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ECONOMIC DIPLOMACY AND CONDUCT OF NIGERIA’S
EXTERNAL RELATIONS, 1999 - 2007
BY
MMUO, OBIEDOZIE CHUKWUNONSO
PG/M.Sc./11/59715
PROJECT REPORT SUBMITTED IN PARTIAL FULFILMENT
OF THE REQUIREMENTS FOR THE AWARD OF THE
MASTER OF SCIENCE (M.Sc.) IN POLITICAL SCIENCE
(INTERNATIONAL RELATIONS)
DEPARTMENT OF POLITICAL SCIENCE
UNIVERSITY OF NIGERIA, NSUKKA
JULY, 2012
i
TITLE PAGE
ECONOMIC DIPLOMACY AND CONDUCT OF NIGERIA’S
EXTERNAL RELATIONS, 1999 - 2007
BY
MMUO, OBIEDOZIE CHUKWUNONSO
PG/M.Sc./11/59715
DEPARTMENT OF POLITICAL SCIENCE
UNIVERSITY OF NIGERIA, NSUKKA
JULY, 2012
ii
APPROVAL PAGE
This project report has been approved by the Department of Political Science, University
of Nigeria, Nsukka.
By
………………………………. ………………………
Dr Aloysius-Michaels Okolie Prof. Obasi Igwe
Supervisor Head of Department
……………………….. …………………..
Prof. E.O. Ezeani External Examiner
Dean of Faculty
iii
DEDICATION
This work is dedicated to God Almighty for his protection, guidance and grace
which enabled me to complete this study.
iv
ACKNOWLEDGEMENT
I acknowledge the pivotal role played by my Supervisor, Dr. Aloysius-Michaels
Okolie an erudite and voracious scholar whose guidance and adequate supervision
contributed immensely to the successful completion of this work. It is my prayers that the
good Lord will always be your fortress and refuge. I appreciates in a special way the
support and contributions of my parents, Chief and Mrs. C.N. Mmuo and my siblings:
Nchedo, Chidiebere, Ifeakachukwu and Obioma.
The contributions of renowned scholars like: Prof. E.O. Ezeani, Dean Faculty of
the Social Sciences University of Nigeria, Nsukka, Prof Obasi Igwe ,Head Department of
Political Sciences, Dr Ken Ifesinachi, Postgraduate programmes coordinator of our revered
department; Chris Ezeibe, H. Agbo, Azom, Jerry, Adibe and others too numerous to
mention, was indeed useful.
More so, the enormous support and encouragement by: Mazi Cyril .K. Ezeamaka
my Chairman and mentor, Distinguished Senator Victor Ndoma-Egba CON SAN Leader
of the Senate, Federal Republic of Nigeria, B.O. Oyeyemi mni MFR Deputy Corps
Marshal (Operations) Federal Road Safety Corps, Austin Udeh, Idowu K. Idowu and
others cannot be overemphasized. Thank you for being solidly behind me throughout this
academic sojourn. Am highly humbled.
My friends and colleagues: Eby, Obi Austin, Clinton, Uche, Chinyeaka, Chinwe,
PraiseGod, Theo, Maximus, Andy, Oliver, Obinna, Ernest, Onyichris, Orji etc, am so
happy identifying with you all.
All shortcomings in this work remain my responsibility.
Mmuo Obiedozie C.
Department of Political Science
University of Nigeria,
Nsukka.
July, 2012.
v
TABLE OF CONTENTS
Title Page - - - - - - - - - i
Approval Page - - - - - - - - ii
Dedication - - - - - - - - - iii
Acknowledgement - - - - - - - - iv
Table of Contents - - - - - - - - v
List of Tables - - - - - - - - - vii
List of Figures - - - - - - - - viii
Abstract - - - - - - - - - ix
CHAPTER ONE: INTRODUCTION - - - - - 1
1.1 Introduction - - - - - - - - 1
1.2 Statement of the Problem - - - - - - 3
1.3 Objectives of the Study - - - - - - 5
1.4 Significance of the Study - - - - - - 5
1.5 Literature Review - - - - - - - 5
1.6 Theoretical Framework - - - - - - 23
1.7 Hypothesis - - - - - - - - 26
1.8 Method of Data Collection - - - - - - 26
1.9 Method of Data Analysis - - - - - - 27
CHAPTER TWO: ECONOMIC DIPLOMACY AND FOREIGN DIRECT
INVESTMENT - - - - - - - 28
2.1 The Primacy of FDI in Nigeria’s Policy of Economic Diplomacy - 28
2.1.1 The Economic Diplomacy of Dependent Import-Substitution-
Industrialization - - - - - - - 32
2.2 Economic Diplomacy and the Decline of Good Neighbourliness - 34
2.3 Assessment of Nigeria’s Economic Diplomacy and FDI Performance - 36
2.3.1 Sectoral Analysis of FDII Inflow in Nigeria - - - - 43
2.3.2 FDI Performance and Economic Diplomacy: The Missing Link - 44
CHAPTER THREE: DEBT CANCELLATION AND INCIDENCE
OF POVERTY - - - - - - - 48
3.1 History and Structure of Nigeria’s External Debt - - - 48
3.2 The Journey to Debt Cancellation - - - - - 54
vi
3.3 The Realities of Poverty in Nigeria - - - - - 67
CHAPTER FOUR: ENERGY RESOURCE ENDOWMENT AND
DOMESTIC STRUCTURE OF PROCESS OF FOREIGN MAKING -76
4.1 Nigeria Energy Resource Endowment - - - - 76
4.2 Trends in Historical Demand for Energy in Nigeria - - - 77
4.3 Trends in Historical Energy Supplies in Nigeria - - - 79
4.3.1 Crude Oil Reserves, Production and Export Trends - - - 80
4.3.2 Crude Oil Export Trend - - - - - - 81
4.3.3 Petroleum Products Consumption - - - - - 82
4.3.4 Natural Gas Supply Trend - - - - - - 83
4.3.5 Natural Gas Consumption - - - - - - 83
4.4 Electricity Generation - - - - - - 83
4.5 Electricity Consumption - - - - - - 85
4.6 Hydropower Consumption - - - - - - 85
4.7 World Bank (WB) and International Monetary Fund (IMF) Policy
Influence in Nigeria’s Energy Sector - - - - - 86
4.8 The Privatization and the Deregulation of the Oil Sector - - 88
CHAPTER FIVE: SUMMARY, CONCLUSION AND
RECOMMENDATIONS - - - - - - 91
5.1 Summary and Conclusion - - - - - - 91
5.2 Recommendations - - - - - - - 95
BIBLIOGRAPHY - - - - - - - - 98
vii
LIST OF TABLES
Table 2.1 Nigeria Net Foreign Investment Inflow (in US$ Million) - 37
Table 2.2 Nigeria: FDI, 1970-2007 - - - - - 41
Table 2.3 Sectoral Composition of FDI in Nigeria, 1970-2001 (%) - 44
Table 3.1(A) Paris Debt Stock by Creditor as at December 2004 - - 50
Table 3.1 (B) Paris Club Debt Stock by Creditor as December, 2007 - 51
Table 3.2 (A) Summary of External Debt Stock, as at December 2004 - 52
Table 3.2 (B) Summary of External Debt Stock, as at December 2007 - 52
Table 3.3 (A) (US$ Million) External Debt Services Payments (2001-2005) - 53
Table 3.3 (B) (US$ Million) External Debt Services Payments (2006-2007) - 54
Table 3.4 (A) Nigeria’s External Debt Stock to Non-Paris Club Creditors
as at 2005 - - - - - - - 64
Table 3.4 (B) Nigeria’s External Debt Stock to Non-Paris Club Creditors
as at 2007 - - - - - - - 64
Table 3.5 Poverty Evaluation in Nigeria 1980 - 2007 - - - 69
Table 3.6: Nigeria’s Human Development Index 2002 – 2007 - - 74
Table 4.1: Nigeria’s Energy Reserves/Potentials (2007) - - - 76
Table 4.2 Final Energy Demand in Economic Sectors in Nigeria - 78
Table 4.3: Useful Energy Demand in Economic Sectors in Nigeria - 79
Table 4.4 Proven Crude Oil Reserves Estimates in Nigeria - - 80
viii
LIST OF FIGURES
Fig. 2.1 Net Foreign Direct Investment Inflow to Nigeria (US$ million)
(1980-2003) - - - - - - - 38
Fig. 2.2 FDI as Percentage of GDP 1970-2002 - - - 42
Fig. 4.1 Crude Oil Production in Nigeria 1970 – 2005 - - 81
Fig. 4.2 Nigeria’s Power System Composition in 2007 - - 84
ix
ABSTRACT
The study focused on the nexus between economic diplomacy and the conduct of Nigeria’s
External Relations between 1999 – 2007. It investigated the link between the rise in
Foreign Direct Investment to Nigeria and her policy of economic diplomacy. Additionally,
the study investigated the assumption that the cancellation of Nigeria’s debt by the Paris
club reduced the level of poverty in the country. The study adopted the theory of post-
colonial state which asserts that the post-colonial state is a creation and product of
imperialism which thus explains the nature and character of developmental strategies in
the country which are reflective of and products of imperialist interests. It was therefore
argued that Nigeria’s conduct of economic diplomacy at best, serves imperialist interests.
The observation method of data collection was used in sourcing data for the work while
content analysis was employed in analyzing our data. The study therefore found that there
is no significant relationship between the rise in FDI to Nigeria and her policy of economic
diplomacy. Additionally, we equally established the fact that the cancellation of Nigeria’s
debt by the Paris club did not reduce the level of poverty in the country. Lastly, the study
established no significant link between Nigeria’s energy resource endowment and her
domestic/foreign policy making in relation to economic diplomacy.
1
CHAPTER ONE: INTRODUCTION
1.1 INTRODUCTION
Diplomacy is seen by scholars from basically two interrelated angles. Some
scholars such as Ojo and Sesay (1988:40) see it as a synonym for a nation’s foreign policy.
Others such as Wood and Serves (1971); Ofoegbu (1980); Ejiofor (1981); and Holsti
(1972), see it as a process and a peaceful and skillful method by which the government of
nations manage their external relations with other states. Asobie (2002:47-48) sees it as the
management of international relations by negotiation. According to him, it refers to the
process of bargaining among states in order to narrow areas of disagreement, resolve
conflicts or reach accommodation on issue over which agreement cannot, otherwise, be
reached. He disagrees with scholars who believe diplomacy is synonymous with foreign
policy. According to him, while foreign policy is the substantive aspect of external
relations, diplomacy is the procedural aspect. It is the process of putting into effect the
foreign policies of nation-states.
On economic diplomacy, Asobie (2002:48-49) notes that it is defined in three
different ways. However, our concern in this study is the usage of the term in his first
definition. Thus, we take economic diplomacy to mean the management of international
relations in such a manner as to place accent on the economic dimension of a country’s
external relations. It is the conduct of foreign policy in such a manner as to give topmost
priority to the economic objectives of a nation. It has to do with the various diplomatic
strategies, which a country employs in its bid to maximize the mobilization of external
material and financial resources for economic development. In this vein, therefore, we
perceived Nigeria’s economic diplomacy in this study as the conduct of its external
relations in such a manner as to give topmost emphasis on the economic objective of
Nigeria. In other words, it includes all the strategies which Nigeria employs in the conduct
2
of its external economic relations with the intent of mobilizing external resources for its
economic interests.
Nigeria’s commitment to the pursuit of economic diplomacy was first officially
stated in June 1988 by the retired Major-General Ike Nwachukwu in his first policy
address as Nigeria’s Foreign Minister (Ogwu and Olukoshi, (2002:16). The overall thrust
of Nigeria’s economic diplomacy was to give primacy to economic factors in a non-
confrontational and heavily pro-west foreign policy orientation. According to Ifesinachi
(1999:1), the indication was that by the late 1980s Nigeria was experiencing a deep
domestic economic crisis which was triggered-off by the collapse of the world oil market
and the poor management of the economy since independence.
From Nwachukwu’s address, it could be deduced that government then considered
economic diplomacy to be organically inter-connected to the goal of the structural
adjustment programme of the state. Such goals of structural adjustment are export
promotion, the encouragement of foreign investment inflow to the economy, and the
rescheduling of Nigeria’s external debt. These goals, according to then Foreign Minister,
should be built into the foreign policy agenda and strategy of the country. These goals
extend to investment and increased financial assistance from friendly countries in form of
grants and loans. They go beyond this to include the transfer of technology and strategies
to arrest economic flight.
According to Ogwu and Olukoshi (2002:17), the emphasis on this external
economic policy to serve the country’s domestic economic needs is justified by reference
to the claim that in the period since independence in 1960, Nigeria had pursued a foreign
policy line that was too heavy on politics or in which the country’s own needs and interest
in terms of economic well-being were relegated to the background. This formed the basis
for the introduction of the policy.
3
This shift in the foreign policy thrust of Nigeria was seen as an economic revival
strategy for her ailing economy; Nigeria’s debt profile was rising by the day; foreign direct
investment was lower; export promotion was in the downward trend; and economic flight
was on the increase. Economic diplomacy was, therefore assumed to be a more purposeful
use of foreign policy within the reality of Nigeria’s political economy to strive to advance
her domestic economic and developmental objectives. It was a policy means to be used to
arrest these ugly trends.
This study, therefore, takes a look at economic diplomacy and the conduct of
Nigeria’s external relations under the Obasanjo administration (that is, between 1999 and
2007). Since its pronouncement by the government in 1988 as a foreign policy thrust,
successive regimes have wittingly or unwittingly incorporated it in their relations with
other countries and institutions. The essence was to solicit for their help in rescuing
Nigeria from its economic quagmire and its almost pariah status. This is part of economic
diplomacy. Also when Ngozi Okonjo-Iweala assumed office as Nigeria’s Foreign Minister
in 2006, she made it known that her major foreign policy thrust would be economic
diplomacy. Therefore, economic diplomacy was paramount in the period under study.
The study, therefore sets out to interrogate the conduct of Nigeria’s external
relations under the policy of economic diplomacy. We shall also explore the extent to
which this has advanced the economic interests within the period under investigation.
1.2 STATEMENT OF PROBLEM
When former President Olusegun Obasanjo assumed power in May 1999, he was
confronted with a mirage of national problems, ranging from decaying infrastructure,
declining economy, insecurity and the battered image of the country, he embarked upon
shuttle diplomacy by visiting different nations to launder the image of Nigeria and to
4
mobilize external materials and financial resources to fix Nigeria’s ailing economy. This is
otherwise called economic diplomacy.
The primacy objective was to attract foreign investment and increase the investors’
confidence in the country. This is against the background of the fact that Nigeria was just
emerging from the shackles of military rule then. The policy also sought to consolidate
economic relations to expand the existing trade and economic ties, to build economic
correspondence where none existed, and to develop friendship anchored on concrete
economic ties. Most importantly, it was meant to address the country’s huge foreign debts
which was almost strangling it. As we have noted in the introduction, since its introduction
as a foreign policy thrust in 1998 by the government of General Ibrahim Babangida,
successive governments have incorporated it as part of their foreign policy objectives.
Today, there is a better and more cordial relationship between Nigeria and the
international financial institutions – the World Bank and the International Monetary Fund
(IMF). The presence of Multinational Corporations (MNCs) has also increased in Nigeria,
indicating that investment, especially foreign investment, is increasing. Nigeria’s trade
relations with other countries are also on the increase, and its trade frontiers are expanding.
When the policy was introduced in 1988, the talk was on how to get Nigeria’s debt
rescheduled. Today, this is no longer the case. In fact, under Chief Olusegun Obasanjo, the
debts were cancelled.
Despite these remarkable accomplishments occasioned ostensibly by the
introduction of the policy, some pertinent issues arose there from. The debate rages on as
regards whether these modest achievements were a consequence or an aftermath of the
policy of economic diplomacy. In other words, would these things not have been declared
without the introduction of the policy?. Moreover, there is also the issue of the direct
impact of these accomplishments on the populace: whether the so called accomplishments
5
of the policy of economic diplomacy has made the populace to be economically rich or
not.
In recent times, the issue of economic diplomacy has attracted considerable
attention from scholars, but very little attention has been directed at unraveling the issues
mentioned above. Generally, studies on Nigeria’s economic diplomacy and external
relations have not adequately addressed the issue of whether these seeming achievements
are as a result of the introduction of the policy, as well as the impact of the achievement on
the economic well-being of the citizenry. It is therefore, against this background that an
attempt will be made in this study to go beyond the façade of Nigeria’s policy of economic
diplomacy to closely examine such pertinent questions as stated below:
1. Is there a relationship between the rise in Foreign Direct Investment to Nigeria and
her policy of economic diplomacy?
2. Has the cancellation of Nigeria’s debt by the Paris club reduced the level of
poverty in Nigeria?
3. Has Nigeria’s Energy resource endowments affect her domestic foreign policy
making and economic diplomacy?
1.3 OBJECTIVES OF THE STUDY
The broad or general objective of this study is to examine how the conduct of
Nigeria’s external relations under the, policy of economic diplomacy, between 1999 and
2007, has advanced its economic interests. Specifically however, the researcher has the
following objectives in mind.
1. To interrogate whether there is a relationship between the rise in Foreign Direct
Investment to Nigeria and her policy of economic diplomacy.
6
2. To examine if the cancellation of Nigeria’s debt by the Paris club has reduced the
level of poverty in Nigeria.
3. To examine whether Nigeria’s energy resource endowments affect her domestic
foreign policy making and economic diplomacy.
1.4 SIGNIFICANCE OF THE STUDY
This study has both theoretical and practical significance. Theoretically, the study
is significant to the extent that it complements other works by scholars done on Nigeria’s
foreign policy in general and the policy of economic diplomacy in particular, especially
those of them that seeks to unravel the relationship between economic diplomacy and the
conduct of external relations in developing states. In other words it will add to existing
knowledge on this aspect of academic endeavour.
Practically, the study will be of importance to the formulators of Nigerian foreign
policy as well as those who are charged with implementing such policy. The issues that
will be tackled here are expected to guide them. Moreover, students of international
relations in general, and those who are interested in the study of foreign polices of nations
in particular, will benefit from the study. It will not only strengthen their understanding of
the interconnectedness or relationship existing between economic diplomacy and the
conduct of external relations, but will also add to the existing pool of literature from which
they can draw.
1.5 LITERATURE REVIEW
Extant literature in this study will be reviewed around the questions we have posed.
