Oil and Underdevelopment in Nigeria10


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Oiland Underdevelopment in Nigeria

Oilis a key natural resource in Nigeria, which forms the greatest partof the country’s revenues (Ali 2009). However, some critics in thepolitical and economic realms argue that the resource is more of acurse. They base their argument on various reasons, especially linkedwith the high underdevelopment in the country. The reliance on oil asa key source of revenue and the concentration of Nigeria’s wealthhas created a culture of financial dependence (Bulte et al. 2005).The allocation of wealth is done on the basis of the nation’scentralized constitutional framework. The most profitable revenuesources are allocated to the central government, making thedistribution of wealth a key controversial matter in the country.

InAfrica, Nigeria is the biggest producer of oil, and tenth in theworld (Sachs &ampWarner 2001). Statistics has shown that 95% ofexport revenues and 765 of government revenues are obtained from theoil sector (Kaldor et al. 2007). Additionally, approximately a thirdof the country’s gross domestic product (GDP) comes from oilrevenues. The presence of natural resources evidences Nigeria’spotential to cater for the needs of the population, includingprovision of infrastructure, education and health services. Reductionof poverty and establishment of a thriving economy are otherpotentials of the country. During the 1970s, Nigeria was among thetop fifty richest nations (Taiwo 2011). In regards to this, it isparadoxical that the country has been ranked as one of the twentyfive poorest nations at this 21st century. Nigeria follows India andChina as the host of the biggest number of poor persons. According tostatistics, poverty prevalence in 1980 was 28.1% and it rose to 46.3%in 1986 (Stevens 2003). The rates rose up to 62.2% in 1997, but theNational Planning Commission reported a drop in 2004 to 54.4%(Ebrahim-Zadeh2003).Research indicates that in regards to the entire developmentindicators, Nigeria performs extremely poorly (Wenar 2008). Forinstance, the average yearly percentage GDP growth between 1990 and2000 was 2.4 percent (Otaha 2012).

Thegap between the affluent and the poor is also a major concern inNigeria. It is amongst the top twenty nations in the globe with thebiggest gap. It means that income distribution is poor. It has a highGini index of 50.6, compared to other countries such as Rwanda(28.9), Jamaica (37.9) and India (37.8) (Kaldor et al. 2007). Withreference to this, it is extremely baffling that the increased oilresources are not mirrored in Nigeria’s level of development. Thefact that the country continues to deal with underdevelopment is anissue of concern among many scholars and economists. Looking at theeconomic indicators, it could be perhaps true to say that theresources have been wasted. It is therefore apparent that thepejorative status of underdevelopment in Nigeria has without a doubtbeen caused by the resource curse and the Dutch disease.

DutchDiseases and Resource Curse

Theresource curse, or the paradox of plenty, is an irony that nationsblessed with large quantities of natural resources, in particularnon-renewable sources such as oil and minerals, are likely to havelow rates of economic growth as well as poor development results ascompared to nations with smaller quantity of natural resources (Ali2009). It is assumed to take place due to various reasons,encompassing reduced competitiveness of a country’s economicsectors. This may be as a result of increase in real exchange rate, aphenomenon referred to as Dutch disease (Agwara 2007). The Dutchdisease is the correlation between the boost in economic developmentcaused by natural resources and a reduction in the agricultural ormanufacturing industry (Ali 2009). In this case, the assumption isthat an amplification of a country’s wealth from natural resourcesstrengthens the currency of such a nation as matched up with those ofothers. The result is increased prices of other exports and lowpriced imports, which makes the agricultural sector to be lesscompetitive (Kaldor et al. 2007).

MostNigerians, particularly those residing in the Niger Delta, believerevenues obtained from oil are in reality a curse. Most of them callit “oil of poverty”. The reason is that dwellers have faced morepoverty while the country is characterized by underdevelopment aswell as conflicts regarding the allocation of revenues (Olusi &ampOlagunji 2005). With reference to this, Nigeria is suffering from aresource curse that is resulting in poor economic growth and in turnincreased poverty among its population. The negative deductions maderegarding the development responsibilities of natural resources iscontrary to the expectations and promises made after the world warthat many nations would be lifted from poverty by exploitingresources (CBN 2007 and Abah 2013). Such resources were also expectedto generate employment and investment capital necessary for aneconomic boost.

Althoughoil is a source of revenues for the country, by itself, it cannotgenerate jobs. Besides, it has crowded out other important economicsectors as Nigeria, at a greater extent, concentrates on oil. Theinflow of money of the sector has resulted in the appreciation ofcurrency, and this has made other exports to be more expensive in themarket, thus less favorable (Agwara 2007). As a result, Nigeria isplagued with increased rates of unemployment, one of the indicatorsthat have boosted poverty among the population. The souring of theexchange rate has also affected domestic manufacturers adversely.They are not able to compete effectively in the market due to theavailability of cheap imports. Certainly, Nigeria is a resource richcountry, supposedly rich in wealth, but most of its population ispoor. The amplification of relative prices on tradables is anotherimpact of oil windfall (Joseph 13 and Genova&amp Falola2003). The sustained boost in relative prices especially during the1980s and 1990s altered the country’s economic prospects (Xavier&ampArvind 2000). During this period, the core responsibility of theagriculture sector in the economy started top decline. However, thegovernment counterbalanced this by boosting its injection towards thesector. Nevertheless, poor performance of the agricultural sectorplayed a key role in the country’s long-term economic recession(Joseph 13). Although Nigeria made manufacturing and serviceinvestments after the oil windfall, they did not generate returns dueto inefficiency.

