27 September, 2020

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Lesson From Nigeria: Discovery Of A Natural Resource By A Country Without Good Governance Is A Curse

By W.A Wijewardena –

Dr. W.A. Wijewardena

Dr. W.A. Wijewardena

The Nigerian news that shocked the world

During the last 12 month period, three pieces of news coming from Nigeria shocked the world. The first was the sacking of the Nigeria’s Central Bank Governor, Lamido Sanusi, by Nigeria’s President Goodluck Jonathan in February 2014. His crime: Warning the government that billions of dollars in oil revenue due to the Treasury had been stolen at the Nigerian National Petroleum Corporation or NNPC. Thus, his hint was that culprits who had committed this theft had been associates of the incumbent President.

But the charge on which Sanusi was sacked by President was something else: that is, Sanusi’s financial recklessness and not those NNPC whilst being the Governor of the Nigerian Central Bank.

The second was related to the first from a different side. The first was the theft of the revenue from the legally exported oil. The second was the theft of the oil produced in Nigeria, the largest oil producer in Africa, before it is being exported. While this had been in the news for some time, no action had been taken by the Nigerian government to prevent it. As early as October 2013, Nigeria’s President Jonathan himself had admitted that the theft of oil had cost the country in the region of £ 1 billion or $ 1.65 billion a month. This is about 20% of the country’s annual earnings from petroleum exports and about 4% of its now rebased GDP.

The third had been undertaken by Nigeria disregarding the negative impact which the first two had exerted on Nigerian economy. That it had done by changing the base year of calculating its GDP to 2013, a revision which it had done after 23 years. This rebasing of GDP has crowned the country as the biggest economy in Africa and the 26th largest economy in the world. Consequently, it has pushed South Africa – the champion who had held the title of being the largest African economy so far – to the second place. Thus, Nigeria’s GDP increased overnight from $ 270 billion in 2012 to $ 510 billion in 2013. A consequential change was that its per capita GDP too increased dramatically from $ 1555 in 2012 to $ 2688 in 2013.

Nigeria is at the bottom of good governance practices in the world

All these three events are related to good governance and in the case of Nigeria, they relate to the absence of good governance.

According to the Worldwide Governance Indicators compiled by the World Bank, Nigeria is ranked within the worst 30% and in some cases within the worst 10% of the countries with respect to all the six indicators of governance. According to these indicators, a country’s governance score ranges from minus 2.5 (worst) to plus 2.5 (best). The most recent indicators relating to 2012, gives the following values in the minus range for Nigeria: For Voice and Accountability, minus 0.73; For Political Stability, Absence of Violence and Terrorism, minus 2.05; For Government Effectiveness, minus 1.00; For Regulatory Quality, minus 0.72; For Rule of Law, minus 1.18; and for Control of Corruption, minus 1.18. According to a summary tabulation of different aspects of governance, corruption and rule of law, Nigeria is ranked within the world’s 10 worst countries.

Discovery of oil boosted hopes but it has killed Nigeria’s economy over the years

Nigeria’s oil history is a pathetic story right from the beginning. It also shows how the disregard of good governance could destroy a country even when it has discovered a vast deposit of a natural resource. Normally, when such a resource is discovered, it is natural for everyone to feel that it would end all its economic and social woes and lay a firm foundation for a new beginning. In fact, Nigeria’s politicians, like those in Sri Lanka and elsewhere, heavily capitalised on the discovery and marketed it to the people as ‘dawning of a new era’. This was in early 1960s. Fifty years since then, the story is different with a brutal shattering of all those hopes. In February, 2013, Nigeria’s Association of Chambers of Commerce, Industry, Mines and Agriculture, known as NACCIMA, came out with the charge that the oil sector was killing the whole Nigerian economy silently.

The reason was the prominent place acquired by newly earned Petro-dollars – dollars earned by exporting petroleum resources – in the country’s public policy causing a decline in agricultural exports and industrial production since mid 1960s. Economists call this situation Dutch Disease, a term coined by reference to the displacement of traditional economic activities in the Netherland after that country had discovered a vast natural gas resource in the North Sea in 1970s.

