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Valtteri HalonenINT 490 Research Paper 4/14/2015Dr. Berg

Nigeria and the Contemporary Resource Curse

The purpose of this research is to showcase that Nigeria

continues to suffer politically and economically from the resource

curse. More specifically, the country’s resource wealth has been

heavily dependent on its oil. The oil wealth has not produced

financial benefits to the majority of citizens or to the state

institutions. It has been partially due to the macroeconomic

planning and poor spending. The corruption of political leadership

has impacted Nigeria’s resource curse because the oil wealth has

been largely given to the elites rather than the whole nation-

state. As a result, the government’s agenda should be to

distribute its oil revenue directly to the people as a method to

stop the contemporary resource dependency.

Disciplines

The disciplines that I am using in this research are

political science and economics. Political science is a useful

discipline for the research because it explains the actions of

leaders in Nigeria which have affected the resource curse. I

believe that most of the corrupt and centralized behaviors of the

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political elite are explainable with political science. On the

other hand, economics is utilized to showcase some of the

ineffective economic methods that Nigeria has used in the recent

decades. Furthermore, economics is used to display that the

resource curse problem still exists in the country because of poor

macroeconomic spending. Combined, these two disciplines will give

a greater understanding of the issues that have kept Nigeria under

the resource curse.

Background on the Resource Curse and Nigeria

Nigeria is a Western African nation-state that gained its

independence from Great Britain in 1960. Following the

independence, the country was formed as a parliamentary democracy

with a president, a prime minister, and a bicameral legislature.1

The country’s first independence period (1960-1966) was known as

the First Republic. This era introduced Nigeria to some of the

domestic issues that it faces in the contemporary era such as

inadequate leadership, regional, and ethnic differences. Some of

these differences meant that peace was short lived in the newly

independent Nigeria as there were numerous attempts of coup in

between the years of 1966-67. The regional and ethnic differences

also led to the Nigeria-Biafra civil war.2 This war was a regional

1Ngozi Iweala, Reforming the Unreformable: Lessons from Nigeria (Cambridge, Mass.: MIT Press, 2012), 2.2Iweala, Reforming Nigeria(2012), 2.

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battle between the northern leadership and the group from the

southeast called the Ibos. Even though the civil war only lasted

for three years, it left a longing impact on the Nigerian

political leadership. Furthermore, the military took control of

the Nigerian leadership for almost three decades. As a result, a

democratic leadership did not return to the country until 1999

under President Obasanjo’s guidance.3 The country’s short vision

leadership under the military left a permanent mark on the

country’s institutions and it also created an elitist political

structure which Nigeria still suffers from. Corruption emerged

during the First Republic and it has become a persistent feature

in the domestic politics ever since. Ngozi refers the contemporary

Nigerian elite as a “kleptocratic” which stands for a government

where individuals are financially self-interested and politically

corrupt.4

In the 1960s, Nigeria’s economy was mainly driven by

agriculture and eighty percent of the population lived in the

countryside.5 Furthermore, the country exported agricultural

products such as cotton, rubber, and coffee. However, Nigeria’s

economic interests changed in the 1970s with the new monetary

concentration towards oil. Crude oil was originally found in Niger

3Ibid.4Ibid.5Iweala, Reforming Nigeria (2012), 2.

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Delta in 1956, but it was not until a couple of decades later that

the resource began to intrigue the government leadership.6 Despite

this, the oil production in Nigeria began to steadily increase in

the 1960s as the multinational oil companies such as Mobil and

Tenneco started to invest in the country’s crude oil.7 In the

following decade, the country’s leadership began to heavily focus

on resource extraction from the crude oil. As a result, Nigeria’s

diverse economic culture began to shrink towards a market run by

oil exports. However, the main problem was that the export

revenues began to flourish, but Nigeria’s leadership was not able

to distribute this income to the other sectors of the economy. As

a result, Nigeria began to suffer from a heavy inflation which led

to an economic disorder called the “Dutch Disease.”8 The Dutch

disease stands for the country’s sudden inflow of foreign capital

which not only causes inflation, but also leads the officials to

abandon other sectors of the economy to focus on its main export.

In the Nigerian context, the county’s currency the Naira became

overprized; as a result, the agricultural sector was increasingly

neglected. The country’s currency was valued so highly that

Nigeria’s leadership decided it was more beneficial for the

6Ibid,3.7 Iweala, Reforming Nigeria (2012), 2. In 1960, Nigeria was producing 17,000 barrels per day (bpd) and by 1974 the oil production had already boomed to 2.26million bpd.

