fossilfuelopolis

Prospecting the academic grounds on global energies patterns

Nigeria

Our treatment of the Nigerian case relies mostly on the book “The scramble for African Oil”  from Douglas Yates and its own references, Ricardo Soares de Oliveira “Oil and Politics in the Gulf of Guinea” published in 2007. Ricardo spent five long years with a post-doctoral scholarship from Cambridge working on why empirically  “failed” oil states have endured and thrived.  His idea of the “paradoxical sustainability of the Gulf of Guinea state” observes that oil states in the region, while ‘failed’ because sharing the worst elements of the petro-state and the African post-colonial state, are also ‘successful’ because they receive a continuous inflow of dollars, and ‘surprisingly aloof from domestic and external pressures‘.

Nigeria

D Yates tries to disentangle the links, hence causality between oil and conflicts in African oil producing countries. He also studied the case of Sudan, but underlines that for this latter the conflicts if related to the presence of oil were not caused by it. “The civil War in Sudan came before the oil” . In his chapter dedicated to Nigeria he asserts that “oil has been the cause of the violence in the Niger Delta”.

“For 50 years oil exploration has polluted the environment so profoundly that its large human population can no longer survive with their traditional rural mode of production. Flaring of gas by the oil companies has raised the temperatures around local communities to levels where people live in a kind of hell on earth. […] The fish are dead. Where once the Niger Delta could feed millions of people, fishermen must now enter into economic activities in order to survive […] The industrial ‘waste’ has caused resources scarcities vital to the survival of local populations. Such environmental scarcities alone would be sufficient to explain grievances of local populations, who resort to criminal activities and violent forms of resistance in order to survive”. This observation also inspired the American documentary “Sweet Crude” in 2009.

[…] Oil causes violence through bad governance. ‘Expropriation of the natural hydrocarbons resources by the government, and corrupt enrichment by its kleptocratic elite, mean that local grievances indirectly caused by the oil have exploded. […] While the new capital Abuja, built on a plateau in the center of the country to house the federal government, has enjoyed billions of dollars of investment […] poverty and misery have increased in the Delta”.

Soares agrees that the development of the petroleum industry in Africa has undeniably led to widespread economic deprivation of the majority of the population, and follow the reasoning of Reno that corruption and criminality in a failed state flourish to the extent that unparalleled economic opportunity is created for elites, who may even have a vested interest in state collapse” (Reno, 1995)

Where economic theory would teach us that such a resources-rich country and doted with a increasing young population [According to the United Nations, Nigeria has been undergoing explosive population growth and one of the highest growth and fertility rates in the world. By their projections, Nigeria is one of eight countries expected to account collectively for half of the world’s total population increase from 2005–2050. Presently, Nigeria is the seventh most populous country in the world, and even conservative estimates conclude that more than 20% of the world’s black population lives in Nigeria. 2006 estimates claim 42.3% of the population is between 0–14 years of age, while 54.6% is between 15–65. ] should experience high growth and ‘economic development’, it is surprising to look at the statistic for the number of cars, the development of transports in such an oil-abundant land where cars could run for free.

Passenger cars per 1000 inhabitants

Passenger cars per 1000 inhabitants

The studies of health and education prospects is clearly not more gleaming: . Life expectancy is 47 years (average male/female) and just over half the population has access to potable water and appropriate sanitation. The education system has been described as “dysfunctional” largely because of decaying institutional infrastructure. 68% of the population is literate, and the rate for men (75.7%) is higher than that for women (60.6%).

Yet, Nigeria is ranked 31st in the world in terms of GDP as of 2011. Nigeria is the United States’ largest trading partner in sub-Saharan Africa and supplies a fifth of its oil (11% of oil imports). It has the seventh-largest trade surplus with the U.S. of any country worldwide. Nigeria is currently the 50th-largest export market for U.S. goods and the 14th-largest exporter of goods to the U.S. The United States is the country’s largest foreign investor. [Not that trading with increasingly indebted US provides an insurance of future wealth, the present richness could be used to provide the population with increasing welfare which is obviously not the case.]

This observation leads Soares to his problematic : How do failed oil states survive? While all social and governance indicator (income per capita, life expectancy […] governance, freedom, perception of corruption) they rank at the bottom of the world. They are also more likely to experience violent conflict. Given those indicators, they seem on the verge of collapse, how to explain their sustainability?

Soares offer three explanations: (1) international actors support; (2) elites discharging their state functions to a bare minimum and (3) retaining state control over the ‘useful’ parts of the system- oil and security.

First, oil companies need states. The latter negotiate contracts, award concessions, and legalize the exploitation of oil. Since the oil companies serve the interest of foreign countries, oil states receive political, economic, and diplomatic support from the international community. MNCs provide 90% of state revenues and lobby home states (US) for favorable bilateral policies. But the influence of international actors explain much more. While oil rents preclude the need to engage with the population, the elites are able to act without accountability to the people. During the early decades of independence oil states seeking legitimacy for their rule had pursued grand projects of economic and social development. ‘But over time elites learned that the only legitimacy they needed was from international actors who provided revenues.[…]This trend was reinforced by the neoliberal agenda of the 80s, which insisted on fiscal austerity and de-nationalization of the economy. Structural adjustment programs demanded that elites privatize national industries, cut public services, and balance their budgets in order to qualify for debt rescheduling and aid. ‘

