Jide Akintunde, Managing Editor/CEO, Financial Nigeria International Limited

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  • Fiscal Policy

Issues in resolving oil conflict in the Niger Delta 16 Jun 2016

*Jide Akintunde and Martins Hile


Some problems are best solved by ensuring they didn’t happen. In this regard, Americans would be weighing the consequences of electing Donald Trump in the presidential election in November. Enough is already known about the presumptive nominee of the Republican Party that suggests his presidency would create backlashes, including heightened geopolitical risk, which the U.S. would do better to avoid.

The Nigerian electorate overlooked the geopolitical risk to the country’s oil economy by electing General Muhammadu Buhari as president in 2015. The majority of the voters simply focused on the auspicious change Buhari somewhat symbolised and promised. Similarly, the International Oil Companies (IOCs) have been courting disruptions to their oil installations in the Niger Delta for decades, through poor community relations and widespread environmental footprints of their operations.

One expression of the President Buhari risk is his embrace of militarisation of the oil conflict in the Niger Delta. Predictably, this approach was going to prove costly in the short-term. Over the longer term, what is desirable is for the Niger Delta to be peaceful, prosperous and environmentally sustainable. This cannot be the aftermath of military suppression of the uprising by the militants.

In the meantime, the short-term risk has crystallised in the loss of up to 800,000 barrels of crude oil per day, as the Niger Delta militants embarked on large-scale bombing of oil installations. While this supply disruption has contributed to raising oil prices above $50 a barrel, the country still faces a grim fiscal outlook by bleeding so much oil.

Resource control buzz

It was recently suggested that the latest round of attacks on oil installations was a response to President Buhari’s anticorruption agenda. “Corruption,” we are told, “is fighting back.” The Niger Delta militancy might have embedded criminal enterprise from the start; but its legitimate struggle – against the wrongful appropriation of oil revenue by the federal government and environmental degradation in the oil-producing communities – would always require funding through illicit activities.
 
Half-hearted political diagnoses have resulted in ineffective solutions to the Niger Delta crisis. The 13% derivation principle, creation of Niger Delta-focused institutions and the amnesty programme have not produced development in the region. As a result, we are witnessing the touting of “resource control” or “fiscal federalism,” in what would be the last throw of the dice.

But fiscal federalism is already in practice in Nigeria. Its vertical framework sees the distribution of revenues accruing to the Federation Account among the Federal, State and Local governments. Nigeria’s fiscal federalism also entails horizontal fiscal relations that address the asymmetry in the distribution of resources. The revenue sharing formula can be tweaked and it has changed over time. However, the arrangements have failed to deliver optimum productivity and it is fraught with deliberate leakages. This has led to the denial of existent fiscal federalism, with many people now clamouring for its resource control hue.

Suppose that through “resource control”, a much larger chunk of oil revenues is retained in the oil-producing region. If it is put into good use, including investment in infrastructure, this will create sharp disparities in development between the oil-producing region and other regions of the country. A textbook argument says the initial disparities will spur innovation and competition among the regions, leading towards uniformity in development. But this looks more like a recipe for geopolitical strife which the extant fiscal framework is aimed at avoiding.

Resource control is a solution for Nigeria that would cease to exist. Even if it is not, it cannot solve the fundamental economic problem of the country. All the resources that have accrued to the oil-producing states -- through the derivation principle, in addition to federal allocations -- have not produced any meaningful results that could be scaled up by more allocation through resource control.

The truth is that each region of Nigeria amply exemplifies the larger national malaises. Those who advocate resource control propose it as a magic wand that will enhance productivity. They expect a turnaround in resource governance. Through a nostalgic feeling for Nigeria’s short-lived regionalism, the fiscal federalists are betting heavily on what could have happened, had Nigeria remained a loose federation. Perhaps, the unsustainable practices by the oil companies, and the inevitable fight for supremacy that would ensue within the oil-producing region, are issues that would be dealt with later. These issues have hardly been well-considered in the national shouting matches we have had on how to foster economic justice in the Niger Delta. We have dared to broach some of the issues here in the more contemporary context.

Productivity laxity

There is the general need to raise productivity levels in Nigeria. Low levels of productivity around the country account for the high national poverty rate. The governors of the oil producing states have generally neglected the need to develop other viable economic activities and collect taxes. Northern agriculture, which is critical to national food security, is little-developed and its value-chain remains poorly linked. And Lagos, the sprawling commercial nerve-centre of the country, is noted for poor infrastructure and lack of electricity. The State is not noted as a centre of excellence in education or anything but its slogan.

The biggest challenge of economic management in Nigeria today is how to close the pervasive productivity gap. Even if easy petrodollars were responsible for this problem, substantial loss of shared oil revenue in the states that don’t have oil, and the increase in oil revenue in the oil-producing states, cannot solve the problem.

We need to invest in education and achieve high learning outcomes. We need to do the right things the right way. But what is left of our ability to do these in the country where most people get along by corruption remains to be seen. The Niger Deltans face additional productivity challenge due to deep-rooted extortionist practices, militancy and a culture of reward without work. These challenges can become even deeper when more petrodollars are retained in the region.

