The inauguration of Nigeria’s new president, Muhammadu Buhari, sets the stage for an unprecedented alliance of public- and private-sector actors to perform something close to a miracle: reverse the ravages of the so-called oil curse.
The tough-minded ascetic, who was elected on an anticorruption platform, aims to clean up practices in his country’s notoriously opaque and criminal national oil company, the Nigerian National Petroleum Corporation (NNPC). If multinationals and Western governments join forces with Buhari, Nigeria could be transformed from an object lesson in how hydrocarbon wealth paradoxically cripples developing nations into a model for its resource-rich neighbors to emulate.
Of the world’s nearly 60 oil-producing countries, a mere half dozen have escaped the oil curse. As they discover oil—and their governments discover the temptations of an unaccountable revenue stream—other economic sectors wither. Unemployment rises. Corruption grows pervasive. Oil revenues are squandered on conspicuous consumption by members of ruling networks while populations become poorer. Alienated groups rebel.
And it’s not just the locals who suffer. Western oil companies pay a hefty price in the form of increased personnel costs and security measures, repudiated contracts, production stoppages, “corporate social responsibility” outlays, and, when all else fails, undesired divestiture. Meanwhile, international donors pour precious development funds down a seemingly bottomless hole.
Nigeria is a textbook case of this syndrome. A once-vibrant economy that included manufacturing, long-distance trade, and agricultural production so abundant that it fed much of West Africa has given way to an oil monoculture. Attacks and kidnappings in the oil-producing south have declined, to be replaced by what officials call industrial “bunkering”—the theft of crude by the barge-load. Oil oozing from sabotaged pipes has poisoned precious marshland. On the other side of the country, the emergence of the Boko Haram insurgency can be partially ascribed to acute corruption and gross regional inequalities associated with Nigeria’s curse.
As a result, oil majors are jostling to unload their onshore holdings. In April, French giant Total sold off aNigerian block for half a billion dollars, the latest in a series of divestitures that has been accelerating since 2010.
There was nothing foreordained in this outcome, and it can be reversed. It is in the interests of energy companies as well as the United States and other Western governments to help Nigeria’s new leadership do so.
Regardless of whether the NNPC is eventually broken up or wholly or partially privatized, Buhari—a former oil minister—can require and publish quarterly audits of its books. A long-awaited partial review by PricewaterhouseCoopers exposed multiple computational errors and omissions in the reporting of both costs and revenues so glaring that it was impossible to arrive at a consolidated profit and loss statement.
Buhari could blaze the trail for other oil-producing countries by mandating a standard contract form, civil society participation in negotiation and oversight of contract terms, and an end to opaque swaps of crude for refined petroleum products. Ironically, Nigeria—Africa’s number-one crude oil producer—imports gasoline from countries like the United Kingdom and the Netherlands. Four dilapidated refineries have lapsed into disuse. But in many cases, instead of selling crude for dollars and using the cash to buy kerosene and gasoline, the NNPC negotiates a trade—crude for refined product. Such swaps, according to experts, offer significant opportunities for corruption. Even before rebuilding Nigeria’s own refining capacity, Buhari can require that all refined products be purchased in currency, and publish the accounts, so reported purchases can be compared with consumption figures.
With new appointments to the central bank, moreover, he can rid that institution of its current penetration by former NNPC officials and bankers who have been under scrutiny for their potential role helping launder tens of billions of dollars in pilfered oil revenues.
“As far as the constitution allows me,” Buhari promised in his inauguration address, “I will try to ensure that there is responsible and accountable governance at all levels.” To do so, he should ensure the Economic and Financial Crimes Commission (EFCC) is staffed by talented and determined investigators, resource it adequately, and enforce its independence.
To improve, as Buhari put it, the “dispatch” with which he expects the judiciary to act on cases of “corruption, serious financial crimes, or abuse of office,” a special tribunal might be required on a temporary basis to expedite EFCC cases and ensure their protection from political interference. Cracking down on corruption within the judicial branch as a whole, as he has promised, will be critical in the long term to improve government legitimacy and for countering extremists’ complaints of a justice deficit.
