Tag Archives: oil boom

A very brief chronology of the Nigerian oil economy

English: Flag of the Organization of Petroleum...

A colleague of mine casually asked me yesterday about Nigeria’s oil economy after independence.  Many isolated events and economic explanations came to mind, but I was surprised when I couldn’t give her a succinct chronology. I thought I would write a paragraph or two to remedy this.

More Nigerians slowly moved from subsistence agriculture to private enterprise around independence, and oil, which had been discovered three years earlier, quickly become the basis of economic growth. Shell had been the first to commercially drill in the country, but in 1960 other companies such as Mobil and Agip were competing for their own stake.  Hopes were high. Oil profitability was greatest during the “Golden Decade” of the 1970s, in which Nigeria became the wealthiest country in Africa. Between 1958 and 1974, production rose from just over 5000 to 2.3 million barrels per day and government revenue increased from N200,000 to N3.7 billion. Within two years, state profit increased by almost 50% to an all-time high of N5.3 billion in 1976. Nigeria bolstered profits when it joined OPEC in 1971, an organization which helped to construct the global petroleum scarcity, and thus the massive profitability of fossil fuels at the time. The economic prosperity was short-lived however.

 

In accordance with the resource curse, the 1970’s oil boom led to a near complete economic crash in the following decade. Nigeria had made an almost total shift away from the traded and diversified agricultural sector to the non-traded sector of petroleum, and projected revenues for petroleum were high. Based on this, President Murtala Mohammed spent and borrowed billions on grand-scale modernization projects.   However, such spending and borrowing in a mono-economy proved highly problematic during the sharp decrease in world oil prices under Babangida in the 1980s. Domestic inflation became so high that even basic food stuffs become too expensive for consumers and Nigeria had to default on numerous debts. To create more jobs for Nigerians, the government forced out the thousands of West African workers who had immigrated to the country to take advantage of the employment in the formerly booming economy.  Rather than take a conditional IMF loan like Ghana did, the government implemented a controversial Structural Adjustment Program (SAP) that proved largely unsuccessful. The economic decline was so severe that by 1989 Nigeria was labeled a low-income country and qualified for World Bank assistance.

 

Despite a slight revival in the 1990s, the economy has yet to recover to early 1970’s levels of prosperity. Today, ¾ of Nigerians live below the poverty line, in a country that produces around 2.6 billion barrels of oil daily. Petroleum accounts for 80% of budgetary revenues and as a result, high inflation has hurt investments for the average Nigerian and made international investment aside from fossil fuels a near impossibility. Few jobs in the oil sector have been created for Nigerians and wealth distribution is grossly unequal. Robert Bates argues the Nigerian oil crisis and subsequent loss of export taxes is what caused the state to become predatory for its income, thus laying the groundwork for today’s poor and often corrupt governance.

 

So, there is the short of it, more or less. There was steady growth of the oil sector in the 1960s, a complete boom in the 1970s that created the “oil state” as we know it, a crash in the 1980s, then a slight improvement in oil revenue in the 1990s that leveled out to what we have today.