The double hazards: Stealing oil revenue and stealing oil

Thus, what has happened in Nigeria is the replication of Dutch Disease after its petroleum resource discovery. Prior to this, Nigeria was a typical agriculture based developing country which had depended mainly on earnings from exporting primary agricultural commodities. With oil, both commercial agriculture and industry were neglected and as a result by 2000, about 98% of Nigeria’s export earnings were derived from exporting oil products. Initially, oil sector was controlled by two giant international oil companies, namely, Shell and British Petroleum, which had got concessions from the Nigerian government.

However, in 1971, the Nigerian Federal Government nationalised the oil industry by creating ‘Nigerian National Oil Corporation’. With an authoritarian military government in power, the government’s, and hence those in the government, power over the oil sector was consolidated within the next decade. It thus gave an opportunity for politically powerful elite groups at both federal and state levels to siphon off the oil revenue for their personal benefits.

Accordingly, the profits from the oil sector were appropriated by these groups leaving no benefit to the Nigerians at large. On top of this, the very same group was engaged in stealing oil produced in oil wells thereby denying a substantial amount of oil revenue to the country.

Lamido Sanusi comes to the picture as the Governor of the Central Bank of Nigeria when the country had been hit by these double hazards.

Lamido Sanusi: The so called non-conventional practical central banker

Sanusi was a career banker picked up for the job in 2009 in the height of the financial crisis. He took pleasure in calling himself a ‘non-conventional practical man not infected by non-working economic theories’. What he meant was that he was a rebel and ready to try any experiment if it worked for the country. This non-conventional wisdom was shown by him when IMF advised to depreciate the Nigerian currency, Naira, in 2009. Sanusi refused the suggestion claiming that Nigeria’s balance of payments depended on export of oil products and the change in the exchange rate has no bearing on such exports.

Further, he claimed that if Naira is depreciated it will push up the costs of imported products thereby accelerating inflation in the country.

However, those who are conversant with economic policy practices would know that both these reasons adduced by Sanusi are not non-conventional. They simply reflect the conventional wisdom of the man in the street who believes that the depreciation of a currency is a loss of national pride and a way to increase inflation. However, his so called non-conventional policies rewarded him well. He was awarded the Best Central Bank of Governor of Africa and the Central Bank Governor of the Year by London based Banker Magazine in 2011.

Sanusi reveals that oil revenue has been stolen at government Oil Corporation

Sanusi of course raised the oil theft issue with good intentions. He explained this in an address he delivered at an investors’ conference organised by one of Nigeria’s largest banks, namely, The Standard Bank, in February 2014. About 80% of the revenue of the Nigerian Federal Government comes from the oil sector. If oil money is stolen midway, it affects the government budget adversely.

Sanusi claims that he was able to bring Nigeria’s inflation to a single digit level – that is, below 10% per annum – since early 2012. The tight monetary policy which the Central Bank of Nigeria has taken had delivered this good result to the country. This will be compromised if the government budget goes haywire due to an insufficiency of revenue. The theft of oil revenue has been one of the reasons for the insufficiency of government revenue. In this regard, Nigerian National Petroleum Corporation, NNPC, has failed to remit $ 20 billion to the Federal Treasury and this has caused a serious concern about the governance practices in public enterprises.

The good-intentioned report to President by Sanusi

Sanusi, as a responsible central banker, brought to the notice of President Jonathan the continuing theft of oil revenue by an apparent fraudulent activity at NNPC. This has amounted to $ 1 billion per month according to his estimates. Nigeria had had the benefit of high oil prices but its oil revenue, and consequently the revenue of the government, had continuously declined. His memo to the President had claimed that this anomaly cannot be explained by the partial fluctuations in the oil production. As a result of declining oil revenue, government budget had not got the required revenue; it added pressure for Nigerian Naira to depreciate in the market.

Hence, his advice to the President was to put a stop to the continuing theft of oil revenue by those in NNPC. The implication was that if it is not done promptly, the country will have to sacrifice the hard-earned low inflation regime.

