Oil dependence and economic decline in Nigeria's resource curse

Non-Market Strategy Project-Pollution/Politics/Business

Globalization has changed the planet in numerous ways, constructive and unconstructive; perhaps the most influential of these changes has been the more explicit and perhaps a far more extreme commoditization of a number of natural resources and basic human demands. Traditionally, it's the limited nature of a specific resource or product that means it is a saleable resource, and this conclusion leads to the decision on its sales price as well as the marketing strategies needed to introduce it to a specific target market and varying resulting in the creation of opportunities to make profitable returns for the organizations and countries involved in its manufacture; but that is the case when generally speaking and not, however, the specific problem in Nigeria. The emphasis placed on the energy and power industry from the early stages of the 20th century has resulted in a substantial number of countries, for example Saudi Arabia, advancing globally far more rapidly compared to the overall potential growth percentage expected; simultaneously, on the other hand, this focus has been the initiation of a major 'resource curse' for numerous countries -- a curse that has primarily been the cause of a worsened and weakened economic structure.

A good example of this was the study conducted by two Harvard professors, Sachs and Warner, back in 1995 when they highlighted that the economic performance worsens as the dependence on a single natural resource increases (Sachs and Warner, 1995). They asserted that the situation with every economy depending on a single natural resource could not be controlled or enhanced by trying the better manage peripheral aspects of the economy like income, investments (local and foreign), per capita output, amongst others as the real negative effects usually surfaced irrespective. In their study they took an approach to study the disadvantages that usually surface (and the reason behind these disadvantages) between the countries on designing the trade policies and the government efficacy once the country was dependent upon a single resource (Sachs and Warner, 1995).

Sachs and Warner (1995) further asserted that a natural resource must be regarded as a commodity that will assist in developing the country via a few designated and monitored channels, for example job opportunities, increased exports and so on, although it must not be used as a solitary channel for accumulating the nation's wealth as that approach will most likely backfire (Sachs and Warner, 1995). Case in point is the Nigerian economy, which back in the early 1980s had an extremely harmonized and balanced approach towards trade and finance that had created a strong and positive balance of payment for the nation and given the locals numerous opportunities for national and international growth. The economy's global strength can be estimated from its currency standing as one British pound at the time was equated to one Nigerian naira. The tables turned, though, since the use and export of oil became the single dependent natural resource in the region. The problem then expanded as the export of oil became the primary trade and all other prior export like those of tin, iron ore, cocoa amongst others were given less attention and had minimal capital allocation. The reason behind this shift was because of the fact that the revenue generated from this particular approach was deemed greater than the others -- the government believed that the enormous foreign investments and exchange inflow was the start of a brand new dawn, one which would last for a long time. This then resulted in the promotion of activities like that of embezzlement and corruption amongst the administrative authorities along with other issues for the national economy. The end result now is that the global currency ration is that one British pound is equated to 200 naira exhibiting the imbalance economy and negating balance of payment ratios (xe, 2011).

Whatever percentage resulted from the vast wealth produced by petroleum, the overall benefits have been minimal and non-existent when we look at the growth opportunities of the population. The Nigerian population is one who has had to deal with extreme economic and social pressures from the 1960s and have been forced to forego their traditional agricultural structures as they are no more feasible in an oil-driven economic mindset. The decline of the Nigerian economy is apparent when one analyzes their decline in agricultural produce; to start off, the overall production of both the cash crops as well as the food crops dropped significantly in the late 20th century; furthermore, numerous other resources like cocoa, which Nigeria produced at the highest percentage globally, declined an astonishing 43%; similarly, the produce of resources like rubber decline 29%, groundnuts decreased 69% and cotton manufacture decreased a whopping 65% as well (Okonta and Douglas, 2001)

