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The Effects of Oil Revenue on the
Nigerian Macro-economy:
The Nigerian Curse!
By Chris Ibekwe
ID: 05209555
Adviser: Dr. W. David McCausland
JEL Classification – E00, E24, E41, E52, E62, F31, F41
"This dissertation is submitted in part requirement for the Degree of M.A. with
Honours in Economics at the University of Aberdeen, Scotland, and is solely the
work of the above named candidate".
Submitted: 11 February 2009
Word Count: 9,917

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Table of Contents
Abstract 3
Acknowledgement 4
Introduction 5
Economic Background and Oil History 7
Third Structural Adjustment Programme 12
Macroeconomic Oil Contributions 14
Circular Flow 17
Mundel-Fleming Model 18
LM Curve
Money Demand 18
Money Supply 20
Money Market Equilibrium 21
Open IS Curve
Consumption 22
Investment 23
Government Spending 24
Exports and Imports 24
FE Curve 26
Fiscal Policy – Nigerian Case 29
Monetary Policy - Nigerian Case 33
Marshall Lerner Condition 37
J Curve 39
Unemployment and the Phillips Curve 41
Waste and Dutch Disease 44
Conclusion 46
Bibliography 48

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Abstract
The single biggest challenge for an oil-producing country is the management and
use of its oil wealth and the organisation of its policies, to strategically promote and sustain
macro and socio-economic development. Macroeconomic policy formulation involves the
collection, analysis, arrangement and interpretation of various economic data and factors.
After nearly 50 years since oil was first discovered in Nigeria, the government is still
confronted with significant uncertainties with the management of its oil revenues and its
monetary and fiscal policies. The unpredictable nature of oil revenues stemming from
issues such as future oil prices, cartels and size of oil reserves has long been a major
problem for Nigerian policy makers. This paper seeks to analyze and suggest solutions for
an active management of various macroeconomic policies through the use of the Mundell-
Fleming model. It also seeks to understand why various macroeconomic policies and
theories applied by the Nigerian government fail so miserably. In doing this, the paper finds
that the Nigerian economy is riddled with bad management, lack of foresight and
corruption, all of which severely restrict the growth and development of the Nigerian
economy.
An argument often raised by many researchers with regards to the Nigerian economy has
been the issue of rent-seeking, waste and Dutch disease, all of which will be examined in
other to understand whether such an argument carries any weight in Nigerian context.
Key words – Nigeria, macroeconomic policies, governments, oil, Africa, oil producing

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Acknowledgements
Firstly, I would like to thank God for the giving me the opportunity to undertake
and write this dissertation. Special thanks must also go to my dearest mother, sisters and
brothers for their unconditional support and encouragement to pursue my chosen degree. A
very special thanks and appreciation also goes to my very special girlfriend Abeola
Gilfillian, for listening to my constant complaints, frustration and for believing in me whole
heartedly and to her parents for proof reading my work and making suggestions.
Finally and importantly, I wish to express my sincere gratitude and thanks to my
supervisor Dr. W David McCausland for his attention, time, guidance and the critical and
challenging advice given to me in writing this dissertation.

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Introduction
From a primary-producer country depending for her foreign exchange earnings on a
few primary commodities, to an oil producing country depending almost exclusively on
revenues generated from oil exports. Since the world energy crisis of the 1970s many of the
oil developing countries have set up and managed a relatively stable economy while raising
the standard of living in the country to well above the poverty line of $1 a day. The huge oil
price fluctuations of 1973 – 74 and 1979 resulted in a large transfer of wealth to Nigeria,
which caused a huge increase in the level of gross public expenditure and increased the
country‟s access to foreign markets. Yet, although the oil revenues of the 1970s provided
the Nigerian government with adequate funds to provide basic infrastructure needs and
investment for her people while paving the way for an industrial take off and development
of other sectors, Nigeria still finds herself coupled in severe poverty and restricted by huge
national debts.
Ordinarily, the objective of a macroeconomic policy is to improve the welfare of the
people, either in the short-run or the long-run. Macroeconomic policies are normally
formulated to solve identified and analyzed problems that prevent the economy from
reaching its goal; however several factors like Dutch disease (relationship between
exploitation of natural resources and decline in manufacturing sector) corruption and
mismanagement constrict the effectiveness of such policies. Following the collapse of oil
prices in 1982 and the rise in real interest rate and inflation, coupled with gross economic
mismanagement, lack of foresight, neglect and corruption on the side of government, the
global economic downturn became a Nigerian national economic crisis in 1983 as GDP
fell, interest rates rose to 12.5% and inflation rose also to 16% .
The socioeconomic dimensions of the oil price collapse and the general inability of the
government to control the economy in the 1980s, brought poverty alleviation to the fore
front of Nigeria‟s policies. The rate of unemployment was very high, purchasing power was
low, economic growth was negative; poverty became entrenched in the average Nigerian‟s
standard of living. In essence there were severe macroeconomic imbalances both
domestically and internationally and it became apparent that the economy required major
adjustment.

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Further failures from the government to recognize the reality of a crisis
meant that nothing was done to control the falling economy until 1986 when the SAP –
Structural Adjustment Programme was introduced by the then President Ibrahim
Babangida. The aim of the programme was to release the country‟s overvalued currency so
that it could find its natural place in the international market, hence eliminating smuggling,
black marketing and trafficking whilst encouraging the inflow of foreign investments and
increased export earnings from the non-oil sector.
Despite several fiscal measures introduced since 1986 such as the increase in government
expenditure and the active management of other macroeconomic policies, economic growth
did not accelerate as expected and poverty still remained widespread particularly in the
rural areas where the living standards are below the poverty line of $1 a day. The
implications of such boom-bust fiscal policies include the transmission of oil-volatility to
the rest of the economy as well as disruptions to the stable provision of basic government
services. Since fiscal and monetary policy is widely recognized as a major macroeconomic
tools available to governments as means of redistributing income and reducing poverty, one
must then ask and wonder what role has such policies played in the Nigerian case? And
could fiscal and monetary policy actually alleviate poverty in Nigerian while achieving
economic stability and growth?

