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Prosperity or Plunder? Nigeria Slipping at an Oily Crossroads

“Disaster” doesn’t begin to describe the troubled oil scene in Nigeria.  Last June, in the immediate wake of the BP spill in the Gulf of Mexico, the New York Times ran an article exposing a crisis in Nigeria that should have been capable of piquing the conscience of even the most hardened oil barons.  It revealed that — because of an endemic lack of regulatory oversight and corporate irresponsibility — the Niger Delta has suffered the equivalent of the Exxon-Valdez oil spill every year for the past fifty years.  The scale of the vast damage done to this fragile ecosystem is beyond comprehension for those of us who merely read about it from afar.  But the people who live in the Delta experience it as everyday injustice that has systematically destroyed their livelihoods and forced them to flee their homes.  To make matters worse, while international oil companies in Nigeria pump up to 900 million barrels of black gold out of the Delta each year, the region’s residents remain mired in intractable poverty — 71% of them live below the poverty line of $1 per day.

It’s no wonder, then, that the Delta has spawned a continuous series of rebel movements since as early as the 1970s.  The situation first came to the world’s attention in 1990, when well-known writer Ken Saro-Wiwa and a group of Ogoni activists took on the Anglo-Dutch company Shell and its state backers, demanding a fairer share of the oil wealth for the region’s people and protection from further environmental damage.  Their demands were modest: they asked only for water, electricity, roads, education, and greater control of their resources.  But the state’s response was brutal: in 1994, President Abacha convened a puppet court to arrest and try the activists, and summarily executed Saro-Wiwa and eight of his comrades.  This was only the most flagrant example of an ongoing trend in Nigeria, where the state devotes itself to protecting the interests of its foreign investors against those of its own citizens.  Indeed, in Nigeria, citizens are considered little more than an obstacle to the accumulation of foreign capital by oily elites.

By the time when Abacha died and Obasanjo assumed the presidency in 1999, the Nigerian government and its corporate partners had plundered an oil bonanza worth about $280 billion and had left the economy in utter ruins.  Nigerian citizens were significantly poorer that year than they had been at the start of the oil boom 30 years before, and the average income per capita was less than one third what it had been in 1980.  It was this context that occasioned a new wave of resistance by rebel groups, such as the Movement for Equality in the Niger Delta (MEND), who have asserted themselves by sabotaging oil installations and kidnapping corporate representatives.  And not without some success: the upheaval in the Delta region has reduced petroleum production by as much as 50%, resulting in a major loss of revenue to the state.

Recognizing that the situation was spiraling out of control, the government of Nigeria set up a committee in 2000 to begin drafting recommendations for the reform of the petroleum industry.  The result was the omnibus Petroleum Industry Bill (PIB) that is currently wending its way through the National Assembly.  The government has been promoting the PIB as a shining example of global best practice, claiming that it will remake the Nigerian petroleum industry from one of the most opaque in the world to one of the most transparent.

There is no question that the PIB implements some important reforms.  For example, it dismantles the notoriously corrupt Nigerian National Petroleum Corporation (NNPC) and divides its various functions (policy, regulation, and commerce) between a constellation of separate independent agencies in order to reduce conflicts of interest.  In addition, the PIB provides for a more transparent bidding process, and dissolves a whole set of “confidentiality” measures in order to put licenses, leases, and contracts in the sphere of public scrutiny.

The PIB also introduces a number of changes in the fiscal system that governs the petroleum sector.  It will require all companies involved in upstream operations to pay new taxes, including a Company Income Tax and a National Hydrocarbon Tax.  It also mandates a higher government take of both onshore and offshore oil fields.  But these provisions mean absolutely nothing by themselves.  Sure, the Nigerian state is going to get a fairer cut of the resources it rightfully owns, but there’s no promise that this new revenue windfall will translate into anything resembling equitable development or poverty remediation for Nigeria’s huge underclass.  In fact, if history is anything to go by, the extra money in state coffers will mean little more than extra opportunities for government elites to plunder it.

