38 Views

Nigeria and the slavery of crude oil

Muhammadu Buhari won the Nigerian presidential election based on his promises to clean up one of the world’s most corrupt countries. Alas, similar hopes attended the rise of outgoing presidentGoodluck Jonathan, who initially fooled many of us watching Africa but wound up turning Nigeria into a case study in how not to manage an oil economy.

Whether out of weakness or his own venality, Mr. Jonathan failed to stop government officials from pilfering billions in oil revenue each year. Despite an early reputation as Mr. Clean, he fired a central banker who estimated that officials were stealing as much as $20 billion in oil profits each year, and he tolerated an energy minister widely accused of covering up the pilfering.

As a result Nigeria saved nothing during the boom in oil prices that ended last year. While other oil states including Saudi Arabia and Russia are getting by on a cushion of savings, Nigeria is running out of money. Cash reserves are falling dangerously low. GDP growth is likely to fall this year to below 5% from 6.5% in 2014.

Mr. Buhari, counseled by former Obama adviser David Axelrod,campaigned on the vague promise of “change.” His opposition party, the All Progressives Congress, dethroned the ruling People’s Democratic Party, which had held the presidency since 1999. Yet it is not clear what Mr. Buhari will do.

Nigerian president-elect Muhammadu Buhari
Nigerian president-elect Muhammadu BuhariPHOTO: SUNDAY ALAMBA/ASSOCIATED PRESS

He will take over a country gripped by “the curse of oil,” which has corrupted most poor states that discovered it. My researchers looked at the growth in average real income in 18 large oil-exporting nations since the year they started producing oil. Income in 12 of the 18 countries has fallen, compared with average U.S. income. In one country income has stagnated, and in three it has increased marginally. Ninety-percent of these oil-rich nations are stagnating or falling behind.

The dynamics of the curse are well known. The discovery of oil sets off a scramble among elites to secure shares of the profits, rather than investing to build roads, power plants and factories. Foreigners pump in money to buy the oil, which drives up the value of the currency, in turn making it difficult for local factories—what few exist—to export their goods. The oil windfall tends to destroy every local industry other than oil.

That is the story of Nigeria. Since it started pumping oil in 1958, Nigeria’s relative average income (now about $1,900) has dropped by half, from about 8% to about 4% of average U.S. income.

The country spends 15% of GDP on investment, including infrastructure, property, plant and equipment—which is a pitifully low figure for a poor state and one of the lowest for any emerging nation. That weak investment explains why Mr. Jonathan failed to deliver on promises to improve the power supply, leaving the country prone to frequent outages and forcing companies to maintain expensive generators.

Without reliable electricity, few dare to build factories. The Jonathan government talked up the planned launch of five new manufacturing plants, including a car factory, but the industrial base is still anemic. Manufacturing accounts for 3% of Nigeria’s GDP, by far the lowest among the major emerging markets, and fourth lowest in Africa, right below war-torn Ethiopia.

The reliance on oil makes Nigeria vulnerable to outside shocks. When the price of oil collapsed in 2014, Nigeria relied on oil for 90% of its exports, and its already weak foreign-exchange reserves started to drain fast. In response, the central bank devalued the currency, which in a more diversified economy could boost exports and stabilize the nation’s finances. But in Nigeria, there was no significant jump in exports because, outside of oil, they hardly exist.

The ripples will be felt across the economy. Nigerians rely on imports for 70% of consumption goods, from food to clothing. Most analysts expect another significant devaluation, perhaps 10%-15%. That will drive up import prices and inflation, which is already around 8%.

Oil accounts for only 14% of Nigeria’s GDP, but for nearly all of its exports and 70% of government revenue. So if oil prices remain between $50 and $60 a barrel, Nigeria will run sizable trade and government budget deficits this year. The government deficit could come in as high as 6% of GDP.

Nigeria wouldn’t be so vulnerable if it had saved some of the oil windfall. Under Mr. Jonathan, Nigeria’s foreign reserves fell to $33 billion from about $50 billion, and its sovereign-wealth fund is only $1 billion. These critical pools of savings amount to 8% of GDP, compared with more than 90% in Saudi Arabia, and more than 280% in Kuwait. The failure to save is the essence of the mismanagement of Mr. Jonathan, who has done poorly even by the low standards of oil economies.

