Why Every Nigerian Should Pray For An Oil Price Crash

rising-oil-price

In a 2006 article for Foreign Policy and later in his book ‘Hot, Flat and Crowded’, Thomas Friedman outlined what he called ‘The first law of petropolitics’, which is an attempt to link the price of crude oil to the speed of political reforms in ‘petrolist’ states: that is, nations who rely on crude oil for much of their earnings, while at the same time lacking strong institutions: that is to say, pseudo-democracies or outright oppressive regimes. He discovered that the modest reforms in many oil producing nations were eroded as prices rose steadily after 2001.

Why this focus on the price of crude oil? Countries that rely on crude sales can bypass the social contract. They can simply sink a hole in the ground and sell crude in order to run the government. As a result, they don’t need taxes to run the country, so they aren’t collected or the rates are low. Energy prices are kept low to pacify the people, and patronage is used as a way of compromising interest groups, so that only lip service is paid to fundamental economic and political reforms. It also fuels reckless spending at all levels of government.

This is more or less what has happened in Nigeria. A powerful centre dispenses favours from oil money at will, enabling the purchase of votes at every election, and quieten calls for good governance. States have governors that don’t do much more than go to Abuja every month to collect allocations, pay salaries, commission the odd project and use the rest for securing a second term. As a result, the majority of the 36 states are ‘beggars’, leading to even deeper problems.

High oil prices right through to 2006 enabled former president Obasanjo to go after a third term. There was money to throw around since external debts were paid off and a healthy Excess Crude Account was present. Failing in his bid, what followed was an absolute sham of an election in 2007, again made possible by patronage, which saw the late Umaru Yar’Adua elected. In May 1999, a barrel of crude was $17. By May 2007, it was $65. A year later, it was double that.

2007-2011 saw a rapid expansion of government spending especially with regards to salaries of public officials. For example, the National Assembly budget was N66 billion in 2006, vaulting to over N100 billion in 2007, and is now at N150 billion. The Excess Crude Account was depleted remorselessly till there was nothing left. It is inconceivable that such reckless spending would have been possible without high crude oil prices.

Even though President Jonathan won the April 2011 election fair and square for the most part, his victory at the PDP primaries came after vast amounts of public funds was spent, again only made possible by petrodollars. What this shows is that not only does having oil make development harder – Dutch disease –  but the price at which it is sells globally makes it doubly so.

A reduction in oil prices will force government spending to reduce faster than almost anything else, and force a confrontation on reforms. It would also force states to find creative ways to increase their internal revenue. If they decide to increase taxes, there is no way people will pay taxes without demanding greater accountability. The protests of 9-13 January are proof of this.

So far, it has been relatively easy to postpone confronting the issues of our nation’s foundation. Every time a challenge to the Nigerian state rises, they can simply be ‘settled’, postponing the day of reckoning. The most recent example is the Niger Delta Amnesty programme that has become a jamboree, but a crash in oil in prices would make that impossible to continue.

The defining trend of the last 12 – 18 months has been a gradual awakening of the Nigerian electorate to issues of governance. A lot more people are a lot more informed because of increased access to news, and the ability to share it. It has also dawned on many just how far behind the rest of the world Nigeria is. The clamour for change is on the rise, but it is worth noting that the wave of protests which swept the world last year – and have carried on into this year – have barely gained ground in any oil producing country except for Libya, after heavy NATO intervention.

For as long as oil prices remain high, those who want reform in petrolist states will have their work cut out, because their governments have the resources to bribe and/or suppress dissenting voices. It will take a lot of organization, resolve and courage to continue to push for real political reforms while refusing to be compromised or intimidated.

If a barrel of crude sells at $50, that won’t be a hindrance either.

About the author

Joachim is a budding local and global politics analyst. He contributes to Daily Times, Nigerians Talk and blogs at www.jmacebong.wordpress.com. Follow him on Twitter @je_mc2

One comment on “Why Every Nigerian Should Pray For An Oil Price Crash

  1. Bankole on said:

    An interesting proposition to be sure, but I think we would do better to find er…a more practical solution to the issues this country is beset with. Oil prices aren’t likely to crash anytime soon. If anything Iran’s current nuclear spat with Europe and the resulting oil import boycott is likely to drive prices up.

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