Anticorruption and governance

Natural resources fuel conflict and corruption in a poor governance environment. Driven by oil, Nigeria’s ‘fantastic’ corruption has active participation of the Deltans, even if they are marginalised in it in Abuja. But part of the Nigerian governance malaise is that anticorruption efforts often succeed in nailing only those who are politically weak. Thus, since 1999, the biggest casualties of the anticorruption efforts of government are leaders from the political minorities: Governor Joshua Dariye of Plateau State, Governor James Ibori of Delta State and Governor Diepreye Alamieyeseigha of Bayelsa State. The last two are from the oil-producing Niger Delta region.

With majority of Nigeria’s rogue oil billionaires coming from outside the region, the feeling of victimization of leaders from the Niger Delta becomes quite compelling. It is, therefore, expedient that President Buhari recognises that any anticorruption that continues to victimise leaders from the Niger Delta will have blowbacks. Nevertheless, the misappropriation of huge revenue allocations to the oil producing states by the governors needs to stop.

With the current situation, commercial and development projects in the Niger Delta will face significant implementation risks, given the culture of militancy and extortion in the region. One way to overcome this challenge is to give a longer-term horizon to the amnesty programme. Also, private participation in the provision of security in the region should be legitimised; but it must be transparent and deliver value. In the United States – the leading military power in the world -- private security service providers are commonplace. And in some developing countries, former militant, nonstate actors are integrated into the formal economy through the security sector. Obviously, that is where they have skills. The provision of security by ex-militants should extend beyond protection of oil installations to other project sites. Nothing about this in itself undermines the government security agencies.

Role of the IOCs
 
The IOCs started selling off their onshore and shallow water assets a few years ago. This was seen as a boost to local content, because indigenous E&P companies were snapping up the assets. But it has since become clear that the IOCs, who had been part of the problems in the oil communities, were no longer seeing themselves as part of the solution. Thus, they wanted to confine their operations offshore, beyond the reach of the militants and beyond some scrutiny.

The IOCs in Nigeria have been environmentally irresponsible. They fail to clean up oil spills. They have refused to comply with various deadlines on ending gas flaring. Years after Shell was told to clean up its oil spills in Ogoniland, it failed to do so. However, in revisionist efforts, environmental degradation of the Niger Delta is being blamed on the militants. But oil spills – often left without clean-up – were business-as-usual for the IOCs, long before attacks on oil installations started to occur.
 
Bringing the powerful IOCs into some accountability is critical for resolving the Niger Delta crisis. Apart from cleaning up oil spills and paying compensation to affected communities, the IOCs have to be guided by global best practices that inhibit simmering crisis in their host communities as a result of their operations. President Buhari seems to be using the clean-up as a political tool. He belatedly launched it at the beginning of this month in the middle of the current crisis. But he would have endeared himself to the communities, had he launched it immediately he became president last year.

The IOCs need to engage better, and make their operations a win-win for themselves and their host communities. Oil exploration and production offers very few jobs. Most of the jobs require highly technical skills which the locals don’t possess. But considering Nigeria’s high youth unemployment, the IOCs need to invest in subsidiaries that provide jobs for the locals. By not investing in refineries, the IOCs open themselves to the criticism of lack of commitment to the local market. They need to begin to redress this situation.

The IOCs need to regularly validate their “social licence” to operate in their host communities. This is the norm in the extractive sector worldwide. Mineral conflicts have fuelled much of the wars and civil strife in developing countries since the last years of the last millennium. Extractive companies have a lot to do to ensure the remaining part of this century is not defined by mineral-induced conflicts.

Economic justice

Nigeria must adapt both conflict-avoidance and conflict-resolution strategies to end the oil conflict in the Niger Delta. Many African countries have been able to end diamond conflicts, including Sierra Leone and Angola.

A development masterplan for the Niger Delta is long overdue. One aspect of it should entail building world-class institutions for maritime and petroleum education, especially with the protests against cancellation of Maritime University established by President Goodluck Jonathan. It would also entail development of local skills that relate to everyday existence in the region. How about providing facilities to train prospective medallists in swimming at the Olympic for people in this riverine area?

For industrial development to thrive in the region, effective demand must improve. As we continue to ask questions on the criteria for determining the beneficiaries of the impending social investment of the government, from the standpoint of addressing geopolitical risks to the polity, it makes sense for most of the beneficiaries to come from the Niger Delta and the Boko Haram-ravaged Northeast, to begin with. The remaining bolts and knots for the development masterplan should, among other things, support civil society to promote peaceful agitation.

Conclusion

There is well-founded scepticism that President Buhari will provide the much-needed leadership to solve the Niger Delta crisis. Therefore, this conflict is an acid test of his ability to overcome his old prejudices, and resolve a problem for which mis-action can cause a national economic catastrophe. Having campaigned for election with the “change” mantra, Buhari’s attitude towards building a cohesive Nigeria should also change for the better, starting with non-military resolution of the Niger Delta crisis.  

There would be a recurring cycle of militancy in the Niger Delta region long after the fury of Niger Delta Avengers may have been assuaged through the ongoing negotiations. For lasting solution, there is need for astute national leadership, drastic reduction in official corruption, and economic rejuvenation through implementation of sound policies.

*Jide Akintunde is Managing Editor of Financial Nigeria magazine and Director, Nigeria Development and Finance Forum. Martins Hile is the Executive Editor of Financial Nigeria publications.