Drivers of Pro-Poor Change in Nigeria - GSDRC · Drivers of Pro-Poor Change in Nigeria This is a public document. The views expressed here reflect those of the author(s), and not

This is a public document. The views expressed here reflect those of the author(s) and not that of official DFID policy.

Drivers of Pro-Poor Change in Nigeria Report to DFID Nigeria

May 2003

Drivers of Pro-Poor Change in Nigeria

This is a public document. The views expressed here reflect those of the author(s), and not that of official DFID policy.

Oxford Policy Management, May 2003 ii

Preface/Acknowledgements

This report has been prepared by a core team from Oxford Policy Management comprising Stephen Jones (Team Leader), Evelyn Dietsche (Political Scientist), Tim Ruffer (Economist), Kathryn Nwajiaku (Political Scientist) and Astrid Cox (Research Assistant). There have also been contributions from Alex Duncan, Gavin Williams and Raufu Mustapha.

The report benefited from detailed comments and discussions with Chris Pycroft and Chris Heymans and with other DFID staff and Nigerian experts, as well as from feedback from a presentation of the conclusions in Abuja on April 2nd 2003 and on draft versions of the main report and annexes.



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Table of Contents

Preface/Acknowledgements ................................................................................................ ii

List of Tables and Figures ...................................................................................................v

Summary Report..................................................................................................................7

1. Introduction ............................................................................................................................ 7

2. Framework ............................................................................................................................. 7

3. Overview of Main Findings..................................................................................................... 3

Interpreting International Experience on Growth and Poverty Reduction.................................. 3

Economic Issues for Nigeria ...................................................................................................... 6

The Political Economy of Change in Nigeria ............................................................................. 7

4. Possible Agents of Change in Nigeria.................................................................................... 8

5. Possible Entry Points for Donor Engagement...................................................................... 11

Annex 1 Drivers of Change – Concepts and International Experience ..............................13

A1.1 Introduction ................................................................................................................... 13

A1.2 Defining and Identifying Drivers of Change .................................................................. 13

Framework for Understanding “Drivers of Change”................................................................. 13

Elements of the Framework..................................................................................................... 14

Some Themes ......................................................................................................................... 17

A1.3 Political Economy of Institutional Development – Overview of the Literature ............... 18

The Problem ............................................................................................................................ 18

The Political Economy Literature ............................................................................................. 19

Structuralist Approaches.......................................................................................................... 21

Economic Analyses of Politics: Public Choice Theory and Economic Reform Literature ........ 23

Institutional Economics ............................................................................................................ 25

Historical Institutionalism in Comparative Political Economy................................................... 30



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A1.4 International Experience – Policies and Institutions for Pro-Poor Growth .................... 32

Explaining Economic Growth Performance ............................................................................. 32

Pro-Poor Growth...................................................................................................................... 35

Resource Abundance and the Staple Trap.............................................................................. 35

A1.5 Conclusions and Implications ....................................................................................... 36

Annex 2: Economics of Growth and Poverty Reduction in Nigeria ....................................37

A2.1 Introduction ................................................................................................................... 37

A2.2 Economic Performance................................................................................................. 37

Economic Characteristics ........................................................................................................ 37

Economic Policies 1960 to present.......................................................................................... 37

Summary ................................................................................................................................. 40

Structure of the Economy ........................................................................................................ 42

External Debt ........................................................................................................................... 47

A2.3 Poverty.......................................................................................................................... 48

Characteristics and Trends in Poverty..................................................................................... 48

Poverty-Growth Linkages ........................................................................................................ 49

A2.4 Fiscal Policy .................................................................................................................. 50

A2.5 Requirements for Pro-Poor Growth .............................................................................. 52

Annex 3 Political Economy of Change in Nigeria...............................................................61

A3.1 Introduction ................................................................................................................... 61

A3.2 The Developmental State and Nigeria .......................................................................... 62

A3.3 Patterns of Institutional Reform..................................................................................... 64

Organisation of the Federal System ........................................................................................ 64

Revenue Sharing Arrangements and Local Government ........................................................ 66

The Role of the Executive and the Regulation of Party Competition....................................... 67

Failure of Fiscal Control........................................................................................................... 69

Discussion ............................................................................................................................... 71



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A3.4 Agents of Change? Interest Group Organisations ........................................................ 71

Politically Motivated Cultural or Ethnic Groups........................................................................ 72

Politically Motivated Religious Movements.............................................................................. 75

Traditional Rulers..................................................................................................................... 77

The Military .............................................................................................................................. 78

Professional and Labour Organisations................................................................................... 79

Home Town and Community Associations .............................................................................. 82

Human Rights Organisations and Democratic Reform Movements ........................................ 85

Political Parties ........................................................................................................................ 86

A3.5 Conclusions .................................................................................................................. 88

References/Bibliography....................................................................................................89

List of Tables and Figures

Table 1: Enabling Environment for Private Sector Led Growth 7

Table 2: Approaches to Political Economy Analysis 21

Table 3: Composition of GDP Growth 1972-2001 42

Table 4: Estimated output of major agricultural, fishery and forestry commodities 45

Table 5: Exports by groups of products, 1980-96 46

Table 6: Incidence of poverty by region (%) 49

Table 7: Expenditure functions of Nigeria’s tiers of government 51

Table 8: Main elements of an enabling environment for the private sector 54

Table 9: Classifications of Forms of State 63

Table 10: Ministerial Appointments and senior civil service posts post 1999 69

Table 11: Party Strength 1999 87

Figure 1: Understanding Socio-Economic Change Processes 2

Figure 2: Framework for Understanding Institutional Change 14



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Figure 3: Four Main Groups of Political Economy Literature 19



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Summary Report

1. Introduction

This study is Component One of DFID’s “Nigeria’s Drivers of Pro-Poor Change” Initiative. This component aims to identify generic factors that could drive “pro-poor change” in Nigeria. The Terms of Reference state that the report should:

• Identify and summarise the various potential drivers for change that exist in Nigeria.

• Analyse the likely or confirmed strengths and weaknesses of these drivers in the short, medium and long term.

• Recommend which drivers are most likely to achieve pro-poor change in Nigeria.

The intention is that further components of the initiative will involve more detailed study of the key potential drivers identified through this component.

This report presents a summary of the analysis and arguments presented in detail in the three annexes, together with an assessment of the implications of this analysis for the identification of “Drivers of Change” in Nigeria.

The summary report is structured as follows. Section 2 discusses the framework that has been applied for the study, especially in terms of the way in which the concept of “Drivers of Change” has been interpreted and what pro-poor change might be taken to comprise. Section 3 provides a summary of the key issues and findings that are discussed in detail in the Annexes. Section 4 discusses potential “Agents of Change” in Nigeria. Section 5 examines “Entry Points” for possible donor action.

2. Framework

The issue of the identification and analysis of “Drivers of Change” has recently come to prominence and has been a particular focus of interest for DFID in its Country Assistance Plan process. However, a consistent terminology and methodological approach has not yet been established with the result that there tends to be some confusion about the scope and definition of the terms used.

For this study, we have proposed a very general framework for understanding socio-economic change processes, and in particular for interpreting the large theoretical and empirical literature on the causes of differences between countries in both overall economic performance and poverty reduction impact. This framework is summarised in the figure below.



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Figure 1: Understanding Socio-Economic Change Processes

The main features of the framework are the following:

1. A distinction is made between structural features (natural and human resources, economic and social structure, and other non-institutional facts), institutions (the frameworks of rules structuring the behaviour of agents), and agents (individuals and organisations pursuing particular interests).

2. There are in principle causal links running in both directions, between structural features and institutions, as well as between institutions and agents. The framework is therefore not deterministic, although it can incorporate deterministic theories.

3. Actions by specific agents can affect the institutional framework. Agents can also affect structural features and processes, but in a way that is mediated by the institutional framework. In the same way, structural features impact on agents in a way that is in principle mediated through institutions. Institutional performance is therefore central to understanding change processes and how they will impact on the poor.

4. The framework is dynamic since it will be changes in structural features or institutions or the behaviour or interests of agents that will function as drivers of change of the system as a whole.

5. Within this framework the State appears as a set of institutions. However it is also potentially an agent – depending on the degree of autonomy that state action exhibits from particular interest groups, and the coherence of the objectives that are manifest in state actions.

The purpose of the framework is to provide a structured approach to the analysis of change processes within an economy or society, specifically as they impact on the poor. The focus of interest is on how institutional changes that have the potential to benefit the poor can be brought about in a particular national context. Institutional changes affecting the poor may be “driven” by

Structural Features

Institutions

Agents




changes in structural features (socio-economic processes such as urbanisation or the emergence of new industries, for example).

On the other hand, motivated agents for instance politicians or civil society organisations, may be able to initiate or facilitate pro-poor institutional changes. These agents may be pursuing objectives that are directly related to poverty reduction (for instance they may be representatives of the poor) or they may instead be pursuing interests that are in a particular case complementary to those of the poor (for instance commercial interests with an interest in improving infrastructure and some elements of the business environment).

The concept of pro-poor change can be defined in several ways. Generally, the development process will be more “pro-poor” to the extent that:

• Economic growth drivers are such as to create demand for the resources and skills to which the poor have access (for instance, growth based on labour-intensive manufacturing and services or on smallholder agriculture, will be more pro-poor than growth based on the capital-intensive exploitation of mineral resources).

• The more the resources of the poor are enhanced (particularly through improved health, education, transport and communications infrastructure) to enable them to exploit the opportunities that growth processes may create.

• Institutions of particular relevance to the livelihoods of the poor are accountable to them and/or responsive to their interests.

The issue is therefore how a country might move from a situation in which economic growth is weak and narrow in its impact, the resources of the poor are limited and eroded, and institutions are unresponsive to their needs, towards sustainable, rapid, and relatively pro-poor growth.

For the purposes of this report, the term “Driver of Pro-Poor Change” is taken to refer to processes of socio-economic change that create opportunities for more rapid economic growth, that enhance the resources of the poor, or tend to make institutions more responsive to their needs. “Agents of Pro-Poor Change” are those agents who have both sufficient influence to bring about institutional changes that will have these effects and interests that either coincide with or are complementary to those of the poor.

The interests of the poor may be directly reflected in the political process (e.g. through mass political movements that articulate them) or indirectly (e.g. through the impact of fear of rural insurrection on the behaviour of the political elite).

3. Overview of Main Findings

Interpreting International Experience on Growth and Poverty Reduction

The types of policies that favour relatively high and relatively pro-poor economic growth emerge reasonably clearly from the international literature. Key policies, institutional and structural features favouring strong and pro-poor growth include:

• Macroeconomic policy that achieves stability (avoiding severe inflation).




• Successful financial deepening.

• Effective protection to property rights and the avoidance of pervasive government interference in price setting.

• Investment in human capital (particularly basic health and education)

• Investment in infrastructure and research and development that yields improvements in agricultural productivity.

• Relatively equitable income distribution.

The challenge is not so much how to identify the appropriate institutions and policies, as how to bring these conditions about in the context of countries that lack key elements of the desirable institutional framework and where structural conditions militate against institutional improvement. North (2001) summarises the task:

“ We know both the economic conditions and the institutional conditions that make for good economic performance. What we do not know is how to get them. For that, we need a body of theory that explores the process of economic, political and social change. When we have such a theory, we will make much better progress toward solving the problems of development.”

International experience has called into question traditional models of economic growth that have concentrated on the type of “steady state” growth enjoyed by the USA and many European countries where average economic growth rates have typically remained within a fairly narrow range over many decades. The experience of developing countries is much more diverse. A small number of developing countries have enjoyed extremely rapid and sustained growth (exceeding 5% per capita per annum). Others have grown rapidly for a period of time and have then suffered a growth collapse. Still others have been economically stagnant over long periods of time. Temple (1999) notes that “relatively few countries have done consistently well and averaging over long periods tends to obscure the episodic nature of growth, particularly in Sub-Saharan Africa.” Collier and Gunning (1999) suggest that part of Africa’s poor growth performance can be explained by variables measuring environmental and institutional factors. However, even allowing for this investment in Africa appears far less productive than in other developing countries. They argue that the additional explanation lies in the failure to create social institutions that promote growth rather than risk mitigating behaviour for both smallholder farmers and manufacturing enterprises – the problems of managing competition between a small number of powerful ethnic groups is presented as an important explanatory factor.

Auty and Gelb (2001) identify two broad types of state model that have been successful in pursuing developmental and relatively pro-poor policies. One model is the “Developmental State” that has been typical of successful development strategies in East and South East Asia. This model is characterised by:

• A determined developmental elite, in:

• A weak and subordinated civil society, which confers:

• Relative autonomy, that is deployed by:

• A powerful, competent, insulated economic bureaucracy, in:




• The effective management of non-state interests, while:

• Political legitimacy is conferred first by repression, and then by performance.

An alternative, less authoritarian, model that has achieved development success has been the “factional democracy” which has succeeded in providing an effectively consensual means of conflict resolution and maintaining effective budget constraints and the use of market mechanisms for allocation – examples include Botswana, Malaysia, and post-Pinochet Chile.

Within this framework, the autonomous state has the capacity to formulate and pursue its own objectives, while a factional state is beholden to political groupings that must be appeased. Whether a factional state can pursue an effective developmental strategy depends on whether political competition between factions focuses on effectiveness of government performance (particularly in service delivery), or on the sharing of rents in a manner that encourages a short-time horizon and is damaging to the process of wealth creation through the private sector.

The Nigerian state is best represented within this model as a factional oligarchy in which policy has generally been captured by a military and regional/ethnic elite, but in which there are strong pressures from other elite groups that require accommodation by the ruling elite – which is not itself a single or united group. Nigeria has conspicuously failed to achieve a hardening of budget constraints or a reliance on the market to guide resource allocation, and has failed under any political regime to move towards a consistent pursuit of developmental objectives, rather than the division of rents derived from oil revenues.

One of the most striking findings from the international experience has been the poor performance of resource abundant economies, while mineral-resource rich economies have been among the weakest of all economic performers. Auty (2001) notes how the literature has demonstrated the way in which

“natural resource rents can be a source of conflict, corruption and policy failure, especially in the case of the factional political states that are associated with heterogeneous societies.”

In such circumstances, the flows of rent from natural resources are prone to be competed away in rent-seeking and other non-productive uses.

Auty and Gelb (2001) describe three mechanisms by which resource rents are redistributed within natural resource abundant economies – protection, job creation, and overspending. They note a chronic tendency for the state to become overextended in the face of large fluctuations of resource prices and as a result of an inability to control and manage the process of competition for rents. They argue that “ political competition for rents, combined with non-transparent mechanisms of redistributing them (and in some cases accounting for them), make it more difficult for governments to moderate spending levels in response to fluctuations. With lucrative procurement contracts at stake, many projects undertaken by resource-rich governments are valued for their immediate income-generating effects rather than their growth-enhancing potential.” Nigeria can be seen as suffering from the “staple trap” syndrome, in which inefficient investment in protected industrialisation leads to an increasing, rather than reducing, dependence on the staple export resource.




Economic Issues for Nigeria

Nigeria’s economy is highly dualistic – the rural, agriculture-based sector encompasses about two-thirds of the population who are living in poverty. A smaller, urban, capital-intensive sector has benefited from the exploitation of the country’s natural resources and from service provision. The oil sector dominates the economy, though its fortunes are highly dependent on fluctuations in the world oil price. Oil has accounted for up to 46% of GDP, 77% of government revenue, and 85% of foreign exchange earnings.

The mismanagement of oil resources has been the major feature of Nigeria’s economic policy. Public expenditure has been strongly procyclical – expenditure has increased rapidly when oil prices and revenues have been high, and real exchange rate appreciation has been allowed to severely undermine the production of other tradable goods. The increase in public employment has created a ratchet effect under which it has been difficult to reduce expenditures in response to reduced revenues. External debt mushroomed as the government borrowed against the prospect of oil revenues – with total external debt increasing from US$1.5 billion on average from 1972-6 to US$31.1 billion by 1987-91. External debt service has been capped at around US$ 2 billion since 1991, leading to an accumulation of arrears valued at nearly US$15 billion by the end of 2002. Over two-thirds of debt is to the Paris Club of creditor governments.1 External aid has been of little macroeconomic significance, not exceeding an average of slightly over US$2 per capita.

There is no accurate and recent data on poverty in Nigeria. The most recent data is from 1996 which suggest that poverty incidence is higher in rural than urban areas and that there is a regional dimension with poverty being more widespread in the North than the South – there is also some evidence that during the 1990s poverty incidence worsened in the North while it may have fallen in the South. The World Bank’s “Voices of the Poor” study highlighted the main causes of poverty as livelihood and employment insecurity, crime and conflict, and social exclusion. The poor face severe problems in access to public services, with women facing particular problems of lack of opportunities and limited coping strategies. It is estimated that the richest 20% of the population receive over 55% of income, while the poorest 20% receive 4%.

The management of revenues from oil has been at the heart of Nigeria’s macroeconomic difficulties and poses major problems for the effective delivery of services by governments at different levels. State governments receive only 10-20% of their resources from their own sources, and have little control over the size of their revenues as well as facing highly unstable revenues from year to year under the allocation formula. The revenue sharing arrangement that distributes Federal Account receipts according to a fixed formula to different levels of government provides virtually no room for manoeuvre on fiscal policy.

The IMF argue that “fiscal indiscipline is the single most important threat to the economy and the financial sector today”. Addressing the fiscal management problem is a prerequisite for improving the effectiveness of publicly provided social services and infrastructure.

Development of the non-oil private sector will be the key to pro-poor growth in Nigeria. This will require an improvement in the investment climate, sound macroeconomic management, reduced

1 So far in 2000, Nigeria has received only a postponement of its debt service and has not been granted access to HIPC terms (because it has not been treated as having IDA-only status). The huge size of its debt appears to be the main reason why this has not occurred. HIPC terms would provide for cancellation of around US$ 20 billion of debt (Martin, 2003).




corruption and better infrastructure and financial services. It will also require the removal of price distortions and the liberalisation of the trade regime. There are significant problems relating to land tenure laws and the security of property rights as well as in rural road quality.

Table 1 summarises the main elements of an effective enabling environment for private sector growth and an assessment of the situation in Nigeria.

Table 1: Enabling Environment for Private Sector Led Growth

Element of Enabling Environment Situation in Nigeria

Conflict-free zone with inclusive economic and political system.

Internal conflict common. Parliamentary constitution but politics patrimonial with widespread corruption.

Functioning and reliable justice and security systems.

Poor often lack access to justice system. Lack of security cited as one of the main concerns of the poor.

The observance of basic human rights. Provided for under Constitution, but often abused.

Adequate basic infrastructure (e.g. water, sanitation, telecoms).

Rural roads, telecoms, power, water and sanitation very poor.

Functioning level and regulatory environment minimising market distortions.

Administration slow and opaque.

Fiscal policies such as a stable exchange rate and low inflation.

Large fiscal deficit; budget dependent on oil revenues and therefore unstable. Moderate inflation. Exchange rate over-valued and subject to periodic large adjustments.

Financial sector stability with transparency. Little transparency in state sector; under-developed private finance.

Political and social empowerment, including promotion of equality of opportunity.

Widespread disempowerment and exclusion especially for poor.

The Political Economy of Change in Nigeria

Nigerian politics has been based around a complex and shifting set of alliances and conflicts around two principal, and many subsidiary, divides. These have been a tripartite regional/ethnic divide (North – Hausa/Fulani, South West – Yoruba, South East – Igbo) and a Christian/Muslim divide. Regional/ethnic and religious politics have been of far more significance than class-based politics. Since the 1970s, the focus of political competition has been principally over the division of oil revenues and access to the flow of resources controlled by the government.

Nigerian political leaders have faced the endemic problem of maintaining national unity and containing violence within a polity that lacks a unified tradition or faces external pressures favouring national unity. In the absence of strong or effective state institutions, this has been




achieved through a patrimonial political system that has sought to incorporate elite groups and their clients in the sharing of access to state resources under the general hegemony of Northern elite groups focused on the military. While national unity has been maintained since the failure of the Biafran succession, and violence generally controlled to local level outbreaks, this has been at the cost of failing to achieve fiscal control, the destruction of “accountability to rules” or respect for public institutions, and a continuing fragmentation of the state in response to claims from those considering themselves disadvantaged under the current system and through its use as an instrument of patronage.

A variety of regimes have tried with differing degrees of commitment to pursue reform agendas, focusing on the revenue-sharing arrangements between regions and levels of government, the structure of state and local government, the party and electoral system, and attempts to achieve fiscal discipline. Although there have been some periods of relative success, the most striking feature is the persistent failure of reform initiatives to effect decisive change towards the improvement of economic management.

An examination of a wide range of interest groups and civil society organisations shows how they have often played an important political role (for instance the role of a number of human rights organisations in opposition to the Babangida and Abacha regimes) and in promoting the interests of communities (for example Home Town Associations in Southern Nigeria, and environmental protest groups in the oil producing states).

Such organisations face significant pressures to articulate the interests of particular groups within the patrimonial system. This may limit the extent to which they can than challenge the way in which this system works. This may limit the extent to which some of them may operate as Agents of Change at the system level, although there are notable generational splits in particular within ethnic and regional movements. Organisations with a more radical agenda (or in particular their leaders) are likely to be co-opted into the patrimonial system.

The key issue for Nigeria is the extent to which the “normalisation” of democratic politics that the 2003 election represents (for all its flaws – in particular the lack of coherent articulation of policies or serious discussion of issues) presents an opportunity for embedding change, following the long period of often arbitrary military government. There is evidence that “accountability to rules” while weak is strengthening, for instance in relation to the active constitutional debate (and the role of the Supreme Court) over state and federal finance. For the first time, the system of decentralisation and democratic control that has been set out in Nigeria’s constitutional arrangements for many years is being implemented. The military is weak and widely regarded as discredited by the long experience of corrupt and ineffective military rule culminating in the Abacha regime. While there is disappointment at the failure of the Obasanjo presidency in its first term to live up to expectations and to tackle more effectively the major development issues facing Nigeria, there are potential entry points and some prospects for change arising from the greater effective autonomy of state and local governments, and the development of mechanisms for accountability.

4. Possible Agents of Change in Nigeria

The overall conclusion is a relatively pessimistic one about the extent to which socio-economic change processes in Nigeria are likely (in the short- to medium-term) to serve as Drivers of Pro-Poor Change through creating pressures for institutional reform, or by changing the perceived interests and behaviour of influential individuals and organisations to provide stronger incentives for reform. At the structural level, change processes do not seem particularly favourable to




accelerated and pro-poor growth. The overwhelming economic dependence on revenues from oil remains (though price uncertainty particularly in relation to the future of OPEC is significant), and the prospects of the exploitation of the abundant natural gas reserves will tend to reinforce the natural resource dependence, unless the management problems are solved. At the human capital level, there appears (on the basis of data on literacy rates) to have been a significant improvement in the education level of the population, but the threat of AIDS is likely to severely erode the human capital base, given the tendency across Africa of the disease to spread rapidly among the better educated and elite groups and its focus on the most economically productive age segment of the population.

The potential barriers to change are demonstrated in the model developed by Dalmazzo and de Blasio (2001) which focuses on the incentives of self-interested governments to take actions that can be partly in the interest of society. Good policies tend to reduce the fraction of national surplus that the ruling elite can extract by restricting the mechanisms for rent extraction. Governments that are not responsive to wider social objectives and pressures have less incentive to reform when country’s resources are abundant. It is likely that a ruling elite will react to positive resource shocks by implementing worse policies in order to increase consumption.

In the absence of strong structural “Drivers of Pro-Poor Change”, the prospects depend on whether there are agents who have both the influence to effect significant change, and interests that are at least complementary to those of the poor. Initial hopes that the transition to democracy in 1999 would have been associated with an increased focus on development issues and a tackling of some of Nigeria’s fundamental institutional and policy problems were not realised. However, as noted above, the process of political normalisation is creating opportunities and entry points and is likely to change the perceived incentives and “rules of the political game” at least for some agents.

Possible agents of change in the Nigerian context are therefore likely to include the following:

• Elements of the political elite that are committed to an inclusive and developmental programme.

The normalisation of politics, and the removal of the threat of imminent military intervention, should create conditions under which the prospects for strengthening accountability to rules. Politicians playing an active oversight role and an initiating role in legislation focused on improving service delivery may improve. While the National Assembly failed to play this role during the 1999-2003 period, opportunities to strengthen the policy and oversight roles may emerge.

• State or local governments with a commitment to service delivery.

The effective autonomy that lower levels of government now possess means that there is scope for a wide divergence between the performance of different states or local governments. Those states which demonstrate a commitment to service delivery and accountability in their operations provide possible agents of change both at the individual state or local government level, but also potentially on a wider systemic basis if there are routes by which lessons can be learned.

• Civil society organisations that are effectively demanding accountability from the state or are providing services or livelihoods to the poor.




Nigeria has a wide and diverse range of civil society organisations. While the purpose of many of these organisations is to strengthen the access of particular groups to the patrimonial system, many play an important role in service delivery or the livelihoods of relatively poor people. Civil society organisations that are effective at demanding accountability or service provision may play a wider role as agents of change. It is likely to be only through effective civil society action that the voices and interests of the poor can be strengthened and the accountability of government for service provision to service users be enhanced.2

• (Domestic) private sector enterprises that require an improved enabling environment.

