Journal of Development and Agricultural Economics Vol. 3(8), pp.

368-378, August 2011

Available online at http://www.academicjournals.org/JDAE
ISSN 2006- 9774 ©2011 Academic Journals

Full Length Research Paper

Economic crossroads: The experiences of Nigeria and

lessons from Malaysia
Okezie, C. A.1* and Amir, Baharuddin H.2
1
Department of Agricultural Economics, Michael Okpara University of Agriculture, Umudike, Nigeria.
2
School of Social Sciences, University Sains Malaysia, Pinang, Malaysia.
Accepted 5 June, 2011

Nigeria has the potential to become Sub-Saharan Africa’s largest economy and a major player in the
global economy by virtue of its human and natural resource endowment. These potentials have
remained untapped, and if current trends continue, Nigeria runs the risk of not meeting the
internationally agreed millennium development goals (MDGs) by 2015. This paper is an attempt to
assess the economic performance in Nigeria with a view of identifying what went wrong and drawing
lessons from Malaysia for its vision 2020. The two countries have the vision of becoming advanced
economies by the year 2020. Nigeria’s economic landscape especially since the oil boom of the mid
1970’s has become the textbook example of Africa’s economic growth and tragedy with a gross
domestic product (GDP) of about $43 billion in 2001, the economy has shrunk to a third of its size in
1981, per capita income has shrunk from $1150 in 1991 to a barely $300 in 2001. As at 2001, Nigeria had
received appropriately $300 billion from oil exports since the mid 1970’s but per capita income was 20%
less than the 1975 level. The economic structures remain highly undiversified, with oil accounting for
than more 95% of exports and manufacturing sector accounting for less than one per cent of exports. In
1999 the country returned to the path of civil democratic governance, economic growth has risen
substantially, with an annual average of 7.4% in the last decade. But the growth has not been inclusive,
broad-based and transformational. The implication of the trend is that economic growth in Nigeria has
not resulted in the desired structural changes that would make manufacturing the engine of growth,
create employment, promote technological development and induce poverty alleviation. The one lesson
for Nigeria is that for it to attend its Vision 2020 it must promote an all inclusive growth in all sectors.

Key words: Economic growth, gross domestic product (GDP), vision 2020, Nigeria, Malaysia.

INTRODUCTION

Nigeria, with a population of about 120 million, is Africa’s countries. Since its independence in 1960, the country
most populous country and the continent’s third largest has undergone major political and economic changes. It
economy. Oil dominates the economy, accounting for has attempted to forge a unified nation out of diverse per
about 80% of federal government revenues, and 95% of capita income and comparatively unfavourable social
foreign exchange earnings with a continuously declining indicators. Nigeria is one of the poorest oil producing
regional, ethnic and religious groups through a federal
structure of government, whose leadership has changed
no less than eleven times, mostly through military coups
*Correponding author. E-mail: ccaokezie@yahoo.com. (AIAE, 2003).
During the 1970s, Nigeria evolved from a poor
Abbreviations: GDP, Gross domestic product; IMF, agricultural economy into a relatively rich, oil-dominated
International Monetary Fund; SAP, structural adjustment one. In 1969 the oil sector accounted for less than 3% of
programme; NEEDS, national economic empowerment and gross domestic product (GDP) and a modest US$370
development strategy; FDI, foreign direct investment; FTZs, million in exports (42% of total exports); per capita
free trade zones. income was only US$130. More than half of her GDP
 Okezie and Amir 369