Finally, the enclave nature of the oil industry left oil installations unaffected by the general breakdown of public services in a way ordinary businesses were not. […]

The power of MNC to shape the country is further assessed. “While most of the ministries in oil states are empty shells, the national oil companies are the key policy-makers , planners, tax collectors, and negociator of oil for the government” . Soares made the point with the case of SONANGOL in Angola, but it could be replicated for Nigeria ‘As the state withered away, ‘the state’ retreated into the NOC, the last refuge for educated, technically able personnel working in partnership with international companies and consultants’

A detailed history of MNCs dominance in the Niger Delta

The first oil prospector in the wild Niger Delta was a German firm, Nigerian Bitumen Company arrived in 1908 (Onoh, 1983, The Nigerian Oil Economy), but after the German defeat in WWI, German prospecting operations in Nigeria came to an end, and for the next two decades there was no further exploration for oil. Still over 90% of total investments in Nigeria were under foreign ownership by the time of the independence in 1960. In the colonial pattern of foreign direct investment, only British companies were allowed to do business in colonial British Nigeria without special permission. So when d’Arcy Petroleum (later BP) began operations in Nigeria in 1937, the Colonial Mineral Ordonance granted the company the entire onshore and offshore exploration and prospection rights. […]

With additional capital and technology after the WWII the first exploration well was drilled in 51, and a discovery was made in 53. but it was not until 56 that Shell(BP) made its first commercial discovery at olobiri. […] By 1959, at the eve of the Nigerian independence, Shell had constructed the Bonny oil terminal from which the Bonny light crude first entered the world market”

“in the pattern experienced elsewhere in Africa, foreign direct investment changed from colonial sphere of influence to multinational enclaves. Pressures from the US government pushed open the door to the US oil giants Mobil (1955) , Chevron (61) and Texaco (63). The French oil company Elf and the Italian Agip soon follow. These large integrated MNC remain majors players in the Nigerian oil industry today, accounting for more than 90% of the country crude oil production. (Ukiwo, Ukoha, ‘Nationalization versus Indigenization of the Rentier Space: Oil and Conflicts in Nigeria’ 2008)

Despite crude oil production increasing from 1Mb per year in 1958 to 1Mb per day in 1970, and despite three refineries being built to meet local consumption, almost all Nigerian oil was exported as crude (97% in 58 and 70). Instead of diversifying into downstream oil industries and using oil for development, Nigeria became a rentier state . As crude oil production increased its associated gas followed. However more than 90% of this latter was ‘flared’ into the air. Low demand for natural gas was attributed mainly to the clement climatic conditions of Nigeria. […] natural gas was wasted. […] Not only was this a waste of a non-renewable source but it also had environmental effects on the local populations. Around the flares the air was, over a long period of respiration, carcinogenic.

To come back to this association made by D Yates between oil and violence; we can mention the armed secession of the Republic of Biafra and the outbreak of the Nigerian Civil War that follows in 67. […] After the victorious federal government had suppressed the Igbo rebellion, Lagos embarked on a struggle to nationalize its oil industry. […] The idea was to dilute foreign control through increased participation by Nigerian capital. The creation of the Nigerian National Petroleum Corporation (NNPC) promised all Nigerians would be entitled production revenues, to promote national unity after the civil war (Ukiwo, 2008). In 1969, a decree vested the entire ownership and control of all oil found with the federal government or its agencies. All concessions were to be inspected by federal government-appointed petroleum engineers. All foreign firms were required to rccruit Nigerian manpower, to provide infrastructures in the areas where they operated and to pay rents and royalties to the federal government (Onoh 1983) Nigeria admission into OPEC in 1971 encouraged a more aggressive nationalization policy. […] By 1979 the NNPC had acquired 60% of fields belonging to the MNCs ruling the them previously: Gulf, Mobil, Texaco, Shell BP, Agip, Elf and Pan Ocean.
But Nigeria lacked the capacity, technical know-how, and financial reserves to take control of this industry. So it relied instead on production-sharing contracts that were designed to accomodate new companies in already existing concessions run by Shell. These production contracts allowed foreign partners to invest capital and to share crude oil in specie in proportion to their equity. The foreign oil companies therefore became contractors, and the NNPC a mere rent-collector. […] This process was called fronting because the visible Nigerian partner would take orders in the front room while the foreign partner or former owner would manage the firm from the back room. A very small number of Nigerians purchased most of the shares of the 952 enterprises nationalized by the first decree. Less than one tenth of one percent of the Nigerian public benefited directly from the nationalization. By the end of 82 all oil MNCs operated from a minority equity position, but they retained effective control over their operations. A drop in oil prices in 82 allowed them to renegociate the terms of their production sharing contracts.

As reminded by D Yates this alliance between the government representing a ruling minority and the MNCs has not remained unopposed and somehow legitimates the uprising continuous violence raging in the Niger Delta. Yet, the choice of violence was not the one of all those protesters. Ken Saro-Wiwa was a pacifist activist hanged after a rough trial. The main reason for this murder was his involvement in representing the Ogoniland, and the rights of local population to benefit from their oil resources. The official reason was different: Saro-Wiwa and 15 others activists were charged with the killing of four Ogoni chiefs whose murders was officiously orchestrated by the government and Shell. Shell recently bought the silence over this affair after a long trial intended in the US.

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