Can an Anti-Corrupt Military Strongman Fix Nigeria? Buhari's Military Rule in the 1980s
Nigeria got its anti-corruption crusader in 1984. The economy was collapsing anyway.
Recap
Last time, we witnessed a real-time experiment: could Nigeria manage a financial meltdown without an IMF loan?
When oil prices collapsed in mid-1981, Nigeria’s 2nd Republic was suffering. President Shagari opened IMF talks, but walked away from the IMF’s harsh suggestions: deep budget cuts, trade liberalization, and currency devaluation.
Instead of the IMF’s advice, Shagari tried his own homegrown alternative. He cut spending for many projects and let teacher and civil servant salaries go unpaid for ~8 months, which only reduced the fiscal deficit from 60% of government revenue (1981) to 50% (1982), because oil revenue was crashing faster than Shagari could cut spending. By 1983, oil revenues kept crashing, the deficit exploded to 90% of government revenue.
To cover the shortfall, again ignoring IMF advice, the central bank printed naira to fund Shagari’s government. Directly printing money through the central bank normally sparks inflation, since there’s more cash chasing the same pile of goods, so sellers raise their prices. But Shagari leaned on the overvalued naira to mask over inflation. How? The official exchange rate priced the naira far above its real worth. By the end of 1983, the central bank still treated one naira as worth $1.33, while on the black market, 1 naira was barely worth 35 cents. Anyone connected enough to get dollars at the official central bank window was buying dollars for roughly a quarter of their real price.
The cheap-dollar system did two things at once:
The importers received foreign currency from the central bank in exchange for their naira. This removed the traders’ naira from circulation.
The importers flooded the Nigerian shelves with cheap foreign imports, keeping prices relatively stable.
So there was less naira floating around, and there were foreign goods on the shelves to buy. Inflation was “relatively” tamed. But the masking inflation trick only worked as long as the Central Bank of Nigeria had reserves to burn.
When reserves were almost depleted, the shield vanished. A third piece of IMF advice that Shagari ignored was trade liberalization so that higher prices would ration the scarce foreign exchange. Shagari did the opposite and rationed FX via import licenses. Those licenses often went to politically connected people who resold their licenses for profit rather than to manufacturers who needed raw materials & intermediate parts. So between the nearly depleted FX reserves and the politically captured import licenses, factories were starved of the foreign exchange they needed for spare parts or intermediate goods, gutting Nigeria’s burgeoning industrial sector. On top of that, the Nigerian government defaulted on its trade letters of credit, amassing billions in arrears.
Shagari’s homegrown alternative to the IMF during the oil price crash delivered the worst of every world: drained FX reserves, piling debt arrears, a gutted industrial base, and 20%+ inflation.
The rot drove two social shifts. The first was "Japa", Nigerians fled the country for the West. The second was a grotesque split-screen economy, where politicians lounged in mansions with imported Mercedes and Peugeots, multiple TVs, and private electricity generators, while villagers and the urban unemployed sank into squalor.
The final straw came when Shagari rigged his reelection. With the economy in ruins, Major General Muhammadu Buhari launched a coup, suspended the 2nd Republic’s constitution, and seized power. Given the state of the country, many politicians and journalists at the time called it a “justifiable coup.”
Our Nigeria Series so far:
Overview of Nigeria: I
Pre-Colonial Northern & Southern Nigeria: II, III, IV, V, & VI
British Conquest, Rule, & Independence: VII, VIII, IX, X, & XI
Military Rule: Gowon (XIV), Murtala-Obasanjo (XV)
Buhari Inherits a Broke Petrostate (1983-1985)
Buhari took over a bankrupt nation suffocating from high inflation, meager foreign reserves, and a dying manufacturing sector. He opened with a fatal unforced error, promising 100M Nigerians a “rapid return to prosperity” while global oil prices were still in the gutter. He set expectations dangerously high.
Here’s the issue: over 95% of Nigeria’s Foreign exchange (FX) earnings came from crude oil. Nigeria sells oil, gets FX, and the FX lands at the Central Bank, which has three obligations: pay foreign creditors in FX, sell FX to importers so they can buy foreign goods, and convert FX to naira for the federal, national account. That oil dollars-to-converted-naira is the government’s main source of revenue, funding the federal, state, and local governments.