But Buhari can’t go it alone. Both oil companies and Western governments must help. For, with Africa’s largest economy, a burgeoning population, and significant political stature, Nigeria matters. Its fate will affect that of its neighbors, of oil companies, and of global security.
Though the bare thought of collective action discomforts the competitive energy industry, there are precedents for pooling efforts to counter challenges the whole industry faces. Oil majors have come together to share infrastructure or to pressure host governments on such issues as taxes or customs enforcement. Joint action is possible.
In this case, if companies pooled their investments to promote economic growth in agriculture and manufacturing—in line with Buhari’s development goals and a provision of Nigeria’s draft petroleum industry legislation—they might be able to help reverse recent economic de-diversification where individual efforts would not.
To justify this outlay, companies could share data on losses incurred due to oil-curse-related disruptions, to promote an accurate accounting of this syndrome. Currently, such risks and costs are not consolidated and systematically factored into risk analysis or investment planning.
Oil companies could provide enhanced disclosures to the Extractive Industries Transparency Initiative, of which Nigeria is a member. They could provide information on corrupt practices they have witnessed to the EFCC—or to their home countries’ justice ministries.
The international community has a role to play as well. Calls by Western governments for free and fair elections helped make Buhari’s victory possible. Now they must help him fulfill his pledge to hold corrupt officials accountable. Where they possess sufficient information, they should suspend visas of egregious offenders and their families, launch asset forfeiture or even criminal cases, and order enhanced scrutiny of property purchases. Mechanisms recently brought to bear against FIFA officials can be applied to former government officials, too. Washington should expand its support for the EFCC, including financial resources if required, technical assistance and training, and, where appropriate, joint investigations and prosecutions.
As a first step, Western leaders, in the private as well as the public sectors, should resist the temptation to swiftly turn the page—or even to make heroes of former president Goodluck Jonathan and some members of his administration for the swift concession of electoral defeat as the vote count was being completed or for purported efforts at reform. Though Jonathan’s gesture probably saved Nigeria bloodshed, it cannot make up for his administration’s epic looting of the public treasury. The March 2015 election did not constitute an amnesty vote. And it’s time the incentive structure that rewards official corruption began to change.
No example can as yet be cited of a country that has recovered from the oil curse once it has set in. But, supported by the combined best efforts of the Western private and public sectors, there’s no reason why passionate, dynamic Nigeria shouldn’t be a first: a turnaround country for a turnaround industry.
Comments(13)
As long as any intervention by the west or other stakeholders in the oil industry would assure Nigerians of daily supply of the products with ease, then they are welcome.
Nice piece The west has been the world's development catalyst, as pro- or anti- rest of us. I see the coming of the west to assist here. Nigeria's resource curse-to-cruise switch will arrive with support of the entire expectant world, the west being key.
The only problem I see with this brilliant write up is the witch hunt of Jonathan & his aides. How about the corruption of the strongmen in the current ruling party? Western critics can be really hypocritical. I agree with you on everything but this!
Oil is a curse for everyone everywhere. The sooner we find alternatives the better
Buhari's advisors seem to conflate food security with sustainable economic growth! Even the U.S. still subsidises its agricultural industry, which comprises only 1% of GDP! It would serve them well to read M. Adanan's analysis . . .
Thank you very much for this insightful post.You really nailed the issue properly as it speaks to the tragedy of the Rapeconomy of Nigerian State. The Buhari administration must not shy away from redressing all the mess associated with our oil industry especially the NNPC . Once again i thank you for this piece. Be Blessed!
