ECONOMIC DIPLOMACY AND CONDUCT OF NIGERIA’S EXTERNAL RELATIONS, 1999 - 2007 BY MMUO, OBIEDOZIE CHUKWUNONSO PG/M.Sc./11/59715 PROJECT REPORT SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF THE MASTER OF SCIENCE (M.Sc.) IN POLITICAL SCIENCE (INTERNATIONAL RELATIONS) DEPARTMENT OF POLITICAL SCIENCE UNIVERSITY OF NIGERIA, NSUKKA JULY, 2012 i TITLE PAGE ECONOMIC DIPLOMACY AND CONDUCT OF NIGERIA’S EXTERNAL RELATIONS, 1999 - 2007 BY MMUO, OBIEDOZIE CHUKWUNONSO PG/M.Sc./11/59715 DEPARTMENT OF POLITICAL SCIENCE UNIVERSITY OF NIGERIA, NSUKKA JULY, 2012 ii APPROVAL PAGE This project report has been approved by the Department of Political Science, University of Nigeria, Nsukka. By ………………………………. Dr Aloysius-Michaels Okolie Supervisor ……………………… Prof. Obasi Igwe Head of Department ……………………….. Prof. E.O. Ezeani Dean of Faculty ………………….. External Examiner iii DEDICATION This work is dedicated to God Almighty for his protection, guidance and grace which enabled me to complete this study. iv ACKNOWLEDGEMENT I acknowledge the pivotal role played by my Supervisor, Dr. Aloysius-Michaels Okolie an erudite and voracious scholar whose guidance and adequate supervision contributed immensely to the successful completion of this work. It is my prayers that the good Lord will always be your fortress and refuge. I appreciates in a special way the support and contributions of my parents, Chief and Mrs. C.N. Mmuo and my siblings: Nchedo, Chidiebere, Ifeakachukwu and Obioma. The contributions of renowned scholars like: Prof. E.O. Ezeani, Dean Faculty of the Social Sciences University of Nigeria, Nsukka, Prof Obasi Igwe ,Head Department of Political Sciences, Dr Ken Ifesinachi, Postgraduate programmes coordinator of our revered department; Chris Ezeibe, H. Agbo, Azom, Jerry, Adibe and others too numerous to mention, was indeed useful. More so, the enormous support and encouragement by: Mazi Cyril .K. Ezeamaka my Chairman and mentor, Distinguished Senator Victor Ndoma-Egba CON SAN Leader of the Senate, Federal Republic of Nigeria, B.O. Oyeyemi mni MFR Deputy Corps Marshal (Operations) Federal Road Safety Corps, Austin Udeh, Idowu K. Idowu and others cannot be overemphasized. Thank you for being solidly behind me throughout this academic sojourn. Am highly humbled. My friends and colleagues: Eby, Obi Austin, Clinton, Uche, Chinyeaka, Chinwe, PraiseGod, Theo, Maximus, Andy, Oliver, Obinna, Ernest, Onyichris, Orji etc, am so happy identifying with you all. All shortcomings in this work remain my responsibility. Mmuo Obiedozie C. Department of Political Science University of Nigeria, Nsukka. July, 2012. v TABLE OF CONTENTS Title Page - - - - - - - - - i - - - - - - - - ii - - - - - - - - iii Acknowledgement - - - - - - - - iv Table of Contents - - - - - - - - v List of Tables - - - - - - - - - vii List of Figures - - - - - - - - viii - - - - - - - - ix CHAPTER ONE: INTRODUCTION - - - - - 1 1.1 Introduction - - - - - - 1 1.2 Statement of the Problem - - - - - - 3 1.3 Objectives of the Study - - - - - - 5 1.4 Significance of the Study - - - - - - 5 1.5 Literature Review - - - - - - - 5 1.6 Theoretical Framework - - - - - - 23 1.7 Hypothesis - - - - - - 26 1.8 Method of Data Collection - - - - - - 26 1.9 Method of Data Analysis - - - - - - 27 Approval Page Dedication Abstract - - - - - - CHAPTER TWO: ECONOMIC DIPLOMACY AND FOREIGN DIRECT INVESTMENT - 28 The Primacy of FDI in Nigeria’s Policy of Economic Diplomacy - 28 - 32 - 34 2.1 2.1.1 The Economic Diplomacy of Dependent Import-SubstitutionIndustrialization - - - - - - 2.2 Economic Diplomacy and the Decline of Good Neighbourliness 2.3 Assessment of Nigeria’s Economic Diplomacy and FDI Performance - 2.3.1 Sectoral Analysis of FDII Inflow in Nigeria - - - 36 - 43 2.3.2 FDI Performance and Economic Diplomacy: The Missing Link - 44 CHAPTER THREE: DEBT CANCELLATION AND INCIDENCE OF POVERTY - - 48 3.1 History and Structure of Nigeria’s External Debt - - - 48 3.2 The Journey to Debt Cancellation - - - 54 - - vi 3.3 The Realities of Poverty in Nigeria - - - - - 67 CHAPTER FOUR: ENERGY RESOURCE ENDOWMENT AND DOMESTIC STRUCTURE OF PROCESS OF FOREIGN MAKING -76 4.1 Nigeria Energy Resource Endowment - - - 76 4.2 Trends in Historical Demand for Energy in Nigeria - - - 77 4.3 Trends in Historical Energy Supplies in Nigeria - - - 79 4.3.1 Crude Oil Reserves, Production and Export Trends - - - 80 4.3.2 Crude Oil Export Trend - - - - - - - 81 4.3.3 Petroleum Products Consumption - - - - - 82 4.3.4 Natural Gas Supply Trend - - - - - - 83 4.3.5 Natural Gas Consumption - - - - - - 83 4.4 Electricity Generation - - - - - - 83 4.5 Electricity Consumption - - - - - - 85 4.6 Hydropower Consumption - - - - - - 85 4.7 World Bank (WB) and International Monetary Fund (IMF) Policy - - 86 - - 88 CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS - - - 91 5.1 Summary and Conclusion - - - - - - 91 5.2 Recommendations - - - - - - - 95 - - - - - - - 98 Influence in Nigeria’s Energy Sector 4.8 - - The Privatization and the Deregulation of the Oil Sector BIBLIOGRAPHY - vii LIST OF TABLES Table 2.1 Nigeria Net Foreign Investment Inflow (in US$ Million) - 37 Table 2.2 Nigeria: FDI, 1970-2007 - 41 Table 2.3 Sectoral Composition of FDI in Nigeria, 1970-2001 (%) - 44 Table 3.1(A) Paris Debt Stock by Creditor as at December 2004 - - 50 Table 3.1 (B) Paris Club Debt Stock by Creditor as December, 2007 - 51 Table 3.2 (A) Summary of External Debt Stock, as at December 2004 - 52 Table 3.2 (B) Summary of External Debt Stock, as at December 2007 - 52 - - - - Table 3.3 (A) (US$ Million) External Debt Services Payments (2001-2005) - 53 Table 3.3 (B) (US$ Million) External Debt Services Payments (2006-2007) - 54 Table 3.4 (A) Nigeria’s External Debt Stock to Non-Paris Club Creditors as at 2005 - 64 Table 3.4 (B) Nigeria’s External Debt Stock to Non-Paris Club Creditors as at 2007 - 64 Table 3.5 Poverty Evaluation in Nigeria 1980 - 2007 - - - 69 Table 3.6: Nigeria’s Human Development Index 2002 – 2007 - - 74 Table 4.1: Nigeria’s Energy Reserves/Potentials (2007) - - - 76 Table 4.2 Final Energy Demand in Economic Sectors in Nigeria - 78 Table 4.3: Useful Energy Demand in Economic Sectors in Nigeria - 79 Table 4.4 Proven Crude Oil Reserves Estimates in Nigeria - 80 - viii LIST OF FIGURES Fig. 2.1 Net Foreign Direct Investment Inflow to Nigeria (US$ million) (1980-2003) - 38 Fig. 2.2 FDI as Percentage of GDP 1970-2002 - - - 42 Fig. 4.1 Crude Oil Production in Nigeria 1970 – 2005 - - 81 Fig. 4.2 Nigeria’s Power System Composition in 2007 - - 84 ix ABSTRACT The study focused on the nexus between economic diplomacy and the conduct of Nigeria’s External Relations between 1999 – 2007. It investigated the link between the rise in Foreign Direct Investment to Nigeria and her policy of economic diplomacy. Additionally, the study investigated the assumption that the cancellation of Nigeria’s debt by the Paris club reduced the level of poverty in the country. The study adopted the theory of postcolonial state which asserts that the post-colonial state is a creation and product of imperialism which thus explains the nature and character of developmental strategies in the country which are reflective of and products of imperialist interests. It was therefore argued that Nigeria’s conduct of economic diplomacy at best, serves imperialist interests. The observation method of data collection was used in sourcing data for the work while content analysis was employed in analyzing our data. The study therefore found that there is no significant relationship between the rise in FDI to Nigeria and her policy of economic diplomacy. Additionally, we equally established the fact that the cancellation of Nigeria’s debt by the Paris club did not reduce the level of poverty in the country. Lastly, the study established no significant link between Nigeria’s energy resource endowment and her domestic/foreign policy making in relation to economic diplomacy. 1 CHAPTER ONE: INTRODUCTION 1.1 INTRODUCTION Diplomacy is seen by scholars from basically two interrelated angles. Some scholars such as Ojo and Sesay (1988:40) see it as a synonym for a nation’s foreign policy. Others such as Wood and Serves (1971); Ofoegbu (1980); Ejiofor (1981); and Holsti (1972), see it as a process and a peaceful and skillful method by which the government of nations manage their external relations with other states. Asobie (2002:47-48) sees it as the management of international relations by negotiation. According to him, it refers to the process of bargaining among states in order to narrow areas of disagreement, resolve conflicts or reach accommodation on issue over which agreement cannot, otherwise, be reached. He disagrees with scholars who believe diplomacy is synonymous with foreign policy. According to him, while foreign policy is the substantive aspect of external relations, diplomacy is the procedural aspect. It is the process of putting into effect the foreign policies of nation-states. On economic diplomacy, Asobie (2002:48-49) notes that it is defined in three different ways. However, our concern in this study is the usage of the term in his first definition. Thus, we take economic diplomacy to mean the management of international relations in such a manner as to place accent on the economic dimension of a country’s external relations. It is the conduct of foreign policy in such a manner as to give topmost priority to the economic objectives of a nation. It has to do with the various diplomatic strategies, which a country employs in its bid to maximize the mobilization of external material and financial resources for economic development. In this vein, therefore, we perceived Nigeria’s economic diplomacy in this study as the conduct of its external relations in such a manner as to give topmost emphasis on the economic objective of Nigeria. In other words, it includes all the strategies which Nigeria employs in the conduct 2 of its external economic relations with the intent of mobilizing external resources for its economic interests. Nigeria’s commitment to the pursuit of economic diplomacy was first officially stated in June 1988 by the retired Major-General Ike Nwachukwu in his first policy address as Nigeria’s Foreign Minister (Ogwu and Olukoshi, (2002:16). The overall thrust of Nigeria’s economic diplomacy was to give primacy to economic factors in a nonconfrontational and heavily pro-west foreign policy orientation. According to Ifesinachi (1999:1), the indication was that by the late 1980s Nigeria was experiencing a deep domestic economic crisis which was triggered-off by the collapse of the world oil market and the poor management of the economy since independence. From Nwachukwu’s address, it could be deduced that government then considered economic diplomacy to be organically inter-connected to the goal of the structural adjustment programme of the state. Such goals of structural adjustment are export promotion, the encouragement of foreign investment inflow to the economy, and the rescheduling of Nigeria’s external debt. These goals, according to then Foreign Minister, should be built into the foreign policy agenda and strategy of the country. These goals extend to investment and increased financial assistance from friendly countries in form of grants and loans. They go beyond this to include the transfer of technology and strategies to arrest economic flight. According to Ogwu and Olukoshi (2002:17), the emphasis on this external economic policy to serve the country’s domestic economic needs is justified by reference to the claim that in the period since independence in 1960, Nigeria had pursued a foreign policy line that was too heavy on politics or in which the country’s own needs and interest in terms of economic well-being were relegated to the background. This formed the basis for the introduction of the policy. 3 This shift in the foreign policy thrust of Nigeria was seen as an economic revival strategy for her ailing economy; Nigeria’s debt profile was rising by the day; foreign direct investment was lower; export promotion was in the downward trend; and economic flight was on the increase. Economic diplomacy was, therefore assumed to be a more purposeful use of foreign policy within the reality of Nigeria’s political economy to strive to advance her domestic economic and developmental objectives. It was a policy means to be used to arrest these ugly trends. This study, therefore, takes a look at economic diplomacy and the conduct of Nigeria’s external relations under the Obasanjo administration (that is, between 1999 and 2007). Since its pronouncement by the government in 1988 as a foreign policy thrust, successive regimes have wittingly or unwittingly incorporated it in their relations with other countries and institutions. The essence was to solicit for their help in rescuing Nigeria from its economic quagmire and its almost pariah status. This is part of economic diplomacy. Also when Ngozi Okonjo-Iweala assumed office as Nigeria’s Foreign Minister in 2006, she made it known that her major foreign policy thrust would be economic diplomacy. Therefore, economic diplomacy was paramount in the period under study. The study, therefore sets out to interrogate the conduct of Nigeria’s external relations under the policy of economic diplomacy. We shall also explore the extent to which this has advanced the economic interests within the period under investigation. 1.2 STATEMENT OF PROBLEM When former President Olusegun Obasanjo assumed power in May 1999, he was confronted with a mirage of national problems, ranging from decaying infrastructure, declining economy, insecurity and the battered image of the country, he embarked upon shuttle diplomacy by visiting different nations to launder the image of Nigeria and to 4 mobilize external materials and financial resources to fix Nigeria’s ailing economy. This is otherwise called economic diplomacy. The primacy objective was to attract foreign investment and increase the investors’ confidence in the country. This is against the background of the fact that Nigeria was just emerging from the shackles of military rule then. The policy also sought to consolidate economic relations to expand the existing trade and economic ties, to build economic correspondence where none existed, and to develop friendship anchored on concrete economic ties. Most importantly, it was meant to address the country’s huge foreign debts which was almost strangling it. As we have noted in the introduction, since its introduction as a foreign policy thrust in 1998 by the government of General Ibrahim Babangida, successive governments have incorporated it as part of their foreign policy objectives. Today, there is a better and more cordial relationship between Nigeria and the international financial institutions – the World Bank and the International Monetary Fund (IMF). The presence of Multinational Corporations (MNCs) has also increased in Nigeria, indicating that investment, especially foreign investment, is increasing. Nigeria’s trade relations with other countries are also on the increase, and its trade frontiers are expanding. When the policy was introduced in 1988, the talk was on how to get Nigeria’s debt rescheduled. Today, this is no longer the case. In fact, under Chief Olusegun Obasanjo, the debts were cancelled. Despite these remarkable accomplishments occasioned ostensibly by the introduction of the policy, some pertinent issues arose there from. The debate rages on as regards whether these modest achievements were a consequence or an aftermath of the policy of economic diplomacy. In other words, would these things not have been declared without the introduction of the policy?. Moreover, there is also the issue of the direct impact of these accomplishments on the populace: whether the so called accomplishments 5 of the policy of economic diplomacy has made the populace to be economically rich or not. In recent times, the issue of economic diplomacy has attracted considerable attention from scholars, but very little attention has been directed at unraveling the issues mentioned above. Generally, studies on Nigeria’s economic diplomacy and external relations have not adequately addressed the issue of whether these seeming achievements are as a result of the introduction of the policy, as well as the impact of the achievement on the economic well-being of the citizenry. It is therefore, against this background that an attempt will be made in this study to go beyond the façade of Nigeria’s policy of economic diplomacy to closely examine such pertinent questions as stated below: 1. Is there a relationship between the rise in Foreign Direct Investment to Nigeria and her policy of economic diplomacy? 2. Has the cancellation of Nigeria’s debt by the Paris club reduced the level of poverty in Nigeria? 3. Has Nigeria’s Energy resource endowments affect her domestic foreign policy making and economic diplomacy? 1.3 OBJECTIVES OF THE STUDY The broad or general objective of this study is to examine how the conduct of Nigeria’s external relations under the, policy of economic diplomacy, between 1999 and 2007, has advanced its economic interests. Specifically however, the researcher has the following objectives in mind. 1. To interrogate whether there is a relationship between the rise in Foreign Direct Investment to Nigeria and her policy of economic diplomacy. 6 2. To examine if the cancellation of Nigeria’s debt by the Paris club has reduced the level of poverty in Nigeria. 3. To examine whether Nigeria’s energy resource endowments affect her domestic foreign policy making and economic diplomacy. 1.4 SIGNIFICANCE OF THE STUDY This study has both theoretical and practical significance. Theoretically, the study is significant to the extent that it complements other works by scholars done on Nigeria’s foreign policy in general and the policy of economic diplomacy in particular, especially those of them that seeks to unravel the relationship between economic diplomacy and the conduct of external relations in developing states. In other words it will add to existing knowledge on this aspect of academic endeavour. Practically, the study will be of importance to the formulators of Nigerian foreign policy as well as those who are charged with implementing such policy. The issues that will be tackled here are expected to guide them. Moreover, students of international relations in general, and those who are interested in the study of foreign polices of nations in particular, will benefit from the study. It will not only strengthen their understanding of the interconnectedness or relationship existing between economic diplomacy and the conduct of external relations, but will also add to the existing pool of literature from which they can draw. 1.5 LITERATURE REVIEW Extant literature in this study will be reviewed around the questions we have posed. The intention is to find out whether they have been satisfactorily addressed. Olukoshi and Idris (2002) assess the likely implications of Europe 1992 for Nigeria’s programme of economic diplomacy. The idea is to find out how the eventual formation of the European 7 Union has advanced the economic wellbeing of the member countries as well as their citizenry. The authors started by noting that the European Union (EU) as it is known today, evolved from three communities covered by two distinct treaties. (1) The success achieved in this process of European integration leading to 1992, has without doubt, created anxieties among nations and regional economic groupings, especially with regards to what the future holds for their relations with Europe. According to them, questions about possible African strategies and preparations for the reality of 1992, have yet to be addressed in terms of substantive policy actions in spite of some theoretical discourse on the impending challenge. They noted that developing and implementing appropriate measures to meet the challenges of Europe 1992 is of critical importance to developing countries like Nigeria. It is apparent that policy makers need to have a clear understanding of the meaning and prospects of Europe from 1992 in order to effectively delineate what internal adjustment need to be made to achieve a more solid base for meeting the challenges represented by the single market. The authors spelt out the objective of Nigeria’s economic diplomacy as officially stated by government. According to them, in order to achieve these objectives, and as part of the government’s strategy of economic diplomacy, several steps were taken at the foreign policy level, complemented by a host of domestic measures. Olukoshi and Idris were interested in knowing whether the attainment of a single European market in 1992 will enable or disable Nigeria’s economic diplomacy. They noted that European market in 1992 contains many possibilities which could either be positive or negative depending on how countries like Nigeria respond to the emergence of single market. As various countries, groups of countries organized into regional politico- 8 economic blocs, and private, mostly transnational investors, begin to re-align their strategies in order to take full advantages it is likely to cause them. Since a major objective of the emergence of the EU is to increase the community’s share of world trade, this will affect Nigeria negatively in its policy of economic diplomacy. This is because Nigeria’s trading partners are mainly West (European) and the country’s exports to them consist primarily of crude oil and agricultural commodities. Given the complex quota system operated by the community in its trade relations with the Africa, Caribbean and Pacific, ACP, countries with which it has a pact (the Lome convention) and also because oil exports are largely governed by the Organization of Petroleum Exporting Countries OPEC quotas, there does not seem to be too much scope for the expansion of Nigeria’s agricultural and petroleum exports to the EU. The implication of this is that Europe 1992 is likely to make Nigeria’s quest for the increase of its exports (one of the objectives of its policy of economic diplomacy) much more difficult to achieve. There are so many other challenges enumerated by the authors which Nigeria faces as a result of the emergence of a single European market, in pursuit of its policy of economic diplomacy. However, the authors noted that these are not the major obstacle standing on the way for attaining the objectives of economic diplomacy. According to them, with or without Europe 1992, the chance of attaining, without difficulty, the objectives of the Nigerian programme of economic diplomacy are heavily conditioned and constrained by the dependent character of the economy. Europe 1992 would only seem to make the prospects of success more difficult, but the greater challenge is to uproot the structures of dependency that have, for so long, militated against the attainment of a just, more equitable social order in Nigeria. 