was generated in the agricultural sector. By 1980, the oil benefits could not trickle down to the poor (NAPEP,
sector accounted for nearly 30% of GDP, oil exports 2001). Rather, the incidence of poverty keeps on
totaled US$25 billion (96% of total exports), and per increasing. As such, resistance came up from many
capita income exceeded US$1,100. Following the stakeholders, particularly the civil society, the labour
discovery and exploration of oil, the economy unions and the organized private sector. Even the
experienced many symptoms of the “Dutch disease”, with economic reform programmes of the present democratic
the real effective exchange rate appreciating steadily government were not spared from this resistance. In fact,
during the 1970s (Ahmad and Singh, 2002). The steady it is increasingly difficult to implement any credible
erosion of competitiveness of the non-oil tradable goods economic reform programmes given people’s
sector was reflected in the substantial decline of experiences with the previous ones. The inability to
agricultural exports, which began in the mid-1960s, and achieve the goals of these reform programmes have
continued through 1976, when oil production reached its been linked to several factors. Apart from the top down
peak. Notwithstanding the dramatic rise in oil revenue in approach to initiating and implementing these
the 1970s, the government failed to strengthen public programmes, political and ethnic instability has been
finances. The excessive expansion of public expenditure, adduced as important factors.
from an average of 13% of GDP during 1970-1973 to Nigeria, for instance, has been ruled by the military for
25% in 1974-1980, moved the fiscal balance from a small 25 of its 50 years as an independent nation. The origin of
surplus to a deficit, averaging 2½% of GDP a year. The political instability in Nigeria has been the inability to
monetary financing of these deficits contributed to a rapid forge a national entity that transcends ethnic, regional,
growth in broad money and a sharp acceleration in religious and economic interests. These diverging
inflation. The real effective appreciation of the currency interests led to scores of political coups and counter
(Naira) that followed the surge in oil prices toward the coups. The principal ethnic groups in Nigeria are the
end of 1973 eroded Nigeria’s competitiveness, and Hausa in the north, the Yoruba in the west, and the Ibo in
growth of real GDP slowed markedly. A buoyant oil the east, and the principal religious groups are the
sector sustained an average external current account Muslims in the north and the Christians in the south. The
surplus of 1½% of GDP during this period, while gross federal structure of Nigeria has changed dramatically
international reserves averaged the equivalent of about during the past decades; the country’s original three
seven months of imports. By 1980, the country’s external regions have since been divided into 36 states and the
debt was only US$4.1 billion, or 5% of GDP, and the Federal Capital Territory of Abuja. In addition, there are
debt-service ratio was a modest 3.7% (CBN, 2010; 774 local governments. Even at the public sector level,
Addison, 2002; Okonjo et al., 2003). the involvement of lower tiers of government has been
The economic policy orientation during the 1970s left low while those of the civil society and the organized
the country ill prepared for the eventual collapse of oil private sector have equally been tardy.
prices in the first half of the 1980s. Public investment was
concentrated in costly, and often inappropriate,
infrastructure projects with questionable rates of return Problem statement
and sizable recurrent cost implications, while the
agricultural sector was largely neglected (Ajakaiye, 1996; The key questions to frame the discussions include:
EDF, 2001). Nigeria’s industrial policy was inward-
1. Where is Nigeria relative to where it needs to be?
looking, with a heavy emphasis on protection and
2. Why is it where it is?
government controls, which fueled an uncompetitive
3. What has been done in the past or being done
manufacturing sector. Nonetheless, Nigeria’s economy
currently to change the situation?
has remained dominant in Africa. To reverse the
4. What are the lingering challenges, and a possible
worsening economic fortunes in terms of declining
agenda for change? In other words, can the Nigerian
growth, increasing unemployment, galloping inflation,
economy move from the historical sluggish growth trends
high incidence of poverty, worsening balance of payment
to a vibrant growth path that can transform the structure
conditions, debilitating debt burden and increasing
of the economy and enable her in the attainment of the
unsustainable fiscal deficits, among others, government
vision enunciated under vision 2020 and launch her into
embarked on austerity measures in 1982
the league of advanced economics.
(Ajakaiye,1990). Arising from the minimal impacts of
these measures, an extensive structural adjustment
programme was put in place in 1986 with emphasis on Objectives of the paper
expenditure reducing and expenditure switching policies
as well as using the private sector as the engine of Arising from the aforementioned questions, the paper
growth of the economy via commercialization and seeks to:
privatization of government-owned enterprises. Though
some benefits were achieved at the initial stage, such 1. Examine the performance of the Nigerian economy;
370 J. Dev. Agric. Econ.

