Nigeria's most recent democratic experiment, the Fourth Republic, came of age in the review period, as neither rulings by election tribunals, nor the eventual outcome of by-elections for seats where elections had been declared inconclusive, threatened the nation's social and political fabric. The Independent National Electoral Commission (INEC) conducted 41 by-elections during the review period, comprising five governorship, two senatorial, six for federal constituencies, 27 for state constituencies, and one councillorship election. In recognition of the need to strengthen voice and accountability in our democracy, the federal government received a White Paper on the report of the Electoral Reform Committee headed by Justice Muhammad Lawal Uwais (retired).

There were, however, major negatives to the political outlook, including the restiveness in the Niger Delta, and ethno-religious clashes in some parts of the country. The Niger Delta militancy disrupted the country's oil production and the supply of gas to the nation's thermal plants, which affected electricity generation and supply negatively. In search of an enduring resolution of the crisis in the Niger Delta, the federal government continued with its reforms through the creation of an additional ministry for the area. It is hoped that this initiative will lend extra focus to official attempts to resolve the sense of exclusion felt by some stakeholders in the area.

Official concerns over spillover effects of the global economic crisis on the domestic economy prompted President Umaru Musa Yar'Adua, GCFR, to set up a steering committee to evolve and drive the response to the challenges posed by the development. Also, in continuation of its reform of public sector institutions for efficiency in service delivery, the federal government began the process of decentralising the Bureau of Public Procurement, also known as the Due Process Office. When completed, this phase of the reform effort is expected to head-off delays in the commencement and implementation of projects.

Clearly, the next phase of the reform agenda should concentrate on removing all impediments to trade and business in the economy. Government remains key to the process of launching this economy on the path of sustainable development, both as the main source of most of the costs that businesses bear when they set up, and in operation – as well as a provider of collective infrastructure for the proper running of the economy.

The Domestic Economic Environment

On the back of strong non-oil sector performance, aggregate output growth was estimated at 5.3% last year compared with 6.4% in 2007. Although industrial output fell by around 2% in the review period, this drop was compensated by strong performance in the building and construction sector (13.1%), wholesale and retail trade (12%), services (10.3%) and agriculture (6.3%).

Aggregate banking credit (net) to the domestic economy continued its upward swing during the review period, with lending to the private sector growing by 59.5% over the end-December 2007 level. This was, however, much lower than the 90.8% growth in the period ended December 2006. Aggregate bank lending to the economy rose by 100.6% in the review period as against 276% over the 12 months to end-December 2007. Bank lending largely drove the increase in monetary aggregates in the review period. Broad money supply (M2) and narrow money supply (M1) rose by 58% and 56.5% respectively, compared with 25% and 36.6% in the preceding year. Consequently, consumer prices remained under pressure during the year, rising by 11.2%, despite having grown by 5.5% in the previous year.

Although gross external reserves at US$52.8 billion by year-end 2008 indicated a marginal increase over the US$51.3 billion recorded in the same period in 2007, the sharp swings in the monthly totals during the year reflected a progressive decline in the nation's oil production levels. After averaging 2.5 million barrels a day (mbd) between 2003 and 2006, the nation's oil production dropped off to less than 2.2mbd by the end of 2008.

Declining oil production and oil prices on the international markets were key inputs into the N3.1 trillion 2009 Appropriation Bill approved by the President; 6.9% higher than the 2008 budget. At the Wholesale Dutch Auction System (WDAS), the weighted average exchange rate of the naira in relation to the US dollar appreciated by 0.3% to US$1/N120.7 over the end-December 2007 figure, but depreciated from US$1/N123.8 to US$1/N125.3 in the bureaux de change segment of the market.

Government-led reform of the economy during the year included the adoption of the Financial Sector Strategy 2020 (FSS 2020) as the blueprint for its bid to ensure that the Nigerian financial system becomes one of the safest and most developed in Africa and among the top 20 in the world by the year 2020. In addition, as part of steps towards restructuring and stabilising the capital market which had experienced monumental contraction during the year, companies quoted on The Nigerian Stock Exchange were given the option to buy back up to 20% of their shares.

Given the origin of the current crisis, there are considerable limits to the use of domestic levers to prop up output. As the global economy recovers, external demand should begin to pick up. In view of Nigeria's dependence on oil export earnings, this should feed into growth. To date, domestic efforts in maintaining system liquidity require further restructuring, to lock in the gains from an orderly response to the crisis. Basic requirements for this include the need for a conservative accounting for bank loan books, and for consistent treatment of this across the sector. Public purchase of the delinquent portions of the industry's loan books, within the context of an asset management framework, may yet be necessary.

Nevertheless, the key reform requirement is at the macro-economic level, including the need to reposition the economy from its current dependence on oil export revenue. While this should reduce the economy's vulnerability to external shocks, because it requires the build-up of sustainable domestic capacity, it should also help improve the economy's growth rate.