Is the over dependence on oil really Nigeria’s biggest socio economic problem?

DSC_0036_Fotor.jpgMost of the research done on the resource rich developing country, Nigeria, places a lot of focus on the country’s apparent extreme dependence on it’s most lucrative natural resource (crude oil) for income. They rightly note that this dependence on crude oil has caused harm to the economy of Nigeria. Since discovering crude oil in the 1970’s the other sectors of the Nigerian economy have been neglected while almost all her income comes from the extraction of crude oil. Even in depending on crude oil, there is no diversity in this dependence, the country only extracts crude oil. She does not refine or export crude oil in any other form.

However, can all the socio economic and political problems Nigeria has faced over the last few decades really be blamed on her over dependence of crude oil? I would like to explore that in this short paper.  I can think of three issues that cause just as much harm if not more to the Nigerian people. It is also possible for the income from crude oil to be harnessed and utilized to foster sustainable development in such a way that over time, the percentage of crude oil in GDP diminishes, not just because of a reduction in the activity in the oil sector but because of growth and development in the other sectors of the economy.

Corruption is one issue that Nigeria faces that harms her ability to grow and develop even more than the over dependence on oil for GDP. PWC, in their paper on the impact of corruption on Nigeria’s economy show that by 2030, corruption could cost the economy up to 37% of GDP which is about $1000 per Nigerian. Corruption hinders the appropriate use of funds, it leads to extreme levels of inefficiencies on all levels of government and research has shown that corruption can negatively affect foreign and domestic investment in a country.

Unfavorable business environment is another problem that has cost Nigeria more in income and economic development than her over dependence on crude oil for GDP has. Businesses in Nigeria face a lot of challenges and a high cost of doing business. Not only do they incur the normal costs of operation, they also have to buy power generating plants and fuel them because regular power supply is non existent in Nigeria, corrupt government officials at the state and local government levels often force businesses to pay bribes in order to operate free of disturbance, the business regulations keep changing making it very hard to do business in the country. This has caused many business to move away from Nigeria and do business in other countries. For example, wood is being exported from Nigeria to Ghana because it costs less to dry the wood in Ghana since they have regular power supply. This provides income and employment for the Ghanian people while Nigerians have to import the wood back from Ghana.

Low levels of human capital development also harms the Nigerian economy. Nigeria is the largest and most populated country on the African continent. One in five black people in the world today is Nigerian. Yet Nigeria has a human development index of 0.47 on a scale of 1 and ranks 22 in Africa and 152 in the world. There is too little focus on improving education and healthcare of the citizens. The country suffers from the brain drain phenomenon where useful human capital tends to migrate away from Nigeria.

All in all, the over dependence on oil for GDP is an obvious problem that must be tackled in Nigeria, however, the issues presented in this paper are only a few more pressing issues that the Nigerian government needs to focus on in order to foster sustainable development in the country.



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