9 The authors’ analyses have not addressed the issue at stake in this study. To begin with, so much has already been achieved under the programme of economic diplomacy despite Europe 1992 and despite the dependent nature of the economy. Debts have been cancelled (not even rescheduled) foreign investments are increasing and even Nigeria’s trade is expanding. These are in contradiction to the postulations of the authors. But this is not even the issue here. The issue is whether these successes (especially as regards the increase in foreign direct investment) are as a result of the policy of economic diplomacy and whether the cancellation of Nigeria’s debt has had any meaningful impact on poverty level in the country. The authors’ analysis did not address these issues. Some writers also focus on the dependency and underdevelopment approach to explain the relationship between economic diplomacy and the conduct of external relations in developing states. According to Ate (1980) observed that the central focus of the dependency and underdevelopment approach is on the problem of foreign penetration of the political economies of developing economics and regions. The exponents of this approach see the economic foundation of society as a pre-requisite for a proper understanding of social policies and developments, particularly in developing nations. These exponents of the dependency and underdevelopment approach, according Ate, emphasize the domination of developing nations by forces of western imperialism and show how the economic dependence and underdevelopment of these nations lead them to a measure of subservience in international affairs. According to Ate, dependence can be considered the most coherent methodological procedure for evaluating the twin issues of political economic dependence and policy autonomy in foreign relations. Although the dependency and underdevelopment approach is limited by its tendency to stress exogenous variables in analysis, it has served as a useful tool in explaining the organic linkages between economic development and foreign policy. 10 Angling (1964), with regard to Nigerian foreign policy, used the framework of the dependency and underdevelopment approach to examine the political economy of nonalignment and to argue that Nigeria’s economic needs have never been a decisive factor in determining her foreign policy, for which reason he notes that Nigeria cannot practice her non-alignment policy because of Nigeria’s economic alignment with the west. Similarly, Ate maintains that the inherent linkage with the west made it possible for the Nigerian government to pursue the country’s true national interests and its declared policy of non-alignment. In the same vein, Olusanya et al (1988) observed that following the Nigerian economic crisis of the 1980s, the preoccupation of government policy had been on engendering national economic revival and sustained growth in order to arrest the trend, overhaul the economy and generally lay a solid foundation for future economic development of the country. Accordingly, they noted that the nation’s foreign policy should seek positive alignments with the precariously vital external inputs, such as the World Bank’s structural Adjustment loans and the willingness of the major western banks and other creditor agencies to reschedule Nigeria’s loan obligations. The author, nevertheless, argued that the dependence of the country on the same international finance capital that also dominates and control Nigerian economy effectively constraints her economic development and defines the framework for the administration of its foreign policy. The analysis of Ate, Angling and Olusanya et al captures the reality of the time, especially the analysis on the dependence of Nigeria’s economy on the west. Nevertheless, their analyses have not addressed the issue at stake. Fawole (2000) in his contribution, while discussing the domestic context of foreign policy and the impediments the government faces in the implementation of the country’s foreign policy, noted that apart from dictates and the strictures of the constitution which 11 regulate the government, the country’s foreign policy also has to be reconciled with the prevalent realities in the country, among which (as at the time he wrote) is a large external debt of about $32 billion and a depressed economy include infrastructure and social services, mass poverty with a significant percentage of the population living below the poverty line, rampant corruption, insecurity of life and property, and nation in dire need of reconstruction. According to the author, a prostrate economy and a debt overhang have combined to largely the country’s latitude for the kind of robust foreign policy that the government of Obasanjo’s was known for in 1970s. This perhaps may also explain Obasanjo’s crusade, as president, on seeking debt forgiveness for heavily indebted developing countries, a position he canvassed at every available international forum. Fawole noted new tactics and strategies are obviously called for in a situation of economic weakness and political vulnerability. According to him, Nigeria’s legendary continental pre-eminence in the 1970s was based on a buoyant economy fed by an unexpected oil boom. Not only was the country not indebted, at least until the first jumbo loan of 1978, it also possessed the requisite economic leverage to bankroll an activist foreign policy. This was clearly evident in the leading roles that it played in the struggle to secure independence for Angola, Guinea-Bissau, Zimbabwe and Namibia, and in dismantling apartheid in South Africa. The situation is different. Fawole is coming from another dimension. The import of his argument is that the economic situation in the country hampers on an activist foreign policy which could have been more robust if the economy had been more stable. Our intention is to find out whether the seeming improvement in the economy is as result of policy of economic diplomacy, using foreign direct investment as an index. So, Fawole has not addressed the issue at stake. 12 Nweke (1986) studied the domestic structure and processes of Nigeria’s foreign policy. He postulated that the link between socio-economic structure and foreign policy is strong and deep-rooted. By socio-economic structure, he meant four interrelated components: economic system and structure, social institutions, skills and technical expertise, and international posture. The concept of “economic strength encapsulates” all four components. According to Nweke, it is not only the foundation that provides the resources for food, shelter, industry and trade, but also the pillar of military strength. Economic strength as an instrument of political power and foreign policy can, therefore, be measured by the quantity and quality of human and natural endowments, national production capacity and the extent to which citizens are actually in control by themselves of the means of production and distribution. The author noted that by failing to de-link the pro-capitalist, anti-national interests in the immediate aftermath of independence, the post-colonial Nigerian state and nationalist leaders contributed even more than colonialism per se, in keeping the country in its present position as an appendage of imperial capitalism. According to the author, foreign private investments in Nigeria grew and expanded at a phenomenal rate during the period 1955 – 1966 as at 1972, about 81.75% selected multinational corporations involved in distributive sector of the economy belonged to foreign capitalist countries, while 18.25% were owned by Nigerians in alliance with western capitalist Europe and the U.S.A. Nweke noted that the crucial question is who owns the means of production and determines the character of production and the direction of foreign economic relations?. From Nweke’s argument, one can deduce the fact that in the programmes of economic diplomacy, it is not enough to talk about attracting foreign direct investments or expanding the trade frontiers of the country. According to him, the issue is who controls 13 the economy after all these?. In other words, the policy of economic diplomacy is capable of deepening Nigeria’s dependence on imperial capitalism. Agbaje (2002) believes that the fact that several of the countries of the third world have in recent times placed economic diplomacy on a pedestal in their foreign policies is, of course, not surprising. Such a move is informed by realism, a reactions to the fact that, for most Third World Countries, economic problems and their socio-political dimensions have come to occupy centre stage in their manifestation and, subsequently, in policy considerations. According to him, the move is, however, also an endorsement of the IMF/World Bank hegemonic regime in the international system, in which economic diplomacy is seen by Third World Countries as a handmaiden in the external arena to the successful pursuit of the economic regime of structural adjustment at home. Agbaje’s point of departure is that for too long, the Third World has allowed others not only to think for it, but also, to determine in which policy direction, local and foreign, it should strive. He, therefore, advocates that the Third World and interests sympathetic to it have to wage a diplomatic battle, and they can successfully embark on this by undergoing a conceptual rethink of their project along with policy efforts to advance their interests in the global system through economic diplomacy. Bangura (1989) in his won contribution examined the effects of the economic crisis of the 1980s and the stabilization programmes on the conduct of Nigeria’s foreign policy. Situating analysis on dialectical materialism, he sees the stabilization and adjustment programmes of the Shagari, Buhari and Babangida administrations as interrelated parts of a continuum. He noted that the regimes relied primarily on foreign finance, trade liberalization, domestic demand management measures and the allocation of resources through the market mechanism to resolve Nigeria’s economic crisis. 14 The author also noted that Nigeria’s lopsided and dependent incorporation into the world capitalist economy to condition the level of the disarticulation of its national economy and foreign policy. However, he maintained that though the pattern of accumulation ensures a foreign policy of collaboration with foreign capital in periods of economic crisis, yet anti-imperialistic forces within the ruling class and society unleash social forces that are opposed to the structure of dependence. He, however, stressed that the pattern of collaboration and conflict that characterize the relationship between developing countries and the West is one that does not challenge the roots of incorporation of the local economy into the western financial system. Although Bangura tried to bring out the social and political forces that influence the operation of the economy and orientation of foreign policy, he failed to establish the interconnectedness between the conduct of external relations and the policy of economic diplomacy in Nigeria. Olukoshi (1991), while acknowledging that the Structural Adjustment Programme (SAP) was a product of pressure from foreign quarters, examines its implications for Nigeria’s foreign policy orientation. While agreeing with Bangura, he argues that anchoring the study of foreign policy on the economy affords the analyst the opportunity of understanding the social and political forces connected with the economy as well as the way in which they define the orientation and parameters of foreign policy. He argued that the state is a product of society firmly implanted in the economy, mirroring and articulating the complex contradictions in the social system, and is the chief apparatus through which foreign policy is conducted and as such the content and direction of foreign policy becomes concretely influenced by the class struggle in the society. He also maintained that the conduct of foreign policy allows the state to call on foreign 15 resources to support the domestic system of accumulation economically, politically and culturally. Olukoshi, therefore, see Nigeria’s foreign policy as having a dual character in that pro-imperialist positions are blended with a nationalist outlook. This situation, according to him, arises from the contradictions of the forces of western imperialism and the reproduction of the Nigerian economy through the mediation of the world market. Global market forces and nationalist hatred for imperialism become contradictions that are reproduced in the conduct of foreign policy in Nigeria. He also showed how conflict and collaboration was played out in the rejection of the IMF loan by the Babangida administration, while accepting the conditionality as the strategy for Nigeria’s diplomacy of economic crisis management. The author further noted that the introduction of SAP by the Babangida administration entailed the regime to successfully negotiate a series of debt rescheduling agreements with western creditors which attracted further western financial confidence on the Nigerian economy. Finally, he argued that by leaning more closer to the western nations at a time of serious economic crisis implied that Nigeria succumbed further to the imperatives of imperialism. Olukoshi tried to bring out the organic interconnections between the contemporary international order, the politics of economic revival and Nigeria’s foreign policy, which he did very well. However, the question still begs for answers as regards whether the seeming improvement in the economy is as a result of the introduction of the programme of economic diplomacy, or if other factors could account for this. Moreover, we have not found out whether the cancellation of Nigeria’s debt (which is attributable to the policy of economic diplomacy) has had any positive impact on poverty level in Nigeria. 16 Asobie (2002), while contributing to the debate, noted that since 1960, successive Nigerian governments have demonstrated an appreciation of the linkage between the country’s foreign policy and her economic circumstances. The way in which this linkage was conceived and the policies deriving there from, however, different, though not necessarily from regime to regime. He noted that from 1960 to 1985, three overlapping patterns or strands of strategies emerged in the history of Nigeria economic diplomacy. These three strands are: 1. The diplomacy of dependent import-substitution industrialization (D.I.S.I) which operated from 1960 – 1974; 2. The diplomacy of regional economic integration (R.E.I) which lasted from 1970 – 1985); and 3. The diplomacy of the establishment of a new international economic order (N.I.E.O) which operated from 1973 – 1985. He went on the elaborate on each of them. Asobie went further to discuss the diplomacy of Structural Adjustment Programme (SAP) and noted that as pursued in Nigeria, the diplomacy of SAP is significantly, though not fundamentally, different from the diplomacy of REI or NIEO. But that it is, however, similar to the diplomacy of DISI. He noted that there are basically, at least, two general areas of divergence between the pre-SAP and the post- SAP diplomatic strategies adopted by the Nigerian government. Both areas concern the theoretical assumptions underpinning the diplomatic strategies. According to him, these differences are clearly reflected in the views of the two main External Affairs Ministers that served under Ibrahim Babangida, namely Bolaji Akinyemi (1985 – 1987) and Ike Nwachukwu (1988 – 1991). Asobie noted that although both Foreign Ministers claimed that they were both engaged in economic diplomacy, the theoretical assumption underlying their efforts were 17 different. Akinyemi worked on the premise that “an assertive (political) leadership combined with overwhelming human and material resources could produce a militant foreign policy”. He believed that without overwhelming resources, a nation could still pursue an assertive foreign policy. In other words, that the clarity of ideas and the degree of energy consistently brought by the statesmen or foreign ministers, to bear on a country’s diplomacy could compensate for whatever short fall there might be in the economic base. Asobie noted that in contrast, Nwachukwu worked on the theoretical assumption that no amount of ideological posturing will produce an effective foreign policy. In other words, a strong national economy is the best guarantee of an effective foreign policy and of power within the international political system. The author noted that Nwachukwu also believed that in foreign policy and diplomacy, the sphere of the economic and that of the political must be clearly distinguished and priority of thought and action as to the two spheres established. As he puts it, “it is the responsibility of our foreign (policy) apparatus to advance the course of national economic recovery”. Asobie went ahead to state that it is Nwachukwu’s theoretical position, not Akinyemi, that represents the conceptual basis of the diplomacy of SAP, otherwise, known as the “new economic diplomacy”. Asobie’s work was actually on economic diplomacy and national interest. He wanted to know the extent to which Nigeria’s “new” economic diplomacy and/or its fruits have either furthered or frustrated the attainment of this interest. He came to the conclusion that it has not served the national interest. However, Asobie was writing on the government of Ibrahim Babangida. Our interest in this study is to find whether the policy of economic diplomacy has impacted positively on the conduct of Nigeria’s external relations under Chief Olusegun Obasanjo’s administration, that is, between 1999 and 2007. 