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ENERGY SECURITY AND THE RESOURCE CURSE IN NIGERIA: A CASE STUDY OF OIL IN THE NIGER DELTA (19902010)

SUMMARY Nigeria is a West African country that is referred to as the giant of Africa. The reason is because it is Africas most populous country with more than 150 million people, and the worlds eighth largest oil producer. Oil was discovered in commercial quantity in the 1950s and generated so much wealth for the country in the 1970s. Since then, Nigeria has been dependent on oil revenue which accounts for over 90 percent of its export earnings. Despite these huge earnings, the country and its producing region (Niger Delta) suffers from poverty, unemployment, insecurity, corruption, environmental degradation, and conflict over oil resource as a result of bad leadership, poor economic management. The oil resource rather than being a blessing has become a curse to the nation because; the excessive reliance on oil revenue has resulted in economic stagnation and political instability. The purpose of this paper is to examine the extent to which oil has been a curse to Nigerias economy and political sector. The paper defines the nature of Nigerias oil curse; it also identifies the causes and effects of the oil curse. Furthermore, the paper analyzes the reasons why the country has not recovered from the oil curse.

TABLE OF CONTENT

TITLE PAGE........................................................................................................................................ 1 ABSTRACT .......................................................................................................................................... 2 ABBREVIATION ................................................................................................................................ 4 PREFACE ............................................................................................................................................. 5 CHAPTER 1 INTRODUCTION........................................................................................................ 7 CHAPTER 2 THEORETICAL FRAMEWORK/LITERATURE REVIEW ................................ 9 CHAPTER 3 DEFINITION AND DRIVERS OF THE OIL CURSE IN NIGERIA ................... 17 3.1 DEFINITION OF THE OIL CURSE (THE NIGERIAN PERSPECTIVE).................................... 17 3.2 DRIVERS OF THE OIL CURSE IN NIGERIA ..................................................................................... 19 CHAPTER 4 CONSEQUENCES OF THE OIL CURSE IN NIGERIA ......................................... 25 4.1 CONFLICT .................................................................................................................................................... 25 4.2 WEAK INSTITUTIONS ............................................................................................................................ 29 4.3 INTERNATIONAL PRESSURE .............................................................................................................. 31

CHAPTER 5 CRITICAL ANALYSIS ON THE PROPOSED SOLUTION FOR THE OIL CURSE IN NIGERIA ......................................................................................................................... 33 5.1 TRANSPARENCY AND ACCOUNTABILITY ..................................................................................... 33 5.2 NATURAL RESOURCE FUND ............................................................................................................... 34 5.3 DIRECT DISTRIBUTION......................................................................................................................... 34 5.4 ECONOMIC DIVERSIFICATION ........................................................................................................... 35

CONCLUSION 36 BIBLIOGRAPHY 38

ABBREVIATIONS

EITI EU GGESS HDI LDCs N NDDC NEITI NRF OMPADEC OPEC PWYP SAP TI UNDP

Extractive Industries Transparency Initiative European Union Gulf of Guinea Energy Security Strategy Human Development Index Less Developed Countries Naira (Nigerias Currency) Niger Delta Development Commission Nigerian Extractive Industries Transparency Initiative Natural Resource Fund Oil Mineral Producing Area Development Commission Organization of the Petroleum Exporting Countries Publish What You Pay Structural Adjustment Program Transparency International United Nations Development Program

PREFACE

In October 2010, I started my Masters program worrying about what topic I was going to write on for my dissertation. After attending some classes for the course New Security Challenges, I found a topic which caught my attention Resource Conflict and Energy Security. The lecture was delivered by Lisa Smirl who explained the key concepts around energy security (the uninterrupted physical availability at a price which is affordable, while respecting environmental concerns); natural resources (natural assets or raw materials which can be used for economic production or consumption); and conflict (which can be classified as inter -state and intra-state). She explained why resource scarcity can cause conflict between states, and how resource abundance can cause conflict within a state. To a large extent, I can say that the lecture inspired me in choosing my topic. After reading the works of Paul Collier, Philippe Le Billon, Terry Lynn Karl, Robin M Mills, Michael Ross, Jonathan Di John, their works inspired me to research on the theory of the resource curse. I held several meetings with my supervisor Prof Stefan Elbe, who guided me in constructing a suitable title for this dissertation (Energy Security and the Resource curse in Nigeria: A case study of oil in the Niger Delta 1990-2010). There are several works that reflect on issues around the Niger Delta. Prominent writers such as; Ike Okonta and Oronto Douglas, Cyril Obi and Siri Rustad, Akeem Akinwale, Aderoju Oyefusi, Adekoya Adebanji, Ndubuisi Nwokolo, Bonnie Ayodele, have all argued that the issues of the Niger Delta is centered around conflict over oil resources (between the people; the Nigerian government and multinationals), environmental degradation, militancy, corruption, lack of infrastructure, unemployment, and poverty. All their works are credible and helpful. However this dissertation takes a different approach by looking at the extent to which Nigeria suffers from the oil curse. The resource curse theorists argue that the discovery of natural resource in developing countries have been associated with devastating effects that leads to political conflict and economic stagnation. The aim of this dissertation is to find out if these facts are true in the Nigerias case.

From my perspective, I argue that the discovery of oil has contributed to the economic and political setbacks in Nigeria and its producing region. To support this I provide the definition of the oil curse in Nigeria, explaining the reasons why Nigeria is still economically stagnant. In addition we look at the economic and political causes of the oil curse, as well its effects on the oil producing region. To bring the dissertation to a close, I examine the reasons why some of the solutions to help escape the oil curse have not really worked in Nigeria. At this point I would like to acknowledge some people who made this dissertation possible. First I want to say a big thank you to my supervisor Prof Stefan Elbe for guiding me through the stages of this research. I extend my appreciation to my tutors in the school of Global studies for preparing me for the big task of research. My appreciation also goes to my course mates for the good suggestions and constructive criticisms. Also I want to appreciate Ayodeji Oyarinu for his advice and support during the course of this research. To my friends who checked up on me during the course of this research, thank you. And finally I want to extend my sincere gratitude to my family for the support and words of encouragement. Thank you, you have made my dreams possible.

CHAPTER 1 INTRODUCTION Studies on the resource curse have shown that the discovery of oil or other natural resources often brings about dreams of wealth and prosperity for developing countries. In all too many cases though, these discoveries have instead been associated with devastating political conflict and last economic setbacks (Cited in Humphreys et al 2007). In contrast, other studies have associated oil and other mineral resources with high levels of economic growth, wealth generation, and political stability. But these relative wealth and economic development from natural resources are visible in developed countries like the Norway, United States, Australia, and Canada (Di John 2010). The main issue for developing countries is the fact that they have been unable to use their wealth from natural resources to sustain economic growth and political stability (Collier 2007). As far as this research is concerned that is the whole idea of the resource curse theory. Given Nigerias position as Africas leading oil producer and exporter, what does the country have to show for it? Instead of economic growth and development as part of its achievement; it is ranked amongst the poorest countries in the world. Sources have shown us that most of its population lives below $1 a day (BBC 2007). Where did Nigeria get it wrong? That is one question this dissertation seeks to answer. Reflecting on the idea of the resource curse theory, the main objective of this study is to examine the extent to which the discovery of oil in Nigeria has contributed to the setbacks in its economic and political ambitions. In other words, the extent to which oil has become a curse to the nations economy and politics. In essence, my argument is that Nigeria suffers from the oil curse because of the inability to convert its enormous wealth from oil to achieve substantial growth and development. To achieve the objective of this study, I have broken down the dissertation in four other sections (Chapter 2-5). Chapter 2 has two tasks which includes; explaining the theoretical framework (resource curse), as well as reviewing some literatures around the theory. Chapter 3 discusses the definition and drivers of the oil curse in Nigeria. It also makes a distinction between the economic drivers and the political drivers of Nigerias oil curse. Chapter 4 examines the consequences of the oil curse in Nigeria. It also takes into consideration Nigerias oil producing region (Niger Delta) and the negative effects of oil on the region. Finally, chapter 5 makes some remarks on some proposed solutions for

