NIGERIA: THE WAR'S ECONOMIC LEGACY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010040-5
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 19
• Document Creation Date: December 22, 2016
• Document Release Date: May 18, 2010
• Sequence Number: 40
• Publication Date: May 1, 1971
• Content Type: IM

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...,-/ VI /.,ir,( i i J ( J)/0 C/,
DIRECTORATE OF
INTELLIGENCE
Confidential
Intelligence Memorandum
Nigeria: The War's Economic Legacy
S ' Lim
min
:a u
:.1 4.
pp NOT UST ROY
Confidential
ER IM 71-89
May 19 71
Copy No..- .40
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WARNING
This document contains information affecting the national
defense of the United States, within the mcani;ig of Title
18, sections 793 and 794, of the US Code, as amended.
Its transmission or revelation of its contents to or re-
ceipt by an unauthorized person is prohibited by law.
GROUP I
Gcludrd hon. wlomolii
dnwnq.ndr~ and
d.Joulf mlinn
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CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
May 1971
INTELLIGENCE MEMORANDUM
NIGERIA: THE WAR'S ECONOMIC LEGACY
Introduction
1. Nigeria fought a costly civil war for two and one- half years.
At the war's end in early 1970, the country faced a shortage of budgetary
resources, severe inflation from war financing, depleted foreign exchange
reserves, and a considerable increase in localized unemployment. The
potential of the Nigerian economy for economic growth, however, is intact,
and the military government has ambitious plans for reconstruction and
renewed development. Moreover, the outlook for the oil industry is bright.
This memorandum assesses the economic impact of the war, the postwar
economic policies of the government, and prospects for the major economic
sectors.
Discussion
Background
2. Despite a per capita gross domestic product (GDP) of only about
$80, Nigeria (see the map, Figure 1) has substantial resources and the
potential to use them. It has the largest population in Africa, 20% of the
total south of the Sahara, and the largest GDP in Black Africa -- $4.6 billion
in fiscal year (FY) 1970. J The country's basic source of strength always
has been agriculture, which produces sufficient food for internal needs;
makes Nigeria the first or second world exporter of several major
1. All dollars in this memorandum are US dollars. The conversion rate
used is 1 Nigerian pound equals $2.80. The fiscal year ends on 31 March
of the year indicated.
Note: This memorandum was prepared by the Office of Economic Research
and coordinated within the Directorate of Intelligence.
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commodities - cocoa, palm products, and peanuts; and employs about 70%
of the labor force. Reserves of light and almost sulphur-free oil relatively
near the markets of Europe and North America have made possible a
growing petroleum industry of world significance.
3. From independence in 1960 until the outbreak of the civil war
with its eastern region (Biafra) in 11967, Nigeria's real GDP increased an
average of perhaps 5% annually, principally because of an expansion of
cash-crop production. Manufacturing increased about 10% a year and was
the fastest growing sector, but its share of GDP was only about 5%.
Although oil was relatively unimportant in the early independence years,
it was beginning to contribute materially to government revenues by the
time 1 he war began.
4. The war caused extensive damage throughout Nigeria. In the three
eastern states, damage was a direct result of military action; elsewhere it
was caused mostly by overuse and undermaintenance. Transportation
facilities suffered the most. Railroads were crippled when a substantial
amount of rolling stock was retained in the east and when thousands of
Ibos - the principal tribal group of Biafra - left their jobs throughout
Nigeria to return to Biafra. In addition, rail links to Port Harcourt were
severed, and exports and imports had to be routed through Lagos port.
This situation led to rapid deterioration of the roads and congestion at
Lagos port. In the war-affected areas, almost all electricity generating units
ceased to function, and industrial installations generally either were
destroyed or fell into disrepair. The port facilities at Port Harcourt suffered
only minor damage, but the petroleum refinery required considerable
rehabilitation.
S. The economy nevertheless survived the war relatively intact.
Agriculture was largely untouched except for palm-growing areas in the
eastern and mid-western states. Manufacturing outside Biafra not only
survived the war but profited from it. Because of Nigeria's large internal
market, manufacturing flourished with the imposition of wartime
restrictions on imports. The petroleum industry, hit hard early in the war,
began recovering in 1968 and by 1969 provided 42% of total exports, a
larger share than before the war.