2. Take stocks of what works and what did not; designed under a more favorable financial condition of
3. Draw lessons from the Malaysian experiences; and huge oil revenues that accrued to the nation from the
4. Find solutions to the existing sources of problems. mid-1970s. However, the execution/implementation of the
fourth national development plan, 1981-1985, was
affected by the collapse of the international oil prices. In
METHODOLOGY 1982 the government introduced the Economic
Stabilization Act as an immediate reaction to dwindling oil
The approach used in the report is descriptive but mostly analytical. earnings and major external sector imbalances. Sanusi
Fundamentally, the approach provides an in-depth assessment of
the macro and micro aspects of the economy, complemented with
(2010) noted that this was aimed at reducing government
an evaluation of the human development record. The emphasis on expenditure and conserving foreign reserves in order to
the human development balance sheet derives from the fact that improve the country’s balance sheet. It was however
the economy is ultimately about people and resources. Thus, no found that there was need for a more fundamental reform
proper understanding of the economy and its future prospects can to compliment the austerity measures. In 1986, the
be made without a better understanding of the human development government accepted the IMF-sponsored Structural
indicators, human capital resources, poverty and inequality, gender
issues, employment and factors likely to hamper productivity such
Adjustment Programme (SAP). The SAP aimed at
as the HIV/AIDS pandemic and exclusion/suppression of productive removing cumbersome administrative controls and
groups such as women. creating a more market-friendly environment underpinned
As much as possible, the analysis of the most recent by measures and incentives that would encourage private
developments (last five years) is done in comparative perspectives enterprise and more efficient allocation of resources. One
in comparison with the country’s own historical trends but in some
might argue the SAP recorded some measure of
cases also with other African and developing country performances.
The goal is to dramatize the distinguishing features of the economy success. However, some of the gains of the SAP were
and its management, as well as its key economic development eroded following the increased spate of policy reversals
challenges. The assessment is data intensive, and the data are between 1988 and 1989.
from secondary sources. The macroeconomic data come from the Up to 1990, the economy witnessed some gains which
publications of the Central Bank of Nigeria, Federal Office of were associated with increased deregulation and
Statistics, relevant ministries and government agencies, the World
liberalization in economic management. However, owing
Bank’s Global Development Indicators, the International Monetary
Fund’s (IMF) World Economic Outlook databank, International to policy slippages, there was a reversal of trends in
Financial Statistics; and from sundry publications as indicated in the major macroeconomic aggregates thereafter, resulting
references. from policy reversals and inconsistencies. Generally,
frequent policy inconsistencies and reversals that
characterized the period under review created distortions
Nigerian economy in perspective in the economy and were further compounded by
external shocks, including the external debt overhang.
Policy regimes Overall, SAP failed to realize the goals of creating wealth
and promoting sound economic development as most of
The Nigerian economy has undergone series of changes the policies were terminated prematurely or reversed out
over time with different policy regimes. Prior to 1986, a rightly.
medium-term “development plan” was adopted as a The experimentation with deregulation and libera-
major framework for developing and restructuring the lization was truncated in 1994 with the advent of a
economy. The first national development plan, 1962- military government. Thus, the Federal Government
1968, was developed to put the economy on a fast reregulated the economy, by capping exchange and
growth path. The plan gave adequate priority to interest rates due to high nominal interest rates that
agriculture and industrial development as well as training reached an all-time high of 48.0% in commercial banks
of high-level and intermediate manpower. However, the and 60.0% in non-bank financial institutions. These rates
disruptions to economic activities during the period later were in turn driven by the high rates of inflation at 48.8%
paved way for broader economic policies for in 1992 and 61.3% in 1993. As there was no clear
reconciliation and reconstruction. The second national economic strategy for the rest of the decade, the
development plan, 1970-1974, was launched primarily to monetary policy implementation became ineffective to
reconstruct and rehabilitate infrastructure that had been check expansionary fiscal operations. In addition, weak
damaged during the civil war. Thus, the government institutions and an unfriendly legal environment reduced
invested a lot of resources into the construction and the benefits that would have accrued to the economy
rehabilitation of infrastructure as well as improving the (Sanusi, 2010). However, the scenario changed in 1999,
incomes of the people. with the return of democratic governance in the country.
The Indigenization Decrees of 1972 and 1974 put the Democratic governments have introduced series of
commanding heights of the Nigerian economy in the reforms that were aimed at redressing the distortions in
hands of Nigerians within the context of nationalism. The the economy and to restore economic growth following
third national development plan, 1975-1980, was the period of economic decline. In 2004 the government’s
 Okezie and Amir 371

60
Sectoral contribution to GDP
50

40
Percentage

Agric
30
Industry
20
Manu
10 Services

0
1960-1970 1971-1980 1981-1990 1991-2000 2001-2009
Years
Figure 1. Sectoral contributions to GDP.