the oil curse in Nigeria and why these solutions have been ineffective. I conclude this study by sustaining my argument that oil has done more harm than good to Nigerias economy and politics. In terms of scope, this research is limited to the study of issues around Nigeria and the Niger Delta from 1990-2010. The reason for the selection of this timeframe is because there are more evidences of Nigerias oil curse during this period. Furthermore limited time and the word count for this dissertation wont allow us explore issues outside this timeframe. However historical contribution before 1990 and after 2010 would be considered, but not thoroughly. This dissertation has relied on qualitative research method. In writing this work, secondary sources which include; newspapers, books, textbooks, academic journals, conference papers, lecture notes, official reports, online articles/web pages, were used. Interestingly, the selection of a particular state study which is Nigeria and Niger Delta gives me an edge to avoid generalizing the idea specified by my theoretical framework (Resource curse). Before now, I read books citing Nigeria as one cursed with oil, but the evidences provided where either shallow or inadequate. The advantage of choosing this particular study is that it has helped in broadening the knowledge of the resource curse theory in contrast to what other writers have written. However, limited time for this research has been one disadvantage of selecting a particular case study. In a nutshell, the study would examine the extent to which the discovery of oil has been a curse to Nigerias economy and politics.

CHAPTER 2 THEORETICAL FRAMEWORK REVISTING THE LITERATURE ON THE RESOURCE CURSE For the purpose of this dissertation, I have chosen the resource curse theory to serve as my theoretical framework. The reason for this selection is because it helps in analyzing the extent to which natural resources could be a disadvantage to a countrys economic and political progress. A wide range of scholars have written extensively in the area of the resource curse, each bringing different perspectives and arguments to the table. Before we consider their arguments, I believe we should consider the resource curse thesis to enable us understand what exactly it has to say. The idea behind the resource curse is this; Countries with large endowments of natural resources, such as oil and gas, often perform worse in terms of economic development and good governance than do countries with fewer resources. Paradoxically, despite the prospects of wealth and opportunities that accompany the discovery and extraction of oil and other natural resources, such endowments all too often impede rather than further balanced and sustainable development (Humphrey et al 2007:1) see also (Ross 1999, Weinthal and Luong 2006, Soros 2011).

In other words, countries with abundant mineral resources are prone to have series of negative economic and political outcomes. The question still remains, is this always the case with all countries that have abundant natural resources? For example Norway has abundance of natural resources, is it cursed? No! (Humphreys and Sandbu 2007). In Colliers book The Bottom Billion, he argues that many countries of the world are genuinely developing (of the 5 billion, 80 percent) often at a fast pace, the real challenge of development is that there are countries at the bottom that are falling apart. He continues by saying that the singular problem with the countries in the bottom billion is one thats has to do with growth. In more simple words, the countries have failed to grow and therefore remained stagnant and poor. Collier identifies countries of the bottom billion to be countries from sub-Saharan Africa, and Central Asian nations. Altogether he identifies fifty eight countries and highlights some typical features which includes; they are small compared to the

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population of either India or China, and their per capita income is low. (Collier 2007:1-11, Zukerman 2008) Going back to the idea of the resource curse, should we agree with Colliers argument of the bottom billion, which argues that countries that 1) have failed to grow, 2) endowed with natural resources would perform worse in terms of economic development and good governance? Or should we stick to an elaborate definition by (Di John 2010) on the resource curse which says; The big idea behind the resource curse is that mineral and fuel abundance in less developed countries (LDCs) tends to generate negative developmental outcomes, including poor economic performance, growth collapse, high level of corruption, ineffective governance and greater political violence. Natural resources, for most poor countries, are deemed to be more of a curse than a blessing.

The reason for this analysis is to clearly bring to our knowledge two different definitions on the idea of the resource curse. Humphreys et al (2007)s definition seems to generalize the idea of the resource curse by using words like (countries with large endowments) which signifies that all countries with abundance of natural resources tend to be cursed. Whereas Di John (2010) and (Collier 2007), are more specific with their words (LDCs/Poor Countries) tend to be cursed with abundance of natural resources. The definitions are insightful, but it was important to get a clear understanding, so it doesnt lead the researcher into confusion. Having cleared the problems around the definition, I proceed with the theories around the resource curse. In an article by Ross (1999) titled The Political Economy of the Resource Curse shows us the political and economical dimensions of the theory of the resources curse. He suggests that there are four explanations for the economic dimension of the curse which includes; decline in terms of trade for primary commodities, the instability of international commodity markets, the poor economic linkages between resource and non resource sectors, and the aliment of the Dutch Disease. On the other hand the political dimension includes three categories; cognitive explanations, which argues that resource boom produces a form of short sightedness among policy makers; the societal explanation contends that resource export tends to empower some interest group that favor growth-impeding policies; and statecentered explanation suggests that resource booms tend to weaken state institutions. He also

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adds two other explanations for the curse; 1) states inability to enforce property rights, 2) state owned enterprises, which supervises resource extraction in developing states. Both according to Ross can lead to a resource curse. Following Ross argument on resource boom weakening state institutions, Lynn Karl in her work The Paradox of Plenty suggest that large revenue from natural resources can have negative effects on state. She argues that; Commodity-led growth induces changes in the prevailing notions of property rights, the relative power of interest groups and organizations, and the role and character of the state vis--vis the market. These institutional changes subsequently define the revenue basis of the state, especially its tax structure. How these state collect and distribute taxes, in turn, creates incentives that pervasively influence the organization of political and economic life and shapes government preferences with respect to public policies (Lynn Karl 1997:7)

Lynn Karl in her study takes into account the historical, structural, and political economy of Venezuela, and also provides a comparative analysis of the political economy of petro-states which includes Nigeria, Algeria, Iran and Indonesia. In her analysis, economically Indonesia, fared considerably better than others because of the choices made by their government during the boom years (1997:191) Di John criticizes Lynn Karls study. In his article The Resource Curse: Theory and Evidence, he argues that rentier state theorists such as Lynn Karl have ignored the possibilities that mineral abundance can be central to the development of manufacturing industries. He supports his argument by using the United States as an example. According to him large scale investments in exploration, geological knowledge, transportation, refining and utilization in natural resources have contributed to industrialization and economic growth in the United States. (Di John 2009, 2010) Similar to Di Johns work, Mills (2008) notes that the oil curse affecting countries like Iran and Nigeria has progressed to the extent of severely hampering the oil industry itself. He further argues that oil has both positive and negative effects on a nations economy. An example of the positive effects can be seen in oil-cursed Iran and Iraq. In the two countries, oil revenue facilitated the creation of a substantial, well-educated professional class (Mills 2008:193).