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Economic Background and Oil History
Nigeria is the largest geographical unit in West Africa, with a land area of 923,768
square kilometres and an estimated population of 147million1
of which 47% are below 15
years of age and another 3% aged 65 years and above2
. Before gaining political
independence in October 1960, Agriculture was the dominant productive sector of the
economy and contributed to about 70% of the economy‟s Gross Domestic Product (GDP)
while accounting for about 90% of foreign earnings through the export of cocoa, palm oil
and nuts. Petroleum exploration in Nigeria first began in 1908 by the German Nigerian
Bitumen Corporation and the British Colonial Petroleum Company who drilled in heavy oil
seeps which occurs in the cretaceous Abeokuta formation just outside the old capital city
Lagos. This venture was abandoned briefly for the First and Second World Wars until in
1956 when the Shell-BP Development Company of Nigeria restarted exploration for oil in
the Niger Delta with successful results.
The discovery of oil in commercial quantities massively changed the Nigerian
economy from an agricultural dependant one, to one dependent severely on oil. It is now
thought that Nigeria has proven oil reserves of about 32 million barrels of predominantly
low-sulphur light crude which at the rate of exploitation could last another 38 years. The
massive increase in oil revenue in the after-math of the Middle-East war of 1973 created
unprecedented, unexpected and unplanned wealth for Nigeria, which then signalled the
dramatic shift from policies aimed at developing the agricultural sector to policies
benchmarked on unrealistic expectations for revenues from the new oil state. At present,
Nigeria has four refineries with a combined installed refining capacity of 445,000 barrels
per day; however, these are operating at far below their maximum capacity levels as they
have more or less been abandoned during the military era. This means that the issue of
routine and mandatory maintenance were easily skipped therefore making production less
likely and oil importation inevitable.
1
World Development Indicators database, World Bank Database- Accessed 20th
November 2008
2
World Bank database - Accessed 20th
November 2008

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The foreign exchange management system adopted by the Nigerian government
from 1960 to 1985 went from extremes of fixed exchange rates to flexible rates with a view
of preserving the value of the domestic currency, the naira, maintaining favourable reserve
and ensuring price stability. However, more importantly, the post independence era
witnessed a regime of a fixed exchange rate used side by side with the British pound until
the British pound was devalued in 1967. From 1967 to 1974, the Naira was fixed to the US.
Dollar using an import weighted basket of currencies of Nigeria‟s seven main trading
countries i.e. United States dollar, British pound, German mark, French franc, Japanese
yen, Dutch guilder and Swiss franc.
Subsequently all the various attempt at exchange rate management policies could
not lead to the stated aim of preserving the value of the Nigerian naira while ensuring stable
price levels. Consequently a flexible exchange rate policy was adopted in 1986 following
the introduction of the Structural Adjustment Programme (SAP) by the then President,
General Ibrahim Babangida.

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Table 1 – an overview of Nigeria3
Year
1980 1983 1986 1989 1992 1995 1998 2001 2003 2006 2008
General View
Population,
total(millions) 71.06 77.2 83.97 91.72 100.1 109.01 118.34 128.03 138 144.71 147.98
Population
growth (annual
%) 2.93 2.7 2.87 2.95 2.89 2.81 2.7 2.58 2.45 2.35 2.22
GNI, PPP (current
international $,
billion) 566 578 641 812 1039 1175 1330 1563 2003 2471 2625
Economy
GDP (current
US$billion) 64.2 34.9 20.2 20.5 32.7 28.1 32.1 47.9 87.8 146.8 165.6
GDP growth
(annual %) 4.2 -5.29 2.51 7.2 2.91 2.5 1.87 3.1 10.6 6.2 6.315
Inflation 12 16 -1 44 84 56 -6 11 11 20 6.5
Interest Rate 7.5 12.5 9.5 16.4 16.1 12.61 5.29 12.5 11.5 9.5 10
Government
Borrowing (Debt
– US$ millions) N/A N/A 25574 31586 27564 32584 28773 28347 32916 35444 37416
Un-
employment Rate 6.4 8.2 5.3 4.5 3.4 1.8 3.2 4.2 28 5.8 5.0
Oil Price 37.42 29.08 14.44 18.33 19.25 16.75 11.91 23 27.69 58.3 97.98
Table 1 shows an outline of the Nigerian economy from 1980 to 2008. The Nigerian
population has more than doubled in just under 30years going from 71million in 1980 to
just fewer than 148 million in 2008, a figure that is predicted for further growth. Inflation
rates reached an amazing 84% in 1992 with unemployment rates peaking also at 28% in
2003. With the economy poverty stricken and severely over populated the Nigerian
economy was described by a Worlds Bank Review as an “economic disaster”. Although
national GDP has more than doubled in the same period, from 64million to 165million, the
standard of living for most Nigerians has hardly improved due to the near outrageous levels
of inflation in the economy coupled with the level of debt repayment burden on the
economy and high intensity levels of corruption both at state level and at national level.
3
World Development Indicators database for Nigeria. Accessed 20th
November 2008

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Figure 14
– Nigerian economy GDP – 1980 – 2008
Figure 25
– Interest rate, Inflation and Oil Price in Nigeria
4
Central Bank of Nigeria Historical Database Accessed 20 November 2008
5
Central Bank of Nigeria Historical Database Accessed 20 November 2008

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Figure 36
–Nigerian Annual GDP Growth Rate and Interest Rate
6
Central Bank of Nigeria Historical Database - Accessed 20 November 2008

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Third Structural Adjustment Programme
Having unsuccessfully attempted to restructure the economy through the first and
second structural adjustment programmes, the Nigerian government embarked on a third
development plan. This is by far their most ambitious and it envisages a capital expenditure
of ₦30 billion with a growth rate in real terms of over 9%.7
The aim was that by the end of
the plan period, every Nigerian should experience a definite improvement in their overall
welfare. Emphasis was placed on restructuring those sectors which directly affect the
welfare of ordinary citizen such as housing, health and water.
According to the Third Plan statement, the primary objective was to achieve a rapid
increase in the standard of living of the average Nigerian, improve the overall distribution
of income so as to further improve the welfare of the citizens. The programme also had a
significant plan to diversify the economy away from its great dependence on petroleum
revenue and thus foster a growing development of other primary sectors. The Third Plan
attempted to achieve this through the use of fiscal, monetary and income policies in other to
ensure the development, stability, growth and social equity in Nigeria. Another aim of the
plan worth noting was its determination to relax import and export duties and controls in
other to aid the growth of agricultural sector which was previously Nigeria‟s main source of
revenue before the discovery of oil. It aimed to stimulate production and incomes of rural
farmers through the provision of subsidies for essential agricultural inputs such as fertilizer
and manure. Furthermore, the plan aims to increase agricultural production, through the
improvement of farmers‟ incomes and general standard of living in the rural areas through
the erection of over 100,000 housing units.
7
Oil and Development Planning – Arphad et al

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From the above analysis of Nigeria‟s fiscal policy position, it is clear to see why the
Third National Development plan was already in difficulty before it had even been
implemented. Although the government attempted to stabilize the economy through the
Third Plan, it was still obvious that vast amounts of funds needed to carry out the plan still
relied heavily on revenues generated from oil. One of the main aims of the plan was to
control inflationary pressures in the economy, which in part is traceable to the monetization
of oil receipts and increased government spending and distribution of the oil wealth. It is
therefore clear that the optimistic picture portrayed of the Nigerian economy through the
release of the Development Plan was firmly based on the continued productivity of the oil
sector and revenue generation.