The PIB answers this critique with what has become its most popular provision by far: “Host Community Dividends.”  The idea is to give Delta residents who are impacted by oil and gas activities a 10% stake in the ownership of the assets and acreages, and to guarantee a 10% rate of return on that stake.  This translates into a shocking $5,000 dividend per person per year.  These dividends will be managed through community Trusts, which will employ Fund Managers to advise individuals on how best to use their money — i.e., as investments or as cash withdrawals.

But the dividend payments hinge on one telling condition.  If anyone vandalizes industry assets, engages in infrastructural sabotage, or stages civil unrest that harms the interests of oil companies, the community will forfeit their checks for the year.  The dividends, in other words, are cynically designed to buy off dissidents with the express goal of reaching maximum production levels of 4 million barrels per day by 2012.  It’s no surprise, then, that very little thought has gone into how to translate the $1 billion of annual dividend payments into meaningful development outcomes.  Like the transparency and anti-corruption measures, the dividends are merely designed to create a façade of legitimacy for an industry beleaguered by PR nightmares, and to further grease the wheels of the elite oil bonanza that has been underway for decades.  They do not in and of themselves provide solutions to the central problem: unjust distribution of revenues within an overwhelmingly rent-based economy.

The PIB misses a monumental opportunity to finally make Nigeria’s oil work for the good of common Nigerians.  A reform bill dedicated to this task would include a different set of provisions altogether.  Here are five brief suggestions:

1) An independent monitoring agency — like Global Witness or Publish What You Pay — should be invited to ensure that oil and gas companies actually pay the taxes that they owe.  Corporate tax avoidance is the main source of capital flight from the continent.

2) Royalties, taxes, and revenues from oil should be paid into an independently audited account, with audits available to the public on a quarterly basis.  From this, 10% of all income should be designated to a Future Generations Fund — following the Norwegian model — to provide an investment base that will last until long after the oil is gone.  Like Norway, the Fund should retain an Ethics Advisor to ensure that its investments meet conscientious environmental and labor standards, and promote local growth wherever possible.

3) 20% of net oil income should be designated specifically for economic diversification.  Using oil money to subsidize more sustainable sectors like agriculture and manufacturing would both create widespread local employment (which the oil industry does not) and wean the state away from its dependence on rents to rely instead on taxes paid by a growing middle class.  This is crucial to restoring the social compact and citizen-state accountability so woefully lacking in rentier economies and would create the basis for a viable economy in the post-petroleum era.

4) 50% of net oil income should be designated for “priority sectors” such as education, health, infrastructure, and rural development.  Local Content rules should require that all such projects tier up over a set period to at least 80% local contracts and labor, and should require investment in local capacity where it proves too poor to meet these standards.

5) Environmental regulations should be raised to meet the highest first-world standards.  Both foreign and national oil companies should be held strictly accountable for remediating the legacy of massive destruction they have wrought in the Delta region over the past 50 years, and should be required to pay into an escrow account designed to cover the costs of future spills and other environmental damage.

The obvious objection to the first and last of these measures would be that they would act as a disincentive for much-needed foreign direct investment.  But this is simply not true, despite the threatening rhetoric spun by Shell, Total, Chevron, and Exxon, the majors involved in Nigerian oil.  The Gulf of Guinea currently boasts 10% of the world’s proven reserves, and Nigeria controls the vast majority of it.  The US, encouraged by Israel, has recently been training its gaze on African oil as a way of disentangling itself from politically compromising dependencies on Middle Eastern sources.  African oil has become crucial to strategic geopolitics; stricter environmental, labor, and tax regulations are not going to change that.

Now is the time for African states to harness their common resources for the good of their common people, to transform a playground for elite plunder into a generator of equitable prosperity.  But Nigeria’s PIB falls far short of this radical vision of reform.  The legislators who are reviewing it now should demand much, much more.


Jason Hickel is an instructor as well as a doctoral candidate at the Department of Anthropology of University of Virginia.




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