Natural resources in economy progress


Availability of natural resources is often taken to naturally contribute if not be a major contributor in a nation's economy prowess. This enviable position often given to natural resources in the chess place of economic growth is not connected to the fact that natural resources especially fossil fuel plays a serious role in world economy. Unfortunately, the economic potentials of natural resources do not in every case translate into an actual economic growth neither does it guarantee a good sense of resource management. This reality is what gave birth to the term Dutch Disease. The term is commonly used to denote a situation where the presence of natural resources rather than being a source of greater industrialization actually weakens and render, most often, any existing industrialization capacity weaker. In such a situation, non extractive resources and service related industries either remain stagnant or de-industrialized.

Nigeria which is the primary concern here is a typical non extractive developing economy prior to the discovery and actual extraction of fossil fuel at the dawn of independence. With arable land in the north and swampy coast of the south, agriculture offered Nigeria the opportunity to develop a strong agro industrial based economy until the discovery of the fossil fuel. Whereas over 90% of Nigerian income comes from extraction of natural resources today, the reverse was the case in the economic development history of Nigeria until early 1960s. The expected investment and consequent development in the agricultural sector did not happen. Why was this the case? It may be over simplifying the issue just by saying that it is a common feature of Dutch disease or merely recourse to mismanagement of resources.

Obviously mismanagement of resources cannot be divorced from the economic dilemma of Nigeria as it relates to non development of non extractive industry with the discovery of fossil fuel. However, mismanagement resources cannot take place in a vacuum. Hence, in this work, it is my main interest to ask what made Nigerian economic development caught up in web of Dutch disease. Efforts will be made also to see the connection if any, that the mismanagement of resources has with the discovery of fossil fuel in Nigeria. It is my aim to proffer any possible solution to redress the trend of mismanagement of resources in the Nigerian economic development.

In reaching the above stated objectives, this work is divided into four chapters. Chapter one addresses the general overview of Nigeria with associated agricultural endowment possessed by various components of the nation before the exploration of fossil fuel. Chapter two will focus on the discovery and extraction of fossil fuel in Nigeria and its potentials as well as real impact on the developing economy. In chapter three, I will try to locate the factors responsible for the mismanagement of resources in the wake of extraction activities in Nigeria. The fourth chapter, which is the last one, and deals with proffering ways of putting the Nigerian economic development squarely on a development part once again. Conclusion follows therafter.

2 Theory of Dutch-disease

Numerous researchers, like Gylfason (2001), Sachs and Warner (1995), and Sala-i- Martin (1997), all found a negative connection between natural resource abundance and economic growth. Classical economic theory would predict that abundant natural resources should be good for the economy but the opposite seems the case here in most developing countries with natural resources. The tern Dutch disease, Paradox of the plenty and Resource curse are economic terms used in describing the negative connection between natural resources abundance or any large capital inflows into an economy and economic growth.

The term `Dutch disease' was first seen in print form in the Economist( 26 November 1977, pp. 82-3), when the discovery of natural gas in the early 1960s had severe effects on the Dutch manufacturing industries by causing the Dutch real exchange rate to appreciate. This appreciation of the real exchange rates makes the local manufactures less competitive in the international market which results to low export, which on the other hand leads to the gradual deterioration of the manufacturing sector.

For most Nigerians, especially those living in the Niger-Delta, Nigeria's oil wealth is actually 'oil of poverty' or a curse, because it has produced only poverty, underdevelopment and conflicts since its commercial exploitation began in the late 1950s . Such a conclusion is not aberrant as 'it is now almost conventional wisdom that (natural) resources are a curse for developing countries' with abundance of natural resources causing poor growth and raising the incidence intensity and duration of conflicts . The negative conclusions about the developmental role of resources is a far cry from earlier post World War hopes and the promise that resource endowment would 'lift' many countries out of poverty; as 'not only would resource exploitation generate fiscal revenues and jobs, but also the necessary investment capital for an economic take-off. Windfall resource revenues, in other words, should prove a bonanza' .

In the case of Gulf States oil boom, labour immigration offsetted the effects of Dutch disease while shifting the symptoms to the labour exporting country. The labour exporting country had a lot of money being sent home by the labourers in the Gulf States which artificially boosted the exchange rate and as a result of the home countrys` manufacturing industry paying more to secure labour locally. The symptom of Dutch disease does not necessarily occur as a result of world price boom or major resource discovery but also from any large capital inflows into an economy.

But 'for every Venezuela and Nigeria, there is a Norway or a Botswana' (Robinson et al 2005:7) Research on 'paradox of plenty' has prompted, in recent times, a renewed interest in political factors as key explanatory variables, or as key components of the resource curse mechanism in developing countries. For example, it has been argued that 'poor economic growth is itself a political product, the consequence of what politicians do with resource rents' (Englebert 2000; Ron 2005:447) and of presence or absence of 'political institutions which promote the accountability of politicians' (Robinson 2005:6). Thus, if resource booms create underdevelopment, it cannot be because 'they induce inefficiency in the rate at which they are extracted, but because politicians make policy mistakes which are in fact rational political strategies, in response to the incentives induced by resource rents' (Robinson et al. 2005:6). As argued by Rosser, Put differently, scholars have been asking the wrong question: rather than asking why natural resource wealth has fostered various political pathologies and in turn promoted poor development performance, they should have been asking what political and social factors enable some resource abundant countries to utilize their natural resources to promote development and prevent other resource abundant countries from doing the same (Rosser 2006:10

