OIL WEALTH AND INCOME INEQUALITY IN NIGERIA
Oil wealth and income inequality! …Economic Variables that could only be correlated by a true justification of its denotative meanings… The word Oil as commonly used in the petroleum industry refers to Crude Oil and its derivatives. Furthermore, the word petroleum was derived from the Latin word ‘Petra’ which means Rock and the Greek word ‘Oleum’ which means Oil. Connotatively, petroleum would therefore be literarily defined as ‘oil found in the rock’. Whilst it will be more technical to define oil, gas and coal as hydrocarbons which contains impunities ( usually resulting to pollution), it is imperative to also note that ‘Hydro’ means water and ‘Carbon’ means wood. However the level of impunity in crude oil is infrequently higher than 1percent (1%) when compared to heating value. It is also worthy to note that oil & gas are usually found in tiny holes called pores in the rock a few or several meters beneath the surface of the soil.
Income has been theoretically defined as the consumption and savings opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. However, Wikipedia, for the sakes of households and individuals defined income as the sum of all wages, salaries, profits, interests’ payments, rents and other forms of earnings received.
The gap between the rich and the poor otherwise referred to as Economic inequality, income inequality, wealth disparity or wealth and income differences is the difference between individuals or populations in the distribution of assets, wealth or income. There are various schools of thoughts with reference to the implications of income inequality in an economy. While some schools postulated that income inequality is beneficial; some asserted that it promotes investment, and some see income inequality as a destructive tool to an economic growth.
In other words, income inequality refers to the extent to which income is distributed in an uneven manner
Evolution of Oil in Nigeria
The search for crude oil in Nigeria could be traced to the early twentieth (20th) century when a German Company called the Nigerian Bitumen Company explored for bitumen in the West Coast of Africa, precisely in Okitipupa, Ondo State Nigeria. The activity of the Company was however interrupted by the First World War in 1914.
Records also have it that in 1937, Shell D’Arcy (presently called Shell) started oil exploration in Nigeria but also had its activity truncated by the consequences of the Second World War of 1939.
Though there was a long period of explorations without the desired discovery, however it was the glamorous moment when in 1958 the first oil field in Nigeria came on stream when Nigeria experienced the first shipment of crude oil from Nigeria. As if God was settled in Nigeria, there was a rise in the world oil price at about the time the Biafra war came to an end. Consequently, Nigeria was able to reap instant dividend of being classified as an oil producing Nation
At the time of early exploration/production, all that the country got was payment of nominal fee (Royalty) in cash or in production paid by the oil companies to the government which own the land where oil was found.
In her drive for international alliance and participation, Nigeria joined OPEC in 1971, after eleven (11) years of the formation of OPEC.
The U.S. Energy Information Administration (EIA) listed Nigeria as the fifth (5th) largest exporter of oil with net export 2254(thousand barrels per day) in 2012 and twelfth (12th) largest producer of oil with 2,524(Thousand Barrels per day), also in 2012. Forecast and projections have accorded to the Nigerian economy as one of the fastest growing economies in the world and that petroleum and oil resources play a large role in Nigerian economy.
In furtherance of the need to co-ordinate and supervise the activities of the oil Companies in Nigeria, the federal Government established the Nigerian Oil Company(NNOC) in 1977 and in 1978, the NNOC was merged with the Ministry of Petroleum Resources to form the present Nigerian National Petroleum Corporation (NNPC).
There are various questions that rarely come to mind at the point of remarkable abrupt success; …with an estimated GDP of US$451b, GDP Growth of 7.1percent, GDP Per Capita of US$2,800 in 2012, can Nigeria maintain its position as Africa’s top oil producer, considering the recent landmark production records of Angola?…How could the success of the discovery and production of oil have significant positive effect on the life of the entire citizenry, knowing the huge percentage of the population below the poverty line?…Could reliance and dependent on the oil industry constitute an absolute economic advantages to the Nigerian economy?…and many other questions.
The discovery of Oil necessitated the recognition of a sector, the oil Sector. The oil sector in Nigeria could be categorized into three (3) major sub-sector or divisions namely: The Upstream Sector, Downstream Sector and Gas Sector. The peculiarity of the downstream sector in respect of its interface with the final consumer of refined petroleum products in the domestic economy, prompted the intervention of the government through deregulation. In 2003, government took a decision of deregulating the downstream sector for efficient production and reduction in price of oil. The deregulation brought a lot of controversy, as many criticized its implementation as been incongruent with economic realities in Nigeria. Nevertheless, the downstream industry in Nigeria can be said to be well established.