In many countries, business and private sector interests have played an important role in both lobbying for and sometimes financing and facilitating improvements in infrastructure and the regulatory environment for the private sector. As well as directly improving the environment for businesses, this may have a wider impact in improving accountability and service provision. The danger however is that private enterprises can also benefit from using lobbying for sectional and protective purposes. Within the current operation of the Nigerian political and economic system (and given the high levels of protection accorded to many enterprises) it is plausible that lobbying activities by the private sector might in general focus on obtaining access to favours and privileges rather than pressing for broad improvements in the way in which the public sector operates. However, there are emerging networks and organisations within the private sector, often involving Nigerian business people with high levels of education and international experience that may function as a pressure group for broader accountability against rules.3 Again, it is the way in which the rules of the political game operate (and how the consolidation of democracy does or does not change them) which will determine the incentives for collective action by the private sector.

• Private sector enterprises that are susceptible to external pressures for accountability and transparency (oil companies, other transnational companies operating in Nigeria).

Transnational enterprises may play a role in lobbying for systemic improvements in the same way as the domestic private sector. However, the increasing corporate social responsibility requirements facing transnational enterprises may create an additional incentive and source of pressure for such enterprises to operate in a more transparent manner. This may provide both a direct and a demonstration effect in changing business practice.

2 A civil society movement that aims to strengthen accountability of elected representatives to respond to the public good is emerging. For example, in the Niger Delta there is concern from Community Based Organisations that government lacks accountability for the use of the increased resources flowing into the area. There are initiatives to monitor the actions of the Niger Delta Development Corporation (NDDC). In the Middle Belt and the North there have been initiatives (e.g. from CAPP) to develop a culture of town hall meetings to challenge local patrimonial systems. Similarly at the national level, there are initiatives to review the Budget, and CSOs have been involved in formulating the anti-corruption bill and in promoting the Freedom of Information Bill. These points are due to Emma Ezeazu. 3 Examples include GGG, the Monthly Dinner Group, and Concerned Professionals. This point is due to Pat Utomi.




A final category of agents for change is foreign governments and international development agencies. For most governments (including the UK), bilateral aid programmes with Nigeria are not large enough to provide significant financial leverage, and policy influence will depend on the extent to which relationships of trust and productive policy dialogue are developed. However, as major holders of Nigeria’s external debt, the terms on which debt forgiveness or rescheduling is allowed is a potentially significant source of leverage.

5. Possible Entry Points for Donor Engagement

International experience presents a number of cases where countries have moved from economic stagnation or crisis onto a significantly more rapid growth path. In many cases in Africa (for instance Uganda and Mozambique) this has followed an intense economic crisis (in both cases associated with conflict and economic policies that were biased against productive activity and generated macroeconomic stability). In other cases such as Ghana, an initially successful process of economic reform was undermined by a failure to achieve and maintain macroeconomic stability. In each of these cases, successful reform was the result of governments having experimented with heterodox policy solutions and found them unsatisfactory, while donor support played an important initial role in providing policy advice and access to initially limited adjustment finance to facilitate the early stages of reform. In these cases the principal agents for change have been within the ruling elite, with senior policy advisers enjoying the confidence of political leaders (and often with links to international agencies) playing a decisive role.

The World Bank LICUS (Low Income Countries Under Stress) initiative sought to identify how development agencies should engage in countries that are characterised by very weak policies, institutions and governance and where experience suggests that aid does not work well. An important sub-class of LICUS countries is those like Nigeria that are resource-rich but “policy [and institution]” poor, where there may be little case for the provision of financial assistance. The initiative concluded that international development agencies operating in such countries should seek to identify a highly focused reform agenda – that concentrates on reforms that are important in economic terms and that are likely to result in a rapid and substantial payoff, but that are also feasible in political terms. These reforms can be used as an entry point around which capacity building and outcome monitoring can be coordinated. The intention is that the initial reforms may then reinforce the constituency for change, inducing further reform. At the same time, the strategy for improving basic social outcomes is to supplement weak central government delivery by strengthening multiple alternative channels, bearing in mind that ultimate goal is strengthened and sustainable government capacity.

Four potential entry points may be identified here that involve reform measures that may be politically feasible and which might provide an opportunity to build a constituency in favour of a wider reform agenda.

• Improving macroeconomic management especially in relation to oil price volatility.

• Reinforcing progress towards the normalisation of democratic politics, particularly the strengthening of accountability and oversight mechanisms, both through strengthening systems of accountability within government, but also through support to CSOs that are aiming to challenge the patrimonial system and to build pressures for accountability both to rules and to service providers.




• Support to the privatisation process that may generate improvements in service delivery, fiscal savings, and a strengthened demand for improvements to the regulatory system.4

• Working at state and local government level with administrations committed to improving the quality of service provision and to improving management practice.

This list is not presented as being exhaustive, but as a starting point for further investigation. Detailed studies of both agents of change and potential entry points are required.

4 While privatisation of the telecommunications system has not been successfully completed, the associated reforms allowing the establishment and rapid growth of the mobile phone market has been one of the most significant recent economic developments in Nigeria.




Annex 1 Drivers of Change – Concepts and International Experience

A1.1 Introduction

This annex presents (in section A1.2) a framework for understanding the concept of “Drivers of Change” and discusses first (in section A1.3) the political economy literature and then (in A1.4) relevant international experience in relation to the framework articulated. The final section (A1.5) presents conclusions.

A1.2 Defining and Identifying Drivers of Change

The importance of the institutional framework5 in explaining differences in growth and poverty reduction performance is now generally recognised in international development policy. While the set of policy and institutional requirements to support accelerated and relatively pro-poor growth is now empirically quite well-established (as is discussed in section A1.4), the means to bring these conditions about in poorly performing economies, and the role that international development agencies may play in this process, are much less clear. Successful institutional change hinges on underlying political processes and only the process of institution building can only be regarded as a technical engineering problem in certain circumstances6. More generally – and particularly in the economies with the deepest problems of governance and poverty – it is necessary to examine the role of power relationships and to understand the capability and legitimacy of state institutions and the dynamics of state-society relations.

Framework for Understanding “Drivers of Change”

The approach adopted here is to emphasise that institutions must be understood in relation both to the “structural features” of an economy, and to the agents whose actions they constrain. However, it will not generally be an adequate analysis to regard structural features as determining institutions, which will then determine the behaviour of agents. Causation operates in the other way too – the actions of agents alter the institutional framework, and so can influence structural features of the economy.

Figure 2 illustrates the interrelations and the logic of the framework used. The key point is that while structural features influence institutions, there is also feedback from institutional arrangements to structural conditions (for instance, the level of economic development). The main feature of the framework is that institutions are in a necessarily mediating position between structural features and agents. The framework also does not presuppose a causal hierarchy – it can accommodate a wide range of theoretical positions about the causal relationships between these elements.

5 Where institutions are understood in the sense of Douglas North as sets of rules that constrain the interaction of agents. 6 See DiJohn, Jonathan and James Putzel (2000) and Khan (2002).




Figure 2: Framework for Understanding Institutional Change

While the terminology of Drivers of Change has been important in identifying a set of issues of fundamental importance for effective development assistance policy, there are some ambiguities in the use of the terminology in DFID-supported work to date. For example, the concept of “Drivers of Change” has been applied to (a) agents such as particular organisations, classes, or interest groups (b) policy and institutional reform processes, and (c) broader processes of economic and structural change.

The terms of reference for the wider process of which this study forms part suggest that “Drivers of Change” can best be understood as reform processes with different components that include institutions, capacity strengths and weaknesses, and political will. They are distinguished from “Catalysts of Reform” which are factors, interests and constituencies that allow barriers to reform to be overcome.

The concept of “Drivers of Change” may be understood within the framework proposed as follows. Structural Features are not a constant, but there will be broad processes of economic and social (and environmental) change – notably those driven by technology and the international economy – that will affect for example the rate of economic growth that may be feasible. Institutional reform processes will be critical to determining to what extent the possibilities of pro-poor change are realised. But these institutional change processes will be shaped by the interests, actions and interactions of agents.

This approach questions the validity of restricting the definition of “Drivers of Change” to any one of the three levels, and emphasises the need to understand the relationship between the three levels in the analysis of change processes. The framework is intended to be sufficiently general to allow its application to the understanding of social and economic change in a wide variety of contexts.

Elements of the Framework

Structural Features

Structural features are factors and processes that are potentially causally linked to institutions – though the causal relationship will not typically be one way. These factors are not necessarily

Structural Features

Institutions

Agents




constants – some will change over time driven by domestic and/or international developments. Structural features identified in the literature as potentially causally linked to institutions include:

- Natural resource endowments

- Geographical and climatic factors

- Demographic patterns and changes

- Ethnic composition

- The skills base and human resources

- Technologies

- Level of economic development

- Structures of production, distribution and exchange (including external trade)

- Distribution of income and wealth

Changes in structural features may act as Drivers of Change through their impact on institutions. For example, the “Resource Curse” literature (e.g. Gelb and Auty, 2001) argues that the discovery of a natural resource windfall, such as oil or diamonds, may fundamentally affect the institutional structure through rent-seeking competition and its ability to shape politics

Institutions

Institutions are frameworks of rules that impose constraints on actors’ interests and structure their relations of power to each other. Institutions may be domestic or international, formal or informal, and may be characterised as applying at the macro, meso or micro level. Institutions potentially relevant to explaining economic growth and poverty reduction performance include:

- Property rights and arrangements for the enforcement of laws

- The institutional framework governing markets

- Economic policies

- Trade agreements, policies and networks

- Taxation and public expenditure management systems

- International and regional relations

- Arrangements governing external aid

- The political system at national, sub-national and local level (both modern and traditional)




- Social networks (between and within different social groups)

- Ethnic and political identities and ideologies as they are manifest in structuring agents’ expectations and motivations.

Agents (collective and individual)

Agents may be individuals or formal or informal organisations. They are characterised by having interests and objectives, which are pursued within constraints defined by the institutional framework - in sum, individuals and collective political interest groups. The relationship between institutions and agents does not just relate to the way in which institutions act as constraints on agent’s behaviour. Institutions also shape the expectations and objectives of agents.

Agents that may be of particular relevance to understanding economic, social and political change (or inertia) include:

- Political parties and politicians

- Social classes

- Commercial enterprises (domestic and international)

- Business associations

- The diaspora (expatriate nationals)

- Trade Unions and labour movements

- The military and other armed groups and military leaders

- Civil (and uncivil) society groups including Community Based Organisations and NGOs (domestic and international).

- The media

- Epistemic communities (intellectuals and professionals – both secular and religiously based or traditional)

- Politically motivated religious or ethnic movements

- The civil service and bureaucracy

- International agencies

- Foreign governments (including as aid donors).

Within this framework, the state may be understood as a set of institutions but also potentially as an agent – depending on the degree of autonomy and the coherence of objectives that are manifest in state actions.




Some Themes

The interrelation between the structural-institutional contexts and individual and collective actors’ motives is important to emphasise for two reasons. It helps to explain:

1) How the whole range of state and societal institutions and structures shape how political actors define their interest and structure their relations of power amongst each other, and

2) How their choices and demands shape policy outcomes and the historical trajectory of institutions.

Existing comparative political science literature explores processes of policy change and encourages, first, a longer view of the factors that shape agents’ incentives and, second, analysis of what has driven change in the past and thus might drive change in the future7.

Three recent articles illustrate aspects of this.

Unsworth (2001) emphasises that we should examine what has driven change historically in order to understand the dynamics of change against an institutional background and agents’ incentives and capacities. This requires avoiding taking historically constructed political concepts for granted and seeking instead to understand what drove these constructions, to distil decisive factors, draw analogies and be imaginative about what could drive similar change in developing countries. Of special interest are social agents’ capacity to pose demands vis-à-vis the state and its political rulers.

Moore (2000) argues that governance problems arise if state elites are too independent of their citizens, either due to strong external financial and military support, unearned income extracted from natural resource endowments, or the capability to control commodity exports. He labels this condition ‘political underdevelopment’ and proposes to view it as the source of weak legitimacy and responsiveness to citizens’ demands. He sees the existence of political underdevelopment as a historical problem of how states were created in the developing world and how their relations to the Western world are set up. He thus proposes that a crucial variable to assess differences in state-society relations is the degree of dependence of states on their citizens, and in particular the sources of public revenue.

Jonathan DiJohn and James Putzel (2000) attempt to explain interactive processes of state formation and revenue production against historical evidence and argue that state capacity cannot be adequately analysed without endogenising power, political constraints and agents’ strategies. They reject institutional analysis based on rational choice assumptions as insufficient, because it neglects the political processes that underlie the power and legitimacy of a state to enforce rights and to extract and mobilise resources required to sustain development and growth. A historical understanding of these political processes which typically involved wars, conflict and bargaining (external and internal threats and pressures to the establishment) is required to explain wide variations in capacity between different states and to ask what processes in terms of threats and pressures could be replicated today, that would provide the same incentives for the development of state capacity that historically emerged out of warfare.

7 Amongst comparative political scientists this body of literature is referred to as ‘Historical Institutionalism’, a good overview of which is provided in Steinmo, Thelen and Longstreth (1992). Its main research focus lies on explaining differences in economic development and public policy features across Western Europe.




Common to these approaches is an attempt to widen the institutional perspective through grounding in, and reference to, literature and research in the comparative political-economy tradition.8 Fundamental to this body of literature is the proposition that agents act within the context of historically grown institutions. But it goes beyond the determinism of structural explanations by linking the structural/institutional features of policy environment with agents’ choices and preference formation. By focusing on the processes and dynamics between the institutional environment and agents’ objectives and incentives it provides the prospect of explaining long-term policy change and differences between countries.

The following section presents an overview of the literature on the political economy of institutional development. Section A1.4 then discusses the empirical record of pro-poor growth performance with a focus on Africa.

A1.3 Political Economy of Institutional Development – Overview of the Literature

The Problem

As discussed above, there is now a broad consensus that institutions are crucial for economic growth and poverty reduction, and (a less broad) consensus on what these institutions are. North (2001) thus summarises the task as follows:

‘The problem is straightforward. We know both the economic conditions and the institutional conditions that make for good economic performance. What we do not know is how to get them. For that, we need a body of theory that explores the process of economic, political and social change. When we have such a theory, we will make much better progress toward solving the problems of development.’

To seek an answer invariably requires a political economic perspective, because economic policy alternatives are assessed and institutional frameworks altered within the political arena. It is the state and those who capture it that enforce and legitimise these choices. The aim of this literature review is to give an overview of the existing political economy literature. It points out different strands of the literature in terms of explanatory variables focused on, basic assumptions made, lines of argument pursued and empirical evidence presented. These differences are important for the policy implications derived at and for identifying where scope of action exists and prospects and opportunities lie for positive policy change.

The next sub-section groups different branches of political economic literature according to the nature of the explanatory variables focused on and the lines of argument pursued. The following sections elaborate on the four groups identified.

8 The following paragraphs draw on Thelen, Kathleen and Sven Steinmo (1992)




The Political Economy Literature

According to Grindle (2001), Political Economy seeks to answer four questions using a methodologically pluralistic approach that avoids over-reliance on either market-led economic reasoning or political economic reasoning9:

“Why would government select and maintain policies that are demonstrably inefficient for economic development? Why do some governments choose to alter development policies and strategies in significant ways while other adhere to policies that are economically, socially, and politically destructive? Why are some reforming countries able to sustain new policies while others are forced to abandon them? How do institutions shape opportunities for reform?”(Grindle, M., 2001)

Because the term political economy captures a broad range of literature whose diverse strands adhere to different and sometimes conflicting assumptions and lines of reasoning, this subsection summarises four main groups according to how the explanatory variables and the relationship to dependent variables relate to the Structural Features / Institutions . Agents framework established above.

Figure 3: Four Main Groups of Political Economy Literature

Structural Political Economy Public Choice Theory Institutional Economics Comparative Political Economy/ Historical Institutionalism

Structural Features Institutions Agents

Structural political economy stresses structural features of countries to explain comparative differences in the distribution of domestic political power and development outcomes. Explanatory variables such as resource endowment, classes, political regimes and features of the international economic system determine how political power struggles are shaped and policy outcomes are likely to result. Structural political economy does not specifically focus on political agents’ interests. Determinism implies that those who benefit from the characteristics of the structural feature dominate the political sphere and policy outcomes correspond to those political agents’ interests. Rent-seeking theory most prominently belongs to this category of political economic literature, but so does Marxist political economy.

Economic analysis of politics explains political outcomes on the basis of microeconomic assumption about political agents as self-maximising individuals. Against this background, an understanding is sought as to how cooperation and collective action emerge and social and political institutions develop. A main concern is how individuals’ preferences can be aggregated without leading to socially irrational outcomes and when and how public goods are and should be 9 See also Bates (1990) on distinction between market-led economic reasoning and political economic reasoning.




provided. These approaches are agency-centred and aim at distilling general theories irrespective of structural features and pre-existing institutions. The policy-oriented branch of this literature is known as public choice theory.

Institutional economics turns public choice theory on its head and emphasises that economic and political activities take place within an institutional framework that constrains rational, self-maximising individuals and defines the strategies with which interests are pursued. Institutional economics’ historical starting point is that the complex exchange relationships among unrelated individuals that are associated with highly developed specialisations in production and large markets require sophisticated institutional structures. The state will have a special role in this because of the particular enforcement powers and legitimacy that the state possesses. Institutions govern economic exchange and are crucial for enhancing or restraining economic growth. Thus the state plays a central role in supplying an institutional framework that provides economic agents with appropriate incentives to engage in growth-enhancing economic activities. Institutional economics continue to adhere to methodological individualism and the assumption that individuals are self-maximising and rational, but attention focuses on the institutional constrains to agency and institutions’ role in aggregating individuals’ preferences in order to prevent socially negative outcomes.

Historical institutionalism (or comparative political economy) shares institutional economics’ focus on the analysis of institutions, but puts stronger emphasis on the reciprocal relationships between structural features, pre-existing institutions, agents’ pursuit of interests and agents’ leverage for driving institutional change. It addresses the question of how political coalitions with influence over the state formulate their interests, what might have led them to promote and enforce institutional change and how do institutions mediate political struggles and subsequently influence the process of politics and policy-making. Existing institutions can be viewed as constraints to, as well as the product of, purposive initiatives of goal-oriented actors which strengthens a historical perspective that does not rely on equilibrium analysis. The historical dimension points out that prospect for political and institutional change in any country are partly determined by its history. Institutional heritage is crucial for the shaping of the goals that actors pursue and the power relations between them, privileging some and disadvantaging others. Political behaviour can also be an independent social force and analytical factor in its own right as political agents struggle over the contents of policies and the design of institutions. Historical institutionalism relaxes the methodological individualist assumption of “rational” individuals and seeks to explain interest formation, allowing for the possibilities that individuals’ and groups’ interests could be social and politically constructed within a particular historical background. The conceptualisation of political actors as objects and agents of history allow the integration of structural and institutional features and interests and does not prescribe which element provides the starting point.

The pros and cons of these four groups of political economic approaches are clear: Whilst theories that set out from one of the two extremes (Structural political economy and public choice theory) enjoy the advantages of theoretical clarity and parsimony, they pay less attention to the fact that political and social processes are highly contingent. Particularities in the interaction of structural features, institutions and agents’ interests determine the more subtle differences in economic, political and social outcomes and therefore the concrete possibilities for positive and negative change. Contingent approaches (institutional economics and historical institutionalism) capture the particularities of and differences between countries and highlight processes and dynamics. They are naturally less parsimonious and the causal explanations they generate are less general but more country-specific. The question is what are the potential generic relationships between the three elements of the analytical framework.




Table 2: Approaches to Political Economy Analysis

Basic Assumptions

Parsimonious

Contingent

&

Focus on Institutions

- Rational Choice

- Equilibrium Analysis

Public Choice Theory/Economic Analysis of Politics

A I

Institutional Economics

I A

Historical

- Different or no specific Agency Theory

- Paying attention to Structural Features

Structural Political Economy

S (I=A)

No explicit agency theory

Possibly historical

Historical Institutionalism

S I A

Different Agency Theories

Non-Equilibrium

Historical

Structuralist Approaches

Rent-seeking theory is a commonly known and important structuralist political economic theory in the context of developing countries. Rent seeking theory employs a structural explanatory variable - natural resource endowment - to explain state failure and unproductive economic activities in developing countries. Its proponents argue that large levels of natural resources relative to income generate inefficient rent-seeking and hamper productive economic activities. If a state is well endowed with natural resources, political agents put their efforts towards capturing these rents and this behaviour increases the level of distributive conflicts, which in turn increase both the incidence of civil war and the level of corruption.

Rent-seeking theory develops from the work of Krueger (1974). For instance, Auty and Gelb (2001) develop the argument that a country’s natural resource endowment explains political fragmentation and the predatory nature of governments. Resource abundance is seen as a




structural curse that causes patronage politics and fractional, predatory governments with the result that policy outcomes restrain growth. Predatory governments maximise the exploitation of the resource base and neglect to formulate and support policies that nurture industrialisation and economic development. Compensating strong domestic interest groups who might otherwise question government’s legitimacy might lead to further inefficiencies. A vicious circle of rent-seeking behaviour perpetuates and causes long-term policy failure10.

Empirically Collier and Hoeffner (2001) set out to verify whether natural resource abundance consequently results in policy failure in form of domestic conflicts. On the basis of a quantitative study they find that states well endowed with natural resources do indeed carry a higher risk of facing domestic conflicts.

Rent seeking theories have also pointed out that if a state gains a large proportion of its revenue from resource rents, state-decision makers are less dependent on levying domestic taxes on citizens. The argument is that if state revenue is not generated from taxing citizens, political leaders are less dependent on citizens and therefore less accountable to them. If leaders do not have to be accountable, states are more likely to be predatory and distributional conflicts are more intense.

For example, Moore (2000) modifies the focus on natural resource endowment and introduces, as a more refined explanatory variable, the independence of state elites from ordinary citizens. He argues that bad policy outcomes and governance problems arise if state elites’ are too independent from their citizens. This condition hinges not only on the possibility of extracting unearned income from natural resource endowment, but also on the extent to which state elites can rely on strong external financial and military support and have the capability to control commodity exports. Moore labels this condition ‘political underdevelopment’ and proposes it as the source of weak legitimacy and responsiveness of developing countries’ leadership to citizens’ demands. He argues that differences in state-society relations can be assessed via the degree of dependence of states on their citizens. States are independent of their citizens if they can lay hand on sources of public revenue other than tax revenue. He implies that if states have to rely more heavily on taxing their population to generate revenue they would automatically be more effective and responsive and less arbitrary, despotic and unaccountable. Drawing narrowly on an analogy to the historical emergence of taxation systems in Western Europe, he implies that states are automatically more accountable to tax payers than to non-tax payers. But the causes of ‘political underdevelopment’, Moore acknowledges, are a historical problem relating to how states were created in the developing world and how their relationship to the Western world is set up. The nature of the terms of trade enables those that have captured the state to generate effective coercive power in relation to their population. He implies that ‘history’ in combination with resource endowment has facilitated the establishment of predatory states. Moore’s reasoning also suggests that donor aid can potentially be viewed as another revenue source that fuels domestic conflicts.

DiJohn (2002) however criticises rent seeking theory in general and Moore’s work in particularly arguing that whilst rent-seeking models have brought issues of taxation and resource mobilisation back into the discussion of state capacity and accountability they are unable to explain differences that may well occur across resource endowed states. He rejects rent-seeking models’ proposition that mineral abundance causes conflict per se and also stresses the data-related and methodological problems of econometric evidence put forth by Collier and Hoeffner (2002). DiJohn

10 See Karl (1997) and Reno (2000) for similar arguments.




emphasises that whether conflict arises or not can only be explained against the background of ‘politics’.

DiJohn argues that rent seeking theory lacks an agency theory and therefore implies that political leaders are a priori predatory. He argues that predatory behaviour of leaders has to be explained, because leaders could equally pursue more lucrative and broad-based legitimacy enhancing developmental aims as they have done in the East Asian countries and, historically, in Western Europe and North America. The strategy that political actors pursue depends on the political conditions that induce struggle over resources in the first place and the relative power of competing groups to engage in rent-seeking. According to DiJohn this requires addressing more profound issues such as state capacity, the nature of political legitimacy and the distribution of rights and assets sanctions by the state. To capture the range and interaction of factors potentially at work, DiJohn finds rent seeking theory too simplistic and deterministic. He suggests that an alternative framework is sought that examines historically specific processes of political conflict and the genealogy of war in poor economies. He argues for a theoretical framework that interlinks structural features, institutional settings and agency and favours a shift towards historical institutionalism’s tools of analysis.

