Resource Curse and its Effect on Some Members of the Opec Nations - Research Paper Example

RESOURCE CURSE” AND ITS EFFECT ON SOME MEMBERS OF THE OPEC NATIONS. Introduction: What is “Resource Curse”? This is a phenomenon that is generally seen in natural resource rich countries (especially in oil and minerals). These countries, despite their well endowed resources, perform badly in several aspects – good governance, law and order, economic development, political stability - when compared to countries that are less endowed with natural resources. Nigeria is an excellent example of this “Resource Curse”. Nigeria has suffered this resource curse ever since 1958, when exploration for oil began in the oil rich region of the Niger Delta. Since 1958, the income from oil exports alone has totalled about $600 billion. However, more than 70% of its rural population still live at subsistence level; there is malnourishment among children, lower life expectancy, high adult and child morbidity rates. What has happened to all the income earned from oil exports? Who has benefited from this? Why is there no accountability? These are some of the questions I would like to address in this essay. Nigeria – A Case Study Nigeria is one of the most populated and powerful of the African countries and is situated in Gulf of Guinea in West Africa. The lower course of the Niger River runs through the western part of the country before it empties itself into the Gulf of Guinea. This region – the Niger Delta is rich in oil reserves and since 1958, exploration for oil and natural gas has been underway. Nigeria became an independent country on October 01, 1960 after which it became a member of the Commonwealth of Nations and the United Nations. The country is has about 250 different ethnic and linguistic groups. Politically it is a loose federation of many self governing states. Unifying these ethnic groups is in itself a daunting task. The country, since its independence has seen several ethnic conflicts and political instability, with governments oscillating between military and civilian rule. Nigeria is the single largest producer and exporter of petroleum and natural gas in Africa. It has both onshore (the Niger Delta region) as well as off shore (Bight of Benin, Gulf of Guinea and Bight of Bonny) reserves. About 2/3 of its production is from onshore and remaining 1/3 from offshore reserves. The total combined production capacity is estimated at about 3 million barrels per day. The economic growth of this nation is primarily dependent on its exports of petroleum and natural gas. The Politics of Oil: The Niger Delta, from its exports of mineral products contributes to about 95% of the government revenue. Sadly though, this region has seen the worst of environmental degradation, violent uprising by the ethnic communities, abject poverty, poor infrastructure development. What ails this Delta region and Nigeria as a whole? The problems associated with this delta region can be broadly classified into the following areas: Corruption: This has eaten into the very fabric of the economy of this country that Nigeria has been rated as the most corrupt country in the world (among 52 countries) according to the Transparency International’s Corruption Perception Index. There is corruption every where, mismanagement and misappropriation of public resources by people in positions of power, bribery, inflation of contracts, looting, Further, there has been persistent and chronic underdevelopment, and a stagnation in health care, education, employment, infrastructure development initiatives. The huge profits derived from the boom in oil prices did not percolate down to the common man. There is no accountability or transparency in government spending. Government Complacency: The government relies completely on its oil resource for its revenue and has not made any effort into economic diversification. Scope for several other possible revenue generation activities including agriculture, tourism, power generation etc exists, but, the government has not taken any initiative to develop these sectors. Neglect of Education: The education sector has been almost completely ignored by successive governments in Nigeria. With its huge population Nigeria could, if education receives the required impetus, provide a major share of intellectual human capital. Excessive Government Borrowing: Nigeria borrowed heavily from foreign lenders and incurred a huge debt. The borrowed money was invested in frivolous and unproductive sectors and this led to accumulation of arrears and penalties. Nigeria lost respect among the international business community. The Nigerian government opted for the Structural Adjustment Policy of the IMF and World Bank to service its outstanding loans. The consequence was a major cut in social spending resulting in neglect of sectors like health, social service institutions, schools etc. The Dutch Disease: This phenomenon is characteristic of countries where the wealth generated from oil or other natural resources increases the value of its currency therefore making other manufacturing processes less competitive at the international level. As a consequence, the development of other economic activities is not encouraged. Violence in Oil Producing Areas: The Niger Delta region has seen incessant violence and unrest in the last few decades as a result of conflict at various levels - within the ethnic groups, between different ethnic groups and cultures, between the government and local community, between Multi national companies and ethnic groups. The violence is manifested in destructive activities like blowing up and sabotage of oil installations, kidnapping of citizens and expatriate staff for ransom, execution of leaders etc. Why has the Niger Delta been neglected? In spite of being the single largest revenue earner for the country, the Niger Delta suffers the worst environment degradation and poverty and more recently incidence of ethnic violence. This is making the region un-inhabitable for the local community. The spurt in violence is a result of the long standing issue of distribution of profits among the local community – the Ogoni people. The Ogoni tribe has been demanding their rightful share in the profits accruing from the rich oil reserves in their land. This issue attracted global attention only after the execution of the Ken Saro-Wiwa and 8 other leaders of the MOSOP (Movement for the Survival of Ogoni People) in 1995 by the late military dictator – General Sani Abacha. Not much progress has been made to resolve this issue. This has resulted in formation of several militant groups - the most prominent of the militant group being the Movement for the Emancipation of the Niger Delta (MENDS) and escalated violence in the region. In response to the militant outfits, the government had set up the Joint Military Task Force which deployed security forces to maintain law and order and contain militant activity. This however, only resulted in escalated violence between the militant groups and security forces and contributed to the political and social instability in the region. Can this conflict/strife be resolved? To be able to understand the reasons for conflict and provide possible solutions we need to trace the ownership of the natural resources and the structures that were developed to protect them. There are three lobbies involved in this – the State, the Multinational Oil Companies (MNOC’s) and the Producer Communities (P-Cs). According to the present legislation the state has ownership over any mineral or natural resources within its sovereign territory. The State has absolute control over the resource and decides on how the profits are distributed and shared. For the development of a vibrant economy it is imperative that the political and legal institutions are stable, well structured and defined. The political institutions in Nigeria have been weak and have led the ruling classes to monopolize state funds and revenue. The so called ‘loot’ was shared among the ruling class and the MNOCs with nothing reaching the P-Cs. This lack of accountability and transparency in the distribution of wealth from oil exports created the foundation for poor economic development of the country. The ruling class and the MNOC’s amassed wealth while the P-Cs, without whose contribution the wealth could not have been created, continued to live in abject poverty and penury. The environmental degradation of the delta region due to oil exploration activities of the MNOC’s left the locals with nothing for their livelihoods or sustenance. There were legal systems in place to ensure that the interests of the State and the MNOC’s were protected, but the P-C’s were not treated equal partners and there were no legal structures in place to ensure that their interests were also taken care of. Rules and legal rights for the distribution of benefits from oil exploration were clearly defined and spelt out in the case of the State and the MNOC’s but there were no legally binding structures between either the State and P-C’s or MNOC’s and P-Cs. This left them at a huge disadvantage. It was mandatory for the State and MNOC’s to honour their agreement and share profits accordingly but the share that went to the P-Cs was at the sole discretion of the State and the MNOC’s. The state, whose responsibility it is to protect the interests of its people, supported the interests of the MNOC’s and did little to ensure that the locals benefited from the activities of the MNOC’s and the State. This huge disparity in wealth distribution, combined with misappropriation of government revenues by a handful of powerful bureaucrats and MNOC’s, accounted for the political unrest and social instability in the country and the emergence of ethnic militant groups. A meaningful solution to this crisis is possible only if one were to revisit the legal and political structures that have long been established. This in itself is a difficult task since it involves the distribution of wealth among the three participating partners instead of two. Successive governments in Nigeria did initiate steps, like setting up several institutions like the Nigerian National Petroleum Corporation (NNPC) in 1977, the Oil Mineral Producing Areas Development Commission (OMPADEC) in1992, Niger Delta Development Commission (NDDC) in 2000, Independent Corrupt Practices Commission (ICPC). The primary aim of setting up these institutions was to ensure that plans were conceived, strategized and implemented for the sustainable development of the Niger Delta region including such areas as infrastructure development, health, housing, education, water supply, electricity, employment, agriculture and fisheries, telecommunications. However, there has been little progress at the ground. The funds from oil reserves that were distributed to the local governments for development work were very rarely used for real development work. There was no clear control or audit of the spending by the local governments. Besides, the representatives of the institutions were usually technocrats or bureaucrats with some links to the federal government. There was also no direct participation from the P-Cs. The establishment of these institutions was therefore seen as a “time buying” tactic of the government for temporary cessation of hostilities by the militant groups. Rampant corruption and money laundering is still widespread in the government establishment. There is no accountability or transparency in the system and money meant for development work is looted or squandered. There has been little improvement in the overall condition of the locals in the delta region and there has been no sincere effort by the federal government to address the issues raised by the locals. The government resorts to military action against insurgent groups. This has resulted in an impasse with neither side wanting to relent. There is a general air of mistrust which shrouds any effort at dialogue. What is the way out? The government has officially announced its interest in resolving the crisis amicably and has called the militant groups to the negotiation table. International intervention is being proposed and sought as the locals view the government as pro MNOC’s essentially because it uses military action to ensure safety and protection of the installations of the MNOC’s. A possible solution to this might exist if a combination of the following is tried. 1. The MNOC’s should assist the local communities and award more businesses and contracts to the locals 2. Clean up the environmental mess they create as a result of their exploration activities 3. More equitable distribution of profits from oil exports among all players 4. Create necessary legal frameworks to ensure that the rights of the locals are not compromised 5. Ensure that appropriate and sufficient compensation is provided for damages inflicted. 6. Involve all the stakeholders in the decision making process. 