Economic Impact of the Civil War
6. The war had a particularly adverse impact on the government's
f.nancial position. Defense expenditures rose from an estimated $35 million
in FY 1967 to more than $500 million in FY 1970, when they represented
one-half of total current expenditures (see Table 1). Despite increased tax
rates and new taxes, revenues fell sharply in FY 1968 and recovered only
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Nigerian Federal Government: Revenues and Expenditures a/
War Years Y
FY 1966
FY 1967
FY 1968
FY 1969
FY 1970
FY 1971
Recurrent revenue
431.5
474.9
420.3
439.3
610.4
952
Of which:
Oil revenue
37.8
32.5
92.4
350
n
Recurrent expenditure d/
415.8
468.2
523.6
599.2
1
016
4
1
218
0
Non-defense spending
196
3
241
1
201
9
223
,
.
,
z
Defense
.
40.6
.
35.0
.
149.8
.2
227.9
257.6
504.0
406
378
Allocated to states
178.9
192.1
171.9
148.1
254.8
434
V 'a
Surplus (+) deficit (-)
+15.7
+6.7
-103.3
-159.9
-406.0
-266
z'
Capital expenditures
overall surplus (+) deficit (-)
138.3
-122.6
133.6
-126.8
99.7
-203.0
105.6
-265.4
89.6
-495.6
112
-378
r
Financed by
Foreign loans
56.3
46.5
40.6
17.1
28.0
Foreign grants
1.4
3.1
3.4
3.1
--
76
Long-term domestic loans
39.5
56.0
56.3
53.8
50.4
Short-term domestic borrowing
16.2
65.8
58.8
285.6
352.8
02
Cash reserves and other e/
9.2
-44.5
44.0
-94.1
64.4
a. Because of roundir_a, comporents may r-7:;
s:a to the totals shown.
b. Secession was May 1967. War ended Jar.uar?: 1.70.
C. Estimated. AZZ except oil revenues are uSATL estimates of actual budget.
d. Derived by USAID from recurrent expenditure, as carried in government accounts, plus
defense expenditures frc- capital acccunt, less contributions to development fund. Im-
ports of military weapons probably are included.
e. Negative value indicates increase in cash reserves.
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slightly in the following year chiefly because petroleum production fell and
high-duty consumer goods imports were reduced. Recurrent budget
surpluses, typical of the first six years of independence, were replaced by
growing deficits despite severe restrictions on unessential civil expenditures.
The deficit reached almost $500 million in FY 1970. The proportion of
the deficit financed from external sources fell, and short-term borrowing
from the commercial banks swelled after the government's cash balances
were exhausted. The short-term internal debt more than doubled between
March 1967 and December 1969, when it exceeded $1 billion.
7. Despite extensive wartime controls on non-military imports and
payments abroad, Nigeria incurred balance-of-payments deficits and sizable
arrears on current payments. Reserves failed to regain the 1965 level until
early in 1971. The decline in reserves, however, would have been much
worse, except for non-payment of bills. The small deficit in 1968 and the
small surplus in 1969 were made possible only by private short-term capital
inflows, mainly representing arrears on current payments, which grew to
$52 million and $82 million, respectively (see Table 2). The accumulated
backlog of authorized but unremitted payments reached an estimated $216
million in October 1970. In addition, some $70 million of dividend
payments and profit remittances also was backlogged.
8. Foreign exchange problems are traceable to a combination of
increased military imports, decreased exports, and reduced medium- and
long-term capital inflows. Total payments for military equipment during
the war are estimated at between $300 million and $400 million. At the
same time, exports slumped during the first two war years, falling from
$786 million in 1966 to $584 million in 1968, mostly because of reduced
oil production but also because of the fall in exports of palm products
in the former Biafran areas. Long- and medium-term net capital inflows
during the war also declined dramatically and were only about 10% of the
pre-war level by 1969. The government did succeed in reducing non-military
imports by some $200 million between 1965 and 1968. In 1969, when
oil production began to recover, exports reached around $877 million and
the current account deficit fell to $140 million, about $100 million less
than a year earlier.
9. Massive public spending and the resultant large internal debt,
combined with import restrictions, have brought serious price inflation.
After declining 4% in 1967 and holding steady in 1968, prices rose by
12% in 1969 for low-income city dwellers outside the east and by an
additional 13% during the first six months of 1970. Although the increase
in domestic manufacturing during the war worked to mitigatr price
increases, the growing demand for food -- especially in recaptured
food-deficit areas and in local situations resulting from military restrictions
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Nigeria: Summary Balance of Payments S/
Million US $
1965
1966
1967
1968
1969 V
Exports f.o.b.
742.0
786.2
668.6
583.5
877.2
Petroleum
190.7
257.3
201.6
103.6
366
8
Cocoa
119.F:
73.6
153.2
144.5
.