economic agenda was formally launched and tagged the generation. Prior to independence in 1960, the Nigerian
National Economic Empowerment and Development economy was mainly agrarian. On attainment of
Strategy (NEEDS). independence, the Nigerian government embarked on
the programme of transforming the country into an
industrial economy. The Nigerian manufacturing sub-
Structure of the Nigerian economy sector is made up of large, medium and small
enterprises, as well as cottage and hand-craft units. In
Structurally, the Nigerian economy can be classified into spite of spirited efforts made to boost manufacturing
three major sectors namely primary/agriculture and output and various policy regimes, manufacturing has not
natural resources, secondary-processing and manufac- made any significant contribution to the growth of the
turing, and tertiary/services sectors. The economy is economy. Industry as a whole contributed only 11.3% of
characterized by structural dualism. The agricultural the GDP in 1960-1970, growing significantly in the next
sector is an admixture of subsistence and modern two decades to a high of 41.0% in 1981-1990, owing
farming, while the industrial sector comprises modern largely to the crude petroleum and gas production during
business enterprises which co-exist with a large number the decades. The contribution contracted to 38.6% in the
of micro-enterprises employing less than 10 persons 1990s and further to 29.4% during 2001-2009. These
mainly located in the informal sector. The agricultural numbers, in fact, belie the poor contribution of the
sector has not been able to fulfill its traditional role of manufacturing sub-sector to aggregate output in Nigeria
feeding the population, meeting the raw material needs of compared with its peers in Asia and Latin America.
industries, and providing substantial surplus for export. Indeed, the contribution of the manufacturing component
Indeed, the contribution of the sector to total GDP has has on average been below 5.0% in the last two
fallen over the decades, from a very dominant position of decades. Even the relatively high contribution of oil sector
55.8% of the GDP in 1960-1970 to 28.4% in 1971-1980, to the industrial sector contribution is being driven largely
before rising to 32.3, 34.2 and 40.3% during the decades by crude production and not by the associated “core
1981-1990, 1991-2000 and 2001-2009, respectively industrial” components like refining and petrochemicals.
(Figure 1). The fall is not because a strong industrial The contribution of wholesale and retail trade and
sector is displacing agriculture but largely as a result of services has more or less remained stable while that of
low productivity, owing to the dominance of peasant building and contribution rose sharply from 5.3% in the
farmers and their reliance on rudimentary farm equipment 1960s to 8.3% in the 1970s but fell consistently,
and low technology. Another feature of the sector is thereafter, to 1.8% during 2001-2009. During and some
under-capitalization which results in low yield and few years after SAP, the main manufactured exports
declining output (Sanusi, 2010). were textiles, beer and stout, cocoa butter, plastic
The industrial sector comprises the manufacturing, products, processed timber, tyres, bottled water, soap
mining (including crude petroleum and gas) and electricity and detergents as well as iron rods.
372 J. Dev. Agric. Econ.

9 Average growth rate of real GDP

8
7

Percentage
6
5
4
3
2 Real GDP
1
0

Period
Figure 2. Average growth rate of real GDP.

However, some of these products have disappeared Despite the decline in real GDP growth rate to 6.3% in
from the export list owing to poor enabling environment. the period 2008-2009, the major drivers remained
The components of the mining sub-sector in Nigeria are agriculture, wholesale and retail trade, and services
crude petroleum, gas and solid minerals. Prior to the sectors. Indeed, the last decade has been a period of
advent of petroleum minerals such as coal and tin were rebirth as affirmed by almost all macroeconomic
the main mineral exports. However, with the emergence indicators (Table 1). But the growth rate has not been
of crude oil, the relative importance of solid minerals high enough to push down the poverty profile.
diminished. Indeed, since the 1970s, the largest mining Indeed, the Nigerian economy has not experienced
activity has been crude oil production, which became remarkable transformation and restructuring. Equally
dominant in terms of government revenue and export important is the indication that since 1999, Nigeria has
earnings. Lately the production of gas has gained become a trading outpost for goods produced elsewhere
increased attention, as the export potential of gas has with little domestic transformation of the output of primary
reduced the dominance of crude oil (UNIDO, 2002). sectors by the secondary sector. This is particularly so
since the Nigerian agriculture is really peasantry and the
high contributions of tertiary sector to output suggest that
Performance trends the sector is not really servicing the Nigerian economy
but, indeed, the economies of her trading partners. Thus,
The average growth rate of real GDP, which was 5.9% in the Nigerian economy is still dominated by the primary
the period 1960-1970, rose to 8.0% in 1971-1973 (Figure sector, followed rather closely by the tertiary sector with
2). The Nigerian economy expanded rapidly, as oil the contribution of the secondary sector remaining
production and export rose phenomenally. However, insignificant. Little wonder the diversification index
activities in the service sub-sector were relatively modest remained below 0.4% through the review period, the
even though marketing and advertising, which covers barrage of reforms notwithstanding.
distributive trade, lagged behind. The average GDP The Nigerian economy is import dependent with very
growth rate later dropped to 3.2% during 1976-1980. This little non-oil exports. It relies heavily on crude oil and gas
level was sustained in the period 1982-1990 following exports with other sectors trailing far behind. For
improved performance in agricultural and industrial sub- example, crude oil accounts for about 90% of foreign
sectors. exchange earned by the country while non-oil exports
Suffice it to state that GDP responded favorably to the account for the balance (Table 2). The economy is,
economic adjustment policies of the eighties during which therefore, susceptible to shocks in the oil industry. In
the SAP and economic liberalization were adopted. Thus, recent times, these shocks have been caused by either
annual GDP grew from a negative 0.6% in 1987 to 13.0% developments in the International crude oil market or the
in 1990. However, the average growth rate of real GDP restiveness in the Niger Delta region of the country.
dropped to 1.9% during 1991-1998. This was in spite of Agriculture and other mining (besides oil and gas) have
the favorable developments in the agricultural and been abandoned to the rural poor. Economic and social
services sub-sectors of the economy. Real GDP growth infrastructure, especially power is grossly dilapidated.
rate rebounded to 8.3% during the period 1999-2007, The power sector is generally recognized as a binding
reflecting improved economic policy of NEEDS era. constraint on Nigerian economy. Poor corporate
 Okezie and Amir 373

Table 1. Selected macroeconomic indicators.

