An Excellent Distinction – Nigeria Is Oil Dependent, Not Oil Rich


Within economics there are two closely related ideas, the resource curse and Dutch Disease – Nigeria suffers from both of them. These two together explain why Nigeria is not in fact rich from the oil, rather it’s dependent upon oil and not rich.

Fortunately this has been noted locally:

Salami said, “They say Nigeria is oil-rich, Saudi Arabia is oil-rich, Nigeria is oil dependent. Nigeria does two million barrels of crude oil per day, then at least 365 days roughly 800 million barrels of crude oil annually. If there are 200 million of us, that means each person (Nigerian) is entitled to four barrels of crude oil every year, “Saudi is doing 10 million barrels of crude oil daily, and that is being conservative by the way. So four billion barrels annually and they have 30 million people to share it. For succeeding in waking up every morning, each Saudi is entitled to roughly six thousand US dollars; now we can decide which one is oil-rich and which one is oil dependent.” he said.

That’s all entirely true but it’s not the end of the matter at all. For even the presence of that oil has caused the two further problems for Nigeria.

The first is that resource curse. For a number of decades the way to gain money was to be in some part of the oil business. More specifically, to be part of the governing apparatus which got to spend that flood of money from the oil. Thus all effort was applied to becoming elected to be able to stick ones’ straw into that gravy boat. This isn’t the way to develop all of the other areas of the economy.

The second is Dutch Disease. It’s a common enough problem in places with one specific natural resource being exported. The exchange rate is determined by the amount of money coming in. Simple enough, obviously. The demand for local currency increases if foreigners are sending lots of cash into that economy. So, high exchange rate – that stops anything other than that natural resource export from being a viable export.

The economy becomes, roughly enough, nothing but that natural resource.

Add our two problems together. The way to quick wealth is through politics and access to the natural resource money. There is just about nothing else that can be done other than the natural resource because of the exchange rate. We’re stuck with there being just about no economy other than the traditional subsistence one plus the oil. Which is roughly where Nigeria is.

It’s entirely true that Nigeria is oil dependent, not oil rich.

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Oil is relatively easy to extract. First you need a drill, then you need a pump. My country, South Africa, did rather well out of mining gold. That’s a high-tech industry, particularly when you go below six hundred metres. The entire economy flourished on the secondary industries it spawned. Unfortunately we had first a succession of moronic finance ministers who had never even opened a book on economics, and now a succession of greedy finance ministers who have participated in a massive looting of state coffers euphemistically known as state capture. We no longer have the wonderful resource, at least… Read more »