An old structuralist tradition is Marxist political economy which proposes that structural class relationships determine institutional outcomes and agents’ interests. The objective of these macro-structural historical analyses is to explain the transition from agrarian societies to modern industrialised economies and nation-states. Proponents include Brenner’s (1974) seminal article on Agrarian Class Structure and Economic Development and the ‘Brenner Debate’ it sparked. Within the same group of macro-structural historical analyses fall Moore’s (1966) Social Origins of Dictatorship and Democracy (1966), Tilley’s (1975, 1992) analyses on the formation of nation-states in Europe and Skocpol’s (1979) comparative work on States and Social Revolutions which pays particular attention to the state as an independent agent in support of and in tension with class structures.

There are a number of further approaches adhering to a structuralist argument. For example dependency theorists argue that the structure of the international system is causal for the underdevelopment of peripheral developing countries. Easterly and Levine (1997) refine the basic rent-seeking model and combine it with ethnic diversity as a further structural feature to explain political conflict. Rogowski combines a class based explanation with an international relations perspective and proposes that differences in structural features at the domestic and international level determine the outcome of domestic policy choices. He maintains that a country’s disposition of land, labour and capital shape its domestic political cleavages, which depending on the prevailing international trade system determine economic policy choices.

Economic Analyses of Politics: Public Choice Theory and Economic Reform Literature

Economic analyses of politics try to explain political outcomes from an agency-centred microeconomic perspective, based on the paradigm that individuals are self-maximisers who act strategically and are instrumentally rational. The political arena is benchmarked against a Hobbesian anarchy to gain a theoretical understanding of the conditions under which circumstances cooperation and collective action can emerge and public goods are provided (Sudgen: 1992).




The use of this ideal-type abstraction has helped game theorists to model that the preferences of individuals are not easily aggregated and to explain the functional necessity of basic social and political institutions. For example, in the game theoretic prisoners’ dilemma the problem of collective action can only be solved if a third-party coercive power can constrain individuals to act in one way and not another (Olson:1965). The resulting positive theory of the state views the state with its legitimate monopoly over the use of violence as instrumental for setting and rules necessary to govern economic exchange (Eggertson: 1990)

Public choice theory has promoted the application of the microeconomic paradigm to the study of politics in order to draw conclusions for practical policy formulation (Mueller: 1979). A particular challenge for public choice theory has been to address the fundamental disjunction between individual values and social outcomes – the “free-rider problem”. Works such as those by Arrow (1951), Downs (1957), Riker (1987) have focused on individuals’ strategic action with respect to voting and electoral processes in majority rule democracy to study this phenomenon, whilst Buchanan and Tullock (1965) have used their model to attack the role of the state in the economy. Buchanan (1959) relates the collective action problem that overshadows the provision of public goods, with respect to how costs and benefits are distributed, to the state’s capacity to impose coercive taxation (Buchanan: 1959). The state in this understanding does not derive its legitimacy from exchanging the right to tax against citizens’ right to demand accountability, but individuals need the state to solve the collective action problems that overshadow their interactions in order to prevent that individually rational preferences lead to collectively undesirable social outcomes (Udehn: 1996).

Olson’s (1965) theory of collection action provides a theory of aggregation focusing on the role of interest groups against the background of the problem of free-riding. For instance, he explains why the rural poor may not have incentives to organise at the national level, but prefer defending traditional local claims. If the rural poor would want to lobby for policies that would improve their situation collectively, each individual would face the incentive to let others bear the costs of lobbying and receive the benefits his fellows have fought for. At the local, kinship level, this incentive is not equally strong. Thus large-scale organisation is costly and incentives to free ride must be overcome. The costs of organising may help to account for the relative attractiveness of narrower appeals, for instance along ethnic lines, at the expense of pursuing common interests at the national level.11

Public choice theory views the state’s legitimacy to employ coercive violence as a matter of concern because of potential misuse by politicians. It emphasises the negative influence of state participation and proposes to reduce the state’s involvement in economic activities to the supply of basic institutions within which action and strategic choice takes place. Public choice theorists believe in the superiority of market solutions as opposed to state intervention and strongly consider that market failure is caused by government failure (Ordeshook: 1990).

The shortcoming economic analyses of politics faces is that they focus too one-sidedly on agency and neglect to inquire upon how agents form interests and decide on alternative strategies. Structural and institutional settings within which strategic action takes place remain exogenous and underexposed and much emphasis has been put on proving that strategic actions of rational individuals can lead to socially undesirable outcomes. Public choice theory emphasises the

11 see Bates (1990) p. 43, recently empirical work: Ostrom, (1990).




negative impact state interventions can exercise, but does not attempt to infer where initial institutions come from, underrates the positive role state institutions play in facilitating market exchange and when they induce political leaders to pursue policies that are consistent with improving the welfare of their citizens. Public choice theory merely recognises that basic sets of rules and procedures are important, but do not inquire their social basis. Sociologists have criticised public choice theory for neglecting the fact that distributive conflicts are solved through complicated bargaining processes yielding collectively positive outcomes and for assuming a narrow concept of instrumental rationality that pre-empts political agents’ interests too rigidly (Udehn: 1996).

Public choice theory’s scepticism with respect to whether political and state interventions can yield positive outcomes has met scepticism similar to the more far-reaching applications of rent-seeking theories. Both propose a policy view that stresses the desirability of markets and a sceptical appraisal of the role of the state, comparing allocations made by politicians with those that would be generated by the market to assess the social cost of political decision making. According to Bates (1990) development studies accepted the theoretic foundations of public choice theory that underscored the capacity of markets to orchestrate socially desirable outcomes from individually optimising choices.

This policy agenda fitted well with the empirical strength which the liberal macroeconomic reform agenda gained when socialist states that had pursued state-interventionist policies collapsed. Cross-sectional econometric work also confirmed that openness and liberal policies correlate with better economic performance. But because the introduction of liberal economic reform programmes yielded ambivalent results, political economists set out to establish which political preconditions supported the introduction of the reform agenda. The economic policy reform literature found that situations of crises emphasising the urgency of drastic policy changes facilitated the introduction the reforms (Bates and Krueger, 1993; Williamson, 1994; Nelson 1990; Haggard and Webb, 1993). Differences in policy reform outcomes were found to be linked to the intensity of the country’s state of crisis and the pressure this exercised on politicians to conceal their real interest.

Rodrik (1998) and Tommasi and Velasco (1995) summarise this literature. Rodrik notes the striking convergence of opinions towards the liberal paradigm as the ‘right’ set of economic policies to promote economic development (Rodrik: 1996). But he also points out a general inconsistency in this reasoning by raising the question of why political agents in developing countries stick to bad policies and have to be pressured to change course if there is such strong consensus on the right economic policy reform programme. He advises that it is insufficient to focus only on the political conditions that induce policy reforms and proposes to pay more explicit attention to politics and to ask under which political conditions the reform agenda can be sustained.12 Tommasi and Velasco (1995) also asks how policy reforms can be sustained and proposes to reemphasise the crucial role of the state and politics.

Institutional Economics

Institutional Economics turns around the microeconomic analysis of politics’ emphasis on rational agents’ strategic interaction and starts analysis from the institutional level. Recognising that 12 Bates (1990), page 39-40 for similar criticism. Sandbrook (1993) also believes that due to its weakness in the politics of sustainable implementation, reform agendas introduced under conditions of crises are not suitable to overcome Africa’s deep-seated development problems ridden by distributional conflicts.




economic activities take place within the framework of institutional settings crucial for solving coordination and collective action problems, institutional economists inquire how institutional configurations affect the interaction of agents and determine economic policy outcomes. This approach does not reject the microeconomic assumptions of stable preferences, rational choice and equilibrium structures of interaction, but views institutions as constraints and therefore seeks to understand how these affect the strategies agents follow to pursue their interests.

Institutional economics’ basic proposition is that economic and social policy outcomes depend on the institutional setting that governs economic activity and society. The question is therefore how alternative sets of social rules and economic organisations affect the actions of rational and self-maximising individuals and thus the allocation of resources and equilibrium outcomes. It is an inquiry into the economic logic behind the fundamental social and political rules that govern production and exchange. An important aspect of this understanding is how rules change (Eggertson: 1990). In the modern state systems, the legitimate power to invigilate institutions rests with the state. Because these rules are constituted in the public sphere, embodied by the state, which is the crucial mediator for institutional change. Institutional economics seek to understand how powerful agents (e.g. political leaders, state elites) capture the state and its institutions and how different interest groups struggle over institutional design. In terms of policy implications its proponents inquire which institutional settings are best suited to deliver efficient economic and social outcomes.

Property rights are a fundamental set of rules for the allocation and use of resources. An important branch of institutional economics therefore focuses on the role of property rights for economic development. Empirical literature refers to historical studies of how long-distance trade, credit and other inter-temporal and inter-spatial markets were created and the property right systems of pre-state societies.13 The literature tries to understand how the lack of defined or stable property rights hampers agrarian production and industrial development (Demsetz: 1967, North and Thomas: 1977). Interest-group based theories of property rights complement rent seeking theory’s missing agency theory by focusing on the social costs that can arise when individuals seek to obtain exclusive rights to valuable resources (Eggertson: 1990).

Bates (1981, 1989, 2001) has analysed agricultural practices in African communities using a property rights perspective. He finds that African practices on land use which seem inappropriate to the Western observer become comprehensible if weaknesses in the property rights systems are considered. Observed practices are a rational response to the economic incentives that existing (or lacking) property right systems provide. With an institutional economic perspective Bates presents explanations based on agents’ choice for the failure and success of traditional societies to adopt more efficient practices and become more productive. Bates explains that agricultural production inherently involves risks that pastoralists and peasants have to overcome. Bates underscores the nexus between capital and institutions. Growth occurs when individuals choose to withhold resources from present consumption to form capital in order to enhance economic possibilities later. Because intertemporal decision-making has to deal with uncertainty, institutions are crucial for dealing with the uncertainties and risks that underlie capital formation. Given the lack of defined property rights agents choose those strategies that reduce risks and costs. Bates also points out the importance and limits of kinship relations for prosperity in agrarian societies and how the particular institutional milieu within which policy makers find themselves create the incentive structure that guides their choices. He emphasises the creation of markets as political acts and

13 see Eggertsson (1990) Part II and IV for comprehensive overview.




criticises the fallacy of market-based reform programmes to assume that markets are just there when the state is withdrawn.14

North’s work (1981, 1987, 1990) combines property rights with an analysis of transaction costs. His historical analyses of economic development examine how institutions facilitate economic growth by reducing opportunism in transactions among people unrelated to each other. Institutions provide a multilateral reputation mechanism supported by frameworks of credible commitment, enforcement and coordination that reduce transaction costs and thus facilitate economic interaction. North stresses the interplay between strategic interaction and institutions that prohibits certain options and facilitates others and recognises the role or relative bargaining power for investigating variations in state actions and outcomes through history. He views the state as crucial for overcoming high transaction costs that paralyze complex production systems and hamper long-term economic exchange relationships. The state is thus essential for economic growth, whilst at the same time it can be the source of man-made decline.

Eggertsson (1990) summarises North’s concept of the interrelationship between the state, property rights and productivity as follows:

“The stock of knowledge in society and the endowment of resources determine the technical upper limits of productivity and output, the economy’s technical production frontier. However, for each structure of property rights there is a structural production frontier, which is reached by selecting, form the set of feasible organisations, those structures that minimise cost and maximise output. The set of feasible forms of economic organisation is defined by the system of property rights, and the system of property rights depends on the community’s political structure. And, finally, some political systems create incentives that place the structural production frontier close to the technical production frontier; other political systems do not. Usually, a political exchange is required to move the structural production frontier closer to the technical frontier, and, therefore, a cost-benefit evaluation of economic reforms must include both the costs of political change and the costs of maintaining (enforcing) each system.”

This summary stresses how North sees political systems and bargaining processes, over who bears the costs and gains the benefits of change, as crucial for whether societies are able to achieve institutional configuration that are conducive to economic growth and the equilibrium perspective that he implies. Institutions are not simply a result of efforts to lower the transaction costs of market exchange but are also a function of the political and social interests and differences in the allocation of power in a society. In Institutions, Institutional Change and Economic Performance (1990) North emphasises path dependency and informal institutions, raising issues of historical determinacy and cultural influences on action. In this work he concludes that institutional change is promoted when actors with power perceive that their interests can be better achieved through alternative sets of rules. North is thus opening up agency theory beyond strict rational choice assumptions.15

Bardhan (2000a, 2000b, 2001) notes that institutional economists hold divided opinions concerning which institutions affect the process of development, how they do so and in particular, what kinds

14 For summaries and critique of Bates’ work see chapter by Migdal or Lichback in Lichback/Zuckerman (1997). A similar study to Bates (1989) is J. Ensminger (1992). Bates (2001) provides a summary of his own work. 15 For North’s work in relation to rational choice see Levi, M in Lichbach/Zuckerman (1997).




of institutional configurations impede development. He observes that two strands of institutional economics have been influential in the development literature. One focuses on the theory of imperfect information and explains the underlying rational of institutional arrangements and contracts in terms of asymmetric information among different parties involved which is closely related to public choice theory. The other concentrates on the comparative historical analysis of development processes and the inherent tradeoffs in historical growth processes between economies of scale and specialisation and transaction costs. It emphasises the roles of the state, the political system and internal bargaining processes in preventing excessive transaction costs and thus allowing productivity gains to be realised from larger scales and improved technology. He notes that both strands have provided major insights into the microfoundations of institutional arrangements in developing countries and in the understanding of underdevelopment as institutional failure. Both underline the multiplicity of equilibria that strategic interaction produces and that result in institutions as equilibrium outcomes where historical conditions and cultural beliefs that coordinate agents’ expectations influence the selection of one particular equilibrium over another. But Bardhan notes that so far institutional economics lacks theoretically informed historical analyses of institutional change. He notes that the institutional arrangements of a society are often the outcomes of strategic distributive conflicts among different social groups, and inequality in the distribution of power and resources can sometimes block the rearrangement of these institutions in ways that would have been conducive to overall development.

Despite the array of open questions raised by a critical assessment of institutional economics, its emphasis on the role which institutions play in constraining agents’ pursuit of their interests has prompted a policy reform programme that focuses on introducing the ‘right’ institutions as a necessary and sufficient step to foster economic growth. Consensus by those who seek to influence policy outcomes in developing countries rests on the bold assumptions that institutions that proved efficient in the context of industrialised countries’ economies and societies will also be appropriate for other countries. This policy reform programme has been criticised for focusing too naively on ‘engineering the right institutions’ and viewing the state simply as a provider of institutions and necessary public services, insufficiently taking into account underlying political processes and capacity. States require power and legitimacy to enforce rules and rights and to extract and mobilise resources required to sustain development and growth (Khan: 2002 and DiJohn and Putzel: 2000).

DiJohn and Putzel (2000) argue that it is not simply states that supply and enforce institutions, but state officials and organisations with specific social bases of support. States react to particular demands for institutions put forth by particular officials and their support basis in society. DiJohn and Putzel focus on interactive processes of state formation and revenue production in a historical context. They view state capacity as the crucial variable that determines a country’s economic performance. State capacity cannot be adequately analysed without endogenising power, political constraints and agents’ strategies. They maintain that institutional analysis based on rational choice assumptions is insufficient because it neglects the political processes that underlie the power and legitimacy of a state to enforce rights and to extract and mobilise resources required to sustain development and growth. They suggest that a historical, non-equilibrium based understanding of political processes is required to explain variations in state capacity between different states. Such political processes typically involve wars, conflicts and bargaining. Agents and the constraints they face by existing institutions have to be taken into account alongside pressures on the establishment by external and internal threats that provide a window of opportunity for the re-configuration of the relationships between institutions and agents. In terms of policy implications DiJohn and Putzel ask what processes in terms of threats and pressures could be replicated today, that would provide the same incentives for the development of state capacity that historically emerged out of warfare.




Khan similarly (2000) argues that to enforce growth-enhancing institutional change improving institutional capacity is not sufficient. It also requires political capacity which hinges on the match between the internal political settlement and the promoted institutional reform agenda. He stresses the importance of the dynamics of the existing political settlement and the questions of when and how political coalitions with influence over the state do or do not formulate their interests so as to promote and enforce growth-enhancing institutions. Focusing on the development success of the East Asian countries, Khan maintains that the state plays a critical and problematic role in the transformation of pre-industrial societies into dynamic industrial societies, precisely because it is the only entity that holds a monopoly over legitimate violence.

Khan criticises the institutional policy agenda which focuses on standardised governance indicators for not taking into account the empirical evidence that there is not a single country that has improved governance indicators as a means to advance to higher growth levels. He argues that an observable correlation between governance variables and development outcomes should not be mistaken for a causal relationship as causality is merely implied but not verifiable. Recalling the empirical experience of East Asian countries, he notes that the successful developers have achieved high growth rates despite governance indicators that were only moderately better than the developing country average. He also stresses that indices remained low for a considerable period after growth took off and only improved at a later stage.

Khan does not imply that institutional and political reforms do not matter for growth. He questions however the view that promoting institutional reforms is sufficient to improve growth. He believes that the distribution and disposition of political power is the key determinant of the state’s capacity to successfully enforce growth-enhancing institutional reforms. A state’s institutional and political capacity to enforce institutional change hinges on the match between internal political settlements and the institutions and interventions through which it attempts to accelerate transformation and growth. For him the policy question is: How can growth promoting political coalitions be constructed that are able to prevent the consolidation of unproductive societal groups that can undermine development efforts?

Bardhan (2000a) points out that institutional economists recognise the importance of states in supplying institutions, but only in a narrow context. States use the monopoly of violence to enforce necessary contracts and property rights and the standard policy recommendation limits state interventions beyond this involvement. He notes that in the successful cases of East Asian development the state has played an active role in intervening in capital markets in many ways to encourage the development of nascent parts of financial markets and pushing firms to upgrade technology and move into sectors that fall in line with achieving strategic development goals.16 States have enhanced the market by inducing private coordination by providing various kinds of cooperation-contingent rents.17 Bardhan suggests that a more nuanced theory of the state is needed to avoid the trap of either assuming that the state is either captured by interests or is per se of a predatory nature. The impulses that shape major policies and action by state elites can sometimes be fuelled not merely by self-maximising motives but larger organisational goals and nation-building missions. The question therefore is: What factors contribute to the making of a strong state whilst creating incentives for state or political coalition alike, to manifest genuine interest in the economic development of their country as a whole?

16 Aoki, Murdoch and Okuno-Fujiwara (1997) for detailed country studies. 17 Similar to Schumpeter see also Khan (2002)




Bardhan (2000a) notes that, given the enormity of the collective action problem and the differential capacity of the different groups in mobilising and coordination, institutional arrangements are often the outcome of strategic distributive conflicts, in which groups with disproportionate resources and power try to constrain the actions of others. A theoretical position on this has been developed by Knight (1992). His reasoning is that because institutions constrain self-maximising individuals and shape the strategies they apply to pursue their interests, agents have a strong incentive to alter institutional settings to their advantage and would if in the position to do so. He develops a theory of institutional change that emphasises the distributional consequences of social institutions. He argues that the pursuit of distributional advantages drives the emergence of social institutions. Commitments between agents agreed upon to resolve individual bargaining problems emerge as socially shared solutions to those problems and lead to the development of institutions. Institutions are conceptualised as the products of bargaining processes among different societal groups and the change of institutions is viewed as reflecting shifts in the asymmetries of power between these groups.

Historical Institutionalism in Comparative Political Economy

Although it has mainly been applied in the context of analysing policy outcomes in Western Europe and North America, comparative political economists have adhered to an institutional perspective which they label Historical Institutionalism (Thelen and Steinmo, Lichbach and Zuckerman: 1997). Proponents share institutional economics’ conviction that institutional configurations can explain differences in economic and social policy outcomes. But they differ from institutional economist in two important ways:

First, historical institutionalism looks beyond rational choice based agency theory and emphasises that institutions are not simply constraints to human behaviour but also provide the context within which actors formulate and define their interests and strategies. It pays closer attention to the formation of preferences and allows for structural concepts to feed through to agency level. Thus it combines structural analysis with institutional configurations and agency in a broader sense. Historical institutionalism takes into account that preferences can be socially and politically constructed, for instance, ideas can shape interests and subsequently strategies. Historical institutionalism allows for different sets of assumption at the agency level, proponents could be employing the rational choice paradigm, but they can also take a more sociological or culturalist stance.

Second, historical institutionalism emphasises historical processes rather than equilibria. Whilst institutional economics view institutions as instrumental, fulfilling a coordination function, historical institutionalism view them as an outcome of historical processes. Thus, timing and processes over time are central and the existence of particular institutions does not imply that different institutions necessarily complement each other. Contrary to this, historical institutionalists assume that important opportunities for change arise from the mismatch and interaction of coexisting institutions within a political system. This feature allows capturing the unintended consequences of intentional interactions.

The background of historical institutionalism are the macro-structural historical analyses mentioned above, under structuralist political economy. These studies set out to explain the historical transformation processes that evolved over the last centuries, such as capitalist development and industrialisation, state formation, secularisation and social revolutions. Historical institutionalism embarks from this tradition but narrows down the time horizon and the phenomena studied to




address current date policy decisions. In its endeavour to understand how institutions affect the formulation and aggregation of individuals’ and groups’ interests, three issues are central:

First, the relationship between institutions and individual actions is conceptualised in an eclectic manner. Proponents adhere either to a rational choice based agency theory or a more cultural-sociological approach where norms, values and ideas impact agents’ behaviour via political institutions that help individuals formulate their interests.

Second, the interrelationship between institutions and agents is marked by power asymmetries. Institutions impact individuals in their power to influence decisions, in their power to set or to withhold issues from the political agenda, and the distribution of power between individuals and groups, providing opportunities for some and constraining others.

Third, historical institutionalists believe that political and social developments are path dependent. Pre-existing institutions impact and partly pre-determine institutional change in subsequent periods.

Thus historical institutionalism allows to link structures and agency via institutions and in a sense bridges institutional economics with structural analysis. Institutions are not there to stabilise the equilibrium, but cannot be understood in separation from the social and political context out of which they arise.

Most recent empirical work engages in comparing policy outcomes across Western Europe and North America, but several development economists have raised issues to point empirical work in this direction. The above mentioned works of DiJohn, DiJohn and Putzel, Khan, Bardhan and North have emphasised the need to explore the determinants of policy and institutional change against the background of historical processes and domestic distributive conflicts.

Others have raised critical issues concerning some of the misconceptions inherent in current conventional wisdom. For instance, Moore and Putzel (1999) criticise the perception that there ought to be a ‘right’ policy reform agenda with which to cure developing countries economic malaise. They draw attention to the fact that there is a range of pro-poor policies that countries could choose from to improve the living conditions of their citizens and criticise two conventional viewpoints. They first criticise the view that the political analysis of poverty preconceives a conflict of interest between the poor and the non-poor and assumes a trade-off between pro-poor policies and the interests of the non-poor. This neglects the common situation were there are common interests between different societal interest groups. Second, they criticise the common assumption that there is a consistent connection between democracy and pro-poor policies, or between decentralisation and pro-poor policies.

Bratton and Van de Walle (1997) recently employed a historical institutionalist perspective to assess the democratic experiences in Africa. Against the background of discussing the strengths and weaknesses of existing theories on democracy they put emphasis on the institutional characteristics of preceding political regimes and on patterns of behaviour during periods of transitions. They conclude that political and institutional legacies more than economic and international factors explain why democratic transitions have occurred in some African countries and not in others. The general thesis is that institutional heritage of neopatrimonial rule has shaped regime transition in much of Africa, but that the relative strength and cohesion of contending forces depended on the constraints embedded in inherited political institutions in determining whether




political change was likely. Economic and international factors were only important to the extent that they were mediated by existing domestic institutions and political considerations.18

Historical Institutionalism invariably draws attention to the state because of its emphasis on how institutions mediate between structures and agents. The state embodies a wide range of formal institutions, is their legal enforcer, and furthermore, is central to political and policy formulation processes where formal as well as informal institutions are at work. The state is the focal point for institutional change. For example, Weiss and Hobson (1995) argue that the sources of economic well-being are embedded in the historic and institutional experiences of specific states and the role of states to sustain economic well-being. According to them the historic role of states in economic development is matched by comparative analysis of the contemporary requirements of state effectiveness. Weiss and Hobson argue that Japan and East Asian Tigers have exhibited a new state capacity described as “the power to coordinate a negotiated order between government and business elites”. The intersection of a network of institutions allowed central bureaucratic agencies to acquire dynamic learning capacities that allowed them to adjust to rapid change in circumstances and to varying relative political power of domestic and social constituencies.

Also emphasising the role of the state, Moore and Putzel (1999) conceptualise the fragmentation of the state in terms of an institutional feature of the state as an explanatory variable for the scope of political capacity that political interest groups can gain. They argue, for instance, that a fragmented state undermines the collective capacity of the poor. If states are fragmented, national-level organisations of the poor hardly exist because if the state has no capacity and authority to meet national-level demands, there is little prospect for successfully lobbying at the national level.

A1.4 International Experience – Policies and Institutions for Pro-Poor Growth

This section examines empirical evidence on differences in the rate of economic growth between countries, and on how “pro-poor” economic growth has been.