I just read your essay on Nigeria. Thank you. I have argued for the longest why Nigeria matters to international communities, and why Africa matters to the world. I learned the value of Africa to the world in my agricultural biology class at South Bank University in 1980. I have also argued that corruption , oil spills, over reliance on oil and underdevelopment is as much a responsibility of the International oil companies and Western nations as it is of the Nigerian government. A Nigeria that looks and functions like Somalia or the current Middle East is not in the best interest of either the Multinationals or the Western Governments. There's a saying in Africa, "If someone in your household is eating bad insects, and you fail to warn him or her, ( for example, behaving badly, corrupt, stealing, or just plain bad) when that person gets in trouble, you will be affected as a member of the household." for example, if you eat bad insect, and you fall sick, you are likely to keep the household up all night. Such is the case for NIgeria. The oil companies have the power to pressure successive Nigerian governments to do the right thing. They have shirked that responsibility for 50 years thinking it's none of their business, they colluded to feast in the malfeasance. The result is what we are seeing, a country of 170 million with no electricity, and virtually dependent on one unstable commodity to feed its people. I hope the West will listen to your warnings too. Thank you. Here are some of my warnings to Nigerian leaders and Western leaders since 2010. President Obama's Dream Is Nigeria's Nightmare By Toyin ... Obama's Dream Realized, Nigeria's Nightmares Just Began By Toyin Dawodu Why America Needs Nigeria How Africa Can Help To Solve US Unemployment Problems
I particularly agree that the USA can greatly affect the future of Nigeria by prosecuting cases that involve its financial system (a la FIFA case). That may be the easiest task that Ms Chayes suggests.
One further thought: Buhari may do well to pick his anti-corruption battles wisely. Xi's approach in China may be a good example (acknowledging his political motivations). Targeting a few high level officials is a good way to set the tone, however this was a bitter election loss for some constituents, and so it will make sense to pick targets that make the case most effectively.
Very nice piece, Sarah, with some excellent and practical recommendations, assuming Pres. Buhari is serious about cutting corruption. Let's all hope that he is, for Nigeria's sake. Perhaps EITI should be extended to refined products, as well: Publish What You're Paid!
This is a very insightful essay on Nigeria. I hope policy makers in Nigeria as well as the Western countries to whom it is addressed will take action along those lines. Let me mention that there are many Nigerians prepared to set up refineries and refine the crude oil locally but the DPR (Department of Petroleum Resources) put such onerous and unnecessary reqiurements that virtually discourage local investment in the industry. In addition to the suggestions made by the author, I think President Buhari should create an enabling environment and a level playing field for both local and foreign investors.
Dear writers: Thanks so much for reading this article, and taking the trouble to write in, with such thoughtful comments. To respond to a few of them: On a very basic level, I agree with Carolyn: the world's over-dependence on hydrocarbons is the true curse, and the sooner we reduce that dependence the better. For countries like Nigeria, whose budgets are almost entirely floated by oil exports, that imperative implies another: diversify the economy. It is in the interest of the West -- including oil companies -- to help Nigeria do so. That means embracing sustainable energy (e.g. solar in the north) and revitalizing some of Nigeria's great strengths: agriculture, small manufacturing, high-quality artisanal production, etc. As for holding officials accountable and witch-hunts. The two, in fact, are not synonymous. It will indeed be a significant challenge for the Buhari administration to achieve the former without falling into the trap of the latter. To quote former Central Bank Governor Lamido Sanusi, I don't believe Nigerians voted for a general amnesty in March, and significant sanction for major government criminals will be an important element of altering the incentive structure that currently rewards corruption -- and not just in Nigeria! That being said, it is important that investigations of suspected malfeasance be, and be perceived as, entirely non-partisan. Western countries have an important role to play -- not only in using the same instruments that allowed for the FIFA arrests, but also in refraining from building their economies on dirty money, or showering honors on egregious offenders or white-washers. After all, for corrupt officials, laundering their images is just as important as laundering their money! To date, the West has been remarkably hypocritical in its "messaging." Bless you all for thinking deeply about these topics, and for taking the trouble to write. Power to you, and to your Nigeria. Sarah
Insightful article & a confirmation of some of my concerns about Nigeria which I have been voicing vigorously over the past 20 years! If Nigeria does not drastically change course; another Haiti scenario failed state looms ahead.....!
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