At the end of the nationwide IMF debates, President Babangida’s government agreed with the World Bank to develop a home-grown economic revitalization programme. On June 26, 1986, President Babangida unveiled the blueprint of the Structural Adjustment Programme (SAP) for Nigeria, July 1986-June 1988.
• AUTHOR, LAWSON OMOKHODION
The major objective of SAP was to restructure and diversify the productive base of the economy in order to reduce dependence on the oil sector and imports; achieve fiscal and balance of payment surplus over the two-year period; lay the basis of minimal inflationary growth potential of the private sector. The SAP document identified three core policy areas. The first was to correct the serious over-valuation of the Naira through the setting up of a viable and substantial Second-Tier Foreign Exchange Market (SFEM) and achieve a convergence of the various exchange rates in the market. The second was to overcome the public sector inefficiencies through improved public expenditure control programmes and the speedy rationalization of the parastatals sector. The third was to relive the debt burden and attract a net inflow of foreign capital while keeping a lid on foreign loans. These expectations proved to be hollow and retrogressive. Details of SAP were explained in This Week news story titled “The Make-or-Break Writ, September 1, 1986, pp. 24-25.
In implementing SAP, a 50 per cent rate of inflation was assumed; the development of Abuja, the federal capital city, was to be scaled down; a far-reaching privatization programme of the federal government’s multi-billion loan and equity investments in parastatals was to commence; a regime of tight monetary policy was to come into force; a revised tarrif and excise structure was to begin; and the policy of freezing public sector employment would be maintained. The pre-SAP exchange rate of the Naira was $1=N1 (One US dollar exchanged for One Naira). The SAP was destined to impose on Nigeria 32 months of regular devaluation, and with it came the change in the stability of the currency and the massive disruption of the entire future of the Nigerian economy as we knew it. Coincidentally, Nigeria was just 26 years old as a nation at this time and, simultaneously, the policy of privatization of public enterprises was also being implemented in the United Kingdom which at that time had witnessed over 300 years of stability, capital accumulation, educational attainment, industrialization, capacity building and management depth in their public sector organisations; an experience Nigeria did not have.
The document, which President Babangida presented to the nation, was approved on August 28, 1986 by the London Club of private creditors and the Paris Club of sovereign creditors. In October 1986, the SFEM bidding system was born and, for the first time, the Naira was officially devalued. Bang! Fall of the Naira—This Week, Nigeria’s authoritative Newsmagazine, Vol. 2, No.1, October 13, 1986, pp. 11-12. At the first auction, the exchange rate was $1 = N4.00 (One US dollar exchanged for Four Naira). What this exchange rate meant was that if it previously took N100 to import a particular raw material as an input in the production process, it would cost N400 to import the same material, going forward. The death of Nigerian industries was heralded by this development. Prior to the introduction of the foreign exchange auction, importers could only import licences from the Federal Ministries of Finance and Commerce, through which they accessed foreign exchange at the CBN in an opaque, corrupt, and highly selective process. The bidding round shifted the power of foreign exchange to the banks and CBN. What was worrisome in the SAP instrument was that once implemented, it became almost irreversible. The damage SAP does to an economy is permanent and attempts to reverse such changes were always prone to crisis. Compared to the application of countertrade or other measures for resolving the country’s temporary liquidity crisis, which was expected to self-correct with a rebound in oil prices, application of SAP measures was not sensitive to changes in the international price of crude. Once the IMF pill was swallowed, the deal was done.
On the eve of the devaluation of the Naira, it is appropriate to itemize a few of the companies and industries that existed in Nigeria as at October 1, 1986. The scent of the new economy was examined in This Week news story titled, “The New Economy—How it Works, and Doesn’t,” April 13, 1987, pp.24-33. Small and Medium Enterprises dotted the rural areas of Nigeria and relied on local and imported materials for production. It was common to encounter foundries, plastic industries, pharmaceuticals, fabrication yards and a host of others in the rural areas of Nigeria. The public and private sectors had a healthy competition in the establishment of medium to large scale companies. Several vehicle assembly plants existed, such as Peugeot Automobile Nigeria, Volkswagen of Nigeria, Steyr Motors, Leylands, and Anambra Motor Manufacturing Company (ANAMCO). The motorcycle assembly plants like Honda in Sango Ota; tyre producing companies like Michellin Nigeria and Dunlop Nigeria; large-scale shoe-making companies like Bata and Lennards; trading companies like UTC, SCOA, Bhojsons, Kingsway, A.G. Leventis; International Business Machines (IBM); textile companies like Arewa in Kaduna, Kano, Aba, Onitsha and Asaba; steel rolling mills in Jos, Osogbo, Ajaokuta, Aladja, Warri; Berec and Everlast battery manufacturers; numerous carpet producing companies; General Motors; Nigeria Airways, Cotton Board, Grains Board, Rubber Board, Nigeria Palm Produce Board, etc. These entities and many others were providing job opportunities for Nigerians. They were further aided by the 1972 and 1977 enterprise promotion and indigenization programmes which encouraged Nigerian ownership of enterprises like Cadbury, John Holt, UAC, Food Specialties (Nestle), Nigerian Breweries and Guinness. As soon as the devaluation of the Nigerian currency took root, many companies collapsed as they could not cope with the new cost structure of industry amidst the daily inflows of cheaper products from foreign markets which overwhelmed the trading arena on account of the trade liberalization policy of the government.
A new Nigeria had emerged. But it was not a better Nigeria. Shortages, cost escalation, and penury intensified. The people became increasingly restive. The military government became more repressive and thin in patience. Criticisms and critical analysis of policies no longer went well with the government. In one of such displays of government impatience, a letter bomb was delivered to Dele Giwa, the editor-in-chief of Newswatch in early November 1986. It exploded in his hands on his breakfast table and killed him. Investigations into that murder became shrouded in controversy. There was no headway. The outrage over the death of Dele Giwa was loud but with a government that had a monopoly of weapons and ammunition, not much was achieved. I was part of the huge crowd of friends and admirers that attended Dele Giwa’s heroic burial in his hometown at Ugbekpe-Ekpere in Edo State.