GEG WP 2016/115 The Successes and Failures of Economic Reform in Nigeria’s Post-Military Political Settlement

Author: Zainab Usman

Abstract: This paper employs the political settlements framework to address a gap in our understanding of variation in the growth of industries within resource-rich economies. It puts forward the proposition that the political settlement within which specific economic reforms are formulated and implemented accounts for the variation in the growth and decline of economic sectors. As a framework for analysis, the political settlement enables us identify a society’s sources of instability, which could be horizontal (elite competition), vertical (societal redistribution demands) or external (oil shocks and donor pressures), the pressures they exert on a ruling elite, and the growth-enhancing or growth-retarding policy responses to address these pressures. Focusing on the telecommunications and oil sectors in Nigeria, the paper finds that, the external pressure operating through oil shocks and fiscal constraints on the ruling coalition at the end of military rule from 1999 generated growth-orientated policy responses in non-oil sectors such as telecommunications. Concurrently, the oil sector was insulated by successive ruling coalitions from reform, leading to its stagnation and decline. Three causal mechanisms are identified:

1.     The nature of threats to the ruling elite explain the relative success of telecommunications liberalisation while the oil sector, insulated from reform, remained an instrument for dispensing patronage.

2.     The capacity and resources of the ruling coalition in assembling a technocratic economic team and selectively empowering a domestic business class had a differential impact on the telecommunications and oil sectors.

3.     The inequities in the distribution of benefits: of a growing telecommunications and broader service economy which responded to reforms, horizontally to a few elites and vertically to a small labour force heightened elite- and wider societal-distributional pressures on oil rents, which fostered inefficiencies in the oil sector, but also undermined the reforms’ legitimacy.

It is hoped that this paper contributes to our understanding of the political underpinnings of the on-going economic transformation in sub-Saharan Africa and generally, the mechanisms of variation in the growth and decline of economic sectors in resource-rich countries.

 

Key words

Oil Industry, Extractive Industries, Economic Reform, Economic Diversification, Africa, Political Settlements, Governance, Nigeria

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