After Oil Binge, Reality Takes Hold : Nigerians Slash Imports, Find Austerity Is Working

Like many of Nigeria’s middle class, Tunji Lawal-Solarin, an oil economist, was solidly addicted to the good life of low-priced imports.

For the past decade, hundreds of thousands of office workers, professors and businessmen here could afford new French cars every year or two, champagne, an occasional weekend jaunt to Europe, Japanese color TVs and video recorders. Enough was usually left over from their modest paychecks to send a couple of children to school abroad.

Now that comfortable life style has been snatched away.

The prices of imported luxuries, for years kept at bargain levels by the country’s wildly unrealistic exchange rate, quadrupled in a matter of weeks last fall when Nigeria’s military rulers launched a drastic and sweeping plan to restructure the economy.

Nigeria has suddenly stopped living beyond its means, and many, like Lawal-Solarin, have had to give up their import addictions.

“The bottom line today is you have to look inward, to Nigeria, to survive,” says Lawal-Solarin, whose strategy is to spend his weekends turning 250 acres of spongy tropical growth into a working farm.

To the surprise of almost every international expert and quite a few Nigerians as well, the government’s plan to rescue itself from an economy almost irreversibly out of whack has survived--and begun to work. With this, some fundamental assumptions about Nigeria and Nigerians have been changing as well.

The rest of Africa is watching. If a program of austerity and capitalism can nudge Africa’s most populous country toward self-sufficiency, it could work anywhere.

“It’s truly amazing what has transpired here, and it’s left more than a few of us dumbfounded,” said a Western financial expert who has followed Nigeria’s transformation. “There was the potential here for real disaster--runaway inflation, unrealistic exchange rates, or even a coup d’etat. None of that happened.”

Economy Looking Up

Instead, international lenders are opening their billfolds again, ships again crowd Lagos harbor, the corruption that went hand in hand with doing business in Nigeria has diminished and prices for export crops, such as cocoa, have tripled.

The bold program began in September, when the government had a foreign-exchange auction. Nigeria’s currency, the naira, valued officially at one naira to one dollar, plunged so far and so fast that Nigerians were stunned. It fell swiftly to three naira to one dollar and stabilized recently at four to the dollar.

Middle-class Nigerians, earning 16,000 to 30,000 naira a year, saw the imported car that cost 7,000 naira a few months before become a 30,000-naira car. A color TV jumped from 900 naira to 3,800 naira, refrigerators from 500 naira to more than 2,000 naira.

The cost of international air travel doubled, but the government blocked an even sharper increase and the airlines complained that the doubling was not enough to offset the devaluation. Pan American did more than complain: It abolished its twice-weekly flights between Lagos and New York and pulled out of the country.

Lagos No Longer Expensive

Foreign visitors to Nigeria, however, got a pleasant surprise. Lagos’ well-deserved reputation as one of the most expensive cities in the world disappeared abruptly; it is now quite reasonably priced for foreigners carrying dollars or other hard currencies.

A standard 150-naira room at the Eko Holiday Inn, which for years cost the equivalent of $150, costs about $40 at the new exchange rate. The tab for lunch at an undistinguished Chinese restaurant used to be 60 naira, or $60. Today, even with a recent price rise, the same meal costs the equivalent of $16.

Along with the currency revaluation, Nigeria abolished its notoriously corrupt import-licensing system, cutting off the multitudes of civil servants and middlemen--importers-cum-traders who made fortunes by manipulating the system.

The government then closed six commodities boards, whose bureaucratic inefficiency and corruption had discouraged farm production in the country.

Certain imports--champagne, vegetable oil and furniture, among others--were barred to encourage Nigerians to use locally produced alternatives.

Wheat Being Cut Off

Wheat, the principal U.S. export to Nigeria, is among the commodities banned. When present wheat stocks disappear, so will the country’s bread, unless wheat is smuggled in from Nigeria’s neighbors.

Although wheat accounts for less than 10% of the country’s food requirements, many Nigerians have acquired a taste for bread and sweet cakes, especially with breakfast. The government says the country will try growing its own wheat, or substitute corn.

“We are telling our people to be self-reliant,” said Tony Momoh, the minister of information and culture. “You can no longer achieve much in this country through importation.”

Many here are taking his advice to heart.

When students at a Lagos high school complained recently that their parents could no longer afford detergent to clean their school uniforms, instructor Debo Ogungbe taught them to make soap in the chemistry laboratory out of plantain peels and palm oil.

Good Rains Ease Pain

Some of the pain of adjustment has been eased by good rains and plentiful food. But many people, especially the urban poor, were surprised to find that staples like canned milk and detergent were imported or made from imported goods--and therefore more expensive.

Book shortages at universities have become endemic, and when textbooks are available they are more expensive--60 naira compared to 15 naira last year. Car sales are rare these days; Companies that once routinely made car loans to their employees now make repair loans instead.

Professional-level jobs for university graduates are scarce. A recent Nigerian graduate from a British university, with a master’s degree in chemistry, could not find a job in her field. She is now working as a fashion columnist for one of Lagos’ many newspapers, earning less than she did as a part-time waitress in London.

Manufacturers, saddled with expensive raw materials they still must import, such as chemicals, have laid off workers in a bid to become more profitable. Under the old system, the factories of Nigeria operated at less than 30% efficiency--and still made a profit, thanks to the low cost of imported materials. But those days are gone.