The place of oil in the mind of the average Nigerian as become more profound since the initiation of deregulation of downstream segment of the Nigeria oil industry in 2003. At present, Nigeria had four refineries with a combined installed refining capacity of 445,000 barrels per day. These are:
– The first Port Harcourt refinery was commissioned in 1965 with an installed capacity of 35,000bpd and increased to 125,000bpd in 1986.
– The Warri refinery was commissioned in 1978 with an installed refining capacity 100,000bpd, and upgraded to 125,000bpd in 1986.
– The Kaduna refinery was commissioned in 1980 with an installed refining capacity of 100,000bpd, and upgraded to 110,000bpd in 1986.
– The second Port Harcourt refinery was build in 1988 and commissioned in 1989 with 150,000bpd processing capacity.
…Before the discovery of Oil in Nigeria
What an endowed land (country) with abundance in resources suffice to be ranked among the world best. Before the advent of the discovery of oil, Nigeria was not doing badly with the blessed realization of growing solid minerals and promising agricultural resources.
Agriculture could be said to exist side way with the existence of Nigeria as a country. It is important to know that Nigeria was ranked sixth (6th) country with highest agricultural output in 2011 constituting 2.2percent (2.2%) of global Agricultural Output.
The Country’s varying climate conditions offers diverse potential for agricultural produce. However, it has been the global trend that as economic development occurs; the relative size of the agriculture sector usually decreases. Consequently, Nigerian GDP originating in the agricultural sector shrank from 65.7percent (65.7%) in 1959 to 30.9percent (30.9%) by 1976. In contrast, the overall economic decline reversed this trend, and by 1988, 39.1percent of the GDP was derived from agricultural activity. More so, the contribution of the agricultural sector increased by 3.8percent (3.8%) yearly between 1983 and 1988 and the percentage of export value in agriculture grew from 3percent (3%) in 1983 to 9percent (9%) in 1988, although much of this growth resulted from the fall in oil export receipts.
Currently, the GDP in Nigeria has a growth rate of 6.72percent (6.72%) in the second (2nd) quarter of this year (2013) over the same quarter of the previous year. Agriculture has been the largest sector of the economy, while the Crude petroleum and Natural gas industry is the third (3rd) largest sector which constitute about 13.5percent, but its contribution to GDP have been on the decrease over the last two (2) years.
The analytical trend in the composition of the Country’s GDP illustrates the continuous growth potentials of other industry. However, an economy could best optimize its resources by a clear definition of the meaning of growth
The Fallacy of Oil Wealth in Nigeria
The optimality of resources is the true definition of an economic growth centered on a real growth without creating other significant economic problems or without negative effect on other sectors of the economy.
There is no doubt that wealth in minerals and human resources could also define the wealth of a nation…But does a well defined development, based on oil wealth, constitute an economic growth?
It is apparent that attention has been focused on Oil-Led Development which means the development based on overwhelming dependence on revenues from the export of petroleum, as measured by the ration of oil and gas, total exports and the contribution to central government revenue.
The Oil-Led Development model of today has been seen to mean a significant difference from the role that energy played in the late 19th and early 20th centuries in the western world. At that time, oil contributed only a very small percentage of total economic output, but never dominated export nor came anywhere near the magnitude of dependence that characterized the recent contemporary oil-led development.
There is no doubt that Nigeria has natural resources enough to truly make it a wealthy nation, but the questions are; …is an available but mis-managed resources the same as properly managed resources in defining and classifying a wealthy nation?, is the potential to become wealthy the same as already wealthy?, are countries wealthy simply because they have natural resources?
Conceptual mis-definition of development!
It is pertinent to highlight that in determining whether or not a country is rich, the instrument is not applied to assessing how rich in natural resources that country is, but it is applied to determine the extent of its development. Accordingly, development means being measured in terms of institutional and infrastructural development.
The misconception that countries with oil would mean an automatic determinant of economic growth, creation of jobs, increase government revenues to finance poverty alleviation and many other positive reflection of the true dividend of development is mirage of the practical truth.
In contrary, the consequences of oil-led development tend to be negative, including slower than expected growth, barriers to economic diversification, poor social welfare performance, and high level of poverty, inequality and unemployment.