The good report is badly taken by the government

In any country with good governance practices, such a memo from the central bank governor would have been welcome and acted upon. But it was not the case with Nigeria. The Managing Director of NNPC immediately issued a counter-charge that Sanusi did not understand the technicalities of oil production and sales. He further charged that the Central Bank of Nigeria has ventured into auditing government corporations which was not its duty.

However, after Sanusi’s revelations, several private analysts who tried to reconcile the reported revenue by NNPC with the import of oil by Nigeria’s trading partners found that NNPC revenue was much lower than what had been paid by foreign importers of Nigerian oil. The shortfalls are assumed to have been retained outside the country by an elite group belonging to President Jonathan’s inner circles.

President Jonathan, instead of initiating an investigation into the charges made by Sanusi, hit back by asking Sanusi to resign from Governor’s post. But Sanusi had refused to do so claiming that such a directive should come not from the President but from the Senate according to the constitution.

Authoritarian rulers don’t respect constitutional provisions

But such a constitutional nicety would be observed only in a country where there is good governance in practice and the observance of the rule of law by the government. Nigeria was not such a country. Hence, Jonathan acting on his powers suspended Sanusi from the post of the Central Bank Governor in February 2014 and informed the Senate of his decision. The Senate did not come to rescue Sanusi as required but silently approved of the measure taken by Jonathan. Those are the powers exercised by authoritarian rulers everywhere in the world. Even the elected representatives offer a yielding hand to such powerful authoritarian rules to violate the provisions of the laws of the country.

Another example for such authoritarian action was the removal of the Governor of Bank Indonesia, Sudradjad Djiwandono, by President Suharto in 1997 when the good intentioned Governor tried to close down 16 bankrupt banks in the country. The sin committed by Governor was that he tried to interfere in banks which had been owned either by close family members of President Suharto or by his close associates.

This story was discussed by this writer in a previous article titled ‘Bank Capital is not a panacea: Good governance and regulatory wisdom more important’ in this series. Both Sanusi and Djiwandono would have survived had they not ventured into challenging the powers of those who are close to the topmost powerful man in the country.

Rebasing should not necessarily increase the size of the economy

In the midst of allegations against the theft of oil revenue and sacking of the Central Bank Governor, Nigeria has rebased its GDP calculations to 2013 increasing the size of the economy also by about 89% as mentioned above. Rebasing of GDP calculations periodically is a normal activity but in other countries it does not increase the size of the economy dramatically as has been done in Nigeria.

For instance, when GDP numbers were calculated by the Central Bank of Sri Lanka prior to 2007, on several occasions, GDP calculations were rebased without increasing the size of the economy dramatically. In 1982, the previous GDP series which was based on the base year 1970 was rebased after 12 years. The total size of the economy was increased only from Rs. 85 billion to Rs. 99 billion or from $ 4.4 billion to $ 4.8 billion.

Again, the data series was rebased in 1996 after another 14 years. This resulted in increasing GDP from Rs. 668 billion in 1995 to Rs. 768 billion in 1996 or from $ 13.0 billion to $ 13.9 billion. The third revision was done by the Department of Census and Statistics in 2002 after six years. The GDP increased from Rs. 1,407 billion in 2001 to Rs. 1,582 billion in 2002 or from $ 15.8 billion to $ 16.5 billion. Thus, there is no necessity for a country to dramatically increase the size of the economy simply because it has rebased its GDP calculations.

Sri Lanka’s dreams about discovering oil in Mannar Basin

Sri Lanka is set to prospecting its oil and gas resources in Mannar Basin by 2020. This is expected to make Sri Lanka energy self sufficient and it is the hope of every Sri Lankan citizen. The top policy makers of the government have projected that this discovery will eliminate the country’s gaping trade deficit entirely and generate a surplus in the current account of its balance of payments. When Sri Lanka has a surplus in the current account, it means that the country is transformed from a borrower nation in the international markets to a lender nation. Hence, these are high hopes entertained by all and sundry.

The need: good governance and a non-yielding central bank

But all these high hopes will evaporate into thin air if the country will not have good governance practices in place and the country’s central bank does not perform its statutory duty, respected by those in power as was announced by Dr. N.M. Perera, Finance Minister during 1970-75 at a meeting with Central Bank officers in 1971.

