3.3 Economic Root Causes of the Niger Delta Conflict
3.3.2 The Oil Industry in Nigeria
To state that oil is central to the violence in the Niger Delta is to restate the obvious.
Ibeanu (2006: 21) argues that ―understanding the persistence of conflicts in the Niger Delta necessitates a review of the historical development to the oil industry [in Nigeria].‖
Such a historical context makes for a varied and intriguing trajectory. In 1956, oil was discovered in commercial quantities at Oloibiri (Bayelsa state). Since then, the oil sector in Nigeria has experienced impressive growth and has assumed a high place in the country‘s political economy. From 1970s, crude oil has totally eclipsed agriculture as the engine of the economy in all ramifications. For example, Omotola (2006: 8) argues that ―from less than 1 per cent in 1960, the contribution of oil to GDP rose to 14.6, 21.9 and 26-29 per cent in 1970, 1975 and 1979, respectively. By 1992, it had risen to 46.8 per cent.‖ The contributions of crude oil to Nigeria‘s export incomes have been much higher: ―From 58.1 per cent in 1970; it rose to 95.6 per cent in 1979.
Throughout the 1980s and 1990s, it remained very high, accounting for 210 billion naira or 96.1 per cent of total export earnings in 1996‖ (Omotola, 2006: 8). The pride of place that oil occupies in the Nigerian economy can be further gleaned from Table 8.
According to Obi (2010: 446), the oil industry in Nigeria has undergone three phases:
―(1) the oil concession, (2) state participation, and (3) deregulation eras.‖ The earliest era had its roots in the first oil exploration work by the German Bitumen Company based on a 1914 colonial minerals oil ordinance granting the monopoly of oil concessions in Nigeria to ―British or British-allied capital‖ (Obi, 1997: 140). Under this ruling, Ibeanu (2006: 21) argues that ―the Anglo-Dutch group Shell D‘Archy (later Shell- BP) got an oil exploration Concession covering the entire 367, 000 square miles of Nigeria in 1938.‖ Thus, ―the stage was set for over six decades of dominance of the Nigerian oil economy by Shell (currently about 50 per cent of Nigeria‘s total production and about 53 per cent of total hydrocarbon reserve base)‖ (Ibeanu, 2006: 21). In 1956, oil was struck in a commercial quantity in Oloibiri (Bayelsa state). The next year, oil MNCs, such as Mobil, Texaco, Esso, Agip and Safrap entered into the Nigerian oil sector to occupy oil acreages given up by Shell in 1958 (Schaltz, 1969: 3). In other words, ―Shell ceded 95 per cent of its concession to other non-Nigerian companies, leaving itself prime 16,000 square miles‖ (Ibeanu, 2006: 21; see chart 4 for a depiction of the oil fields in Nigeria).
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Table 8
Crude Oil and Non-Oil Export Earnings in Nigeria, 1988-1996
Source: These data are taken from the Central Bank of Nigeria, Nigeria: Major
Economic, Financial and Banking Indicators, Abuja: CBN, 1997, p. 8; quoted in Omotola 2006, p.9.