Indicator 2003 2004 2005 2006 2007 2008 2009 Average

Real GDP growth rate 9.57 6.58 6.51 6.0 6.5 6.4 6.7 6.2
Inflation(y-on-y) 13.9 15.4 17.9 8.5 6.6 15.1 12.0 13.3
Growth in M2 24.97 12.26 34.61 30.6 44.2 58.0 17.1 31.8
Current account balance/GDP 6.95 17.62 28.23 18.5 11.8 17.5 11.9 13.4
FDI (US$ billion) 2.0 1.86 4.98 13.9 5.6 5.8 4.3
External reserves (US$ billion) 7.47 16.95 28.3 42.3 51.3 58.0 42.4 27.0
Exchange rate (end-period) 129.4 133.5 132.15 128.2 117.9 132.5 149.58 125.8
External debt (US$) 3.3 3.5 3.5 3.5 3.6 3.7 3.9 3.21
Source: CBN annual report and statement of accounts various issues.

Table 2. Composition of Nigerian exports.

Component 2004 2005 2006 2007 2008 2009

Oil exports 97.5 98.3 97.8 97.9 99.0 95.8
Total non oil export 2.5 1.7 2.2 2.1 1.0 4.2
Non oil
Agric 33.0 41.9 37.8 39.7 58.3 46.9
Minerals 2.0 4.0 8.5 6.3 7.7 6.7
Semi-manufactured 48.9 40.6 37.9 39.4 17.0 29.2
Manufactured 5.0 9.8 11.1 10.3 8.7 9.1
Other exports 11.2 3.9 4.7 4.3 8.3 8.1
Source: CBN annual reports and statements of accounts various issues.

governance, both in the public and private sectors have same as in the 1960s. Applying the Harrod-Domar1
led to high incidence of corruption and inequity in income model, this implies that assuming a capital-output ratio of
distribution. 5.0% and a savings ratio of 15.0%, the economy would
A review of the statistics from comparable countries grow at 3.0%; of course, the savings ratio depends on the
shows that the share of primary commodities in total difference between the population growth rate and the
exports is 20.0% for Malaysia, 24.0% for India, 12.0% for growth rate of the GDP (the economy). Figure 2 shows
China. For developed countries it is 17% for Britain and an average growth rate of real GDP of 5.3% in the period
America and 9% for Japan. In Nigeria, the primary sector 1960-2009. If the average population growth rate of 3.8 is
contributes 99% of exports with only 1.0% coming from deducted from 5.3, we are left with a GDP growth rate of
the secondary sector (Table 3). 1.5% of which no meaningful savings can be made. In
effect, the economy has not been growing in real terms
over the years. For Nigeria to make a quantum leap, the
Growth drivers economy has to grow by at least double digit rates for a
sustained period of time.
In Nigeria, agriculture dominates the primary sector,
which dominates the entire economy. The population of Challenges facing the Nigerian economy
the country has grown by about 150.0% between 1963
and 2006, approximately 3.75% per annum. A simple Nigeria is a mono-product economy with the bulk of
calculation shows that for the per capita income to remain government revenue coming from oil exports which is
the same as in the 1960s, every sector of the economy susceptible to shocks in the international oil market.
should at least have grown by the same percentage. But Moreover, many other solid minerals with which the
the agricultural sector which is the mainstay of the country is richly endowed with remain generally untapped.
economy has declined in its contribution to the GDP,
manufacturing has declined, building and construction 1
Harrod – Domar model is used in development economics to explain an
has also declined, while the wholesale and retail trade as economy’s growth rate in terms of the level of savings and productivity of
well as the services sectors have remained almost the capital.
374 J. Dev. Agric. Econ.

Table 3. Composition of exports in selected developed and developing countries 2000.