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A study by Bannon and Collier (2003) notes that more than a billion people reside in lowincome countries that have failed to put in place institutions and policies that would elevate them to join the group of more developed middle-income nations. As a result of their poor and stagnant nature, they have been mired in economic decline and found to be dependent on natural resources. Following the argument by Banon and Collier, Ibeanu and Luckham (2007) have this to say about Nigeria. Nigerias economic problems were exacerbated by gross neglect of the agricultural sector, ill-conceived structural adjustment policies and failure to regulate the oil industry properly. These were not simply policy errors. They were also outcome of money politics, cut-throat competition for power and resources, systemic corruption, all intensified by massive injections of oil money into a political and administrative system that lacked the capacity to absorb them. (cited in Kaldor et al 2007:56)

With this headline message, Collier (2007) argues that countries under this category may be caught in four traps namely; the conflict trap, the natural resources trap, the trap of being landlocked with bad neighbors, and the trap of bad governance in a small country. However, Collier contends that it is possible for countries to escape these traps but some of the countries that break clear are faced with stagnation as a result of external factors (2007:6) For the purpose of this study, I would pick up the conflict trap, the natural resource trap and the trap of bad governance. I have chosen these three because they are relevant to the dissertations case study which is Nigeria. Lets start with the conflict trap. According to Collier, countries that experience low income, economic stagnation and dependence upon primary commodity exports are prone to civil war. He argues further that all countries that have all the features mentioned above are not necessarily in the conflict trap, but they are prone to falling into it. Poor nations face a high risk of falling into civil war than wealthy ones (Collier 2007:32-34, Bannon and Collier 2003, Zukerman 2008, Collier and Hoeffler 2005). Collier and Hoeffler also suggest that conflict may be explained either by greed or by grievances, such as feelings of ethnic or political marginalization. They argue that greed and grievances are more common with rebels who feel that have been marginalized in the trade of natural resources (cited in Humphreys 2005)

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Auty (2005) takes a similar approach and concludes that the risk of conflict is at its highest when; 1) economic growth has collapsed 2) the resource generates point socio-economic linkages 3) production occurs adjacent to porous national borders 4) the commodity has a high value/weight ratio (e.g. diamonds and drugs) (cited in Le Billion 2005:30-46) Ross (2004) suggest that not all natural resources are linked to conflict, and he shares his findings by arguing that; oil dependence appears to be linked to initiating a conflict, but does not sustain the conflict duration, also natural resources (e.g. opium, gemstones, and cannabis) do not initiate conflict, but seems to lengthen pre-existing wars; he contends that there is no evidence/case study that shows that agricultural commodities initiates or sustains conflict. Corresponding to Colliers argument on the conflict trap, a lot of scholars have tried to link natural resources with conflict. Some have researched particular natural resources using case studies. For example Selby (2005) has done a study contrasting Oil and water as a likelihood to conflict. He takes his case study from the Middle East, and concludes that water is unlikely to cause major conflict, but local water conflicts are likely to become an ever-more feature of life in the global south (Selby 2005:223-224). Le Billion (2001) studies the political economy and geography of oil and diamonds in correlation with the conflict in Angola. From his findings, oil and diamonds did not cause the Angolan conflict, but its availability sustained the military capacities of the conflicting groups. Also Oyefusi (2007), Akinwale (2008), Nwozor (2010), Adebanji (2010), Nwokolo (2009), Ayodele (2010), Nordic Africa Institute (2009), Obi and Rustad (2011), Asuni (2008, 2009), Tuschi and Ejibunu (2007), Omofonmwa and Odia (2009) have done a comprehensive study of oil in Nigerias Niger Delta region in relation to conflict. They argue that the region have been cursed with conflict as a result of rent seeking, unemployment, intercommunity rivalry for resource control, poverty/poor infrastructure, environmental degradation, weak institutional arrangement, and militancy. (for oil conflicts, see also Kaldor et al 2007) The natural resource trap according to Collier (2007) contributes to the conflict trap, but a common phenomenon to the natural resource trap is the ailment of the Dutch disease, already mentioned above by Ross (1999) and volatility in commodity price. Barder (2006) in an article called A Policymakers Guide to Dutch Disease: What is Dutch Disease, and is it a problem? He defines Dutch disease as a term used by economists to describe a reduction in a countrys export performance as a result of an appreciation of the

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exchange rate after a natural resource such as oil has been discovered (see also Humphreys et al 2007:5, Ross 1999, Lynn Karl 1997:5-6). Collier (2007) cites Nigeria as an example of a country suffering from the Dutch disease, according to him, in the 1970s oil revenues built up, the countrys other exports such as peanuts and cocoa became unprofitable, and production rapidly collapsed (2007:39). A different study by Sala-i-Martin and Subramanian (2003) suggest that the problem with Nigerias economic performance is not the aliment of the Dutch disease, but from waste and corruption. The second part of the natural resource trap which is volatility, Shaxson (2005)s work New Approaches to Volatility: Dealing with the Resource Curse in Sub-Saharan Africa argues that volatility depresses economic growth. In his words; Revenue volatility hampers planning, boosts deficits (it is easy to raise spending when prices are high, but hard to cut back when price fall, especially for governments whose legitimacy rests on allocating oil rents) and tends to raise debt (when oil prices are high countries are more creditworthy and tend to borrow more; when prices fall arrears build up on unpayable debts, increasing debt further)

Humphreys et al (2007:6) notes that countries like Chad and Nigeria fall into the risk of volatility. Moving to the bad governance trap, the idea is simply that bad policies and governance can ruin the development of a country. The high level of corruption impedes development opportunities. The governments of these countries have failed to put in place institutions that will foster economic growth (Collier 2007, Bannon and Collier 2003). Collier argues that corruption has made leaders of these poor countries wealthy and they hinder development in their countries to maintain the status quo. It becomes profitable to keep their citizens illinformed and uneducated (Collier 2007:66). Oyefusi (2007) notes that one of the reasons for conflict in the Niger Delta is because of corruption and weak institutional arrangements. According to him, violence among individuals is as a result of the struggle for educational attainment. There are further arguments on the bad governance trap. For example; Ross (2001), Humphrey et al (2007), Collier and Hoeffler (2005) Collier (2007) suggest that natural resources (especially oil) tend to make states less democratic. In other words countries that

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are rich in natural resources and have existing democracies tend not to follow the democratic norms. In addition, non democratic oil states are less likely to become democratic. In oil democratic states, leaders often practice the politics of patronage, while in non democratic states; leaders to a large extent subdue their oppositions. Ross (2001) concludes that; 1) natural resources (especially oil) hurts democracy, 2) oil has made democratization harder in nations like Malaysia, Indonesia, Nigeria, Mexico, and most nations in the middle east, and 3) non fuel mineral wealth also impedes democracy. From my perspective, the existing literatures on the resource curse are centered around four casual mechanisms, namely; the Dutch disease/volatility, rent seeking, corruption, and conflict. While some researchers have identified the casual mechanisms for the resource curse, some have identified the solutions for it. For example; Soros (2011), Le billon (2006/2007),

Collier (2007a 2007b) suggest that transparency initiative will be key in solving the problem of a resource curse. Soros (2011) notes that; Citizens everywhere must be assured that oil and gas firms, as well as mining companies, publish all of their relevant financial information, broken down by country and by project, and including all payments made to host-country public budgets

Humphreys and Sandbu (2007), Salai-i-martin and Subramanian (2003) prescribe the creation of a Natural Resource Fund (NRF). According to them the NRF should be created to ensure accountability and prevent the misuse of resources. They both cite Norway as an example of a country that has an effective NRF. In an article by Weinthal and Jones Luong (2006) titled: Combating the Resource Curse: An Alternative Solution to Managing Mineral Wealth, they did a critical survey on proposed solution for the resource curse which includes; macroeconomic policies, economic diversification, transparency and accountability, NPF, direct distribution to the general population. However they added something new to the list, which is, domestic private ownership. They argue that domestic private ownership is often ignored, but it is a viable way to escape the resource curse. After looking at some of the literatures that specify the problems and solutions of the resource curse, it is important to visit the literature that has a critic to theory of the resource curse.

