The idea of universally accessible electricity and safe public infrastructure – in the likes of roads – has become widely regarded as basic and expected in the west. However, in Nigeria, blackouts and unsuitable roads have become regular encounters. It is now ranked as amongst the bottom 20 nations via the Global Peace Index; crime rates have reached some of the highest levels in the world and there is a notable poverty issue. Many have thus enquired why Nigeria – the world’s 8th largest exporter of oil, one of the most coveted resources in the world – is so devoid of funding and public wealth.

One of the main reasons argued for Nigeria’s high poverty rate is its copious supply of oil. This may seem counter-intuitive but on further inspection, it seems that their dependence on the commodity has been more detrimental than beneficial – as goes the story of the “resource curse”. Hyper-dependence on a seemingly endless well of money has failed to encourage diversification into industries which may provide more not only for the government, but the whole population. Producing around $25 – 33 billion worth of Oil in 2020, Nigeria was responsible for almost 4% of all globally exported oil. A source of significant income coming from the nation’s natural resources is typically regarded as beneficial for developing nations. However, this is where the good news ends in the case of Nigeria. The oil industry was responsible for over 75% of all Nigerian exports that year. In the years prior to Covid-19, before exports declined, oil exports reached 85% and  94% of the nation’s total exports in 2016 and 2019 respectively. In 2015, total oil revenue accounted for about 4% of the GDP and represented 55.4% of total government-collected revenue as well as over 90% of total export revenue. The Nigerian Times reported that oil exports supply 90% of foreign exchange and more than 50% of all government revenue . 

While such earnings from crude oil sales may appear positive, the problems with such high dependence are significant. Primarily, any global change in the sector can have problematic effects on the government’s revenue and planning. This can be seen in the wake of the Covid 19 pandemic. As the number of infections increased globally, so did the reduction in mobility, production and businesses operations. This saw oil prices plummet according to CBN.

Considering that oil was 65% of government revenue in certain years, this led to a sharp decrease in government funding and income. This was exacerbated by the fact that the top recipients of Nigerian oil exports (US, South Africa, Spain, France, Netherlands) were heavily affected by lockdowns. As a result, the budget size of the Nigerian government was estimated to be reduced by at least $3 billion dollars as a result of oil alone. Future global diversification towards more renewable energy and environmental friendly resources as well as potential oil-threatening disasters could have unprecedented effects on the already poor Nigerian economy.

The power of oil for development has been visible in the cases of Malaysia and Dubai, yet Nigeria has seemingly failed to capitalise fully upon this invaluable resource as its HDI remains 160th of all the world nations. This elicits the question of what Nigeria has done wrong. In the case of Malaysia, there were two strategic plans outlined and undertaken in 1974 following the global oil crisis. First, Malaysia created a national oil corporation known as “PETRONAS” – now the renowned sponsor for Mercedes AMG Formula one team – and second, they passed the Malaysian petroleum act. While Nigeria does in fact have a national oil corporation – the ‘NNPC’ – there are critiques that it has begun to develop into a white elephant. It spends most of the profits it receives subsidising Nigerian oil prices and other government necessities while leaving almost no funds for the government to fund national development. This lack of independence from the Nigerian government as a result of acting as a government agency, rather than a limited liability organisation, has meant that it was unable to function as a well structured, profitable organisation, influenced by politics and government responsibilities. In many cases, there have been allegations that the NNPC has been used as a tool enabling the government to further engage in corruption scandals. Moreover, between 1980 and 2017, it had 17 different managing directors, which has hampered its ability to perform and grow. Petronas, on the other hand, was able to diversify, work under sound economical principles and alone returned over $80 billion to the Malaysian government in 32 years through taxes, dividends, and duties. Compare that to the NNPC which reported total profits of $1.7 billion in 2021, the highest amount in the last 40 years. Fortunately for the nation, Nigeria recently decided to take measures to ensure that the NNPC follows the same path as the likes of Petronas starting July 2022.

The absence of investment in domestic refineries and industry has also had detrimental effects on its capitalisation of its oil resource. In Nigeria, companies like Shell extract almost 40% of the oil in Nigeria, Exxon Mobil 10%, and Chevron Corporation produce just over 5%. From there, since Nigeria does not have the facilities or the infrastructure to refine oil, and these foreign companies take the oil abroad to then refine it. This means that the government allows the corporations to extract their oil, splits the profit, and then uses that money to import billions of dollars’ worth of the refined oil – $11 billion worth in 2021. Evidently, the system of obtaining oil is not as efficient as it should be. While Nigeria does have five running refineries, in the last five years, they have averaged a functionality of under 38% of full capacity. For Nigeria to end its dependence on oil, it must build more infrastructure locally. In light of this, plans have begun to  modernise the Port Harcourt refinery at a cost of $1.5 billion – due to the high global oil prices. 

Fortunately, the Nigerian Government has been making strides towards a solution. In 2021, Nigeria’s Petroleum Industry Act was passed. The enactment of this law not only separated the NNPC from the government, but also transformed it into a limited liability company. This change means that the NNPC Ltd. is now required to publicly release it’s financial transactions and information, drastically increasing transparency and contributing to the erosion of corruption, as well as finding a profitable way to earn the nation more money. However, in the future, it will necessary for Nigeria to find other sources of revenue and leave its economy less exposed to the dangers brought with dependence upon crude oil. Nevertheless, the positive changes made to the structure of Nigeria’s oil industry do mean that the people will begin to see some of the money earned from oil put back into the nation’s development.