This is the lesson which Sri Lanka has to learn from Nigeria. This writer has repeatedly pointed this out in this series of articles. One such article is the experience of Venezuela which has become economically bankrupt despite its huge oil resources, like Nigeria.

*W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at waw1949@gmail.com 

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Latest comments

  • 5
    2

    Peoples’ wrong expectations are taht it can happen when you turn a switch on. Although “Good governance” should be a continuous process. Its not a destination but the journey.

    90% of the UPFA MPs people elect have no GCE O/L qualifications. Now, it should start with political parties nominating reasonably educated individuals who understand and value such processors.

    • 1
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      Vibhushana

      “Now, it should start with political parties nominating reasonably educated individuals who understand and value such processors.”

      You want educated crooks to swindle the country rather than the uneducated ones.

      So you are not looking for wise people to run this island.

    • 2
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      Dr. W.A. Wijewardena

      The Nigerian news that shocked the world

      “During the last 12 month period, three pieces of news coming from Nigeria shocked the world. The first was the sacking of the Nigeria’s Central Bank Governor, Lamido Sanusi, by Nigeria’s President Goodluck Jonathan in February 2014. His crime: Warning the government that billions of dollars in oil revenue due to the Treasury had been stolen at the Nigerian National Petroleum Corporation or NNPC. Thus, his hint was that culprits who had committed this theft had been associates of the incumbent President.”

      The country that managed it well was Norway.

      Well, Sri Lanka, to a lesser extent is following Nigeria courtesy Raja=-pakas.

      • 0
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        Sorry Amarasiri. Please take this correction: Royal[Edited out].

    • 1
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      W.A Wijewardena –

      RE”Lesson From Nigeria: Discovery Of A Natural Resource By A Country Without Good Governance Is A Curse

      The Second Curse is Boko Haram, the Devil, Satans Followers.

      The Arabs Call them Daesh

      The French Call them “Daesh cutthroats”

      Amarasiri calls them The Devils, the Satans or sStanis or Satanic. Read, The Age of reason by Thomas Paine, Printed 1795.

      ISIS is upset about French government’s new name for them

      http://www.iraqinews.com/arab-world-news/isis-upset-french-governments-new-name/

      IraqiNews.com) France’s Ministry of Foreign Affairs announced that it will not use the common terms ISIS, IS, Islamic State, and ISIL to refer to the group but will instead refer to it as “Daesh cutthroats” which is reportedly upsetting the group.

      “Daesh”, is the Arabic word used to refer to the group which is also similar to the Arabic word that means “to trample.”

      France’s Foreign Minister Laurent Fabius said “I do not recommend using the term Islamic State because it blurs the lines between Islam, Muslims and Islamists. The Arabs call it “Daesh,” and I will be calling them the Daesh cutthroats.”

      Many news channels have adopted the term “Islamic State,” but US Secretary of State John Kerry aligns with Fabius on this issue. Kerry stated earlier on Thursday, “I call them the ‘enemy of Islam’ because that’s what I think they are, and they certainly don’t represent a state even though they try to claim to.”

      It doesn’t end there. Many Muslims in the UK, France, and during the protests in Germany on last Friday, have called their governments to call the group the “UnIslamic NonState.”

    • 1
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      Vibhushana

      “90% of the UPFA MPs people elect have no GCE O/L qualifications. Now, it should start with political parties nominating reasonably educated individuals who understand and value such processors. “

      Srima Bandaranaika has a 5th Grade Education.

      That that was an earlier era, but had somewhat better ethics.

    • 1
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      Compared to the sub-continent Sri Lanka is miles ahead in all indicators. We just want more goodness.

      What you are on about is something else I think. Tamil problem is a self-inflicted thing that no amount of ‘good governance’ can solve.

      • 0
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        Careful Vidhushana. You are getting trapped in the semantics. This is going to de-rhyme your fellatio services to Rajafuksa .

    • 1
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      VIBuSHANA;

      “Now, it should start with political parties nominating reasonably educated individuals”.

