Nigeria's Economy
Dutch Disease in Nigeria
How the 1970s oil boom strengthened the naira and hurt Nigerian farming and manufacturing, a classic case of Dutch disease.
Dutch disease describes how a resource boom can hurt other sectors.
The term
It comes from the Netherlands in the 1960s, where natural gas discoveries were blamed for weakening manufacturing.
How it works
- Resource exports bring in foreign currency.
- The exchange rate strengthens.
- Other exports become less competitive.
- Resources shift towards the booming sector and non-traded services.
Nigeria’s experience
- Before oil, Nigeria was a major exporter of cocoa, palm oil and groundnuts.
- The 1970s oil boom drew labour and investment away from farming.
- Agricultural exports collapsed; Nigeria began importing food.
- Manufacturing struggled.
Consequences
When oil prices fell in the 1980s, Nigeria lacked other strong exports, deepening crises.
Remedies
- Sovereign wealth funds to save windfalls, like Norway’s.
- Diversification policies.
- Stable exchange rates that avoid overvaluation.
The groundnut pyramids
In the 1960s, northern Nigeria stacked groundnut sacks into huge pyramids for export. After the oil boom, these disappeared as farming declined.
Thinking a resource boom benefits all sectors
It can hurt farming and manufacturing through a stronger currency.
Key takeaways
- Dutch disease means resource booms hurt other exports.
- A stronger currency makes other goods less competitive.
- Nigeria's farm exports collapsed after the oil boom.
- Saving windfalls and diversifying help.
No recording for this one yet - EconReader can read it aloud for you.