The Nigerian election was hyped as the largest and most important ever for the region’s biggest economy, whose fate now rests with Mr. Buhari. He will lead a country where one in three people is under 18, a population that could grow into a dynamic workforce or a vast pool of discontent. The outcome depends in good part on whether Mr. Buhari can deliver “change” by fixing the corrupt saving and investing habits of an oil-cursed economy.

Mr. Sharma is the head of emerging markets at Morgan Stanley Investment Management and the author of “Breakout Nations: In Pursuit of the Next Economic Miracles” (Norton, 2012).

Get the best viral stories straight into your inbox!

Don't worry, we don't spam

Leave a Comment

Your email address will not be published.

Latest Posts

Idongesit Umoh: Nigerian Enterpreneur Shares How She Lost N2.1m Through Online Banking
Business
74 views
Business
74 views

Idongesit Umoh: Nigerian Enterpreneur Shares How She Lost N2.1m Through Online Banking

PH - October 22, 2017

Nigerian entrepreneur and YALI fellow Idongesit Umoh today shared details of how her bank account got debited of N2.1m through some suspicious action on her online banking app. She…

Omawumi, Akpororo Announced As Judges Of New Reality Show
Entertainment
45 views
Entertainment
45 views

Omawumi, Akpororo Announced As Judges Of New Reality Show

PH - October 22, 2017

Last Resort entertainment working in partnership with Global Resources Limited, have announced the launch of Nigerian Icon, a first of its kind in talent scouting and entertainment…

Abia State Announces N10m Grant For Film Production In The State
Entertainment
30 views
Entertainment
30 views

Abia State Announces N10m Grant For Film Production In The State

PH - October 22, 2017

Abia State government has expressed its enthusiasm for the ZUMA Film Festival that is set to take place between the 1st to 5th of December, 2017 in…

Buhari Holds Bilateral Meetings With Guinea President, Pakistan Minister
Politics
44 views
Politics
44 views

Buhari Holds Bilateral Meetings With Guinea President, Pakistan Minister

PH - October 22, 2017

President Muhammadu Buhari held bilateral meetings with President Alpha Conde of Guinea and Prime Minister Shahid Khaqan Abbasi of Pakistan in Turkey on Saturday. See photos:

37 Job Opportunities Open For Nigerians In UN
Politics
39 views
Politics
39 views

37 Job Opportunities Open For Nigerians In UN

PH - October 22, 2017

UN deputy secretary-general, Amina Mohammed has said that there are 37 career openings for young Nigerians under the United Nations bureaucracy. Amina disclosed this at a Cultural…

How Kachikwu Led Global Outreach To Boost Nigeria’s Oil Revenues
Business
66 views
Business
66 views

How Kachikwu Led Global Outreach To Boost Nigeria’s Oil Revenues

PH - October 22, 2017

The extra resources derived from the OPEC production concessions which Dr. Emmanuel Ibe Kachikwu, Minister of State for Petroleum Resources has been fighting for are boosting the…

Photos from Davido’s Friend, Tagbo Umeike’s Burial in Anambra State
Entertainment
83 views
Entertainment
83 views

Photos from Davido’s Friend, Tagbo Umeike’s Burial in Anambra State

PH - October 22, 2017

Davido's friend, Tagbo Umeike who died from suffocation and alcohol poisoning on the eve of his birthday at Shisha Lounge in Lekki, Lagos on October 2, has…

5 Quick And Stunning Facts About The Nigerian That Painted Obama’s Portrait
Best of Nigeria
67 views
Best of Nigeria
67 views

5 Quick And Stunning Facts About The Nigerian That Painted Obama’s Portrait

Mabel - October 21, 2017

The skilled craftsman who is a New York-based representation painter, known for his exceedingly naturalistic depictions of dark individuals in chivalrous postures, will be the main dark…

Eat These Common Foods And Lessen Your Risk Of Colon Cancer
Food and Health
97 views
Food and Health
97 views

Eat These Common Foods And Lessen Your Risk Of Colon Cancer

Mabel - October 21, 2017

You know entire grains are useful for your heart, yet they may have another advantage, as well, as indicated by a new report from the World Cancer Research…