2.1 Theoretical implementations for the policy

3.0 Overview of Nigeria

Nigeria is a country with varying climatic conditions. It is tropical in the center, equatorial in the South and arid in the North. It lies between 3oE and 15oE, and between 4oN and 14oN in Western Africa. Nigeria has borders in the North with Niger and Chad, Republic of Benin in the West, Republic of Cameroun in the East and the Atlantic Ocean in the South. Nigeria has a total land mass of 923,768Km' that is made up of 910,768Km' of land and 13,000Km'water. Figure (1) below is the geographical map of Nigeria. Nigeria is a country endowed with a lot of mineral resources like fossil fuel (crude oil, natural gas, coal and lignite), radioactive minerals (Uranium, monazite and zircon), metallic minerals ( tin, columbite, iron, lead, zinc, gold), non-metallic minerals (limestone, marble, gravel, clay, shale, feldspar) and arable land .

Table 1: Physical and Socio-economic Characteristics of Nigeria

Characteristics 2007

Location West African Sub Sahara

Total Area 923,768Km'

Land Area 910,768Km'

Population Estimate (2006 Census) 140 Million

Population growth rate 2.4

Languages English ( Official), Hausa, Ibo, Yoruba and more than 200 others

Adult Literacy (%) 68% (2003 est.)

Life Expectancy at birth ( Years) 52.0

Share of Agriculture (%) 37.19

Share of Industry (%) 20.07

Petroleum (%) 12.58

Mining and Quarrying (%) 0.30

Manufacturing (%) 7.18

Services (%) 41.75

GDP per Capita Income ( US$) 47.70

GDP/PPP (In Million US$) (2005 est.) $132.9 billion; per capita $1.000

GDP Growth Rate (%) 5.6

Human Development Index 0.402

Source Pearson Education, Inc 2008

Table 1 depicts the physical and socioeconomic characteristics of Nigeria as of 2008.

3.1 Economic History of Nigeria with Focus on Agriculture

Starting from 1914 when Nigeria was created until the end of 1960 when Nigeria got her independence, and until the end of the first decade after independence. Nigerian economy has been agro-based. Agriculture has been the main source of income for the economy. During 1914-1959 when Nigeria was still being colonized by the British, it was stated that Nigeria was being exploited for its agricultural products. The country was known for the production of some main agricultural products like groundnut and cotton (produced in the North), cocoa (produced in the West), and Palm oil (produced in the East, which includes the Niger-Delta region). About 70 percent of the entire population was engaged in one form of Agriculture of the other. During the colonial era, railroads, roads and harbors were developed and market for consumer goods emerged as well with agricultural marketing board playing the role of NNPC today .

Exploration of oil in commercial quantity started in 1956 but did not play any major role until the early 1970s. According to Robinson`s report, in the early 1960s, revenue from oil accounted for less than 10 per cent of Nigeria`s revenue base which can be seen in 1963 and 1964 where oil revenues were only 4.1 per cent and 5.9 per cent respectively of the total revenue of the country. This means that Nigerian economy was formally not oil based, the majority of the country`s revenue during this period was from Agriculture, and more than 70 per cent of the people were employed in this sector. However, after the Nigerian civil war in 1970, the yield of oil began to increase and the dominance of agriculture in the country`s economy began to decline. Agriculture sector brought more than 50 percent of Nigeria national income before the discovery of oil but has now fallen to a dismal 20 percent .

According to the UN Food and Agriculture Organization 1987 estimate,' there were 12.2 million cattle, 13.2 million sheep, 26.0 million goats, 1.3 million pigs, 700,000 donkeys, 250,000 horses, and 18,000 camels, mostly in northern Nigeria, and owned mostly by rural dwellers rather than by commercial companies. Fisheries output ranged from 600,000 to 700,000 tons annually in the 1970s. Estimates indicate that the output had fallen to 120,000 tons of fish per year by 1990'

The presidency of president Obasanjo from 1999 gave life back to the agriculture sector which now grows at a steady 7.5 percent annually and contributed to 41 percent of gross domestic product. This push was as result of new mechanized farming techniques alongside the relocation of some ex-Zimbabwean white farmers in Nigeria .

3.3 Discovery of Crude Oil in Nigeria

The discovery of oil in Nigeria to a large extent altered the nation's economic landscape with its concomitant political consequences. As earlier as 1908, various oil explorations had started in Nigeria but it was not until 1958 that crude oil became officially a source of foreign exchange earner for Nigeria. Oloibiri in the present Bayelsa state of Niger Delta region was where oil was explored first in commercial quantity. Within this time, there was a daily output of 6000 barrel of crude oil. Let us note that all the oil exploration was at this stage being carried out by foreign companies such as Shell Petroleum Development Company (SPDC), Mobil, and Agip etc. It is crucial also to emphasize that it was only crude oil extraction that was taking place within this period as the capacity of refining the crude oil was not in place.

The impact of the oil exploration as a source of government's income, at this time was not much as agriculture retained the primary source of national income. As Robinson pointed out, 'in the early 1960s, revenue from oil accounted for less than 10% of Nigeria's revenue base'. This assertion becomes undoubtedly clear when it is considered that the period in question was the early stage of major exploration activities. We have noted earlier that prior to discovery of oil, agriculture was the main base of the nation's economy as well as employing the most number of workers in the labour market.