8Ibid, 3.

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country to start importing agricultural goods instead of exporting

them.9 Due to this, a growing number of people began to move from

the rural to the urban areas in hopes of finding a new occupation.

In the 1980s and 1990s, the country was able to increase its oil

exports, but the resource wealth was poorly managed.

Nigeria’s international debt began to slowly increase and

the average citizens had almost no access to the country’s oil

wealth. For example in the 1980s, General Ibrahim Babanginda

accepted the International Monetary Fund’s (IMF) suggestion to

alter the country’s economic system.10 These reforms emerged in the

mid-1980s as the price of oil plummeted and the country was not

able to pay off its debt. Under this reform, Nigeria was able to

scale down some of its overall economic spending. However, the

reduced government spending also resulted in cuts in the social

institutions such as the health care and education programs. Even

though Babanginda’s reform policy occurred three decades ago, it

still gives a contextual background to the contemporary Nigerian

politics. The main characteristics of the 1980s such as the

corruption of the political elite and high-level officials, poor

macroeconomic planning, and undermining of an average citizen

still persist as the defining features of the Nigerian

governmental structure. 9Ibid.10Ibid.

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At the beginning of the research, it is important to

define what the resource curse stands for and why it is negatively

imperative to natural resource-driven states such as Nigeria. The

basic definition of the resource curse is that the abundance of a

particular natural resource will increase the country’s likelihood

to lower levels of economic, political, and social development.11

Another definition is that countries rich in natural resources

will stay largely undeveloped due to the government’s negligence

of profits and high levels of corruption.12 This research defines

natural resources as particular commodities such as oil and

minerals or the economic sector that has solely focused on a

certain industry. Andrew Rosser (2006) proposes that economic,

political, and social preconditions with potential resource

abundance are potential factors for, “poor economic performance,

low levels of democracy, and civil war.”13 However, it is crucial

to note that countries in which economies are driven by a single

industry or a commodity do not automatically end up suffering from

the resource curse. For example, there have been few countries in

the world such as Norway and Canada that have been able to fully

develop despite their nature towards resource abundance. As a

11Andrew Rosser, “The Political Economy of the Resource Curse: A Literature Survey,” Institute of Development Studies, (April 2006): 6.1212David Balaam and Bradford Dillman, Introduction to International Political Economy. 5th ed. Upper Saddle River, N.J.: Pearson, (2011), 497. 1313Rosser, “Political Economy Resource Curse” (2006), 7.

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result, it has been difficult for scholars to explain why certain

countries with a single commodity end up with the resource

blessing while it becomes a curse for others.

The most convincing argument in recent years has been

that the natural resources especially oil can offer a powerful

tool for a country. The economic and political effects of these

natural resources can be either positive or negative in nature.14

This argument is theoretical, but it seems to explain why Nigeria

is still suffering from the high levels of poverty, inadequate

institutions, and persistent levels of corruption.15 More

specifically, it seems that Nigeria’s resource curse has not been

solely caused by the country’s oil wealth, but it has also been

due to the poor management and accumulation of wealth by the

political leadership and elite.

Political Implications of Nigeria’s Resource Curse

As mentioned earlier, Nigeria continues to struggle

politically from the resource curse. A recent political study from

14Kevin Morrison, “Whither the Resource Curse?,” Perspectives on Politics: (December 2013), 1122. A group called conditionalists have argued against the resource curse with their own empirical research.15 “Corruption Perceptions Index 2014: Results,” Transparency International, 2015, https://www.transparency.org/cpi2014/results. According to Corruption Perceptions Index’s report of 2014, Nigeria is currently ranked as 136th in the list of the least corrupt nation-states. The country’s corruption score is twenty seven (0 meaning high levels of corruption and 100 implicating very cleanbehavior).

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Idemudia (2012) implies that the government has tried three

different methods to solve the contemporary resource curse.16

Firstly, the country has created developmental agencies to handle

infringement in Niger Delta “by directing more oil monies to the

region.”17 The second action has been the establishment of

institutions and new laws to fight against corruption. For example,

the government implemented the Economic and Financial Crime

Commission (EFCC) in 2002 and instigated the Fiscal Responsibility

Act in 2007.18 Thirdly in 2004, the government established the

Nigerian Extractive Industry Transparency Initiative (NEITI) in the

hopes of increasing responsibility and directness in the management

of oil and gas revenues.19 However, none of these three governmental

reforms have been particularly successful. For example, the EFCC

claimed that by 2007 it had impeached eighty-two people charged

with corruption or fraud and had returned more than five billion

U.S. dollars’ worth of money.20 Despite this, the success to

regulate corruption and fraud within the government has been

minimal at best.

