandum of understanding established an
annual ceiling of 25 million square metres for Nigerian exports of all
brands of textiles to the United States.
If the U.S. President determines that Nigeria is qualified to trade with
the U.S. under the provisions of AGOA, the two problems referred to
above would have been solved, This is because AGOA would authorize
GSP status for Nigeria, in spite of its OPEC membership, over the next
ten years and extend the GSP product coverage to include goods
normally under statutory exclusion, such as textiles and clothing. This is
in addition to the approximately 1900 tariff lines of agricultural and light
manufactured goods, including leather and other products, which may
enter the US market duty-free.
It is important to note two important caveats in relation to AGOA.
First is the issue of qualification, which involves a wide range of
economic social and political 'conditionalities'. These include
maintaining an open rules-based trading system, rule of law and political
pluralism, protection of intellectual property, and protection of
internationally recognized workers rights. It is the sole prerogative of the
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u.s. President to determine whether any African country becomes a
beneficiary under the terms of AGOA. Second, the extension of the GSP
product coverage to textiles and clothing is heavily qualified. Section
112 of AGOA states that preferential treatment applies only to 'apparel
articles assembled (in a beneficiary African country) from fabrics wholly
formed and cut in the United States, and yarns wholly formed in the
United States.' Thus, even if Nigeria meets the eligibility criteria of
AGOA, it is not likely to derive substantial benefits from the projected
textiles and clothing export preferences unless its exports are derived
from raw materials imported from the United States. As long as AGOA
benefits remain GSP-based and therefore non-reciprocal over the next
ten years, they should have no direct effect on Nigeria's tariff structure
and trade regime.
But AGOA implies two phases; the first is a GSP-based non-
reciprocal trade arrangement, which spans a ten-year period, while the
second envisages the negotiation of a reciprocal free trade agreement
(Fl'A) between the U.S and selected African countries. Such an Fl'A
between Nigeria and the U.S will involve opening the Nigerian market to
imports from the U.S in exchange for duty-free entry of Nigerian exports
to the U.S market. Given Nigeria's level of development, this could be
associated with substantial cost to Nigeria in terms of de-
industrialization, loss of fiscal revenue and balance of payments deficits.
8.5 Multilateral Trade Agreementsand Trade Policy
In broad terms, multilateral trade agreements define the conditions
and terms under which countries that sign the agreements will engage in
the exchange of goods and services among themselves. Hence,
multilateral trade agreements establish the contours within which each
participating country's trade policy can be articulated. By its
membership of the General Agreement on Tariffs and Trade (GATT)
from 1960 and the successor body called the World Trade Organization
(WTO) from 1995, Nigeria has placed itself under the umbrella of the
multi lateral trade agreements negotiated in the context of both
institutions. But these have had little or no effect on Nigerian trade
policy until the Uruguay Round of Multilateral Trade Negotiations.
Like most other Sub-Saharan African countries, the results of the
Uruguay Round (UR) have not significantly improved Nigeria's trade
and growth prospects. Market access for Nigeria's exports have not
improved; in fact, the erosion of Lome and other GSP preference
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204 Readings in Development Policy and
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margins due to the general reduction in tariffs brought about by the UR
has probably inflicted some costs on Nigeria and other ACP countries.
In addition, Nigeria has also taken on a number of obligations in the area
of multilateral rules and domestic regulatory systems that are proving
quite costly to implement, due to lack of human, administrative,
technical and other institution capacity. Such areas include intellectual
property protection, customs valuation, sanitary and phytosanitary
measures, and technical barriers to trade.
Prior to the UR, only one tariff item was bound in Nigeria's tariff
structure. During the UR, Nigeria agreed to a 100% tariff binding on
agricultural imports at 230% (i.e. ceiling rate of 150% plus a maximum
of 80% for other duties and charges). For industrial goods, customs
duties of 333 six-digit tariff items have been bound. This corresponds to
6.5% of all tariff lines. In this case, the bound rate of 80% includes
customs duties and other charges. The bound rates for agricultural and
industrial products are considerably higher than the currently applied
rates of duties and other charges. This phenomenon - which is common
to virtually all developing countries - can be viewed from two
perspectives. One is that countries such as Nigeria need the flexibility
offered by this practice to vary their tariff rates as they pursue their
developing objectives. The other is that wide differences between bound
and applied rates threaten the credibility of trade policy which may deter
investment to the extent that they provide too much room for
discretionary changes in tariff policy.
The on-going implementation review of a range of WTO Agreements
and the new negotiations on agriculture and trade in services could
provide the opportunity for Nigeria and other African countries to redress
the imbalances contained in the agreements. From Nigeria's perspective,
the following are some of the priority areas where beneficial changes
would be needed:
$ rethinking of the special and differential treatment of developing
countries in the WTO framework to establish more objective,
development-related, criteria for classifying WTO members, and
identifying the rules with respect to which full or partial derogation
may be granted as a means of enhancing the supply capacity of the
low-income countries.
$ extending the transitional periods within which low-income
countries are required to meet their obligations under various VITO
Agreements on rules and disciplines and linking the duration of
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Nigerian Trade Policy in the Context of 205
Regional and Multilateral Trade Agreements
such transitional periods to the adequacy of the resources required
to meet the challenges of technological developments.
$ granting greater policy flexibility to low-income countries with
respect to the use of trade and trade related measures required to
more effectively address their supply capacities, and
$ making obligatory and multilaterally bound all the promises and
offers of technical and financial assistance made to low-income
countries by the developed countries in the context of many of the
WTO Agreements.
These and other priority issues of common interest to African and
other developing countries obviously need to be brought to the
negotiations not just by Nigeria but preferably as a collective African
negotiations strategy.
Meanwhile, Nigeria has found itself under pressure regarding the
consistency of various elements of its trade policy with its obligations in
the GATT/WTO and even the legitimacy of some of the trade policy
measures taken in the 1980s and the 1990s. These pressures suggest that
Nigerian trade policy is indeed subject to GATT/WTO review and
scrutiny. A few examples should illustrate this point. First, Nigeria's
import prohibition measures and their stated justifications have been the
subject of many discussions in both GATT and WTO fora. In April
1982, Nigeria introduced a number of trade policy measures for balance-
of-payments reasons. These measures included the prohibition of certain
imports, more restrictive import licensing, tariff increases on a number of
products and compulsory advance deposits for imports. To justify these
actions, Nigeria invoked. GATT Article XVIII: B for the first time since
its membership of GATT in 1960. In accordance with the terms under
which this article could be invoked, Nigeria consulted with the GATT
Committee on Balance of Payments Restrictions in April 1984. Further
consultations were held in October 1986 and 1988 as well as in March
1991. During these consultations, Nigeria repeatedly argued that it found
import prohibitions easier to implement and monitor than the equivalent
but more transparent price-based measures. Finally, in 1996, the
Committee on Balance of Payments Restrictions found that import
prohibitions in force in Nigeria could not be justified under Article
XVIII: B of GATT 1994. Following this finding, Nigeria offered to
eliminate tile restrictions in the context of a phased schedule lasting eight
years between 1997 and 2005. Nigeria considered this period necessary
(0 allow time for on-going customs and port reforms to take root and thus
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206 Readings in Development Policy and
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ensure the effective administration of the resulting price-based measures.
In February 1998, the Committee was unable to reach a conclusion on
the phase-out programme proposed by Nigeria. The issue of import
prohibition has thus remained a source of continued friction between
Nigeria and its trading partners.
Second, although Nigeria does not have specific domestic regulations
on safeguards, it invoked safeguards reasons in 1998 to justify import
prohibitions on such products as millet, sorghum, wheat flour and
gypsum. Third, although pursuant to Article 5.1 of the WTO Agreement
on Trade-Related Investment Measures, Nigeria had notified the WTO
Committee on TRIMS that it had no local-content laws or regulations,
the country continues to implement an industrial policy which explicitly
provides incentives for the use of local raw materials. Fourth, although
Nigeria had notified the WTO that it did not maintain any state-trading
entities, imports of petroleum products remain the exclusive preserve of
the Nigerian National Petroleum Corporation (NNPC) which is a
government parastatal. Finally, Nigeria has justified some tariff
increases on the ground of the need to combat alleged dumping or
subsidies on imported products. But contrary to the appropriate WTO
regulations and its own domestic laws on this subject, import duties on
the allegedly dumped products' have typically been raised against all
countries, rather than solely against the suppliers found guilty of
dumping.
These and other infringements of GATTIWTO agreements suggest
that greater attention needs to be paid by policy-makers to ensure that
Nigeria's trade policy remains consistent with the country's obligations
freely taken on in the context of multilateral trade agreements. In
addition, appropriate steps should be taken to incorporate these
agreements into domestic law so that the legal status of these obligations
can be clearly established in the domestic legal system. This is an
important means of enhancing the transparency and credibility of the
country's trade policy.
8.6 Concluding Remarks
This paper has argued that Nigeria's trade policy is shaped by
considerations relating to development strategy, the structure of the
country's exports and imports, as well as its obligations under the various
regional and multilateral trade agreements that the country has entered
into. As its development strategy appears to have shifted, from tile mid-
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Regional and Multilateral Trade Agreements
1980s, from an inward-oriented to an outward-oriented stance, trade
policy has been liberalized gradually. This has occurred through the
gradual phasing out of quantitative restrictions and their replacement
with price-based measures, as well as through significant reductions in
the average tariff rate and narrowing of the variation of tariffs.
Progress made in terms of liberalizing the imports tariff structure has
not been matched on the export front; export promotion measures exist in
abundance on paper but have not been satisfactorily implemented. It
should not therefore be surprising that Nigeria's non-oil export sub-
sector has remained small and stagnant.
Regional trade agreements have not had much of an impact on
Nigeria's trade policy partly because the country has not fulfilled its
obligations under the ECOW AS Treaty, But if the new Nigeria-Ghana
'fast-track' initiative becomes effective and ECOW AS implements its
common external tariff, Nigeria's import regime will undergo perhaps
the single most radical change in its entire history. The impact of this
radical shift demands careful study and attention of policy-makers. But
in spite of the importance and urgency of this issue, current discussions
on the review of the tariff structure do not appear to be focusing
sufficiently on it.
Since regional trade linkages with the EU and the US are currently
covered by non-reciprocal arrangement, they have had little impact on
Nigeria's trade policy. Likely shifts in both cases towards reciprocity
will also radically affect the country's trade policy. It is also important
that research and policy attention be focused on the forthcoming
negotiations on the new reciprocal arrangements so that the country can
respond from a position of strength based on knowledge. Clearly,
multilateral trade agreements are already impacting Nigerian trade policy
rather significantly, especially since the Uruguay Round. Further
multilateral negotiations under the WTO are on with respect to the
review of several existing agreements. It is also likely that a more
comprehensive and full round of multilateral negotiations will start
before the end of 2001 or early 2002. These negotiations present Nigeria
with both opportunities and challenges to seek improved market access
for its exports and to ensure that resulting agreements do not harm its
own development strategy. Seizing the opportunities and confronting the
challenges require improved capacities for research, trade policy
articulation and negotiations that arc far beyond what Nigeria currently
possesses.
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REFERENCES
Coe, D.T. and A.W. Hoffmaister (1998), 'North-South Trade: Is Africa
Unusual?', mimeo, Washington D.C, International Monetary
Fund.
Collier, P and T.W .. Gunning (1999), 'Why has Africa grown slowly?'
Journal of Economic Perspectives, l3 (3), 3 - 22. .
GATT (1991), Nigeria: Trade Policy Review, Geneva.
IMF (1997), 'The Revenue Implications of Trade Liberalization',
mimeo, Washington, D.C.
Krueger, A.a. (1995), Trade Policies and Developing Countries,
Washington D.C, The Brookings Institution.
Michaely, M. (1991), 'The Lessons of Experience: An overview', in
Sheperd, G. and c.G. Langoni (eds), Trade Reform: Lessons
from Eight Countries, San Francisco, ICEG.
Mussa, M. (1997), 'Trade Liberalization', IMP/AERC Seminar on Trade
Reforms and Regional Integration in Africa, Washington, D.C.,
1 - 3, December.
Ng, F. and A. Yeats (1996), 'Open Economies Work Better! Did
Africa's Protectionist Policies Cause its Marginalization in
World Trade?', Policy Research Working Paper no 1636,
Washington D.C, World Bank.
Ogunkola, E.O. and Y.F. Agah (1999), 'Nigeria and the World Trading
System', mimeo Nairobi, AERC.
Oyejide, T.A., B.N. Ndulu, and J.W. Gunning (eds%1999), Regional
Integration and Trade Liberalization inSub-Saharan Africa:
Volume 2 Country Case Studies, London.
Rodrik, D. (1992), 'Conceptual Issues in the Design of Trade Policy for
Industrialization', World Development, 20 (3); 309 - 320.
Rodrick, D (1997), "'Trade Policy and Economic Performance in Sub-
Saharan Africa', mimeo, Cabridge, Harvard University.
Rodrik, D. (L998), 'Why is Trade Reform so Difficult in Africa?',
Journal of African Economies, 7, Supplement 1, June; 1-36
Rodrik, D. (1999), Making Openness Work; The New Global Economy
and the Developing Countries_Washington, D.C., ODC
Sachs, J.D. and NI. Warner (1997), 'Sources of Slow Growth in African
Economics', Journal of African Economies, 6; 335-376
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Regional and Multilateral Trade Agreements
Stiglittz, J. (1996), 'Some Lessons from the East Asian Miracle', The
World Bank Research Observer, 11 (2); 151-178
Stiglittz, J. (1999), 'Two Principles for the Next Round or How to Bring
Developing Countries in from the Cold', WTOfW orld Bank
Conference on Developing Countries in a Millennium Round,
Geneva, 20-21 September
World Bank (1991), World Development Report: The Challenge of
Development, New York, Oxford University Press
World Bank (1994), Adjustment in Africa: Reforms, Results and the
Road Ahead, New York Oxford University Press
WTO (1998), Nigeria: Trade Policy Review, Geneva, WTO
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9
A REVIEW OF NIGERIA'S
PRIVATISATION PROGRAMME
A. Soyibo, Kolawole Olayiwola and
Babatunde Alayande
9.1 Introduction
The private sector has been recognised in the past two decades as thepowerhouse for development of nations, particularly in Sub-Saharan
Africa (SSA) with the trend towards globalisation in world economy.
The private sector acts in this way by participating in wealth-creation
activities and generate long-term gainful employment opportunities.
This helps to fight the acute problem of mass poverty; taking on tasks
currently performed by the state, thereby relieving pressure on public
expenditure and allowing governments to concentrate their resources on
key social and physical infrastructure. The sector also broadens the
economic base by diversifying into new sectors, making developing
countries more resilient and less vulnerable to external shocks.
The private sector plays a significant part in capacity building,
especially in human resource development-education, training, on the job
skill formation. It teams up with foreign partners to invest in promising
sectors like transportation, power, communications, and information
technology. This provides a springboard for foreign firms investment in
vital infrastructure works hampered through lack of capacity;
collaborating with foreign firms and multinationals to tap the nation's
undeveloped potential. It forms partnerships with foreign companies in
their strategy of relocating industrial and other activities so as to remain
globally competitive and maintain market share; and generating
economic dynamism through multiplier and cascading effects e.g, the
movement of goods, services, capital, technology and people.
The perceived absence of such a class in Nigeria of the early post-
independence era made governments at various levels got involved in
various sectors of the economy, including manufacturing, the service
211
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212 Readings in Development Policy and
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sector like construction, hospitality and tourism as well as wholesale and
retail trading. The result was that when the government revenues fell
drastically, government found that it had spread itself so thin to meet all
its responsibilities. It was obvious that something had to be done to save
the situation. This led to the adoption of structural adjustment
programme (SAP), in which privatisation of public enterprises was a
major plank.
Privatisation is the transfer of the ownership and control of a state-
owned enterprise (SOE) from the public to the private sector. The
transfer may be full or partial, and the transfer may be made to domestic
or foreign private investors or both. In the first instance, SOEs were
established in the 60s and 70s because the local private sector was too
backward to take advantage of emerging market opportunities, and also
the foreign investors were generally not interested in investing in the
country. Moreover, some SOEs were established as a solution to
problems created by significant market imperfections. Where economic
enterprise requires huge amounts of capital and technological know-how
that cannot be raised or found in the private sector due to the absence of
a well-functioning international market, underdeveloped local capital
market and limited local technological knowledge, government therefore
becomes the only agency capable of organising the necessary economic
enterprise. In addition, SOEs have traditionally been created around
large public utilities that are considered to be natural monopolies.
In spite of the laudable objectives of establishing SOEs, the
enterprises have been plagued with numerous problems. They lack
appropriate incentives for efficient operation, and also those who control
them have been known to be using them to promote their own selfish
interest. The SOEs have typically passed the costs of their operational
inefficiencies to the state. Heavy reliance on public funds made the
scrutinisation of managers by the capital market very difficult. Hence,
privatisation aimed at correcting all these problems and enhances the
capacity of the private sector to live up to expectation as the "hub of
development".
There are different channels through which privatisation can enhance
private sector development. First, the private sector can grow through
"displacement effect" as the public sector reduces its participation in key
economic activities through privatisation. Second, when the public
sector receives cash in exchange for public assets transferred t<\,the
private sector, it may use the money to finance investment and
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A Review of Nigeria's Privatisation Programme 213
infrastructural expenditure. The pattern of these resulting expenditure
should impact on the private sector which can be expected to respond to
the increased public sector demand for goods and services. Third,
privatisation processes and capital market are inter-connected. The
privatisation process and the mode of assets transfer may stimulate the
development and strengthening of the capital market. This involves a
generally positive feed-back effect: a deepening and broadened capital
market facilitates the sourcing of investment finance for industrial
enterprises and private sector development. Fourth, privatisation may
either stimulate or hinder aggregate private savings and investment that
are key indicators of private sector development. The effect runs
essentially through two channels. One is investment opportunities.
Private savings is generally contingent on the availability of profitable
investment opportunities, and also attract the inflow of foreign savings.
The basic question is how has the programme fared in Nigeria?
In view of this question, the paper assesses how the programme of
privatisation has performed in Nigeria. To achieve this objective, we
profile the ownership structure of entreprises in Nigeria before
privatisation. It analyses the Nigerian privatisation programme and
discussed its implementation. A brief analysis of data on the effects of
privatisation on enterprise performance, and subsequently, private sector
development is also undertaken. In our conclusion, we articulate some
policy recommendations.
9.2 Pre-Privatisation Enterprise Structure in Nigeria
In discussing privatisation, the first objective should be to determine
why privatisation becomes necessary in the Nigerian context. There is a
consensus that the oil boom of 1973 injected much confidence into the
public sector about its central role in economic management. The
philosophy of the oil boom era was encouraged by the fact that indigenes
were generally capital-deficient and could not afford to invest adequately
in most industrial ventures. This inadequacy left the commercial sector
largely in foreign hands, making the indigenisation programme
inevitable if Nigerians were to have a meaningful role in the economy.
During this period, government had an obligation to hold a stake in trust
for the people of Nigeria.
As a result of the oil boom, the private sector led development
strategy was replaced with a public sector led one. In this sense, there
was an increase in the government participation in all spheres of the
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economy and also in the development process. Not only that government
occupied the commanding heights of the economy, it effectively became
the engine of growth with huge investment in economic, social and
infrastructural sectors. The role of government in productive activities
became visible, as public entreprises (PEs) were established deliberately
for intervention in the development process and to serve as engine of
growth (Obadan, 2000).
Moreover, government developed a large number of PEs in all
economic activities comprising banking and insurance, oil prospecting,
exploration, refining and marketing, paper and steel mills, hotels and
tourism, fertilizer plants, rail, sea and air transportation and sugar. With
the sole aim of accelerating and stimulating development, new public
enterprises were established and existing ones were expanded. Many of
these companies were fully-owned by government, or jointly with the
private sector. Some of them were owned with expatriates (see Table
9.1).
A survey of TCPC(1993) showed that 1500 public enterprises owned
by governments accounted for between 30% and 40% of fixed capital
formation and formal sector employment, and a sizeable percentage of
GDP. In 1990, the federal government investment in public enterprises
worth over N36.5billion. At current replacement costs, and taking
cognisance of inflationary trends, government investment worth about
W500 billion in year 2000.
The oil boom of the 70s made the problems of public enterprises to be
invisible, as not much attention was paid to the wastes and inefficiencies
of their operations. The economic recession of the early 80s marked the
beginning of the exposure of these inadequacies. When the oil bubble
burst, government seemed to have suddenly discovered that the burden
of funding parastatals, which brought back a ridiculous return on
investment in comparison with private sector alternatives, was too much
to bear. As at 1985, the government has sunk a whooping N23 billion
into its parastatals, while NIl billion in equity investments were yielding
the Federal Government a meagre return of 1.39 per cent.
The Onosode Report of the Presidential Commission on Parastatals
in 1983 revealed that most public enterprises were infested with critical
problems of defective capital structures resulting in heavy reliance on the
national treasury for financial operations. Others are mismanagement of
funds and operations, corruption, misuse of monopoly power, and
bureaucratic bottlenecks in their relations with supervising ministries.
Ither notable problems are low operating and maintenance budgets,
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A Review of Nigeria's Privatisation Programme 215
overprotection which led to inefficiency and lack of competiuve
capability, lack of techno-managerial capacity to respond quickly to
changing economic environment, and unstable macroeconomic policies
(Obadan, 2000).
Table 91 :FedieGra overnmen t mi vestment 1i0 various compames as at 1985
Company Investment (Million) _FGN % Holdings
Durbar Hotel 10 100%
National Carao Handlina Co. 1.5 100%
Nigeria Hotels 5.8 51%
National Freioht Co. 8.5 100%
Tourist Company of Nig. 27.6 100%
Aba Textile Mills 10.5 70%
Ashaka Cement Co. 35.0 72%
Benue Cement Co. 20.7 72%
Calabar Cement Co. 6.0 68%
Cement Company of Northem Nig. 7.44 32%
Dunlop Industries 0.35 3%
Electricity Meters Co. 2.7 60%
Flour Mills of Nigeria 3.0 12%
lrnoreslt Bakolori Nig. Ltd. 3.0 60%
Leyland Nigeria Ltd. 5.25 35%·
National Salt Co of Niaeria 9.5 100%
New Niaerian Newspapers 4.6 99.9%
National Trucks Nigeria 7.0 35%
Nigerian Enaineerina Co. Ltd. 3.0 60%
Road Construction Co. Ltd. 1.2 60%
National Shipping Co. Ltd. 2.0 51%
Niaerian Machine Tools Ltd. 18.1 85%
New Nigeria Salt Co. Ltd. 16.5 100%
Nigercem Nkalaau 1.35 10%
North Breweries Ltd. 7.5 50%
Nigerian Sugar Co. Ltd. 1.97 19%
Niaerian Yeast & Alcohol 0.57 51%
Nigerian Romanian Wood Co. 3.0 25%
Nichemtex Industries Ltd. 1.2 10%
Nigerian Beveraaes Prod. Co. 2.5 55%
Savannah Suaar Co. 47.12 22%
Serumwood Industries Calabar 2.44 20%
Peugeot Automobile of Nigeria 5.25 35%
Stevr Niaeria Ltd. 7.39 35%
Specomill Textile Ltd. 2.4 60%
Sunti Suaar Co. Ltd. 3.17 90%
Volkswagen of Nigeria 6.0 35%
West African Distilleries Ltd. 2.0 100%
West African Portland Cement 13.0 20%
Source: Olashore,O. Challenges of Nigeria's Economic Reform pp139-144
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The "crisis of confidence" that worsened the Nigeria's economic
crisis in the 80s was largely due to the sustained poor performance of the
public enterprises. The crisis resulted in dwindling domestic and foreign
exchange revenues which put government in a very precarious fiscal
position in which it could no longer accommodate the lapses, wastes and
inefficiencies of the public enterprises.
The need to reduce the burden of dependency by the companies and
parastatals of government-owned companies whose inefficiency was
causing government much embarrassment and costing the public much
money in losses, led to the consideration of privatisation and
commercialisation. It was also thought that government parastatals were
riddled with high levels of corruption, which made it seem that the
industries or enterprises existed to benefit any group that captured them
as their share of the national cake. Reformers, anxious to outline the
pervasive corruptions of these agencies, argued that the only way
forward would be to divorce these establishments from government.
9.3 The Nigerian Privatisation Programme
The importance of the private sector in Nigeria is underscored by the
fact that it accounts for a greater proportion of the economic growth
potentials or sources of growth. For example, sectoral distribution of
gainful employment and gross domestic product (GDP) shows that
agriculture, manufacturing, distribution, transport, and services, which
are all dominated by private sector activities, accounted for 98% of
gainful employment in 1994,97% in 1995 and 1996 and 84% of GDP in
1994 and 1995 but declined to 82% in 1996. Consumption expenditure
constitutes the largest single component of the national income. Changes
in consumption expenditure dictate the direction of changes in the
national economy. Private final consumption expenditure accounted for
between 81 and 84% of gross national income in 1992-962. These few
statistics serve to highlight the importance of the private sector to
Nigeria's economic growth. In addition to this, the informal sector of the
private sector has continued to be a source of skill acquisition and small-
scale technological innovations (Obadan and Odusola, 1996, Abumere et
aI, 1998).
Privatisation is the transfer of full or partial ownership and control
from the public sector to the private sector with a view to increase the
operational efficiency of the privatisecl enterprises anel thus encourage
competition. Although the objectives anel motives for privarisatiou vary
between countries and have altered overtime, the exercise was linked
. irh the macroeconomic burden of the public enterprise sector ill
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A Review of Nigeria's Privatisation Programme 217
developing countries. However, the objectives of privatisation in
Nigeria include the following:
• to improve the efficiency of parastatals, through better role
definitions between the supervising Ministry and the public
enterprises;
• to reduce their dependence on the treasury for the funding of their
operations; and
• to increase participation of Nigerian citizens in economic activities
through share ownership of productive investment.
Like in other developing countries, State Owned Enterprises (SOEs)
were established in almost every sector of the Nigerian economy
especially in the 1960s as a means of achieving rapid economic
development. This took a rapid expansion in the 1970s when the
government had enormous revenue from oil. By the end of the 1970s,
there were more than 1,800 SOEs in Nigeria. A fall in the oil revenue in
the 1980s revealed the problems of the SOEs. These had hitherto been
hidden under the continuous subventions from the Federal Government.
By October 1985, Government had invested a total sum of W23billion in
the SOEs. The total dividend received by government during the period
1980-1985 was 933.7 million naira, which average 159 million naira per
year. The implication of this is that return on investment was not more
than two per cent.
The major problem of the SOEs as identified by the different panels
appointed to find solutions to their problems since the 1960s include:
• unclear and conflicting missions: This has to do with both
economic and non-economic missions. The economic mission
include: control of strategic resources, delivery of essential goods,
services, employment and price control. The non-economic
missions include: social obligation to political patronage,
supplying goods below costs in effort to subsidise the public or
hiring workers to meet national employment objectives. All these
are contrary to the commercial and social goals of the private
sector. This implies that SOEs have had to be subsidised from
taxpayers fund;
o political interference in operating decisions: This has often
resulted in excessive employment, poor choices of product and
location, lack of investments and ill-defined incentives for
managers. All these have more often than not resulted in
persisted losses incurred by the SOEs;
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• misuse of monopoly power: This is as a result of the absence of
competitive environment. It has been shown that firms will
perform better in a situation of very high competition;
• defective capital structure: This derives from the fact that SOEs
have easy access to government finance and capital acquisition at
highly subsidised interest rate. All these give SOEs some
reasonable degrees of immunity from bankruptcy and
reorganisation with a consequence on management complacency;
and
• bureaucratic red tape in their relationship with supervisory
ministries: This often results from excessive control and
interference with the operational decision of SOEs managers by
the supervisory agencies and government department. This often
results in loss of managerial incentives, inefficiencies and loss of
accountability.
It was against this background that the Nigerian government
embarked upon the privatisation and commercialisation programme in
1988, and promulgated the Privatisation and Commercialisation Decree
number 25. To this end, the government clearly announced a four-
pronged policy of full privatisation, partial privatisation, full
commercialisation and partial commercialisation. The institutional
framework for the implementation of the privatisation and the
commercialisation programme was vested in the Technical Committee
on Privatisation and Commercialisation (TCPC). It was established and
vested with powers for implementing the programme for the reform of
the SOEs.
However, by 1994, the TCPC was replaced by another body known as
the Bureau of Public Enterprises (BPE), which had, since January 1999
been replaced with the National Council on Privatisation. There is also
the Utility Charges Commission (UCC). The UCC was to regulate user
charges of commercialised public enterprises with a view to expanding
output, ensuring greater capacity utilisation and the reduction of the rate
of inflation in the country.
In order to allow for the effectiveness ofthe privatisation exercise, the
committee on privatisation and commercialisation recommended that the
exercise should be carried out sectorally and in phases. In this respect,
all exercises done from 1988 to 1997 fell under the first phase of the
programme. Privatisation of public utilities and NNPC downstream
petroleum, i.e refineries and distribution facilities are categorised under
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A Review of Nigeria's Privatisation Programme 219
phase 2, (1998-2000). Privatisation of these enterprises will have a
major positive impact on and stimulate immediate growth of the
economy. These enterprises are recommended in the following order:
• National Electric Power Authority, (NEPA);
• Nigeria Telecommunication, (NITEL);
• Nigerian National Petroleum Corporation-Downstream; and
• Urban Water Supply.
In the first phase of the guided privatisation programme, enterprises
in telecommunications, electricity, petroleum refining, petrochemicals,
coal and bitumen production and tourism development would be
affected. Specifically, in 1998, NITEL was to be privati sed while NEPA
was to be reorganised for privatisation. This was to entail breaking up
NEPA into its three main activities of power generation, transmission,
and distribution to facilitate privatisation. Also the guided privatisation
programme also involved:
1) the setting up of a high-powered National Committee on
privatisation. This committee would approve and concretise the
sale of any venture; and
2) the setting up of Nigeria Trust Fund to manage the proceeds of
privatisation. Such proceeds would be used for investment
abroad, and for improvements of education, health, agriculture,
settlement of Nigeria's debts and financing of share ownership
of Nigerians in the enterprises to be privatised.
However, the second phase of the privatisation programme
commenced in November, 1999 and by January, 2000, the privatisation
of enterprises in the first batch of the resumed programme commenced.
The phase three, (2001-2005) of the privatisation programme was to
witness the privatisation of spill overs from phase two and enterprises
from the strategic industries like NNPC upstream, Cement and fertilizer
companies. .
9.4 Implementation of the Privatisation Programme
The methods used for privati sing public enterprises in Nigeria are
(DPC, 2000):
• Public offer of equity for sale. This was carried out through the
Nigerian Stock/Exchange for enterprises that qualified for listing
on the stock exchange. Thirty five SOEs were privatised through
this method and more than 1.5 billion shares were sold to private
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220 Readings in Development Policy and
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individuals and associations throughout the then 593 local
government areas in the country;
• Private placement of equity shares to institutional investors, core
groups with demonstrated management and/or technical skills and
workers of specific enterprises, organised as a co-operative or
limited liability company. This method was used mainly where the
share holdings of government were very small and the TCPC could
not persuade shareholders to make a public offer of shares. Seven
enterprises were privati sed using the private placement method;
• Sale of assets. This approach was adopted after rigorous
examination has shown that the affected SOEs had unimpressive
track records and their future outlook seemed hopeless.
Consequently, they could not feature under the public offer or
private placement method because they did not possess the listing
requirement. These enterprises were liquidated, and their assets
sold piecemeal to the public through public tender. Twenty six
enterprises were sold through the sale of assets approach. The
Ministry of Agriculture and Transport had sold 18 of these
enterprises before the establishment of TCPC in 1988.
• Management buy-outs. Under this method, the entire affected
enterprises or a substantial part of its equity capital was sold to the
workers. Just one enterprise was privati sed through this method
and this is the National Cargo Handling Company Limited; and
• Deferred public offer. This approach was adopted where it is felt
that if some viable SOEs were sold by shares, the expected revenue
would be lower than the real values of their underlying assets.
This method was used in order to revalue assets and sell the
enterprise on a willing buyer/willing seller basis, at a price that was
more reflective of the current value of affected SOEs. The new
owners were required to sell not less than 40% of the equity to the
Nigerian public within five years of take-over. Four hotel
enterprises were privati sed through the deferred offer method.
Among the measures taken to ensure equity in the sale of shares of
these enterprises, and allay the fears and misconceptions of the
privatisation and commercialisation programme were:
D creation of public awareness of the programme through the use of
radio, newspapers, television, seminars, conferences and
workshops. Through these media, the main issues connected with
the programme were to be explained as simply as possible,
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A Review of Nigeria's Privatisation Programme 221
particularly in the three main local languages- Rausa, Yoruba and
Igbo;
• issuing of a directive to all commercial banks in the country to
grant prospective shareholders overdrafts to finance their share
purchases;
• the provision to allocate a mmimum of ten per cent and a
maximum of twenty per cent of equity shares to associations and
interest groups, e.g. workers, trade unions, market women, local
community associations etc. Besides, a maximum of ten per cent
of the available equity shares on offer was to be reserved for the
staff of affected enterprises;
• printing and nationwide distribution of application forms ranging
from 200,000 to 600,000 in respect of each publi.C offering of
shares, depending on the size of the offer;
• employment of non-traditional outlets for distributing share
application forms. These included post offices, local government
headquarters, state ministries of commerce and industry and all
chambers of commerce and industry;
• setting the minimum number of equity shares per application to
100 and multiples of 50 thereafter to encourage low income
persons; and
• legislation against multiple applications and outright rejection of
suspected ones.
