Wednesday, July 29, 2009

Nothing brings home the impact of MEND militancy that the reality that Nigeria's oil revenue was cut in half within the first quarter of 2009. MEND stepped up its attacks on oil installations this year and has steadily interrupted oil production. Government officials believe that the nation losses an average of 1 million barrels per day to militant activity. As a result, Nigeria has once again lost its position as Africa's King of Crude to Angola.

As Nigeria depends on oil income, this drop in revenue directly impacts government spending at all levels. Prior to the release of this news, the Nigerian government indicated that the 2010 budget would include a deficit of N1 trillion. That oil revenue in 2009 has already dropped by half suggests that the 2010 deficit could be even larger, further cutting into proposed plans by the Yar'Adua administration to accomplish the Millennium Goals and achieve the ambitious Vision 2020 objectives. And, considering that the nation's foreign reserves continue to drop, from approximately $60 billion in November 2008 to $43 billion as of July 8th, 2009, this drop in revenue further compounds the fact that the federal government is relatively cash strapped. That will in turn have a trickle down effect on everyone from small and large business owners to the average person.

Additionally, the promise by President Yar'Adua to generate a minimum of 6000MW by December 2009, has already been reneged upon by the current Minister of Power. Similarly, the blame for this was placed on militancy. Diminished oil revenue likely means that the publicly announced plans to use investor and government funding for the development of the power sector will be stalled even further. In a country where businesses are closing as a result of insufficient power supply and those fortunate enough depend on diesel generators, such a prognosis is unsatisfactory.

MEND announced a 60-day truce after its attack on the Atlas Cove Jetty and in reaction to the release of its leader, Henry Okah. However, one can only wonder whether this truce will generate a lasting peace that can enable the stability necessary for the development that MEND claims to seek and that Nigerians need to create future of infinite possibilities for citizens. Based on the history of MEND-government relations, there is a possibility that MEND will return to violence and continue to interfere with oil revenue.

There is also the possibility that this drop in oil revenue could be a catalyst that forces all levels of government to effect the diversification of the nation's economy. News reports indicate that Nigeria plans to tap into gas reserves to create "aggressive GDP growth and national energy sufficiency", that coal will be mined for domestic energy and potentially export. There are also reliable reports that mining will be expanded to take further advantage of Nigeria's lucrative gemstone resources and the Yar'Adua administration has taken steps to support local farmers with new varieties of cash crops such as cassava which is a major national export. With regard to cassava, ethanol from the crop could be used to power automobiles as is the case in Brazil and some argue that cassava-based ethanol would create savings of up to $6.1 billion by 2012.

Diminishing oil reserves are a clear indication that the time has come to actually maximize the benefits available from Nigeria's many resources so as to limit the national reliance on oil and other petroleum products. The question becomes whether the administration will be able to accomplish the beginnings and entrenchment of such economic diversification within the 2 years Yar'Adua has left until the next Presidential elections in 2011., pa Nigerians must hope that despite the odds, the Yar'Adua administration manages to succeed because there is no more time for failure, particularly as the nation's oil expiration date draws near.

From the Archives:
- Nigeria's Oil Expiration Date Draws Near
- MEND Attacks In Lagos
- Nigeria's Oil War - A Distraction?
- War In the Niger Delta
- No Longer King of African Crude?
- The Global Food Crises, Nigeria & MEND
- Port Harcourt & Nigeria Under Siege
- Is Nigeria A Breeding Ground for Terrorism?

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14 Curiosities. Add Yours.:

NaijaBabe said...

I was having a conversation yesterday about the whole refinery issue and I asked, in the 10 years that we have adopted democracy, how have we tried to fix those refineries? If a 'project fix the refineries' was started in 1999, 10 years onwards, I think we should have had them up and running and generating income, but now our oil oincome has been slashed even further. Outside of exporting, even for its citizens, the supply of oil to them is slashed even further.

This has come to buttress my point that Nigeria is too reliant on its oil as a source of income, just as we are solely reliant on the Kainji dam as our source of electricity. Its about time we moved on and joined the train of globalisation. What happened to the numerous crops and other exports that we leart in social studies that Nigeria was known for? What happened to trying new things and evolving with the world. We need to step out of our comfort zones if we want to progress as a Nation.

NaijaBabe said...

Plus SSD, you are doing a great job here, now I can keep up with the news, seeing as my regular feed of news from the Punch website is on lockdown as we now have to pay for it.
Thanks alot

N.I.M.M.O said...

Could this be a silver lining?

Forget that story.

Did you not hear/read about the current war-of-words between Akwa Ibom and Cross River states over the withdrawal of 76 oil wells from CRS?

Truth is that many states in the federation cannot survive without the monthly handouts from the FG from crude oil sales.

They could if only they can look inwards as Lagos has done.

However, the crabs-in-a-barrel mentality now on display will not allow it. The current make-sure-he-doesn't-succeed-and-if-he-tries-block-his-success-if-he-doesn't gambit of the PDP is doing the country no good at all.

N.I.M.M.O said...

I also have an issue when people complain about Nigeria relying on oil. Is there anything wrong with that?