Explaining Economic Growth Performance

Development models of the 1950s and 1960s (for instance the Lewis Model of the shift of labour from agriculture to manufacturing) emphasised the main driver of growth as being physical capital investment (taking advantage of intersectoral differentials in productivity), and the main barrier to growth as being shortage of capital or, equivalently, of foreign exchange with which to import capital equipment. Easterly and Levine (2001) note that a more sophisticated version of this view, but one that emphasised factor accumulation as the main driver of growth, was revived during the 1990s, although other approaches (such as in the World Development Report 2000/1) focused more on policies, incentives, institutions and exogenous factors rather than investment. The development of new theoretical models (for instance “endogenous growth” models that focus on the cascading and spatially located effects of externalities) of the growth process has highlighted a wide range of potential causal factors and prompted detailed empirical study of comparative growth performance.

18 Bratton and Van de Walle call their approach ‘politico-institutional approach’, but draw directly on Thelen and Steinmo (1996).




Temple (1999) reviews this broad international evidence covering developed as well as developing economies on why growth rates differ. The main conclusions (based on a review of a wide range of empirical studies using different methodologies) are:

♦ Variations in macroeconomic stability are a key explanation of relative performance, mainly through the way in which macroeconomic volatility harms investment.

♦ The growth benefits of education are imprecisely measured and uncertain. There are many examples of countries that have invested heavily in education but have failed to grow.

♦ Social returns to Research and Development are high.

♦ Population growth does not have severe negative effects on per capita growth.

♦ Countries with high levels of inequality tend to have lower growth.

♦ The depth of financial intermediation is important to subsequent development.

♦ Democracies do not achieve growth noticeably more successfully than autocratic regimes, but countries with greater economic freedom and protection to property rights do grow faster.

♦ Government expenditure on infrastructure is beneficial for growth, but evidence on the negative effect of high taxation and government expenditure is still ambiguous.

♦ Openness to trade boosts growth, though the precise conditions under which this applies are not fully determined.

Temple (1999, p. 116) also notes that "relatively few countries have done consistently well and averaging over long periods tends to obscure the episodic nature of growth, particularly in Sub-Saharan Africa".

Easterly and Levine (2001) argue that there are five main “stylised facts” about the international growth experience. The first is that factor accumulation does not account for the bulk of cross-country differences in either the level or growth rate of GDP per capita. Empirical studies typically leave a large unexplained residual of Total Factor Productivity increase. The second is that the general tendency in GDP per capita between countries is towards divergence rather than convergence. The third is while capital accumulation tends to occur steadily over time, growth is not generally persistent over time. The fourth is that all factors of production tend to flow to the same places, at whatever level the analysis is applied (international, national, sub-national or local), suggesting there are important externalities associated with the growth process. The fifth is that national policies play an important role in influencing long-term growth.

The divergent patterns of growth among developing countries are reviewed by Pritchett (2000). He notes that for most developed economies (and with the important exception of the Great Depression in the 1930s), the historical path of GDP per capita can be represented by "a reasonably stable exponential trend with modest cyclical deviations". For developing countries, however, the experience is much more varied and a single time trend is not adequate to capture key features of the most national experiences. Volatility of growth rates is far higher, and very few countries are characterised by steady, modest, sustained and positive growth rates.




What does emerge is that a small group of developing countries (specifically China, the rapidly growing economies of East Asia and South-East Asia and Botswana) have enjoyed sustained and exceptionally rapid growth consistently in excess of 3% per capita per year – much faster than the “steady state” of developed economies (e.g. the USA has grown at a rate of around 2% per capita per annum for two centuries). Typical patterns are instead stagnation at very low or negative rates of growth (a pattern dominated by African countries), or a marked structural break associated with a shift from trend positive to trend negative growth.19 For example, Cote d’Ivoire grew at 3.1% per annum from 1960-80, and at –4.1% from 1980-92. A small number of countries (including Mauritius and Ghana from Africa) have achieved a marked acceleration in growth following stagnation or decline. Pritchett argues that these findings have strong analytical implications, since they call into question the validity of common growth regression models and the move towards using shorter time periods in panel data.

The broader literature confirms that there have been few examples in Africa of sustained long-term high growth (exceeding 5% per annum). A large number of countries in Africa achieved periods of more than ten years of average growth exceeding 5% per annum in the 1960s and 1970s. However, in almost all cases this broke down between the mid-1970s and early 1980s, with growth having been generally slow since. Only Botswana (from 1965) and Mauritius (from 1980) have managed to sustain growth at this rate over more than two decades, while Mozambique and Uganda, recovering from intense economic crisis and war, have maintained rapid growth since the mid-1980s (Berthelemy and Soderling, 2001). African experience suggests that many episodes of short- to medium-term growth are not sustained.

As noted by Collier and Gunning (1999), empirical research suggests that Africa’s growth performance can be explained in part by variables measuring environmental and institutional factors. However, these explanations were not sufficient to account for the whole differential between African and non-African performance. Returns to investment in Africa appear to be about a third lower than in other developing countries. This reflects evidence from Easterly and others that shows an extremely high level of variability in the relationship between investment and growth (the Incremental Capital Output Ratio, or ICOR) between countries. Collier and Gunning argue that the additional explanation lies in the failure to create social institutions that would promote growth, rather than risk mitigating behaviour, for both smallholder farmers and manufacturing enterprises. Work by Easterly and Collier focus in particular on the role of ethnic fragmentation and competition in explaining this.

Collier and Gunning also argue that liberalising economic reforms have had less positive effect on growth than expected because of the lack of credibility of government reform commitments - "a hostile environment, particularly high risks, and inadequate social capital, particularly dysfunctional government, have lowered the returns on investment. The low returns on investment have caused capital flight on a massive scale" (p.65). Azam, Fosu and Ndung’u (1999) argue that empirical analysis of the joint determination of growth and political risk suggests that there is a strong complementarity between fast growth and political stability – so that measures to enhance democratisation and economic reforms should be self-reinforcing once the initial credibility problem is overcome.

There are many plausible explanations of Africa’s uneven but generally extremely poor growth experience, but all focus on a core of institutional, environmental and policy variables. The failure

19 The dataset used in the study runs from 1960 to 1992 (shorter in some cases), so experience over the 1990s is not reflected in it.




to sustain or to consolidate growth is a major problem. This is linked to the difficulties encountered with managing either positive or negative shocks (such as swings in the terms of trade) without inducing a knock on negative effect on growth.

Pro-Poor Growth

At its simplest, the relationship between growth and poverty reduction can be captured by the Poverty Elasticity of Growth measure – that is the percentage reduction in a relevant poverty measure (such as the headcount below the international USD 1 per day poverty line) for each percent of economic growth. The international literature shows robustly that sustainable poverty reduction cannot be achieved without economic growth (Dollar and Kraay, 2001) – but it also shows a substantial variation in the extent to which growth is translated into poverty reduction (White and Anderson, 2000). The main determinant of the extent to which growth translates into poverty reduction is the level of income inequality – growth in an economy with an unequal income distribution will have less of an impact on poverty than where income distribution is more equal.

In general terms, the extent to which economic growth translates into poverty reduction will depend on the sectoral composition of growth, the nature of the livelihoods of the poor (i.e. in relation to the sectors on which they are dependent), and the capacity of the poor to gain directly or indirectly from economic opportunities as they are created through economic growth. International experience (see for example Ravallion and Datt, 1999; White, 2001, Eastwood and Lipton 2001) suggests that the following factors are likely to make growth relatively pro-poor:

• Since the livelihoods of the poor are disproportionately dependent on the agriculture sector, agricultural growth (and rural growth more generally) will favour poverty reduction.

• The better educated and healthier the population, the better able they will be to take advantage of growth opportunities.

• The quality of rural infrastructure is also closely related to the poverty impact of growth.

However, as Eastwood and Lipton note the policy implications of the empirical literature (especially the short-term policy implications) are less clearcut and are likely to be context dependent.

Resource Abundance and the Staple Trap

One of the most striking findings from the international experience has been the poor performance of resource abundant economies while the mineral-driven resource abundant countries have been among the weakest economic performers (Auty, 2001) over the period since the 1960s, with performance particularly weak since the mid-1970s. Lal and Myint (1996) identify policy failure as the main cause of the underperformance of the resource-abundant countries, with a particularly strong impact on the efficiency of investment. The most critical component of the policy environment they found to be the trade regime, with resource abundant countries strongly prone to adopt highly protectionist regimes that supported extremely inefficient domestic industries. Auty notes that the literature on social capital has shown how “natural resource rents can be a source of conflict, corruption and policy failure, especially in the case of the factional political states that are associated with heterogeneous societies” with resources prone to be competed away in rent-seeking and other non-productive uses.




Auty and Gelb (2001) describe three mechanisms by which resource rents are redistributed within natural resource abundant economies: protection, job creation, and overspending. They note a chronic tendency for the state to become overextended in the face of large fluctuations in resource prices and owing to an inability to control the competition for rents. The argue that “ political competition for rents, combined with non-transparent mechanisms of redistributing them (and in some cases accounting for them), make it more difficult for governments to moderate spending levels in response to fluctuations. With lucrative procurement contracts at stake, many projects undertaken by resource-rich governments are valued for their immediate income-generating effects rather than their growth-enhancing potential.”

The growth path of economies caught in the “staple trap” fail to benefit from the virtuous social circle that resource-poor countries empirically benefit from under which income equality is maintained because of the rapid absorption of surplus rural labour, and the rapid upgrading of workforce skills that reduces the premium on skilled labour. The relatively equitable income distribution deepens social capital and strengthens the capacity of the political economy to adjust to shocks. These trends in human and social capital tend to push the political state towards a democracy that is consensual rather than polarised.

By contrast, industrialisation in staple trap economies (driven by infant industry protection) has three main flaws. First, it yields rents that are deployed with little transparency so that they become another rent-dispensing mechanism. Second, industry tends to be capital-intensive and creates few jobs. Third, it faces few incentives towards efficiency and imposes heavy demands on the primary sector for transfers and foreign exchange. So rents are increasingly transferred from the potentially efficient sector into a growing non-tradable sector that includes protected and inefficient industry and non-productive public employment. The trap occurs as economic diversification regresses so that growth is increasingly dependent on the staple whose competitiveness is declining. This is likely to generate an adjustment requirement under which real wages fall. However, under conditions of high inequality and political fragmentation (e.g. along ethnic lines) the political costs of reform are likely to be extremely high (Rodrik, 1998).

A1.5 Conclusions and Implications

The discussion of the literature on comparative economic growth performance highlights the central role of political factors in the understanding of the possibilities for pro-poor policy and institutional change in a particular national context. The growth literature identifies structural features that are empirically strongly associated with particular institutional characteristics, but these relationships are not deterministic, since there are examples of economies whose structural characteristics approximate those of the staple trap and yet which manage to avoid the pattern of economic implosion that is its principal characteristic.




Annex 2: Economics of Growth and Poverty Reduction in Nigeria

A2.1 Introduction

With its large reserves of human and natural resources, Nigeria has the potential to build a highly prosperous economy and to reduce poverty significantly. Despite the country’s relative oil wealth, poverty is widespread and Nigeria’s basic social indicators place it among the 20 poorest countries in the world.

This section maps out Nigeria’s recent economic performance, the structure and determinants of poverty, and outlines the institutional and policy determinants of future pro-poor growth.

A2.2 Economic Performance

Economic Characteristics

Nigeria’s economy is highly dependent on the oil sector, which accounts for around 46% of GDP, 77% of government revenue and 85% of the country’s foreign exchange earnings. It has earned an estimated US$320 billion in export revenue from 1970 to 1999.

The economy is highly dualistic: the large, rural, agriculture-based traditional sector encompasses about two-thirds of the population who are living in poverty. A smaller, urban, capital-intensive sector has benefited from the exploitation of the country’s natural resources and from the provision of services. The rural sector is characterised by small-scale, poor farmers and by informal traders. The formal, capital-intensive sector has a few multinational firms, a multitude of small local industries, and a large number of parastatals (from each level of government) operating in most areas of economic activity. This duality has arisen largely from domestic policies that have steered most investment into a few already capital-intensive sectors of the economy. The benefits of government and foreign investment have only reached a relatively narrow section of the population, while the majority of people have not benefited from higher productivity or increased real wages.

Economic Policies 1960 to present

In 1960, Nigeria was still largely an agricultural country, producing food for its own consumption and cash crops like groundnuts, cocoa, rubber and palm oil for export. Agriculture accounted for 64% of output, employing 73% of the total labour force and providing 71% of total export earnings. The industrial sector accounted for 8% of output, with the manufacturing sector producing less than 4%, and services accounting for 28% of output. The population was largely rural with just 14% of the population living in urban areas. In addition, there was a high level of illiteracy (80%) and low life expectancy (around 40 years). The dualism of the economy was then characterised by a small export enclave sector and a largely subsistence-oriented agriculture sector (Iyoha & Oriakhi 2002).




1970s The huge inflow of oil revenues that occurred during the 1970s multiplied the terms of trade by more than three times between 1973 and 1981. This led to massive increases in government expenditures and an increase in real GDP per capita from US$280 to US$1,100 between 1972 and 1980. During this period, the real exchange rate appreciated by a factor of five and the relative profitability of domestically produced and resourced goods fell. Nigeria became a net importer of agricultural commodities, particularly food, after having been a major exporter of crops such as cocoa, palm oil, kernels and rubber, and largely self-sufficient in food.

The mismanagement of oil resources accentuated the terms of trade disparities between the urban and rural sectors, increased poverty in the rural areas because of falling agricultural production, and also increased income disparities in the urban areas, where those who could capture the benefits of distorted policies fared better than others. Excessive mechanisation of agriculture by better off farmers, due to subsidies and under-pricing of capital goods, displaced labour in rural areas. Although the government attempted to compensate for distorted terms of trade that favoured the urban sector through fertiliser and interest rate subsidies, these actions led to further inefficiencies in resource allocation, which tended to benefit large, better-off farmers, but not small farmers.

Government investments were largely unprofitable, and few were in labour-intensive production, meaning little employment creation. Thus the mismanagement of high oil proved very destructive in terms of its negative impact on the generation of domestic employment and income. Despite the government’s high expenditures on the social sectors during the 1970s, it failed to put in place policies to ensure sustainability, or an adequate safety net to protect the most vulnerable groups.

Early 1980s

The collapse of oil prices from about US$40 per barrel in 1980 to US$9 in 1985/6, together with the sharp cut in the OPEC production quota for Nigeria, left the economy in crisis. From US$26 billion in 1980, oil revenue fell to US$6 billion in 1986. Government revenues collapsed, from about 24% of GDP in 1980 to 12% in 1985. Major macroeconomic imbalances appeared and persisted as a result of the neglect and decay of the non-oil sectors, an inward-looking industrialisation regime that depended heavily on imported inputs, a highly overvalued exchange rate regime, and the bloated public consumption and investment patterns of the 1970s (Iyoha & Oriakhi 2002).

External reserves were quickly run down, and external borrowing intensified to the extent that external debt rose from 5% of GDP in 1980 to 23% in 1985. The scarcity of foreign exchange and stringent but cumbersome import licensing procedures led to sharp declines in availability of imported inputs for the manufacturing sector. These problems led to a negative average GDP growth rate for the period 1981–85. The crisis had a dramatic impact on the external sector. The ratio of debt service to exports ratio soared from 9% in 1981 to 39% in 1985. Non-concessional debt as a percentage of exports rose from 31% in 1980 to 301% in 1986 and arrears on external debt accumulated.




1986-92: The Adjustment Period The government was facing a profound fiscal challenge that also challenged all of Nigeria’s traditional political practices of state-centered clientelism. To address this, a structural adjustment program (SAP) was introduced in 1986, underpinned by three standby arrangements with the IMF between 1986 and 1992. The major reason for the adoption of the SAP by Nigeria, was to open the door to official debt rescheduling.

The broad objectives of the reform program were to:

(i) restructure and diversify the productive base of the economy in order to reduce dependence on the oil sector and on imports;

(ii) achieve fiscal and balance of payments viability over the period;

(iii) lay the basis for a sustainable non-inflationary or minimum inflationary growth; and

(iv) lessen the dominance of unproductive investments in the public sector; improve the sector's efficiency and intensify the growth potential of the private sector.

The policy strategies in terms of the main measures to be adopted were:

(i) a realistic exchange rate policy coupled with the liberalization of the external trade and payments system,

(ii) appropriate pricing policies in all sectors with greater reliance on market forces and reduction in complex administrative controls; and further rationalisation and restructuring of public expenditure and custom tariffs.

The fixed official exchange rate was replaced by a floating, market-determined exchange rate, which instantly caused the depreciation of the Naira by 66%. Import and export licensing was abolished and most prices within the economy were deregulated.

Although oil revenues remained low and government debts accumulated, there was a significant recovery of the economy which led to higher incomes, higher household expenditures, and real gains for a large part of the population. After an average growth of just 0.4% from 1982 to 1986, real GDP grew by an average of 5.9% from 1987-91. The share of the population in poverty declined from 43% in 1985 to 34% in 1992. However the gains for the poor were mixed. The lowest 20% of households did not share in this improvement and the depth and severity of their poverty increased.

Policy reforms reversed some of Nigeria’s earlier anti-export bias in manufacturing and producers switched from imported to local inputs, particularly in agro-processing and textile manufacturing. The assembly-based manufacturing sector, which had depended on imported inputs and had been shielded from competition and market signals, contracted. However, industry as a whole, having contracted by an average of 4.8% from 1981 to 1986, grew by 5% from 1987 to 1992.

The deregulation of prices (including the exchange rate) led to a rise in the share of agricultural production to GDP from a low of 21% in 1980 to a high of 41% in 1988. From 1987 to 1992, production of traditional food crops and cash crops increased and agricultural output grew at 3.5% per year on average.




However, the pro-reform coalition was extremely limited. Even those who might benefit from the reforms had a significant problem identifying themselves as winners. The structural problems in the Nigerian economy (including a deficient infrastructure, limited credit system, and an extremely difficult business environment) prevented entrepreneurs from becoming enthusiastic about price reforms, no matter how much the government needed their support. The SAP measures were met with mass rioting (especially in 1988 and 1989) and unrelenting criticisms from all sectors of society. The implementation of the reform program was therefore uneven and plagued by frequent reversals. Several factors accounted for this inconsistency:

1. The reform measures were technically hard to implement, sometimes contradictory, and vied for resources and leadership attention with the political transition that was occurring at the same time.

2. It was not clear how determined the government was to reform the economy as opposed to simply lifting the constraint it faced on resources.

3. The reforms were politically unpopular.

1993 to present

Events since 1993 have eroded many of the positive changes that took place during the late 1980s and early 1990s. Many of the policies that contributed to growth and poverty reduction during the period have been reversed. Since 1992, real GDP growth has average around 2.5%, less than population growth. In 1993 the government initiated the Nigerian Economic Summit, which sought to identify policy measures to enhance the country’s economic performance. One outcome of the Summit was the Economic Action Agenda, which contained a blueprint for growth engineered by the private sector. Central to this Agenda was the deregulation of the economy. Little of this was implemented and most of the market-oriented reforms were reversed in favour of protectionist policies.

Since 1999 and the return to democratic rule, there has been a certain degree of economic recovery, relaxed exchange controls and considerable privatisation and deregulation policies. However in 2002, Nigeria’s stand-by agreement with the IMF collapsed. The government has since announced a five-year “home grown” economic plan for 2003-07, setting a target of 4% growth by the end of 2003. This is to be achieved through greater private sector participation in six priority sectors: agriculture, solid minerals, other manufacturing, tourism, natural gas and crude oil. Promotion of economic diversification is to be underpinned by a focus on public sector investment.

Summary

Poor economic performance has been caused by economic mismanagement, corruption and excessive dependence on oil. Persistent low productivity in agriculture has meant that most of the rural population has had limited opportunities to increase income, whilst stagnation of the non-agriculture economy has meant little growth in formal employment and limited demand for informal activity. Constraints to the development of the non-agriculture private sector have included poor infrastructure, unsupportive and unpredictable public policy, poor security and low levels of educational achievement. Failed attempts to diversify Nigeria’s export base have been caused by




an urban bias in policy, low productivity, ineffective public programmes, public interference in private sector activities and ‘Dutch Disease’ problems.

.

Low growth in the non-oil sector has led to reliance in many communities on an ineffective public sector. As the bulk of oil revenues are transferred directly to the three tiers of government, the main means by which oil revenues can affect the wider economy is through the public sector. Yet public finances are poorly managed, not well focused on anti-poverty priorities and the distribution of benefits from public expenditures is biased against the poor segments of society. While most oil-producing countries face problems in managing fiscal policy because of the high volatility of oil prices, some have fared better than Nigeria in using oil revenues to deliver real per capita growth (see Box 1 for a comparison of Nigeria’s experience with that of Indonesia). If soundly managed, oil revenue can translate into sustained, higher, non-inflationary growth of the non-oil economy while also cushioning the domestic economy from sharp and unpredictable movements in oil prices and revenue.

Managing Oil Revenues: A Comparison of Nigeria and Indonesia

Although both Nigeria and Indonesia are heavily populated oil-exporting countries, the economic development of the two countries has diverged, with Indonesia becoming substantially wealthier. While real per capita GDP stagnated in Nigeria between 1960 and 1999, it increased fourfold in Nigeria during the same period. Other indicators of human development tell a similar story.

Relatively prudent fiscal, monetary and exchange rate policies, combined with market-oriented policies toward agriculture and light manufacturing, explain in part why Indonesia fared better than Nigeria in spite of the severe financial and economic crisis experienced by Indonesia in 1998 and the clear evidence of corruption and mismanagement. Macroeconomic volatility has also constrained economic growth in Nigeria for the last three decades.

Indonesia pursued sectoral policies aimed at encouraging competitiveness of the non-oil sector, with special emphasis on agriculture and export-oriented industries. The Nigerian experience is substantially different, as large public investment projects and restrictive trade policies have protected the domestic manufacturing sector. Consequently the share of non-oil exports in total exports increased from 16% in 1970 to 87% in 1999 in Indonesia, while non-oil exports from Nigeria declined to 2% of total exports from 52% over the same period.

Following the oil booms in the 1970s, Indonesia pursued a policy of approximate fiscal balance, while Nigeria experienced large increases in public spending and fiscal deficits. Nigeria’s federal government deficit has remained above 4% of GDP for most years since 1975, and has sometimes been substantially higher.

As a response to terms of trade shocks in the 1970s and 1980s, Indonesia focused on maintaining a competitive exchange rate through successive devaluations of its fixed exchange rate, which contrasted with Nigeria’s consistently overvalued exchange rate. Only after depleting its foreign reserves was Nigeria’s currency forced into devaluation in 1986.

Source: IMF (2002)




Government expenditure remains highly correlated with oil price developments, including the volatile boom-bust cycles – government spending is pro-cyclical: exacerbating rather than offsetting the impact of oil price fluctuations. At the same time, the sharp increases in public spending (from 18% of GDP in 1970 to 50% of GDP in 2001) have not been matched by a commensurate improvement in the country’s standard of living, generating in the process a legacy of wasteful and low-quality capital spending. Physical infrastructure needs20, in sectors such as electricity generation, telecommunications, and transportation, have been inadequately attended to, while essential social services have been neglected. These and other policies – such as a highly protective trade regime, controls on the exchange rate, and corruption – have altered incentive structures, led to distortions in private sector decision making, and undercut the growth prospects of the non-oil sectors of the economy. The consequence of these policies has been economic stagnation, which has further exacerbated political and social conflicts.

Structure of the Economy

Real per capita GDP growth averaged 1.45% during the 1960-2000 period. However it has suffered significant erosion since the highpoint in the early 1980’s and was estimated at US$290 in 2001.

Table 3: Composition of GDP Growth 1972-2001

1972-76

1977-81 1982-86 1987-91 1992-96

1997-2001

GDP growth (annual %) 4.7 -0.4 0.4 5.9 2.4 2.7

Agriculture (% of GDP) 33.2 27.3 35.6 34.4 27.8 34.7

Industry (% of GDP) 28.2 37.1 29.2 38.9 52.6 39.9

Services (% of GDP) 38.6 35.6 35.2 26.8 19.6 25.5

Source: World Bank

Since 1960, there have been significant shifts in the sectoral contribution of national income. The discovery of crude oil in commercial quantities at the end of the 1960s led to a growth in the share of industrial output to GDP, from 8% in 1960 to 53% in the early 1990s, falling to 40% more 20 A recent World Bank Private Sector Assessment study highlighted the severe infrastructure constraints to private sector growth. Private enterprises surveyed raised this as the most critical constraint to their activities.




recently. The share of agriculture in GDP has fallen from 64% of GDP in 1960 to an average of 35% of GDP (1997-2001). There has been associated urbanisation, with the rural population falling from 90% to 57% of the total.

Oil and Gas

Nigeria's crude oil reserves were estimated at 24 billion barrels in 2001, equivalent to about 30 years of production at current levels. Production is mostly carried out under joint-venture arrangements between NNPC (Nigeria National Petroleum Company) and multinational companies.