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Critics of the resource curse (Calvalcanti et al 2011) argue that the methodologies used by proponents of the theory failed to take into account cross-country differences and dependencies arising from global shocks, such as changes in technology and the price of oil. With their data analysis, they studied 53 countries over 27 years and suggested that oil abundance has short run growth enhancing impacts and positive level effects on real income. Therefore oil abundance by itself does not seem to be a curse (see also Di John 2010) Tierney (2008) also suggest that; The resource curse vanishes when looking not at the relative importance of resource exports in the economy but rather at a different measure: the relative abundance of natural resources in the ground. Using that variable to compare countries, it reports that resource wealth in the ground correlates with slightly higher economic growth and slightly fewer armed conflict.

Although critics have voiced out a different view of the resource curse theory, it is important to note that the theory explains my argument. In summary, existing literatures mentioned above have revealed pertinent issues around the theory of the resource curse including; the definitions, the problems, solutions and critics. However there are some gaps that this dissertation seeks to fill up. For example some of the definitions of the resource curse are too broad, so I propose to stick to a definition that is more specific, one that best suits my case study. Secondly, the casual mechanisms of the resource curse theory have been put together; this dissertation seeks to separate them in a specific way, by identifying what I call the drivers and consequences. In other words one could call it the causes (drivers) and effects (consequences) of the resource curse. Thirdly, existing literatures have identified different natural resources and case studies. I have chosen my case study to be Nigeria/Niger Delta, and the natural resource relevant to this study is oil.

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CHAPTER 3 DEFINITION AND DRIVERS OF THE OIL CURSE IN NIGERIA

The aim of this chapter is to examine the definition of the resource curse that is appropriate to our study. Apart from looking at the definition, we also look into the drivers. In a sense one could switch drivers with the causes of the resource curse.

3.1

DEFINITION OF THE OIL CURSE (THE NIGERIAN PERSPECTIVE)

For the purpose of this dissertation, I have decided to re-echo the definition provided by Collier (2007), Wenar (2008), Ross (1999), Di John (2010) which says that; natural resources (Oil) abundance in less developed/developing countries tends to generate negative development outcomes, including growth collapse/poor economic performance, corruption and ineffective governance. In other words, Oil resource has become an obstacle to prosperity in less developed countries. One may ask, is this the situation in Nigeria? Is Oil really a curse to the country? Is Nigeria less developed? These questions would be answered shortly. One of the best answers comes from someone who you least expect, the current President of Nigeria, Jonathan Goodluck. In 2008, when he was Vice President at the time, Jonathan Goodluck argued that the discovery of oil and the dependence of oil has caused Nigerias economy and development to remain stagnant over the last several decades he goes on to say that the overdependence on oil has put an unpleasant bracket in our national economic freedom (UPI Energy 2008) Olayiwole (1987) answers the question on the issue of Nigerias development. According to him; The lack of development in Nigeria can be traced to a structural condition of underdevelopment. By underdevelopment, it means the persistence of stagnation, duality or lack of integration between agriculture and industry and between urban and rural spatial structures, inequality as the level of economic activity grows, and frequent political instability. (1987:8)

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Looking at these two answers, it is important to examine why both commentators have come out with such a strong conclusion about Nigeria and the resource curse. Nigeria gained independence from British colonial rule on October 1st 1960, has a population of about 158.2 million (BBC 2011) making it the most populous country in Africa. Nigeria was initially known to be an agricultural nation and producer of export commodities such as groundnut, cocoa, timber, cotton and palm oil, until the discovery of oil in Oloibiri village in the Niger Delta region in 1958 (Rafiu 2011, Falola and Heaton 2008). It is important to note that Nigeria is the 8th largest oil producer in the world, and the Niger Delta accounts for most of the countrys oil wealth. Since the 1970s (which marks the genesis of the oil boom for the country) Nigeria has made trillions of dollars from oil export (Obi and Rustad 2011, Rafiu 2011). With these earnings from oil revenue one will think that the country is doing well economically and politically, but the assumption is false. Nigeria can be described as a rich country with poor people. The so called rich country suffers from corruption, poverty, conflict, insecurity, environmental degradation, looting of oil resources, inadequate infrastructures and bad governance (Oyefusi 2007; Nwokolo 2009; Ayodele 2010). For example, more than 50% Nigerias population lives below the poverty line, which is less than $1 a day (BBC 2007). It is more alarming to realize that the Niger Delta region which has an estimated population of 29 million and accounts for over 90 percent of the nations oil revenue live in abject poverty (Akinwale 2008, Oyefusi 2007). Furthermore, according to the United Nations Development Program (UNDP) that releases reports on the Human Development Index (HDI) which tracks national achievement in education, health and income have ranked Nigeria amongst countries with the lowest human development. In fact the 2010 report notes that Nigeria is ranked 142 (HDR 2010). What makes it more fascinating is when you compare countries that started the race of development with Nigeria in the 1960s, you find out that they have achieved and maintained high growth rate, and left Nigeria behind wallowing in economic stagnation. Humphreys et al (2007) and Adegbulu (2006) have brought to my attention the economic development of the Asian Tigers. The Asian Tiger (Hong Kong, Singapore, South Korea and Taiwan) are noted as nations that achieved high growth rates and rapid industrialization between the 1960s and the 1990s. Furthermore, what makes the Asian Tigers unique is that they have pursued an export-driven model of economic development, maintained political stability, invested in high standards of education, built a skilled/disciplined workforce, and had a zero-tolerance for corruption (Adegbulu 2006:281)

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At this juncture, one begins to ask questions, what is the problem with Nigeria? Why is oil a curse to the Nation? This leads us to the drivers of the resource curse. I have decided to adopt Ross (1999) method by dividing the drivers into two dimensions, which are the economic and political drivers of the resource curse.

3.2 DRIVERS OF THE OIL CURSE IN NIGERIA 3.2.1 THE ECONOMIC DRIVERS Becoming a Rentier State/Rentier Economy: for us to get a clear understanding of the rentier state and economy, we need to define what rent is. The word rent is an economic term that describes the excess revenues over all costs including normal profit margin (Collier 2007; Smirl 2010). Rent can come from natural resources, (for example oil, diamonds, and timber) and aid (Smirl 2010). Lynn Karl argues that in developing countries, resource rents are received regularly by states from export earnings and are deposited into national treasuries without being checked by domestic private actors. With these she concludes that a state like Nigeria that have abundance of oil is a rentier /distributive state (1997:48-49). What is a rentier state? A rentier state is one that receives on a regular basis substantial amount of external economic rent (Yates 1996, Onoja 2011). Rentier states are synonymous with four characteristics, namely; the rental situation prevails (in a sense its a matter of decision), the origin of the rent must be external to the economy (meaning all rents must be paid by foreign actors), only a few are engaged in the generation of rent (while the majority are involved in distribution and consumption), and the government must be the principal recipient of the external rent (Yates 1996). Let analyze if the argument above fits the situation in Nigeria. Nigeria is a rentier state because between 1970 and 2006 oil exports accounted for 95% of the countrys total export and 80% percent of government revenue. Also oil rents accounts for 40% of the countrys gross domestic product (GDP) (Idemudia 2010). In addition, the country receives its rent from multinational companies: Shell, Chevron, ExxonMobil, Agip, Texaco, and Total. These multinational oil companies have a contract with the Nigerian government to extract oil and share profits (Obi and Rustad 2011). It is worthy of note that not more than 2-3% of the population is involved in the generation of oil revenue, while a majority of Nigerians are

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involved in consumption and distribution (Idemudia 2010). The 1969 Petroleum Law makes the Nigerian government the sole recipient of oil rent (Watts 2004, Idemudia 2010) The decision of Nigeria to maintain a rentier economy can be drawn from what observers have called rentier mentality (Yates 1996). The idea is that the existence of large revenue from oil rent makes elites in government assume that the revenue will increase in the coming future. With these the government ignores the fact that they need to extract income from the domestic economy through taxation. Therefore the state becomes a spending state instead of a production state (Onoja 2011). This is what Humphreys et al (2007) calls living off your capital and investing in irrelevant projects that doesnt yield economic growth. Obviously, Nigerias dependence on oil rent has led to economic loss and stagnation. Some of have concluded that; Nigeria is a rentier state dependent not on the production of goods and services but on the proceeds of unprocessed crude oil delivered bountifully from a long neglected and cruelly cheated Niger Delta (Daily Independent 2011).

