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Management in Practice

Has globalization failed in Nigeria?

Oil pumped from the Niger Delta is loaded on supertankers and shipped into the global market, accounting for 3% of world production and generating substantial revenues for the Nigerian government. What has this connection to the world economy done for Nigeria?

Q: Oil was discovered in Nigeria some 50 years ago. How has that impacted the country?
The first exports left Nigeria for London in 1958. So we’re marking a half-century of oil and gas activities in Nigeria. Oil became economically significant almost precisely at the time Nigeria became independent from Britain in 1960. In a sense, then, the history of post-colonial Nigeria is the history of oil and gas in the country. And yet it’s been a period of, without being too dramatic, unremitting political and economic failure and wasted opportunity.

Nigerians are incredibly talented, cre­ative, entrepreneurial people. They have an extra­ordinary vitality. They have Nobel Prize winners. Nigeria’s population of 150 mil­lion means one in every five Africans is a Nigerian. This is not in any sense a country that is short of human capital. It’s the eighth-largest exporter of oil in the world, a major supplier to the U.S. market, and in 2008 was in receipt of $83 billion in oil and gas revenues. But most of the country lives on less than a dollar a day and has a life expectancy of less than 50 years.

Since the 1970s, oil has accounted for around 90–95% of all foreign exports, 80–85% of all government revenues, and 40–50% percent of gross domestic product. Nigeria is an archetypical “oil nation,” a mono-economy in which oil dwarfs everything else.

Since 1960, over $600 billion in oil revenues has flowed into Nigeria’s coffers; it represents an opportunity unavailable to much of the developing world. These petrodollars could have been spent pro­duc­tively, could have transformed agriculture, laid the foundation for an effective public education system, pro­vided much-needed infrastructure. Yet, according to the World Bank, of that $600 billion, $300 billion has simply disappeared into overseas bank accounts through theft and corruption.

The history of post-colonial Nigeria is the serial inability to put these oil wells to developmental use — the catastrophic failure of the national development project.

Q: Has being plugged into the global economy done anything? Is no oil revenue working its way into the economy?
Of course money is trickling through this system. But whatever development indi­cators we look at, oil has not, according to an IMF report, contributed in any sig­nificant way to the average standard of living or the life chances of Nigerians. And, paradoxically, the oil-producing Niger Delta has experienced a decline in those indicators.

Life expectancy in the Niger Delta is 45. It has fallen significantly since 1970, though not, as in the case of southern Africa, from the impact of HIV/AIDS. That gives you a sense of the utter horror of conditions.

The government often points an ac­cusatory finger at the oil companies, and indeed oil companies, for a long, long time, essentially got away with whatever they could, which is to say that they neglected community development, operated with impunity, often during periods of military dictatorship, and largely ignored the en­vi­ronmental costs of the industry. In addition, the volatility of global oil and gas prices does create real challenges for fiscal management, planning, and development. But the reality is that, in my view, the polit­ical leadership of Nigeria has massively failed on virtually every single level. In that sense, pointing to something called “globalization” as being a contributory factor to Nigeria’s developmental failure is a radically incomplete explanation.

Q: What is Nigeria’s history of engagement with international markets?
Globalization is central to understanding the Nigeria story, but it’s not a product of the 1970s or of Big Oil. The history of globalization and its local meanings run much deeper, and in some profound way are very much wrapped up — specifically for the Niger Delta — with a popular consciousness of the longue durée of the region’s in­corporation into a world market.

There’s a photograph in the book that I just completed with the photographer Ed Kashi. It’s an aerial shot of a place called Bonny Island, located on the coast in southeastern Nigeria in the heart of the oil-producing Niger Delta. The photograph shows one of the largest liquefied natural gas plants in the world — leading-edge gas-to-fluids technology — and right next to it is the most unimaginable poverty — villages with no running water, no power, no functioning schools, no roads, or any infrastructure to speak of. It’s an extra­ordinary juxtaposition — the vast potential of 21st-century oil cheek by jowl with an almost pre-modern deprivation and poverty.

Nigeria has been part of global markets for 500 years, a history captured in Bonny Island itself. The photograph shows huge oil tankers plying the Cawthorne Channel, which links Bonny to the Atlantic Ocean.

A century ago those tankers would have been steamships coming for palm oil, which was critical for lubricants and soaps in an emerging industrial economy. From the mid-19th century throughout the colonial period, the Niger Delta was the heart of the global palm oil industry.

And 200 years before that, we would have seen slave ships in the Cawthorne Channel. Bonny was one of the main arterial points for the assemblage of slave labor prior to the horrors of the Mid­dle Passage.

There’s a type of terrifying historical continuity in this history of Nigeria’s central involvement with world markets, as a supplier of, initially, slaves, then other commodities, and now a particular type of hydrocarbon, all of which have been central to the emergence of modernity itself.

Q: How does the oil industry work in Nigeria?
In most of the major oil-producing coun­tries in the developing world, the industry is organized through joint ventures — contractual and legal arrangements be-tween one or more of the oil majors and the national oil company. These contracts determine, among other things, the distribution of the value of every barrel of oil produced. The details in Nigeria are never made public, but it’s clear that at least two-thirds of the value of every barrel of oil flows directly to the government. When prices are very high, as they have been in the last year or so, it may be as high as 80% or 90%.

