Ever since oil drilling got under way in the Niger Delta’s Oloibiri in the early 1950s, the communities that surround this stormy body of “oil-hood” have lived in dread of an environmental failure. For a decade now, the worst fears were realized .While a quick glance reveals glossy achievement and progress, closer scrutiny shows that the region are in great danger – danger all the more insidious because it is hidden under an avalanche of wealth.
Until a generation or so ago, the Niger Delta existed in a small world circumscribed by the creeks and by squalor. They were backwaters – poor, simple places with nothing to offer the industrialized region, and little influenced by the modern West. The way of life had scarcely changed over a millennium. Then oil riches abruptly thrust the region into the center of the world economy without visible economic benefit to the inhabitants, tying to break the region down, deluging the whole area with Western culture, and giving back startling economic and political power. The effects of this transformation have been overwhelming; although the Niger Delta cling to tradition, everything in them has changed. New wealth has compromised the old social institutions and prompted a dangerous reliance on foreign money, labour, and know-how.
These negative effects are not without precedent; other windfalls in the past have harmed their beneficiaries. Gold and silver from the New World made the oil- rich in the area but distorted its economy and weakened it in the long run. She had a boom in guano (used for fertilizer) in the mid-nineteenth century, and later had a rubber boom; these made a few people rich but left no useful legacy – only some gaudy buildings, including an opera house in the Amazon jungle. The region is about to turn into ghost towns when the mining get stopped. The trouble with booms is that they typically bring neither sustained economic growth nor cultural improvements; the riches they create are spent with abandon, disrupting normal behaviour, fomenting unrealistic expectations, and inspiring envy. And booms always come to an end.
As Africa’s largest oil exporter, with a population of 140 million (larger than Britain and France combined), between 1965 and 2000, Nigeria received a very substantial percentage of its GDP from oil revenues that totaled about $350 billion. However, in the 30 years after 1970, the percentage of Nigerians living in extreme poverty ($1/day) increased from 36 percent to almost 70 percent—from 19 million to 90 million people. The oil revenue contributed nothing to the average standard of living, and indeed the period of oil exploitation saw a decline in living standards. Moreover, inequality in Nigeria simultaneously skyrocketed. In 1970, the total income of those in the top 2 percent of the distribution was equal the total income of those in the bottom 17 percent. By 2000, the top 2 percent made as much as the bottom 55 percent. Meanwhile, corruption was everywhere evident in the Nigerian government, and most strikingly at the top. For instance, in just four years in power, late General Sani Abacha and his family embezzled around $3 billion.
In fact, given the oil market’s downturn starting in 1981, permanently static or declining revenues in the Middle East may already be at hand. Market forces have operated very efficiently for the countries that consume Middle East oil: conservation (in cars, heating, and factories) and substitution (domestic oil, natural gas, coal, and nuclear fission) have cut deeply into exports from the Organization of Petroleum Exporting Countries (OPEC). Production, which peaked in 1977 at 31.8 million barrels a day, went down to about 16 million barrels a day in 1982. If OPEC nations should raise prices to make up for the smaller volume, they would lose still more of the market (through conservation and substitution), even though they might earn more in the short run. Should OPEC lower prices to increase volume, its members can expect importing countries to set quotas or import fees to keep consumption down, and revenues still would fall. A major expansion in the industrial economies could reverse this trend, but only temporarily, because no one wants ever again to depend on OPEC.
Nigeria, for example – looks to oil revenues for development funds and is already facing the unpleasant consequences of having relied too much on this easy money to see them through. This is true also of Great Britain, which needs the North Sea revenues to stave off the worst effects of its long-term economic spin. Several minor producers – Cameroon, the Ivory Coast, Peru – have borrowed against future oil revenues; if these do not materialize, the governments may not be able to pay their bills.
No other country, however, depend as much on the oil market as Nigeria does. Oil lifted them from penury and it can return them to it unless other sources of income are developed while the opportunity lasts. Political leaders of the sheikhdoms fully understand this vulnerability and make strenuous efforts to diversify their income through investments at home and abroad. Should these substantially replace revenues from petroleum sales, the sheikhdoms can face the future with some equanimity; otherwise, they face impoverishment. Unfortunately, alternate sources of revenue do not look promising.
Large oil revenues allow government to pursue misguided policies that benefit powerful and entrenched urban vested interests, enable overspending through job creation in a bloated public sector and investment in large and inefficient public-sector firms, and, in times of boom, they can also be used as collateral to increase borrowing. For example, Venezuela’s foreign debt increased steadily during the late 1970s and 1980s, including the second oil shock of 1979, to the point where a debt moratorium had to be declared in 1983. Job creation in the public sector encourages migration from rural to urban areas and from agriculture to an unproductive public sector; If there is a collapse of oil.
Our leaders put aside far less money than they need to live off investments. Net foreign assets of all Africa OPEC members in 1982 came to about $380 billion, but this figure is deceptively high because it lumps together state reserves and private funds. Private money is not available for state purposes, and has to be excluded from calculations about future government revenues. Almost half of this $380 billion is in private hands; Nigerian government holdings, which far surpass those of other OPEC members, total about $120 billion, $70 billion, and $30 billion, respectively. Enormous as these sums are, it must be remembered that this country produces little besides oil and cannot significantly increase their assets once oil sales decline. For the most part, their reserves amount to less than one year’s budget; only Nigeria has two or three years’ worth.