      As to you mentioned, What is the meaning of “REASONABLY EDUCATED”.

      WE HAVE MPs with Self nominated Doctorates and Cheated degrees,
      Also Some Islands Political swollen headed presidents have cheated, stolen LAW [Low] DIGREES.
      Some political parties nominating psychopaths, sycophants and Rapists to Rule people and enhance Education for the People. Are They Qualified to do the JOB to Serve People.

      Do Night car Races, Play International RUGBY with Family Member Players and Play casino using Stolen Public’s Funds.

      BUT ALL THESE AT THE EXPENSES from THE Poor People.

      • 1
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        Elephant,

        Sri Lankans have a tenacity to always see the negative side to the point of being self-deprecating. There is a far rosier side if you bother to look.

        Take for example, Colombo these days are squeaky clean just like Singapore. Colombo does it out of a sense of responsibility. In Singapore people do it out of fear.

        Sri Lanka is on a trajectory that surpasses Singapore. It will do it in a far more humane manner too.

        Namal Rajapaske promotes Colombo night races, why? He wants to attract tourists isnt it? Is he doing it with stolen money? What happens after this witch hunt is over and you have been proven wrong all along? If Rajapaske is stealing money then prove it isn’t it? Can you do that?

        • 3
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          VI BEHEESHANA,

          THISE IS THE ERA OF vI Bheeshana TO Sri lanka and sri Lankan’s.

          yOU CAN BELLOW THAT TO HAMBATHOTA FOOLS AND LOOTERS.

          YouR Looter with the clan and 500 odd family thieves, looting sri lanka with dummy companies,

          starting from treasure Looting, people smuggling, And imports of Low quality Oil, Low quality Coal, Low quality construction with Inflated LOANS+++++ INTERESTS AND Hidden commissions from full contract sums,
          Closed door transaction with Forigen and local HEROIN Dealers.

          ALL those pilferings ARE NOT any more SECRECTS TO PEACE LOVING SRI LANKANS, BUT LOOTER GET TOGETHER LIKE YOU DO.

        • 0
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          No one can deny you suck good. Rajafuksas are lucky they have a good [Edited out] ! LOL!!

        • 2
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          VI BEHEESHANA,

          yOU CAN BELLOW THAT TO HAMBATHOTA FOOLS AND LOOTERS.

          THISE IS THE ERA OF vI Bheeshana TO Sri lanka and sri Lankan’s.

          Do not tell me about Singapore, I worked there for many years and my close relatives are there.
          may be you do not know about Singapore.
          With this Pilfering and looting clan, Sri Lanka will never be a Singapore like,
          Not even in your day dreams.
          In Singapore Corruption is Very Very minimal.
          and there are NO Show off PATRIOTS like You and our F KING.

          Sri lanka have Visiting prostitutes than genuine tourists.
          YouR king Looter with the clan and 500 odd family thieves, looting sri lanka with dummy companies and Deception ,

          starting from treasure Looting, people smuggling, And imports of Low quality Oil, Low quality Coal, Low quality Chinese construction with Inflated LOANS+++++ INTERESTS AND Hidden commissions from full contract sums,
          Closed door transaction with Forigen and local HEROIN and arm Dealers.

          ALL those pilferings ARE NOT any more SECRECTS TO PEACE LOVING SRI LANKANS, BUT LOOTER GET TOGETHER LIKE YOU DO.

          Remember, Saddam Husain Family, Hosni Mubarak Family, Suharto family, Gadhafi Family, all paid for the sins they done to people.

          Sri Lankan F king family will pay in due cause.

  • 1
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    Where governance fails, what is not a curse?
    One must admit tho that evil is sometimes tempered by inefficiency
    But u cannot bet on that.

  • 0
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    At least the president of Nigeria accepts that oil money was mishandled. What about SriLanka. It is worse than Nigeria by all standards of governance.

  • 1
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    The exploitation of oil brought a lot of environmental problems to Nigeria. And big money has a tendency to breed corruption.

    Sri Lankans also need to be careful that the discovery of oil does not take away the impetus towards developing cleaner, greener sources of energy.