18 Ogwu and Olukoshi (2007) perceive economic diplomacy as nothing new in Nigeria’s pro-western foreign policy slant. They see the policy as the abandonment by the state of any political or economic activism that might be construed by the leading western nations as obstructive to their goals. In this connection, they argue that having accepted the global agenda of the leading western states and the agencies which they dominate such as the IMF and the World Bank, the prospects of promoting domestic economic and social justice will be quite slim. In assessing the operational efficiency of economic diplomacy in Nigeria, Ogwu and Olukoshi argues that the complex internal dynamics of the Nigerian state, economy and society are not likely to promote an undiluted conformism to the imperatives of imperialism. The authors’ perception of the link between the politics of economic revival and foreign policy is quite lucid. However, their analysis of economic diplomacy was not situated in the context, has it enhanced the conduct of Nigeria’s external relations or not? Omoweh (2002), in his contribution, noted that years after the Babangida administration had officially declared the adoption of economic diplomacy as Nigeria’s new foreign policy plank the debate continues to rag as to whether it has been able to bring the crisis-ridden economy back to keel. It is all the more so because of the continuation with economic diplomacy by subsequent governments, though with varied emphasis. Not only that, there have been fundamental changes in Nigeria’s economy and in the international system. While some of the changes arose largely from the shift in the macro and micro-economic policies and actions of the government, others emanated from the international arena. Together, the changes have impacted on the conduct of the country’s foreign economic relations. As an example, the author noted that in 1994, the Abacha’s junta officially terminated the World Bank/IMF –led Structural Adjustment Programme, 19 SAP, citing its woeful failure to revamp the country’s economy as the major reason. In its place, that government introduced what was known as “guided deregulation”. Omoweh noted that when the Obasanjo regime was inaugurated in May 1999, Nigeria’s economy was still faced with chronic decline in capacity utilization in the real sector, near total collapse of all basic social infrastructures, protracted budget deficit, debt overhang, rising import dependent profile and weak private sector, among others. As part of its efforts to revamp the economy, the Obasanjo’s government had, on December 8, 1999, launched the Nigerian Economic Policy. According to the author, unlike its predecessors, the Obasanjo’s government was discreet in adopting economic diplomacy as one of its major policy instruments for achieving the aims of the economic policy. Omoweh remarked that two major issue featured in the debate regarding the economic diplomacy of the Nigerian state since the official termination of the adjustment programme in 1994. The first is the question of whether it is appropriate to really talk of the post adjustment Nigerian economy since 1994. The second question centers on the contention of whether there is anything “new” about the economic diplomacy and the economic policy of the Obasanjo’s government. As regards the first question, the author noted that policy makers argue that with the official termination of SAP, it can be argued that the nation’s economy is in a post-adjustment period. And that unlike the adjustment project that was imposed on the Nigerian state by the Bretton Woods Institutions, “guided deregulation” the economic reform policy plank of the Abacha’s regime, was home grown. On the second question, Omoweh noted that there has been a renewed debate on the “new” economic diplomacy and economic policy of the Obasanjo administration. The question being raised in several quarters, which is not really new, is how the government can use its foreign policy to improve the economy. Also, the question is whether there is, indeed, anything “new” in the economic diplomacy of the government. To a certain extent, 20 the author stated, the “newness” in the economic diplomacy of the Obasanjo government stems in part from the urgent need of the country to recover from its “pariah status”, and the need to restore the confidence of foreign investors in the nation’s economy. The author, in discussing economic diplomacy and the economic underdevelopment of the country, tries to point out the politics that underpins the government’s economic reform policy. According to him, there is no doubt that the state is in the same side with foreign capital in exploiting the people, though itself being exploited by capital. It is natural, therefore, the state might not be really bothered about the implications of the on-going economic reform and the economic diplomacy for the over all wellbeing of the people and the capacity of the economy to sustain itself. He then posed the question of who actually benefits from the programme of economic diplomacy and economic reform policy and projects of the state: the people or the state/foreign capital? Omoweh was close to addressing the issue we intend to tackle in this study, but he did not ascertain whether the seeming improvement in the economy during the period of study was actually a consequence of the policy of economic diplomacy of the Nigerian state. In concluding this aspect of literature review, what seems to emerge from the exercise is that greater attention is paid by most of the scholars to the contents of the policy of economic diplomacy and the ability of the government to pursue it vigorously given the dependent nature of Nigeria’s economy. Moreover, with the exclusion of Omoweh, the authors reviewed wrote on other administrations other than that of Obasanjo, whose regime forms the period under study. Even Omoweh’s analysis ended in 2002, when the first four years of Obasanjo has not even ended. The question of whether the seeming achievements made under the Obasanjo regime in the economy would not have been possible if not for the programme of economic diplomacy remains unanswered. 21 Specifically, the rise in the foreign direct investment into the country is said to be an aftermath of the policy. Is this really correct? The scholars did not address this. Most importantly, there has not been an adequate investigation into the issue of whether the cancellation of Nigeria’s debt has had any positive impact on poverty level in Nigeria. The present study is an attempt to fill this gap in the literature. Further Venom, (1976) finds that the multinational corporations by transmitting knowledge, technology and resources efficiently across national boundaries contribute to greater global welfare. Although Venom is troubled that the transfer of goods, services and money no longer result from transaction between national economies but from transaction between sister affiliates of multinationals leading to the decline of national sovereignty. Mdejubeja (1976) in an article titled “Oil and Nigerian Economic Development of Nigeria”. His verdict was that oil companies have contributed little or nothing to Nigeria economic development. This is because of the nature of their industry which is predominantly high capital intensive, having minimal linkages with the rest of the economy. Also the direct effect on the MNC has been primary due to the fact that large foreign companies which dominate the industry have been invested in establishing local industries apart from those related to their own requirements. Onimede (1981) Matharika (1988) asserted that formulation and execution of foreign policy especially in oil producing nations including Nigeria, has been deliberately tied to fighting foreign oppression, exploitation and the trapping of imperial ambitions by MNCs which are matured and supported their respective imperial countries. Transparency and Accountability in the Management of Natural Resources With the advent of democracy in 1999, the new government commissioned the World Bank to study the management of the oil and gas sectors. The study reveal serious short comings in four broad areas namely, crude oil output and disposal, funds inflows, 22 funds out flow and institutional effectiveness among other analyst, has identified poor management of national resources as a source of conflict in many developing countries. It therefore became imperative for the administration to take decisive steps to institutionalize a system of regular independent audits of hydrocarbon reserves, financial flows and processes/practices in the extractive industry. It was therefore against this background that Nigeria signed the EITI in November 2003 and the Federal Government inaugurated the National Stakeholders Working Group (NSWG) in February 2004 to oversee the EITI process. Specific Functions of the N – ETITI The efforts to establish transparency in the oil and gas sector is an integral part of the ongoing economic reform (captured in the NEEDS document 2004). Like other elements of the programme, steps are being taken to underpin the N-ETITI through a legislative instrument. A bill is presented under consideration by the National Assembly. Among other things it mandates the N-EITI to pursue the following specific objectives. Section 2(a), (b) and (c) respectively state the primary objectives of N-EITI as (i) To ensure due process and transparency in the payments made by extractive industry (EI) companies. (ii) To ensure accountability in the revenue receipts of Federal Government from EI Companies (iii) To eliminate all forms of corruption practices in the determination, payments, receipts and posting of revenue accruing to the Federal Government from E.I Companies. For the purpose of realizing these objectives, section 3 (c), (d) and (f) respectively required the N-EITI. (iv) To develop a framework for transparency in the reporting and disclosure by E.I. Companies of revenue due to or paid to the Federal Government. 23 (v) To request from E.I. Companies an accurate record of the cost of production and volume of scale of oil, gas, or other minerals extracted by the company. (vi) To ensure that all payments to and from E.I Companies, including taxes, royalties, dividends, bonuses, penalties, levies and such like, are duly made, Bright Okogu (2007). 1.6 THEORETICAL FRAMEWORK We shall adopt the theory of the post-colonial state in analyzing the issues at stake in this study. This theory was popularized by neo-marxist third world scholars such as Ake (1985); Ekekwe (1985); and Ibeanu (1998). The underlying principle of the theory is that the post-colonial state is a creation of imperialism. Consequently, it has followed a developmental strategy dictated by the interests of imperialism and its local allies, not by those of the indigenous population. Consequently, the post-colonial state has immersed itself in a deep crisis that it cannot extricate itself from. According to Ekekwe (1985:56), the post – colonial state rests on the foundation of the colonial state, which, in turn, had incorporated some important elements of the precolonial rudimentary state structures. The main goal of the colonial state was to create conditions under which accumulation of capital by the foreign bourgeoisie would take place through the exploitation of local human and other natural resources. It was on the basis of this that the post-colonial state emerged. It followed the form and character of the colonial state. Ibeanu (1998:11) has argued that in spite of anti-colonial struggles, the postcolonial state altered very little in the arbitrariness of its predecessor: the colonial state. This is especially the case in countries like Nigeria where independence was negotiated 24 with the colonialists. Negotiated independence, according to him, implied that the structure of the colonial state were not changed in any fundamental sense. It was just a change of personnel. Therefore, the state that now emerged, though independent and sovereign, was no less a creation of imperialism than the colonial state (Ekekwe, 1985:57). The post-colonial state is a creation of imperialism because the local class that now control it was not only a creature of imperialism too, but that it also seek to dovetail its interests with those of the foreign bourgeoisie. This is why the Nigerian government’s programme of economic diplomacy is nothing but another effort to reintegrate the economy into the global capitalist system. The post-colonial state is also constituted in such a way that it reflects and carters for a narrow range of interests (Ake, 1985: 28,31). In the case of the Nigerian state, it carters mainly for the interest of the Nigerian bourgeoisie and metropolitan capital. In fact, Ekekwe (1985:55) has noted that in any discussion of the post-colonial state, there is need to consider capital and the state as being closely related. This is because foreign capital plays very dominant role in post-colonial states. Omoweh (2002:219) corroborated this when he noted that the state is on the same side with capital in exploiting the people. This is why Tandon (cited in Ekekwe, 1985:55) has argued that the post-colonial state, is in fact, the state of the international bourgeoisie. It is still run on behalf of the international bourgeoisie. In this light, we can begin to see the close affinity between the government and the Bretton Woods Institutions. This theory is very suitable in explaining the decision of the government to embark on the policy of economic diplomacy in the conduct of its external relations. Being a postcolonial state, it is very difficult for Nigeria to extricate itself from the shackles of international capital, and the policy of economic diplomacy only serves that purpose: the 25 purpose of deepening Nigeria’s involvement in global capitalism, which nevertheless, does not serve that interest of the people. The objectives of Nigerian economic diplomacy include the attraction of foreign investment; the attraction of more loans and grants; rescheduling/cancellation of external debts; promotion of external trade relations; and the encouragement of Nigerian business groups to invest abroad (Olukoshi and Idris, 2002: 188). No matter how one looks at these objectives, they are first and foremost meant to serve the interest of foreign capital, and when Nigeria is put in its proper perspective as a post-colonial state, which is a creation of imperialism, one can understand that it is meant to further these interests, at the detriment of the local population. In the case of the attraction of foreign investments, the profit (surplus value) made from such investments are never retained in the local economy. They are expatriated back to the west. The rescheduling and cancellation of external debts never come free of charge. There is always connivance by the metropolitan bourgeoisie and the Nigeria state either to devalue the local currency or to withdraw subsidy. This is the same when loans and grants are taken. This is always done in the detriment of the local populace who bears the brunt. Moreover, it is still questionable whether the debt cancellation granted Nigeria has impacted positively to the people. As regards foreign trade, the case is the same. The emphasis is always on the international division of labour where post-colonial states like Nigeria only export raw materials while the industrialized states put them to finish goods. Meanwhile, trade theories posit that exporters of manufactured products gain more from international trade more than exporters of primary products. This theory, therefore, helps us to understand why the Nigerian state is pursuing the policy of economic diplomacy. Being a post-colonial state created by imperialism, it has to align itself with foreign capital to the detriment of the local population. It is, 26 therefore, natural for the Nigerian state not to bother whether the economic reforms it is embarking in the name of economic diplomacy are having negative effects on the people, so long as the interests of metropolitan capital are protected. 1.7 HYPOTHESES This study is guided by the following hypotheses: 1. There is no significant relationship between the rise in Foreign Direct Investment to Nigeria and her policy of economic diplomacy. 2. The cancellation of Nigeria’s debt by the Paris Club has not reduced the level of poverty in Nigeria. 3. There is no significant relationship between Nigeria’s energy resource endowment and her domestic foreign policy making in relation to economic diplomacy. 1.8 METHOD OF DATA COLLECTION In order to gather information required for this study, we shall rely on the observation method. In this connection, we intend, though as non-participant observers, to use the knowledge which we have so far gathered through observing events in the country, to determine how the conduct of Nigeria’s external relations under the policy of economic diplomacy, has advanced its economic interests within the period under study. As a supplement to this method of data generation, we shall also rely heavily on materials gotten from the library. Consequently, we shall make use of text books, journals, periodicals, official documents, government publications and unpublished materials related to the study. We shall also make use of internet materials. All these will form the sources of our data. 27 1.9 METHOD OF DATA ANALYSIS In analyzing these data, we shall make use of content analysis. By content analysis, we mean a method of gleaning and extracting information from documents or texts. It also means a way of reading meaning into the information so gathered and drawing inference from the available evidence to test our hypotheses and reaching a conclusion. Since content analysis also involves gathering information through secondary sources, it will only complement the observation method, by relying on materials sourced mainly from the library. Meanwhile, as the scientific method of transforming the symbolic content of a document, be they works or images from a qualitative form to a quantitative form, the study explored the content of the secondary data collected. We sifted and analyzed the mass of relevant data in official documents, books, journal articles, newspapers and magazines. Therefore we adopted qualitative content analysis in interpreting the content of text data through the systematic classification process of coding and identifying themes or patters. Using this method, we sifted the main themes in the various texts that address the central thesis of our propositions. In addition to the above, we arranged our data in tables, graphs and equally adopted the use of simple percentages as basis for analysis. 28 CHAPTER TWO ECONOMIC DIPLOMACY AND FOREIGN DIRECT INVESTMENT In this chapter, effort will be made to interrogate if there is any relationship in the rise of foreign direct investment flow into Nigeria and Nigeria’s policy of economic diplomacy. Hence, we shall examine the place given to FDI particularly, in the conduct of Nigeria’s economic diplomacy; the rise in FDI has not been a direct result of Nigeria’s policy of economic diplomacy. 2.1 THE PRIMACY OF FDI IN NIGERIA’S POLICY OF ECONOMIC DIPLOMACY As noted earlier, the cardinal objective of Nigeria’s economic diplomacy is to maximize the mobilization of external material and financial resources for economic development of the nation. Hence, the primary strategy of Nigeria’s policy of economic diplomacy was to attract foreign direct investment (FDI) and increase the investor’s confidence in the country. In fact, the importance of FDI to national development cannot be disputed, as noted by Okolie (2007), Foreign Direct Investment is a major component of international capital flows (investments) which involves not only a transfer of funds (including the investment of profits) but also a whole package of physical capital, techniques of production, managerial and marketing expertise, products advertising and basic practice for the maximization of global profits. In sum, Okolie (2007) conceived Foreign Direct Investment as embracing new equity from the foreign company in the host country; long and short-term net loans from foreign to host country; and reinvested profits from foreign business concerns. Emphasizing the primary position given to FDI in the conduct of Nigeria economic diplomacy, Olukoshi and Idris (2002: 188-189) have pointed out that in order to achieve 29 the objectives of economic diplomacy, several steps were taken at the foreign policy level, complemented by a host of domestic measures. Specifically, as regards foreign investments, they noted that a unit for Trade and Investment Promotion was established in the Ministry of External Affairs. Information officers in the embassies were also instructed to include publicity on the country’s natural resources endowment and the investment opportunities available as part of their normal schedule of duty. Moreover, at the time, various trade and investments missions were organized by the Ministry of External Affairs, in conjunction with other governmental departments, to various parts of the world. Apart from this foreign policy dimension, Olukoshi and Idris also noted that efforts were also made at the domestic level to make the economy more attractive to foreign investors. These include the adoption of a new investment code whose overall objective was to make the process of company incorporation simpler. There was also the amendment of the indigenization decree of the 1970s to increase the leeway of foreign investors in the economy. Thirdly, there was the elimination of bureaucratic procedures associated with profit repatriation and dividend remittance, and the introduction of new relief measures. All these were done by the administration of Ibrahim Babangida to encourage the inflow of Foreign Direct Investment into Nigeria. Essentially, attraction of FDI has occupied prominent position in the conduct of Nigeria’s economic diplomacy. For example, much of the shuttle diplomacy embarked upon by Professor Bolaji Akinyemi, Nwachukwu’s predecessor as Foreign Minister, centered on attracting the goodwill of the West in such matters as debt rescheduling and attraction of Foreign Direct Investment. Similarly, in 1987, at a conference on Economic Development and Foreign Policy, Professor Gabriel Olusanya, Director-General of the Nigerian Institute of International Affairs at the time, stated the need to establish