However the prospect of large deposit and role oil would occupy in the Nigerian economy became evident starting from the early 1970s. The Nigeria civil war coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production. Nigeria joined the Organization of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977; a state owned and controlled company which is a major player in both the upstream and downstream sectors. From an insignificant 4.1% of the early 1960s, revenue from oil climbed to 98% within the first half of 1980 before dropping to 83.5% within the year 2000 and 85% in 2007.

Notwithstanding the endemic problems of civil unrest, political instability, border disputes, corruption and poor governance, international oil companies have always seen Nigeria as an attractive area for upstream investment. A number or reasons account for this among which are the quality of Nigerian Oil which is almost free of sulphur and the fact that Nigeria is well located in supplying oil markets in North America. The United State of America is currently the leading importing country of Nigerian oil. The Niger Delta, the Anambra Basin, the Benue Trough, the Chad Basin and the Benin Basin are where most of the oil exploration has taken place. The Niger Delta which includes the continental shelf and which makes up most of the proven and possible reserves retains the most prospective basin. Virtually all oil production from the earliest exploration time to current mining time has been concentrated in this basin.

3.4 Natural Gas

Natural gas is another confirmed fossil fuel Nigeria has in abundance. Unlike crude oil, its exploration has not peaked but it is estimated that Nigeria has around 3.5 trillion meters of gas reserves both oil and non oil related. Through the establishment of Nigeria Liquid Natural gas (NLNG), Nigeria has started an active exploration of natural gas as another major source of exchange earner. In fact it is being projected to be the major source of exchange earner for the nation above oil in few years. As in the case of crude oil, over 60% of the confirmed reserve is within the east of the Niger Delta. It is the of the world`s 7th largest confirmed gas reserve and largest in Africa. The biggest challenge in the gas sector is the damage to the environment through gas flaring. In Niger Delta flaring of gas is a constant phenomenon and occurs in all oil exploration locations in Nigeria. See some examples in figure 2 below. When crude oil is brought to the surface, the gas released in that process is called associated gas. Oil companies claim that this associated gas is flared for safety reasons because there are not infrastructures on the ground to bring it to the market. In developed countries, this practice has been curbed partly due to the recent rise in Natural gas prices.

3.5 Other Natural Resources

Nigeria is equally endowed with other natural resources such as tin, iron, ore, coal, limestone, bitumen, lead and zinc. They have been confirmed to be in commercial quantities and have the potential of making significant impact on the nation's exchange earning. Exploration of these aforementioned resources has not been maximally effective. A number of reasons account for either absolute neglect or under performance in commercially maximizing the potential of these resources. The resultant low share of these solid minerals in the nation's GDP which is within 1% can be attributed to over dependence on oil and the underdeveloped nature of the sector, resulting from inadequate and inefficient policies for mineral exploration development.

However there is a renewed effort by the Nigerian government to reposition the mining industry. In that direction, Ministry of Solid Mineral Development was recently created to oversee and review the activities and proffer a more profitable way of harnessing the enormous wealth in the mining industry. For a long time, mining has been on an informal level and illegally carried out. This denies the government the relevant rents and endangers the environment as mining activities were not regulated.

3.6 Effects of Oil, Gas and other Exploration Activities on Nigeria's Economy

The immediate effect of oil on the nation's economy was an increase in the national income. The rise in world demand of oil in early 1970s increased the nation's oil revenue. With this increase in the national income, the government embarked on a number of projects and took some steps to direct and plan economic growth and development. There was a progressive expansion of education with a view to reducing illiteracy and provide the necessary skills and labour for development. Nine additional universities were created in the 1970s and another sixteen in the 1980s in addition to five already in place in a bid to prepare the nation manpower for the envisaged economic development.

There was equally massive investment in the construction industry. Construction of road networks to link up the cities and rural areas were possible through the revenue accruable from the oil. In the major cities, there were big investments in construction of both residential housing and government offices as well as communication networks. Hydroelectric dams were built for electricity generation and secondary industries such as automobile assembly plants were established to create more employment opportunities for the growing population.

In a bid to position the industrial future of the country, there was a huge investment in steel industry such as Ajaokuta Steel Industry. This was established with a view to providing the local industries with the necessary tools needed for industrialization. The articulation was that for any economy to grow, steel industry is a condition that must be met. Hence, even against the advice of the World Bank, the Nigerian government proceeded with the help of the Russians in establishing the steel industry.

However, the effects of oil discovery are not all pleasant. One of the major tragedies of oil discovery in Nigeria is the collapse of the agricultural sector. There was, with the discovery of oil and a gradual dismantling of agricultural industry. Pre-oil Nigeria's economy was powered by agriculture. According to Ugochukwu and Ertel, 'despite the rapid growth of oil industry during 1970s, agriculture still accounts for 40% of GDP and provides employment, both formal and informal, for a large majority of the population'

Exploration activities have been a major contributor in the environmental pollution and degradation since discovery of oil in Nigeria. Most of the areas hosting oil extraction activities are generally polluted hence making life difficult for both human and aquatic species. Gas flaring has been a source of concern to the environmentalists. For a long time until recently over 60% of gas production is flared. This obviously contributes in no small measure in the global warming.