147
3
Peanuts
P
106.4
112.6
99.1
106.4
.
100
8
alm products
O
h
112.3
93.5
25.4
28.9
.
29
1
t
er
213.0
249.2
189.3
200.1
.
233.2
Imports c.i.f. c/
-749.0
-702.0
-611.5
-535.1
-640.9
Trade balance
-7.0
84.3
57.1
48.4
236.3
Services and transfers (net)
-243.3
-342.2
-289.5
-283.9
-376.3
Current account balance
-250.3
-257.9
-232.4
-235.5
-140.0
Capital (net)
265.7
170.0
163.2
217.6
100.2
Private medium- and long-term
Privat
h
195.4
175.3
138.3
170.2
20.4
e s
ort-term
Offici
l
20.2
-4.5
5.9
51.5
81.5
a
50
1
-0
8
1
.
.
9.0
-4.2
-1.7
Errors and omissions
(net)
18.2
63.3
-33.9
10.9
54.0
Overall balance
33.6
-2.1.6
-103.0
-7.0
14.3
Net contribution of the
oil sector
91.3
121.5
136.4
80.6
156.5
a. Because of rounding, compont'nts may )t,wt add to the tots s shorr:.
b. Provisional.
c. Not reflecting military i mj , pt t, Jh i,?;z are probably reflected in
increased service transactions (g,:'v,er,:me,. - r,rynments) and in the errors
a-id omissions.
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on civilian movement - had the opposite effect. Increased prices for scarce
imports also added to inflation; consumer goods fell from 43% of total
imports in 1965 to 35% in 1969.
Postwar Economic Problems and Policies
Government Finances
10. Recurrent government expenditures have continued to increase
and can be expected to remain at a high level. Federal ministries, which
had been under wartime ceilings, will now be allowed to expand, and new
ministries may be created as government reorganization is carried out.
Replacing the four former regional governments with twelve state
governments and responding to local demands for more social services will
also add to costs. In addition, public sector salaries were increased in April
1970 and probably will be raised further in 1971.
11. Military costs, too, will remain a major expense. The military
establishment was 25 times the pre-war level, growing from less than 10,000
to about 250,000 troops. Defense's share of total recurrent expenditure
rose from less than 10% before the war in FY 1966 to about half in FY
1970. In FY 1971, however, defense expenditures declined -- although
perhaps less than shown in the budget estimate -- and began to consist
of largely local expenditures to support a peacetime force (such as barracks
construction) instead of wartime imports of munitions and equipment. To
avoid adding to unemployment, the government has decided against a rapid
early demobilization. Planned demobilization of 100,000 men probably will
take four or five years.
12. Large current expenditures have made the financing of
development difficult, but rapidly increasing petroleum revenues are
beginning to close the gap. The Second National Development Plan (FY
1971-74) includes planned investments of almost $4.5 billion, of which the
public sector share is almost $2.2 billion. Public savings, in the form of
government budget surpluses and operating surpluses of public corporations,
are slated to provide $1,559 million. Foreign aid is budgeted at $423 million,
and domestic borrowing is to make up the residual of more than $200
million.
13. In the first year of the plan (FY 1971), state and federal
governments had difficulty financing planned investment from domestic
sources, but foreign loans and grants helped fill the gap and will be relied
on in future plan years as well. In 1970 the International Bank for
Reconstruction and Development agreed to spend some $35 million as part
of a continuing commitment, and assistance totaling about $50 million was
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expected from the United States, the United Kingdom, Canada, West
Germany, and Japan. This assistance was insufficient to compensate fully
for the shortfall in government savings, and further domestic borrowing
was required in FY 1971, although at a lower level than in the previous
year.
14. In the second year of the plan (FY 1972), rapidly rising petroleum
revenues will alter the situation markedly. In the draft budget for FY 1972,
petroleum revenues are projected to $625 million, almost half of total
revenues. They will, however, be considerably higher -- probably more than
$800 million -- as a result of recent agreements on new tax terms, and
thus the government may be able to eliminate domestic borrowing later
in the year.
15. Reconstruction costs are estimated to be as much as $840 million
in the public sector and $658 million in the private sector. They are
concentrated in the first two years of the Development Plan period and
will amount to about three-fourths of federal and state non-military
investment spending during this time. The plan emphasizes restoring the
transport sector but also includes programs to provide employment for
war-displaced individuals, to reconstruct damaged or destroyed industrial
facilities, and to rehabilitate the power and telecommunications systems
in the eastern states. In early 1971, major roads generally had been put
back into commission, railroad transport largely had recovered, and some
electric power had been restored. It will be some time, however, before
the eastern region is fully reintegrated into the economic life of the country.