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Macroeconomic Oil Contributions
Since oil discovery nearly over thirty years, the Nigerian oil industry has made a
variety of contributions to the aggregate economy. These have come in the form of the
creation of employment opportunities, multiplier effects gained from local expenditure on
goods and services, huge additions to government revenues, foreign exchange reserves,
gross domestic product and energy supply to industry and commerce.
Employment Opportunities
One important contribution by the oil sector in Nigeria was the creation of
employment. Previously, the economy was heavily dependent on agricultural based
employment but as the oil sector grew, it created a variety of employment such as road and
bridge building, material and equipments transportation, staff house building, clearing of
drilling sites and catering opportunities. Although direct oil industry employment was not
likely due to the very high capital intensive nature of the industry it still created the chance
for improving the living and earning standards of a working Nigerian.
Gross Domestic Product
An industry‟s contribution to the gross domestic product in any accounting period is
measured by its gross output less the cost of inputs-materials, equipments, services
purchased from other industries (where deduction of any taxes net of subsidies paid, gives
the GDP at market prices.) In the oil industry this consists of the proceeds from oil exports
and local sales but because of the very high level of involvement from foreign oil operators,
not all of the industry‟s value added is retained in the country. This is simply because a
substantial proportion of the revenue generated in Nigeria from oil is sent back in the form
of benefits, dividends, wages and salaries to the operator‟s home country.

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Foreign Exchange Reserves
This is an important aspect of the oil industry's contribution to the Nigerian
economy, which came at a great moment as the country was embarking upon a massive
programme of industrialization and economic development. Such programmes require huge
imports of capital goods and specialized services involving massive expenditure of foreign
exchange earnings. In many developing countries, especially those such as Nigeria that
depend heavily on a narrow range of primary commodities, shortages in foreign exchange,
often worsened by massive declines in world commodity prices, constitute a major obstacle
to effective economic development8
.
Local Expenditure on Goods and Services
The oil industry's periodic injection of purchasing power through its local
expenditure on goods and services is another important contribution to the Nigerian
economy. This takes the form of wage payments, salaries, licenses, charges, awards,
external social charges and local rents. Also apart from the direct stimulation given to the
producers of these goods and services in the form of subsidies and tax reliefs, the economy
also further benefits from secondary influences through the multiplier effect on the nations
aggregate economy9
. This is however dependent on the magnitude, size and overall effect
of the initial injection and the extent of leakages out of the local economy.
Government Revenue
Revenues from oil account for a huge proportion of the Nigerian government
profits. The significant increase in government receipts in recent years has been a true
reflection of various factors attributed to the changing conditions of the oil industry such as
an increased production of crude oil in Nigeria, increase in world crude oil prices and a
more favourable fiscal arrangements obtained by the industry as a result of its improved
bargaining position over the years. Before the Nigerian oil boom, the government were in a
favourable bargaining position with the oil companies but however the above changes have
resulted in most significant increases in the government oil revenue receipts.
8
Crude oil and the Nigerian economy performance (2008)- Olusegun Odularu
9
Crude oil and the Nigerian economy Performance (2008)- Olusegun Odularu

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Macro Energy Supply
Another contribution of the oil industry to the Nigerian economy was the provision
of a cheap and readily available source of energy for industry and commerce, through the
operations of the local refinery and the utilization of locally discovered natural gas. The
objective is to eliminate the appalling shortage of petroleum products in a country that is
currently swimming in oil. The availability of huge reserves of natural gas provides a good
opportunity for the supply of cheap energy to industry and commerce10
.
The above brief review shows that the oil industry has made a variety of
macroeconomic contributions to Nigeria, especially in the provision of government
revenues and foreign exchange. But, however, when a longer lasting view of the
macroeconomic impact of oil revenues on the Nigerian economy is taken, it becomes
apparent that, notwithstanding the massive increase in oil wealth, the industry has yet to
make a significant impact on economic development in Nigeria. As a recent World Bank
Economic Report (2007) on Nigeria commented, “At present, petroleum remains a typical
enclave industry whose contribution to the Nigerian economy is limited largely to its
contribution to government revenue and foreign exchange earnings”.
10
Crude oil and the Nigerian economy Performance (2008)- Olusegun Odularu

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Circular Flow
The circular flow of income indicates the way income and money flows around an
economy. It has the relevance and ability to highlight the implications of fiscal and
monetary operations within a nation‟s macro economy. It also conveys how such policies
function for the purpose of stabilising and encouraging growth in the economy and as well
as depicting how the government actions affects the private sector of the domestic
economy and even the external sector. All spending in an economy must add up to the
same amount as incomes, with significant factors taken into account. These factors come in
the form of leakages and incorporate peoples saving, taxes by government and people
purchasing foreign goods, however, the economy receives injections to cover for leakages
through government expenditure in the form of fiscal policy, investments and exports.
Hence, macroeconomic policies are governed by the below equation;
Y = C + I + G + (X-M) (1)
Where Y = National Output, C= Aggregate Consumption, I = Investment, G= Government
Spending, X = Exports, M= Imports.