Lower global oil prices means lower export sales and government revenue. As export revenue shrank, foreign debt service ate into export sales, and by the time Buhari took over in 1983, debt service already took a quarter of export revenue. That share of export revenue never got converted into naira and never became government revenue. Debt service was shrinking the government’s budget at the source. Every dollar wired to creditors was a dollar that never reached the Nigerian national account.
Dead Broke and Defiant: The IMF Standoff
When Buhari came into power, Nigeria had roughly 1 month of foreign exchange reserves remaining. You are in a balance of payments crisis when you have under 3 months, and once you factored in Nigeria’s short term foreign loans, then Nigeria was underwater.
Buhari wanted debt relief and debt rescheduling (longer repayment runway), so he opened talks with the IMF. Despite the desperation, Buhari stubbornly stalled and refused the IMF bailout’s terms. The IMF wanted Nigeria to cut its expensive food and fuel subsidies and devalue the naira to make its non-oil exports globally competitive. Buhari publicly rejected the IMF’s demand for a massive overnight currency devaluation as a political non-starter that would crush the working class with inflation.
Instead of the IMF’s plan, the central bank quietly engineered a gradual, ad-hoc devaluation. From 1983 to 1985, the official central bank shifted from 0.72 naira to 0.894 naira to $1 USD. But it wasn’t nearly enough. On the black market, the true barometer of the currency’s worth, the dollar was much stronger than the naira: doubling from 2 naira to 4 naira.
This half-measure delivered the worst of both worlds. The creeping devaluation was just enough to make imported food more painfully expensive for everyday Nigerians, but the official rate remained too overvalued to make Nigerian exports competitive abroad.
To stop the bleeding of FX, Buhari imposed draconian rationing. The civilian foreign exchange allowance was slashed to a strict $380 per month (30% lower than Shagari’s final budget). The brute-force restrictions worked, dragging total annual imports down from over $10B+ a year to ~$8B a year by the end of Buhari’s era.
The OPEC Hustle
Buhari knew the root of Nigeria’s crisis was low oil prices, but Nigeria lacked the leverage to demand higher prices. The true power in OPEC was Saudi Arabia, pumping ~5M barrels a day and keeping prices low to keep the West hooked on cheap crude oil. Nigeria was tied with Indonesia as the 4th largest producer at 1.3M barrels and could not force a price hike.
So Buhari pivoted from price to volume. He successfully lobbied Saudi Oil Minister Ahmed Zaki Yamani for a lifeline. In late 1984, when the rest of OPEC agreed to cut production to increase oil prices, Nigeria was granted a special exemption to maintain its output at roughly 1.3 to 1.4M barrels per day. Buhari effectively free-rode the cartel, except prices didn’t really recover due to non-OPEC competition from the USSR, Norway, UK, U.S.’s Alaska, & Mexico.
Combined with his brutal import cuts, this “OPEC hustle” inched Nigeria’s FX reserves up from a disastrous one month of coverage in 1983 to two months by 1985. It was an improvement, but Nigeria was still firmly in the crisis zone.
To survive on little foreign reserves, Buhari was forced to bypass cash entirely and established international barter arrangements. Nigeria would trade crude oil directly to European countries for clothes, food, or pharmaceutical drugs.
Manufacturing Issues
Desperate to cut reliance on imports, Buhari tried to force more manufacturing supply chains inside Nigeria. In 1984, Buhari raised local content requirements for manufacturing from 15% to 50%. But it was a mandate with no teeth. Unlike the strict, disciplined industrial policy of South Korea, Buhari provided no incentives to build local supply networks, and no penalties for failing to do so. Simultaneously, he expanded Shagari’s import restrictions, starving an industrial sector that ran on imported parts and materials.
The reality on the ground was grim: Nigerian factories lacked the FX to import what they needed, and local suppliers couldn’t fill the gap. Factories couldn’t produce, and the plants bled money. Across the nation, most manufacturing plants operated at under 25% capacity and some halted completely.
For example, the multi-million-dollar sugar mill was operating at 15% capacity. Also, Steyr-Nigeria was supposed to produce 8K trucks & 5K tractors annually, but failed to hit those targets even after six years of operation.