Apparently on the ground of the myriad of problems that
characterised privatisation policies and implementation in the country,
there was a break in the implementation of the programme especially
between 1994 and 1997. These problems range from ideological
opposition, opposition from the managers and staff of public enterprises,
and absence of competition and other regulatory framework to
unanticipated delays and inaccessibility to credit facilities on the part of
potential buyers. Consequently, the government had to abandon the
exercise until 1995 when government in its budget presentation affirmed
its commitment to disengage itself from activities that could be more
efficiently and effectively carried out by the private sector.
In view of the above, government in 1995 introduced a new policy of
contract leasing to replace the sale of shares in public enterprises. The
arrangement was to involve leasing (he enterprises (0 both local and
foreign entrepreneurs on as-it-were basis. The key elements of (he
leasing arrangement were to be as follows:
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222 Readings in Development Policy and
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• the lessees (entrepreneur) must have proven track records and
possess the managerial and technical skills peculiar to the
enterprise as well as the financial resources needed to manage the
enterprise;
,. the lease arrangement would initially be for a period of ten years
with an option for renewal on a mutually agreed basis;
• during the lease, the lessees would have unfettered use of all the
facilities of the enterprises and they ~would be required to pay
government an agreed percentage of their profits and foreign
exchange earnings; and
• the lessees would be responsible for the maintenance of the
enterprises and required to make adequate provision for the
depreciation of the equipment so that whenever the enterprises
were due for handing-over to government, there would be adequate
funds to replace the plant and equipment of the enterprise.
Incidentally nothing has been achieved on the leasing arrangement
since 1995 because the decree to back this arrangement was to be
promulgated in 1996. Consequently, even as at 1997 government could
not achieve much in terms of implementing the arrangements (1995 -
1997). However, by 1998, government announced its decision to
Commence the privatisation programme as a means of ensuring wider
business ownership and stimulate the competition necessary to ensure
'efficiency in the system. In this respect, government decided to embark
on the policy of guided privatisation. This is an approach where an
enterprise will be privatised at a time so that the lessons of experience
would be used to improve upon subsequent exercise. The key elements
of the guided privatisation programme include the following:
• limiting share ownership to some core strategic investors with the
relevant expertise to participate in the ownership of the enterprise
under a specified share holding;
II government retention of at most 40 per cent of the equity in the
enterprise to be privatised while 20 per cent of the shares would be
sold to Nigerians, thus suggesting 40:40:20 per cent equity structure
for government, foreign entrepreneurs and Nigerian investors;
u ensuring by government of widespread share ownership among
Nigerians who were to be given financial assistance to acquire
shares in the privatised enterprises; and
1'1 the setting up of a team of experts on privatisation in oreler to ensure
that the privatisation exercise achieved its desired objectives of job
creation, acquisition of new knowledge, skills and technology and
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A Review of Nigeria's Privatisation Programme 223
exposing the country to international competition. The team would
be expected to examine and advise on all aspects of the programme.
The Privatisation and Commercialisation Decree Number 25
identified a total of III enterprises to be privatised fully or partially and
another 35 enterprises to be wholly or partially commercialised. The
Decree aimed at:
• lessening the dominance of unproductive investments in the SOEs
sector;
• reorientating SOEs towards performance improvement, viability
and overall efficiency;
• checking SOEs absolute dependence on the treasury for funding;
and
• disposing of SOEs providing goods and services that the private
sector can best provide.
The decree provided for the necessary legal and institutional
framework for the planning, organisation and implementation of the
commercialisation and privatisation programme. It also contained
portions, which allowed for widespread ownership with the issue of
distributional equity coming to the fore. Thus by 1995, work on a total
of 87 enterprises were successfully completed out of the 111 enterprises
that were slated for full or partial privatisation.
Tahie 9 2 : Nurn hero f P'rrvatlised En terprises
Sector Number Privatised
Development Banks 1
Oil Marketinq Corporations 3
Cement Plants 3
Hotels and Tourism 2
Textiles 3
Transport Companies 1
Salt Companies 2
Food and Beverages 6
Insurance Companies 14
Dairy Companies 2
Flour Millin~ 1
Construction and Engineering Companies 4
Cattle Ranches 2
Commercial and Merchant Banks 10
Agric & Livestock production 18
Olhers 15
Total Privatisccl 87
Enterprises yet lo be privatized 24
Grand Total 111
Source: Report of tlie Vision 2010 Committee, V01.2. nook 3
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An insight into the process of privatisation shows that the total sales
value of privatised enterprises as at June 1999 was estimated at $207
million which, in comparison with other African countries, ranks Nigeria
among the top ten African countries (Table 3). However, in terms of
sales value, Nigeria is just about 9.4% of that of South Africa.
Table 93.. Top Ten Afrnican countries m. SaIes VaIue, 1997
Country Total Numbers of Total sales Value in
Transactions US$ Million
South Africa 7 2,209
Ghana 219 555
Senegal 50 262
Niqeria 87 207
Mozambique 549 201
Kenya 155 186
Zambia 217 180
Uganda 88 134
Tanzania 124 132
Cote d'ivoire 47 357
Source: World Bank, African Development Indicators, 1998/1999
9.5 The Effect of Privatisation on Private Sector Development
In this aspect of analysis, the impact of privatisation on private sector
development is measured by using the efficiency, financial and
distributional impacts of privatisation in Nigeria as indicators. Using
seven fully privati sed companies as case studies, all these indicators were
examined through the difference in their values before and after
privatisation. We also test whether the differences between the value
changes are significant, using the t-test. We further examine the
pattenrns of share distribution to ascertain if the programme has made for
widespread share-distribution of shareholding in Nigeria.
The sampled firms were selected from the manufacturing and services
sector. The period of analysis is five years prior to, and five years after
privatisation of each firm in the sample space. The list of the enterprises
considered are (i) Okomu Oil Palm PIc, (ii) United Nigerian Insurance
Co. Pic. (UNIC) , (iii) Royal Exchange Assurance, (iv) Aba Textile
Mills Pic., (v) Flour Mills of Nigeria. (vi) National Salt Company of
Nigeria PIc (NASCON), and (vii) Nigerian Yeast and Alcohol
Manufacturing Pic. (NIYAMCO).
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A Review of Nigeria's Privatisation Programme 225
The data used in this study were derived from secondary sources.
Fact Book from the Nigerian Stock Exchange contains data on each
company's financial and operational performance before and after
privatisation. Also the published Annual Reports offer Prospectus and
Financial Statements of the privatised companies served as a major data
source. Industrial survey questionnaires of the Federal Office of
Statistics (FOS) and the Central Bank of Nigeria (CBN) were also
employed. The publications of the Federal Ministry of Industries,
Bureau of Public Enterprises (BPE), were supported by data from World
Tables and International Financial Statistics. However, because of the
enormous data requirement of the study, any resulting data gaps were
complemented through primary data resources such as on-site visits,
interviews, questionnaires and mails.
Profitability
Privatisation is designed to substitute the single objective of profit
maximisation for the other objectives of the public parastatals. We
measure profitability by using two ratios: return on sales (ROS) and
return on assets (ROA) for the seven selected companies. Two of the
companies, Aba Textile and Royal Insurance, recorded positive
improvements on the three ratios. The return on sales (ROS) recorded
negative changes after privatisation of four companies. For instance,
ROS fell from 14% before privatisation to 7% after privatisation of
UNIC. Okomu Oil and Flour Mills fell from 19%,4.8% to 17.6% and
3.6% respectively, using the return on sales. NIYAMCO also recorded a
negative change of about 2.8% using the ROS, while NASCON recorded
positive changes in ROS, its RAO fell from 45.8% to 6.5%. UNIC
recorded negative changes in profitability, using the three ratios. Only
Royal Insurance recorded significant improvement in ROS and ROA at
5% and 10% level respectively, while ROS shows a significant change in
Okomu oil and NASCON at 5%.
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Table 94. : P ro fiIt a bTI tuy Leve I 0f SIet ec ed P'nva tlisedE n t erpnses
Name of Firm Variables Mean Before Mean After Mean Chang T-Test
Aba Textiles ROS '0.085 0.125 0.04 0.546
ROA 0.070 0.165 0.10 1.491
Royal Insuranc ROS 0.029 0.230 0.102 3.11ROA 0.027 0.102 0.08 5.84
NIYAMCO ROS 0.183 0.154 (0.028) 0.565
ROA 0.145 0.183 0.04 (0.553)
Flour Mills ROS 0.048 0.036 (0.011) 0.693ROA 0.11 0.268 0.158 0.951
Okomu Oil ROS 0.183 0.154 (0.0?8) 0.173ROA 0.145 0.183 0.038 0.417
UNIC ROS 0.140 0.071 (0.069) 0.978ROA 0.038 0.028 (0.010) 0.386
NASCON ROS 0.035 0.598 0.563
(2.455)
ROA 45.79 0.065 (45.73) 2.058
Source: Computed by the authors from Fact Book from the Nigerian Stock
Exchange; Prospectus and Financial Statements of the privatised
companies,' Industrial Survey of the Federal Office of Statistics
(FOS), and the Central Bank of Nigeria (CBN) (Various
publications); and the I)Ublications of the Federal Ministry of
Industries, Bureau of Public Enterprises (BPE)
Efficiency Changes
By exposing firms to market competition, government hoped that
these firms would employ their resources more efficiently. In removing
the non-economic objectives from the state firms, government explicitly
stated that the trade-off it expected has increased operating and financial
efficiency. The efficiency measures employed included inflation -
adjusted sales per employee and net income per employee. Net income
per employee show a significant increase in Royal Insurance,
NIYAMCO, Okomu Oil and NASCON. The results show positive
increases following privatisation in all the seven companies considered.
The results agree with the general expectation in the hypothesis.
Changes in Capital Investment
It is expected that greater emphasis on efficiency will lead newly
privatised firms to increase their capital investment. Once privatised,
firms should increase their capital expenditures because they have
greater access to private debt and the capital market, and have more
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A Review of Nigeria's Privatisation Programme 227
incentive to invest in growth opportunities. Also, if privatisation is
accompanied by deregulation and market opening, the former parastatals
will face very large investment spending needs, in order to become
competitive with other private firms.
We computed investment intensity, using the two proxies of capital
expenditures divided by sales (CESA) and capital expenditures divided
by total assets (CET A). For the seven companies considered, both
indicators improved in the post privatisation period, except in the cases
of Flour Mills and NIYAMCO, where CESA showed a reduction in the
post privatisation period. In the case of Flour Mills, the CESA fell from
7% to about 4%, while it fell from 27.6% to 16.2 % in the case of
NIYAMCO. This result of CESA is contrary to expectation for these
two cases. In all, only Royal Insurance and Aba Textiles recorded
significant improvement at 10% level in both CESA and CETA, while
UNIC also shows significant increase at 10% level in CET A.
Changes in Output
Privatisation, when correctly conceived and implemented, should
improve efficiency and stimulate investments and, therefore, new growth
and employment (Kikeri -et -al, 1992). Boycko et al, (l 993) argue that
effective privatisation will lead to a reduction in output, since the
government can no longer entice managers (through subsidies) to maintain
inefficiently high output levels. We tested these competing predictions by
computing the average inflation adjusted sales level for the pre-
privatisation period and comparing it .to the post-privatisation period for
the seven companies in our samples. We recorded positive increase in
output in the post-privatisation period for Okomu Oil, Aba Textiles, Flour
Mills and NIYAMCO. The result is in line with the first argument. On
the other hand, three companies recorded a reduction in output in the post-
privatisation period. These are UNIC, Royal Insurance and NASCON.
This is in line with the second theoretical argument.
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228 Readings in Development Policy and
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Table 9.5: Chanaes in outnut of Selected Privatise dE nterurises
Name of Firm Mean Before Mean After Change T-Test
Aba Textile 142,483.8 295406.3 1529225 (8.518)*
Royal Insurance 151531.4 146988.2 (4543.3) 0.367
NIYAMCO 364339.2 63143.3 26704.1 (3.171)*
Flour Mills 1559718.2 2188348.7 628630.5 (0.718)
Okomu Oil 55131.7 144143.9 89012.2 (3.738)*
UNIC 295248.9 291487.1 (3761.8) 0.109
NASCON 80155.4 46679.14 (33476.3) 1.342
Source: Computed by the authors from Fact Book from the Nigerian Stock
Exchange; Prospectus and Financial Statements of the privatised
companies; Industrial survey of the Federal Office of Statistics
(FOS), and the Central Bank of Nigeria (CBN) (Various
publications); and the publications of the Federal Ministry of
Industries, Bureau of Public Enterprises (BPE).
Changes in Leverage
The switch from public to private ownership should lead to a decrease
in leverage because the government's removal of debt guarantees will
increase the firm's cost of burrowing and also because firms will have
increased access to public equity markets (Meginston et al 1994). We
measure leverage by using the total debt assets (LEVI), and by long term
debt to equity ratio(LEV2). Our results here is mixed, while some
companies conform to the expectation, others did not. For instance,
leverage, using total debt to total asset, LEVI has not fallen in companies
like NASCON, NIYAMCO, Aba Textiles, Flour Mills and Royal
Insurance after privatisation. This is contrary to expectations. Only
UNIC and Okomu Oil had recorded reduction in leverage in line with the
predictions. Using the longterm debt to equity ratios LEV2, only
NASCON and Okomu Oil recorded increased leverage, while the other
five companies' leverages were in line with the expectations.
Employment Changes
Prior to privatisation, most parastatals tend to be over-staffed. The
great fear of all governments contemplating privatisation programmes is
that efficiency and profitability will be achieved only at the cost of large-
scale job losses. In other words, people expect high decline in
employment level following privatisation. We examined this by
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A Review of Nigeria's Privatisation Programme 229
computing the average employment levels for the pre-privatisation and
post-privatisation periods, in order to see if employment has fallen after
privatisation. Four companies recorded reduction in employment in the
post-privatisation period. Okomu Oil staff strength fell from 1000 to
993.4 on the average. UNIC recorded a reduction from 701 to 697.5,
also Royal and NASCON recorded a reduction on the average from
495.5, 331 to 411.25 and 197.6, respectively. The result conforms to
expectations. The other three companies recorded increase in
employment in the post-privatisation period. From an average of 159 to
163.2 for NIYAMCO, Flour Mills recorded 989.5 before and 1,795.25
after, while Aba Textiles moved from. 1,300 employees to 1,468.75
employees, although recently, these companies had recorded massive lay
off of workers. In all, Okomu Oil, UNIC and Royal Insurance recorded
significant reduction in employment level, while Aba Textile and Flour
Mills recorded significant increases at 10% and 5% levels respectively.
Table 96.. Employment Ch anges 0fSIe ecte dP' rivatis.e dE ntreprises
Name of Firm Mean Before Mean After Mean Change T-Test
Aba Textiles 1300 1468.75 186.75 2.995**
Royal Insurance 495.5 411.25 (84.25) 3.543*
NIYAMCO 159 163.2 4.2 0.209
Flour Mills 989.5 1795.25 805.75 6.194*
Okomu Oil 1000 993.4 (6.6) (5.116)*
UNIC 710 697.5 (3.5) . 6.617*
NASCON 331 197.6 (133.4) (0.802)
Source: Computed by the authors from Fact Book from the Nigerian Stock
Exchange; Prospectus and Financial Statements of the privatised
companies; Industrial survey of the Federal Office of Statistics' (FOS), and
the Central Bank of Nigeria (CBN) (Various publications); and the
publications of the Federal Ministry of Industries, Bureau of Public
Enterprises (BPE).
Changes in Dividend Payout
Dividend payment is a classic response to the atomised ownership
structure to which most privatisation programmes lead. This payment is
measured using total dividend payments divided by net income (Payout),
dividend divided by sales (DIVSAL) and changes in earnings per share
(EPS) following privatisation. The earning per share shows substantial
improvement for all companies except NASCON and Royal Insurance,
where EPS recorded negative and zero values for the period (Table 6.4).
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230 Readings in Development Policy and
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There was significant increase in DIVSAL for all the seven selected
companies except for Flour Mills and UNIC. This means that investors
are better off in terms of DIVSAL. In the case of Payout, it recorded a
negative value after privatisation except in three sampled firms i.e. Aba
Textiles, Flour Mills and UNIC (Table 7).
Table 9.7. Changes m. Earnmg Per Share 0fS eIected Privatis. e dE nterprtses
Mean
Name of Firm Variables Mean After MeanBefore T-testPrivatisation Change
Privatisation
Flour Mills of Nigeria Payout 0.016 0.006 0.010 2.001
Pic. DIVISAL 0.329 0.104 0.225 0.755
United Nigeria
Insurance Co. Pic. Payout 0.067 0.043 0.024 1.893
(UNIC) DIVSAL 0.508 0.376 0.132 0.484
Nigerian Yeast and
Alcohol Payout 0.06 0.08 0.03 5.97
Manufacturing DIVSAL 0.31 0.55 0.24 0.40
Co. Pic. (NIYAMCO)
Royal Exchange Payout 0.03 0.10 0.08 5.99
Assurance Co. Pic. DIVSAL 0.19 0.44 0.25 1.31
Okomu Oil Palm Pic. Payout 0 0.02 0.02 2.22
DIVSAL 0 0.17 0.17 3.25
Aba Textiles Payout 0.0199 0.0313 0.0144 1.880
DIVSAL 0.311 0.213 (0.098) (2.248)
National Salt Co. of Payout 0 0.04 0.04 0.97
Nig. Pic. DIVSAL 0 10.21 10.21 13.10
Source: Computed by the authors from Fact Book from the Nigerian Stock
Exchange; Prospectus and Financial Statements of the privatised
companies; Industrial survey of the Federal Office of Statistics (FOS),
'and the Central Bank of Nigeria (CBN) (Various publications); and
the publications of the Federal Ministry of Industries, Bureau of
Public Enterprises (BPE).
Labour Income and Welfare
One important issue in the privatisation debate concerns the welfare
of the workers. It was argued that privatisation would lead to increased
unemployment through massive retrenchment. It was also alleged that
privatisation would lead to a general insecurity of the labour force and
reduction in workers' welfare as a result of the exploitative abuses under
private sector management. We look at workers' income in terms of
salaries or total packages before and after privatisation. We also
examine the share of wage income in the value-added of the parastatals.
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A Review of Nigeria's Pn vatisation Programme 231
We recorded a positive improvement in all the companies in our sample,
in terms of wage income, as the income to workers increase after
privatisation. This is contrary to expectations. 111 termsof the share of
workers' wages to company's overall value-added, the result shows a
significant increase in the seven companies, except for Flour Mills and
NASCON where the ratio was 480/0 and 22.90/0 before privatisation and
270/0 and 180/0 after privatisation, respectively.
9.8 ConclusionAndRecommendations
This report reviews extensively the theoretical and empirical literature
underlying privatisation including the methods of privatisation. It
analysed the implementation of the privatisation programme and
reviewed briefly the various methods and process of privatisation
exercise in Nigeria. It found that Nigeria's privatisation programmes
faced a number of constraints like ideological opposition, including
opposition from managers and other employees of the firms to be
privatised, absence of competition and regulatory framework,
inaccessibility of credits to potential buyers, and lack of political will
among others. It adopted limited number of options when compared
with the privatisation that took place in the transition economies of
Central and Eastem Europe. Because of the constraints, Nigeria's
privatisation programme fell into fits and was abandoned in 1995, before
it took off again.
Analysis of the performance of a small-sample privatised firms
showed that privatisation led to some improvement in the economic and
financial position of the enterprises. Although, most of the firms
considered were profitable before privatisation, however, there is an
improved performance in most companies after privatisation. The
operational efficiency measures show significant improvement. The
result of output changes is, somehow, mixed, so also are changes in
leverage. Most of the companies' cost of borrowing remains high in
spite of increased access to public equity markets. The observed increase
in share prices indicates strong performance and high capital
appreciation.
Earning per share and dividends show substantial improvement, as
shareholders received more dividend as a result of privatisation. Also,
the wage income of workers increased, as the share of workers income in
the value-added, in most sampled companies, show a significant
improvement. The impact of privatisation on employment is mixed.
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232 Readings in Development Policy and
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Contrary to expectation, privatisation did not lead to unemployment in
some enterprises, as they recorded employment growth after
privatisation. But in others, there was a reduction in the number of
workers employed.
On the part of government's financial position, there is no evidence of
direct government subsidies or subventions in the sampled companies
after privatisation. In terms of taxes, nearly all the sampled firms
recorded a significant increase in payment of taxes to the government.
One can therefore conclude that a lot of revenue accrued to government
after privatisation.
Based on these findings, the government must see privatisation as a
major tool for developing the private sector. Privatisation' s positive
impact on profitability, turnover, investment spending, operating
efficiency, dividends payment and employment level is a clear attestation
to the fact that privatisation has enhanced private sector development in
Nigeria. To consolidate on these achievements, there is the need to give
due recognition to the fact that a necessary condition for the acceptance
of privatisation is a high degree of social usefulness of the privatised
enterprises. This can only be achieved in an environment that is
competitive. Therefore, government should not relent in its efforts on
privatisation, deregulation and commercialisation programmes. Of
utmost importance are transparency in the privatisation process and
satisfactory use of the proceeds realised in the programme. Appropriate
policy and institutional environments for proper implementation of
privatisation have to be provided. The money and capital markets have
to be strengthened and adequate financial resources must be provided to
those agencies implementing the programme. Also, there must be
adequate public information as well as ensuring that all stakeholders are
adequately involved in its implementation.
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A Review of Nigeria's Privatisation Programme 233
REFERENCES
Abumere, S. 1., S. Arimah and A. Jerome (1988), The Informal Sector in
Nigeria's Development Process, DPC Research Report No 1
Ibadan: DPC.
Adams, C. (1994), Privatisation in Sub-Saharan Africa: Issues in
Regulation and the Macroeconomic of Transition, Paper
prepared for the World Bank Project on Transition in Africa in
Socialist Economies, March 1994.
Adam, C., W. Cavendish and P. Ministry (1992), Adjusting
Privatisation. Case Studies from Developing Countries,
London: James Curry.
Aigbokhan, B. E. (1988), Planning, Employment and Income
Distribution in Nigeria, Lagos: Kristal Publishers
Akinnifesi, E. O. (1993), Privatisation of Public Enterprises in Nigeria:
Implementation and Appraisal, Paper Presented at a Joint
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10
EVALUATION OF PROGRAMMES AND
POLICIES FOR SUPPORTING SMALL-
SCALE ENTERPRISES IN NIGERIA
Olanrewaju Olaniyan; Kola Olayiwola;
B.A. Alayande and Semiu Alayande
10.1 Introduction .
The importance of Small-Scale Enterprises (SSEs) cannot beoveremphasised in any economy. This is because they contribute to
the creation of employment opportunities, free competitive market
environments, inputs for large-scale industries, industrial innovations and
the promotion of indigenous technology among others (Olaniyan et al,
1998). The failure and problems of large-scale enterprises in achieving
the desired industrialisation for Nigeria despite the large protection that
they have enjoyed over the years have further boosted the need to
encourage and support SSEs. SSEs are assumed to be in a better position
to boost employment and guarantee a more even distribution of industrial
development in the country (Innang and Ukpong, 1992). The advantages
of the SSEs are further enhanced by the introduction of the adjustment
reforms, which brought to the fore, the flexibility and rapid market
responses of these SSEs.
By the end of 1996, SSEs accounted for 70 per cent of all
employment in the non-formal sector of the economy (First bank of
Nigeria, 1987). Incidentally, SSEs face a myriad of problems that limit
their positive contribution to the economy. It therefore became inevitable
that institutions that package programmes to support the SSEs have to be
set up. The problems faced by SSEs vary from financial constraints to
low skill development of the entrepreneurs, hence such institutions must
cater for these problems. The apparent failure of the large scale import
dependent industries to ensure growth and development and the
239
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240 Readings in Development Policy and
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increasing awareness of the potential roles of SSEs have prompted the
government to shift attention to the promotion of SSEs. As a result, the
development of SSEs is one of the main platforms of government policy
in Nigeria.
In view of the importance accorded the SSEs, government has
initiated many policies and programmes to support them. There have
been a few studies analysing the impact of these policies on the
performances of these SSEs. The recent Iiberalisation and deregulation in
the economy places SSEs as a disadvantaged position vis-a-vis the large-
scale enterprises. It is thus necessary to evolve policies and programmes
to assist these SSEs in achieving their objectives. All levels of
government from the federal to the local governments have made efforts
at promoting the development of SSEs. Incidentally, many of them have
not been able to redress the fundamental problems of finance, inputs and
entrepreneurial skills that these enterprises need. The impacts of these
programmes have hardly been noticeable. In order to have SSEs that
would serve as a catalyst for rapid development, there is the need to
investigate what has happened to the various programmes that
government has initiated in order to refocus them if they have fallen
short of expectations.
Given the foregoing, the present paper hopes to examine the
institutional arrangements for promoting SSEs in Nigeria as well as explore
the policy framework for promoting SSEs in Nigeria. The paper is therefore
structured in a way that examines the structure and characteristics of the
Nigerian small-scale enterprises. This is followed by a review of some
theoretical and empirical issue on small-scale enterprises. The paper also
undertakes an evaluation of programmes and policies of supporting SSEs in
Nigeria and ends with a conclusion. .
10.2 Structure and Characteristics of Nigerian Small-Scale
Enterprises
In Nigeria, there are a plethora of definitions for Small-Scale
Enterprises (SSEs). The Central Bank of Nigeria, in its Monetary Policy
Circular No. 22 of 1988, defined SSEs as having a turnover not
exceeding 500,000 Naira. Also, by 1990 commercial banks defined SSEs
as those enterprises with annual turnover not exceeding 500,000 Naira,
while for the merchant banks, they are defined as those enterprises with
annual turnover not exceeding two million Naira. In addition, the
Companies and Allied Matters Decree of 1990 defines a small company
as one with an annual turnover of not more than two million Naira, and a
net value of not more than one million Naira.
In addition, the National Economic Reconstruction Fund
(NERFUND) puts the ceiling for SSEs at WlO million while the CBN
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Evaluation of Programmes and Policies for 241
Supporting Small-Scale Enterprises in Nigeria
Monetary and Credit Policy Guidelines for 1993 defines a SSE as one
whose total cost, excluding cost of land but including working capital
does not exceed NlO miIIion. The current national definition of SmaIl
Scale Enterprises as adopted at the National Council on Industry is to
classify small scale enterprises as those with total cost (including
working capital but excluding cost of land) above one miltion Naira, but
not exceeding 40 million Naira and with a labour size of between 36 and
100 workers.
Small-scale enterprises playa significant role in both rural and urban
economies of Nigeria and they abound in all sectors of the economy.
According to Adegbite (1997), a study conducted by the International
Finance Corporation in 1972 estimated the number of modern sector
SSEs at 90,000, which was extrapolated to 125,000 in 1983. This number
has been estimated to be above 200,000 in 1997. This however excludes
the numerous ones that are operating in the informal sector of the
economy. While a comprehensive and current data are not available,
there are indications that small and medium scale enterprises account for
about 70 per cent of industrial employment and 10 to 15 per cent of
manufacturing output (CBN, 2000). A sectoral composition analysis of
Nigerian industrial structure by CBN (2000) shows that while over 95
per cent of industrial establishment engaged less than 50 persons; only
2.5 per cent engaged more than 2.5 per cent.
Table 10,1:Structure 0fInd ustri,a IE stabliIShments I.D NI'~eria
Small-Scale Medium-Scale Large- Scale
SIN Activity and Micro Enterprises Enterprises Total
Enterprises
1 Agriculture, Forestry and 43.4 53.8 2.8 100
Fishing
2 Mining and Quarrying 29.9 55.2 14.9 100
3 ManufacturinQ 65.2 31.3 3.5 100
4 Electricity gas and Water 25.0 51.0 24.0 100
5 Consumption 41.7 47.7 10.6 100
6 Wholesale and retail 75.9 23.0 1.1 100
7 Transport, Storage and 46.9 46.9 6.2 100
Communication
8 Financing, Insurance and Real 50.9 45.0 4.1 100
Estate
9 Community, Social and 68.2 30.9 0.9 100
Personal Services
Average 69.68 22.75 7.57 100
Source: CBN (2000)
As revealed by Table 1, the highest concentration of SSEs is in the
Wholesale and Retail Trade sector of the economy, where 75.9% of the
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242 Readings in Development Policy and
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enterprises operating in the sector are either small of micro. This is
followed by the community, social' and' p-ersonal"services sector and the
manufacturing sector where 68.2 and 65.2 per cent of enterprises in the
sectors are either small-scaleor micro-enterprises. In contrast, SSEs are
less prevalent in sectors such as Mining and Quarrying and Electricity,
Gas and Water. An explanation of this is that SSEs tend to concentrate in
sectors where the initial capital is low and also where the technology
required is not too sophisticated. The initial capital in Mining and
Quarrying and Electricity, Gas and Water are very high and the sectors
also require sophisticated technology.
The profile of the small-scale enterprises alone without comparing
them with the medium and large-scale enterprises shows that only 14.58
per cent of SSEs are in the manufacturing sector of the economy (see
Table 2). A vast majority operates in the services and the wholesale and
retail trade sectors of the economy. This can be traced to the fact that
operating in these sectors requires fewer years of apprenticeship as well
as venture capital.
Table 102.. Sectora Ieomposition 0fSSE sm. N'raeri.a (uercentaze
Activity Share in all SSEs(%)
Aqriculture, Forestry and FishinQ 13.70
Mininq and Quarrying 4.68
ManufacturinQ 14.58
Electricity qas and Water 3.59
Consumption Services 9.32
Wholesale and retail Trade 18.97
Transport, Storage and Communication 10.49
Financinq, Insurance and Real Estate 9.38
Community, Social and Personal Services 15.25
100.00
Source: CBN (2000)
In terms of geographical distribution, SSEs are more concentrated in
the southern part of the country with majority operating in the south west
of the country (Table 3). According to 1992 Federal Office of Statistics
(FOS) survey of registered establishments, 45 per cent of all small scale
enterprises are located in the south west of the country, while 31, 12 and
11 per cents of SSEs are located in the South East, North West and North
East of the country respectively.
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Evaluation of Programmes and Policies for 243
Supporting Small-Scale Enterprises in Nigeria
Tahie 103 :Geograpi hOlea ImIStrtlbUtiIon 0fSSE S
Micro- Small-Scale Medium-Scale Large-Scale
Enterprises Enterprises Enterprises Enterprises
South 51 39 41 54
West
South East 25 38 28 21
North West 13 12 16 14
North East 11 11 15 11
Total 100 100 100 100
Source: CBN (2000)
The high concentration of SSEs in the South West of the country is
largely in the capital towns and this is not surprising as the region has the
highest number of large towns and cities in Nigeria, As a result, many
SSEs are established to take advantage of urbanisation and infrastructural
developments in the areas. .
10.3 Review of SomeEmpirical and Theoretical Issues on Small-
Scale Enterprises
There is no unique definition for Small-Scale Enterprises (SSEs) in
the literature. This is because there is no single index for determining a
small or medium scale industry. The indices often used include
employment level, start-up capital, installed capital and annual turnover.
However, confusion usually arises in the use of the size of plants and
equipment to classify firms, since valuation of assets of companies
usually present a problem. Also the definitions of small scale often vary
due to the changes that occur in the economy. The assistance required by
SSEs are many. Literature identified five main types of assistance
required by SSEs in a developing economy. They include financial
assistance, acquisition of management skills, enabling environment,
adequate information and education.
Finance appears to be the most binding constraint to the development
of SSEs. There are essentially two financial problems. The first one is the
relative high cost of financing which can be traced to the high risks
associated with SSEs, and the unrealistic repayment demands or
collateral requirements by the lending authorities in the private sector.
Olaniyan et al (1998) found out that lack of finance is one of the most
important constraints to the development of SSEs in Nigeria. This tends
to support the earlier findings of Ekpenyong and Nyong (1992).
Olaniyan et al (1998a) also noted that SSEs are denied access to credit by
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244 Readings in Development Policy and
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commercial and merchant banks because of their inability to train its
personnel, which in turn affects productivity and expansion. These
formal banks require collateral, which the SSEs find difficult to provide.
They also prefer handling large loans than the small ones needed by the
SSEs, and their loan application procedure is too complex for many
SSEs. The informal credit market has not fared better because of limited
loanable funds available in this type of market.
In addition to getting finance, the management of these funds (if and
when eventually got) is another major constraint. Rather than seeing the
credit as investment funds, many entrepreneurs in developing economies
often see the funds as windfalls especially if they are from government.
Even when they are not from government, there is always no motivation
to pay back the loans.
The policy environment is another major problem that has been
identified in the literature. The macroeconomic framework that existed
before the adoption of the structural adjustment reforms sustained this
problem. The policy frameworks that existed largely favoured the large-
scale enterprises (LSEs) to the disadvantage ofthe SSEs. The structure of
tariffs, interest rate policies, the overvalued exchange rates, import
licensing and quotas, and controlled prices of inputs served as
disincentive to SSEs, thereby creating barriers to their entry into the
product market and impeding the creation and expansion of SSEs.
Although government has often declared their intentions to promote the
activities of SSEs, the policies on ground have fallen short of creating a
conducive environment (see Banigo, 1987).