a direct linkage between Nigeria’s domestic economic requirements (especially attraction of FDI) 30 and its foreign policy with a view to ensuring that the latter served the needs of the former more systematically (See Ogwu & Olukoshi 2002: 16). The prominence given to Foreign Direct Investment in the conduct of Nigeria’s economic diplomacy was predicated on the argument that since independence in 1960, Nigeria has pursued a foreign policy line that was too heavy on politics or in which the country’s own needs and interests in terms of economic well-being were relegated to the background. This alleged deficiency is, in part, what economic diplomacy seeks to redress by placing much emphasis on the attraction of FDI. In fact, Nwachukwu, in an address to newly appointed Nigerian Ambassadors of the Ministry of External Affairs in 1991, stated unequivocally that: The ball-game today in international relations is selfinterest and economic development… in your utterances and in your behavioural pattern, please remember that Nigeria is a developing country. It needs support from the international community and that support can only come when you can win the confidence of those whose support you seek. Nwachukwu went on to tell the diplomats that: You being to win that confidence through friendliness and loyalty to their cause (i.e. the cause of those whose support you seek). What matters is your ability to win for Nigeria what we cannot for ourselves, that is, the economic wellbeing of our people and physical wellbeing of Nigeria. (Nwachukwu 1991 in Ogwu & Olukoshi 2002:18) Apparently, the above statement shows that the attraction of FDI into Nigeria is one of the cardinal points of Nigeria’s economic diplomacy as all efforts are made to attract and increase the level of FDI in the country. The priority given to the attraction of FDI in Nigeria’s economic diplomacy becomes apparent when one examines extra efforts made by the Nigerian government to 31 secure and retain the good will of the leading Western powers. For instance, in 1988, against strong domestic opposition and even in contempt of the advice of the Foreign Minister, the Nigerian government received, in Lagos, Margaret Thatcher, the British Prime Minister, whose government’s inflexible policy on South Africa was the very antithesis of Nigerian government. Similarly, the Nigerian government took several steps calculated to bring the country closer to the United States and other Western countries. In fact, Nigeria became one of the African champions of the American –sponsored move to bring about a political settlement between the two – warring parties in Angola, namely UNITA and the government-led MPLA. It accepted, under the Structural Adjustment Programme, to embark on significant reversal of the indigenization decrees of 1972, 1974 and 1977; privatization of the economy; liberalization and devaluation of naira. Again, the regime also, contrary to the demand of leading Nigerian political forces, put Nigeria under a controlled return to civil rule, under an American-type constitutional arrangement. Further, the Nigerian government made overtures to both France and West Germany. The German President, Frederick Von Weisacker, had paid a state visit to Nigeria when he was given both a national honour and an honorary degree. The determination of the Nigerian government to be in the good book of the leading western powers was essentially an expression of its economic motive of attracting FDI which is the cardinal objective of Nigeria’s economic diplomacy. As an expression of the pursuit for FDI, some Western-sponsored projects which Nigeria either spurred or reluctantly supported in the pre-economic crisis days are now enthusiastically embraced. For instance, Nigeria was initially a reluctant party to the Lome Conventions. But with the advent of her economic diplomacy especially since 1986, Nigeria’s attitude changed such that under Lome III, Nigeria had the largest share of the aid allocations and disbursements. 32 It has also been noted that one of the pillars on which the New Partnership for African’s Development (NEPAD) was launched and especially spearheaded by the Nigerian government of President Olusegun Obasanjo, was to increase available capital (in this case FDI) through a combination of reforms, resource mobilization and a conducive environment for FDI (Funke and Nsouli, 2003). 2.1.1 The Economic Diplomacy of Dependent Import-SubstitutionIndustrialization Another form in which attraction of FDI was given primacy in Nigeria’s economic diplomacy was in the form of the much vaunted import-substitution strategy. Hence, the great powers were seen as channels for attracting Foreign Direct Investment (FDI). The goal in view was the establishment of industries in Nigeria, which should produce locally, those goods previously imported from other countries. Thus, in this connection, it was perceived that a positive relationship could be established between Nigeria’s economic diplomacy and industrial development fostered via imported-substitution-industrialization. In support of the need to grant attraction of FDI prominence in the conduct of Nigeria’s economic diplomacy, the then Nigerian Prime Minister, Sir Abubakar Tafawa Balewa argued that: At present, we lack the necessary capital and technical skill to develop our own resources by ourselves alone…how are we to obtain help from outside and still keep free from being under the influence of one power bloc or another? (Federal Nigeria 1991 in Asobie, 2002: 54) Apparently, during this era, accent was place on attraction of Foreign Direct Investment for economic development. Further, because economic development was defined in quantitative terms largely as growth in the GNP, it mattered little whether it resulted from the increase capacity of indigenous inputs or from rise in the proportional contribution of external inputs. 33 As noted by Asobie (2002), quite a number of factors combined to place the attraction of FDI in position of prominence in the conduct of Nigeria’s economic diplomacy. First was the capitalist structure of the inherited economy, together with its external orientation. Second, and more important, was the vested interests of the Nigerian political leaders in perpetuating that structure and the orientation of the economy. Hence, the choice of industrial development strategy, namely dependent-import-substitutionstrategy, was the product of the orientation of these vested interests. The third was the competition for external financial and among the regional governments and the political parties which controlled them. As a result, the Nigerian political leaders in the 1960s, operated on a number of premises. One was that the infusion of Foreign Direct Investment was indispensable for the attainment of industrial development. Another assumption was that Nigeria’s foreign policy could be conducted in such a manner as to achieve a net inflow of Foreign Direct Investment from a variety of international actors. Another assumption was that Nigeria’s foreign policy could be conducted in such a manner as to achieve a net inflow of foreign direct investment from a variety of international actors. Another assumption, was that international actors basically friendly and selfless; they would, therefore, show interest and willingness in assisting Nigeria to develop. It was on these premises that Nigeria’s economic diplomacy of the 1960s was built – a diplomacy directed primarily at attracting foreign investment without putting in jeopardy, Nigeria’s internal security and political independence (see Asobie 2002:55). Generally, the argument being made here is that Nigeria’s economic diplomacy placed much emphasis on the attraction of foreign direct investment into the country because it is believed that FDI inflow will boost economic growth and development in the country. 34 2.2 ECONOMIC DIPLOMACY AND THE DECLINE OF GOOD NEIGHBOURLINESS As noted earlier, the overall thrust of Nigeria’s economic diplomacy was to give primacy to economic factors. With the intensification of this foreign policy thrust especially under Obasanjo’s administration, there has been serious decline in Nigeria’s foreign policy thrust of being benevolent to her immediate neighbors in Africa especially when it comes to helping them out economically. This was most manifested when former President Obasanjo assumed power in 1999 and immediately embarked on “shuttle diplomacy” by visiting all the major countries and institutions of the world. This form of economic diplomacy was also manifested in his choice of finance ministers and Chief Economic Advisers. He appointed Ngozi Okonjo – Iweala and Prof. Chukwuma Charles Soludo as his Finance Minister and Chief Economic Adviser (Later CBN Governor) respectively. This was based on his assumption that these caliber of people will be respected by the Western countries especially their financial institutions (IMF and World Bank). More so, the credibility of such people in the international community was believed to help in not only attracting FDI and donors, but also help in attracting sympathy of Western countries and hence, help the country out of its economic quagmire. As noted by Asobie (2002: 81), cost-consciousness has been an aspect of Nigeria’s diplomacy since 1982. Consideration of the opportunity cost, in terms of possible loss of financial assistance from the West was a factor in the decision of the government of Shagari to boycott the OAU summit in Libya. More important, calculation of the huge financial cost of keeping Nigerian troops as part of OAU peace-keeping force in Chad contributed to the decision to withdraw Nigerian troops from the territory before the task of the OAU force was accomplished. Under Buhari, the retrenchment of Nigeria’s 35 External Affairs officers and the reduction in the number of Nigeria’s diplomatic missions abroad were also undertaken as part of cost-cutting measures. Asobie further noted that in the early days of Babangida’s administration, even before SAP was introduced, there was evidence of cost-consciousness in Nigeria’s diplomacy. For example, the calculation of opportunity costs was evident in the speed with which Babangida’s administration normalized relations with Britain in 1985. Economic diplomacy and its concomitant cost-consciousness was also reflected in the very early moves made to break the deadlock in the negotiations for an extended credit facility of US$2.5 billion from IMF. In fact, this cost-consciousness and the deadline of good neighborliness all of which are results of economic diplomacy and consultations. According to Akinyemi: If Nigeria is going to be regarded as an African leader and it is going to entail some cost to the Nigerian government and people, then respect for Nigeria should dictate that the views of Nigeria should be sought when the situation allows for consultation. (Akinyemi 1986 in Asobie 2002). The above statement by Akinyemi shows explicitly that Nigeria has come to terms with the cost of trying to be a good neighbor as being detrimental to the economic diplomacy of the country. It further shows the overriding concern for profitability in Nigeria’s foreign policy, which also became the central element of SAP when it was formally introduced. In fact, in September 1986, Nigeria for the first time, warned African states that they should realize that she was no “Father Christmas”, they should therefore, not continue to expect aid without strings from her. This reinforced the Nigerian government’s new insistence that, in return for Nigeria’s support and sympathy for the cause of other African states, they should, in turn, defend and protect Nigeria’s own interest. 36 Further, in intra-African and intra-Third World relations. Nigeria’s economic diplomacy and its cost-consciousness consists in being very calculating in making expenditure on some foreign policy prospects. Hence, all aids and expenditures made in neighbouring countries were made in such a way that it furthered the economic interest of Nigeria.. for instance, in May 1986, after the bombing raids carried out by the racist South African government’s Air Force on Zambia, Zimbabwe and Botswana, Nigeria’s Foreign Minister visited these countries and, in a show of solidarity, pledged in aid package of US$10 million to the affected countries. Then on 16 June, 1986, the Nigerian President himself promised another $50 million, to be spread over as five year period to the frontline states and liberation movements in Southern Africa. Also, Nigeria sent some policemen to serve as part of the United Nations Transition Assistance Group (UNTAG) in Namibia. On the face value, it is difficult to justify such expenditure, in terms of cost benefit calculations. However, on deeper analysis and reflection, it becomes obvious that any amount to further the process of liberation in Southern Africa is considered also as an expression of economic diplomacy especially on the grounds of national security and economic benefits. (See Asobie 2002:86). 2.3 ASSESSMENT OF NIGERIA’S ECONOMIC DIPLOMACY AND FDI PERFORMANCE It is now widely acknowledged that attraction of Foreign Direct Investment (FDI) is one of the pillars of Nigeria’s economic diplomacy. On a general note, UNCTAD (2001) notes that FDI in the world rose from US$57 billion in 1982 to US$ 1,271billion in 2000. Even so, only a few countries have been successful in attracting significant FDI flows. Indeed, African as a whole and Sub-Saharan Africa in particular has not particularly benefited from the FDI boom. For most of the time since 1970, FDI inflows into Africa 37 have increased only modestly, from an annual average of about US$ 1.9billion in 1983 – 87 to US$3.1 billion in 1998 – 2002 and US$4.6billion in 1991 -1997. Nigeria is one of the few countries that have benefited from the FDI inflow into albeit minimally. Nigeria’s share of FDI inflow to Africa averaged around 10% from 24.19$ in 1990 to a low level of 5.88% in 2001 up to 11.65% in 2002, in fact, UNCTAD (2003) showed Nigeria as the continent’s second top FDI recipient after Angola in 2001 and 2002. (See Ayanwale 2007:15). The table below further shows the details of FDI inflow into Nigeria for the period 1980 – 2003. Table 2.1: Nigeria Net Foreign Investment Inflow (in US$ million. Year Africa Nigeria % of Africa 1980 392 -188.52 - 1990 2430 588 24.19 1995 5119 1079 21.07 1997 10667 1539 14.43 1998 8928 1051 11.77 1999 12231 1005 8.22 2000 8489 930 10.96 2001 18769 1104 5.88 2002 10998 1281 11.65 2003 15033 1200 7.98 Source: UNCTAD FDI Database in Ayanwale, 2007:15 The above table could be represented in a bar chart to show the trend of FDI movement especially between the period 1999 to 2003 which is the regime of President Olusegun Obasanjo. 38 Fig. 2.1: Net Foreign Direct Investment Inflow to Nigeria (US$ million) 1980 – 2003 1800 1600 1400 1200 1000 800 600 400 200 0 -200 -400 From the above chart, it is apparent that FDI in Nigeria has risen from a discouraging US$-188.52 to appreciable height of US$1200 in 2003. It is pertinent to know that prior to the early 1970s, foreign investment played a major role in the Nigerian economy. Until 1972, for example, much of the non agricultural sector was controlled by large foreign owned trading companies that led a monopoly on the distribution of imported goods. Thus, between 1963 and 1972 an average at 65% of total capital was in foreign hands (see Jerome and Ogunkola, 2004 in Ayanwale 2007:16). 39 Because successive Nigeria governments have viewed FDI as a vehicle for political and economic domination, the thrust of government’s policy through the Nigeria Enterprise Promotion Decree (NEPD) (Indigenization policy) was to regulate rather than promote FDI. The NEPD was promulgated in 1972 to limit foreign equity participation in manufacturing and commercial sectors to a maximum of 60%. In 1977, a second indigenization decree promulgated to further limit foreign equity participation in Nigeria business to 40%. Hence, between 1972 and 1995 official policy toward FDI was restrictive as the regulatory environment discouraged foreign participation resulting in an average flow of only 0.79% of GDP from 1973 to 1988 (See Ayanwale 2007). As noted earlier, Nigeria’s commitment to the pursuit of economic diplomacy was first officially stated in June 1988 by the retired Major-General Ike Nwachukwu in his first policy address as Nigeria’s Foreign Minister (Ogwu and Olukoshi 2002:16). This pursuit initiated the process of termination of the hostile policies towards FDI. A new industrial policy was introduced in 1989 with the debt to equity conversion scheme as a component of portfolio investment. The Industrial Development Coordinating Committee (IDCC) was established in 1988 as a one-step agency for facilitating and attracting foreign investment flow. This was followed in 1995 by repeal of the Nigeria Enterprises Promotion Decree and its replacement with the Nigerian Investment Promotion Decree 16 of 1995. The NIPC absorbed and replaced the IDCC and provided for a foreign investor to set up a business in Nigeria with 100% ownership. Upon provision of relevant documents, NIPC will approve the application otherwise. Furthermore, in consonance with the NIPC decree, the Foreign Exchange (Monitoring and Miscellaneous Provision) Decree 17 of 1995 was promulgated to enable foreigners invest in enterprise in Nigeria or in money-market instruments with foreign capital that is legally brought into the country. The decree permits free regulation of dividends accruing from such investment or of capital in event of sale or liquidation. 40 Further, an export processing zone (EPZ) scheme adopted in 1999 allows interested persons to set up industries and businesses within demarcated zones, particularly with the objective of exporting the goods and services manufactured or produced within the zone. Essentially, the policies of economic diplomacy embarked on by the Nigerian government to attract foreign investors which is also encapsulated in SAP could be categorized into five: the establishment of the Industrial Development Coordinating Committee (IDCC), investment incentive strategy, non-oil stimulation and expansion, the privatization and commercialization programme, and the shift in macroeconomic management in favour of industrialization, deregulation and market-based arrangements (see Ayanwale 2007:17). More so, Table 2.2 provides details of FDI inflow into Nigeria for the period 1970 to 2002. The nominal FDI inflow ranged from N128.6 million in 1970 to N434.1 million in 1985 and N115.952 billion in 2000. This was an increase in real terms from the decline of the 1980s. 41 Table 2.2: Nigeria: FDI, 1970 – 2007 Year 1970 Nominal million) 128.6 FDI (N FDI as percentage of Real FDI (N million) GDP 2.47 1,190.70 1975 253.0 1.21 1,222.20 1980 -404.1 -0.81 -955.32 1985 434.1 -0.60 434.10 1990 4,686.0 1.81 1,598.23 1995 75,940.6 3.87 3,721.85 1999 92,792.5 2.39 2,763.66 2000 115,952.2 2.39 2,955.09 2001 132,433.7 2.39 3,102.90 2002 225,036.5 3.93 4,368.37 Source: CBN Statistical Bulletin (various years) in Ayanwale (2007:16) The figures of the FDI percentage of GDP are represented in the bar chart below. The chart reveals that FDI as a percentage of GDP has equally increased over the years from 1970 to 2002. The increase is more significant in the period under our investigation, that is, from 1999 to 2007 when the FDI as a percentage of GDP never went below 2.0%. 42 Fig. 2.2: FDI As Percentage of GDP 1970 – 2002 43 2.3.1 Sectoral Analysis of FDI Inflow in Nigeria Although there has been some diversification into the manufacturing sector in recent years, FDI in Nigeria has traditionally been concentrated in the extractive industries. Agriculture, transport and communications, and building and construction remained the least attractive hosts of FDI in Nigeria. Nigeria is currently described as the fastest growing mobile phone market in the world. Since 2001, when the mobile telecommunication operators were licensed, the rate of subscription has gone up and does not show any sign of abating; in fact, MTN (Nigeria) – the leading mobile phone operator – has acquired another line having oversubscribed the original line. The four operators – MTN, V-mobile, GLO and M-tel – are currently engaged in neck and neck competition that forced the rates down and in the process fostered consumer satisfaction. The effect of this development is yet to be translated to the rest of the economy, however. Table 2.3 shows the sectoral composition of FDI in Nigeria from 1970 to 2001. Data from the table reveal a diminishing attention to the mining and quarrying sector, from about 51% in 1970 – 1974 to 30.7% in 2001/01. On the average, the stock of FDI in manufacturing over the period of analysis is compared favorable with the mining and quarrying sector, with an average value of 32%. The stock of FDI in trading and business services rose from 16.9% in 1970-1974 to 32.6% in 1985 – 1989, before nose diving to 8.3% in 1990 – 1994. However, it subsequently rose to 25.8% in 2000/01. 