The intention is to find out whether they have been satisfactorily addressed. Olukoshi and
Idris (2002) assess the likely implications of Europe 1992 for Nigeria’s programme of
economic diplomacy. The idea is to find out how the eventual formation of the European
7
Union has advanced the economic wellbeing of the member countries as well as their
citizenry.
The authors started by noting that the European Union (EU) as it is known today,
evolved from three communities covered by two distinct treaties. (1) The success achieved
in this process of European integration leading to 1992, has without doubt, created
anxieties among nations and regional economic groupings, especially with regards to what
the future holds for their relations with Europe. According to them, questions about
possible African strategies and preparations for the reality of 1992, have yet to be
addressed in terms of substantive policy actions in spite of some theoretical discourse on
the impending challenge. They noted that developing and implementing appropriate
measures to meet the challenges of Europe 1992 is of critical importance to developing
countries like Nigeria. It is apparent that policy makers need to have a clear understanding
of the meaning and prospects of Europe from 1992 in order to effectively delineate what
internal adjustment need to be made to achieve a more solid base for meeting the
challenges represented by the single market.
The authors spelt out the objective of Nigeria’s economic diplomacy as officially
stated by government. According to them, in order to achieve these objectives, and as part
of the government’s strategy of economic diplomacy, several steps were taken at the
foreign policy level, complemented by a host of domestic measures.
Olukoshi and Idris were interested in knowing whether the attainment of a single
European market in 1992 will enable or disable Nigeria’s economic diplomacy. They
noted that European market in 1992 contains many possibilities which could either be
positive or negative depending on how countries like Nigeria respond to the emergence of
single market. As various countries, groups of countries organized into regional politico-
8
economic blocs, and private, mostly transnational investors, begin to re-align their
strategies in order to take full advantages it is likely to cause them.
Since a major objective of the emergence of the EU is to increase the community’s
share of world trade, this will affect Nigeria negatively in its policy of economic
diplomacy. This is because Nigeria’s trading partners are mainly West (European) and the
country’s exports to them consist primarily of crude oil and agricultural commodities.
Given the complex quota system operated by the community in its trade relations with the
Africa, Caribbean and Pacific, ACP, countries with which it has a pact (the Lome
convention) and also because oil exports are largely governed by the Organization of
Petroleum Exporting Countries OPEC quotas, there does not seem to be too much scope
for the expansion of Nigeria’s agricultural and petroleum exports to the EU. The
implication of this is that Europe 1992 is likely to make Nigeria’s quest for the increase of
its exports (one of the objectives of its policy of economic diplomacy) much more difficult
to achieve.
There are so many other challenges enumerated by the authors which Nigeria faces
as a result of the emergence of a single European market, in pursuit of its policy of
economic diplomacy. However, the authors noted that these are not the major obstacle
standing on the way for attaining the objectives of economic diplomacy. According to
them, with or without Europe 1992, the chance of attaining, without difficulty, the
objectives of the Nigerian programme of economic diplomacy are heavily conditioned and
constrained by the dependent character of the economy. Europe 1992 would only seem to
make the prospects of success more difficult, but the greater challenge is to uproot the
structures of dependency that have, for so long, militated against the attainment of a just,
more equitable social order in Nigeria.
9
The authors’ analyses have not addressed the issue at stake in this study. To begin
with, so much has already been achieved under the programme of economic diplomacy
despite Europe 1992 and despite the dependent nature of the economy. Debts have been
cancelled (not even rescheduled) foreign investments are increasing and even Nigeria’s
trade is expanding. These are in contradiction to the postulations of the authors. But this is
not even the issue here. The issue is whether these successes (especially as regards the
increase in foreign direct investment) are as a result of the policy of economic diplomacy
and whether the cancellation of Nigeria’s debt has had any meaningful impact on poverty
level in the country. The authors’ analysis did not address these issues.
Some writers also focus on the dependency and underdevelopment approach to
explain the relationship between economic diplomacy and the conduct of external relations
in developing states. According to Ate (1980) observed that the central focus of the
dependency and underdevelopment approach is on the problem of foreign penetration of
the political economies of developing economics and regions. The exponents of this
approach see the economic foundation of society as a pre-requisite for a proper
understanding of social policies and developments, particularly in developing nations.
These exponents of the dependency and underdevelopment approach, according Ate,
emphasize the domination of developing nations by forces of western imperialism and
show how the economic dependence and underdevelopment of these nations lead them to a
measure of subservience in international affairs.
According to Ate, dependence can be considered the most coherent methodological
procedure for evaluating the twin issues of political economic dependence and policy
autonomy in foreign relations. Although the dependency and underdevelopment approach
is limited by its tendency to stress exogenous variables in analysis, it has served as a useful
tool in explaining the organic linkages between economic development and foreign policy.
10
Angling (1964), with regard to Nigerian foreign policy, used the framework of the
dependency and underdevelopment approach to examine the political economy of non-
alignment and to argue that Nigeria’s economic needs have never been a decisive factor in
determining her foreign policy, for which reason he notes that Nigeria cannot practice her
non-alignment policy because of Nigeria’s economic alignment with the west.
Similarly, Ate maintains that the inherent linkage with the west made it possible
for the Nigerian government to pursue the country’s true national interests and its declared
policy of non-alignment. In the same vein, Olusanya et al (1988) observed that following
the Nigerian economic crisis of the 1980s, the preoccupation of government policy had
been on engendering national economic revival and sustained growth in order to arrest the
trend, overhaul the economy and generally lay a solid foundation for future economic
development of the country. Accordingly, they noted that the nation’s foreign policy
should seek positive alignments with the precariously vital external inputs, such as the
World Bank’s structural Adjustment loans and the willingness of the major western banks
and other creditor agencies to reschedule Nigeria’s loan obligations.
The author, nevertheless, argued that the dependence of the country on the same
international finance capital that also dominates and control Nigerian economy effectively
constraints her economic development and defines the framework for the administration of
its foreign policy.
The analysis of Ate, Angling and Olusanya et al captures the reality of the time,
especially the analysis on the dependence of Nigeria’s economy on the west. Nevertheless,
their analyses have not addressed the issue at stake.
Fawole (2000) in his contribution, while discussing the domestic context of foreign
policy and the impediments the government faces in the implementation of the country’s
foreign policy, noted that apart from dictates and the strictures of the constitution which
11
regulate the government, the country’s foreign policy also has to be reconciled with the
prevalent realities in the country, among which (as at the time he wrote) is a large external
debt of about $32 billion and a depressed economy include infrastructure and social
services, mass poverty with a significant percentage of the population living below the
poverty line, rampant corruption, insecurity of life and property, and nation in dire need of
reconstruction.
According to the author, a prostrate economy and a debt overhang have combined
to largely the country’s latitude for the kind of robust foreign policy that the government
of Obasanjo’s was known for in 1970s. This perhaps may also explain Obasanjo’s crusade,
as president, on seeking debt forgiveness for heavily indebted developing countries, a
position he canvassed at every available international forum.
Fawole noted new tactics and strategies are obviously called for in a situation of
economic weakness and political vulnerability. According to him, Nigeria’s legendary
continental pre-eminence in the 1970s was based on a buoyant economy fed by an
unexpected oil boom. Not only was the country not indebted, at least until the first jumbo
loan of 1978, it also possessed the requisite economic leverage to bankroll an activist
foreign policy. This was clearly evident in the leading roles that it played in the struggle to
secure independence for Angola, Guinea-Bissau, Zimbabwe and Namibia, and in
dismantling apartheid in South Africa. The situation is different.
Fawole is coming from another dimension. The import of his argument is that the
economic situation in the country hampers on an activist foreign policy which could have
been more robust if the economy had been more stable. Our intention is to find out
whether the seeming improvement in the economy is as result of policy of economic
diplomacy, using foreign direct investment as an index. So, Fawole has not addressed the
issue at stake.
12
Nweke (1986) studied the domestic structure and processes of Nigeria’s foreign
policy. He postulated that the link between socio-economic structure and foreign policy is
strong and deep-rooted. By socio-economic structure, he meant four interrelated
components: economic system and structure, social institutions, skills and technical
expertise, and international posture. The concept of “economic strength encapsulates” all
four components. According to Nweke, it is not only the foundation that provides the
resources for food, shelter, industry and trade, but also the pillar of military strength.
Economic strength as an instrument of political power and foreign policy can, therefore, be
measured by the quantity and quality of human and natural endowments, national
production capacity and the extent to which citizens are actually in control by themselves
of the means of production and distribution.
The author noted that by failing to de-link the pro-capitalist, anti-national interests
in the immediate aftermath of independence, the post-colonial Nigerian state and
nationalist leaders contributed even more than colonialism per se, in keeping the country
in its present position as an appendage of imperial capitalism. According to the author,
foreign private investments in Nigeria grew and expanded at a phenomenal rate during the
period 1955 – 1966 as at 1972, about 81.75% selected multinational corporations involved
in distributive sector of the economy belonged to foreign capitalist countries, while
18.25% were owned by Nigerians in alliance with western capitalist Europe and the
U.S.A. Nweke noted that the crucial question is who owns the means of production and
determines the character of production and the direction of foreign economic relations?.
From Nweke’s argument, one can deduce the fact that in the programmes of
economic diplomacy, it is not enough to talk about attracting foreign direct investments or
expanding the trade frontiers of the country. According to him, the issue is who controls
13
the economy after all these?. In other words, the policy of economic diplomacy is capable
of deepening Nigeria’s dependence on imperial capitalism.
Agbaje (2002) believes that the fact that several of the countries of the third world
have in recent times placed economic diplomacy on a pedestal in their foreign policies is,
of course, not surprising. Such a move is informed by realism, a reactions to the fact that,
for most Third World Countries, economic problems and their socio-political dimensions
have come to occupy centre stage in their manifestation and, subsequently, in policy
considerations. According to him, the move is, however, also an endorsement of the
IMF/World Bank hegemonic regime in the international system, in which economic
diplomacy is seen by Third World Countries as a handmaiden in the external arena to the
successful pursuit of the economic regime of structural adjustment at home.
Agbaje’s point of departure is that for too long, the Third World has allowed others
not only to think for it, but also, to determine in which policy direction, local and foreign,
it should strive. He, therefore, advocates that the Third World and interests sympathetic to
it have to wage a diplomatic battle, and they can successfully embark on this by
undergoing a conceptual rethink of their project along with policy efforts to advance their
interests in the global system through economic diplomacy.
Bangura (1989) in his won contribution examined the effects of the economic crisis
of the 1980s and the stabilization programmes on the conduct of Nigeria’s foreign policy.
Situating analysis on dialectical materialism, he sees the stabilization and adjustment
programmes of the Shagari, Buhari and Babangida administrations as interrelated parts of
a continuum. He noted that the regimes relied primarily on foreign finance, trade
liberalization, domestic demand management measures and the allocation of resources
through the market mechanism to resolve Nigeria’s economic crisis.
14
The author also noted that Nigeria’s lopsided and dependent incorporation into the
world capitalist economy to condition the level of the disarticulation of its national
economy and foreign policy. However, he maintained that though the pattern of
accumulation ensures a foreign policy of collaboration with foreign capital in periods of
economic crisis, yet anti-imperialistic forces within the ruling class and society unleash
social forces that are opposed to the structure of dependence. He, however, stressed that
the pattern of collaboration and conflict that characterize the relationship between
developing countries and the West is one that does not challenge the roots of incorporation
of the local economy into the western financial system.
Although Bangura tried to bring out the social and political forces that influence
the operation of the economy and orientation of foreign policy, he failed to establish the
interconnectedness between the conduct of external relations and the policy of economic
diplomacy in Nigeria.
Olukoshi (1991), while acknowledging that the Structural Adjustment Programme
(SAP) was a product of pressure from foreign quarters, examines its implications for
Nigeria’s foreign policy orientation. While agreeing with Bangura, he argues that
anchoring the study of foreign policy on the economy affords the analyst the opportunity
of understanding the social and political forces connected with the economy as well as the
way in which they define the orientation and parameters of foreign policy.
He argued that the state is a product of society firmly implanted in the economy,
mirroring and articulating the complex contradictions in the social system, and is the chief
apparatus through which foreign policy is conducted and as such the content and direction
of foreign policy becomes concretely influenced by the class struggle in the society. He
also maintained that the conduct of foreign policy allows the state to call on foreign
15
resources to support the domestic system of accumulation economically, politically and
culturally.
Olukoshi, therefore, see Nigeria’s foreign policy as having a dual character in that
pro-imperialist positions are blended with a nationalist outlook. This situation, according
to him, arises from the contradictions of the forces of western imperialism and the
reproduction of the Nigerian economy through the mediation of the world market. Global
market forces and nationalist hatred for imperialism become contradictions that are
reproduced in the conduct of foreign policy in Nigeria. He also showed how conflict and
collaboration was played out in the rejection of the IMF loan by the Babangida
administration, while accepting the conditionality as the strategy for Nigeria’s diplomacy
of economic crisis management.
The author further noted that the introduction of SAP by the Babangida
administration entailed the regime to successfully negotiate a series of debt rescheduling
agreements with western creditors which attracted further western financial confidence on
the Nigerian economy. Finally, he argued that by leaning more closer to the western
nations at a time of serious economic crisis implied that Nigeria succumbed further to the
imperatives of imperialism.
Olukoshi tried to bring out the organic interconnections between the contemporary
international order, the politics of economic revival and Nigeria’s foreign policy, which he
did very well. However, the question still begs for answers as regards whether the seeming
improvement in the economy is as a result of the introduction of the programme of
economic diplomacy, or if other factors could account for this. Moreover, we have not
found out whether the cancellation of Nigeria’s debt (which is attributable to the policy of
economic diplomacy) has had any positive impact on poverty level in Nigeria.
16
Asobie (2002), while contributing to the debate, noted that since 1960, successive
Nigerian governments have demonstrated an appreciation of the linkage between the
country’s foreign policy and her economic circumstances. The way in which this linkage
was conceived and the policies deriving there from, however, different, though not
necessarily from regime to regime. He noted that from 1960 to 1985, three overlapping
patterns or strands of strategies emerged in the history of Nigeria economic diplomacy.
These three strands are:
1. The diplomacy of dependent import-substitution industrialization (D.I.S.I) which
operated from 1960 – 1974;
2. The diplomacy of regional economic integration (R.E.I) which lasted from 1970 –
1985); and
3. The diplomacy of the establishment of a new international economic order
(N.I.E.O) which operated from 1973 – 1985. He went on the elaborate on each of
them.
Asobie went further to discuss the diplomacy of Structural Adjustment Programme
(SAP) and noted that as pursued in Nigeria, the diplomacy of SAP is significantly, though
not fundamentally, different from the diplomacy of REI or NIEO. But that it is, however,
similar to the diplomacy of DISI. He noted that there are basically, at least, two general
areas of divergence between the pre-SAP and the post- SAP diplomatic strategies adopted
by the Nigerian government. Both areas concern the theoretical assumptions underpinning
the diplomatic strategies. According to him, these differences are clearly reflected in the
views of the two main External Affairs Ministers that served under Ibrahim Babangida,
namely Bolaji Akinyemi (1985 – 1987) and Ike Nwachukwu (1988 – 1991).
Asobie noted that although both Foreign Ministers claimed that they were both
engaged in economic diplomacy, the theoretical assumption underlying their efforts were
17
different. Akinyemi worked on the premise that “an assertive (political) leadership
combined with overwhelming human and material resources could produce a militant
foreign policy”. He believed that without overwhelming resources, a nation could still
pursue an assertive foreign policy. In other words, that the clarity of ideas and the degree
of energy consistently brought by the statesmen or foreign ministers, to bear on a country’s
diplomacy could compensate for whatever short fall there might be in the economic base.
Asobie noted that in contrast, Nwachukwu worked on the theoretical assumption
that no amount of ideological posturing will produce an effective foreign policy. In other
words, a strong national economy is the best guarantee of an effective foreign policy and
of power within the international political system.
The author noted that Nwachukwu also believed that in foreign policy and
diplomacy, the sphere of the economic and that of the political must be clearly
distinguished and priority of thought and action as to the two spheres established. As he
puts it, “it is the responsibility of our foreign (policy) apparatus to advance the course of
national economic recovery”. Asobie went ahead to state that it is Nwachukwu’s
theoretical position, not Akinyemi, that represents the conceptual basis of the diplomacy of
SAP, otherwise, known as the “new economic diplomacy”.
Asobie’s work was actually on economic diplomacy and national interest. He
wanted to know the extent to which Nigeria’s “new” economic diplomacy and/or its fruits
have either furthered or frustrated the attainment of this interest. He came to the
conclusion that it has not served the national interest. However, Asobie was writing on the
government of Ibrahim Babangida. Our interest in this study is to find whether the policy
of economic diplomacy has impacted positively on the conduct of Nigeria’s external
relations under Chief Olusegun Obasanjo’s administration, that is, between 1999 and
2007.
18
Ogwu and Olukoshi (2007) perceive economic diplomacy as nothing new in
Nigeria’s pro-western foreign policy slant. They see the policy as the abandonment by the
state of any political or economic activism that might be construed by the leading western
nations as obstructive to their goals. In this connection, they argue that having accepted the
global agenda of the leading western states and the agencies which they dominate such as
the IMF and the World Bank, the prospects of promoting domestic economic and social
justice will be quite slim. In assessing the operational efficiency of economic diplomacy in
Nigeria, Ogwu and Olukoshi argues that the complex internal dynamics of the Nigerian
state, economy and society are not likely to promote an undiluted conformism to the
imperatives of imperialism.
The authors’ perception of the link between the politics of economic revival and
foreign policy is quite lucid. However, their analysis of economic diplomacy was not
situated in the context, has it enhanced the conduct of Nigeria’s external relations or not?
Omoweh (2002), in his contribution, noted that years after the Babangida
administration had officially declared the adoption of economic diplomacy as Nigeria’s
new foreign policy plank the debate continues to rag as to whether it has been able to bring
the crisis-ridden economy back to keel. It is all the more so because of the continuation
with economic diplomacy by subsequent governments, though with varied emphasis. Not
only that, there have been fundamental changes in Nigeria’s economy and in the
international system. While some of the changes arose largely from the shift in the macro
and micro-economic policies and actions of the government, others emanated from the
international arena. Together, the changes have impacted on the conduct of the country’s
foreign economic relations. As an example, the author noted that in 1994, the Abacha’s
junta officially terminated the World Bank/IMF –led Structural Adjustment Programme,
19
SAP, citing its woeful failure to revamp the country’s economy as the major reason. In its
place, that government introduced what was known as “guided deregulation”.
