Liberalization in dictionary meaning or explain it as
freedom, free to something or somebody for e.g. free from political, religious,
legal or moral restrictions. So liberalization policy on Nigerian economy is giving
the economy of the country free movement from both the foreign investors,
federal government state good or local government. Liberalization should
therefore be part of the armory of a poverty-conscious government, but this
does not imply a call for the immediate dismantling of all trade restrictions. Policies encouraging the liberalization of rules and
regulations have extended throughout the world since the year 1980s. Such
polices have greatly assisted the globalization process, enabling TNCs or their
investors to perceive the world as a single market rather than as a set of
individual countries.
Economic policy where liberalization is obtain.
Economic policy is seem as the action statement of the government pertaining to
particular sectors of the economy, describing the intended objectives
international and how to achieve them. Ordinarily, the object of economic policy is to
improve the welfare of the people, either in the short run or the long run.
There is always a trade-off in the benefits of economic policies requiring that
economic realities dictate policy priorities. The formulation of an economic policy involves the
collection, arrangement, analysis, summary and interpretation of economic data.
The quality of data input into policy formulation the becomes critical to
evolving policies that will impact the macro-economy in the most desired
sectors for maximum benefit to the economy whether national, state or local
government.
The reforms which focused on structural changes,
monetary policy, interest rate administration and foreign exchange management
recompose both financial market liberalization and institutional building in
the financial sector. Liberalization may refer to many aspects on the economy
such as price liberalization or trade liberalization.
Financial liberalization has been recommended as a
policy to overcome the problems of financial repression, although the
experience of the southern cone countries of Argentian, Chile and Uruguay in
this regard has not been encouraging. In spite of this experience, with the
SAP, Nigeria adopted the policy of financial deregulation, starting with the
introduction of the scantier foreign exchange market (SFEM) in 1980 and
culminating in the policy of deregulation of interest rates in 1987. This study
is an attempt to evaluate this policy expose. It aims at using simple
descriptive indices to assess the impact of polices of financial system over
time, and in particular savings mobilization.
Thus, financial liberalization provides a mechanism
intended to facilitate the flow of funds for private sector development. The
improved financial environment is expected to stimulate the level of investment
and income, enhance manufacturing capacity utilization, reduce poverty,
increase per capita income, and by extension lead to economic growth.
To achieve the objective of private sector-led
economy, government introduced the National Economic Empowerment and
Development Strategy (NEEDS). The National Economic Empowerment and Development
Strategy (NEEDS) 2004-2005 is Nigeria’s reform based medium-term plan for economic
recovery, growth and development. NEEDS was conceptualized in 2003 and lunched
in 2004, as response to the numerous challenges facing the nation. The four
goals of NEEDS are poverty reduction, wealth creation, employment generation
and value re-orientation. The government hopes that NEEDS will diversify the
economy, boost non-energy exports, increase industrial capacity utilization,
and improve agricultural productivity (Wikipedia 2007). Each of the 36 States
of the Federation has also developed the State Economic Empowerment Development
Strategy (SEEDS).
FINANCIAL LIBERALIZATION POLICY IN
NIGERIA
The declining economic performance of many less
developed countries (LDCs) has generated a lot controversy on the issues of
growth and development. The arguments are in line with McKinnon (1973) and Shaw
(1973) that financial liberalization promotes growth. This is because financial
liberalization raises the level of savings and investment and improves the
quantity, and quality, of investment, thereby raising the growth rate and
improves living standards in the countries concerned.
In Nigeria, the attempt to
strengthen the private sector (by the government) led to the implementation of
financial liberalization policy in 1986 as part of the Structural Adjustment
Programme (SAP).
The financial liberalization policy was seen in the
areas of licensing of banks, interest rate administration, saving behaviour and
banking credit to the economy. For instance, with the policy of financial
liberalization, the conditions for licensing of banks and other financial
institutions were relaxed, leading to proliferation of banks. Thus, by 1993
about 120 banks have been registered. This scenario brought distress into the
financial system. Between 1994 and 200, a total of 33 banks were liquidated (2
in 1994, 2 in 1995, 26 in 1998 and 3 in 2000). Most of the banks were
liquidated as a result of fraud, mismanagement, undercapitalization and the
country economic crises.