The recent data from the Corruption Perceptions Index of

2014 (CPI) showcases the inadequate efforts of the government as

16Uwafiokun Idemudia, “The resource curse and the decentralization of oil revenue: the case of Nigeria”. Journal of Cleaner Production 35 (2012), 185.

1717Idemudia, Resource curse decentralization Nigeria, 185.18Ibid. 1919Ibid. 20Ibid, 185.

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Nigeria was ranked 136 out of 174 countries in the list of public

sector corruption.21 Another institutional problem has been involved

with NEITI’s ineffective measures to limit corruption and organize

government’s income/spending on oil. Idemudia (2012) explains that

NEITI is not working properly because the institution stresses

government’s oil revenues over its expenditures. Also the

organization suffers from, “the limited technical and human

capacities in both its secretariat and within civil society.”22

Furthermore in 2010, NEITI did not receive ratification from the

umbrella organization called the Extractive Industries Transparency

Initiative (EITI). Also the secretariat of NEITI faced accusations

of corruption in 2010.23

Nigeria’s oil wealth is based on an economic system

called fiscal federalism. Since 2001, the states of Nigeria have

received thirteen percent of derivation which means that the oil

wealth goes to the federal account after which the government pays

for the regions based on their share and profit.24 This system was

created to bring fairness within the different regions of the

country. Despite this, the concrete results have shown quite the

opposite. Some of the smaller oil areas such as the Ondo state

21“Corruption Perceptions Index 2014: Results,” Transparency International, 2015, https://www.transparency.org/cpi2014/results.

22Idemudia, Resource curse decentralization Nigeria, 185.23Ibid, 186. 24Ibid.

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have struggled to produce enough income based on the current

revenue allocation system. As a result, the Federal Government of

Nigeria (FGN) has created development commissions to persuade

local regions that the government is actually trying to improve

the distribution of economic resources. Also, the commissions are

set up in an attempt to reduce the resource curse as they try to

make sure that the government paid money goes directly to the

central government of the state.25

The recent field study from Idemudia (2012) researched

the effectiveness of the federal and local oil commissions and

whether they have improved the oil revenue allocation in Nigeria.

His field study was conducted in three Niger Delta states located

in table 1. In each state, he conducted twenty-five commission

staff interviews followed by interviews of the local people to

test the validity of the answers.26 One of Idemudia’s main findings

in the study was that Nigeria’s resource curse problem is more

political than economical.27 More specifically, according to the

community member interviews, the oil commissions are organized so

that “patronage” remains within the system. This means that the

state leadership tends to appoint the power to certain board

members.28 Furthermore, Idemudia notes that, “over 80 percent of

25Ibid. 26Ibid, 186.27Ibid, 192.28Ibid.

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the respondents rated the performance of the commissions as either

poor or very poor.”29 Also, the current elitist structure of the

oil commissions has failed to address the issues of the minority

groups (women and children). For example, Delta state’s oil

commission has a piece of budget reserved for the women and

children. However, in 2011 the DESOPADEC commission failed to

allocate any funds to the group.30 Based on the research, it seems

that the government’s efforts to decentralize wealth distribution

through oil commissions have actually increased corruption in the

local Niger Delta communities.

When it comes to the resource curse standpoint, the

social science scholars have proposed two solutions to address the

issue. First, countries need to revise the rent-seeking methods in

which they currently operate.31 Second, more power should be given

to the “stakeholders” such as the workers in the oil fields.32

However, the oil commissions in Nigeria are not currently

improving either of these incentives. Idemudia’s (2012) empirical

research indicates that the power of the oil commissions belongs

mainly to the “rentier elites” which benefit from the oil

production while leaving the poor in disadvantage.33 Additionally,

29Ibid. 30Ibid. 31Ibid.32Ibid. 33Ibid.

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the civil society has such a marginal role in the oil commission

decision-making that it further emphasizes the contemporary

resource curse problem in Nigeria. Thus, the problem of the

contemporary oil community-model appears to be that, “revenue

decentralization might serve to reinforce as opposed to cure

resource curse problems.”34

Table 1

States, Commissions, and Villages visited for the study

Niger Delta states

Ondo state Delta state

Edo state

Commissions Ondo State Oil Delta State Oil Edo State Oil

Producing Area Producing Area Producing Area

3434Idemudia, Resource curse decentralization Nigeria, 192.

