Devaluation and structural adjustment : the Nigerian experience

Abstract

Nigeria, like many other African countries, has had to devalue its currency substantially in recent years as part of the Structural Adjustment Program (SAP) undertaken with World Bank prodding and support. Both before and after devaluation, the policy has given rise to great controversy, and the debate continues both internally and externally. There are many reasons why Nigeria provides a special but interesting case of the impact of devaluation on the national economy. First, it is a country with a potentially large market where, with proper planning, the domestic economy ought to provide a dynamic factor in economic development. Second, oil exports account for over 90 per cent of exports. Third, the foreign exchange earnings from oil exports come directly into the hands of the government, and the basic issue of policy is essentially how these resources are to be allocated for the most efficient uses. Fourth, in many areas there is close interconnection between production of food and raw materials for domestic use, and production for exports, so that an increase in exports may create shortages in supplies for domestic use and therefore fuel domestic inflation. The paper conclude that the costs of devaluations, in terms of inflation, greater macroeconomic uncertainty and less investment, may be greater than are often thought, and that the benefits, at least for primary producers, do not seem as strong as have often been claimed.