The implication is that credit flows to the private
sector declined, and the banks were forced into employing tighter control in
their lending activities to the private sector. By 2005, a clear picture of the
problems of the financial sector that may ultimately limit bank lending to the
private sector had emerged. As Soludo (2006) observes, the sector was
characterized by structural and operational weaknesses such as: Low capital
base; dominance of few banks; Insolvency and illiquidity; Over –dependence on
public sector deposits and foreign exchange trading; Poor asset quality; Weak
corporate confidence; Low depositor confidence; and Banking sector credit to
the domestic economy at 24 per cent of GDP, compared to Africa average of 87
percent.
FINANCIAL LIBERALIZATION POLICY, PRIVATE
SECTOR DEVELOPMENT AND ECONOMIC GROWTH
Financial Liberalization
Policy
Improved Financial
Intermediation
Savings
and Investment
Credit
to Private sector
Income
Manufacturing
Capacity utilizations
Poverty
Reduction
Per
Capital Growth
Economic
Growth
The improved financial environment stimulates the
level of investment and income, on hand, and enhances manufacturing capacity
utilization, on the other hand. The ultimate effect is to reduce poverty,
increase per capita income, and by extension lead to economic growth.
The improved financial environment stimulates the
level of investment and income, on hand, and enhances manufacturing capacity
utilization, on the other hand. The ultimate effect is to reduce poverty,
increase per capita income, and by extension lead to economic growth.
PERFORMANCE OF THE ECONOMY (1985 – 2006)
|
Year
|
GDP
|
CRP
|
MCU
|
MLU
|
SGD
|
DGD
|
|
1985
|
9.4
|
5.9
|
38.3
|
11.8
|
17.0
|
3.0
|
|
1986
|
3.2
|
26.7
|
38.8
|
12.0
|
19.0
|
10.4
|
|
1987
|
-
0.6
|
46.7
|
40.4
|
19.2
|
17.0
|
5.3
|
|
1988
|
10.0
|
16.7
|
42.4
|
17.6
|
16.0
|
8.5
|
|
1989
|
7.3
|
3.9
|
43.8
|
24.6
|
11.0
|
7.9
|
|
1990
|
8.3
|
18.4
|
40.8
|
27.7
|
11.0
|
8.5
|
|
1991
|
4.7
|
23.7
|
40.3
|
20.8
|
12.0
|
11.0
|
|
1992
|
3.0
|
34.6
|
42.0
|
31.2
|
10.0
|
10.2
|
|
1993
|
2.3
|
51.6
|
38.1
|
18.3
|
12.0
|
15.4
|
|
1994
|
1.3
|
32.2
|
37.2
|
21.0
|
12.0
|
7.9
|
|
1995
|
2.2
|
49.4
|
30.4
|
20.8
|
5.0
|
0.1
|
|
1996
|
3.4
|
23.9
|
29.3
|
20.8
|
5.0
|
1.3
|
|
1997
|
3.2
|
23.9
|
36.8
|
20.9
|
6.0
|
1.1
|
|
1998
|
2.4
|
27.4
|
37.2
|
21.8
|
30.0
|
-4.8
|
|
1999
|
2.7
|
29.2
|
34.9
|
27.2
|
30.0
|
-
8.8
|
|
2000
|
5.4
|
17.5
|
36.0
|
26.4
|
30.0
|
-1.8
|
|
2001
|
4.7
|
43.5
|
36.1
|
31.2
|
35.0
|
-3.1
|
|
2002
|
4.6
|
19.7
|
59.6
|
25.7
|
4.0
|
-3.8
|
|
2003
|
9.6
|
26.8
|
545
|
21.6
|
7.0
|
-2.0
|
|
2004
|
6.6
|
26.6
|
55.7
|
20.4
|
18.0
|
-1.5
|
|
2005
|
6.5
|
30.8
|
54.7
|
19.6
|
19.0
|
-1.1
|
|
2006
|
5.6
|
28.2
|
53.3
|
18.7
|
20.0
|
-0.6
|
UNDER TRADE LIBERALIZATION NIGERIA’S CURRENT TRADE POLICY
The main thrust of trade policy is therefore the
enhancement of competitiveness of domestic industries, with a view, to inter
alia, stimulating local value added and promoting a diversified export base.