Omoweh noted that when the Obasanjo regime was inaugurated in May 1999,
Nigeria’s economy was still faced with chronic decline in capacity utilization in the real
sector, near total collapse of all basic social infrastructures, protracted budget deficit, debt
overhang, rising import dependent profile and weak private sector, among others. As part
of its efforts to revamp the economy, the Obasanjo’s government had, on December 8,
1999, launched the Nigerian Economic Policy. According to the author, unlike its
predecessors, the Obasanjo’s government was discreet in adopting economic diplomacy as
one of its major policy instruments for achieving the aims of the economic policy.
Omoweh remarked that two major issue featured in the debate regarding the
economic diplomacy of the Nigerian state since the official termination of the adjustment
programme in 1994. The first is the question of whether it is appropriate to really talk of
the post adjustment Nigerian economy since 1994. The second question centers on the
contention of whether there is anything “new” about the economic diplomacy and the
economic policy of the Obasanjo’s government. As regards the first question, the author
noted that policy makers argue that with the official termination of SAP, it can be argued
that the nation’s economy is in a post-adjustment period. And that unlike the adjustment
project that was imposed on the Nigerian state by the Bretton Woods Institutions, “guided
deregulation” the economic reform policy plank of the Abacha’s regime, was home grown.
On the second question, Omoweh noted that there has been a renewed debate on
the “new” economic diplomacy and economic policy of the Obasanjo administration. The
question being raised in several quarters, which is not really new, is how the government
can use its foreign policy to improve the economy. Also, the question is whether there is,
indeed, anything “new” in the economic diplomacy of the government. To a certain extent,
20
the author stated, the “newness” in the economic diplomacy of the Obasanjo government
stems in part from the urgent need of the country to recover from its “pariah status”, and
the need to restore the confidence of foreign investors in the nation’s economy.
The author, in discussing economic diplomacy and the economic
underdevelopment of the country, tries to point out the politics that underpins the
government’s economic reform policy. According to him, there is no doubt that the state is
in the same side with foreign capital in exploiting the people, though itself being exploited
by capital. It is natural, therefore, the state might not be really bothered about the
implications of the on-going economic reform and the economic diplomacy for the over all
wellbeing of the people and the capacity of the economy to sustain itself. He then posed
the question of who actually benefits from the programme of economic diplomacy and
economic reform policy and projects of the state: the people or the state/foreign capital?
Omoweh was close to addressing the issue we intend to tackle in this study, but he
did not ascertain whether the seeming improvement in the economy during the period of
study was actually a consequence of the policy of economic diplomacy of the Nigerian
state.
In concluding this aspect of literature review, what seems to emerge from the
exercise is that greater attention is paid by most of the scholars to the contents of the
policy of economic diplomacy and the ability of the government to pursue it vigorously
given the dependent nature of Nigeria’s economy. Moreover, with the exclusion of
Omoweh, the authors reviewed wrote on other administrations other than that of Obasanjo,
whose regime forms the period under study. Even Omoweh’s analysis ended in 2002,
when the first four years of Obasanjo has not even ended. The question of whether the
seeming achievements made under the Obasanjo regime in the economy would not have
been possible if not for the programme of economic diplomacy remains unanswered.
21
Specifically, the rise in the foreign direct investment into the country is said to be an
aftermath of the policy. Is this really correct? The scholars did not address this. Most
importantly, there has not been an adequate investigation into the issue of whether the
cancellation of Nigeria’s debt has had any positive impact on poverty level in Nigeria. The
present study is an attempt to fill this gap in the literature.
Further Venom, (1976) finds that the multinational corporations by transmitting
knowledge, technology and resources efficiently across national boundaries contribute to
greater global welfare. Although Venom is troubled that the transfer of goods, services and
money no longer result from transaction between national economies but from transaction
between sister affiliates of multinationals leading to the decline of national sovereignty.
Mdejubeja (1976) in an article titled “Oil and Nigerian Economic Development of
Nigeria”. His verdict was that oil companies have contributed little or nothing to Nigeria
economic development. This is because of the nature of their industry which is
predominantly high capital intensive, having minimal linkages with the rest of the
economy. Also the direct effect on the MNC has been primary due to the fact that large
foreign companies which dominate the industry have been invested in establishing local
industries apart from those related to their own requirements.
Onimede (1981) Matharika (1988) asserted that formulation and execution of
foreign policy especially in oil producing nations including Nigeria, has been deliberately
tied to fighting foreign oppression, exploitation and the trapping of imperial ambitions by
MNCs which are matured and supported their respective imperial countries.
Transparency and Accountability in the Management of Natural Resources
With the advent of democracy in 1999, the new government commissioned the
World Bank to study the management of the oil and gas sectors. The study reveal serious
short comings in four broad areas namely, crude oil output and disposal, funds inflows,
22
funds out flow and institutional effectiveness among other analyst, has identified poor
management of national resources as a source of conflict in many developing countries.
It therefore became imperative for the administration to take decisive steps to
institutionalize a system of regular independent audits of hydrocarbon reserves, financial
flows and processes/practices in the extractive industry. It was therefore against this
background that Nigeria signed the EITI in November 2003 and the Federal Government
inaugurated the National Stakeholders Working Group (NSWG) in February 2004 to
oversee the EITI process.
Specific Functions of the N – ETITI
The efforts to establish transparency in the oil and gas sector is an integral part of
the ongoing economic reform (captured in the NEEDS document 2004). Like other
elements of the programme, steps are being taken to underpin the N-ETITI through a
legislative instrument. A bill is presented under consideration by the National Assembly.
Among other things it mandates the N-EITI to pursue the following specific objectives.
Section 2(a), (b) and (c) respectively state the primary objectives of N-EITI as
(i) To ensure due process and transparency in the payments made by extractive
industry (EI) companies.
(ii) To ensure accountability in the revenue receipts of Federal Government from
EI Companies
(iii) To eliminate all forms of corruption practices in the determination, payments,
receipts and posting of revenue accruing to the Federal Government from E.I
Companies. For the purpose of realizing these objectives, section 3 (c), (d) and
(f) respectively required the N-EITI.
(iv) To develop a framework for transparency in the reporting and disclosure by
E.I. Companies of revenue due to or paid to the Federal Government.
23
(v) To request from E.I. Companies an accurate record of the cost of production
and volume of scale of oil, gas, or other minerals extracted by the company.
(vi) To ensure that all payments to and from E.I Companies, including taxes,
royalties, dividends, bonuses, penalties, levies and such like, are duly made,
Bright Okogu (2007).
1.6 THEORETICAL FRAMEWORK
We shall adopt the theory of the post-colonial state in analyzing the issues at stake
in this study. This theory was popularized by neo-marxist third world scholars such as Ake
(1985); Ekekwe (1985); and Ibeanu (1998).
The underlying principle of the theory is that the post-colonial state is a creation of
imperialism. Consequently, it has followed a developmental strategy dictated by the
interests of imperialism and its local allies, not by those of the indigenous population.
Consequently, the post-colonial state has immersed itself in a deep crisis that it cannot
extricate itself from.
According to Ekekwe (1985:56), the post – colonial state rests on the foundation of
the colonial state, which, in turn, had incorporated some important elements of the pre-
colonial rudimentary state structures. The main goal of the colonial state was to create
conditions under which accumulation of capital by the foreign bourgeoisie would take
place through the exploitation of local human and other natural resources. It was on the
basis of this that the post-colonial state emerged. It followed the form and character of the
colonial state.
Ibeanu (1998:11) has argued that in spite of anti-colonial struggles, the post-
colonial state altered very little in the arbitrariness of its predecessor: the colonial state.
This is especially the case in countries like Nigeria where independence was negotiated
24
with the colonialists. Negotiated independence, according to him, implied that the
structure of the colonial state were not changed in any fundamental sense. It was just a
change of personnel. Therefore, the state that now emerged, though independent and
sovereign, was no less a creation of imperialism than the colonial state (Ekekwe, 1985:57).
The post-colonial state is a creation of imperialism because the local class that now
control it was not only a creature of imperialism too, but that it also seek to dovetail its
interests with those of the foreign bourgeoisie. This is why the Nigerian government’s
programme of economic diplomacy is nothing but another effort to reintegrate the
economy into the global capitalist system.
The post-colonial state is also constituted in such a way that it reflects and carters
for a narrow range of interests (Ake, 1985: 28,31). In the case of the Nigerian state, it
carters mainly for the interest of the Nigerian bourgeoisie and metropolitan capital. In fact,
Ekekwe (1985:55) has noted that in any discussion of the post-colonial state, there is need
to consider capital and the state as being closely related. This is because foreign capital
plays very dominant role in post-colonial states. Omoweh (2002:219) corroborated this
when he noted that the state is on the same side with capital in exploiting the people. This
is why Tandon (cited in Ekekwe, 1985:55) has argued that the post-colonial state, is in
fact, the state of the international bourgeoisie. It is still run on behalf of the international
bourgeoisie. In this light, we can begin to see the close affinity between the government
and the Bretton Woods Institutions.
This theory is very suitable in explaining the decision of the government to embark
on the policy of economic diplomacy in the conduct of its external relations. Being a post-
colonial state, it is very difficult for Nigeria to extricate itself from the shackles of
international capital, and the policy of economic diplomacy only serves that purpose: the
25
purpose of deepening Nigeria’s involvement in global capitalism, which nevertheless, does
not serve that interest of the people.
The objectives of Nigerian economic diplomacy include the attraction of foreign
investment; the attraction of more loans and grants; rescheduling/cancellation of external
debts; promotion of external trade relations; and the encouragement of Nigerian business
groups to invest abroad (Olukoshi and Idris, 2002: 188). No matter how one looks at these
objectives, they are first and foremost meant to serve the interest of foreign capital, and
when Nigeria is put in its proper perspective as a post-colonial state, which is a creation of
imperialism, one can understand that it is meant to further these interests, at the detriment
of the local population.
In the case of the attraction of foreign investments, the profit (surplus value) made
from such investments are never retained in the local economy. They are expatriated back
to the west. The rescheduling and cancellation of external debts never come free of charge.
There is always connivance by the metropolitan bourgeoisie and the Nigeria state either to
devalue the local currency or to withdraw subsidy. This is the same when loans and grants
are taken. This is always done in the detriment of the local populace who bears the brunt.
Moreover, it is still questionable whether the debt cancellation granted Nigeria has
impacted positively to the people. As regards foreign trade, the case is the same. The
emphasis is always on the international division of labour where post-colonial states like
Nigeria only export raw materials while the industrialized states put them to finish goods.
Meanwhile, trade theories posit that exporters of manufactured products gain more from
international trade more than exporters of primary products.
This theory, therefore, helps us to understand why the Nigerian state is pursuing
the policy of economic diplomacy. Being a post-colonial state created by imperialism, it
has to align itself with foreign capital to the detriment of the local population. It is,
26
therefore, natural for the Nigerian state not to bother whether the economic reforms it is
embarking in the name of economic diplomacy are having negative effects on the people,
so long as the interests of metropolitan capital are protected.
1.7 HYPOTHESES
This study is guided by the following hypotheses:
1. There is no significant relationship between the rise in Foreign Direct Investment
to Nigeria and her policy of economic diplomacy.
2. The cancellation of Nigeria’s debt by the Paris Club has not reduced the level of
poverty in Nigeria.
3. There is no significant relationship between Nigeria’s energy resource endowment
and her domestic foreign policy making in relation to economic diplomacy.
1.8 METHOD OF DATA COLLECTION
In order to gather information required for this study, we shall rely on the
observation method. In this connection, we intend, though as non-participant observers, to
use the knowledge which we have so far gathered through observing events in the country,
to determine how the conduct of Nigeria’s external relations under the policy of economic
diplomacy, has advanced its economic interests within the period under study. As a
supplement to this method of data generation, we shall also rely heavily on materials
gotten from the library. Consequently, we shall make use of text books, journals,
periodicals, official documents, government publications and unpublished materials
related to the study. We shall also make use of internet materials. All these will form the
sources of our data.
27
1.9 METHOD OF DATA ANALYSIS
In analyzing these data, we shall make use of content analysis. By content analysis,
we mean a method of gleaning and extracting information from documents or texts. It also
means a way of reading meaning into the information so gathered and drawing inference
from the available evidence to test our hypotheses and reaching a conclusion. Since
content analysis also involves gathering information through secondary sources, it will
only complement the observation method, by relying on materials sourced mainly from the
library.
Meanwhile, as the scientific method of transforming the symbolic content of a
document, be they works or images from a qualitative form to a quantitative form, the
study explored the content of the secondary data collected. We sifted and analyzed the
mass of relevant data in official documents, books, journal articles, newspapers and
magazines. Therefore we adopted qualitative content analysis in interpreting the content of
text data through the systematic classification process of coding and identifying themes or
patters. Using this method, we sifted the main themes in the various texts that address the
central thesis of our propositions.
In addition to the above, we arranged our data in tables, graphs and equally
adopted the use of simple percentages as basis for analysis.
28
CHAPTER TWO
ECONOMIC DIPLOMACY AND FOREIGN DIRECT INVESTMENT
In this chapter, effort will be made to interrogate if there is any relationship in the
rise of foreign direct investment flow into Nigeria and Nigeria’s policy of economic
diplomacy. Hence, we shall examine the place given to FDI particularly, in the conduct of
Nigeria’s economic diplomacy; the rise in FDI has not been a direct result of Nigeria’s
policy of economic diplomacy.
2.1 THE PRIMACY OF FDI IN NIGERIA’S POLICY OF ECONOMIC
DIPLOMACY
As noted earlier, the cardinal objective of Nigeria’s economic diplomacy is to
maximize the mobilization of external material and financial resources for economic
development of the nation. Hence, the primary strategy of Nigeria’s policy of economic
diplomacy was to attract foreign direct investment (FDI) and increase the investor’s
confidence in the country. In fact, the importance of FDI to national development cannot
be disputed, as noted by Okolie (2007), Foreign Direct Investment is a major component
of international capital flows (investments) which involves not only a transfer of funds
(including the investment of profits) but also a whole package of physical capital,
techniques of production, managerial and marketing expertise, products advertising and
basic practice for the maximization of global profits. In sum, Okolie (2007) conceived
Foreign Direct Investment as embracing new equity from the foreign company in the host
country; long and short-term net loans from foreign to host country; and reinvested profits
from foreign business concerns.
Emphasizing the primary position given to FDI in the conduct of Nigeria economic
diplomacy, Olukoshi and Idris (2002: 188-189) have pointed out that in order to achieve
29
the objectives of economic diplomacy, several steps were taken at the foreign policy level,
complemented by a host of domestic measures. Specifically, as regards foreign
investments, they noted that a unit for Trade and Investment Promotion was established in
the Ministry of External Affairs. Information officers in the embassies were also instructed
to include publicity on the country’s natural resources endowment and the investment
opportunities available as part of their normal schedule of duty. Moreover, at the time,
various trade and investments missions were organized by the Ministry of External
Affairs, in conjunction with other governmental departments, to various parts of the world.
Apart from this foreign policy dimension, Olukoshi and Idris also noted that efforts
were also made at the domestic level to make the economy more attractive to foreign
investors. These include the adoption of a new investment code whose overall objective
was to make the process of company incorporation simpler. There was also the
amendment of the indigenization decree of the 1970s to increase the leeway of foreign
investors in the economy. Thirdly, there was the elimination of bureaucratic procedures
associated with profit repatriation and dividend remittance, and the introduction of new
relief measures. All these were done by the administration of Ibrahim Babangida to
encourage the inflow of Foreign Direct Investment into Nigeria.
Essentially, attraction of FDI has occupied prominent position in the conduct of
Nigeria’s economic diplomacy. For example, much of the shuttle diplomacy embarked
upon by Professor Bolaji Akinyemi, Nwachukwu’s predecessor as Foreign Minister,
centered on attracting the goodwill of the West in such matters as debt rescheduling and
attraction of Foreign Direct Investment. Similarly, in 1987, at a conference on Economic
Development and Foreign Policy, Professor Gabriel Olusanya, Director-General of the
Nigerian Institute of International Affairs at the time, stated the need to establish a direct
linkage between Nigeria’s domestic economic requirements (especially attraction of FDI)
30
and its foreign policy with a view to ensuring that the latter served the needs of the former
more systematically (See Ogwu & Olukoshi 2002: 16).
The prominence given to Foreign Direct Investment in the conduct of Nigeria’s
economic diplomacy was predicated on the argument that since independence in 1960,
Nigeria has pursued a foreign policy line that was too heavy on politics or in which the
country’s own needs and interests in terms of economic well-being were relegated to the
background. This alleged deficiency is, in part, what economic diplomacy seeks to redress
by placing much emphasis on the attraction of FDI.
In fact, Nwachukwu, in an address to newly appointed Nigerian Ambassadors of
the Ministry of External Affairs in 1991, stated unequivocally that:
The ball-game today in international relations is self-
interest and economic development… in your utterances
and in your behavioural pattern, please remember that
Nigeria is a developing country. It needs support from
the international community and that support can only
come when you can win the confidence of those whose
support you seek.
Nwachukwu went on to tell the diplomats that:
You being to win that confidence through friendliness
and loyalty to their cause (i.e. the cause of those whose
support you seek). What matters is your ability to win for
Nigeria what we cannot for ourselves, that is, the
economic wellbeing of our people and physical well-
being of Nigeria. (Nwachukwu 1991 in Ogwu &
Olukoshi 2002:18)
Apparently, the above statement shows that the attraction of FDI into Nigeria is
one of the cardinal points of Nigeria’s economic diplomacy as all efforts are made to
attract and increase the level of FDI in the country.
The priority given to the attraction of FDI in Nigeria’s economic diplomacy
becomes apparent when one examines extra efforts made by the Nigerian government to
31
secure and retain the good will of the leading Western powers. For instance, in 1988,
against strong domestic opposition and even in contempt of the advice of the Foreign
Minister, the Nigerian government received, in Lagos, Margaret Thatcher, the British
Prime Minister, whose government’s inflexible policy on South Africa was the very
antithesis of Nigerian government. Similarly, the Nigerian government took several steps
calculated to bring the country closer to the United States and other Western countries. In
fact, Nigeria became one of the African champions of the American –sponsored move to
bring about a political settlement between the two – warring parties in Angola, namely
UNITA and the government-led MPLA. It accepted, under the Structural Adjustment
Programme, to embark on significant reversal of the indigenization decrees of 1972, 1974
and 1977; privatization of the economy; liberalization and devaluation of naira. Again, the
regime also, contrary to the demand of leading Nigerian political forces, put Nigeria under
a controlled return to civil rule, under an American-type constitutional arrangement.