There is the problem of social injustice in the sense that the Niger Delta region which hosts all the oil exploration activities is backward in terms of social and infrastructural developments. What is has led to is the continuing civil conflict in a quest to address what is perceived as an injustice. The Movement for the Emancipation of the Niger Delta (MEND) began a wave of attacks and kidnappings of foreign oil workers in early 2006, knocking out close to a quarter of Nigeria's oil output in a matter of weeks.

Continued bombings of oil pipelines and abductions of oil workers by armed gangs in the creeks have cut Nigeria's crude oil output sharply over the past three years.

Many foreigners have been kidnapped since MEND began its attacks. Most hostages are later released unharmed, but oil production has dropped below 2 million barrels per day, compared to 2.4 million bpd before the attacks and a potential 3 million bpd.

The unrest has forced oil giants such as Royal Dutch Shell, ExxonMobil and Chevron to move all but their most essential foreign staff out of the region, while the drop in oil output has eaten into Nigeria's foreign earnings, compounding the effects of the global economic slowdown. The Igbo effort to secede from Nigeria, which led to the 1967-70 civil wars, was deeply rooted in ethnic tensions and Nigeria's colonial past; but the rebellion was encouraged by the presence of oil, and hence the belief that independence would be economically beneficial for the Igbo people.

4.0 Dutch Disease and its Effects on the Management in Nigeria

Having a well performing economy before the discovery of crude oil, Nigeria was expected to lift her economy to a faster economic prosperity and development however the reverse has been the case since 1980s. Xavier-Sala-i-Martin and Arvind Subramanian posit that

'Nigeria has been a disastrous development experience. On just every conceivable metric, Nigeria's performance since independence has been dismal. In PPP terms, Nigeria's per capita GDP was US$1,113 in 1970 and is estimated to have remained at the US$1,084 in 2000. The later figure places Nigeria amongst the 15 poorest nations in the world for which such data is available.'

The problem obviously is not lack of resources for we have seen the abundance resources namely; agriculture, crude oil, solid minerals and human capital the country posses. This fact calls to mind what Sachs and Warner view as a problem of natural resource rich nations;

'One of the surprising features of economic life is that resource-poor economies often vastly outperform resource-rich economies in economic growth'.

For Sachs and Warner, Nigeria's experience is not accidental because,

'the oddity of resource-poor economies outperforming resource-rich economies has been a recurring motif of economic history. In the seventeenth century, resource-poor Netherlands eclipsed Spain, despite the overflow of gold and silver from the Spanish colonies in the new world.'

In deed for many such as Sachs and Warner it is not strange that Nigerian economy has not performed in such a way to lift millions of Nigerians out of abject poverty and deprivation. The over reliance of resource rich nations and an increase in demand of oil shift capital away from other sectors such as the manufacturing sector thus depriving these sectors the needed facilities in maintaining production. The implication of this is that the export intensity of natural-rich nations is reduced while their import intensity is increased. This weakens capacity building as well as skills development which are very essential for economic growth.

However, there are others who have raised doubt about the plausibility of the adverse effect of abundant natural resources to economic growth. To this group, abundant resources in themselves do not necessary imply lower rate of economic growth but links the lower economic growth to consequential effect of institutional deficiencies such as corruption. The fact is that there are nations whose economic growth recorded positive results after discovery of natural resources such as Norway and Botswana. Moreover, a good case can be made that Australia, Canada, Finland, Sweden and the United States owe much of their economic growth to rich natural resources base.

The problem of lower economic rate in other countries such as Nigeria, with abundant natural resources must be located somewhere else not in the resources themselves. It is in this reasoning Jean-Philippe C. Stijns argues that abundance natural resources have nothing to do with the negative growth rate of natural resource rich nations. For him,

'The story behind the effect of natural resources on economic growth is a complex one that typical growth regressions do not capture well.'

In effect the attempt to explain away regression in economic growth rate of any natural resource rich nation is missing the mark as there are other factors involved other than the resources themselves. Using measures of resource abundance as against export intensity of Sachs and Warner, Stijns posits,

'Actual data on fuel and mineral reserves show that natural resource abundance has not been a significant structural determinant of economic growth between 1970 and 1989.'

He goes on to say,

'' In terms of economic development, what matters most is what countries do with their natural resources. I conjecture that this conclusion can be traced back to the type of learning process involved in exploiting and developing natural resources.'

Not only that Stijns rejects the basic theory of Sachs and Warner, he argues further that what actually matters is in what way is the resources employed and in harnessing these resources what knowledge is taken into consideration. Hence the fact that a country possesses natural abundant resources is not a prelude to lower economic growth when compared to less natural resource endowed nations. In other words, when a natural resource rich nation, fails to use judiciously and make use of appropriate knowledge and skills in harnessing the natural resources, there would not be any growth to be expected from the natural resources.

Still there is another school of thought who believes that the idea of resource cause is neither here nor there but merely a game of chasing shadow. To that group belong Daniel Lederman and William Maloney who have argued that

'' a negative central tendency does not characterize natural resource abundance''

And that

'Various channels through which the curse is thought to operate,', in many cases, the channel is either not convincingly present, or in fact, applies to many other factors of production.'