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Mundell-Fleming Model__________________________________________
The Mundell-Fleming model is an economic model first discovered by Robert
Mundell and Marcus Fleming. It is a valuable tool for analyzing macroeconomic issues. It
comprises of the goods market (IS), the money market (LM) and the foreign exchange
market (FE). The model‟s simplicity has made it a very powerful tool for understanding the
roles of aggregate demand in an economy‟s business cycle. The model has often been used
to argue that an economy cannot maintain a fixed exchange rate, free capital movement and
independent monetary policies simultaneously. Applying the above model to the Nigerian
case would uncover the inaccuracies and mismanagement in the Nigerian aggregate
economy.
LM CURVE
Money Demand
In order to fully further understand the effectiveness of various macroeconomic
policies employed by the Nigerian government in running the economy, one must examine
and analyze the demand and supply of money which is measured by the LM Curve.
The LM curve identifies combinations of income and the interest rate for which the demand
for money equals money supply. The Nigerian government has tried to control the money
supply in the economy for some time in a bid to curb inflation and reduce currency
smuggling and black marketeering. This is especially important because the demand for
money is basically a demand for the services of money.
The money demand function combines the opportunity cost of holding lots of money in the
form of interest foregone and the benefits of carrying money i.e. avoiding withdrawal cost
and time losses.
L = kY – hi (2) Money Demand Function
Where, L - Denotes the demand for money of the liquidity
k – Measures the sensitivity of money to income (Income sensitivity of Money demand)
Y – Income
i – Nominal interest rate
-hi – speculative demand

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Therefore,
i= kY – (M/P) (3) LM Curve Equation
h
Equation (3) represents the LM Curve equation.
The money demand curve shown diagrammatically
Interest
Rate
Money Demand L
Shifts left as
income falls
Shifts right as
income rises
Money demand curve

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Money Supply
Assume that the nominal supply of money is set by the Federal Reserve. Assume
the nominal money supply is denoted as Ms.
Should the Nigerian Federal Government wish to increase its money supply, it simply buys
government bonds in exchange for printing money. Similarly if it wants to reduce the
money supply it sells some of its holdings of government bond in exchange for money.
This is significant because should the Nigerian government wish to make use of its
monetary policy by changing interest rates, in reality it is actually just changing the money
supply so as to affect the interest rates in the economy and therefore influence consumer
choices. This is illustrated in the diagram below.
Interest
Rate
Money Supply M
The above diagrams show that rising interest rates raise the opportunity cost of holding
money in the economy; therefore driving down the demand for money at a given income
level. Rising income raises the cost of transactions and shifts the money demand curve to
the right. The money supply curve is vertical and changing supply shifts it to the left or
right.
Money Supply Curve
Shifts left as
money supply
falls
Shifts right as
money supply
increases

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Money Market Equilibrium
The money market will be in equilibrium if
MD
= MS
(4)
Where MD
is the Demand for Money and MS
is the Money Supply
The LM curve therefore shows an upward sloping relationship between Y and i.
M = kY – hi i= kY – M
h
Graphically the LM curve is drawn as
Interest
Rates
Y (Output)
The LM Curve shifts due to changes in the money supply whether expansionary
monetary policy or deflationary policies, changes in price levels or any exogenous shocks
in the economy. For example, an increase in the level of Nigerian income (Y) causes an
increase in the transaction demand for money, causing an excess demand for money which
in turn is cancelled out by a rise in interest rate.
LM

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Open Economy IS Curve
The IS curve describes the combination of Nigerian interest rates and output that
create equilibrium in the goods and services market in the short run. This is said to clear
when spending by consumers, firms, the government (and foreigners if an open economy)
on goods and services equals the production of goods and services. The basic equation for
the IS curve in an open economy is closely related to the national income accounting
identity;
Y= Aggregate Expenditure (5)
Y = C+I+G + NX (6)
Where Y is GDP, C Consumption, I Investment, G government spending and NX net
exports
Consumption
Consumption is assumed to dependent on three factors in an economy i.e.
consumer confidence, National GDP (Y) and taxes (T). Consumer spending in an economy
increases when confidence is high, this is because consumers are more certain about the
future and are not afraid of drastic events in the economy, which is not the case in the
Nigerian economy. Consumer spending in Nigeria is also affected by increases in the tax
rates, meaning that there is a fall in disposable income in the economy. This is important in
understanding what exactly has restricted the Nigerian economy and kept confidence at a
low.
A simple consumption function is derived as
C = cY (7)
Where c is the proportion of each extra unit of Naira of income that is consumed (marginal
propensity to consume)

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Investment
Another component of the IS curve is investment. The level of investment in the
economy is positively related to the level of investor confidence. This is purely because
individuals or firms are unwilling to sink money into infrastructure building if they believe
that the government will be overthrown in a civil war at any moment. This is exactly the
case with Nigeria as it has undergone seven military and civil presidential coups since
gaining independence from Britain.
Investment has to be financed either through borrowing or savings which are both reliant on
the level of interest rates in the economy. An increase in the interest rate reduces
investment by making it more expensive for firms to borrow money and by increasing the
opportunity cost for those who use their own funds.
A simple investment function is derived as
I = Ī – bi (8)
Where Ī, is autonomous investment i.e. (Investment that would take place irrespective of
interest rates)
bi= interest sensitive investment

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Government
In an economy, fiscal policy comprises all policy measures related to government
spending and budgets. At the aggregate level this is done by increasing or decreasing
government spending, borrowings and taxes. If the Nigerian government increases
spending in the economy, G, firms experience an excess increase in demand for their
products which they cannot meet. To counter this, firms raise production which in-turn
raises income. Therefore an increase in the government spending squeezes some investment
out of the economy by instigating the crowding out theory. This is when an increase in one
category of aggregate demand goes at the expense of a reduction in some other component
of aggregate demand. Hence, G rises at the expense of I investment.
Net Exports and Imports
In an open economy, the real exchange rate R is the ratio between the prices of a
bundle of goods abroad and at home. If the real exchange rate of the Naira falls below
purchasing power parity it is cheaper to buy imported goods.
Therefore the import function is
IM = m1Y – m2R (9)
The export function is a mirror image of the import function, since Nigerian exports are
simply the imports of the rest of the world from them. Thus the two determinants of
Nigerian exports would be world income and the real exchange rate.
Export function is therefore;
EX = x1Yw
+ x2R (10)
The exchange rate is said to affect exports with a positive coefficient hence, if the Naira
depreciates against other currencies, other currencies appreciates against the Naira. This
makes Nigerian exports cheaper for foreigners and they will want to buy more Nigerian
goods.

