It might be tough to exaggerate the role of oil within the Nigerian economy. For the reason that first oil price shock in 1974, oil has yearly produced over 90 percent of Nigeria’s export income. In 2000 Nigeria acquired 99.6 p.c of its export earnings from oil, making it the world’s most oil-dependent country.
Oil manufacturing has additionally had a profound effect on Nigeria’s home sector. One way to characterize its impact is by trying at the rents produced by oil – that is, the returns in excess of production prices – in the Nigerian economy. From 1970 to 1999, oil generated nearly $231 billion in rents for the Nigerian financial system, in fixed 1999 dollars. Since 1974, these rents have constituted between 21 and forty eight % of GDP.
But remarkably, these rents have failed to raise Nigerian incomes and completed little to reduce poverty. Since 1970, Nigeria’s per capital revenue has fallen by about four percent, in fixed dollars. Although read nigerian newspapers online poverty rates have by no means been properly-measured, there may be little indication that they’ve declined over the past three decades.
This lack of improvement is striking, given the dimensions of Nigeria’s oil windfall. Had each year’s oil rents been invested in a fund that yielded just 5 p.c real interests, on the finish of 1999 the fund can be worth $454 billion. If divided among the many general inhabitants, every man, woman, and child would receive about $three,750, equal to about 15 years of wages.
Oil has additionally had a deep influence on the Nigerian government. For the reason that early Nineteen Seventies, the Nigerian government has annually acquired over half of its revenues – sometimes as a lot as 85 percent – directly from the oil sector. These oil revenues should not solely massive, they’re also highly unstable – that’s, they’ll fluctuate drastically in dimension from 12 months to yr, inflicting the dimensions of government, and the funding of government programs, to fluctuate accordingly. For example, from 1972 to 1975, government spending rose from 8.4 p.c to 22.6 p.c of GDP; by 1978, it dropped back to 14.2 % of the economy.
Few governments are able to deal with this sort of volatility, and it is not stunning – on reflection – that the Nigerian government was unable to adhere to sensible fiscal insurance policies in the course of the 1970s and Nineteen Eighties, when oil costs fluctuated sharply. The decentralization of the Nigerian government made sound income administration even more troublesome, since a lot of the oil revenue has been automatically passed on from the federal authorities to the state and native governments. The ability of these governments to spend their funds properly, and limit corruption, has been low.
Nigeria’s oil wealth has also led to social and political unrest, significantly within the Niger Delta. 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 previous; but the rise up was encouraged by the presence of oil, and therefore the idea that independence would be economically useful for the Igbo people. Similarly, the unrest among the many Ogoni and Ijaw peoples within the Niger Delta can in part be traced to their desire to win a larger share of the area’s financial wealth.
If Nigeria’s petroleum have been soon depleted, these issues would possibly finally recede into the past. However there’s every reason to think that over the next several decades, Nigeria’s dependence on petroleum exports will stay exceptionally high; it might even grow. Estimates of Nigeria’s confirmed oil reserves range from 24 billion to 31.5 billion barrels [EIA 2003]; on the current production rate of 2 million barrels a day, these reserves alone would final between 32 and 43 years. Nigeria also has an estimated 124 trillion cubic ft of proven pure gas reserves, the ninth largest such reserve on the earth; it is quickly growing its capacity to liquefy and export this fuel, which will additional elevate petroleum revenues.