In fact the position of Lederman and Maloney is captured in this way,

'There are important issues of measurement of relative endowments, of potential heterogeneity in the effects of such endowments on development and growth, and some of the international econometric evidence that appears to support the curse hypothesis has been based on the use of weak proxies, and even on nonstandard manipulations of influential data points.'

The import of the immediate above is that the claim of resource curse remains at best elusive as no satisfying answer can be deduced from the above positions that Dutch disease is really the cause of Nigeria's poor management of her national resources in such a manner that the growth of the nation's economy is hampered. Nevertheless, there is an acceptance of the fact that some nations richly endowed with natural resources have recorded an enormous growth economically than others so endowed. The question therefore is still, why?

It becomes pertinent therefore to consider how the resources are being used, in other words, how are the revenue accruing from the resources being employed and used by the government. In this way, the failure of Dutch disease in offering a satisfying explanation for the poor economic performance of some resource rich nations (as we have noted that there are resource rich nations who perform very well economically) and the failure of other explanations will be circumvented and the reason(s) why the wealth generated by the resources are not making the needed economic impact. It is therefore the position of Kolstad and Wiig that rather than considering 'Dutch disease' as the direct cause of poor economic performance of natural rich nations, it is better to look at the application of the wealth of these resources by the political authorities in the economic life of their nations. Hence they proffer that,

'Centralized political economy models of the resource curse centre on the decisions of politicians governing resource rich economies. The decision analyzed is the allocation of resources between activities of self-enrichment, and activities that increase the productive potential of the economy.'

It seems plausible therefore that the problem of poor performing natural resource rich economies can be traceable to decisions as how the revenues are allocated rather than seeing the natural resources are primarily the curse in the progressive economic developments. It is only in this sense that it can be seen that the fundamental factor or factors responsible for the associated resource curse is the revenue of which rich natural resources is a poor substitution. In the case of Nigeria, a country still in the process of institutional building it seems that the discovery of oil and other natural resources increases the possibility of mismanagement. This is because the institutional framework is still weak which in turn encourages dysfunctional behaviors among the political class. Implicit in this reasoning is that under performing economies of natural resource rich nations is an indirect consequence of misapplication of the wealth accruing from the resources. In other words, judicious and diligent application of the same wealth can and does bring about a robust economic growth as can be seen in countries such as Norway which has a supportive institutional framework. Kolstad and Soreide have identified corruption, rent seeking, and patronage as factors the current analytical models of the resource curse emphasized upon. Addressing some known institutional failures and the way they militate against a healthy economic growth in Nigeria becomes our interest now.

4.1 The Effects of Natural Resources on Management of Resources in Nigeria

As noted above, corruption, rent seeking and patronage are already known possible effects of natural resources within a political framework that is inefficient such as Nigeria's. To say that corruption is at the base of Nigeria's poor economic performance despite her rich natural resources is an understatement.

4.1.1 Corruption:

The central political economy definition has been the use of legislated powers by government officials for illegitimate private gain. Distortions and inefficiency are direct products of corruption and the perpetrators do everything possible to close their tracks. What this leaves behind is all sort of distortions in investment plans and executions. Corruption within the economic system of Nigeria especially as it relates to wealth being generated from the oil sector is the major reason for Nigeria's lack of economic progress since oil was being extracted starting from late 1950s in commercial quantity. For Xavier and Arvind

'Over a 35-year period Nigeria's cumulative revenues from oil (after deducting the payments to the foreign oil companies) have amounted to about US$350 billion at 1995 prices. In 1965, when oil revenues per capita were about US$33, per capita GDP was US$245. In 2000, when oil revenues were US$325 per capita, per capita GDP remained at the 1965 level. In other words, all the oil revenues'US$350 billion in total'did not seem to add to the standard of living at all. Worse, however, it could actually have contributed to a decline in the standard of living?'

Almost within the same period, the United Nations office on Drugs and Crime reports that

'By some estimates close to US $400 billion was stolen between 1960 and 1999. Sani Abacha, the former military Junta alone is estimated to have stolen the equivalent of 2 - 3 per cent of the country's GDP for every year that he was President.'

These are periods when the social and infrastructural developments were abysmally low yet as represented by the colossal corrupt activities of the Sani Abacha alone, 2 - 3 of annual GDP of the nation was being diverted to a private pocket.

In the same UNDC report, it was stated that

'Nigeria is Africa's biggest oil exporter, but its natural resources make it particularly vulnerable to corruption. The oil-rich Niger Delta is a case in point. Corruption deters much-needed foreign investment, which keeps countries mired in poverty and its people deprived. Huge revenues from oil or gas reserves mean low taxes, but also low accountability and a lack of transparency, as well as limited public services.'

This explains in concrete terms how corruption can not only distort investments but also scare investments and encourages lack of accountability within dysfunctional political institutions which Nigeria at present still represents.

4.1.2 Rent Seeking:

Ross Shepherd has defined economic rent as,

'an excess distribution to any factor in a production process above the amount required to draw the factor into the process or to sustain the current use of the factor'.

