The question of how natural resources have made or marred the fortunes of countries has acquired new relevance in contemporary political economy discourse. Perhaps nowhere has this new perspective stimulated our understanding of the issue more than in Nigeria, where the story of crude oil has remained a paradox of plenty and an incubus that the country has had to carry since 1958, when the first commercial export of the commodity was made. From modest earnings of less than £25,000 then, Nigeria today earns about £4 billion (US$7.09 billion) annually from crude oil.
Beyond early assumptions that oil equals an abundance of wealth, the Nigerian situation has not only proved otherwise, it has also remained largely a case of frustration, lamentation, and macabre irony. The discovery of the mineral resource has been blamed for the ecological degradation of the Niger Delta region, as much as for the reckless quest for its business, and the resulting corruption scandals, military coups, prolonged dictatorships, privatisation of public resources, electoral fraud, militarism and prebendal behaviour among political leaders – military and civilian alike. Perhaps the most tragic manifestation of the curse of oil in Nigeria is the growing underdevelopment. In spite of occasional windfalls resulting from soaring prices in the international oil market, Nigeria’s economic performance has been anything but outstanding. Presently ranked as one of the poorest countries in the world, Nigeria is the only member state of the Organisation of Petroleum Exporting Countries (OPEC) whose citizens have not had their lives transformed by the over $350 billion earned from crude oil since 1958.1
| ||"Perhaps the most tragic manifestation of the curse of oil in Nigeria is the growing underdevelopment... (Nigeria is) presently ranked as one of the poorest countries in the world."|| |
It is against this backdrop that this article will seek to examine oil and the natural resources curse in Nigeria, specifically how Nigeria slid into its present mess despite huge revenue earnings from oil and gas.
Oil in Nigeria: A Historical Overview
Oil exploration in Nigeria dates back to 1903 when the British colonial government initiated the Mineral Survey Corporation to pioneer mineralogical studies of the country. There was no success until 1907, when oil seepages were discovered in the Araromi area of Okitipupa (in present-day Ondo State), some 300 kms east of Lagos (David West 2002:27; Elamah 1998:21; NNPC 186:1). This attracted the Nigerian Bitumen Corporation, a German company, to obtain a license from the colonial government in 1908 to exploit the deposit.
The German company drilled 15 dry wells before terminating operations at the outbreak of World War I. No further exploration occurred until 1937 when Shell D’Arcy (the precursor of the Shell Petroleum Development Company of Nigeria – SPDC) secured sole concessionary rights to undertake oil exploration throughout the entire country. Its operations were aborted at the outbreak of World War II, after drilling seven dry wells. In 1946, it resumed exploration in partnership with British Petroleum as Shell-BP. The new company again met with disappointment until its decision "to limit its operations to the tertiary areas of the Niger Delta" (David-West 2002:27) yielded the discovery of oil in commercial quantity in Oloibiri (present-day Bayelsa State). This was after an estimated US$80 million had been spent.2 The Oloibiri discovery, which was followed by others in Afam in 1957, in Ebubu and Bomo in 1958 and in Ogoni land in 1959, vindicated earlier claims that Nigeria had large oil deposits, and stimulated the interest of other foreign and local oil firms in the country. The result was the abolition of the sole concessionary rights granted Shell-BP in 1959, a situation that eventually accelerated the pace of oil exploration in the country.