Nigeria also has extensive gas resources. Although production is still in its infant stages, its current proven reserves place the country in the top ten in the world. The government predicts that foreign exchange earnings from gas will surpass that from the sale of crude oil in the medium term (IMF 2003b).

Dependence on oil makes exports and government revenues uncertain and highly volatile. Unmanaged external shocks bring difficulties and costs to the Nigerian economy such as:

• Fiscal and monetary disequilibria and inflation.

• Exchange rate appreciation that affects non-oil tradable sectors such as agricultural cash crops (Dutch Disease).

• Lower private investment.

• Lax public project selection criteria.

• Private capital flight.

• Decision-making process weakened by political lobbying for windfalls.

Manufacturing

At the end of the 1990s Nigerian per capita value-added in manufacturing was very low at approximately US$13, which corresponds to about 10% of the level of Botswana and less than 50% of that of Ghana and Kenya. Investment in equipment and machinery is low, with more than half of firms refraining from investing altogether, and with the majority of the investing firms reporting modest investment rates. Very few firms export, which is identified as a key problem for Nigerian manufacturing.

The garment sector, which has been the source of labour intensive exports in other countries, uses by far the most labour intensive technology across all the sectors. The sector is one of the few industrial activities in Nigeria dominated by private companies. Several large textile companies have been set up, mostly by foreign investors (mainly from Asia), seeking to establish a textile production and export base in West Africa. The firms in this sector are relatively efficient and more




oriented to exporting than other sectors. However the average propensity to export even in this sector is very low.

The most frequently cited problem for firms is physical infrastructure, followed by access to credit, insufficient demand, cost of imported raw materials and lack of skilled labour. Among micro firms the most frequently cited main problem is credit access.

The authorities have identified priority areas of industrial investment, where tariff protection is highest and tax exemptions and export assistance most readily granted. These areas are, by order of priority:

• Metallurgical and engineering sectors, including steel plants, foundries and forges, metal fabrication, machine tools and the automotive sector;

• Chemical and petro-chemical sector, including fertilizers, pharmaceuticals, rubber and plastics;

• Forest-based and agro-allied sectors, including leather, textiles, pulp and paper, sugar and products, cereals, oils, roots, tubers and livestock products; and

• Construction materials, including cement and non-metallic building materials.

Capital-intensive manufacturing activities in aluminium, cement, motor vehicles, paper, and steel are dominated by partially or wholly state-owned firms. Common problems in these firms include construction delays, budget overruns, plant closures, low capacity utilization, high unit costs, and a persistent lack of working capital and maintenance.

Agriculture

Climatic and soil conditions allow Nigeria to produce a wide variety of agricultural products, including many food and cash crops. Major products include cassava, of which Nigeria is the largest world producer, yam, sorghum, millet and maize, as well as horticulture and nuts, fisheries and forestry. Major agricultural exports consist of cocoa, rubber, and palm kernels. Main imported food products are rice, sugar, beef and milk powder.

The area currently under cultivation (an estimated 34 million hectares) constitutes less than half of the potential agricultural land, suggesting that the sector has a strong growth potential, and that past economic conditions have not favoured the agricultural sector. Production of staples expanded on average by nearly 8% annually over the 1990-96 period, with the largest increases in production of cassava and yam (Iyoha & Oriakhi 2002).

Prices of agricultural commodities are generally no longer subject to price controls. Considerable seasonal price fluctuations are frequent, reflecting the problems of inadequate storage, processing, marketing, and distribution facilities. Post-harvest losses reach 25% in cereal production, and up to 50% in horticultural production. This encourages speculators to buy at low farm-gate prices during the harvest season, and resell at considerably higher prices during the off-season.

Only 10% of agricultural production is further processed industrially in Nigeria. Infrastructural factors, including energy and water shortages, credit constraints, poor knowledge of potential




markets, transport and telecommunications problems are important impediments to increasing this share. These problems affect most sectors in Nigeria (Iyoha & Oriakhi 2002).

In the past decade, growth in production of staple foods has exceeded population growth, a considerable achievement in view of the country's large and growing population and the relatively minor official support for such production. Less than 3% of the value of food consumed is imported. Although tariffs have generally been reduced on both raw and manufactured agricultural products, import prohibitions on several agricultural products have been replaced by high tariffs, and prohibitions still apply to maize, sorghum, millet, wheat flour and vegetable oils. Local food processors have benefited from extra protection through increases in tariff escalation, and the removal of excise duties on domestic products.

Table 4: Estimated output of major agricultural, fishery and forestry commodities

('000 tonnes, unless otherwise stated)

Average annual growth rate

1990 1996 1990-1996 Staples 55,964 88,080 7.9

Maize 5,768 6,217 1.3 Millet 5,136 5,803 2.1 Sorghum 4,185 7,514 10.2 Rice 2,500 3,122 3.8 Beans 1,354 1,847 5.3 Cassava 19,043 32,950 9.6 Yam 13,624 23,928 9.8 Plantain 1,215 1,688 5.6 Vegetables 1,761 3,506 12.2

Other crops 11,362 12,891 2.1 …of which:

Groundnut 1,116 2,078 10.9 Palm Kernel 1,190 548 -12.1 Palm oil 730 776 1.0 Cocoa 244 323 4.8 Rubber 147 245 8.9 Sugarcane 920 615 -6.5 Palm wine 5,121 6,122 3.0

Livestock products 1,304 1,892 6.4 Fishery 315 364 2.4 Forestry ('000 m3) 105,237 18,120 -25.4




External Sector Table 5: Exports by groups of products, 1980-96

(US$ billion and per cent)

Commodity 1980 1985 1990 1995 1996

Total (US$ billion) 26.1 15.63 13.49 12.65 15.46

Total primary products 98.1 98 95.7 91.9 96.3

Agriculture 2.4 2.1 2.8 5.2 4.3

Food 2.2 1.7 1.7 2.7 2.5

072 Cocoa 1.5 1.5 1.2 1.7 1.7

031 Fish, fresh, simply preserved 0 0 0.2 0.4 0.3

081 Animal feeding stuff 0.1 0 0.1 0.2 0.2

221 Oil, seeds, nuts, kernels 0.2 0 0 0.1 0.1

422 Fixed vegetable oil nonsoft 0.2 0 0 0 0.1

Agricultural raw material 0.2 0.3 1.1 2.4 1.8

231 Rubber, crude, synthetic 0.1 0.2 0.8 1.5 1.2

243 Wood shaped 0 0 0.1 0.3 0.2

263 Cotton 0 0 0 0.1 0.2

Mining 95.7 96 92.9 86.8 92

331 Crude petroleum, etc. 95.4 95.8 92.7 86.5 91.8

Manufactures 1.8 1.9 4.2 8 3.7

Chemicals 1.5 1.2 2.5 6.4 2.3

332 Petroleum products 1.5 1.2 2.1 6.1 2

611 Leather 0.1 0.1 0.7 1 1

Machinery and transport equipment 0.1 0.6 0.2 0.3 0.2

Textiles 0 0 0.1 0.2 0.1

Source: UNSD, Comtrade database (SITC Rev.1).




Before the introduction of the SAP in 1986, trade policy was generally inward-oriented, with policies that aimed to protect domestic industries, attain self-sufficiency in food and raw materials, and encourage import-substitution industrialisation. Trade barriers included high tariffs, import quotas and import licensing. Nigeria also operated a fixed exchange rate regime. These policies insulated the manufacturing sector from international competition, and led to a rise in the share of manufacturing to GDP from 5.6% in 1962 to 8.7% in 1986. Industries that benefited included vegetable oil processing, soap manufacture and textiles (Iyoha & Oriakhi 2002).

However the anti-export bias in policy made conditions difficult for the agriculture sector. This was compounded by the ‘Dutch disease’ impact of oil exports which led to a reallocation of resources from the tradables sector into the non-tradables sector. Further problems were caused by erratic import policy and faulty agriculture pricing policies. During the oil boom, agricultural exports plummeted by more than 50% and Nigeria switched from being a net agricultural exporter to a net importer.

Since 1986, many of these trade distortions have been reduced and there has been a shift to outward-oriented trade policies. However the exchange rate continues to be overvalued and there has been a recent increase in the levels of trade barriers.

External Debt

Most of Nigeria’s external debt was accumulated in the 1980-86 period, when debt stock increased from US$5 billion to US$25 billion. Over this period, the debt service to exports ratio increased from 6% to 72%, and the ration of external debt to goods exports increased from 17% to 320% (IMF 2003b). Following the SAP of 1986, two rescheduling agreements were made with Paris Club creditors and three agreements with London Club creditors. While the authorities have remained current on their London Club obligations, significant arrears to Paris Club creditors have been accumulated, thereby precluding new borrowing since 1994. The United Kingdom is the leading creditor, owed US$5 billion (including arrears of US$3 billion), followed by Germany (US$3.8 billion), Japan (US$3 billion), and France (US$2.8 billion).

External debt now stands at over 140% of GDP. The accumulation of arrears is probably the main factor explaining the increase in Nigeria's total debt, and also explains the decline in Nigeria's debt service ratio. The authorities have capped external debt service at approximately US$2 billion since 1991, a level considerably inferior to that required to service maturing debt and interest charges. At the end of 2002, arrears were valued by the authorities at nearly US$15 billion.

Nigeria has not been offered HIPC terms on the ostensible grounds that Nigeria remains eligible for blend IBRD/IDA funding from the World Bank, although in all other respects including level of poverty, Nigeria would be eligible for HIPC.

An important factor behind the accumulation of external debt is external borrowing used in respect of "priority projects". In 1996, the authorities appraised 145 such projects, accounting for US$13.2 billion in past credits. Some 18 projects, totalling US$836 million, were considered "failed" because they were never executed, although the proceeds of the external loans were drawn and were being serviced. Some 44 projects financed with external loans amounting to US$4.8 billion, were classified as "distressed" because they were either never commissioned or, when they were, were closed down soon thereafter. It was considered that their benefits could not be achieved without a further injection of funds. Finally, 83 projects costing a total US$7.5 billion in foreign




loans were surviving and operating "at whatever capacity level during the appraisal", and therefore considered "successful" (see Iyoha & Oriakhi 2002 for details).

Nigeria’s medium-term balance of payments outlook, in the absence of further debt rescheduling, remains difficult. The IMF (IMF 2003b) projects that the net present value of external debt is projected to remain broadly unchanged at close to US$30 billion over the medium term, with financing gaps of around US$1 billion per year over the period 2003-07.

A2.3 Poverty

Characteristics and Trends in Poverty

Estimates of poverty in Nigeria vary, depending on the measure used. Somewhere between 40% and 60% of Nigeria’s population is below the poverty line21 and most estimates suggest that the proportion of people living in poverty has grown in the past two decades. Real wage income has declined and inequality has risen22 (Aigbokhan 2000).

The World Bank’s ‘Voices of the Poor’ highlights the main causes of poverty as livelihood and employment insecurity; crime and conflict; and social exclusion. Problems facing the poor are particularly marked with regard to the delivery of public goods and services – water, education, health, electricity and roads – but also increasingly, with regard to security. Unemployment, partly due to the deterioration of agriculture as a productive sector, features high in the ranking of problems and priorities of the poor. Women in particular complain of fewer opportunities than men, of coping with the material aspects of ill being, of having limited coping strategies and safety nets, and of constantly living with a sense of insecurity. The poorest four deciles of the population derive almost all of their income from own production, with little or no output for sale as a source of money income. They have virtually no access to formal credit.

The incidence of poverty is higher in rural than urban areas and there is also a regional dimension to poverty (see Table 4). Poverty is generally lower in the southern zones (where one estimate puts levels at around 55-60%), where a reduction in the poverty incidence was experienced during the 1990s. In the north, there was an increase in poverty incidence during the 1990s, where the same estimate puts the incidence of poverty at 70-78% (Aigbokhan 2000). Economic and social policies have favoured the southern zones, which are better provided with infrastructure and social services, relative to those in the north.

21 The World Bank ‘Voices of the Poor’ (2000) study puts the figure at 54%. 22 The Gini coefficient for Nigeria was estimated at 0.51 over the period (1997-2001), an increase from 0.43 in 1986.




Table 6: Incidence of poverty by region (%)

Rural Urban Composite

1985 1996 1985 1996 1985 1996

All Households 41 51 38 37 38 47

Northeast 45 64 42 51 14 61

Northwest 39 91 45 78 42 90

Middle Belt 45 58 40 34 40 45

Southeast 26 36 35 35 31 36

Southwest 36 44 34 37 34 38

South south 42 41 37 38 37 42

Source: Aigbokhan (2000)

In addition, poverty in Nigeria is also strongly influenced by education, age, and the nature of employment (World Bank 1996). Those without education account for most of the poor measured in terms of consumption. Poor children commonly do not attend school. They and their parents consider that the quality of education (particularly in rural areas) is very weak and that the prospect of education increasing employment opportunities in minimal. Although illiteracy, amongst both the female and male population, has fallen steadily since the early 1970s, there is still a gender bias in literacy levels, with 38% of females illiterate, compared to 29% of males.

Poverty-Growth Linkages

During the adjustment period of 1986-92, the incidence of poverty fell from 43% to 34% (Thomas & Canagarajah 2002). Therefore evidence suggests that modest growth has the potential to bring about a significant reduction in the proportion of the total population in poverty. However poverty among the extreme poor increased during this period, reflecting an increase in income inequality among the poor. And as a result of deindustrialisation and recovery of agriculture that took place during the adjustment period, urban poverty increased whilst rural poverty fell. Regionally, poverty declined in almost all areas except the north.

World Bank simulations of alternative growth scenarios suggest that if economic growth were at an annual rate of 2%, in ten years’ time, the number of people living in poverty would double. Rates of growth of at least 5% would be required to reduce the proportion of the poor population (World Bank 1996).




Evidence (e.g. Thomas & Canagarajah 2002) suggests that there are segments of the population that have failed to benefit from growth, meaning that there is a need for policies and programmes that target the extreme poor alongside policies that contribute to rapid economic growth. This should concentrate on the rural sector and the northern zone, where more than half of the households living in extreme poverty are located.

The links between growth and poverty are compromised by an uneven distribution of economic growth and the sensitivity of poverty reduction to the composition of growth. Growth must therefore be broad based, export enhancing, and employment generating. There must be emphasis on the expansion of non-oil sources of growth – agriculture, small and medium scale industry, solid minerals, agro-processing, services and construction.

A2.4 Fiscal Policy23

Being dependent on mineral extraction, Nigeria faces two main challenges when formulating fiscal policy (IMF 2003b): (i) in the long run, the need to ensure that the fiscal stance is compatible with sustainable consumption of oil resources; and (ii) in the medium term, the need to prevent revenue volatility from spilling over into the budget. Historically, there has been a string deficit bias and pro-cyclicality in fiscal policy. In periods of high oil prices, expenditure has been increased, which, in periods of low oil prices, has proved difficult to reverse. This has resulted in growing fiscal deficits. The current revenue-sharing arrangement, whereby about half of oil revenue is allocated to the state and local governments, has facilitated an expansion of expenditure programmes in lower-level governments, a tendency that has further constrained the ability of the federal government to stabilise expenditure. Fiscal volatility has had negative implications for the rest of the economy, particularly through its impact on the real exchange rate and growth. One way that this could be addressed is through ‘Fiscal Policy Rules’, which impose limits on the budget balance, on expenditure, or on public debt, and therefore de-link expenditure from fluctuations in oil prices while ensuring that the fiscal stance is compatible with sustainable consumption of oil resources (IMF 2003b).

Nigerian governments have always had to mollify fears in southern Nigeria of Hausa/Fulani political domination while at the same time attempting to win the confidence of the peoples of the relatively more underdeveloped north through the deliberate allocation of industrial, infrastructure, and commercial assets. Revenue sharing between different levels of government has therefore been a contentious issue in Nigeria since colonial times. It has become particularly so since the discovery of oil, which has led to a situation where 80-90% of all sub-national revenues are derived from inter-governmental transfers. Tension exists between distributing revenue proceeds to the region of origin and the demands for redistribution, to provide adequate resources to all disadvantaged regions to assure the delivery of minimum standards of public services. The process has usually lacked transparency, meaning that the implementation of successive formulae has therefore led to doubt and mistrust between the Federation and its constituent units.

The federal system of Nigeria is constituted of three layers of government: the federal, state and local governments. Nigerian governments have greatly increased the number of states, as an instrument to diffuse regional and ethnic rivalries. Hence the four regions that existed at independence have been transformed into 36 states (plus the federal capital).

23 See Alm & Boex (2002), Ahmad & Singh (2003) and IMF (2003b) for further discussion




Although Nigeria has had a federal government structure since before independence, for much of the country’s history, military regimes dismissed elected officials and legislative bodies at all levels of government at regular intervals and replaced them with military appointees. Since under military rule, sub-national governments were accountable to the country’s military authorities rather than to state or local electorates, this was not true political and fiscal decentralisation. Nevertheless, Nigeria’s decentralised administrative structure was maintained by successive military regimes.

The return of civilian rule in 1999 saw the adoption of a new constitution. The constitution defines the expenditure responsibilities of each level of government as summarised in Table A2.5.

Table 7: Expenditure functions of Nigeria’s tiers of government

Federal government State government Local government

Defence

Foreign affairs

Law & public order

Railways

Posts and communications

Roads of national interest

Air & sea travel

Education

Health

Public works

Provision of urban infrastructure, including:

Water

Sanitation

Waste collection

Limited participation in provision of primary health and education

Revenues are highly centralised. With the exception of VAT and some minor federal revenues, all federally collected revenues are paid into the Federation Accounts, which is then shared by a formula among the three tiers government. VAT is also shared by a formula among government units. The main sources of revenues for the Federation Account are petroleum taxes (which in 2001 accounted for N857 million, 78% of public sector income). Notable non-oil revenue sources that contribute to the Federation Account are company income tax (N69 million in 2001) and customs and excise duties (N171 million in 2001).

As well as revenues from the Federation Account, State governments collect most personal income taxes as well as some minor taxes, levies and fees. Local governments are assigned a number of minor rates, license fees and market fees.

The constitution also defines the manner in which resources are shared among the different levels of government. The precise details of this formula are decided by Parliament every five years. At present, Federation Account receipts are distributed as follows:

Federal Government 48.5%

State Governments 24.0%




Local Governments 20.0%

FCT Abuja 1.0%

Ecological Fund 2.0%

Stabilisation Reserve Fund 0.5%

The distribution to individual states and local governments is based on ten factors. The first is an ‘equality factor’, which is essentially a lump-sum payment and accounts for 47.5% of total transfers. Transfers based on population are accorded a weight of 30%, geographical area, 10%, and revenue effort, 2.5%. The remainder is distributed based on ‘social development’ factors, which related to indicators of need in the education and health sectors, and an index of clean water and the quantity of rainfall (IMF 2003b).

States are not prohibited from borrowing, either domestically or externally. However, there is practically no borrowing from the central bank, states tend to borrow from commercial banks. External borrowing by states must be guaranteed by the federal government. In most cases, the federal government borrows externally directly and on-lends to the states.

Regarding the current revenue sharing arrangements, the main issues appear to be as follows:

Revenue sharing of part of the petroleum revenues with the states has resulted in large fiscal disparities between the few oil-producing states and the remainder of the country:

• Own-sourced revenue of state governments is only about 10-20% of their total revenue. This lack of revenue autonomy is further aggravated by the absence of state discretion over the rates of sub-national taxes. This means that state governments have no control over the size of their own revenues. This lack of revenue autonomy limits the fiscal policy options of state governments.

• The use of Federal Allocations as the dominant funding mechanism for sub-national governments means that they receive very unstable revenues. For this purpose, a Stabilisation Account exists to stabilise revenue streams over time. However payments into, and withdrawals from, the Stabilisation Account are ad hoc and politically motivated. For example, whereas payments should be made into the Stabilisation Account during times of high oil prices, there was discussion of making withdrawals from the Stabilisation Account in October during record oil prices on international markets.

• The revenue-sharing arrangement leaves virtually no room for manoeuvre in fiscal policy. It places the burden of macroeconomic adjustment on the federal government with control over less than half of the federation revenue. Effective coordination of fiscal policies among the three tiers of government will require a strengthening of the entire public expenditure management process in Nigeria, including planning and budget preparation, budget implementation, cash management, debt management, reporting and auditing.

A2.5 Requirements for Pro-Poor Growth

If the current rate of population growth of 2.8% continues, Nigeria’s population will almost double in the next 20 years to around 250 million by 2025. Rapid growth is therefore required for there to be significant poverty reduction and an increase in per capita GDP. Not only must growth be rapid,




but it will need to centre on the non-oil private sector. What follows is a summary of the measures that must be addressed to raise the rate of economic growth in the non-oil sector and ensure that the poor reap some of the benefits of this growth:

• Macroeconomic policy environment

The financial system remains vulnerable to several external risks including:

• The economy’s high dependence on volatile oil proceeds

• Economic mismanagement, in particular fiscal imprudence

• Political uncertainty

Given the large size and role of government in economic activity and its virtual monopoly over the country’s export earnings, the IMF perceive “that fiscal indiscipline is the single most important threat to the economy and the financial sector today” (IMF 2002). Adopting a prudent, medium-term oriented fiscal policy and introducing more market-based mechanisms in the foreign exchange market and the domestic money market would help to reduce vulnerabilities, remove distortions, and therefore improve the efficiency of the financial system.

Macroeconomic stability must be enhanced to reduce uncertainty and insecurity. Although instability is partly exogenously determined (by fluctuating oil prices), it has historically also been due to frequent policy reversals and the impact of high fiscal deficits and a fixed exchange rate (with occasional massive devaluations) on inflation. The need for policies and institutional mechanisms to help foster a more stable and predictable financial environment – saving of windfall oil receipts, and running a budget deficit when oil prices fall below a benchmark price – requires fiscal discipline and political buy-in.

• Access to basic infrastructure and social services

The provision of publicly provided social services is currently very under-funded. Much of the population lack the health and education required to contribute to and benefit from higher growth and there is a gender inequality in access to health and education services The quality of these investments must be improved to enhance the quality of the country’s human capital.

The poor often lack access to basic infrastructure, including to water supplies, sanitation, rural roads, and urban transport. Addressing this will improve the distributional pattern of growth and diversify its sectoral composition, which is essential for poverty reduction.

• Conducive environment for private sector development

Development of the non-oil private sector is key to pro-poor growth in Nigeria. This will require an improvement in the investment climate, sound macroeconomic management, less corruption and better infrastructure and financial services. The government must support the private sector as the engine of growth and define the state as an enabler, rather than a competitor. To generate necessary growth, Nigeria will need to remove price distortions and liberalise the trade regime. The government should focus its efforts on improving the quality of the country’s human resources and rely more on the informal and formal private sector to increase capital investment.




Land tenure laws and property rights play a key role with regard to farming, mining and manufacturing and are thus an important area of attention. The monopoly of state enterprises needs to be eliminated through a deepening of the privatisation programme, whilst establishing more transparent regulatory systems. Likewise, if people are to invest, they need increased access to credit and inputs. To provide an incentive to increase output, people need access to markets. An increase in the quality of rural roads is therefore vital.

The reasons for low levels of investment are summarised in the following box, which summarises the main elements of the enabling environment required, compared with the current situation in Nigeria.

Table 8: Main elements of an enabling environment for the private sector

Element of enabling environment Situation in Nigeria

Conflict-free zone with inclusive economic and political system.

Internal conflict common. Parliamentary constitution but politics patrimonial with widespread corruption.

Functioning and reliable justice and security systems.

Poor often lack access to justice system. Lack of security cited as one of the main concerns of the poor.

The observance of basic human rights. Provided for under Constitution, but often abused.

Adequate basic infrastructure (e.g. water, sanitation, telecoms).

Rural roads, telecoms, power, water and sanitation very poor.

Functioning level and regulatory environment minimising market distortions.

Administration slow and opaque.

Fiscal policies such as a stable exchange rate and low inflation.

Large fiscal deficit; budget dependent on oil revenues and therefore unstable. Moderate inflation. Exchange rate over-valued and subject to periodic large adjustments.

Financial sector stability with transparency. Little transparency in state sector; under-developed private finance.

Political and social empowerment, including promotion of equality of opportunity.

Widespread disempowerment and exclusion especially for poor.

Source: ‘Promoting International Development Through the Private Sector’ DFID Development Policy Forums, January 2002 (column 1). Column 2: author’s assessment.

• Improved access to financial services

This requires better functioning money and capital markets and the development of a stronger banking system that protects and elicits increased savings. Policies and institutional mechanisms to help foster a more stable and predictable financial environment are required.




• Improved governance

The increase investment that will be crucial for growth requires greater transparency and accountability in government and corporate affairs, and reduced transactions costs relating to ‘doing business’ in Nigeria. Furthermore, political and ethnic tensions, which have historically led to conflict, cause instability and poor security that has deterred both domestic and international investors.




