Oil revenue and the 'Dutch disease' in Nigeria

Abstract

This study discusses the performance and prospects of the Nigerian economy in the wake of the oil euphoria. It produces some empirical evidence for the rapid destruction of Nigerian agriculture in the past ten years or more and it demonstrates that the plight of the Nigerian economy in general and the rural sector in particular was in part a direct consequence of the increase in oil revenue which pushed up the exchange rate and made it unprofitable to grow crops for export. It concludes that unless a radical change in government policy is effected to revive the agricultural sector, Nigeria will experience a depletion of both her oil and her agricultural resources to the extent that the economy could eventually face a food crisis like those recently experienced in Ethiopia, Sudan, Mali or Chad, and without an industrial base. The study argues that contrary to the view commonly held in Nigeria, the benefits in the medium and long term of devaluing the Nigerian currency(naira) will greatly outweigh the costs which are likely to be only temporary. We use the term "Dutch disease", as it was in the Netherlands, that the phenomenon of the adverse effects on the rest of the economy of a rise in the exchange rate, brought about by the discovery of natural gas, was first observed.