A Nigerian Oil Curse?

There are often references being made to the oil curse, the supposed wretchedness of resource endowments that plunges developing countries into a never-ending spiral of internal strife and instability. The rationale is partially based upon the developing countries’ weak institutional framework which makes states harbouring valuable extractible resources susceptible to predation from external or internal factions. But there is also an economic aspect, the export commodities inflates the domestic exchange rate to the detriment of manufacturing sectors, making these less competitive. Over-reliance on a poorly diversified portfolio of export commodities also makes the economy highly susceptible to market volatility, as commodities such as crude oil, minerals or agricultural produce etc are subject to frequently changing international price fluctuations.

Nigerian GDP per Capita vs Value of Oil Production

An example of such reliance would be Africa’s largest crude oil producer Nigeria. At 2.17 million bbls/day (2008, BP Statistical Review 2009) Nigeria is a substantial supplier of oil known as Bonny Light, a gasoline-rich crude, favoured among primarily American refineries for its high quality (49.7% of Nigerian exports, 2008), making it inexpensive to refine. With daily exports running at approximately 2 million bbls/day, two Very Large Crude Carriers (VLCCs) are required for transshipment. Nigeria has also seen falling apparent consumption levels over the last ten years, currently standing at around 200k bbls/day.

Nigerian Crude Oil Production, Exports & Apparent Consumption

Nigerian oil production is, however, not running at total capacity and that is due to guerilla activities shutting in approximately 0.5 million bbls/day. This is the result of the long-standing insurgency conducted by the Movement for the Emancipation of the Niger Delta (MEND), destroying pipelines and attacking installation infrastructure and crew.

MEND Guerillas 2008

They have stated to be fighting for a more equitable sharing of the oil revenues, with a greater portion being earmarked directly to the producing region. Additionally a stated goal has to be lowering pollution levels from the production facilities and reducing Nigeria’s dependence upon foreign companies to extract the oil wealth. However many would liken their activities to opportunist banditry. The response from the oil companies operating in the Niger Delta has been to employ Floating Production, Storage and Offloading (FPSOs) units to gain mobility should the conflict escalate into a large-scale war, to lobby the Nigerian government for added military protection and to hire private security firms. Despite the Nigerian government’s counterinsurgency tactics, the guerillas have been successfully in conducting their activities since the early 1990s, something that might illustrate their resilience.

Even though Nigeria suffers some negative consequences of its resource endowment, the positive aspects in the form of export earnings more than makes up for it, as is clearly visible from the GDP per Capita graph. In periods of high international oil prices, revenue from oil exports should be diverted to building more sustainable manufacturing sectors and into increasing the overall education level of the population. More resources should also be diverted to the producing regions in an attempt to reduce the recruitment incentive for the guerilla movements. Should the Nigerian government succeed in pacifying the insurgents an additional 0.5 million bbls/day in production capacity would be freed, increasing total production by 20%, in 2008 that would have meant $20 billion on an annual basis.

Sources: BP Statistical Review 2009 & US Dept of Energy EIA International

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About J.F. Gjersø

PhD in International History, LSE. http://etheses.lse.ac.uk/3202/
This entry was posted in Contemporary History, Economic History, Violence and tagged , , , , , . Bookmark the permalink.

One Response to A Nigerian Oil Curse?

  1. Pingback: An Economic Perspective | ENGL 1102

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