Question

Chapter 1 of our text casts the Spotlight on Nigeria, with a population of 186 million and counting. Africa’s most populous country faces the curious challenge the comparative literature calls the “resource curse--” one that other resource-rich countries such as Iran, Venezuela, the Democratic Republic of the Congo, and South Sudan also grapple. The “curse” points to a situation in which an abundance of oil resources, instead of delivering higher living standards, a better quality of life, and economic prosperity for the population, instead perpetuates underdevelopment.

The paradox is particular pronounced for Nigeria, one of the world’s biggest oil-producers. Despite earning hundreds of billions from its petroleum exports, accounting for a whopping 90 percent of gross domestic product (GDP), Nigeria scores only 0.532 on the UNDP’s 2017 HDI index, up a mere 0.061 from 2012, or 157 out of 189 countries. (UNDP. International Human Development Indicators. Its poor showing on critical QLI indicators--health, life expectancy, education, poverty, gender equality, sustainability, and so on--is illustrative of the classic challenge to many resource-rich countries in the Global South: abundant natural resources that, instead of bringing economic prosperity has done the opposite. It begs the question, would Nigeria be better off without oil?

It may strike us as odd that a country so richly-endowed with natural resources has not been able to show more for it. Instead, what we have had are several military coups, rampant corruption, political fragmentation, poor living standards, and fitful democratic progress. On the corruption side of the ledger, Nigeria ranks 148/180 on Transparency International’s 2017 Corruption Index, scoring a mere 27 out of 100, slightly above Afghanistan, Burundi, Haiti, North Korea, Somalia, and Tajikistan. Corruption has enabled the political elite to “buy off” mass publics and, until recently, underwrite repressive rule. “Black gold” has served to distort normal economic development in Nigeria by robbing other sectors of needed resources. (Similar situations obtain in other oil-producing economies such as Algeria (now experiencing great political upheaval) and Iran in the Middle East/North Africa and Mexico and Venezuela in our own Hemisphere.)

Nigeria’s (post-independence) economic plan sought to encourage domestic growth through tariffs and subsidies, a strategy that should have produced good results, given its high oil revenues. It failed, being driven more by political expediency than by economic logic. So, for example, a US$ 8 billion investment in steel production failed to get off the ground. (Nmehelle, Vincent O. “Sharia Law in the Northern States of Nigeria: To implement, or not to implement, the Constitutionality is the Question,” Human Rights Quarterly 26, no. 3 (2004), pp. 730-59.).

Oil price declines beginning in the 1980s, amidst economic uncertainty and changing energy habits in the industrialized North and a chronic foreign-debt burden, forced Nigeria’s leaders to reverse course on its economic development strategy. This resulted in huge job losses, run-away inflation, and much public discontent. To win support, the military government of Ibrahim Babangida (1985-93) diverted the country’s oil wealth to coopt opponents and the civil society, even while it kept up the pressure on its critics. Political support was purchased through an elaborate system of patrimony using petro dollars.

Another military coup in 1993 brought Sani Abacha to power. Corruption (the misuse of political office for personal or political gain) became endemic (Johnston, Michael. Syndromes of Corruption: Wealth, Power, and Democracy. Cambridge & New York: Cambridge University Press (2005)--as was narco- and human trafficking, money laundering, and so-called 419 scams--an internet swindle involving unknown Nigerian civil servants.

The fourth republic under the popularly-elected government of Olusegun Obasanjo (1999-2007) faced the daunting task of reining in the economy while breaking with the past. The approach produced only limited results. Yar’Adua (2007-2010) and his Democratic Party (PDP) successors (2010-15) launched what became known as the National Economic Empowerment and Development Strategy (NEEDS). NEEDS was an ambitious plan to stimulate domestic enterprise through foreign direct investment (FDI). It was also meant to bring more transparency in government spending, foster the rule of law, reduce corruption, improve transportation and telecom, and deliver the people’s health. The International Monetary Fund (IMF) report on Nigeria sounds a cautious note of optimism, i.e. if the economic reforms and diversification plans, and the efforts to control inflation (the money supply), stabilise the country’s finances, and “move beyond oil,” remain on track.

In theory, then all is not lost for Nigeria to overcome its resource curse. For all that, it continues to depend heavily on one source of income--petroleum; and not much has changed in terms of improvements in living standards for the majority of Nigerians. Indeed, inequality has reached alarming levels. To be fair, Nigeria’s civilian leaders have boldly gone where none of its military rulers have gone, starting the “rainy-day” fund and tackling corruption, especially in the all-important oil sector.

