Friday, February 27, 2004

Petroleum and Politics in Nigeria (PDF)

Here's a nice paper that details the tremendously damaging effect oil revenues have had on federalism in Nigeria, and the rampant corruption the hunt for some of that unearned income has given rise to. Oil is a curse for a developing country, particularly when the revenues from it flow directly into the hands of the state.

Within each region a single ethnic group predominated while federal authority (established formally in 1954) and nationalist sentiment were weak in the face of strong and fissiparous regional subnationalisms. In the 1950’s, for example, political delegates remained in the regions and simply sent their representatives to Lagos.

If the regions were the source of identification and political loyalty, they were also marked by striking patterns of unequal development. The Northern Region, while larger in population and area than the other regions combined, was the poorest and least exposed to Western education. The West conversely was by virtue of cocoa, coastal access, industrial development and early education, the wealthiest region which captured 38.3% of the statutory (i.e. federal) revenue allocation by 1954/55. Educational inequities contributed to regional tensions as southerners (Yoruba and Ibos) dominated federal posts and attempted to penetrate northern government. As a consequence, Northerners attempted to slow down the transition to Independence in the 1950’s and promoted a northernization policy to limit Yoruba and Ibo incursions.


The emergence of petroleum as the centerpiece of the Nigerian export economy and the mainstay of state revenues had enormous consequences for the political development of post-colonial Nigeria. First, the geography of oil mattered. Close to 80% of the petroleum was located in the eastern region -- more precisely in the delta which represents roughly 8% of the country -- and not infrequently in the territories of ethnic minorities (i.e. non-Ibo). While the civil war -- the attempt by the Ibo to secede from the federation and to establish the independent state of establish Biafra -- was not in any simple sense caused by the discovery of oil, the control of oil revenues was the central issue which precipitated the crisis of February 1967. The Governor of the Eastern Region, Colonel Ojukwu, passed the Revenue Collection Edict #11 in 1967 by which all revenues collected by the Federal government would be paid to the treasury of the Eastern government. The Federal (Gowon) government in response created three new states within the Eastern Region in an effort to gain support from oil producing minorities who would be awarded newfound autonomy and a share of oil revenues.


Second, petroleum underwrote a new political dynamic in the relations between the regions and the federal center. Growing nationalization of the petroleum sector and the establishment of a national oil company in 1970 channeled petroleum rents directly to federal coffers. Centrally controlled oil revenues superseded the regionally-based revenues derived from the commodity Marketing Boards. As a consequence of the stunning growth of state revenues in the 1970’s, the political center possessed a newfound fiscal capacity by which petrodollars could be used to manufacture a sort of political compliance, and conversely the regions discovered a new interest in gaining access to the seemingly infinite wealth provided by centrally-controlled black gold. Petroleum enhanced the capacities of the historically weak center.


Petroleum is key to understanding the two fundamental dimensions of Nigerian politics in the period following the defeat of Biafra in the civil war: state creation and revenue allocation. One of the first acts of the post-war military government under Gowon was to create twelve new states in 1967 from the existing four regions. Designed to balance north and south with six states, and thereby break the power and pathological competitiveness of the large regional blocs, the new state system had the effect of increasing minority access to federal funds while simultaneously making the entire state structure dependent on central (oil) revenues. Of course the demand for new states to meet the local needs for access to government resources, especially in deprived areas, was in practice difficult to halt. More states were created in 1976 and in 1991, while the number of local government areas (LGA’s) within each state also proliferated, and for similar reasons. The result was the genesis of small states with little or no fiscal basis, totally dependent on what each state saw as `their share’ of the national cake (i.e. the oil monies), and a profusion (there are 589!) of corrupt, ineffective and hugely expensive LGA’s driven by the logic of patronage politics. Ironically, this massive edifice effectively stymied any sense of Nigerian federalism -- the dialectics of oil once more! -- pointing to the ways in which vast oil revenues could not create a more robust sense of Nigerian identity and federal authority.

Nonetheless, the multiplication of states from in twelve in 1967 to thirty in 1996 did have the effect of irrevocably breaking some aspects of the old pattern of regional power, and accordingly increased the power of minorities who came to hold some form of political representation and economic autonomy. To this extent petrodollars permitted a certain degree of political cohesion within the federation to be quite literally purchased. The cost of course has been an undisciplined federal structure driven by massive inflationary costs -- the proliferation of state bureaucracies driven by prebendal politics -- largely without a robust material base. As Khan (1994, p.32) notes, the states have abandoned any pretense of a productive identity and rely unashamedly on federal handouts. The result is `power untempered by responsibility....[the states are]..miniature versions of their free-spending federal paymasters (Economist 1993, p.12). Oil revenues moreover did not require taxation of personal income or poverty, and reduced the economic and political significance of taxpayers (Forrest 1995, p.68-69) thereby removing another potential break on inflated state and federal expenditures.


To simplify and enormously complex picture, prior to 1959 statutory revenue was allocated on the basis of a `derivation principle’ by which states received allocations from the federal pool in strict proportion to their contribution to these revenues (Ashwe 1996). This generally benefited northern and western regions but in the face of growing oil revenues in the 1960’s they sought to change the principles of allocation. Monies to be allocated to the states came to be deposited in a Federation Account (formerly the Distributable Pool Account), the vast proportion of which was (and is) derived from oil. As the size of this account grew, new criteria were developed, largely to amend and supplant the derivation principle. By the 1960’s population, need and equity principles were invoked; by the 1980’s social development and internal revenue were added. In the 1990’s the weighting of criteria for allocation has been as follows: population 30%, equity 40%, land area 10%, social development 10% and internal revenue 10%. This new horizontal allocation system obviously privileges more populous and larger states. Hence the five oil producing states which account for 90% of the oil receive 19.3% of the allocated revenues (Ikporukpu 1996, p.168). Five northern non-oil producing states conversely absorb 26% of allocated revenue.

Amidst the shifting sands of revenue politics and allocative criteria, several patterns are clearly evident. First the proportion of revenues flowing to the north increased substantially from 35% of the total in 1966/67 to 52% in 1985. Second, the proportion of statutory revenues as a proportion of the local states’ budget grew disproportionately. By 1979 state governments budgeted over 80% of their revenues from federal sources (a dependency which created new competitive pressures among states to tap central oil revenues, and further deepened pressures for the creation of new states). And third, the change in the derivation principle meant that oil producing states in particular saw their share of statutory revenues fall; Bendel and Rivers States’ share fell from 23.1% and 17.1% in 1974/75 to 6.4% and 6.2% respectively in 1989/90. To paint the revenue allocation picture, in short, is to depict northern hegemony in a weak and fissiparous federal system in which the oil-producing states in particular have experienced a sort of fiscal (and political) deprivation.

What more need I say? Where there is no taxation there can be no real representation, the overwhelming reason why Nigeria continues to exist is because there is easy money to be had from oil, and the indigent, illiterate North is determined to maintain its parasitical lock on the oil money without which it would quickly sink into even deeper destitution. The only people who benefit from the continued existence of a single Nigeria are those in the northern part of that country, and even there only a small coterie of feudal Hausa-Fulani potentates get to enjoy most of the rewards.