One notable consequence of the accelerated pace of oil exploration during this period was the corresponding increase in the quantity of crude oil exported by the country to the international oil market. From 5,100 barrels per day (bpd) in 1958, Nigeria’s exports had already doubled by 1959. By 1979 they had reached an all time high of 2.4 million bpd (Omojuyigbe and Okoroafor 1994:2). During this time, the Nigerian state’s economic role progressed from that of a mere regulator to fuller involvement in the upstream and downstream operations of the oil industry, including its decision to join OPEC in 1971 as the 11th member state. The result is seen in the country’s 55% equity share in the Shell Petroleum Development Company (SPDC), 50% in Mobil Producing Nigeria and 60% each in Chevron Nigeria, Nigeria Agip Oil, Elf Petroleum and Texaco Overseas (Nigeria) Petroleum. These, put together, account for 93.9% of Nigeria’s oil production. The OPEC quota regime explains the 1.4 million bpd the country produced in 1984; the 2 million bpd in 2002; and, since 2005, the current quota of 2.45 million bpd.3
| ||"The Nigerian state’s economic role progressed from that of a mere regulator to fuller involvement in the upstream and downstream operations of the oil industry, including its decision to join OPEC in 1971 as the 11th member state."|| |
Beyond production, Nigeria’s proven oil reserves have witnessed astronomic progression over the years. They were known to be 10 billion barrels in 1972 and rose to 27 billion in 2000 (David-West 2002:27). The projection of the present government of President Olusegun Obasanjo is that oil production will grow to 4 million bpd (due to increasing offshore prospecting) and that known reserves will likely increase from the current 30 billion barrels to 40 billion by 2010. All this, when added to new ground being broken in the area of natural gas production, where Nigeria reputedly has the third largest reserve in the world, with $900 million realised in the first experimental year (Chukwu 2002:24),4 would ordinarily suggest that the sky is the limit for what Nigeria can attain with its enormous oil wealth.
But is this really the case?
A Country so Blessed ...
Oil has added to what Nigeria can achieve as a country. Regardless of the rapid decline of infrastructure and the building of facilities that fail to serve the country and its citizenry in optimum ways, oil money has facilitated the launching of four national development plans, which have enabled the building of a network of roads (among them superhighways) and bridges by both federal and state governments in the country. Nigeria has also witnessed the construction of estates and skyscrapers, especially in Lagos and Abuja, producing a skyline that gives the image of a rich country.
But for oil wealth, it would have been difficult for Nigeria to build brand new cities, especially the federal capital, Abuja, within such a short time. The proceeds from crude oil have also translated into an increased number of government-owned universities, polytechnics, colleges of education and other institutions of higher learning (Chukwu 2002:24), now found throughout the country. Nigeria’s hosting of large international events such as the Festival of Arts and Culture (FESTAC), the World Youth Soccer Championship (WYSC), the Organisation of African Unity (now African Union), and the Commonwealth Heads of Government Meeting (CHOGM) has been largely due to the huge profits from oil.
... and yet, so Cursed
One emerging issue in contemporary political economy and development studies is the correlation between natural resources and poor economic performance in resource-rich countries. Indeed, "the paradox of plenty" or "the resource curse", both concepts that have been adopted to capture the phenomenon, remain one of the very few issues on which scholars across the social science disciplines are in general agreement when it comes to explaining the underdevelopment and the socio-economic problems (including corruption and conflicts) ravaging resource-rich countries.5 Nigeria is no exception. Indeed, the country best illustrates how a petro-state is made.
| ||"One emerging issue ... is the correlation between natural resources and poor economic performance in resource-rich countries."|| |
A Culture of Waste and Corruption
The central role of the Nigerian state in the political economy of oil is reflected in the dialectics of its rentier linkage with oil receipts, which account for 40% of Gross Domestic Product (GDP), 85% of national budgetary revenue and 95% of foreign exchange earnings. Collected through various means such as taxes, levies, royalties, joint ventures and profit-sharing agreements, the leading place of oil in Nigeria’s political economy is seen not only in the manner that state frameworks for decision-making are fashioned along fiscal dependence on oil-led development, but also in how the exploitation of the resource has changed the state to make the stability of successive regimes in Nigeria susceptible to the vagaries and fluctuations of world oil prices. This vulnerability of the country to the boom-and-bust cycles of oil prices is further impacted by the unprecedented advantages it has accorded those in government to perpetrate favouritism, corruption and mismanagement.
