Nigeria’s oil revenue has totalled $340 billion in exports since the 1970s and it is the fifth largest producer. Unfortunately, it is also said by the World Bank that 70 percent of Nigerians lives on less than $1 a day, and 43% have no access to clean water.
The end of the Biafran civil war in 1970 coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production. According to Wikipedia, from the mid-1980s to September 2003, price of a barrel of crude oil was generally under $25 per barrel but in 2004, the price rose above $40, and then $50. By August 11, 2005, price had exceeded $60.
By 2008, prices had risen far above $100. On February 29, 2008, oil prices peaked at $103.05 per barrel, and reached $110.20 on March 12, 2008. Prices on June 27, 2008, touched $141.71/barrel, for August delivery in the New York Mercantile Exchange (after the recent $140.56/barrel), amid Libya’s threat to cut output, and President of Organisation of Petroleum Exporting Countries (OPEC) predicted prices may reach $170 by the Northern summer. The most recent price per barrel maximum of $147.02 was reached on July 11, 2008. After falling below $100 in the late summer of 2008, prices rose again in late September. On September 22, oil rose over $25 to $130 before settling again to $120.92, marking a record one-day gain of $16.37. By October 16, prices had fallen again to below $70, and on November 6 oil closed below $60.
The price of oil stayed near $100 throughout January because of concerns over supplies, and the European debt situation. On December 13, Brent crude was down to $109.20, while benchmark oil fell slightly due to U.S. fiscal cliff concerns and rose due to Federal Reserve efforts to help the U.S. economy, ending the day at $86.77. In mid-December, gas prices reached $3.25, the lowest for 2012. Oil was trading for between $84 and $90.
On January 17, 2013, with good economic news in the United States, Benchmark oil reached its highest level since September, going over $95. Brent crude rose above $110. On November 25, Benchmark crude decreased to $93.92 while Brent crude reached $110.41
On January 2, 2014, Benchmark crude fell by the most in one day since November 2012 to close at $95.44. Brent crude was $107.78. Trouble in Iraq resulted in higher prices for oil and gas in June. West Texas crude reached $106 and Brent crude $115.75. At the end of the month Benchmark crude was just above $105 while Brent crude fell below $113.On October 16, West Texas crude fell below $80 for the first time in more than two years, while Brent crude reached $82.60, the lowest since November 2010.
But then, owing to both the external and internal factors, the growth performance of Nigeria’s economy has been less than satisfactory during the past three decades. Since the first oil price shock of 1974, oil has annually produced over 90 percent of Nigeria’s export income from 1970 to 1999. Oil generated almost $231 billion in rents for the Nigerian economy and these rents have constituted between 21 percent and 48 percent of gross domestic product, but regardless, these rents have failed to lift Nigeria beyond a middle income economy and done little to reduce poverty.
Nigerians are therefore finding it difficult to absorb the announcement that the country has become so broke as to be introducing austerity measures despite this substantial income over the years, and only a few months after crude prices fell almost 30 percent? Although the 1999 Constitution (as amended) envisaged that the Federation Account must return to zero after the monthly allocation to the three tiers of government which are beneficiaries to it, convenient but undocumented amendments have been made to the constitutional provisions since 2004 such that other beneficiaries have been included among which is the Excess Crude Oil Account. The excess crude account even has two components- domestic and foreign. The excess crude account was opened at a time when Nigeria began to base its budget on specific benchmarks. That way, once crude sells beyond the benchmark, the excess is then transferred to the account. It is to be kept “for the raining day” according to Dr. Ngozi Okonjo-Iweala who was Minister for Finance at the time the system was adopted in 2004.
In the early 1960’s the agricultural sector suffered from low commodity prices, while the oil boom contributed to the negative growth of agriculture in the 1970’s. More Nigerians hence slowly moved from subsistence agriculture to private enterprise around independence and oil, which has been discovered three years earlier, quickly became the basic of economic growth. The boom of the oil sector however lured labour away from the rural sector to the urban centres. The contribution of agriculture to the GDP which was 63 percent in 1960 declined to 34 percent in 1988 not because of a boom in the industrial sector. Hopes were high due to the fact that oil profitability was greatest during the “golden decade” of the 1970’s. Nigeria became the wealthiest in Africa. Between 1958 and 1974 production rose from just over 5,000 to 2.3 million barrels per day and government revenue increased from $200, 000 to $3.7 billion. Within two years, state profit increased by almost 50 percent to an all-time high of $5.3 billion in 1976.
Incidentally, Nigeria has not been blessed with a leadership possessing economic frugality and good management so much so that in 1973, Head of State, General Yakubu Gowon was reported to have retorted during a discussion that “Nigeria’s problem is not money but how to spend it”. It was also a period when late Libyan strongman, Muammar Gaddafi was also quoted as observing that the unprecedented revenue from oil may not last and so, the country must find a way to make the best use of it. The attitude of the two leaders, eventually marked development patterns of the two African countries with human development indicator of the average Libyan far exceeding that of his Nigerian counterpart. By 1975, Head of State, late General Murtala Muhammed had opened up the ports and the economy had become a net importer of basic food items.
In 1978, General Olusegun Obasanjo introduced austerity measures for the first time in the nation’s history. Although President Shehu Shagari was supposed to also be implementing belt tightening measures when he took office in 1979, his government and those of most of the then 19 state governments were generally profligate.
When Shagari was overthrown in a military coup d’état on December 31, 1983, General Muhhamadu Buhari ran a lean government until his overthrow in August 1985 by General Ibrahim Badamasi Babangida.
Borrowing and spending during Babaginda’s regime proved fatal for the mono economy during the sharp decrease in world oil price in the 1980’s. He consequently introduced the Structural Adjustment Programme (SAP), which was both controversial and unsuccessful. The economic decline was so severe that by 1989 Nigeria was labelled a low income country and qualified for World Bank assistance.
A former director in the Federal Ministry of Finance who is an economist, Alhaji Abdul Oyetunji described the problems of Nigeria in an interview with Economic Confidential from the period of the oil boom thus “we have money but we do not know how to spend it.” He went further to explain that Leaders then did not have their priorities straight or right during the period of the oil boom due to the fact that the concept of leadership was faulty, and they felt that we had no problem with money but on how to spend it. The concept however made everyone within the Nigerian system to believe that there was no limitation to the money we were earning and of the opinion or believe that money can buy everything irrespective of planning. Also, the structure of the unitary system of government “dictatorship” whereby any decision taken cannot be opposed was also an obstacle for people to voice out their views or opinions.”
The absence of planning towards developmental project and infrastructure development has led to the downfall of agriculture prompting the country to import food items such as rice, chicken, wheat etc
It is also notable that successive governments paid only lip service to the all important idea of diversifying the economy away from oil. In essence, oil revenue should have been used to establish a solid base for industrial development by boosting electricity, modern transportation, agriculture, telecommunications and industry. Administration after another, nothing concrete was contemplated aside promises and empty speeches.
Minister in charge of the Economy and Minister of Finance, Okonjo-Iweala continues to blow hot and cold concerning the state of the economy. In one breath, she says “there is no cause for alarm as the economy is robust and doing well” and the next minute is introducing austerity measures. She insisted that despite dwindling national revenue due to the falling crude oil prices and decrease in output, the nation is however not broke as feared in some quarters. The Financial Times describe austerity measures as official actions taken by the government, during a period of adverse economic conditions, to reduce its budget deficit using a combination of spending cuts or tax rises. Is it possible for the economy to be robust and be in difficulty at the same time?