Access to the right information on production, and distribution
opportunities and strategies are also major constraints. This usually
happens especially where networking is rare among entrepreneurs. The
gap in networking is further widened when firms operate outside clusters
and have no way of linking with other firms in exploiting opportunities
available to them (see Olaniyan 200). Lack of information limits access
to credit facilities. Oladeji (1990) found out in a survey of Oyo State of
Nigeria that only 40.5 per cent and 7.9 per cent of respondents are aware
of Nigerian Bank for Commerce and Industries (NBCI) and National
Economic Reconstruction Fund (NERFUND) loan schemes respectively.
Oguntoye (1987) also identified the problem of lack of adequate
information as very detrimental to the development of SSEs.
Furthermore, low educational attainment by the entrepreneurs is another
important factor militating against the development of SSEs. Most
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Evaluation of Programmes and Policies for 245
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surveys of SSEs in Nigeria reveal that more than 60 per cent of
entrepreneurs' have education level below the secondary school (see
Olaniyan et al, 1998; Usman, 1990).
10.4 Evaluationof SSEs
There are a plethora of studies evaluating the performances of
government programmes on the performance of SSEs (see Yaron, 1992;
Gurgand et al, 1996). One clear consensus from these studies is that the
framework for evaluating these institutions should focus on two main
issues, which are outreach (or accessibility to the programme) and self-
sustainability of the programmes. The outreach index that is often
considered in the literature include the value and number of loans
extended and savings accounts opened, the number and growth of
branches or units and the proportion of targeted clientele served. The
other one is the rate of participation of women. Soyibo et al. (1999)
argue that outreach index is both a short run and long run measure of
performance of financial institutions.
Using micro finance as a case study, Gurgand et al. (1996) submit
that the outreach performance of micro financial institutions in Sub
Saharan Africa is significant. Christen et al. (1994) however revealed
that the number of borrowers reached by the micro-finance programmes
is lower than those reached by successful institutions in Asia and Latin
America.
Sustainability index on its own measures the self-sustainability of a
particular programme or policy. In this case, the programme should
depend less on external sources of funds (especially from government
and/or donor agencies). Chaves and Gonzalez-Vega, (1993) argue that
self-sustainability is the ability of a programme to generate enough
income to cover at least the opportunity cost of all employed factors of
production and its assets, and also being able to honour all its liability as
and when due. One of the most important criteria for the success of any
programme for the development of small-scale enterprises is the ability
to achieve financial sustainability.
Yaron (1992) iden.ifies factors that can make it possible for a
financial programme to be sustainable. These factors include having
positive on-lending interest rates high enough to cover non-subsidised
financial costs and administrative costs; and achieving a high rate of loan
collection. Others include administrative costs through efficient
procedures in its operations.
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246 Readings in Development Policy and
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In a study of four East Asian formal rural financial institutions,
Yaron (1994) utili sed the sustainability index to conclude that they have
achieved a high level of sustainability. However, Rahman (1999) argues
that if the attainment of the sustainability involves' too large a cost in
terms of borrowers, socio-economic impoverishment, it becomes
contradictory to the objective of reaching the proposed SSEs. As a result,
the objective of support programmes should not be sacrificed for
financial sustainability.
10.5 Evaluation of Programmes and Policiesof Supporting Small-
Scale Enterprises in Nigeria
The importance of SSEs has long been recognised by the Nigerian
government. Apart from what is normally contained in the early
development plan documents, the first conscious effort by the federal
government in promoting the development of SSEs is the establishment
of a co-ordinating umbrella called the Small Scale Industries Corporation
(SSIC) in 1971. This SSIC has the responsibilities of providing
extension services, technical and managerial assistance, as well as
training entrepreneurs. Other policies and programmes have also been
initiated for the development of SSEs. These programmes and policies
Cml be classified broadly into two, which are:
i) Entrepreneurship Development programmes and institutions.
ii) Finance and Micro-credit programmes and institutions.
Incidentally, it is often the case that a particular institution will be given the
two types of assistance stated above.
ZO.5.1 Entrepreneurship Development programmes and Institutions
Entrepreneurship plays a crucial role in the development and
performance of small-scale enterprises. The development of
entrepreneurship skills especially of small-scale enterprise owners is
therefore a critical factor in achieving rapid socio-economic development
through an improved performance of small-scale enterprises (Olaniyan,
2001). The Nigerian government has put in place many policies and
programmes aimed at developing and enhancing the productive
capacities of small-scale entrepreneurs. Such programmes include the
following:
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10.5.2 National Directorate of Employment (NDE)
The NDE was established in 1986 to create job opportunity for Nigerians
especially school leavers. The NDE has four core programmes. They are
the vocational skills development programme, the special public works
programme, the agricultural employment programme and the small scale
enterprises and graduate employment programme. Out of these four
programmes, it is only the vocational skills development programme and
the small-scale enterprises and graduate employment programme that are
of direct relevance to this study. The vocational skills development
programme involves four schemes, which are the national open
apprenticeship (NOA), schools on wheels, waste to wealth and the
resettlement schemes. The small-scale enterprises programme on its own
is organised into four job creation schemes: the entrepreneurship
development programme, graduate job creation guarantee, motorcycle
transport and matured peoples' scheme.
The vocational skills development programme has the objective of
assisting youths to acquire marketable skills that would enable them to
be easily absorbed into the work force. However, those of them who opt
out for self-employment would be given tool kits relevant to the
apprentices' trade and working capital as loans under the job creation
guarantee scheme of the directorate.
Under the small-scale industries programme, unemployed graduates
and other young entrepreneurs are encouraged to set up small-scale
enterprises with the provision of loan facilities. For this scheme, a sum of
55 Million Naira was initially deposited with 20 participating banks to
serve as collateral for the loan beneficiaries, who generally do not have
any security for the loan. The maximum loan grantable is N50,000.00 at
nine per cent per annum, which is repayable over five years with one-
year moratorium.
One main distinguishing feature of the loan scheme is that all
participants are required to undergo a two-week training programme in
entrepreneurship development before they can be eligible for loan. This
is because of the belief that it is the combination of low entrepreneurial
skills and low access to finance that prevents graduates from setting up
their own business enterprises.
The programme encountered some financial problems between 1989
and 1991 due to low repayment by beneficiaries but assistance from the
International Labour Organisation helped to revitalise the programme in
1991. Since then, the programme has been able to train more than
132,000 unemployed youths in its National Open Apprenticeship
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Scheme (NOA). In addition, resettlement tools and equipment as well as
loans were given to some graduates of the NOA scheme in order to
prevent already trained persons resurfacing in the unemployment market.
While the NDE is a laudable programme, the major obstacle to the
full realisation of the programme is the shortage of loanable funds as
well as the high rate of default by loan beneficiaries.
10.5.3 Working For Yourself Programme (WFYP)/ Entrepreneurial
Development Programme
The two programmes were 'initiated separately by separate
government agencies but were later merged together. The Working for
Yourself Scheme was initiated by the Federal Government of Nigeria in
collaboration with the International Labour Organisation and the British
Council in 1987. Its objectives are to stem the high mortality rate of the
SMEs, reduce the incidence of loan default as a result of lack of
entrepreneurial skills and to inculcate a culture of self employment into
educated youths who perceive virtually non-existent white-collar jobs as
the only means of survival. The scheme was administered by the Federal
Ministry of Industry.
The programme is designed to encourage participants in the scheme
who are supervised by designated trainers/motivators not only to explore
_ their own skills as a basis for the development of ideas but also to turn
"'-- such ideas into viable business ventures. The programme consists of a six
week-training designed to help individuals recognise their
entrepreneurial skills. Ideas are expected to be developed by the
participants at the training. In a situation where the idea developed by a
participant is considered by the trainer motivator as good, the participant
then seeks financial assistance from the participating banks.
In addition to the WFYP, there was also the entrepreneurship
development programme, which was initiated by the NBCI in 1986. In
order not to duplicate functions and further enhance the performance of
these programmes, both of them were merged in 1987 to provide formal
and comprehensive training package for potential and existing
entrepreneurs. Between 1986 and 1992, 613 persons had been trained but
only 99 projects from the 613 identified projects were funded.
,The major shortcoming of the project is the limited funds for on-
lending to the remaining 514 entrepreneurs as the Nll.5 million
provided by the Federal Ministry of Industries and channelled through
the National Bank for Commerce and Industry was grossly inadequate.
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This was compounded by the fact that banks were not willing to extend
credit to most SSEs who are perceived to be "high risks".
The programme only recorded very limited success due to this lack
of funds. Incidentally, State governments were not positively disposed to
the programme and thus did not provide funds for a minimum of five
projects under the scheme as suggested by the Federal Ministry of
Industry.
10.5.4 Industrial Development Centres
One of the major policy areas and strategies to help the SSEs is the
h ••~stablishment of Industrial Development Centres (IDC). The first one
was established in 1962. They are essentially designed to help small
entrepreneurs with their problems and providing them with essential
services. They are expected to provide industrial estates and 'layouts
where SSEs can rent spaces and benefit from centrally provided
infrastructure. Five major industrial sub- sectors were chosen for
concentration. These are woodworking, metalworking, automobile
repairs, textiles, and leather works. There are four major zonal centers,
which are Bauchi, Oshogbo, Owerri, and Zaria, with all the states of the
federation having a satellite centre each. Each centre has a workshop for
the training of entrepreneurs and staff on efficiency skills, assistance in
product design, processing of loan applications and preparation of
feasibility studies, assistance in plant and equipment installations.
In the first half of the nineties, the IDCs covered 800 companies and
an additional 5000 weak SMEs were identified and assisted. In addition,
feasibility studies were prepared for some intending entrepreneurs.
Incidentally, the performance of the IDC has been constrained by lack of
funds, inadequate staffing, low staff morale and discouraging attitude of
some State governments and entrepreneurs.
10.5.5 Industrial Estates and layouts
This is usually established by states and local governments where a
particular area of a town is set aside for business enterprises. In Nigeria,
we have areas like mechanic villages, sawmill areas, and plank markets.
The belief is that agglomeration and concentration of small firms in a
specific area can lead to collective efficiency through cross fertilisation
of ideas and learning strategies that would be imbued in such a system.
The third national development plan even saw this as the way to
promote industrialisation and hence, the plan proposed to finance the
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creation of a model industrial estate in each state of the federation. The
federal government thus budgeted W60 million as "aid to states" for
industrial estates while the then twelve states of the federation on their
own budgeted a total sum of W626 million for the establishment and
development of these industrial estates. The programme failed to achieve
the desired objective, as most states did not build the industrial estates.
Although the programme was put as one of the fourth development plan
projects, the downturn of the Nigerian economy also thwarted the
laudable project. While this project continuedto be hammered on, there
is little commitment to a successful establishment of such estate.
For example, while WIO million was voted as the Federal
government's counterpart fund for the development of the estates in
1988, only W3 million was released. Also, W8 million was voted as the
Federal government's counterpart fund for the development of the estates
in 1988, only W2 million was released and in the 1990-92 rolling plan, a
sum of W5 million was provided for the development of industrial
estates, but nothing was actually released for the purpose.
The main problem with this policy is the inability of strict
enforcement of an industrial estate. In most states of the federation, the
industrial estates are just a mixture of both residential buildings and
some companies side by side in the same area.
-
10.5.6 Finance and Micro-credit Programmes and Institutions
lO.5.6a Commercial and Merchant Bank Lending
• One of the main functions of commercial and merchant banks is to
provide credit facilities to the customers. It has been generally assumed
in Nigeria that there is a high-unsatisfied demand for credit. Among
those whose credit demand are not satisfied include small scale
enterprises, who do not have the capacity to demand for large credit
facilities that commercial and merchant banks would be interested to
give.
As a result, the federal Government of Nigeria through the Central
bank of Nigeria has always mandated these banks to give certain
proportions of their credit to the small-scale enterprises. This proportion
was 10 per cent in 1971 when the scheme started and was increased to 16
.and 20 per cents in April, 1980, and January 1990 respectively. In order
to encourage compliance, stiff penalties were imposed on non-
compliance. One of such penalties is the forfeiture of the amount of
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shortfalls of such loans by individual banks to the Central Bank of
Nigeria. The extent of compliance by banks to this credit guideline is
given in Table 1 for commercial banks and Table 2 for merchant banks.
As revealed by Table 4, after a period of non-compliance by
commercial banks, the banks have actually lent more credit to the SSEs
than the prescribed proportion. It should be noted that the turning point
coincided with the introduction of structural adjustment in Nigeria. This
is because many banks then recognise the potentials of SSEs as a
potential engine of industrial growth given the structural problems that
the large enterprises confront in Nigeria. The merchant banks on their
own were not meeting the target until 1989 (see Table 5). Unlike the
commercial banks whose credit exceeded the total permitted by the credit
guideline until the policy was scrapped in 1996, the proportion of credit
to SSEs by thepmerchant banks was lower than the stipulated proportion
in 1995 and 1996. This can be traced to the nature of merchant banks
itself which is to deal with long term finances which many SSEs are not
interested in.
Table 10.4: Prescribed and Actual Credit to the SSEs by Commercial
Banks
Year Total Lending Lending to SSE Ratio of SSE Stipulated Deviation fromlending to Total Ratio Stipulated Ratio
1988 19561.200 4166.50 21.30 16.00 5.30
1989 22008.000 4731.70 21.50 16.00 5.50
1990 26665.500 5413.10 20.30 20.00 0.30
1991 37646.900 7572.30 20.11 20.00 0.11
1992 40731.600 9785.60 24.02 20.00 4.02
1993 58158.900 15462.90 26.59 20.00 6.59
1994 89756.000 29552.50 32.93 20.00 12.93
1995 140225.400 29341.60 20.92 20.00 0.92
1996 157568.800 42302.10 26.85 20.00 6.85
Source: Central Bank of Nigeria (various Issues)
The policy of sectoral allocation of credit to SSEs was abolished in
1996 in line with the wide range liberalisation of the activities of the
commercial and merchant banks. It is assumed that the liberalisation of
credit administration can actually help the SSEs especially for
commercial bank loans as the commercial banks were already giving
credit above the stipulated minimum. However, the Medium scale
enterprises that are well organised will be better off in this arrangement
because they are the ones likely to have the required collateral demanded
by the banks and also have a lower mortality rate which is a risk that
commercial and merchant banks want to avoid.
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Table 105" " Prescrr"bed andA ctua IC redlIt to the SSEs b)YMerc han t Banks
Stipulated Deviation from
Year Total Lending Lending to SSE Ratio of SSElending to Total Ratio StipulatedRatio
1988 4289.800 0.983 0.023 16.00 -15.98
1989 5668.200 1251.000 22.070 16.00 6.07
1990 8081.000 2090.000 25.863 20.00 5.86
1991 9895.900 2808.000 28.375 20.00 8.38
1992 14068.300 3467.200 24.645 20.00 4.65
1993 16917.100 3910.000 23.113 20.00 3.11
1994 17319.800 4052.700 23.399 20.00 3.40
1995 27945.500 5049.500 18.069 20.00 -1.93
1996 33516.600 5595.800 16.696 20.00 -3.30
Source: Central Bank of Nigeria (various Issues)
10.5.6b Community Bank
A community bank is a self-sustaining financial institution owned and
managed by a community or a group of communities for the purpose of
providing credit, banking and other financial services to its members
largely on the basis of their self recognition and credit worthiness. The
community bank was set up in 1991 in order to encourage communities
to pull resources together for investment purposes. The belief was that
this framework would provide avenue for small-scale enterprises that
hitherto has limited access to finance from formal banking institutions to
have access to credit. .
Table 106 :Indireators 0fC ommunliltY Banks Performance m" N"I~erla
Year Total Loan and Total Loan
deposits Advances assets Deposit Ratio
1991 76.7 15.9 126.9 20.73
1992 474.6 132.2 774.4 27.86
1993 2188.2 708.2 3252.3 32.36
1994 2721.2 1147.8 4117.2 42.18
1995 3344.6 1366.4 4448.1 40.85
1996 3356.4 1480.1 4947.9 44.10
1997 2730.9 1501.2 4393.4 54.97
1998 3870.8 1972.5 5320 50.96
1999 5648.4 2997.5 8943 53.07
Source: "entral Bank of Nigeria (vanous Issues) .
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Community banks are located all over Nigeria with more than 60 per
cent in rural areas. Community banks are usually jointly owned by
community development associations, co-operative societies, clubs and
private individuals in the locality. Most of the lending of community
banks in Nigeria is directed at micro enterprises and SSEs. The
performance indicators of community banks are presented in Table 6.
Community banks have made tremendous growth from one bank in
1990 to more than 1014 in 1999. The growth can be traced to the low
capital requirements relative to the conventional banks and the less
stringent operational requirements relative to the conventional banks. As
a result, as revealed from Table 3, assets and deposits in the banks
increased over the years. Incidentally, loans and advances have been
increasing at a rate higher than the rate at which deposits are mobilised.
Hence, the loan deposit ratio, which was 20.73 in 1991, increased over
the years to 53.37 by the end of 1999. During the mid nineties, many
community banks suffered from the financial sector distress, which
adversely affected their operational performance. The problem was more
pronounced because of the weak capital base which was initially put at
W250,000.00. The capital base was subsequently increased to W3
million. This is based on the belief that it would sustain their
sustainability and outreach.
JO.5.6c Nigerian Bank For Commerce and Industries (NBC/)
The Nigerian Bank for Commerce and Industries was established in
1978 and jointly financed by the Federal Government of Nigeria and the
Central Bank of Nigeria, with the objective of providing banking
services to the business community, with particular emphasis on small
and medium enterprises. NBCI was an offshoot of the Small-Scale
Industries Credit Scheme (SSICS), which was established in 1971 to give
credit to SSEs under more liberal conditions than those of commercial
and merchant banks. NBCI was established on the belief that it would
bring some prudence and financial discipline to the administration of
, credit than what obtained under the SSICS.
The bank has experienced low-level performance since the early
eighties. Approvals were made for loans of W71O.49 million during the
period of the eighties, but only 40 per cent of these, which amounted to
W281.62 million was disbursed. In fact the number of projects sanctioned
reduced considerably, and only 36 projects were sanctioned in 1990 in
contrast to 173 that was sanctioned in 1987.
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Table 10.7. Indicators of Per ormance 0fNBCI' III Nigeria
Year Total Loans Annual Total Assets Annual Loan
and Growth rate (Wmillion) Growth rate Asset
Advances (Percent) (Percent) Ratio
(Wmillion)
1990 240.2 -40 567.3 -21.1 42.34
1991 472.3 96.6 1091.2 92.3 43.28
1992 777.6 64.6 1245.5 15 62.43
1993 1761.6 126.5 1916.6 52.8 91.91
1994 2006.1 13.9 2355.2 22.9 85.18
1995 2179.2 8.6 2529.7 7.4 86.14
1996 14 -99.4 867.2 -65.7 1.61
1997 13.6 -2.9 849.5 -2 1.60
1998 1440.3 10490.4 2549 200.1 56.50
Source: Central Bank of Nigeria (various Issues)
By the beginning of the nineties, serious problems have been noticed,
as the bank encountered serious liquidity and operational problems
towards the end of the eighties. This was caused by inadequate financial
resources and rampant mismanagement of the funds, poor administration
and political interference. This led to the appointment of a sole
administrator in 1992, injection of capital by the federal government and
a wide range of rationalisation was also embarked upon. This includes a
reduction in the number of branches as well as the use of other fund
saving measures. Even then, for the major part of the nineties, the loan
deposit ratio was very high insinuating the presence of a large proportion
of non-performing loans. As a result, the bank has problems of
performing its role of making loanable funds available to small and
mediurn scale enterprises for more than a decade.
Table 10 8;NBCI A.pprova s andD'ISbursements (1981-1990)
Year Number of approval (W Disbursements (W Percentage of
million) Million) disbursements
1981 55.47 12.67 22.84
1982 29.88 27.16 90.90
1983 22.36 31.9 142.67
1984 0.2 0.24 120.00
1985 2.87 9.64 335.89
1986 16.88 17.14 101.54
1987 117.75 21.15 17.96
1988 142.96 15.92 11.14
1989 89.72 52.1 58.07
1990 132.4 87.7 66.24
Source: Central Bank of Nigeria (various Issues)
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lO.5.6d The People's Bank
The People's bank was established in October 1989. The objectives of
the bank include inter-alia complementing government efforts in
improving the productive capacities of the economy and providing
access to credit by people who do not have such - access at the
conventional banks. The bank gives loans mainly to micro and small-
scale enterprises and when such loan is given, no collateral is required
and no interest is charged apart from a five per cent service and
administrative charge. Loan repayment is spread over one year with a
moratorium of two weeks. Loan beneficiaries must however be members
of approved craft union comprising fifteen or more persons who need not
be in the same trade or business.
After adequate assessment, and verification, by the bank's field
officers, loans are given in batches of five with the Chairman and
Secretary receiving their loans last. The group is collectively responsible
for any loan default. This helps in reducing transaction costs to the
parties involved and also helps in achieving a higher rate of loan
repayments.
At inception, the loans offered were very small ranging from 50
Naira to a maximum of 200 Naira. But these have been reviewed upward
to between 5,000 and 20,000 Naira. At inception, People's Bank does not
accept savings deposit and the major source of funding is subventions
from the government. This has however reduced over the years. One of
the reasons for this is that the bank is becoming self-sustaining as it
began to accept savings from individuals and groups. Incidentally, there
are limitationli because the ability to mobilise savings is constrained by
relative low lending rates.
Table 10.9 presents some indicators of the performance of People's
Bank. In terms of outreach, the People's Bank is well spread over the
country and the number of branches increased tremendously from one in
1990 to 278 by 1997. In addition, the loan and advances profile of the
bank is also encouraging with a loan-deposit ratio of close to 100 per
cent in 1997.
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Table 10.9: Indicators 0f People 'Bs anksP ertormance m. Nl'J!ena
Year Number of Subven- Total Loans and Loan Total
branches tion from deposits Advances Deposit assets
Govern- Ratio
ment
1992 228 451.7 181.5 136.7 75.32 600.6
1993 271 489.2 287.8 167.3 58.13 842.1
1994 275 696.3 275.4 178.2 64.71 928.3
1995 278 165.0 363 340 93.66 1015
1996 2.7B 8O_G ~5~.5 'ijo\) 99.1)' 1073
1997 278 165.0 385.3 360.1 93.46 1137.4
Source: Central Bank of Nigeria (various Issues)
10.11.5 National Economic Reconstruction Fund (NERFUND)
NERFUND was established by decree 25 of 1988 as a scheme to
provide long-term loans to SMEs in local and foreign currencies. The
federal government of Nigeria and the Central Bank of Nigeria provided
funds for the scheme by contributing 190 million Naira and 100 million
Naira respectively. Counterpart funds were expected to come from the
African Development Bank and the World Bank. The objective of
NERFUND is to help SSEs have access to relative long-term loans (5-
lOYears) at concessionary interest rate in order to finance both
investments and working capital. Loans are given in both domestic and
foreign currencies while the interest rate is expected to be lower than the
prevailing interest rates. The payment of principal and interest is to be in
Naira. The foreign currency loans are also paid in Naira equivalent of the
prevailing official (A)F EM exchange rate. The risk involved in the loan
is shared between the SSEs and the participating banks. While the SSEs
bear the foreign exchange risk, the participating banks bear the credit
risk.
NERFUND's loans are channelled to the beneficiaries through
participating banks, although it may disburse funds directly to machinery
and equipment suppliers on behalf of the participating banks or the
beneficiaries. In any case however, the participating bank is still
responsible to NERFUND for the servicing of the loan, which means that
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the participating bank bears the risk associated with loan default by the
beneficiary. As a result, participating banks are responsible for
evaluating eligible project proposals, the approval of loans in accordance
with normal banking practice as well as disbursements, monitoring and
recovery of loans.
For any SME to benefit from this scheme, it must be wholly owned
by Nigerians and they must go through participating banks. By the end of
1995, a total of 481 projects in different parts of the country had been
sanctioned with a total cost of US$289.29 million and N1039.8 million.
Out of these amounts, US$140.0 million and N448.7 million were
disbursed in foreign and local currencies.
The scheme has not been able to achieve its set objectives because of
the inability of entrepreneurs to come up with the minimum capital
requirements of 25 per cent, even where approvals have been given. In
addition, many participating banks were unwilling to fund SSEs because
of the exchange risks and high rate of defaults by beneficiaries: Many
SSEs are also wary of the high volatility of the exchange rate in Nigeria.
This problem was however reduced when the National Insurance
Corporation of Nigeria entered into an agreement with NERFUND and
stated what is regarded as the NERFUND-NICON credit insurance
scheme. Under the scheme, participating banks can insure up to 50 per
cent of the cost of new projects. The interesting aspect of this scheme is
that the debtor organisation is not a party to the contract although the
cost of insurance is transferred to it. The scheme covers only two types
or risks. First is the failure to repay the loan due to insolvency of the
debtor and second is the case of protracted default. In order to reduce the
risk, both NERFUND and the participating banks are primarily
responsible for the assessment of the application for loan.
There is also the under-funding of NERFUND itself. NERFUND has
often been unable to on-lend enough funds to the participating banks to
back up approved projects.
10.6 World Bank Assisted Small and Medium Scale Enterprises
Loan Scheme
This is one of the specialised financial schemes introduced by the
CBN and the Federal Ministry of Finance on behalf of the federal
government of Nigeria to facilitate credit delivery to SSEs and boost
their contributions to a diversified production base. The Small and
Medium Scale Enterprises Loan Scheme is a World Bank assisted loan
scheme. The objectives of the loan scheme are:
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i) to enable small and medium scale entrepreneurs become more
competitive through investment in the rehabilitation and
expansion of their enterprises and the establishment of new
ones;
ii) to revive production and improve performance of viable
enterprises which are currently facing financial difficulties;
iii) to support a programme of assistance to micro-enterprises;
and,
iv) to make the deliveries of technical support services more
demand driven and responsive to the needs of SMEs.
The first agreement between the federal government of Nigeria and
the World Bank was signed in 1984 under the SME I loan scheme, and
was administered by the Nigerian Bank for Commerce and Industries.
Under the SME I loan scheme, a total of 126 projects were financed
while total disbursements amounted to US$2I million or 52 per cent of
the total project fund. The projects covered a variety of SSEs with
manufacturing SSEs receiving the largest share of 62.5 per cent followed
by agro-allied SSEs, which received 15 per cent of the loan. The lowest
proportion of 3.2 per cent each went to agriculture and mining SSEs
respectively.
The SME II loan scheme commenced operation in 1990, but the
administration was by the Central Bank of Nigeria. The loan was
disbursed through a number of participating banks, comprising
commercial, merchant and development banks.
The fund for this scheme was to be provided by three institutions, the
World Bank, SMEs' entrepreneurs and participating banks in the ratio
65, 19 and 16 per cents respectively. The facilities to be provided by the
scheme are:
i) Line credit which is a loan for fixed assets and working capital
ii) Loan for restructuring sick but potentially viable SMEs
iii) Loans for leasing industrial and business equipment
v) Loans to prepare feasibility and implementation studies.
By June 1996, US$107 or 80.62 per cent of the US$133 million
allowed by the World Bank has been disbursed for 187 projects through
the participating banks. Although reports received from the participating
banks indicate that the scheme has generated employment for 40,000
people, 187 SSEs appear to be small compared to the number of SSEs
operating in the country. Although the scheme was suspended in March
1994, loans to 79 projects have been fully repaid as at the end of
December 1997. This forms part of the WI,I57.1 million received from
the participating banks by the CBN. However, some of the loans became
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bad as ten out of the twenty-seven participating banks became distressed
during the period, thereby making it difficult or impossible to service the
loans since 1994. It should be noted that less than half of the original
loan package was disbursed at the end of the project life. Some of the
reasons for this include the fact that there was a lack of interest by
participating banks because of the credit risk exposure. In addition, there
were insufficient bankable projects by entrepreneurs as well as
arguments over who should bear the foreign exchange risk exposure.
Also there were sharp practices by entrepreneurs who divert funds into
non-project related activities.
10.7 Conclusion
This paper has attempted to identify some of the key policies and
programmes that have been initiated to support the development of
small-scale enterprises in Nigeria. The policies and programmes are
divided into two, which are those aimed at developing the
entrepreneurial skills of the SSEs and those that are aimed at enhancing
the access of SSEs to credits. For most of the programmes, loanable
funds are always inadequate and this affects the outreach of individual
programme. One reason lies in the fact that there are too many
programmes and policies, and government is the main financier of most
of them. In a situation, where the government is the major provider of
these funds, the various programmes compete for these funds. At the end
of the day, none of the programmes is able to meet the finance
availability objective. On a few occasions where certain institutions are
to source for their own loanable funds, the coverage is often small and
they are always constrained by lack of funds. A policy prescription from
this is that the various programmes and schemes by the government
should be streamlined so as to reduce duplication of efforts.
Furthermore, it should be noted that virtually all the programmes
have no system of external evaluation. For the success of any programme
or policies, there is the need for an entirely independent assessment free
from any involvement by the sponsors of the programme. The
assessment has to be periodic so as to identify danger signals and
unexpected developments. These early warning signals would help in
identifying the steps to take to remedy the-situation.
In order to solve the problem of lack of interest by commercial and
merchant banks in extending credit to the SSEs, a policy of credit
guarantee and insurance schemes for SSE credit can be considered. The
only institution that has credit guarantee scheme is NERFUND, which
incidentally has the problem of adequate funding for its activities.
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Also, it was found that some of the loans outstanding are non-performing
loans. This is due to inefficient portfolio management, as reflected in
poor accounting and record keeping as well as political and social
interference with recruitment of personnel, project selection and loan
disbursements. As a result, there is the need to ensure transparency in the
operation of the schemes as well as good management skills. Loan
assistance should be given only to viable projects and should be
effectively monitored.
The various programmes and schemes are established and managed
without involving the proposed beneficiaries. Attempts should be made
to include the SSEs entrepreneurs in the programmes designed to assist
them.
It is widely accepted that the cost of doing business in Nigeria is very
high compared to other nations. This is partly due to the infrastructural
decay, which increased the unit cost of basic infrastructure, used by the
SSEs. A major policy of developing the potentials of SSEs can be in
improving the performance of infrastructure in the country.
Despite the array of institutions and policies on the ground to help
the development of SSE in Nigeria, there are evidences that most of the
measures have isolated intervention with significant limitations. Most of
these institutions have insufficient links with the SSEs and are unable to
meet their fairly diversified needs. They apply a rigid set of rules and
regulations and suffer from bureaucratic inertia, inability to innovate and
take risk. In addition, experience have shown that policies on paper are
usually different from policies on ground. The average Nigerian
entrepreneur is not aware of the existence of these supporting schemes
and where they are, they are unaware of the processes of enjoying the
schemes. As a result, each scheme should renew its efforts to increase the
awareness level of what it does and how it is being done so as to increase
the number of SSEs that would enjoy the programme.
We can then conclude that the various policies and programmes
initiated by the government in Nigeria to support SSEs have made
modest contributions and that there is the need to evaluate and rationalise
some programmes in order to achieve better performance in this sector.
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REFERENCES
Adegbite, O. (1997) "SME Development Under The _ Structural
Adjustment in Nigeria", Small Enterprise Development 8(4).
Banigo, E. E. (1987) " Financing of Small Scale Businesses", Paper
presented at a seminar of the Nigerian Marketing Association,
Lagos, October.
Central Bank of Nigeria (2000) The Changing Structure of the Economy
and Implications for Development Realm Communications Ltd.,
Lagos.
Central Bank of Nigeria (various Issues) Annual Reports and Statement
of Accounts Lagos CBN pp 124-125.
Chaves, R. A and C. Gonzalez-Vega (1993) "The Design of Successful
Rural Financial Intermediaries: Evidence from Indonesia"
Economics and Sociology Occasional Paper 2059, Dept of
Agricultural Economics and Rural Sociology, Ohio State
University.
Christen, R. P. E. Rhyne and R. C. Vogel (1994) "Maximising the
Outreach of Micro enterprise Finance. "The Emerging Lessons of
Successful Programmes" Consulting Assistance for Economic
Reform Paper IMCC: Washington DC.
Ekpenyong and Nyong (1992) "Small and Medium Enterprises in
Nigeria: Their Characteristics, Problems and Sources of Finance"
AERC Research Paper 16, Nairobi AERC.FOS (Various Issues)
Annual Abstract of Statistics, FGN Printers, Lagos.
First Bank of Nigeria (1987) Business and Economic Report, FBN:
Lagos, March.
Gurgand, M, G. Perderson and J Yaron (1996) "Rural Finance
Institutions in Sub-Saharan Africa: Their Outreach and
Sustainability" Savings and Development 20(2).
Innang, E.E. and G.E. Ukpong (1992) "A Review of Small-Scale
Enterprises Credit Delivery Strategies in Nigeria" CBN Economic
and Financial Review 30(4).
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Oguntoye O.A. (1987) "Problems and Constraints to Rapid Development
and Growth of Small-Scale Industries in Nigeria" in A.M. Osoba
(ed.) Towards the Development of Small-Scale Industries in
Nigeria, NISER, Ibadan.
Oladeji O. (1990) "Small-Scale Businesses in Nigeria: A Review of
Sources of Financing", An unpublished MBA Project, University
oflbadan.
Olaniyan Olanrewaju (2001) "Entrepreneurship and the Development of
Small Scale Enterprises in Nigeria", Mimeo, Department of
Economics, University of Ibadan.
Olaniyan 0., K. Olayiwola and B.A. Alayande (1998a) "The Response
of Small Word Working Enterprises to Adjustment Reforms:
Evidence from Nigeria". Africa Journal of Economic Policy, vol.
4, No 1 December, pp 4, 115.
