The oil dependency of Nigeria: the curse of the black gold
The role of oil in the economic development of a country is very disputed as the “black gold” has caused dozens of conflicts, recessions, inequality, and other problems together with its opportunities. In some countries it can be compared to a curse and, indeed, the colour of oil can also lead to the dissemination of such an image in people’s minds. To speak metaphorically, oil resembles the “Midas touch” where excessive wealth and luxury coming with this resource can also result in the fatal consequences and decay of a socio-political system in a country. However, if mastered properly,” oil can also be used for the well-being and prosperity of a nation, as countries like Norway that created a social welfare state and a strong economy with the help of the black gold, attest to.
When talking about the role of oil and its effects on the economy and political spectrum of a country, interesting observations made by some academicians should be recalled. For example, according to Michael Ross, oil definitely brings about a “resource curse”, the proofs of which can be seen in three effects, namely, rentier, repression, and modernisation ones. In other words, the existence of abnormally low taxation and strong patronage effects (revenues come from the oil resources which discourage the application of a normal taxation system and free economy – the rentier effect), strong military and internal security capabilities directed to suppressing opposition (the repression effect), and the lack of interest for democracy due to the shift to industrial and service sector jobs in a country (the modernisation effect) can be characterised as the main traits appearing in oil-dependent countries. It can be undoubtedly stated that most of the oil-rich countries have been hit by these effects which impede democratic development and their prosperity.
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The main subject of our discussion – Nigeria – is also among the aforementioned ones, which by relying mostly on the oil, has not achieved much in terms of creation of a stable and strong economy throughout its independence period, and rather even faced existential challenges. By being Africa’s biggest economy, Nigeria, a former British colony, is a multi-ethnic society comprised of more than 250 ethnic groups with the total population of about 186 million. When talking about the importance of oil for the Nigerian economy in the language of statistics, the “black gold” accounts for nearly 75% of the government’s revenues and 95% of the exports which is a strong proof of the utter oil dependency the country is trapped in.
As mentioned before, Nigeria’s current situation is not unique, since many petrostates such as Russia, Venezuela, Azerbaijan, and Kazakhstan which have almost similar political systems suffered from the volatility of the oil prices in the world market. A high level of corruption, a strong patronage system, an oppressed civil society, lack of transparency and ineffective governance, and the excessive public spending were determinant factors which put those countries under the same umbrella by making them less resilient against the crises.
By talking about the situation occurring in Nigeria and other petrostates, another important term comes to mind to show the effects and consequences of the oil-dependency. More specifically, it can be said that Nigeria has been infected with the “Dutch disease”, the notion of which is used to describe the negative impacts for the economic prosperity of oil-dependent countries created by oil revenues. It is a well-known fact that Nigeria’s only developing field is the oil sector whereas other former important areas, such as agriculture, are out of attention and experience a prolonged period of decline. Interestingly, as Otaha mentions, “even the petroleum sector that is laying the golden egg has not been given any attention, all the refineries have collapsed and the country has been importing oil from abroad”. This clearly shows the situation where the oil revenues have basically frozen the development of all the sectors of the economy and created a “lazy society”.
Furthermore, the currency crisis is another headache for Nigeria as it has been a common feature for almost all oil-dependent states after the fall in oil prices. The Naira – the national currency of Nigeria – has considerably lost its value compared to the dollar. The currency devaluation initiated by the central bank was directed to promote the exports and cover the budget deficit but it also hit the consumers by leading to the price increases.
Actually, the strength of the Naira was based on the oil boom and it was not surprising that the Central Bank would not melt its reserves for a long time in order to keep the rate high during the crisis. However, it should not be forgotten that the devaluation of the currency works more efficiently when the economy is diversified and not dependent on imports. In the oil-dependent countries like Nigeria most products are purchased from abroad in dollars and this ultimately creates price inflation. And it is again ordinary Nigerians who suffer from such shocks and are faced with the consequences created by the inefficient political system in their country.
Nigeria’s indigenous communities should not be neglected either as the main oil production centers are located in the territories with multi-ethnic population. As in the most of the African countries, inter-ethnic tensions arising from the colonial past and other historical processes also reflect themselves in today’s Nigeria, while struggle over the oil resources is kindling this process. Some groups, by claiming to be exposed to ethnic marginalisation, constantly push the government for changes. Ogoniland is one of the most famous examples where oil has not improved the situation of local people, but even worsened it. Facing an environmental catastrophe because of the oil and gas production, the region is also struggling with huge poverty and injustice which cause anger and desperation. When talking about the pollution and environmental damage, it can be just said that the Nigerian gas production is one of the biggest contributors of carbon dioxide emissions in the world and exacerbates the threats posed by the global warming for the whole region. The flawed allocation policies enriched mostly the Northern and Western regions where there was the dominance of Yoruba and Hausa-Fulani groups and deprived other parts, including Ogoniland, of resource wealth.
The negligence of basic human rights and government’s inability to develop those poor regions also led to the discontent and calls for the autonomy by the local minorities. For example, the Ogoni Bill of Rights touched upon the issue of creating an autonomous unit which would be provided with the oil revenues and protected minority rights. But it is not likely that all these problems would be solved in the near future as the lack of political will and reluctance of dominating ethnic groups to fairly distribute wealth and power among the society prevent it from happening.