  • 1
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    The crux of most of the socio-politico and economic problems is that all organized as well as disorganized and splintered schizophrenic religions have long past their Best BFO, Use-By and Expiry dates. At best they may have acted and reacted as some sort of an internal and external scaffoldings for most individuals, communities, societies and nations Would have been useful at best in the service aspect to humanity though that too is questionable for its real inner expectations of rewards of some form like Moksha, heaven, better rebirth or as even at the least to ease one’s troubled conscience. It’s high time for all of religiously oriented mankind to be repeatedly and continuously better re-educated with the cutting edge discoveries of science and do away with the crutches of all religions and try to make-do with a more realistic Amoral and apparently spiritual aspect of life and the ever expanding and recycling cosmos where everything seems to be nothing and nothing seems to be everything for all forms of life in the knowable and observable parts of the multiuniverses.

    As this may help reduce the horrendous violence, death and destruction wrought by unfounded delusionary and subjective religious beliefs even as scientific-mankind is able to better harness the Viruses or Viri for their useful and better properties to improve the present and future stock of life to come to live a longer, better qualitative Lives with the least love, hatred envy and harm to his fellow beings as well as all Life. Though this thought and/or feeling too is an apparent contradiction and paradox in the light of the mostly Human and other forms of Micro biomes living within, on and through and through all life forms in at times as competitive, cooperative and multi symbiotic relationships for sex, food, transport and abode.

    So-called mother, mistress Nature or even God and/or Goddess seems to be functioning as an experimental, contradictory and is eternally at cross purposes simultaneously to both the religious and irreligious surpassing all religions with their many branches and some with other lucrative sub-sects both extant and extinct. Yet to all of us who have damaged and flawed brain software through the various cultural upbringings over the ages with further inherent brain hardware inadequacies and superfluities along with the amoral experimentations of nature will make us all continue our blunderings and buffoonery until, nature itself or one of its main byproduct us humans ourselves make ourselves superfluous and extinct both accidentally and/or willfully as its seems evident that neither nature nor its part and parcel mankind has or is working to any master and/or even an ad hock plan as such everything is constrained by the very vagaries of nature itself despite the countless signs and signals of intelligent design and natural evolutions that seem quite beyond the scope of comprehension of us humans both religious and non-religious.

    • 0
      1

      Mal (your name denotes evil) if today, one of your loved ones, may be father, mother, wife, son, daughter, is hit by a speeding vehicle, and is lying brain damaged in the ICU respirator, please write to CT and inform the readers, that you did not pray to the Almighty for a speedy recovery.

      • 1
        1

        Mal was the short form for my well thought out and meaningful long name in Tamil suggested to my mother by her uncle a school teacher Mr. Shanmugam but my Australian employer company the then Telecom and now Telstra management shortened it to for their admin convenience but what is more relevant is that you being a nondescript ignoramus who has no verifiable identity or presence in the world wide web or the cyber world, is hiding behind a very common name and don’t deserve any reply or response from anyone and even if you or your ilk were given one you’ll will not be able understand it with your inadequate , warped and delusionary mindset or be able cope with or handle it in anyway so simply try to effortlessly wallow in your own muck.

        It is better for people like you to keep your traps shut and feign than to open it like this and try to clear all doubt about it. Yet by cunningly hiding with such incomplete and very common names you lose nothing and make people like me waste their time on a fellow backward and retarded human that prompts me to give you even this response out of my humanitarian concern for you and for all those who did not try to respond like you but kept their judgments’ in abeyance even if they may have only partially understood what I was trying to convey. I have detailed and revised it more in my face book entry to the FB perennial question of “What’s on your mind”? Yet everything is a work in progress when thoughts and/or feelings keep impinging from the environment around us.

  • 0
    0

    The discovery of oil in Mannar Basin might probably be a curse but I’d welcome it at least to pay off our mounting debts which we are still adding to and poised to burden on several of our future generations. I pray there would never be a war between India and China as we are obliged to provide military facilities to China and be obliterated in the process by our nearest neighbour and ally.

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