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Economy system of Nigeria

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Published: Mon, 5 Dec 2016

INTRODUCTION

Nigeria has produced several hundred billion dollars worth of oil since its independent in 1960, but its citizens benefit from none of this wealth. This situation primarily exists because successive governments, both military and civilian, have stolen or misused much of Nigeria’s tremendous oil wealth.[1] The Economic and Financial Crimes Commission (EFCC), a state-owned XXXX designed to investigate and enforce all laws against economic and financial crimes in all its ramifications[2], reported a total loss in the trillions because of corruption and waste.

Nigeria, located in West Africa, holds many of the world’s valuable natural resources such as crude oil (petroleum), tin, columbite, textiles, cotton, palm oil, and steel amongst others. Specifically, Niger Delta, located in XXXXX, is the main producer of oil, and mainly contributes to Nigeria’s economy. According to World Bank statistics, in 2008 Nigeria’s oil and gas sector contributed about ninety-six percent (96%) of export revenues, eighty-one percent (81%) of government revenues, and only seventeen percent (17%) of gross domestic product (GDP) due to declining oil output in the Niger Delta region.[3] GDP indicates the stability of a country’s economy in relation to the total value of its goods and services over a specific period.

Despite Nigeria’s abundance of natural resources, its economy continues to stagger with future development becoming impossible. Development desperately needed to reduce poverty levels resulting in improvements in its hospitals, schools, roads, and XXXXXXX. Specifically, Nigeria’s oil industry has become a pool of corruption between surrounding states, individuals seeking power, and the federal government. The opportunities, large oil and gas deposits might have brought have, over the years, mostly been squandered, as corruption, bad governance and over-dependence on oil have undermined the growth of other sectors, including agriculture. Today, approximately sixty-five percent (65%) of the population live below the poverty level of US $1/day, and more than fifty (50) million Nigerians, suffer from debilitating diseases.[4]

As oil revenues fuel[ed] the rise of federal subventions to states and precariously to individuals, the federal government soon became the cent[er] of political struggle, and the threshold of power in the country. This created a dangerous situation as it became increasingly dependent on oil revenues, and the international commodity markets for budgetary and economic concerns eschewing economic stability spelling doom to federalism in Nigeria[5].

After conducting research, corruption appears as one of the many contributions to the downfall of Nigeria’s economy including political instability, inadequate infrastructure, and poor macroeconomic management. Understanding the existence, growth and impact of corruption within the Nigerian state, requires the definition or conceptualization of corruption within the context of

first, the legal system and administration of justice, and second, the international legal normative expression of the term, since there is no universally acceptable definition.[6]

This paper is divided into five (5) parts allowing a thorough analysis on XXXXXX being portrayed. The first part will provide a background into Nigeria, and its oil sector. The second part will present the current status of Nigeria’s economy. The third part will define and XXXX corruption, and XXXXXXX. The fourth part will provide a comparison of other countries within West Africa, and how corruption is handled. And lastly, the fifth part will provide solutions. Each part is interlocked by the term

Nigeria, and its Oil Sector

Nigeria is located in West Africa, and covers an area of 923,768 sq km (356,669 sq miles) measuring about 1,200 km (about 750 miles) from east to west, and about 1,050 km (about 650 miles) from north to south.[7] Nigeria is surrounded by the Republic of Benin, Chad, Cameroon, and Niger with the Gulf of Guinea, part of the Atlantic Ocean running from Cape Palmas in Liberia to Cape Lopez in Gabon[8], as its coast.

Its terrain is diverse, and consists of mangrove swamp jungles stretching across the entire coastline composing mostly of small rivers, creeks, and branches of the Niger and Benue Rivers.[9] The Niger River enters the country from the northwest, and the Benue River enters from the northeast with both rivers merging at the city of Lokoja emptying into the Niger Delta; together it forms the shape of a Y.[10]

The Niger Delta is composed of nine (9) states within Nigeria located in the : Abia, Akwa Ibom, Bayelsa, Cross River, Delta, Edo, Imo, Ondo, and Rivers. There are thirty-six (36) XXXXXXXXX. The region’s oil contributes approximately 90 percent (90%) of the value of Nigeria’s exports even though Nigeria, in its entirety, remains XXXXXXXXX.

The Niger Delta is increasingly becoming unstable with contributing factors to include inter-ethnic clashes, violence triggered because of its oil revenues, and chiefly, corruption. Pipelines are regularly vandalized by impoverished residents, who risk their lives to siphon off fuel.[11] Such behavior results to barrels of crude being wasted, a significant economic loss to Nigeria’s economy.