It is in this fragile context that oil could be said to have caused a mixed-grill of developments in Nigeria, with the pendulum swinging more to the negative side of the balance. Beyond inducing a culture of waste, manifested in ambitious state-funded projects, the oil industry remains an enclave "with severely constrained links to the local economy" (Anya 2002:16; Utomi 2001:14), especially to the agricultural and manufacturing sectors which constitute the stimulants of any country’s meaningful efforts at development.
There have been four spikes in the cycle of oil revenues due to high prices in the international market. These were the Arab-Israeli War of 1973; the 1979-1980 period precipitated by various factors, including the Iranian Revolution; the Gulf War in 1991; and the period from 1999 to the present (Anya 2002:16; Utomi 2002:14), when increasing globalisation began to set prices at all time high records. Available information reveals that during each of these occasions Nigeria not only frittered away the opportunities offered to turn around the economy, but in fact induced further distress. For instance, rather than work to secure the country’s future by investing in non-oil economic development in 1973, with its potential for non-oil sources of revenue, Nigeria’s excess oil revenue went into massive state-funded expenditures, outflows of capital on public account, large scale awards (e.g. the Udoji Award) and massive importation of all sorts of consumables, which, because they were cheap, undermined local production.6 The proportion of agricultural labour dropped from 71% in 1960 to 54% in 1980. Worse still was that agriculture, which had accounted for 63.3% of Nigeria’s Gross Domestic Product (GDP) in 1962, declined to a mere 5% in 2002, affecting mostly cash crops such as cocoa, oil palm and rubber (Obiagwu 2002:8).
| ||"During each of these (oil booms) Nigeria not |
only frittered away the opportunities offered
to turn around the economy, but in fact induced further distress."
The reprieve of the 1979-1980 boom did not last long because new oil exporters such as Mexico, Norway and Great Britain entered the international market, while at the same time an extended recession in industrial countries forced down the demand for oil (Karl 1997:31). The result was a "glut" that set the country up for the "Dutch Disease" (reminiscent of Holland’s economic hardship associated with the discovery of gas in the 1950s and 1960s) and an accompanying debt crisis.
The $12.2 billion windfall that accrued from the 1991 Gulf War became the subject of a probe by the 1994 "Okigbo Panel", resulting in a damning report that is yet to be officially released by the government.7 The relatively long period of revenue prosperity Nigeria has enjoyed since 1999 and the often touted positive impact of the on-going economic reforms makes the present civilian government a larger earner of money from oil than any of its predecessors.
Poverty, Environmental Damage and Conflict
In spite of the huge revenues the present administration has earned from oil, the reality of the material condition of the Nigerian masses has eroded any confidence that life is not business as usual in Nigeria. Per capita income plunged from $1,000 in 1981 to $300 in 2002 (Anya 2002:16). The Human Development Report 2004, published by the United Nations Development Programme (UNDP), ranked Nigeria 151st out of 177 countries in terms of poverty. Confirming earlier statistics that the country is home to 50-80 million people living below the poverty line – i.e. less than $1 a day (Garuba 2006:18) - further details of the poverty profile reveal that Nigeria is classified in the Low Human Development category, along with Togo, Lesotho and Kenya, while less resource-endowed countries like Cameroon, Ghana, Guinea, Equatorial Guinea, Swaziland, and even war-ravaged Sudan, are placed in the Medium Human Development category. The report also puts Nigeria’s life expectancy at 51.6 years, compared to Pakistan’s 60.8 years and Cape Verde’s 70 years. The combined gross ratio enrolment in primary, secondary and tertiary schools is 45%, while less resource-rich countries such as Uganda, Togo and Botswana read 71%, 67% and 70%, respectively. Furthermore, a paltry 0.8% of the country’s GDP goes into health, compared with South Africa’s 3.6%, Cape Verda’s 3.85% and Botswana’s 4.4%.