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The Open Economy IS Model combines and substitutes in equations 7, 8,9 and 10 into the
goods market equilibrium condition of Y=C+I+G+EX-IM
Therefore
i= - 1- c + m1 Y + x2 + m2 R + Ī+ G + x1Yw
b b b (11) IS Curve Equation
Diagram of the IS
Interest
Rate
Y
Assuming there is a fall in interest rates which is the cost of borrowing, there will be
an increase in investment as investors seek to get the most out of their money. In order to
maintain equilibrium in the economy aggregate income must rise. Thus, when interest rates
go down, Y must go up to keep the circular flow of the goods market in equilibrium. This is
represented by the downward negative slope of the IS curve. Investment level in the
economy is also therefore crucial to the effectiveness of macroeconomic policies.
The IS Curve shifts or adapts to changes to the expected future earning output, changes to
consumer wealth, variations that alter the tax rate, increases in government spending and
purchases. These factors affect or influence the level of disposable income in the economy.
IS Curve

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Nigerian Foreign Exchange Market and the FE Curve
The final side of a nation‟s aggregate economy is the foreign exchange market and
the balance of payments. A country‟s openness has many dimensions; the most frequently
used measure of an economy‟s openness, is the ratio of exports or imports to income. The
vital determinant of Nigeria‟s exports and imports is the Nigerian exchange rate as this
affects the relative price of goods both at home and abroad. Any transaction that requires
the purchase of a domestic currency is a credit item in that Nigeria‟s balance of payments
and any transaction that requires the sale of domestic currency is a debit item in the balance
of payments.11
Therefore, since a currency can only be purchased if someone is willing to
sell, the sum of all credit must equal the sum of all debits. Hence the demand for Nigerian
currency will always equals the supply which means that the conditions that equalize the
balance of payments also equalize the foreign exchange market.
Balance of Payments = Current Account + Capital Account + Official Reserves
Current Account = NX = EX – IM
=x1Yw
+ x2R - m1Y – m2R (12)
Capital Accounts and Uncovered Interest Parity
Suppose ₦1 this year invested at home => ₦1 (1+i)
₦1 this year invested abroad => ₦1 (1+ iw) (1+ E)
Where, iw is assumed to be the interest rate of Nigeria‟s main trading partner USA.
Therefore,
(1+i) = (1+ iw) (1+ E) (13)
If investors are risk-neutral, they are only indifferent between holding domestic and foreign
assets if the projected returns are equal – assuming no arbitrage.
If E=0, then the interest rate disparity between the two countries should lead to some
capital flows which in turn is dependent on the ease of capital mobility in Nigeria.
11
Macroeconomics. 3rd
Edition. (2003) Manfred Gartner Page 93

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CP = ĸ (i+ iw) where ĸ, kappa represents the degree of capital mobility.
If i> iw => there will be capital inflow and likewise
if i <iw then there will be capital outflow.
Thus the FE Curve derived;
BP = CA + CP = 0
= x1Yw
+ x2R - m1Y – m2R + ĸ (i-iw) (14)
Making i, the subject of the formula
i= iw + m1 Y – x1 Yw
– (m2+ x2) R (15) FE Curve Equation
ĸ ĸ ĸ
Diagram of the FE Curve
i
Y
FE Low
LM
FE High
FE Perfect
Capital
Mobility
FE = Zero Capital Mobility

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Balance of Payment
i
Y
When capital mobility ĸ => infinity, the FE slope goes to 0 and is horizontal
signalling Perfect capital mobility
When ĸ => 0, the FE curve is vertical, signalling zero capital mobility. A steeper FE slope
than the LM curve also signals that there is low capital mobility while a less steep one
signals high capital mobility.
BP Surplus
BP>0
R is falling
BP Deficit
BP<0
R is rising
FE

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Fiscal Policy – Nigerian Case
The formulation and proper implementation of macroeconomic policies targeted for
economic growth, along with increased access to basic social services and infrastructure are
essential in any Nigerian strategy in distributing oil revenues. Fiscal policy serves as an
automatic economic stabilizer; it comprises all policy measures related to the government
budget including government spending, borrowing and raising revenue through taxes.
Nigeria faces two challenges when dealing with revenues from oil; in the long run it needs
to ensure that her fiscal stance is sustainable without the reliance on natural assets such as
oil. She also needs to ensure that in the short to medium term, her budget and planning is
not affected by volatilities in oil prices. Nigeria having learnt from past experience has
attempted to use oil revenue and fiscal policies to de link government expenditure from
volatile oil revenues. However, the current revenue sharing scheme whereby oil revenue is
divided between the state and federal governments has facilitated an expansion of
expenditure programs at the sub national level. This has further constrained the national
governments effort to control and stabilize government expenditure.
When compared to Indonesia, another developing country that has benefited from
the increasing global demand for oil products a 12
World Bank Economic Review paper on
Nigeria found that a significant bulk of government spending from oil revenues went to
transport, primary education and the construction of the steel production sector13
whereas
Indonesia pursued an expansive expenditure strategy that was relatively balanced between
physical infrastructure, education, maintaining the agricultural sector and its capital
intensive industry. This again provides telling evidence of mismanagement on the part of
the Nigerian government in handling oil revenues. At the microeconomic level, the
Nigerian agricultural sector which was previously the country‟s main sector has been
criticized for its deficiencies in several areas. These includes its failure to encourage private
price setting and marketing, failure to create a satisfactory credit system to finance and
support farming through government subsidy and its general failure to create infrastructure
and an economically viable environment to support the agricultural sector in machinery
12
The World Bank Economic Review, Vol.1, No.3: 419 – 445 – Nigeria During and After The Oil Boom: A
Policy Comparison with Indonesia – Brian Pinto
13
The World Bank Economic Review, Vol.1, No.3: 419 – 445 – Nigeria During and After The Oil Boom: A
Policy Comparison with Indonesia – Brian Pinto

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maintenance, repairs and training. The most serious criticism of the government‟s policies
towards the development of the agricultural sector however is its decision to impose heavy
taxes on the sector and the retention of producer payments, while setting producers prices
that bear no relation with international prices.
In theory an effectively implemented fiscal rule could play a crucial role in overcoming
constraints on fiscal policy formulation by providing a working framework for a more
stable and controlled government budget which would go far to alleviate poverty and the
ever growing economic crisis. A fiscal rule was introduced however by President Obasanjo
with the intention of controlling and stabilizing the economy, but nevertheless this will not
change the impact of government activities on the economy unless serious measures are
taken to combat entrenched corruption and increase transparency and accountability of
fiscal operations both at state and national level.
With a proven oil reserve of about 32 million barrels and since oil is a national
asset, the Nigerian government can facilitate trade and allow the economy to run current
account deficits now and repay them through surpluses in the future. However in
developing countries such as Nigeria and Indonesia, the government has become in effect
the biggest borrower and investor. Therefore, since fiscal deficits feed into current account
deficit, which are in turn financed by either running down reserves or by government
borrowing, a clear link has now developed between Nigeria‟s fiscal policy and her
borrowing strategies. In the oil boom years the government accumulated surpluses and in
the recession it ran deficits. This strategy although reasonable was very dangerous purely
because in the event of a prolonged period of sustained economic sluggishness there would
be severe account imbalances as is the case with Nigeria.

