Tag Archives: oil

Why Nigeria’s Credit Rating Matters More than Oil

How can something intangible (credit) matter more than a real resource (oil)?

I just finished a book that changed, or at least makes more dynamic, the way I view African development, Yuval Noah Harari’s Sapiens. Sometimes we get so ensnared in the details of social analysis that we forget to take a step back and look at the larger picture. Harari’s historical account helps us to do just that. His research deepens our understanding of the complexities of the resource course in oil-rich nations without strong democratic institutions.

He argues that one of the key turning points in human history was when we stopped viewing world resources and money as finite, and instead recognized that trust in imaginary future goods could create infinite economic expansion. These imaginary future goods were represented with a new kind of money: CREDIT.

Although we hear of the dark side of credit often—consumer credit card debt, credit on a loan to buy a home that the consumer could never pay off—credit is actually miraculous. As Harari phrases it, “credit enables us to build the present at the expense of the future.” In it, there is implicit hope that future resources will be more bountiful than current ones. That hope in the hypothetical is just so….human. And it has allowed the world’s per capita production to grow at a staggering rate over the last several centuries.

Although he doesn’t mention Nigeria specifically, a section of the book lucidly argues that a country’s credit rating, or the shared belief that a country will pay back its debts, matters more to its economic development than any other factor—including natural resource endowments.

Here is a grossly over simplified explanation using a feedback loop of why a nation’s healthy credit matters so much:

A) People have faith in the future economy —> B) credit is given out —> C) credit allows us to grow current businesses —> D) this growth is invested in new businesses —> E) businesses create goods that can be sold to pay back loans to creditors —> F) these pay backs fortify faith in the future economy.

And we are now back at the beginning of this cycle.

For those familiar with Nigeria’s economic history, any moment in this cycle can be, and has been, interrupted because of its unhealthy oil economy. In 2004, Nigeria required international debt relief after sovereign defaults on what it owed to the IMF. This was due to “heavy borrowing, rising interest rates, and inefficient trade” (see D). When the country suspended the national fuel subsidy in January 2012, no one wanted to expand their businesses that required gasoline, which is all of them since electricity is unreliable (see D). As I have mentioned in another post, oil can create a dangerous mono-economy in developing countries because it replaces the drive to produce anything aside from the oil itself (see E). Because so much of Nigeria’s economy is based on oil, its unstable pricing erodes the “faith in the future economy” that is the basis of credit extensions at all (see A).

Here is the excerpt of Sapiens that struck me as so pertinent to Nigeria:

A country’s credit rating is far more important to its economic well-being than are its natural resources. Credit ratings indicate the probability that a country will pay its debts. In addition to purely economic data, they take into account political, social and even cultural factors. An oil-rich country cursed with a despotic government, endemic warfare and a corrupt judicial system will usually receive a low credit rating. As a result, it is likely remain relatively poor since it will not be able to raise the necessary capital to make the most of its oil bounty.

Based on the description below, would you trust Nigeria to pay back money you gave it as a loan? Or as a business owner, would you trust its economy to grow, and give you returns on a new business you started with money you got from a creditor? Not many people would.

 

What is a country’s credit rating anyway?

In general, a credit rating is used by sovereign wealth funds, pension funds, and other investors to gauge the credit worthiness of a country—thus having a big impact on the country’s borrowing costs.

Standard & Poor’s credit rating for Nigeria stands at B with stable outlook. Moody’s credit rating for Nigeria was last set at B1 with stable outlook. Fitch’s credit rating for Nigeria was last reported at B+ with negative outlook. Overall, there are 11 ratings of stable, 9 rating of negative, and just rating of positive for Nigeria

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As an aside, anyone who witnessed the 2008 American economic meltdown based on home loans can appreciate that these credit ratings are hypothetical. All of those agencies above, those “experts,” failed to change their credit ratings, would could have helped alleviate the devastating U.S. housing crisis that negatively impacted every country in the world.