This the grim picture of poverty and misplaced priorities in Nigeria begins to make sense when one discovers that the richest 10% of the population controls 40.8% of the country’s wealth while the poorest 20% controls a mere 4.4% (Akinyemi 2004: 8). Human behaviour being a significant factor in the dynamics of wealth, Nigeria has had the misfortune of being led by short-sighted leaders and policy-makers who have failed to share the proceeds of oil with the masses or to convert the resource into real wealth in measures that are commensurate with its abundance. Instead, the murky business of oil has precipitated military coups, prebendal behaviours and prolonged military dictatorships, while its proceeds have provided bad governments with the means to maintain power and support conflicts in the Niger Delta (Myers 2005:5).
| ||"The murky business of oil has precipitated military coups, prebendal behaviours and prolonged |
It is not surprising, therefore, that the Human Rights Violations Investigation Commission (popularly known as ‘Oputa Panel’)8 reports that:
Oil, one of the greatest blessings God has showered on our country, has turned out to be a curse. Instead of providing the basis for the national economic, political, scientific/technological and social growth and development, cushioning its citizens from the scourge of abject poverty, squalor and want, oil became, in the hands of the ruling elite and the political class, an instrument sounding the death-knell of such key principles of good governance as democracy, federalism, transparency, accountability and national growth. (Civil Society Forum 2005:36)
The frustration arising from the maelstrom of expectations raised by oil and then disappointed is manifest in the growing instability and number of conflicts in the country. This frustration has proved more severe in the oil-bearing communities of the Niger Delta where the devastating impact of oil exploitation and production has precipitated popular struggle and resistance.9 The ecological and environmental destruction from the activities of oil multinationals operating in the region has deepened the poverty and the inequality that presently characterise the lives of the people, who remain politically marginal and socio-economically underdeveloped. Official statistics on the material condition of the Niger Delta put 72% of the households in the region within the poverty bracket (Garuba 2002), while the United Nations Development Programme and the World Bank observed that, in 1994, only 27% and 30% of the region’s households had access to safe-drinking water and electricity, respectively. Both these indicators were below the national average of 32% and 34%, respectively (Garuba, forthcoming).
It is little wonder, therefore, that "resource control" is the latest of numerous concepts to emerge from the region, agitating for political "restructuring, fiscal federalism and drastic decentralisation of the polity" (Garuba 2003). From very peaceful domestic demonstrations, and later, isolated cases of lawlessness, the multi-faceted conflicts10 in the Niger Delta have escalated into a full blown rebellion in which youth militias now make a pastime of attacking oil platforms, kidnapping and/or killing expatriates, as well as threatening to kill more and to obstruct Nigeria’s oil production, if specific demands are not met. Attaining a perverse status on the heels of the judicial murder of the environmental activist, Ken Saro-Wiwa, and his eight other colleagues in the Movement for the Survival of Ogoni People (MOSOP) in November 1995, the deepening rebellion/militancy in the Niger Delta has also created space for militias, who now find big business in illegal oil bunkering (a euphemism for oil theft) – perhaps their own "resource control". This has blurred the line between popular protest and criminality in the troubled region. Between 1999 and 2003, conflicts and the accompanying oil theft of between 150,000-250,000 bpd have gulped US$30 billion (Garuba 2004), while the combined losses of Shell, ChevronTexaco and Elf Petroleum to conflict in the Niger Delta in 2004 alone was calculated at US$44.5 million (Niger Delta News, Vol. 1, Issue 4, July-September, p.11).