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Development Development Development Commission CommissionCommission(OSOPADEC) (DESOPADEC) (EDSOPADEC)

Villages Igbokoda Iwhrekan GelegeleUgbo Otu-jeremi

Ughoton

Natural resources Oil and gas Oil and gasOil and gas

extracted

Source: Uwafiokun Idemudia(2012)

The resource curse can also be seen as a political

problem where the citizens of a certain country begin to lose

trust in their representative governments. Nicholas Shaxson (2007)

illustrates that the natural-resource driven countries tend to be

more corrupt not only because of the elite individuals, but also

because the citizens lose their trust in the political system.35

Shaxson utilizes an example of a queue to showcase that corruption

emerges as citizens realize that everyone cheats within the

system. As a result, the citizen’s loss of trust to the political

system will not only increase the likelihood of corruption, but

also the macro social behavior of the population.36 Thus, most

scholars of economics have oftentimes neglected the impact of

35Nicholas Shaxson, “Oil, Corruption And The Resource Curse”. International Affairs (2007), 1126. 36Ibid, 1126.

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collective behavior in their research on the resource curse and

have rather seen it as the problem of individuals.37 However,

Shaxson sees the issue as a “systematic problem” which involves

everyone in the country that communicates with each other.38

Shaxson’s proposed policy problem is relatable to

Nigeria’s resource curse. The fundamentals of oil politics in

Nigeria has meant that the ordinary citizens do not have much to

say in the economic performance of the country. It is due to the

fact that the citizens cannot regulate the country’s access to the

oil. This creates a political system that, “is a zero-sum game:

more for the South means less for the North.”39 In the Nigerian

context, the competition of oil productivity has increased the

political fragmentation even to the small regional levels of the

country. For example, in 1960 there were only four regions in

Nigeria compared to 2007 as the number has grown to thirty six.40

Thus, it has created a political cycle in which minority groups

complain that they are mistreated by the government which has led

to more local regions being created. However, this problem has not

been solved by fragmenting the country as, “each subdivision

37Ibid, 1127.38Ibid. 39Ibid. 40Ibid.

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simply created new configurations, new minorities and more

numerous divisions.”41

One traditional way to reduce corruption and increase

accountability of the political leadership is to increase

transparency within the political system. However, Shaxson notes

that transparency is not necessarily the most effective tactic to

reduce corruption in Nigeria.42 More specifically, it seems to be

popular in the African countries that the leader decides to

increase transparency due to the outside pressure rather than out

of the concern of one’s own citizens.43 Therefore, corruption in

the oil-rich African states is seen as tolerable by the leaders if

it advances the interests of the political bloc in whom they are

affiliated. For example in Nigeria, the former governor of the

Bayelsa State, Dieprieye Alamieyesiegha was detained 2005 in

London for money-laundering.44 However, he was not found guilty due

to his ethnicity. This further illustrates not only the

corruption, but also the elitist structure of Nigerian

contemporary politics.

The nature of contemporary Nigerian politics is the

intensive competition of oil rents between the military and the

41Ibid. The author utilizes Niger Delta as the regional example to illustrate fragmentation in the country. 42Ibid, 1134. 43Ibid. 44Ibid.

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civilian elites.45 The fragmented disposition of Nigeria means that

the country has not been able to unify enough to make effective

political decisions regarding its economic interests. Also, the

central authorities of the government have been historically weak

when supervising the economic behavior of “state organizations or

personnel.”46 As a result, many of the state leaders have utilized

the weak authority as their benefit to steal resources from the

oil production.

Peter Lewis (2007) implies that the governmental

leadership structure since the democratic transition of Nigeria in

1999 has increased the political patronage within the country’s

political system.47 One of the reasons is that the government,

“exercise weak control over party machines and elements of the

bureaucracy.”48 For example, the former President Obasanjo tried to

enforce major governmental reforms in his second term (2003-2007)

such as revenue transparency and anticorruption efforts.49 However,

these reforms were not adequate enough to downsize the elitist

nature of the Nigerian political system. Also, the bureaucratic

institutions of the system remain ineffectual which further

showcases that the reforms made by the president have not 45Peter Lewis, Interests, Identities and Institutions in Comparative Politics:

Growing Apart : Oil, Politics, and Economic Change in Indonesia and Nigeria. University of Michigan Press (2007), 282.

