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The Niger Delta Challenge: A Global Perspective
by Eze Umezuruike
23rd JAN 2007
If the figures quoted by the Finance Minister, Nenadi Usman, are correct, then Nigeria would have lost N570 billion ($4.4b) in revenue to unrest in 2006 and is set to lose more in 2007 if the situation in the Niger Delta region is handled in the same manner as in 2006. Quoting the Finance Minister earlier this month; "Early in the second quarter of 2006, there was a loss of production of 600,000 barrels per day from the joint venture operations. The loss was due principally to social disruptions in the Niger Delta, which continued until the end of fiscal year 2006".
The Niger Delta describes the isolated pockets of land and mass of tributaries meandering through mainly mangrove swamps which unload freshwater from the confluence of the rivers Niger and Benue into the Gulf of Guinea. The mostly Ijaw villages here with their scatterings of existence, are some of the most deprived communities in the country. Schools and hospitals in this area are scarce. If the rest of Nigeria lacks infrastructure, what you find here is the near dearth of it. There is the mostly unchecked consequences of oil and gas spillage in the area; lack of clean water in a place where water abounds. There is the use of the water for all purposes in an area with shortage of lavatories and sewage system. The state of the environment, and consequently the effect on health, is dire.
It is against this backdrop of abject poverty in an area where most of Nigeria’s oil is produced that the loss of over 10 percent of its revenue can be projected. The Niger Delta people have expressed their plight for over 30 years. The hanging in 1995 of Ken Saro Wiwa, a well-known author and indigene of Ogoni (part of the Niger Delta region) and eight others, for what most saw as valid protestation, has not improved the situation on all accounts. The “struggle” as he called it persists; and has become worse, if not somewhat misdirected. The violence is more intense as expatriates and their Nigerian colleagues are often abducted and even killed these days. The proliferation of militant groups who often kidnap expatriate workers for ransom is worrying for observers and the Nigerian government. The Ijaw militant leader, Mujahid Dokubu-Asari, a convert of Islam who is currently being held by the government, is known to make very violent declarations which one would find difficult to associate with Saro Wiwa’s “struggle”.
Financial perspective
That statement from Usman is indicative of how potentially disruptive the Niger Delta situation could be to Nigeria and the wider world. Consider that Nigeria’s projected earnings for 2007 is 4.3 trillion Naira of which 3.2 trillion is expected to come from oil revenue. In other words, 74 percent of Nigeria’s projected revenue will come from oil. If you take 570 billion Naira (the amount apparently lost to unrest in 2006) into account as a proportion of projected oil revenue in 2007, you will arrive at 18 percent of the expected revenue earnings from oil for 2007 and 13 percent of the country’s total revenue projection. This is a prudent estimate, given that possibility of this figure being upwardly-driven exists. Whilst it will be inaccurate to attribute all the unrest to the Niger Delta region, one suspects that a significant proportion of that figure belongs to that region. In other words, continued disruption in that region could reduce the earnings of Nigeria by more than 10 percent in 2007. Consider cost of rebuilding destroyed pipelines, equipment and other installations, plus rise in cost of insurance premium and you are left with a figure above 10 percent.
And it is not just the impact on Nigeria’s economy that could be put into perspective. The world’s largest economy, United States of America (USA), depends on Nigeria for a lot of its imported oil. Following the situation in Iraq which accounted for more than 15 percent of USA’s imported oil at some point (USA imports over 50 percent of its oil), USA has increased its imports from other sources. Nigeria, jointly with Saudi Arabia, was USA’s third largest source of imported oil in 2005, accounting for 12 percent of USA’s oil import in that year. The only countries which exported more oil to USA in that year were Canada with 18 percent and Mexico accounting for 15 percent of the import. Consequently, Nigeria features quite significantly in USA’s economic plan and its needed recovery. In fact Nigeria is far more consequential to USA’s and the world’s economy than one could be led to believe.
Possible implications
That the Niger Delta situation could potentially deny Nigeria of up to 15 percent of its revenue should worry the Federal Government of Nigeria. 520 Billion Naira is greater than any single budgetary allocation for 2007. If you think some of the highlights of the budget include allocation to security (the highest) of N213 billion; Ministry of Works with N191 billion; education with N186 billion; health, N112 billion; Millennium Development Goal (MDG), N110 billion; power, N105 billion; water, N95 billion; agriculture, N38 billion and pension, N80 billion and you get a rough idea of what shortfall we could have. Then there’s the opportunity cost; throw in multiplier effect of what the money could have done and the picture becomes clearer.
USA, the world’s largest economy, anticipates Nigeria will be its fifth largest outside source of oil in 2007. Whilst the global economy has become more multi-lateral and less dependent on USA, further damage to a fragile American economy does not spell well for the global economy. The worry, contrary to some observers’ views, is not that the Niger Delta, in isolation could damage the American economy; after all USA could increase its quota from Canada, Mexico, Venezuela, Saudi Arabia and other oil-producing countries. The real concern, and may be a legitimate one, is that the fragile American economy could be vulnerable to a sudden and persisting rise in inflation caused by a sudden and persisting rise in oil price due to a potential disruptive situation in one of the oil-producing countries such as Saudi Arabia, Venezuela or even Mexico. Disruption in the Niger Delta at such a time will be most unwelcome by USA and the rest of the world and all of a sudden possibilities become infinite.
Change of rules
Difficult as the situation in the Niger Delta is, the method employed by the youth of the Niger Delta is flawed. So is the Nigerian government’s. The environmental problems, level of malaria, lack of amenities and inadequate educational facilities provide the youths rationale for disruption. Perhaps the rules of engagement between both parties need reviewing. Nothing makes this clearer than the fact that while the youths of the Niger Delta fight the Federal Government of Nigeria and the oil companies operating in the area, the Governors of most of the Niger Delta states move swiftly towards the top of Nigeria’s rich list. In all of this, it is the governors of these Niger Delta states who get away lightly.
