Reverse the Resource Curse: Getting to Peace in Nigeria

For the past few years, acts of violence by the Islamic fundamentalist sect Boko Haram have been the predominate focus of American media coverage on Nigeria. What has flown under the American media’s radar, however, is the resurgence of ethnic militant groups in Nigeria’s largest oil producing region, the Niger River Delta. Many of these groups, such as the newly formed Niger Delta Avengers, have launched large-scale attacks on commercial pipelines and oil platforms. Most notably, one of these offensives managed to force Chevron to close an offshore platform back in May. These groups thus pose a significant threat to both public and private regional interests, the majority of which are vested in the oil industry.

Commercial oil reserves were first discovered in colonial Nigeria by a joint Shell–British Petroleum exploration crew in the Niger River Delta. International oil corporations were thrilled not only with the volume of reserves, but also the composition of the oil itself. Nigerian oil, benchmarked to Bonny Light, is low in sulfur content and considered to have light A.P.I. Gravity. These physical attributes enable refineries to more efficiently convert crude oil into gasoline, kerosene, and diesel. Given its versatility, Bonny Light fetches a higher price point at market.

A fundamental truth in Nigeria is that no one stakeholder in the oil industry is innocent. Conflicting interests trace back to the discovery of Nigerian oil: When Nigeria gained its independence in 1960 no immediate changes came to the oil landscape, but by 1977, the private-public concession system had been completely overhauled. The government established the Nigerian National Petroleum Corporation, an energy organization responsible for the exploration, drilling, refining and transportation of oil. The desire for increased government revenue, coupled with ethnic divides, facilitated unequal oil rent distribution in the region. The largest of the minorities, Ogoni and Ijaw, were forced out of their homes by oil developers. As environmental pollution became rampant, those who remained were unable to sustain the fishing communities that once thrived in the region.

Monetary compensation for the Ijaw and Ogoni grievances were meager at best. For instance, Shell Petroleum Development Company, the lead oil investor in Nigeria, played a major role in suppressing ethnic groups in the 1990s. It hired private contractors and Nigerian troops who later gained international notoriety for the highly publicized killings of Ken Saro-Wiwa and eight other Ogoni chiefs. In 2009, Shell agreed to pay a 15.5 million dollar settlement but never admitted any wrongdoing. The rightful bitterness of these ethnic groups spawned a myriad of insurgent groups who wanted to claim their stake of the oil revenues.

In 2015, Nigeria ranked in the only the 6th percentile for government stability and 11th percentile for corruption control.

While the individual impact of each ethnic militant group is difficult to measure, the cumulative power of their actions is both visible and escalating. The Nigerian National Petroleum Corporation (NNPC) reported that 2.5 million barrels of oil were produced each day in the mid 2000s, and projected that number to grow to four million barrels per day by 2010. Oil theft and pipeline tampering have dashed the NNPC’s estimates with brutal efficiency, and in 2015, the Organization of Petroleum Exporting Countries reported Nigerian production at a meager 1.7 million barrels per day. As a result, analysts announced this past year Nigeria has been unseated by Angola as the top oil producer in Africa.

The specific process of oil theft employed by militant groups in the Niger River Delta is known as bunkering: militant groups cut into commercial pipelines and siphon off crude oil. Bunkering activities can manifest on small levels as well as large-scale organized crime, making it almost impossible for Nigerian security forces to stop it. The Nigerian government has thus been forced to try other solutions: For example, Nigerian bunkering was temporarily reduced in 2009, when the government offered amnesty to oil thieves. The stipend program offered a monthly stipend and career retraining to Niger Delta militants who surrendered. President Buhari cut funding for the amnesty program when he was elected office last May and used the remaining funds for public development. Unfortunately, bunkering activity has once again risen, with losses today estimated at a whopping 300,000 barrels a day.

Yet, despite these setbacks, the Nigerian government exported 45.37 billion dollars of goods last year, of which 41.82 billion dollars was directly linked to petroleum. Controlled audits of the Nigerian National Petroleum Corporation estimate nearly sixteen billion dollars of oil and funds have not been delivered to the government. On top of rampant corruption, recent macroeconomic developments have slashed oil prices and therefore government revenues. OPEC Basket Price (the average of all national oil benchmarks) used to stand around $100 dollars in 2011-2014 and eventually crashed to $26.50 in January 2016. Prices have since recovered to around $44 a barrel, but the reduced oil prices have taken a toll on the Nigerian budget.

Collapsing revenues and rising political tensions have prompted World Bank analysts to downgrade Nigeria’s stability ratings. In 2015, Nigeria ranked in only the 6th percentile for government stability and 11th percentile for corruption control. Saudi Arabia, the world’s largest oil producer, ranked in the 28th percentile for government stability and 60th for corruption control. These indicators highlight the need for concrete reform to improve national governance. And since 75 percent of government revenues stem from the oil industry, the path to securing both Nigeria and the region is dependent on oil. Going forward, President Muhammadu Buhari must neutralize the security threat posed by Niger River Delta insurgents if he has any hopes of stabilizing his own regime and improving Nigeria’s international reputation as a dominant oil power.

Over the last few years, Nigerian security forces have played a game of cat-and-mouse in an attempt to squash the remaining insurgency forces. With no end in sight, the Nigerian government should instead attempt to make economically viable amends with the community though development programs. Pouring public resources into underserved ethnic communities — however unpopular with Buhari’s All Progressives Party — may help address some of the most important problems in often-neglected communities. Most importantly, increased investment will publicly contest economic claims made against the Nigerian Government by ethnic insurgency groups.

Uplifting the Niger River Delta requires three components. First, the Nigerian government should consider a revitalization of the militant amnesty program. This is the logical first step in solving the underlying problem of civil unrest in the Niger River Delta because it will address underlying financial grievances by the Ogoni and Ijaw peoples. By providing a share of the oil profits, along with occupational training, militants can be integrated into Nigeria’s economic system without further disruption to the status quo.  The effect is twofold, as it will also benefit the government due to the reduction in bunkering.

The second aspect of Nigerian revitalization is to divest from failing resources. The Nigerian National Petroleum Corporation has already publically explored the possibility of an asset-linked initial public offering. The organization’s overhaul will not only sell off refining and distribution but also select exploration and production assets. The sale of oil assets will increase foreign interest in Niger River Delta Stability. Shell, Chevron, and Mobil currently receive 30 percent, 40 percent and 40 percent of oil rents for the respective upstream Join Venture Agreements. If international oil companies are further incentivized to develop the region, more money and jobs can reach the local population. Likewise, the remaining assets will be broken up into further government subsidiaries, increasing transparency and decreasing overhead. The sale will also inject liquidity into Buhari’s government and put to rest the issue of profitability for the Nigerian National Petroleum Corporation.

Lastly, Nigeria must use cash on hand to fight the insurgent groups who are unlikely to be appeased by the amnesty process. Specific groups — such as the Niger Delta Avengers — reject the state of Nigeria as a sovereign nation. Responsible investment in the local military, whether it takes the form of modernized engagement or monitoring equipment, is vital. Nigeria has already rolled out an initiative to use drones to monitor pipelines.

Successful counter-terrorism efforts will ultimately be ideological, not just military. Community development, coupled with controlled military action, is the final step to intervention. Without sound investment into education, infrastructure, and community health, any progress will be unsustainable.