Trade policy also seeks (through gradual liberalization of the trade regime) to
create an environment that is conducive to increased capital inflows, and to
transfers and adoption of appropriate technologies. The government pursues the
liberalization to its trade regime in a very measured manner, which would
ensure that the resultant domestic costs of adjustment do not outweigh the
benefits. The reforms which accompany this policy direction are also aimed at
re-orientating attitudes and practices towards modern ways of doing business.
However, the instruments of trade policy such as the
tariff regime is designed in a manner which allows a certain level of
protection of domestic industry and enterprises.
While this is the main trade policy framework to guide
economic growth the trade expansion employment generation and poverty
alleviation dimensions are now subsumed in a new over arching economic
development policy blue print adopted in 2003, the national economic
empowerment and development strategy (NEEDS).
The trade policy trends from 1986 on the structural
adjustment era. From 1986, there was a significant shift in trade policy
direction towards greater liberalization. This shift in policy is directly
attributable to the adoption of the structural adjustment programme. The
customs, excise, tariff etc (consolidation) decree, enacted in 1988, was based
on a new customs goods classification, the harmonized system of customs goods
classification code (its) it provided for a seven year (1988 – 1994) tariff
regime, with the objective of achieving transparency and predictability of
tariff rates. This was aimed at reducing distortion in resource allocation and
combating smuggling. Both the 1988 and 1995 tariff schedules has provisions for
reviews and amendments. However, they maintained the familiar mixed trends in tariff
regimes. Three types of changes were subsequently common, namely, reduction in
rates, increase in rates and /or removal from or addition to the import
prohibition list.
TRADE
LIBERALIZATION POLICY ON NIGERIAN RUBBER INDUSTRY.
The liberalization of trade has exposed Nigerian
rubber to the fluctuations in global rubber prices and the instability in the
natural rubber prices has been a disincentive for rubber production and
exports. Result revealed that output and producers price exerted positive
effects on export supply, that is a rise in output and producer’s price would
cause exporters to export more natural rubber. Rubber producers also
experienced a multiplicity of problems, which centered on inputs used in rubber
production and aged rubber trees.
The usual channels through which trade policy reform
or liberalization could bring benefits are through improved resource allocation
within and across industries (static gains) and through technical change,
learning and growth leading to improved productivity growth (dynamic gains). However, there is another
channel by which trade liberalization can be expected to provide major benefits
to the performance of developing countries namely through its competitive
effect by festering domestic competition on domestic pricing. If this channel
were to be more widely recognized, then trade policy may be viewed as another
effective policy to promote competition.
Agriculture continues to play a significant role in
the Nigerian economy it contributes about 40% of the GDP, play key role in the
supply of food, provision of employment generation of income, supply of raw
materials to the agro-industrial processing and manufacturing sector and
foreign exchange earnings through exports. In view of its large size and
economic importance, various policy reforms which sought to liberalize the economy
and entrench competition over the last two decades especially since the
introduction of the structural adjustment programme (SAP) in 1986, were quite
visible in the sector. Prior t the
inception of SAP in 1986, several policies were introduced in the past due to
market failures in the allocation of resource and the need to achieve sustained
growth and equitable development in the country. They included! price control
(administered output prices for export commodities), guaranteed minimum price
for grains, input subsidy centralized marketing and export monopoly.
A major component of SAP was the diversification of
the export base away form oil and the expansion of non-oil exports, especially
agricultural exports. The liberalization policy environment under Nigeria’s SAP
was imitated principally to support the agricultural sector in general, and
agricultural exports in particular.