Dutch Disease Over the years (1970s till date) the concept of the Dutch disease has been a trending topic for economist, analyst, researchers and observers. Maass (2009), Lynn Karl (2007), Collier (1988, 2007), Di John (2009), Barder (2006), Jazayeri (1986), Corden (1984), and Humphreys et al (2007) have all made references to the aliment of the Dutch Disease. What and why is it called the Dutch disease? It is an economic term used to describe a reduction in a countrys export performance as a result of an appreciation of the exchange rate after a natural resource such as oil has been discovered (Barder 2006). In other words, oil exports cause the countrys currency to rise in value against other currencies thereby making other export activities of the country uncompetitive (Collier 2007:39). It is called the Dutch Disease because it was the title of an article in the Economist published in 1977, used to describe the economic situation in the Netherlands. After the discovery of natural gas in the North Sea, the Dutch started receiving large foreign exchange earnings from the exports of gas, and with this their manufacturing sector started underperforming and suddenly other exports became uncompetitive (Barder 2006, Humphreys et al 2007).

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The Niger Delta region and Nigeria as a whole is an example of a country with the ailment of the Dutch disease. The reason is this, the discovery of oil in the 1950s and its export in the 1970s made the countrys export earnings very high, thereby leaving other exports such as cocoa and peanuts unprofitable, or expensive (Maass 2009) resulting to decline in the agricultural sector (Collier 2007). To a large extent farming and agricultural sector dropped from 71% in the 1960s to 54% in the 1980s (Lynn Karl 1997:208) hurting the activities of farmers and major producers of cash crops (see also Edohasim 2010). Gradually the country shifted from an agricultural exporter to a major importer of food. Rafiu (2011) notes; Indeed Nigeria was once a world famous agricultural nation, acknowledged as the producer of such export commodities as cocoa, groundnut, cotton, timber, and palm oil. Today the nation is a world famous importer of everything from toothpick to toilet paper.

Funny as that may sound but thats what happens when a country is over dependent on oil revenue. Collier (1988) has made it more specific by calling it the Nigerian disease. He supports his argument by saying that Nigeria has not only experienced the Dutch disease, it has also experienced increase in the price of food and non-tradable goods together with a decline in the production of food and non-tradable goods to the population. According to Lynn Karl, the ailment of the Dutch disease doesnt come by accident; it comes as a result of deliberate decision making and wrong policies. (1997:5). The Nigerian disease if I must say, is a result of maintaining a rentier economy.

Revenue Volatility The idea behind revenue volatility is this. As a result of the huge amount of funds coming in from oil rent due to the rise in oil price, government see it as an opportunity to increase their spending. But when the price of oil falls, it becomes difficult for government to cut down their spending. This is due to the governments rentier mentality. Furthermore, when the price of oil is high, countries tend to borrow more, but when the price falls it leads to accumulations of unpayable debts (Shaxson 2005). This is what Collier (2007), Weinthal and Jones Luong (2006) call the boom and bust circle.

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Nigeria gained extensively from the oil boom (high oil price) in the early 1980s. The government saw it as an opportunity to spend extensively to the extent that they embarked on heavy borrowing. In 1986, there was a decline in oil price, by this time banks were not willing to continue lending; they wanted to recover their loan from the government. Nigeria had incurred so much debt that the government under the leadership of Major General Ibrahim Badamasi Babaginda decided to embark on economic reform to reschedule the countries debt. To this effect, the country instituted a Structural Adjustment Program (SAP), which allowed the bulk of repayment of existing debts to be pushed back to 1991, and later (Collier 2007, Falola and Heaton 2008). Thinking that the SAP was going to help the country grow economically, by 2005 it was discovered that Nigeria owed $35bn. Although plans were made to write off $18bn of its debt that year, the countrys economy is still struggling (see BBC 2005).

3.2.2 THE POLITICAL DRIVERS Corruption The term corruption can be defined as the misuse of public office for private gain for the benefit of the holder of the office or some third party (see

http://www.moj.gov.jm/pdf/brochure.pdf).

Corruption can take the following forms including; bribery, looting, embezzlement, money laundering, favoritism, extortion. All this can happen as a result of personal greed and ambition by the public office holders. Nigeria is a victim of corruption. According to corruption index by Transparency International (TI), Nigeria is ranked amongst the most corrupt countries in the world. To be precise it is ranked number 134 out of 178 countries in the corruption index (Transparency International 2010). Aside greed, some observers have highlighted other factors which includes; Bad leadership, poor remuneration, a weak reporting system, ineffective anticorruption laws, the centralization of authority and power, pervasive culture of gift giving (Odinamadu 2005)

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Falola and Heaton argue that Nigerians deal with corruption on a daily basis. A problem that is associated with all works of life, from the government, to the police, and all sectors of the country (2008:204). Elites in government have used their offices as an avenue to enrich themselves at the expense of others. They become rich in office, while the population suffers from poverty and lack of basic amenities. For example, it is recorded that Nigeria has been ruled by both military and civilian government, (Okonta and Douglas 2003) and since its independence till around 2007; it has lost $380bn to corruption (Human Rights Watch 2007). Cases of corruption include; General Ibrahim Babaginda and his government who looted $12.2bn between the years 1988 and 1994; General Sani Abacha and his government looted $10bn from oil revenue from the Niger Delta between 1993 and 1998; General Abubakar and his government stole $2.7bn between 1998 and 1999 (Okonta and Douglas 2003); National Identity Card fraud by Internal Affairs Minister (Chief Sunday Afolabi) estimated around $214m in 2003; Inspector General of Police Tafa Balogun charged for money laundry of over 13bn naira (Nigerian Muse 2006); and currently charged for money laundry and fraud of $290m is James Ibori, a former governor of Delta state (BBC 2010). It is important to note that corruption has affected the mode of governance. The revenue from oil has led to the unstable nature of Nigerias democracy. Ross (2001) concludes that oil has a negative effect on democracy. The politics of patronage becomes the order of the day, as political leaders would do anything to retain public offices because of the benefits from oil revenue. For instance, the Nigerian constitution allows the president to serve for two terms. The government of President Obasanjo was seeking for a third term (BBC 2006). Why change the provision of the constitution just for selfish reasons? Thats one question a few people asked. It shows the high level of personal greed and ambition. Also, citizens are bribed with public funds to get their votes in forth coming elections. For example Collier (2010) notes that the 2007 elections in Nigeria was attributed to votebuying, ballot fraud, vote-miscounting and political violence.

