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Volume 30, Number 2, November 2012

Answers

Development profile: Country C (p. 34)

Peter Smith
The latest in the series of development profiles featured a lower middle-income/low human development country with oil reserves and a large population. The profile provided you with some clues as to the identity of Country C did you manage to work out the country and the region in which it is located? Telling you that Country C has been a member of OPEC since 1971 immediately limits the choice of country to one of 12. Few of these countries would be classified as being a low human development country and, since Indonesia suspended its membership in the late 2000s when it became a net importer of oil, only one OPEC member country has a population above 100 million namely, Nigeria. So, Country C is Nigeria.

The importance of macroeconomic stability

It is clear from Figure 1 in the profile that Nigeria has had occasional problems with inflation, especially during the 1990s. One of the questions at the end of the profile asked why macroeconomic stability might be important for a developing country. We could, of course, argue that macro stability may be seen as important for any country because it creates an environment in which firms can form reasonable expectations about the future, and might thus be prepared to take risks and undertake investment, therefore raising the capacity of the economy to produce and enabling economic growth to take place. For a developing country, it is so important to allow economic growth to take place, as this is needed to increase the resources available for the population, and to build foundations for future growth and development. You can see from Figure A on the following page that Nigeria has seen high instability in the growth of GDP per capita over the past 50 years, with many years in which growth was negative. Perhaps an encouraging sign is that growth was retained in each year between 2003 and 2010. There is a danger that more recent data will show that the global recession has reached Nigeria but the 2011 data are not yet available. As I pointed out in an article in ECONOMIC REVIEW in April 2012, there were some countries in sub-Saharan Africa that seemed to escape the worst effects of the global slowdown, at least in the early years. But we must wait for new data to see how long they can escape for.

Philip Allan Updates 2012

Figure A: Growth of GDP per capita, 19612010 (% per annum)

Oil revenues
Although Nigeria is the largest oil exporter in sub-Saharan Africa, it does not seem to have been able to build upon the proceeds by reducing poverty and stimulating economic growth. Figure 2 in the profile showed that the rents from oil have made up for more than 20% of Nigerias GDP every year since 1974 (when oil prices first rocketed); in some years the percentage was even higher. The revenues from exporting oil could have been used to provide funding for spending on infrastructure for the economy. For example, the profile mentioned that infrastructure is weak and that power cuts have been a problem. These are issues that could have been partially addressed by channelling some of the proceeds from exports of oil into productive purposes. Also mentioned were the allegations that have been made of corruption and mismanagement, suggesting that some of the oil rents may have been diverted into unproductive uses. It is worth noting that improving infrastructure such as the provision of institutions to provide energy, transport and communication, or health and education, would have long-term benefits not only directly for the population but also in terms of attracting foreign firms to undertake investment in the country.

Philip Allan Updates 2012