Further, the Nigerian government made overtures to both France and West
Germany. The German President, Frederick Von Weisacker, had paid a state visit to
Nigeria when he was given both a national honour and an honorary degree. The
determination of the Nigerian government to be in the good book of the leading western
powers was essentially an expression of its economic motive of attracting FDI which is the
cardinal objective of Nigeria’s economic diplomacy.
As an expression of the pursuit for FDI, some Western-sponsored projects which
Nigeria either spurred or reluctantly supported in the pre-economic crisis days are now
enthusiastically embraced. For instance, Nigeria was initially a reluctant party to the Lome
Conventions. But with the advent of her economic diplomacy especially since 1986,
Nigeria’s attitude changed such that under Lome III, Nigeria had the largest share of the
aid allocations and disbursements.
32
It has also been noted that one of the pillars on which the New Partnership for
African’s Development (NEPAD) was launched and especially spearheaded by the
Nigerian government of President Olusegun Obasanjo, was to increase available capital (in
this case FDI) through a combination of reforms, resource mobilization and a conducive
environment for FDI (Funke and Nsouli, 2003).
2.1.1 The Economic Diplomacy of Dependent Import-Substitution-
Industrialization
Another form in which attraction of FDI was given primacy in Nigeria’s economic
diplomacy was in the form of the much vaunted import-substitution strategy. Hence, the
great powers were seen as channels for attracting Foreign Direct Investment (FDI). The
goal in view was the establishment of industries in Nigeria, which should produce locally,
those goods previously imported from other countries. Thus, in this connection, it was
perceived that a positive relationship could be established between Nigeria’s economic
diplomacy and industrial development fostered via imported-substitution-industrialization.
In support of the need to grant attraction of FDI prominence in the conduct of Nigeria’s
economic diplomacy, the then Nigerian Prime Minister, Sir Abubakar Tafawa Balewa
argued that:
At present, we lack the necessary capital and technical
skill to develop our own resources by ourselves
alone…how are we to obtain help from outside and still
keep free from being under the influence of one power
bloc or another? (Federal Nigeria 1991 in Asobie, 2002:
54)
Apparently, during this era, accent was place on attraction of Foreign Direct Investment
for economic development. Further, because economic development was defined in
quantitative terms largely as growth in the GNP, it mattered little whether it resulted from
the increase capacity of indigenous inputs or from rise in the proportional contribution of
external inputs.
33
As noted by Asobie (2002), quite a number of factors combined to place the
attraction of FDI in position of prominence in the conduct of Nigeria’s economic
diplomacy. First was the capitalist structure of the inherited economy, together with its
external orientation. Second, and more important, was the vested interests of the Nigerian
political leaders in perpetuating that structure and the orientation of the economy. Hence,
the choice of industrial development strategy, namely dependent-import-substitution-
strategy, was the product of the orientation of these vested interests. The third was the
competition for external financial and among the regional governments and the political
parties which controlled them.
As a result, the Nigerian political leaders in the 1960s, operated on a number of
premises. One was that the infusion of Foreign Direct Investment was indispensable for
the attainment of industrial development. Another assumption was that Nigeria’s foreign
policy could be conducted in such a manner as to achieve a net inflow of Foreign Direct
Investment from a variety of international actors. Another assumption was that Nigeria’s
foreign policy could be conducted in such a manner as to achieve a net inflow of foreign
direct investment from a variety of international actors. Another assumption, was that
international actors basically friendly and selfless; they would, therefore, show interest and
willingness in assisting Nigeria to develop. It was on these premises that Nigeria’s
economic diplomacy of the 1960s was built – a diplomacy directed primarily at attracting
foreign investment without putting in jeopardy, Nigeria’s internal security and political
independence (see Asobie 2002:55).
Generally, the argument being made here is that Nigeria’s economic diplomacy
placed much emphasis on the attraction of foreign direct investment into the country
because it is believed that FDI inflow will boost economic growth and development in the
country.
34
2.2 ECONOMIC DIPLOMACY AND THE DECLINE OF GOOD
NEIGHBOURLINESS
As noted earlier, the overall thrust of Nigeria’s economic diplomacy was to give
primacy to economic factors. With the intensification of this foreign policy thrust
especially under Obasanjo’s administration, there has been serious decline in Nigeria’s
foreign policy thrust of being benevolent to her immediate neighbors in Africa especially
when it comes to helping them out economically. This was most manifested when former
President Obasanjo assumed power in 1999 and immediately embarked on “shuttle
diplomacy” by visiting all the major countries and institutions of the world. This form of
economic diplomacy was also manifested in his choice of finance ministers and Chief
Economic Advisers. He appointed Ngozi Okonjo – Iweala and Prof. Chukwuma Charles
Soludo as his Finance Minister and Chief Economic Adviser (Later CBN Governor)
respectively. This was based on his assumption that these caliber of people will be
respected by the Western countries especially their financial institutions (IMF and World
Bank). More so, the credibility of such people in the international community was believed
to help in not only attracting FDI and donors, but also help in attracting sympathy of
Western countries and hence, help the country out of its economic quagmire.
As noted by Asobie (2002: 81), cost-consciousness has been an aspect of Nigeria’s
diplomacy since 1982. Consideration of the opportunity cost, in terms of possible loss of
financial assistance from the West was a factor in the decision of the government of
Shagari to boycott the OAU summit in Libya. More important, calculation of the huge
financial cost of keeping Nigerian troops as part of OAU peace-keeping force in Chad
contributed to the decision to withdraw Nigerian troops from the territory before the task
of the OAU force was accomplished. Under Buhari, the retrenchment of Nigeria’s
35
External Affairs officers and the reduction in the number of Nigeria’s diplomatic missions
abroad were also undertaken as part of cost-cutting measures.
Asobie further noted that in the early days of Babangida’s administration, even
before SAP was introduced, there was evidence of cost-consciousness in Nigeria’s
diplomacy. For example, the calculation of opportunity costs was evident in the speed with
which Babangida’s administration normalized relations with Britain in 1985. Economic
diplomacy and its concomitant cost-consciousness was also reflected in the very early
moves made to break the deadlock in the negotiations for an extended credit facility of
US$2.5 billion from IMF.
In fact, this cost-consciousness and the deadline of good neighborliness all of
which are results of economic diplomacy and consultations. According to Akinyemi:
If Nigeria is going to be regarded as an African leader
and it is going to entail some cost to the Nigerian
government and people, then respect for Nigeria
should dictate that the views of Nigeria should be
sought when the situation allows for consultation.
(Akinyemi 1986 in Asobie 2002).
The above statement by Akinyemi shows explicitly that Nigeria has come to terms
with the cost of trying to be a good neighbor as being detrimental to the economic
diplomacy of the country. It further shows the overriding concern for profitability in
Nigeria’s foreign policy, which also became the central element of SAP when it was
formally introduced. In fact, in September 1986, Nigeria for the first time, warned African
states that they should realize that she was no “Father Christmas”, they should therefore,
not continue to expect aid without strings from her. This reinforced the Nigerian
government’s new insistence that, in return for Nigeria’s support and sympathy for the
cause of other African states, they should, in turn, defend and protect Nigeria’s own
interest.
36
Further, in intra-African and intra-Third World relations. Nigeria’s economic
diplomacy and its cost-consciousness consists in being very calculating in making
expenditure on some foreign policy prospects. Hence, all aids and expenditures made in
neighbouring countries were made in such a way that it furthered the economic interest of
Nigeria.. for instance, in May 1986, after the bombing raids carried out by the racist South
African government’s Air Force on Zambia, Zimbabwe and Botswana, Nigeria’s Foreign
Minister visited these countries and, in a show of solidarity, pledged in aid package of
US$10 million to the affected countries. Then on 16 June, 1986, the Nigerian President
himself promised another $50 million, to be spread over as five year period to the frontline
states and liberation movements in Southern Africa. Also, Nigeria sent some policemen to
serve as part of the United Nations Transition Assistance Group (UNTAG) in Namibia. On
the face value, it is difficult to justify such expenditure, in terms of cost benefit
calculations. However, on deeper analysis and reflection, it becomes obvious that any
amount to further the process of liberation in Southern Africa is considered also as an
expression of economic diplomacy especially on the grounds of national security and
economic benefits. (See Asobie 2002:86).
2.3 ASSESSMENT OF NIGERIA’S ECONOMIC DIPLOMACY AND FDI
PERFORMANCE
It is now widely acknowledged that attraction of Foreign Direct Investment (FDI)
is one of the pillars of Nigeria’s economic diplomacy. On a general note, UNCTAD
(2001) notes that FDI in the world rose from US$57 billion in 1982 to US$ 1,271billion in
2000. Even so, only a few countries have been successful in attracting significant FDI
flows. Indeed, African as a whole and Sub-Saharan Africa in particular has not particularly
benefited from the FDI boom. For most of the time since 1970, FDI inflows into Africa
37
have increased only modestly, from an annual average of about US$ 1.9billion in 1983 –
87 to US$3.1 billion in 1998 – 2002 and US$4.6billion in 1991 -1997.
Nigeria is one of the few countries that have benefited from the FDI inflow into
albeit minimally. Nigeria’s share of FDI inflow to Africa averaged around 10% from
24.19$ in 1990 to a low level of 5.88% in 2001 up to 11.65% in 2002, in fact, UNCTAD
(2003) showed Nigeria as the continent’s second top FDI recipient after Angola in 2001
and 2002. (See Ayanwale 2007:15). The table below further shows the details of FDI
inflow into Nigeria for the period 1980 – 2003.
Table 2.1: Nigeria Net Foreign Investment Inflow (in US$ million.
Year Africa Nigeria % of Africa
1980 392 -188.52 -
1990 2430 588 24.19
1995 5119 1079 21.07
1997 10667 1539 14.43
1998 8928 1051 11.77
1999 12231 1005 8.22
2000 8489 930 10.96
2001 18769 1104 5.88
2002 10998 1281 11.65
2003 15033 1200 7.98
Source: UNCTAD FDI Database in Ayanwale, 2007:15
The above table could be represented in a bar chart to show the trend of FDI
movement especially between the period 1999 to 2003 which is the regime of President
Olusegun Obasanjo.
38
Fig. 2.1: Net Foreign Direct Investment Inflow to Nigeria (US$ million) 1980 – 2003
1800
1600
1400
1200
1000
800
600
400
200
0
-200
-400
From the above chart, it is apparent that FDI in Nigeria has risen from a discouraging
US$-188.52 to appreciable height of US$1200 in 2003.
It is pertinent to know that prior to the early 1970s, foreign investment played a
major role in the Nigerian economy. Until 1972, for example, much of the non agricultural
sector was controlled by large foreign owned trading companies that led a monopoly on
the distribution of imported goods. Thus, between 1963 and 1972 an average at 65% of
total capital was in foreign hands (see Jerome and Ogunkola, 2004 in Ayanwale 2007:16).
39
Because successive Nigeria governments have viewed FDI as a vehicle for political
and economic domination, the thrust of government’s policy through the Nigeria
Enterprise Promotion Decree (NEPD) (Indigenization policy) was to regulate rather than
promote FDI. The NEPD was promulgated in 1972 to limit foreign equity participation in
manufacturing and commercial sectors to a maximum of 60%. In 1977, a second
indigenization decree promulgated to further limit foreign equity participation in Nigeria
business to 40%. Hence, between 1972 and 1995 official policy toward FDI was restrictive
as the regulatory environment discouraged foreign participation resulting in an average
flow of only 0.79% of GDP from 1973 to 1988 (See Ayanwale 2007).
As noted earlier, Nigeria’s commitment to the pursuit of economic diplomacy was
first officially stated in June 1988 by the retired Major-General Ike Nwachukwu in his first
policy address as Nigeria’s Foreign Minister (Ogwu and Olukoshi 2002:16). This pursuit
initiated the process of termination of the hostile policies towards FDI. A new industrial
policy was introduced in 1989 with the debt to equity conversion scheme as a component
of portfolio investment. The Industrial Development Coordinating Committee (IDCC) was
established in 1988 as a one-step agency for facilitating and attracting foreign investment
flow. This was followed in 1995 by repeal of the Nigeria Enterprises Promotion Decree
and its replacement with the Nigerian Investment Promotion Decree 16 of 1995. The NIPC
absorbed and replaced the IDCC and provided for a foreign investor to set up a business in
Nigeria with 100% ownership. Upon provision of relevant documents, NIPC will approve
the application otherwise. Furthermore, in consonance with the NIPC decree, the Foreign
Exchange (Monitoring and Miscellaneous Provision) Decree 17 of 1995 was promulgated
to enable foreigners invest in enterprise in Nigeria or in money-market instruments with
foreign capital that is legally brought into the country. The decree permits free regulation
of dividends accruing from such investment or of capital in event of sale or liquidation.
40
Further, an export processing zone (EPZ) scheme adopted in 1999 allows
interested persons to set up industries and businesses within demarcated zones, particularly
with the objective of exporting the goods and services manufactured or produced within
the zone.
Essentially, the policies of economic diplomacy embarked on by the Nigerian
government to attract foreign investors which is also encapsulated in SAP could be
categorized into five: the establishment of the Industrial Development Coordinating
Committee (IDCC), investment incentive strategy, non-oil stimulation and expansion, the
privatization and commercialization programme, and the shift in macroeconomic
management in favour of industrialization, deregulation and market-based arrangements
(see Ayanwale 2007:17).
More so, Table 2.2 provides details of FDI inflow into Nigeria for the period 1970
to 2002. The nominal FDI inflow ranged from N128.6 million in 1970 to N434.1 million
in 1985 and N115.952 billion in 2000. This was an increase in real terms from the decline
of the 1980s.
41
Table 2.2: Nigeria: FDI, 1970 – 2007
Year Nominal FDI (N
million)
FDI as percentage of
GDP
Real FDI (N million)
1970 128.6 2.47 1,190.70
1975 253.0 1.21 1,222.20
1980 -404.1 -0.81 -955.32
1985 434.1 -0.60 434.10
1990 4,686.0 1.81 1,598.23
1995 75,940.6 3.87 3,721.85
1999 92,792.5 2.39 2,763.66
2000 115,952.2 2.39 2,955.09
2001 132,433.7 2.39 3,102.90
2002 225,036.5 3.93 4,368.37
Source: CBN Statistical Bulletin (various years) in Ayanwale (2007:16)
The figures of the FDI percentage of GDP are represented in the bar chart below.
The chart reveals that FDI as a percentage of GDP has equally increased over the years
from 1970 to 2002. The increase is more significant in the period under our investigation,
that is, from 1999 to 2007 when the FDI as a percentage of GDP never went below 2.0%.
42
Fig. 2.2: FDI As Percentage of GDP 1970 – 2002
43
2.3.1 Sectoral Analysis of FDI Inflow in Nigeria
Although there has been some diversification into the manufacturing sector in
recent years, FDI in Nigeria has traditionally been concentrated in the extractive
industries. Agriculture, transport and communications, and building and construction
remained the least attractive hosts of FDI in Nigeria. Nigeria is currently described as the
fastest growing mobile phone market in the world. Since 2001, when the mobile
telecommunication operators were licensed, the rate of subscription has gone up and does
not show any sign of abating; in fact, MTN (Nigeria) – the leading mobile phone operator
– has acquired another line having oversubscribed the original line. The four operators –
MTN, V-mobile, GLO and M-tel – are currently engaged in neck and neck competition
that forced the rates down and in the process fostered consumer satisfaction. The effect of
this development is yet to be translated to the rest of the economy, however. Table 2.3
shows the sectoral composition of FDI in Nigeria from 1970 to 2001. Data from the table
reveal a diminishing attention to the mining and quarrying sector, from about 51% in 1970
– 1974 to 30.7% in 2001/01.
On the average, the stock of FDI in manufacturing over the period of analysis is
compared favorable with the mining and quarrying sector, with an average value of 32%.
The stock of FDI in trading and business services rose from 16.9% in 1970-1974 to 32.6%
in 1985 – 1989, before nose diving to 8.3% in 1990 – 1994. However, it subsequently rose
to 25.8% in 2000/01.
44
Table 2.3: Sectoral composition of FDI in Nigeria, 1970 – 2001(%)
Year Mining Manufacturing Agriculture Transport &
Communication
Building
Trading
1970-74 51.2 25.1 0.9 1.0 2.2
1975-1979 30.8 32.4 2.5 1.4 6.4
1980-84 14.1 38.3 2.6 1.4 7.9
1985-89 19.3 35.3 1.4 1.1 5.1
1990-94 22.9 43.7 2.3 1.7 5.7
1995-99 43.5 23.6 0.9 0.4 1.8
2000-01 30.7 18.9 0.6 0.4 2.0
1970-2001 30.3 32.2 1.7 1.1 4.7
2002-2007 31.3 34.5 1.6 1.3 5.4
Source: CBN Statistical Bulletin (various issues), cited in Asobie (2002:99)
2.3.2 FDI Performance & Economic Diplomacy: The Missing Link
It is pertinent that though, there has been increase in FDI flow in Nigeria over the
years, this can not be fully attributed to Nigeria’s economic diplomacy. In fact, CBN (1989
as cited in Asobie 2002:99) noted that though there has been risen in FDI, such rise in FDI
has not been strictly as a result of Nigeria’s economic diplomacy as the investments were
not strictly new foreign investments. For instance, in respect to the apparently phenomenal
increase of FDI in 1989, the CBN Report commented that the increase was accounted for
mainly by the purchase of Federal Government shares in Shell Petroleum Company
Nigeria Limited by three oil companies namely, Shell, ELF and AGIP. Other sources of
foreign investment inflows were re-invented earnings of oil companies and proceeds from
debt-conversion all of which were responsible for the increase in cumulative direct foreign
investment.
Apparently, foreign private investors are motivated by profit motive. In their quest
for profit in countries like Nigeria, they try to reduce risks by investing mainly capital
45
which have been mobilized locally. This fact was recognized by the Nigerian government
many years ago when the then Head of State, Olusegun Obasanjo’s, sadly observed:
Experience have shown that most of the so-called
foreign investors come with little or nothing in
finances; they raise internal loans from savings of
ordinary Nigerians and within months, they are
devising all means of repartriating huge sums Out of
Nigeria in form of dividends, profits, management
fees, loaded, etc.
Based on the above, it is evident that Nigeria’s economic diplomacy is quite naïve because
by focusing on attracting increased amount of FDI, it assumes not only the goodwill, but
also, the benevolence of foreign private investors. It assumes that these international actors
are interested in assisting Nigeria to develop, all they need is to be encouraged and wooed
(via economic diplomacy) especially with attractive package of incentives. Unfortunately,
the Nigerian experience over the years especially during the Olusegun Obasanjo regime of
1999 – 2007 shows that this is not true as the rise in the country’s FDI is not significantly
related to Nigeria’s economic diplomacy.
