The debate over Nigeria’s exchange rate policy often takes us back to the administration of President Shehu Shagari (1979–1983), a period when the Naira was among the strongest currencies in the world. During parts of the late 1970s and early 1980s, one Nigerian Naira was worth more than one United States Dollar, a reality that many older Nigerians remember with nostalgia.
However, the strength of the Naira was not necessarily a reflection of a diversified or highly productive economy. Rather, it was largely sustained by extraordinary revenues from crude oil exports during the global oil boom of the 1970s.
The Oil Boom and the Strong Naira
Following the oil price shocks of the 1970s, Nigeria experienced unprecedented inflows of petrodollars. Government revenues expanded dramatically, foreign reserves grew, and public spending increased significantly.
Buoyed by these earnings, Nigeria maintained a strong exchange rate regime that made imports relatively cheap. Foreign goods flooded the market. Imported food, consumer products, machinery, and luxury goods became more affordable than locally produced alternatives.
At the time, the policy appeared beneficial. The country enjoyed increased purchasing power, ambitious infrastructure projects, and rising government expenditure. Unfortunately, this prosperity rested on a dangerous assumption that oil revenues would continue indefinitely.
The Hidden Cost of an Overvalued Currency
A strong currency benefits consumers in the short term but can undermine domestic production if not supported by a competitive industrial base.
Because imported goods became cheaper than locally manufactured products, many Nigerian industries struggled to compete. Agriculture, which had once been the backbone of the economy before the oil boom, experienced significant decline. Manufacturing growth slowed, and Nigeria became increasingly dependent on imports for both consumption and industrial inputs.
Rather than using oil wealth to build a diversified productive economy, Nigeria gradually evolved into a consumption driven economy heavily reliant on foreign exchange earnings from crude oil exports.
The Oil Price Collapse of 1981
The turning point came in 1981 when global oil prices weakened and demand for crude oil declined. Nigeria’s export earnings fell sharply.
Suddenly, the government was earning fewer dollars while maintaining expenditure patterns established during the boom years. Foreign reserves began to decline, and the country’s ability to sustain a strong exchange rate came under pressure.
As foreign exchange became scarce, importers found it increasingly difficult to obtain dollars to finance imports. Shortages emerged, businesses struggled, and economic activity slowed.
The Economic Stabilisation Measures of 1982
In response to mounting economic challenges, the Shagari administration introduced the Economic Stabilisation Act of 1982.
The measures included:
Import restrictions.
Increased tariffs.
Tightened import licensing requirements.
Reductions in public spending.
Efforts to conserve foreign exchange.
While these policies provided temporary relief, they failed to address the underlying structural weaknesses of the economy, namely excessive dependence on oil revenues and import consumption.
Debt Accumulation and Economic Strain
As revenues declined, Nigeria increasingly relied on external borrowing to finance government obligations and development projects.
The combination of falling oil receipts, rising debt obligations, declining reserves, and persistent import dependence created significant economic pressures. Inflation increased, unemployment worsened, and shortages became more common.
By the end of the Second Republic in December 1983, Nigeria was facing one of the most severe economic crises in its post independence history.
The IMF and Structural Adjustment Debate
Contrary to some popular narratives, the major IMF led Structural Adjustment Programme (SAP) was not implemented during the Shagari administration.
Although discussions with international financial institutions had begun, it was under the military administration of General Ibrahim Babangida in 1986 that Nigeria formally adopted SAP, which included:
Significant devaluation of the Naira.
Trade liberalisation.
Removal of various subsidies.
Deregulation of parts of the economy.
The debate over whether SAP saved or damaged the Nigerian economy remains one of the most controversial issues in the country’s economic history.
The Real Lesson
The lesson from the Shagari era is not simply that a strong Naira is bad or that devaluation is good.
The real lesson is that no currency can remain sustainably strong unless it is supported by:
High productivity.
Industrial capacity.
Agricultural competitiveness.
Export diversification.
Sound fiscal management.
The strength of a currency is ultimately a reflection of the strength of the economy behind it.
Nigeria’s experience in the early 1980s demonstrates the danger of relying almost exclusively on oil revenues to support consumption while neglecting productive sectors of the economy.
More than forty years later, the country continues to grapple with many of the same structural challenges: dependence on crude oil exports, inadequate industrialisation, foreign exchange shortages, and the perennial struggle to balance exchange rate stability with economic growth.
The story of the Shagari years is therefore not merely a lesson from history, it is a warning that remains relevant to Nigeria today.
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