What the above definition implies is that in rent seeking a lot skill, energy and time is needed in order to secure a considerable share of the rents. This discourages investment in productive industries as what is sought after in rent is not a means of creating new production opportunities but rather a share of existing revenue. In other words, it is an indirect competition between a productive sector of an economy and non productive sector. The skills, energy and time are all productive factors rendered dormant in the struggle for rent which is merely redistributive activity. When this struggle is within a dysfunctional political institution, such that the activities of rent seekers cannot be controlled by the establishment, it becomes very destructive. For Mehlum et el.,

'Rent-seeking outside the productive economy pays off when institutions are bad: dysfunctional democracies invite political rent appropriation; low transparency invites bureaucratic corruption; weak protection of property rights invites shady dealings, unfair takeovers and expropriation; weak protection of citizens' rights invites fraud and venal practices; weak rule of law invites crime, extortions and mafia activities; a weak state invites warlordism. All these forms of direct wealth grabbing are made possible by bad institutions ' or 'grabber-friendly' institutions as we call them. When institutions are grabber friendly, there is a disadvantage from being a producer in the competition for natural resource rents.'

In the case of Nigeria, the oil sector has become a scene where all manners of rent seeking activities with the concomitant economic retrogressions take place. From allocation of oil blocks to downstream of oil activities, rent seekers have not only taken hold of the process but are equally deadly. There has been a serious shift from real production activities to rent seeking activities by the Nigerian entrepreneurs as the lure of easy revenue becomes irresistible even so as with the price of oil appreciating which means more income. The economic consequences of this are obvious in the dwindling number of production activities annually which invariably reduces the competitiveness of other sectors of the economy. Rent seeking therefore is one of the ways in which natural resources play a role in mismanagement of resources in Nigeria.


The use of political position to and access to public wealth is one of the ways politicians maintain the loyalty of the party faithfuls or ethnic groups where electoral support is along ethnic lines. It is important that patronage is not bad in itself as it is legally acceptable in some countries but when it is fraudulently used in rewarding political associates and friends in appointments or contracts without recourse to lay down rules and procedures, it becomes a source of corruption. Natural resources offer politicians more leverage with increased revenue to hold on to power through patronage. Prospective public office holders are also invest heavily during campaigns and elections with the anticipation of holding power which will give them access to controlling the windfall of natural resources. Kolstad and S'reide capture the implication of patronage in this following submission,

Public funds used on patronage could alternatively have been spent in more socially productive ways, which means that patronage implies an inefficient allocation of public resources.

This diversion of resources from rather productive lines to unproductive targets does not in a positive way contribute in a sustainable economic growth. It weakens the potential investment strategies and makes the populace reliant on handouts from those in the corridor of power for day to day living. In essence, it discourages the space and encouragement for creativity in fashioning out plans to engineer a vibrant civil society that can hold the politicians accountable on how the revenue generated from natural resources are spent. This point is pertinent because in patronage since it is mainly those in positions of authority that usually initiate patronage activities, there is need for a vibrant civil society supported by a robust institutional framework to prevent potential mismanagement of resources by ensuring that access to political power is limited for such politicians.

Institution reform is therefore a necessary condition for a country such as Nigeria where the public institution is not fully developed to ensure that patronage activities are curtailed to minimum. The case of political office seekers buying exotic cars and other expensive gifts during electioneering campaigns is well known. As soon as they get into office, their target is to attack the state's treasury with all sorts of frivolous projects through which resources are either siphoned or diverted thereby perpetuating the underdevelopment of the economy. Mehlum et el. captures the situation the need of a functioning institutions for economic development in this submission;

'Our second result is that countries with unproductive institutions tend to score lower on various development indicators. This implies that the resource curse is a phenomenon that occurs at a broader scale than just economic growth-countries that rely on point resources tend to perform worse across a spectrum of criteria. This reinforces a conclusion that others have reached: institutional reform may well be a necessary condition for countries to develop.'

It goes beyond suggesting that 'it may well be a necessary condition' that institutional reform should be at the core of any economic development of any country's economic growth especially those of natural resource rich nature with particular emphasis on Nigeria. It is a definitive requirement without which the economic development will only be a dream. As experience and studies have proved, any country where there is lack of a strong institutional framework to check the menace of all forms of corrupt practice can only degenerate to chaos and anarchy. Life can only be thought of in the Hobbesian state of nature where life is 'brutish, nasty and short` as survival of the fittest becomes the order of the day. This in itself scares away meaningful investment both local and foreign without which will be no economic improvement.

In Nigeria, corruption thrives due to lack of institutional due to lack of political will by the successive authorities and where there is an effort to fight against the menace of corruption, it is mainly used as a political tool against perceived political enemies which was the case under the Obasanjo's democratic experiment between 1999 and 2007. Hence, management of resources which requires strict obedience to laid down rules and regulations are often characterized by;

A. Discretionary behaviour:

In absence of an impartial judicial and due to meddling in the judicial process by the executive arm of the government, what is obtained most often among the workers of public offices charged with management of the national resources is basically discretionary behaviours. Those in the decision making cadre of public service do not give much attention to the laid down procedure in awarding and executing contracts in the oil sector just as in any other sector of the nations' economy. As godfatherism reigns within the Nigerian public service, little or no attention is often paid as to what may be the consequences of their action since most often there is an assurance of protection against any fallout which include court actions.

In a situation where even court action neither deters nor scares public office holders from corrupt transactions, Leite's and Wiedmann's position when they alluded to Becker position that,

'Viewing corruption as an illegal activity, we can follow Becker (1986) 's suggestion that the probability of committing a crime depends primarily on the penalty imposed and on the probability of being caught. In addition, deterrent value of the penalties depends crucially on the ability and willingness of the authorities to enforce the relevant regulations, as well as on the level of acceptance, by the citizenry, of the judgments rendered by the country's institutions.'