The policy of SAP involves a reduction in the role of
the public sector in production activities through the processes of privatization/communalization
of public sector investment.
Specific trade liberalization measures undertaken
under SAP include the removal of bureaucratic controls on trade. The import licensing system, together with
exchange control on all current transactions was abolished as soon as exchange
liberalization began in September 1986.
In 1987, a new export finance faculty was introduced
by the central bank. A financing and rediscounting facility to assist private
exporters by providing refinancing for the export of both agricultural and
non-agricultural products was introduced.
In the same 1987, drawback/suspension scheme was
introduced to enable exporters to import raw materials and intermediate
products for use in the manufacturing of export products.
There are many measures in determining the
liberalization policy on the economy of the country Nigeria.
Nigeria, since the last trade review has continued to
introduce and/or strengthen trade liberalization measures aimed at stimulating
production, promote competition and efficiency and thus help to reduce the cost
of doing business. These measures are helping, generally, to increase
international confidence in the economy. Some of the measures taken by Nigeria
since 1991 are in the following areas:-
Investment Policy
In 1995, the Nigerian investment
promotion commission (NIPC) was established through decree 16 of 1995. NIPC
absorbs and replaces the industrial development co-ordinating committee (IDCC).
This procedure allows NIPC to determine how many of the approved applications
actually got registered as business enterprises in Nigeria. Under the NIPC,
foreign investment is guaranteed against nationalization or expropriation by
government. Foreign companies are free to invest in any sectors of the economy
except for sectors in the “negative list”, which is currently cruder review to
give grater scope to foreign investment in key sectors of the economy.
Tariff Measures
The period 1995 – 2001 were introduced
in 1995. In the 1995 tariff review, the tariff range was seduced by 505 from
0-300% to 0-150%. The 1995 – 2001 tariff structure is designed to stimulate
competition and efficiency by reducing tariffs on consumer items relative to
tariffs on raw materials and intermediate and capital goods. The reduction to
tariff on final consume goods will expose domestic manufactures to import
competition white the relatively higher tariffs on raw material and
intermediate goods production.
Fertilizer Policy
Trade in fertilizer has been liberalized with effect
from 1997. Private importers are now free to import fertilizer and sell in the
open market in competition with the local produce(s) and blenders. In addition,
with effect from January 1, 1998 import duties on fertilizers have been reduced
from 10% to 5%.
Interest Rate Policy
Interest
rates were deregulated in October 1996. Before the deregulation, the rates were
fixed at 13.55 and 21% for deposits and lending respectively, with a spread of
7,5% with the deregulation, the rates crashed to as low as 2% for deposits and
16% for lending. Currently deposit (savings) rates range between 40% to 12.5%
while average lending rates vary between 18% and 20%, thus giving a much wider
spread than before the deregulation. The provision of such market regulated
alternative to bank deposit will help to engender more competitive deposit
rates in the banking system and thus reduce the wide spread between the two
rates.
Import Liberalization
The list of items removed from import prohibition list
continues to lengthen rice, which is fast becoming a staple food in Nigeria was
removed from the import prohibition list in 1995. Similarly, meat, fish,
vegetable, fruits and fruit juice can now be imported into the country.
With effect from January 1, 1998, live refrozen
poultry, beer and stout, barely and malt as well as mineral find similar waters
have been removed from the import prohibition list. As already stated above the
fertilizer trade has been fully liberalized.
Also with effect from 1998 fiscal year, second hand
vehicles (locally known as “Tokunbo”) and motor-cycles can now be imported into
Nigeria at the appropriate duties.
REFERENCE
ATPC
(African Trade Policy Centre) By Inye
Nathan Briggs
Work
in progress by Dr. D. O Adeyeme, Ph.D
Business Administration
UNILAG
Biodu Adebipe, Ph.D Chief consultant, B.
Adedipe Associated Limited
Edwards,
S. (1993) “Trade Liberalization and
Growth in Developing Countries”.