That’s very important to understand, because it says that, unlike in other parts of the developing world, the state has the capacity to capture revenues directly — in this case dollar-denominated and very substantial.

From there, a revenue-allocation system determines how much of the revenue the federal government will retain and how much is distributed to the 36 states and 770 local governments. That allocation process is deeply political. Until the late 1990s, the vast majority of it was allocated to the large and powerful states of the ethnic majorities, especially in the Muslim north, with a disproportionately small amount returned to the relatively small oil-producing states populated by so-called oil minorities.

The government didn’t address the simmering resentment and antagonism generated by the economic and political exclusion until popular mobilizations began in the 1990s. Here the movement of the Ogoni people led by Ken Saro-Wiwa was key. He brought international attention to the environmental and human rights consequences of oil, and proposed in effect the redesign of the federation and the revenue-allocation process so that ethnic minorities could both control and benefit from oil.

He and his comrades were hanged in November of 1995, a stunning illustration of the general problem of oil grievances being suppressed rather than being directly dealt with. As Saro-Wiwa predicted, in the wake of military suppression came militancy and insurgent politics.

We’re now in the midst of what I can only describe as an oil insurgency in the Niger Delta, characterized by massive attacks on oil infrastructure and major conflicts between armed groups and government security forces. A report released recently estimated that the oil companies spent $2.7 billion on security in 2008 alone. That’s a measure of both the deterioration in security and the extent to which the delta has become ungovernable. It’s not civil war, but the oil fields are spaces of endemic violence and conflict. The oil companies have adopted a bunker mentality in which their ability to operate is seriously in question, and the government has resorted to expanding its military presence through a special task force dedicated to keeping oil flowing.

The most significant militant group is the Movement for the Emancipation of the Niger Delta. They appeared very dramatically in late 2005, then in the summer of 2007 successfully occupied and closed down a massive floating rig 100 miles offshore. That’s not a simple thing to do. They are a well-equipped, strategic, and organized guerilla force with an enormous capacity to do damage. Shell claims that it has lost $10.6 billion due to oil disruptions since late 2005.

The struggle going on now is framed by a deep history of exclusion, exploitation, and marginalization. The history is not just an abstraction; people in the Niger Delta are fully aware, for example, of Bonny Island’s dark past. It’s a reality in their oral traditions; it’s a reality in the way that they see their claims for justice and resource control. Some militants refer back to the heroic figure of King Jaja from the 1890s, who fought the British, trying to control the palm oil trade.

That said, while some of the activity in the Delta is a political project, some is just organized crime. Hostage-taking and kidnapping has become a huge industry. In 2008, 200 mostly expatriate oil workers were taken hostage. And the hostage-takers extort payments of about $300,000 per worker, often paid by the government.

One oil executive is reported to have said, “I have served as the CEO of oil companies that don’t produce as much oil as is stolen in Nigeria.” One hundred thousand barrels of oil are stolen every day in Nigeria. To steal oil on that scale you’ve got to understand the manifolds and pipelines and have the tacit support of the security forces, especially the Coast Guard and Navy. Barges move the oil offshore to large tankers. It is a multibillion dollar industry.

Q: What might improve conditions in Nigeria?
The improvement question is a tricky one, because there is a 50-plus-year history of waste and corruption. In a country as ethnically complex and politically fragmented as Nigeria, that means powerful forces vested in the oil complex and a reservoir of grievances about who has access to oil revenue and who does not.

In the short term, you’re going to go nowhere unless you can lower the temperature on the military conflict, which is to say that the government has to start negotiating seriously with representatives of some of the militant groups and take seriously many of the issues at stake such as revenue allocation, a new constitution, and reform of the statutory monopoly over oil and land by the Nigerian state.

The next level is to improve how oil revenues are used, especially at the local government level, which has become the most corrupt in the entire federal system. But at least there is a new generation of younger people beginning to try to bring transparency and accountability, so I’m a little bit more optimistic here.

At the federal level, there is some good news on the corruption issue. Over the last five years the government has begun very positive steps, particularly the establishment of the Economic and Financial Crimes Commission. They have begun to prosecute people, influential people, like former governors and political godfathers, as they are called. And the Supreme Court in Nigeria, which has always been a weak legal institution, has begun to show some muscle. So, for the first time, the ease with which people can simply plunder government coffers with impunity has begun to change.

And the last thing I would say is that the oil companies have to be involved. Over the last few years, the oil companies have begun to make changes. As an example, the Extractive Industries Transparency Initiative is a voluntary agreement among oil-producing states and the big oil companies to try to make transparent their relationships with one another, and especially any payments that are made in and around the acquisition of leases and operating licenses. Nigeria is a signatory and while there remains a long way to go, it is a start.

All of these things, both within Nigeria and internationally, are limited and partial. The next steps are demanding and politically tough. And all of them will have to be simultaneously pursued. It will take enormous courage and political will. 

To learn more visit the website of the book by Michael Watts and National Geographic photographer Ed Kashi, Curse of the Black Gold.

Interview conducted and edited by Ted O'Callahan.