It is pertinent to note that contemporary investment practices are anchored on
certain codes of conducts provided by global institutions like World Trade Organization
(WTO) which encourages growth and influx of FDI. Thus, empirical fact shows that with
the liberalization of investment milieu and coupled with rapid advances in technology
within the period – especially in transport and communication; there has been a
tremendous increase in FDI. Global inward FDI flows rose from US$59 billion in 1982 to
a peak of US$1,491 billion in 2000. On an annual average basis, FDI inflows increased
from 23.1% in the period of 1986-90 to 40.2% over the period 1996-2000. Furthermore,
FDI outflows rose from 25.7% to 35.7% within the same period (UNCTAD, 2003; Okolie,
2008).
46
Further, the growth of FDI underscores the enormous role of Transnational
Corporations (TNCs) in economic activities (especially FDI) worldwide. There is an
unprecedented expansion all over the world of the flows of FDI as new companies are
expanding their commercial operations, extending them beyond the borders of their own
countries to explore not only new markets but also locations where their production can be
more profitable. The TNCs has therefore become the quintessential vehicle for global
investment. Significantly, the global assets of TNCs were estimated at over 8000 billion
US dollars in 1994 with an FDI stock across the globe amounting to 2.7 trillion as at 1995
all contributing to the global growth of FDI.
In summary, this chapter argues that attraction of Foreign Direct Investment
(FDI) has been given top priority in the conduct of Nigeria’s economic diplomacy, in order
to attain this objective, various strategies were employed among which is the Dependent
Import-Substitution-Industrialization, the reduction of unnecessary expenses in playing
“the good neighbor” in Africa etc. Again, empirical evidence shows that there has been
increase in the flow of FDI into Nigeria especially in the telecommunication sector.
Nevertheless, in real terms, what is seen as investment in developing economies were
strictly speaking not FDI but mopping up of speculative capital which adds little to
domestic capital stock. Rather than bring improved management, new production
techniques, quality control, and access to foreign markets, as well as exerting competitive
pressures on local producers, foreign investments rather de-capitalize the economy and
intensify capital flight as the actions of investors in the communication sector of African
economy shows (see Okolie 2007). Further, our analysis shows that there is no significant
positive correlation between this increase in FDI inflow to Nigeria and Nigeria’s policy of
economic diplomacy as other factors especially the wave of globalization and the
concomitant liberalization of investment practices have contributed to inflow of FDI to the
47
country. This therefore validates our first hypothesis and underscores the fact that there is
no significant relationship between the rise in Foreign Direct Investment (FDI) to Nigeria
and Nigeria’s policy of economic diplomacy.
48
CHAPTER THREE
DEBT CANCELLATION AND INCIDENCE OF POVERTY
As noted earlier, Nigeria’s policy of economic diplomacy also involves efforts at
wooing the Western creditor nations to grant Nigeria debt cancellation. In this chapter we
shall briefly trace the origin of Nigeria’s debt and examine Nigeria’s journey to debt
cancellation, we shall go further to examine whether cancellation of Nigeria’s debt by the
Paris Club had reduced the level of poverty in Nigeria.
3.1 HISTORY AND STRUCTURE OF NIGERIA’S EXTERNAL DEBT
The origin of Nigeria’s external debt dates back to 1958 when a sum of 28 million
dollars was contracted for railway construction. Between the period of 1960 and 1970,
there was no significant external borrowing, in fact at the end of the civil war in 1970,
Nigeria’s total outstanding external debt was a mere N488.8million,therafter, it declined
sharply to N214.5million in 1975 which represents the highest during the oil boom era.
Thus, between 1958 and 1977, Nigeria’s external debt was insignificant and constitutes no
serious problem to the country as debts contracted during the period were mainly
confessional debts from bilateral and multilateral sources with longer repayment periods
and lower interest rates.
The oil glut of 1978 led the country into borrowing the first “jumbo loan” of 1
billion dollars from the international capital market (ICM). In July same year, Nigeria
sought another 1 billion dollar loan, this was more difficult to obtain because oil prices
were still falling, the country’s external balance was in deficit for the third consecutive
year. However, in late 1978, Nigeria obtained a 750 million dollars loan bringing the total
external debt stock to 2.2 billion dollars (See DMO, 2001).
The poor economic situation in the country, inappropriate debt management, and
the ever increasing interest brought Nigeria’s debt to records heights. Thus, as at 1983,
49
Nigeria’s external debt amounted to about $17.76 billion, with the Paris Club debts or
official debts (i.e. debts insured by export credit agencies of Paris Club members)
estimated at $5.39 billion. By 1990, however, this official debt, had more than trebled and
by the year 2000, amounted to nearly four times the level in 1983 and represented 75% of
Nigeria’s total debt (see DMO 2001:31). This astronomical growth in the stock of debt
owed to Paris Club creditors since the mid-1980s is accounted for partly by new maturities
falling due and partly by growth in arrears. The build up arrears reflected debt service due
but unpaid, penalty interest on outstanding payments and exchanges in respect of the
dollars vis-à-vis other currencies.
Meanwhile, private debt outstanding in 1983 amounted to $9.9 billion. Between
1994 – 98, the government refinanced uninsured short term trade arrears amounting to
$4.8 billion and covered them with promissory notes. This private debt (London club debt)
included arrears of commercial bank debts incurred through the medium of letters of credit
after December 31, 1983 as well as maturities on medium and long-term loans that fell due
up to December 31, 1987.
By 2000 Nigeria’s outstanding debt stock stood at about 28 billion dollars, official
debts accounted for 87.66 percent of the total debt stock while private debt accounted for
about 12.59 percent of the total debt stock. Actual debt service payment for the year was
1.9 million dollars, translating to about 12 times allocation to health. In 2001, the external
debt stock remained almost stable at about 28 billion dollars – about 149.9 percent of the
country’s export earnings. Between the period of 1985 to 2001, the country has spent over
32 billion dollars in servicing her external debt. Again, the total debt stock of Nigeria by
January 2005 stood at $34 billion (Okonjo-Iweala 2005) while the Paris Club share of the
debt stood at over $30 billion.
50
Table 3.1 below shows Paris Club Debt stock by creditors as at December, 2004.
Table 3.1(A): Paris Debt Stock by Creditor as at December 2004
Country Total amount loan
amount
Outstanding at 31-
12-04
% as compared to
original amount
UK 4,707.17 8,000.32 169.96
France 2,132.81 6,249.61 293.02
Germany 2,226.59 5,288.66 237.52
Japan 3,927.24 4,4447.47 113.26
Italy 1,026.86 1,975.94 113.26
Netherlands 438.45 1,707.98 389.55
USA 641.97 984.49 153.40
Belgium 694.52 608.19 87.57
Denmark 246.80 571.75 231.67
Austria 342.83 521.38 152.08
Spain 185.29 249.541 134.38
Switzerland 151.55 201.01 132.64
Russia 67.50 36.97 54.77
Finland 3.98 3.99 100.25
Sub-total 16,793.38 30,847.80 183.69
All figures in million US$
Source: DMO 2004 December 2004:31
51
Table 3.1(B): Paris Club Debt Stock by Creditor as December, 2007
Country Total amount loan
amount
Outstanding at 31-
12-04
% as compared to
original amount
UK 4,707.17 0.00 0%
France 2,132.81 0.00 0%
Germany 2,226.98 0.00 0%
Japan 3,927.24 0.00 0%
Italy 1,026.86 0.00 0%
Netherlands 438.45 0.00 0%
USA 641.97 0.00 0%
Belgium 694.52 0.00 0%
Denmark 246.80 0.00 0%
Austria 342.83 0.00 0%
Spain 185.29 0.00 0%
Switzerland 151.55 0.00 0%
Russia 67.50 0.00 0%
Finland 3.98 0.00 0%
Sub-total 16,793.38 0.00 0%
All figures in million US$
Source: DMO 2008; December 2007:32
In 2005 both the federal and states exited Paris club debt, though not without
controversies. Some analysis faulted the exit process and terms, while others insisted that
Nigeria was short-changed.
In March 2007, under an obligor substitutions arrangement, Nigeria paid 519
million U.S. dollars to exist obligation to holders of promissory notes similarly, in March
2007 Nigeria issued a call notice and about 21 percent were returned at 220 U.S. dollars
per unit of oil.
According to recent Debt Management Office (D.M.O) report, the total debt
service payment for the year 2007 amounted to 1.022 billion U.S. dollars or 3.211 percent,
was for external debt service payments. Of the debt service payments, 46.63 percent
52
constituted the payment to promissory notes holders, while 38.43 percent was payment
made to multilateral creditors.
Further, Tables 3.2(a) and (b) 3.3(a) and (b) shows total debt stock by December
2004 and 2007; Nigeria’s debt service payment from 2001 to 2005 and 2006 to 2007
respectively.
Table 3.2(A): Summary of External Debt Stock, as at December 2004
Principal
balance
Arrears and
penalties
Total Percent of
total
Multilateral
institutions
2,822 2 2,824 7.86
Paris Club 25,199 5,649 30,848 85.8
Non- Paris Club 47.5 0 47.5 0.13
London Club 783 0 1,442 4.01
Promissory notes 783 0 783 2.2
Total 30,294 5,651 35,945 100
Figures in $ million
Source: DMO, 2005:33
Table 3.2 (B): Summary of External Debt Stock, as at December 2007
Figures in $ million
Principal
balance
Arrears and
penalties
Total Percent of
total
Multilateral
institutions
3,080 - 3,080 84.31%
Paris Club NIL NIL NIL NIL
Non- Paris Club 2.114 - 2114 15.69%
London Club NIL NIL NIL NIL
Promissory notes NIL - NIL NIL
Total 5.194 NIL 5.194 100%
Source: DMO, 2008
53
Table 3.3 (A) U$$ Million) External Debt services Payments (2001-2005)
Source: Debt Management Office, 2005:24
Federal Ministry of Finance
Creditor category 2001 2002 2003 2004 2005
A. Official
1. Bilateral Paris
Club
Non- Paris Club
2. Multilateral Non-
Paris Club
SUB-TOTAL
B. Private
1. Promissory notes
2. Banks (London
Club)
SUB- TOTAL GRAND
TOTAL
1,273.62
33.81
491.48
121.21
1,798.91
195.18
134.08
329.26
2,128.17
161.58
75.86
472.12
0.43
709.54
192.12
266.75
458.87
1,168.40
1,020.18
13.26
509.23
55.55
1,542.66
171.42
90.21
266.62
1,809.28
994.44
11.65
487.28
.018
1,493.37
171.23
90.15
261.38
1,754.75
8,072.55
15.83
471.66
-
8,560.06
213.55
169.86
383.41
8,943.45
54
Table 3.3 (B) U$$ Million) External Debt Services Payments (2006-2007)
Creditor category 2006 2007
C. Official
1. Bilateral Paris Club
Non- Paris Club
2. Multilateral
Non- Paris Club
SUB- TOTAL
D. Private
1. Promissory notes
2. Banks (London Club)
SUB-TOTAL
GRAND TOTAL
NIL
45.356
0.426
45.782
0.477
NIL
0.477
46.259
NIL
-
0.503
0.503
.519
NIL
.519
1.022
Source: Debt Management Office, 2008:29
Federal Ministry of Finance
3.2 THE JOURNEY TO DEBT CANCELLATION
In recognition of the connection between debt reduction and poverty reduction, the
civilian regime of Obasanjo (1999-2007) attached priority to obtaining rapid and
substantial external debt reduction, this, the regime believed would be attained via her
policy of economic diplomacy. As a result, efforts were made to regularize relations with
the international financial community to pave the way for constructive engagement;
negotiation of favourable terms for debt rescheduling and reconstructing under “traditional
debt relief mechanisms in the short term; and, building on that in the medium term, to
secure deeper and more substantive debt reduction (http://www.nigeriafirst.org Accessed
January 10, 2012).
Further, having an economic program supported by the Bretton Woods
Institutions was a precondition for meeting with the Paris club of creditors and obtaining
55
favourable debt relief negotiation. Hence, in order to actualize its debt relief strategy, the
Obasanjo administration embarked upon bold macroeconomic stabilization and structural
reform polices, supported by a standby arrangement that was approved by the IMF on
August 4, 2000. The good track record of implementing these policies, amidst difficult
socio-political circumstances, paved the way for discussion with the Paris club of creditors
on the restructuring of the country’s debts.
In 2000, President Obasanjo pressed Nigeria’s creditors hard and succeeded in
securing an invitation to the Paris Club. But creditors were only willing to offer a re-
scheduling of the debt, not a write-off. By then, interest and penalties constituted nearly $
10 billion of the $24 billion rescheduled in 2000. Still the rescheduled debt continued to
grow- not because Nigeria continued to borrow, but because of foreign exchange
movements.
By his second term in 2003, President Obasanjo had resolved to deepen economic
reform within Nigeria, by further challenging corruption and implementing economic
programmes supported and commended by the Western countries & Institutions. He
appointed internationally reputed personalities like Mrs. Ngozi Okonjo-Iweala (Finance
Minister), Prof. C.C. Soludo, Oby Ezekwesili, Prof. Dora Akunyili, to mention but a few,
to carryout these reforms. Others includes Dr. Mansur Muhtar, another Harvard graduate
who was appointed Director General of the formalizing price duress for government
construction.
There were however, several major hurdles in the journey to Nigeria’s debt
cancellation. Foremost, Nigeria did not have sustained IMF programme, again, history
shows that debt cancellation had only ever been to countries with sustained IMF
programmes. Again, Nigeria has not been granted International Development Agency
(IDA) status by the management of the World Bank- and was not eligible for confessional
56
debt relief. Further, some creditors regarded Nigeria as “oil-rich” and argued the debt was
affordable, especially after the rise in the oil price. Nigeria also suffered from what is
known as “reputational overhang” as a result of high levels of corruption. There was very
little public support in OECD countries for debt cancellation (see Pettifor 2006:3).
Despite these setbacks, Obasanjo’s administration did not relent in its effort to
achieve debt cancellation for Nigeria. Hence, Obasanjo and his key ministers embarked on
an exhausting round of formal visits to meet heads of government in Japan, France,
Germany and the U.S Meanwhile, Dr. Okonjo-Iweala was holding series of meetings with
other world influential ladies like Mrs. Anne Kruegar-deputy director of IMF; Condoleza
Rice, then National Security Adviser to president Bush; Nancy Birds, Director of the
Center for Global Development in Washington
(see http:www.clubparis.org.en/news/negedefilnes/php?fiche=com11297887. Accessed
February 18, 2012).
In one of her campaign speeches, Okonjo- Iweala noted as follows:
Nigeria desperately needs debt cancellation and a new start.
But we as hobbled by misconceptions, which are
understandable given past decades of misrule and instability.
People think that because Nigeria has oil, it is a rich country,
and that debt cancellation would be waste because the money
would disappear into a black hole of corruption… across
government, we have cleaned up our act, embedding
accountability and transparency… changes have not been
popular with vested interests and there is a real fear that
without the support of international creditors, disillusion and
resistance will overwhelm our dedication to democracy, to
rooting out corruption and to reform. We desperately need to
invest more in public services. We are asking for debt
cancellation to help us succeed. (Okonjo-Iweala, 2005).
57
Dr. Okonjo – Iweala and Dr. Muhtar embarked on endless meetings and flights to
capitals across the globe meeting with finance ministry officials, checking and reconciling
data and briefing officials on Nigeria’s economic reforms. At the same time, they work
closely with the World Bank and IMF to produce a report on the sustainability of Nigeria’s
debts. In Abuja, Nigeria, the National Assembly grew restless and called for debt
repudiation. It gave the executive all the required support in its quest for debt cancellation.
It is pertinent to note that the various visits to Western countries/institutions, economic
policies and reforms implemented by the Obasanjo administration generated support from
all the G8 finance ministers.
The country also made a case for debt relief by show-casing to the world the
account of her important peace keeping role it has been playing in the ECOWAS sub-
region. According to her, the effort has cost the country more that US$10 billion,
developed countries have encouraged Nigeria’s participation in these endeavours but are
reluctant to get directly involved. Hence, the developed countries should be able to
reciprocate Nigeria’s sacrifices for regional and global peace in form of debt relief.
Further, through the Debt Management Office (DMO), the country successfully
hosted International Conference on Sustainable Debt strategy from 17th
-18th
May, 2001.
The conference was very productive and largely accomplished the objectives for which it
was convened. Over three hundred (300) participants were in attendance as against the
initial projection of one hundred and fifty (150) participants for the conference. With the
roll call including the President, Vice President, and Ministers of the Federal Republic of
Nigeria, distinguished Senators and Honourable Members of the National Assembly, the
Internal Conferences received widespread support from Government. Also in attendance
were the Director of African Region (IMF), the Vice President of the African
Development Bank (ADB) and the Vice President of the World Bank (African Region).
58
The debates generated useful arguments about economic reforms and the useful ideas
advanced for developing a sustainable debt strategy have provided much impetus to
fruitfully drive DMO’s work forward.
Nigeria also carried her debt relief campaign through the New Partnership for
African Development (NEPAD), NEPAD is a vision of African leaders for the continent to
eradicate widespread and severe poverty; promote accelerated growth and development;
halt the marginalization of Africa in the globalization process and to also use it as a
platform for debt relief campaign.
Other programmes implemented in order to gain support of creditor nations
included the National Economic Empowerment and development Strategy (NEEDS), the
launching of the Extractive Industries Transparency Initiative (EITI) to better expose and
make transparent oil industry accounts and understand the structure of expenditure and
revenue in the sector; setting up of intensive budget monitoring mechanisms, and other
reform programmes aimed at creating an enabling environment including a rational system
of incentives and values, characteristic of a private sector drive economy (see Okonjo-
Iweala, 2005).
The Establishment of Debt Management Office
In order to gain support of creditor countries and to adequately manage the
country’s debt, the President Olusegun Obasanjo regime established the Debt Management
Office which commenced operations on October 4, 2000. The establishment of an
effective and efficient debt management system is a major element of sound economic
management, because of the crucial link with fiscal and monetary policies as well as
overall macroeconomic management. It is also supportive of the overall efforts to
strengthen governance by improving transparency and accountability while serving as an
important comfort to creditors seeking to extend new credit lines or reschedule debts.
