Rising poverty amidst Nigeria’s lucrative oil wells, who’s cashing in?

Nigeria has the biggest oil reserves in Africa, but who’s cashing in? They call Nigeria the African giant for several reasons as its home to Africa’s biggest population and largest economy, powered by a growing services industry and agricultural exports like cocoa and palm oil. It also has Nollywood, Africa’s biggest film industry, fashion houses, a booming music business and the very wealthy elite, including the richest man in Africa (Aliko Dangote).

Nigeria also has a lot of natural resources such as minerals, gold and oil (lots of oil, actually). It has the second largest proven reserves on the African continent and it’s the 12th largest producer worldwide; and yet many Nigerians have it hard. Being Africa’s top oil producer with oil being the government’s biggest source of revenue, the economy is however struggling with poverty levels on the rise as the poverty of those living around the source of Nigeria’s wealth is sad to see. World poverty clock says 90 million people live not just in poverty, but extreme poverty; that’s 48% of the population in Nigeria when compared with 24% in Ethiopia and 16% in Kenya, and they don’t even have oil.

Despite Nigeria’s vast oil wealth, half its population lives on less than 2 dollars a day. Now, one would think that a resource rich country like Nigeria could rely on some of that oil wealth; the thing is that the Nigerian government does and that is part of the problem. Nigeria’s government depends on oil for as much as 75% of its revenue, so when global oil prices bottomed down in 2014 and 2020 respectively, Nigeria went into recessions and it’s still struggling to get out.

But even when oil prices are good, Nigerian experts say not a huge slice of that revenue gets to the people. Steven Yeboah, the co-founder of Commodity Monitor stated that “the focus should be; out of the money that the Nigerian government gets, how much is re-invested into the lives of the people”. He also stated that they are still using some of those oil revenues to offset debts and the rest to pay salaries to law makers hence projects like schools, power plants and much needed infrastructures do not get built.

So… where does that revenue go?

Nigerian crude as we know, is found under the waterways of the Niger-Delta. A few Nigerian companies operate there, but the ones doing the most of the exploring and extracting are international companies. SHELL is one of the big ones; it provides 40% of Nigeria’s oil production but because Nigeria does not have the infrastructure to refine its own crude oil, these foreign companies sell it abroad and in the end Nigeria has to import billions of dollars’ worth of refined oil back into the country.

However, what Nigeria does have is a central body called the Nigerian National Petroleum Corporation (NNPC). The NNPC is both an oil industry regulator and a massive commercial corporation. The corporation signs contracts with all those international companies and the companies pay for all the initial costs plus things like oil licenses, royalties and a tax on their profit to the NNPC. The NNPC then takes all that money and pays it into Nigeria’s national treasury but the regulator that is supposed to police that flow of money is part of the NNPC. It thus means, that there is a huge lack of transparency that a lot of transactions are happening under a cloak of obscurity as you cannot be both a regulator and a player, you cannot be a referee and a player as well. It just does not make any sense.

This lack of transparency has led to corruption in the oil sector as billions of dollars in oil money have gone missing over the years. One of the most infamous cases was back in 2016 when it was reported that 16 billion US dollars in oil revenue had just gone missing and this money was supposed to be paid by NNPC to the National treasury. However, the money was not sent over, hence every few years, Nigerian headlines usually read “$16 billion missing and unaccounted for”, “30 billion yet to be recovered”.

There’s also another type of missing oil money, and that’s embedded in ‘Tax Flights’. As mentioned earlier, international oil companies are supposed to pay taxes on their oil profits to the NNPC. But companies are accused of reporting lower profits in order to pay fewer taxes. Hence, a company can sell Nigerian oil at a lower price to its own subsidiary in a tax haven and then sell that oil to other buyers at full price. They could also inflate the cost of their Nigerian operations or under-report the volume of oil they produce to begin with.

So public oil money gets lost in a swamp of tax havens and murky accounting and then there’s THEFT…yes, straight up stealing. Tucked in the forests of the Niger-Delta, numerous individuals are usually caught cooking oil. There are hundreds of illegal refineries in the Niger-Delta, where criminal gangs like the ‘Delta Avengers’ tap into pipelines. In early 2019, an estimated 22 million barrels of oil were stolen and sold on the black market.

Oil companies like SHELL blame these attacks for massive oil spills and fires, but Human Rights group amnesty international says, “oil companies are also responsible for the spills and accuse them of misleading and neglecting local communities”.

So, Sabotage, Theft, Tax Evasion, Corruption and lots to tackle. But Nigeria’s government has been releasing annual audit reports on its energy industry demanding unpaid taxes and compensation from international oil companies and after 17 years of delay released the Petroleum Industries Bill (PIB). The bill had its critics, but many Nigerians hope it would clean up the sector by doing things like splitting the NNPC’s commercial business from its regulator.

Nigeria also says it wants to diversify its economy away from oil, and there are signs that it wants to develop its own industry to cut back on all the foreign involvement as Aliko Dangote (Africa’s richest man) intends to complete a new refinery close to Lagos before the end of 2023.

Now none of these can single handedly fix Nigeria’s oil industry, its economy or poverty levels.

However, the hope is that it would go somewhere to gaining Nigerians’ a bigger slice of the proverbial ‘National Cake’.