“Many manufacturers will be pushed to the wall,” an economic analyst here said, “but that’s what structural adjustment is all about--making factories more efficient.”

Middle Class Suffering

Nigeria’s middle class is finding it difficult to adjust to the new, no-frills life style.

“We enjoyed and now we are suffering,” a Lagos office worker said. “Even if you sacrifice a convenience for one day it seems like two. They cannot expect us to sacrifice much more.”

The hardships have prompted the birth of a new catchword, sfem , which is derived from the initials of the government’s Second-Tier Foreign Exchange Market, where the naira has been devalued.

Newborns these days are often called “sfem babies” by friends who do not envy the parents the task of raising a family in the midst of tough economic times.

The cost of maintaining a son or daughter in school abroad, as about 100,000 Nigerian families do, is four times what it was last year. American officials say that more Nigerian students overseas have taken jobs, illegally, to support themselves.

Many in the middle class are thinking up ways to cash in on the new Nigeria and make enough money to recapture their former life styles. A businesswoman who has had her own distribution firm in Lagos for most of her life says she is shopping around for a chicken farm.

Betting on Agriculture

Lawal-Solarin, 39, the oil economist, has a nice home in an exclusive neighborhood, four young children and a good job with African Petroleum Ltd. But he recently decided that the best bet for his family’s future is agriculture.

So on weekends he sheds his dark suit, starched white shirt and tie and gets into his farmer’s uniform, a loose, sleeveless jump suit.

The still-unplowed tropical farm is about 50 miles inland from Lagos, near Sagamu. Lawal-Solarin put up about $5,000 and borrowed $40,000 to lease, clear and sow the land.

He says he will plant maize, cassava and cola nuts at first. But he has dreams of one day building canneries, grain mills and a baby-food factory.

“People looked down on agriculture when I was growing up,” he said. “It was something you did if you couldn’t get a good job. But now there’s a big drive to the farm.”

Nigeria’s troubles grew out of the heady days that began in 1973, when the world oil price boom made it a very wealthy country. This land of 105 million people, situated at the crook of Africa’s western bulge, had become one of the world’s top 10 producers of oil. From 1973 to 1981, it took in $100 billion from oil exports--and let most of it be frittered away or filched.

Spoiled By Oil Windfall

The windfall gave many Nigerians the feeling that they could have anything they wanted--trips on the Concorde, Mercedes-Benzes and other luxuries that only foreign exchange could buy.

The government’s system of import licenses made things worse. An import license gave a trader permission to buy dollars at the official exchange rate--an 80% discount from the so-called black market rate, which was widely used everywhere else in the country. The system encouraged corruption and gave Nigerians a reputation for nefarious wheeling and dealing.

The government was the big loser, using precious foreign exchange from oil to subsidize the traders who had import licenses. Although earning $10 billion to $25 billion a year from its oil exports, Nigeria found that it needed to borrow money to feed its taste for imports.

Farmers, discouraged by low prices and the corrupt commodities boards, abandoned their coffee plants and other cash crops. Once a food-exporting country, Nigeria last year imported $5 billion worth of food.

Meanwhile, Lagos had become an overcrowded, dirty, noisy, crime-ridden city of about 5 million people. So many people owned cars that the new, wide freeways were jammed day and night. So many people owned televisions and air conditioners that power outages were an almost daily occurrence.

Lagos is still littered with unfinished construction projects, and their shameless price tags reflect payoffs and kickbacks that lined the pockets of many civil servants and businessmen. A half-completed steel mill has already cost $3 billion, making it impossible for the mill ever to produce steel at competitive prices.

Jolted by Oil Slump

The day of reckoning came last year with the worldwide slump in oil prices. No one would lend money to Nigeria.

Talks between Nigeria and the International Monetary Fund, the world’s lender of last resort, came to an impasse, primarily because Nigeria was refusing to devalue its currency.

Maj. Gen. Ibrahim Babangida, who took power in a bloodless coup in August, 1985, opened the issue to public debate, and the country said no to an IMF agreement.

Then, with the help of the World Bank, Babangida came up with an alternative plan that created a foreign-exchange market, SFEM. Market forces, not the IMF, would set the value of the naira, Babangida said.

It turned out to be a more exacting regimen than anything the IMF would have dared recommend, analysts say, but it has been so successful that the IMF recently offered Nigeria a loan. Although Babangida vows that he will never take a penny from the IMF, the offer was an important vote of confidence. The country has been able to reschedule its $18-billion debt--at payments more appropriate for a country living within its means.

Several Tough Years Ahead

Experts say Nigerians will have to endure several tough years before the economy rights itself. Already, critics of the plan have begun pressing the government to show concrete examples of progress.

Still, most analysts doubt that the grumblings are an indication of deeper discontent. Governments have changed so frequently in Nigeria over the years that “there’s an awful lot of feeling in this country that they need a period of stability,” a Western diplomat here said.

Similar IMF-sponsored programs elsewhere in Africa have caused serious political problems for government leaders, but for the moment, Babangida appears to have the support of his country and his fellow military leaders. He has promised a return to civilian rule by 1990.

Nigeria’s economic future depends on keeping the government stable, continued good rains, firm oil prices and a commitment to the course of action that it has charted, according to Ishrat Husain, the World Bank’s resident representative.

“If it can do that,” Husain says, “it shows a way out of economic adversity for other countries in Africa.”