The Nigerian economy, with an enterprising population and a wealth of natural resources, offers tremendous potential for economic growth. However, poor economic policy, political instability, and an overreliance on oil exports has created severe structural problems in the economy. Crude oil accounted for over 95% of exports and over 80% of government revenue in 2002; Nigeria is the world's sixth-largest exporter of oil. However, agricultural remains the basic economic activity for the majority of Nigerians. Crop yields have not kept pace with the average population growth of 3%, and Nigeria must import most of its food.
When the oil boom of the 1970s came to an end in the early 1980s, Nigeria's failure to bring domestic and foreign expenditures in line with its lower income led to a rapid buildup of internal and external deficits. Nigeria deferred payments on its large foreign debt, adopted austerity measures, scaled back ambitious development plans, and introduced a foreign exchange auction system that devalued the naira. These policies had a positive effect and from 1986 to 1990 real GDP grew at a 5.4% average annual rate.
However, in 1992 real GDP grew at only 4.1%, while the large government deficits, 10% of GDP in 1992, continued to expand. A crippling blow to the economy came in mid-1994 when oil workers in the southeast, unhappy with the way the central government collects oil revenue without giving any back, went on strike. With daily output down 25% because of the strike, the government's lack of revenue forced it to stop servicing most of its $28 billion external debt. In the meantime the budget deficit reached $1 billion, over 12% of GDP.
In 1996, the World Bank reported that an estimated $2 billion in oil revenues from the early 1990s was diverted in a secret government bank account. There were also reports that significant amounts of oil revenue were being lost due to fraudulent practices at the country's oil terminals. In response, the Nigerian government appointed two inspection firms to oversee the loading of crude oil tankers.
By 2002 external debt stood at $31.1 billion. A $1 billion credit from the IMF was allowed to expire in 2001, and the country thus was not forced to pursue economic reforms. High unemployment and declining productivity hamper growth. As of 2002, the pace of privatizing state-owned enterprises and balancing the budget was slow, but liberalization of the telecommunications sector was underway. However, in 2003, the newly installed government had committed itself to privatizing the country's four oil refineries. The rate of HIV infection was on the rise, as was income inequality.