Balance of Payments
16. The backlog of authorized but unremitted foreign exchange
payments to the private sector continues to expand. Between November
1970 and the end of February 1971, the backlog increased by $235 million
and now totals more than $400 million. This growth is due in large measure
to lower than anticipated earnings from traditional exports (particularly
because of smuggling) and a sharp increase in non-military imports. In the
FY 1972 budget message rLleased in March 1971, the government
announced almost tota! lifting of import restrictions to increase the supply
of commodities to fight inflation and to promote development. At the same
time, a new foreign exchange budgeting system, effective I Apri!, was
announced to authorize payment for essential consumer goods within 90
days of receipt and for other goods, except capital goods, within 180 days.
Capital goods are to be financed over periods of one to seven years.
Furthermore, on 5 April 1971, Lagos temporarily froze the backlog of all
unpaid requests for foreign exchange filed before 31 March. Consequently,
transfers are allowed now only for a few specific items like shipping charges,
student allowances and fees, basic travel allowances, and profits and
dividends.
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17. Nevertheless, sources of foreign exchange do exist to meet
eventually the pent-up demand for imports. Growing petroleum production
holds the most promise, but the revival of other exports also will provide
much of the needed foreign exchange. Prospects for the capital account
also appear promisir.. Foreign private capital is encouraged with tax
holidays, import duty relief, and tariff protection. In addition, the
government announced that, in FY 1972, it will allow the transfer of 40%
of backlogged dividends and profits outstanding as of 31 December 1970.
Consequently, many foreign investments postponed during the war are likely
to be revived.
Prices, Wages, and Employment
18. Large expenditures on reconstruction and war-delayed
development, as well as military expenditures required during the transition
to a peacetime army, will continue to exert pressure on both prices and
wages. A Price Control Board, established in July 1970 to set price ceilings
for selected commodities, has been ineffective, and workers are clamoring
for higher wages and salaries. Public sector salaries had remained unchanged
since 1959 and wages, since 1964. With the increasing cost of living, salary
and wage control resulted in a drop in real wages. In practice, however,
government salaries and wages compare favorably with those of the private
Lagos ..sued a decree, now valid through December 1971, imposing
compulsory arbitration, banning strikes and lockouts, and prohibiting salary
and wage increases without its approval. In April 1970, however, Lagos
set up a Wages and Salaries Review Commission for the public sector, as
it had promised during the war. For public sector workers earning less than
$1,400 a year, the commission has made an interim award of $5.60 a month
for monthly-paid workers and 210 a day for daily-paid workers, retroactive
to 1 April 1970. The private sector also has been required formally to
pay a similar cost-of-living increase, although its wages (set by bargaining
between unions and employers) have risen somewhat in recent years. Some
unions and workers, impatient with waiting for the final decree and in spite
of the ban on strikes, have instigated demonstrations, slowdowns, and other
disturbances, which probably will plague the government for some time.
19. Unemployment is a serious problem, especially among the
hundreds of thousands of Ibos who make up a large part of the skilled
and professional manpower of Nigeria. Before the war started, many lbos
throughout Nigeria returned to their home states - at least 350,000
returned from northern Nigeria alone. The resultant surplus manpower,
combined with the destruction of businesses, has resulted in severe
unemployment in former Biafra. In other states, army recruitment and the
availability of positions formerly held by Ibos have limited unemployment.
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Inevitably, some Ibos are beginning to seek employment outside their home
states. The jobs they left behind, however, have been filled, and few Ibos
have capital to set up new businesses. Whereas the vast majority of Ibos
previously in the north were in trade, those presently resident there are
mainly professionals and semiprofessionals employed by state governments,
private firms, and statutory corporations. In most states, if they are able
to find jobs, Ibos are accepted readily, but in some areas, particuLrly the
Rivers Siate, they are not welcome and probably will not be for some
time.
Sectoral Prospects
Petroleum
20. The brightest feature of Nigeria's postwar economic scene is the
rapid rise in oil revenues. After being hit hard in the early years of the
war, the industry since has expanded dramatically (see the chart, Figure
2), making Nigeria one of the ten largest oil-producing countries in the
world. Paradoxically, the civil war played a major role in stimulating new
production. With the known oil-producing areas of eastern Nigeria cut off,
the oil companies intensified production in the mid-western region and
offshore, and these areas currently are more important than the east. Total
production reached 1.4 million barrels per day in January 1971, and may
be as high as 3.4 million barrels daily by 1975. Production and resulting
payments to the government in recent years are given in the accompanying
tabulation.