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Under the Mundel-Fleming model, Nigeria‟s attempt to restructure its economy
through the use of fiscal policy will be near if not completely ineffective, thus managing
fiscal risks from oil revenue uncertainty is a key challenge facing Nigerian policy makers.
This requires modifying government budgets and the resulting debt in other to isolate the
macroeconomic impact of oil revenue on public finances. This section proposes and
analyses a framework for sustaining government fiscal strategies and encouraging growth:
Currently Nigeria operates under a flexible exchange rate and she has high but imperfect
capital mobility in terms of the inflow and outflow of capital and assets. The following
diagram illustrates the effectiveness of any fiscal policy in the distribution of oil wealth and
instigating economic growth.
Effectiveness of Nigerian Fiscal Policies: Under flexible exchange rate and high but
imperfect capital mobility.
Iw1
Iw2
iw0
Y0 Y2 Y1
FE1
FE0
LM
IS0 IS2 IS1
G
R
1
Y - Output
Interest
rate

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A rise in the level of government spending shifts the IS goods curve to the right. At
point 1, i> iw, therefore there will be an inflow of capital into Nigeria as investors seek to
maximize the benefits from the higher interest rates. However as the capital account
increases, there is a balance of payment surplus, leading to a fall in R which is the exchange
rate level. In order to restore the balance of payment equilibrium, there will be a fall in R
which shifts the IS curve downward and the FE curve upwards resulting in a new
equilibrium at Y2I2.
The result is that fiscal policy has some effect on promoting economic growth and
redistributing income but still much of the effect has been offset by the Naira appreciating.

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Monetary Policy – Nigerian Case
In their 1986 paper Arpad von Lazar et al stated that the Nigerian monetary policy
was directed at controlling inflationary pressures in the economy and stabilizing the
economy. The Nigerian banking system is also increasingly faced with the problem of
excess liquidity due to the increased level of government borrowing while at the same time
certain sectors of the economy have been faced with tighter credit conditions. 14
Monetary
Policy comprises central bank action geared towards steering the money supply. This can
happen directly through the government purchasing and selling of bonds and foreign
currency or indirectly through the setting of interest rates and inducing the market to hold
liquidity in the desired amount. There has been two major phases in Nigeria in the pursuit
of an effective monetary policy, namely, before and after 1986. The first emphasised on
direct controls and the latter on indirect reliance on market mechanisms.
The economic environment in Nigeria that guided monetary policy formulation
before 1986 was mainly characterized by the dominance of the oil sector, over dependence
on the external sector and the expanding role of the public sector and fiscal policies. The
Nigerian government then understood that in order to maintain price stability, a healthy
balance of payments position and the distribution of oil revenues around the country, it
needed an active management of the monetary system. However this was still heavily
dependent on the use of alternative monetary instruments such as credit ceilings, selective
credit controls, administered interest and exchange rates. This reliance was mainly because
the use of market-based instruments was not feasible at this point due to the severe
underdeveloped nature of the country‟s financial markets and deliberate restraint on the use
of interest rates by corrupt government.
14
Macro-economics. 3rd
Edition. (2003) Manfred Gartner (p115)

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Biodun Adedipe in his article on the Impact of Oil on Nigeria‟s Economic Policy
Formulation (2004) believed that “The fixing of interest rates at relatively low levels pre
1986 was done primarily to promote investment and growth in the economy while
stemming inflationary pressures”15
. He also believed that because generally, monetary
aggregates, government fiscal deficit, GDP growth rate and inflation did not move in
desirable directions, it became harder for the Nigerian government to implement their
policies. Compliance by banks on interest rate issues was also less than satisfactory further
making macroeconomic policy implementation harder.
The low interest rate employed by the Nigerian government pre 1986 did not sufficiently
attract private sector savers and investors into the economy hence the government was left
to rely even further on oil revenue in other to promote or sustain growth and injections into
the economy. Also since government expenditures were not rationalised, the government
resorted further to borrowing from the Nigerian Central Bank to finance its huge deficits.
Post 1986 the Structural Adjustment Programme (SAP) was adopted following the
crash in the international oil market and the resulting deteriorating economic conditions in
the country. The policies were designed to achieve a fiscal balance and balance of
payments viability by altering and restructuring the Nigerian production and consumption.
These would be achieved by eliminating price distortions, reducing heavy dependence on
crude oil revenue and consumer goods imports, enhancing the non-oil export base and
achieving sustainable growth. Its other aims were to rationalize the role of the public sector
and accelerate the growth potentials of the private sector. In order to improve
macroeconomic stability and control the effects of oil revenue, efforts were directed to the
active management of excess liquidity. The rising level of fiscal deficit was identified as a
major source of instability and consequently the Nigerian government agreed not only to
reduce her deficit but also to synchronize fiscal and monetary policies.
15
The Impact of Oil on Nigeria‟s Economic Policy Formulation – Biodun Adedipe (2004)

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Effectiveness of Nigerian Monetary Policies: Under flexible exchange rate and high but
imperfect capital mobility
I
An increase in the Nigerian money supply shifts the LM curve outwards to the right.
This shift drives the interest rates down, thus causing a capital outflow from the Nigerian
economy at point 1 where i< iw. This causes investors to move capital out in search of
higher rates of return for their funds. In the wake of this, they get rid of the domestic
currency leading to a fall in R (depreciation) of the naira and hence causing the FE curve to
shift to a new location as there is now a Balance of Payment deficit.
However, Balance of Payment is restored to equilibrium by a rise in the level of
competitiveness which makes domestic goods and services cheaper and therefore stimulates
exports, thus, causing the IS curve to shift further to the right and this process must go on
until the IS curve reaches a new equilibrium at Y2 I2.
FE0
FE1
IS0 IS1
LM0
LM1
Y0. Y1. Y2 Y (Output)
i0
i< iw i2
i1
R
M
1

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Essentially, interest rate levels are affected by movements in the price levels, fiscal
policy stance, intermediation costs (cost of funds), level of risks and uncertainty. If inflation
is expected to increase, the nominal interest rates need to adjust to induce positive real
interest rates which will not render savers worse-off. Although some monetary policy
effects have been eroded by the imperfect mobility nature of capital, it is however by far
the most useful government Nigerian macroeconomic tool for stabilizing, stimulating,
encouraging and controlling growth in the economy.
Therefore, under flexible exchange rates, monetary policy sets the pace.