Steyr-Nigeria and other firms made no profit at all during the Buhari era.
To survive the crisis, mass layoffs swept through the industrial sector. Between 1981 to 1985, major joint ventures like Peugeot-Nigeria, Steyr-Nigeria, and Volkswagen-Nigeria slashed their workforces from over 700 staff to roughly 500.
Subsidizing Failure & Stalled Mega-Projects
The federal and state governments owned large stakes in these plants, so government absorbed the losses, and the FX cash crunch even forced Buhari to halt funding for the Ajaokuta Steel Mill entirely, especially amid allegations that over $100M meant for it had been stolen.
The result of the manufacturing losses and poor operational capacity was that Nigeria’s manufacturing value add was slashed by more than 50% between 1981 to 1985.
Austerity
Buhari rejected the IMF and no one was willing to lend to Nigeria. So Buhari had two options to manage deficits:
Directly Print More Money: He could authorize the central bank to simply credit the government’s accounts in this recessionary period (countercyclical spending). But that would have been economic suicide. His predecessor, Shagari did this strategy, but he managed to mask the inflationary effects of direct money-printing because he had a six-month cushion of FX reserves to absorb the impact. Buhari had no such cushion. Direct money printing would have triggered massive inflation, far surpassing the 23% rate Buhari inherited.
Slash Budgets: Severe austerity to reduce deficits.
Buhari went for option #2.
Buhari’s budget cuts laid off 10K+ civil servants (5% of the civil service), reduced capital expenditures, and cut educational subsidies. Buhari continued Shagari’s freeze on public sector wages, slashed spending on supplies, spare parts, and routine maintenance, and eventually froze private sector wages.
As inflation outpaced frozen salaries, real (inflation-adjusted) wages across the nation collapsed. Rural incomes also plummeted as state-owned, commodity marketing boards continued to implicitly tax farmers too much.
Military “Bargain Prices”
Shagari masked inflation by lighting FX reserves on fire. Buhari’s substitute was brute force: he sent soldiers to beat up any merchant caught selling at “high prices”.
Despite knowing price controls were foolish, Buhari’s military government announced price controls for essential commodities, known as “essenco” in 1984. On paper, the strategy worked: official inflation plummeted from 23% in 1983 to under 8% by 1985.
While price controls “worked”, the obvious drawback was the shortages in goods. The government and the public quickly blamed widespread hoarding on “greedy traders”. But the truth was far more nuanced: hoarding was a completely logical, defensive reaction by merchants trying to survive a combination of massive import cuts and government-enforced price controls.
Greedy Traders?
Before Buhari put his price controls, retail prices in open markets were sky-high. The public saw these prices and immediately assumed merchants were “profiteering”. What they couldn’t see was that the supply chain to bring goods into Nigeria was a corrupt & expensive “bribe chain”. For a merchant to import anything, they had to survive a grueling financial gauntlet:
The Black Market License: To import goods to Nigeria, you needed a license from the Commerce Ministry. Because the government rationed these to save foreign currency, politicians handed them to friends/family/loyalists/cronies instead of actual businesses. The well connected insiders then sold these licenses to real merchants on the black market at an astronomical markup. By the time an actual merchant bought the license second handedly, they already paid a massive bribe or was in deep debt to purchase the license.
The “Form M” Labyrinth: To pay the foreign supplier, the merchant needed approval from the Central Bank of Nigeria to convert their naira into FX, navigating a mountain of red tape called “Form M”.
Port Extortion: When the cargo ships finally arrived in Lagos’ port, custom officials and dock workers (knowing goods were scarce and time-sensitive) routinely held the containers hostage, demanding heavy under-the-table bribes just to offload the freight.
By the time a merchant actually got all the goods to their stall, their cost basis was massive. To turn any profit, or simply break even on the bribes and debt they accrued, they had to charge steep prices. The markup wasn’t “greed”, but rather it was the bribe chain made visible.
Because the public only saw the final price tag, they cheered when Buhari’s soldiers marched into markets, raided merchant warehouses, and forced Nigerian merchants (many of them women) to sell sugar, flour, vehicles, detergents, at “bargain prices”. The public didn’t realize the military was driving the merchants to bankruptcy. The merchants were being ordered to sell at negative unit economics.