Still, huge challenges remain, reflecting the ambiguous role of petroleum in the country’s life. So, although there are hopeful signs, Nigeria’s prospects, like that of Brazil and others, remain uncertain. The rise of the Boko Haram terrorist group and the failure of the current President Muhammadu Buhari to bring it to book has not helped. (For background on the group, founded in 2002, see the BBC here.) Buhari has come in for “widespread criticism over his government’s inability to defeat the renewed …insurgency in the northeast.” The New York Times, 9 April 2018 (here). This explains in part why Nigeria scores only modestly on civil liberties (freedom of expression, association, the rule of law, personal and individual rights) on the Freedom House Index; and also on the EIU Index.

Here are some pathways into this first discussion: What do you make of Nigeria’s resource-curse challenge? Can the country get out from under this curse and how? Why does Nigeria seem to hold so much promise, yet continually fails to deliver? Comparatively speaking, how do we account for the fact that Canada, also an energy-rich country, has not fallen prey to this curse?

Answer 1

The resource curse refers to this paradox: that countries with an abundance of natural resources (like oil, diamonds, gold, other minerals) have less economic growth than countries that do not possess these natural resources. This may happenformany different reasons, including a decline in the competitiveness of other economic sectors, under-investment in education and a mismanagement of revenues gained from the natural resources sector.
However, there is some level of disagreement as to the real cause of the resource curse among writers. The term was first used by Richard Auty in 1993, to describe how countries rich in natural resources were not able to use that wealth to boost their own economies and how such countries had lower economic growth than countries that did not have an abundance of natural resources; although the idea that natural resources might be more of a curse than a blessing began toemerge in the 1980s. Numerous studies, including a notable one by Jeffrey Sachs and Andrew Warner, have shown a link between natural resource abundance and poor economic growth.

This dysfunction - between natural resource wealth and economic growth - can be seen by looking at figures from oil producing countries. From 1965 to 1998, in OPEC countries, gross national product per capita decreased on average by 1.3 percent - while in the rest of the developing world there was a per capita growth by an average of 2.2 percent.
The identified negative effects of the resource curse include the Dutch disease, excessive borrowing, corruption, government complacency, a neglect of education and violent uprisings.

The consequences of the state of affairs include the fact that debt servicing diverted resources from spending on human development and infrastructure. This diversion of resources put a stain on investors’ perceptions of Nigeria’s investment potential, and encouraged capital flight - and it also led to a lack of export credit cover.
Such a situation persisted until President Olusegun Obasanjo began an international campaign to try to get debt cancellation for Nigeria from its major debtors. According to the Debt Management Office16, the causes of Nigeria’s debt might be grouped into six main areas, which are:
• inefficient trade and exchange rate policies
• adverse exchange rate policies
• adverse interest rate movements
• poor lending and inefficient loan utilization
• poor debt management policies
• the accumulation of arrears and penalties.

Recommendation

The policy entry points that have been considered include a comparative analysis of what other countries with oil revenues did or are doing to avert the resource curse syndrome, while we have also looked at the EITI, the MMSD, NEITI, NEEDS, and at other economic and political policies and initiatives. The post-1999 initiatives of some government institutions to engage non-state actors has also been given a critical examination, and a conclusion reached is that most of these initiatives have lacked institutional support and ownership, and they cannot survive by themselves; for more adequate safeguards so as to avoid corruption and promote accountability and transparency in the management of Nigerian’s oil resources are needed.

Above all, the Nigerian state must wake up to its developmental responsibilities. The present, blind reliance on the prescriptions of the World Bank and the International Monetary Fund coming without an adequate, vigorous and participatory local context is as dangerous as having a lack of commitment to development. The solution to the lingering crisis of poor resource management and underdevelopment in Nigeria cannot be solved by a ‘renaming of institutions’ or a multiplicity of institutions for political patronage but by a clear commitment to service delivery for development that is not in the interests of or for the benefit of society’s special few.

Canada

When it comes to natural resources, Canada is a powerhouse. The country is a major net exporter of natural gas and coal. If one includes the Alberta oil sands (which were pre-shale considered cost prohibitive to develop), the country holds what is estimated to be the world’s second largest oil reserves (Saudi Arabia being number one). The country is also a major mining power, being the third largest producer of primary aluminum and diamonds, and in the top five for cadmium, molybdenum, nickel, platinum group metals, salt, titanium concentrates, elemental sulphur and uranium.

Despite this, Canada has so far managed not to become a victim of the resource curse. Some of this may have to do with the way regulations and oversight are implemented and applied. Much of the royalties, taxes, incentives, permits and licensing for oil and natural gas are done through provincial bodies, while a federal National Energy Board oversees regulation and is partnered with respective provinces in offshore drilling. Importantly, the NEB also reports to Parliament.