46Lewis, Interests, Identities and Institutions Nigeria, 285. 47Ibid, 286. 48Ibid.49Ibid, 287.

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successfully solved the resource curse problem in Nigeria. As a

result, it seems that the government’s establishment of oil

institutions and communities has only been partially successful as

the clientelist and rentier groups are still apparent in the

political system. Britannica defines Clientelism as, “relationship

between individuals with unequal economic and social status.”50 In

addition rentier states are, “those states which derive all or a

substantial portion of their national revenues from the rent of

indigenous resources to external clients.”51 Furthermore, there has

not been a sign that these reforms would bring change to the

contemporary structure of the Nigerian political system.

Economic Implications of Nigeria’s Resource Curse

As it has become apparent in the earlier parts of the

research, Nigeria’s economy is extremely undiversified. In 2012,

ninety-six percent of the country’s export revenue was dependent

on oil and more than seventy-five percent of the government’s

income relied on the natural resource.52 Macroeconomically, the

high dependence on oil prices has meant that Nigerian government’s

public spending has been tremendously volatile.53 This means that

the changes of the oil prices work in cycles which have also

50Jean-Louis Briquet. “Clientelism.” Encyclopedia Britannica Online. 2015. 51"Rentier Capitalism." Democratic Underground. Accessed April 20, 2015.52Ngozi Iweala, Reforming the Unreformable: Lessons from Nigeria (Cambridge, Mass.: MIT Press, 2012), 20.53Ibid.

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affected the economic spending of the country. As a result,

Nigeria has increased its spending on the governmental programs

during affluent times and it has reversely reduced them as the

global oil prices have decreased.54 The issue of volatility

provides a primary example of Nigeria’s struggle with the resource

curse. In the 1980s, the country created an economic monoculture

which undermined the other export sectors of the economy. It can

be argued that Nigeria’s economic monoculture has been one of the

reasons why the country’s real annual GDP growth in the 2000s has

been lower than it was in the 1970s. Furthermore, Ngozi Iweola

showcases that in the 1970s there were multiple years that the

annual GDP growth was over ten percent on average while it has

only been around six to seven percent during the 2000s.55

In order to deal with volatile oil prices, Nigeria

created macroeconomic reforms following 2003 to transform the

country’s economy. The Oil Price-based Fiscal Rule (OPFR) was

created in 2004 to deal with the changing oil prices. This fiscal

rule assumed a formula that utilizes a ten-year average on the oil

prices. Thus, the goal of the reform was to create a more balanced

economic budget because the price of oil would be staler.56 Another

major reform was the Fiscal Responsibility Act of 2007 which,

54Ibid. 55Ibid, 145. 56Ibid, 22.

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“aimed to provide for prudent management of public resources, help

ensure long term macroeconomic stability, and support greater

accountability and transparency in fiscal operations.”57 However,

these federal reform programs have been somewhat restricted due to

the arguments made by the state and regional levels. More

specifically, Nigerian federal leadership has only been able to

make modest macroeconomic reforms, since the state governments

have complained that these alterations constrain their oil

production.58 In practice, the Nigerian federal government had to

give a bigger share from the crude oil savings to the state

governments. Therefore, the macroeconomic reforms by the federal

government have faced a significant opposition by the sub-national

levels of the country. Thus, it seems that the political

fragmentation of the Nigerian states has also hampered the

economic planning of the government leadership.

This research provides empirical evidence from the

economic scholars to prove that Nigeria continues to economically

battle with the resource curse. The general assumption behind the

resource curse argument is that the country is economically in

worse condition than it would be without the centralization

towards a single natural commodity. The empirical research by

Sala-i-Martin and Arvind Subramanian (2012) reveals the negative 57Ibid, 25. 58Ibid.

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impact that the Nigerian resource endowment has had for the

institutional quality of the country.59 Furthermore, their economic

calculations reveal that the institutional growth has been

negatively impacted by one to five percentage points which imply

that, “natural resources are detrimental to institutional

quality.”60

It could be possible that Nigeria’s resource curse is not

necessarily best explained by the Dutch disease, but rather with

wasteful government spending.61 Table 2 provides evidence which

Sala-i-Martin and Subramanian utilize to show that oil has been

detrimental to Nigerian economic performance.62 It appears that

since the emergence of oil in the 1970s, the government has been

progressively decreasing its capacity utilization on

manufacturing. The data shows that in 1975 the capacity

utilization averaged seventy-seven percent, but it has decreased

drastically ever since. The research notes that, “Since the mid-

1980s, capacity utilization has never exceeded 40%, and has

languished at around 35%.”63 This is significant to the overall

Nigerian economy because over sixty percent of the government’s

manufacturing investment is left unused.

