Introduction
Nigeria has a dual economy and, its population relies on earnings from the energy sector followed by the agricultural sector. In 1960, agriculture became the country’s main source of revenue accounting for nearly half of the country’s Gross Domestic Product (GDP).
The emergence of oil and other petroleum products has increased the country’s foreign exchange earnings hence the increased revenues. Nigeria is endowed with large quantities of natural resources, both renewable and non-renewable. For instance, it is endowed with oil and natural gas reserves with crude oil being estimated at around 35 billion barrels. The country, however, cannot meet the needs of its large population and this is an extraordinary macro-economic phenomenon.
The country’s economic growth is unpredictable and it now depends on imported food though it was once a net exporter. This is quite surprising keeping in mind that Nigeria is rich in natural resources especially energy and is the sixth largest producer of crude oil internationally (Ekpo, 2008). This paper will discuss the causes of Nigeria’s economic crisis, its effects and finally, how the phenomenon can be changed.
Causes of Nigeria’s Economic Crisis
Consumers, producers, and efficiency of the market
The decline in Nigeria’s economic growth can be attributed to market shortages of its petroleum products especially Kerosene and diesel. The weak political demands exerted by the poor kerosene and diesel customers and the limitations on public financing of imports is what has led to the market shortages. The country has five government owned oil refineries, which are capable of producing about 500 barrels of oil every day. The high oil production capacity with no adequate markets has made the country’s government to get involved in importing large volumes of food to remedy the shortages involved.
Supply and Demand
Nigeria’s economic crisis can be attributed to the interaction of demand and supply in the market. The citizens are over reliant on self-generated electrical energy despite the fact that the nation is rich in energy resources. The country’s electricity market, which on the supply side is controlled by National Electric Power Authority (NEPA), is incapable of providing acceptable electricity standards, which are both reliable and accessible. The poor record in electricity supply has led to high losses hence the nation’s economic crisis.
Price fluctuations in the global oil industry and poor macro- economic organization especially the country’s failure to expand its economy are other key contributors to its economic problems.
The diversity of economic and non-economic goals without proper recognition of tradeoffs has also resulted to the crisis. This is seen in its pricing strategies in the global market. Institutional and administrative failures, which have led to production inefficiencies and increased operating costs, have led to the extraordinary macroeconomic phenomena in Nigeria (Oluyemisi, 2010).
Effects of Nigeria’s Economic Crisis
The constant disequilibrium in the country’s market for petroleum products has negatively affected the living standards of the citizens. Poverty levels have increased with majority of people in the country living on not more than $2 in a day.
Nigeria’s economic crisis has greatly deteriorated its industrialization process and this has significantly decreased its effort to achieve a stabilized economy. Competitiveness of the countries local industries in both regional and international markets has been reduced and many citizens are now unemployed (Iyoha & Itsede, 2002).
Changing Nigeria’s Economy
Mankiw’s 10 principles
Nigeria’s economic theory suggests that energy and oil purchases depend on price of other related products such as natural gas and petrol. The country’s macroeconomic phenomenon can be solved through Mankiw’s ten economic principles. According to Mankiw, countries face tradeoffs and to achieve their goals, then they have to surrender some things. Consequently, for successful decision-making, the country has to trade off one objective against another.
Mankiw’s second principle states that what is surrendered in an attempt to achieve something is its cost. The country while getting out of its problems has to put into consideration the total costs required. The third principle elaborates the idea that wise people reason at the margin and, only take action if the subsidiary benefits exceed the costs. Nigerians living standards have changed due to low benefits and this can be explained using the principle that people react to changes in incentives.
While trying to explain how the economy works together as one, Mankiw says that trade can make the nation to be better placed. Through trade, Nigeria can be able to concentrate on its best activities and other nations can purchase different goods from them. Nigeria can thus solve its economic problems by participating in market economies since through this it can distribute its resources more effectively (Mankiw, 2012).
According to Mankiw, the government can at times enhance market outcomes. For instance, since Nigeria has not been able to use its resources effectively, then its government should participate in solving the issue through public policies such as setting rules against monopolies.
In his eighth principle, Mankiw states that the standard of living in any nation depends on the nation’s capacity to produce goods and services. To get out of its economic problems, Nigeria should ensure that its workforce produce goods and services in large quantities.
This could lead to high living standards since productivity in a country increases with increasing income. Mankiw’s ninth principle talks of the fact that prices of goods in a country increase as the government gets involved in printing excess money. Nigeria should not involve herself in such actions since this could lead to low currency values. Sequentially, prices would increase and this would call for more money used in purchasing goods and services.
Mankiw’s last principle states that a nation faces a short run transaction during times of price increases and unemployment. Though lowering of prices leads to high unemployment levels, Nigeria should try this principle since it leads to an understanding of the short-term effects of fluctuations in taxes, government expenditure, and monetary principles (Mankiw, 2012).
Government Policies
Substantial expansion in the value and quantity of Nigeria’s natural resources is important in sustaining its economic growth, creating employment, reducing poverty, and finally improving the well-being of its population as a whole. Overcoming the country’s economic crisis and ensuring global standards in quantity, value and consistency of the nation’s services is a prerequisite for attaining the government’s desire of being one of the top 20 economic countries by 2020.
To improve its economy, Nigeria should adopt a new policy with new principles that will lay the basis for continuous improvement in other fields such as agriculture. It should create a more favorable macro-environment that encourages the private sector to put more investments in agriculture. The duties of the government together with those of the private sector should be rationalized in a manner that stimulates agricultural development.
The institutional structure should also be reorganized to allow for government intervention in the sector since this would lead to growth of the agricultural sector. The government should further articulate and execute development programs in the rural areas to improve the standards of living of the locals.
The amount of budgetary allocation given to the agricultural sector should be increased to improve agricultural productivity. Finally, best practices should be developed and procured in the country’s oil and energy industries (Ajilima & Kwanashie, 1998).
Taxation
The government should rectify irregularities in import and export tariffs especially in petroleum and agricultural products. It should also promote the use of machinery in agriculture through imposing constructive tariff policies. This would ensure that the country does not depend on imported food (Mankiw, 2012).
Elasticity
Nigeria’s economy depends on price elasticity of goods and services. However, the phenomenon of price elasticity has been synchronized in Nigeria for quite a long time. Price elasticity in Nigeria is determined by consumer demand irrespective of price increases (Oluyemisi, 2010).
Conclusion
Nigeria is among the richest countries in the world though most of its citizens are strikingly poor. This is because the country relies on its energy sector as the only source of revenue without diversifying in other fields. It is, therefore, clear that for the country to have adequate resources to meet the needs of its population, it should get involved in other income generating activities such as agriculture.
The government should also come up with policies that clearly define the duties and responsibilities of both the central government and the private sector in order to get rid of the country’s economic crisis.
References
Ajilima, I., & Kwanashie, M. (1998).The Nigerian economy: response of agriculture to adjustment policies. Nairobi: African Economic Research Consortium.
Ekpo, H. (2008). The Nigerian economy: is it at the crossroads. Nigeria: Nigerian Economic Society.
Iyoha, A., & Itsede, O. (2002). Nigerian economy: structure, growth, and development. Benin: Mindex Publishers.
Mankiw, G. (2012). Essentials of Economics. Australia: Southwestern Cengage Learning.
Oluyemisi, D. (2010). The Nigerian economy: growth, productivity and the role of monetary policy. Ibadan: Research Library Development Policy Centre.