7. Diversify the economy by investing in other sectors. Can the Resource Curse be Reversed? Botswana – another resource rich African country - has avoided the syndrome by ensuring that it has systems and procedures in place to check corruption, good governance practices, legal frameworks and institutions and excellent regulatory measures. Another example is Norway which started its oil exploration activities in the 1960s. The growth of the Norwegian economy was dependent on a number of sectors – agriculture, fisheries, forestry, and manufacturing prior to the discovery of huge oil reserves in the North Sea. There was no reduction in the share of revenue allocation for these sectors even after the discovery and exploration of oil. The oil industry in the country was developed after much dialogue and discussion, planning and public debate involving all the stake holders. A progressive, forward looking transparent and accountable government machinery ensured that the profits from the oil exploration business were judiciously re-invested in the entire economy. The establishment of the State Petroleum Fund was a progressive step; it ensured that the profits from oil exports were invested in foreign stocks and bonds to cushion from any future market shocks. It also used part of the money to service the loans taken prior to 1960. Such a conscious planned development of the oil sector has ensured that Norway has not fallen in to the spiral of the “Resource Curse” syndrome. These examples are an indication that the resource curse is a man-induced phenomenon and not an inherent syndrome in natural resource rich areas. What is required is the conviction and commitment to reverse the trend. The cash inflows from oil exports if distributed in several sectors of the economy could foster growth and overall development of the region. The tumble of Oil Prices and its effect on Nigeria: The crash in oil prices globally has been seen many in Nigeria as a blessing in disguise. The economy of Nigeria before the oil boom was dependent on agriculture. The agrarian economy laid impetus on developing social structures like schools, health care, development of infrastructure and ensured that the country was on a course of rapid development. There was peace and stability in the region. However, with the discovery of huge reserves of oil in the Niger Delta region, the fund allocation for agriculture slowly dwindled and the sector was completely neglected. The region from being an exporter of agriculture commodities has become a net importer of agriculture commodities including staples like rice and wheat. The growth of the oil sector led to the decline of the agriculture sector and rested the powers in the hands of a few powerful and influential military dictators. The ensuing ethnic conflict and social unrest are a direct consequence of this oil driven economy. With this crash in oil prices and the political and social unrest in the region, a large proportion of the population feel that a shift in focus to the agriculture sector could alter the situation. There are still large tracts of fertile land in the eastern, western and northern sectors of Nigeria fit for agriculture. The government has to create the right enabling environment for interested individuals and corporations to invest in commercial farming of horticulture /cash/food crops, animal farming. Achieving food self sufficiency and security should become the focus of attention of the YarAduas administration as mentioned in the Seven Point Agenda of the government. The solid mineral industry is another sector that could contribute to the growth of the Nigerian economy. The reserves of solid minerals needs to be explored in a sustainable and equitable manner, necessarily and carefully avoiding the mistakes made in the oil industry. The tourism sector could also prove a revenue earner if the right impetus is given to infrastructure development, connectivity, proper transport systems, safety and security concerns of tourists, crime detection and punishment, create a conducive environment for private / foreign investment. Conclusion: Norway and Nigeria were both agrarian economies before the discovery of oil reserves. Both entered into the oil exploration business at roughly the same time. Norway is now a vibrant rich and powerful nation while Nigeria is the pangs of political instability, locked in eternal ethnic conflict, and has earned itself the status of being one the world’s poorest and most corrupt countries. It would certainly not be inappropriate to say that the curse of Nigeria has been the focus that successive governments have given to the oil industry with the exclusion of all other sectors. Diversification of the economy into other sectors could provide a possible solution to all the maladies that plague this African nation. An in-depth study and understanding of the development model of Norway and neighbouring Botswana could provide some leads to the Nigerian government on how to get out of resource curse syndrome. References: 1. Alexander Cerny, Randall K.Filer. Natural Resources: Are they Really a Curse? Working Paper Series 321 (ISSN 1211-3298). CERGI-EI Prague, March 2007 2. Agwara John Onyeukwu, Resource Curse in Nigeria: Perception and Challenges. Central European University Centre for Policy Studies, Open Study Institute. CPS International Policy Fellowship Programme 2006/2007 3. Pessoa, Argentino, Natural resources and Institutions: the “natural resources curse” revisited. Munich Personal RePEc Archive, MRPA Paper No.8640; posted 07 May 2008. online: http://mpra.ub.uni-muenchen.de/8640/ 4. Alvin Chew, The Dynamics of Global Oil Prices. RSIS Commentaries 118/2008. 13 November 2008. 5. Sakah Saidu Mahmud, Can the Resource Curse in Nigeria be Reversed? The Case for Institutional Realignment between the State, Multinational Oil Companies and Producer-Communities. Prepared for Presentation at the 50th Annual Convention of the International Studies Association, February 15-18, 2009 . 6. Prof. J.A.T.Ojo, Financial Sector Maladaptation, Resource Curse and Nigeria’s Development Dilemma. Public Lecture at Covenant University. January 25, 2007 7. Nigeria Energy Data, Statistics and Analysis – Oil, Gas, Electricity and Coal., pp 1-11 Energy Information Administration, Country Analysis Briefs, http://www.eia.doe.gov. 8. Ben Okolo, The Effects of the Fall in Oil Prices. The Oil Price Crash : A Time of Awakening for Nigeria, January 13, 2009. http://www.naijalowa.com/the-effect-of-the-fall-in-oil-prices/. Read More