Labour Force/ Population Structure 1972-76 1977-81 1982-86 1987-91 1992-96 1997-2001

Population, total (millions) 59.6 69.0 80.7 93.6 108.1 123.8

Population growth (annual %) 2.8 3.0 3.1 2.9 2.9 2.5

Rural population (millions) 46.0 51.0 56.5 61.6 66.3 70.4

Urban population (millions) 13.5 18.1 24.2 32.0 41.8 53.5

Social Indicators (health/ Education) 1972-76 1977-81 1982-86 1987-91 1992-96 1997-2001

Births attended by health staff (% of total) N/A N/A N/A 31.0 N/A N/A

Contraceptive prevalence (% of women ages 15-49) N/A 5.0 N/A 6.0 N/A 15.3

Death rate, crude (per 1,000 people) 19.7 18.1 16.5 14.9 14.4 15.5

Fertility rate, total (births per woman) 6.9 6.9 6.7 6.1 5.8 5.4

Illiteracy rate, adult female (% of females ages 15 and above) 85.9 79.7 72.0 63.6 54.9 46.1

Illiteracy rate, adult male (% of males ages 15 and above) 64.1 56.7 49.1 41.9 35.1 28.8

Illiteracy rate, adult total (% of people ages 15 and above) 75.3 68.5 60.8 53.0 45.2 37.6

Life expectancy at birth, female (years) 45.6 47.1 48.6 50.3 51.3 49.1

Life expectancy at birth, male (years) 42.4 43.8 45.3 47.1 48.3 47.2

Life expectancy at birth, total (years) 43.9 45.4 46.9 48.6 49.7 48.1




Malnutrition prevalence, height for age (% of children under 5) N/A N/A N/A 42.7 37.7 45.5

Malnutrition prevalence, weight for age (% of children under 5) N/A N/A N/A 35.3 39.1 27.3

Mortality rate, adult, female (per 1,000 female adults) N/A 452.8 N/A 400.7 N/A 376.5

Mortality rate, adult, male (per 1,000 male adults) N/A 535.2 N/A 476.4 N/A 433.0

Primary education, pupils (thousands) 4.9 12.1 13.0 13.7 15.3 N/A

Ratio of girls to boys in primary and secondary education (%) N/A 73.4 77.7 76.3 79.5 N/A

Poverty/ Inequality Indicators 1972-76 1977-81 1982-86 1987-91 1992-96 1997-2001

GINI index N/A N/A N/A N/A N/A 50.6

Income share held by highest 20% N/A N/A N/A N/A N/A 55.7

Income share held by lowest 20% N/A N/A N/A N/A N/A 4.4

Poverty headcount, national (% of population) N/A N/A 43 N/A 34.1 N/A

Poverty headcount, rural (% of population) N/A N/A 49.5 N/A 36.4 N/A

Poverty headcount, urban (% of population) N/A N/A 31.7 N/A 30.4 N/A




Economic Indicators 1972-76 1977-81 1982-86 1987-91 1992-96 1997-2001

GDP (constant billions 1995 US$) 18.4 20.9 18.8 22.9 27.8 31.5

GDP growth (annual %) 4.7 -0.4 0.4 5.9 2.4 2.7

Inflation, GDP deflator (annual %) 18.0 13.0 7.6 28.6 51.4 7.9

Agriculture, value added (% of GDP) 33.2 27.3 35.6 34.4 27.8 34.7

Industry, value added (% of GDP) 28.2 37.1 29.2 38.9 52.6 39.9

Services, etc., value added (% of GDP) 38.6 35.6 35.2 26.8 19.6 25.5

Services, etc., value added (annual % growth) 10.2 0.6 1.5 8.4 3.6 1.8

Crop production index (1989-91 = 100) 56.3 51.8 58.6 90.7 130.8 150.4

Food production index (1989-91 = 100) 56.8 56.4 66.3 92.3 127.8 148.3

Central government debt, total (% of GDP) N/A 21.3 43.1 32.0 N/A #DIV/0!

External debt, total (DOD, current billion US$) 1.5 6.9 17.6 31.1 31.6 30.5

Total debt service (TDS, current million US$) 237.0 723.7 3,037.6 2,342.9 2,290.7 1,199.5




Gross capital formation (% of GDP) 23.4 24.5 13.7 18.0 19.0 21.6

Gross domestic savings (% of GDP) 23.5 26.5 12.1 24.6 23.5 21.1

Gross fixed capital formation (% of GDP) 23.9 24.9 14.7 18.4 19.0 21.6

Financing from abroad (% of GDP) 0.0 1.7 N/A N/A N/A N/A

Foreign direct investment, net inflows (% of GDP) 1.7 0.4 1.0 3.4 5.1 3.3

Aid (% of central government expenditures) 2.8 0.5 0.4 1.1 N/A N/A

Aid per capita (current US$) 1.2 0.5 0.5 2.2 2.1 1.5

Exports of goods and services (% of GDP) 17.7 24.2 15.6 33.0 44.7 38.5

Exports of goods and services (annual % growth) 2.4 6.6 0.0 4.7 7.1 -0.4

Exports of goods and services (BoP, current billion US$) N/A 17.6 10.9 10.3 12.6 16.8

Exports of goods and services (constant billion 1995 US$) 8.5 11.4 7.3 8.8 11.5 13.6

Exports of goods and services (current billion US$) 4.4 12.1 5.0 8.5 12.6 13.3

Current account balance (% of GDP) N/A -2.5 -3.3 5.0 -1.0 3.7




Fuel exports (% of merchandise exports) 89.5 94.5 95.3 96.0 95.6 98.0

Merchandise exports (current billion US$) N/A 21.9 10.4 10.0 11.8 15.8

Merchandise imports (current billion US$) N/A 18.7 10.2 5.5 7.9 9.6

Trade (% of GDP) 35.4 46.5 32.7 59.4 84.9 77.4

Money and quasi money (M2) as % of GDP 12.5 22.9 31.3 21.1 15.9 17.6




Annex 3 Political Economy of Change in Nigeria

A3.1 Introduction

The most striking feature of Nigeria’s political economy has been its “recursive” nature – the tendency to revert, despite a succession of reform attempts, shifting political alliances and institutional changes, to the same fundamental patterns of conflict and political behaviour. This reflects deeply rooted structural features of Nigeria, that have existed at least since Independence and in many respects predate it. These can be summarised as:

• A complex and shifting set of alliances and conflicts based around two divides that have principally structured politics: a tripartite regional/ethnic divide (North – Hausa/Fulani, South West – Yoruba, South East - Igbo) and a Christian/Muslim religious divide, along with innumerable sectional and interest group divides (for instance between competing business interests). In general though regional/ethnic and religious politics have been of far more significance than class-based politics.

• The role of oil in providing, since the early 1970s, both the overwhelmingly important source of government revenue and the major source of economic instability.

• The predominantly rural population, despite a significant trend towards urbanisation, and the concentration of poverty among the rural population, with the associated difficulties of achieving a united or effective political voice for the poor.

• The lack of any significant external threat or cultural or historical traditions favouring national unity, in a large and diverse country with relatively poor communications and infrastructure.

Nigerian political leaders have faced the problem of maintaining national unity and containing potential and actual violence, through managing conflicts over resources and (increasingly) over religious ideology. This violence has, since the failure of the Biafran Secession, generally been contained to the local level. This has been achieved, in the absence of strong or effective state institutions, through a patrimonial political system which has sought to incorporate elite groups (and their clients) in the division of state resources, under the general hegemony of Northern elite groups focused on the military. But this has been at the cost of:

• Failure to achieve fiscal control or to manage oil price-induced economic volatility without incurring immense economic costs.

• Failure to achieve “accountability to rules” or respect for public institutions throughout society and government, leaving the state vulnerable to larceny on a grand scale by those entrusted with the control of resources.

• A continuing fragmentation of the state through the creation of new government entities (states, local governments, parastatals) in response to claims from those considering themselves disadvantaged under existing arrangements, and the lack of effective agencies of restraint at any level of government.




• The marginalisation of groups who are not effectively represented within the patrimonial system.

A variety of different regimes have grappled with varying degrees of seriousness with this set of problems. In particular, a large number of constitutional and policy solutions have been attempted. These institutional reforms have focused principally on:

• Revenue-sharing arrangements between different regions and levels of government.

• The structure of local government.

• The party and electoral system and the role of the legislature and executive.

• Attempts to achieve fiscal discipline.

Although there have been some periods of relative success (for instance the strong economic response to structural adjustment reforms in the earlier part of the Babangida period), the most striking feature is the continuity of the basic elements of the Nigerian political system, and the persistent failure of reform initiatives to effect decisive change to improve governance or economic management and to move Nigeria towards being a “developmental state.”

This annex discusses the experience of institutional reform attempts in Nigeria since Independence. It is structured as follows. Section A3.2 discusses the concept of the developmental state and uses a typology of state types to elucidate a range of alternative models and the types of institutional change that would have been necessary to have achieved a movement towards a more developmental form of state. Section A3.3 summarises the main institutional reform efforts. Section A3.4 discusses the role of different agents in the political process, again focusing on continuities over the post-Independence period. The final section presents conclusions.

A3.2 The Developmental State and Nigeria

Leftwich (1995), based on a discussion of seven successful developing economies24, identified six key features that he characterised as constituting a “developmental state” that was able to pursue a coherent and long-term development strategy. These were:

• A determined developmental elite, in:

• A weak and subordinated civil society, which confers:

• Relative autonomy, that is deployed by:

• A powerful, competent, insulated economic bureaucracy, in:

• The effective management of non-state interests, while:

• Political legitimacy is conferred first by repression, and then by performance.

24 South Korea, Taiwan, China, Indonesia, Malaysia, Thailand and Botswana.




Auty and Gelb (2001) characterise the developmental state as one state type defined in the framework shown in Table A9, which derives from Lal (1995). This framework defines the nature of the state in terms of the restraints on it and its aims.

Table 9: Classifications of Forms of State

Autonomy Aims Sub-type Markets role Examples

Autonomous benevolent

Maximise social welfare

Developmental Hard constraint Indonesia, Hong Kong, S. Korea, Singapore, Taiwan

Paternalistic monarchy

Relaxed constraint

Brunei, Kuwait, Saudi Arabia

Autonomous predator

Maximise rent siphoning

Military elite Soft constraint Nigeria, Ghana

Central planning

Soft constraint Myanmar, N. Korea

Factional democracy

Maximise social welfare

Consensual Hard constraint Malaysia, Botswana, Chile

Polarised Relaxed constraint

Costa Rica, Sri Lanka, Jamaica

Factional oligarchy

Maximise rent siphoning

Urban/industry captures policy

Soft constraint Argentina, Bolivia, Brazil, India, Mexico

Public officials capture policy

Soft constraint Azerbaijan, Kazakhstan, Russia, Uzbekistan

Ethnic alliance captures policy

Soft constraint Kenya, Sudan, South Africa

Within this framework, the autonomous state has the capacity to formulate and pursue its own objectives, while a factional state is beholden to political groupings that must be appeased. The aims of the state may be placed on a spectrum between predation (rent siphoning) and social welfare maximisation. The extent to which market constraints (including the government budget




constraint) are relaxed is a measure of the pressures towards economic efficiency.25 While this framework may be criticised as excessively narrow and failing to explain the relationship between autonomy and aims or the underlying causal mechanisms, it provides a useful perspective in which to consider the Nigerian experience, in terms of the types of policy and institutional changes that might be required in order to move towards a more developmental state model. Auty and Gelb note that resource-poor countries are particularly likely to follow the autonomous benevolent developmental state model, since there are few sustainable options for rent predation.

Auty and Gelb characterise Nigeria as an autonomous predatory state. The discussion below suggests that this may be an oversimplification, and that in some respects Nigeria might better be characterised as a factional oligarchy in which policy has been captured by a military (and regional/ethnic) elite, but in which there are strong pressures from other elite groups that require accommodation by the ruling elite – which is not itself a single or entirely united group. Nigeria also has in certain respects an extremely active and organised civil (and unicivil) society. What Nigeria has conspicuously failed to achieve has been a hardening of market and government budget constraints, or a move under any type of political regime towards a consistent pursuit of developmental objectives, rather than the division of rents derived from oil revenues.

A3.3 Patterns of Institutional Reform

Organisation of the Federal System

In the words of one of the country’s most prominent nationalists in 1947, Chief Obafemi Awolowo, Nigeria represented little more than a “geographical expression”. The biggest problem the country has faced since independence is to build national unity and establish a viable federal system of governance where ethnic and religious diversity can coexist and public policies are directed towards improving the welfare of all citizens.

Constitutional negotiations in 1953/54 instituted a federal constitution, which transferred powers from the colonial government above and the native authorities below to regional governments. The country became administratively divided into three regions, each of which was relatively distinct and independent. At the end of the Colonial Rule in 1960, Nigeria, as a state, constituted a construct with a plurality of overlapping political and linguistic identities, founded on the federation of these three regions. Each region was dominated by one majority language group and incorporated minority groups that felt insecure and disadvantaged.

The devolution of the central commodity marketing boards into regional marketing boards followed the creation of the regions. They provided the basis for increased spending, public service employment, party activities, political patronage and business activities at the regional level. Mineral rents and royalties accruing at the national level were allocated according to a revenue sharing formula over which fierce political conflicts would arise in later years. The fiscal arrangements set up prior to independence facilitated the emergence of regional elite coalitions that gained control over economic resources at the regional level and drew legitimacy from various sectional constituencies.

25 The lack of examples of a predatory state with hard market constraints suggests that in practice predatory state are rarely autonomous since softening market constraints is a characteristic way to accommodate and deflect conflicts over resources.




This laid the grounds for the birth of a politics of patronage and the establishment of complex patron-client relationships. Once politicians had inherited control over the colonial state, nationalist sentiments eroded and receded into sub-nationalism. Three main political parties emerged, each of which formed the government of one of the regions and consolidated power through the exercise of regional patronage and coercion. At independence in 1960 the federal government regained some authority over the regional governments and could increase the share of funds retained at the national level. This shifted the competition for power and access to public funds by sectionally backed politicians to the federal arena. During the 1960s, there were major challenges to the boundaries of the state with first the North challenging, and then the East (seceding as Biafra) seeking Independence. The 1960s were marked by violent conflict between the regions.

The subsequent history can be interpreted as one in which the powers of the original regions have been progressively weakened, and the claims of regional minorities for a share of power and resources accommodated, through the division of the regions into an increasing number of states, and the transfer of control of resources either to the federal level or to smaller units of state or local government, rather than to regional groupings. Military regimes (Obasanjo, Babangida) have subsequently tended to try and reduce the power of states through boosting local government, and during the 1980s and 1990s, traditional authorities through the payment of stipends to chiefs.

The early post-Independence history illustrates clearly these basic trends. A coalition of two of the three regionally governing parties led the federal government of the First Republic. A Central Bank was created which extended the centre’s capacity to borrow money. The regulation of imports and financial markets furthermore increased the federal government’s economic and financial strength vis-à-vis the regions. Revenue from oil exports had begun to increase in 1959 and was shared amongst the federal government and the government of the East and, later, the Mid-West. The opposition party which exercised control only in the Western region but not at the centre split violently, allowing the federal government to remove the leadership of the Western state on the pretext of a state of emergency and took the opportunity to create a new, fourth Mid-West region. National elections to succeed the First Republic were held in 1964. But conflicts between the different regional parties led to the rejection of the results. New elections were to be arranged in 1965, but the ruling coalition party at the federal level ousted what remained of the opposition party, which tried to regain control in the West. Again election outcomes were nullified. This led to political violence and the breakdown of the First Republic.

After a failed coup and the assassination of senior political figures from the West and North power passed on to the head of the army, Maj.-Gen. Aguyi-Ironsi. His first initiatives focused on abolishing the regions and unifying the federal and regional public services in an attempt to pull together power at the national level. As these measures would have undermined regional politicians access points to public funds, they provoked ethnically motivated clashes and led to the killing of Aguyi-Ironsi who was of Igbo background by northern soldiers and officers. The northern forces first called for the separation of the country. International persuasion, and not least the fact that northern forces found themselves in the control of the federal government, convinced them to maintain national unity.

A new constitutional conference took place in the second half of 1966 to review the delicate issue of political reorganisation of the country, but different parties and regions favoured different solutions and no agreement could be reached. In May 1967, Lt. Col. Gowon26 declared a state of 26 Gowon was a Christian from the Northern Middle Belt.




emergency under the pretext of which he divided the four regions into twelve states. This led the Eastern Region with its oil reserves to declare the independence of the ‘Republic of Biafra’ and sparked the civil war which lasted until January 1970. The army’s victory strengthened its national position and completed the transfer of power to the armed forces. The state system was institutionalised by military rule. For the next decade the military dominated politics at the federal level, but could not penetrate governance rules and institutions sufficiently to undermine the distributive conflicts amongst and between the already established, sectionally-backed political classes.

While the initial drive towards state creation came from the military’s desire to strengthen the hand of the federal government, subsequent changes have reflected the incentives created by the revenue-sharing formula to multiply the number of states and local governments in order to establish more access points to public funds. The Obasanjo regime in the late 1970s created a further seven states. During the Second Republic (1979-83) government actively encouraged the multiplication of states and local authorities to boost the popularity of the ruling party. During the first two years of the Second Republic the number of states increased and the number of local government areas more than doubled.

The Babangida regime attempted to reverse the process of multiplication of state and local governments by reorganising the system into nine new states and 47 new local governments in 1991, each to be established with a new capital. This was greeted by violent opposition and was a significant factor in his replacement by Abacha. The move towards the proliferation of states and local governments continued. The number of local governments increased from 301 in 1976 to 776 in 1996, with the process of state creation continuing (for instance the creation of Bayelsa in 1996).

The 1999 Constitution redefined the expenditure and revenue responsibilities of each level of government as described in Annex 2.

Revenue Sharing Arrangements and Local Government

The revenue sharing formula was first introduced prior to independence with the regionalisation of the marketing boards. It was altered six times between 1966 and 1979 affecting the division of revenue between the centre and the states and the distribution among the states. During the same period, oil revenue had gained importance relative to other sources of revenue and the states became more dependent on federal transfers. In the 1970s federal expenditure increasingly dominated expenditure by the states, rising to 70 percent by 1975/76. The fastest growing revenue, such as petroleum profit tax and company income tax accrued directly to the federal government and remained outside the allocation system.

Forrest (1995) notes that the combination of political autonomy and fiscal dependence of the states vis-à-vis the centre provided incentives for fiscal irresponsibility and set up strong pressures for the creation of new states. Federal control and direction over state finances was non-existent. Loans to the states constituted contingent liabilities. The fiscal dependence of the states on the centre was furthermore increased by federally-led dismantling of direct tax systems at the state level. The northern states appeared to have gained disproportionately from the changes in the allocation formula and new state creation between 1967 and 1976 and brought them in line with their share of the total population. The northern states also seem to have gained most from the pattern of federal capital expenditure.




The constitution of the Second Republic in 1979 made the decisive step of incorporating all the important sources of revenue except personal income tax into the allocation system. This and an increase in the statutory share of the states somewhat reversed the declining share of federal revenue accruing to the states. The 1979 constitution also established a statutory share of revenue allocated to local government councils and furthermore amended the revenue sharing formula to take into account revenue efforts by the states to provide incentives to raise revenue locally.

During the Second Republic, differences over revenue allocation created division between the federal government and opposition states. Attempts to change the formula in favour of the states succeeded in 1982. In the late 1980s, Babangida increased the share of revenue to local government and gave them responsibility for the provision of primary education and health care. In 1991 and 1992 there are further revisions that increase the share to local government and to the oil-producing areas.

Local government authorities emerged from the former ‘Native Authorities’. They have been crucial for extending central government power to the local level. Under the Obasanjo regime local government reforms attempted to create a uniform third tier of government with elected councils. Traditional rulers were assigned symbolic and advisory roles only. The councils obtained greater autonomy from the states and the 1979 constitution intended to allocate more funds to the local government level. During the Second Republic, in an effort to undermine traditional authorities, direct local taxes were abolished. In the second half of the 1980s Babangida increased the allocation share of the revenue sharing formula to local governments from 10 to 15 and later 20 percent and gave them responsibility for primary education and health care. Payments were also to be made directly, circumventing the state governments where leakages had occurred in the past. State governments were also supposed to pass 10 percent of internally generated revenue to the councils. Powers of ministries of local government were cut to a supervisory role. This constituted an attempt to bring about greater responsibility and participation at the local government level, but also served to reduce the authority and resources of the states.

The Role of the Executive and the Regulation of Party Competition

The presidential system was introduced in the second half of the 1970s as part of the package of presidential changes establishing the Second Republic. The system change was proposed as an institutional solution to regulate political competition and undermine patronage and clientelism. It strengthened control at the central level in the hands of a president to counterbalance distributive conflicts between different sectional-based interest groups. The initial drafting of the presidential constitution was carried out by a Constitutional Drafting Committee appointed in 1975 and amended by a Constituent Assembly elected via local government councils. It was finally introduced in 1977 along with a Federal Electoral Commission that was to ensure that parties were nationally organised and leadership drawn from across the country. The new constitution followed the presidential system of the United States in the election of the president and state governors. Periods of office were coterminous with bicameral national and unicameral state legislature. Ministers and state commissioners were not members of, nor responsible to, the legislature. Further regulations on election and party organisation were directed at ensuring that political competition would be fought on a national, rather than regional or sectional basis. This system made it a requirement for cross-regional coalitions to be formed in preparation for elections.




In 1979 five political parties were recognised in preparation for the upcoming elections. There origins were predominantly traceable to the First Republic. Each party incorporated a coalition of mainly state-based interests but worked within broader regional and national networks. Politicians from the major language groups were divided over policy issues and the concern over how their constituents’ interests could best be protected at the national level. In the elections one party, the NPN, managed to claim significant support in seven states and could alone claim national support, whilst the other parties drew support only from their respective home states.

The failure of the Second Republic to break the mould of regionally patronage based politics induced the Babangida regime to modify the presidential system in preparation for the promised transition to the Third Republic by banning all existing parties and institutionalising a two party system with prescribed constitutions, manifestos, offices and the like. This was an attempt to redirect politics away from tripartite regional alignments experienced in the previous Republics and with a clear reference to features of the two-party system in the US. Babangida subsequently annulled the results of the election under this system.

The role of the People’s Democratic Party since 1999 reflects a further attempt to build a cross-regional coalition. It evolved out of a group (Group of 34) established in the mid 1990s by former politicians led by Alex Ekwueme (former Vice President during the 2nd Republic) whose purpose was to prevent then president Abacha from succeeding himself and becoming Civilian President. By 1998, Abacha had already initiated plans to present himself as the ‘sole candidate’ at the forthcoming elections. After his death in June, it fell to General Abulsalami Abubakar to prepare for the elections that would usher in the transition from military to civilian rule. It was in this context that the Group of 34 transformed itself into the People’s Democratic Party. It was at this time that the full weight of the mainly Muslim northerners in the military (retired Generals) was brought to bear. Babangida himself was amongst them and played a prominent role in bankrolling the new party. It was this block that brought Obasanjo out of prison to ensure that he became President. It is the same block that has become disgruntled because Obasanjo appears not to have served their interests well. Prior to his election in 1999 (when the PDP won 60% of the seats in the National Assembly and 60% of the states, mainly in the north, the south south and the east), although he had been head of state in the late 1970s. Obasanjo’s relative absence from politics for some 20 years prior to his imprisonment by Abacha, meant that he was reliant on his old power base, at least during the early period of his term in office. Much of the instability from which his regime has suffered stems from the difficulties of imposing his authority on the party. In three years there were two speakers of the lower house and three presidents of the Senate, whilst three different chairmen have presided over the party.

The establishment of an authoritarian developmental state along the lines of East Asian models has typically involved a strong and effective alliance between the military and technocrats in charge of policy making, which has provided for stable policies and a long-term time perspective in policy making. Nigeria has failed to institutionalise policy-making and advice and so to establish a stable and authoritative technocratic group.

Regimes have differed with respect to the relationship between state administration and federal government. Military regimes tend to keep a tighter grip on the state governments and so have increased the power of senior federal civil servants. Particularly under the rule of Gowon in the early 1970s, the military relied heavily on civil servants to formulate and execute policy. Bureaucratic power was referred to as the rule of the ‘super-permanent secretaries’. However during the Obasanjo regime in the late 1970s, civil servants lost much of their power as outsiders were brought in to advise the government. Executive power shifted away from the permanent secretaries to the cabinet office. The fiscal crisis during the Second Republic severely affected the




payment of the civil service and disrupted the provision of public services. After the Second Republic the influence of the civil service increased. However, Babangida reversed this process by strengthening the Office of the President and setting up a parallel bureaucracy in the form of presidential committees, directorates and executive aides. In a move to increase the authority of the executive and to erode the position of senior civil servants, ministers were made both chief executives and accounting officers and each ministry was allowed to appoint and promote its own staff. Several changes with respect to political organisation and institutions were carried out with the result that administration and revenue were directly in the patrimony of the president.

The way in which senior political and civil service appointments are used as a means principally to maintain ethnic and religious balance in policy making and access to patronage is well illustrated by Table 10.

Table 10: Ministerial Appointments and senior civil service posts post 1999

Geographical Zone Predominant Religion Ministerial or Senior Civil service Appointments

North West (Hausa speaking Borno axis)

Islam 40

North East (Hausa Fulani) Islam 37

North Central (North Minority)

Animism and Christianity

33

South West (Yoruba) Christianity and Islam 35

South South (minorities) Christianity 32

South East (Igbo) Christianity 31

Source: Mustapha (2003).