So, if Nigerian policy makers are to take Harari’s purely academic arguments to heart, they’ll stop writing checks they can’t cash and pay back creditors.

Trust matters.

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Idrissi Artfully Addresses Perceptions of Africa

 

One of My Presentations on Women’s Protests

Below is an excerpt from part of a talk I gave on women’s role in Nigerian protests against oil extraction. Oil activities are blamed for environmental destruction, police violence, corruption, and lack of economic growth.

One of my research findings on Niger Delta oil politics was what I termed “positional arbitrage.” This means that local chiefs and male elites used their positions to help incite protests against oil companies and the government at times, as they were well positioned to gain from women’s demonstrations.

The talk also covers some other details about the oil reform movement in the region.

Nigeria of Superlatives

At a recent talk I gave on oil protests in the Niger Delta, an audience member asked me about my interest in Nigeria during the question and answer session. More specifically, he asked, “So, why Nigeria?”

If you are fascinated by social science, then a country that embodies the exaggerations of all social phenomenon is nothing short of intriguing. I am fascinated by culture, conflict, power, history, race, gender, and all social dynamics, and Nigeria demonstrates the dramatic extremes of all of these. It is the most and the least, the best and the worse, of so many measurements.

It produced the most victims of the transatlantic slave trade. It is the most populous country in Africa and is the third most ethnically diverse country in the world. Lagos is one of the top ten megacities of the world, and is growing faster than any other in Africa. It produces the most oil and has the fastest growing economy of any country in Africa. Nollywood surpasses Hollywood to be the planet’s second largest movie producer. To get more obscure in the statistics, it has the fifth highest rate of traffic fatalities in the world.  It is even has the world’s largest singing choir. A survey several years ago even ranked it as the happiest country on earth. How could I not want to learn more about a country that is such an amalgamation of fascinating facts?

In short, I love Nigeria because it is a puzzle I can never solve. 

For the PPT of the presentation, click below. Please feel free to contact me for the audio recording.

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The U.S. Travel Ban on Muslims, Nigeria, and Why It’s Such a Bad Idea

Although Nigeria has little potential (at this point) to make the U.S. travel ban, Trump’s Executive Order signed last week is bad news for everyone. There is great potential that it will last beyond the initial 90 days. I don’t believe Nigeria would ever be considered for the ban, despite the coverage of the 2012 “Underwear Bomber” and Boko Haram’s activities. The oil-based trade relationship between the countries is too important (5% of all U.S. oil comes from Nigeria). Trade in oil is also the reason that Saudi Arabia is not on the travel ban list, despite the large role of Saudi attackers in 9/11. Additionally, the travel ban gives preference to visas for Christians, which comprise a large number of Nigerian applications.

However, about a quarter million Americans claim Nigerian ancestry. Some of those may well be trying to bring family members to the U.S. There are tiers of prioritization of family-based visas, from Family First (minor children of citizens) to Family Fourth (brothers and sisters of citizens). I found a report from last year showing that Africans make up just under 4% of all family visa requests, far eclipsed by those from Central America. Here is the list by region:

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To visually show you African applications compared to other regions:

chart

Although this may seem like a low number of application, Yomi Kazeem points out that Nigeria “may be caught in diplomatic cross-hairs of Trump’s ‘America First’ visa policies. In 2015, Nigeria accounted for 32% of the nearly half a million non-immigrant American visas issued to nationals of African countries and received more visas than the four other countries that make up the top five in Africa when combined.”

He also argues that with the understanding of reciprocity, Nigeria and any other country has the capacity to treat American visa applicants in the same manner that the U.S. treats their foreign citizens. Securing my Nigerian visas was an incredibly difficult feat several years ago, and I can’t imagine what it will be like if there are any more demands on applicants.

