CHAPTER ONE

INTRODUCTION

8.1        Background of the study

.Macroeconomic policy in Nigeria has been characterized by inefficiency, highly volatile and unsustainable public spending while fiscal decentralization has failed eficient public finance management and effective macroeconomic stabilization. Misalignment among federal, states, and local government income and expenditure has rendered the traditional instrument of economic management ineffective. Government spending, at all levels is characterized by pension crisis, arrears of salaries of civil servants, huge external and domestic debts and misallocation and mismanagement of resources. The worst situation is obtained at the state level where institutions are weak, economic governance is poor and debts are accumulated at unsustainable level. (NEEDS, 2004).

Nigeria, a country blessed with abundant natural resources, is seen as one of the countries that have the most volatile economy. This is in order with NEEDS (2004) which says that "between 1975 and 2000, Nigeria's broad macroeconomic aggregates - growth, the teims of trade, the real exchange rate, government revenue and spending were among the most volatile in the developing world. Over the past three decades, high macroeconomic volatility has become a key determinant as well as consequence of poor economic management". The economy has found itself in a low growth trap made up of low savings - investment equilibrium. Our economy is still far below the minimum investment rate of about 30% of GDP required to minimize poverty

Aggregate annual GDP growth between 1999 and 2003 was about 5 percent and estimates of growth in 2003 was 10.2 percent. This marked the highest rate of growth in three decades. Nigeria's per capita GDP was one of the lowest in the world in the 1980s and 1990s. Between 1999 and 2003, annual per capita GDP grew at about 2.2% which is far from 4.2% required to address poverty. GDP growth rate in Nigeria can be summarized with the aid of table 1. I

Table I . 1 Economic performance in Nigeria (1 960 - 2004).

Period                                 GDP    growth   rate    Population  growth    Growth       of       per

P o )                                      rate (%)                               capita income (%)

Source: National planning ( Tommi.ssion, A hz!jci

Foreign direct investment (FDI) was going direct to the oil and extractive sector from 1960 to 1999. Foreign direct investment gets itself in non-oil sector only from 1999. This has caused unemployment's rate to fall from about 20% in 1999