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Manna from heaven: Rich or poor?

Onno Ruhl's picture

When I first went to Nigeria, I had a picture in my mind of an oil country with a struggling non-oil economy. This picture came from two statistics I knew: 95 percent of Nigeria’s exports are oil and 85 percent of Government revenues come from oil. What I did not know was that oil is only the fourth largest sector in the economy, with the wholesale and retail sectors being larger. 

This means that people buying and selling things adds more value to Nigeria’s economy than the entire oil industry does. So why is it that oil is always talked about as either what makes Nigeria rich or what has doomed Nigeria to remain poor.  And which one is right, rich or poor?

The rich part is easy to understand: Nigeria produces more than $50 billion worth of oil every year, which seems pretty rich indeed. Though actually, it is only about a dollar per capita per day, so we cannot call that rich unless Nigeria uses that money to deliver meaningful results for its people: governance for results.

So what has been the relationship between governance, results and oil in Nigeria? To answer this question, I would first look at the way money from oil flows into government. All of it comes into one single account: the Federation Account. Every month the revenues in that account get distributed between the three layers of Nigeria’s government: federal, state and local. This distribution happens according to a constitutionally fixed formula and as pure block grants, i.e. neither linked to performance nor any spending targets. So once a month, everybody comes to Abuja to find out how much their block grant will be. Oil revenues “raining down” like manna from heaven have thus tilted the Nigerian political system towards mostly looking up and to the center.

Then, what about the results? Where are they supposed to come from? Well, the Nigerian constitution places responsibility for most areas of service delivery at the state and local government level, in other words down and in the periphery. We are talking here about primary and secondary health care and education, water and sanitation, drainage, many roads and more; effectively, most things except power and security. These are tremendous responsibilities for the state and local governments; many other governments in the world struggle with the same. Yet as we just saw, Nigerian state and local governments get the vast majority of their revenues from above, regardless of whether or not they actually deliver services to their people. Not a great starting point for results and, in fact, results are far from great in many areas. So if we assume that most people who do not get key services remain poor, then we have answered the question: oil is more likely to make Nigerians poor.

In the future, I will talk about whether this paradigm can be changed and things happening in Nigeria already that could help us understand how to get better results soon.
 

Comments

Submitted by Rabiu Muhammad on
I would like to know, how much the whole sale and retail section of the Nigerian economy account for in monetary terms, and if good leadership never comes how can the nigerian populace make things better for them selves and whats the retail and wholesale section that you say accounts for higher revenue than the oil consist of?

Submitted by Onno on
The value added (contribution to GDP) in the whole sale and retail sector of the Nigerian economy is about 20 percent of GDP, which means not far from $40 billion per year. It consists of markets, supermartkets and shops, just like anywhere else in the world. The tax revenues generated by the whole sale and retail sector are far lower than those from oil. But on the positive side, there are many, many more jobs there than in oil. In terms of leadership, I personally believe that better leadrship comes through greater accountability. I will elaborate on this in my next blog. Thanks for responding, Onno

Submitted by Anonymous on
Finally someone has hit the nail on the head about the Nigerian economy! The much touted oil which blinds the government and makes it rent seeking is first of all not that much when talking per capita and i do agree with you that the current 'sharing' formula does not do much for transparency and accontability. the interesting thing though is that since oil is on everyone's lips including non Nigerians, it prevents them from seeing the true potential for other sectors of the economy like whole sale and retail trade within the country and west africa. Lagos state alone accounts for about 40% of the gdp of west africa. The focus needs to be redirected from oil, so that well meaning politicians and not rent seeking ones can rise to power and enanct policies that will encorage these robust sectors that have thrived even in the most perverse of markets.

Submitted by Folayemi Anifowoshe on
The markets, supermarkets and shops all form a part of the informal sector and considering the size of Nigeria's population should provide a lot of employment and enterpreneurial opportunities for the populace. Another point that i deduced from your post is that this has happened inspite of the poor infrastructure that exists in Nigeria. For greater accountability to yield better leadership, appropriate systems should be in place (e.g. judicial, law enforcement, accounting etc) and this will only happen via a sustained drive for reform. I believe that continued support for reform and the people who drive them by international agencies (e.g. the World bank) can help the process. We must not neglect the "marriage" between politics and the economy, and the challenge i find here is that redirecting the focus from oil to non-oil will require a long-term strategic thinking which the average politician doesnt care about (as he/she is focused on the next 4 years). It will also require implementation of the ideas/policies/ programmes by government staff which may not have the capapcity to do so.

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