Why the Travel Ban Makes No Sense At All:

Although The Executive Order currently only includes three African countries—Somalia, Sudan, and Libya—it is disastrous on so many levels across the globe.  It endangers U.S. citizens by fostering animosity among those who are already anti-American, and alienating potential Muslim allies. (Why would pro-democracy Afghanis or Iraqis support our cause on the ground now?) It stokes the irrational fears of Americans who fail to recognize that less than 70 Americans have been killed on U.S. soil by terrorism (attackers included) since 9/11. Most clearly, it denies refugee status to those who would otherwise become important actors in the U.S. economy, and instead created furthers the burden on our ally countries in already-taxed Europe. Or worse, it forces immigrants and refugees back to the very countries that are an environment that is ripe for radicalization.  It is much safer for Americans to have teenage boys from Syria trying to build a life in the U.S. than leaving them to the Aleppo streets, where their options for radicalization are infinitely greater.

Did I yet mention how the travel ban creates a “brain drain” for us as we lose thousands of talented PhDs, scientists, engineers, and technology experts from the Middle East?  The U.S. is now turning away people who could find the cure for cancer, create more energy efficient buildings, and revolutionize the way we understand the world. Even if the ban is lifted after 90 days, many may not want to return to a hostile environment.

Ethical and legal implications aside, the travel ban is inherently…irrational, in both the everyday and the economic sense.Then again, no one ever claimed that a politics of fear makes sense.

Quiz: What You Don’t Know About Energy in Africa

It’s home to millions of people who lack even one lamp, but also a frontier of great change and innovation. How much do you know about sub-Saharan Africa’s energy potential?

Source: Quiz: What You Don’t Know About Energy in Africa

Africa Oil & Gas: Mozambique and South Africa linked by new pipeline

Source: Africa Oil & Gas: Mozambique and South Africa linked by new pipeline

Quiz: What You Don’t Know About Oil Spills — National Geographic

See how much you don’t know about oil spills and oil spill technology with this quiz from National Geographic.

Source: Quiz: What You Don’t Know About Oil Spills — National Geographic

Paradise lost? Photography and oil in Nigeria

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Source: Paradise lost? Photography and oil in Nigeria

An interview from the NGO field

I had the opportunity to interact with many NGO actors in the Niger Delta. An incredibly helpful organization for me was Social Action in Port Harcourt, Rivers State. The Executive Director of Social Action introduced me to Fyneface D. Fyneface, who eventually became a research assistant. To offer a Nigerian’s perspective, below are some his answers to my questions about the issue of Nigerian oil.

Q: Describe the relationship between law and reforming the oil problem.

A: Nigerian law allows the oil companies to come in and operate in the region. Yet, the oil companies do not obey the laws that are supposed to protect the environment and make the people benefit from the resources in their land, thus, making the “black gold” a curse rather than a blessing to the people. The people have reacted to the underdevelopment, unemployment, environmental and social problems in the region through different struggles, including protests, litigation and lately, militancy by idle youths in the name of fighting the Niger Delta cause from the angle they deem fit. Yet, no significant change or reform has been noticed in the oil sector as expected by the people of the region.

Q: Does litigation help the Niger Delta cause?

A: Litigation has not helped the Niger Delta to find solutions to the oil problem. This is because many Niger Deltans see an oil company as too big for them to sue as an individual, especially as they don’t have the money to go into litigation with an oil company that is richer, and also because they’re aware that they cannot get justice—not in their life times and not even in foreign courts. Examples are the popular Royal Dutch Shell Vs. Kiobel in the U.S. Supreme court, and the Niger Delta Four Farmers vs. Royal Dutch Shell at The Hague in which the court blamed the woes of the people on “sabotage”.

Q: What does the average Niger Deltan think about the role of law in solving oil problems?

A: The average Niger Deltan does not think the law can play any significant role in solving the Niger Delta problem. Not only because they have not see any successful land-mark judgment, but also because they lack confidence in the law in resolving the problems. The oil industry laws in Nigeria can only bark but cannot bite. An example is the law on gas flaring, which even the Nigerian government has not been able to implement to force the oil companies to stop the flaring that has been occurring since the 1950’s. A typical Niger Deltan would tell you that it is only God that can solve the problems for them, not the law, not the government, and not even the international community.