Olaniyan Olanrewaju, B. A. Alayande and W. K. Olayiwola (1998)
"Small Scale Enterprises and Adjustment to Reforms in Nigeria",
Technical Report Submitted to the African Economic Research
Consortium (AERC), Nairobi, Kenya. February 1998.
Soyibo, A., A. O. Edun, E. O. Ogunkola and A. Ajiboye (1999)
"Assessment of the Performance of Nigeria's Rural Financial
Institutions", Final Report Submitted to the Central Bank of
Nigeria and the World Bank.
Usman, A. O. (1990) "Government Finance of Small and Medium Scale
Industries: Kwara State as a Case Study" An unpublished MBA
Project, University of Ibadan.
Yaron J. (1992) "What Makes Rural Finance Institutions Successful?"
The World Bank Research Observer 9(1) 49-70.
I .
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11
BUILDING THE NIGERIA PRIVATE
SECTOR CAPACITY: AN ASSESSMENT OF
PROBLEMS AND POLICY OPTIONS
Sylvester I. Abumere, Ben E. Aigbokhan,
and Azeez O. Mabawonku
11.1 Introduction
After about fifteen years of the adoption of the private sectordevelopment policy under the structural adjustment programme, the
aggregate contribution of the Nigerian private sector to the economy is
still very low. The questions that policy makers and analysts now ask
are: what is the capacity of the Nigerian private sector to take up a
leading role in the economic development of the country and how can
this capacity be enhanced or built? In this regard, capacity, according to
Giwa (1997), may be defined as the human resources, institutions and
practices that enable an organisation to achieve its economic and/ or
development goals. Capacity building therefore entails investment, not
only in human capacity but also in institutions and practices. The
institutions for private sector operations include the policy environment,
the rules and regulations and the enforcement characteristics of the rules
and also the financial system. To provide answers to the questions raised
above therefore, it is important to understand the profile of the workforce
in the private sector and their access to continued education and learning
opportunities; the rules and regulations that characterise the operating
environment including the infrastructural facilities; and the availability of
capital both in terms of financial resources and technologies. An earlier
study, which attempts to provide an insight into some of these factors is
limited to small scale industries. Nonetheless, it found as follows that
(CASSAD,1992):
263
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i) Although most of the industries started with less than N50,000,
many of them have appreciated in value markedly, with some
valuing at over N5 million as at February - March 1992,
ii) The most common source of start-off fund was personal
savings, many supplemented this source by loans from banks
and especially the government loan scheme,
iii) A vast majority of the industries produced consumer items,
which conditioned their location. Accordingly, availability of
market for the final products came out to be the most important
location factor. Other important factors included availability
of land both for initial development and for expansion,
hometown attraction, and availability of raw materials, in that
order,
iv) The employment history of the enterprises showed a rather
unsteady trend. Some have waxed and waned over the years,
v) Generally speaking, most of the industries were employing less
than 20 people, while a few employed about 30,
vi) Contrary to the expectations of the small-scale industries policy
of government, many of the industries were importing their
raw material,
vii) The major problems include:
(a) incessant plant stoppages due to lack of spares, non-
availability of raw material, power cuts, dry taps and fuel
shortages,
(b) harassment by government agents
Private sector development, apart from stable macroeconomic
policies, depends on structural and institutional reforms which must be
aimed at (World Bank, 1995):
• improving the business environment;
• reducing the drain of public enterprises;
• developing a robust financial system;
• increasing the supply and quality of human resources; and
• providing functional infrastructural facilities.
Several authors have provided a comprehensive review and analysis
of the government policies and programmes in each of the five areas.
Obadan and Ayodele (1998) for example gave a comprehensive analysis
of the privatisation and commercialisation policy, which is aimed at
reducing public sector participation in the economy. Jerome (1999)
analysed the different measures that have been put in place by
government to improve the business environment in the country while
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Building the Nigeria Private Sector Capacity: 265
An Assessment of Problems and Policy Options
Olayiwola and Busari (2002) reviewed the economic reform programmes
of government as they affect the private sector development. The
emphasis here is therefore on the policies and programmes, which are
aimed at enhancing the institutional (financial access, incentives and
infrastructural facilities) and human capacities of the private sector.
Although in literature, private sector development relates primarily
to the formal, organised private sector (OPS), government recognised the
fact that the informal private sector (IPS) is much larger than the OPS
(representing up to 75% of total employment, Abumere et ai, 1998),
hence the policies and programmes for private sector institutional and
human capacity development can be divided into two: Formal Sector
Capacity Development and Informal Sector Capacity Development.
This study gives very useful insight into the problems and challenges
of the private entrepreneurs engaged in small scale industries: The study
assesses the existing institutional, infrastructural and technological
capacity of the private sector and how these may have affected its
performance; identifies the deficiencies or gaps that exist, and the needs
there are in human, institutional, infrastructural and technological
capacity, as well as proffers policy options and strategies that may be
used to enhance or build the capacity of the private sector for greater
productivity and economic performance.
11.12.0 Capacity Development Programmes
11.2.1 Formal Sector Capacity Development
a) Polices and Programmes to Enhance Human Capacity: The national
policy on education is very robust to guarantee adequate manpower
for the private sector. It was stated in the policy document that:
i. Education will continue to be highly rated in the national
development plans, because education is the most important
instrument of change, as any fundamental change in the
intellectual and social outlook of any society has to be preceded
by an educational revolution;
II. Lifelong education will be the basis for the nation's educational
policies;
Ill. Educational and training facilities will be multiplied and made
more accessible, to afford the individual a far more diversified
and flexible choice;
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IV. Educational activity will be centred on the learner for
maximum self-development and fulfilment;
v. Universal basic education in a variety of forms, depending
on needs and possibilities, will be provided for all citizens;
vi. Efforts will be made to relate education to overall
community needs;
VB. Educational assessment and evaluation will be Iiberalised by
basing them in whole or in part on continuous assessment of
the progress of the individual;
VBJ. Modem educational techniques will be increasingly used and
improved at all levels of the educational system;
IX. The educational system will be structured to develop the
practice of self-learning;
x. At any stage of the educational process after primary school,
an individual will be able to choose between continuing his
full time studies, combining work with study, or embarking
on full-time employment without excluding the prospect of
resuming studies later on.
In line with these goals, there are clearly defined objectives and
measures of implementation for pre-primary, primary, secondary, and
tertiary education. Special emphasis was given to technical education as
well as adult and non-formal education. Technical education was
defined as that aspect of education, which leads to the acquisition of
practical and applied skills as well as scientific knowledge. It includes
the pre-vocational and vocational schools at post-primary level; the
Technical Colleges; Colleges of Technical Teacher Education;
Polytechnics and the University at the post-secondary level.
Apart from providing functional literacy education, the objectives of
the adult and non-formal education in the country includes to provide
further education for different categories of completers of the formal
education system in order to improve their basic knowledge and skills; to
provide in-service on-the-job vocational and professional training for
different categories of workers and professionals in order to improve
their skills; and to give the adult citizens of the country necessary
aesthetic, cultural and civic education for public enlightenment. In line
with the policy to provide in-service and on-the-job training to formal
sector employees, there is the Centre for Management Development
(CMD) and the Nigerian Institute of Management (NIM). These
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institutions. it would seem. tend to cater for the needs of large scale firms
and the facilities may therefore be less suited for small scale firms.
b) Policies and Programmes to Enhance Institutional Capacity: These
include policies and programmes to provide access to funds,
incentives and infrastructural facilities. To provide finance to formal
enterprises. there are finance institutions such as Commercial Banks,
Merchant Banks and the Stock Exchange. There are other
Institutions such as the Nigerian Economic and Reconstruction Fund
(NERFUND). the Nigerian Bank for Commerce and Industry
(NBC!) and the Nigerian Industrial Development Bank (NIDB). The
NIDB provides loans as well as credit related services to small and
medium scale enterprises. The same is true of NERFUND, which
was set up by the Federal Government in 1989 to provide loans to
small scale enterprises. The Fund is supervised by the Federal
Ministry of Finance, which has appointed specific commercial and
merchant banks to disburse the loans. The NBCI was set up by the
Federal Government in 1973 to provide medium to long-term loans
to industries. Since its inception, the NBCI has financed well over
two thousand enterprises around the country. In addition to
disbursing loans from its own resources, the NBCI also administers a
special loan fund on behalf of the Federal Ministry of Industry. The
Bank has also often secured loanable funds from the World Bank for
disbursement to qualified enterprises.
In August. 1977, the National Council on Industries was set up,
consisting of the Federal Minister of Industry 'and the Commissioners of
Commerce and Industry in all States of the Federation. A major
objective of this Council is to urge Federal, State and LocafGovemments
and their agencies to patronise the goods of local enterprises thereby
boosting demand, which will have an impact upon capacity utilisation.
By 1988, the Federal Government adopted a number of policies aimed at
offering generous tax relief of up to 20% to small and medium industries.
The Federal Government also directed merchant and commercial banks
to stimulate increased availability of equity capital to small and medium
scale enterprises and to take equity positions in industrial enterprises.
The major initiative to enhance the provision of basic infrastructure
for business development in the country is the privatisation and
commercialisation policy, which was introduced in 1988. By this policy,
most of the public enterprises producing utilities (electricity, water,
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268 Readings in Development Policy and
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communication and transportation) became fully/partially
commercialised. The telecommunication sector and the downstream
petroleum sub-sector have also been liberalised so that private operators
are now involved in the provision of services. There are also plans to
privatise the PE in the next phase of the privatisation exercise in the
country (Alayande, 1999).
Informal Sector Capacity Development
Apart from institutional and human resource capacity in the informal
sector, capacity building in the formal sector should also promote the
transition from informality to formality, since no meaningful capacity
can be developed in informal enterprises which are not directly under the
influence of government. The fact that informal enterprises are not
directly under the influence of government implies that there are a very
few policies and programmes (at the Federal, State and Local levels) that
directly address the sector. Many of the existing government policies and
programmes are devoted almost entirely to small scale and medium
enterprises. However, since informal enterprises represent the lower limb
of the small scale enterprises continuum, the policies made for small and
medium scale enterprises also apply to informal enterprises. In what
follows therefore, we review existing government policies and
programmes that address the informal sector directly and indirectly.
a) Policies to Regulate the Enterprise: These are policies making
provisions for the regulation of enterprises in Nigeria. It includes the
Companies Act of 1968, Business Names Act of 1961, Factories Act
of 1956, Labour Act of 1974', Workmen's Compensation Act of
1942, the Nigerian Standards Decree, the Enterprises Promotion
Degree of 1977, the Trade Union Act of 1973 and the Nigerian
Patents and Designs Act of 1970.
The Companies Act, especially the Business Names Act, stipulates
the procedures for registering a business. It says that anyone wanting to
carryon a business with a name other than his real name or which
includes any words other than those of the true name(s) of the owner(s),
must register the business. Needless to say that most informal
enterprises do not register. The Factories Act, Labour Act, Workmen's
Compensation Act and the Trade Union Act were all designed to protect
workers and apprentices and prevent them from being exploited. Some of
the clauses attempt to prevent child labour while others attempt to
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establish minimum standards for workplaces, while at the same time
allowing for the free association of workers. The Enterprises Promotion
Decree of 1977 sought to reserve small enterprises exclusively for
Nigerians. This was aimed at building indigenous capacity in the sector.
There are, lastly, regulations designed to improve standards, protect
patents and encourage innovations and designs. These include the
Nigerian Standards Decree and the Nigerian Patents and Design Act.
b) Policies to Enhance Human Capacity: There are programmes and
policies devoted to enhancing human capacity in the informal sector.
These include the National Directorate of Employment (NDE), the
Industrial Development Centres (lDCs), and the Crafts Centres
operated by State Governments.
The NDE was set up in 1986 to promote entrepreneurship and
combat the problem of unemployment. To achieve these; the NDE
operates several programmes including the Small-Scale Industries
Graduate Employment Programme, the Youth Employment and
Vocational Skills Development Programme, the Agricultural Special
Public Works Programme and the Mature Peoples' Programme. All
these are meant to enhance skills and entrepreneurship among small-
scale industry operators including informal enterprises. The Industrial
Development Centres (lDCs), with offices in all the Nigerian States and
the Federal Capital Territory, provide technical support services to small
enterprises. They also provide operations, management and marketing
advise in addition to conducting on-the-job' training for artisans and
technical personnel (Resman, 1992). Lastly, IDCs train entrepreneurs in
project development, management methods and industrial practices. The
Craft Centres, operated by many states in Nigeria also enhance capacity
building in the informal sector in many ways. According to Resman
(1991), the Craft Centres equip the students with practical knowledge
and skills required for artisan jobs such as carpentry, bricklaying,
masonry, etc, and craft jobs such as wood carving, pottery, mat and
basket weaving, cane furniture making, etc. The same is true of Trade
Centres and Technical Colleges which provide formal education in
various artisan jobs such as building, carpentry, wood works, etc.
c) Policies to Promote Access to Credit: These include such
programmes as the People's Bank, Community Banks, Family
Support Programme (FSP), Family Economic Advancement
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270 Readings in Development Policy and
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Programme (FEAP) and National Directorate of Employment
(NDE). The Peoples' Bank was established in 1989 to provide loans
to small enterprises that would ordinarily not have access to credit
from conventional banks and institutions. This has made it possible
for many informal sector entrepreneurs to obtain loans easily from
the bank especially as it does not require any form of collateral. The
Community Banks, inaugurated in 1990, operate virtually as the rural
equivalents of the Peoples' Bank. Most of the loan beneficiaries
from Community Banks operate in the informal sector. It needs
pointing out, however, that due to low capital base and the need to
give loans to as many as possible, both the Peoples' and Community
Banks are not able to give out big loans. This is a great handicap to
entrepreneurs requiring large amounts to procure equipment and
machinery. Both FSP and FEAP gave out loans mostly to small
informal sector operators. The NDE itself also provides loans in
cash and kind. Cash is given as working capital but for equipment
and fixed assets, invoices are required from the loan beneficiaries,
whereupon the NDE makes direct payment to the suppliers.
Despite the government's policies and programmes to enhance the
capacity of the private sector in Nigeria, there is at present a controversy
as to whether the private sector is capable of playing a leading role in the
economic development of the nation. Although sectoral distribution of
gainful employment and gross domestic product (GDP) shows that
agriculture, manufacturing, distribution, transport, and services, which
are all dominated by private sector activities. accounted for 98% of
gainful employment in 1994,97% in 1995 and 1996, and 84% of GDP in
1994 and 1995 but declined to 82% in 1996. These suggest that the
private sector has potentials to contribute significantly to the economic
development of the country.Obadan and Ayoade (1998) however,
argued that the private sector has not been able to respond adequately to
the country's desire for increased production and employment, and stable
prices. They noted that the share of manufacturing in GDP is still very
low, being 6.9% in 1994 and 1995 and that the average capacity
utilisation in industry is also low, being only 32.5% in 1996. The average
percentage of raw materials obtained locally was 54.4%. They also noted
that exploitative prices characterise the goods and services produced by
the private sector while non-oil export earnings in foreign exchange are
abysmally low.
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Building the Nigeria Private Sector Capacity: 271
An Assessment of Problems and Policy Options
Despite the controversy on the viability of the Nigerian private
sector, there is a consensus that their performance is hindered by a
number of factors which are outside their control. Some of these factors
are: high cost of doing business, unstable macroeconomic policies,
infrastnictural bottlenecks, faltering consumer spending.slack of capital
investment and the stifling effect of multiplicity of taxes and levies
including bureaucratic rigidity and corruption. To release the potential
for growth, which the private sector possesses, there is the need to
understand more accurately how these factors affect the private sector
organisations. A starting point in this effort is an assessment of what the
existing capacity of the sector is and an identification of what
deficiencies would need to be remedied if the sector is to perform its role
more effectively. This is the central aim of this study.
Accordingly, both primary and secondary data were used for the
study. However, because most of the available data from secondary
sources were scanty and not in the form required for the study, the study
relied mostly on primary data. The primary data was collected using a
structured questionnaire, administered on each of the private enterprises
(formal and informal) that were selected for the study.
The formal enterprises surveyed were those with legal status and
employing 10 or more people. As for the informal enterprises surveyed,
these were those that employ less than 10 people. The rationale behind
these thresholds is that enterprises can be ranged in a continuum from
100% formal to zero percent formal. The informal enterprises are to be
found in the lower limb of this continuum. .
Six states were selected for the study, from each of the six geo-
political zones into which Nigeria has been divided in the last few years.
From each of the six states, Local Governments (LGs) were selected for
the study. The first four LGs selected were those that had the highest
level of private sector enterprises (both formal and informal), while the
other LGs were selected randomly, using a Table of Random Numbers.
11.3.0 Capacity Assessment in the Formal Sector
11.3.1 Assessment of Current Human Capacity
a) Quality and Adequacy of Workers: Table 11.1 shows the distribution
of firms by employment size, skill category and gender. The level of
unskilled workers ranges from 22.7% in Lagos for men to 51.5% in
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Plateau in the 1-5 employment range. For women, the range is from
28.9% in Kano to 52.8% in Abia. Generally, women feature more
among the unskilled than men. As Table 3.3 shows clearly, for the
employment size 1-5, the level of skilled workers ranges from 32.3%
to 55.9% for men and 39.5% to 58.8 for female. The numbers of
skilled are higher than those of unskilled workers. The skills levels
in the formal sector in terms of numbers must be considered
adequately.
The dominance of the females among the unskilled workers may be
explained in part by the structure of educational attainment. The survey
shows that women constitute the bulk of workers with no formal
education or with only primary education. From the level of trade
certificate education and above, their share declined, to about 50% of
that of the male at the polytechnic and university graduate levels, to a
third at the postgraduate level.
The survey provides evidence which suggests that the skill
composition of the workforce is satisfactory for the firms' operations.
For example, 62.4% of sampled firms expressed satisfaction with the
level skill of their workers. The survey evidence suggests that firms
have found it easy to recruit skilled personnel since between 21 and 40%
of the firms found it difficult to hire skilled workers while 60-79% found
it easy. At the same time, between 21 and 40% reported that they have
difficulties in equipping workers with higher skill to enhance their
productivity.
Table 11.2 shows the distribution of firms by sources of skill
acquisition and upgrading. Formal education is a popular source of skill
acquisition, especially among the more industrialised states of Lagos,
Abia and Bauchi, with 27%, 20%, and 20% respectively of the firms
indicating it as their main source. Vocational training and technical
education are also still a part of formal education, and this source is
popular among over 20% of the firms, on average. It is interesting to note
that apprenticeship and articles hip or internship is a popular source of
acquiring firm-specific skills, again with over 20% of the firms
identifying it as a source. Informal training is also quite popular. In-
service training, secondment to other organisations, and workshops are
all forms of informal training. These together accounted for over 30% in
terms of the number of firms, which identified them as sources of skill
acquisition. It is interesting to note that these findings broadly
corroborate those from earlier studies. For example, Fashoyin et al
(1994), from a survey of 153 manufacturing enterprises, reported that the
most preferred method of employee training is on-the-job means. This is
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Building the Nigeria Private Sector Capacity: 273
An Assessment of Problems and Policy Options
clearly exhibited by 33% of the cases. The next popular choice is local
courses and seminars. This is indicated for 26% of the cases. Besides,
another 17% prefers formal in-house (classroom type) training for
employees.
Table 11.1: Distribution of Firms by Employment Size, Skill Category,
Gender and State .
Total
Abia Bauchi Kana Lagos Plateau Rivers
sample
Employ-
ment M F M F M F M F M F M F M F
Size
Unskilled Labour
1 -5 35.6 40.5 31.5 52.8 39.0 49.0 41.7 28.9 22.7 31.6 51.5 46.5 24.7 36.7
6 -10 13.6 6.1 16.1 3.2 17.8 10.9 15.9 5.3 13.5 6.4 8.9 6.5 10.1 2.2
11 -15 5.0 2.9 3.2 4.0 8.9 2.0 4.6 1.3 5.4 4.8 4.1 2.9 3.4 1.1
16 - 20 3.7 1.3 3.2 8.0 6.8 2.7 4.0 4.9 2.7 1.8 1.1
> 21 13.4 4.0 6.5 4.0 6.8 1.4 6.6 37.3 11.9 4.1 1.2 14.6 4.4
Skilled
1 - 5 42.7 44.7 50.4 39.5 43.5 45.6 32.2 40.8 32.6 40.1 55.9 58.8 44.4 42.0
6 -10 17.8 8.9 17.6 5.6 17.0 17.0 23.0 4.6 16.0 9.6 18.2 8.8 13.3 6.8
11 -15 8.9 2.6 2.4 1.6 16.3 4.8 17.8 3.3 6.4 4.3 5.3 0.8 3.3
16 - 20 4.5 1.5 2.4 0.8 5.4 1.4 5.9 2.0 5.3 2.1 4.7 0.8 1.1 2.3
> 21 11.7 4.1 4.8 2.4 4.8 2.0 11.8 2.6 29.4 11.2 4.1 1.8 10.0 2.3
Managerial
1 -5 60.8 26.5 69.6 24.8 59.9 29.3 65.6 32.2 48.7 28.6 62.4 21.2 65.6 21.1
6 -10 8.0 1.0 4.8 0.8 8.2 12.6 1.3 15.0 2.2 1.8 0.6 2.2 1.1
11 -15 2.6 0.7 0.8 0.8 0.7 - 4.0 0.0 7.0 2.2 2.2 1.1
16 - 20 1.3 0.2 0.7 0.7 4.3 0.5 0.6 1.1
> 21 3.8 0.7 1.6 0.8 1.3 14.4 1.6 0.6 0.6 1.1 1.1
Source: DPC Fleld Survey 1999
Table 112: Sources 0fSk'1II S Acqui,siitiIon
Total Abia Bauchi Kano Lagos Plateau Rivers
Formal education 18.9 20.0 23.8 19.9 27.1 18.2 16.6
Apprenticesh ip/Articleship 20.0 23.6 21.1 20.3 18.7 22.0 23.3
Vocational training 21.9 20.8
/Technical institute 21.9 23.8 20.8 20.3 15.6
In-service training 10.6 13.8 16.1 7.2 14.4 10.1 17.8
Secondment to other
organisations 3.6 4.8 3.5 2.0 4.6 2.4 1.1
Workshops 23.2 20.8 15.9 15.1 18.3 27.1 25.8
Source: DPC naa Survey 1999
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11,3,2 Operational Constraints
A number of institutional constraints to the operations of the firms
surveyed were identified. These are reported in Table 11.3.
Infrastructure constraints constitute the bulk, with electricity problem
accounting for the main problem of 67% of the firms. This is followed
by water with 44%, and the lack of access roads with 20%. This pattern
is broadly maintained across the states.
The dearth of infrastructural facilities and some of its consequences
are also revealed by the survey. Between 11% and 42% of the formal
sector firms surveyed, reportedly rely on owned-generators for electricity
and energy supply. Although a large proportion rely on National
Electricity Power Authority (NEPA) supply, an equally large proportion
of these acquire owned-generators to supplement NEPA supply. A
possible consequence of this is the inability to operate continuously or at
the level of installed capacity. Another consequence is that in an attempt
to maintain regular operations, significant amounts have to be expended
on acquiring and maintaining their own generators. For example, 71%
spend over W40,000 monthly on generators and about 12% spend over
N80,000 per month. Further implication of this is that funds that could
have been spent on raw materials or other forms of investment for fuller
capacity utilisation are spent on owned-energy supply. To ensure profits,
which is the goal of all private firms, some of them may have been
passing on the higher cost of production to consumers thereby probably
reducing consumer welfare.
The major constraints therefore are infrastructural with electricity
problems (67.0%), shortage of finance (52.4%) and water problems
(44.5%) ranking highest. Others are lack of machinery (27.1 %), lack of
access roads (20.3%), lack of raw materials (15.6%) and lack of skilled
hands (14.3%). Note that the least complained about is the lack of
skilled hands.
Table 113: DI'Strt'bUtiIon 0fF'URIS b Iden flfiie d Cons traml ts an d by State
Total
sample Abia Bauchi Kano Lagos Plateau Rivers
Lack of skilled hands 14.3 24 10.9 9.2 9.1 22.4 11.1
Lack of machinerv 27.1 58.4 37.4 41.4 28.3 31.8 12.2
Lack of access roads 20.3 48.0 24.5 11.8 9.1 20.6 20.6
l.ack of raw materials 15.6 32.8 13.6 28.3 26.7 19.4 12.2
Elcciricitv Problem 67.0 85.6 77.6 "75.0 55.6 52.9 61.1
Water problem 44.5 56.0 61.9 61.8 12.3 43.5 40.0
Shortage of finance 52.4 81.6 72.8 50.7 50.8 48.2 31.1
SOUTe!',J' )PC Field Survey, 1999
L
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11.4.0 Capacity Assessment of the Informal Private Sector
The level of the informal sector is inversely correlated with the level of
economic development. That is, the lower the level of economic
development, the higher the level of the informal sector. In addition, it
has been proven that a high level of informal sector activities constitute a
drag on the attainment of economic development. The goal of capacity
enhancement in the informal sector should therefore be to reduce the size
of the sector. However, in many developing countries, the size of the
informal sector is very large. McNeill (1993) reckons that the informal
seerer eenrrreures aeeue rY18 01' total emproyment In rvroroceo, .:r1'70 to
the Phillipines, 50% in Thailand and 70% in Bangladesh. Niham et al
(1979) found that it was 50% in Togo. In the case of Zaire, the estimate
is as high as 80% (Economist, Dee 17, 1994, p. 43). The estimates lie
between 50% and 75% for Nigeria (see Fapohunda et al, 1975;
Mabogunje and Filani, 1977 and Abumere, et al 1998). Given the size of
the informal sector in Nigeria, any neglect of its capacity requirements
can make the prospects for economic development very bleak. It could
get the country into what has been described as an "artisinal trap" of low
productivity and incomes, a trap which is so much more difficult to get
out of.
11.4.1 Assessment of Current Human Capacity
a) Adequacy of Numbers: The size of the informal sector in Nigeria is
not only large but also does not show any sign of declining (see
Table 11.4). As to the number of people actually engaged in the
sector, estimates vary from 50% to 75% of the workforce. Table
11.5 shows estimates of the number of proprietors/chief executives,
managers, journeymen and apprentices in the informal sector in the
six states surveyed. The number of workers per informal enterprise
works out at an average of 0.97. In the case of years of experience,
these range from 0.79 years for apprentices to 4 years for chief
executives.
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276 Readings in Development Policy and
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Table 114 : N'raerta: S'ize 0f the Inof rma IS ector
Informal Sector Size
Year GDP (W Billion) Computed from CBN Informal Sector Size
(1994)1 After Adamu (1996)2
1986 ( 71.1 39.5 48.9
1987 70.7 42.3 42.2
1988 77.8 44.5 41.8
1989 83.5 45.5 40.7
1990 90.3 40.1 39.5
1991 94.6 46.8 39.0
1992 97.4 48.9 38.3
1993 100.0 49.9 38.6
1994 101.0 48.9 39.1
Average 80.5 43.0 42.9
Sources: 1. Computedfrom Central Bank of Nigeria (CBN) (1994),
Statistical Bulletin, Vol. 5, No.2, p.6
2. Adaptedfrom S.O. Adamu (1996) National Accounting in a
Developing Country: The Case of Nigeria, SAAL publications.
Table 11.5.' Status of Workers
Status No. of No. of Workers Average Year Average Monthly
Workers per Enterprise of Experience Wages (W)
Proprietor/Chief
Executive 1,956 1 4 6,.157.00
Manager 1,210 0.62 2.8 4,782.00
Journeyman 1,658 0.85 1.1 3,795.00
Apprentice 2,674 1.4 0.79 1,062.00
TOTAL 7,498 0.97 2.2 3,949.00
Source: DPC Field Survey, 1999
Although the total number people engaged in the informal sector are
quite large and adequate for the sector, the number of Managers and
Journeyman may be considered as inadequate at an average of 0.62 and
0.85 per enterprise respectively. This has an effect on the effectiveness
and efficiency of the entreprises.
b) Quality of Personnel: From Table 11.6, secondary education accounts
for the highest level of education of informal sector workers in
Nigeria. Elsewhere in Africa and Latin America, primary education
or less accounts for the highest number (see Durston, 1987; Roberts,
1991). Indeed, in the Nigerian case, as high as 9.2% of men
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polytechnic graduates and 8.1% of university first degree holders are
in the informal sector. The corresponding figures for women are
5.7% and 3.0% respectively. Given the generally low levels of
education in the sector in developing countries around the world, the
Nigerian situation must be considered impressive. The figures in
Table 11.6 compare very well with those obtained by Abumere et al
(1988), where the percentages of informal sector workers with
secondary, polytechnic and university first degree qualifications
were 42.4%, 8.2% and 4.9% respectively. The conclusion from all
these must be that there is reasonably high level of qualified
personnel in Nigeria's informal sector.
Table 116 : Educationa ILeve S 0fEmptovees
Educational Levels Men (%) Women (%)
None 4.1 9.2
Primary Education 32.4 '12.1
Secondary Education 49.2 29.8
Trade Centre 6.4 2.4
Vocational Education 4.8 2.1
Polytechnic 9.2 5.7
University 1s Degree 8.1 3.0
University Higher Degree 2.9 1.2
Others 2.2 1.5
Source: DPC Fleld Survey, 1999
c) Availability of Needed Skills: The issue of availability of needed
skills is related to the levels of formal education, vocational training,
on-the-job and in-service training through workshops, conferences,
seminars, outreach, etc. In order to effectively assess the availability
of needed skills, it will be useful to examine all these.
In our field survey, the informal entrepreneurs were asked questions
not only about the sources of skills acquisition by their workers but also
the sources of skills upgrading. Table 11.7 shows that the most
important source of skills acquisition in the informal sector is through
apprenticeship. Formal education in schools, technical colleges, etc,
only accounts for 14.8%. This is not surprising given the fact that there
are a very few schools offering training in the dominant areas of the
informal sector such as bricklaying, motor repairing, tailoring,
blacksmithing, shoe making and repairs, trading, fabrication, plumbing,
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278 Readings ill Development Policy and
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hawking, etc. In the case of skills upgrading (Table 11.8), the major
sources are in-service training (41.1%), workshops and seminars (8.2%),
secondment to other similar enterprises (3.7%), training through
professional associations (3.2%) and training through government
assisted programmes such as NDE, IDC, FEAP/Better Life, etc, (2.9%).
It will be noticed from Table 11.7 that training through outreach
programmes (1.6%) and training through trade unions (0.9%) are not
very important. There is much variation in the sources of skills
upgrading as between the states. For instance, while in-service training
accounts for as high as 86.6% in Lagos, it only accounts for 9.2% in
Bauchi.
Table 11 7 Sources 0f suIn S A CQUlS, I '1I'On
Sources Per cent
Apprenticeship 47.6%
Vocational Training 15.2%
Formal Education (in schools) 14.8%
Self Trained 4.3%
Others 2.7%
Source: DPC Field Survey, 1999
Table 118 : Sources uuruuse d for sumI S Uipgrad'mg
Sources Per cent
Second-
Profess-
States In-Service Workshops mentto Outreach Governmentand other Program- Trade ional
Training Union Assoicat- AssistedSeminars Enter- mes Programmes
prises ions
Abia 44.2 8.0 2.0 1.1 0.3 2.3 2.8
Bauchi 9.2 7.8 0.3 0.9 4.6 4.6 6.0
Kano 19.8 3.8 15.0 5.1 1.3 1.3 0.5
Lagos 86.6 17.9 1.3 1.3 5.4 5.4 2,2
Plateau 36.4 6.5 1.5 0.6 1.9 1.9 3.4
Rivers 50.3 5.2 2.3 0.7 3.6 3.6 2.6
Total 41.1 8.2 3.7 1.6 3.2 3.2 2.9
Source: DPC Field Survey, 1999
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Table 11.9: Number of Skilled and Unskilled Personnel
SKILLED UNSKILLED
States
Total No per Total No. perEnterprise Enterprise
Abia 949 3 703 2
Bauchi 834 2 1068 3 -
Kana 561 1 1098 3
Lagos 1325 6 1072 5
Plateau 816 3 590 2
Rivers 865 3 730 2
Average 892 3 877 3
Source: DPC Freid Survey, 1999
Table 11.10: Levels of Satisfaction with Skill Levels of Workers
States Satisfied % Not Satisfied % Non-response % Total %
Abia 55.3 13.1 31.6 100.0
Bauchi 74A 4.0 21.6 100.0
Kana 77.9 4.6 17.3 100.0
Lagos 80A 7.6 12.1 100.0
Plateau 73.8 6.2 20.1 100.0
Rivers 61.8 8.8 29A 100.0
Total 70.3 7.3 22.4 100.0
Source: DPC Freid Survey, 1999
Table 11.9 shows the levels of availability of skilled and unskilled
workers in the informal enterprises surveyed. From this Table, it is clear
that there are about three skilled workers per enterprise. Given that most
of the enterprises surveyed did not employ more than ten people, this
level of availability of skilled workers must be considered to be
satisfactory. From Table 11.9, Lagos state is the most endowed with
ski lied workers in the informal sector. The northern states of Bauchi and
Kano are the least endowed.
In our field survey, it was necessary to find out from the informal
entrepreneurs how satisfied they were with the available skills in their
enterprises and also whether or not the available skills were adequate for
the tasks they had on hand. From Table 11.10, it may be concluded that
the informal entrepreneurs were highly satisfied with the available skills.