Background of the problem

Royal Dutch Shell Plc (Shell) initiated their oil drilling operations in Nigeria's Niger-Delta region back in the year 1958 and has furthermore worked with the Nigerian government to create Nigeria's global standing as one of the more prominent oil producing countries on the planet. However, this caused a sizable proportion of Niger delta inhabitants to get rid of their land, which was a primary income source for them back in the 1960s. A teacher from the region of Ogony, Sam Badilo Bako, specifically Taabaa, sent Shell a letter in which he pleaded the case of the local and stated that they locals are in need of education and employment with demand of minimal basic needs like food and shelter. He also asserted that the local did not want their kids to stay out of school or have their families suffer financially because Shell had removed land, which was previously their main supply of revenue. In a nutshell, he said that the locals did not wish to reside in a vicious circle by which they will perceive Shell-BP as the cause for their problems and oppression. He even stated that he felt it was ironic that the people who are the rightful owners of the wealth owned by their country are the ones facing extreme poverty and economic strain (Amunwa, 2011). This was perhaps the first of many records where the locals tried to reason with the Shell Corporation, clarifying their standing on the presence and activities of the corporation as well as clearly identifying their problems.

This was not the extent of the worries for the locals however as nearly four decades later, this case escalated to much worsened state with recurring incidents of escalated pollution, gas emissions and flares as well as overall ecological degradation of the Niger Delta particularly and Nigeria as a whole. The negative environmental ramifications of this region has simultaneously resulted in the creation of vast for Shell, the stakeholder as well as the corrupted officials in the Nigerian government while significant number of the Niger delta inhabitants have already been deprived of the livelihood and use of clean water (Amunwa, 2011).

Among the first activists to speak out due to this widespread imbalance was businessman, writer and activist Ken Saro-Wiwa. He belonged to the Ogoni region which was a region suffering the same fate as many suburbs outside the oil capital Port Harcourt. Saro-Wiwa was primarily a promoter of non-violent negotiations to help the Nigerians have a stake in the overall profits made by the government. However, the Nigerian military government at the time falsely charged him with fabricating the murder of four Ogoni elders and hanged him thereafter in 1995 along with 8 other non-violent activists who worked with him. Regardless of the democratic government that followed, there are still many unfulfilled promises made to enhance the lives of Delta dwellers (Robinson, 2006).

The worst aspect that has been created due to this rising corruption has been its impact on the lifestyle of the locals who have now been reacting violently, after years of attempting peaceful dialogue with the government. This violent reaction through the activists in Nigeria is the policy issue that will be discussed in this paper.

Phases and Impacts

The continuing deprived conditions of the local and peaceful dialogues resulting in little to no penetration wither Shell or the government; the Nigerian society experienced an increase of violent activists at the beginning of the 21st century particularly in the years 2006 through 2008. These activist groups were formed as retaliation towards the unjust operations, exploitations, ethical inconsistency of Shell with the dishonesty and corruption of the Nigerian government and aimed to instigate both these institutions to acceptably and appropriately cope with the problems that the generations had faced before this era. Even though, the problem of imbalance and unjust exploitation was long recognized before the start of the 20th century by the non-violent activists who continued to work endlessly, most memorably throughout1995), the fact of the matter is that the Shell Corporation and all its activities are backed by the Nigerian government who is the backbone shielding them from any real accountability for their actions for an extended period of time even before the need for the militants surfaced. International media recently have initiated efforts that shed more light on the current functions and activities of Shell in the Niger Delta and contrasted the imbalance of those activities with the operations in the developed world (Ntdtv, 2009; Monitor, 2010).

It was back in 2009 that the problem entered the legislative phase from both national and international view. The former president of Nigeria (President Musa Yar'Adua) initiated an unconditional amnesty structure that was exercised in three different phases -- Disarmament, Demobilization and Reintegration (DDR). The positive impact was immediate and definite in those times as most of the militants gave up their weapons and invested their energy in learning and re-integrating in the economic structure but the fact of the matter was that there was still a huge deficit in the creation of job opportunities for them or any of the locals (All Africa, 2011). From a global perspective, UK suit filed at the high court of Appeal has made Shell admit a few of the issues they've caused in Nigeria to date by forcing the organization to pay for $410million in compensation while further investing in better production techniques in the area (Amunwa, 2011).

However, some of the militants and of particular note may be the MEND (Movement for the emancipation of the Niger Delta) pronounced that the amnesty program was primarily a cover up and a shameful effort to make amends to a very damaged situation. MEND has promised the locals that they will make efforts to keep the disruption of crude oil production in the Niger delta region irrespective of the level of aggression they might be forced to use.