59Xavier Sala-i-Martin and Arvind Subramanian, “Addressing the Natural Resource Curse: An Illustration from Nigeria.” Journal of African Economies (2012), 580.

60Ibid. 61Ibid. 62Ibid, 595. 63Ibid, 595.

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The Dutch disease explanation could be inadequate when

explaining Nigeria’s poor economic performance.64 Additionally, the

research suggests that the poor economic performance of Nigeria

could be best explained with the increased governmental efforts in

the fiscal policies rather than with the shrinking economic

sectors such as agriculture.65 The research explains that between

1971 and 1980 the share of government services and manufacturing

grew by sixteen and eight percent.66 As a result, the empirical

research proposes that, “the real problem may well have been not

that the agriculture sector declined but that the size of

government in economic activity increased, with seriously

detrimental effects in the long run.”67

Table 2: Average Capacity Utilisation in Manufacturing, 1975-2000

Source: Xavier Sala-i-Martin and Arvind Subramanian(2012)

Another empirical economic research by Alalade and

Ejumedia (2014) proposes that the resource curse seems to be

64Ibid, 580.65Ibid, 599. 66Ibid. 67Ibid.

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apparent in contemporary Nigeria.68 The study utilized a modified

ordinary least square (OLS) model to test if the resource curse

will have a long-term impact in the country’s economics. The

research applied the Central Bank of Nigeria’s (CBN) statistical

bulletin from the years of 1970 to 2010 to show the share of oil

production in Nigeria’s annual GDP. The empirical evidence notes

that Nigeria seems to currently suffer from the resource curse due

to three reasons. First, the government expenditure has risen

significantly over the years, from 903.90 million in 1970 to

3,456,925.4 million in 2009.69 This has led to, “misallocation of

resources, political instability, and corruption in the country.”70

Secondly, the data shows that increased government oil revenues

have not benefited the average Nigerian citizen. More

specifically, the unemployment rates have been growing despite the

country’s annually steady six percent GDP growth. The most recent

unemployment rate of 21 percent in 2010 is much larger than the

consistent rate under ten percent in the 1980s and 1990s.71 The

growing unemployment rates have been mainly caused by the

shrinking manufacturing sector of the Nigerian economy and also

68Samson A. Alalade, and P.E. Ejumedia, “Natural Resource Endowment and Economic Growth in an Oil Exporting Country: The Case of Nigeria,” International Journal of Research in Commerce, Economics, and Management 4, no. 2 (2014), 59.

69Ibid, 60. 70Ibid. These indications have also shown other economic problems such as to the country’s inadequate infrastructure and poor educational programs.

71Ibid, 61.

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due to the, “overriding emphasis that is laid on the oil sector.”72

Thirdly, the evidence shows that Nigeria’s high share of oil

endowment has led to domestic conflicts in the regional and the

state levels of the country. Furthermore, the emergence of civil

groups such as the Movement of the Survival of the Ogoni People

(MOSSOP) and the Militant in Niger Delta shows that the increased

importance in the oil endowment has not only increased

fragmentation, but also physical violence in Nigeria.73

Alalade and Ejumedia propose that the current natural

resource endowment in Nigeria indicates that the country suffers

from the resource curse. However, the study was unable to predict

whether or not Nigeria’s heavy dependence on oil will keep the

country under the resource curse or if it could lead to a blessing

in the future.74 The co-integration and modified Ordinary Least

Square techniques utilized in the study found an affiliation

between oil resource endowments with oil exports. However, this

statistic did not have a strong enough positive relationship.75

Thus, the study concludes that Nigeria might be able to change its

economic fortunes with better government and state governance.

More specifically, good governance includes that the resource

72Ibid, 60. However, same can also be said about the agricultural industry which decreased significantly from the 1970s to 1980s.

73Ibid, 61. 74Ibid, 63. 75Ibid.