By February 1958, Nigeria became an oil exporter with a production level of 6,000 barrels per day (Ibeanu, 2006: 21; Schaltz, 1969: 3)—although it was not until after the Civil War (1967-1970) that the country became a major producer on a global scale (Ibeanu, 2006: 21). Obi (2010: 447) notes that ―the early era of the oil industry was marked by foreign control and non-participation by the state that simply collected rents and taxes.‖ However, by the 1970s, there was a change in the trend, owing to the following factors: (1) increased contribution of oil to national revenues, (2) the ‗OPEC revolution‘ that led to the quadrupling of international oil prices, and (3) the economic nationalism of the Nigerian post-civil-war military government that embarked on the indigenization of the oil industry (Obi, 2010: 447). Notably, ―Decree No. 51 transferred the entire ownership and control of all petroleum in, under, or upon any lands to the federal military government‖ (Obi, 2010: 447). What is more, the Nigerian state sought to gain greater control of proceeds of the oil exports. According to Ibeanu (2006: 21), the Nigerian government ―passed the 1959 Petroleum Profit Tax Ordinance, which provided for 50/50 profit sharing between government and producers. This marked the early beginnings of a petro-rentier state.‖ Subsequently, the Nigerian National Petroleum Corporation (NNPC) was formed by the Nigerian government through a merger of the Ministry of Petroleum Resources with the Nigerian National Oil Corporation (NNOC) (Obi, 2010: 447). The growing interests of the Nigerian government in the affairs of the oil sector were represented by the newly formed NNPC,
Year Exports
of goods and services
Oil (%) Non-oil
(%) including invisibles
Non-oil excluding invisibles
1988 31.7 89.5 10.5 8.8
1989 63.2 87.0 13.0 4.7
1990 120.1 88.8 11.2 2.3
1991 132.4 88.3 11.7 3.5
1992 226.9 88.8 11.2 1.9
1993 245.7 87.0 13.0 2.0
1994 215.5 93.2 6.8 2.5
1995 875.5 92.0 8.0 2.3
1996 1186.1 93.2 6.5 1.7
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―including its equity interest based on a 60:40 ratio in the downstream sector of the oil industry‖ (Obi, 2010: 447).
Unfortunately, this ratio was decided without consulting or involving the local oil-bearing communities (Pearson, 1970: 24-26). Ojakorotu (2008: 36) has argued that ―the non- involvement of the local [Niger Delta] communities in fashioning this arrangement signalled the continuation of the alienation of the people of the Niger Delta.‖ He further noted that ―it is an obvious fact that the exclusion of key actors from decision making processes inexorably undermine efforts at resolving problems that pertain to these actors‖ (Ojakorotu, 2008: 36).
Chart 4 Nigeria Oil Fields
Source: Isike et al. (2007: 38)
Three new refineries were built by the Nigerian state. The first was located in Warri (1998); the second in Kaduna (1980) and; the third in Port Harcourt II (1989). Obi
83 (2010: 447) argues that these refineries were built by the state in order to ―ensure secure supplies of refined products for the bourgeoning domestic market and provide revenue for government‖ (Obi, 2010: 447). Further, petrochemical plants were commissioned at Ekpan (near Warri), at Eleme (Port Harcourt II), and the Kaduna refinery. Obi (2010: 447) comments that ―the expectation was that these refineries will use the feedstock from the refineries to produce raw materials for the manufacturing sector.‖ In the upstream sector, a 60:40 cost and profit sharing ration was at play.
Following the nationalisation of the BP component in 1979, the formula used in the case of Shell Petroleum Development Company (SPDC) was thus: ―NNPC 55 per cent, Shell 30 per cent, Elf (now called Total) 10 per cent, and Agip (ENI) 5 per cent‖ (Obi, 2010:
447). Government‘s indigenisation policy enabled state incorporation into the transnational operations of the oil industry.
In 1977 and 1981, the global economy was hit with a sudden downturn in global oil prices. This reality had negative consequences for the Nigerian political economy.
Nigeria‘s mono-cultural economy nose-dived as revenues from the sale of oil shrank significantly, and by 1982, the country had entered discussions with the International Monetary Fund (IMF). In fact, ―many companies were closed and workers were retrenched‖ (Obi, 2010: 447). To use the eloquent words of Ibeanu (2006: 21), ―the silhouette had become a very clear picture and the Nigerian economy was already deep into a tailspin.‖ Ibeanu (2006: 21) lucidly describes the fiscal crisis in which the Nigerian economy was enmeshed:
Crude oil revenues fell from N201 million in 1980 to about N56 million in 1983, triggered by precipitous declines in world crude oil prices. Sine public revenues were largely dependent on crude oil exports, the decline set-off a serious financial crisis that is clearly expressed in the sudden increase in import of capital, which rose by 280% between 1979 and 1981. In 1983, external debts stood at about N15 billion, with a N5 billion backlog of repayments, while internal public debt stood at N22 billion. Expectedly, the economy virtually collapsed.