44 Table 2.3: Sectoral composition of FDI in Nigeria, 1970 – 2001(%) Year Mining Manufacturing Agriculture 1970-74 51.2 25.1 0.9 Transport & Building Communication Trading 1.0 2.2 1975-1979 30.8 32.4 2.5 1.4 6.4 1980-84 14.1 38.3 2.6 1.4 7.9 1985-89 19.3 35.3 1.4 1.1 5.1 1990-94 22.9 43.7 2.3 1.7 5.7 1995-99 43.5 23.6 0.9 0.4 1.8 2000-01 30.7 18.9 0.6 0.4 2.0 1970-2001 30.3 32.2 1.7 1.1 4.7 2002-2007 31.3 34.5 1.6 1.3 5.4 Source: CBN Statistical Bulletin (various issues), cited in Asobie (2002:99) 2.3.2 FDI Performance & Economic Diplomacy: The Missing Link It is pertinent that though, there has been increase in FDI flow in Nigeria over the years, this can not be fully attributed to Nigeria’s economic diplomacy. In fact, CBN (1989 as cited in Asobie 2002:99) noted that though there has been risen in FDI, such rise in FDI has not been strictly as a result of Nigeria’s economic diplomacy as the investments were not strictly new foreign investments. For instance, in respect to the apparently phenomenal increase of FDI in 1989, the CBN Report commented that the increase was accounted for mainly by the purchase of Federal Government shares in Shell Petroleum Company Nigeria Limited by three oil companies namely, Shell, ELF and AGIP. Other sources of foreign investment inflows were re-invented earnings of oil companies and proceeds from debt-conversion all of which were responsible for the increase in cumulative direct foreign investment. Apparently, foreign private investors are motivated by profit motive. In their quest for profit in countries like Nigeria, they try to reduce risks by investing mainly capital 45 which have been mobilized locally. This fact was recognized by the Nigerian government many years ago when the then Head of State, Olusegun Obasanjo’s, sadly observed: Experience have shown that most of the so-called foreign investors come with little or nothing in finances; they raise internal loans from savings of ordinary Nigerians and within months, they are devising all means of repartriating huge sums Out of Nigeria in form of dividends, profits, management fees, loaded, etc. Based on the above, it is evident that Nigeria’s economic diplomacy is quite naïve because by focusing on attracting increased amount of FDI, it assumes not only the goodwill, but also, the benevolence of foreign private investors. It assumes that these international actors are interested in assisting Nigeria to develop, all they need is to be encouraged and wooed (via economic diplomacy) especially with attractive package of incentives. Unfortunately, the Nigerian experience over the years especially during the Olusegun Obasanjo regime of 1999 – 2007 shows that this is not true as the rise in the country’s FDI is not significantly related to Nigeria’s economic diplomacy. It is pertinent to note that contemporary investment practices are anchored on certain codes of conducts provided by global institutions like World Trade Organization (WTO) which encourages growth and influx of FDI. Thus, empirical fact shows that with the liberalization of investment milieu and coupled with rapid advances in technology within the period – especially in transport and communication; there has been a tremendous increase in FDI. Global inward FDI flows rose from US$59 billion in 1982 to a peak of US$1,491 billion in 2000. On an annual average basis, FDI inflows increased from 23.1% in the period of 1986-90 to 40.2% over the period 1996-2000. Furthermore, FDI outflows rose from 25.7% to 35.7% within the same period (UNCTAD, 2003; Okolie, 2008). 46 Further, the growth of FDI underscores the enormous role of Transnational Corporations (TNCs) in economic activities (especially FDI) worldwide. There is an unprecedented expansion all over the world of the flows of FDI as new companies are expanding their commercial operations, extending them beyond the borders of their own countries to explore not only new markets but also locations where their production can be more profitable. The TNCs has therefore become the quintessential vehicle for global investment. Significantly, the global assets of TNCs were estimated at over 8000 billion US dollars in 1994 with an FDI stock across the globe amounting to 2.7 trillion as at 1995 all contributing to the global growth of FDI. In summary, this chapter argues that attraction of Foreign Direct Investment (FDI) has been given top priority in the conduct of Nigeria’s economic diplomacy, in order to attain this objective, various strategies were employed among which is the Dependent Import-Substitution-Industrialization, the reduction of unnecessary expenses in playing “the good neighbor” in Africa etc. Again, empirical evidence shows that there has been increase in the flow of FDI into Nigeria especially in the telecommunication sector. Nevertheless, in real terms, what is seen as investment in developing economies were strictly speaking not FDI but mopping up of speculative capital which adds little to domestic capital stock. Rather than bring improved management, new production techniques, quality control, and access to foreign markets, as well as exerting competitive pressures on local producers, foreign investments rather de-capitalize the economy and intensify capital flight as the actions of investors in the communication sector of African economy shows (see Okolie 2007). Further, our analysis shows that there is no significant positive correlation between this increase in FDI inflow to Nigeria and Nigeria’s policy of economic diplomacy as other factors especially the wave of globalization and the concomitant liberalization of investment practices have contributed to inflow of FDI to the 47 country. This therefore validates our first hypothesis and underscores the fact that there is no significant relationship between the rise in Foreign Direct Investment (FDI) to Nigeria and Nigeria’s policy of economic diplomacy. 48 CHAPTER THREE DEBT CANCELLATION AND INCIDENCE OF POVERTY As noted earlier, Nigeria’s policy of economic diplomacy also involves efforts at wooing the Western creditor nations to grant Nigeria debt cancellation. In this chapter we shall briefly trace the origin of Nigeria’s debt and examine Nigeria’s journey to debt cancellation, we shall go further to examine whether cancellation of Nigeria’s debt by the Paris Club had reduced the level of poverty in Nigeria. 3.1 HISTORY AND STRUCTURE OF NIGERIA’S EXTERNAL DEBT The origin of Nigeria’s external debt dates back to 1958 when a sum of 28 million dollars was contracted for railway construction. Between the period of 1960 and 1970, there was no significant external borrowing, in fact at the end of the civil war in 1970, Nigeria’s total outstanding external debt was a mere N488.8million,therafter, it declined sharply to N214.5million in 1975 which represents the highest during the oil boom era. Thus, between 1958 and 1977, Nigeria’s external debt was insignificant and constitutes no serious problem to the country as debts contracted during the period were mainly confessional debts from bilateral and multilateral sources with longer repayment periods and lower interest rates. The oil glut of 1978 led the country into borrowing the first “jumbo loan” of 1 billion dollars from the international capital market (ICM). In July same year, Nigeria sought another 1 billion dollar loan, this was more difficult to obtain because oil prices were still falling, the country’s external balance was in deficit for the third consecutive year. However, in late 1978, Nigeria obtained a 750 million dollars loan bringing the total external debt stock to 2.2 billion dollars (See DMO, 2001). The poor economic situation in the country, inappropriate debt management, and the ever increasing interest brought Nigeria’s debt to records heights. Thus, as at 1983, 49 Nigeria’s external debt amounted to about $17.76 billion, with the Paris Club debts or official debts (i.e. debts insured by export credit agencies of Paris Club members) estimated at $5.39 billion. By 1990, however, this official debt, had more than trebled and by the year 2000, amounted to nearly four times the level in 1983 and represented 75% of Nigeria’s total debt (see DMO 2001:31). This astronomical growth in the stock of debt owed to Paris Club creditors since the mid-1980s is accounted for partly by new maturities falling due and partly by growth in arrears. The build up arrears reflected debt service due but unpaid, penalty interest on outstanding payments and exchanges in respect of the dollars vis-à-vis other currencies. Meanwhile, private debt outstanding in 1983 amounted to $9.9 billion. Between 1994 – 98, the government refinanced uninsured short term trade arrears amounting to $4.8 billion and covered them with promissory notes. This private debt (London club debt) included arrears of commercial bank debts incurred through the medium of letters of credit after December 31, 1983 as well as maturities on medium and long-term loans that fell due up to December 31, 1987. By 2000 Nigeria’s outstanding debt stock stood at about 28 billion dollars, official debts accounted for 87.66 percent of the total debt stock while private debt accounted for about 12.59 percent of the total debt stock. Actual debt service payment for the year was 1.9 million dollars, translating to about 12 times allocation to health. In 2001, the external debt stock remained almost stable at about 28 billion dollars – about 149.9 percent of the country’s export earnings. Between the period of 1985 to 2001, the country has spent over 32 billion dollars in servicing her external debt. Again, the total debt stock of Nigeria by January 2005 stood at $34 billion (Okonjo-Iweala 2005) while the Paris Club share of the debt stood at over $30 billion. 50 Table 3.1 below shows Paris Club Debt stock by creditors as at December, 2004. Table 3.1(A): Paris Debt Stock by Creditor as at December 2004 Country UK Total amount loan Outstanding at 31- % as compared to amount 12-04 original amount 4,707.17 8,000.32 169.96 France 2,132.81 6,249.61 293.02 Germany 2,226.59 5,288.66 237.52 Japan 3,927.24 4,4447.47 113.26 Italy 1,026.86 1,975.94 113.26 Netherlands 438.45 1,707.98 389.55 USA 641.97 984.49 153.40 Belgium 694.52 608.19 87.57 Denmark 246.80 571.75 231.67 Austria 342.83 521.38 152.08 Spain 185.29 249.541 134.38 Switzerland 151.55 201.01 132.64 Russia 67.50 36.97 54.77 Finland 3.98 3.99 100.25 Sub-total 16,793.38 30,847.80 183.69 All figures in million US$ Source: DMO 2004 December 2004:31 51 Table 3.1(B): Paris Club Debt Stock by Creditor as December, 2007 Country UK Total amount loan Outstanding at 31- % as compared to amount 12-04 original amount 4,707.17 0.00 0% France 2,132.81 0.00 0% Germany 2,226.98 0.00 0% Japan 3,927.24 0.00 0% Italy 1,026.86 0.00 0% Netherlands 438.45 0.00 0% USA 641.97 0.00 0% Belgium 694.52 0.00 0% Denmark 246.80 0.00 0% Austria 342.83 0.00 0% Spain 185.29 0.00 0% Switzerland 151.55 0.00 0% Russia 67.50 0.00 0% Finland 3.98 0.00 0% Sub-total 16,793.38 0.00 0% All figures in million US$ Source: DMO 2008; December 2007:32 In 2005 both the federal and states exited Paris club debt, though not without controversies. Some analysis faulted the exit process and terms, while others insisted that Nigeria was short-changed. In March 2007, under an obligor substitutions arrangement, Nigeria paid 519 million U.S. dollars to exist obligation to holders of promissory notes similarly, in March 2007 Nigeria issued a call notice and about 21 percent were returned at 220 U.S. dollars per unit of oil. According to recent Debt Management Office (D.M.O) report, the total debt service payment for the year 2007 amounted to 1.022 billion U.S. dollars or 3.211 percent, was for external debt service payments. Of the debt service payments, 46.63 percent 52 constituted the payment to promissory notes holders, while 38.43 percent was payment made to multilateral creditors. Further, Tables 3.2(a) and (b) 3.3(a) and (b) shows total debt stock by December 2004 and 2007; Nigeria’s debt service payment from 2001 to 2005 and 2006 to 2007 respectively. Table 3.2(A): Summary of External Debt Stock, as at December 2004 Principal balance 2,822 Arrears penalties 2 2,824 Percent total 7.86 Paris Club 25,199 5,649 30,848 85.8 Non- Paris Club 47.5 0 47.5 0.13 London Club 783 0 1,442 4.01 Promissory notes 783 0 783 2.2 Total 30,294 5,651 35,945 100 Multilateral and Total institutions Figures in $ million Source: DMO, 2005:33 Table 3.2 (B): Summary of External Debt Stock, as at December 2007 Figures in $ million Principal balance 3,080 Arrears and penalties - Total 3,080 Percent of total 84.31% Paris Club NIL NIL NIL NIL Non- Paris Club 2.114 - 2114 15.69% London Club NIL NIL NIL NIL Promissory notes NIL - NIL NIL Total 5.194 NIL 5.194 100% Multilateral institutions Source: DMO, 2008 of 53 Table 3.3 (A) U$$ Million) External Debt services Payments (2001-2005) Creditor category 2001 2002 2003 2004 2005 1,273.62 161.58 1,020.18 994.44 8,072.55 Non- Paris Club 33.81 75.86 13.26 11.65 15.83 2. Multilateral Non- 491.48 472.12 509.23 487.28 471.66 121.21 0.43 55.55 .018 - 1,798.91 709.54 1,542.66 1,493.37 8,560.06 195.18 192.12 171.42 171.23 213.55 134.08 266.75 90.21 90.15 169.86 SUB- TOTAL GRAND 329.26 458.87 266.62 261.38 383.41 TOTAL 2,128.17 1,168.40 1,809.28 1,754.75 8,943.45 A. Official 1. Bilateral Paris Club Paris Club SUB-TOTAL B. Private 1. Promissory notes 2. Banks (London Club) Source: Debt Management Office, 2005:24 Federal Ministry of Finance 54 Table 3.3 (B) U$$ Million) External Debt Services Payments (2006-2007) Creditor category 2006 2007 C. Official 1. Bilateral Paris Club Non- Paris Club NIL 45.356 2. Multilateral Non- Paris Club NIL - 0.426 0.503 45.782 0.503 1. Promissory notes 0.477 .519 2. Banks (London Club) NIL NIL SUB-TOTAL 0.477 .519 GRAND TOTAL 46.259 1.022 SUB- TOTAL D. Private Source: Debt Management Office, 2008:29 Federal Ministry of Finance 3.2 THE JOURNEY TO DEBT CANCELLATION In recognition of the connection between debt reduction and poverty reduction, the civilian regime of Obasanjo (1999-2007) attached priority to obtaining rapid and substantial external debt reduction, this, the regime believed would be attained via her policy of economic diplomacy. As a result, efforts were made to regularize relations with the international financial community to pave the way for constructive engagement; negotiation of favourable terms for debt rescheduling and reconstructing under “traditional debt relief mechanisms in the short term; and, building on that in the medium term, to secure deeper and more substantive debt reduction (http://www.nigeriafirst.org Accessed January 10, 2012). Further, having an economic program supported by the Bretton Woods Institutions was a precondition for meeting with the Paris club of creditors and obtaining 55 favourable debt relief negotiation. Hence, in order to actualize its debt relief strategy, the Obasanjo administration embarked upon bold macroeconomic stabilization and structural reform polices, supported by a standby arrangement that was approved by the IMF on August 4, 2000. The good track record of implementing these policies, amidst difficult socio-political circumstances, paved the way for discussion with the Paris club of creditors on the restructuring of the country’s debts. In 2000, President Obasanjo pressed Nigeria’s creditors hard and succeeded in securing an invitation to the Paris Club. But creditors were only willing to offer a rescheduling of the debt, not a write-off. By then, interest and penalties constituted nearly $ 10 billion of the $24 billion rescheduled in 2000. Still the rescheduled debt continued to grow- not because Nigeria continued to borrow, but because of foreign exchange movements. By his second term in 2003, President Obasanjo had resolved to deepen economic reform within Nigeria, by further challenging corruption and implementing economic programmes supported and commended by the Western countries & Institutions. He appointed internationally reputed personalities like Mrs. Ngozi Okonjo-Iweala (Finance Minister), Prof. C.C. Soludo, Oby Ezekwesili, Prof. Dora Akunyili, to mention but a few, to carryout these reforms. Others includes Dr. Mansur Muhtar, another Harvard graduate who was appointed Director General of the formalizing price duress for government construction. There were however, several major hurdles in the journey to Nigeria’s debt cancellation. Foremost, Nigeria did not have sustained IMF programme, again, history shows that debt cancellation had only ever been to countries with sustained IMF programmes. Again, Nigeria has not been granted International Development Agency (IDA) status by the management of the World Bank- and was not eligible for confessional 56 debt relief. Further, some creditors regarded Nigeria as “oil-rich” and argued the debt was affordable, especially after the rise in the oil price. Nigeria also suffered from what is known as “reputational overhang” as a result of high levels of corruption. There was very little public support in OECD countries for debt cancellation (see Pettifor 2006:3). Despite these setbacks, Obasanjo’s administration did not relent in its effort to achieve debt cancellation for Nigeria. Hence, Obasanjo and his key ministers embarked on an exhausting round of formal visits to meet heads of government in Japan, France, Germany and the U.S Meanwhile, Dr. Okonjo-Iweala was holding series of meetings with other world influential ladies like Mrs. Anne Kruegar-deputy director of IMF; Condoleza Rice, then National Security Adviser to president Bush; Nancy Birds, Director of the Center for Global Development in Washington (see http:www.clubparis.org.en/news/negedefilnes/php?fiche=com11297887. Accessed February 18, 2012). In one of her campaign speeches, Okonjo- Iweala noted as follows: Nigeria desperately needs debt cancellation and a new start. But we as hobbled by misconceptions, which are understandable given past decades of misrule and instability. People think that because Nigeria has oil, it is a rich country, and that debt cancellation would be waste because the money would disappear into a black hole of corruption… across government, we have cleaned up our act, embedding accountability and transparency… changes have not been popular with vested interests and there is a real fear that without the support of international creditors, disillusion and resistance will overwhelm our dedication to democracy, to rooting out corruption and to reform. We desperately need to invest more in public services. We are asking for debt cancellation to help us succeed. (Okonjo-Iweala, 2005). 57 Dr. Okonjo – Iweala and Dr. Muhtar embarked on endless meetings and flights to capitals across the globe meeting with finance ministry officials, checking and reconciling data and briefing officials on Nigeria’s economic reforms. At the same time, they work closely with the World Bank and IMF to produce a report on the sustainability of Nigeria’s debts. In Abuja, Nigeria, the National Assembly grew restless and called for debt repudiation. It gave the executive all the required support in its quest for debt cancellation. It is pertinent to note that the various visits to Western countries/institutions, economic policies and reforms implemented by the Obasanjo administration generated support from all the G8 finance ministers. The country also made a case for debt relief by show-casing to the world the account of her important peace keeping role it has been playing in the ECOWAS subregion. According to her, the effort has cost the country more that US$10 billion, developed countries have encouraged Nigeria’s participation in these endeavours but are reluctant to get directly involved. Hence, the developed countries should be able to reciprocate Nigeria’s sacrifices for regional and global peace in form of debt relief. Further, through the Debt Management Office (DMO), the country successfully hosted International Conference on Sustainable Debt strategy from 17th -18th May, 2001. The conference was very productive and largely accomplished the objectives for which it was convened. Over three hundred (300) participants were in attendance as against the initial projection of one hundred and fifty (150) participants for the conference. With the roll call including the President, Vice President, and Ministers of the Federal Republic of Nigeria, distinguished Senators and Honourable Members of the National Assembly, the Internal Conferences received widespread support from Government. Also in attendance were the Director of African Region (IMF), the Vice President of the African Development Bank (ADB) and the Vice President of the World Bank (African Region). 