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wealth is used more operatively and by making sure that the

manufacturing sector decreases its share of high unemployment.76

Main Counterarguments

There are two major counterargument groups that will

emerge against the findings of this research. Firstly, there are

scholars who argue against the theoretical and the empirical

framework of the resource curse. This group rejects the notion

that a country’s natural resource wealth leads to inadequate

economic performance within the nation-state. Those who argue

against the resource curse have a hard time believing that a curse

exists because there are countries that are doing seemingly well

despite their heavy dependence towards a certain national

resource. For example, a political longitudinal study conducted by

Stephen Haber and Victor Menaldo (2011) proposes that the resource

curse might not exist because the resource reliance did not lead

to persistent tendencies towards authoritarian leadership.77

The other main group argues that Nigeria used to be

resource cursed, but due to the macroeconomic and political

reforms that emerged during Olesugun Obasanjo’s Presidency (1999-

2007) the country has been able to effectively restructure its

economic policies. For example, Spence’s and Brady’s study (2010)

76Ibid, 63. 77Stephen Haber and Viktor Menaldo, “Do Natural Resources Fuel Authoritarianism? A Reappraisal of the Resource Curse,” American Political Science Review, (2011), 30.

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notes that Nigeria has been able to improve its overall economic

performance in the new millennium.78 More specifically, the

research found that the macroeconomic reforms have improved the

country’s overall GDP and have also decreased the amount of

inflation in Nigeria.79 For example, the government implemented a

wide-ranging reform program known as the National Economic

Empowerment and Development Strategy (NEEDS) which is supposed to

have increased cooperation between the state and local level

leadership in the fight against poverty.80

Neither of these counterarguments is necessarily wrong,

but the resource curse explanation might not be an accurate

description of every country in the world that has centralized

their exports towards a certain natural resource. However, it is

not the imperative purpose for this research to show whether or

not the resource abundance will lead to a global resource curse.

Instead, the specific focus has been on Nigeria and to show that

its political and economic behavior is best explained with the

resource curse theory. Therefore, it could be possible that

resource endowment will lead to economic prosperity in certain

countries, but this has not been the case in Nigeria. Secondly, it

78David Brady and Michael Spence, Leadership and Growth. Washington, DC: World Bank, 2010, 182. 79Ibid. The researchers found it significant that Nigeria’s inflation has droppedfrom over twenty percent in 2003 to less than ten in 2006.

80Ibid, 180.

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is true that Nigeria’s government has implemented new

macroeconomic reforms that have decreased inflation and improved

the country’s overall GDP. Despite this, the reforms have not been

effective enough to alleviate Nigeria out of the resource curse.

For example, Obasanjo’s Presidential term has been argued to have

been progressive, but in 2003 alone, “70 per cent of the country’s

oil wealth was either stolen or squandered.”81 This shows that

corruption is still apparent in the domestic politics of Nigeria.

Also, the country continues to stay economically undiversified and

the unemployment rates have been growing rather than decreasing in

the past few years. However, these are just a couple of examples

to illustrate that the macroeconomic policies have not had much of

an impact to resolve the natural resource curse in Nigeria. For

example, the country’s infrastructure and public programs are

still undeveloped due to the poor implementation and maintenance

over these types of programs and institutions.

Integrating Disciplines to Solve Nigeria’s Resource Curse

This section of the research offers an integrating

insight from the political science and economics scholars to

propose a solution for Nigeria’s contemporary resource curse.

Scholarly research from both disciplines has agreed that the best

solution for Nigeria would be to give an average citizen a more

81Idemudia, Resource curse decentralization Nigeria, 183.

Halonen 27

direct access to the country’s oil wealth. Shaxson’s research

(2007) proposes this and Sala-i-Martin’s and Subramanian’s

economic research (2012) notes it as well. Direct allocation of

oil resources to the citizens would decrease the amount of

fragmentation and political conflict in the Nigerian state and

local level politics.82

The new governmental system would apply direct taxation

to its citizens based on the annual oil income that the citizens

received. Thus, the main benefit of the new economic model would

be that the average citizen’s cooperation with the government had

the potential to increase since no one is going to benefit from

the new financial system if not, “trading with each other.”83

Another major benefit of a more direct distribution would be the

increased and collective partaking in domestic politics.84 This

would be important in the Nigerian context because the average

citizens are contemporarily limited in the participatory politics.

For example, low levels of participation was shown by Idemudia

(2012) where he found that members of the civil society had almost

no input in the local or federal oil communities. The political

benefits would be twofold; a more participatory style oil politics

has the chance to increase transparency within the system and

82 Nicholas Shaxson, “Oil, Corruption And The Resource Curse”. International Affairs (2007), 1135.

83Ibid. 84Ibid.

