The Curse Of Oil

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Nigeria and crude oil

“How is it possible that a superabundance of natural resources – oil, gas, copper, iron ore – would not significantly add to a nation’s production and wealth? Paradoxically, most analysts conclude that, particularly in developing countries, natural-resource bonanzas tend to reduce rather than enhance living standards.

The danger takes the form of an economic affliction nicknamed “Dutch disease”.

Dutch disease strikes when foreign demand for an export drives up the exchange value of the exporting country’s currency. The increase in the currency’s value makes the nation’s other export products less competitive. Analysts often cite this pattern as a reason why relatively resource-poor Hong Kong, Japan and Western Europe have thrived while oil-rich Nigeria and others have not.” – Alan Greenspan.

Nigeria and crude oil

In Nigeria’s case, it was a situation of double jeopardy. While oil at its peak made the Nigerian currency very strong and its agricultural produce expensive and non competitive, our military leaders also embarked on a stealing spree and reckless spending. During this period, one military head of state said in far away Haiti that money was not Nigeria’s problem, but how to spend it.

During this period of abundant oil money, a whooping sum of N2.8 billion (about $5 billion USD) allegedly got missing while President Buhari was the minister of petroleum (should I cite the popular musician Fela Anikulapo Kuti as authority?). Nigeria thus had the misfortune of high oil prices while dictators who were not accountable to the society were in power.

Crude oil prices

By the time civil rule or democracy returned in 1979, we were already set in our corrupt ways. Corruption, coupled with the fact that we adopted a very expensive system of government led us down south when oil prices plunged. The government imposed austerity measures. While the citizens were required to tighten their belts, those in government were living a profligate lifestyle. One of them even celebrated his birthday and acquisition of a billion naira with specially labelled champagne.

The military took over again in 1983 and aggravated the economic situation to the point that Nigerians were queuing on the streets for essential commodities like beggars. Within this cycle of military rule from 1983 to 1999, Nigeria again enjoyed high oil prices (especially the gulf windfall). But again, this did not elevate the standard of living of Nigerians.

Instead, a new set of super military rich and other rent collectors emerged. The military and their wives and girlfriends became oil block owners collecting humongous rents starched away in tax havens far away in Switzerland, Panama, British Virgin Islands and other such places where ill gotten wealth can be hidden without prying eyes. Abacha stole so much he lost count of his various secret numbered accounts. Abacha however gave us a little through the petroleum trust fund (PTF) just like Gowon did through the Udoji bonus awards. President Buhari then headed the PTF and may be that is why, to him, Abacha was a saint and never stole Nigeria’s money despite copious evidence of returned Abacha loots.

Democratic governance was again welcomed in 1999 when oil was selling for about $10 per barrel. We succeeded in begging for debt forgiveness and had the opportunity to start on a clean slate. However we still had the albatross of corruption, insatiable taste for foreign luxury goods and an expensive system of government.

Prices of oil again soared to over a $100 per barrel. At a point in 2008 or thereabouts, it plunged to less than $40. However according to then minister of finance, we did not feel the plunge because the government had made savings when prices were high, which said savings were used in cushioning the plunge.

However, our leaders got it so bad that at a point, Nigeria, an oil producing nation started importing refined petroleum products. That was the lowest point and evidence of crass stupidity of Nigerian leaders. A nation thriving before the discovery of oil in her grounds suddenly became rudderless and had to be paying for what God had abundantly blessed her with.

I am sure that even to the dim witted it is obvious that crude prices go in circles. Now that we are at a period of low prices our leaders must start planning. The naira must be guided to gradually find its value. We must now look inward for services, products and produce we can competitively provide in order to diversify the economy. There must also be a gradual deregulation of the downstream sector of the petroleum industry.

Without such guided devaluation and deregulation no investors would bring money to build refineries in Nigeria in the prevailing circumstances. Equally, there must be a multilayered electricity tariffs. The tariff of tenement dwellers must be relatively low.

We must equally plan to avoid the Dutch disease when prices of crude go northward again. We must start planning what to do with excess crude oil money when it comes again (it is a matter of time). What percentage of it are we going to save? What percentage are we going to invest in the sovereign wealth fund, how much of it are we going invest in agriculture, how much of it are we going to invest in education, how much of it will go into special super highways traversing southwest to northwest, southeast to southsouth to north central and northeast.

If we fail to do this now, Nigeria may be lost forever.

(C) Ola Animashaun, 2016

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