Export as a Percentage share of Percentage share of

Developing countries
percentage of GDP primary commodities manufactured goods
Malaysia 110.0 20 80
Indonesia 40.7 46 54
Jamaica 19.6 30 70
Philippines 53.2 59 41
Bangladesh 11.9 9 91
Nigeria 48.7 99 1
Venezuela 27.2 88 12
Sri Lanka 33.0 25 75
Kenya 15.9 77 23
South Korea 37.8 9 91
Togo 25.0 82 18
Mexico 29.0 15 85
India 8.3 24 76
Brazil 9.4 46 54
China (excluding Hong Kong) 23.1 12 88

Developed countries
United Kingdom 19.8 17 83
United States 7.9 17 83
Japan 10.2 6 94

More fundamentally, the economy has disproportionately does not relate meaningfully with the secondary sector
relied on the primary sector (subsistence agriculture and and the same for the secondary and the tertiary sectors.
the extractive industry) without any meaningful value Agricultural produce end up as final consumer goods as
addition. In light of this, the little growth recorded in the only a small quantity is processed or used as raw
economy, thus far, has been without commensurate materials for the local manufacturing industries. Also, the
employment, positive attitudinal change, value produce of the extractive industries are exported in their
reorientation, and equitable income distribution, among raw forms without local value addition. Given the higher
others. These could be attributed to poor leadership, poor incomes in the oil and gas sub-sector of the extractive
implementation of economic policies, weak institutions, industry, attention is concentrated there to the almost
poor corporate governance, endemic corruption, etc. The total neglect of the mainstream economy. Consequently,
challenge, therefore, is how to deploy/manage the the economy is broken into the very rich (relying on the
receipts from the oil and gas exports to achieve the oil and gas industry) and the very poor (relying on the
highest value for money in the economy; develop on a mainstream economy) with almost a complete vacuum in-
sustainable basis, the many untapped solid minerals; between these two. The false paradigm model also plays
improve agricultural productivity by cultivating more of the out in the sense that while the few very wealthy group
available arable land with improved technology; process clamour for relevance in the context of “experts” advice,
and preserve primary produce with the aim of increasing the very poor suffer from ignorance, disease and
value addition; manufacture the basic durable and non- malnutrition. Thus, there is no structural change and,
durable goods needed by Nigerians and the West African hence, the attitudinal changes of economic
sub-region, market and ultimately looking at export such transformation are absent (UNIDO, 2002);
goods and sustain manufacturing by providing the core (ii) Infrastructural challenges: one of the main challenges’
industries; and remain competitive by developing and facing the economy is poor economic and social
improving on the investment climate of the country. infrastructure: bad roads, erratic power supply, limited
These challenges have remained largely unresolved access to portable water and basic healthcare, and much
owing to the myriad of problems: more. Building a vibrant economy or restoring growth to a
sluggish economy takes resources. To ensure long-term
(i) Macroeconomic challenges: The Nigerian macro growth and prosperity, Nigeria must use its resources
economy is still characterized by rigidities, dualism and wisely, invest in advanced technology and rebuild the
the false paradigm model. Generally, the sectors of the infrastructure without which the economy will not gain
economy are in silos to the extent that the primary sector from the “power of productivity” (Sanusi, 2010). A nation
 Okezie and Amir 375