Indeed, as high as 70.3% of them expressed such satisfaction. Since
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280 Readings in Development Policy and
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Lagos State had the highest level of skilled informal workers (Table
11.10), it is not surprising that the entrepreneurs in the state expressed
the highest level of satisfaction with the skills available.
Table 11 11: suIn LeveIs Adequa te tor Taskson Hand
States Adequate % Inadequate % Non-response % Total %
Abia 51.6 21.7 26.8 100.0
Bauchi 73.3 4.9 21.8 100.0
Kana 73.0 13.0 14.0 100.0
Lagos 77.7 9.8 12.5 100.0
Plateau 70.1 11.4 18.5 100.0
Rivers 62.1 12.4 25.5 100.0
Total 67.6 12.3 20.1 100.0
Source: DPC Fzeld Survey, 1999
Table 1112 : Any mIrnICU Itvm. Recruiitment 0f saIu ed Personne I?.
Yes No Total
States Non-
0/0 % Response % %
Abia - 41.6 36.5 21.9 100.0
Bauchi 25.3 62.4 12.4 100.0
Kana 57.3 31.3 11.5 100.0
Lagos 17.0 70.1 12.9 100.0
Plateau 43.5 38.6 17.9 100.0
Rivers 36.3 36.6 27.1 100.0
Total 38.5 44.3 17.2 100.0
Source: DPC Fzeld Survey, 1999
As to whether or not the skills available were adequate for the tasks
on hand, Table 11.11 shows that as high as 67.6% of the informal
entrepreneurs consider the skills to be adequate. Only about 12.3%
thought otherwise. Again, Lagos State informal entrepreneurs were most
optimistic since as high as 77.7% of them considered the available skills
as adequate. From Table 11.13, it can be inferred that it is fairly difficult
to recruit the right skilled personnel. About 44.3% of the entrepreneurs
responded that it was not difficult to recruit skilled personnel, while
about 38.5% thought that it was difficult. The northern states of Kano
and Plateau found it most difficult to recruit skilled personnel while
Lagos found it the easiest to do.
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The obvious conclusion that can be drawn from all these is that there
are really no serious problems concerning available skills in the informal
sector in respect of number, availability, adequacy and performance. If
there are any problems about capacity utilisation in the informal sector,
therefore, the blame must belong elsewhere. If the skills required in the
sector are generally available and adequate, then we must turn to the
institutional and other provisions to identify the problems of the sector.
d) Degree of Effective Use of Existing Skills: In the focused group
discussions, it was observed that available skills could have been
put to better and more effective use. For instance, in the marketing
of products (Table 11.13), the informal enterprises could have
broadened the market outlets beyond individual households. There
is at now too much concentration on self/family and household
patronage. Many of the informal enterprises have skills and
capacities to produce for export but as Table 11.15 shows quite
clearly, the opportunities for export are not seriously taken up. In
the same way, patronage by private formal enterprises are not r
seriously explored. From Table 11.14, only 1.2% purchases are
made by such private formal enterprises. There is a need to forge
linkages between the formal enterprises and the informal
enterprises. Such linkages will be mutually beneficial to both
sectors. The informal sector can provide inputs for formal
enterprises. The formal enterprises can provide the market, skills
enhancement, quality control, etc, for the informal enterprises. In
addition, there is a need to explore the government and export
sectors. All these will enhance demand for products of the informal
sector which will in turn help to enhance capacities in the sector and
lead to more effective use of the skills available.
Table 11 13: M'ajor Cus tomers
Maier Customers No. Per cent
Self and Family 413 21.1
Individual Households 1414 72.3
Government 22 1.1
Companies (formal) 23 1.2
Export 5 0.3
Others 17 0.9
Non-response 62 3.2
Total 1956 100.0
Source: DPC Field Survey, 1999
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e) Assessment of Under-Utilisation of Capacity and Facilities: It is
difficult, if not outrightly impossible, to estimate capacity utilisation
in the informal sector. This is because there is usually no installed
capacity against which to measure performance. There are usually
no records or any forms of book keeping that will provide the basis
for assessment of levels of capacity utilisation. Indeed, the fact of
no records or book keeping is one of the factors that distinguish
informal from formal. In the absence of direct indicators upon
which assessment of under-utilisation of capacity may be based, we
have had to resort to surrogate indicators.
Table 1114 : Assessment 0fW or kers 'P ro ductivitv
-, Highly Non-
Product- Product-
Fairly Hardly
Product- Product- Unproduct response TotalStates
ive (%) ive (%) ive (%) ive (%) -ive(%) (%)
(%)
Abia 24.2 45.3 8.5 0.0 0.6 21.4 100.0
Bauchi 21.3 54.3 5.2 0.3 0.3 18.7 100.0
Kano 25.4 52.4 3.8 0.3 0.3 17.8 100.0
Lagos 29.0 58.5 4.0 0.4 0.0 8.0 100.0
Plateau 30.2 46.6 6.8 0.9 0.0 15.4 100.0
Rivers 18.0 42.2 10.8 1.3 0.0 27.7 100.0
Total 24.5 49.6 6.5 0.5 0.2 18.2 100.0
Source: DPC Field Survey, 1999
Table 1115 : Assessment 0fW or kH ab"Its 0fE mployees
Work Work
States Very Work Fairly Hard Lazy
No
Hard (%) (%) response
Total
Hard % (%) (%)
(%)
Abia 30.5 42.2 5.7 0.6 21.1 100.0
Bauchi 25.0 52.6 3.2 0.6 18.7 100.0
Kano 37.7 47.3 3.8 0.0 11.2 100.0
Lagos 32.1 52.2 7.6 0.4 7.6 100.0
Plateau 35.8 42.9 5.9 0.3 15.1 100.0
Rivers 27.1 43.5 8.8 0.7 19.9 100.0
Total 31.6 46.5 5.6 0.4 16.0 100.0
Source: DPC Fteld Survey, 1999
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First, we consider the assessment of informal sector workers'
productivity provided by the Heads of the enterprises and summarised as
in Table 11.6. From this Table, about 24.5% of the entrepreneur (Heads)
consider their workers as highly productive. A significant number
(49.6%) considers their workers as productive. In Table -11.16, the non-
respondents are really the "don't knows" or those sitting on the fence.
We may be right to classify them as not really approving of the
productivity levels of their workers. This would leave us with the
column of highly productive and productive. If we added the
percentages of these two columns, the result is 74.1 %. Roughly 74.1 %
of the informal sector workers may be considered productive according
to the responses of the entrepreneurs.
Next, consider Table 11.15 showing the assessment of the work
habits of informal sector workers as provided by the Heads of the
enterprises. About 31.6% of the Heads consider their workers as very
hard working while another 46.5% consider them as hard working,
making a total of 78.1 %. Clearly, the assessment of the informal sector
workers as provided by the Heads of the enterprises portray the workers
as productive (Table 11.14) and hard working (Table 11.15). With these
characteristics of the workers, it will be safe to infer that the levels of
capacity utilisation among the informal enterprises will be reasonably
high.
<;; 11.4.2 Constraints
. In this section, we concentrated on the human, operational and
institutional constraints to capacity building and utilisation in the
informal sector. Some of these constraints arise from the nature and
characteristics of the informal sector itself. For instance, the ease of
entry into the sector (lLO, 1972) results in unusually large numbers in
the sector as all sorts of people go into the sector including the lazy,
incompetent, unskilled and the ill-motivated. The dominance of family
ownership in the sector makes it difficult to attract capital and inhibits
the free flow of skills into the sector. The small scale of operation makes
it impossible to reap economies of scale. Its use of labour intensive and
adapted technology pose formidable limits on capacity utilisation while
the low income of the sector makes it difficult to attract skilled and
competent hands. The sector's reliance on skills acquired outside of the
formal school system makes the grading and certification of skills in the
sector difficult. For instance, in the case of mechanics, it is not possible
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284 Readings in Development Policy and
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to grade the levels of skills acquired. The same is true of several other
categories of the informal sector. Lastly, the lack of official status of
informal enterprises (do not register with government, do not keep
records and hardly pay taxes) makes it difficult for them to secure loans
through the formal banking system. Clearly, the characteristics and
nature of operations of the sector itself limit capacity building and
utilisation. In what follows, we discuss the constraints under human,
operational and institutional categories.
Human Constraints
From Table 11.1827, it can be inferred that there are no human
constraints to capacity building and utilisation among the informal
enterprises studied in our six states. Only about 21.1 % of the informal
sector entrepreneurs complained about lack of skilled personnel.
Operational Constraints
These are the constraints encountered in the day-to-day transactions
of the enterprises. They have been called operational constraints for
want of a better nomenclature. They include problems of lack of
machinery and spare parts, lack of raw materials, declining customers,
declining incomes, competition from imports and competition from other
local enterprises both formal and informal.
From Tables 11.18, it is possible to gauge the magnitude of these
complaints.
For instance, from Table 11.16, it is clear that harassment from
government agents (44.7%), declining incomes (44.5%) and declining
customers (42.3%) are viewed as serious constraints by the
entrepreneurs. In the case of income, Table 11.18 serves to buttress the
point that incomes from the informal sector are very low indeed.
Competition from other local enterprises, at (32.2%) was also regarded
as a major constraint along with the lack of machinery and spare parts
(34.0%). Raw materials do not pose much constraint since only 20.2%
complained about this. Indeed, as Table 30 shows quite clearly, a
considerable proportion (50%) of the informal entrepreneurs are able to
procure their needed raw materials from within their states. The
proportions of getting raw materials from outside their states are very
low indeed.
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Table 11.16· Constraints encountered
SIN Constraints Per cent
1 Lack of skilled personnel 21.1
2 Lack of machinery and spare parts 34.0
3 Lack of raw materials 20.2
4 Lack of or shortage of land space - 20.7
5 Declining customers 42.3
6 Declining Income 44.5
7 Harassment from govemment agents 44.7
8 Competition from imports 10.5
9 Competition from other local producers 32.3
-
10 Power/electric problem 71.9
11 Waste problem 45.4
12 Lack of access roads 21.4
-""
13 Lack of or shortage of finance 73.7
14 Lack of government support 61.0
Source: DPC Field Work
Institutional Constraints
There can be little doubt that a significant proportion of the informal
entrepreneurs ranked institutional constraints very high. The institutional
constraints identified included lack of finance, problems of
power/electricity, lack of government incentives and support, problems
of water and problems of access roads.
From Table 11.16, the informal entrepreneurs ranked the lack of or
shortage of finance as their most inhibiting constraint. This is not
surprising given that as high as 80.2% of the entrepreneurs obtained their
finance from personal savings. Clearly, there is not much that can be
obtained from this source. Few of these entrepreneurs obtained their
finance from banks. This is highly unsatisfactory. This calls for an
institutional arrangement that will facilitate access of informal
entrepreneurs to banks.
Table 11.17: Sources of Raw Materials and of Tools
Sources Raw Materials Tools
No. Per cent No. Per cent
Within Local Government 415 21.2 301 15.4
Within State 566 28.9 616 31.5
Outside State 192 9.8 234 12.0
Imported 58 3.0 127 6.5
Others 4 0.2 5 0.3
Non-response 721 36.9 673 34.4
Total 1956 100.0 1,956 100.0
Source: DPC Fleld Survey, 1999
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Next in the hierarchy of institutional constraints identified is
power/electricity problems. This constraint cuts across both the formal
and informal sectors. Suffice it to say, however, that until this problem
is solved, the problem of capacity utilisation will always remain with us.
The other institutional problems identified are lack of government
incentives and support (61.0% ), lack of water (45.4%) and lack of access
roads (21.4%). The government has to provide the conducive
environment under which the private sector, both formal and informal,
may thrive. Incentives will need to be given and the problem of
infrastructural provision has to be taken seriously in hand. The
institutions providing the various essential services will need to be
looked into along with the issue of creating new institutions. These will
be taken up in our policy and programmes section.
From all these, it is clear that the three sub-heads of human,
operational and institutional constraints can be ranked in the order of the
level of inhibiting constraints posed for capacity building and utilisation.
In this regard, the most inhibiting are the institutional constraints,
followed by the operational and human constraints in that order. From
this, the inevitable conclusion is that there are no serious human
constraints to capacity building in the informal sector. The only
constraints are operational and institutional.
11.5 Conclusion and Recommendation
The capacity problem of both the formal and informal sectors is very
similar. The human capacity problem is very minimal compared with
operational and institutional constraints. In what follows, we examine the
policies and programmes that may help ameliorate those problems and
constraints in the formal and the informal sectors.
The level and quality of institutional resources is a function of the
state of governance in any country. In the immediate past, Nigeria had a
spell of bad governance, and this may explain a lot of the institutional
deficiencies identified in the survey. However, specific areas where
actions would need to be taken include measures to reduce the cost of
doing business in Nigeria. Firms complained of uncertainties and
frequent changes in government policies, corruption and bureaucratic
bottlenecks, harassment by government officials, and virtual
powerlessness in getting redress through the judicial system in the event
of contractual defaults. No matter how willing entrepreneurs are to take
risks, a minimum degree of certainty and low level of transaction costs
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are required. Deliberate efforts must be made to address these concerns.
Anti-corruption legislation and enforceable contractual agreements
should be provided by government as an enabling environment.
Many of the infrastructural constraints such as those of electricity,
water, roads, etc, are not peculiar to the private sector. "They affect all
segments of the Nigerian society. With respect to entrepreneurship
development however, deficiencies in basic infrastructures raise the cost
of transacting business. The survey revealed that there are deficiencies
in the available infrastructures, especially electricity, water, access roads
and communications. Where firms have to provide their own-
infrastructures or supplement the available ones, a significant amount of
financial resources that could have gone on genuine investments are thus
diverted. There is thus, the need to improve the quantity and quality of
basic infrastructures. This will reduce the cost of doing business, and if
well harnessed, it will yield higher social returns on such public
expenditures. The private sector will not only be more effective in
contributing to the output and employment growth, it will additionally
reduce the cost of public infrastructures as tax revenues (corporate and
personal) will also increase. An improved allocation of financial
resources to the infrastructure sector and a more effective utilisation of
. such allocations should form the thrust of policies toward the sector.
Shortage of finance was a major constraint identified by the firms.
This must mean that the existing institutions such as NIDB, NERFUND,
Commercial Banks, NBC! and Stock Exchange that provides finance for
the formal sector will need to be strengthened. Their capital base, for
instance, could be enlarged. Joint ventures could also be encouraged so
that resources could be pooled together. Clearly no new institutions are
required.
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Fashoyin, Tayo (1994) Economic Reform Policies and the Labour
Market in Nigeria. (Lagos: A Joint Publication of the Nigerian
Industrial Relations Association and Friedrich Ebert Foundation).
Feige, E.L. (1990) "Defining and Estimating Underground and Informal
Economies: The New Institutional Economics Approach", World
Development, vol. 18,989-1000
Gibson, B. et al (1994) "A Classical Theory of the Informal Sector," The
Manchester School, Vol. LXII, 81-96.
Giwa, RF. (1997) "Capacity Building and Utilisation in the Private
Sector in Nigeria: Status, Problems and Prospects," Proceedings of
Workshop on Capacity Building and Utilisation in Nigeria, Federal
Ministry of Finance, Abuja, Annex 9.
Gonzalex de la Rochs, M. (1986) "The Resources of Poverty: Low
Income Families in Guadalajara," EI Coligio de' Jalisco:
Guadalajara.
Ilo (1972) "Employment, Incomes and Equality: A Strategy for
Increasing Productive Employment in Kenya", Geneva: ILO.
Jerome, A, 1996. "Public Enterprise Reform in Nigeria: Expectation,
Illusion and Reality" in Ariyo A (Ed.) Economic Reform and
Macroeconomic Management in Nigeria. lbadan: Ibadan
University Press.
Kelly, B. (1994) "The Informal Sector and the Macroeconomy: A
Computable General Equilibrium Approach for Peru," World
Development, Vol. 22, 1393-1411.
Kilby, P. (1969) Industrialisation in Nigeria.
Krishna, Rama (1997) "What Role for the Private Sector?: A Pragmatic
Approach to EU-ACP Relations Beyond Lome IV", European
Centre for Development Planning Management Working Paper
No. 19.
Lagos, R (1995) "Formalising the Informal Sector: Barrows and Costs",
Development and Change, Vol. 26, 111-131.
Liedholm, C. et I (1988) "Small-Scale Enterprises: A Profile", Economic
Impact, Vol. 68,12-17.
Mabogunje, AL. and Filani, M.a. (1977) "Absorption of Migrants into
Kano City, Nigeria," World Employment Working Paper, Geneva:
ILO.
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McNeil, T.W. (1993) "Urban Entrepreneurs and the Real Economy",
Urban Age, Vol. 1, 1-6.
Nihan, G.E. et al (1979) "The Informal Sector in Lome," International
Labour Review, Vol. 1118.
Nwankwo, u., 1992. "Economic Agenda for Nigeria". Lagos: Centrist
Production Limited.
Obadan, M.1. and A. S. Ayodele, 1998. "Commercialisation and
Privatisation Policy in Nigeria". Ibadan: National Centre for
Economic Management and Administration.
Obadan, M.1. aand Odusola (1996) "Revitalising the Nigerian Economy.
The Role of the Informal Sector". Paper presented at the Nigerian
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Olayiwola, Kolawole and Busari, Dipo (2002). "Economic Reform
Programme and Private Sector development in Nigeria". Research
Report No. 35. Ibadan: Development Policy Centre.
Onosode Commission, 1984. "Report of Federal Government of Nigeria
Inquiry on Public Enterprises in Nigeria."
Osei, B. et al (1993) "Impact of Structural Adjustment on Small-Scale
Enterprises in Ghana," in Heimsing et al (eds.) Small Enterprises
and Changing Policies: Structural Adjustment, Financial Policy
and Assistance Programmes in Africa. London: Intermediate
Technology.
Resman Associates (1991) "A Study of the Informal Sector of the
Nigerian Economy". Federal Government of Nigeria, 327 pages.
Roberts, B. (1991) "The Changing Nature ofInformal Employment: The
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Social Adjustment, Geneva: ILO, 115-140.
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SECTION III
POVERTY ALLEVIATION AND
RURAL DEVELOPMENT
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12
THE IMPACT OF GOVERNMENT POVERTY
ALLEVIATION ON ENTREPRENEURSHIP
DEVELOPMENT IN NIGERIA
Adeboye Adeyemo and Tunde Alayande
12.0 Introduction
One of the main issues in development thought is how to tacklepoverty. Therefore, a major concern to multilateral institutions and
policy makers in different countries is to identify appropriate strategy for
poverty alleviation. Several scholars have contributed in this regard. For
instance, a World Bank Poverty assessment report on Nigeria (World
Bank 1996) focus on strategies that could help to alleviate poverty in the
country. This assessment is one of the most authoritative poverty studies
on Nigeria. However, the study fails to examine the link between
entrepreneurship development and poverty alleviation. In a similar
manner, the Nigerian Economic Society has as its theme for 1997 Annual
Conference, "Poverty Alleviation in Nigeria". Some thirty-one papers
were presented at the conference, eight of which focused on strategies for
poverty alleviation without consideration for entrepreneurship
development as a viable strategy.
Conceptually, according to Meredith et al (1982), an entrepreneur is
one who has ability to see and evaluate business opportunities, and
gather the necessary resources to take advantage of them; and also to
initiate appropriate action to ensure success. Entrepreneurship is the
process of wealth creation in a society. Therefore, an entrepreneur can
easily be described as one who perceives needs, conceives goods and
services to satisfy the needs, organises the factors of production, creates
and markets products (Loucks 1988). Countries are generally endowed
by nature with different resources such as land, labour, machinery,
technology etc which when processed are able to generate economic
goods and services; and in turn, used to promote socio-economic growth
293
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and development. A key factor in the process of combination of various
resource endowments for wealth creation is the entrepreneur.
This is why Joseph Schumpeter (1911) had early in the century
recognised an entrepreneur as an important factor of production. He
maintained that endogenous economic growth is generated and sustained
by technology, innovation and knowledge. He therefore, advocated a
process of 'creative destruction'. This is a process in which new
products, new market, and new organisations simply replace the old
system, process or products. For this to happen, Schumpeter maintained
that the entrepreneur must undertake investment. A recent 'school of
economic thought called Schumpeterianism, drawing inspiration, from
Joseph Schumpeter's idea on entrepreneurship has also emphasised the
importance of elements like technology, innovation and knowledge as
holding the key to endogenous growth process. (International Business
Week, May 16, 1994. P.44).
According to Umo (1995), "when entrepreneurship is situated in the
emerging global context, it becomes that a modern entrepreneur has to be
deliberately cultivated and assisted to perform". The question is how
does a country recognise and encourage this special class of people? In
developed countries, deliberate efforts are made to encourage
entrepreneurial class through specialised training and provision of
logistic support for business creation and running of businesses. Against
the background of the implementation of Structural Adjustment
Programme, by most African countries, in the early eighties, the
expectation of policy makers is that, the opportunities created by the
liberalisation, privatisation and deregulation components of the
programme will be seized by the private sector to contribute to reviving
most of the stagnant African economies. These expectations were
however not met as the supply response of private sector enterprises
were below average and uninspiring. The question that naturally arises
therefore is whether there are enough entrepreneurs of the appropriate
types that would be able to respond to the opportunities and challenges
offered by the Structural Adjustment Programme. What are the
determinants of African entrepreneurship and its capability to respond?
In an attempt to answer these questions, Oyejide (1991) found that
the private sector in an African economy is made up of several types of
enterprises, which include informal enterprises; micro enterprises; and
small, medium, and large-scale modern firms. The study shows that
firms with less than ten employees provide 59 per cent of total private
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sector employment in Kenya, 75 per cent in Nigeria, 83 per cent in
Zambia and 90 per cent in Sierra-Leone. In other words, the sector is the
largest employer of skilled and unskilled labour in Africa. Furthermore,
the study found that, African private sector enterprises have low level of
managerial skills, most operators also have low skills, and low
technological capacities as many of them acquired their skills through a
process of apprenticeship. This process of skill acquisition imposes a
serious limitation on transferability of such skills to subsequent activities
in the formal medium- and large-scale enterprises. In all, the study
identified three sets of obstacles to enterprise development. These are;
i) shortfalls on the supply of individuals with the attributes of
entrepreneurs;
ii) weaknesses in the external economic environment within which
enterprises operate and associated high cost of gaining access to
resources and markets; and
iii) regulatory environments which make erroneously burdensome
demands on enterprises in their relations with government
bureaucracy.
The study noted that most programmes targeted at promoting
entrepreneurship development in Africa, igeria inclusive, have not been
effective due to reasons that include inappropriate design and
implementation. Also special training programmes were found to have
fallen short of their targets. It was noted that, although, the various
adjustment programmes adapted across Africa incorporated several
measures to address the various deficiencies observed with
entrepreneurship development, they have not been effective in enhancing
the growth and performance of the African entrepreneur.
The literature on entrepreneurship in Africa is generally bereft of
explanation concerning its link between impacts of poverty alleviation
programmes. This may be because, to most scholars and policy makers,
unemployment issues are regarded to be more serious than wealth
creation. Again in most developing countries, solutions to unemployment
are often addressed within the framework of macro economic policy.
Entrepreneurship activities are often regarded as a micro issue. Adeyemo
(1998) noted that "most people who create or run their own business are
doing so as a second best option and in fact are struggling to do so
because of poor technical and financial support from the authorities".
Therefore, in most developing countries, most poverty alleviating
programmes are targeted at tackling graduate unemployment.
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This notwithstanding, it can be observed that entrepreneurship
development programme has various components such as financial
assistance, training, technology, marketing, general research services,
institutional brokering and raw materials and other inputs/services supply
(Goldmark and Rosengard, 1981). These components are all required for
a successful entrepreneurship development programme and they form a
part of poverty alleviation programmes.
Poverty was shown to have increased in Nigeria-over the last three
decades. For instance the World Bank Report, (i996) showed that
Nigeria has witnessed increased incidences of poverty due to economic
policy reversal and policy incredibility. Corroborating evidence from the
Federal Office of Statistics also showed that poverty increased from 42
per cent in 1992 to 69.3 per cent in 1996. Given the poverty situation in
Nigeria, successive governments have realised the need to empower the
poor and provide them the means by which they can make use of their
abundant resources (labour). In this regard, various programmes and
policies have been put in place that can provide the poor and the self
employed the opportunities for self-actualisation through
entrepreneurship (training and' skin enhancement), cushioning them
against economic shocks and providing them access to credit facilities.
These programmes are based on the perceived role of entrepreneurship
development in the transformation of any economy that operates a free
enterprise economic system. Thus, the introduction of structural
adjustment programme in Nigeria and the need to cushion its effect on
the. poor, motivated the government to establish programmes, which has
serIOUS bearing on entrepreneurship development. These include the
following:
• thos~ ~hat focus.ed on the opening up of rural areas through the
pr vision f basic amenities. For example, the Directorate of Food,
Road and Rural Infrastructure (DFFRI);
• th.ose that focused directly on entrepreneurship development: Better
LIfe Progammerlsl.P), Family Support Programme(FSP), Family
E~onomic Advancement Programme(FEAP) and he National
DIrectorate of Employment(NDE);
• those that f~cus.ed on micro-credit provision to the poor: People's
Bank o~ Nigeria (PBN), Community Banks(CBs), the National
Economic Recovery Funds(NERFUND), FEAP etc.
• thos~ that focused on health and nutrition which have consequences
for increased productivity e.g. BLP, FSP, FEAP etc.
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• those that focused on enhancing rural dwellers income, for example,
Agricultural Development Programmes (ADPs), Nigerian
Agricultural Land Development Agency (NALDA) DFFRI, BLP,
FEAP, FSP etc.
The development of these programmes have serious implications for
the growth of entrepreneurs in Nigeria, especially, judging from the
number of small and medium scale enterprises (SMEs) that have sprung
up in recent years. This is in line with the argument that periods of
structural adjustment are periods of rising trend of entrepreneurship
development in any adjusting economy. In line with this argument, the
International Finance Corporation (IFC) in 1972 estimated the number of
modern sector SMEs ( i.e. those in the formal sector) at 90,000. This was
extrapolated to 125,00 in 1983. SMEs operating in the country are
currently believed to number more than 200,000 besides those. in the
informal sector whose number are currently beyond counting as they
litter the entire landscape of the economy (Adegbite, 1997).
However, the continuous domination of micro-enterprises in the
informal sector, the absence of indigenous entrepreneurs in some key
sectors of the economy and the persistent shortages of credit facilities
call into question the various programmes and activities that were
supposed to promote entrepreneurship capacity in Nigeria. Thus, there is
a need to investigate into the impact of the various programmes on
entrepreneurship, given the fact that these programmes have been driven
by the moral imperatives to alleviate poverty.
Given the foregoing background, the rest of this chapter highlights
the impact of government poverty alleviation programmes on
entrepreneurship development in Nigeria. Specifically, we provide an
insight into the various government poverty alleviation programmes
which entrepreneurs benefited from and types of benefit received; the
relative ease with which firms can benefit from these programmes; the
performance of firms that have benefited from the programme; and made
policy recommendation for enhancing benefits of entrepreneurship
development. Because there have been many poverty alleviation
programmes over the years with some of them either duplicated in their
functions or responsibilities and/or overlapped, it is difficult to really
isolate the effectiveness of each of the programmes in promoting
entrepreneurship development in the country. Therefore, the focus, is on
the credit granting institutions such as the People's Bank and the
vocational training/entrepreneurial development agencies such as the
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298 Readings ill Development Policy and
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National Directorate of Employment (NDE) and the Better Life
Programme.
12.1 Better Life Programme (BLP)
In 1987, the Better Life Programme was first introduced as a
programme mainly for rural women by the then First Lady, Mrs.
Maryam Babangida. The programme was generally aimed at
complementing the existing Federal Government policy to develop the
rural areas. The programme's objectives were:
• the desire to stimulate and motivate women in rural areas
towards achieving a better and higher standards of life, as well
as sensitize the general populace to the plight of rural women;
• educate women on simple hygiene, family planning,
importance of childcare and to increase literacy;
• to mobilize women for concrete activities towards achieving
specific objectives, including seeking leadership roles in all
spheres of national life; and
• to rai e the social consciow!ness of women about their rights,
as well as social, political and economic responsibilities.
As the implementation of the programme progressed, it was realised
that the scope of the programme had to be widened to include urban
women and cooperatives where men were members. Thus, the name was
changed from Better Life Programme for Rural Women to Better Life
Programme (BLP). The programme generally covered many areas that
relate to enhancing labour productivity and entrepreneurship
development. The areas were: health, agriculture, education, social
welfare and cooperatives. It is the formation of cooperatives that has
direct bearing to entrepreneurial development. Numerous fishing,
farming, marketing, weaving and sundry craft cooperatives were set-up.
The cooperatives were supported in greater access to credit facilities
from People's Bank, which owes its existence partly to the Better Life
Programme. Thus a linkage was effectively created between the two
agencies.
During the -AQacha regime, the programme appeared to narrow down
its activities and was re-named Family Support Programme (FSP) with
greater emphasis on the health component. However, in an attempt to
create a more embracing socio-economic poverty alleviation programme
by the regime, a new agency called Family Economic Advancement
Programme (FEAP) was established. The FEAP was established to
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stimulate economic activities by providing loans directly to Nigerians
through cooperative societies and informal associations. Between 1997
and 1998, a total sum of W5.9 billion was committed to the programme
by the Federal Government. Out of this amount, the sum of W4.50 billion
was earmarked as loans to co-operative societies. A total of 70,000
cooperatives nation-wide registered with the organisation. The
organisation is now defunct while its assets and liabilities have been
taken over by the newly created National Agricultural Cooperative and
Rural Development Bank. (NACRDB).
12.2 National Directorate of Employment (NDE)
This is a' skill formation and credit-granting scheme with
consequences on accelerating entrepreneurship development. The
Directorate was set up in 1986 with the underlying philosophy of self -
enterprise, which emphasizes self-employment in preference to' wage
employment. The Directorate implements four core programmes namely,
Vocational Skills Development Programme (VSDP), Special Public
Works (SPW), Small Scale Enterprises (SSE) and Rural Employment
Promotion Programme (RPP). The Vocational Skills Development
) Programmes is a skill acquisition programme which consists of 80 trades
spread through its four ancillary schemes of:
• The National Open Apprenticeship Scheme (NOAS): This
scheme emphasizes on-the-job training by which apprentices are
attached to master craftsmen or women? companies, ministries
and parastatals for periods varying between six months to three
years. Between inception and 1995, the scheme has trained
392,275 persons.
• The school on Wheel Scheme: This involves the use of mobile
workshop to take vocational training to the rural areas. A total
of about 15,000 youths benefited from this scheme through its
mobile training workshops located in each of the old 21 states of
the Federation and Abuja.
• The Wealth-to-Waste Scheme: Under this scheme, interested
youths are trained to convert discarded materials to useful and
valuable products such as jewelry, flower vase, key holders etc.
About 6,394 participants have benefited from the scheme since
inception.
• The Resettlement Scheme: The scheme was set up to assist
selected NOAS graduates who lack the means to set up own
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businesses and cannot get wage employment. The scheme also
provided management support services to young entrepreneurs
who may be in need of professional advice.
12.3 People's Bank of Nigeria (PBN)
The PBN was set-up by Decree No. 22 of 1990 with the following
mandate:
• the provision of basic credit requirements of the under privileged
Nigerians who are involved in legitimate economic activities in
both rural and urban areas and who cannot normally benefit from
the services of orthodox banking systems due to their inability to
provide collateral securities; and
• the acceptance of savings from the same group of customers and
make repayment of such savings together with any interest
thereon, after placing the money, in bulk sums, on short-term
deposits with Commercial and Merchant Banks.
Arising from the mandate are the following specific objectives:
• Extension of credit facilities to the less privileged members of
the society who cannot normally benefit from the services of the
conventional banks. \..
• Provision of opportunities for self-employment for the vast
unutilized and underutilised manpower resources in the country.
" Complementing of government's efforts in improving the
productive base of the economy.
• Inculcating banking habits at the grassroots and reducing the
rural-urban migration.
• Eradication of poverty and provision of succor to the poor
• Bringing relief to the financially marginalized groups in the
society.
By implication, the People's Bank is to serve as an alternative
banking institution providing easy credit access to the poor who
otherwise would not have had access to credit and other banking services
at affordable rates of interest and without the complicated requirement of
collateral security. It became the most significant financial institution
providing micro-credit as part of poverty alleviation programme with
special focus on small-scale enterprise development. In order to further
strengthen the delivery of credit to small-scale entrepreneurs and the
poor as part of the current effort at poverty alleviation, the activities of
FEAP and Nigeria Agricultural and Cooperative Bank have been
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rationalized to avoid duplication and overlapping of functions. Thus, a
new institution called the Nigerian Agricultural, C-o-operative and Rural
Development Bank (NACRDB) was established mainly to do what these
institutions were created to do with a more clearly defined focus.
12.4 Impact of Poverty Alleviation Programmes on Entrepneurs
The data for the analysis in this section was collected from a survey of
small-scale enterprises in the Southwestern Nigeria. The full description
of the data and methodology of data collection was given in Adeyemo
and Alayande (2001). The survey covers three states and in each state,
questionnaires were administered to 50 entreprises in two different
sectors (manufacturing and services). The scope was however narrowed
down to three main sub-sectors namely Textile and Garments, Metal
work (e.g. welders, iron benders and tinkering) and Artisans (e.g.
mechanics, hair dressers, barbers, shoe makers). The questionnaire was
administered to obtain: nature and characteristics of business
enterprises; enterprise ownership characteristics; type of benefits from
government poverty alleviation programmes; and to see whether poverty
alleviation programmes have improved entrepreneurship development.
