Politics and Economic Development in Nigeria

By Tom Forrest | Go to book overview

7
The State, Oil Dynamics, and the Economy, 1970-1979

Oil Dynamics, Agriculture, and Industry

After the end of the civil war, oil revenues rose steadily to constitute over 80 percent of total federal revenues and over 90 percent of export earnings by 1974 (see Table 7.1). In 1974, following the oil price rise, oil revenue rose three and one-half fold, and the share of oil in revenues rose to over 80 percent. Government expenditures did not lag far behind. Total federal expenditure increased by a massive 100 percent in 1974 (see Table 7.2) and doubled the next year. Oil revenues continued to rise, although modestly in real terms. In 1978, a fall in price and output reduced nominal revenues for the first time and induced cutbacks in government expenditure and a recession. There followed a mini-oil boom in which the share of oil in total revenues again exceeded 80 percent. Dependence on oil for foreign exchange earnings remained acute and in the mid-1980s was almost total.

Large oil revenues had a number of largely unforeseen and unintended consequences. First, the rentier nature of the income that flowed directly to central government meant that there were strong pressures to maximise current oil revenues and increase public expenditure. A windfall revenue meant that the government could bypass taxpayers and begin spending immediately. Political pressures arising from the taxation of personal incomes, farm incomes, or private property, which would check the increases in state expenditure demanded by politicians and bureaucrats, were absent. This situation had negative consequences for the expansion of the public economy, for the use and accountability of public funds, and for attitudes towards the state. In the quickening of expectations set off by the rise of revenues, it appeared that all things were possible and that finance was no longer a constraint on government activities. Non-oil tax revenues were neglected and some taxes abolished. The rapid expansion of state expenditure took place without any sense of priority in the allocation of public expenditure as demands were pressed in on the centre. There was, too, a deterioration in financial discipline and accountability as

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