enjoys higher standards of living if the workers can extent that the mainstream economy is denied funding,
produce large quantities of goods and services for local requisite investment and even managerial capabilities.
consumption and extra for export. The deficiencies in the Thus, the mainstream economy has become
economy lead to low productivity, poor quality products uncompetitive globally while the country has turned into a
and non-competitiveness in the global market place; trading outpost for foreign companies. This has hindered
(iii) Poor institutions and corporate governance: another the much-needed transformation of the economy in the
important challenge to sustainable economic growth in last four decades.
Nigeria is lack of effective institutions and good (vii) Poor investment climate: the consequence of all that
governance. These factors have been hindering various have been said above is the poor investment climate in
efforts and reforms of the government to stimulate the economy that has rendered the economy
economic growth for sustainable development in Nigeria. uncompetitive. In the absence of adequate infrastructure
The prevalence of weak institutions and poor corporate (power, roads, water, etc.) the cost of doing business in
governance as well as poor ethical standards in most the country remain high, forcing to neighboring countries
public and private organizations, hinder the attainment of even companies that had existed in Nigeria for upwards
the goals of economic policies in the country (UNDP, of four decades.
1997; Shabbir, 2004). Poor corporate governance has
adversely affected the quality of institutions to the extent
that public and private institutions are used for selfish Prospects for the economy
interests, thereby, making regulation and law
enforcement ineffective; Economic growth, especially in a developing country like
(iv) Corruption challenges: although corruption is a global Nigeria, must be people-oriented. Therefore, pro-poor
scourge, Nigeria appears to suffer particularly from it. policies and those that improve on the welfare of a
Everyone appears to believe that the nation has a majority of the people should be emphasized. It is fair to
“culture of corruption” (UNDP, 2002). Over the years, say that a broad consensus exists among key
Nigeria has earned huge sums of money from crude oil, stakeholders in the Nigerian economy, government,
which appears to have largely gone down the sinkhole private sector, households, and external actors-on
created by corruption. In an article, “Oil giant that runs on WHAT to do to get the economy going [see various
grease of politics,” Nigeria was described as a rich nation government policy documents for various sectors, the
floating on oil wealth “but almost none of it flows to the Obasanjo economic direction, 1999-2003; the vision 2010
people” (San Francisco Chronicle, March 11, 2007). Reports; various summary reports of annual economic
Corruption has denied Nigerians the value of the petro- summits, World Bank’s country assistance strategy
dollar that has accrued to the country over the years. The papers (2001, 2002), IMF’s memorandum of Article IV
failure of infrastructure, political and ethical standards as consultations, etc.)]. It is broadly agreed that the
well as moral and educational standards can easily be challenge of development should be that of rapid growth
traced to corruption; with inclusion/poverty reduction, and that the key vehicle
(v) Low quality of education: education is an important to achieve it should be a shift from statism and rent-
factor in economic growth and development but the seeking to a private sector-led, competitive market
nation’s educational system has been facing myriad of economy framework.
challenges, which prevent the country from achieving its In summary, Sanusi (2010) observed that this growth
economic objectives. The problems include inadequate prospect can be achieved and sustained if:
funding and planning and management, inadequate
infrastructure, irrelevance of curricula to industrial needs 1. The balance of trade is persistently positive, as it has
and inadequate commitment on the part of students and been in the last five years;
teachers, among others. All these have combined to 2. External reserves can be substantially built up to boost
hinder the production of a high quality work force to the credit worthiness of the economy and attract foreign
propel the economy (UNESS for Nigeria: 2006-2015). As investment;
Dike (2006) noted, the state of a nation’s educational 3. Efforts are sustained to maintain peace in Niger Delta
sector, among other things, determines the economic to boost crude oil and gas output;
health of the nation; 4. Electricity supply is increased to 15,000-25,000
(vi) The Dutch disease2: since the oil price boom of the Megawatt between now and 2020, to boost manufactu-
early 1970s, the country abandoned the agricultural and ring capacity utilization and activities in other critical
industrial sectors of the economy to the old and weak. sectors;
Both the public and private sectors of the economy 5. The banking sector reforms and efforts to resolve
concentrate their efforts in the oil and gas industry to the liquidity challenges are sustained to channel credit
massively to the real sector of the economy;
6. Government sustains the current reforms in the various
2 sectors of the economy to achieve rapid growth and
Dutch Disease is resource boom leading to the decline of the erstwhile
tradable sector. development;
376 J. Dev. Agric. Econ.

Table 4. Selected economic indices for Nigeria and Malaysia.

Indicator Country 2006 2007 2008 2009 2010

Malaysia 5.8 6.2 4.6 -1.7 10.1
Real GDP (%)
Nigeria 6.0 6.5 6.4 6.7

Malaysia 3.6 2.0 5.4 0.6 1.3

Inflation (%)
Nigeria 8.5 6.6 15.1 12.0

Malaysia 82.4 101.3 91.4 96.7 96.0

External reserves (US$ billion
Nigeria 42.3 51.3 53.0 42.4

Sectoral contributions to GDP (%)

Sector Country 1970 1990 2000 2008 2009
Malaysia 33.6 19.3 8.8 7.5 7.7
Agriculture
Nigeria 55.8 32.3 34.2 40.3

Malaysia 12.8 26.5 32.6 29.6 26.9

Manufacturing
Nigeria 6.6 6.1 4.9 3.9

Malaysia 42.6 42.1 53.0 54.3 57.4

Services
Nigeria 15.3 9.8 11.5 15.5
Source: Economic Bulletins of Central Bank of Nigeria and Bank Negara, Malaysia.

