Resource Rights and the Challenge of Governance in Nigeria

by Gordon Abiama

We watch, with bewilderment, the gulf between rich and poor grow. The world’s privileged few, lusting to amass wealth at the expense of the well-being of the vast majority, have effectively consigned the greater part of the world population to an endless life of hardship in the midst of abundance.

In his 1998 United Nations report, Secretary General Kofi Annan affirmed the human rights approach to development, which would help to overcome gender and ethnic discrimination. Unfortunately, however, the UN Human Rights Charter omits the universal human right of access to land.

In a recent speech in Bolivia, Pope Francis spoke boldly about the global need to move swiftly away from policies that generate poverty and suffering around the world. “Let us not be afraid to say it: we want change, real change, structural change.” The Pope declared that “This system is by now intolerable: farm workers find it intolerable, laborers find it intolerable, communities find it intolerable, peoples find it intolerable. The earth itself — our sister, Mother Earth, as Saint Francis would say — also finds it intolerable.”

Ignoring Natural Laws

Henry George, in his classic Progress and Poverty, warned that the evils arising from unjust economic arrangements “are not imposed by natural laws but spring solely from social maladjustments which ignore natural laws.” The original state of humanity was what economists might call a “resource windfall.”

Nigeria is indeed a resource rich nation. Economists have linked this natural resource abundance to slower economic growth and weak institutions, phenomena the economic literature has named “the Dutch disease” and “the resource curse.” Those of us in the Georgist movement recognize these as merely special cases of the overall “prosperity paradox.”

Attempts by successive governments to remedy the wealth distribution problem have always tended to treat the symptoms rather than the cause. Corruption is blamed, yet no one has clearly explained the causes of this pervasive tendency. Henry George attributed it to a fear of poverty, the failure of our socioeconomic system to assure equality of economic opportunity. This, he reasoned, creates that inordinate urge to amass wealth. Because he feels he may never get another chance to enjoy wealth, one has to grab any chance to enrich oneself.

deltaIn Nigeria, this tendency was aptly demonstrated by an appointed local government chairman who declared publicly that “the fear of trekking is the beginning of wisdom.” What he meant by this is that a wise and prudent man should never be without a personal car. Often, however, this is taken to extremes: public servants end up amassing several fleets of cars — thus contributing to the ever-widening gulf between the haves and the have nots.

Particulars of Nigeria’s Economy

Nigeria is Africa’s largest exporter of oil and the tenth highest oil producer in the world. Structurally, her economy depends on natural resources. A recent rebasing of Nigeria’s GDP placed her economy at number one on the African continent, ahead of South Africa. In spite of the country’s vast oil wealth, however, 92 per cent of Nigerians live on less than two dollars a day. Nigeria’s economy cannot yet meet the basic needs of the people because leaders are always around to scoop up whatever wealth is produced in the economy. The corruption of Nigeria’s political system is deeply entrenched, and the mismanaged oil boom exacerbates popular frustrations.

Many have been inclined to link the rise of the deadly insurgent group, Boko Haram, a to the prevalence of poverty in the Northeast, a remote and economically underdeveloped area. For example, the Nigeria Stability and Reconciliation Programme, an initiative funded by the UK Department for International Development, noted that, although youth unemployment does not directly cause violence, inequality of opportunity and economic alienation can increase an individual’s vulnerability to being mobilized by rebel movements and urban gangs. Becoming a marauding militant may seem particularly attractive to disillusioned young people.

In September 2012, Africa’s richest man, Alhaji Aliko Dangote, created an stir with an announcement inviting applications, only from college graduates, to take up jobs as truck drivers. He offered to pay these drivers half a million Nigerian Naira monthly — about ten times the average salary of a truck driver in Nigeria. Thousands — including some with Ph.Ds — reportedly applied for the position. This is just one illustration of the immense economic potential that goes to waste in Nigeria.

In Search of Practical Policies

Without a doubt, Nigeria’s economy is experiencing growth — but inequality has grown much more. It is worth noting that Henry George never advocated wealth equality. George cautions us against the urge to tax the rich simply because they are rich. He instead called for equality of economic opportunity.

Asked to explain Nigerians’ plight, politicians latch on to such excuses as the decline in the price of oil, or the rise in international interest rates and the pressure of foreign debt. These factors, while they do cause difficulties, cannot explain why appropriate policies were not put in place to ensure that the nation’s resource revenues did nothing more than benefit a few who have grown fat on our commonwealth. All the blame should not be laid at the doorsteps of neoliberal economic planners. Greed has no boundaries.

