Nigeria is a failing state
James Rogan
As others have noted in recent years, the African nation of Nigeria is a failing state.
Nigeria is the most populous country in Africa and has the continent’s largest economy. But its elites are corrupt. It is a kleptocratic state, and corruption prevents Nigeria from achieving its potential. Corruption infects all the country’s economic sectors: oil, trade, industry, agriculture, infrastructure, the power sector and banking.
Corruption is a fertile soil for an Islamic insurgency. Corruption drains the country’s human capital. Corruption negates international development assistance and emergency aid. Corruption prevents the Nigerian government and wealthy donor nations from alleviating the human catastrophe taking place in northern Nigeria where up to 4 million people face starvation.
What makes the Nigerian story so troubling is that the country should be wealthy.
Nigeria has abundant natural resources. It has a young population. At current oil production rates, over 1,000,000 barrels a day, Nigeria has 43 years of oil revenues. The country also is home to 5.1 trillion cubic meters of natural gas, 2.7% of total global reserves. There are significant deposits of coal, iron ore, lead and other minerals in the country. It has rich land and water resources.
Agriculture is the foundation of the economy, accounting for 24% of GDP and 70% of the country’s employment. But Nigeria is desperately poor. Most of its citizens lead a hand to mouth existence. Up to 40% of the population lives in extreme poverty, defined as a budget of $2.00 a day.
To illustrate the depth of poor government policy, and endemic public corruption, Nigeria earns nothing from its vast oil reserves. Nigeria subsidizes the price of gasoline. The state owned Nigerian National Petroleum Corporation, NPCC, covers the fuel subsidy from its profits and then sends what is left to the government. Unfortunately, after the subsidies there is nothing left. The government spends more on fuel subsidies than on education and healthcare combined.
Experts say that Nigeria loses 108,000 barrels of oil a day in theft. Nigerian oil production has been falling since 2005. Oil output falls because the national oil company NPCC lacks the necessary cash flow, after paying for petrol subsidies, to cover production costs to pump oil. Moreover, In the Niger delta, in the south of the country, there are hundreds of small oil refineries which steal oil, refine it and then smuggle it to other African nations. The state of public finances in Nigeria is dismal, government revenues are only 5% of Nigerian GDP.
That ratio is among the lowest in the world. Public debt is increasing. By 2027, up to half of government revenues will be dedicated to interest payments on the debt. But the United States and other wealthy countries cannot write Nigeria off. Nigeria’s future is critical to the future of the African continent. In northern Nigeria, there is an active Islamic insurgency.
Soon Nigeria will come to the International Monetary Fund for more concessional assistance. It is in the interest of the U.S. to encourage the International Monetary Fund, IMF, to provide more assistance. But the IMF should condition any new funds on strict macro-economic reforms, especially ending the fuel subsidy. Most importantly, the IMF, and wealthy donor nations must demand that extreme public corruption be eradicated in Nigeria.
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James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on finance and the economy, politics, sociology, and criminal justice.