Halonen 28

direct taxation would increase the country’s productivity and

accountability.85 However, the biggest problem of implementing this

policy is Nigeria’s large population. Nigeria’s current population

is over 180 million which makes it the most inhabited country in

Africa. Thus, Shaxson’s data (2007) shows that if Nigeria would

produce two and half million barrels of oil each day with a fifty

dollar price per barrel, the citizens would get less than a dollar

per day if this wealth was to be divided.86 On the other hand,

Nigeria would not have much to lose as majority of the population

is living under poverty and the country lacks a level of national

unity. The direct taxation of people could not solve all of

Nigeria’s domestic problems, but it would increase the likelihood

of an effective startup plan to deal with the resource curse.

Sala-i-Martin’s and Subramanian’s economic research also

notes that the direct taxation system would be the cure for

Nigeria’s resource curse. Their argument is that corruption would

automatically decrease because it is harder for the government or

the state leadership to cheat in a system that is based on taxes

rather than the oil distribution.87 Thus, the new taxation model

would replace the oil rentier system which Nigeria currently uses.

85Ibid, 1136. 86Ibid, 1138. 87Xavier Sala-i-Martin and Arvind Subramanian, “Addressing the Natural Resource Curse: An Illustration from Nigeria.” Journal of African Economies (2012), 602.

Halonen 29

The goal of this proposal is for the government to hand out all of

its crude oil income to the citizens so that the country would no

longer be dependent on its natural resource. This theoretical

shift would allow the Nigerian government to focus on, normal

fiscal principles that non-oil countries follow, including the

balance between taxation income and the public expenditures.88

After the fact, the government could lose a large share of its

export profits because over ninety percent of Nigeria’s economy is

based on the crude oil. However, the solution would be a

transition period which could allow the Nigerian government to

diversify its economic interest and then gradually increase the

amount of oil distribution profit to its citizens.89

Sala-i-Martin and Subramanian suggest that the new

distribution model would alter the macroeconomic consequences in

Nigeria. This is because the country would experience a

macroeconomic change due to the oil distribution shift from the

public to private enterprises. As a result, the highly volatile

price system of Nigerian politics would be replaced with the

structure of private profit and deficit.90 In terms of

macroeconomics, the new system would be more readily available to

respond to possible economic shocks. This research explains that

88Ibid, 605. 89Ibid. The authors mention that the last stage of the economic transition would be the hundred percent oil profit distribution to the citizens.

90Ibid, 609.

Halonen 30

the private citizens are better at saving money during economic

windfalls than the government.91 Furthermore, their analysis showed

that the government’s financing on institutions has been

inadequate due to volatile nature of the crude oil prices. The

research utilized the Ajakouta Steel Complex as an example of the

government’s ineffective macroeconomic spending. This complex was

built in the 1980s during the affluent times of Nigerian

economics. However, the mill has been out of business for the past

five years and it has caused the government to lose several

billion of Nairas.

All in all, the scholarly evidence from both disciplines

has shown that Nigeria still suffers from the resource curse.

However, the research done by the political science and economics

have proposed to solve the issue by implementing a taxation model

which mimics the oil wealth distribution system used in Alaska.

There are no guarantees to prove that the new economic and public

policy would help to lift out Nigeria from the resource curse.

However, the new policy would force the government and the civil

society into a more cooperative economic planning. Furthermore,

the government would be held more accountable to quicker decision-

making. The government would have to diversify its policy interest

from the crude oil to other financial sectors of the economy

91Ibid.

Halonen 31

therefore it would benefit its citizens. Also, the new taxation

profits gained from the crude oil would allow the government to

invest more public funds to the country’s inadequate institutions.

Conclusion

The recent scholarly research from the economics and

political science disciplines indicate that Nigeria continues to

struggle from the resource curse. Furthermore, the country’s heavy

dependence on oil has given the country a sustainable economic

growth, but it has also kept the majority of the population under

poverty. The research has explained that the government’s efforts

to decrease corruption and patronage from the political system

have been largely inefficient. Thus, Nigeria’s macroeconomic

reforms have provided expensive and desperately slow means to

solve the country’s resource curse. This research has given an

interdisciplinary proposal to solve Nigeria’s resource curse; more

direct allocation of oil resources to the citizens of Nigeria

would increase transparency of government and cooperation among

the citizens of the country. This could be an effective and

inexpensive plan to solve Nigeria’s curse with its crude oil.

Halonen 32

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Halonen 33

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