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Wastage of oil revenue After corruption comes wastage of oil revenue. One big question that comes up is, apart from looting funds from oil, what exactly has the government done to improve or aid development for the country? My response would be investing in wrong, irrelevant projects. Some people have referred to it as white elephant project meaning failed projects (Oyedele 2008). Primary needs such as water, health care, education, good roads, electricity, and employment are abandoned for irrelevant projects. For example a project like the Ajaokuta steel complex worth billions of dollars is yet to produce a slab of steel. This is an utter waste of government fund (Maass 2009, Oyedele 2008). Again Dike (2006) brings to light another error of the Federal Government. He argues that it is wrong for the government to support the initiative of providing personal computers at affordable rates to a society that lacks electricity. In addition to the list of wrong investments includes; the building of the 60,000 seater stadium in Abuja, the nations capital (BBC 2003) at the expense of the undeveloped Niger Delta region. From my view the government has not only wasted oil funds on irrelevant and unrealistic projects, it has also misplaced its priorities on what to invest on to foster economic growth.

In this chapter, I have brought to the fore the economic and political drivers of the resource curse in Nigeria. The next chapter takes into account the consequences of the resource curse. In other words, I consider the effects of the oil curse in the country.

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CHAPTER 4 THE CONSEQUENCES OF THE OIL CURSE IN NIGERIA Having analyzed the drivers of the oil curse in the previous chapter, this chapter addresses the effects of the oil curse on Nigeria as a whole, as well as the oil producing region (The Niger Delta). Some writers have argued that the production of natural resources is liable to give rise to various types of political frustrations within a country and especially in producing regions (Humphreys et al 2007:13). While others feel that it is not the production alone that matters, it is the dependence upon these resources that can lead to both political and economic frustration (Collier 2007). Lets proceed with some of the effects of oil in Nigeria.

4.1 CONFLICT According to Upreti, conflict refers to disagreement, public complaints and protests involving arguments, physical assault, and violence. Feelings of unfairness and injustice, suspicion, anger, emotion, and mistrust can lead to conflict (Upreti 2004). So how is conflict relevant in this case? It is relevant because natural resources tend to foster conflict (Ross 2004, Bannon and Collier 2003). It leads us to the idea of the resource conflict. Robinson (2008) notes that a resource conflict is a war fought to gain or maintain control of scarce national resources, such as oil, water, or diamond. Our main focus is oil as we already know, and it is important to note that the resources being discussed here is not scarce, rather it is flowing in abundance. So what will be useful in this definition is the aspect of control of oil resources. The drive for the control of oil resources can happen as a result of grievances by oil producing regions who feel that they are economically marginalized (Le Billion 2007). To expand, it means the people are angered because they see their resource wealth leaving their region and benefiting others (Humphreys et al 2007). In a sense, the people feel that resource wealth is unjustly/unevenly distributed (Humphreys 2005) Also there is a claim that national authorities have misused oil revenue, giving the chance for embezzlement, looting and corruption (Collier and Hoeffler 2005). Again there are claims of environmental depletion and degradation. This can occur as a result of pollution and oil

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spillage by oil companies, depriving the people of freshwater, fishery, croplands, and forestry. Most of the people in the oil producing region rely on these things for survival, and when they are taken away from them, they decide to fight for them (David and Gagne 2007) In addition, since there are huge funds coming in from oil, the uneducated/ unemployed see it as an opportunity to enrich themselves. They form rebel groups bearing this in mind that since the elites in power have enjoyed their own share of the oil revenue, it is their turn to do so. These rebels decide to loot the nations oil resources (see Collier 2007, David and Gagne 2007). The act of stealing/looting oil is known as bunkering. This is a term invented by the people leaving in the Niger Delta region (Asuni 2009). In all of these, rebels will do anything to fight for oil resources. In terms of the duration of conflict, Ross (2004) argues that oil dependence can be linked to the initiation of conflict but cannot sustain conflict. In contrast to this Bannon and Collier (2003) argue that oil dependence fuels and sustains conflict. According to them, it is easier to sustain conflict even without the support from super powers. Rebels can now equip and sustain themselves with alternative sources of revenue which includes the illegal trade in oil. With a lot of issues been raised as regards oil and conflict, lets examine Nigerias oil producing region (the Niger Delta)

4.1.1 THE NIGER DELTA AND CONFLICT Before we look at the issue of conflict within the region, it is important to get familiar with the geographical location and activities of the Niger Delta. The Niger Delta covers nine out of the thirty six states in Nigeria. These states are; Abia, Akwa Ibom, Cross River, Rivers, Bayelsa, Delta, Imo, Ondo, and Edo. The region covers about 75,000 square kilometers, making it the largest wetland in Africa (Obi and Rustad 2011). The population is estimated to be about 30 million people (Nordic African Institute 2009). Apart from oil, the region is rich in both renewable and non renewable natural resources such as gas, timber forest products and non timber forest products, bitumen and wildlife (Tuschl and Ejibunu 2007). In terms of Agriculture, the region is known for the production of cocoa, cashew, rice, pineapple, and yam in large quantity (Omofonmwan and

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Odia 2009). Also the region has a lot of fishermen because of the availability of marine habitats. All the Agricultural activities in the region came to a halt after the discovery of oil in commercial quantity in 1958. From the 1960s till date, oil has become the most important commodity in Nigerias export (Falola and Heaton 2008). One can relate this to the beginning of the Dutch disease already highlighted in chapter 3. When it comes to the production of oil, the region has over 5,200 oil wells and produces over 2 million barrels per day that passes through 275 flow stations (Ayodele 2010). With these it is said that oil accounts for most of Nigerias foreign exchange earnings. In fact some argue that it is 90% (Obi and Rustad 2011) while (Okonta and Douglas 2003) argue that is 95% of the nations foreign exchange earnings. Whatever the case might be, the headline message is that the country gains so much from oil produced in the Niger Delta region. Foreign companies involved in oil exploration and extraction in the region include; Shell, Mobil, Chevron, Elf, Agip, and Texaco. (Oyefusi 2007) The region is blessed with the enormous amount of natural resources (especially oil) and still, it is at the bottom of the civilization ladder. In clear words, the region still has majority of its people living in abject poverty. They lack access to primary needs like; pipe-borne water, proper health care, employment, good roads, electricity, telecommunication, and security (Omofonmwan and Odia 2009, see also The Guardian, Jan 13 2010). The people living in the region feel abandoned, neglected, marginalized and cheated. They blame the cause of their misfortune on greed and corrupt practices by government and oil companies (Oviasuyi and Uwadiae 2010, Agbu 2008). Furthermore, there are strong believes that their oil wealth have been used to develop other parts of the country (e.g. the Nigerias capital city Abuja) leaving the region in abject poverty (Champion Dec 17, 2003). Having this at the back of their minds, they have decided to embark on conflict to express their grievances. The years between 1990 and 2010, the region has witnessed a series of armed conflict all because of the drive to control the oil wealth of the region. This is what observers have called the paradox of doom in the midst of boom (Agbu 2008). Now the big question is what are the people in the Niger Delta fighting for?