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Marshall Lerner Condition
The real exchange rate is defined as the product of the nominal exchange rate and
the ratio of the price indices for two countries.
Suppose that Nigeria is the home country and US the foreign country
S denotes the nominal exchange rate for the US dollar – hence the amount of Naira that is
needed to purchase one dollar.
PN – Price level in Nigeria
PUS- Price level in USA
The real exchange rate is hence defined as
R = S PUS (16)
PN
The Marshall- Lerner Condition and Exchange rate Stability
The Marshall-Lerner condition indicates whether or not the Nigerian equilibrium
exchange rate is stable. This is illustrated in the above diagram which shows the various
exchange rate equilibriums denoted by E0, E1 and E2 with real exchange rates Q1, Q2 and Q3.
The arrows indicate whether the real exchange rate is rising or falling and hence shows that
equilibriums E0 and E2 are stable and therefore satisfies the Marshall-Lerner condition,
whereas equilibrium E1 is does not.
Q
Q0
Q1
Q2
E2
E1
E0
Nigerian Goods

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An increase in the real exchange rate between the Naira and the Dollar will cause a
substitution of consumption away from American goods towards Nigerian goods in both
countries. This elasticity approach focuses on the relationship between real exchange rate
and the flow of goods and services as measured by the current account balance16
. A rise in
net exports is referred to as an improvement of the current account balance and a fall in net
exports a deterioration.
The Marshall Lerner Condition hence shows the conditions under which a change in
the exchange rate of the Naira leads to an improvement or worsening of Nigeria‟s balance
of payments. Under a flexible exchange rate regime as used in Nigeria, a balance of
payment disequilibrium should automatically be restored to equilibrium without the need
for governmental policies. This is based on certain key assumptions which economists still
argue, do not apply to less economically developed countries like Nigeria. These
assumptions concern the degree to which changes in import and export prices affect the
immediate demand quantity of exports and imports.
16
International Economics – Charles van Marrewijk. Page 488

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J-Curve
If for example the Nigerian exchange rate against the dollar decreases, then the
price of its oil exports will fall and the price of imports rise. This however will not happen
immediately as consumers need time to adapt and change their habits and preferences from
imported goods to domestically produced ones. Nigerian oil producing companies also need
time to attract new capital, install new plants, hire workers and build new distribution
channels. Likewise, in addition, it will also take some time for foreign consumers to adjust
their purchase patterns and shift from domestic goods to foreign imports. If this was the
case, the balance of payments might be expected to worsen as the value of exports would
decrease and the value of imports would increase.
The diagram above shows the effect of a depreciation of the currency on the balance
of payments on current account. In the short term the balance of payments worsens as the
deficit grows. This is the J curve effect.
In the long term however, the situation improves as the account deficit gets smaller and
then moves to surplus. This is because once Nigerian consumers have adjusted to the
changes in imports and exports prices, the amount of exports and imports will subsequently
change. The amount by which they change on the other hand will be dependent on the
extent of the exchange rate change on the balance of payments and the price elasticity of
Nigerian goods.
Impact
Effect
Time
Long Run
Effect
Current
Account

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Since the demand for oil from Nigeria is relatively price inelastic, a fall in the price
of exports caused by a fall in the exchange rate will lead to a proportionately greater
increase in the quantity of exports demanded. This should then improve the Nigerian
balance of payments.
If a balance of payments disequilibrium is to be restored then it is important that the Price
Elasticity of Demand coefficient for exports is greater than 1 and that the Price Elasticity of
Demand coefficient for imports is greater than 1. This is embodied in the Marshall Lerner
condition which demonstrates that provided the sum of the price elasticities of demand for
Nigerian exports and imports is greater than one then a fall in the exchange rate will reduce
a deficit and likewise a rise will induce a surplus.
If the Marshall Lerner Condition is not met and the sum of the price elasticity of
demand for exports and imports is less than one, then a fall in the Nigerian exchange rate
will bring about a worsening of the nations balance of payments accounts. The fall in the
price of exports will lead to a proportionately smaller increase in the number of exports
demanded and a rise in the price of imports will lead to a proportionately smaller reduction
in the amount demanded. Both of these factors will contribute to a deterioration of the
balance of payments. Therefore in assessing the likely impact of a policy that will lead to a
fall in the value of the Naira, the Nigerian government must give consideration to the price
elasticity of demand for both exported and imported goods.

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Unemployment and the Phillips Curve
The level of unemployment in Nigeria is a serious issue for the government and
policy makers. In 2003 the level of unemployment was as high as 28%. Although Nigeria is
endowed with diverse and infinite resources, years of negligence and adverse policies as
illustrated previously has led to the under-utilization of the country‟s natural resources
leading to severe under employment in the economy. Unemployment is a major problem
both economically and socially and has resulted in a higher percentage of the population
having no purchasing power. As a result, consumption levels have fallen leading to lower
production of goods and services and hence generally hampering economic growth.
A successful policy to reduce the level of unemployment in the long run needs to
encourage an improvement in the employability of the labour supply through education and
training. Policies should focus on improving the occupational mobility of labour and an
improvement in the incentives for people to search and accept work. This however may
require some reforms of the Nigerian tax and benefits system. Aggregate demand also
needs to remain sufficiently high for businesses to look at expanding their workforce. For
this to happen, there needs to be a sustained period of economic growth in order to boost
expectation levels in the economy. The government must also use macroeconomic policies
to increase the level of aggregate demand in the economy. These policies might involve
lowering interest rates or lowering direct taxes, it may also wish to encourage foreign
investments into the economy from multinational companies by employing favourable
taxes and subsidies.
The relationship between unemployment and inflation discovered in 1958 by A.W
Phillips, shows clear evidence of a negative relationship between inflation and
unemployment. It found that when inflation was high, unemployment was low and vice-
versa. The role of expectations in this relationship transmission is very important and this
approach is based on price and wage rigidities, arising for example, by the need to fix
prices and wages for some period.