Statistics has shown that countries that are without petroleum grew at about four(4) times more rapidly than resource-rich with petroleum countries between 1970 & 1993. This calls for a great concern and the need to justify what represent development. Accordingly, one could conclude that oil itself can not encourage or hinder growth.
The perverse linkage between economic performance and poverty is not contingent on the derivative or resource per se but to the structures and incentives that oil dependence creates.
Whilst leaving a considerable regional impact, oil and minerals were never the motor of development. This was echoed when Nigeria, being the Africa’s top oil producer, but the number of Nigerians living on less than a US$1 a day rose to 61.2percent (61.2%) in 2010 from 51.6percent (51.6%) in 2004. This marked a regression for Africa’s most populous nation; where poverty rate had increased despite the growth in the economy. Consequently, it showed that Nigeria has not adequately shared in the progress recorded….Many refers to this as a “Resource Curse”.
As fondly called by many analyst, some refer to it as a paradox of plenty. In clear terms, it is the inverse association between growth and dependent on natural resource revenue such as minerals and oil. It is a negative growth and development outcomes associated with minerals and petroleum-led development. Summarily, it could be referred to as an inverse relationship between high levels of natural resource dependence and growth rates
Expert have it that the”resource curse”, which is a syndrome where exploitation of abundant natural resource exerts a negative drag on long term economic growth. This connotes a fall out of the inability of domestic productive economy to compete as a result of distended value of local currency assisted by inflow of foreign currency.
Many consequences of resource curse to oil-exporting countries has been identified but not limited to: High poverty rates, poor health care, poor educational performance, given their revenue, et cetera.
The economy of Nigeria has suffered criticism from various analysts on the incessant negative effect of oil growth on the entire economy. Whilst the lucrative oil industry has fuelled growth since crude was discovered some 50 years ago, many see the sector’s dominance as being a curse to the poor, causing neglect in other areas, such as agriculture.
The negative association between growth and oil wealth is not attributable to the mere existence of the natural resource itself, instead it is less direct. It is hinged on many indirect factors; considering long term price deflation and price volatility of the international primary commodities market, oil economies are more likely to face more frequent economic shocks and more susceptible to acute boom-bust cycles. Consequently, economic performance will always deviate from planned or budgetary targets.
Summarily, growth, especially with reference to oil cannot be dissociated from moderate reliance on the oil industry.
Over-Dependence on Oil
Many see Nigeria as a classic victim of resource curse where oil or mineral wealth leads to the neglect of other economic sectors which has culminated from the excessive reliance on the oil industry that generates few jobs, put the economy on hold severally due to price swings and fuels corruption and strife.
Countries dependent on the export of oil have not only performed worse than their resource poor counterparts; they have also performed far worse than they should have, given the revenue stream…the greater the dependence on oil the worse the growth performance. In like terms also, oil dependence is correlated with low life expectancy and high malnutrition rates.
Conversely, Nigeria, with dependence on oil as major source of revenue has been characterized by high corruption and high incidence of conflicts and internal war. However, revenue generated from oil constitutes the largest source of income for Nigeria.
The country has become over-dependent on its oil sector whereas there are other areas of the economy such as cocoa, rubber, entertainment, palm oil production, coconut processing and agriculture which are in decline stage.
The state of overdependence on oil at the expense of other resources may reinforce a vicious development cycles. Consequently, the economic growth may be retarded and produce a skewed development pattern.
The government of the day has left no stone unturned. The country in recent times as experienced improved records of growth in other industries. There had been immense participation of other non-oil sector in the drive by the government to develop and grow the economy of the country to its desired state and rank.
It is easy to acknowledge the dependence of the economy on oil revenue than to quickly proffer a soluble reversal of the current trend. This is contingent on the logical belief that you maximize your capability, though not at the neglect of other resources.
The government in its drive has shown that failure to diversify from oil-dependence into other self-sustaining economic activities, especially agriculture and other labour-intensive industry could be a barrier to real development. We can categorically say that oil windfall can hurt other sectors of the economy by pushing up the real exchange rate of a country’s currency, thereby rendering most other exports non-competitive.
The shift in the Informal and Formal Sector!
It is an irony of reality that oil industry creates few jobs. This is consequent upon the comparative analysis of the intensive capital and the commensurate job created; that is, it is a fact that the industry is capital-intensive, however the sector creates few jobs per unit of capital invested. It is also an irony of employment that the level of professionalism and skills required by the oil and petroleum sector usually do not fit the profile of the unemployed in the country.