58 The debates generated useful arguments about economic reforms and the useful ideas advanced for developing a sustainable debt strategy have provided much impetus to fruitfully drive DMO’s work forward. Nigeria also carried her debt relief campaign through the New Partnership for African Development (NEPAD), NEPAD is a vision of African leaders for the continent to eradicate widespread and severe poverty; promote accelerated growth and development; halt the marginalization of Africa in the globalization process and to also use it as a platform for debt relief campaign. Other programmes implemented in order to gain support of creditor nations included the National Economic Empowerment and development Strategy (NEEDS), the launching of the Extractive Industries Transparency Initiative (EITI) to better expose and make transparent oil industry accounts and understand the structure of expenditure and revenue in the sector; setting up of intensive budget monitoring mechanisms, and other reform programmes aimed at creating an enabling environment including a rational system of incentives and values, characteristic of a private sector drive economy (see OkonjoIweala, 2005). The Establishment of Debt Management Office In order to gain support of creditor countries and to adequately manage the country’s debt, the President Olusegun Obasanjo regime established the Debt Management Office which commenced operations on October 4, 2000. The establishment of an effective and efficient debt management system is a major element of sound economic management, because of the crucial link with fiscal and monetary policies as well as overall macroeconomic management. It is also supportive of the overall efforts to strengthen governance by improving transparency and accountability while serving as an important comfort to creditors seeking to extend new credit lines or reschedule debts. 59 The broad objective of the DMO is to assist Nigeria in achieving a sustainable debt profile and to rationalize and streamline the management of the country’s debt with a view to sharpening strategic focus and achieving operational efficiency. Maintaining a comprehensive inventory of loans together with forecast of debt service. Provision of timely and accurate information on the country’s debt to assist policy makers and improve transparency in debt management. Effecting debt service payments accurately and on time. Negotiating with, and securing debt relief from the Paris club and other creditors. Publishing up to date statistics so as to improve transparency in debt management etc. (see DMO 2001:23). Interestingly, in May 2001, the Debt Management Office (DMO) was granted full membership of the Geneva-based World Association of Debt Management Offices (WASMO) as its 36th member. This membership provides an opportunity for DMO to accrue the following key benefits: Learning about best-practices in debt management; gaining access to technical assistance, training and funding from relevant bilateral and multilateral agencies for the development and implementation of effective debt management programme; publicizing the efforts of the Nigerian government in enshrining transparency in debt management: and using the organization as platform to advance Nigeria’s campaign for debt relief. This is indeed a landmark achievement for Nigeria in her journey to debt cancellation. Within just one year of its establishment, the DMO was able to produce an accurate external debt database via the auditing of the country’s loan portfolio, updating and computerization of the debt database, all of which put the country in a confident position to approach its creditors for negotiations. 60 The DMO also contributed significantly in the preparation of borrowing guidelines- a borrowing policy which covers the period of the stand by arrangement (SBA) agreed with the IMF. The office equally played a major role in facilitating debt rescheduling negotiations between Nigeria and the London and Paris Club of creditors, and in securing debt relief. It also provides important input into macroeconomic management, particularly in drafting an overall debt strategy that addresses issues relating to future borrowing and debt restructuring operations. Further, with the establishment of DMO, the country was able to effect more timely payment of its debt service obligations. As a result of this the country was able to secure waivers from our creditors for the first time. The penalty waivers secured to date to US$ 4.238 million which translates into N487.37 million. The amount of waivers secured is definitely a remarkable achievement (see DMO 2001:58). Again, DMO was actively involved in negotiation for the rescheduling of Nigeria’s external debts which resulted in agreement with the Paris Club on the rescheduling of the country’s external debts owed to this group of creditors. In fact, the DMO played significant role in the 2005 debt cancellation. It is accumulation of all these strategies i.e constant visit to creditor countries & institutions, campaign, establishment of the DMO that result in the debt cancellation deal obtained in 2005 with the Paris Club group of creditors. In fact, in March 2005, the House of Representatives passed a motion asking the executive to stop debt repayments. The lower house stated that interests and penalties imposed by creditors had turned Nigeria’s debt into an unbearable burden. The motion was not passed in the Senate, but it was agreed with President Obasanjo to give creditors one more chance for a negotiated settlement before opting for the route of repudiation. 61 Nigeria’s Debt Cancellation Deal Nigeria is officially classified as a low income country by the World Bank. Nigeria is excluded from the Highly Indebted Poor Countries (HIPC), although its per capita income levels and ratio of debt to gross national product are comparable with those of the 40 countries included in the HIPC initiative today. In 2002, Nigeria’s debt was 93% of its GNP. A higher percentage than that of 15 countries on the HIPC list, including Burkina Faso, Senegal and Uganda. In fact, Nigeria was originally classed as a HIPC country in 1998, this categorization was later cancelled, because Nigeria is eligible for nonconcessional loans from the International Development Association, making it a “blend” country. However, this was when it was originally classed as a HIPC country in the first place, and nothing had changed since then except for democratic elections. The official logic for Nigeria’s exclusion from the HIPC list also includes its $20 billion annual exports for oil. Such huge exports do not comply with the criteria set by the World Bank to decide countries eligible for HIPC. The World Bank concludes that with the oil, Nigeria can service its debts on condition that the country puts its resources into proper use for development. Other reasons why the big economies say they are reluctant to give debt include the problematic relationship between the country and the International Monetary Fund. The ongoing problems and accusations led to Nigeria’s decision to break off formal links between Nigeria and the IMF in 2002. This meant further negotiations of debt relief were not possible, as these were dependent on the successful realization of the medium-term IMF programme. The Nigerian government did not actively seek to enter the HIPC initiative because 85% of Nigeria’s debt was bilateral i.e to individual countries – and only 8% to multilateral institutions like the World Bank, whereas HIPC focuses on multilateral debt. Hence, Nigeria decided a deal with the Paris Club. 62 Nigeria’s Debt Relief Negotiations Before 2005 Before the debt cancellation of 2005, Nigeria has been engaged in series of negotiations with its creditors. In 1985, Nigeria owed $19 billion to the Paris Club of creditors and $6 billion to the London Club. Nigeria sought what was then traditional debt relief from the Paris Club and rescheduled four times: in 1986, 1989, 1991, and 2000. Each time it had a rescheduling, Nigeria had to agree to stringent IMF programmes that were ultimately not successful. None of the Paris Club rescheduling of commercial debt in 1992 did help to decrease Nigeria’s unsustainable commercial debt burden by 60%. During the 1990s, Nigeria military dictators effectively broke off working relationships with Paris Club of creditors. In December 2000, Nigeria went to the Paris Club to ask for help paying its debts. In line with this, Nigeria’s Debt Management Office (DMO) worked out that of the $21 billion that was being negotiated, about 44% was penalty and 22% was interest on arrears. The 2005 Nigeria – Paris Club Debt Deal In June 2005, a deal on Nigerian debt reduction finally emerged from the Paris Club. This deal did not include debts to multilateral agencies and private creditors, which constitute 8% of Nigeria’s debt. The deal offered a cancellation of 60% of Nigeria’s bilateral debt amounting to $18 billion, if Nigeria paid up the outstanding 40%, or $12 billion, within six months. It was the largest debt deal secured by any African nation. This deal was to be implemented in two phases: Phase One Nigeria will clear up-front US$6.3 billion in arrears owed to the Paris Club in exchange, the club will grant a 33% cancellation of the country’s eligible debts. This 63 agreements is contingent upon the authorities implementation of the IMF Policy Support Instrument (PSI) approved by the fund’s Executive Board on 17 October 2005. The IMF Policy Support Instrument essentially promotes tightened macroeconomic policy (higher exchange rates and lower government spending), and promoting the accumulation of foreign exchange through led development. This interference by the IMF into Nigeria’s economic policies undermines national sovereignty. Phase Two On approval of the first reviews of the IMF Policy Support Instrument (PSI) planned for March 2006, Nigeria will obtain a further tranche cancellation of 34% on eligible debts. Under the arrangement, Nigeria also commits to pay Paris Club creditors the full amount of debt service due on non-eligible debt, that is, debts contracted after the cut off data of 16 December, 1986 which are not cancelled under this arrangement. This arrangement implied that Nigeria would obtain a debt cancellation of US$18 billion (including moratorium interest). By April, 2006 Nigeria cleared $30 billion dollars of debt owed to foreign creditors. The deal saved Nigeria almost $47 billion over the next 15 years (see http:www.newstartnigeria.org accessed February, 2012). This arrangement concluded Nigeria’s exist from Paris Club debt trap. Non Paris Club Debt Exit It is pertinent to note at this juncture that even after the Paris Club debt cancellation, Nigeria still owed quite some money to the Paris Club. Paris Club debt according to the DMO as at 2005 accounted for about 75.26% of Nigeria’s external debt stock. This implies that the other categories of debts make up the balance 24.74%. Table 3.4 below shows a breakdown of Nigeria’s debt as at 2005. 64 Table 3.4 (A): Nigeria’s External Debt Stock to Non-Paris Club Creditors as at 2005 Categories Amount ($) Multilateral debts 2.70 billion Bilateral debts 121.04 million London club debts 1.44 billion Promissory Notes 580.49 million Source: Okonjo-Iweala 2006:2 Table 3.4 (B): Nigeria’s External Debt Stock to Non-Paris Club Creditors as at 2007 Categories Amount ($) Multilateral debts 3.080 billion Bilateral debts 2.144 million London club debts NIL Promissory Notes NIL Source: D.M.O. 2008 All these debts approximated to $5 billion but were more manageable because a large chunk of them was owed to multilateral institutions, and were secured under concessionary arrangement with little or no interest rate, with 10 years moratorium and about thirty (30) years payment period. By September 2006, the Obasanjo regime disclosed that the nation was making arrangement to exit the London Club debt by January 2007. It stated that Nigeria was making progress in her negotiation with the London Club. The then Finance Minster (Nenadi Usman) further pointed out that Nigeria’s London Club debt of $2.1 billion is made up of oil warrants of $ 300 million and promissory note of $515 million. The minister was optimistic that the same way Nigeria exited the Paris Club, Nigeria will also 65 exit the London Club in the no-too-distant future, especially in January 2007 (see Nenadi 2006). To exit from the debts according to DMO, Nigeria has to repurchase and restructure. They have to repurchase by government making budgetary provision for the purchase of par bonds and promissory notes, using embedded call option to redeem par bonds and promissory notes, and raising additional resources to retire oil warrants after verification process. Whereas to restructure require Nigeria to launch two benchmark bond issues of five and ten years maturity respectively for a total amount of US$1.5 billion, use the proceeds of these issues to redeem par bonds and promissory notes using their embedded call options and balance of proceeds contributed toward the retirement of oil warrants given completion of verification process (Yakubu, 2006). The repurchasing option was eventually implemented and following result pave way for the exit of both the London and promissory notes debts. The outstanding par bonds (US$1.5 billion) were prepaid in November 2006, promissory notes amounting to US$500 million were discharged in March, 2007, and oil warrants which was a three phrase process of redeeming through cash tender offer launched in February 2007 was completed. The final exit from these debt has given the country freedom from external debt peonage, what is left are the multilateral loans (World Bank, ADB etc) which are sustainable with 0.75 percent commitment charge and a payback period of over 40 years and a 10 – years moratorium (see DMO, 2007). Nigeria’s external debt peonage exit was confirmed by a renowned international investment bank (Goldman Sactis). The bank in disclosing the information on the new report on Nigeria, noted that Nigeria was no longer vulnerable to external shocks as a result of settlement of the Paris Club and London Club debt (see http://www.efccnigeria,org/indet.phpoption accessed October 20, 2011). Further, the 66 bank reported that the country’s debt to Gross Domestic Product (GDP) ratio declined to 3 percent as at December 2006, compared to a 60% debt to GDP ration as was the case in the 1990s. The bank however attributed the success of the debts restructuring to the laid down reforms of Obasanjo’s regime. The then Finance Minister – Mrs. Nenadi Usman also confirmed that Nigeria has actually exited the external debt trap peonage. She explained that Nigeria had in 2006, exited her $30 billion Paris Club debt after the repayment of $12.2 billion in three tranches. The government had also repaid $1.486 billion par bond of the warrants to exit the London Club debt. The London Club debt is made up of: i) Par Bonds, that include the Following: Arrears of commercial bank loans, which include some arrears of letters of credit bills for collection, etc accumulated during the 1980s. Issued in 1992, collateralized with US treasury zero coupon bonds maturing in 2020. Interest rate of 6.25% paid semi-annually amount to $90 million a year. Par bond holders were issued with additional debt instruments – oil warrants. ii) There was also debts incurred through oil bonds: Issued along with par bonds; Approximately 2 million oil warrants issued along with par bonds in 1992 maturing in 2020. Semi-annual interest payment subject to rise in oil price above reference price of $28 consistently for 6 consecutive months, but capped at $15. Current payment liability amount to $52.7 million per year 67 iii) Promissory notes debts are incurred as a result of: Issued through the CBN, resulting from uninsured short-term trade debt, accumulated in the early 1980s. Verification exercise carried out by Chase Manhattan in the mid 1980s. Original amount of $4,891.3 billion. Amounted currently outstanding $649.8 million. Quarterly payments totaling $170.85 million a year, to be fully amortized/paid off in 2020. 3.3 THE REALITIES OF POVERTY IN NIGERIA Contrary to the popular opinion that the Paris Club debt cancellation would bring about poverty reduction in Nigeria. Available empirical evidence shows that poverty has remained severe in Nigeria even after the debt cancellation. In fact, it has been argued widely that the $12 billion paid by Nigeria in bulk to the Pairs Club in order to get the debt cancellation deal would have gone a long way towards saving children, immunization, healthcare, all kinds of things. As noted by Ogolor & Atakpu (2005): For a poor country as Nigeria spending $1 billion annually on debt and still in crisis to part with a whopping $12 billion will mean a very serious shock. And to now tighten its nose with the imposition of more reform programmes as will be contained in the Policy Support Instrument (PSI) of IMF is likely to be catastrophic for Nigeria’s poor (estimated at more) 90 million. Hence, Nigeria remains highly impoverished even after the debt cancellation. In fact, the British Commission for African explicitly called for Nigeria to be included in wider and deeper debt relief, and recommended 100 percent write-offs to enable it to meet the UN Millennium Development Goals. Seventy-nine thousand, five-hundred Nigerian children die before the age of five every month. Seventy percent of Nigerians are living on 68 less than $1 a day, says the World Bank and less than 60% of primary school aged Nigerian children attend school (see Ogolor and Atakpu, 2005). Poverty is the inability to adequately meet the basic human necessities of food, clothing and shelter. It is a broad, multidimensional, partly subjective phenomenon often viewed as both the cause and symptom of underdevelopment. It is manifested in many ways, including the lack of capability by individuals or groups to function and feed well in the society (see Sen, 1981). Okolie (2007) conceived poverty as a situation of want; a situation in which people living within particular locality are placed in positions where they are naturally and/or artificially condemned to hapless and helpless low level of social reproduction of their state of existence. They therefore wallow in abject want, misery, malnourishment, and malnutrition. Worse still, such people have fundamentally very little opportunity to change their condition of social existence. Indeed, poverty remains the worst experience a man could face, it is better seen as the worst depreciating currency of human ideals, propensities and idiosyncratic qualities which demeans innate values of man, dehumanizes him to a level of near irrelevance, disparages the mental apparatus and psychic motor and reverberates on the levels of attitudinal and behavioral patterns. In fact, poverty affects both the physical and psychological dimensions of man’s existential conditions (see Okolie 2007). In fact, the poverty situation in Nigeria has worsened since the late 1990s and the country is classified among the 20 poorest countries in the world. On the human development index (HDI), Nigeria, with an index of 0.391 was ranked 142 out of the 174 countries surveyed in 1998. In 2000, the HDI score was 0.433 and the country ranked 151. Nigeria increased its HDI score to 0.453 in 2003 but ranked 158 among 175 centers surveyed. The HDI index however, fell again marginally to 0.448 in 2004 and the country ranked 159 out of 177 countries. Further, recent poverty assessment survey has shown that 69 over 70% of the populations are living on less than a dollar per day and over 50% living below the national poverty line. The survey also revealed that poverty is especially higher in rural areas where majority of the people are resident and deriving their livelihood from agriculture (see Babatunde, Olorusanya & Adejola 2008:901). In fact, women and households headed by women are the most poor within the rural communities and because increasing number of men are migrating from rural to urban areas; the number of households headed by women are increasing and so also is poverty. Table 3.5 below present an overview of the prevalence of the poverty in Nigeria from 1980 – 2007. Table 3.5 Poverty Evaluation in Nigeria 1980 - 2007 1980 1985 1992 1996 2004 2005 2006 2007 Urban 17.2 37.8 37.5 58.2 43.2 41.3 38.5 37.3 Rural 28.3 51.4 46.0 69.3 63.3 67.2 67.7 69.3 Geopolitical zones North East 35.6 54.9 54.0 70.1 72.2 74.4 74.7 72.9 North West 37.7 52.1 36.5 77.2 71.2 72.3 72.6 70.5 North Central South East 32.2 50.8 46.0 64.3 67.0 68.1 68.9 63.6 12.9 30.4 41.0 53.5 26.7 22.6 21.8 20.3 South West 13.4 38.6 43.1 60.9 43.0 44.3 41.3 40.4 South South 13.2 45.7 40.8 58.2 35.1 34.6 32.3 31.8 Source: culled from Kijima, Matsumoto & Yamao 2006 and 2008:81 The table above shows high and increasing poverty level in the country. This severe poverty has not reduced even after the debt cancellation. 