Economy of Nigeria

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The petroleum-based economy of Nigeria, long hobbled by political instability, corruption, and poor macroeconomic management, is undergoing substantial economic reform following the restoration of democratic rule in 1999.[citation needed] Nigeria's former military rulers failed to diversify the economy. The economy has overdependence on the capital-intensive oil sector, which provides less than 25% of GDP, despite providing 95% of foreign exchange earnings, and about 65% of government revenues. The largely subsistence agricultural sector has not kept up with rapid population growth, and Nigeria, once a large net exporter of food, now imports some of its food products. In 2006, Nigeria successfully convinced the Paris Club to let it buy back the bulk of its debts owed to the Paris Club for a cash payment of roughly $12 billion (USD).[2]

Contents

Overview

Nigeria’s economy is struggling to leverage the country’s vast wealth in fossil fuels in order to displace the crushing poverty that affects about 57 percent of its population. Economists refer to the coexistence of vast wealth in natural resources and extreme personal poverty in developing countries like Nigeria as the “resource curse”. Nigeria’s exports of oil and natural gas—at a time of peak prices—have enabled the country to post merchandise trade and current account surpluses in recent years. Reportedly, 80 percent of Nigeria’s energy revenues flow to the government, 16 percent cover operational costs, and the remaining 4 percent go to investors. However, the World Bank has estimated that as a result of corruption 80 percent of energy revenues benefit only 1 percent of the population. In 2005, Nigeria achieved a milestone agreement with the Paris Club of lending nations to eliminate all of its bilateral external debt. Under the agreement, the lenders will forgive most of the debt, and Nigeria will pay off the remainder with a portion of its energy revenues. Outside of the energy sector, Nigeria’s economy is highly inefficient. Moreover, human capital is underdeveloped—Nigeria ranked 151 out of 177 countries in the United Nations Development Index in 2004—and non-energy-related infrastructure is inadequate.[3]

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