Considering the unemployment rate as discussed earlier, the economy has experienced a migration from a formal sector-focus to an informal sector. It is a mere reiteration of the obvious that many are attracted to the informal sector, majorly due to unemployment.
Also it is statistically proven that most Nigerians are rural dwellers and they are not in any formal employment (predominantly farmers). The urban center has been chocked-up; consequently there had been migration from the formal sector to the informal sector.
Informal sector is that part of the economy that is not monitored by any form of government, not taxed nor included in any gross national product. This sector is seen as been invisible, irregular, non-structured and difficult to measure. They are highly dynamic but contribute substantially to the general growth of the economy.
In relation to the higher preponderance of impoverished employees working in the informal sector, the government at various levels adopted different policies aimed at enhancing the performance of the informal sector. This is evident by various policies aimed at promoting small and medium scale enterprises.
Urban real wages fell rapidly between 1982 and 1989 as a result of a minimum wage freeze in the formal sector. Rural real wages also fell, but more slowly because few employers had previously paid as much as the minimum wage on the farm. The liberalization of the Structural Adjustment programme (SAP) on agricultural prices and the exchange rate also redistributed income from urban to rural areas, especially in the agricultural export sector. Consequently, in 1980s, the urban self-employed, a group which included many in low income-income informal sector had lower incomes than urban wage earner. Even the rural self-employed has lower incomes than rural wage earners.
During the 1980s, the urban-rural gap narrowed: a result of rising urban poverty rather than of growing rural influence. A World Bank / International Finance Corporation study estimated that 64percent of urban households and 61 percent (61%) of rural households were in poverty in 1984. Because seventy percent (70%) of Nigeria’s population was rural, most of the poor were to be found in rural areas. By the late 1980s, with structural adjustment and agricultural price decontrol, the average income of all rural households exceeded the average for urban households.
There are various roles played by the informal sector in Nigeria’s Economic Growth, which are but not limited to the following;
- The informal sector reduces the level of unemployment.
- The informal sector stimulates and enhances innovation and adaptation.
- The informal sector helps in the mobilization resources which could have been classified idle or constitute a waste.
- It allows for competition in the economy
- It creates room for specialization from self-employment.
- Et cetera.
It has therefore come to the time when the invisibility of the informal sector should be made visible; where the ill-monitored nature of the informal sector becomes regulated, where the difficulty in measuring the contribution of the informal sector is ameliorated through some calculated measures. The informal sector must be better placed to absorb unutilized resources which the public sector and organized private sector are not willing to maximize.
The rate of expansion of the informal sector as a fallout of non availability or creation of formal jobs have profitable opportunities. Nonetheless, it is necessary to infer that there is a causal relationship between the informal sector and poverty. We cannot talk of income inequality and oil wealth (the formal sector) without touching on the relationship between the informal sector and poverty. If only there could be a medium to formalize informal job/employment through state or local legislation, provide better protections and benefits in the informal sector.
Corruption and in-transparency in the Oil Sector!
One cannot completely isolate the oil sector of the economy from corruption especially when there is a discussion that bothers on income (in)equality. Corruption is one of the principal challenges; however much effort has been invested by the government to combat corruption in the oil and petroleum industry. One cannot overestimate the importance of transparency in a country so polarized by religious/ethnic strife and economic inequality.
There had been lingering saga of subsidy scam; many see the subsidy as a mere subsidization of powerful business moguls with the motive of suppressing detractors
Income inequality in the Econmomy
The Economy of Nigeria has experienced massive boom rig
ht from the time of various timely interventions in terms of, deregulation, privatization, restructuring programs and employment of skilled and sound minds to support the government initiatives and to drive it.
The country witnessed a rush of foreign investors’ inflows, which was necessitated by the discovery of a sensational economy. It is also plausible to think of Nigeria when it comes to a profitable land for investments. More so the increasing tendency of overwhelming skilled labour-force in the country is a testimony of an economy ready explore all opportunities. In contrast, the unemployment has caused a huge migration of skilled force in search of green pastures in the diasporas-little wonder, the revelation from the America’s last conducted census on the fact that Nigerians are the vastly educated, even in the USA.
The major crux of the challenge is that the wealth in Nigeria’s economy has not been properly allocated in a way that will ensure a sustained, long-term, economic prosperity in Nigeria.