59
The broad objective of the DMO is to assist Nigeria in achieving a sustainable
debt profile and to rationalize and streamline the management of the country’s debt with a
view to sharpening strategic focus and achieving operational efficiency.
Maintaining a comprehensive inventory of loans together with forecast of debt
service.
Provision of timely and accurate information on the country’s debt to assist policy
makers and improve transparency in debt management.
Effecting debt service payments accurately and on time.
Negotiating with, and securing debt relief from the Paris club and other creditors.
Publishing up to date statistics so as to improve transparency in debt management
etc. (see DMO 2001:23).
Interestingly, in May 2001, the Debt Management Office (DMO) was granted full
membership of the Geneva-based World Association of Debt Management Offices
(WASMO) as its 36th
member. This membership provides an opportunity for DMO to
accrue the following key benefits: Learning about best-practices in debt management;
gaining access to technical assistance, training and funding from relevant bilateral and
multilateral agencies for the development and implementation of effective debt
management programme; publicizing the efforts of the Nigerian government in enshrining
transparency in debt management: and using the organization as platform to advance
Nigeria’s campaign for debt relief. This is indeed a landmark achievement for Nigeria in
her journey to debt cancellation.
Within just one year of its establishment, the DMO was able to produce an accurate
external debt database via the auditing of the country’s loan portfolio, updating
and computerization of the debt database, all of which put the country in a confident
position to approach its creditors for negotiations.
60
The DMO also contributed significantly in the preparation of borrowing
guidelines- a borrowing policy which covers the period of the stand by arrangement (SBA)
agreed with the IMF. The office equally played a major role in facilitating debt
rescheduling negotiations between Nigeria and the London and Paris Club of creditors,
and in securing debt relief. It also provides important input into macroeconomic
management, particularly in drafting an overall debt strategy that addresses issues relating
to future borrowing and debt restructuring operations.
Further, with the establishment of DMO, the country was able to effect more
timely payment of its debt service obligations. As a result of this the country was able to
secure waivers from our creditors for the first time. The penalty waivers secured to date to
US$ 4.238 million which translates into N487.37 million. The amount of waivers secured
is definitely a remarkable achievement (see DMO 2001:58).
Again, DMO was actively involved in negotiation for the rescheduling of Nigeria’s
external debts which resulted in agreement with the Paris Club on the rescheduling of the
country’s external debts owed to this group of creditors. In fact, the DMO played
significant role in the 2005 debt cancellation. It is accumulation of all these strategies i.e
constant visit to creditor countries & institutions, campaign, establishment of the DMO
that result in the debt cancellation deal obtained in 2005 with the Paris Club group of
creditors. In fact, in March 2005, the House of Representatives passed a motion asking the
executive to stop debt repayments. The lower house stated that interests and penalties
imposed by creditors had turned Nigeria’s debt into an unbearable burden. The motion was
not passed in the Senate, but it was agreed with President Obasanjo to give creditors one
more chance for a negotiated settlement before opting for the route of repudiation.
61
Nigeria’s Debt Cancellation Deal
Nigeria is officially classified as a low income country by the World Bank. Nigeria
is excluded from the Highly Indebted Poor Countries (HIPC), although its per capita
income levels and ratio of debt to gross national product are comparable with those of the
40 countries included in the HIPC initiative today. In 2002, Nigeria’s debt was 93% of its
GNP. A higher percentage than that of 15 countries on the HIPC list, including Burkina
Faso, Senegal and Uganda. In fact, Nigeria was originally classed as a HIPC country in
1998, this categorization was later cancelled, because Nigeria is eligible for non-
concessional loans from the International Development Association, making it a “blend”
country. However, this was when it was originally classed as a HIPC country in the first
place, and nothing had changed since then except for democratic elections.
The official logic for Nigeria’s exclusion from the HIPC list also includes its $20
billion annual exports for oil. Such huge exports do not comply with the criteria set by the
World Bank to decide countries eligible for HIPC. The World Bank concludes that with
the oil, Nigeria can service its debts on condition that the country puts its resources into
proper use for development. Other reasons why the big economies say they are reluctant to
give debt include the problematic relationship between the country and the International
Monetary Fund. The ongoing problems and accusations led to Nigeria’s decision to break
off formal links between Nigeria and the IMF in 2002. This meant further negotiations of
debt relief were not possible, as these were dependent on the successful realization of the
medium-term IMF programme. The Nigerian government did not actively seek to enter the
HIPC initiative because 85% of Nigeria’s debt was bilateral i.e to individual countries –
and only 8% to multilateral institutions like the World Bank, whereas HIPC focuses on
multilateral debt. Hence, Nigeria decided a deal with the Paris Club.
62
Nigeria’s Debt Relief Negotiations Before 2005
Before the debt cancellation of 2005, Nigeria has been engaged in series of
negotiations with its creditors. In 1985, Nigeria owed $19 billion to the Paris Club of
creditors and $6 billion to the London Club. Nigeria sought what was then traditional debt
relief from the Paris Club and rescheduled four times: in 1986, 1989, 1991, and 2000.
Each time it had a rescheduling, Nigeria had to agree to stringent IMF programmes that
were ultimately not successful. None of the Paris Club rescheduling of commercial debt in
1992 did help to decrease Nigeria’s unsustainable commercial debt burden by 60%.
During the 1990s, Nigeria military dictators effectively broke off working
relationships with Paris Club of creditors. In December 2000, Nigeria went to the Paris
Club to ask for help paying its debts. In line with this, Nigeria’s Debt Management Office
(DMO) worked out that of the $21 billion that was being negotiated, about 44% was
penalty and 22% was interest on arrears.
The 2005 Nigeria – Paris Club Debt Deal
In June 2005, a deal on Nigerian debt reduction finally emerged from the Paris
Club. This deal did not include debts to multilateral agencies and private creditors, which
constitute 8% of Nigeria’s debt. The deal offered a cancellation of 60% of Nigeria’s
bilateral debt amounting to $18 billion, if Nigeria paid up the outstanding 40%, or $12
billion, within six months. It was the largest debt deal secured by any African nation.
This deal was to be implemented in two phases:
Phase One
Nigeria will clear up-front US$6.3 billion in arrears owed to the Paris Club in
exchange, the club will grant a 33% cancellation of the country’s eligible debts. This
63
agreements is contingent upon the authorities implementation of the IMF Policy Support
Instrument (PSI) approved by the fund’s Executive Board on 17 October 2005. The IMF
Policy Support Instrument essentially promotes tightened macroeconomic policy (higher
exchange rates and lower government spending), and promoting the accumulation of
foreign exchange through led development. This interference by the IMF into Nigeria’s
economic policies undermines national sovereignty.
Phase Two
On approval of the first reviews of the IMF Policy Support Instrument (PSI)
planned for March 2006, Nigeria will obtain a further tranche cancellation of 34% on
eligible debts. Under the arrangement, Nigeria also commits to pay Paris Club creditors
the full amount of debt service due on non-eligible debt, that is, debts contracted after the
cut off data of 16 December, 1986 which are not cancelled under this arrangement.
This arrangement implied that Nigeria would obtain a debt cancellation of US$18
billion (including moratorium interest). By April, 2006 Nigeria cleared $30 billion dollars
of debt owed to foreign creditors. The deal saved Nigeria almost $47 billion over the next
15 years (see http:www.newstartnigeria.org accessed February, 2012). This arrangement
concluded Nigeria’s exist from Paris Club debt trap.
Non Paris Club Debt Exit
It is pertinent to note at this juncture that even after the Paris Club debt
cancellation, Nigeria still owed quite some money to the Paris Club. Paris Club debt
according to the DMO as at 2005 accounted for about 75.26% of Nigeria’s external debt
stock. This implies that the other categories of debts make up the balance 24.74%. Table
3.4 below shows a breakdown of Nigeria’s debt as at 2005.
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Table 3.4 (A): Nigeria’s External Debt Stock to Non-Paris Club Creditors as at 2005
Categories Amount ($)
Multilateral debts 2.70 billion
Bilateral debts 121.04 million
London club debts 1.44 billion
Promissory Notes 580.49 million
Source: Okonjo-Iweala 2006:2
Table 3.4 (B): Nigeria’s External Debt Stock to Non-Paris Club Creditors as at 2007
Categories Amount ($)
Multilateral debts 3.080 billion
Bilateral debts 2.144 million
London club debts NIL
Promissory Notes NIL
Source: D.M.O. 2008
All these debts approximated to $5 billion but were more manageable because a
large chunk of them was owed to multilateral institutions, and were secured under
concessionary arrangement with little or no interest rate, with 10 years moratorium and
about thirty (30) years payment period.
By September 2006, the Obasanjo regime disclosed that the nation was making
arrangement to exit the London Club debt by January 2007. It stated that Nigeria was
making progress in her negotiation with the London Club. The then Finance Minster
(Nenadi Usman) further pointed out that Nigeria’s London Club debt of $2.1 billion is
made up of oil warrants of $ 300 million and promissory note of $515 million. The
minister was optimistic that the same way Nigeria exited the Paris Club, Nigeria will also
65
exit the London Club in the no-too-distant future, especially in January 2007 (see Nenadi
2006).
To exit from the debts according to DMO, Nigeria has to repurchase and
restructure. They have to repurchase by government making budgetary provision for the
purchase of par bonds and promissory notes, using embedded call option to redeem par
bonds and promissory notes, and raising additional resources to retire oil warrants after
verification process. Whereas to restructure require Nigeria to launch two benchmark bond
issues of five and ten years maturity respectively for a total amount of US$1.5 billion, use
the proceeds of these issues to redeem par bonds and promissory notes using their
embedded call options and balance of proceeds contributed toward the retirement of oil
warrants given completion of verification process (Yakubu, 2006).
The repurchasing option was eventually implemented and following result pave
way for the exit of both the London and promissory notes debts. The outstanding par
bonds (US$1.5 billion) were prepaid in November 2006, promissory notes amounting to
US$500 million were discharged in March, 2007, and oil warrants which was a three
phrase process of redeeming through cash tender offer launched in February 2007 was
completed. The final exit from these debt has given the country freedom from external
debt peonage, what is left are the multilateral loans (World Bank, ADB etc) which are
sustainable with 0.75 percent commitment charge and a payback period of over 40 years
and a 10 – years moratorium (see DMO, 2007).
Nigeria’s external debt peonage exit was confirmed by a renowned international
investment bank (Goldman Sactis). The bank in disclosing the information on the new
report on Nigeria, noted that Nigeria was no longer vulnerable to external shocks as a
result of settlement of the Paris Club and London Club debt (see
http://www.efccnigeria,org/indet.phpoption accessed October 20, 2011). Further, the
66
bank reported that the country’s debt to Gross Domestic Product (GDP) ratio declined to 3
percent as at December 2006, compared to a 60% debt to GDP ration as was the case in
the 1990s. The bank however attributed the success of the debts restructuring to the laid
down reforms of Obasanjo’s regime.
The then Finance Minister – Mrs. Nenadi Usman also confirmed that Nigeria has
actually exited the external debt trap peonage. She explained that Nigeria had in 2006,
exited her $30 billion Paris Club debt after the repayment of $12.2 billion in three
tranches. The government had also repaid $1.486 billion par bond of the warrants to exit
the London Club debt.
The London Club debt is made up of:
i) Par Bonds, that include the Following:
Arrears of commercial bank loans, which include some arrears of letters of credit
bills for collection, etc accumulated during the 1980s.
Issued in 1992, collateralized with US treasury zero coupon bonds maturing in
2020.
Interest rate of 6.25% paid semi-annually amount to $90 million a year.
Par bond holders were issued with additional debt instruments – oil warrants.
ii) There was also debts incurred through oil bonds:
Issued along with par bonds;
Approximately 2 million oil warrants issued along with par bonds in 1992
maturing in 2020.
Semi-annual interest payment subject to rise in oil price above reference price of
$28 consistently for 6 consecutive months, but capped at $15.
Current payment liability amount to $52.7 million per year
67
iii) Promissory notes debts are incurred as a result of:
Issued through the CBN, resulting from uninsured short-term trade debt,
accumulated in the early 1980s.
Verification exercise carried out by Chase Manhattan in the mid 1980s.
Original amount of $4,891.3 billion. Amounted currently outstanding $649.8
million.
Quarterly payments totaling $170.85 million a year, to be fully amortized/paid off
in 2020.
3.3 THE REALITIES OF POVERTY IN NIGERIA
Contrary to the popular opinion that the Paris Club debt cancellation would bring
about poverty reduction in Nigeria. Available empirical evidence shows that poverty has
remained severe in Nigeria even after the debt cancellation. In fact, it has been argued
widely that the $12 billion paid by Nigeria in bulk to the Pairs Club in order to get the debt
cancellation deal would have gone a long way towards saving children, immunization,
healthcare, all kinds of things. As noted by Ogolor & Atakpu (2005):
For a poor country as Nigeria spending $1 billion annually
on debt and still in crisis to part with a whopping $12 billion
will mean a very serious shock. And to now tighten its nose
with the imposition of more reform programmes as will be
contained in the Policy Support Instrument (PSI) of IMF is
likely to be catastrophic for Nigeria’s poor (estimated at
more) 90 million.
Hence, Nigeria remains highly impoverished even after the debt cancellation. In
fact, the British Commission for African explicitly called for Nigeria to be included in
wider and deeper debt relief, and recommended 100 percent write-offs to enable it to meet
the UN Millennium Development Goals. Seventy-nine thousand, five-hundred Nigerian
children die before the age of five every month. Seventy percent of Nigerians are living on
68
less than $1 a day, says the World Bank and less than 60% of primary school aged
Nigerian children attend school (see Ogolor and Atakpu, 2005).
Poverty is the inability to adequately meet the basic human necessities of food,
clothing and shelter. It is a broad, multidimensional, partly subjective phenomenon often
viewed as both the cause and symptom of underdevelopment. It is manifested in many
ways, including the lack of capability by individuals or groups to function and feed well in
the society (see Sen, 1981). Okolie (2007) conceived poverty as a situation of want; a
situation in which people living within particular locality are placed in positions where
they are naturally and/or artificially condemned to hapless and helpless low level of social
reproduction of their state of existence. They therefore wallow in abject want, misery,
malnourishment, and malnutrition. Worse still, such people have fundamentally very little
opportunity to change their condition of social existence.
Indeed, poverty remains the worst experience a man could face, it is better seen as
the worst depreciating currency of human ideals, propensities and idiosyncratic qualities
which demeans innate values of man, dehumanizes him to a level of near irrelevance,
disparages the mental apparatus and psychic motor and reverberates on the levels of
attitudinal and behavioral patterns. In fact, poverty affects both the physical and
psychological dimensions of man’s existential conditions (see Okolie 2007).
In fact, the poverty situation in Nigeria has worsened since the late 1990s and the
country is classified among the 20 poorest countries in the world. On the human
development index (HDI), Nigeria, with an index of 0.391 was ranked 142 out of the 174
countries surveyed in 1998. In 2000, the HDI score was 0.433 and the country ranked 151.
Nigeria increased its HDI score to 0.453 in 2003 but ranked 158 among 175 centers
surveyed. The HDI index however, fell again marginally to 0.448 in 2004 and the country
ranked 159 out of 177 countries. Further, recent poverty assessment survey has shown that
69
over 70% of the populations are living on less than a dollar per day and over 50% living
below the national poverty line. The survey also revealed that poverty is especially higher
in rural areas where majority of the people are resident and deriving their livelihood from
agriculture (see Babatunde, Olorusanya & Adejola 2008:901).
In fact, women and households headed by women are the most poor within the
rural communities and because increasing number of men are migrating from rural to
urban areas; the number of households headed by women are increasing and so also is
poverty. Table 3.5 below present an overview of the prevalence of the poverty in Nigeria
from 1980 – 2007.
Table 3.5 Poverty Evaluation in Nigeria 1980 - 2007
1980 1985 1992 1996 2004 2005 2006 2007
Urban 17.2 37.8 37.5 58.2 43.2 41.3 38.5 37.3
Rural 28.3 51.4 46.0 69.3 63.3 67.2 67.7 69.3
Geopolitical
zones
North East 35.6 54.9 54.0 70.1 72.2 74.4 74.7 72.9
North West 37.7 52.1 36.5 77.2 71.2 72.3 72.6 70.5
North
Central
32.2 50.8 46.0 64.3 67.0 68.1 68.9 63.6
South East 12.9 30.4 41.0 53.5 26.7 22.6 21.8 20.3
South West 13.4 38.6 43.1 60.9 43.0 44.3 41.3 40.4
South South 13.2 45.7 40.8 58.2 35.1 34.6 32.3 31.8
Source: culled from Kijima, Matsumoto & Yamao 2006 and 2008:81
The table above shows high and increasing poverty level in the country. This severe
poverty has not reduced even after the debt cancellation.
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As noted by Okolie (2006:81), empirical evidence demonstrates that the number of
poverty stricken citizens is escalating. In fact over seventy million Nigerians live below an
average of 1US dollar a day and the government reforms most of which are in line with
debt cancellation have further exacerbated an already critical situation.
Worse still, the number of unemployed youths has continued to increase, water,
food and other basic amenities are still the reverse of the few wealthy elites and fraudsters
in Nigeria.
In trying to capture the realities of poverty in Nigeria, Aderounmu (2007) used the
term “mass poverty”. According to him, “mass” implies a large body of persons in a
compact group while poverty describes the states of one who lacks usual or socially
acceptable amount of money or material possessions. Based on these definitions, he
argued that mass poverty is without doubt prevalent in Nigeria.
According to him:
…mass poverty is the poverty that affects the masses of a
population who have extreme want of necessities. Mass
poverty in Nigeria epitomizes this definition plus the aspect
that expatiate on the almost complete absence of material
comforts. In general, mass poverty is an expression with
broad implications that goes beyond the limitations of the
amount of money or material possessions that the people
have.
It is therefore ridiculous to see the reality of the life in everyday Nigeria in contrast to the
deceitful jingles and praise singings that the government and sycophants orchestrate.
Nigeria is a country with over 140 million people, hence, the dimension of mass poverty in
Nigeria is both dreadful and shocking. Many citizens of Nigeria cannot afford to live a
decent life. Several millions of Nigerians do not have the usual or socially acceptable. This
situation is worsened because of the absence of basic infrastructure of life. Apparently,
successive regimes in Nigeria have not made effort to provide affordable houses for the
homeless masses. Some state governments have only been involved in building houses that
71
are affordable by the few and more privileged persons. The masses are invariably always
out of the poverty alleviation or eradication question.