SEE This Nollywood Director’s ‘Birthday Cake’ Everyone Is Talking About – [One Of A Kind]
Entertainment
73 views
Entertainment
73 views

SEE This Nollywood Director’s ‘Birthday Cake’ Everyone Is Talking About – [One Of A Kind]

MT - October 21, 2017

  Nollywood director, Ugezu J. Ugezu who is currently on set with his crew for the making of the movie ‘THRONE OF REVENGE’, celebrated his birthday with…

5 Drugs That Get Nigerians High Far More Than Marijuana
Food and Health
67 views
Food and Health
67 views

5 Drugs That Get Nigerians High Far More Than Marijuana

Mabel - October 21, 2017

  The codeine culture is getting more intensed in north and in urban ranges of Southern Nigeria. It is the most loved medication of decision for some…

Exquisite First Photos From Ex Governor, Mimiko’s Daughter’ Traditional Wedding In Akure
Politics
78 views
Politics
78 views

Exquisite First Photos From Ex Governor, Mimiko’s Daughter’ Traditional Wedding In Akure

MT - October 21, 2017

On Thursday 19th October, 2017, Ondo State’s former Governor Mimiko’s daughter, Bibitayo tied the knot with his sweet heart, Adetola Aderemi in the State’s capital, Akure. Dignitaries…

How Actor Mofe Duncan’s Sister Was Chased To The Point Of Death By FRSC Officials – Friend
Entertainment
46 views
Entertainment
46 views

How Actor Mofe Duncan’s Sister Was Chased To The Point Of Death By FRSC Officials – Friend

MT - October 21, 2017

  Nollywood actor, Mofe Duncan took to Instagram moments ago to narrate how his sister Matilda sustained injuries in an auto accident in Abuja. The accident, according…

Nigeria’s First Lady, Aisha Buhari Relaxes On A Yacht With Wives Of Other Leaders In Turkey (Photos)
Politics
89 views
Politics
89 views

Nigeria’s First Lady, Aisha Buhari Relaxes On A Yacht With Wives Of Other Leaders In Turkey (Photos)

MT - October 21, 2017

Nigeria’s First Lady, Mrs Aisha Buhari was seen with wives of other world leaders relaxing on a yacht in Instanbul while being hosted by the First Lady…

Quick Reminder Facts About ‘Legendary DaGrin’ As Fans Celebrate His 30th Posthumous Birthday
Buzz & Trends
58 views
Buzz & Trends
58 views

Quick Reminder Facts About ‘Legendary DaGrin’ As Fans Celebrate His 30th Posthumous Birthday

Mabel - October 21, 2017

Oladapo Olaitan Olaonipekun, also known as Dagrin (21 October 1987 – 22 April 2010), was an award-winning Nigerian rapper from Ogun, Nigeria. A film of his life…

Atiku’s Ex Daughter-in-law, Miss Ummi Reveals What Led To The Custody Battle With Ex Hubby Aminu
Politics
71 views
Politics
71 views

Atiku’s Ex Daughter-in-law, Miss Ummi Reveals What Led To The Custody Battle With Ex Hubby Aminu

MT - October 21, 2017

In an interview with Punch, Miss Ummi Bukar Bolori, ex wife of Aminu, one of the sons of the former vice president of Nigeria, Abubakar Atiku, reveals…

Kebbi State’s Accountant-General, Mohammed Dakingari, Sentenced To 70yrs Jail Term For This Reason.
Politics
59 views
Politics
59 views

Kebbi State’s Accountant-General, Mohammed Dakingari, Sentenced To 70yrs Jail Term For This Reason.

MT - October 21, 2017

The Court of Appeal Kebbi Division has upturned the judgment of a Kebbi State High Court which discharged and acquitted Mohammed Arzika Dakingari, Accountant General of Kebbi…

This Is What Governor Amosun Is Saying About The Stories Making Round That A Youth Corper Gave Birth To Twins For Him
Politics
101 views
Politics
101 views

This Is What Governor Amosun Is Saying About The Stories Making Round That A Youth Corper Gave Birth To Twins For Him

MT - October 21, 2017

Mr Ibikunle Amosun, the governor of Ogun State, on Friday morning broke his silence on what he considered as the avalanches of rumours and falsehood being peddled…

Loading...