As one female merchant tearfully pleaded to a soldier “I cannot sell my goods for less than the cost at which I bought them. It is as I buy that I sell”
These government price controls were the signal for merchants to hoard. Faced with financial ruin if they sold at the military price mandate, merchants tried to be smarter in how they hid goods. As open-market shelves went empty, goods moved entirely to the black market. There, merchants bypassed price controls and sold to desperate buyers at a massive premium. Buhari's attempt to force affordability at gunpoint simply created severe scarcity and drove the basic necessities of life further out of reach.
War Against Indiscipline (WAI)
Buhari believed Nigeria’s economic collapse was ultimately a moral failure. He thought if he could stamp out corruption and instill order, the country would get back on track. To achieve this, he launched a social engineering campaign called “War Against Indiscipline” (WAI).
In practice, WAI was very stringent. Civilian brigades directed traffic and cleaned up Lagos, while soldiers whipped or jailed citizens who skipped bus lines, cheated, hoarded, or littered. Civil servants who arrived late to work were publicly humiliated and forced to do frog jumps. Buhari’s military government instituted the death penalty for selling cocaine, committing arson, counterfeiting, or oil smuggling. Armed robbers faced death by firing squad.
War on the Elite
Initially, the public loved the crackdown because it wasn’t just aimed at the streets; Buhari went after the elite. He cleansed the civil service, froze bank accounts of political parties after banning them, and arrested hundreds of corrupt former government officials from the 2nd Republic, locking them away in the infamous Kirikiri prison. Through special military tribunals, the regime recovered hundreds of millions of dollars of looted funds.
The most cinematic episode of WAI was the Dikko affair. Umaru Dikko, former President Shehu Shagari’s brother-in-law and ex-Transportation Minister, had allegedly looted $1B in a rice import license scheme before fleeing to his $600K home in London. Buhari claimed that Dikko financed a coup plot and hired mercenaries to try to blow up Nigeria’s oil refineries.
In a black-ops mission, Nigerian agents partnered with Israeli mercenaries (despite Nigeria and Israel not having diplomatic relations at the time. Nigeria wouldn’t restore relations with Israel until 1992) to kidnap Dikko. They drugged him and attempted to ship him out of Britain in a crate.
The plot was foiled when a British customs officer opened up the crate and found Dikko unconscious inside. The Nigerian agent and the three Israelis were all jailed in the UK. Due to Nigeria trying to arrest people on British soil, Britain expelled Nigerian diplomats in the UK, and Nigeria retaliated in kind. Dikko was never brought home to Nigeria via kidnapping.
The Great Naira Swap
While the Dikko kidnapping failed, Buhari executed a highly effective, nonviolent strike against corrupt elites in April 1984. He announced a new naira currency.
Every old note had to be exchanged for a new one within a matter of weeks. To ensure no one could cheat the deadline, Buhari closed Nigeria’s land borders. The target wasn’t the everyman, but the 2nd Republic politician sitting on fortunes in embezzled naira, much of it stashed in warehouses across the border or abroad.
A banknote is only worth something if the issuing authority honors it. By reprinting the notes and closing the country, Buhari turned billions of looted naira into worthless paper. The corrupt elites could not transport their hoards back into Nigeria in time to swap them. The stolen cash simply died in suitcases.
WAI becomes "War Against the Innocent”
For all the fanfare, WAI failed to cure Nigeria’s rot. The bureaucracy still demanded bribes, and WAI enforcement units quickly realized they had unchecked power and became extortive themselves. Some cynical WAI commanders called WAI “War Against the Innocent”.
The hypocrisy became too glaring. For example, WAI championed environmentalism with Buhari passing decrees protecting endangered species, but neglecting the oil spills in the Niger-Delta.
Eventually, Nigerians grew resentful, sensing that Buhari was far harsher on the minor indiscipline of regular people (like cutting a line or urinating in public) than bringing the true corrupt elites to face justice.
As one Nigerian put it, “A game of musical chairs. They got rid of some corrupt guys, but they’re putting in others. They are making all kinds of melodramatic gestures and statements which in the end will amount to nothing.”