Equity and equality are forgone principles as the staffs assume the position of the law. Nigeria political authorities have records of disobeying court judgments not minding the implications and the message that transmit to the citizenry. The citizenry only take a clue from the political establishment in, frequently trying to obstruct the course of justice in the form of bribing and sometimes outright disobedience of court judgment being assured of protection by those in the authority. Having this sort of attitude in carrying out government's economic plans does not in any way encourage independent investors either local or foreign.

B. Inefficient Policies:

Inefficient governmental policies contribute in no small measure in breeding corruption in hindering economic growth in Nigeria. Most of the time inefficient policies are self serving in intent and purposes. The ethnic composition of Nigeria and the role ethnicity plays in Nigerian politics makes such policies inevitable given that the nation lacks the needed political maturity to deal with the situation. Take for instance, policies such as federal character and the quota system in the federal civil service. The Nigerian Constitution states,

'The composition of the Government of the Federation or any of its agencies and the conduct of its affairs shall be carried out in such a manner as to reflect the federal character of Nigeria and the need to promote national unity, and also to command national loyalty, thereby ensuring that there shall be no predominance of persons from a few State or from a few ethnic or other sectional groups in that Government or in any of its agencies.

The composition of the Government of a State, a local government council, or any of the agencies of such Government or council, and the conduct of the affairs of the Government or council or such agencies shall be carried out in such manner as to recognize the diversity of the people within its area of authority and the need to promote a sense of belonging and loyalty among all the people of the Federation.'

From the surface, this intends providing Nigerians equal representation to every ethnic component of the federation. Let us take note of the concluding part of the quotation, the equal representation is to ensure a sense of belonging and loyalty of every Nigerian. It is not to ensure competence and efficiency. Hence in an effort to maintain the spirit of the constitution, ethnicity, nepotism and religion have become the criteria in federal civil service employment; the very people to whom the management of the natural resources have been entrusted to. Mustapha on the constitutional provision has this to say,

'Since 1999, both the World Bank and the UK's Department for International Development

have also investigated the FCC with an eye to closing it down on the grounds that it promotes inefficiency. '

The reason of the case of inefficiency has been attributed to the federal character policy is that it,

'' kills staff morale, promotes bureaucracy, discourages personal development and is antithetical to innovation and creativity. We believe that qualified people should first be considered in all spheres of governance and business.'

Policies such as Federal Character can be described as a square peg in a round hole because it promotes mediocrity over qualification in the name of regional or ethnic representation. The objective analysis of the constitutional provision suggests that the real reason of the Federal Character policy is that it ensures the dominance of the less educated/qualified section of the country over more educated/qualified section. Unfortunately, the monolithic identity of this less qualified section which gives them advantages over the diversified identities of the more educated section thus enabling them to influence policy formulation in rather negative manners (Oil in Nigeria is mostly found in the Niger Delta region of southern Nigeria but there is a sense of social injustice among inhabitants of Niger Delta in the resource sharing formula which results in arms struggle. This negatively effects resource management as projected oil output is often unachieved). In this way, the grain of inefficiency and mismanagement of the natural resources in Nigeria can seen to be ingrained at the heart of the nation's working document- the Constitution. Quota system has the same characteristics with the federal character as they both aim at equal representation in the rank of hiring criteria in within the Nigerian civil service system which ranges from the local government level up to the federal level.

In such a situation where competence and qualification are not the major consideration in selecting the managers of the nation's resources, corruption has remain the bane of Nigeria economic woes. It is has however taken a frightening level with the discovery natural resources especially oil as it increased the spending capacity of the federal government. The unfortunate 'success' of corruption in keeping Nigeria from any serious economic breakthrough rests ultimately on the weak institutional development ultimately.

In the succeeding pages, I will be proffering some steps necessary for arresting the inherent mismanagement of resources in Nigeria.

5.0 Restoring Nigerian Economic Growth

The question at this stage having gone through the notion of Dutch Disease and the mismanagement of resources in Nigeria is not whether resources are mismanaged or not rather a question how to curtail mismanagement of resources in a way that economic growth can be achieved. Following the identified factors responsible for the resource mismanagement, it is imperative that the following steps are taken in addressing revamping economic growth in Nigeria:

5.1 Institutional Development:

This entails strengthening the governmental institutions in such a way that laws are enforceable in monitoring, discouraging as well as punishing those engaging in anti-economic activities. Robinson et al., confirms that,

'Low quality institutions invite bad policy choices since they allow politicians to engage in inefficient redistribution in order to influence the outcomes of elections. High quality institutions make such political strategies infeasible or relatively unattractive.'

Hence high quality is indispensable in achieving good resource management for it ensures that politicians do not circumvent rules and regulations right staffing to policy executions. Nigeria judicial system should be a priority in this instance as strict observance of the necessary laws will not only encourage local investment but spur a renew confidence among foreign investors who are willing to be part of Nigeria's resources development.