According to the XXXXXX, Nigeria is the world’s eighth (8th) biggest exporter of oil with a production rate of approximately three (3) million barrels per day (bpd). But, its production of barrels of oil substantially fluctuates compared to other nations due to internal turmoil[12] preventing the country from making the most of its human resources.[13] Threats, attacks, and tension exist between oil companies and ethnic tribes resulting in the Niger Delta being inconsistent in oil production.

Though possibility of wealth exists in Nigeria, the people remain impoverished, unable to sustain a normal life, and consequently subject themselves to violence in order to survive. The output of oil in the Niger Delta has the ability to remedy the poverty problem, and provide hope for Nigeria, and its economy.

The Oil Sector

It can be safely argued the problems suffered by the Niger Delta influenced the demise of Nigeria’s economy. According to a timeline given by the Nigerian National Petroleum Company (NNPC), oil was first discovered at Olibiri, XXXXXX, in 1956 by Shell-BP after decades of oil exploration. In 1958, Nigeria became one of the top producers due to its first oil field producing approximately 5,100 bpd. At the conclusion of the Biafran War in 1970, Nigeria began benefited from the oil production with the help of rising oil prices throughout the world. In 1971, the country joined the Organization of Petroleum Exporting Companies (OPEC), in which the establishment of the Nigerian National Petroleum Company (NNPC) followed in 1977.

The OPEC is a permanent intergovernmental organization of twelve (12) oil-exporting developing nations coordinating and unifying petroleum polices of its Member Countries.[14] Member countries include Algeria, Angola, Ecuador, IR Iran, Iraq, Kuwait, SP Libyan AJ, Nigeria, Qatar, Saudi Arabia, UAE, and Venezuela. OPEC is designed to monitor oil prices in international markets in order to eradicate harmful fluctuations. It oversees an efficient, economic and regular supply of petroleum to consuming nations to result in fair returns on capital to those investing in the petroleum industry securing steady incomes[15] to their Member Countries.

The NNPC is a state-owned company established to increase the value of Nigeria’s oil sector to the community. It has powers, and operational interest in refining, petrochemicals, and products transportation.[16]The company is compartmentalized into twelve (12) sections with the mission of pinpointing potential problematic issues within the industry. Also, the Department of Petroleum Resources (DPR), which is under the Ministry of Petroleum Resources, works alliance with the NNPC. DPR ensures complete compliance with industry regulations, licenses, and environmental regulations.

Within the next couple of years, Nigeria’s production level was over two (2) million barrels (bpd) with levels fluctuating during the next years. Current development plans involve increasing oil output to approximately to four (4) million bpd.

Despite all measures implemented for efficiency in Nigeria’s oil sector, the country suffers greatly with no possibility of changing. With each day, its oil industry grows, corruption invades the output, and the people of Nigeria continue to suffer.

The Economy of Nigeria

Nigeria’s economy has promising XXXXXX, and has been variable since the transformation of its form of government from military rule to civilian rule. There are vast resources in production resulting in XXXXX revenues, though no amount is sectioned off to be placed back into the economy. Poverty is widespread, and Nigeria’s basic social indicators[17] earn it a place among the poorest countries in the world. As experienced by many other countries, the economy is what allows existing infrastructure to be maintained, and industrialized. But, viewing Nigeria’s economy from the past to current, there has not been any real changes required for revolution into the following era.

Nigeria’s economy began in the agriculture world before its oil discovery. Agriculture and farming was the way of life, and the source in its trading market. Upon the initial oil discovery in the Niger Delta in 1958, agriculture contributed to majority of Nigeria’s GDP, and export revenues. In the next following years, the oil sector stepped into mainstream, and became Nigeria’s key source of revenue. The oil sector provided approximately twenty percent (20%) of GDP, ninety-five percent (95%) of foreign exchange earnings, and about sixty-five percent (65%) of budgetary revenues.[18]

According to statistics given by the United States Agency of International Development (USAID), industrialization plays a huge role in its economy. It averaged fifty percent (50%) of GDP during the period of 1994 to 2004, and in 2004 it accounted for fifty-seven percent (57) of GDP.[19] Industrialization XXXX. On the other hand, services accounted for about twenty-seven percent (27%).[20] Services XXXXXX.

The agriculture market still remained one of the main sources within the economy, but not as vital as the oil sector. It attributed to twenty-three percent (23%) of GDP in 2005, values significantly falling over time. Decreasing values will continue as economic development occurs, its agriculture market usually decreases. An estimate of sixty percent (60%) of the Nigerian community is employed in agriculture contributing to employment, food production, foreign exchange earnings, and industrial inputs. Though, the boom in the oil sector brought about distortion within the labor market.[21]

An additional factor to the agriculture market is cattle herding, poultry, and fishing adding to more than two percent (2%) towards the GDP in the 1980s. In 1987, the Food and Agriculture (FAO) of the United Nations report majority of the livestock is located in Northern Nigeria, and in the possession of rural citizen. Fisheries output have fallen tremendously due to environmental issues in the Niger Delta at the hands of existing oil companies.