Various Strategies for Resource Distribution

Nigeria has an enormous variety of natural resources, ranging from precious metals to various industrial stones such as Barites, Gypsum, Kaolin and Marble. Most of these are yet to be exploited, mainly because oil money was always there for the taking. One of the objectives of the 2004 National Policy on Solid Minerals is to ensure the orderly development of the mineral resources to reduce the overdependence on oil.

So far, three strategies have been attempted in the effort to reverse the Nigeria’s “oil curse.” The first, direct utilization of the oil revenues, was not effective largely due to predatory nature of the state. The second strategy was the creation of interventionist institutions by the Federal Government and the states to utilize part of the oil revenues to develop the oil producing areas. This strategy too was severely constrained by the endemic state of political corruption at every level of government. A third strategy is that of institutionalizing social responsibility in oil companies operating in the region. Local protests have reportedly been costing oil companies at least 20% of their production.

In 2000, public criticism of the neglect of the Niger Delta region led the Federal Government to enact the Petroleum Industry Bill (PIB). The government said the PIB would transform the oil industry into an engine of sustainable development and eliminate toxic social and environmental impacts on oil producing communities. This initiative, like many before it, has not borne fruit. Successive governments have failed to ensure that oil bearing communities benefit from oil revenues.

The government and oil companies have profited by hundreds of billions of dollars since oil was first discovered in 1956. Yet most Nigerians living in the oil producing regions continue to live in abject poverty, and the unchecked environmental degradations of oil and gas development have rendered these people’s homes nearly unlivable. Until the villages become comfortable and prosperous, the cities will have no rest.

People who live in the Niger Delta blame the oil companies — particularly Shell Petroleum Development Company, which produces most of the country’s oil — for this shocking state of neglect.

Donald Boham, Shell’s external relations manager, explained, in a BBC interview, why the delta region has been ignored for so long: “We’ve had a good number of years of military rule in this country, where the government — for one reason or another — failed to address the need for development in the Niger Delta and that has put a lot of pressure on the oil companies to try and fill the gap that the government has created.” He went on to say that Shell had spent $60m on community development intervention activities.

In the same report, Mark Tomlinson, the World Bank’s director for Nigeria, said he believes the government must share the blame for ignoring the oil producing regions.

I don’t think the oil companies by themselves should be saddled with the development of the delta…. It is an absolutely huge undertaking and much of the tension we can trace back to the state government’s not assisting at all with the provision of basic infrastructure services that these villages require to grow. I’ve traveled in the delta a number of times recently and each community we visited we asked the question, “What has the state government done for your village in terms of providing basic services?” In half the cases they just laughed, and the other half said nothing had been done at all.

Nigeria Already Collects Oil Rents

All the country’s oil revenues are collected by the federal government, to be shared among the three tiers of government, federal, state and the local governments. Due to pressure from the international community as well as local groups, revenue sharing modes have undergone some reforms — but lack of transparency and accountability remains a grave concern.

Though the reforms have succeeded in putting more revenue into the hands of the various federating states, most of these state governors see these oil windfalls as manna falling on their laps to spend as they wish. Local government councils have become mere salary-paying outposts and conduit pipes for siphoning public funds, rather than centers of healthy leadership.

Starting in 2009, the government enacted an amnesty program that saw several thousand Niger Delta fighters exchange weapons for cash. Then, after the election of President Goodluck Jonathan, there was an effort to redirect oil wealth back to the communities of the Niger Delta. Since then, a small group — primarily politicians and former militants with access to government contracts and revenues — have grown spectacularly wealthy and powerful, while most their kinsmen remain poor, beholden to the
generosity of the elite.

Every morning, throngs of people gather outside the steel gates of their homes to wait for a possible meeting with the community’s “chairmen,” oil barons who sit atop hierarchies upon which thousands of people depend, formally or informally, for a lifeline. Their “boys” man the entrances, dressed in high fashion purchased on recent trips to London, Paris and New York City. Many of the new oil rich here own second homes in Texas, close to expat American oil workers who work on their land.

Along with the mansions, the rise of wealth has increased investments in malls, movie theatres, hotels and mega-churches throughout oil boomtowns such as Warri and nearby Port Harcourt. Luxury hotels such as the Protea Ekpan in Warri cater to the Nigerian and expat oil and gas elite and to Nigerian politicians, with rooms priced between $400-600 per night.

