The Curse Of Oil

By

Pat Utomi

As the search for scapegoats on the fall of the Naira and our stagnated economy continues unabated, let me offer a real culprit, oil. I know that much has been said about the blessing and the curse of oil but am convinced many do not understand enough how much oil does to contribute to our problems and how deep has been the failure of the policy process to make oil bring us dividends such as poverty reduction. Instead, oil has tended to bear 'fruit' like poverty exacerbation. Besides, the despoliation of oil producing areas is evidence of how oil makes policy makers act unwisely and thus increase poverty abound.

Consider a few facts. Shell is making significant new investments oil exploration in Nigeria. Estimates of the number of jobs those investments will create in the United Kingdom has been a subject of campaigning by British politicians. The estimates exceed 10,000 jobs and one-politician talks of 4,00 jobs in his constituency. How many jobs will this investment in Nigeria create in Nigeria? I will be shocked if it does not in fact coincide with Shell retrenching a few more of its very few Nigerian staff. Is it Shell's fault? Probably not!

Every oil windfall has created policy shocks that have increased uncertainty and resulted in the retrenchment rather than real growth of the Nigerian economy. The Yom Kippur war windfall of 1973 facilitated the Udoji awards and the damage to the consumption ethic of Nigerians, which hunts us today. The Iranian revolution windfall of 1979/80 set us up for Dutch disease after Dutch disease as expanding budgets begot the Open General Licenses for imports that led us down the path of a debt crisis. The ultimate was 1991 windfall following the Gulf War which increased our recklessness so much that in the year of that windfall we ended up with perhaps the worst deficit we had up to that point, creating the inflationary pressures that did havoc to real incomes. The 2000 windfall has ensured that the democracy dividend is a hunt for who did the Naira in.

What do these facts point out about our oil economy? Some may say that it tells us oil has been more of a curse than a blessing. But I think we should see more here. Sure, the World Bank published a study in 1995 which indicates that ironically, resource rich developing countries have been outperformed by resource poor countries but nothing says that is the way things have to be. The resource-curse study raises for us a number of questions. How come these resources do not bridge the savings gap and lead to investments that will create jobs and wealth? Is the fault in the resources or in what it does to the people who have these resources? Are there resource rich countries that have managed not to be crippled by what should have been considered God's generous endowment?

The answer to the first question can be found lurking in the fact that our oil sector is an enclave economy with little, if any linkages to the rest of the Nigerian economy. If NNPC spent more time trying to ensure that the oil companies operate in a way that there is trickle down and knock on to the rest of the economy than calculating how much more Nigerians have to pay for PMS, a product that can be more efficiently produced and distributed by others, it would be adding infinitely more value to Nigeria than its history suggest it has.

What is wrong with making success in bids for attractive acreages in the oil fields contingent on certain percentages of inputs coming from Nigerian manufacturers and suppliers? How much resistance would we really get if bid success depends on commitment to creating a certain number of local jobs down the value chain of oil production and marketing?

I have been around long enough to know that such proposals frighten multinational companies in Nigeria? But they conform to affirmative action programmes in their home countries and elsewhere. Get a PTO license in many countries and the local manufacture of handset gets tagged on. So why do they run scared of such requirements in Nigeria? Two main reasons occur to me. First, such laws usually result in arbitrary conduct by Nigerian government officials charged with implementation and enforcement. Secondly, it is usually easy to buy off the officials who are often unable to see the bigger picture of the losses and gains for the economy and themselves, relative to the mesh of pudding they get in bribes and payoffs Indeed an umbrella problem remains with a general value system in which public officials do not easily see or act in a manner that suggest they see a clear relationship between policy and the economic choices they make, with jobs, the quality of life of the citizens and social harmony. In the final analysis, it is a clean manifestation of the disconnect between state and the society, the distance between those who govern and those they govern and the debilitative nature of the patrimonial state which I lamented in last week's essay that ran under the title: "The Paradox of Politics."

To question two. Is the fault in the resources? Surely not. The fault is in what unthinking people do in the face of apparent boom from surge in the prices of natural resources. 'Dutch disease' as a concept comes from what Gas-finds did to Holland. But they learnt quickly from the error that encouraged many Dutch people 'suffer' from, had to diagnose "back ache" to enjoy the benefits of boom. We have continued to repeat our mistakes and to stay vulnerable to inevitable crude oil price collapse given our spending binge each time crude oil prices appreciate dramatically.

More worrisome, to me, is the fact that we persist in hoping that oil and other natural resources yet to be fully tapped, like solid minerals, will bring us to the Eldorado of development. The truth as Rosenber and Birdzell Jr. put it in their well researched book How the West grew rich "much of the writing on the limits of growth in our own day combines a more sophisticated concept of natural resources with a belief in a simple link between ownership of resources and economic growth. But the prosperity of the low countries and Switzerland has long plagued these explanations. More recently, the phenomenal growth and prosperity of Japan have hopelessly undermined them."

Question three has a simple answer. Just look at the economic performance of natural resource endowed Indonesia and Malaysia relative to Nigeria. The time has come for a hard long look into the mirror. We may find the enemy, the trouble with Nigeria. He looks like us. He may be us.

Should we despair from all this. Not at all, I dare say. We have seen many windows of opportunity open and shut on us. But there is hope yet. The sweeping prosperity blowing with the globalizing economy, pessimist perspectives notwithstanding could bring us dramatic opportunities for leapfrogging stages of development, enhancing the quality of life of our people in the process. The nature of these opportunities are lavishly explored by Frank Vogl and James Sinclair in the book: "Boom: Visions, And Insight For Creating Wealth In The 21st Century," Key to thriving in this brave new world of the 21st century will be competitiveness of emerging country economies. How we develop infrastructure, build institution, develop human capital and adapt technology will matter but they may depend on how we manage the relationship with big private corporations. As Nobel laureate and former President of Costa Rica, Oscare Arias Sanchez, writes in endorsement of the Vogl and Sinclair volume "This book boldly warns of the danger of corruption and stresses that multinational corporations will fail if they maintain traditional approaches to the Third World. Partnership is the key word effectively stressed here." The oil sector will do well to proactively stay on the side of the future based on partnership. Only in this way can oil go from being the curse of Nigeria to blessing.

To conclude, it seems clearer everyday that the poverty that holds Nigeria hostage and devalues the lives of so many, comes from a divorce from creative application of the intellect to the solution of people's problem by those who offer leadership and the implementing bureaucracies. 

Since this was not always the case, as we can see from 1960s a people who saw the light may have returned to darkness because of one or both of the major factors that separate current experience from the experience of the time of independence military rule and commercial exploration of oil Spending has replaced thinking and the people are paying dearly for it. Could it be oil that is responsible for all the imported furniture in government offices when we once had a thriving furniture industry? Why does government keep importing thousands of buses ANAMMCO can build with thousands of jobs created in Nigeria? Then you have the ultimate scandals of ALGON four wheel drives and new stadia when the ones we have are grossly under-utilised, including two sitting opposite each other in Surulere, Lagos. I have chosen to blame oil today. Maybe it is about what oil has done to our minds. The truth is that history will be hard on all of us from this era for what absence of rigour in decision making and simple minded corruption has done to cripple our country while we search for scapegoats like IMF and any weak persons who cannot fight back to blame. 

History will not blame oil. It will blame people. Perhaps people like me.