Large income inequality exacerbates the vulnerability of populations to political conflict and repression. In Nigeria, ruling elites emphasized on distributive politics to maintain power means that reducing regional and class inequality has taken a back seat.
An online Economic Terms Resource defined ‘Resource Allocation’ as; the process of dividing up and distribution of available, limited resources to competing with alternative uses that satisfy unlimited wants and needs. Similarly, it defined ‘Wealth Distribution as the manner in which wealth is divided among the members of the economy. A perfect equal wealth distribution would mean everyone in the country has exactly the same wealth. In reality, wealth is unequally distributed.
Without any specific reference to any economy, it is the reality that lack of adequate data and statistics may hamper a true justification of income distribution in the country. However it cannot be over stated that wealth appears to be highly concentrated in Nigeria.
The best source of data on income and wealth distribution would have been Tax Statistics. However, we must also consider the fact that there are tax evasions, tax avoidance, thereby making it difficult, even where the data exist. Also, tax statistics cover only the fraction of a population filling tax returns.
In the same vein, the Federal Civil Service studies indicate a substantial increase in income concentration from 1969 to 1976 which may have reflected an early trend towards income inequality. But this inequality eased from 1976 to the end of the decade, thanks to increased salaries for low-income workers, abolition of subsidized automobile allowances for the wealthy.
The conservatives will always support the fact than concentration of income and wealth is considered a natural and necessary of an environment that provides incentives for work, entrepreneurship, and wealth accumulation. However, I have noted that there are some forces that drive income and wealth concentration over time.
Systemic Failure and Mis-Allocation of Wealth!
There seems to be a systemic failure characterized by dependence on oil, where by labour market tend to offer only oil-related, public sector and private services.
Most recorded failure in the system, culminating in misallocation of wealth is not solely on the absence of policies, but structural differences in the Nigerian economy.
Petroleum seems to be one of the most difficult resources to utilize, well enough to ensure even allocation of wealth. Practical experiences have shown that countries dependent on oil exports seem susceptible to policy failure. What we then need are effective policies that will support and encourage the efficient utilization of other resources.
There is an unbalanced correlation and weak productive linkages between the growths in the oil sector and the rest of the economy. In practical terms, Nigerian economic paradigm is truly not structured to function in a way that will fairly allocate wealth to the greatest number of Nigerians. Misallocation of resources in Nigeria is evident in the products only affordable to the extremely rich in the country. Similarly, the gap between the rich and poor is growing at a geometric progression.
His Excellency, the President of Nigeria, Dr. Goodluck Ebele Jonathan has proven that there are huge opportunities to prove the apostles of ethnicity wrong by being a national leader as against that of his native Niger Delta. While he has demonstrated enough of this, I however know that he has more plans which are deals in pipelines in terms of even distribution of national wealth. This will definitely reduce the menace of poverty that is ravaging the pockets of most Nigerian masses.
Notwithstanding the demonstration of an un bias leadership styles of the Nigeria President, we must not be quick to forget that from time immemorial, there has been no doubt that the deep culture of ethnicity has robbed Nigeria of quality political leadership. It is almost unthinkable in Nigeria to oppose a fellow patriot in government. Everything possible is done to dominate other ethnic groups. This is done at the highest level bureaucratic and diplomatic fair play.
There had existed some policies and systems that were promulgated with the right intentions to evenly distribute resources in the economy. In contrast, the issue of zoning that nearly weakened the foundation of Nigeria’s democracy is gradually becoming most unfortunate. For very good reasons, a greater percentage of Nigerians came out for the first time in the history of the country to either condemn or ignore the ranting of the few apostles of ethnicity. The bold message is that most Nigerians will care less about the ethnic root of the nation’s president provided the aims and objectives of government are achieved
One of the causes of poverty in third world countries is mostly as a result of poor distribution of national wealth. I will say without mincing words that God has endowed every nation and has designed life in such a manner that every nation possesses enough resources with which to service her economy and polity. The major hindrance to effective distribution of national wealth is poor political leadership culture. In Nigeria, the nation’s faulty political leadership culture has given birth to high rate of corruption and ethnicity – little wonder, you hear people say they are going into government in order to have its share of the national cake. This is a wrong perception of what governance should be, you cannot build a well designed edifice on a wrong and weak foundation.
