The past week's sharp drop in oil prices catches this debt-hobbled, oil-dependent country in the middle of an audacious confrontation with the world banking system.
Nigeria's military leader, Maj. Gen. Ibrahim Babangida, declared on New Year's Eve that his country would use no more than 30 percent of its export earnings to pay foreign debts. In effect, the general told bankers either to settle this year for a little more than half of what they are owed or risk getting nothing.
At stake in Nigeria's challenge to its creditors is the economic future of an oil-rich, development-poor country with 100 million inhabitants who account for half the gross national product of all black Africa.
Also at stake is the question of who calls the shots in international finance. Should it be the bankers who loaned billions of dollars at high interest rates and the rich countries that insure many of those loans? Or should it be debtor nations that must balance their international credit ratings against the need to use export earnings to finance their economic recovery?
This week's tumble in the price of Nigerian crude, along with the likelihood of still further cuts, not only threatens the economy, but also heightens the confrontation between Nigeria and the bankers.
If Babangida sticks to his word, Nigeria's creditors -- paid no more than 30 percent of the country's earnings -- will be squeezed with each 1-cent drop in the price of oil. Bankers and western governments, owed about $18 billion by Nigeria, will be forced to forfeit the certainties of balance sheets for the vagaries of the spot market.
Nigeria's low-sulfur Bonny Light crude is almost identical to that produced in the North Sea by Britain and Norway. This week's fall in the price of North Sea oil in the futures market to less than $18 a barrel, oil analysts said, pulls down spot market prices for Nigerian crude.
"They are pegged together. If North Sea crude falls to $15 a barrel, Nigeria crude can't stay far behind," said Ed Robinson, general manager of Texaco in Nigeria.
Oil industry specialists and financial analysts here said Nigeria's economy, which is dependent on oil for about 94 percent of its export earnings, is extraordinarily vulnerable to falling oil prices.
Analysts here said a drop in the price of oil to $16 a barrel would leave Nigeria barely able to pay for the $6.7 billion worth of imports proposed in this year's austerity budget. This assumes that the country could find buyers for 1.55 million barrels of oil a day, which is every barrel Nigeria has the capacity to sell. Still, there would be almost nothing left over to pay a foreign debt bill conservatively estimated this year at $4.8 billion.
If the price of oil holds at $20 a barrel, and production is maintained at a more realistic level of about 1.1 million barrels a day, analysts here said Nigeria would still have to trim imports and would be unable to pay more than a fraction of its debt obligation.
As a member of the Organization of Petroleum Exporting Countries, Nigeria has an official quota of 1.3 million barrels a day. But since 1984 it often has ignored the quota, selling as much as it can when prices are high.
Tamunoemi David-West, who was transferred today out of the post of petroleum minister in a Cabinet reshuffle, told oil executives here two weeks ago that Nigeria plans to meet falling prices by selling as much oil as is technologically feasible.
The drop in oil prices comes at a time when several British and American commercial bankers here said they are willing to consider rescheduling their medium-term loans to Nigeria, even though the country has spurned an International Monetary Fund agreement, which is usually a condition for any rescheduling.
"The banks really don't have any choice. You keep your fingers crossed, hoping for the best deal you can get," said Dick Arsenault, who represents American Express Bank as deputy managing director of NAL Merchants Bank, Nigeria's largest commercial bank.
Bankers here said they are willing to reschedule because Babangida, in his budget speech, did much more than declare Nigeria's sovereign right to determine where its money will go. He also mapped out a package of changes that, if implemented, will force a radical, painful overhaul of the economy.
"They have done some very, very good things in this budget," said Ishrat Husain, the World Bank representative in Lagos.
The budget calls for a 50 percent across-the-board cut in funding for parastatals, or government-owned industry. It also calls for government divestiture of farms, hotels, breweries and all nonstrategic industry.
At the same time, it eliminates nearly $1 billion worth of consumer subsidies on gasoline and diesel fuel. The budget proposes the creation of a kind of legalized black market for trading Nigerian currency. If it is set up, it would force devaluation of the naira, which now sells on the illegal black market for about one-quarter its official value.
Finally, the budget marks what western analysts said is the most furious attempt ever to streamline and rationalize an inefficient and corrupt system of import licenses. The system had allowed well-connected bureaucrats to use their access to import licenses to become millionaires. At the same time, the system delayed delivery of essential spare parts for industry and fertilizers for farming.
The entire budget overhaul appears very much as if it were designed by the IMF, the western-funded lending agency that for two years offered Nigeria $2.5 billion in loans in return for economic changes.
Babangida rejected the IMF's billion-dollar bailout late last year. The general rejected the IMF's money after calling for a national debate on whether Nigeria should accept it. Out of that three-month debate, conducted in the pages of the country's 16 daily newspapers, there emerged two reasons why Nigeria did not want the money it appears to need so desperately.
First, Nigerians, who are fiercely nationalistic, felt that the IMF loan would compromise the country's sovereignty. Second, and perhaps more important, there was widespread fear that the country's leaders would steal the IMF money, just as their predecessors reportedly stole billions of dollars of oil earnings in the 1970s.
Babangida, therefore, has been left to administer the bitter IMF medicine without either the sweetener of the IMF money or the IMF's stamp of approval that usually is a prerequisite for banks to reschedule their loans.
This week's collapse in oil prices further limited the government's capacity to soften the hardship likely to result from a budget that even its advocates say is inflationary.
There is one bright spot in the Nigerian economy as oil prices fall: agriculture. Record corn and rice harvests this year mark a major rebuilding of the country's farm industry. The U.S. Department of Agriculture estimated that during the past four years Nigeria has cut its annual food import bill from $3 billion to $1.25 billion.
A reborn farm sector, however, is a weak substitute for the oil wealth that in the past 25 years generated a twelvefold increase in per capita income in Nigeria. It is now $760 a year. According to the World Bank, Nigeria in that time moved up from a low-income to a middle-income developing country.
As Nigeria climbed out of the ranks of the world's poorest countries, its people became accustomed to speaking about new government projects that cost "billions" of naira. Nigeria National Petroleum Corp. estimates that between 1958 and 1983, the government earned more than $100 billion in oil revenues, most of it since 1974.
Part of that money was spent on highways, hospitals, universities, airports, office buildings -- the infrastructure needed by a subsistence economy suddenly transformed into a 20th century industrial state. Another part of the money was spent on huge building projects that in hindsight were far more expensive than the country could afford.
On many of these government projects, a large portion of Nigeria's windfall oil profits simply were stolen. The noted Nigerian writer Chinua Achebe explains in his book "The Trouble With Nigeria":
"A structure that costs us, say, $200 million carries a huge hidden element of kickbacks and commissions to Nigerian middlemen . . . . It carries inflated prices of materials caused largely by corruption; theft and inefficiency on the site fostered by more corruption; contract variation, corruptly arranged midstream in execution . . . . When all these factors are added to others which our corrupt ingenuity constantly invents, you will be lucky if on completion your structure is worth as much as $80 million."
Even with the fall in oil prices, bankers here said that Nigeria's 25 to 30 years' worth of oil reserves, along with its consumer market of 100 million people, will continue to make it a country that attracts foreign investment.
Most of Nigeria's $12 billion of medium- and long-term debt is held by commercial banks. The country is counting on the banks' patience -- and fear that they will not be paid -- to allow rescheduling of those debts.