5.2 Anti Corruption Initiatives:

From the foregoing analysis it has been clearly demonstrated that corruption is indeed a frightening problem in Nigeria. It permeates the very fiber of the national atmosphere and has overwhelmed all levels and all branches of government. It clearly retards the goals of every successive governmental attempt to development. Hence there is urgent need to strengthen the existing corruption initiatives such as Economic and Financial Crime Commission (EFCC), Independent Corrupt Practices Commission (ICPC) and makes them truly independent of public officers. This is to avoid the pitfalls of such organizations in the past when they were turned into a witch hunting tool against perceived political enemies.

If and only if the anti-corruption agencies were to remain independent and impartial in monitoring corrupt practices involved in rent seeking and patronage would the revenue accruable from natural resources be judiciously utilized for public good thereby raising the economic development of the country.

5.3 Developmental Oriented Policies:

Unlike what is obtain currently within the political system of Nigeria where resource allocation is based on developmental needs but on political considerations, there is urgent need to raise the bar of resource allocation in targeting those areas germane to national economic development irrespective the area of location. On many occasions laudable economic investments had to be shelved not because of inherent shortcomings in contributing to economic development but due to opposition to the region of establishment of such project based on political calculation.

Also the Nigerian constitution needs a thorough review with a view to expunging those provisions that promote inefficiency and under performance. It is vital that hiring of employees for the civil service is based purely on competence and merit rather than hiring for regional or ethnic equality to the detriment of effective management of the national resources. No one gives what he does not have hence continued hiring that is not based on merit is an assured way to perpetuating mismanagement of resources.

5.4 Investments on the Civil Servants

There should be systematic, work-oriented training programmes for all those in the civil service establishment. This to equip them with the knowledge, techniques and skills, necessary to meeting the challenges of democratic governance which incorporates accountability as an essential tool for management of resources. In this way civil servants will be sensitized about the policy direction of the government involving its ethical orientation of anti-corruption, transparency and such militating factors against optimal performance. In the same vein, new performance management system of target setting and performance measurement should be in place as a basis for evaluating individual and corporate performance.

Every effort should be made towards motivating civil servants for maximizing productivity by way of improved remuneration packages, recognition of hard work and exceptional qualities, access to working tools and facilities. Nigerian system currently lagging behind in information system capacity hence there should be emphasis on consistently updating rules and regulations to make them

relevant to the needs of the service and society and offering civil servants with training that meet the challenges posed by globalization.

The above proffered solutions are not exhaustive of ways to bringing on track once more, a promising economy for Nigeria and her citizens but implementing the aforementioned steps will surely go a long way in making the abundant rich natural resources reflects on the lives of the people. Only proper resource management will eradicate waste and lift millions out abject poverty which they have been consigned through corrupt management system.


This essay has reviewed the agro-economic Nigerian situation prior to the discovery of natural resources especially oil in commercial quantity before and after the country's independence from the British in 1960. It is obvious that the Nigeria's agro-economy was more progressive and forward looking along other growing industrial sector. With the discovery of oil, corruption crept in and what supposes to be a blessing has so far been a curse to millions of Nigerians who continue to live under $2 per day.

The status quo is not acceptable to millions of Nigerians who groan under the burden of poverty amid plenty of resources beneath their soil and in the hands of the few political players who have through the instrumentality of corruption diverted most of the accruable revenues to their private pockets.

Obviously, the discovery of oil in Nigeria amplified corruption in such a way that it never been in the past. In this sense, Nigeria's mismanagement of her natural resources cannot be said to a logical consequence of Dutch disease since given certain conditions, negative economic growth can be avoided as have been the case with Botswana and Norway. Weak institutions within Nigeria's political economy have however made the attendant low rate of economic growth inevitable.

Hence, the necessary steps that can be beneficial in retracing the lost path of economic growth have been suggested and relying on the positive economic growth of other nations so richly endowed with natural resources like Nigeria, implementing these recommended steps will bring the desired effect of economic growth. It is pertinent to note that the need to seriously review some aspects of the Nigerian constitution with a view to enthroning merit and competence should be at the highest ranking cadre of any meaningful resource management within the Nigerian system. Just as it is in every human undertaken, a wrong foundation is an assured step to disaster; the magnitude of corruption within the system owes much to the political arrangement which rates other factors except qualification and merit more important in employment of civil servants.

Tropical oil producing countries have become critical sources of cheap energy resources and places where other raw materials are taken from without proper measures being adhered to. These methods ensure huge profits for TNCs and leave an equal deficit to the local communities. The question is what will it take to return the environment to its natural state? The environmental costs are evidently discounted from the accounting books. These unbalanced balance sheets need to be revisited with rigorous environmental legislation,

In this paper I examined some of these traits like slow economic growth, the dependence on natural resources, armed conflict, weak governance, Corruption, rent seeking, patronage, discretionary behavior and the neglect of basic education which are some the criteria noted by renowned writers to be seen in economies that portray Dutch disease syndromes, all of them can be seen in Nigeria. In order to overcome this syndrome and move to a sustainable path of development, the resource abundant transition countries should fight corruption, and ensure that their resources revenues are invested in human capital or the preservation of natural capital. Armed conflict should be discouraged by building infrastructures, and basic amenities that will make these communities where oil is explored from have a sense of belonging. Policies should be put in place and enforced so that government officials should be held accountable for wrongs they did while in office, this can best be realized when the judiciary is no longer a toll to be used by the ruling party. The data used in this thesis are mainly from secondary data sources taken from published material, journals and online

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