Is Nigeria cursed? Is it fated that all of Nigeria’s attempts at progress and economic development will fail? Many people think so. I do not believe that Nigeria is cursed in that sense. However, I do believe in the ‘resource curse theory’. A quick search on Wikipedia will explain the ‘resource curse’ to be: “…also known as the paradox of plenty, refers to the paradox that countries with an abundance of natural resources (like fossil fuels and certain minerals), tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources.”Wikipedia goes on explain that “most experts believe the resource curse is not universal or inevitable, but affects certain types of countries or regions under certain conditions.” If we think about the history of Nigeria since crude oil discovery in 1956,we would consider that Nigeria has been been afflicted with the ‘resource curse’.
According the National Bureau of Statistics, the petroleum sector in Nigeria contributes less than 10% to Nigeria’s economy. The Federal Government’s Economic Recovery and Growth Plan (ERGP) divides the petroleum sector into two sub-sectors: upstream and downstream. The ERGP shows that nearly all the petroleum sector’s contribution to Nigeria’s GDP is from the upstream sub-sector, with the downstream sub-sector contributing less that 0.5% of GDP. This is not what you would expect from an ‘oil economy’ when compared with other oil-producing countries like Kuwait (petroleum sector contributes up to 50% of GDP), Qatar (50% of GDP), Saudi Arabia (42% of GDP) and United Arab Emirates (30% of GDP).Yes, Nigeria holds the tenth largest oil reserves in the world, at 37 billion barrels, it is the second largest in Africa, after Libya. But these reserves have not translated into value for the economy: The CIA World Fact Book ranked Nigeria 72nd in refined petroleum productionand 82nd in refined petroleum products exports.
Simon Baur, a researcher at the London School of Economics in 2014 showed that, a country like Nigeria can mitigate the resource curse by increasing its refining capacity, as this will improve economic and institutional outcomes of an oil-producing country like Nigeria. Increased midstream and downstream capacity should increase the availability of petroleum products, its consumption, enhance linkages to other sectors and ultimately diversify the economy. According to Baur “coupling national strategies for developing downstream capacities with supplying internal demand and energy self-sufficiency may reduce the ‘rentier effects’ associated with serving a mostly external market.” This was the pioneer research attempt at estimating the impact of refining capacities (quantitatively) on economic growth and institutional quality. The empirical results obtained by Baur show that increased economic growth and a reduction in petroleum dependence is statistically significant and positively correlated with an expansion of refining capacity in a country.
The Federal Government in recent years unleashed three policy interventions which lay emphasis on the need to increase in-country oil refining capacity. The Federal Ministry of Petroleum Resources’ ‘7 Big Wins’ Initiative (2015), The Federal Ministry of Budget and National Planning’s Economic Recovery and Growth Plan (2017) and The National Petroleum Policy (2017), all highlighted the value that a reinvigorated refining industry can add to the Nigerian economy.
Nigeria’s National Petroleum Policy(NPP)was approved by the Federal Executive Council (FEC) July 2017.The NPP’s vision is for Nigeria to be a nation where “hydrocarbons are used as fuel for national economic growth and not simply as a source of income.” The NPP came into being because previous policies over the years were not designed for economic development and instead encouraged a rent-seeking approach. Nigeria ended up as the only member of the Organisation of Petroleum Exporting Countries (OPEC) without effective oil refining capacity. One of the objectives of the NPP is to create value for the Nigerian economy by processing oil into important products for other industries. The future of the oil sector in Nigeria lies in refining and petrochemical industries. The NPP states that capacity utilization of Nigeria’s refineries dropped to 14% in 2014 against a global average of capacity utilisation of 90%. The NPP states (very early on) that “a strong commercially viable and significant refining sector is an essential part of the National Petroleum Policy.”
Nigeria recently exited an economic recession that had a lot to do with the petroleum industry. The crash of oil prices in 2014, combined with dwindling oil production because of oil militancy disruptions, sharply reduced the federal government’s foreign exchange earnings (about 70% come from the petroleum industry). This reduced government revenue affected Nigeria’s external reserves. The crash of the Naira followed, with inflation as the result. Additional pressure on the Naira also comes from the petroleum industry: it was revealed by the Honorable Minister of Finance that 30% of forex demand is for the importation of refined petroleum products.
It is surely time for Nigeria to refine it’s way out of the resource curse!
