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A new approach to the resource curse?

The Financial Times reports that Nigeria is considering giving a portion of its oil revenues directly to citizens of the Niger delta, inspired by the Alaska model:

Nigeria’s rulers are hoping a new policy to deliver the benefits of oil to the local population – as Alaska does with its pioneering approach of distributing petrodollars in cash to citizens – might help placate an insurgency that has cut production by as much as 40 per cent.

According to proponents, the scheme could make about $555m annually available – about $20 a year for every man, woman and child of the delta’s 28m people, a significant amount in a region where 70 per cent live on less than $1.50 a day.

Nigeria’s eight oil producing states already receive an extra slice of oil proceeds – but much of the money vanishes. Dimieari Von Kemedi, an activist recently drafted into the government of oil-rich Bayelsa state, says his audit of state finances found contracts had been inflated to the tune of N17bn ($114m, £71m, €79m).

The intended option is a system of trust funds administered at the behest of each community – bypassing the delta’s state and local governments.

This seems like an interesting way to approach a decades-old problem. Yet, would it be possible for the program to be too successful? What if success fuels resentment and tensions with Nigerian regions that lack oil? Furthermore, what if it leads to a dramatic rise in oil production, followed by a consequent bout of Dutch Disease?

Or, has the cure for Nigerian Disease finally been discovered?


Submitted by Ulrich Bartsch on
Bypassing government cannot be a sustainable solution to the resource curse. Governments are needed to provide public goods and regulate private markets. Also, it will be very difficult to decide who represents "local communities" and administers the funds in the absence of democratic institutions. The oil companies and in particular Shell tried in the past to give money to "local communities" which resulted in violent conflict over who would represent the "local communities". This does not look like a useful alternative to strengthening local government and promoting transparency and accountability. However, it could be a quick fix to maintain the recent ceasefire.

Brian: Both Ulrich and you are right to raise questions about this scheme. The problem is that the money is being given as a handout (and that too only to some of the population), whereas in truth the oil revenues belong to the Nigerian people. An alternative, which is an idea I'm exploring with my colleagues Gael Raballand and Tuan Minh Le, is to return all the oil revenues to the public, and then tax them to finance public expenditures. This seemingly circuitous route has the advantage that the public would then feel as if it's "their money" that the government is spending, and may hold government more accountable for the way in which it is spent.

As an oil-cursed citizen I must remind you here that the oil-curse has several components, and though the “Dutch Disease” is an important one of these, it is still very far from being the worse. The worst part of the oil-curse is when the decisions of how the oil revenues are to be used are centralized in some few political and bureaucratic hands, thereby making the government wealthy independently of the citizens at the same time it causes the citizens to expect favors, not from the oil but from those who distribute the oil revenues. The above makes a mockery of any real sort of democracy, which is why I profoundly resent and object to when the Extractive Industries Transparency Initiative, EITI, the initiative which almost monopolizes the debate about oil-curse, establishes as their 2nd Principle “We affirm that management of natural resource wealth for the benefit of a country’s citizens is in the domain of sovereign governments to be exercised in the interests of their national development.” If net oil revenues were distributed to all citizens on a per capita basis during the first nanosecond of the month, then the governments could be free to devote their whole time to be governments and the citizens to be citizens.

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