The Movement for the Emancipation of the Niger Delta ("MEND") has now grown to be one of the largest and most prominent militant groups in the Niger Delta. The group primarily works towards exposing the real culprits behind the destruction of the ecological, social and economic stature of the Nigerian people. MEND exposes the impact of the U.S.-Nigeria government alliance and continuously engages in violent clashes with the Shell Corporation to make the seriousness of their intentions known. The Economist has described MEND as an organization that 'portrays itself as political organization that wants a larger share of Nigeria's oil revenues to visit the impoverished region that sits atop the oil. Actually, it's more of an umbrella organization for many armed groups, which it sometimes pays in cash or guns to launch attacks' (The Economist, 2008). MEND has been associated with attacks on petroleum operations in Nigeria included in the Conflict in the Niger Delta, participating in various other destructive activities like kidnapping, theft, sabotage, and property trespassing/destruction (Hanson, 2007).

The federal government on another end initiated the Joint task force (JTF) structure whose primary function was to find militants and bring the "irresponsible" human rights violations and activities to light so that appropriate legal reimbursements could be provided to the relevant parties. This moved the problem to the administration stage (culture of resistance, youtube). Currently, this problem continues to be the most significant at this time and it has maybe not led to the instigation of appropriate changes or support to maneuver the movement forward to the enforcement phase.

The figure below exhibits the nonmarket issue life cycle and curve can be applied in the Nigerian region where the identification of the issue of unjust repercussions of oil drilling in the early 1960s when the letters were sent to Shell from the locals on the trampling of their needs and basic rights. The interest group formation stage was when the non-violent groups formulated to create and sustain dialogue for the fulfillment of basic human rights of the locals who live in the oil rich region. As aforementioned, the initiation of the DDR and formation of MEND were all part of the legislative phase and the involvement of the JTF took the movement into the administrative phase as the government hired an agency to counter the violent streaks of the militants. The problem though that is stopping the movement to further into the enforcement is that the government is not loyal to the cause and still protects the big corporations like Shell that are bringing in huge profits for them. Both the military and civilian governments have been compromised in this particular domain as they seem to cater to only their own needs and completely disregard the needs of the nation. Unfortunately, this movement cannot be transported further into a constructive enforcement stage with a proper and balanced accountability structure in place for not just the violence bright forth by the militants but also the injustice and disregard for human rights that is exercised by Shell as well as the government officials. Perhaps, one non-marketing strategy whereby this can be achieved is through the intervention of a global human rights organization which could be the focus for the future of the non-violent activist groups in Nigeria.

Figure 1-2 Nonmarket Issue Life Cycles

Issue Identification

Interest group formation

Impact on Firm

Time

Legislation

Administration

Enforcement

Early

19

60

Letters to Shell were sent to highlight problems faced by the locals

Mid 1960s -- nonviolent groups formed in order to create constructive dialogue for fulfilment of locals' basic rights

Formation of DDR, JFT and MEND

Formation of JFT to counter militants

Need for a justice system to counter both violence and injustice

Nigeria Oil War

This particular problem is of the most importance to Shell along with other competitors such as for example Exxon and Total operating in Nigeria for varied reasons. First, it sheds light on the operations of the gas and oil sector in general not just in Nigeria but also of all the other developing countries when compared with the developed countries. This impact has a tendency to have even increased with the international media highlighting the story of Nigeria in recent news. Also, globalization has managed to make transference of news easier for individuals from all around the globe from within their respective countries therefore any and all negative techniques employed by Shell in Nigeria can taint their international public image devastatingly as well as the hamper the image of their competitors as well. Furthermore, Shell investors particularly people who appreciate the worthiness of CSR may see this as a threat for their investment and misappropriation of the funds and may possibly take back whatever investment they were planning to make in the future with the companies. Though, it's believed Shell might shift the entire blame on the incompetency of the Nigerian government but their negative effect on the environment even prior to the reign of militants can also be quite obviously reported. Aside from that, the consumers in other areas of the planet may reduce their patronage to Shell or the others if they're conscious of such negative techniques in the developing countries like Nigeria.