Nigeria is also encountering a big security challenge stemming from the extremist groups, the most notorious one of which is Boko Haram. The group started its activities in Northern Africa which by being close to the Sahel region is a source for the rise of Islamic radicalism. Although Boko Haram’s Salafit ideology does not attract many followers in the country, it still poses a threat to the future of Nigeria. And the reasons behind this uprising should not be only linked to the influence of the external radical ideas and support from foreign actors, as illiberal governments always try to find a scapegoat abroad rather than admitting their faulty internal policies. The division between the Christian south and Moslem north, the conflict of interests over important positions, existing patronage system in the country, corruption, and a high level of youth unemployment are also among the causes which “contributed” to the emergence of Boko Haram. Besides, the alternation of the presidency between the north-south groups inside the People’s Democratic Party and the recent breach of that pattern could also be in favour of Boko Haram. To be more specific, the victory of the Christian south’s candidate Goodluck Jonathan in the 2011 elections which were supposed to be the time for the Muslim north candidate increased tensions by paving the way for some powerful groups to use the insurgency in order to damage the prestige of the new President. Although the election of a Muslim, Muhammadu Buhari was expected to stabilise the balance of power and decrease the tensions, his questionable health condition can exacerbate the north-south struggle again as the south wants the Vice-President Yemi Osinbajo from Lagos to take power in case of Buhari’s inability to rule. However, this can ensue the transition of political power and patronage from the north to the south-west which can endanger the already fragile security environment in the country .
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As it is seen from the events unfolding in Nigeria, the current problems are somehow related to the oil factor, the existence of which has escalated the power and wealth struggle in the country. One thing should not be forgotten that the situation in most oil-dependent countries, including Nigeria, coming with the fall in oil prices is alarming not only for those nations, but also the international community as a whole. The ineffectiveness of fiscal, social, and economic policies pursued by the corrupt governments, a repressive attitude towards media, civil society, and all other forms of democratic institutions, a weak taxation system, existence of patronage structure led to the collapse of the economies of petrostates boosted by the oil boom, resulting in the mass unemployment, poverty, rise of tensions among clans and power groups for a “smaller revenue pie” etc.
Coming from that, such a situation creates a potential for the outbreak of serious clashes and even a civil war, as well as a possible refugee crisis which may obviously have implications for the other countries, including the ones in the developed West. If big oil and gas importers will close their eyes to the breach of human rights, deteriorating living conditions followed by the environmental damage, and the oppression of the civil society, there will be harsh consequences which can destabilise the whole region and infect other countries as well.
It is not a secret that the so-called “stability” created by the kleptocratic regimes is fragile and exists only due to the flow of money and resources to the internal security apparatus in order to suppress any kind of opposition. But with the coming of the crisis, it is getting hard to keep this system and cracks will emerge inside it soon. Besides, the crackdown on the secular opposition and civil society leaves a place for the radical groups which can challenge the safety of the country in a more dangerous way.
The multi-ethnic character of Nigeria should not be forgotten either and there is a need for social harmony between various ethnic groups inside the country in order to build a strong nation. However, in the conditions of a struggle over scarce resources and power, as well as the marginalisation of other groups of the society, the process of nation-building seems to be facing many problems in Nigeria. And the trace of the oil is also seen in this process which raises the debate about the “negative” role of the black gold.
Having said that, oil also acted in the nation-building process by bringing different communities together through the centralisation of oil revenues. Therefore, the role of oil is contrasting in the evolution of the political system of Nigeria which had good and bad times because of it. And here we can again claim that it is the political system which is able to create a developed society with the help of natural resources, as in the case of Norway, or can turn those resources into a curse. Unfortunately, without embracing the values such as the rule of law, transparency, social harmony and solidarity, protection of human rights, and fair distribution of wealth, the future of Nigeria can be full of challenges and the oil can only worsen the situation rather than fixing it in this reality.
1. CIA The World Factbook: Nigeria, available at https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html.
2. Jacob Odeyemi Oluwole, “A Political History of Nigeria and the Crisis of Ethnicity in Nation-Building”, International Journal of Developing Societies, Vol. 3, No. 1, 2014, available at http://www.worldscholars.org/index.php/ijds/article/view/459.
3. Ji Otaha, “Dutch disease and Nigeria Oil Economy”, African Research Review, Volume 6, Nr 1 (Pp. 82-90), available http://dx.doi.org/10.4314/afrrev.v6i1.7
4. Michael Watts (2004), “Resource curse? governmentality, oil and power in the Niger Delta, Nigeria”, Geopolitics, 9:1, p. 50-80, available at http://dx.doi.org/10.1080/14650040412331307832.
5. Morten Boas, James J.Hentz, Report “African security in 2013 : a year of disequilibrium?”, Norwegian Peacebuilding Resource Centre, April 2013,15 p.
6. “The Consequences of the Nigerian President’s Illness”, STRATFORvideo, 23 March 2017, available at https://www.youtube.com/watch?v=i63V3sM_5zE.
7. “The cost of Nigeria’s oil dependency”, 07 February 2015, available at http://www.aljazeera.com/programmes/countingthecost/2015/02/cost-nigeria-oil-dependency-150207105650530.html.
8. “The Nigerian economy: Well below par”, November 27, 2014, The Economist, available at http://www.economist.com/news/finance-and-economics/21635051-over-reliance-oil-spells-trouble-nigeria-well-below-par.
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