~ ,
12.4.1 Nature, Ownership and Characteristics of Business Entreprises
As shown in Table 12.1, 38.8 per cent of the sampled business
entreprises were established before the Structural Adjustment
Programme (SAP). During the period of active implementation of SAP,
1986-1990 Only 29 firms representing 21.6 per cent of the respondents
were established. While in the period of passive SAP implementation
(1991-1998), 53 of the firms covered representing 39.6 per cent began
business. On ownership structure, at the start of the business, about 82.8
per cent of the respondents were owned by local entrepreneurs, while
only 17.2 per cent were owned by both local and foreign investors.
However, as at the time of survey, the structure remains unchanged. In
terms of number of employees, firms employing between 1-10 persons as
at 1990 were 39 (29.1 per cent); those employing 11-35 persons were 28
(20.9 per cent); while those employing above 35 persons were only 15
(11.2 per cent). Some firms did not respond because they claim not to
have record of staff employed in 1990. There were 52 (38.8 per cent) of
such firms. As at year 2001, the statistics of employees have changed.
Firms that employed between 1-10 persons have increased to 51 (38.1
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per cent) and others employing between 11-35 (26.8 per cent) and above
35 persons (18.7 per cent). Only 16.4 per cent did not respond.
Table 121 :Charac ten.s fICS 0 fR espondentS
Frequency Percentage Cumulative
Percentaqe
1. Date of starting Business
1970 - 1985 52 38.8 38.8
1986 -1990 29 21.6 60.4
1991 - 1998 53 39.6 100.0.
2. Ownership (Foundation)
Local 111 82.8 82.2
Joint (local & Intemational) 23 17.2 100.0
3 Ownership (Now)
Local 111 82.8 82.2
Joint (Local & International) 23 17.2 100.0
4. Number of Employee
(1990) 39 29.1 29.1
1 - 10 28 20.9 50.0
11 - 35 15 11.2 61.2
Above 35 52 38.8 100.0
No response
5. Number of Employee
(2001 ) 51 38.1 38.1
1 - 10 36 39.5 64.9
11 - 35 25 36.6 83.6
Above 35 22 0.0 100.0
No response
Source: Field Survey 2001
In Table 12.2, the interest was in the financial profile of the
responding firms.
Table 12.2 shows that the firms' sources of capital follows the usual
trend in the literature, for instance, 58 firms representing 43.3 per cent
source for start-up came from personal savings and ploughing back of
profit. This is followed by a combination of personal savings, bank loans,
and ROSCASIESUSU sources, which account for 14.9 per cent. Firms
representing 10.4 per cent sourced for start-up capital through bank
loans. Other sources include a combination of personal savings,
ROSCASIESUSU, PAP and cooperative representing 11.2 per cent and
Bank loan/PAP representing 9.0 per cent. It is interesting to note that no
respondents identified PAP as the main source of start-up capital. At the
start of business, 32 firms representing 23.9 per cent had a capital of
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between W50,OOO - WIOO,OOO; 53 firms (39.5 per cent) had a capital of
WlOO,OOO - W500,OOO; 49 firms (36.6 per cent) had a capital of between
Table 12 2: Treod im Busm' ess CaptitaI
Frequency Percentage Cumulative
Percentace
1. Sources of Start-up Capital
Personal savings/ploughing back 58 43.3 43.3
profit 10 7.5 50.8
Family/ Friend 14 10.4 61.2
Bank Loan
Personal savings/Bank loan and 20 14.9 76.1
ROSCAS/Esusu 1 0.7 76.9
Family/Friends and 4 3.0 79.9
ROSCAS/Esusu 12 9.0 88.8
Family/Friends and Cooperative 15 11.2 100.0
Bank loan and PAP 1
Personal savings,
ROSCAS/ESUSU, PAP and
Cooperative
2. Amount of start-up capital
N 50,000 - N 100,000 32 23.9 23.9
W 100,001 - N 500,000 53 39.5 63.4
N 500,001 - N 1 million 49 36.6 100.0
" Above N 1million 0 0.0 100.0
3. Capital (year 2001)
N50,000 - N 100,000 0.0 0.0 0.0
N 100,001 - N 500,000 35 26.1 26.1
N 500,001 N 1 million 29 21.6 47.8
Above N 1million 70 52.2 100.0
4. Reasons for the trend in business
capital 78 58.2 58.2
Increase in demand 21 15.7 73.9
Access to credit from Banks 4 3.0 76.9
Access to credit from PAP
Increase in demand and Access 8 6.0 82.8
to credits from Banks
Increase in demand and Access 4 3.0 85.8
to credits from PAP 6 4.5 90.3
Access to credits from Banks and
PAP 13 9.7 100.0
Increase in demand, Access to
credits From Banks and PAP
Source: Field Survey 2001
I PAP - Poverty Alleviation Programme
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W500,000 - Wlmillion. By year the 2001 however, the structure of
business capital has changed significantly in a reverse order. Not one of
all the firms surveyed still had a business capital of between W50,000 -
W100,000. Equally, the number of firms, having a business capital of
between W100,000 - W500,000 has reduced to 29 firms (21.6 per cent).
While 70 firms representing 52.2 per cent now owns capital above
Wlmillion. In an attempt to explain the trend in capital structure,
expansion of market (increase in demand) accounted for 58.2 per cent.
This is followed by access to credit from Banks, which accounted for
15.7 per cent. A combination of factors such as increase in demand,
access to credit from Banks and PAP accounted for 9.7 per cent,
increase in demand and access to credit from banks (6.0 per cent), access
to credits from Banks and PAP (4.5 per cent); and increase in demand
and access to credits from PAP (3.0 per cent). Again, no firm point to
PAP as singularly responsible for the increasing rt:rend in business capital.
As part of the profile of the responding firms, we examine the trend in
capacity utilisation. After the period of actual implementation of SAP
starting from 1990, one firm (0.7 per cent) says its capacity decreased by
30% and by year 2001, it has increased to four firms representing 3.0 per
cent. However, seven firms representing 5.2 per cent say their capacity
increased to 60 per cent and by year 2001, the figure has increased to 26
firms representing 19.4 per cent. While firms whose capacity increased
by above 60 per cent increased from 19 firms (14.2 per cent) in 1990 to
80 firms (59.8 per cent) in 2001, close to 44.5 per cent and 3.0 per cent
did not respond in 1990 and 2001 respectively. To know the reasons for
the trend in change in capacity utilisation, the response was poor, as 73.9
per cent of the firms did not respond. However, reasons such as low
demand, inflation in the economy, increase in production, high patronage
etc were given.
12.4.2 Benefits from Poverty Alleviation Programmes
One of the questions of interest is to find out which component of PAP
entrepreneurs benefited from government poverty alleviation programmes.
This is illustrated on Table 12.3.
Twenty firms representing 14.9 per cent benefited from the People's
Bank (PB) followed by Better life Programme (BLP) from which 17 firms
(12.7 per cent) benefited. No other component had 10.0 per cent benefits
except for a combination of Better Life Programme (BLP), National
Directorate of Employment (NDE), and National Economic Reconstruction
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Fund (NERFUND), whose 26 firms representing 19.4 per cent claimed to
have benefited. Another 16 firms representing 11.9 per cent also benefited
from a combination of Peoples Bank (PB), Community Bank (CB), Better
Life Programme (BLP), and National Directorate of Employment (NDE).
Table 12.3: Government Poverty Alleviation Programmes from which
Entrepreneurs Benefited
Frequency Percentage Cumulative
Percentage
People's Bank (PB) 20 14.9 14.9
Better Life for Rural Woman Prog 17 12.7 27.6
(BLP)
Family Economic Advancement 4 3.0 30.6
Programme. (FEAP) 1 0.7 31.3
National Directorate of Employment 13 9.7 41.0
(NDE) 4 3.0 44.0
CB and PB 3 2.2 46.3
CB and BLP 10 7.5 53.7
CB and NDE 26 19.4 73.1
DFRRI, BLP, FEAP and NDE 16 11.9 85.1
BLP, NDE and NERFUND 8 6.0 91.0
PB, CB, BLP and NDE 12 9.0 100.0
PAP
No response
Source: Field Survey 2001
Note: CB: Community Bank
DFRR1: Directorate of Food, Roads, and Rural Infrastructure
NERFUND: National Economic Reconstruction Fund
PAP: Poverty Alleviation Programme
About 9.7 per cent benefited from CB and PB alone, while another 3.5 per
cent benefited from CB and BLP and 2.2 per cent benefited from CB and
NDE. About 7.5 benefited from a combination of DFRRI, BLP, FEAP and
NDE. The FEAP accounted for 3.0 per cent benefit derived by respondent
firms. While the current civilian administration's PAP contributed 6.0 per
cent of benefits, twelve firms representing 9.0 per cent did not respond. It
is interesting to note that the NDE had the least beneficial programme and
yet it is one of those that still survive till today.
Table 12.4 examines the kind of benefits received by respondents.
As can be observed, 50 firms representing 37.3 per cent indicated credit
and loan; 16 firms (11.9 per cent) indicated equipment provision. While
social serviceslinfrastructure also had 16 firms representing 11.9 per
cent. No other benefits singly accounted for up to 10 per cent (0.7%). A
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combination of benefits from equipment provision and social services
infrastructures and skill acquisition, networking and social
services/infrastructure account for 7.5 per cent respectively.
Employment generation benefit accounted for 6.0 per cent, while, a
combination of credit/loan and equipment provision gave rise to 5.2 per
cent of the benefits. Networking with other supporting agencies.
credit/loan and skill acquisition/training and combination of Networking
and social services/infrastructure accounted for 4.0 per cent of benefits
reserved by respondents respectively. Still on table 4, responding firms
were asked to assess their access to services offered by these
programmes. Some 59 firms found it very easy, some 35 firms (26.1 per
cent) found it easy, while 32 firms (23.9 per cent) found it difficult, eight
firms (6.0 per cent) responded that they do not know.
When asked about their opinion on the interest rate on the loan
component of the programmes, some 25 firms representing 18.7 per cent
reported it is very high, about 39 firms (29.1 per cent) indicated high and
34 firms (25.4 per cent) said it is low, while 26.9 per cent of the firms do
not know.
From this table, it can be clearly observed that the largest benefit come
from credit and loan. It appears therefore, that the programmes emphasised
only the financial aspect and this may be the reason why the programmes
did not have appreciable impact on entrepreneurship development, as it is
difficult to monitor how creditors apply the credits. The NDE, which is
supposed to promote the skill acquisition and training, has been identified
on Table 3 as one of the least benefiting programmes with less than one per
cent contribution (0.7 per cent). It is therefore not surprising that Table 4,
which gives the kind of benefits received also indicated that skill
acquisition/training is the least beneficial with 0.7 per cent benefits.
Therefore, the NDE programmes, which has survived till now needs to be
re-organised and strengthened to achieve its aims and objectives.
Invariably, credits without necessary skill development through training
cannot but have limited impact.
Though, from the respondents opinion, access to these programme
services are relatively easy, the loan component is seen to attract high
interest rate. This may constitute a disincentive to prospective entrepreneurs
who may want to borrow from the programme and thus limit the impact of
the programme.
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Table 12 4: Benefits Received by Respondents
Frequency Percentage Cumulative
Percentage
1. Kind of Benefits received by
Respondents 50 37.3 37.3
Credit/Loan 1 0.7 38.1
Skill acquisitionfTraining Equipment
provision 16 11.9 50.0
Networking with other supporting
agencies 4 3.0 53.0
Social services/Infrastructure 16 11.9 64.9
Credit/Loan and skill 7 5.2 70.1
acquisition/training 4 3.0 73.1
Credit/Loan and Equipment provision 4 3.0 76.1
Credit/Loan, skill acquisition/training
Networking and Social services 10 7.5 83.6
Equipment provision and social
services/infrastructure 10 7.5 91.0
Skill acquisition, Networking and
Social services/Infrastructure 8 6.0 97.0
Employment generation
No response 4 3.0 100.0
·2. What is your assessment of access
to services?
Very easy 59 44.0 44.0
Easy 35 26.1 70.1
Difficult 32 23.9 94.0
Don't know 8 6.0 100.0
3. What is your opinion on the interest rate
of the loan component of the
programmes?
Very high 25 18.7 18.7
High 39 29.1 47.8
Low 34 25.4 73.1
Don't know 36 26.9 100.0
Source: Field Survey 2001.
12.4.3 Impact of Benefits on Entrepreneurship
Tables 12.5 to 12.8 examine the impact of the programmes on some
specific factors. As can be observed from Table 5, 86 firms representing
64.2 per cent indicated that the programmes of PAP agencies have
assisted them to introduce new machine while 45 firms (35.8 per cent)
said No. In an attempt to know how the machine affects productivity, 62
firms (46.3 per cent) reported that it has increased their productivity.
Some 24 firms (12.9 per cent) observed no change in their productivity,
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two firms (2.2 per cent) said it led to a decrease in their productivity and
41 firms (30.6 per cent) don't know, while four firms did not respond.
Table 125 : Impact 0fP rogrammes on Machm' e Acquisition
Frequency Percentage Cumulative
Percentage
Introduce new machine with the support of
Poverty Alleviation Agencies
Yes 86 64.2 64.2
No 48 35.8 100.0
New machines affects productivity
Increase Productivity 62 46.3 46.3
Decrease Productivity 3 2.2 48.5
No change in productivity 24 17.9 66.4
Don't know 41 30.6 97.0
No response 4 3.0 100.0
Being able to acquire machine without
agencies support
Yes 59 44.0 44.0
No 59 44.0 88.0
Not sure 16..J 11.9 100.0
Source: Field Survey 2001
In order to know whether the respondent firms would have been able
to acquire machine without PAP agencies support, equal percentage of
respondents, 59 firms (44.0 per cent) indicated Yes and No respectively
while 16 firms, (11.9 per cent) are not sure.
Table 12.6 examines the impact of the programmes on Training.
Some 62 firms representing 46.3 per cent admitted their staff were
trained on the operation and maintenance of the machines acquired
through the programmes, while 72 firms representing 53.7 per cent said
No. On some other types of training, 75 firms representing 56.0 per cent
said they received other types of training while 59 firms representing
44.0 per cent said they did not.
As can be observed from Table 12.6, to know the type of training
received and how important it is to them, they were asked to rank from 1
to 5, with 5 being most important. 83 firms representing 61.9 per cent
identified training on finance and bookkeeping as the most important,
while general management is seen as the least important with 118 firms
representing 88.1 per cent selecting the option. This is followed by repair
and maintenance of equipment accounting for 57.5 per cent as least
important. Training, marketing and sales are also considered least
important as they account for 55.2 per cent. This result is a general
confirmation of the poor attitude of entrepreneurs to training. They
appeared to be bothered more on how to keep accurate account than
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improving the quality of their products, marketing strategies and general
management. This may be the case, as most small firms generally do not
engage experts in their operations. One 'man show' who often is the
owner-manager characterises most small firms. This attitude greatly
tends to limit the impact of the PAP programmes.
Table 126 : Impact 0fP roarammes on Tram..ma
Frequency Percentage S:;umulative
Percentage
1. Was any of your start
trained in the operation and
maintenance of the
machine?
Yes 62 46.3 46.3
No 72 53.7 100.0
2. Did you benefit trom any
other types of training from
these agencies?
Yes 75 56.0 56.0
No 59 44.0 100.0
1 -2 3 4-5
Least Important Important Most im ortant
Freq. % Freq. % Freq. %
3. If Yes, Rank type of
training received (rank 1-
5) with 5 being most
important.
Finance and Book keeping 51 38.1 - - 83 61.9
Quality control 61 45.5 24 17.9 49 36.6
Marketing and sales 74 55.2 31 23.1 29 21.7
General Management 118 88.1 1 0.7 15 11.2
Repair & Maintenance of
Eauipment 77 57.5 27 20.1 30 22.4
Freq. % Freq. % Freq. %
4. Rank possible effects of
the training received on
your operation (Rank 1-5
with 5 being most
importan~.
Improve roductivity 38 28.3 25 18.7 71 53.0
Cost reduction 43 32.1 33 24.6 58 43.3
Improved quality of
products 51 38.1 33 24.6 50 37.3
Increased sales 82 61.2 10 7.5 42 31.3
Source: Field Survey 2001
In order to asses the effects of the trammg on the respondents
operation, 53.0 per cent indicated it as having the most important effect
by improving productivity but has importance and the least important
effects apparently on all the options. But 83 firms representing 61.2 per
cent reported the training had the least importance on sales increase. The
impact of the programmes can be observed on Table 12.7.
One hundred and three firms representing 76.9 per cent agreed that
support received from PAP brought about a change in production
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process, while 21 firms representing 15.7 per cent did not agree and 10
firms (7.5 per cent) did not respond. The firms that agreed that PAP has
led to a change in the production process attributed it to loans and credit
facilities. Some 61 firms (45.5 per cent) believed that it is due to loan
support, while another 16 firms representing 11.9 per cent attributed it to
credit facilities support. Those that did not respond were 42.6 per cent of
the respondent firms. When the firms were asked the type of change
introduced, 37 firms (27.6 per cent) replaced their old machines while
51.5 per cent bought some additional equipment. About 20.9 per cent of
the firms did not respond.
Table 12.7 : Impac t 0fP rogrammes on ProducfIon Process
r-requency Percentaqe ~umUlatlve
Percentaqe
i 1. Did the sup~ort receiveo rrorn Poverty
Alleviation ro~rammes lead to
change in Pro uction?
Yes 103 76.9 76.9
No 21 15.7 92.5
No resoonse 10 7.5 100.0
2. It Yes, what Kind ot support?
Loan 61 45.5 45.5
Credit facilities 16 11.9 57.4
3'l, No response 57 42.6 100.0pe of chan~e tntroduced,
, eplacemen of old machine 37. 27.6 27.6
Bought some additional equipment 69 51.5 79.1
No resoonse 28 20.9 100.0
A. wnlcn.l-'overty Alleviation t'rogramme
brought about the change?
NDE 11 8.2 8.2
PAP 7 5.2 13.4
Community Bank 6 4.5 17.9
People's Bank 21 15.7 33.6
No resoonse 89 66.4 100.0
Source: Field Survey 2001
In an attempt to know the components of the PAP that brought about
the change in production process, about 89 firms representing 66.4 per
cent did not respond. Only 15.7 per cent of the firms identified People's
Bank. Both the NDE, PAP and Community Bank did not have up to 10-
per cent share respectively. In fact the Community Bank only has only
4.5 per cent share. In order words, as far as change in production process
is concerned, these components of PAP have limited impact.
From Table 12.8, it can be observed that 105 firms representing 78.4
per cent agreed that PAP has brought about an increase in productivity.
Six firms representing 4.5 per cent observed no change while 23 firms
representing 17.2 per cent do not know.
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Table 128 : Impact 0fP rogrammes on Productivity
Frequency Percentage Cumulative
Percentace
Increase in Productivity 105 78.4 78.4
No change 6 4.5 82.8
Donot know 23 17.2 100.0
Source: Field Survey 2001
In order to examine the response of the firms to traditional bank credit
service within the same period, Table 12.9 provides respondent's view
on access to bank credit within the period.
As can be observed, in year 1990 and 2001, almost equal number of
firms believed that access to bank credit is some how easy. For year
1990 it was 48 firms representing 35.8 per cent and year 2001, it was 49
firms representing 36.6 per cent. However, for firms that think it is
difficult or somehow difficult in the year 2001, the figure rose from 27 to
37 (27.6 per cent). And for firms who think it is somehow difficult in
year 1990, they are 27 (20.1 per cent) but for 2001, it has increased to 42
(31.3 per cent). This can be justified on the ground that during this
period, more private commercial banks were licensed, while the
development banks became moribund and their activities became highly
impaired.
Table 12.9 : Access to Bank Credit
Frequency Percentage Cumulative
Percentaqe
Year 1990
Somehow easy 48 35.8 35.8
Difficult 22 16.4 52.2
Somehow difficult 27 20.1 72.4
No response] 37 27.6 100.0
Year 2001
Somehow easy 49 36.6 36.6
Difficult 37 27.6 64.2
Somehow difficult 42 31.3 95.5
No response 6 4.5 100.0
Source: Field Survey 2001
In order to know whether firms consider interest rate before
borrowing, 91 firms representing 67.9 per cent confirmed they do, while
37 firms representing 27.6 per cent do not. Only 4.5 per cent of the firms
did not respond (Table 12.10).
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Table 12 10· Interest Rate and Decision to Borrow
Frequency Percentage Cumulative
percentage
Do you consider interest rate on
your decision to borrow?
Yes 91 67.9 67.9
No 37 27.6 95.5
No response 6 4.5 100.0
Why?
Low interest rate 53 39.6 39.6
High interest rate 6 4.5 44.1
No collateral 22 16.4 60.5
No response 53 39.5 100.0
Source: Field Survey 2001
On why firms would borrow or not, 53 firms representing 39.6 per
cent considered low interest rate for their borrowing while, six firms
representing 4.5 per cent indicated high interest rate as the reason for
their not borrowing. Some other 22 firms (16.4 per cent) reported not
having collateral (Table 12.10). Generally, in Nigeria, cost of borrowing
in commercial banks is very high compared to developed countries in
Europe and America. But the reason why one investor would consider a
rate low and the other consider it high in the country may be difficult to
discern. For firms that lack collateral, it is a general practice for
borrowers to have adequate coverage for loan required, so collateral
security is an important decision for both the lenders and borrowers
regardless of the rate of interest. "-
The questionnaire sought to know the opinion of the responding firms
on major constraints faced by their enterprises. The following are a list of
responses from the firms:
i. Shortage of finance.
ii. Inadequate skilled personnel.
iii. Lack of machinery and spare parts.
IV. Harassment from government agencies.
v. Lack of raw materials.
VI. Shortage of land space.
vii. Low patronage.
viii. Competition from local producers.
IX. Electricity problems.
x. Water supply problems.
XI. Lack of access road.
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In the same way, they were asked to give their views on strategies
they adopted to overcome the constraints in their operations. The list is
as follows:
1. Get loan from commercial banks.
11. Adept the use of local materials.
iii. Provide electricity through generating plants.
IV. Obtain loans from friends and relatives.
v. Searching for more customers.
The survey questionnaire finally asked for the respondents' opinion
on how to improve PAP. Their opinions as expressed are listed as:
i. Provision of infrastructural facilities.
ii. Provision of funds to the less priviledged.
iii. Encouragement of private sector development.
IV. Ban importation of goods that can be locally made.
v.. Channel resources directly to small scale industries.
VI. Unemployed people to be paid monthly benefits.
12.5 Summary of Major Findings, Future Policy
Recommendations and Conclusion
12.5.1 Summary of Major Findings
The following are the main findings on the impact of government
poverty alleviation programmes on entrepreneurship development in
Nigeria.
• a large'r-- percentage of small-scale entrepreneurs have relied heavily
on personal savings and informal financial sources such as
ROSCASlEsusu, friends and relatives as sources of starting-up
their businesses. In other words, the old tradition of personal
financing is still in vogue.
• Poverty alleviation p.rogrammes' sources of finance constitute a
smaller proportion of total finance to small-scale entrepreneurs.
This implies that perhaps the money is not getting to the intended
beneficiaries or are wasted on other things.
• People's Bank and Better Life Programmes have benefited
entrepreneurs more than any other poverty alleviation programmes
but not enough to jump-start a virile and sustainable
entrepreneurship development.
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• Firms that have benefited from one form of poverty alleviation
programme or the other tend to have marginal incremental impact
on productivity.
• The NDE programme that specifically incorporated
entrepreneurship development were found to have less benefits to
small-scale entrepreneurs. This is perhaps due to poor programme
conception, implementation and weak institutional support.
12.5.2 Future Policy Direction
From the analysis so far, it is clear, that PAP in its various forms had
failed to achieve the desired impacts on entrepreneurship development
since the days of SAP. In fact as can be observed from the opinion of
respondent firms on major constraints being faced by their enterprises,
they were mostly the same reasons why these programmes were set up.
Nothing appears to have changed. Considering the huge resources that
have been committed and still likely to be committed, and the
determination to continue with these programmes, it is important to
define clearly what future poticy option should be.
The following are suggested options:
1. Clear Conceptual definition
An entrepreneurship programme should be seen as a component
that consists of mutually exclusive but interrelated activities.
Those activities are: financial support; training; appropriate
technology; marketing; institutional brokering; vocational and
technical training; raw materials development; and extension
services. If PAP is to achieve the desired impacts, these various
components of the entrepreneurship development programme must
be institutionalised in an integrated form with clearly focused
mandate without duplication as it is currently the case.
2. Institutional Reforms
The current practise where most components of PAP engage in one
financial services or the other should be reviewed. Each institution
should be made to handle specific aspects of entrepreneurship
development. Nonetheless, networking among the institutions
should be encouraged through referral process.
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3. Reform in Education Policy
The current orientation of the country's education cannot mitigate
unemployment or lead to entrepreneurship development. The need
for reform in education policy is to complement entrepreneurship
development components of PAP.
12.5.3 Conclusion
The authorities in Nigeria have demonstrated committment to
. alleviating poverty among the citizens through the establishment of
various programmes. However, the impact of these programmes in
creating opportunities for entrepreneurship development among the
beneficiaries has been limited by poor conception and weak
implementation.
As it has been noted in this study, most of the so-called poverty
alleviation programmes in the country since SAP are not targeted to any
particular poor group, neither are they targeted to foster entrepreneurship
development. It is therefore not surprising that the programmes have
limited impact in promoting entrepreneurship. The programmes have
largely failed to solve major constraints of entrepreneurs. Even the NDE,
which was to focus on promoting employment opportunities through
entrepreneurship training and support, has been identified as one of the
least beneficial programmes. Ironically it is still one of the programmes
that have survived to date. Given its pivotal role in promoting and
enhancing entrepreneurship culture in Nigeria, the institution has to
undergo reforms to meet the challenges of creating and fostering
entrepreneurship development in.Nigeria,
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Entrepreneurship Education in Nigeria: An Overview". Paper
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April) Abuja.
Adeyemo AJ. (1998), "The Demand for Higher Education and
Employment Opportunities in Nigeria". A paper presented at the
International Conference on Elite Formation, Higher Education
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for Research in Africa (IFRA)Ibadan.
Adebayo A (1999), "Youth Unemployment and the NDE Self-
employment Programmes", The Nigerian Journal of Economic and
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Adegbite O. (1997), "SME Development Under Structural Adjustment
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AFTSE (1988), "Fostering Endogenous Entrepreneurship Regional
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Bauer, P.T. (1954), West African Trade, Cambridge: Cambridge
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Elkan, Water (1988), "Entrepreneurs and Entrepreneurship in Africa"
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Elkan, Water (1973), Introduction to Development Economics, London:
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Goldmark, S.G. and Rosengard, J (1981), Evaluating Small-scale
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Hosebitz, B.P. (1957), "Small Industry in Underdeveloped Countries
"Journal of Economic History Vol. 19. Reprinted in Development
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Hoogvelt, A (1970), "Indigenisation and Foreign Capital:
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14 (January).
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Ilori B. (1999), "Policies and Measures for poverty Alleviation" Bullion
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Kilby, P. ed (1971). Entrepreneurship and Economic Development and
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Lipton, M. and M. Ravallion (1995), " Wage Premia for Education and
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Loucks, K. (1988), Training Entrepreneurs for Small Business Creation:
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Marris, P., and Somerset (1971), African Businessmen. A Study of
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Kegan Paul.
Meredith G.G, Nelson, R.E, and Neck, P.A, (1982), The Practical of
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National Policy on Education (1977), NPE: Federal Ministry of
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Nigerian Economy Society (1977), Poverty Alleviation in Nigeria 35th
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13
PENSION SCHEMES' ADMINISTRATION
IN NIGERIA: PROSPECTS, PROBLEMS
AND POLICY OPTIONS -
Kolawole Olayiwola
13.0 Introduction
This chapter discusses the problems and prospects of the existingpension schemes in Nigeria and proffers alternative policy options
for making the scheme more effective and more responsive to the needs
of its customers and the economy. In the next section, we focus on the
policy and institutional arrangements of pension schemes in Nigeria,
while section three discusses different pension arrangements in selected
countries. Section four discusses prospects and problems of the Nigerian
pension schemes and in section five, we discuss options for effectiveness
of pensions schemes in Nigeria. The last section gives the concluding
remarks.
13.1 Pension SchemesAdministration in Nigeria
The pension system in Nigeria comprises both an unfunded and
) funded but publicly managed schemes.
13.1.1 The Public Pension Scheme: The Policy Arrangement
The national pension scheme is a very important part of a
comprehensive social security programme. Its aim is mainly to provide a
wide range of social security benefits. The policies guiding the scheme
can be found on the Policy Paper emanating from the Udoji Commission
Reports, Pensions Decree No. 410f 1972 and Official Gazette of 1993.
319
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The pension policy recognises pension as every employee's right and
that cannot in any circumstances be reduced or withheld. The vesting of
the rights to pension becomes operative after an employee has served a
minimum of ten years in service. This is supported by the fact that an
employee cannot draw the pension earned until he has reached the age of
45, but it approves in principle the payment of a short-term gratuity of
one year's salary to any employee who withdraws from service after
completing at least five years, but before completing ten years to qualify
for pension.
Unless, otherwise stated, only a continuous and unbroken service is
taken into account as qualifying service. Any break in service caused by
a temporary suspension from employment, not arising from misconduct
may be disregarded for the purpose of calculating the qualifying service
under the Act.
The approved rate of calculating pension and gratuity benefits is
given by schedule (vii) of the Act.
Table 13,1,Schedu Ie ViIiI o0f the PeDSIODActo fN'igerta
Years of service gratuity Pension as a % of terminalsalary
10 100% 30%
15 150% 40%
20 200% 50%
25 250% 60%
30 and above 300% 70%
Source: Vision 2010 Document
An employee's pension is calculated on his/her terminal salary. The
pension and gratuity are charged to and paid out of the Consolidated
Revenue Fund of the Federation. Such sums of money may from time to
time be granted by the Federal Government by way of pension and
gratuity in accordance with this Act.
In the computation of qualifying service, no period during which an
officer was less than 15 years of age or was absent from duty on leave
without pay is taken into account. The exemption was when such
absence was for the purpose of utili sing a bursary or scholarship awarded
to him by the government of the Federation or of a state thereof, or the
absence was on account of such other purposes as the Minister may
permit.
The statutory age of retirement is 60 years. However, for officers
retiring on or before 31 st March, 1977, the compulsory retiring age was
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55 years. Moreover, an officer can b~ retired from service at any time if
he has attained the age of 45 years subject to three months' notice in
writing. A retired officer can also be reemployed under a yearly personal
work contract for a maximum of 5 years subject to a satisfactory annual
medical report.
The types of benefits provided by the Nigerian pension scheme is as
follows:
Disability Pension - this is paid to a worker's accrued normal
retirement pension subject to a maximum of 30 % of his terminal salary.
However, if the disability occurs prior to the completion of ten years
service, the person is treated as having voluntarily withdrawn from
service and he/she is paid a cash sum equivalent to his year's salary.
Death gratuity and pension - this is paid in respect of employees who
die while in service for more than 5 years. An amount equal to the
accrued pension up to the date of the employee's death is paid -to his
designated survivor(s) for a period of 5 years in addition to a lump-sum
benefit equivalent of one year's salary. Designated survivor(s) of an
employee who dies after completing a period of ten years or more in
service also receives a pension equivalent to the accrued pension of the
deceased at the date of death, for a period of 5 years in addition to a lump
sum benefit equivalent to one year's salary of the deceased.
As per section 16 of the Pension Act cap 147, unless an employee
holds a pensionable appointment and has been confirmed in the
appointment, no death gratuity is paid to his estate in the event of his
death. With the new scheme, the death gratuity should be paid to the
estate of every officer who dies in service, notwithstanding the length of
service or whether his appointment has been confirmed or not.
But if an officer is reported missing, his dependants will not be paid
any awards until the statutory period of seven years of presumption of
.J death has elapsed. The payment of pension to the designated survivors of
such an employee is also for a period of 5 years.
Under the pension arrangement, the maximum pension cannot
exceed 70% of the highest pensionable emoluments, while the minimum
cannot be less than W360 per annum. Provisions were being considered
whereby retirement benefits are automatically adjusted in line with rising
costs of living. As an interim measure, an increase of 50%, 30% and
15% is being paid to pensioners earning less than wno, WnO-W3000
and over W3000 respectively. This arrangement is meant to be
, ,
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322 Readings in Development Policy and
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periodically reviewed, in line with similar revisions for remunerations of
civil servants.
The nation's pension scheme totally defines its benefit and for the
public service, it is non-contributory. For local government staff,
however, the scheme involves partial funding. It is mandatory to operate
a Local Government Pension Funds, to which local authorities must
contribute not less than 10 % of their annual wage bill. The fund benefits
are the responsibility of the Consolidated Account.
To encourage greater mobility of labour within the public sector, and
between the public and private sectors, the Pension Scheme agrees that
years spent in services which provide pensions schemes compatible with
those for public servants and teachers should count as continuous.
Employees are thereby able to move from one government services to
another. However, for enterprises with different pension plans, continuity
of service can be provided only, through the payment of "transfer value"
of the retirement benefits to the employee by the new employer. The
Superannuation schemes of universities were also entrenched in the
national scheme in order to ensure that services with those institutions
were counted as continuous for employees who move from the
universities to the government's service and vice-versa.