A country’s business arena can play a vital important role in its economy, and are critical determinants of private sector development and prospects for sustainable growth.[22] Nigeria’s business environment is encroached with corruption of its governmental sector, and with the people themselves. According to the Transparency International Corruption Perception Index (TICPI), Nigeria is the sixth (6th) most corrupt nation in the world following other countries having similar drawbacks.

According to research conducted by USAID, Nigeria’s business arena has a flexible labor market, liquidable credit, and high investor protection, attractive factors to outside investors. Though, the country has its weaknesses, and in need of improvement, corruption is prevalent. Structure is needed to improve transparency and the judicial system, promote institutional reform[23] resulting in dominating corruption.

Overall, there are many factors contributing to the demise of Nigeria’s economy. It is of basic knowledge that without money these factors cannot grow towards the expectations of the community, government, and potential investors. With its oil, and agricultural sector, with the former being most influential, proof is provided of Nigeria having the ability to build a strong economy resulting in a renaissance for its future.

The Government

Governments are established to govern the people of the land, maintain public order, make laws to protect everyone, and provide essential components needed for social order. The government sets the standard of the way of life for its citizens illustrating the importance of an efficient leadership. With an inoperative government, a country may suffer secondary effects affecting both, related and non-relating factors, such as those suffered in Nigeria.

Since Nigeria’s freedom from Britain rule on October 1, 1960, its government system has not been stable, and either taken form of military or civilian rule. The initial form of government used by the first (1st) president of Nigeria, Nnamdi Azikwe, during the first (1st) federal republic was parliamentarian in 1963. In a parliamentarian system, there is a separation between the executive and legislative branch to be governed by a head of state and head of government. During this time, Nigeria’s main crisis was the struggle for power by whomever desired it, specifically clashes between ethnic groups. From this point, a series of coup d’Ã┬ętat (coup), XXXX, plagued its government system, and initiated Nigeria’s need for a stable form of government to rule the land of the people.

Upon the arrival of the third (3rd) president, General Yakubu Gowon, during the first (1st) military regime of the first (1st) federal republic in 1966, Nigeria experienced an oil-price boom as a result of increased prices of crude oil in 1973[24]. Soon thereafter, an expansion of its federal government occurred resulting in the rise of corruption of and by federal government officials. In reaction, Gowon issued a nine-point transition program culminated in the handling over of power to a civilian government on October 1, 1976[25], and to include a curriculum for the reorganization of its infrastructure. Though, this plan never took place, and he was eventually overthrown, the same homogenous pattern taken since 1963.

Corruption reached new depths upon the arrival of General Sani Abacha, Nigeria’s ninth (9th) president in 1993. He was credited for misappropriating approximately three (3) billion dollars of national assets during his military rule[26], funds accounted by the Swiss Federal Office of Justice, not including assets located in other European countries. Abacha set out to effect change in the leadership of government, but failed in that respect. He died while in office in 1998, and since then, his family and colleagues have been accused of plundering on a grand scale during his five-year rule.[27]

Most funds obtained by Abacha during his regime were deposited in numerous European accounts, and discovered by Swiss officials due to its enactment of legislation to stop banks from accepting deposits of wealth stripped from poor countries.[28] In an attempt by Nigeria to reclaim as much as four (4) billion dollars from Abacha’s regime, an out-of-court settlement was reached by his family. A total of five hundred and thirty-five (535) million was to be relinquished to the Bank for International Settlements in Basel, XXXX for Nigeria’s use. The settlement also allowed Abacha’s family to keep one hundred (100) million dollars, funds alleged by the Nigerian authorities acquired before Abacha’s office term, and not demonstrably derived from criminal acts.

In 1999, Obansanjo was re-entered into office

Against the backdrop of endemic corruption, Nigeria is sitting on the brink of a west African oil boom that will see billions of pounds flow into government coffers – and could see the situation becoming even worse.- http://www.independent.co.uk/news/world/africa/curse-of-oil-sees-corruption-soar-in-nigeria-434405.html

Solutions

After thorough research of possible solutions to curtail corruption and its effects, several factors came to light. It will take more than implementation of such solutions to get this problem on track. These solutions include, but not limited to, best practices of other countries, anti-corruption programs, alliances with both, private and public sectors, strengthening accountability, membership into anti-bribery conventions, reformation of political system, and modification of the constitution of Federal Republic of Nigeria.

Depending on the country’s status, the right solution with the outcome varying by participation by its population to ensure effectiveness.