Again, drinking water does not flow in Nigerian houses. People have to buy water
and many bore holes have run dry and the public taps have virtually disappeared. Food
substances are the cheapest things you can lay your hands on in some other countries. In
Nigeria, common and staple foods are very expensive and many people have devised
different formula to survive daily, weekly or monthly. Food, water and housing are 3
important parameters to measure the values of our lives, and these things have become
elusive to the masses in Nigeria.
Other ugly faces of mass poverty in Nigeria includes the fact that the purchasing
power of the naira is extremely weak. There has not been efficient or functional power
supply even if you can conveniently pay for it. There may also be no fuel to run the noisy
and environmentally unfriendly generators. Nigerians have no known option to blackouts.
It is a hard reality of life that depicts cruelty. This deficiency of power supply has aided
the mass poverty as thousands of people have put out job since many companies can no
longer sustain their operations in the absence of it.
Worse still, the Nigerian masses and the corrupt elites cannot travel on safe roads.
The masses are more affected because there is constant chaos in the public transportation
methods. Mass poverty in Nigeria is further displayed in the health schemes. There are no
solid or clear cut health care policies to care for the population especially babies, pregnant
women and old people who are more helpless than other groups of people. The cost of
getting good treatment at the hospital is prohibitive and the access of modern health
facilities is greatly hindered.
As a result of the range of extreme want of necessities and the absence of material
comforts, the children of the masses no longer have access to quality education. They do
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not have adequate recreational facilities and their social orientation are falsely modified by
various things around them and those that they are unduly exposed to (see Aderounmu,
2007).
Again, Nigeria, which was one of the richest 50 countries in the early 1970s, has
retrogressed to become one of the 25 poorest countries at the threshold of the twenty first
century. It is ironic that Nigeria is the sixth largest exporter of oil and at the same time host
the third largest number of poor people after China and India (see Igbuzor, 2006).
Statistics show that the incidence of poverty using the rate of US$1 per day increased from
28.1% in 1980 to 46.3% in 1985 and declined to 42.7% in 1992 but increased again to
65.6% in 1996. The incidence increased to 69.2% in 1997. The 2004 report by the
National Planning Commission indicates that poverty has decreased to 54.4%. Nigeria
fares very poorly in all development indices.
Poverty in Nigeria is in the midst of plenty. Nigeria is among the 20 countries in
the world with the widest gap between the rich and the poor. The Gini index measures the
extent to which the distribution of income (or in some cases consumption expenditure)
among individuals or households within an economy deviates from a perfectly equal
distribution. A Gini index of zero represents perfect equality while an index of 100 implies
perfect inequality. Nigeria has one of the highest Gini index in the world. The Gini index
for Nigeria is 50.6. This compares poorly with other countries such as India (37.8),
Jamaica (37.9), Mauritania (37.3) and Rwanda (28.9). in fact, the 2004 MDG report states
that “based on available information, it is unlikely that the country will be able to meet
most of the MDG goals by 2015 especially the goals related to eradicating extreme
poverty and hunger, reducing child and maternal mortality and combating HIV/AIDS,
malaria and other disease (see Igbuzor, 2006).
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It is however pertinent to note that Obasanjo’s administration and indeed
successive regimes have inundated the world and especially Nigerian poor masses with
stories and data showing that the GDP of the country has been on the increase. External
reserves has blossomed etc. meanwhile, growth of GDP and external reserve has nothing
to do with the hungry population wallowing the street of Nigeria. For instance, in trying to
brandish the “progress” made by her administration in poverty eradication, Okojo-Iweala
(2005) noted that
We have been implementing our own home grown reform
programme – NEEDS – and the results for last year have
been quite positive. GDP growth was 6% compared to a
5% target. Average annual inflation came down from 22%
to 15%, while point to point inflation (December to
December) came down from 23% to 10%. This was not the
single digit inflation we targeted but we came pretty close
at 10%. The fiscal deficit at $25 a barrel was 1.9% of GDP,
better than the 2.1% we targeted and the reserves recorded
healthy growth again from $7 billion to $19 billion thus
ensuring that our exchange rate remains fairly stable.
Much as we appreciate the “glad tidings” as presented above by Okonjo-Iweala, the
pertinent observation is that such “achievement” has not alleviated the plight of the
common Nigerian who does not have clean drinking water, relatively stable power supply.
Good health centers and educational facilities. Hence, illiteracy remains on the increase,
infant and maternal mortality have worsened, and the wretched Nigerians have to face
double jeopardy as they destroy their eyes and health with bush lantern while enviously
enduring the noise from generators of their rich neighbours.
In fact, UNDP Human Development Report (2002 – 2006) buttresses the fact that
poverty has been on the increase through out the regime of Obasanjo. Table 3.6 below
present the data of the poor Human Development Index Situation in Nigeria.
74
Table 3.6: Nigeria’s Human Development Index 2000 – 2007
Year Average
Life
Expectancy
(Years)
Life
Expectancy
(Male)
Life
Expectancy
(Female)
HDI
Rank
Infant
Mortality
Literacy
Level
Average
(%) 1
2000 51.7 51.5 51.9 148 110 63.9
2001 51.8 51.3 52.3 152 110 65.4
2002 51.5 51.2 52.0 151 110 66.8
2003 43.4 43.1 43.6 158 98 66.8
2004 43.4 43.2 43.5 159 101 66.8
2005 43.6 43.5 43.7 160 101 70.2%
2006 44.2 43.5 43.7 160 101 70.2%
2007 44.3 43.6 43.9 161 102 70.1%
Source: UNDP Human Development Report 2002 -2006 and 2005-2007 Available at
http://www.alertnet.org/thefact/countryprofiles/129032htm retrieved November
12, 2011
The data speaks for itself; it shows the pathetic state of Nigerian masses. For instance,
average life expectancy has declined from 51.7 years in 2000 to 43.4 years in 2004 while
the country’s HDI ranking position has dropped from 148th
position to 159th
position.
As matter of fact, a World Bank’s recent study identified northern Nigeria as
among the poorest places on earth. This shocking revelation corroborates and further
supported our won then Central Bank Governor, Professor Chukwuma C. Soludo when he
stated the obvious facts about the worsening underdevelopment, high illiteracy rate and
abject poverty levels in the north at a public function in Kaduna and he was unnecessarily
vilified for saying the naked truth. (see Nuhu-Koko, 2009).
Generally, the central argument of this chapter is that, although, Nigeria under
Obasanjo’s regime was able to secure debt relief, but this debt relief has not translated to
poverty reduction in the country. The rate of poverty is pathetic and on the increase. In
fact, most critics have argued that the debt relief does more harm than good to the nation
especially when examined in relation to poverty reduction. This is because it does not
make sense to make an impoverished country like Nigeria pay $12 billion when such huge
75
amount should have been spent on AIDS, health and education (see Pattanaik 2005;
Nkwocha 2005; Ogolor and Atakpu 2005 etc). Hence, the realities of poverty in Nigeria
contradicts the gospel of the Obasanjo regime that the debt relief it secured has reduced
poverty in the country.
Based on the argument of this chapter, we affirmed the validity of our second
hypothesis which states that the cancellation of Nigeria’s debt by the Paris Club has
reduced the level of poverty in Nigeria.
76
CHAPTER FOUR
ENERGY RESOURCE ENDOWMENT AND DOMESTIC STRUCTURE OF
PROCESS OF FOREIGN MAKING
In this chapter, effort will be made to look into the Nigeria energy system and
energy investment analysis as it has occurred, and was carried out in line with one of the
objectives of this study. The analysis presented in the next few sub-sections focuses on:
energy resources endowment, available energy supply infrastructure, as well as energy
demand situation during the historical period 1990-2007.
4.1 NIGERIA ENERGY RESOURCE ENDOWMENT
Nigeria is richly blessed with primary energy resources. The country is endowed
with the world’s tenth largest resources of crude oil currently estimated to be about 36
billion barrels (about 4.896 billion tones of oil equivalent toe) in 2006. The country has
also been described as more of a natural gas island than oil with an estimated endowment
in 2006 put at about 166 trillion standard cubic feet (5210 billions cubic meters). This
includes associated and non associated reserves, placing Nigeria among the top ten
countries with the largest gas reserves in the world. The table contains recent estimates of
other renewable potentials apart from the hydropower.
Table 4.1: Nigeria’s Energy Reserves/Potentials (2007)
Resource Type Reserves Reserves (BTOE)(1)
Crude oil 36.0 billion 4,895
Natural gas 166 trillion SCF(2) 4,465
Coal and lignite 2.7 billion tones 1,882
Tar sands 31 billion barrel of oil equivalent 4,216
Sub-Total Fossils 15,459
Hydropower large scale 10,000 MW
Hydropower small-scale 734 MW
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Fuel wood 13,071,464 hectares (3)
Animal waste 61 millions tones/yr
Crop residua 8,3-7.0kwh/m2-yr
Solar radiation 3.5-7.0kwh/M2 day
Wind 2-4 m/s (annual average
Notes
(1) BTOE Billion Tones of Oil Equivalent
(2) SCF Standard Cubic Feet
(3) Forest Land Estimate for 1981.
Source: Nigeria’s Renewable Energy Master Plan, 2007, cited in Dayo, (2008:10).
4.2 TRENDS IN HISTORICAL DEMAND FOR ENERGY IN NIGERIA
A sector approach is used here in the discussion of the trends in energy demand in
Nigeria during the period 1990-2007. The sectors of the Nigerian economy considered in
this report include: agriculture, industry, transport, commercial, and residential.
Information on final and useful energy demand in each of this sector are presented in
Table 4.2 and 4.3. The useful energy was derived from the final energy efficiencies in
these sectors (Dayo et al, 2004). Both the final and useful energy demand database utilized
in the earlier study was extended to the year 2007 for the purpose of the present study. We
have used available data from FAO (FAOSTAT, 2007) on fuel wood utilization in the
residential and industrial sector as well as charcoal utilization in the household sector to
update energy balance during the period 1990-2007.
78
Table 4.2: Final Energy Demand in Economic Sectors in Nigeria
Sector Energy Consumption (PJ)
Year Agric Industry Transport Commercial Residential Total %Annual
growth
%Renew
1990 7.13 240.48 287.34 6.99 735.70 1,277.64 - 64.19
1991 7.18 48.67 269.07 6.48 717.30 1,239.70 -3.0 68.23
1992 7.56 247.30 354.41 6.40 770.19 1,385.86 11.8 62.96
1993 7.60 258.96 342.35 6.96 790.92 1,406.79 1.5 63.99
1994 5.54 259.98 246.32 4.63 817.55 1,334.02 -1.5 69.60
1995 5.38 261.75 278.76 7.00 810.18 1,363.07 2.2 70.24
1996 5.71 277.79 241.36 8.01 849.98 1,382.85 1.5 71.42
1997 7.17 311.97 272.58 7.74 918.19 1,517.65 9.7 70.69
1998 6.09 255.75 272.34 8.16 1,002.01 1,644.35 8.3 70.87
1999 6.57 494.64 260.98 7.97 1,074.93 1,845.09 12.2 68.61
2000 8.65 466.94 357.21 7.19 1,163.10 2,003.18 8.6 68.64
2001 7.58 609.64 404.55 8.91 1,274.81 2,305.49 15.1 64.78
2002 8.04 683.79 414.95 8.54 1,373.13 2,488.44 7.9 65.20
2003 6.34 702.88 402.67 9.87 1,652.67 2,584.43 3.9 68.19
2004 3.28 771.88 350.39 9.70 1,571.23 2,706.49 4.7 70.73
2005 5.05 868.16 486.34 10.35 1,758.40 3,128.30 15.1 66.47
2006 6.89 830.20 501.14 8.48 1,611.50 2,958.4 12.1 64.10
2007 8.09 730.14 340.30 6.44 1,380.10 2,465.07 10.3 58.17
Data on consumption of renewable from FAOSTAT, the renewable portion in biomass
(over 90%) especially charcoal.
Source: Dayo et al 2004 and 2008.
79
Table 4.3: Useful Energy Demand in Economic Sectors in Nigeria
Sector Energy Consumption (PJ)
Year Agric Industry Transport Commercial Residential Total %Annual
growth
1990 5.70 122.86 258.39 6.29 234.70 627.95 -
1991 5.74 127.33 233.85 5.76 210.92 583.60 -7.1
1992 6.05 124.14 318.80 5.76 240.62 695.37 19.2
1993 6.08 131.37 307.91 6.26 245.85 697.47 0.3
1994 4.43 129.81 221.51 4.17 254.68 614.60 -11.9
1995 4.30 127.98 250.72 6.30 237.83 627.13 2.0
1996 4.57 139.42 217.10 7.21 256.30 624.63 -0.4
1997 5.74 160.98 245.25 6.97 274.58 693.52 11.0
1998 4.87 188.42 244.97 7.34 301.52 747.13 7.7
1999 5.26 297.29 234.79 7.17 317.47 861.97 14.4
2000 6.92 264.49 321.49 6.47 340.08 939.45 9.0
2001 6.06 361.83 367.08 8.02 378.29 1,118.28 19.0
2002 6.43 424.62 373.44 7.69 402.06 1,214.24 8.6
2003 5.07 424.64 362.09 8.88 414.92 1,215.61 0.1
2004 2.62 470.07 315.20 8.73 437.34 1,233.96 1.5
2005 4.04 470.07 315.20 8.73 437.34 1,233.96 1.5
2006 3.38 488.10 413.15 8.22 551.70 1,464.55 7.02
2007 5.01 423.11 320.10 7.40 480.30 1,235.92 6.2
Source: Dayo et al 2004 and 2008.
4.3 TRENDS IN HISTORICAL ENERGY SUPPLIES IN NIGERIA
The Nigeria energy system will be considered here from the primary and fuel
energy points of view. The primary point of view includes information on the production
of crude oil, and natural gas, electricity and others.
80
4.3.1 Crude Oil Reserves, Production and Export Trends
(a) Crude Oil Reserves Trend
The estimate of crude oil reserves in Nigeria in 2007 were put at about 37.0 billion
barrels of oil. The trend in crude oil reserves estimated in the historical period is presented
in table 4.4.
Table 4.4 Proven Crude Oil Reserves Estimates in Nigeria
Year Crude Oil Reserves
(Billion of Barrels)
Years Crude Oil Reserves (Billion
Of Barrels)
1988 16.0 1998 27.0
1989 16.0 1999 28.0
1990 17.5 2000 30.0
1991 18.5 2001 30.5
1992 19.0 2002 32.0
1993 20.5 2003 33.0
1994 21.0 2004 33.5
1995 23.0 2005 35.0
1996 23.5 2006 36.0
1997 25.0 2007 37.0
Source: Nigeria Oil Industry Handbook & Directory (2004), NAPIM (2008).
Majority of Nigeria’s crude oil reserves are found in relatively simple geological
structures along the country’s coastal Niger River Delta. Newer reserves are however been
discovered in deeper waters offshore Nigeria. Majority of the oil lies in about 250 small
(i.e. less than 50 million barrels each), fields. At least 200 others fuels are known to exist
and contain undisclosed reserves. The national target is to increase crude oil reserves to
about 40 billion by the year 2010.
(b) Crude Oil Production Trend
Nigeria produced about 2.2 million barrels per day of crude in 2003. By 2007 it has
risen to about 3.5 million barrels per day of crude oil production. The country is a member
81
of the Organization of Petroleum Exporting Countries (OPEC). Production of crude oil in
Nigeria is mostly by Joint Venture (JV) companies, which accounts for nearly all (about
95%) of the country’s production in the past decades. The Federal Government of Nigeria
currently participates in oil production through holding 60% in the operations of
companies like Shell, Chevron, Exxon Mobile, AGIP, ELF, Texaco and Pan Ocean. The
largest JV, operated by Shell produces nearly 50% of Nigeria crude oil. Figure 4.1 below
provides information in Nigeria crude oil production for the period 1970 - 2005.
Note: This includes data from PSC, Sole Risk and Independent companies.
Source: NNPC 2006 Annual Statistical Bulletin/updated from NNPC 2007 Annual
Statistical Bulletin, cited in Dayo (2008:23).
4.3.2 Crude Oil Export Trend
Crude oil production and especially export is the mainstay of the Nigerian
economy providing almost 90% of the country’s export earnings. The share of crude in
total export value rose from less than 1% in 1958 to a peak of about 97% in 1984 and has
Fig. 4.1: Crude oil Production in Nigeria 1970-2005
82
not maintained a percentage less than 90% since then. Nigeria’s main export crude blends
are Bonny light (37%API) and Forcados (31%API). Majority of Nigeria are destined for
markets in the United States and Western Europe, with Asia becoming an increasingly
important market as well. In 2002, Nigeria’s crude oil exports to the United States
emerged 567,000 bbl/day (6.27% of U.S. imported crude oil) a decline from the 842,000
bbl/day in 2001 (9.03% of U.S. Imported crude). Nigeria was the 5th
largest crude oil
exporter to the United States in 2002, behind Saudi Arabia, Mexico, Canada and
Venezuela. Shell’s 40-year-old Bonny Island oil export terminal was recently up-graded
and expended and currently has an export capacity of about 1.5 million bbl/day. The $600
million project was completed in 2006. Other major exporting terminals are the Facados
and the Escravos terminals.
4.3.3 Petroleum Products Consumption
The aggregate quantity of petroleum consumed declined by 15.5 percent to 6.9
million metric tones in 2007. The consumption of Premium Motor Spirit (PMS) Dual
Purpose Kerosene (DPK), Automotive Gas Oil (AGO) and Low Pour Fuel Oil (LPFO)
declined by 3.0,52.3 49.8 percent respectively. Consumption of Liquefied Petroleum Gas
and Bitumen/Ashafatt declined marginally while the consumption of other products (Wax,
grease etc) rose. The decline in the aggregate consumption was attributable to supply
shortages due to poor performance of refineries and the fall in the importation of the
products in the face of rising crude oil prices. For instance, the volume of crude oil
received by domestic refineries in 2007 stood at 2,871,938.96 metric tones. This
represented a decline of 34.57 percent relative to the volume received in 2006.
Consequently, the volume processed into petroleum products declined.
83
4.3.4 Natural Gas Supply Trend
Production of natural gas in recent years average about 4.6 billion cubic feet per
day (bpd). This production figure is a summation of production mostly from the seven
joint venture companies (upstream operators) Shell, Mobil, Chevron, ELF, NAOC,
Texaco, Pan-Ocean and NPDC operating in the country. The trend of natural gas
production in Nigeria during the period 1970-2007 is shown below. In 2002, about 51.9%
of natural gas production or about 24.8 billion cubic meters. A report by the World Bank
estimated that the monetary value of flared gas in Nigeria can be at about US$2.5 billion
year to the economy (World Bank, 2003).