At first glance, high income from oil production, or any other source for that matter, indeed seems like welcome news in developing countries like Nigeria when there are many pressing basic needs that cannot be met for lack of resources. But, by the 1980s, the notion that abundant oil, gas, and minerals may be a curse rather than a blessing began to take hold—evidence pointed to economies with plentiful mineral resources doing worse on average than those with few resource endowments. Japan, the Republic of Korea, and Singapore have essentially no natural resources but developed rapidly from the 1960s to the 1990s. The experience of these countries stood in sharp contrast to that of Nigeria. Despite (or some would argue because of) decades of high oil revenues amounting to hundreds of billions of dollars, Nigerians were no richer in 2000 than they were in 1970. Worse, the poverty rate doubled from about 36 percent in 1970 to just fewer than 70 percent in 2000.
Another facet of the oil curse is the sudden glut of revenues. Few oil-rich countries have the fiscal discipline to invest the windfalls prudently; most squander them on wasteful Projects. The governments of Nigeria, for example, have spent their petroleum incomes on building new capital cities while failing to bring running water to the many villages throughout their countries that lack it. Well-governed states with highly educated populations and diverse economies, such as Canada and Norway, have avoided these ill effects. But many more oil-rich countries have low incomes and less effective governments and so are more susceptible to the oil curse.
Oil wealth also has political downsides, and those are often worse than the economic ones. Oil revenues tend to increase corruption, strengthen the hands of dictators, and weaken new democracies. The more money our governments has received from oil and gas exports, the less accountable they have become to their own citizens — and the easier it has been for them to shut up or buy off their opponents. A major boom in oil prices, such as the one that took the price of a barrel. The oil booms of the 1970’s swelled the government coffers very quickly. Given the government’s penchant for corruption, it is not surprising that the oil windfall was not well-spent. Much of it found its way into the private bank accounts, many held outside Nigeria, of its rulers and their friends. This was accomplished by various means such as setting up dummy corporations through which to launder money and padding contracts. The last dictator, Sani Abacha, apparently made little attempt to disguise his theft and more or less grabbed the funds directly from the Treasury and transferred them to his bank accounts. Nigerian newspapers estimate that tens of billions of dollars were stolen by Nigeria’s military rulers over the years.
Dividends from these assets are far too meager to compensate for declining oil revenues; in the Saudi case, annual dividends from $120 billion total about $13 billion – or about two months’ spending at 1982 rates. State expenditures so far exceed dividends that no sheikhdom could possibly retire on its foreign investments alone, now or in the foreseeable future. Observers of Nigeria’s politics have predicted — so far incorrectly — the nation’s ineluctable demise. The assertion that the Niger Delta is to blame for precipitating this conflict simply ignores the long pattern of the government actions designed to either force the region into temerity in these areas ¬ at which time said government would release an overwhelming military response – or to permit their gradual but the regime’s inexorable annexation . It also ignores the immediate pre-conflict actions of both the government and the region. These show the government executing a deliberate and methodical plan and the Niger Delta under considerable strain, in considerable confusion and feeling increasingly isolated as the oil-rich states charged with overseeing the economy-prone operations in this country proved unable to respond effectively to state actions.
The pattern of government provocations against the region’s integrity is well known, but bears repeating in order to show the cumulative effect they had on people’s conscience and the extent to which they reveal a long-term, calculated government plan. For new oil and gas producers, the gravest danger is the possibility of armed conflict. Among developing countries, an oil-producing country is twice as likely to suffer internal rebellion as a non-oil-producing one. The conflicts range in magnitude from low-level secessionist struggles, such as those occurring in the Niger Delta ,to full-blown civil wars, such as in Algeria, Colombia, Sudan, and, of course, Iraq.
Oil wealth can trigger conflict in three ways. First, it can cause economic instability, which then leads to political instability. When people lose their jobs, they become more frustrated with their government and more vulnerable to being recruited by rebel armies that challenge the cash-starved government. A sudden drop in income can result in internal strife in any country, but because oil prices are unusually volatile, oil-producing countries tend to be battered by cycles of booms and busts. And the more dependent a government is on its oil revenues, the more likely it is to face turmoil when prices go south.
Second, oil wealth often helps support insurgencies. Rebellions in many countries fail when their instigators run out of funds. But raising money in petroleum-rich countries is relatively easy: insurgents can steal oil and sell it on the black market (as has happened in the Niger Delta as well as Iraq), extort money from oil companies working in remote areas (as in Colombia and Sudan), or find business partners to fund them in exchange for future consideration in the event they seize power (as in Equatorial Guinea and the Republic of the Congo).
A third way to help oil-exporting states cast off the oil curse would be to help them better manage the flow of their oil revenues. Since the earliest days of the oil business in the mid-nineteenth century, oil prices have alternately soared and crashed. There is no reason to think this will change. But nor is there any reason to assume that because oil prices are volatile a government’s oil revenues must be too. In a typical oil contract, the oil company is guaranteed a steady income and the government gets to keep most of the profits but also must bear most of the risk of fluctuating prices. This setup is exactly backward. International oil companies are skilled at smoothing out their income flows — putting money aside in fat years to spend in lean ones — whereas governments are terrible at it. The terms of these contracts should be changed so that the oil companies bear more of the price risk than they do now and governments bear less.
Even with greater transparency and steadier revenues, many low-income countries simply lack the capacity to translate oil wealth into roads, schools, and health clinics. For these, the best way to steer clear of the oil curse may be not to sell oil for cash at all but to trade it directly for the goods and services their people need.