| ||"The deepening rebellion/militancy in the Niger Delta has also created space for militias, who now find big business in illegal oil bunkering... This has blurred the line between popular protest and criminality in the troubled region."|| |
The atmosphere of fear and discontent generated in "three lethal attacks" by militants on oil installations in the Niger Delta and the holding of four expatriates (a Briton, an American, a Bulgarian and a Honduran) as hostages in one week in January 2006, coupled with a threat to wreak more havoc in February,11 is reminiscent of similar attacks in April 2004 in the Bibi and Olero Creek fields of Delta State, where seven ChveronTexaco workers (including U.S. nationals) were killed, and in several other areas, including those associated with the Asari-Dokubor-led Niger Delta Peoples Volunteer Force. The Olero incident forced a closure of the flowstation in the area, as well as others in adjoining Makaraba, Opuekeba and Otunana, all amounting to a daily reduction of 38% of Nigeria’s oil production. The same uproar generated by the January 2006 attacks and hostage taking in Benisede, in the Ekeremor Local Government Area of Bayelsa State, by the hitherto unknown Movement for the Emancipation of Niger Delta, caused Shell and ChevronTexaco to suspend oil production. Further threats by the Petroleum and Natural Gas Senior Staff Association (PENGASSAN) and the National Union of Petroleum and Gas Workers (NUPENG) to withdraw their members from the troubled area, if appropriate measures are not taken by the government to guarantee security in the region, also heightened the atmosphere of chaos. Some reprieve, however, came with the release on Monday, January 30, 2006, of the four foreigners held hostage.
Beyond the sad fact that oil wealth is a continual source of trouble, the present onslaught by militants in the Niger Delta is a price the country is paying for the failure of successive governments to address the issues begging for attention in the region. These issues are poverty, inequality and underdevelopment, compounded by devastating ecological and environmental impacts from oil exploration and production. That the militias have refused to be deterred, in spite of the bulldog arrogance of the Nigerian state and the increasing, suffocating presence of the military personnel, even in the remotest villages of the region, is a clear indication that there is a fault-line between how the problem is perceived by the Nigerian state and the reality on the ground. This brings one to the question: how do we tame the curse of oil in Nigeria?
| ||"The country is paying for the failure of successive governments to address the issues begging for attention in the region. These issues are poverty, inequality and underdevelopment, compounded by devastating ecological and environmental impacts from oil exploration and production."|| |
Conclusion: Taming the Curse
There is no denying the fact that oil in Nigeria generates a host of expectations among the citizenry. It is reminiscent of Kapucinsk’s analysis of the paradox of oil in Iran under the Shah. According to him:
Oil creates the illusion of a completely changed life, life without work, life for free…. The concept of oil expresses perfectly the external human dream of wealth achieved through lucky accident…. In this sense oil is a fairy tale and like every fairy tale a bit of a lie. (Quoted in Watts 2006).
To tame the curse of oil, Nigeria must begin to make better developmental use of the huge revenue accruing from oil. This requires embracing best practices that are capable of ensuring transparency and accountability in governance through strengthened public institutions. This is where the ideas behind the Nigeria Extractive Industries Transparency Initiative (NEITI) and the Publish What You Pay (PWYP) Campaign Nigeria may be said to be headed in the right direction. One would only like to add that both organisations should see beyond their present focus on what the oil companies pay into the federation account, and include how the Nigerian government spends the oil money.
There is the urgent need for a strategic re-direction of the role of oil in the economy. Nigeria can no longer rely solely on oil for its foreign exchange earnings. The best way to tackle this is to evolve policies that are capable of building organic links between the oil economy and the agricultural and manufacturing sectors, so that oil will yield dividends that will benefit the citizens.
In addition, the Nigerian state must be ready to shelve its present posture and enter discussions and negotiations with the Niger Delta people who bear the brunt of the impacts of oil activities without a corresponding provisioning for their present and future needs.
Lastly, civil society must be alive to its responsibility for ensuring proper governance of Nigeria's oil resource, not only by monitoring the activities of multinational oil companies, but also by ensuring that governments at all levels (i.e. federal, state and local) fulfil their part of the social contract with the people of Nigeria to whom oil should be bringing enduring benefits. To achieve this, they must work to weld the severed links between the citizens and the government, so that the former can expect fiscal transparency and accountability, while the latter develops a deep sense of morality in public service.
Centre for Democracy and Development (CDD)
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1. For sources on the $350 billion so far earned by Nigeria from crude oil since 1958, see The Guardian (Lagos), January 25, 2006, pp.1-2; Mathiason 2006.
2. It may be recalled that the Nigerian Naira, from its inception in 1973 to the early 1980s, had more value than the United States dollar.