As public sentiment soured, Buhari had less tolerance for criticism. His National Security Organization (NSO) arrested journalists and critics.
Finally, seeking a populist distraction from a collapsing economy, Buhari repeated Shagari’s playbook and expelled 700K Black African migrants (Ghanaians, Cameroonians, Chadians and Nigeriens). This was a popular policy, as migrants were scapegoated for "stealing jobs” or “urban crime”.
Buhari Falls
By 1985, Nigerians were exhausted. Buhari had reduced the fiscal deficit. But people were poorer, factories were weaker, real wages had collapsed, debt service was higher, and shortages persisted. The military government was violent, rigid, and had no democratic timetable. Inside the military, the mood turned against him.
General Ibrahim Babangida overthrew Buhari in a coup. Babangida accused Buhari of being “too rigid and uncompromising”. He released some journalists, repealed laws criticizing the government, and reopened stalled talks with the IMF.
Concluding Thoughts
So was Buhari good or bad?
The honest answer is that Buhari inherited a disaster and then mismanaged expectations with the Nigerian public.
He did not cause the oil crash, the debt overhang, or the corrupt import-license economy. By the time Buhari arrived, Nigeria was already broke.
To Buhari’s credit, he achieved what Shagari couldn’t. He took elite corruption seriously, nudged FX reserves slightly upward, and ruthlessly shrank the fiscal deficit from 91% of government revenue to 25% by 1985. But, austerity came at brutal human costs: slashing healthcare, education, and infrastructure to improve financial books.
Ultimately, Buhari’s foundation theory of government failed. He genuinely believed that Nigeria could be saved by discipline. That if you disciplined budgets, jailed corrupt politicians, and whipped the queues, then Nigeria would do well. But, you could argue he didn’t have time since he didn’t even rule for two years.
I would argue that the problem wasn’t morality. The problem was math. Nigeria depended on oil for FX. With global oil prices collapsing, foreign debt service swallowed an ever-growing share of what was left, rising from a quarter of export earnings when Buhari took office in 1983 to over a third by the time he was overthrown. Meanwhile, he stubbornly defended an overvalued naira by burning reserves that starved factories of the dollars they needed to import foreign parts. His government was simply not good at allocating scarce FX.
It’s almost a religious recitation in the developing world “if we just remove corruption, then our country can get back on the right track!” Buhari’s rule was widely seen as the least corrupt regime Nigeria had seen since Murtala, the 53 suitcases scandal notwithstanding. It didn’t matter. You can jail corrupt politicians and still run a broken exchange-rate policy. You can beat up “greedy” merchants and still have empty shelves. You can promise a “rapid return to prosperity” while presiding over the hollowing out of your industry.
By 1985, Nigeria had fallen behind countries it used to lead. China, Pakistan, and India all pulled ahead, though by African standards Nigeria still sat above Congo or Ethiopia.
Through the oil-price collapse, both Shagari and Buhari ignored the IMF, and both their homegrown solutions were subpar. Will Babangida finally listen to the IMF, take their loan, and turn the economy around? Find out next time.
The math-not-morality argument raises a question: if the FX structure was primarily a policy error, then why did it survive the coup? Shagari defended the overvalued naira and import-license rationing as a democrat; Buhari defended the same structure as the military anticorruptor who'd just jailed Shagari's colleagues. How did two regimes with opposite theories of government have the same distribution mechanism?
My sense is the structure was doing something for someone. Otherwise, it doesn't survive two regimes. And if the bribe chain was structural rather than pathological, as argued, then was WAI just targeting the retail end while the wholesale end stayed intact?
Curious whether the import-license holders came through the Babangida transition too, and what that means for how much work the IMF conditionality actually had to do.
This brought back some memories! I read just a little about how Buhari was at the time he was elected to be President a second time. An unlikely comeback story that one!
Co-incidentally New Zealand was also going through a massive crisis at the same time. The economy was seriously mismanaged by Prime Minister Muldoon (who was also the Finance Minister), to the point that the country completely ran out of foreign exchange (which was only discovered the day after he lost an election). Massive amounts of subsidies, benefits, and import controls were swept away by following governments and ten years later it was as if it had never happened so successful was the recovery. Inflation rates also dropped from 18% to 2%.