4.3.5 Natural Gas Consumption
The consumption of natural gas at 1.4 million tones of coal equivalent (tee) rose
astronomically when compared with 1.3million tee in 2006 accounting 7.7 percent of the
total energy consumed in the year under review. The increase was attributed to the
reduction in gas flaring in the country and the continued use of natural gas by
manufacturers and the new independent power plant such as Okpai, Omotosho and
Omoku. The improved performance of the Nigeria Liquefied Natural Gas (NLNG) also
aided the growth in natural gas consumption, for example, the capacity utilization of the
NLNG rose from 74.0 percent in 2006 to 91.0 percent in 2007, thus the volume exported
in 2007 increased, thus the volume exported in 2007 increased by 26.8 percent over the
level in 2006.
4.4 ELECTRICITY GENERATION
The total installed electricity generation capacity was 7,011.6 MW in 2007, as
the outstanding projects under the natural integrated power projects (NIPP) remained
uncompleted. The composition of the electric power system remained as follows 1900.0
84
MW of hydro power (27.1percent) and 5,111.6MW of thermal power (72.9percent),
including independence power plants (IPPs. The Power Holding Company of Nigeria
(PHCN) accounted for 58.3 percent of the total electricity generation while the IPPs
accounted for the remaining 34.6 percent (see fig. 4.2).
Figure 4.2: Nigeria’s Power System Composition in 2007
Source: Dayo et al 2004 and 2008.
The performance of the power generating plants continued to decline, as their average
capacity utilization dropped from 37.6 percent in 2006 to 37.4 percent in 2007. Nigeria’s
power system composition in 2007, declined by 31.87 percent to 2,981,152.76 metric
tones when compared with the volume processed in 2006. The yield in 2007 was 2.5m
metric tones which declined by 35.56 percent.
85
4.5 ELECTRICITY CONSUMPTION
Electricity consumption fell by 6.4 percent to 2,245.5 MW/h in 2007. The decline
in consumption was accounted for by the low generation and the deterioration in power
transmission and distribution infrastructure. The gap between electricity generated and
consumption reflected a loss of 14.4 percent of the generation compared with the 9.1
percent loss recorded in 2006. The loss was due mainly to the poor distribution network
and power theft through illegal connections. Residential consumption accounted for 51.3
percent of total electricity consumption accounted for 26.7 and 22.0 percent of the total
respectively (Dayo, 2008).
4.6 HYDROPOWER CONSUMPTION
At 3, 88,208.25 tee, hydropower consumption in 2007 increased by 14. 54
percent, compared with the level in 2006. The improved performance of the hydropower
consumption was attributed to the improved performance of the Kainji and Jebba
hydropower plants which generated 2,816,749.70 and 2,728,899.00 megawatt hour
compared with 2,366,716.48 and 2,171,747.00 MWh in 2006, respectively an increased of
19.0 and 25.7 percent (Dayo, 2008). The reason for improved performance included the
refurbishment of Kainji and Jebba power plant however, the performance of Shiroro plant
declined by 8.29 percent.
86
4.7 WORLD BANK (WB) AND INTERNATIONAL MONETARY FUND (IMF)
POLICY INFLUENCE IN NIGERIA’S ENERGY SECTOR
Nigeria is the region’s largest oil producer and holds approximately one third of the
proven gas reserves of Africa. Yet at least 60 percent of its population lack access to
electricity for their basic needs, with only a fifth of rural household covered, World Bank
(2005:7).
Nigeria’s epileptic energy is one of the key factors hampering its development. In
2006 the World Bank estimated that no increase access to 75 percent would require over
$10 billion investments. Under the tutelage of the IFIs a major neo-liberal economic
reform programme was undertaken by President Olusegun Obasanjo during his 1999-2007
administration, which found him heavily in favour with Washington. Though he promised
to reform the energy sector, investments of up to $16billion made by the federal
government during his eight years in office did not lead to any tangible improvement.
The World Bank strategy in Nigeria’s electricity sector is one of the consistent and
long-term engagements. In 2005 it contained that it was “the only large international
development institution active in the sector”. Since 2001 it has given approximately $300
million to support the reform and privatization of Nigeria’s energy sector, through three
IDA credits.
(1) The privatization support project, May 2001, $114.29 million co-financed with
DFID and USAID.
(2) The transmission development project, August 2001, $100 million.
(3) And the national energy development project (NEDP), May 2005 $172 million.
87
The ongoing National Energy Development Project (NEDP) which begins in 2005
is almost entirely World Bank funded. It consists of five components, transmission,
distribution, access expansion and renewable energy; technical assistance for gas pipeline
and gas to power projects, and technical assistance for reforms and private participation.
The World Bank supported privatization of the electricity sector is being overseen
by the Bureau for Public Enterprise (BPE), established in 1991 under the direction of a
consortium lead by Union Capital Markets and CPCS transcom. The former state Power
Company National Electric Power Authority (NEPA), popularly known as “never expect
power again” as restructured into the Power Holding Company of Nigeria (PHCN) which
quickly earned the title “please hold candle now”. BPE, PHCN and the Federal Ministry of
Power and Steel (since restructured to the Ministry Energy) are central to the IMF and
World Bank – endorsed Electric Power Sector Reform Act, passed in March 2005.
The controversial sale of the Egbin Power station to Korea Power Corporation and
Energy Resources Limited for and under – priced #280 million (approximately $2 million)
was protested by the National Union of Electricity Employees for the lack consultation
with stakeholders and workers. Egbin is the largest generating station operated by the
Power Holding Company of Nigeria and is being privatized through an international
competitive tender as one of the unbundled units of the World – Bank supported
privatization process.
88
4.8 THE PRIVATIZATION AND THE DEREGULATION OF THE OIL
SECTOR
The privatization process of the downstream oil and gas industry has been
opposition from labour groups over the absence of due diligence, Nigeria Labour Congress
(2000). The government is heavily criticized for its willingness to sell state assets without
ensuring the development of national refining capacity, which would eventually remove
the need to import much of the refined petroleum products that Nigeria consumes. The
federal government spent a total of $18.6 billion from 2000-2006 to import refined
petroleum products that Nigeria consumes. Oil workers have said that the amount spent on
the importation of refined products could build at least six new refineries across the
country. The failure to develop refining capacity favours the imports. The Nigerian Labour
Congress (NLC) requested that the Bureau of Public Enterprise (set up to oversee the
privatization process) make public the studies carried out by the consultants credit Swiss
First Boston and BNP Paribas in order to establish the estimated reserve prices for the
refineries upon which their scale was eventually based. The NLC questioned the methods
of calculation employed by the consultant which it estimated seriously undervalued the
refineries.
The sale of the Eleme Petrochemicals Plant, in Port Harcourt was a structural
reform of the PSI in October 2005. The plant is the largest of its kind on the content. The
National newspapers report that it was sold for approximately $225 million to the Nigeria
subsidiary of the Indonesian firm, Indorama Group. The National Union of Petroleum and
Natural Gas Workers described this amount as not worth the spare parts available at the
plant, Vanguard, Lagos (7 August, 2006). The World’s Bank’s private sector lending arm,
the International Finance Corporation (IFC) provided a loan of $75 million and mobilized
another $80 million from commercial leaders. The Eleme takeover took place following
89
the Nigerian National Petroleum Company (NNPC) refusal to hand over the plant on
orders from the Presidency, troops took it by force. Following the assessment of a
government committee on staffing needs, staff strength was then reduced from 1000 to
296. A memorandum of understanding between the government and Bureau of Public
Enterprise (set up to oversee the privatization process) apparently agreed that state assets
should be sold at the ratio of 51/49 percent. However, Indorama was given 75 percent
equity stock in the case of Eleme. In February 2007 Rashad Kaldany, IFCs director of Oil,
Gas, Mining and Chemicals stated, “We hoped that the successful privatization and
turnaround of Eleme will attract further investment in Nigeria’s petrochemicals industry
and pave the way for major transformation of this sectors”.
In summary, this chapter examines the energy sector under Obasanjo’s regime and
was able to prove that in spite of the Nigeria energy resources endowment, her demands
for energy in the country, her energy supplies in the country, the crude oil reserve
estimates over the period between 1988 to 2007, the production of crude oil within the
period mentioned above, the crude oil export with the period up to 2007, petroleum
products consumption, national gas consumption up to 2007, the electrical generation up
to 2007, electricity consumption up to 2007, and hydropower consumption up to 2007.
This did not have any significant relationship with Nigeria domestic foreign policy making
and also has no significant relations to her economic diplomacy. The influence of the
World Bank (WB) and International Monetary Fund (IMF) in Nigeria’s energy sector also
the process of Nigeria power reforms, the privatizations of the refineries and the
petrochemical plant and finally the deregulation of the downstream petroleum markets
(refining, supply and distribution), did not influence the domestic foreign policy making
positively and there was no relationship in her economic diplomacy.
90
Based on this, we affirmed the validity of our third hypotheses which states that
there is no significant relationship between Nigeria energy resource endowment and her
domestic foreign policy making in relation to economic diplomacy.
91
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 SUMMARY AND CONCLUSION
Economic diplomacy has assumed significant position in the conduct of Nigeria’s
external relations especially with the advent of civilian regime in 1999. The civilian
government of President Olusegun Obasanjo confronted an avalanche of national
development problems, ranging from decaying infrastructure, declining economy,
insecurity and the battered image of Nigeria in the international community. To tackle
these problems, the regime embarked upon shuttle diplomacy by visiting different nations
to launder the image of Nigeria and to mobilize external materials and financial resources
especially FDI to fix Nigeria’s ailing economy. The regime also made tremendous efforts
to salvage the economy via obtaining debt relief.
However, despite these efforts, no relationship exists between the flow of FDI into
the country and the regime’s economic policies. Poverty remains on the increase. It is
against this background that this thesis sets out to investigate the conduct of Nigeria’s
external relations between 1999–2007. Based on this, we interrogated the following
research questions:
1. Is there any relationship between the rise in Foreign Direct Investment to Nigeria
and Nigeria’s policy of economic diplomacy?
2. Has the cancellation of Nigeria’s debt by the Paris Club reduced the level of
poverty in Nigeria?
3. How relatively has the Nigeria energy resources endowment affected her domestic
foreign policy making and economic diplomacy?
92
A careful review of literature showed that the above questions have not been satisfactorily
answered in existing literature. Hence, to fill the gap in literature and to provide plausible
answers to the questions raised, we hypothesized as follows:
1. There is no significant relationship between the rise in Foreign Direct Investment
to Nigeria and Nigeria’s policy of economic diplomacy.
2. The cancellation of Nigeria’s debt by the Paris Club has not reduced the level of
poverty in Nigeria.
3. There is no significant relationship between Nigeria energy resources endowment
and her domestic foreign policy making in relation to economic diplomacy.
To investigate our hypotheses, we predicated our study on the Marxian theory of
the post-colonial state as popularized by neo-Marxist third world scholars such as Ake
(1985), Ekekwe (1985) etc. The underlying principle of the theory is that the post-colonial
state is a creation of imperialism. Consequently, it has followed a developmental strategy
dictated by the interests of imperialism and its local allies, not by those of the indigenous
population. Hence, the post-colonial state has immersed itself in a deep crisis that it cannot
extricate itself from.
Further, the choice of this theory is predicated on the fact that it is very suitable in
explaining the decision of the Nigerian government to embark on the policy of economic
diplomacy in the conduct of its external relations. Being a post-colonial state, it is very
difficult for Nigeria to extricate itself from the shackles of international capital, and the
policy of economic diplomacy only serves that purpose i.e. the purpose of deepening
Nigeria’s involvement in global capitalism, which nevertheless, does not serve the interest
of the people.
1. To interrogate whether there is a relationship between the rise in Foreign Direct
Investment to Nigeria and her policy of economic diplomacy.
93
2. To examine if the cancellation of Nigeria’s debt by the Paris Club has reduced the
level of poverty in Nigeria.
3. How relatively has the Nigeria energy resources affected her domestic foreign
policy making and economic diplomacy?
In order to gather information required for this study, we relied on the observation
method. Hence, we made use of text books, journals, periodicals, official documents,
government publications and other unpublished materials related to the study. We applied
content analysis as the most suitable method of data analysis. The study was divided into
five chapters. Chapter one dealt with the introduction and other conventional research
procedures, while the hypotheses one, two and three of the study were investigated in
chapter two, three and four respectively, chapter five dwelt on summary, conclusion and
recommendations based on our empirical findings.
Specifically, in chapter two, we interrogated the link between Nigeria’s policy of
economic diplomacy and the inflow of Foreign Direct Investment (FDI) into Nigeria, we
examined the primary position given to the attraction of FDI in Nigeria’s policy of
economic diplomacy, and we examined the trends of FDI flow into Nigeria especially
during the period under investigation.
In chapter three, we investigated the second hypotheses. Hence, we examined
whether debt cancellation by Paris Club has reduced the level of poverty in Nigeria.
Amongst other things, we traced the journey to the Paris Club debt relief, we investigated
the conditions of Paris Club debt deal, we also examined the realities of poverty in Nigeria
even after the much vaunted debt relief.
In chapter four, we examined the third hypotheses and ascertained that there is no
significant relationship between Nigeria energy resources endowment and her domestic
foreign policy making in relation to economic diplomacy.
94
Using empirical evidence available, we noted as follows:
In chapter two, we noted that attraction of Foreign Direct Investment (FDI) has
been given top priority in the conduct of Nigeria’s economic diplomacy, in order to attain
this objective, various strategies were employed among which is the Dependent Import-
Substitution- Industrialization, the reduction of unnecessary expenses in playing “the good
neighbor” in Africa etc. Again, empirical evidence shows that there has been increase in
the inflow of FDI into Nigeria especially in the telecommunication sector. Nevertheless, in
real terms, what is seen as investment in developing economies were strictly speaking not
FDI but mopping up of speculative capital which adds little to domestic capital stock.
Rather than bring improved management, new production techniques, quality control, and
access to foreign markets, as well as exerting competitive pressures on local producers,
foreign investment rather recapitulate the economy and intensify capital flight as the
actions of investors in the communication sector of African economy shows. Further, we
found that there is no significant positive correlation between this increase in FDI inflow
to Nigeria and Nigeria’s policy of economic diplomacy as other factors especially the
wave of globalization and the concomitant liberalization of investment practices have
contributed to inflow of FDI to the country.
In chapter three, we observed that, although, Nigeria was able to secure debt relief
through the shuttle diplomacy embarked upon by Obasanjo’s regime, the debt relief has
not translated to poverty reduction in the country as the rate of poverty remains pathetic
and on the increase. The regime has inundated the world with stories that the debt relief
has catapulted the country into high level of development. But the empirical realties of
poverty in the country contradicted the regime’s gospel of economic success.
95
Based on the foregoing, we conclude as follows
That there is no significant relationship between the rise in Foreign Direct
Investment to Nigeria and her policy of economic diplomacy.
That cancellation of Nigeria’s debt by the Paris Club has not reduced the level
of poverty in Nigeria.
In chapter four we examined the Nigeria energy resource endowment, demands for energy,
energy supply, crude oil production, crude oil export, petroleum and gas supply, electricity
consumption, World Bank and International Monetary Fund policy influence on the
privatization and the deregulation of the oil sector in Nigeria.
The above conclusion and submissions, not only validated the three hypotheses as
stated in the body of the work, but also underscored the fact that: there is no significant
relationship between rise in the flow of FDI to Nigeria and Nigeria’s policy of economic
diplomacy; that debt relief has not translated to poverty reduction in Nigeria, and there is
no significant relationship between Nigeria energy resource endowment and her domestic
foreign policy making in relation to economic diplomacy.
5.2 RECOMMENDATIONS
Our recommendations are aimed to increase the flow of Foreign Direct Investment
to Nigeria and enhance poverty reduction while strengthening the country’s foreign policy
and external relations. Based on this, we recommend that:
1. Successive regimes should aim at promoting opportunities for the private sectors
by encouraging effective private investment; expanding into international market;
building the assets of poor people especially the rural poor and women; addressing
asset inequalities across gender, ethnic, racial and social divides; getting
infrastructures and knowledge to poor areas.
96
2. Successive regimes should also enhance security situation in the country in order to
attract beneficial and sustainable foreign investments by formulating modular
approach to helping poor people mange risk; developing national programs to
prevent, prepare for, and respond to macro shocks – financial and natural.
3. There is also need for the government to facilitate empowerment of the masses by
laying the political and legal basis for inclusive development; creating public
administration that foster growth and equity; promoting inclusive decentralization
and community development.
Again, having obtained debt relief, the following needs also to be put in place:
1. Invest early and ambitiously in basic education and health while fostering gender
equity. These are preconditions to sustained economic growth. This growth can in
turn generate employment and raise incomes – feeding back into further gains in
education and health gains.
2. Increase the productivity of small farmers in unfavourable environments – that is,
the majority of the world’s hungry people. A reliable estimate is that 70% of the
world’s poorest people live in rural areas and depend on agriculture.
3. Improve basic infrastructure such as ports, roads, power and communications to
reduce costs of transacting business and to overcome geographic barriers.
4. Develop an industrial development policy that nurtures entrepreneurial activity and
helps diversify the economy away from dependence on primary commodity
exports with an active role for small scale and medium size enterprise.
5. Promote democratic governance and human rights to remove discrimination,
secure social justice and promote well being of all people.
6. Ensure environmental sustainability and sound urban management so that
development improvements are long term.
97
7. Involve the civil society in the monitoring and trading of the use of debt relief fund
and poverty reduction strategy.
When all these are done, the nation will continue to move on the path of
sustainable development and growth while enhancing the nation’s foreign policy and
external relations.
With the enormous potentials of the electricity generation, distribution and
consumption in Nigeria and the high level of crude oil and gas reserve. The following also
needs to be put in place.
1. There should be massive improvement in the electricity generation, and
distribution to the nation to improve developmental needs of the people.
2. Efforts should be made to avert corruptions. A close look at the $16 billion dollars
injected into the electricity sector did not yield meaningful reward.
3. Nigeria should de-link from the association of the World Bank and the
International Monetary Fund recommendations, policy agreements and
conditionality they issued so far which lead to a dysfunctional electricity
generation, distributions and privatization process.
4. The country should stop accepting donations from the IMF and the World Bank
towards the improvements of the electricity generation, distribution and the
production of oil and gas.
5. They should totally stop the privatization process being carried on in the electricity,
oil and gas because it will spell doom to the nation.
98
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