There are other mono-product countries who rely on tourism for their GDP and they manage their economies successfully on this product.

The problem is we are not even maximizing the use of this resource - which is not replenishable.

We dont even have a functioning refinery. We import more petroleum products that all the non-oil producing countries in West Africa put together.


@ Naijababe: So good to see you again, my sista.

I have to agree with you that the Nigerian economy over relies on oil to its detriment. Yes, oil seems to be the most lucrative resource the nation has, but it is far from the only one. I understand that there is a push to increase the import of cassava. Nigeria already ranks #1 at that. We are a top ranking cocoa nation, but our agriculture system and infrastructure as of yet do not allow for the maximization of that resource. Even the farmers we brought from Zimbabwe, with all their 'experience' are having some infrastructure issues, so that sector definitely needs some private money with federal assistance. The only farmer doing well from what I hear is the Baba at Otta Farms who took all the lucrative technologies, methods and seeds while in office without sharing them with others.

Anyway, I still hope that the continuing drop in oil's price, and whatever other hindrances to oil production will force a rapid change in attitude. One can only hope for the best, right? And, thanks so much for the encouraging words. Take care!


@ N.I.M.M.O.: How far? It seems you don't believe this situation could turn into something good, despite my assertions, but in the same comment you state - "Truth is that many states in the federation cannot survive without the monthly handouts from the FG from crude oil sales.

They could if only they can look inwards as Lagos has done.

And therein lies the answer no? There are governors who are trying to step outside the box, and Fashola is not the only one. Maybe the fact that less oil money is coming into the country, will help to weaken those who have become fat off of it and allow more room for others to do what needs to be done. Might be wishful thinking, but Nigeria needs positive action from anywhere it can get it. I hope that more governors will take a cue, as you noted , and see how others are managing to "look inwards". Of course certain states with little to offer will ave a harder time doing so, and if they don't well, what is that adage - 'adapt or die'?

As to your comment on over reliance on oil not necessarily being a bad thing, you do have a point. There are many countries with oil that have found a way to maximize that resource to the benefit of citizens, investors and all interested parties. Mentioning any specific nations at this point would be redundant.

However, even those countries that rely on one resource, be it oil, or tourism, as you mentioned, are struggling. Dubai's focus on tourism was a great idea, a way to leverage the reality that its oil output was diminishing. However, at this very moment, Dubai is struggling. Forget the glory stories. They spent millions of borrowed money to build those glorious castles and attractions. The only people travelling to Dubai nowadays are Paris Hilton, and she's there for a short lived show. If people have money to spend, Dubai is not the primary destination. Its a recession and even the filthy rich have become recessionistas.

Over reliance on any one main source of income makes absolutely no sense for an individual (hence people with multiple streams of income do better than others) or a nation. Despite the diversity of the US economy, the fact that it allowed Wall Street to become such a dominant force contributed to the current economic slowdown that the US and most of the world is experiencing. As such, while I see the logic of your argument, and think it makes sense, I have to disagree and note that in the world we live in, I would never advise a person or country to rely on one main product.

Anyway, let me know your thoughts. I'm sure you might have more to say on this issue. Thanks for engaging me in advance.

Beauty said...

"I also have an issue when people complain about Nigeria relying on oil. Is there anything wrong with that?" Yes, plenty! The old saying about eggs and 1 basket is a truism.


@ Beauty: Got agree with you on that one, but hopefully N.I.M.M.O. will come on back and explain further. It is definitely an idea worth discussing further.

Hope all is well? Thanks so much for swinging by!

io said...

building a countries economy on one major commodity is a recipe for headache. yes some countries are doing it successfully but far too many are hurting bad. the country faces a situation where it would go bankrupt. Would nigeria go bankrupt? with N1 trillion in debt and counting....

Beauty said...

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Sam Oracle said...

Sydelle dear, how you doing? Itz bin ages, i feel like a stranger on blogsville. Just came online and decided to holla, you're still doing your thing. Take care. said...

When you have the fed govt. & governors who lacks foresight to generate income in-house and develop the nation, but survive only on stipends from the oil allocation reserves; and a situation where Niger Deltans; those that actually owns the oil resources are taking back their god-given wealth, then there will be sum it all up, I think it's a blessing in disguise. This lack of oil funds may force the govt. to start thinking of ways to be independent of oil revenues, become self-reliant and productive in other areas of our nations economy, help cut back on wasteful spending, fraudulent contracts, decrease corruption rate(I'm hoping)and bassically forces the govt. and Nigerians to deal with this stark reality...that oil cash flow will NOT last forever!
It's time for the Nigerian govt to tighten it's belt, roll up their sleeves and actually get to work, to make our nation a better country...our honeymoon with oil revenues are now behind us!!!

Australian Government Grants said...

1 million barrel loss of Oil per day is a very very disastros for country like Nigeria.

CCTV Birmingham said...

It's only a minor blow surely. But a blow isn't needed in these economic times either way. I don't understand how the revenue can be cut in half while the gas, oil and petrol companies are still making sickening profits. Where's the logic in this. Hopefully there will be that silver lining you talked about.

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