Failure of Fiscal Control

One of the main ways in which Nigeria has failed to emulate the model of a developmental state has been the failure of fiscal control and the poor quality of macroeconomic management – in particular in relation to inflation, debt creation, and the instability of the real exchange rate. As noted in Annex 2, Indonesia was able to grow fast and achieve poverty reduction over several decades under authoritarian military rule and with high levels of corruption in large part because the quality of macroeconomic management was not compromised – in part because of the traumatic experience of hyperinflation under Sukarno that had prompted Suharto’s coup.

The breakdown of control over public expenditure was related to the massive increase in oil revenues after 1970 under the Gowon regime. In 1970 Gowon had promised to transfer power to an elected government by 1976. Military rule was generally viewed as a transitory arrangement, but the regime kept postponing the date for elections. While oil revenue flowed into the country,




corruption driven by those in power escalated at all levels of government, exacerbated by the high level of autonomy over expenditures at the state level. The government had committed itself to an ambitious policy programme, but did not possess the administrative or political capacity to implement it or the ability to adjust expenditures downwards when oil prices declined. The economic consequences of financial irresponsibility and corruption were reflected in escalating inflation and provoked widespread industrial unrest. The attempt to buy political support by wage and salary increases only exacerbated the problem.

With the objective of restoring central control over states, northern backed senior military officers succeeded in removing the Gowon government in July 1975 and made the new state military governors serving officers under the central government. The new regime under Gen. Murtala tried to establish a centralised military regime in the hands of northerners, but resentment from within the armed forces allowed Maj.-Gen Obasanjo in February 1976 to take over. He used the already initiated re-centralisation of state power to carry forward a series of reforms: Seven further states were created, trade unions restructured into industrial unions under the head of a single Nigerian Labour Congress and the rules governing the ownership of shares in foreign enterprises were revised. But the regime failed to control economic problems relating to high inflation, sharply rising debt levels and investments that did not render the expected return. This culminated in a balance-of-payment crisis in 1978.

The Shagari government was particularly unsuited to achieving effective fiscal management, but benefited initially from the oil price rise of 1979-80. The politics of the Second Republic quickly returned on the distribution of federal oil revenue. The ruling NPN was not held together by a national ideology, but by a careful distribution of office and rewards to regions, groups and individuals. It was built with the express purpose of acquiring power to share state patronage on a national basis. It came to power through a loose coalition of politicians who mobilised political support through vertical political alliances that built on existing clientilist networks. The party lacked internal discipline to direct national policies and was unable to deal with the existing patronage system in a way that did not undermine the national economy. Power again shifted away from the centre and to the states and public expenditure escalated. Whilst some of the spending was directed at the funding of infrastructure, agriculture and irrigation schemes, funds were also paid out for contracts to political-connected suppliers that failed to deliver the intended goods and services.

When oil prices fell in 1981, expenditure levels could not be cut back and mechanisms of administrative control designed to create rent opportunities were implemented, for instance through the use of import licensing to contain imports. An overvalued exchange rate generated a boom in illegal trading activities with bordering countries while manufacturing and agriculture suffered.

Whilst some of the spending was directed at the funding of infrastructure and agriculture and irrigation schemes, funds were also paid out for contracts to political-connected suppliers that failed to deliver the intended goods and services.

The military regime of Buhari which seized power in December 1983 had set out on a strategy of domestic austerity and rooting out corruption to restore the economic situation, but did not succeed in gaining sufficient support from the politically influential to implement its programme. When Babangida took control after a year, the government was facing a profound fiscal challenge which forced him to continue with austerity measures and strengthen direct control over state revenue. Whilst Buhari had suspended negotiations with the IMF and World Bank, Babangida first followed the prescriptions of the international financial institutions. But lacking a domestic constituency that




would support the prescribed reform programme, he did not adhere to the conditions and pursued a strategy that redressed the reform package as ‘Nigerian-made’ as opposed to externally driven. The pretext of a state of emergency was used to push through an economic reform programme that broadly followed IMF lines. Babangida abolished marketing boards and import licences, removed the limits on foreign investors, liberalised tariffs, raised fuel prices and interest rates and instituted foreign exchange auctions. However he maintained import bans on basic food commodities, which had a negative impact on domestic prices, illegal imports and claims for fertiliser subsidies and banned the export of unprocessed cocoa beans. Overall, as discussed in Annex 2, this period saw economic recovery despite depressed oil revenues.

However, the domestic political pressures towards increased public expenditure remained strong and an effective constituency in favour of the economic programme had not developed. When oil revenues increased in 1990-1 following the Iraqi invasion of Kuwait, the pressures for increased spending to improve the popularity of the regime could not be contained. Inflation accelerated in the first half of the 1990s, but was subsequently controlled under the Abacha regime with inflation brought below 10%. However inflationary pressures increased subsequently with inflation of 18% in 2001. While there have been initiatives to draft a Fiscal Responsibility Bill (IMF, 2003), the existing rules of revenue sharing exacerbate the pressures on every level of government to spend resources when they are available rather than encouraging a delinking of expenditure from short-term revenue fluctuations.

Discussion

This section has examined the attempts of successive regimes in Nigeria to address (with varying degrees of seriousness) the problem of combining the accommodation of regional and interest group claims on resources (while avoiding conflict and secessionist trends) with the establishment of policy coherence and effective central management of resources. While there have been periods of relative fiscal control and policy stability, these have been fragile and subject to ultimately uncontainable political pressures for increased spending and patronage politics. There has been no stable and powerful coalition of interest groups that has seen an interest in the long-term in increased fiscal discipline, more effective public spending, or a better enabling environment for the private sector. The Northern military elite has tended to favour greater fiscal discipline when this has been necessary to ensure order but has not had a long-term commitment to this goal.

The following section therefore examines the roles played by some potentially or actually influential interest groups and the way in which they have interacted with the state.

A3.4 Agents of Change? Interest Group Organisations

This section examines the way in which particular interest groups have interacted with the federal government in terms of the way in which their influence has been used. The main feature is the way in which interest groups and their organisations have functioned as instruments of access to and influence over government decision-making and resource sharing. The following interest group organisations are discussed:

• Politically motivated cultural or ethnic groups

• Politically motivated religious movements

• Traditional rulers




• The military

• Professional and labour organisations

• Community Home Town and Business Associations

• Human rights organisations and democratic reform groups

Politically Motivated Cultural or Ethnic Groups

The “Kaduna Mafia”

An informal socio-cultural institution, also known as ‘Committee of Concerned Citizens’, originated from a clique of middle ranking bureaucrats, and later included academics and professionals, who were mainly civilian but with intimate links to the military. They have been highly influential in determining political outcomes throughout Nigeria’s post civil war history. The original members were drawn from Regional Northern Premier, Ahmadu Bello’s office, prior to his assassination. He encouraged northerners to join the army straight from school to make up the ‘northern quota in the officer corps of the army’ (Othman, 1989:135). Their aim was to advance Northern interests and defend them economically, politically and socially. The Kaduna Mafia became very closely linked to the military after the Nzeogwu coup and in developing and mobilising opposition to Ironsi’s attempt to create a unitary state which would end the power once enjoyed by the Regions.

The break up of the Regions and their replacement by states persistently undermined the prospects for Northern cohesion. This explains in part why today the Arewa Consultative forum, established as an attempt to revive the ideology of ‘One North, One People’ has been unable to build effective bridges between the different northern interest groups in the wake of the institutionalisation of existing divisions between competing centres of power (north east, north central and north west).

The importance of the Kaduna Mafia to policy choice during Obasanjo’s first administration (1976-79), partly explains the manner in which he is popularly perceived since his accession to power in 1999, as the choice candidate of the Northern political establishment. The lack of his electoral victory in the Yoruba south west where he is from, and his electoral victories in the North, give weight to such perceptions. Since May 1999, much has changed however. Obasanjo is now widely perceived to have unfairly favoured Yoruba interest groups (see later) as a means of securing an ethnic power base, and Northern Christians, this has undermined the support he once enjoyed amongst Hausa-Fulani Muslims.

The Arewa Consultative Forum established in March 2001 by Northern ‘Leaders of Thought’ and Emirs, is the most recent incarnation of the Kaduna-Mafia, now deeply divided along zonal and religious lines, and focused on the issue of the selection of a presidential candidate to represent Northern interests.




Ethnic Militant Organisations

Ethno regional cultural organisations first emerged during the Babangida transition period (1986-89) as power brokers and partly in opposition to him (Vaughan, 1995: 509). Like traditional authorities, they were able in a context of highly proscribed political activity, to claim linkages with ‘home town’ or community based associations, Egbe Ilosiwaju Yoruba (a Yoruba Solidarity groups), Ohe n’Eze-Igbo (an Igbo Solidarity group) and the Committee of Northern Elders (a transient Hausa-Fulani group professing to represent the interests of the North), resurfaced during the post 1999 period, to spearhead the struggle of each regional power block, for a greater share of the national cake.

Common to both southern regional socio-cultural organisations, now called ‘Afenifere’ (Yoruba) and Ohanaeze Ndigbo (Igbo people) is the presence of former elite politicians, and a call for a sovereign national conference of all the ethnic communities in Nigeria, to debate how to restructure the Federation along ethnic lines.

The calls for greater political autonomy at the local level, arose in the wake of the annulment of the election of Abiola, and was particularly popular amongst the Yoruba, but also the Igbo and southern minority groups in the oil bearing states. Like the Northerners, the Igbo consider that although they voted en masse for the PDP in 1999, and supported Obasanjo’s presidential aspirations, they continue to be a marginalised group. The have over the last year been pushing for an ‘Igbo presidency’, convinced that the second civilian term will remain in the south, and should rotate to the Igbo.

Although a range of different ethnic based organisations exist with more or less militant wings gravitating around them, it would be misleading to view all of them as the same or presume that there was a homogeneity of views within each ethic group, as to the legitimacy of these socio-cultural organisation as the representatives of the ‘ethnic nation’. Most of the organisations mentioned above are racked by internal factionalism, in particular in the organisations representing the interests of the majority ethnic groups: the Hausa-Fulani, Yoruba and Igbo.

There is a great deal of debate, particularly among younger elements within the ethnic groups about whether a break with past elite political leadership is required, to address more effectively concerns about poverty and social justice.

The adoption of Sharia since 1999 by core Northern and north eastern states and the rise in religiously motivated violence, has also raised the profile of groups like Arewa that have become the advocacy mouthpiece of some northern elites, eager to maximise the political capital generated by the adoption of 100% Sharia. There are a number of groups in the North, even Muslim groups, which have strongly spoken out against the adoption of Sharia. For example a group called the Plain Truth Movement (Mustapha, 2000) notes the failure of northern elite to look beyond individual and collective political and economic advancement, towards masses wallowing in poverty, illiteracy and disease.

Amongst the Igbo, younger groups do not see the Ohaneze Ndigbo elites as representing their interests. Organisations such as MASSOB (Movement for the Survival of the Sovereign State of Biafra) are championed by radical mainly young Igbo and some minority Ikwerre and Ijaw groups in the Niger Delta. Its separatist objectives are quite out of line with the aspirations of Ohaneze Ndigbo, which like Arewa is interested in strengthening regional claims on national resources. Obasanjo has also set up rival organisations – the Yoruba Elder’s Forum, to challenge the




hegemony of the Afenifere lobby amongst the Yoruba, who are now deeply divided, as is their militant organisation the OPC.

The minority ethnic groups however when complaining of marginalisation and using the ethnic cultural groups as a vehicle for demanding greater inclusion, are not speaking from the same perspective as the majority ethnic groups. The competitive politics between youth coalitions amongst the minority groups – for example the Ijaw Youth Council (1998-2000) and the organisations that represent their elders (for example the Ijaw National Congress) also attests to the generational and ideological tensions that persist within these ethnic organisations, about who should speak for the ethnic constituency and to what end.

Regional ethnic socio-cultural organiations and the ethnic constituencies they represent as well as minority groups (particularly from the oil producing regions) have been using ethnic militias as bargaining chips, to push for political change for the majority ethnic groups. However whereas the majority ethnic groups are using the ethnic militancy as a means of securing for themselves a larger slice of the case, they are not fundamentally questioning the manner in which the national cake is divided.

Environmental Protest Groups

One of the main successes of social mobilisation since 1990 has been that of environmental protest groups in the oil producing areas of the Niger Delta in seeking to secure more control over and benefit from oil revenues.

In response to public opinion (domestic and international) and to the community protests themselves, the Nigerian government and the oil companies have started to invest more consistently in ‘development’ initiatives in the oil producing area. Previously ‘development projects’ such as the Niger Delta Development Board (set up in 1961), had foundered in the absence of clear political will to make them work. In the 1990s however committees and commissions were set up to look at socio-economic and environmental problems (Justice Alfa Belgore Commission of Inquiry in 1992, Ministerial Fact Finding Team 1994 under then Oil Minister Don Etiebet (who is from the Niger Delta). In 1996, a new state, Bayelsa, was also created for the Niger Delta –out of Rivers state. In 1992 Babangida’s government increased the financial contributions to oil producing areas from 1.5% to 3% of government revenue. OMPADEC, the Oil Mineral Producing Areas Development Commission was established as a development agency, funded out of this extra 1.5%. (Frynas,2001)

However all these initiatives suffered inherent problems. Many of the recommendations of commissions were not followed up and OMPADEC simply became an instrument for enrichment of state functionaries who controlled it and misappropriated the funds.

These problems simply intensified demands from the Niger Delta, which had, by the time OMPADEC was established, already moved towards demands for a wholly new economic and political arrangement which would accept in principle that the communities themselves confer land ownership back on the communities themselves.




Obasanjo since 1999 has made further concessions to the oil producing communities, increasing the percentage of oil derived revenues allocated to the oil producing states as extra grants from 3% to 13%. He also submitted a bill for the establishment of the Niger Delta Development Commission, which was to be funded by government grants and oil company monies. However these initiatives are still failing to satisfy the ever-increasing demands of Niger Deltans, who complain that the definition of what constitutes the Niger Delta has been enlarged to incorporate states which strictly speaking may be oil producers, (eg Imo and Abia) but which are not Niger Deltan – i.e. not predominantly populated by minority groups.

Community demands are now articulated increasingly as political demands for greater autonomy within a reconstituted federal arrangement. It seems that the harder successive governments appear to be trying, the harder community demands are to satisfy. State governors since 1999 have been arguing for 100% control of the natural resources in the state – as a bargaining chip for extracting further concessions from the Federal government.

The lack of legitimacy which these Federal initiatives appear to be having at a local level, is also because they are accompanied by contradictory responses to local demands. Violence, militarisation and campaigns of intimidation have been commonplace throughout much of the Niger Delta during the last decade. The intricate web of shared security provisions between the Nigerian government and the oil companies, also confirms the image of complicity.

Pressured by increasingly organised and persistent oil producing communities, the oil companies have also adopted a number of strategies for dealing with them - granting concessions in the form of social amenities and social development spending as well as supplying arms to state security forces. Throughout the Niger Delta, the politics of oil, has also undermined social relationships and institutions like Chieftaincy, and created a kind of moral social disorder. The increase in intra-communal violence is as much generated by the attempts by new groups seeking to replace old groups who as clients are deemed to have ‘enjoyed’ for too long, as they are about direct conflicts with the oil companies. The violence has also intensified because oil companies have shown their readiness to be moved to action, by violence. In most communities, the limited infrastructural developments that they have seen over the last decade, or the provision of electricity or clean water, have only come after mass action- the occupation of oil company facilities and the closure of pipelines.

Politically Motivated Religious Movements

Religion plays an important part in the lives of most Nigerians, who belong to one of a variety of strands of either of two monotheistic religions: Islam or Christianity, and /or a variety of other ‘traditional’ religions. However since the late 1970s and early 1980s, religion has increasingly begun to fulfil a social, economic and more recently political role. The salience of religion in the Nigerian political economy and the growth of religious movements in Nigerian social and political life, needs to be understood as an attempt by social agents (either elite or more popular forces), notably those who are finding themselves excluded from opportunities determined either by access to networks of patronage 27to manage their exclusion, by protesting against it or creating new conditions in which they might more readily become adopted as clients for prospecting patrons.

27 For example as a result of the divestment from small scale agriculture and lack of an adequate response to drought in the Sahelian belt of Northern Nigeria in the early 1970s under Gowon, against the background of an oil boom, cohorts of unemployable former migrant labourers were created, they became vagrants in the




The post 1999 resurfacing of the Sharia issue (which was a focus of constitutional debate from the 1950s) and the unilateral decision of core Northern states to introduce ‘full’ Sharia in civil and criminal law have marked an intensification of politico-religious conflict. Debates no longer centred on the establishment of a Sharia court of Appeal or the applicability of limited Sharia throughout the Federation for all Muslims, but on the unilateral adoption of Sharia, initially by the Zamfara state governor, then by other states in the north west and north east. The key players have been politicians who felt that they had lost out in the new political realignments that came with the power shift to the South: to a president who was not Muslim (an actively Pentecostal Christian).

Another difference is also the widespread popular appeal amongst people who see Sharia as finally having recourse and access to justice, which has so long been denied and as a means of imposing some kind of moral sanction on elites. The heightened support for Sharia also came after over a decade of heightened conflicts between Christian and Muslim communities, and a fear that Obasanjo’s accession to power was to be accompanied by a pentecostalisation of power.

In a polity so deeply administratively segmented along state lines and ideologically divided according to language group / regional lines, religious institutions remain one of very few structures that can boast of having a national reach, which parallels that of the state, albeit one that discriminates on a confessional basis. The fact that religious divisions more or less mirror ethnic / regional divisions has made it difficult for religious institutions to serve as a foundation for national mobilisations in a manner which could fundamentally challenge the hegemony of the Nigerian state or the nature of governance.

Pentecostal churches which have grown up since the 1980s have either preached a withdrawal, abstinence from the excesses of modernity and a repentance culture, or preached a prosperity gospel, serving in effect as a means of developing patronage networks.

Both of these strategies have essentially consolidated (ideologically) the patterns of patrimonial politics which have characterised Nigerian political life and encouraged adherents not to challenge political authority. The growth of parallel private social institutions, like clinics and schools around the churches has strengthened their social role. In 1993, the spiritual head of the Zionist Church, Cardinal Oyeniran, described Abacha’s assumption of power as ‘God’s Wish’ and called upon the government not to allow ‘politicians and lobbyists …to flout God’s order’ (Oyeniran, Agbaje, 1999:9328)

The Catholic church however and the more established ‘orthodox’ Christian churches represented in the Christian Association of Nigeria have, however, played a more prominent role in challenging authoritarian patterns and encouraging their followers to play a more active political role. In many ways Pentecostal Churches are occupying a space once occupied by the Catholic and orthodox Churches. The Catholic Church’s role in the social arena, particularly in education, was seriously challenged after the Biafran war, when it was accused of having sponsored the Biafran war effort. Catholic schools throughout the country were subsequently taken over by the state. Returning them to Catholic control has been the subject of much advocacy on the part of the Catholic Church ever since.

industrial city of Kano, unable to find work for which they are ill equipped and a ready breeding ground of support to the religious millenarian cults – Maitatsine. 28 Quoting from Sunday Tribune 26/12/93




Traditional Rulers

Chieftaincy has featured prominently in a federal system as both representatives of their communities in their dealings with the state, and as representatives of the state vis a vis their communities. Although during decolonization and immediately after independence, the new Regional governance structures began to divest chiefs of the roles they had played in the Native Administrations. Chiefs have continued to enjoy the support of local, state and Federal administration, because of their influence at the community level. This has been the case particularly since the mid 1980s which has seen the rise in the weight and political significance of chieftaincy institutions.

For the state, the usefulness of traditional structures is that they are able to mobilise youth and non-elite groups (poor social groups) which otherwise are beyond the patrimonial reach of the state. Traditional authority structures are another intermediary (like urban elites running home town associations) through which ‘the poor’ stand a chance of gaining access to state resources. But at the same time chieftaincy structures have encouraged the consolidation of elite power based on ethnic and communal doctrines. (Vaughan, 2000)

Throughout Nigeria, in the 1980s and 1990s, chiefs received regular stipends from government. These stipends were recently removed with the coming of the Obasanjo administration in 1999, and there continues to be much debate about the need to revive the stipend and the influence and power of chieftaincy structures, within the political domain.

During periods of military rule in particular, when competitive politics along party lines have been restrained, kings and traditional rulers have acted as representatives of the administration at local level. In many cases, this has been in opposition to their ‘own people’, the communities which they profess to represent. During the periods of civilian politics, struggles between political parties have played themselves out as struggles between different chiefs. This was particularly noticeable during the 2nd republic (1979-83) and also during the transition and post transition politics of the Babangida regime.

The intricate relationship between traditional rulers and the state has however made the institution increasingly partisan and undermined the legitimacy of the institution in some areas. Notable examples of this are found throughout the oil producing states, where chiefs have, through collaboration with the oil companies, also for a long time enjoyed privileged relationships and benefited from a wealth of related material opportunities – opportunities which they have not necessarily shared with the wider community. Since the 1990s uprisings in the oil producing communities of the Niger Delta, the authority of members of chiefs’ councils has been undermined essentially by youth. Chieftaincy institutions, deemed to represent local interests, have therefore, in many ways, blocked the transformation of local communities plagued by poverty and marginalisation.

During the Abacha regime (1993-98), overt forms of political expression became dangerous. Traditional authority was however one way in which individuals and groups from Western Nigeria in particular, could negotiate their access to the state without directly posing a challenge to Abacha’s government. At the same time, this period saw an intensification of competition and therefore conflicts between chiefly rulers and the communities they controlled.




The Military

Divisions within the military have been as crucial in dictating the course of events in Nigeria’s political history, as have divisions between the army on the one hand and civilians on the other. The last forty years have seen the erosion of professional ethos and the respect for hierarchy and rank within the army, whilst the intrusion of ethnic and religious divisions has formed the basis of coups and counter coups.

During periods of civilian as well as military rule, the military has also never been insulated from constituencies amongst civilians, constituencies that they often helped to promote and back, in their struggles to ensure that their particular interests are served. Nigerian political life has therefore been characterised by recursive patterns of mutual assistance between an essentially civilian cultural/political group - the Kaduna Mafia and key Hausa speaking pro northernisation elements within the military, who have operated to ensure their respective and collective interests are upheld.

Since July 1966, control of army has entered into the hands of Northerners with ties of religion, culture and schooling. However this is not a monolithic block. Up until the 1980s most northerners (90%) in the army were Middle belt Christians, who traditionally had their own interests for autonomy, and who throughout the period developed an antagonism to the idea of ‘One North’. So-called ethnic constituencies in the military as well as outside it, have not necessarily however always acted in unison. Concerns for ‘personal’ enrichment advancement and patron-client formation, have also consistently ensured that ethnic, regional or religious loyalties themselves compete with non-sectional based interests. (Othman, 1989)

President Obasanjo’s structural reforms of the military, his mass retirement of ‘political Generals with a history of direct and indirect involvement in Nigerian political life, and attempts to re-professionalise the army, has also done much to antagonise the proponents of a resurrected ‘One North’ agenda (Kaduna Mafia). Throughout Nigeria’s history, instances of such antagonism and attempts to reform the military, have usually resulted in internal palace coups (Murtala Muhammed against Gowon 1976) or military coups to replace civilian regimes (Buhari’s coup against Shehu Shagari’s NPN government during the 2nd Republic, in 1983). The difference today however, is that Obasanjo’s selective sponsorship of Northern Christian interests and the aftermath of successive religious riots throughout the North (throughout the 1990s) has created deep cleavages within the north itself, reducing the likelihood of interests successively coalescing around the ‘One North / Kaduna mafia’ agenda, sufficient enough to galavanise support within the military for another coup.

The domestic and international climate has also dramatically changed. At the level of the African Union and amongst Nigeria’s key allies internationally (US and Britain) the return of the Generals is also likely to be frowned upon. Nigerians may have grown tired of the recursive pattern of coups and counter coups and the image of the Military has been ideologically tarnished by the repressive regimes of both Babangida and Abacha. Past military coups have generally come at the instigation of civilians, or at best public perceptions that the military could restore public order. The moral legitimacy of the military over the civilian politicians has also been much dented by the highly publicised accounts of the corruption of the past three military heads of state. The rise of heavily armed militia groups throughout the Federation, more specifically, amongst ethnic or regional groups which have had particularly conflicting relationships with military rule (oil producing communities in the Niger Delta, and parts of the South West after June 12), would also make it difficult for the military to effectively seize power throughout the whole country.