Production a/ Payments to the
(Million Government
Year Barrels) (Million US $)
1965 99.4 36.0
1966 152.4 53.2
1967 116.5 75.6
1968 51.9 44.8
1969 197.2 78.4
1970 395.7 280.0
1971 620.5 b/ 600.0 b/
a. Excluding production from the
eastern states for the period April
1967 - September 1968.
b. Estimated.
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Nigeria: Oil Production and Government Revenue
PRO
IDUCTI
ION
VENUE
10i I _ 1. - -. _~.- -__ 1..--_..I-. L 1_ _ I - 1
1961 62 83 84 85 66 67 88 89 70 71 72 73 1974
'Excluding production from the eastern states Tor the period April 1, 1967- September, 1968.
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21. Of a dozen international oil companies now operating in Nigeria,
five are producing. Shell-BP owned by Royal Dutch Shell and British
Petroleum, is by far the largest, producing about I million barrels per day.
Following Shell-AP are Gulf, Mobii, ENI/Phillips, and Texaco/Chevron. In
addition, concessions have been awarded tentatively to five other companies
for off-shore drilling. Although the terms of the off-shore contracts have
not been agreed on, the Nigerian government has demanded majority
participation in the ventures as well as production bonuses and educational
donations. Moreover, the government awarded only about half of the
available off-shore area, reserving the rest for a national oil company (see
the map, Figure 3).
22. Government oil revenues, which rose from $78 million in 1969
to $280 million in 1970, will be increased substantially in future years
by new tax agreements. In November 1970 the oil companies operating
in Nigeria announced a $0.25-per-barrel increase in the posted prices of
crude oil retroactive to 1 September. This increase should add about $100
million to revenue in 1971 and proportionate increases in subsequent years.
Furthermore, in April 1971, financial arrangements were revised further to
increase the tax rate, raise the posted price, and speed up tax payments.
The government take per barrel is now more than $1.50, compared with
about $0.80 a year ago. The new terms, combined with increased production
and accelerated payments, could result in government revenues of more
than $600 million in 1971. Although not yet a member of the Organization
of Petroleum Exporting Countries (OPEC), Nigeria can be expected to
continue to exact price increases similar to those gran'-.d to OPEC countries.
While company plans are not known, petroleum output will certainly
continue increasing after 1971. With revenues per barrel also rising and the
lags between earnings and receipts being reduced, government revenues are
almost bound to surpass $1 billion by 1973.
23. Domestic refinery output also is expanding. In 1967 the refinery
near Port Harcourt was processing 31,000 barrels a day, which met Nigeria's
domestic needs for petroleum with a little left over for Chad and Niger.
At this rate, net foreign exchange benefits to the economy were more than
$36 million a year. The refinery was badly damaged and was forced to
close in July 1967. It re-opened in May 1970 and by August 1970 was
producing 40,000 barrels a day. After full restoration, production is
expected to reach 55,000 barrels a day, enough to meet domestic demand
for the next few years.
Agriculture
24. Despite a ranking of highest priority in the Development Plan,
agriculture for Nigeria as a whole apparently is being left to fend largely
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KWARA
11 S Pro . Enugu
I ) .Ranln City
f=igure 3
BENUE-
PLATEAU
S--MlD-W,!?:STERN _ .. ? CENTRAL EASTERN
Nigeria: Principal Oil Installations
~Wuiri
D A ) $K01 ORI OGUTA
M /(r
~ci?o o~ \ r 1116Ghrlt1 NIUED? ?Owerrl
Bight o
Benin
SOUTH
EASTERN:
Ip Logos
CAMEROON
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assn
\ ~71
? Oillleld Offshore Concession Areas
Oil pipeline = Existing
A Refinery
a Tanker terminal Now
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for itself. With land more or less plentiful, production will increase mainly
with the increase in population. For the Development Plan period,
agricultural growth is projected at only about 2.4% a year - a little less
than the population growth rate. Expansion of cash crop production, a
specific Developanant Plan objective to increase and diversify foreign
exchange sources, is promoted by adjusting producer prices st.t by
government marketing boards - an extension of the wartime practice of
manipulating crop prices to r^duce smuggling and to promote desired crops.
