The Resource Curse
Nigeria is home to the second-largest oil reserves in Africa and is the 12th-largest producer of oil, globally. Despite being immensely enriched with the most lucrative resource, why does Nigeria still suffer from extreme poverty and economic turbulence? Unfortunately, Nigeria has fallen prey to a phenomenon known as the “resource curse” that was first used by British economist Richard Auty in 1993.
Resource Curse, often known as the paradox of plenty, refers to the underperformance of many resource-rich countries. These countries fail to benefit from their resources to ensure social welfare and stabilize its economy. These countries are expected to perform better than resource-scarce countries but on the contrary, these countries experience widespread conflicts, political tensions, economic stagnation and miserable living conditions.
Crude oil theft has ravaged the economy and has pushed a plethora of individuals into poverty. According to World Poverty Clock, 90 million Nigerians live in extreme poverty, that is 48% of their population. Nigeria is losing billions of dollars annually to this menace. According to the President of Nigeria, oil theft has become an organized crime and the total value loss for the period spanning from January 2021 to February 2022 was about $3.27 billion.
Crude Oil Theft
There are multiple reasons leading to the exploitation of the oil industry in Nigeria which has further exacerbated the oil crisis in the nation. Oil theft in Nigeria is a product of various illegal oil refineries in the “Niger Delta”. Illegal oil refineries began their operations with oil bunkering and vandalism in 2003 and later expanded their activities to stealing and selling crude oil in 2012 after the militants were given amnesty.
There are hundreds of illegal refineries in the Niger Delta, where criminal gangs like the Delta Avengers also tap into the pipelines to steal oil. In early 2019, 22 million barrels of oil were stolen and sold onto the black market. This is then transferred through barges to larger tankers in the Atlantic Ocean and then taken into West Africa, Latin America, Europe, and as far as Asia.
Nigeria’s oil industry also suffers from its own loopholes that have also paved the way for international companies to make their monopoly. The prime location for oil theft is the “Niger Delta”. Although there are a number of local oil companies running their operations, the most significant operations of extraction and exploration are undertaken by the major international oil companies. It is because Nigeria lacks the much-needed infrastructure to refine the oil.
Eventually, these big international companies sell this oil to other countries and then the refined oil is imported back into Nigeria which costs millions of dollars to the Nigerian economy. However, the international players are not the sole perpetrators of the oil crisis in Nigeria. Nigerian National Petroleum Corporation (NNPC) is equally responsible.
The Nigerian National Petroleum Corporation (NNPC)
The structure of the NNPC is inherently flawed as it discourages transparency and gives impetus to heightened corrupt practices. It is because the corporation has signed contracts with these international companies for all the initial costs inclusive of oil licenses and royalties. Also, these international companies have to pay tax on their profits to the NNPC and hence the NNPC is supposed to take all that money and give it to the Nigerian national treasury.
The regulator that is supposed to examine the flow of money is part of the NNPC, so the very structure of the NNPC deprives Nigeria of an independent oil regulatory authority. Lack of transparency has led to corruption in the oil sector. One of the cases that made headlines in 2016 was when $16 billion had gone missing from oil revenues that were supposed to be sent from the NNPC to the national treasury. So, international companies, NNPC and other state authorities are equally complicit in the oil theft in Nigeria.
Consequences of the Oil Industry
The economic significance of the oil industry can not be underestimated; it is the largest sector of the Nigerian economy driving 70% of the federal government’s revenues. Oil theft has severe adverse impact on the economy of Nigeria as its economy lacks diversification. The Nigerian economy has entirely geared towards the oil sector thus depriving other sectors, especially the agriculture sector, from contributing to the national revenues.
So, a country that is so heavily dependent on the trade of one commodity will suffer from fluctuations in its production, global prices, and theft. In addition to the cuts in revenues, the employed masses have also suffered and will continue to suffer from oil theft. Major MNCs have halted their operations in the Niger Delta which has brought about massive job cuts thus reflecting the volatility of a mineral-dependent economy.
Unfortunately, the environment of Nigeria has also suffered and is still suffering from the oil exploration process. It has given rise to increased tensions between the local communities, with people becoming more hostile towards the government. It is quite evident as the ethnic militias in the Niger Delta are purportedly fighting injustice, owing to ecological dilapidation and contamination from oil exploration operations in the areas.
In addition to this, continued pollution by oil firms and failure to properly clean up the oil spills have added fuel to the fire. Moreover, the harmful oil exploration and oil theft practices are posing a serious threat to the existence of mangrove forests in the Niger Delta. The destruction of mangroves is also harming the natural ecosystem in the Niger Delta as they support aquatic food chains and form habitats for marine fauna. Mangroves also play a significant role in maintaining the carbon balance of the coastal zone.
It is believed that there is a strong association between oil theft and increased militancy in certain areas of Nigeria. The absence of a unified law for tackling illegal oil refineries as well as meagre sanctions and loopholes in the implementation process have led to the emergence of militant operations in the area.
Apart from this, oil theft is impeding social development in the region. It is because the presence of criminal gangs has prevented the provision of social amenities in the region. Moreover, the youth in Nigeria are lured into this illegal business because of its lucrative nature thus depriving them of their right to education.
In the long run, this is also draining the country of credible manpower essential for the development of the community. With the presence of criminal gangs in the region, the rate of internally displaced people has also increased. The increased hostility between the military and criminal gangs has increased insecurity for the people, compelling families to move into riverine oil-producing communities or to live in slums in urban centres.
The problem of oil theft in Nigeria is a multi-faceted one that requires a multi-pronged strategy. The prime reason for the oil crisis is the lack of accountability, transparency and rampant corruption in the sector. In order to address this issue, Nigeria needs good regulatory and governance institutions. The government bodies as well as the international companies in the region should be forced to adopt strict transparency and accountability measures by independent regulatory authorities.
The structure of NNPC should also be revamped, and the corporation should solely handle the operations of the oil industry and not involve itself in the regulation or monitoring of the sector. The regulatory body in collaboration with the home countries of MNCs should also ensure correct reporting of oil exploration and production statistics.
As already mentioned, MNCs also play a profound role in exacerbating the oil crisis, primarily because Nigeria lacks the infrastructure required for refining oil. Hence, to combat oil theft, Nigeria will have to become self-reliant in its operations and develop its own oil refineries.
Modular refineries can also serve as a doable and sustainable option for Nigeria. Modular refineries are basic refineries requiring a smaller amount of startup capital than the traditional full-scale refinery features. It allows incremental structural improvements without requiring constant shutdowns to ensure proper maintenance to guard against theft. Thus, modular refineries may offer a simple, efficient, and easy way of increasing refining capacity.
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