70 As noted by Okolie (2006:81), empirical evidence demonstrates that the number of poverty stricken citizens is escalating. In fact over seventy million Nigerians live below an average of 1US dollar a day and the government reforms most of which are in line with debt cancellation have further exacerbated an already critical situation. Worse still, the number of unemployed youths has continued to increase, water, food and other basic amenities are still the reverse of the few wealthy elites and fraudsters in Nigeria. In trying to capture the realities of poverty in Nigeria, Aderounmu (2007) used the term “mass poverty”. According to him, “mass” implies a large body of persons in a compact group while poverty describes the states of one who lacks usual or socially acceptable amount of money or material possessions. Based on these definitions, he argued that mass poverty is without doubt prevalent in Nigeria. According to him: …mass poverty is the poverty that affects the masses of a population who have extreme want of necessities. Mass poverty in Nigeria epitomizes this definition plus the aspect that expatiate on the almost complete absence of material comforts. In general, mass poverty is an expression with broad implications that goes beyond the limitations of the amount of money or material possessions that the people have. It is therefore ridiculous to see the reality of the life in everyday Nigeria in contrast to the deceitful jingles and praise singings that the government and sycophants orchestrate. Nigeria is a country with over 140 million people, hence, the dimension of mass poverty in Nigeria is both dreadful and shocking. Many citizens of Nigeria cannot afford to live a decent life. Several millions of Nigerians do not have the usual or socially acceptable. This situation is worsened because of the absence of basic infrastructure of life. Apparently, successive regimes in Nigeria have not made effort to provide affordable houses for the homeless masses. Some state governments have only been involved in building houses that 71 are affordable by the few and more privileged persons. The masses are invariably always out of the poverty alleviation or eradication question. Again, drinking water does not flow in Nigerian houses. People have to buy water and many bore holes have run dry and the public taps have virtually disappeared. Food substances are the cheapest things you can lay your hands on in some other countries. In Nigeria, common and staple foods are very expensive and many people have devised different formula to survive daily, weekly or monthly. Food, water and housing are 3 important parameters to measure the values of our lives, and these things have become elusive to the masses in Nigeria. Other ugly faces of mass poverty in Nigeria includes the fact that the purchasing power of the naira is extremely weak. There has not been efficient or functional power supply even if you can conveniently pay for it. There may also be no fuel to run the noisy and environmentally unfriendly generators. Nigerians have no known option to blackouts. It is a hard reality of life that depicts cruelty. This deficiency of power supply has aided the mass poverty as thousands of people have put out job since many companies can no longer sustain their operations in the absence of it. Worse still, the Nigerian masses and the corrupt elites cannot travel on safe roads. The masses are more affected because there is constant chaos in the public transportation methods. Mass poverty in Nigeria is further displayed in the health schemes. There are no solid or clear cut health care policies to care for the population especially babies, pregnant women and old people who are more helpless than other groups of people. The cost of getting good treatment at the hospital is prohibitive and the access of modern health facilities is greatly hindered. As a result of the range of extreme want of necessities and the absence of material comforts, the children of the masses no longer have access to quality education. They do 72 not have adequate recreational facilities and their social orientation are falsely modified by various things around them and those that they are unduly exposed to (see Aderounmu, 2007). Again, Nigeria, which was one of the richest 50 countries in the early 1970s, has retrogressed to become one of the 25 poorest countries at the threshold of the twenty first century. It is ironic that Nigeria is the sixth largest exporter of oil and at the same time host the third largest number of poor people after China and India (see Igbuzor, 2006). Statistics show that the incidence of poverty using the rate of US$1 per day increased from 28.1% in 1980 to 46.3% in 1985 and declined to 42.7% in 1992 but increased again to 65.6% in 1996. The incidence increased to 69.2% in 1997. The 2004 report by the National Planning Commission indicates that poverty has decreased to 54.4%. Nigeria fares very poorly in all development indices. Poverty in Nigeria is in the midst of plenty. Nigeria is among the 20 countries in the world with the widest gap between the rich and the poor. The Gini index measures the extent to which the distribution of income (or in some cases consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution. A Gini index of zero represents perfect equality while an index of 100 implies perfect inequality. Nigeria has one of the highest Gini index in the world. The Gini index for Nigeria is 50.6. This compares poorly with other countries such as India (37.8), Jamaica (37.9), Mauritania (37.3) and Rwanda (28.9). in fact, the 2004 MDG report states that “based on available information, it is unlikely that the country will be able to meet most of the MDG goals by 2015 especially the goals related to eradicating extreme poverty and hunger, reducing child and maternal mortality and combating HIV/AIDS, malaria and other disease (see Igbuzor, 2006). 73 It is however pertinent to note that Obasanjo’s administration and indeed successive regimes have inundated the world and especially Nigerian poor masses with stories and data showing that the GDP of the country has been on the increase. External reserves has blossomed etc. meanwhile, growth of GDP and external reserve has nothing to do with the hungry population wallowing the street of Nigeria. For instance, in trying to brandish the “progress” made by her administration in poverty eradication, Okojo-Iweala (2005) noted that We have been implementing our own home grown reform programme – NEEDS – and the results for last year have been quite positive. GDP growth was 6% compared to a 5% target. Average annual inflation came down from 22% to 15%, while point to point inflation (December to December) came down from 23% to 10%. This was not the single digit inflation we targeted but we came pretty close at 10%. The fiscal deficit at $25 a barrel was 1.9% of GDP, better than the 2.1% we targeted and the reserves recorded healthy growth again from $7 billion to $19 billion thus ensuring that our exchange rate remains fairly stable. Much as we appreciate the “glad tidings” as presented above by Okonjo-Iweala, the pertinent observation is that such “achievement” has not alleviated the plight of the common Nigerian who does not have clean drinking water, relatively stable power supply. Good health centers and educational facilities. Hence, illiteracy remains on the increase, infant and maternal mortality have worsened, and the wretched Nigerians have to face double jeopardy as they destroy their eyes and health with bush lantern while enviously enduring the noise from generators of their rich neighbours. In fact, UNDP Human Development Report (2002 – 2006) buttresses the fact that poverty has been on the increase through out the regime of Obasanjo. Table 3.6 below present the data of the poor Human Development Index Situation in Nigeria. 74 Table 3.6: Nigeria’s Human Development Index 2000 – 2007 Year Life Life HDI Expectancy Expectancy Rank (Male) (Female) Infant Mortality 2000 Average Life Expectancy (Years) 51.7 51.5 51.9 148 110 Literacy Level Average (%) 1 63.9 2001 51.8 51.3 52.3 152 110 65.4 2002 51.5 51.2 52.0 151 110 66.8 2003 43.4 43.1 43.6 158 98 66.8 2004 43.4 43.2 43.5 159 101 66.8 2005 43.6 43.5 43.7 160 101 70.2% 2006 44.2 43.5 43.7 160 101 70.2% 2007 44.3 43.6 43.9 161 102 70.1% Source: UNDP Human Development Report 2002 -2006 and 2005-2007 Available at http://www.alertnet.org/thefact/countryprofiles/129032htm retrieved November 12, 2011 The data speaks for itself; it shows the pathetic state of Nigerian masses. For instance, average life expectancy has declined from 51.7 years in 2000 to 43.4 years in 2004 while the country’s HDI ranking position has dropped from 148th position to 159th position. As matter of fact, a World Bank’s recent study identified northern Nigeria as among the poorest places on earth. This shocking revelation corroborates and further supported our won then Central Bank Governor, Professor Chukwuma C. Soludo when he stated the obvious facts about the worsening underdevelopment, high illiteracy rate and abject poverty levels in the north at a public function in Kaduna and he was unnecessarily vilified for saying the naked truth. (see Nuhu-Koko, 2009). Generally, the central argument of this chapter is that, although, Nigeria under Obasanjo’s regime was able to secure debt relief, but this debt relief has not translated to poverty reduction in the country. The rate of poverty is pathetic and on the increase. In fact, most critics have argued that the debt relief does more harm than good to the nation especially when examined in relation to poverty reduction. This is because it does not make sense to make an impoverished country like Nigeria pay $12 billion when such huge 75 amount should have been spent on AIDS, health and education (see Pattanaik 2005; Nkwocha 2005; Ogolor and Atakpu 2005 etc). Hence, the realities of poverty in Nigeria contradicts the gospel of the Obasanjo regime that the debt relief it secured has reduced poverty in the country. Based on the argument of this chapter, we affirmed the validity of our second hypothesis which states that the cancellation of Nigeria’s debt by the Paris Club has reduced the level of poverty in Nigeria. 76 CHAPTER FOUR ENERGY RESOURCE ENDOWMENT AND DOMESTIC STRUCTURE OF PROCESS OF FOREIGN MAKING In this chapter, effort will be made to look into the Nigeria energy system and energy investment analysis as it has occurred, and was carried out in line with one of the objectives of this study. The analysis presented in the next few sub-sections focuses on: energy resources endowment, available energy supply infrastructure, as well as energy demand situation during the historical period 1990-2007. 4.1 NIGERIA ENERGY RESOURCE ENDOWMENT Nigeria is richly blessed with primary energy resources. The country is endowed with the world’s tenth largest resources of crude oil currently estimated to be about 36 billion barrels (about 4.896 billion tones of oil equivalent toe) in 2006. The country has also been described as more of a natural gas island than oil with an estimated endowment in 2006 put at about 166 trillion standard cubic feet (5210 billions cubic meters). This includes associated and non associated reserves, placing Nigeria among the top ten countries with the largest gas reserves in the world. The table contains recent estimates of other renewable potentials apart from the hydropower. Table 4.1: Nigeria’s Energy Reserves/Potentials (2007) Resource Type Reserves Reserves (BTOE)(1) Crude oil 36.0 billion 4,895 Natural gas 166 trillion SCF(2) 4,465 Coal and lignite 2.7 billion tones 1,882 Tar sands Sub-Total Fossils 31 billion barrel of oil equivalent 4,216 15,459 Hydropower large scale 10,000 MW Hydropower small-scale 734 MW 77 Fuel wood 13,071,464 hectares (3) Animal waste 61 millions tones/yr Crop residua 8,3-7.0kwh/m2-yr Solar radiation 3.5-7.0kwh/M2 day Wind 2-4 m/s (annual average Notes (1) BTOE Billion Tones of Oil Equivalent (2) SCF Standard Cubic Feet (3) Forest Land Estimate for 1981. Source: Nigeria’s Renewable Energy Master Plan, 2007, cited in Dayo, (2008:10). 4.2 TRENDS IN HISTORICAL DEMAND FOR ENERGY IN NIGERIA A sector approach is used here in the discussion of the trends in energy demand in Nigeria during the period 1990-2007. The sectors of the Nigerian economy considered in this report include: agriculture, industry, transport, commercial, and residential. Information on final and useful energy demand in each of this sector are presented in Table 4.2 and 4.3. The useful energy was derived from the final energy efficiencies in these sectors (Dayo et al, 2004). Both the final and useful energy demand database utilized in the earlier study was extended to the year 2007 for the purpose of the present study. We have used available data from FAO (FAOSTAT, 2007) on fuel wood utilization in the residential and industrial sector as well as charcoal utilization in the household sector to update energy balance during the period 1990-2007. 78 Table 4.2: Final Energy Demand in Economic Sectors in Nigeria Sector Energy Consumption (PJ) Year Agric Industry Transport Commercial Residential Total %Renew 1,277.64 %Annual growth - 1990 7.13 240.48 287.34 6.99 735.70 1991 7.18 48.67 269.07 6.48 717.30 1,239.70 -3.0 68.23 1992 7.56 247.30 354.41 6.40 770.19 1,385.86 11.8 62.96 1993 7.60 258.96 342.35 6.96 790.92 1,406.79 1.5 63.99 1994 5.54 259.98 246.32 4.63 817.55 1,334.02 -1.5 69.60 1995 5.38 261.75 278.76 7.00 810.18 1,363.07 2.2 70.24 1996 5.71 277.79 241.36 8.01 849.98 1,382.85 1.5 71.42 1997 7.17 311.97 272.58 7.74 918.19 1,517.65 9.7 70.69 1998 6.09 255.75 272.34 8.16 1,002.01 1,644.35 8.3 70.87 1999 6.57 494.64 260.98 7.97 1,074.93 1,845.09 12.2 68.61 2000 8.65 466.94 357.21 7.19 1,163.10 2,003.18 8.6 68.64 2001 7.58 609.64 404.55 8.91 1,274.81 2,305.49 15.1 64.78 2002 8.04 683.79 414.95 8.54 1,373.13 2,488.44 7.9 65.20 2003 6.34 702.88 402.67 9.87 1,652.67 2,584.43 3.9 68.19 2004 3.28 771.88 350.39 9.70 1,571.23 2,706.49 4.7 70.73 2005 5.05 868.16 486.34 10.35 1,758.40 3,128.30 15.1 66.47 2006 6.89 830.20 501.14 8.48 1,611.50 2,958.4 12.1 64.10 2007 8.09 730.14 340.30 6.44 1,380.10 2,465.07 10.3 58.17 Data on consumption of renewable from FAOSTAT, the renewable portion in biomass (over 90%) especially charcoal. Source: Dayo et al 2004 and 2008. 64.19 79 Table 4.3: Useful Energy Demand in Economic Sectors in Nigeria Sector Energy Consumption (PJ) Year Agric Industry Transport Commercial Residential Total 5.70 122.86 258.39 6.29 234.70 627.95 %Annual growth - 1990 1991 5.74 127.33 233.85 5.76 210.92 583.60 -7.1 1992 6.05 124.14 318.80 5.76 240.62 695.37 19.2 1993 6.08 131.37 307.91 6.26 245.85 697.47 0.3 1994 4.43 129.81 221.51 4.17 254.68 614.60 -11.9 1995 4.30 127.98 250.72 6.30 237.83 627.13 2.0 1996 4.57 139.42 217.10 7.21 256.30 624.63 -0.4 1997 5.74 160.98 245.25 6.97 274.58 693.52 11.0 1998 4.87 188.42 244.97 7.34 301.52 747.13 7.7 1999 5.26 297.29 234.79 7.17 317.47 861.97 14.4 2000 6.92 264.49 321.49 6.47 340.08 939.45 9.0 2001 6.06 361.83 367.08 8.02 378.29 1,118.28 19.0 2002 6.43 424.62 373.44 7.69 402.06 1,214.24 8.6 2003 5.07 424.64 362.09 8.88 414.92 1,215.61 0.1 2004 2.62 470.07 315.20 8.73 437.34 1,233.96 1.5 2005 4.04 470.07 315.20 8.73 437.34 1,233.96 1.5 2006 3.38 488.10 413.15 8.22 551.70 1,464.55 7.02 2007 5.01 423.11 320.10 7.40 480.30 1,235.92 6.2 Source: Dayo et al 2004 and 2008. 4.3 TRENDS IN HISTORICAL ENERGY SUPPLIES IN NIGERIA The Nigeria energy system will be considered here from the primary and fuel energy points of view. The primary point of view includes information on the production of crude oil, and natural gas, electricity and others. 80 4.3.1 Crude Oil Reserves, Production and Export Trends (a) Crude Oil Reserves Trend The estimate of crude oil reserves in Nigeria in 2007 were put at about 37.0 billion barrels of oil. The trend in crude oil reserves estimated in the historical period is presented in table 4.4. Table 4.4 Proven Crude Oil Reserves Estimates in Nigeria Year Years 1988 Crude Oil Reserves (Billion of Barrels) 16.0 1998 Crude Oil Reserves (Billion Of Barrels) 27.0 1989 16.0 1999 28.0 1990 17.5 2000 30.0 1991 18.5 2001 30.5 1992 19.0 2002 32.0 1993 20.5 2003 33.0 1994 21.0 2004 33.5 1995 23.0 2005 35.0 1996 23.5 2006 36.0 1997 25.0 2007 37.0 Source: Nigeria Oil Industry Handbook & Directory (2004), NAPIM (2008). Majority of Nigeria’s crude oil reserves are found in relatively simple geological structures along the country’s coastal Niger River Delta. Newer reserves are however been discovered in deeper waters offshore Nigeria. Majority of the oil lies in about 250 small (i.e. less than 50 million barrels each), fields. At least 200 others fuels are known to exist and contain undisclosed reserves. The national target is to increase crude oil reserves to about 40 billion by the year 2010. (b) Crude Oil Production Trend Nigeria produced about 2.2 million barrels per day of crude in 2003. By 2007 it has risen to about 3.5 million barrels per day of crude oil production. The country is a member 81 of the Organization of Petroleum Exporting Countries (OPEC). Production of crude oil in Nigeria is mostly by Joint Venture (JV) companies, which accounts for nearly all (about 95%) of the country’s production in the past decades. The Federal Government of Nigeria currently participates in oil production through holding 60% in the operations of companies like Shell, Chevron, Exxon Mobile, AGIP, ELF, Texaco and Pan Ocean. The largest JV, operated by Shell produces nearly 50% of Nigeria crude oil. Figure 4.1 below provides information in Nigeria crude oil production for the period 1970 - 2005. Fig. 4.1: Crude oil Production in Nigeria 1970-2005 Note: This includes data from PSC, Sole Risk and Independent companies. Source: NNPC 2006 Annual Statistical Bulletin/updated from NNPC 2007 Annual Statistical Bulletin, cited in Dayo (2008:23). 4.3.2 Crude Oil Export Trend Crude oil production and especially export is the mainstay of the Nigerian economy providing almost 90% of the country’s export earnings. The share of crude in total export value rose from less than 1% in 1958 to a peak of about 97% in 1984 and has 82 not maintained a percentage less than 90% since then. Nigeria’s main export crude blends are Bonny light (37%API) and Forcados (31%API). Majority of Nigeria are destined for markets in the United States and Western Europe, with Asia becoming an increasingly important market as well. In 2002, Nigeria’s crude oil exports to the United States emerged 567,000 bbl/day (6.27% of U.S. imported crude oil) a decline from the 842,000 bbl/day in 2001 (9.03% of U.S. Imported crude). Nigeria was the 5th largest crude oil exporter to the United States in 2002, behind Saudi Arabia, Mexico, Canada and Venezuela. Shell’s 40-year-old Bonny Island oil export terminal was recently up-graded and expended and currently has an export capacity of about 1.5 million bbl/day. The $600 million project was completed in 2006. Other major exporting terminals are the Facados and the Escravos terminals. 4.3.3 Petroleum Products Consumption The aggregate quantity of petroleum consumed declined by 15.5 percent to 6.9 million metric tones in 2007. The consumption of Premium Motor Spirit (PMS) Dual Purpose Kerosene (DPK), Automotive Gas Oil (AGO) and Low Pour Fuel Oil (LPFO) declined by 3.0,52.3 49.8 percent respectively. Consumption of Liquefied Petroleum Gas and Bitumen/Ashafatt declined marginally while the consumption of other products (Wax, grease etc) rose. The decline in the aggregate consumption was attributable to supply shortages due to poor performance of refineries and the fall in the importation of the products in the face of rising crude oil prices. For instance, the volume of crude oil received by domestic refineries in 2007 stood at 2,871,938.96 metric tones. This represented a decline of 34.57 percent relative to the volume received in 2006. Consequently, the volume processed into petroleum products declined. 83 4.3.4 Natural Gas Supply Trend Production of natural gas in recent years average about 4.6 billion cubic feet per day (bpd). This production figure is a summation of production mostly from the seven joint venture companies (upstream operators) Shell, Mobil, Chevron, ELF, NAOC, Texaco, Pan-Ocean and NPDC operating in the country. The trend of natural gas production in Nigeria during the period 1970-2007 is shown below. In 2002, about 51.9% of natural gas production or about 24.8 billion cubic meters. A report by the World Bank estimated that the monetary value of flared gas in Nigeria can be at about US$2.5 billion year to the economy (World Bank, 2003). 4.3.5 Natural Gas Consumption The consumption of natural gas at 1.4 million tones of coal equivalent (tee) rose astronomically when compared with 1.3million tee in 2006 accounting 7.7 percent of the total energy consumed in the year under review. The increase was attributed to the reduction in gas flaring in the country and the continued use of natural gas by manufacturers and the new independent power plant such as Okpai, Omotosho and Omoku. The improved performance of the Nigeria Liquefied Natural Gas (NLNG) also aided the growth in natural gas consumption, for example, the capacity utilization of the NLNG rose from 74.0 percent in 2006 to 91.0 percent in 2007, thus the volume exported in 2007 increased, thus the volume exported in 2007 increased by 26.8 percent over the level in 2006. 