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If unemployment is low, firms have greater difficulty hiring workers which puts an upward
pressure on wages as firms have to attract new workers by paying more. Also when unions
and firms negotiate over wages, the union is in a stronger bargaining position and thereby
able to demand a higher wage increase and hence causes inflation in prices.
When negotiating future wages, Nigerian workers therefore need to form their own
expectations regarding the future development of the economy and oil prices and revenue
fluctuations taken into account. This expectation forming process is known as the
expectations-augmented Phillips Curve. The argument is that workers care about the
increase in real wages and not their nominal wages. Therefore for example if workers in
Nigeria expect inflation to be high in the future due to oil price revenue fluctuations, they
demand a working salary that has a high nominal and real value in other to compensate for
the expected rise in inflation.
Inflation %
The Phillips curve was later translated to an explanation of the inflation rate by
Samuelson and Solow (1960), who showed that with mark up pricing, the rate of change of
nominal wages is equal to the sum of the inflation rate and productivity increase17
. Their
modified Phillips curve therefore argues that the inflation rate is a negative function of the
unemployment rate.
17
Samuelson, P.A., and R.M. Solow (1960), „ Problems of achieving and maintaining a stable price level:
analytical aspects of anti-inflation policy‟, American Economic Review 50 : 177 - 94
Unemployment %
A
B

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The new downward sloping Phillips Curve suggests a policy trade-off between
inflation and unemployment, provided that the underlying Phillips curve is stable.
Therefore, the short-run trade-off between inflation and unemployment depends on the
expected inflation rate and the friction in the labour market which is measured by changes
away from the natural rate of unemployment. If the Nigerian government was keen on
keeping unemployment low, it could achieve its objective at the cost of a high inflation rate
by choosing point A on the diagram. Similarly, if Nigeria was seeking to maintain a
reasonable level of inflation, it could achieve this at the cost of high unemployment by
choosing point B on the Phillips Curve.
Since the discovery of oil in commercial quantities, Nigeria has seen a trend and
movement of labour from the rural areas to urban cities in search of job opportunities. A
major reason for this trend has been blamed on the aftermath of the first oil price shock,
which for Nigeria resulted in a reduction in the size of the rural labour workforce, leading
to a sharp decline in agricultural production and hence a sharp rise in food prices.

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Waste and Dutch Disease
Economists argue that the main broad themes that preceed any macroeconomic
account of Nigeria‟s development disease can be traced back to the problem of waste and
Dutch disease. Dutch disease is the relationship between the exploitation of a nation‟s
natural resources and the decline in the manufacturing sector, combined with moral fallout.
The argument is that an increase in government revenue from natural resources will de-
industrialise a nation‟s economy by raising exchange rates which makes the manufacturing
sector less competitive and the public service sectors entangled with business interest.
Nigeria, like other oil and mineral producing countries suffers from poor
institutional quality, stemming from the use of its natural resources. In most accounts of
Nigerian economic history, the impact of huge oil revenues on the economy through its
effect in raising the relative prices of non-tradable to tradable assets occupies a central and
significant role in explaining its drastic poor macroeconomic performance. The overall
picture that emerges is that Nigeria has over invested in physical capital and has
consequently suffered from poor productivity. Quality has suffered at the expense of
quantity. This is captured accurately by Bevan et al (1998) paper “This conjunction of a
powerful political impetus to public investment and lack of civil service skill is what makes
Nigeria‟s economic history in this period so spectacular; almost the entire windfall was
invested and yet... there was nothing to show for it” (p67)18
Historically, the politics of Nigeria has been shaped and moulded around getting
access to the huge revenues from oil. The Biafra civil war even was caused by the Igbo
community in the south attempting to gain control of the oil reserves. Successive military
dictatorships have also plundered oil wealth, more notably the Late President General Sani
Abacha. It is also important to understand that although oil wealth has been squandered
badly, it has also provided the government with the revenue to increase its expenditure and
thus provide better public services for the citizens. It is plausible that not only has Nigeria
squandered its oil wealth on ineffective policies as demonstrated earlier, but oil wealth has
also fundamentally altered politics and governance in Nigeria.
18
Bevan, D., P. Collier, J.W. Gunning, 1999, The Political Economy of Poverty, Equity, and
Growth: Nigeria and Indonesia, Oxford University Press

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Oil is a natural resource endowment, an unalterable geographical feature of the economic
and natural landscape. If indeed the revenues and wealth it generates are in actual fact the
cause of a decline in the institutional well being of Nigeria as has been suggested, then
countries that have any sort of natural resources are destined to institutional decline and
poor growth.

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Conclusion
Natural resources such as oil may or may not be a curse, on the balance that they
provide necessary revenues for the successful running of an economy whilst providing
opportunities for rent seeking and corruption. The best chance of lifting the “curse of oil”
lies in the successful implementation of various macroeconomic policies and the adoption
of a transparent economy and accountability, at both state and national levels. Although
Nigeria is now formally a democracy, it is clear that the balance of power between citizens
and public officials is skewed greatly in favour of the latter by virtue of easier access to oil
revenues. To solve this, the Nigerian government should demand that oil companies declare
all payments rather than just providing an aggregate figure for all transactions. This is an
essential tool in breaking the link between conflict and crime and natural resources because
it makes politicians, businesses and individuals accountable for their actions. It helps curb
corruption and reduces the incentives for indulging in rent seeking and other criminal
activities.
Another simple solution to the Nigerian curse lies in preventing the government
from approaching the oil revenues directly. Revenues should be distributed ultimately to
the citizens who are their true and legitimate owners, thereby replicating an economy that
resembles a country with no natural resources to rely on. The main task for the Nigerian
government is to ensure there is adequate transparency, accountability and sound oil
revenue management, all of which can be achieved by enlisting the help of large scale
organisations such as the World Bank and the IMF to provide support, advice, regulation
and administration of the country‟s oil revenues. The responsibility of the active
management and monitoring of oil revenues relies on the Nigerian government and its
ability to distinguish between temporary and permanent fluctuations in the level of oil
revenues generated and responding to them accordingly.

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Having reviewed Nigeria‟s economic state over the last 30 years, it is clear that the
Nigerian economy would benefit greatly from efficiently managed macroeconomic
policies. Monetary policy in particular, is significant in instigating and promoting economic
growth whist alleviating poverty. The lack of investment into the country, due to volatile
interest and exchange rate levels is somewhat responsible for restricting economic growth,
especially when large investments are essential for rebuilding spare capacity, creating jobs
and controlling the level of oil revenue expenditure.
Although it is clear that the Nigerian macro-economy has suffered from the so
called “curse of oil”, she however can still succeed and grow by analysing all the historical
effects of oil revenue and ensuring an active regulation of government revenue,
accountability and transparency implementation. Therefore, with careful planning and
cooperation on several levels, the curse can be sidestepped or lifted.

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