Nigeria’s economy, traditionally based on agriculture and trade, changed profoundly under colonial rule, beginning in the late 19th century. The need to pay taxes to the colonial government forced Nigerian farmers to replace food-producing crops with cash-producing crops, which the government bought at low prices and resold at a profit. In the 1960s and 1970s the petroleum industry developed, prompting greatly increased export earnings and allowing massive investments in industry, agriculture, infrastructure, and social services. Many of these large investments, often joint ventures with private corporations, failed.

The Nigerian economy is one of the largest in Africa. Since the late 1960s, it has been based primarily on the petroleum industry. A series of world oil price increases from 1973 produced rapid economic growth in transportation, construction, manufacturing, and government services. Because this led to a great influx of rural people into the larger urban centres, agricultural production stagnated to such an extent that cash crops like palm oil, peanuts (groundnuts), and cotton were no longer remarkable export commodities; in addition, from about 1975 Nigeria was forced to import such basic commodities as rice and cassava for domestic consumption. This system worked well as long as revenues from petroleum remained constant, but since the late 1970s the agricultural area has been in continuing crisis because of the fluctuating world oil market. Although much of the population remained engaged in farming, too little food was produced, requiring increasingly costly imports. The various governments have dealt with this problem by banning agricultural imports and by focusing, albeit briefly, on various agricultural and indigenization plans. In the late 1990s the government shifted its policy toward privatizing many state-run enterprises—particularly in communication, power, and transportation—in order to enhance the quality of service and reduce dependence on the government.

The oil-valuable Nigerian economy, long hobbled by political instability, corruption, and poor macroeconomic management, is undergoing substantial economic reform under the new civilian administration. Nigeria's former military rulers failed to diversify the economy away from overdependence on the capital-intensive oil sector, which provides 20% of GDP, 95% of foreign exchange earnings, and about 65% of budgetary revenues. The largely subsistence agricultural area has failed to keep up with rapid population growth, and Nigeria, once a large net exporter of food, now must import food. Following the signing of an IMF stand-by agreement in August 2000, Nigeria received a debt-restructuring deal from the Paris Club and a $1 billion loan from the IMF, both contingent on economic reforms. Increases in foreign investment and oil production combined with high world oil prices should push growth over 4% in 2001-02.