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Total control and ownership of resources have been the demands of the oil bearing communities of the Niger Delta. The people and leaders of the region are not satisfied with 13% derivation principle set by the countrys constitution (Luqman 2011). The derivation principle is the rent and royalties paid back to the oil producing states. The disagreement to this principle has led to the formation of militants/rebels who seek to control the regions oil wealth (Ahonsi 2011). Militant activities include kidnapping for ransom of oil company workers, sabotage on oil facilities, killings, illegal oil bunkering, armed robbery and piracy (Asuni 2008). Violence has been dominant in the pursuit of their agitation for resource control. For example Mills notes; On January 24, 2006, thirty armed men with Ak47s drew up in speed boats by the offices of Agip Company in the oil city of Port Harcourt, in the Niger Delta. In the ensuing gunfight, nine people were killed, eight of them police, and the gunmen escaped with tens of thousands of dollars from a bank in the facility. In November, the Okono/Okpoho oil field was attacked by gunmen in boats, who took seven workers hostage. During a rescue attempt, one of the hostages, a British man, was shot dead and two others were injured (Mill 2008:127-128)

With all the violence happening within the region, they are yet to gain total control of the oil resources. The right of control still remains in the hands of the Federal Government. Some observers argue that the drive for resource control is just a selfish ambition. They also argue that oil should be for the benefit of the nation even though it is produced in the region (Sun, Jan 9 2010, Nigerian Tribune Jun 5 2009). In 2009, because of the conflict within the region, the countrys oil production reduced from 2 million barrel per day to 800,000. A great loss in terms of revenue for the country (Vanguard July 8 2009). Environmental degradation also serves as a reason for conflict. The people of the Niger Delta have complained of environmental damages caused by oil exploration and production. Marine life and crops have been destroyed by pollution from oil spills. The farmlands are unusable, and the water unsuitable for fishing (Ibeanu and Luckham 2007).The people are also exposed to health risks as a result of contaminated water (Maass 2009, Okonta and Douglas 2003). Reported illnesses include; cancer, abdominal pain, cough, fever, and diarrhea (Okoh 2005). Ahonsi (2011:30) notes that 1.5 million tons of oil has spilled into the Niger Delta over the past 50 years, making the region one of the five most polluted locations on earth

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Oil spills according to Ayodele (2010) devastate the environment and generates conflicts between the host communities and oil multinationals. On second thought oil multinationals are not the only ones to blame for the environmental damages, oil theft by militants, unemployed youths, and top politicians have also contributed to the environmental hazards (Asuni 2009). The motive to get rich quickly has a negative effect on the regions environment. Lets look at the issue from this perspective, if oil companies have the right equipments to explore oil and they still cause environmental damages, how much more the people who dont have the right equipments. For example it was discovered that over 1000 illegal refineries were being operated by militants, unemployed youths and political elites (Daily Sun July 19, 2010) To show the complexity of crisis in the region, you also have inter-community conflicts which are sparked up by unsettled boundary problems and disputes over oil bearing lands. Some of the reported conflicts include; the Ogoni crisis 1994/1995, Odih 1998/1999, Ijaw/Ilaje 1998-2000, Urhobo/Itsekiri 1997-2002, Ogbijaw/Itsekiri 1995-2004 (Okoh 2005). These conflicts have led to the death of many people, rendered many homeless and also contributed to the destruction of oil facilities in the region. It was recorded that between 2006- 2009, more than 1000 people were killed and over 5000 people were displaced from their homes because of the conflict in the region (Newswatch May 4 2009, The Guardian May 22 2009). In the space of 9 months in the year 2004, they were also 581 recorded cases of oil pipeline vandalism (US Fed News April 18, 2005). In a nutshell, the crisis in the region revolves around clashes between people and the government for reasons of underdevelopment and resources control, clashes between the people and oil multinational for environmental degradation, and finally intercommunity clashes for unsettled boundaries and resource control.

4.2 WEAK INSTITUTIONS Alayli (2005) argues that oil revenue can weaken government institutions, making them less likely to resolve social conflicts and provide public goods such as health care and education.

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According to him, a state can have weak institutions because of its reliance on oil revenue, instead of taxes. Furthermore, he suggests that the much of governments strength comes from its capacity to extract taxes from the population. Without taxation, it is difficult to establish an effective bureaucracy that can resolve social conflict and provide public goods. In Nigeria, the government has taken bold steps to create institutions for the purpose of tackling the crisis in the Niger Delta region. These institutions includes; the Oil Mineral Producing Area Development Commission (OMPADEC) established in 1993, the Niger Delta Development Commission (NDDC) established in 2000, and the Ministry of the Niger Delta established in 2008 (Idemudia 2010). Some of the roles of these institutions are; to foster economic development, provide physical infrastructure and community needs, enhance and sustain the natural environment (Omofonmwan and Odia 2009). We must commend the efforts made by the government to promote development in the region. For example going through NDDC website (http://www.nddc.gov.ng/?page=project&id=2) you would see its progress on physical infrastructure/community needs which include; (water, electricity, school, hospital, employment and road) projects (see also Daily Champion Sept 8, 2010). Despite these progress reports, observers have branded these institutions as a total failure (Daily Champion Oct 20, 2009). They argue that these institutions have suffered from poor planning, limited capacity, corruption, poor government funding, and limited community involvement (Idemudia 2010, Oviasuyi and Uwadiae 2010, Luqman 2010, Sun Jan 9, 2010). For example OMPADEC collapsed as a result of inadequate planning (Oviasuyi and Uwadiae 2010) while the NDDC suffers from corruption, looting and mismanagement of public funds. There is a reported case of an alleged N69bn scam involving the institution (see Adisa 2011). The Ministry of the Niger Delta suffers from insufficient funding. It is sad to see a new ministry established in 2008 already suffering from lack of funds, I called it in the previous chapter misplacement of priorities on the path of the Federal Government. The funds allocated to the ministry in 2009 was N50 billion, whereas over N400bn was allocated for security in the region (Newswatch May 4, 2009). At this point no one needs to tell you that the policy implementation is wrong. In their minds security comes before development. Some observers believe that the money spent on security in the region can be invested on providing employments/education which would reduce cases of militancy and criminality (Newswatch May 4, 2009)

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Weak institutions will continue to be in existence if poor planning, mismanagement of public funds, insufficient funding are not tackled adequately. Since Nigeria is a rentier state, it is prone to establishing weak institutions and there is a high tendency for conflict escalation.

4.3 INTERNATIONAL PRESSURE Resource rich countries are bound to be faced with pressure from the international arena to make good use of their revenue for social investments and economic development (Bannon and Collier 2003), But most especially to foster good economic relations since globalization has opened up the door for economic interdependence. The Nordic African Institute (2009) argues that the Niger Delta is important to global energy security, the next question would be; what is energy security? This part explains energy security in two perspectives. The first explanation would be from Robinson (2008) who notes that energy security implies guaranteed access to a reliable supply of oil at a reasonable price. He goes on to say that energy security may be threatened by the destruction of oil facilities as a result of conflict or sabotage. After Nigeria joined the Organization of the Petroleum Exporting Countries (OPEC) in 1971, its oil production has contributed to development of the global economy. Countries that are key partners with Nigeria in the oil business includes; The United States, China, India, Britain and the European Union (EU). For example Nigeria is the fifth supplier of oil to the United State (Mu Li 2009), the EU imports 20 percents of Nigerias oil (BBC 2009), and in 2006 India imported 11percent of Nigerias petroleum products (The Statesman Oct 30, 2007). It shows Nigerias importance in the international arena. That is why the crisis in the Niger Delta is termed a global issue because every pipeline disrupted brings an increase in oil price (African News Sept 28, 2008). In fact one observer notes that when the militants sneeze the global oil market catches severe cold (Agbu 2008). Some American observers highlighted that the escalating crisis in the Niger Delta threatens Americas energy security (Lubeck et al 2007). The second explanation of energy security comes from Yergin (2006) who argues that energy exporting countries like Nigeria will focus on maintaining the security of demand for

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their export, which will after all generate the overwhelming share of government revenue. This explains the N400bn allocation on security highlighted in the previous section (see weak institutions). The interdependent nature of energy security (Security of supply and demand) has made international stakeholders to continue mounting pressure on Nigeria to tackle the situation of conflict and corruption in the oil producing region. Bearing in mind that there are multinational companies operating in the region, there is a call for a peaceful environment to aid continuous business transactions. On the other hand the Nigerian government wants to receive its regular revenue from oil production. Part of the result of international pressure has been the establishment of the Gulf of Guinea Energy Security Strategy (GGESS) in 2005 by Nigeria and the United States (Vanguard Aug 31, 2006). Other members of the initiative include; Britain, Equatorial Guinea, Cameroon, Gabon and Angola. The main objective of GGESS is to collaborate with stakeholders to ensure the security of supply of oil from the Gulf of the Guinea, whilst promoting sustainable development of the region in a climate of peace (Thisday Aug 31, 2006). In as much as the main objective of GGESS has both security and development intentions. The international stakeholders are more interested in the security aspect. For example the United States and Britain are more concerned with crude oil theft and small arms trafficking which they believe fuels violence in the Niger Delta (Thisday Aug 31, 2006). Meanwhile there are more pressing needs like education and employment that the region lacks. It is important to note that international pressure has not brought an end to the crisis in the Niger Delta.