In order to reduce the gap between the various social brackets in the country, there is need for an effective distribution of national wealth. Impliedly, it thus means that every Nigerian citizen will live above poverty line for there to be an indirect discouragement of cultural ethnicity. Most cases of graft have foundation in the inability of citizens to meet the basic needs of life.
Permit me to quickly reiterate the Abraham Maslow hierarchy of needs, a human motivational theory which is premised on a five (5) level stage of needs. Consequently, I would also add that people are motivated by the needs theory whether positively or negatively. The economy must therefore recognize, appreciate and provide the basic necessity of life and the best ways to evenly distribute national wealth are through the provision of quality and affordable housing, transport, education, and health care services.
It is sad to note that the motivation that the need theory propounds and the need to adequately provide the basic necessity of life would not be possible in the midst of high level of corruption in any sector, region, government or any other business.
The government is mindful of the need to curb corruption in the country, if not push it to extinction. This has been depicted by the awakening of various anti-corruption activities. However, the key performance indicator of these anti-corruption agencies, from the eyes of the majority of Nigerians, mostly the poor, is not on the actual activities of the agencies but rather on the dividend of corruption eradication and the positive effect on the average Nigerian.
Though I am not preaching that Government must provide medium for total reliance on her to provide everything, nevertheless there are some ways citizens can be discourages from depending entirely on the government. The Government must provide compelling incentives to ensnare citizens back to the farm.
It is rather unfortunate that control of Oil in Nigeria, the Federation Account, (which is has been considered to be largely dominated by the revenue from oil), is typified by a sharing formular using oil rents. The Oil rents govern intergovernmental fiscal relations in the country with the tension and agitations by oil producing states for greater share of resources and demands for redistribution from other regions, particularly the relatively less endowed ones. Also the history of successive revenue allocation arrangements in Nigeria has been most unstable and accompanied by distrust, inadequate information flows, a lack of transparency, and uncertain accountability. Many have argued that the present intergovernmental fiscal arrangement prevailing in Nigeria generates a large vertical imbalance in favour of the center while allocations to the states do not depict any clear pattern of redistribution between regions or any correlation with relative needs. While in theory, the arrangement takes into account the effort of each state to mobilize internal revenue, in practice, an equal weight is given for this variable in allocations.
The Dichotomy of Wealth and Poverty
Despite her vast resources, Nigeria ranks among the most unequal countries in the world, according to the United Nation. The poverty in the north is in stark contrast to the more developed southern states. While in the oil-rich south-east, the residents of Delta and Akwa Ibom complain and belief that all the wealth they generate flows up the pipeline to Abuja and Lagos
There is not absolute disconnection between the regions with high poverty rate, obvious income inequality and the level of menace of insecurity from such regions.
It must be emphasized that it remains a paradox that despite the fact that the Nigerian economy is growing, the proportion of Nigerians living in poverty is increasing every year. Poverty remains one of the critical challenges facing the population growth rate; while our average oil revenue per capita in the mid 1960s was US$33, our GDP per Capita was US$245. In the 2000s, our oil revenue per Capita had risen to US$325 but the GDP per Capita had remained at US$245. It impliedly means that the growth in oil revenue between 1960s and 2000s did not translate to any real economic development and improved standard of living.
Prevalent poverty in Nigeria webbed around joblessness and income inequality has conspired to exacerbate the country’s security challenges, according to National Poverty Eradication Programme (NAPEP). NAPEP also reported that some 120 million out of 160 million Nigerians live below N300 per day. Reports have it that Mukhtar Tafawa Balewa, the national coordinator, NAPEP, stated this when members of Centre for Creative and Leadership Development paid him a visit in Abuja, added that the situation in Nigeria is different from some countries like India, where there is poverty, but people have something to do to keep them going. Balewa was also quoted that unlike other countries, people in Nigeria are not working and this causes severe security challenges…“Nigeria’s population is about 170 million, and we have up to 120 million people living below N300 per day. If that is a yardstick upon which to judge poverty, then we are in a very drastic situation”.
There had been a misunderstanding that the role of the National Poverty Eradication Programme (NAPEP) is to only give temporary succour.
Consequently, whenever people think of NAPEP, they think of Keke NAPEP
Clarity on the role of NAPEP to co-ordinate and collaborate with other agencies to ensure reduction of the high level of poverty in Nigeria must be harp in the heart of the citizenry. There is a lot of need for rural development and to arrest the drift between the urban and rural areas.