Since FY 1970 the export duty on cash crops has been 15%. Dca;:te the
recent lifting of m -,, import licensing requirements, imposed during wartime
to encourage domestic production, the importation of most bulk agricultural
commodities still will require a specific license. A few foreign-fina, ced
projects are under way to improve production of corn, rice,, and m2let.
25. Although former B;afra no longer has a significrnt food problem,
the current harvest of food crops there is still smaller than normal because
of a shortage of agricultural tools, seed, and capital. Consequently, some
supplemental feeding will be necessary until the fall of 1971. The "World
Food Program" of the United Nations will have provided about 28,000
tons of food by July 1971, and UNICEF has a special preventive feeding
program for children.
Manufacturing
25. Opportunities for manufacturing c'~pansion are good, although
some shift from the wartime concentration on import substitution probabl j
will be necessary. With its large population and relatively well developed
transportation system, Nigeria offers one of the largest markets in Africa.
In addition, the well-paid army, the expanding number of urban industrial
workers, and a rising farm income from increased agricultural marketing
have expanded the retail consumer goods market. Consequently,
manufacturing for the domestic market will probably increase even though
it puts a drain on the balance of payments for im;>orts of capital goods,
intermediate goods, and raw materials. Although manufacturing came to
a halt in the east during the war, it expanded dramatically in the rest of
the country. The manufacturing index increased from 166 (including the
east) in 1966 to 216 (excluding the east) in 1969. Substantial growth took
place in production of footwear, bcer and soft drinks, and paints, varnishes,
and lacquer, all of which increased by nearly 50%. Textile uutput grew
by 13%. Since most import licensing requirements have now been removed,
the more uneconomic domestic industries ma) well founder. However,
slightly higher duties on some items and lower rates of import duties on
raw material for domestic industries will still afford some protection.
27. Further expansion of manufacturing, especially processing primary
products, also offers Nigeria an opportunity for additional long-run growth
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in export proceeds and a chance for diversification of sources of foreign
exchange and domcatic revenue. Since indigenous private capital and
management expertise are in short supply, much of this growth no doubt
will have to come from foreign investment. Although increased foreign
investment in manufacturing is being encouraged, Lagos is demanding
expanded Nigerian ownership and employment. The current development
plan specifically requires government ownership of at least 55% of planned
petrochemical an fertilizer industries, petroleum firms (especially those in
local distribution), and a basic iron and steel complex. Other proposed large
and medium-scale industries, ar^irding to the plan, will be run as mixed
vents;es with government and private indigenous participation of at least
3S%.
Conclusions
28. The civil war had adverse effects on Nigeria's internal and cxterna!
fin,incial position. The cost of we.r financing was substantial and largely
was responsible for growing deficits in Nigerian government budgets. The
deficits were financed by short-term domestic borrowing, which resulted
in rapid increases in the internal debt. Military expenses, along with reduced
exports and capital inflows, contributed greatly to a drain on external
reserves. Despite limitations on unessential imports, and the accumulation
of considerable arrears on current payments, substantial balance-of-payments
deficits were incurred. The combination of large domestic borrowing by
the government and restrict:ons on consumer imports has resulted in ser;oa-.
price inflation since 1969.
29. . nv nment spending has continued to increase since the war and
probably will remain at a high level. Because a rapid demobilization is not
planned, military expenditures will continue at a high level for some time.
Moreover, transfers to the states J other non-defense spending rose
substantially in 1971 and probably will continue to grow in importance
as reconstruction and recovery activities are carried out. On the other hand,
current revenues, and especially petroleum revenues, also are expanding
rapidly.
30. Since the war the government has announced ambitious plans for
reconstruction and renewed development. So far, ! udget surpluses have not
materialized for financing the projects, and actual investment in the first
year of the plan (FY 1971) apparently was less than planned despite
continued extensive domestic borrowing. By 1972, however, petroleum
revenues probably will have increased enough to more than cover current
government expenditures, leaving a small surplus for development spending.
31. Nigeria has considerable resources for economic development -
a booming petroleum industry, a diversified agriculture, a large domestic
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market, a growing manufacturing sector, and a relatively well-developed
infrastructure. Nevertheless, it is still a poor country and its prospective
petroleum earnings are not large in relation to a population of some 55
million. By about 1973, annual petroleum earnings in excess of $1 billion
should finance government development expenditures of some $500 million,
or around $10 per capita. This is an average rate of investment by African
standards. However, it is far too small to affect significantly the way of
life of most Nigerians for many years, even though the modern sector of
the economy may grow rapidly.
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