Specifically, the USAID offers strategies against corruption where good government, and business practices can flourish, and in which corruption cannot easily take root. These programs sets evil occurring.

There are numerous programs that contribute significantly to the establishment of an environment in which good government and business practices can flourish and in which corruption cannot easily take root. These programs include fiscal reform efforts, financial sector restructuring and improvement, privatization of state-owned enterprises, more efficient and transparent capital markets, and land titling reforms.

Programs like these encourage competition, transparency, and accountability. They also facilitate the efficient and effective functioning of free markets and encourage private sector growth, both domestically and through foreign direct investment. Finally, such programs help to incorporate developing countries into the mainstream of the global marketplace

Conclusion

Corruption poses as an extreme problem as it challenges a country’s developmental prospects, emasculates governmental structure and its rule of law, demotes accountability, and lessens conformity with laws and regulations of the land. This results in the reduction of quality of life, and uproar of disdain and frustration experienced by the citizens of Nigeria.

Collectively, these developments worsened the low productivity, both per unit of land and per worker, due to several factors: inadequate technology, acts of nature such as drought, poor transportation and infrastructure, and trade restrictions.

As food production could not keep pace with its increasing population, Nigeria began to import food. It also lost its status as a net exporter of such cash crops as cocoa, palm oil, and groundnuts. According to U.S. Department of State FY2001 Country Commercial Guide, Nigeria’s total food and agricultural imports are valued at approximately US$1.6 billion per year. Among the major imports from the United States are wheat, sugar, milk powder, and consumer-ready food products.

Efforts since the late 1970s to revitalize agriculture in order to make Nigeria food self-sufficient again and to increase the export of agricultural products have produced only modest results. The Obasanjo administration, however, has made agriculture the highest priority of its economic policy.

Exploration simply translates into exploitation culminating into poverty which often metamorphoses

into different kinds of crises such as intraethnic uprising, communal clashes

  1. http://www.hrw.org/sites/default/files/reports/nigeria0107[1].pdf
  2. http://efccnigeria.org/index.php?option=com_content&task=view&id=35&Itemid=38
  3. http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/NIGERIAEXTN/0,,menuPK:368906~pagePK:141132~piPK:141107~theSitePK:368896,00.html
  4. http://www.new-ag.info//country/profile.php?a=848
  5. Watts Michael, State, Oil and Agriculture in Nigeria, Berkeley, 1987. Retrieved February 22, 2007Available at http://www.somalipress.com/nigeria-overview/modern-history-nigeria-1054.html Rule 18.2.2
  6. http://www.enelsyn.gr/papers/w16/Paper%20by%20Prof%20Oyelowo%20Oyewo.pdf
  7. http://encarta.msn.com/encyclopedia_761557915/nigeria.html
  8. Need to find in specificity
  9. http://www.ecowas.info/nigeria.htm
  10. http://encarta.msn.com/encyclopedia_761557915/nigeria.html
  11. http://www.globalsecurity.org/military/world/war/nigeria-2.htm
  12. http://www.heatingoil.com/articles/profile-oil-producer-nigeria/
  13. http://www.new-ag.info//country/profile.php?a=848
  14. http://www.opec.org/library/what%20is%20OPEC/FAQ.pdf
  15. http://www.opec.org/library/what%20is%20OPEC/FAQ.pdf
  16. http://www.nnpcgroup.com/corporate-profile/about-nnpc
  17. http://news.bbc.co.uk/2/hi/business/1763464.stm
  18. http://www.iss.co.za/Af/profiles/Nigeria/Economy.html
  19. http://pdf.usaid.gov/pdf_docs/PNADF350.pdf
  20. http://pdf.usaid.gov/pdf_docs/PNADF350.pdf
  21. http://www.nationsencyclopedia.com/economies/Africa/Nigeria-AGRICULTURE.html
  22. http://pdf.usaid.gov/pdf_docs/PNADF350.pdf
  23. http://pdf.usaid.gov/pdf_docs/PNADF350.pdf
  24. Helen Chapin Metz, ed. Nigeria: A Country Study. Washington: GPO for the Library of Congress, 1991, http://countrystudies.us/nigeria/
  25. Helen Chapin Metz, ed. Nigeria: A Country Study. Washington: GPO for the Library of Congress, 1991, http://countrystudies.us/nigeria/
  26. http://www.nytimes.com/2002/04/18/world/nigeria-to-recover-1-billion-from-the-family-of-a-late-dictator.html
  27. http://www.nytimes.com/2002/04/18/world/nigeria-to-recover-1-billion-from-the-family-of-a-late-dictator.html
  28. http://www.nytimes.com/2002/04/18/world/nigeria-to-recover-1-billion-from-the-family-of-a-late-dictator.html

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