Also, this awareness may also provide social activists in the developed countries protesting from the contamination of the economy via oil exploration and pollution much capacity to fight for the reason by showing different environmentally friendly types of techniques that the oil businesses can take part in the Niger Delta. One recent example may be the negative "world" effect on BP because of the oil spillage in the Gulf (The Guardian, 2011). Last but not least, it may be a chance for the oil businesses like ConocoPhillips to enter Nigeria while promising to use its natural resources and the profits made thereof in different ways entirely. Media may be able to assist in this case prevent difficulties with militants once again. However, the negative aftereffect of corruption particularly within the Nigerian government would need to be looked at in particular before such investment is feasible (Africanpressorganization, 2008).

Various Institutions involved

Through this paper, we have outlined numerous institutions that have had a direct or indirect impact on the oil war in Nigeria. These institutions have all played their part and continue to do so still and include the following: The Nigerian government, both military and civilian as it falls victim to corruption and ill-advised movement to focus on a single natural resource; the Shell Corporation as well as it competitors like Exxon, Total, Agip who continue to exploit the oil rich Niger Delta and reap humungous profits with complete disregard for the impact of their drastic penetration of oil operations on the locals; MEND and other militants activist who continue to struggle to make amendments in the Nigerian structure that would see the locals reaping the benefits of the profits; the international media that has not begun to take notice of the pleas of the local Nigerians and is playing its part on shedding light on the atrocities faced by the locals, not just in Nigeria but other developing countries as well, at the hands of these global corporations who continue to reap humungous profits by exploiting the natural resources of these countries. The role of the media is perhaps the most crucial in this stage of the issue as it can efficiently and peacefully make inroads into making these corporations take plausible actions to compensate for the damages they have caused and also make sure that they policies of operations for these companies change for the developing nations.

Non-Marketing Strategies

Improve and Diversify the Economy - Act responsibly

Using existing assets, including oil along with other natural resources, a diversified economy would decrease the heavy reliance on gas and oil, a non-renewable resource. For example, many agricultural and mineral products and services are available or manufactured in the Nigerian state. These could be associated with industries that may galvanize the neighborhood economy. Such industries can draw other industries for their localities, combined with the necessity labor, social facilities and services. They are able to help attract desperately needed infrastructural growth opportunities. Cultivation of industries associated with agricultural products and services deserves the active support of the different governments, gas and oil businesses along with other stakeholders. Therefore, the requirement to diversify the economy is extremely important, as diversification is definitely an important and key aspect of development. Diversification promotes competition, inspires innovation, opportunity and investment (Ejibunu, 2008).

Improve on the amount of Infrastructure and Social needs - hand back to the city

The locals of the Niger Delta region have historically felt excluded from the main-stream development in Nigeria. With the amount of money pouring in from the 13% derivation fund from the American government, their state has to engage in activities that will help them go headlong in improving on the amount of infrastructures and social needs of the locals. However, the truth is that within their state, some groups have already been further marginalized, and social exclusion is definitely an obstacle to development, particularly if the majority of the populace lives on the margins. For this end, efforts should be aimed at enhancing use of opportunities, goods, services and facilities for several stakeholders, and developing capacities to overcome obstacles and participate in activities essential for sustainable livelihoods. This, based on the UNDP analysis, requires empowering socially marginalized groups and people, strengthening social and infrastructural institutions, and developing the capability of existing local groups (UNDP, 2006).

Transparency in Oil Revenue - instead of lobbying

Yet another solution being recommended here would be to make accurate information publicly accessible with regards to the extractive industry revenue that is being given to the government in the form of document as suggested in the Extractive Industries Transparency Initiative (EITI). This really is to curb corruption and produce confidence in the act of governance business. Within their mid-2004 Summit, the Number of Eight Industrialized Nations (G8) launched the very first Transparency Compacts, Voluntary Partnerships. This is when a developing country government sets out an agenda to create greater transparency and accountability of the governing body towards the public when using public resources, with the help of the G8 governments, who supply technical assistance and political support (Sea Island Summit, 2004).

One step taken in the right direction to increase transparency was when Nigeria went ahead to register to the British-backed Extractive Industries Transparency Initiative (EITI) by establishing her very own Nigeria Extractive Transparency Initiative (NEITI) in 2003 (International Crisis Group, 2006). NEITI has, however, taken essential first steps in revealing serious shortcomings in the country's system of accounting for revenues from the gas and oil industries since mid-2005. This task will further enhance accountability in the gas and oil industries in Nigeria.