The unfunded publicly managed pension scheme pays pensions that
are positively related to workers' earnings and it is financed by the
Consolidated Account on a pay-as-you-go (PAYG) basis. This means
that the contribution from various taxes and other sources of government
revenue are being used to pay the pension of those who have retired.
13.1.2 Private Sector Pension Scheme-Institutional Arrangement
Nigerian Provident Fund (NPF) was established by an Act of
Parliament immediately after independence in 1961. The basic objective
for its establishment was to cater for the pensions and old-age security of
employees in the private sector. The administration of the Fund is
undertaken by government and treated as a parastatal in the Presidency.
Pension plan under the Fund is operated on as defined-contribution
basis. This means that during the period of establishment up t01973, for
every 2 pounds contributed by the employee per month, the employer
also contributed. This makes an average yearly total of 48 pounds per
employee. With the introduction of Naira, the contribution rate was
converted to ~l4 per month and the same for the employer, thereby
making a total of ~96 per worker annually.
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Under this arrangement, there are four types of benefits. These are
(1) Old-age benefit (2) Withdrawal benefit (3) Disability benefit and
(4) Survivor's benefit. Numerous problems, however, were in this
scheme. The benefits paid are not adjusted for inflation. This makes the
benefit collected at the end of a working life almost meaningless and of
relatively little value. Furthermore, it is a lump-sum benefit. The
maximum benefit a member of the scheme that contribute W4 monthly
can expect to collect after 35 years of continuous service , that is from
1961 to 1995 is only x3,360.00. Secondly, it is a compulsory savings
scheme and the same rate of deduction is charged for both the lower-
income employee and the high income one. This means that the rate of
contributions are not adjusted for increases in earning capacity. Thirdly,
the Fund has no department for counselling. This makes many retirees
use the benefits without due and relevant advice as to what they can do
with them.
Given all these problems, the Nigerian Labour Congress decided to
intervene and correct these flaws. Their effort was supported by the
Technical Committee for Commercialisation and Privatisation (TCPC).
The outcome was the transformation of the Nigerian Provident Fund
(NPF) to the Nigerian Social Insurance Trust Fund (NSITF) in July
1994.
The NSITF was established by Decree No 73 of 1993. Its objective
was to change Provident Fund to a social insurance scheme. It also
sought to tie the percentage of contribution to earnings in order to make
the take-home benefit of worker more meaningful. The NSITF is a self-
accounting parastatal, that is not being subsidised by the government.
The NSITF covers every workers who is employed by a company
incorporated or decreed to be incorporated under the Companies and
Allied Matters Decree 1990. It also covers those who are employed by a
partnership irrespective of the number of workers employed, as well as
those employed by any other employer or organization, which has a
place of business and whose the number of workers is not less than five.
The scheme exempts all categories of civil servants as well as workers in
establishments with diplomatic privileges and immunities, foreign
nationals who are employed in Nigeria for a period less than six years at
a- time, or are covered by Social Security Scheme of other countries. It
also exempts Ministers of religion engaged in the propagation of
religious activities.
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The current rate of contribution is 7.5% of a registered workers
salary/wages subject to a maximum amount of x48,000 per annum. Out
of this, the worker is expected to contribute 2.5% while the employer
contributes 5%, making a total of 7.5% to the credit of workers. This
rate of contribution is subject to periodic reviews (every 2 years) in line
with actuarial evaluation and recommendations. However, in the event
of changes in the current rate of contributions, prior notification is given
to employers and workers.
Employers are required to deduct the contributions from the
salaries/wages of their registered workers and remit these together with
the employers' contributions to the nearest office of the Fund not later
than the 16th day of the succeeding months.
The following categories of benefits are payable under the scheme.
Retirement Pension - under this benefit, a worker can make claims if
he fulfills the following conditions: he has attained the age of 60 years
and above; he has made contributions into the scheme for up to 120
months i.e. 10 years. The rate of pension for a worker who satisfies
these conditions is 30% of his final average monthly insurable earnings.
This can be paid periodically to qualified members for life.
Retirement Grant - The qualification for this benefit is that the
worker is 60 years old and has made contributions into the scheme for
not less than 12 months. This grant is a lump sum payment equivalent of
the member's final monthly total contributions multiplied by the number
of months of paid contributions.
Invalidity Pensions - A member is entitled to this type of pension if he
has paid contributions into the scheme for at least 36 months out of
which he is expected to have worked continuously for 12 months. He
must also be certified as permanently invalid as a result of some bodily
or mental disability. The basic invalidity p.ension orrthe minimum
qualifying period is 30% of the final average insurable earning of the
invalid member. On every completed 12 months of paid contributions in
excess of the qualifying period, the pension is increased by 1.5% up to
the period the member will attain retirement age.
Invalidity Grant - This is also payable to a member ratified to be
permanently invalid and for whom contributions have been paid for not
less than 12 months of insurable employment. The amount payable is
equal to the final monthly contributions immediately prior to the
invalidity multiplied by the number of months of contributions.
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Survivors' Pension - This is payable to the dependants of a deceased
member who at the time of death was receiving or would have qualified
for RetirementlInvalidity Pension. Those who qualify to receive this
type of pension are the spouses of deceased members or any child of the
deceased under 18 years at the time of death. Such child can receive the
pension till he/she starts work after which the pension stops. The rate of
survivors pension will be 100% of the deceased's retirement!invalidity
pension.
Survivors' Grant - This is a lump sum equivalent to the deceased's
retirement! invalidity grant. Those who qualify for this grant are the
survivors of a deceased member who at the time of death was qualified
for retirement!invalidity grant.
Funeral Grant - This is a lump sum payable in respect of a deceased
member. The amount is presently fixed at x2000.00. This grant is paid in
respect of the funeral expenses of the deceased member. Those who
qualify for this benefit are (a) A deceased member who prior to the time
of death was receiving invalidity or retirement pension (b) A deceased
member who had contributed to the scheme for not less than 60 months.
Apart from all these primary benefits, the Fund is also charge with the
responsibility of converting members' benefits into investment. As
stated in the Official Gazette (1993; A816), "a contributor may apply to
have his contributions converted into credits towards the purchase of real
property intended for use by himself or his family for residential
purposes or (b) apply to have his contributions converted into credits
towards the purchase, or acquisition of equity holding in a company
which employs the condition".
The condition for these types of conversion as stipulated by this
gazette is that "at least b of the employees in the company concerned
collectively elect to exercise the right to purchase or acquire the equity
holding in the event of the equity being available for sale".
Benefits paid by the Fund are totally exempted from tax and
inalienable. Moreover, the contributions to the fund is inalienable and
shall not be assets for the benefit of creditors in the event of the
bankruptcy and insolvency of the contributor. However, contributions
whether by an employee or an employer shall form part of the tax
deductible expenses in the computation of taxes payable by an employer
or by an employee under any relevant law applicable to income tax.
J
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13.2 The Prospect and Problems of the Nigerian Pension Schemes
The Nigerian pension schemes can be assessed from three perspectives:
(1) the performance of the schemes in achieving the three main
objectives-savings, alleviating old-age poverty via redistribution and
insurance or old-age security; (2) the institutional environment in terms
of operations and activities of the Consolidated Funds, Budget operation
and Nigerian Social Insurance Trust Fund (NSITF); (3) the performance
of the schemes in comparison with other countries.
13.2.1 The Performance with Respect to the Objectives of Pension
Although the normal retirement age is 60 years, the generosity of the
Nigerian Pension Schemes is reflected in several additional
characteristics. First, people can start collecting a pension before the
retirement age if they have accumulated five years of covered
employment and second, people can continue to work even after they
have started collecting old-age pension.
As a result, coupled with the relatively high level of pension
compared to the wage rate, the replacement ratio of labour in Nigeria is
very high. A full pension represents about 70% - 80% of previous
earnings. On the other hand, nominal wage has been static for a long
period, dating back to the Udoji award of 1974. Given the spiralling
inflation to which the economy has been subjected over the last two
decades, its real value had fallen alarmingly inspite of the various
adjustments made to salary level during this period. In the period of 1980
to 1995, the lower-level officer real salary had fallen more than five
times from W201.3 in 1980 to W94.1O in 1995. The worst hit are upper
level officers whose monthly salary had fallen more than five times from
W2110.1O to W379.70. It is also confirmed that during this period, the
middle-class workers are no more in existence, as their real salary of
W189.20 in 1995 was not up to the real salary of lower level officer in
1980 (Olayiwola, 1998).
According to the World Bank report on Nigeria, people who are not
able to spend US$325 per month are living below the poverty line. In
Naira terms, at 1992 price and exchange rate, this is an equivalent of
W5,622.5. The assumption that the retirees have no other source of
income other than pension indicates that majority of them are living
below the poverty line. When the real salary of a senior civil servant was
below the poverty line, it can therefore be asserted that all pensioners
living only on pension are extremely poor (Olayiwola, 1998).
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13.2.3 The Institutional Environment
All the factors discussed under the performance of the pension schemes,
have contributed to a high level of spending on pensions. Pension
expenditure in Nigeria represents an increasing proportion of the total
recurrent expenditure i.e. 0.89% in 1980 to 8.97% in 1998. The pension
of transfer payment also increased from 1.13 in 1980 to 17.5 in 1998
(Table 13.2). This is relatively high if this figure is compared with other
countries. The comparative expenditure in lower-middle income
countries is 2.9% and 6.9% in upper-middle income countries.
Table 13.2: Trends of Public Expenditure on Pensions and Gratuity in
Nigeria (N=million)
Pension and P and G/ P and G/
Years Total Ree. Transfers Gratuity Transfer TRE
Exp. (TRE) (P and Gl I%l 1%)
1980 15,300.1 12,106.4 136.3 1.13 0.89
1981 15,541.9 11,078.3 99.2 0.90 0.64
1982 14,767.9 11,219.3 61.6 0.55 0.42
1983 11,917.9 8,243.1 67.8 0.82 0.57
1984 6,275.4 2,503.3 231.2 9.24 3.68
1985 7,215.3 3,129.5 220.4 7.04 3.05
1986 14,174.4 10,123.0 615.3 6.08 4.34
1987 24,617.0 17,008.8 147.9 0.87 0.60
1988 30,469.2 10,296.2 961.4 9.34 3.16
1989 39,484.6 14,074.6 700.6 4.98 1.77
1990 57,409.3 24,669.7 744.8 3.02 1.30
1991 64,913.4 27,309.4 792.8 2.90 1.22
1992 10,3161.1 37,184.5 791.6 7.7 1.2
1993 89,974.6 50,314.1 1,593.0 3.17 1.77
1994 89,974.6 51,388.7 1,728.4 3.36 1.92
1995 127,629.8 75,045.8 1,996.9 2.66 1.56
1996 129,416.3 58,765.2 4,672.0 7.95 3.61
1997 146,421.0 55,963.3 7,650.1 13.7 5.22
1998 206,477.5 105,860.8 18,525.7 17.5 8.97
Source: FOS Annual Abstract of Statistics, 1999
In the 1990s, the sharp economic contraction put great strain on the
pension system. While the number of beneficiaries increased from 1.2%
of the population to 6.6% in 1993, and 19.8 % is envisaged in the year
2016, the pension allocated from the consolidated funds has been
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declining (see Table 13.2). This is because, when the three-tier level of
government is faced with resource limitation, they resort to different
measures. Firstly, they stop any significant budget transfers to the Funds
and second, they divert the funds meant for pensions and gratuity to
other budgetary activities. The end result of all these is the high lead-
time of collecting the gratuity by retired individuals.
In terms of the private pension scheme, the NSITF is divided into
eight zones. These zones are supported by state offices and district
offices. This arrangement was resulted from the discovery that
geographical spread can pose a problem to pension administration. This
problem has been solved through decentralisation to districts, state and
zonal offices, each of which is charged with the responsibility of
collecting contributions and disbursing benefits.
There is also a Benefits Department that has the responsibility for
counselling members. At initial stage, it has been found that lack of
enlightenment poses problems. These facts, coupled with people's
perception of government in terms of bureaucracy and unfulfilled
promise, necessitated reorientating people's focus and perceptions about
the scheme. This department was found necessary because of the
ignorance of most members on how to manage their pensions. Moreover,
some companies were reluctant to join the scheme because they could
not see what direct benefit it yields.
There are other supportive regulating devices to promote the NSITF.
In 1993, their was a regulation stipulating that any company wishing to
register with government or to subscribe to foreign exchange must have a
certificate of involvement with the NSITF. Their operations are also tax
exempted.
In recent times, the. NSITF has embarked on massive restructuring
and staffing programme in order to prevent the popular adage of putting
'round pegs in square holes'. It also sponsored massive enlightenment
campaigns coupled with highly computerised operations. Infact, there is
a proposal for extending information technology facilities to the district
offices to aid their performances. All these are done to achieve at least
50% coverage rate by 1998 and 100% in the near future.
NSITF also promotes pension portability. Benefits are transferable
within the private sector. This is made possible because unlike the
former National Provident Fund (NPF), a unique number is given to an
employee which he carries around during his working life and even when
he retires.
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The operation and activities of the NSITF are, however, still largely
controlled by the Federal Government. Infact, it is claimed that the
contributions in their custody are not invested and that there is no linkage
with both money and capital markets. The only encouraging prospect, is
that the benefits paid are inflationary indexed.
13.2.3 Comparison with Other Pension Schemes
In terms of the coverage rate, the Nigerian Pension Scheme fares
well. Nonetheless, unlike in other countries, its linkages with both the
private and the public pension schemes leave a lot more to be desired.
Table 13.3: Percentage of Minimum Old-Age Pensions to Minimum Wages
(International Comparison)
Chile 79.5
Yugoslavia 115.4
Mexico 46.5
Italy 46.5
Nigeria 8.1
Source: Compiled by the Author
Table l3.3 shows that the value of minimum pension in Nigeria is
low compared to the position in countries like Yugoslavia and Chile.
While many advanced countries rely on pension contributions as a source
of savings and long -term capital formation, the pension arrangement in
Nigeria is not seen as a channel for promoting savings and investment in
the country. This, of course, may not be unconnected with the colonial
origin of the National Pension Scheme.
13.3 Problems inherent in the Nigerian Pension Schemes
Perhaps the most critical problem confronting the Pension Schemes is
demographic, arising from the increasing agedness of the working
population. A minimal increase in fertility rate of about 6.4 % in 1994
and rising adult life expectancy from 39.5years in the 1960s to 51years in
1990s have combined to produce a rapid increase at the apex of the
population pyramid. The proportion of persons entitled to pension is
rising and so is the volume of total pensions required to support these
older people who, for a complex mix of social, economic and
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330 Readings in Development Policy and
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psychological factors, can no longer support themselves through
participation in the labour market.
Second, is the trend towards pension system maturity. Public pension
based on PAYG principles tends to be cheap to operate when new since
they have few beneficiaries. Over time, these ratios change and the costs
rise. Costs can be temporarily contained by incorporating new groups of
workers into the pension system, thereby expanding the contribution
base. But once most of the population is covered, the scope for further
expansion becomes minimal.
Third, is the economic and political consequences of a global
slowdown in the rate of economic growth. The expansion of public
pension provision since the 1960s has been financed by largely public
revenues generated by a higher overall level of taxation. Ageing and
pension system maturity are together creating further pressures for tax
increases to cover rising pension costs. But tax increases are politically
more difficult to sustain when overall incomes are stagnant or falling
than when they are rising.
There is also the problems of high payroll taxes and tax evasion.
Under PAYG systems, when the population is young, small contribution
from the large number of workers allow for payment of generous
benefits to a few pensioners. As the population ages and the systems
mature, however, pension scheme must charge higher taxes to pay the
same benefits to the growing number of retirees. Payroll taxes for
pensions are already over 7 per cent of gross wages in Nigeria. As the
population ages more over the next 20 years, the contribution rates will
have to rise dramatically if the PAYG system and current benefits are to
be retained. Impliedly, high payroll taxes mean less take home payor
more unemployment for workers still in service.
High payroll tax rates that are linked to benefits also lead to evasion.
In Nigeria, the private sector accounts for over 45 per cent of modem
sector wage employment (Fashoyin, 1990). If this trend continues,
higher payroll tax would be needed to cater for the public sector retirees.
This high tax rate can lead to evasion. This may be in form of labour
force being diverted to the informal sector like in many Latin American
countries such as Argentina. Evasion undermines the system's ability to
pay pensions. It also makes it necessary to raise payroll taxes further,
and hurts the economy since people who work in the informal sector are
often less productive.
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Misallocation of resources also constitutes problems to the Nigerian
pension scheme. In the years 1990, 1991 and 1992, Nigeria spent 1.29%,
1.22% and 7.67% of recurrent expenditure on pensions and gratuities.
Based on the 1991 National Population Census, these expenditure were
being used to service the population that constituted thepensioners in
these periods (see Table 13.4).
Table 13.4 Age structure of the Nigeria=s Population in 1991
Age group (years) % of population
0-19 55.4
19-34 23.4
35-54 14.6
55-74 5.2
75 and above 1.4
Source: National Population Census 1991
Using the same age structure of Nigerian population for projecting
into the next 20 years, and given that the life expectancy of Nigerians
will remain on the rise, an average of 37.6 per cent of recurrent
expenditure will be spent for pensions and gratuities to cater for 19.8%
of the population that would constitute the old-age people. (see World
Bank, 1994 for the computation of the projected ageing of the
population). The problem is further compounded because at the lower
end, an increasing proportion of the population (32.4%) will not be
workers but children in their schooling age. The burden of servicing the
young and the pensionable old will definitely spill over to the general
treasury as tax revenues earmarked for old-age pension will definitely
fail to cover the system's growing expenditure. High public pension
spending can hurt the economy if it squeezes out government spending
on growth-promoting public goods such as infrastructure, education and
health services.
The average retirement age in Nigeria is 55 years and the payroll tax
is 17 per cent. The public sector employee can voluntarily retire at 45
years. Using Table 1 result as an example, if this retirement age remains
the same; in the year 2016, the economy would have to provide pension
for not less than 13.6 % of the population. The fact is that early retirees
stop making contributions and begin drawing benefits, thus doubly
hurting the scheme financially while also depriving the sector of their
experiences.
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The Nigerian pension system has actually induced people to save less.
There is the believe that inadequate national saving rates hamper growth,
but PAYG systems have not used the old-age pension system to induce
people to save more.
Publicly managed system financed by tax revenues are sometimes
justified on the ground that they help the poor. Despite seemingly
progressive benefit formulas, however, studies of public pension plans
have found little, if any, redistributive effects from the lifetime rich to the
lifetime poor. Infact, studies of such plans in the United States, Columbia
and Sweden have found that, in the early years of these plans, high
income groups have benefited the most. •
As a result of all these factors, publicly managed systems are usually
in serious financial trouble in all the countries studied. Current payroll
tax rate are much lower than those needed to payoff these benefits and
the country concerned will have a hard time raising them enough to close
the gap. This is evident in Nigeria by the continuous delay in paying
gratuities. The average lead-time for gratuity payment in Nigeria now is
three years. Some pensioners even die before their gratuity is paid.
Others have collapsed whilst queuing up in the States' secretariats to
collect their pension.
For private pension scheme, the most striking problem is with record
keeping. The attitude of the people towards government- the belief that
money with the public sector are difficult to collect- really hinder the
performance of the scheme. There is also the problem of unstable value
of the Naira. This is evidently shown with the fact that despite
inflationary indexation of benefits, the value of the real benefits have
been very unimpressive.
The bureaucracy involved in administering these schemes is also
deterrent to the efficient operation of the system. The fact that pension
contributions cannot be borrowed also pose constraint to the schemes.
Lack of linkage with money and capital market pose problems for the
investment objectives of the schemes.
13.4 The PolicyOptions to Pension Reform in Nigeria
13.4.1 Policy Issues in Pension Reforms in Nigeria
There are a number of challenges to be faced by countries seeking to
set up or develop pension funds (Vittas and Skully 1991). These include
the role of contractual savings institutions in retirement income
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provision; their impact on savings and capital markets; their effects on
economic efficiency and social equity; the role of government in
promoting them; the case for preferential fiscal treatment; the needs for
compulsion; and the appropriate regulatory framework.
The primary role of pension funds is a supplementary one in all the
countries studied. There are no cases where they provide the only form
of old age support although the height of the social security safety net
varies widely. This, in turn, has a crucial effect on the development of
funded schemes. In this analysis, we consider such a mixture sensible,
given the conflicting arguments for funding as opposed to PAYG.
The impact of pension funds on savings and long-term financial
resources is to boost the latter, albeit not in a one-to-one manner, whilst
also stimulating the development of securities and equity under certain
conditions. As regards the development and functioning of capital
markets, pension funds may be beneficial by promoting innovation,
liquidity and efficiency, while also influencing market structure. These
effects may be stimulated by certain regulations and the structure and
behaviour of the fund management sector. There are strong arguments in
favour of developing private funded schemes especially as the benefits to
the capital market would be absent in the case of book reserves. The side
effects, if considered sufficiently undesirable, could be dealt with in the
context of economic policy generally. These are usually features of the
equity markets and/or of institutional investors rather than the pension
funds.
The development of pension funds for economic efficiency includes
their effects on labour mobility and the distortioning effects on their
taxation. Social equity is affected by the rules on internal transfers and
equity of treatment, coverage, rules in relation to tax privileges, the
safety net of social security and the scale and indexation of benefits
offered. It is therefore necessary to define appropriate regulatory
mechanism to minimise these difficulties. Indexation, at least up to a
certain point and rules facilitating a degree of portability are particularly
desirable.
The role of government in promoting pension funds has been shown
to be a crucial one. This is particularly important in respect of the level
of state benefits provided and the ability of employees to opt out of the
state scheme and personal pensions. Changes in taxation on pension and
alternative assets, legislation on the nature of benefits and legislation on
provisioning all have a role to play in making the setting up of pension
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funds attractive to firms. More indirectly, the provisron of a stable
macro-economic environment and steady economic growth, through its
influence on returns in the capital markets also influence the cost of
providing funded pensions. Against this background, it is our considered
view that, defined benefit plans retain an advantage over those of defined
contribution given their superior Aemployee retirement insurance@,
especially if regulations are set to overcome the key problems.
Generally, for both types, company- based schemes are superior to
personal pensions schemes given their lower transactions costs and their
avoidance of market failure. Finally, separate funding is felt superior to
book reserves, not only because of the effects on the capital market but
also the concentration of risk in systems that depend on book reserves.
In most countries studied, the case for preferential fiscal treatment
has been found very persuasive. The myopic argument was suggested as
the most crucial, although reducing the burden of social security and
increasing saving may also playa role. We consider these arguments
persuasive and hence suggest that pension funds should be tax
advantaged even if other forms of savings are not.
Compulsion is needed if the view that individuals are myopic is
taken seriously; and the evidence seems quite strong. It could be argued
that if pension savings are compulsory, then relative tax advantages are
not needed and all forms of savings should ideally receive expenditure
tax treatment. We feel that compulsion in ensuring social security is
crucial for any society; and with appropriate tax incentives, should be
sufficient to induce employers and employees to give it due attention.
Some of the regulatory preconditions for the development of pension
funds require a balance between cost to the sponsor, economic
efficiency, equity and benefits security. Funding rules, adequate
institutional structures, effective regulatory structures, rules on treatment
of surpluses, portability, vesting indexation, protection against fraud and
control of the Nigerian factors are clearly essential. We therefore
suggest that the following rules provide an appropriate balance: a degree
of mandatory indexation of pensions (at least annually using an
empirically valid inflationary rate); minimum and maximum funding
rules tailored to the nature of the obligations but do not discourage equity
holding by penalising temporary shortfalls; independence of the funds
from the employer insurance against fraud; disclosure to members,
indexation of accrued benefits for early leavers; and vesting periods of
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Pension Schemes' Administration in Nigeria: 335
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around five years. A Dutch style supervisory structure appears a good
model to follow.
The advantages of pension funds relative to other forms of savings
include the superior retirement insurance they offer, as well as the
reduction of the demographic burden associated with _PAYG Social
Security. The choice of funding itself raises numerous policy issues such
as inter- and intra- generational equity, pressure on domestic rates of
return, the costs of tax exemption for funded pension, and the costs to
existing workers in the transition. Also, there are important policy
questions: whether the difficulties of an aging population can really be
avoided by funding, if funds are invested in domestic assets or whether
there are advantages in investing the funds in more credible international
securities.
From the cross-country analysis, it has been found that the
sustainability of pension funds is thus not only a function of the level of
economic activity, demographic factors, and the set of rules that govern
the pension system, but also to a large extent on factors which induce the
transformation of informal to formal sector activities and reduce tax
evasion. Among these factors are changes in the pension system, which
aim at ensuring its sustainability while preserving a minimum standard of
living to low-income pensioners. The sharp reduction in the benefit level
combined with a high rate of taxation, as well as the loosening of the
links between contributions and benefits have transformed the social
security contribution into almost a pure tax on labour. In addition, the
growing incapacity of the government to provide an adequate level of
protection to the old has reduced the credibility of government-managed
social security programmes, inducing the development of private pension
schemes.
The challenge for any country that wants to reform, is to find a
politically viable transition path to a more economically efficient system.
However, many countries are finding it difficult to move away from their
pay-as-you-go (PAYG) system because of their large public pension
debts. Old people are unwilling to give up the pension promises that
were made to them years ago, while young people are unwilling to pay
the taxes needed to sustain or reform the systems. In some countries, the
result has been political paralysis and economic deterioration.
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13.4.2 Policy Options for Pension Reforms in Nigeria
An analysis of other countries' pension reforms shows that "a successful
reform programme will probably take three to four years to prepare and
many more years to implement" (Vittas, 1994: 23). We therefore
identify some policy challenges to ensure that the growth and poverty-
alleviation benefits of the pension reform come to function. These
recommendations are being categorised into two (1) policy to be
institutionalised before the reforms and (2) those to be put in place after
the reforms.
1. Policy to be 1nstitutionalised Before Reforms
The complex institutional changes required by the pension reform
should be executed effectively and promptly. These include determining
the solvency of national pension funds, starting new institution (the
national and regional pension payment programmes and the distributive
transfer programmes), supporting smooth changes in contribution
affiliation, and ensuring effective regulation and supervision.
The government should decide on how it will finance its pension
reform deficit. While this decision could be revised over the years as part
of overall fiscal policy decisions, it would be beneficial to identify
certain forms of financing from the outset. The use of finance from
Petroleum (Special) Trust Fund (PTF), privatisation and issuance of
explicit government debt would be the first choice if the government
wants to de-link its pension reform from a contractionary fiscal policy.
The government should also develop an actuarial model to estimate
transition costs (See Cooper 1977 for the analysis of the model). One of
the most difficult and intractable questions is the estimation of the costs
of transition from a "PA YG" to a multi-pillar scheme with a fully funded
component. Despite the lack of accurate and detailed records, use of an
actuarial model would be essential for estimating these costs. Other
policies to be institutionalised are as follows:
Draft and enact laws for social security, pension and insurance
reforms. Drafting these laws would be effective if experts with
knowledge of foreign experience are employed along side local
specialists. In this way, the lessons from the experiences of other
countries will be utilised, while the drafted and enacted laws will also
comply with local practice and customs, The time required for drafting
good laws should not be underestimated, while the difficultly of
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Pension Schemes' Administration in Nigeria: 337
Prospects, Problems and Policy Options
maintaining the integrity and logic of proposed legislation should not be
overlooked.
Issue specific regulations for pension funds and insurance companies.
Laws usually cover the basic principles that should govern the operations
of pension funds and insurance companies. Detailed _regulation are
normally required for a host of issues that would be subjected to periodic
review and re-assessment. The regulatory agencies should be properly
staffed and motivated to issues well drafted, sensible and timely
regulations, working with markets practitioners and professional experts
who can help to expedite the whole process.
Train the regulators and professional staff, including fund managers
actuaries, accountants and auditors. In Nigeria, an extensive training
programme would be needed to raise the professional standard of
regulators and to help develop experienced professionals.
Undertake publicity campaign to explain reform programme. A well
mounted and effective publicity campaign could help to mobilise public
support for the programme by explaining its benefits and spelling out the
non-viability and inefficacy of the existing arrangements.
Each firm, no matter how casual the nature of its work, should be
compelled to have a pension scheme in order to complement the pension
benefits. There should be no limitation to vested rights. If the state cannot
ensure that occupational scheme are run in the workers' benefit, it should
incorporate these private schemes into the national scheme. Moreover,
to accommodate those workers moving from one employment to
another, the state should encourage the transfer of pensions right
between occupations. This entails that pension legislation should reflect a
rational and integrated system of Adeferment', Avesting', atransference'
and assignment of unique social security number to individuals.
The national minimum pension should be the one that the worker can
live on without too much discomfort in his old age. The minimum
pension of W360 annually is too small for comfort. The minimum
pensions need to increase not only with changes in the cost-of-living, but
also with changes in the average national standard of living, even if this
requires a subsidy out of the national budget.
Employees should become eligible for superannuation at an earlier
period in life. The retirement should be brought forward and later put
back as the rate improves. Also, certain benefits within the social
security system need to be increased i.e. insurance benefit, fringe benefit
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338 Readings in Development Policy and
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and education etc~> This should follow the demographic trend of the
country.
2. Policy Recommendations after Reforms have been instituted
The role played by Consolidated Funds and NSrrF as important
providers of pension services should be clarified and , in the long term
revised. First, there is the risk that the efficiency and equity costs of a
state-managed PAYG will be preserved. Second, considerable financial
and economic uncertainty arises from the right of contributor to shift
affiliation back and forth between public managed and privately
managed pension. Diversification of investment portfolios of pension
funds towards private and international instruments should be gradual,
but continuously permitted to ensure reaching higher risk-return frontier.
Pension reforms need to be complemented by other reforms of social
securities and labour market programmes that are currently being
financed by payroll contribution. In order to reduce evasion of payroll
taxes, and raise the share of formal sector employment and production of
the high pure-tax components of today, very large payroll contributions
should be eliminated. This requires identifying alternative sources of
general taxation to finance these programmes.
Use compensatory pensions or recognition bonds for vested pension
rights. One of the greatest obstacles of pension reform is how to handle
the vested pension rights in the old system. Chile has opted for the use
of recognition bonds, whereby workers transferring to the new funded
scheme are issued with bonds recognising their accumulated pension
rights. The recognition bonds earn real interest rate at 4% per year and
mature when the workers retire. Thus, the liability of the state is spread
over many years. Argentina has retained an explicit public pillar,
offering a minimum pension to all workers who has opted for the use of
compensatory pensions, whereby workers with accumulated pension's
right will receive two pensions from the state as (1) relating to the
minimum pension; and (2) relating to their accumulated pension rights.
The cost of the transition is spread over a longer period in the Argentine
system, which may thus have more appeal for countries with large levels
of current'pension spending.
There is the need for simplification in the procedure for making a
claim for benefits. There should be a reduction in the time-lag between
making a claim and receiving benefits.
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13.5 Conclusion
The earlier analysis show that real and nominal pension benefits in
Nigeria have been reduced and the range of payments compressed. This
has transformed the pension system from a highly redistributive system
and a social assistance programme designed for a large proportion of the
population, to the one that aggravates poverty level in the country. The
analysis leads to the conclusion that this would become a permanent
feature of the system as sustainability would continue to pose a big
problem.
Therefore, reforms are imperative and urgent. Even with a fairly
optimistic growth scenario, there is little prospect that the difficulties
faced by the pension system will gradually disappear. Moreover,
restoring the past features of the system would be too costly, whilst,
keeping the system as it is would maintain the mechanism that tends to
make it unsustainable. Consequently, there is the need to embark
immediately on a gradual reform of the present system of pension
schemes in Nigeria. It is advisable to reformulate policies towards the
integration of the defined-benefits and defined contributions plans and
work towards institutionalising the multi-pillar system in the country.
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340 Readings in Development Policy and
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Fashoyin, T.(ed.)(1994) Economic Reform Policies and The Labour
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Falkingham, J. and P. Johnson(1993) A The Life-Cycle distributional
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Fisher, P.(1970) A Minimum Old-Age Pensions II: Their Adequacy In
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Department of Labour Washington D.C.
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14
RURAL DEVELOPMENT IN NIGERIA:
TOO MANY PROGRAMMES;
TOO LITTLE RESULTS
Oluwemimo Oluwasola
14.0 Introduction
The constraints to developing the rural areas as well as the problemsof this critical sector have come to loom very large. For over four
decades, all attempts to put the rural areas on course of development
have failed. Conditions have continued to worsen and poverty has
become a major issue in the rural areas in spite of their potentials.
This paper examines the various efforts at bringing development to
the rural areas to enhance rural well-being. It also tries to find out why
past policies have failedeand profers suggestions on how to achieve
sustainable growth in the rural areas.
14.1 Rural Nigeria: An Overview
Rural Nigeria, rio doubt, is central to the development aspirations of
the country. It is the source of the nations wealth. It is endowed with
human and natural resources. In terms of human resources, an estimated
69.4% of the national population reside and make a living in the rural
areas. In current estimates, a whopping 79 million of the 114 million
Nigerians live in the rural areas. The natural resources are exploited for
food and fibre to meet domestic and industrial consumption needs of the
nation. In addition, they are important sources of foreign exchange
earnings. Simply put, the wheel of the national economy is oiled with
the resources exploited from the rural areas.
The rural areas however present problems that are a contradictory
paradox of its natural resource endowment. As noted by Chinsman
345
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(1998), rural communities are seriously marginalized in terms of most
basic elements of development. In addition, the inhabitants tend to live
at the margin of existence and opportunities. Most rural communities
lack potable water, electricity, health care, educational and recreational
facilities and motorable roads. They experience high population growth
rates, high infant and maternal mortality, low life expectancy and a
peasant population that lacks modern equipment to sustainably exploit
the natural resources on which they live.