Theresource curse hypothesis has linked corruption to the issue ofunderdevelopment, in particular with reference to misappropriationand mismanagement of the oil resources (Agwara 2007). Corruption isevident in the country’s oil sector. It is illustrated by theunder-utilization of royalties, taxes, briberies from various oilfirms, as well as inconsistencies in estimated figures. In addition,Nigeria depends on revenues obtained from the oil sector making it todefy answerability for its weakening towards its citizens. Therefore,the commercial bargain where in the corporations benefited from afree rein covered by state officers’ attained importance. Theissues of commercial and state governance has made Nigeria to becomejointly and unsuccessfully entwined and disheveled. The two entitiesnoshes each other and this has accounted for increased corruptionboth in the government and state at large (Xavier &ampArvind 2000).The standardization of the oil sector by the government has notguaranteed efficient corporate control, or made certain that revenuesfrom the sector are invested in a productive manner. In this case,the resource curse hypothesis has attempted to explicate thepredicaments that have affected the oil sector in Nigeria, as well asthe incomprehensible unanswerability of the state regarding theissue. This is despite of numerous anti-corruption programsformulated to deal with the problem of corruption. This is relevantconsidering the huge revenues which have been accumulated in the pastyears while little development has been evidenced ever since.

Corruptionand lack of transparency in the government are the two issues thathave become extremely rampant in Nigeria. Almost all predicaments indevelopment, governance, as well as economic melancholy are caused bythe phenomena. The incentives to embezzle funds are higher than thedisincentives and this is only worsening the issue of corruption. Thepoint here is that the country cannot record any development withthat kind of corruption, which has also widened the gap between theaffluent and the poor (Agwara 2007). The high tendency to embezzle inNigeria means that the guiding principles which place limitedresources in the government’s hands go to corruption. The oilindustry has thus turned out to be a medium for immense corruption.Government officers in charge of the sector have compromisedaccounting and auditing procedures and this has only aggravatedcorruption, poverty and underdevelopment (Joseph 13). Although thepublic has recognized the devastating effects of corruption ondevelopment, it can do nothing to solve the issue. Nigeria’spersistent underdevelopment in the past four decades is evidenced inlow life quality among the population, as well as failure in variouslive aspects including health care, supply of electricity, education,roads and employment among others (Ebrahim-Zadeh 2003). Some havereferred to the oil sector as the devil’s excrement (Sekumade2009). It has only brought problems in Nigeria, corruption, waste,collapse of the public services and increased debts. Various agenciessuch as the Economic and Financial Crimes Commission (EFCC) and theIndependent Corrupt Practices were established to deal with theseissues but they have done little since 1999 (Havlor et al. 2005).

Anotherissue related to resource curse is government complacency. Theavailability of natural resources and huge profits has made Nigeriato neglect investing in the agricultural sector. The country investedin manufacturing and services industry, which did not contribute muchin growth and development. Lack of appropriate incentives andadequate manpower resulted in unsustainability and eventual collapseof most projects (Xavier&ampArvind 2000). Forinstance, electricity supply and social infrastructure are adverselypoor and unreliable. Industries and households are forced to generatepower supplies through imported power generators (Havloret al. 2005). By2007, Nigeria could only generate approximately 1500 MW, which is farbelow the projected requirement of 4500 MW. With amplified demand forelectricity of approximately 10500 MW, Nigeria is facing a keyproblem in meeting and sustaining the same.

Nigeriais known for excessive borrowing. In fact, the country has lostreverence in the global business community as a result of increaseddebt. The Debt Management Office (DMO) reported that by the end ofyear 2003, the amount of debt owed by Nigeria was approximately 32.9billion US dollars (Sala-i-Martin&amp Subramanian 2003). Duringthe 1980s, much of the borrowing was done in order to counteract thereducing oil prices. In spite of this, the country failed to recordeconomic growth besides failing to export products form othersectors such as manufacturing or agriculture. The borrowed financeswere not used efficiently as evidenced by a number of reasons. Theyinclude lack of feasibility, poor implementation attributed togovernance issues and frail absorption capability, and inconsistencybetween projects and loans provided (Walkenhorst2007). The destructive impacts of mismanagement of debts resulted inmassive arrears, interest and penalties devastating the developmentstatus. The reason is that much of the resources were diverted toservice debts while infrastructure and human development wereneglected. Resource diversion led to capital flightas theinvestment capability of the country was questioned.

Oilprices are volatile. Price volatility has been cited as a key causeof resource curse. The fallinginternational oil prices have also affected Nigeria in terms ofrevenues obtained from the sector. Considering that Nigeria whollydepends on oil fall in prices has affected the government’scapability to sustain development in such areas as education,infrastructure among others. This has also affected the government’scapacity to pay its huge debts that has been affecting the countryadversely.


Everybodywould expect a nation rich with natural resources, and one of themain exporters of oil in the world, to be leading in terms ofdevelopment. However, this is not the case for Nigeria. It is ironicthat Nigeria, an oil resource rich country, is still struggling withpoverty. The country is characterized by underdevelopment wherebymost of the citizens are poor, which is contrary to the projectionsand promises made after the World Wars that resource exploitationwould improve countries economically. The problem in Nigeria has beenexplained in terms of resource curse and the Dutch disease. It isobvious that natural resources by themselves cannot generateemployment, and the souring of the exchange rate has only made othersectors in the economy to be unfavorable in the international market.Revenues from oil have also impacted domestic traders who are notable to compete effectively as a result of the availability of cheapimports. All these have resulted in low unemployment rates and lowcapital investments, an in turn poverty and underdevelopment.Corruption and misappropriation of revenues are key issues impactingthe sector. While the country has accumulated huge funds from oiltrade, little development has been evidenced, while the countrycontinues to deteriorate economically. In order to solveunderdevelopment issue, a clear dedication is required from thegovernment, most importantly solving the resource curse issue.


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