There exist a dichotomy of wealth and poverty; there is a negative correlation between the Country’s enormous wealth and the spread of poverty in the country. This relationship of disparity between the growth of the GDP and increasing poverty is an indication of a skewed distribution of wealth in the country.
A case of Oil Wealth and Poverty in Niger Delta, Nigeria!
Research has shown that almost forty million (40m) people of Niger Delta, over Ninety percent (90%) live in poverty state. Many thanks to the role played by the government through the 13% Derivative Fund, the NDDC and many other intervention funds. However, despite the allocations over the years, it had not really translated to development of life for the common people.
Findings have suggested that oil in some regions is only able to make marginal positive contributions to the livelihood of the people. Also, economic growth is critical to poverty reduction.
The peculiarity of Nigerian economy signifies the critical state we are, where in the midst of huge government revenue; there is a contrast level of inequality and poverty.
Localities where oil is actually located over time tend to suffer from lower economic growth and lower per capita incomes than the rest of the country. It is also pathetic that a high proportion of people living in oil-exporting countries, who are supposed to live in plenty, tend to remain poor…what a paradoxical sigh!
Conflicts between oil companies and local communities in the Niger Delta have basically revolved around land ownership and compensation for land appropriation as well as compensation for environmental damages due to oil operations. In addition, there has been frequent disputes over the causes of oil spills and whether oil companies are eligible to pay compensation, and if so, to what extent. At the national level, conflicts are centered on the sharing of oil revenues / the allocation of public goods between various ethno-regional groups, effects of oil operations on local communities or to adequately compensate for such damages. History have it that beginning with the Ogoni uprising of the late 1980s to the Kiama Declaration by the Ijaws in 1998 and the emergence of militant groups such as the Niger Delta People.s Volunteer Force (NDPVF) and the Movement for the Emancipation of the Niger Delta (MEND), protests in the Niger Delta has taken on a more violent and militarized form. As a result of this rising militancy, the number of community disruptions to oil operations in Nigeria has rose enormously over some years. Some estimates suggest that militancy and protest cut onshore oil production by a third in 2001-2003 (UN IRIN, 2003, Gary and Karl, 2003). Apart from the loss in oil production, there have been accompanying financial losses to oil companies, a move that has prompted oil companies to begin to redirect their attention to offshore oil activities (Gary and Karl, 2003).
The mis-mangement of the environmental implication of oil exploration could amount to social dislocation and resentment. Nonetheless, there are enormous impacts of oil exploration as witnessed by the Niger Delta region, when exploration began in 1958. Also, the disparity between oil wealth and poverty is very notable in the circumstance, where despite huge profits generated, the proportion of households living below the absolute poverty line is still on the high side.
Similarly, taking us back to brief literature reviews; explanations of the causal mechanism linking natural resources to civil conflict have followed four prominent lines of argument: a grievance hypothesis (Klare, 2001:208), weak states hypothesis (Fearon and Laitin, 2003, Karl 1997; Mahdavy, 1970), a separatist incentive hypothesis (Ross, 2003; Collier and Hoeffler, 2002, and Le Billion, 2001), and a looting hypothesis (Collier and Hoeffler, 1998, 2004).
By the grievance mechanism, resource extraction creates grievances among local population due to land expropriation, environmental hazards, inadequate job opportunities and social disruption accompanying labour migration and perceived injustice in the distribution of resource rents.
By the state weakness mechanism, natural resource (particularly oil) wealth increases the probability of civil war by weakening the state’s bureaucracy (Fearon and Laitin, 2002); by creating a state that is less responsive to its citizens (Mahdavy, 1970); and by impeding the ability of states to resolve social conflicts (Karl, 1997; Fearon and Laitin 2002).
According to the looting mechanism, natural resources increase the risk of civil conflicts by providing a source of finance for nascent rebel groups either by extracting and selling the commodities directly or by extorting money from extractive firms, which unlike manufacturing firms are location-specific.
By the separatist incentive mechanism, resource wealth increases the risk of a secessionist war by giving residents in a resource-rich region an incentive to form a separate state (Ross, 2004a).
Furthermore, an online local dailies reported that during a two day operation by Soldiers from the commissioned 4 Brigade, Benin, Monitoring Team, on Illegal Oil Bunkering and Pipeline Vandalization Unit in the Niger Delta , that the team seized and destroyed illegally refined Automative Gas Oil along the creeks, in Aroton, Warri South West Local Government Area of Delta State.