These factors have translated into a number of problems that have
continually affected the sustainable development of the rural areas. Some
of these problems include:
(1) High incidence of poverty. Dependence on rudimentary
technology and the over-exploitation of the natural resource
base have adversely affected the productivity and hence,
income earning potentials of the rural dwellers. Todaro (1979)
opined that the vast majority of the worlds poorest people, live
in the rural areas. The level of rural poverty in Nigeria is
readily observed in any rural community in terms of the quality
of housing, unhygienic water sources, poor sanitation, poor
nutrition and poor hygiene.
(2) Low productivity, high unemployment/under employment
leading to low per capita earnings. Most rural communities are
mainly farmers depending on rain fed agriculture. During the
dry season, very little earnings accrue to many farm families.
(3) Poor infrastructural support services of water, electricity and
roads necessary to provide a catalytic impetus for a private
sector led development. In addition, lack of social services like
health, communication and educational facilities make the rural
areas unliveable.
These problems have significantly contributed to the sustained
migration of youths particularly those aged between 18 and 30 years
(Onokerhoraye and Okafor, 1994) who find the place uncondusive to life'
chance development. Incidentally because of poor skill acquisition, such
migrants move into cities that are not designed and/or prepared to
welcome them. The migration stream show a clear male bias in most
areas although in the southern states of Nigeria where education is
relatively easy to access, this bias is less pronounced. Consequently,
more than 50% of the rural population comprises largely of children
below 18 years.
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The rural areas are also saddled with the aged who depend on
rudimentary farm equipment to till the land and meet family food
consumption needs. They also have to produce in excess of this to
exchange for cash to meet family needs for urban goods and services.
After many years of urban employment and existence, many people find
it more realistic on their retirement to stay in the urban- centres than to
return to the dreary and monotonous lives of their villages.
What this translates to is that rural Nigeria has a dependency ratio that
is higher than the average. With rural-urban migration, the proportion of
adult male to female in the rural population is significantly less than in
.the normal population. This leads to the increasing socio-economic
'problems of female-headed households that lack access to productive
resources and therefore tend to be poorer in the rural milieu.
Because of the very high rural population, the problems confronting
the rural areas ripple strongly through the national economy. As Todaro
(1979) observed, the core problems of widespread poverty, growing
inequality, rapid population growth and rising unemployment all find
their origins in the stagnation and often retrogression of economic life in
rural areas. If sustainable improvement in the quality of living of
Nigerians is to be achieved, the problems confronting the rural areas
must be tackled (Onokerhoraye and Okafor, 1994).
With 7 out of every 10 Nigerians living in rural areas, successive
governments have long realised the need to invest in the development of
the sector to increase rural income and enhance the living standard of the
larger majority of the people. Different governments have placed
varying emphasis on ways of tackling these problems. Most of the
programmes designed to improve the rural areas have failed to yield
desired results. Where noticeable achievements were made, they have
been ephemeral. On the whole, the rural areas have remained largely
disadvantaged with the situation presenting a facade of hopelessness as
revealed by an examination of the status of available infrastructure and
access to social amenities as shown in various statistics provided by the
Federal Office of Statistics. The rural areas also suffer from shortage of
credit because of high risk elements; high transaction cost, poor banking
habits (see Zeller et al 1997 and Soyibo 1996, 2000; Onokerhoraye and
Okafor, 1994 and Yaron, 1997), which make them unattractive to
financial institution.
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14.2 How and Why did the Rural Areas Become Stagnated?
A fair discussion of this issue requires that the development thinking for
achieving development prevailing at the beginning of achieving
nationhood be clearly understood.
The concept of rural development has been thoroughly defined in the
literature (see Udo, 1984; Williams, 1978; World Bank, 1975). All
authorities in rural development studies agree that it is a strategy
designed to improve the economic and social life of the rural poor.
Several theoretical models have emerged in trying to analyse and
interpret various aspects and approaches to the subject. In Nigeria, the
development process in the rural areas have followed a combination of
the Basic Resource Theory; The Dual Economy Theory; Export-led
Growth Model and the High Input Pay Off Model.
The basic resource theory stipulates that economic development
depends on the presence, quality and magnitude of basic natural
resources within particular areas (Onokerhoraye and Okafor, 1994). This
theory seems to apply to the development of south western and eastern
Nigeria where the availability of rich soils and mineral resources have
aided in the transformation of the countryside relative to other areas.
The dual economy theory postulate the existence of a modern
industrial sector side by side with the rural subsistence sector. The
theory articulates a development strategy which emphasizes the
concentration of resources on the modern dynamic commercial sector
and withdrawing resources from the subsistence sector for this purpose
with the assumption that the strategy would ensure cumulative growth of
incomes, employment and rapid structural transformation of the nation
including the rural areas (Onokerhoraye and Okafor, 1994; Essang, 1975;
Yaron et aI, 1996).
The export-led growth model emphasizes the role of external factors
in the development of a region. The model postulates that factors of
production will move to any area that has a commodity that can be traded
in the export market (Onokerhoraye and Okafor, 1994). This seems to be
the case with oil producing areas of Nigeria.
The high input payoff model argues that in order to improve the
productivity in rural areas, there should be a package of high yielding
and profitable new inputs on which farmers could invest (Schultz, 1964).
The erstwhile farm settlement programmes seem to have been based on
(his premise.
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It is within these theoretical models for development that past policies
aimed at bringing development to the rural areas of Nigeria should be
analysed.
Nigeria like other third world countries saw industrialisation as the
key to attaining the economic successes of the imperial powers. As
Mabogunje and Onyemelukwe (1978) puts it, industrialisation came to
be widely canvassed and accepted as likely to help the newly developed
countries to achieve their transition to the status of becoming developed.
Consequently, policy response placed the pursuit of industrialisation into
focus with rural development equated to agricultural production. All
policy measures were thus geared towards ensuring surplus agricultural
output to feed the nations industrialisation led development strategy.
Rural development was thus narrowed down to sectoral policies
particularly in the areas of agriculture which today has led to 'the
intractable problems of the rural areas. However, the confusion that
accompanies such negative development philosophy manifests itself in
the failure of the development strategy to recognise the linkages between
rural and agricultural development on one hand, and between rural
development and the development of the total economy on the other.
"The rural areas were largely neglected in the early years of
independence because of the adoption of economic dualism strategy
model. In addition, the nation also adopted an import substitution
industrial strategy which in the main involved the substitution of local
technology with imported ones rather than the substitution of imported
components with local raw materials. These theories in their adoption
and implementation did not yield the desired results of achieving the
greatest socio-economic benefit for the majority rural dwellers.
Situations deteriorated and the gap between the urban and rural areas
widened the more.
The view is widely held that the pattern of input substitution
industrial development strategy adopted led to the present urban
structure. In reality however, the rate and volume of the migration of
people out of the rural areas to the cities is a measure of some of the
negative impact of the industrialisation strategy on the rest of the
country, making it imperative for the people to move enmass from the
rural areas. For in order to protect the nascent assembling industries,
high tariff barriers were imposed against cheaper and often better
finished imports. For the rural population, this meant paying higher
prices for manufactured goods especially at a time when the prices they
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350 Readings- In Development Policy and
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received for their export products were declining. To worsen matters,
the growing concentration and organization of industrial labour in the
cities exerted political pressure on the wage structure as to affect the cost
of labour to farmers in the rural areas. For farmers, the competition for
Aover-priced@ labour was disastrous and the growth of urban centres
came to be marked by a sharp decline of rural productivity. Even for
those farmers who stayed on in the rural area because they could not
leave, government=s desire to satisfy restive urban population via the
importation of cheap agricultural products like rice, maize, vegetable oil,
etc. affected the farmers and the rural economy adversely. -
The development trends affecting the rural areas can be examined
from two main time perspectives.
Before independence, the colonial administration prepared and
implemented the Ten-Year Plan of Development and Welfare for
Nigeria: 1946-1956, essentially with the sole objective of improving cash
crop production and urban infrastructure, particularly roads and
communications. Little attention was paid to rural development as it had
little relevance to the imperial interests. The period before 1954
witnessed the development of the regional export economies-cotton and
groundnut in the North; cocoa and rubber in the West and oil palm and
kernel in the East. The 1954 Federal constitution and the process of
regionalisation placed rural development as a residual item and it was
therefore treated as a regional responsibility, just like agriculture,
education, etc. This autonomy gave each of the three regions of the
country a free hand to set its own pace for development. Since revenue
came mostly from agricultural exports, the regional governments tried to
provide basic infrastructures particularly roads to haul commodities from
the rural areas. Since the population was largely rural, and the regions
were largely supported by the wealth of the rural areas, educational
facilities, potable water as well as health facilities were provided the
rural areas.
Although these were inadequate, they marked a humble beginning
and a conscious attempt to improve the lot of the rural people. During
this period of internal self government which lasted till 1968, the various
regional governments operated and based their development plans on the
assumptions of perfect knowledge of the problems of the rural people.
Some of the schemes undertaken during this period include the farm
settlement/school leavers farms by the three regional government's; the.
Tree Crop Plantation (developed through the Development Corporations)
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of the Eastern and Western governments and the Small Farmer Credit
Scheme.
With the attainment of independence however, the subject of rural
areas assumed greater importance in the scheme of national
development. Thus the First National Development Plan: 1962-1968
allocated 13% of the gross capital outlay to agriculture and primary
production. However, whatever gains made were wiped off by the civil
war.
By 1965, the new federal ministry of Agriculture was very cautious
not to mention Aagriculture@ in its plan so as not to hurt the spirit of the
1963 constitution yet, the political powers of the old regions brought out
the need to coordinate agriculture at the centre. Consequently, three
areas were identified for federal assistance to agriculture in the second
National Development Plan- 1970-74. These were:
1. grants for the development of agriculture, forestry, and livestock
and fishery;
2. establishment of a National Credit Institution; and
3. special Agricultural Development Schemes where the federal
government enters into both financial and management partnership
with state governments in carrying out projects.
The Second National Development Plan; 1970-1975, focussed on
economic policies for setting up the framework for internal growth.
Among its objectives were the promotion of balanced development
among the various communities in the different geographical regions in
the country, and the development of the rural areas through increased
output. Agriculture and rural development thus took 12.9% of the
planned budget estimates.
The Third National Development Plan: 1975-1980, which allocated
7.2% of the N43.36 billion budget estimates to agriculture and rural
development sector was essentially a continuation of the development
process and policies begun in the preceding plan. The post 1975 period
witnessed series of rather panic measures embarked upon by the Federal
Government, including the Operation Feed the Nation (OfN) ,
Agricultural Development Programmes (ADPs), River Basin and Rural
Development Authorities (RBRDAs), and the Green Revolution
Programme. Of all these, the ADPs received better attention and a
systematic approach to project planning while the other schemes
mentioned above remained as political slogans.
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By the second half of the 1970s and early 1980s, the trickle down
development strategy has started to wane. Emphasis shifted towards
addressing development and poverty issues at the grassroots in rural
areas with the believe that the rapid growth in the rural economy is the
most promising way to reduce poverty and check rural-urban drift.
Nigeria was not left out of this new thinking. Several programmes were
initiated with varying degrees of successes at the on set. Over time, the
rural areas have remained poorer. Francis et al (1996) observed that A
poverty has rural-urban dimensions. Poverty incidence in rural areas was
36% compared to 30% in urban areas with the equivalent figures for
extreme poverty being 15% and 11% respectively. In 1992, rural areas
accounted for 66% of the incidence of poverty, and 69% of the extreme
poor.
14.3 Past Efforts Aimedat ImprovingRural Areas
As indicated above, the governments of Nigeria had taken rural
development on hand until petroleum became the main foreign exchange
earner. It subsequently neglected the rural economic base and the
budding infrastructure that had been put in place for rural transformation
when it depended on the exploitation of agricultural exports to survive.
Following the collapse in oil price and the resultant problems of balance
of payment and debt crises, a new impetus towards the regeneration of
the rural areas developed and a number of programmes such as National
Agricultural Land Development Authority (NALDA); Directorate of
Food, Roads, and Rural Infrastructure (DFRRI); the River Basins and
Rural Development Authorities; the National Accelerated Food
Production. Programme; the Green Revolution; Operation Feed the
Nation (OFN); the Agricultural Development Projects (ADPs); the Better
Life for Rural Women, and the Family Support Programme were put in
place.
These programmes were meant to provide a catalytic impetus for the
take-off and subsequent advancement of the rural areas towards:
1. Linking them to national and international economic systems;
2. Increasing rural household income;
3. Providing basic socio-economic and physical infrastructure;
4. Efficient resource allocation to shift attention and interest of the
private sector towards investment in rural areas to enhance rural
development; and,
5. Enhancing rural welfare.
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14.3.1 The Agricultural Development Programmes
This was introduced in 1975 in three enclaves but now covers the whole
country, The main objective of the ADPs have been to increase
production of food and fibre as well as producer incomes. The
distinguishing characteristics of ADPs include:
a) an input and credit supply system through a network of farm
service centres which ensure that no farmer travels more than 5-
15km to purchase needed farm inputs;
b) a massive feeder road network that has opened up new areas for
cultivation and has facilitated rapid evacuation of farm produce
and prompt delivery of inputs;
c) a revitalized unified extension and training system backed up by
timely input supply and adaptive research services;
d) joint state-federal collaboration from project implementation;
and
e) solid project .management together .with built-in project
,.monitoring and evaluation.,
.The ADPs represent a truly innovative approach to agricultural and
rural development both in their integrated supply of farm inputs and
infrastructural support and in their efforts to revamp and revitalize
extension services. .
Along with the .implementation of the ADPs, some states of the
federation initiated a variety of new schemes to deal with new and old
problems. For example:
1. The Lagos State Government embarked oil the Agricultural Input
Credit Scheme to promote mechanized farming, while its Graduate
Farming Scheme was to tackle the twin problems of graduate
unemployment and food shortages through the provision of land,
equipment and all necessary inputs for cropping. And, its School
Agriculture Programme was designed to popularize agriculture in
schools.
2. The Niger State Back-to-Land and the Small Scale Farmers
Programmes guaranteed loans to various categories of farmers;
3. The Bauchi State Graduate and School Leavers Farming Schemes
were similar to those in Lagos State.
4. The River.iState School-ro-Land Programme was designed to
reduce' unempl()ym~nt among school leavers as well as act as a
catalyst to revolutionize agriculture, while its Community Block
Farms was to encourage farming cooperatives in the state.
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5. The Oyo State Integrated- Self Employment and the Graduate Self-
Employment Schemes were designed to solve the unemployment
problems of schoolleavers and graduates respectively in the state.
6. The Shell Company of Nigeria also has community Land
Development Programme in the oil producing states. This is
designed to provide alternative means of livelihood to the original
land owners of oil well sites.
14.3.2 Land Reform Measures (land use decree)
Land reform measures have not been taking very seriously in the
country until 1978 although in northern Nigeria, the colonial
administration had to enact the Land and Native Rights Proclamation No.
9 of 1910 vesting control and ownership of all lands in the north in the
state to control the excessive taxation and the marginalization of the
Rausa indigenes by the Fulani over lords who had appropriated the land
and reduced the Hausas to mere tenants. In the southern parts of the
country, communal ownership of land prevailed.
In 1978 however, the government of Nigeria embarked on the first
major land reform when it enacted the Land Use Decree of 1978. The
Land Use Decree was meant to free land from the bottleneck of
institutional constraints to among other things, enable landless but
enterprising farmers have access to productive land. The decree sought
to take over ownership of land from individuals and vest power of
control over such lands in the state governors. In practice however,
especially in the country side, the customary tenure is still widely
adhered to. Except for rich land speculators, the accessibility of poor
peasants to productive farmlands has remained as difficult as ever. The
unintended fallout has been incessant warfare over land by adjoining
communities.
14.3.3 The Directorate of Food, Roads and Rural Infrastructure
(DFRRI)
The Directorate of Food, Roads and Rural Infrastructure (DFRRI)
was created in January, 1986 as an integrated approach to rural
development. DFRRI· was designed to act as a policy catalyst for the
development of the rural areas of the country and lay particular
emphasis on the provision of water and the construction, rehabilitation
and maintenance of an effective rural feeder road network. The
directorate had the following objectives:
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1. To promote a framework for grassroots social mobilisation.
2. To mount a virile programme of development, monitoring and
performance evaluation.
3. To provide rural areas with access roads and potable water.
4. To improve rural sanitation, literacy and technology,
The main task of DFRRI can thus be categorised briefly into two.
First, it was to make rural areas more attractive to live in (through the
provision of improved, well-maintained rural infrastructure such as
roads, water and electricity) in other to stem the migration to urban areas.
Secondly, it was to change for better, the rural ways of life and modes of
production in order to meet the challenges of increased agricultural and
industrial production, and raise income thereby reducing urban-rural
disparities. It was involved in the production and distribution of
improved seeds and other planting materials; the promotion of rural and
urban fish farming, storage and processing of grains as well as
encouraging the production of small animals such as sheep and goats.
The Directorate operated through its coordinating officers in the states
and in each local government. As far as available information can
reveal, DFRRI more or less duplicated what other agencies such as the
ADPs, RBDAs, State Ministries of Agriculture, etc. should be doing.
Table 7 shows some of the achievements of DFRRI until it was
dismembered and merged with some ministeries in 1994.
By the end of 1993, DFRRI had constructed 90,857km of rural roads
valued at N720 million. While some of these are likely to be in use
today, most of these roads are likely to have been abandoned given the
culture of poor maintenance of utilities in the country. It also accessed
708 rural communities with electricity and provided 22,267 communities
with bore holes or ponds for domestic water consumption.
Commendable as this programme was, it could only touch the lives of
very few rural dwellers and because the people saw the programme as
belonging to government, rural people did not internalize the very ideals
of self-development of the programme.
14.3.4 The National Agricultural Land Development Authority
(NALDA)
To solve the problems of low utilization of farmlands, increase farm
sizes and hence productivity to alleviate rural poverty, the Federal
Government initiated a national agricultural land development
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356 Readings in Development Policy and
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programme under the National Agricultural Land Development
Authority (NALDA) in 1991.
NALDA as an executing agency was empowered to develop between
30,000 and 50,000 hectares of land in each state of the federation during
the 1992-94 National Rolling Plan period. It was also to see to the
placement of at least 7,500-12,500 farmers within the area developed
such that each participating farmer member lives within 3km-5km radius
of his farmland. The programme on the whole was to:
1. provide strategic public support for land development;
2. promote and support optimum utilization of the nations land
resources for the accelerated production of food and fibre;
3. encourage and support economic size farm holdings and promote
the consolidation of fragmented farm holdings:
4. encourage the evolution of economic size villages;
5. provide gainful income and employment opportunities for rural
people;
6. address the special problem of the nations rural majority;
7. expand production capacity in agriculture;
8. contribute significantly to the attainment of national food and
fibre self-reliance; and
9. facilitate the appropriate cost-effective mechanization of
agriculture.
As at 1994, NALDA had only succeeded in constructing 652.3km
farm road. It did not succeed in its attempt at creating economic villages.
14.3.5 The Better Life for Rural Women Programme
The Better Life for Rural Women was launched in September 1987.
The-objectives of the programme include:
1. to create awareness in women to help them realize, utilize and
develop their potentials so as to lead more fulfilling lives;
2. to encourage women to attain functional education
3. to encourage women to be innovative in their activities and in
the management of their time and resources;
4. to encourage women in self-sufficient and income generating
activities so that women can reap adequate benefits from their
labour as well as enjoy some economic independence.
5. to draw attention ro the problems and needs of the rural
cere runities and highlight the plight of women in the country.
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Although the programme was gender specific, it blazed the trail for
the setting up of small scale cottage industries in the rural areas. The
industries so developed used local raw materials. It also helped in
opening up the rural market to urban consumers.
14.3.6 The Agricultural Credit Guarantee Scheme
In 1977, the Agricultural Credit Guarantee Scheme Fund Decree,
whose objective was to provide cover in respect of loans granted for
agricultural purposes, was promulgated. It was believed that this will
encourage commercial banks to loan investment funds to the agricultural
sector including the small scale rural dwellers. However, the main
beneficiaries of this programme were the large scale and educated
farmers .
. 14.3.7 The River Basin Development Authorities
Also in 1977, eleven of these were established to undertake food
production and the provision of rural infrastructure. In 1986, they were
re-organised and directed to focus on land and water resources
development.
14.3.8 The Peoples Bank of Nigeria
The Peoples Bank was established in 1989 as a specialized bank to
provide small loans to the poor As contained in PBN (1999) document,
its mandates were to: .
i) provide basic credit requirements to the under-privileged
Nigerians who are involved in legitimate economic activity in
both rural and urban areas but who cannot normally benefit from
the services of orthodox banking systems due to their inability to
provide collateral securities, and,
ii) accept savings from the same group of customers and make
repayment of such savings together with any interest thereon,
after placing the money in bulk sums, on short-term deposits with
commercial and merchant banks.
The enabling decree stipulates that the PBN will among other things
perform the following functions:
i) extension of credit facilities to the less privileged members of the
society who cannot normally benefit from the service of the
commercial banks;
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ii) acceptance of savings from customers and payment of such
savings together with any interest thereon;
iii) provision of opportunities for self-employment from the vast
unutilised and underutilised manpower resources;
iv) complement governments efforts in improving the productive
base of the economy;
v) inculcate banking habit at the grassroots level and reduce rural-
urban migration; and to
vi) cushion the painful effects of the Structural Adjustment
Programme on the poor.
Clearly, the mandate of the PBN goes beyond servicing only rural
areas. However, it is discussed here because its activities extended up to
the rural areas. Available records published by the PBN did not
disaggregate the number of branches in rural areas nor the number or
~amount of transactions in the rural areas. It is enough to say however
that in spite of whatever claims of achievement the bank makes, rural
dwellers access to production credit has not improved any significantly
in the eleven years of the banks existence. In fact, the Federal
Government has found it necessary to merge it with NACB and FEAP.
14.4 An Evaluation of Past Programmes
It is quite clear that rural poverty and marginalization has continued
to increase even as the number of programmes designed to solve these
problems increased. In fact, the programmes in· most cases only raised
the hopes of the people only to be dashed. There are a number of factors
responsible for these. '--
The first rrta.rr problem is the wrong conception of what rural
development should be by planners. Most of the time planners with a
culture of urbanism has a wrong perception of rural dwellers and thus,
their needs. There is thus the tendency to confuse rural development
with agricultural development. Most interventions in the rural areas
were meant to service farming process with little emphasis on social
infrastructure necessary to both support farming and transform the rural
areas to agrobased cottage industries. Little or no efforts were made to
provide simple cheaper and adaptable alternatives to peasant implements
that could reduce the drudgery of the farm business hence, farming
remained unattractive to the youths. This encourages persistent rural-
urban migration.
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In the second place, most of the programmes were planned and
executed in a top-down fashion by urban experts, military dictators, and
their wives who were >seriously concerned= about the plight of the rural
folks. Some of these concerned urban elements had no knowledge of the
terrain of the rural areas nor of their needs and dynamics of the rural
enclave. Without inputs from the rural dwellers, the programmes were
not particularly relevant to the needs of the rural people. In the process,
planning for agriculture was devoid of a human approach. Emphasis was
placed on plantations, government farms, large irrigation projects, group
farming, Better Life etc.
Thirdly, some of the projects like the River Basin, ADP were too
capital intensive and as donor-support waned, they became
unsustainable.
Four, some of the programmes had political rather than development
intentions. Programmes like the BLP was politicised. Attempts were
even made to stiffle other programmes that existed before it but with
similar objectives. Most of the time, the participants were beamed on
TV s to the urban folks when the rural dwellers who needed a change in
attitude knew nothing of them.
Five, in most of the programmes, very little attempt was made to let
the people own them. Before DFFRI, rural inhabitants have been
building roads communally. When DFFRI came it employed contractors
and the projects were not handed over to the communities. BLP
preferred to bring technicians to repair machines in the rural areas than
training local artisans resident in the community with the project.
14.5 Pathways to AchievingSustainable Rural Development
To enhance living standards and increase opportunities in the rural
areas, attitudes and approaches to rural development planning must
change. Planners must know their rural clientele and the dynamics of the
rural society. Rural areas connotes a kind of landscape where most of
the inhabitants are engaged in primary activities, which are essentially
agricultural. In addition, it also refers to a system of human settlements
characteristically small in size and simple in form and functions. They
act primarily as centres of primary production and sometimes as rural
central places. By their nature and numerical strength, rural settlements
are vital to the spatial economy of a region as the production, collection
and forwarding centres for food and materials for commerce and industry
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360 Readings in Development Policy and
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and as producers of services to the rural inhabitants aswell as urban
dwellers due to linkage effects.
Rural development therefore should be pursued in terms of the extent
to which the rural areas and settlements are performing these critical
functions. Put simply, it should be a process of improving the quality of
the rural dwellers social well-being. This process should comprise of:
i) raising the income and consumption levels of the rural people
ii) creation of conditions conducive to the growth of the peoples=
self esteem; and
iii) increasing the freedom of choice in consumption/development
variables.
To achieve these three components the following should be taking
into consideration in planning for the rural areas.
There should be the provision of basic infrastructures to open up the
rural areas. Such infrastructures will include:
(a) all-season-roads that are permanent and constructed to link up
the rural areas as well as nearby urban centres. In swampy
areas, water ways should be efficiently developed while the
possible extension of railway lines to remote areas should be
considered. This is necessary to transport goods and people
over space.
(b) development of communication network including postal
services, telephone, radio, television, newspapers and public
libraries all of which enhance the dissemination of information
especially in such critical areas as weather, farming systems,
innovations and extension services.
(cI provision of public service networks such as electricity, potable
water points, schools, health facilities, environmental sanitation
and security. In providing schools, technical schools that
provide vocational training should be favoured. The present
system of providing educational opportunities that have no
relevance to rural vocation only increase the tempo of rural
emigration.
(d) The provision of infrastructure will open the rural areas to
urban investors while rural producers can also access urban
markets as well as basic information that can improve rural
productivity. It will encourage the development of rural non-
farm business activities. They will also make the rural areas
liveable and even attractive to urban dwellers particularly
retirees.
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2. The cost of providing the infrastructural facilities
mentioned above will be very enormous. In fact, the
atomistic nature of rural settlements make this
economically unwise. A way out is to promote model
villages in each local government area where three to four
settlements with social and cultural affinities can share
some of this services. Such villages will form growth poles
around which development can be channeled to adjoining
rural settlements. This way over time several villages
could be reached. Each model village should have a
comprehensive health centre, a post-primary technical
school and all other infrastructural support services.
3. A conscious attempt should be made to promote the
development of agrobased industries. For over forty years,
Nigeria has sank billions on increasing food output.
Research has shown that substantial part of the farm
products are lost after the farm gate due to poor handling
and storage of farm products. There is need to add value
to the products on the farm. Resources should be
channeled at processing farm products. As part of this
programme farmers cooperatives should be encouraged to
invest in vital agri-business areas like fertilizer production
etc. One of the surest way of doing this is to provide rural
infrastructure and encouraging rural development financial
institutions to provide financial services (credit, advise and
monitoring) to rural farm groups.
4. There is the need to redefine the institutional structure of
governance to accelerate rural development. If
development must take place in the rural areas, the best
level of authority to do this is the local government
council. The federal and state governments are too far and
ill equipped to transform the rural areas. Voting millions
annually won't do this. It is only those who live in the
rural areas and understand the rural people and their needs
who can do this. The local government stands at a vantage
point in helping in this regard. What is required is to
empower the local government in terms of finance,
personnel and monitoring to ensure they deliver.
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5. Rural development policy planning and implementation
should be left for experts in rural development. Rural
development planning cannot be an all-comers affa-irs. It
requires a careful analysis and comprehension of the rural
environment. It requires a conscious inclusion and
building the capacity of rural inhabitants which only
experts in the field can handle. Politicians/Military
dictators and their wives no matter how benevolent cannot
replace experts in the field. In the same vein, it must be
realised that rural development, except where ruralites
have television sets and for purpose of their mobilization,
are better done on the field not on TVs.
6. Since agriculture is the main economic activity of rural
dwellers, there is the need for technological transformation
of the rural sector to increase productivity. Policy
measures should be put in place to access farmers with
improved farm inputs and implements. This paper still
feels, the time has not come for government to withdraw
subsidy in the procurement of modern farm machinery. If
oil is taking out of the national economic variables, the rest
is largely agricultural. If that is where our strength lies,
then the future of the nation must be built in this direction.
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Chinsman B. (1998) A Matter of People. UNDP, Lagos
Essang, S.M. (1975) "Growth Models and Rural Development" in
Olayide S.O. et al. (Eds.) Elements of Rural Economics, Ibadan
University Press.
Francis P. et al. (1996) State, Community and Local Development in
Nigeria. World Bank Technical Paper No. 336.
Mabogunje A.L. and Onyemelukwe J.O. (1976) ARural Development
Policy and Urbanization in Nigeria". Paper presented at the
Population Association of America Conference, Montreal, Canada.
Onibokun A. (1983). "Rural Development Policy Planning and
Implementation in Nigeria". Lecture Delivered at the zs" Annual
Conference of the Nigerian Geographical Association, Ilorin.
Onokerhoraye, A.G. and F.e. Okafor (1994) Rural Development and
Planning for Africa. The Benin Social Science Services for Africa.
PBN (1999) Ten Years of Peoples Bank of Nigeria: Empowering the
People. Viscount Press, Lagos.
Soyibo, A. (2000) "Assessing Nigeria's Financial and Banking Systems
and the Sustainability of JFAlPRESSA Activities". Paper presented
at ILOIJFAlPRESSA Workshop, Abuja, March, 2000.
Soyibo A. (1996) "Financial Integration and Development in Sub-
Saharan Africa: The Role of Formal Institutions in Nigeria".
Overseas Development Institute Working Paper 88, London.
Todaro M. (1979). Economics for a Developing World. London:
Longman.
Udo, R.K. (1984) "Critical Issues of Theory with Particular Reference to
Rural Economic and Social Development". Paper presented at the
National Seminar on Innovative Approaches to Development Theory.
NISER, Ibadan.
Williams S.K.T. (1978) Rural Development in Nigeria. University of Ife
Press.
World Bank (1975) Rural Development Policy Paper. Washington, D.C.
Yaron Jacob et al (1977). Rural Finance: Issues, Design and Best
Practices. Environmentally and Socially Sustainable Development
Studies and Monographs, Series 14, World Bank.
Zeller M. et al (1977) Rural Finance for Food Security for the Poor:
Implications for Research and Policy. Food Policy Review 4. IFPRI,
Washington, D.e.
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LIST OF CONTRIBUTORS
1. Oyejide, T. Ademola is a Professor of Economics at the
Department of Economics, University of Ibadan, Ibadan. He was
formerly Executive Director of the Development Policy Centre.
2. Soyibo, Adedoyin is a Profesor of Economics at the Department
of Economics, University of Ibadan, Ibadan. He was formerly
Head of the Economic Policy Unit, Development Policy Centre.
3. Oloruntimehin, B. Olatunji is a Professor of History and
currently Managing Director of the Development Policy Centre.
4. Dr. Aiyede, Remi is a fellow and Acting Head of Socio-Political
Policy Unit, Development Policy Centre.
5. Dr. Olayiwola, Kolawole is a fellow and Acting Head of
Economic Policy Unit, Development Policy Centre.
6. Abumere, S. I. is a Professor of Geography at the Department of
Geography, University of Ibadan. He is also a Senior Research
Fellow and Head of Environment and Technology Policy Unit,
Development Policy Centre.
7. Okafor, S. I. is a Professor of Geography at the Department of
Geography, University of Ibadan. He is also a Senior Associate
Fellow of the Development Policy Centre.
8. Dr. Oluwasola, Oluwemimo is a fellow in the Environment and
Technology Policy Unit, Development Policy Centre.
9. Dr. Adeyemo, Adeboye is a Program Officer at the African
Capacity Builoding Foundation (ACBF), Harare, Zimbabwe. He is
formerly a fellow in the Economic Policy Unit, Development
Policy Centre.
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10. Dr. Alayande, Tunde is a-fellow in the Economic Policy Unit,
Development Policy Centr:et.~, ~ ~.
11. Dr. Isumonah, Adefemi';A.s a lecturer at the Department of
Political Science;' Universrty of Ibadan. He is also an· Associate
Fellow of the Development Policy Centre.
12. Dr. Abubakar, Dauda is a.Senior Lecturer in the Department of
Public Administration, University of Maiduguri, Maiduguri.
~I .~
13. Kayode, M. O. is a Professor of Economics at the' Department on
Economics, University of Ibadan. He is also a Senior Associate
Fellow of the Development Policy Centre.
14. Dr. Oyeranti, O. A. is a lecturer at the Department of Economics,
University of Ibadan, Ibadan.
15. Dr. Olaniyan, OIanrewaju is a lecturer in the Department of
Economics, University of Ibadan. He is also an Associate Fellow
of the Development Policy Centre.
16. Mr. Alayande, Semiu is formerly: an Analyst with the
Development 'Policy Centre.
17. Aigbokhan, E. Ben is a Professor of Economics at the Department
of Economics, Ambrose Ali University, Ekpoma. He is formerly
Senior Fellow, Economic Policy Unit of the Development Policy
Centre. .
18. Dr. Mabawonku, O. Azeez is a fellow in the Environment and
Technology Policy Unit, Development Policy Centre.
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