7. We increase agricultural output barring adverse countries is tropical. A comparison of Malaysia and
weather conditions, with continued implementation of Nigeria’s growth record shows divergence in growth
various government programmes, especially preserving, rates, and differing structural changes to the economy.
processing and marketing activities; Malaysia, on average has grown at a faster rate than
8. We sustain the growth in the services sector, by Nigeria. In contrast to Malaysia’s post-independent
increasing the local content of the industry and by experience, political instability was more pronounced in
expanding the tele-density of the country; Nigeria. The military has ruled for 25 out of its 50 years
9. We deregulate the downstream petroleum sub-sector as an independent nation. In Malaysia there was,
and encourage the setting up of private refineries; relatively, political stability and continuity, no changes in
10. Diversify the economy away from primary products government and the present coalition government is still
and away from crude oil and natural gas; in power, after more than 50 years. Some key economic
11. Improve other key economic and social infrastructure; indices are presented in Table 4 to show the disparity in
and sustain the subsisting democratic governance. economic growth.
Malaysia achieved sustained growth of about 6% per
The global environment for development has changed annum growth for the past 50 years. It maintains large
quite significantly in recent years, with the rapid growth in external reserve in comparison to Nigeria and has
world trade, capital flows and information and continued to maintain low inflation rates. Agriculture’s
communications technology. Nigeria can benefit from share of GDP in 2009 has fallen to 7.7 from 33.6% in
these changes by providing a more conducive investment 1970, compared to Nigeria’s 55.8% in 1970 and 40.3 per
climate in the country. cent in 2009. Manufacturing in Malaysia accounted for
12.8% in 1970 and 26.5% in 2009 compared to Nigeria’s
Lessons for Nigeria from the Malaysia experience 6.6% in 1970 and 15.5% in 2009, while the contribution of
the service sector has increased to 57.4% in 2009, it
Nigeria and Malaysia share common historical stood at only 15.5% in Nigeria. The two countries have
antecedent. They gained their independence from British adopted almost the same ideology in their developmental
rule. They federal system of government is practiced with efforts, while Malaysia plans and moves vigorously
bicameral legislature and the regions are inhabited by towards the attainment of its vision of becoming an
different racial and ethnic nationalities. Both economies advanced economy in 2020. Nigeria in its Vision 2020
were relatively resource rich. At independence, Malaysia which to become one of the 20 most industrialized
in 1957 and Nigeria in 1960 were leading exporters of economies by the year 2020, not much has been seen in
primary product because basically the climate in the this direction.
 Okezie and Amir 377

The possible lessons from Malaysia’s growth expe-rience Full or near-full employment
for Nigeria could be summarized as thus explained
Sustaining full employment with an unemployment rate of
about 3% is attainable. But relatively high levels of growth
Resource curse put pressure on labour supply and utilising immigrant
labour has been necessary. A ready supply of low cost
Resource curse is avoidable and growth can be immigrant labour can discourage the upgrading of labour.
sustained. Malaysia is a relatively resource rich economy
with its supply of land, and has exploited its land for the
production of tin, rubber and palm oil. Petroleum Private investment
resources have become important from the mid-1970s.
Private investment, domestic as well as foreign direct
investment (FDI), is vital for economic growth as reliance
Diversification on substantial public investment is not sustainable.
Competition for FDI has and will intensify, policy reforms
Diversification is essential for growth. The diversification and strong institutions will be needed to attract and retain
strategies involved intra agricultural diversification, FDI.
utilizing resources to raise productivity and diversification
from tin and rubber into oil palm, and diversification from
agriculture to manufacturing industries. Fiscal discipline and managing revenue

Fiscal discipline and strict management of revenue,

Openness including resource revenues, is essential for macro-
economic stability. Containing the fiscal deficit and the
Openness and international integration is helpful for national debt is essential for avoiding imbalances.
growth. International trade and long-term capital flows Additional discipline through legal and administrative
made important contributions to the growth of the guidelines should assist the management of revenue.
Malaysian economy. Integration with Asian economies
was of growing importance.
Industrial policies and foreign direct investment (FDI)

Export-led growth Industrial policies are important for economic diversi-

fication and FDI. Export-led growth of manufactured
products needs to be supported by fiscal incentives and
Exports were an important source of growth and trade
infrastructure support, including industrial estates and
intensity has increased. The growth of labour intensive
free trade zones (FTZs). FDI can make important
manufacturing industries absorbed the surplus labour,
contributions to the growth of manufacturing industries
especially from the rural areas, which opened up
and exports.
employment opportunities and raised income levels.

Federal constitution and governance

Human capital
Federal constitution can provide a strong framework for
Education has played a crucial role in sustaining the governance of politics of oil and forestry resources.
economic growth and raising incomes of households. Regional interests to claim a larger share of revenue and
Large public investment in education as it is a necessity. resources have to be managed. Weaker state/regional
Private education should be encouraged and can government can dissipate revenue.
supplement the supply of human capital.

Strong independent national oil corporation

Stable prices and low inflation
Importance of relative independence, capacity and capa-
Growth with low inflation is possible. Inflation, with rare bility of national oil corporation is needed. The capability
exceptions, in Malaysia has averaged less than 3% for and capacity of Petronas, the national oil corporation, has
the past 30 years. A combination of price controls, been crucial in the management of revenue from
subsidies and an open economy has helped to contain petroleum. The capture by vested interests over the
inflation. national corporation should be resisted.
378 J. Dev. Agric. Econ.

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