3. For sources of information on Nigeria’s 2.45 million bpd production quota since 2005, see Africa Confidential, Vol. 47, No. 2, 20 January, 2006; The Punch, Tuesday, August 2, 2005, p.1.
4. Nigeria’s reserve is estimated at 187 trillion cubic feet (tcf), although about 65% of what comes up is currently being flared.
5. Amongst numerous works on this are: Terry Lynn Karl, The Paradox of Plenty: Oil Booms and Petro-states, Berkeley: University of California, 1997; Ian Gary & Terry Lynn Karl, Bottom of the Barrel: Africa’s Oil and the Poor, Pointe Noire: Catholic Relief Services, 2003; Jeffery D. Sachs & Andrew M. Warner, "The Curse of Natural Resources," 45 European Economic Review 827, 2001; Xavier Sala-i-Martin & Arvind Subramanian, Addressing the Natural Resource Curse: An Illustration from Nigeria, Cambridge, MA: National Bureau of Economic Research, 2003; Open Society Justice Initiative, Legal Remedies for the Resource Curse: A Digest of Experience in Using Law to Combat Natural Resource Corruption, New York: Open Society Institute, 2005.
6. In response to the situation that made the oil sector turn out to be the basis of Nigeria’s currency value, the Naira became overvalued to the point that cheap imports undermined local manufacturing. The result was congestion in ports. The Cement Armanda was the most visible among the several issues that attracted national attention in this regard in 1976.
7. "Okigbo Panel" is the popular name of "The Panel on the Reorganization and Reform of the Central Bank of Nigeria". Chaired by a famous economist, the late Dr. Pius Okigbo, the Commission was inaugurated by the Abacha regime in January 19, 1994, to insulate the apex bank "from the fluctuations in the political ecology, and to equip it not merely for the immediate and present needs of the economy, but also for its expanding future responsibilities". The report was "unofficially" released with its Executive Summary published as the cover story in The News (Lagos), 23 May, 2005.
8. The Commission , fashioned along South Africa’s Truth and Reconciliation Commission, was one of the ‘transitional justice’ measures initiated by President Olusegun Obasanjo’s administration (upon the return of Nigeria to civil rule on May 29, 1999) to undertake an inquest into the country’s past human rights violations, with a view to forging national reconciliation. The mandate period of the Commission was from January 15, 1966, when Nigeria had its first military intervention in politics, up to May 28, 1999, the eve of handing over power to his civilian administration. The Commission, which was established in June 1999, held public hearings across the country and submitted its report to President Obasanjo on May 28, 2002. The final report of the Commission was not made public, until it was "unofficially" released by the Nigerian Civil Society Forum on January 1, 2005.
9. The most pronounced of the environmental and ecological impacts of oil exploration and production in the Niger Delta are gas flaring/emission, acid rain, oil spillage, as well as other cases of air, water and land pollution.
10. Several studies have attempted to classify the multi-level conflicts in the Niger Delta. T. A. Imobighe (2005:103-110) identified three (i.e. "local communities versus oil companies", "local communities versus the Nigerian State" (as represented by the three-tiers of government) and "local communities against one another"); Cyril I. Obi (2003), four (i.e. "the state oil multinational alliance versus the oil producing Communities", "the inter-community struggle", "the intra-community struggles", and those involving social movements); while Amnesty International (2004:15) classified them into six (i.e. "Federal Government versus Niger Delta States", the "Transnational Companies versus Communities", the "Transnationals versus the Niger Delta Development Commission", "Communities versus Communities", "Communities versus Chiefs" and "Youth Groups versus Youth Groups").
11. They threatened to wreak more havoc in February if the government failed to meet their demands, which are: the release of Ijaw leaders (the impeached governor of Bayelsa State, Dieprieye Alamieseigha and the leader of Niger Delta Peoples Volunteer Force, Alhaji Mujahid Asari-Dokubor) who are currently being held for various offences, and the payment of $1.5 billion as compensation for Shell’s contribution to environmental pollution in the Niger Delta.
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