In the evenings, politicians in flowing gowns file into the marble lobby flanked with armed military escorts, rifles double- and triple-clipped with duct tape — protection against the constant threat of kidnapping and armed robbery.

Advantages of a Citizen’s Dividend

Many experts agree that Nigeria would be better off if it distributed its mineral wealth directly to the people. For example, this was proposed by Columbia University economics professor Xavier Sala-i-Martin and IMF research department advisor Arvind Subramanian. “Even with all the difficulties that will no doubt plague its actual implementation, our proposal will, at least, be vastly superior to the status quo,” the authors wrote.

foodreadyThe authors calculate that under their proposals to share revenues equally among the population, each household would get about $140, which would amount to $425 in purchasing power parity terms, roughly $760 per adult. With the full exploitation of natural gas, this would rise to $750 per household in purchasing power parity terms or $1,330 per adult. Their view, which many regarded as too radical, is that oil revenues must be taken out of the hands of government so that the state starts to function more like an economy with no oil, which would remove “the corroding process engendered by rents.”

“This would replicate or simulate a situation in which the government has no easy access to natural resource revenue, just as governments in countries without natural resources,” which they say would leave the authorities to collect taxes, which are much more difficult to mismanage, and for which in a democracy they could be held accountable.

Angered by the destruction and neglect of their homelands, some of these indigenes have continued to act out of desperation and disrupt oil production by vandalizing pipelines and taking oil workers hostage. There have been many bloody clashes between youths and security and paramilitary operatives. There have even been violent clashes between communities over meager oil spill compensations.

Now that the oil bubble has burst, attention is being drawn to the other abundant natural resources and minerals in different parts of Nigeria — which sets the stage for another round of agitations, unless the law of justice is adhered to.

Given the extent of the corruption, violence, destruction and environmental devastation, the people of the Niger Delta need to mount constant pressure on the federal, state, and local governments and the oil companies to repair and restore their land and water — and then look forward to a new day of sustainable development based on our own capacity for self-directed development.

Ordinarily, the recommended Georgist remedy would be to simply tax natural resource wealth. However, as we have seen, this strategy alone will not be sufficient. The government has been collecting resource royalties and taxes for decades, lining the pockets of public officers and their cronies. In the light of this, many hailed the proposed Petroleum Industry Bill as very people oriented. Apart from helping to sanitize the industry in many ways, it is designed to bring a part of the wealth directly into the hands of the oil bearing communities who have had to bear the brunt of the hazards of oil extraction.

Recommendations: Challenges and Opportunities

1) The Petroleum Industry Bill (PIB) should be expanded to cover solid minerals and their host communities. This expansion is necessary in view of the vast solid minerals yet left untapped in each state — and the potential for transnational companies to make off with them. Funds so captured can then be used to establish a resource fund in each state to directly benefit the people. The resource fund will then be administered by community-chosen leaders who will be accountable to the people.

2) Full use should be made of information and communication technologies for total transparency in revenue raising and expenditure on the part of both the government, communities and extractive resource industries, as modeled by the Alaska Permanent Fund and promoted by the Extractive Industries Transparency Initiative;

3) Civil society groups like the Publish What You Pay Campaign in Nigeria should be strengthened, to enable them to effectively perform as a pressure group and watchdog. Gary and Karl (2003) asserted that for resource rich nations to be able to overcome the paradox of poverty in the midst of plenty, it must depend to a large extent on the ability of engaged, informed and capable civil society groups using political space to hold their own governments and other actors accountable.

4) Oil and other non-renewable resource rent funds should gradually incorporate the capture of resource rents from surface land site values (ground rent) and other permanent and sustainable sources of rent, such as hydropower points, electromagnetic spectrum (GSM operators’ masts etc). This is possible because as development comes to these impoverished areas, land values are bound to rise.

5) A fearless non-partisan press must be encouraged and protected.

6) A free and fair judiciary is essential to any effort to restrain and reduce governmental corruption.

The People Themselves Must Think

The world is groping for economic prescriptions and policies that will solve the problem of the widening wealth inequality. The third-way economics of the Georgist paradigm has the answer. It is however necessary to bear in mind that those monopolizing the fruits of nature may not be too willing to simply share the opportunities they enjoy with others due to the innate tendency to maintain their privileged status quo. Apart from getting good hearted people come to power who will work to ensure the bridging of the inequality gap, the people themselves, civil society groups, the media and the academics need to be constantly educated to enable them see the cat also.

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