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CHAPTER 5 CRITICAL ANALYSIS ON THE PROPOSED SOLUTIONS FOR THE OIL CURSE IN NIGERIA

In the previous chapter, I highlighted the consequences of the oil curse in Nigeria, showing the negative effects of oil in the producing region (Niger Delta). Moreover this dissertation will be incomplete without making some remarks on some of the prescriptions for escaping the oil curse in Nigeria. The aim of this chapter is to briefly examine some of the solutions suggested by scholars, policy makers, commentators, in resolving the oil curse. Side by side with the prescriptions, we also consider why some of these solutions have been ineffective in Nigeria.

5.1 Transparency and Accountability Bannon and Collier (2003); Le Billon (2006/2007); Kaldor et al (2007); Firger (2010) Soros (2011); have suggested that transparency and accountability is a key motive in curing the oil curse. In the words of Kaldor et al (2007) transparency and accountability should apply to private and public actors, domestic and international. They argue that it can be used to curb corrupt practices by host governments and other stakeholders. Two movements have been set up to support the transparency/accountability initiatives; 1) Publish what you pay (PWYP) campaign 2) Extractive Industries Transparency Initiative (EITI). They were established in 2002 by the British government and some NGOs (Le Billion 2006/2007). The aims of these initiatives are; to urge a mandatory disclosure of all payments to host governments by oil, gas and mining companies; ensure that the revenue from extractive industries contributes to sustainable development and poverty reduction (Weinthal and Luong 2006; Firger 2010). Nigeria decided to adopt the EITI initiative, becoming the first candidate country with a statutory backing. It launched the Nigerian Extractive Transparent Initiative (NETI) in 2007 (Idemudia 2009, 2010). In as much as the NEITI mirrors some of the objectives of the EITI, some observers have argued that the initiative is a failure because corrupt practices are still in place (Firger 2010).

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For example in 2010 there was a recorded case of fraud in the NEITI. The executive secretary was accused of using the organizations funds for his personal campaign funds in running for governorship (ThisdayLive Aug 24, 2010). In addition, Idemudia (2010) argues that the NEITI has done well by publishing the payments made by oil companies to the Nigerian government but has failed to monitor the actual expenditure of oil revenue.

5.2 Natural Resource Funds The idea behind the NRF is to stabilize income and expenditure, and smooth out fluctuations caused by oil price volatility, and also save some of the oil wealth for future generations (Kaldor et al 2007, Wienthal and Luong 2006). The NRF has been successful in developed countries like Norway, United States, and Canada. However it will be difficult, if not impossible to work in a country like Nigeria. The NRF if created would only increase the spending power of the government who loves engaging in white elephant projects. Furthermore Nigeria doesnt have the institutions to encourage savings for future generations. The corrupt, selfish, and visionless political elite would rather sustain the oil wealth for themselves and their families than think of future generations.

5.3 Direct Distribution Tuschl and Ejibunu (2007), Sala-i-Martin and Subramanian (2003) suggest that oil revenue should be distributed directly to the Nigerian population rather than being held by government. They argue further that citizens especially those in the Niger Delta should directly get the oil revenue. By doing this, it will reduce the crisis in the region. In a sense the people will protect oil facilities having at the back of their minds that it is a source of revenue for them and not the government. This suggestion is a good one but I would rather agree with Weinthal and Luong (2006) who contends that there is a limitation to this solution. According to them, direct distribution will

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reduce the incentives for citizens to engage in entrepreneurship, which will further stifle the growth of small and medium enterprises in the Niger Delta region

5.4 Economic Diversification From the onset observers like Olayiwola (1987) have pleaded with the Nigerian government to diversify its economy by not relying on oil but focus on other sectors like agriculture, education, and tourism to aid development. The government has ignored this suggestion (1987:175). A famous producer/exporter of cocoa and other agricultural products in the 1960s has become a famous importer till date. The educational sector has its own drawbacks. Recently it was reported that a large number of students in the country failed numeracy (Mathematics) and literacy (English) examinations (Ovuakporie 2011). With this horrible effect, parents would rather save up to send their children abroad to get quality education. One big question is what happens to those who dont have the funds to send their children abroad? One answer would be; cope with the education system at home. A beautiful country that is supposed to attract investors, and tourist has been denied this opportunity because of the ongoing crisis in the Niger Delta. Sadly the economic diversification approach wont be successful until the country addresses the issue of infrastructure, says the former minister of finance, Dr Olusegun Aganga (Abayomi 2011).

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CONCLUSION What this dissertation has established thus far is the fact that oil has been a curse to Nigerias economy and politics. This study outlined the definition of Nigerias oil curse. Referring to the country as one that is less developed. I also examined how Nigeria became a rentier state, acquired the Dutch disease, and suffered from corruption/wastage of oil revenue. These drivers have brought conflicts in the Niger Delta, led to the creation of weak institutions, and welcomed unnecessary international pressures on the country. Again we looked at the extent to which proposed solutions have been ineffective in the Nigerian situation. Can Nigeria escape the oil curse? An honest answer would be Im not sure. The solutions prescribed above by observers and scholars to the Nigerian government have fallen short because Nigeria doesnt have the enabling environment to adopt the solutions. What the country has is an enabling environment that condones corruption, wastage, conflict, crime, weak institutions, poverty, and uneducated youths. While we spent time identifying problems and some ineffective solutions, I recommend the following ideas to the Nigerian government. The government should review its domestic policies. It should focus more on developmental policies rather than security policies. If good infrastructures are made available, one that makes provisions for Agriculture, education, health care, employment and all. It would reduce cases of conflict in the Niger Delta. What the region needs is sustainable growth and development, something to break the paradox of producing wealth and living in poverty. To a large extent I support the idea of transparency; it goes a long way in eradicating corruption. So I do not only recommend the creation of credible transparent institutions, but also suggest that citizens elect honest politicians who are ready to serve and remove Nigeria from the mess previous politicians have put the country through. Researchers, observers should constantly assess the progress been made by the Nigerian government, if it would make efforts to escape the oil curse in the nearest future. Supporting the first point, the Nigerian government should focus more on domestic policies. This is because it serves as a reflection of our foreign policy. For example Nigeria should not be fighting for a non permanent member seat in the United Nations Security Council (African News Jun 24 2009) when we have several crises in the Niger Delta and religious crisis in

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Plateau state. I believe the government should attend to situations in the country rather than focusing on outside ones. Finally, Oil is a good natural resource which has brought wealth in many ways to the country, but it has also contributed to ruining the countrys political and economic ambitions. The words are very clear in this statement; crude oil has become like knives that either serve us or cut us, as we grasp them by the blade or the handle (Ghanian Chronicle feb 28 2008). To a large extent oil has done more harm than good in Nigeria.

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