Industrial capacity utilization fell to only about 20%, there were massive layoffs of workers in the private and public sectors, inflation rose from 7.7% in 1982 to 23.2% in 1983, GDP fell by 4.4% in 1983 and GDP per capita fell from $960 in 1980 to about $300 in 1987.
At the time, the civilian regime of President Shehu Shagari tried to dissociate itself from the crises by blaming the difficulties on the sudden downturn in the world oil prices (Ibeanu, 2006: 23). For its part, the international financial institutions (IFIs) attributed the difficulties to ―structural imbalances in the economy‖ (Ibeanu, 2006: 23). However, one can predicate the fiscal crisis on the effect of an entrenched Dutch disease (Karl, 1997: 5) described by Ibeanu (2006: 23) as ―Nigeria‘s inability over the years to creatively use oil money to develop the industrial sector and in tandem neglected the
84 agricultural sector of the economy, which sustained the country before crude oil exports became dominant.‖ As a result of the ―fiscal crisis, pressures from IFIs, growing domestic discontent and decline in foreign investment in the oil sector, a reprisal for policies of the indigenization period‖ (Ibeanu, 2006: 23), the Nigeria National Petroleum Corporation (NNPC) witnessed a partial deregulation and commercialisation of its various operations.
We see a marked difference when we juxtapose the Nigerian petroleum legislation in the period before independence with what operated in other African countries like Algeria and Libya (Ojakorotu, 2008: 36). In significant aspects, the Algerian-French Petroleum Agreement of 29 July 1965 contrasted sharply with the Nigerian legislation.
For example, a good level of cooperation existed between the oil company to be founded by the French and the Algerian states (Schatzl, 1969: 95-96; Ojakorotu, 2008:
36). Beyond this, ―the legislation abolished the depletion allowances, the Algerian share of profit was fixed at 53 per cent and assessment of profits was made on the basis of fixed prices‖ (Ojakorotu, 2008: 36; Schatzl, 1969: 96). For its part, the Libyan Petroleum Legislation of October 20, 1965 also differs fundamentally from that of Nigeria in crucial aspects. Schatzl, quoted in Ojakorotu (2008: 36) observes that ―the Libyan petroleum law complied with practically all the requests of OPEC in regard to the operation of oil multinationals in less developed countries.‖ Further, he noted that
―petroleum legislations in Algeria and Libya guaranteed to the state a considerably higher share of petroleum profits than Nigeria under the Petroleum Profit Tax Ordinance of 1959‖ (quoted in Ojakorotu, 2008: 36).
In 2011, the oil sector in Nigeria is hobbled by elite corruption and remains the site of violence on the part of the three contending stakeholders in the industry: the oil multinationals, the Nigerian state, and the oil bearing communities. It is useful to note that the present ethnic minority agitations in the Niger Delta against their perceived marginalisation within the Nigerian federal system is partly rooted in historical factors and is therefore not a new phenomenon. In fact, it has been the case in the region prior to independence and throughout the post 1990 struggles. Broadly, the developmental hiatus in the Niger Delta is a consequence of a basic structural contradiction traceable to the dawn of the colonial enterprise and reinforced by the character of the Nigerian state. For instance, Jike and Okinomo (2008: 11) argue the following:
In juxtaposition with the other five geopolitical regions of Nigeria i.e. South East, South West, North Central, North West and the North East, the South-South or more appropriately the Niger Delta has a consistent history of being short changed and marginalised... the Niger Delta has often been at the receiving end of the exploitative tendencies of colonial and neo-colonial policies. The oil palm trade in colonial Niger Delta as well as the rubber and timber trades from which
85 the Royal Niger Company made enormous profits did not stimulate any
discernible measure of multiplier entrepreneurship for the local people in the region. As oil palm mercantilism blossomed for the coloniser, the indigenous peoples, who sustained this trade, remained in relative poverty. Their life circumstances and chances revolved around primitive conditions. Without piped water, without energy supply, without a modern household and with little access to modern education, the colonised was essentially incapacitated and fatalistically resigned to fate in a better world hereafter.
In view of the foregoing, the next section identifies and disentangles the key grievances and demands of the oil-bearing ethnic minority communities in the Niger Delta.