The Commander, 4 Brigade was reported to say that the activities of oil bunkerers were undermining government’s economic agenda and further polluting the environment. The Commander also noted that oil bunkerers make more than twenty million (N20m) naira monthly.
Could it be said that it amount to a causal display of excess, where it is believed that gallons of the delta’s “light and sweet” crude — possibly the most valuable commodity on the planet — are dumped daily into the open gutters to suffocate the mosquitoes breeding in stagnant water ?.
Bunkering” is a term used to describe the process of filling a ship with oil (or coal). “Illegal bunkering” as used in respect to oil is a euphemism for oil theft. Large-scale illegal oil bunkering has become an increasingly significant issue over the last six years. In 2000, it was reported that 140,000 barrels of crude oil was stolen each day. In 2001, the reported figure had dramatically risen to 724,171 barrels per day. The average daily figure from January to October 2002 was 699,763 barrels. In 2003 it had fallen to around 200,000 barrels and in 2004 risen to around 300,000 barrels per day. The significant drop in the amounts stolen between 2002 and 2003 may be associated with the strong claims that the amount stolen is considerably under-reported. However, the basis for calculating these figures has not been disclosed by any party and comparison of figures may be misleading.
Starting in 2009, when the government enacted an amnesty program that saw several thousand Delta fighters exchange weapons for cash, there has been an overall effort to redirect oil wealth back to the communities that host Africa’s largest oil industry. Since then, a small, emerging segment of the population has grown spectacularly wealthy and powerful, while most Nigerians remain poor and beholden to the generosity of the elite.
In the Niger Delta, illegal bunkering is rife in places like Port Harcourt, Warri, Okrika, Bonny, Akassa and Soku. These are major loading points for the international market. There are many other key sites for illegal bunkering which are majorly more remote areas of the swamp such as Jones Creek and Cawthorne Channel. The pipeline vandalization and other activities associated with illegal oil bunkering take place in far more diverse areas throughout the Niger Delta. The vast majority of the oil bunkered illegally is destined for the international market but other products such as condensate and refined petroleum can be sold locally. Some direct uses for crude in local industry have been identified, ensuring the existence of the local market, but this cannot justify the vast amount of crude oil stolen daily and hence the key to the operation is export.
The majority of the citizenry in the region that opted for an abrupt share of what is seen to be “our” fathers’ wealth has been characterized by a close link with the few who drive in black luxury cars with dark tinted windows. They consider the government as not being responsive to their cry, not building their desired world of luxury. Therefore they choose to go into illegal oil bunkering.
Majority of the people lured into bunkering have been brainwashed to see education as not being anything worthwhile in the country. They belief that what is necessary and important is loyalty to their chairman. They just do what he says. You don’t think, you don’t argue, you follow the leader. ..What a world of psychological degradation.
There are therefore three main aspects of illegal bunkering. First, the small scale pilfering of condensate and petroleum product destined for the local market. Second, the large scale theft of crude oil involving international maritime tanker transport for refining outside Nigeria. The third aspect is the excess lifting of crude oil beyond the licensed amount.
With much concerted effort to mitigating the much discussed “paradox of plenty” the nation would experience more widely shared oil wealth distribution through various approaches, such as, but not limited to:
- Revenue transparency by Oil Companies.
- Efficeient revenue management policies
- Non-concentration of the oil and petroleum industry.
- Discouragement of Communal Turmoil
- Curbing and Eradicating Smuggling and Diversion of Petroleum Products
- Smith, B ‘Oil Wealth and Regime Survival in the Developing World”
- Alesina, A. & R. Perotti. 1996. “Income Distribution, Political Instability, and
Investment.” European Economic Review 40(6): 1203-1228.
- Efuwa-Ekaha, 2009 “Oil and Gas Insdustry Operations and Loss Control In Nigeria”
- Afolabi, 2011 “Impact of Oil Export on Economic Growth”
- Akpan,2010 “Fundamentals of Oil and Gas Accounting”
- Terry Lynn Karl, “Oil-Led Development”
- May 16, 2013, The Sun(online) www.sunonline.com
- UN RIN 2003, Garl & Karl 2003, Collier & Hoeffler 2002,2004
- May 2, 2013, Vanguard (online) www.vanguardngr.com