Professional and Labour Organisations

Professional organisations such as the Nigerian Labour Congress (NLC) and the Academic Staff Union of Nigerian Universities (ASUU) have played a critical role in influencing the development of Federal government policies with respect to the material concerns of public sector workers (labour) and academic staff. They have also particularly in the context of extended ‘transitions’ from military to civilian rule in concert with other professional organisations (eg the Nigerian Bar Association (NBA) and overtly political organisations (eg Campaign for Democracy and later NADECO) or human rights (such as CLO and CDHR) protested at irregularities in the transitional process and attempted to force the hand of intransigent military leaders, reluctant to give up power to civilian regimes, and strongly criticised the annulment of the June 12 elections. Many members of these professional organisations, have either tried to use their organisations to engage in overtly political work (as in the case of ASUU and the Nigerian Bar Association) or have as individuals joined up with overtly political organisations

This move into the political terrain has made these organisations subject to political infiltration and internal factionalism, as military leaders have sought to ensure compliant less critical individuals in leadership positions and to undermine the ability of these organisations to speak and act with one voice. The late 1980s and 1990s period were characterised by such processes. There were many instances of successful cooption of compliant leaders once installed and the undermining of their ability to organise nationally. This made regional or ethnic or religious based forms of organisation more likely

They are mainly urban based, largely staffed (apart from such as NLC) by middle class interests, who see themselves as the natural opposition to the military, who were doing jobs that they felt more legitimately equipped to do. They were unable to deliver mass / street action (except maybe in some cases NLC), always fearful or incapacitated by danger of being disorganised or infiltrate and narrow network base with very little involvement with peasant, petty traders or craftsmen, for whom it did not make sense to organise their interests on a national platform.

Nigerian Bar Association Under the Babangida regime, the NBA under Alao Aka Bashorun, began to take a stand against some of the irregularities in the transition process. For example when the Gongola state government refused to comply with a court order which stipulated that elected local government council officials, whatever their political affiliation, should be sworn in, NBA members decide to call out on strike for one week, in Gongola state, then in Ikeja and Lagos, where state governments would not accept pro-democracy members on local councils. The NBA was also a vocal critic at national level as well as through its active branches in different states, of the ‘ouster clauses’ which meant that courts were obliged not to enter any complaints of aggrieved citizens against aspects of transition process which went against their civil liberties.

This period of critical leadership was replaced after 1992 by a collaborative relationship with Babangida regime during which appointments and cash donations were used to influence the Association, including the election of its officers. This meant that the NBA was unable to act with one voice. Once again federal policies prevented organisations with a national reach, apart from religious organisations, from functioning.




Under Abacha, NBA members who had previously been ardently anti military, collaborated with the regime. Dr Olu Onagoruwa, former prominent member of NBA and very anti-military, became Attorney General and Minister for Justice under Abacha, and was subsequently expelled from the organisation. The NBA as an institution was unable to play a role in checking the legality of the transition processes, instead individuals within the organisation were forced to seek out alternative organisations, with a clearly political orientation (notably the human rights organisations and the Campaign for Democracy) in order to pursue a less compliant agenda. (Oyeleye and Adigun, 1999)

ASUU - Academic Staff Universities Union

In the 1970s the ASUU’s strategy as an organisation was essentially conservative. It viewed itself as ‘ a watch dog’ to contain excesses of political rulers and serve and train manpower requirements of country, and focussed mainly on securing material privileges for academic teaching staff. The subsequent decades however saw the organisation evolve into a wider platform for campaign not only for improving remuneration and university funding, but also for challenging the continued stay in power of the Nigerian military.

By 1989 ASUU’s focus had shifted from union maters and welfare questions to problems related to the shrinking democratic space. Strike action was a persistent feature throughout this period (‘ASUU has been on strike for four years in the last fourteen years’, Tunde Adebanji, Guardian 17 March 2003). Strikes intensified during the introduction of structural adjustment period in the late 1980s and in response to the austerity measures that had already begun under Buhari, from 1983 onwards. University governance, notably the excesses of Vice Chancellors, was also the target of ASUU frustrations. Many Vice Chancellors backed by power of state security forces, became actively involved restraining freedom of speech of students and undermining their rights to self-governance and association. The disturbances in Ahmadu Bello University, in Zaria in 1986, resulted from this and led to the killing of students by security forces. Widespread protests ensued throughout the country, involving media, market women and NLC. This led to the forced decoupling of ASUU and NLC, by Federal government, preventing dues from ASUU members going automatically to the NLC. The commission of inquiry set up by Babangida after the events in ABU, absolved the Vice chancellor of any responsibility for the students deaths and instead banned National Association of Nigerian students (NANS).

Whereas university Vice Chancellors who control access to funds, appear to have vehicles for State patronage, ASUU itself throughout the 1990s has remained relatively independent, even though many of its activities have been proscribed, and its leaders imprisoned. Since 1999 however ASUU has managed through strike action to exact enormous concessions from Obasanjo’s government. Staff salaries have increased three fold as part of Obasanjo strategy to focus on generating economic stability through reconstituting the middle class, whose wealth and status had been much eroded in the preceding years.

Since Obasanjo’s election in 1999, university teaching staff, and public sector workers, have been promised salary increases (July 2000 of up to 22%) and increases in university funding. They are widely perceived to have benefited more than any other social category, from substantial pay increases. However the failure of Obasanjo’s government to fulfil promises particularly with respect to university funding and the use of high handed tactics to break strike action, by halting pay for striking staff and threatening vice chancellors who continue to pay them as well as encouraging the




dismissal off striking staff, have all served to fuel conflict between the Federal government and ASUU.

ASUU has proved however that in the context of an exposed civilian government, conscious of its public image it is able, through strike action, to secure concessions. These concessions have involved attempts to disorganise and discredit the union, whilst strike action itself is proving to be increasingly unpopular.

Trade Unions: Nigerian Labour Congress

Throughout the independence period, trade unions have also been heavily managed by the Federal government, and in the 1980s disbanded and reconstituted with compliant leaders on numerous occasions. They have effectively become another forum for patronage and entrepreneurial activity as leaders compete amongst themselves for patronage. During Babangida’s ‘transition’ programme of the 1980s and early 1990s, members of the NLC were nominated by the government to sit on the Political Bureau (a consultative forum staffed by academics charged with the task of putting forward recommendations to solve some of the political issues in the transition period), the Constitutional Review Committee and Constituent Assembly.

This followed a campaign by Babangida’s regime to infiltrate and weaken the NLC, particularly because since 1985 the NLC had become a rallying point against SAP and IMF / World Bank policies and removal of oil subsidy planned for October 1988. Babangida’s adjustment strategy had meant a general 20% pay cut which affected NLC members. When the NLC organised a national day of protest with ASUU against the killing of students of ABU (Ahmadu Bello University, Zaria) by security forces, union leaders were arrested and ASUU banned from being an NLC member, 1986). By 1989, Babangida invoking the powers of the National Economic Emergency Powers Decree of 1985, voided election results within NLC, because a faction opposed to the government had won.

After the annulment of June 12, the NLC threatened a national strike to bring an end to military rule but eventually the NLC threw its weight behind the Interim National Government. Nevertheless when Abacha seized power, in 1994, he still closed down the NLC along with NUPENG and PENGASSAN, the oil workers unions which had taken the lead in sustained strike action which had brought many parts of the country to a stand still for two months, imprisoned their Secretary Generals (who were only released after his death in 1998) and appointed sole administrators to run each of the unions, thereby preventing any possibility of them becoming a site of resistance in the future. The Trade Union Amendment Decree of 1996, which defined who could be a member of the NLC and which union members could seek elective offices in NLC was the culmination in a long process of state intrusion into the structure of one of the few organisations in Nigeria, with a national reach and socio-political objective.

It was only when Abacha died in June 1998 that much of the draconian legislation proscribing union activity was lifted. Since then the NLC appears to have retrieved its independent voice. In 2000 a successful General Strike was organised against planned fuel price hikes, which after 5 days of near total compliance throughout the Federation (with the exception of one state), brought Obasanjo’s government to revise earlier intended increases by 50% downwards to 10% (Remi Ojo, IPS 13 June 2000). In January 2002, the NLC, backed by its 29 affiliate unions, called another General Strike, in response to another attempt by the government to raise fuel prices by 18%. This time however Obasanjo’s government was able to use a legal technicality, backed up by the




courts, to imprison Oshiomole, who had not given the requisite 21 days notice before calling for strike action, which was then declared illegal. (Oyeleye and Adigun, 1999)

Home Town and Community Associations

Home Town Associations

HTA’s or ‘improvement unions’ exist in most local communities in southern Nigeria and are one of the principal community based organisations. Originally set up by migrants who had left their ‘home town’ to provide solidarity to members in the urban centre and as a channel for the private development initiatives. Many have functioned for over 50 years, providing many services to local communities, primary and especially secondary schools, medical services through construction and staffing health clinics, hospitals, electricity, telephone, water roads, public meeting halls and postal services. Their income is raised through levies on membership, and they provide members particularly elite categories with positions in the executive, the opportunity of monitoring how funds are spent locally, whilst residents of the ‘home towns’ benefit from the provisions that they supply. There are also many equivalent organisations in the north, which differ however in that traditional aristocratic elements play a more important role. They are now found particularly in place of high migrant concentrations. (Trager, 2001)

HTAs have evolved considerably over time, and come in many forms, the ‘home town’ to which they refer can be a village, a whole local government area, a ward, or extend across wards, and even a whole state. They are principally concerned in investing the individual contribution of members (raised through levies) in projects for the benefit of ‘the community’. One constant is that they have historically also interacted with the state (colonial and post colonial) and provided leverage for aspiring political elites, to bargain for political office and opportunities accruing from access to the state. They have also encouraged a tendency by aspiring political entrepreneurs to play the ‘community’ / ‘ethnic’ constituency card, in their political struggles.

Structural adjustment of the 1980s, and the shrinking revenue base of the state, also increased the tendency for the Federal government to seek to use HTA’s as a vehicle through which to promote its linkages to rural communities, and as an alternative agent of rural and economic development. Contrary to the earlier industrial planning envisaged in the 1990s, medium and large-scale indigenous enterprises with strong communal ties and adaptability to a changing global economy, have increasingly gained currency as engines of local growth and development. The so-called ‘silent industrialization’ of towns like Nnewi and Aba in eastern Nigeria, is founded on the strength of local communal ties.

Apprenticeship in the motor parts manufacturing industry is drawn from people with limited formal education but with strong ties to the community. Similarly towns like Onitsha and Aba have been key to Nigeria’s haulage transportation network. Initially they too were involved in motor vehicle spare parts, and are now the centre of lucrative transportation business. The extent to which the success of these industrial bases is reliant on patronage links to the state, at least at a Federal level, is a contested issue These industrial bases largely grew up in the wake of the Biafran war, as a result of adverse circumstances which the Igbo (the losing side) had to face. Forced to flee from urban centres which they had been instrumental in building, like Port Harcourt (capital of oil producing Rivers State), Igbo migrants moved to near by Aba (Abia state) and transformed the town into a budding commercial and manufacturing centre. It is partly as a result of exclusion




within the upper echelons of the military, and relatively minor linkages to networks of patronage at the Federal level, which has precipitated the independent growth of these ethnic manufacturing and commercial centre.

Community based organisations of the ‘traditional’ kind (HTA’s) in the wake of adjustment pressures, have particularly since the 1980s moved into a larger scale of operation. Many of them now undertake big projects attracting external funding, for example Otan Ayegbaju, in Ilesha, in Oyo state south western Nigeria, which constructed a 25 bed town hospital, which was part financed by the WHO (World Health Organisation), the Oyo state government and the University of Benin Teaching Hospital. Some have developed offshoot structures as strategies for attracting external funding or have transformed themselves into NGOs (1980s) or Community Development Associations. For example Egbe Omo Ibile Awe a cultural organisation started in 1912, in Oyo state, in 1982 set up ADC Awe development Corporation for strictly for development purposes (Barkan, Mc Nulty and Ayeni, 1991). The success of these organisations have however been mixed.

The ability of HTAs to act as development agents is predicated upon their ability to mobilise resources from local or national governments for local development. Indeed this is from whence they derive their legitimacy in the eyes of members of the community, who rely on them to bring development goods back home. This undoubtedly makes these organisations prone to politicisation and consolidation of patron-client systems, in fact their very existence is predicated on the need for their leaders to become effective clients within a system of patronage, which can be corrupt and corrupting. Regional politicians who use them, and military leaders who seek to capture them, are ultimately judged by their ability to influence the provision of basic infrastructure in their own home towns.

During periods of civilian party politics, these organisations have a tendency to become party politicised as rival parties seek the support of existing associations and encourage formation of new ones to extend their political base. This has led many associations to become involved in political conflicts.

Manufacturing and Related Associations in the North

Home Town Associations have traditionally been associated with communities from the south of Nigeria, where less rigid hierarchical social structures are deemed to have facilitated their emergence. However cities like Kano in the north also boast of a wealth of associations, albeit with a much more occupational group / class focus that organisations in the south, which cut across social groups. In August 1991, there were 5,300 registered self-help groups in Kano state (comprising also Jigawa state carved out of Kano in 1991) (Lucas, 1994).

Throughout the 1970s, associational life dwindled. It was only in the 1990s however that Kano witnessed the re birth of elite associations. The Kano State Foundation (KSF) was one such organisation, started in 1985 by community leaders led by wealthy businessman, to assist ‘indigenes’ of Kano state. It relied on private and public donations from all over the country to carry out school building work, engage in commodity marketing, set up small scale industries, and to provide loans to Kano indigenes at low or zero interest rates.

The revival of the Kano Chamber of Commerce, Industry, Mines and Agriculture (KACCIMA) was another such independent Kano business initiative, but one with a long history. Established initially




by British businessmen, and indigenised in the 1970s, it had not really been active in the independence era until the mid1980s. By the end of the 1980s it had increased its membership substantially and its annual subscription fees, enabling the employment of 17 full time staff. It established a close relationship with government and was consulted on important economic decisions, with representatives on the most important government boards at a Federal level (Nigerian Electric Power Authority, export promotion and privatisation) One of their largest ventures, the construction of a permanent trade fair site, costing N120 million in 1991, was part financed by government loans. The Kano state government donated land for the site. This organisation was directly revived in response to the decreasing role of the state in the Nigerian economy.

The Kano Traders’ Multi purpose Cooperative Society (KTMCS) was founded in 1986, boasting a membership of 2000 people and a capital base of N4,6 million, which it used to invest in import export, joint ventures, investment in privatised companies and establishment of small scale industries.

These associations tend not to challenge the structure of the state directly, but tried to influence the way power is exercised, specifically as it relates to issues directly affecting the interests of their members. (Oyeleye and Adigun, 1999)

Vigilante Groups The inability of the Police to tackle rising rates of crime, especially in the context of transition to civilian rule, and the reigning in of military squads specifically established to target armed robbery, has led to the growth of a host of private security outfits / vigilantes throughout different states of the federation, particularly in the South. Lack of state capacity (leading for example to the total absence of police stations in communities like Okpara in Delta state, where 20,000 people live, (Ekeh, 2002)), means that in many cases the police are absent from people’s daily lives. In large cities, like Aba which has built up an important manufacturing base, special Police-Community Committees had been set up by members of the business community who would provide the police within information on suspected criminals gangs. However these arrangements, eventually led to more crime as police became patrons of robbers themselves and were able to pay them off, once caught and convicted.

An example of a popular vigilante movement is the “Bakassi Boys” set up in Aba by the Shoe Makers Industrial Union Incorporated of Ariaria Market in November 1998, to arrest criminals and their patrons and destroy their properties. For the first few years, the vigilante outfit remained directly controlled by the members of the shoe makers union executive, and that it quickly spread to other eastern states, with important commercial or manufacturing centres (Anambra with Onitsha and Nnewi), which had also experienced high crime rates. In marked contrast with traditional policing methods, those used by the Bakassi Boys were swift and unconventional, with suspected criminals being weeded out by Bakassi Boys, emboldened with special powers of detection, through the use of charms and herbal medicines, and instantly being killed in violent ways (necklacing and returning dead bodies to the communities of origin). It is this seeming arbitrariness, and the violent justice with which the Bakassi Boys and similar outfits are associated, which has provoked the criticism of the international Human rights lobby (HRW-CLEEN report) which warn of the danger of vigilante groups being used by political parties as means of securing electoral success.




Although many of these initiatives started as voluntary, the incoming state governors, particularly after 1999, recognised the political legitimacy that would result in being associated with lower crime rates. The Aba state governor and the Anambra state governors proceeded to give the vigilante groups official recognition. The Bakassi Boys became known as the Anambra State Volunteer Force. This official recognition also brought many state governors into direct conflict with the Federal government as constitutional provisions 1999 stipulate that only the Federal government has jurisdiction over state security issues. In 2002, the Federal government cracked down and outlawed Bakassi in Aba (Abia state) and Onitsha (Anambra state), which have both subsequently seen a rise in the incidence of armed robbery and associated crime.

Human Rights Organisations and Democratic Reform Movements

Civic Associations and Political Reform Movements

Human rights organisations and political reform movements emerged directly as a consequence of the increasing repression of basic freedoms under Babangida and as a result of the economic austerity measures he imposed during structural adjustment of 1986 onwards. This gave birth to new type of organisations making links between democracy, respect for Human rights and economic empowerment (giving rise to democracy dividend discourses). Like the occupational groups referred to above, these are also very urban based, elite organisations. Human rights associations were established in the 1980s by concerned professionals (mainly lawyers) whilst political reform movements were established during the same period and tended to be sponsored by eminent Nigerians who had served in various capacities in private and public sector. Both types of organisations were very connected to each other, but with limited links to people in rural areas, or poor social groups in urban areas (except possibly in the parts of the Niger Delta). They were most active and visible in the West of Nigeria. Their aim was to push for thoroughgoing democratisation. But just like members of NBA and other national professional organisations, Babangida’s strategy with civic organisations was to attempt to neutralise their power, by co-opting their members, and undermining their ability to function at a national level. Cooption of civil society was possible through the use of patronage, ‘settlement’, contract awarding, gifts in cash and kind to individuals and groups.

Although different military regimes succeeded in disorganising the resistance of these groups, they were still challenged by them. The recurring theme of ‘transition’ or ‘hand over’ to civilians was reinforced by these organisations. Together with other political reform movement, they provided the leadership which spearheaded nation wide protest after annulment, which eventually forced Babangida out of power. They were not however able to stop the imposition of Interim National Government.

An example is the Association for Democracy and Good Governance in Nigeria, which was a political reform group created by Obasanjo prior to his imprisonment. It was for ‘eminent Nigerians and Patriots’ who wanted to persuade Babangida to leave, but not by confrontation. It was made up mainly by retired military officers concerned about the future of the military and country and a desire to ‘save’ the military. Buhari and Idiagbon (who had always been opposed to Babangida since his coup which ousted them in 1986) were also actively involved in it. Eventually the group splintered because of differences over how to deal with Babangida and the ING. Obasanjo favoured talking with Babangida whilst Buhari wanted a forced removal. It was Obasanjo who eventually persuaded Babangida to step down.




These groups played a significant role during the Babangida transition in securing the release of detainees, facilitating prison reforms, spearheading mass protest against Babangida. Under Abacha these organisations were generally less influential and many were co-opted by the regime.

Political Parties

The PDP has been the party in power since May 1999, when Obasanjo became Head of State for the second time round. It evolved out of a group (Group of 34) established in the mid 1990s by former politicians led by Alex Ekwueme (former Vice President during the 2nd Republic) whose purpose was to prevent then president Abacha from succeeding himself and becoming Civilian President. By 1998, he had already initiated plans to present himself as the ‘sole candidate’ at the forthcoming elections. After his death in June, it fell to General Abulsalami Abubakar to prepare for the elections that would usher in the transition from military to civilian rule. It was in this context that the Group of 34 transformed itself into the People’s Democratic Party. It was at this time that the full weight of the mainly Muslim northerners in the military (retired Generals) was brought to bear. Babangida himself was amongst them and played a prominent role in bankrolling the new party. It was this block that brought Obasanjo out of prison to ensure that he became President. It is the same block that has become disgruntled because Obasanjo appears not to have served their interests well. Prior to his election in 1999, although he had been head of state in the late 1970s. Obasanjo’s relative absence from politics for some 20 years prior to his imprisonment by Abacha, meant that he was reliant on his old power base, at least during the early period of his term in office. Much of the instability which his regime has suffered from stems from the difficulties of imposing his authority on the party (In three years there have been two speakers of the lower house and three presidents of the Senate, whilst three different chairmen have presided over the party.

The 1999 elections gave People's Democratic Party (PDP), 60% of the seats in the National Assembly and 60% of the states, mainly in the north, the south south and the east.

Conservative politicians, many of whom backed General Abacha, dominated the All People’s Party (APP), the second largest party. Prior to the 1999 elections it drew much of its support mainly from the north. Last year (2002), it merged with a faction of another party (the UNDP which to avoid confusion with the UN agency, later changed its name to NDP). It is now known as the ANPP and is the main opposition party in the South South and maintains its northern base. The ANPP has put up (amidst much controversy) former Military Head of State – Buhari. His running mate is Chuba Okadigbo, one time Senate President. Buhari’s reputation of having come out in support of Sharia and memories of his authoritarian political style, have done little to endear him to the Ohanaeze Ndigbo socio-cultural group (who claim to represent the interests of the Igbo, his own ethnic group) in the east, in spite of the fact that he is being accompanied by Okadigbo

The third major political party – the AD – which after the 1999 elections controlled all the states in the Yoruba south west, which is the extent of its base – has over the last few years become a shadow of its former self. Initially headed by Olu Falae, who in 1999 challenged the election results, claiming electoral fraud the radical stance of the party has been diluted by the attempts by Obasanjo to secure support in his ‘home’ base. Members of the AD (as well as of the former APP) now hold Ministerial positions in Obasanjo’s cabinet. The AD recently declared that it will not put up a Presidential candidate of its own, and will therefore advise voters to support the incumbent president (this will be done unofficially, as ‘formal’ electoral pacts are proscribed by the 1999 Constitution).




Table 11: Party Strength 1999

State governors

Senate(a) House of Representatives (a)

People's Democratic Party (PDP)

21 67 212

All People’s Party (APP)

9 23 80

Alliance for Democracy (AD)

6 19 68

Total 36 109 360

(a) No. of seats.

Source: Press report EIU, 18 March 2003s.

For the first time in Nigeria’s history 30 political parties have been registered. This came after initial attempts by INEC in June 2002 to register only 3 new parties. This was rejected as unconstitutional according to the 1999 constitution. After a Supreme Court judgement ruled against INEC, it was forced to come back on its previous decision. Political parties still reflect old alliances whilst new ones are backed by old politicians even if they are not fronted by them. Just as Babangida financed the PDP in 1998, he is also deemed to be financing at least 3 (if not more) parties. His long running feud with Buhari however means that he is unlikely to backing the ANPP’s bid to unseat Obasanjo. Given the weight Babangida still wields in Nigerian political life, his opposition to Buhari, could also paradoxically split the Northern Muslim vote between the PDP and the ANPP.

The 30 new parties do not have clear ideological differences; many of them are small and very locally based. but reflect the attempt by the old political elite members, politicians from the 1st Republic, like Ojukwu, the former Biafra leader and presidential aspirant on the AGPA party ticket, seeking to realise the ‘Igbo presidency’ ambition. As in the past however when numerous associations emerged during constitutional conferences, these parties may be there as fronts for political interests, or as vehicles for individuals to market themselves as potential clients for the




main parties that will eventually emerge (indeed the ANPP and PDP have already emerged as the main contenders).

Very few amongst them reflect the pro-democracy with which political life the 1990s was imbued. The NCP party of activist lawyer Gani Fawehinmi, who was the inspiration behind the Supreme Court ruling, which enabled the 22 new parties to be registered, is one of the very few parties with any ideological weight. The extent of his popularity may however have dwindled, given the fact that the radical pro-democracy platform upon which he stood in the 1990s was neutralized after his collaboration with the Abacha regime in the mid 1990s.

A3.5 Conclusions

This review has documented the consistent failure of efforts by successive regimes to change the rules of the political game and to establish more effective governance arrangements and fiscal control. This failure reflects the pressing need to accommodate potentially explosive ethnic and religious divides as well as the fact that no organised and influential interest group has had a consistent interest in pro-poor or growth oriented reforms – including the regimes attempting to implement the reforms.

The discussion of interest group organisations points to the richness of Nigeria’s civil society (though it is largely focused on the urban population and sections of the elite). It also suggest though that while these organisations have achieved successes in influencing government policies and securing access to resources for those they represent (and particularly for those who lead them), they function overwhelmingly within the framework of the patrimonial political system rather than seeking to challenge it. As such they are consistently vulnerable to co-option by regimes that they oppose, as well as to repression legally or extra-legally.

A key issue is whether, as suggested, the prospects of a direct military threat to take over government can now be largely discounted as a result of the discrediting of military rule in the later years of Babangida and under Abacha. If so, then it is possible that the rules of the political game may change, though it is not immediately obvious that this would lead to a move towards the “factional democracy” model that can provide a more developmental orientation to policy. The pressing priority is for a more disciplined fiscal policy – since the autonomous benevolent model is not now attainable (if it ever was) the prospects for this depend fundamentally on the emergence of a consensus within the political elite that it will be in their interests to find ways of disciplining the competition for oil revenues, and channelling patronage politics towards more developmental outcomes.




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