4.4 ELECTRICITY GENERATION The total installed electricity generation capacity was 7,011.6 MW in 2007, as the outstanding projects under the natural integrated power projects (NIPP) remained uncompleted. The composition of the electric power system remained as follows 1900.0 84 MW of hydro power (27.1percent) and 5,111.6MW of thermal power (72.9percent), including independence power plants (IPPs. The Power Holding Company of Nigeria (PHCN) accounted for 58.3 percent of the total electricity generation while the IPPs accounted for the remaining 34.6 percent (see fig. 4.2). Figure 4.2: Nigeria’s Power System Composition in 2007 Source: Dayo et al 2004 and 2008. The performance of the power generating plants continued to decline, as their average capacity utilization dropped from 37.6 percent in 2006 to 37.4 percent in 2007. Nigeria’s power system composition in 2007, declined by 31.87 percent to 2,981,152.76 metric tones when compared with the volume processed in 2006. The yield in 2007 was 2.5m metric tones which declined by 35.56 percent. 85 4.5 ELECTRICITY CONSUMPTION Electricity consumption fell by 6.4 percent to 2,245.5 MW/h in 2007. The decline in consumption was accounted for by the low generation and the deterioration in power transmission and distribution infrastructure. The gap between electricity generated and consumption reflected a loss of 14.4 percent of the generation compared with the 9.1 percent loss recorded in 2006. The loss was due mainly to the poor distribution network and power theft through illegal connections. Residential consumption accounted for 51.3 percent of total electricity consumption accounted for 26.7 and 22.0 percent of the total respectively (Dayo, 2008). 4.6 HYDROPOWER CONSUMPTION At 3, 88,208.25 tee, hydropower consumption in 2007 increased by 14. 54 percent, compared with the level in 2006. The improved performance of the hydropower consumption was attributed to the improved performance of the Kainji and Jebba hydropower plants which generated 2,816,749.70 and 2,728,899.00 megawatt hour compared with 2,366,716.48 and 2,171,747.00 MWh in 2006, respectively an increased of 19.0 and 25.7 percent (Dayo, 2008). The reason for improved performance included the refurbishment of Kainji and Jebba power plant however, the performance of Shiroro plant declined by 8.29 percent. 86 4.7 WORLD BANK (WB) AND INTERNATIONAL MONETARY FUND (IMF) POLICY INFLUENCE IN NIGERIA’S ENERGY SECTOR Nigeria is the region’s largest oil producer and holds approximately one third of the proven gas reserves of Africa. Yet at least 60 percent of its population lack access to electricity for their basic needs, with only a fifth of rural household covered, World Bank (2005:7). Nigeria’s epileptic energy is one of the key factors hampering its development. In 2006 the World Bank estimated that no increase access to 75 percent would require over $10 billion investments. Under the tutelage of the IFIs a major neo-liberal economic reform programme was undertaken by President Olusegun Obasanjo during his 1999-2007 administration, which found him heavily in favour with Washington. Though he promised to reform the energy sector, investments of up to $16billion made by the federal government during his eight years in office did not lead to any tangible improvement. The World Bank strategy in Nigeria’s electricity sector is one of the consistent and long-term engagements. In 2005 it contained that it was “the only large international development institution active in the sector”. Since 2001 it has given approximately $300 million to support the reform and privatization of Nigeria’s energy sector, through three IDA credits. (1) The privatization support project, May 2001, $114.29 million co-financed with DFID and USAID. (2) The transmission development project, August 2001, $100 million. (3) And the national energy development project (NEDP), May 2005 $172 million. 87 The ongoing National Energy Development Project (NEDP) which begins in 2005 is almost entirely World Bank funded. It consists of five components, transmission, distribution, access expansion and renewable energy; technical assistance for gas pipeline and gas to power projects, and technical assistance for reforms and private participation. The World Bank supported privatization of the electricity sector is being overseen by the Bureau for Public Enterprise (BPE), established in 1991 under the direction of a consortium lead by Union Capital Markets and CPCS transcom. The former state Power Company National Electric Power Authority (NEPA), popularly known as “never expect power again” as restructured into the Power Holding Company of Nigeria (PHCN) which quickly earned the title “please hold candle now”. BPE, PHCN and the Federal Ministry of Power and Steel (since restructured to the Ministry Energy) are central to the IMF and World Bank – endorsed Electric Power Sector Reform Act, passed in March 2005. The controversial sale of the Egbin Power station to Korea Power Corporation and Energy Resources Limited for and under – priced #280 million (approximately $2 million) was protested by the National Union of Electricity Employees for the lack consultation with stakeholders and workers. Egbin is the largest generating station operated by the Power Holding Company of Nigeria and is being privatized through an international competitive tender as one of the unbundled units of the World – Bank supported privatization process. 88 4.8 THE PRIVATIZATION AND THE DEREGULATION OF THE OIL SECTOR The privatization process of the downstream oil and gas industry has been opposition from labour groups over the absence of due diligence, Nigeria Labour Congress (2000). The government is heavily criticized for its willingness to sell state assets without ensuring the development of national refining capacity, which would eventually remove the need to import much of the refined petroleum products that Nigeria consumes. The federal government spent a total of $18.6 billion from 2000-2006 to import refined petroleum products that Nigeria consumes. Oil workers have said that the amount spent on the importation of refined products could build at least six new refineries across the country. The failure to develop refining capacity favours the imports. The Nigerian Labour Congress (NLC) requested that the Bureau of Public Enterprise (set up to oversee the privatization process) make public the studies carried out by the consultants credit Swiss First Boston and BNP Paribas in order to establish the estimated reserve prices for the refineries upon which their scale was eventually based. The NLC questioned the methods of calculation employed by the consultant which it estimated seriously undervalued the refineries. The sale of the Eleme Petrochemicals Plant, in Port Harcourt was a structural reform of the PSI in October 2005. The plant is the largest of its kind on the content. The National newspapers report that it was sold for approximately $225 million to the Nigeria subsidiary of the Indonesian firm, Indorama Group. The National Union of Petroleum and Natural Gas Workers described this amount as not worth the spare parts available at the plant, Vanguard, Lagos (7 August, 2006). The World’s Bank’s private sector lending arm, the International Finance Corporation (IFC) provided a loan of $75 million and mobilized another $80 million from commercial leaders. The Eleme takeover took place following 89 the Nigerian National Petroleum Company (NNPC) refusal to hand over the plant on orders from the Presidency, troops took it by force. Following the assessment of a government committee on staffing needs, staff strength was then reduced from 1000 to 296. A memorandum of understanding between the government and Bureau of Public Enterprise (set up to oversee the privatization process) apparently agreed that state assets should be sold at the ratio of 51/49 percent. However, Indorama was given 75 percent equity stock in the case of Eleme. In February 2007 Rashad Kaldany, IFCs director of Oil, Gas, Mining and Chemicals stated, “We hoped that the successful privatization and turnaround of Eleme will attract further investment in Nigeria’s petrochemicals industry and pave the way for major transformation of this sectors”. In summary, this chapter examines the energy sector under Obasanjo’s regime and was able to prove that in spite of the Nigeria energy resources endowment, her demands for energy in the country, her energy supplies in the country, the crude oil reserve estimates over the period between 1988 to 2007, the production of crude oil within the period mentioned above, the crude oil export with the period up to 2007, petroleum products consumption, national gas consumption up to 2007, the electrical generation up to 2007, electricity consumption up to 2007, and hydropower consumption up to 2007. This did not have any significant relationship with Nigeria domestic foreign policy making and also has no significant relations to her economic diplomacy. The influence of the World Bank (WB) and International Monetary Fund (IMF) in Nigeria’s energy sector also the process of Nigeria power reforms, the privatizations of the refineries and the petrochemical plant and finally the deregulation of the downstream petroleum markets (refining, supply and distribution), did not influence the domestic foreign policy making positively and there was no relationship in her economic diplomacy. 90 Based on this, we affirmed the validity of our third hypotheses which states that there is no significant relationship between Nigeria energy resource endowment and her domestic foreign policy making in relation to economic diplomacy. 91 CHAPTER FIVE SUMMARY, CONCLUSION AND RECOMMENDATIONS 5.1 SUMMARY AND CONCLUSION Economic diplomacy has assumed significant position in the conduct of Nigeria’s external relations especially with the advent of civilian regime in 1999. The civilian government of President Olusegun Obasanjo confronted an avalanche of national development problems, ranging from decaying infrastructure, declining economy, insecurity and the battered image of Nigeria in the international community. To tackle these problems, the regime embarked upon shuttle diplomacy by visiting different nations to launder the image of Nigeria and to mobilize external materials and financial resources especially FDI to fix Nigeria’s ailing economy. The regime also made tremendous efforts to salvage the economy via obtaining debt relief. However, despite these efforts, no relationship exists between the flow of FDI into the country and the regime’s economic policies. Poverty remains on the increase. It is against this background that this thesis sets out to investigate the conduct of Nigeria’s external relations between 1999–2007. Based on this, we interrogated the following research questions: 1. Is there any relationship between the rise in Foreign Direct Investment to Nigeria and Nigeria’s policy of economic diplomacy? 2. Has the cancellation of Nigeria’s debt by the Paris Club reduced the level of poverty in Nigeria? 3. How relatively has the Nigeria energy resources endowment affected her domestic foreign policy making and economic diplomacy? 92 A careful review of literature showed that the above questions have not been satisfactorily answered in existing literature. Hence, to fill the gap in literature and to provide plausible answers to the questions raised, we hypothesized as follows: 1. There is no significant relationship between the rise in Foreign Direct Investment to Nigeria and Nigeria’s policy of economic diplomacy. 2. The cancellation of Nigeria’s debt by the Paris Club has not reduced the level of poverty in Nigeria. 3. There is no significant relationship between Nigeria energy resources endowment and her domestic foreign policy making in relation to economic diplomacy. To investigate our hypotheses, we predicated our study on the Marxian theory of the post-colonial state as popularized by neo-Marxist third world scholars such as Ake (1985), Ekekwe (1985) etc. The underlying principle of the theory is that the post-colonial state is a creation of imperialism. Consequently, it has followed a developmental strategy dictated by the interests of imperialism and its local allies, not by those of the indigenous population. Hence, the post-colonial state has immersed itself in a deep crisis that it cannot extricate itself from. Further, the choice of this theory is predicated on the fact that it is very suitable in explaining the decision of the Nigerian government to embark on the policy of economic diplomacy in the conduct of its external relations. Being a post-colonial state, it is very difficult for Nigeria to extricate itself from the shackles of international capital, and the policy of economic diplomacy only serves that purpose i.e. the purpose of deepening Nigeria’s involvement in global capitalism, which nevertheless, does not serve the interest of the people. 1. To interrogate whether there is a relationship between the rise in Foreign Direct Investment to Nigeria and her policy of economic diplomacy. 93 2. To examine if the cancellation of Nigeria’s debt by the Paris Club has reduced the level of poverty in Nigeria. 3. How relatively has the Nigeria energy resources affected her domestic foreign policy making and economic diplomacy? In order to gather information required for this study, we relied on the observation method. Hence, we made use of text books, journals, periodicals, official documents, government publications and other unpublished materials related to the study. We applied content analysis as the most suitable method of data analysis. The study was divided into five chapters. Chapter one dealt with the introduction and other conventional research procedures, while the hypotheses one, two and three of the study were investigated in chapter two, three and four respectively, chapter five dwelt on summary, conclusion and recommendations based on our empirical findings. Specifically, in chapter two, we interrogated the link between Nigeria’s policy of economic diplomacy and the inflow of Foreign Direct Investment (FDI) into Nigeria, we examined the primary position given to the attraction of FDI in Nigeria’s policy of economic diplomacy, and we examined the trends of FDI flow into Nigeria especially during the period under investigation. In chapter three, we investigated the second hypotheses. Hence, we examined whether debt cancellation by Paris Club has reduced the level of poverty in Nigeria. Amongst other things, we traced the journey to the Paris Club debt relief, we investigated the conditions of Paris Club debt deal, we also examined the realities of poverty in Nigeria even after the much vaunted debt relief. In chapter four, we examined the third hypotheses and ascertained that there is no significant relationship between Nigeria energy resources endowment and her domestic foreign policy making in relation to economic diplomacy. 94 Using empirical evidence available, we noted as follows: In chapter two, we noted that attraction of Foreign Direct Investment (FDI) has been given top priority in the conduct of Nigeria’s economic diplomacy, in order to attain this objective, various strategies were employed among which is the Dependent ImportSubstitution- Industrialization, the reduction of unnecessary expenses in playing “the good neighbor” in Africa etc. Again, empirical evidence shows that there has been increase in the inflow of FDI into Nigeria especially in the telecommunication sector. Nevertheless, in real terms, what is seen as investment in developing economies were strictly speaking not FDI but mopping up of speculative capital which adds little to domestic capital stock. Rather than bring improved management, new production techniques, quality control, and access to foreign markets, as well as exerting competitive pressures on local producers, foreign investment rather recapitulate the economy and intensify capital flight as the actions of investors in the communication sector of African economy shows. Further, we found that there is no significant positive correlation between this increase in FDI inflow to Nigeria and Nigeria’s policy of economic diplomacy as other factors especially the wave of globalization and the concomitant liberalization of investment practices have contributed to inflow of FDI to the country. In chapter three, we observed that, although, Nigeria was able to secure debt relief through the shuttle diplomacy embarked upon by Obasanjo’s regime, the debt relief has not translated to poverty reduction in the country as the rate of poverty remains pathetic and on the increase. The regime has inundated the world with stories that the debt relief has catapulted the country into high level of development. But the empirical realties of poverty in the country contradicted the regime’s gospel of economic success. 95 Based on the foregoing, we conclude as follows That there is no significant relationship between the rise in Foreign Direct Investment to Nigeria and her policy of economic diplomacy. That cancellation of Nigeria’s debt by the Paris Club has not reduced the level of poverty in Nigeria. In chapter four we examined the Nigeria energy resource endowment, demands for energy, energy supply, crude oil production, crude oil export, petroleum and gas supply, electricity consumption, World Bank and International Monetary Fund policy influence on the privatization and the deregulation of the oil sector in Nigeria. The above conclusion and submissions, not only validated the three hypotheses as stated in the body of the work, but also underscored the fact that: there is no significant relationship between rise in the flow of FDI to Nigeria and Nigeria’s policy of economic diplomacy; that debt relief has not translated to poverty reduction in Nigeria, and there is no significant relationship between Nigeria energy resource endowment and her domestic foreign policy making in relation to economic diplomacy. 5.2 RECOMMENDATIONS Our recommendations are aimed to increase the flow of Foreign Direct Investment to Nigeria and enhance poverty reduction while strengthening the country’s foreign policy and external relations. Based on this, we recommend that: 1. Successive regimes should aim at promoting opportunities for the private sectors by encouraging effective private investment; expanding into international market; building the assets of poor people especially the rural poor and women; addressing asset inequalities across gender, ethnic, racial and social divides; getting infrastructures and knowledge to poor areas. 96 2. Successive regimes should also enhance security situation in the country in order to attract beneficial and sustainable foreign investments by formulating modular approach to helping poor people mange risk; developing national programs to prevent, prepare for, and respond to macro shocks – financial and natural. 3. There is also need for the government to facilitate empowerment of the masses by laying the political and legal basis for inclusive development; creating public administration that foster growth and equity; promoting inclusive decentralization and community development. Again, having obtained debt relief, the following needs also to be put in place: 1. Invest early and ambitiously in basic education and health while fostering gender equity. These are preconditions to sustained economic growth. This growth can in turn generate employment and raise incomes – feeding back into further gains in education and health gains. 2. Increase the productivity of small farmers in unfavourable environments – that is, the majority of the world’s hungry people. A reliable estimate is that 70% of the world’s poorest people live in rural areas and depend on agriculture. 3. Improve basic infrastructure such as ports, roads, power and communications to reduce costs of transacting business and to overcome geographic barriers. 4. Develop an industrial development policy that nurtures entrepreneurial activity and helps diversify the economy away from dependence on primary commodity exports with an active role for small scale and medium size enterprise. 5. Promote democratic governance and human rights to remove discrimination, secure social justice and promote well being of all people. 6. Ensure environmental sustainability and sound urban management so that development improvements are long term. 97 7. Involve the civil society in the monitoring and trading of the use of debt relief fund and poverty reduction strategy. When all these are done, the nation will continue to move on the path of sustainable development and growth while enhancing the nation’s foreign policy and external relations. With the enormous potentials of the electricity generation, distribution and consumption in Nigeria and the high level of crude oil and gas reserve. The following also needs to be put in place. 1. There should be massive improvement in the electricity generation, and distribution to the nation to improve developmental needs of the people. 2. Efforts should be made to avert corruptions. 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