Crude oil as Nigeria’s resource curse

professor Richard Auty coined the concept of resource curse in economics in 1993 in his seminal work. Resource curse or ‘paradox of plenty’ is linked to the failure of citizens in many resource-rich countries like Nigeria to benefit from their natural resources. The governments failed to respond effectively by providing the welfare needs for the citizens. However, the resource-based view can be linked with the works of Edith Penrose in 1959 but that is related to the resource-based view of firms. So, the resource curse thesis by Richard Auty is an extension to countries when he noticed how countries like Nigeria could not improve the welfare situation of their citizens or use the resources to assist them to realise their potential for good living.

Over time, it has become clear that poor governance in managing the resources and dysfunctional institutions have combined to promote poverty than affluence in this country. When we talk about resources in the case of Nigeria, it cuts across human and non-human or physical resources. Fortunately for individuals and unfortunately for the nation, human resources are highly mobile. Those who could not continue to waste their talents and energy have been migrating to countries that appreciate their skills and resource endowment. The Nigerian physical resources have become deliberate weapons of hardship and poverty in the hands of our governments. The major candidate for this war against survival is crude oil. It is as if the password is like “oil4death”. Those who cannot live should die.

It is not for nothing that countries around the world focus on targeting inflation in their quest to run a growth-desirable economy. Even the current monetary policy framework of the Central Bank of Nigeria is inflation targeting which was adopted in 2012 but officially commenced in 2014. Adopting an inflation-targeting framework implies that a country wishes to maintain a single-digit inflation rate. The last six years have seen the inflation rate in Nigeria heading further northward. Since this government came on board almost 18 months ago, the inflation rate has remained above 30 percent and largely policy-induced. Even the CBN which anchors its policy on inflation targeting continues to raise monetary policy rates thereby making the cost of borrowing continuously expensive.

Why is managing inflation important? Price stability is at the heart of achieving other macroeconomic goals. These goals are full employment of resources, economic growth, price stability, balance of payment equilibrium, equitable income distribution, and sustainable development. The last goal is my addition as a citizen of a developing country. Without price stability, economic growth cannot be achieved and growth enhances employment of both human and material resources.
High domestic prices result in a high cost of producing domestic goods for home consumption and exports. Inflation makes our exports non-competitive internationally and importers of such products look elsewhere for the same products. Also, the potential inflow of foreign direct investments is suspended. One is not therefore surprised to see the massive decline in FDI to $29.83 million for the second quarter of 2024 as reported by the Nigerian Bureau of Statistics last week. That was a drop of 65.33 percent compared to the same period last year. The financial implication is that the President had wasted our funds running around the world for foreign investment. Of course, he needs to refund our money. The economic implication is that we are far from achieving the balance of payment equilibrium. Which of the macroeconomic goals have we really achieved?

When there is inflation, the poor suffer more as they hardly have savings while the rich fall back on their savings to cushion the effects of the price increases. This implies widening the gap between the rich and the poor. That is, the country fails to achieve equitable income distributions. Finally, achieving sustainable development requires that there is sustained economic growth. Governments who understand the destructive nature of inflation try to control prices that control other prices like energy prices, transportation, and major food items through policies. All governments, including the capitalists we try to mimic provide energy subsidies.

The crude oil that served as a source of joy and development for some countries has turned out to be a curse for Nigeria. Since oil took over from agriculture as the main source of revenue, Nigerian leaders have turned their backs on good governance but embraced satanic verses. They turned the productive agricultural economy into a rentier economy relying on rents from multinational oil companies. Even when the NNPC was created, it was not to engage in oil exploration but rent collection from these MNCs. Such policy breeds corruption which has become the hallmark of governance over the years.
When refineries were built, the managers could not manage them as business enterprises but as instruments of personal aggrandisement. The oil sector has served as the source of illegal wealth for past and present political actors, just as it has become the source of nightmare for the citizens. The present government is using oil as a weapon of mass destruction of the economy and the people. What do we mean?

Petrol and diesel are presently the major sources of energy for home use and industries, given the inefficiency of electricity production and distribution. Even the electricity subsector depends on gas, a petroleum product. Since the government of President Bola Tinubu assumed office in less than 18 months, the price of petrol has risen by more than 400 percent. That is, from less than N300 to over N1000 per litre at the last count. Every change in the price of fuel moves the cost of production, cost of commodity distribution, the cost of the commodities themselves, other costs of business operations, and the cost of maintenance of facilities, as well as, the cost of living in the same direction.

It is as if this government was voted in to punish us. When we thought that having the fuel produced locally would reduce price and increase supply, the government, through its instrument of oppression, the NNPCL stepped in to dictate the supply and prices of the product so that the company could make extra profit and increase tax due to government that depends on rent for income rather than production. What is the cost of producing a litre of fuel using domestic resources?  Energy experts should help us.

The resulting high cost of production has killed some businesses through a fall in demand for them and with attendant labour unemployment as well as loss of revenue to the government. It kills productivity directly and indirectly. For survival, workers individually run around for multiple jobs to get additional sources of remuneration without committing themselves to give 100 percent to any job. Collectively, the workers, particularly in the public sector that normally pays low wages, organise group attendance at work. In this case, some workers would go to work for a maximum of three days a week and use another three days in their shops or the ‘other’ jobs that bring in additional income.

Socially, job losses lead to social unrest, more children out of school, the incidence of divorce and separation or abandonment in marriages, and loss of family values. Some of these promote banditry, kidnapping, armed robbery, psychiatry, suicide, and similar vices. The last twelve months have witnessed rising social vices of this nature resulting in committing more funds for security at the expense of providing for the social sector like health and education.

 What really have we benefitted from this government? The quality of education and health services is going down. The country is far from achieving the simplest of the Sustainable Development Goals which timeline is 2030. Which inherited road infrastructure has this government completed? Yet it has been borrowing in the long-term market for future generations to pay. Within 16 months, the federal government has borrowed $6.45 billion from the World Bank. That is just one source. The NNPCL has sold our oil upfront, another form of loan. For what reason, we do not know and are not meant to know.

There is no doubt that we are in deliberate government-induced pain. The resource curse is real. At least, we are all witnesses to it. Various recommendations on how to move the economy forward do not find favour with the government. We are not on the same page. Hopefully, the government is not on the page of self-immolation.