CHAPTER ONE
INTRODUCTION
During the period of oil boom, price of oil were high ad Nigeria, being an oil producing and exporting country, reaped benefits from this. However, it did not last for ever and also had disadvantageous effects on the country economy.
Due to the boom and many inappropriate policies introduced by government to guide the economy, distortion were introduced into the vulnerable to external stocks.The oil boom of 1970’s brought fundamental changes in the patterns of the Nigeria economy.
First the oil boom resulted in heavy dependence of economy on crude petroleum export as the main sources of foreign exchange earnings and government revenue.By 1980, and oil sector which accoutered for 22 percent o the gross domestic product (G.D.P) provided about 80 percent of government revenue and over 96 percent export earnings.
Secondly, the competitiveness of the agricultural sector in the international market was ended by the over valued naira exchange rate. People turned collar jobs in offices.This resulted to low productivity in the agricultural sector, which became so acute that Nigerian became heavily dependent on imported goods and agro allied individual inputs.
At that time, it was almost unbelievable that product like rice grow in Nigeria because almost every used imported product in their homes.
In fact using “made in Nigeria” product at times was a sign of lack of exposure.
Exporter at that time, were compelled to surrender foreign exchange receipts to authorize dealers and because of the over valued Naira exchange rate, the official equivalent of the foreign exchange receipts often fell short of the cost of non oil exports.
However, the world oil market started to collapse in mid 1981 and with this collapse, the economic crisis which was quite fierce gripped the country, though its magnitude and duration could not easily be measured or appreciated a the time.This collapse together with the ineffective, adequate, inappropriate and indeed, sometimes, not well reasoned policies guiding the economy at that time led very serious economic collapse. Throughout the early 1980’s the structural imbalance in the economy increased rapidly which resulted in persistent balance of payments deficits, rising external debts and in sustainable debt burden, currency over valuation declining production and of course, rising prices which have been the most evident even to the illiterate. These problems in Nigeria were not made better by the developed countries who adopted protectionist policies for their economics.The drought of 1983 brought with it poor harvest which was also a contributory factor to the inflation in prices.
As this economic crises deepened, internal and external debts mounted rapidly and the inability to pay these debts increased rapidly and the inability to pay these debts increased just as rapidly.The situation could just not go on. The Nigerian Government then started to make efforts to find lasting, not short term, solutions to these problem which threatened to destroy an economy which had a lost of prospects once. This led to the adoption of several monetary and credit policy measures in 1981 which were designed to provide an optimum level of bank credit and to channel such credit into the mere productive and small scale enterprises, which were sectors of the economy, as a means of raising the level of employment and output of goods and services. They were also aimed at reducing further the rate of price inflation and maintaining a healthy of balance of payment position.
However, these policy objective, were not achieved – a healthy balance of payments position was clearing not achieved. In fact, it surveying from a substantial surplus in 1980 to huge deficit 1981 as result of a sharp decline of the country’s revenue from the oil sector. There was ineffectiveness of import regulatory measures and therefore foreign expenditure increased greatly.
This led to the adoption of the import licensing programme in 1984. Under this programme, all imports were placed under specific import licensing as to reduce the volume of imported goods and as a result reduce external debt. In 1985, the Federal Government declared a fifteen month economic emergency period during which specified proportions of worker’s salaries and wages, as well as companies. Profits were compulsory paid to the government.
These two programmes above were not efficiently restructuring the economy. They had good effects on only some aspects of the economy. This brought about more detailed search for more lasting solution to the economy’s problems. As a result of this the Federal Government introduced the structural adjustment programme (SAP) in July, 1986.
As all other programme before the structural adjustment programme have not been effective in clearing the distortions in the economy. This project will discuss this particular stabilization measure in greater detailed, more positively directed and is still in use in the economy of Nigeria today.
This project reviews the stabilization measures which have been introduced for balancing and improving the Nigeria economy from 1985 till date and examine the role of the Central Bank in implementing these measures.
The direct role of the Central Bank in the structural adjustment programme was programmed to include the design the implementation of the modalities for exchange rate policy, foreign exchange management, external debt management monetary and credit control and domestic monetary policy reforms.The Central Bank also offers advice to the Federal Government in areas such as fiscal, external trade and other public sector policies.
In implementing and designing the modalities for the exchange rate policy, the Central Bank calls for bills daily from authorized dealers for available foreign exchange. Foreign exchange is sold to successful bidders, in effecting foreign exchange management, the Central Bank of Nigeria took measures to encourage the inflow of funds into foreign exchange market (FEM) from non-official sources.The Central Bank in collaboration with the Federal Ministry of Finance also plays a role in the management of external debt, especially with respect to reducing the burden and volume (stock) of debt through debt rescheduling and debt conversion. The policy of the economy is also formulated by the Central Bank of Nigeria to support the government strategies.
The main sources of authority for the administration of foreign exchange transitions in Nigeria is the exchange control Act 1962. Under provision of this Act, authority for the grant of approvals in respect of foreign exchange transactions is vested in the Minister of Finance. However, most of the functions in respect of private sector transactions, visible importer, education, medical, expatriate home remittances, travel, airline payments, other services etc. have been delegated to the Central Bank of Nigeria, which in turn has delegated approving authority for all but a few of these to the authorized dealers on foreign exchange.
