Increased dependency on oil & gas deteriorated Nigerian political stability

Natural resources are critical to the Nigerian economy for several reasons, significantly influencing various aspects of economic development, national revenue, employment, and overall industrial growth. Nigeria is rich in natural resources such as oil, minerals, and gas (Bugaje, 2015). Nigeria is one of the largest economies in Africa. It is largely dependent on crude oil. Revenue from oil accounted for approximately two-thirds of the nation’s total revenue in 2000 (Jancovici, 2017). Nigeria’s heavy oil dependence is a result of historical, economic, and political developments.

Nigeria’s oil dependency increased as it became the major contributor to economic output

After gaining independence in 1960, Nigeria sought to diversify its economy but faced challenges. Agriculture was the mainstay, but the newly found oil wealth presented a more lucrative alternative. Nigeria became one of the biggest oil and gas producers in Africa and has the largest natural gas reserves in the continent. The 1970s saw a dramatic increase in oil prices due to global events such as the Yom Kippur War and the subsequent oil embargo by OPEC countries. Nigeria’s oil revenue surged, transforming the economy. Approximately 90% of the country’s earnings came from exports and 70% of revenues for state government were generated from oil (Shell in Nigeria, 2017). Oil accounts for over 90% of exports, 25% of GDP, and 80% of government revenues (Agbaeze et al., 2014). The government’s reliance on oil revenues led to extensive public spending on infrastructure, social programs, and subsidies. Nigeria’s heavy oil dependency has significantly impacted its economy and development.

While oil exports have contributed to short-term economic growth, the lack of diversification has negatively affected Nigeria’s long-term growth (Tracy Igberaese, 2013). This has hindered economic diversification and made the economy less resilient to external shocks. The global oil market is highly volatile, with prices subject to sharp fluctuations due to geopolitical events. Nigeria’s heavy reliance on oil exports means that its economy is highly vulnerable to these price swings, leading to periods of economic boom and bust. The oil boom of the 1970s resulted in neglect of agriculture and other sectors, expansion of the public sector, and deterioration in financial discipline (Agbaeze et al., 2014; Mohammed & Lenshie, 2017). When oil prices were high, revenues increased, leading to increased spending. However, when prices fell, revenues declined sharply, causing budget deficits and financial instability. The influx of oil revenues has caused a decline in non-oil sectors, particularly agriculture, resulting in increased food imports and economic vulnerability (Onwuka Ifeanyi Onuka, 2017).

Increased political tensions in Nigeria due to heavy oil dependency

Additionally, oil dependency has caused tensions between oil-producing states and the federal government over resource distribution (Agbaeze et al., 2014). The benefits of oil revenues were unevenly distributed, leading to increased social inequality in the country. While a small elite benefitted from the oil wealth, the broader population saw limited improvements in their living standards and infrastructure. The Nigerian government retains a large unemployment rate and high poverty rate, with much of the oil profits going to multinational companies rather than local contractors or the general populace (Uwakonye, 2011). This oil-based mono-cultural economy has resulted in the misappropriation of petrodollar surpluses by successive governments, hindering sustainable development and industrialization. Nigeria’s oil-dependent economy has led to significant challenges, including the “Dutch disease” and financial sector distortions (B. Ilo et al., 2018).

Oil dependence has also fueled violent rent-seeking political conflicts between ethnic-regional groups and the Niger Delta crisis, exacerbated by weak institutional arrangements and poorly-conceived laws (Aderoju Oyefusi, 2007). The competition for control and allocation of oil revenues has intensified conflicts, exacerbated regional inequalities, and fueled corruption. Oil-producing regions, particularly the Niger Delta, have long demanded greater control over the oil revenues generated in their areas. The federal government’s central control of oil resources has led to feelings of exploitation and marginalization in these regions. The Nigerian government has failed to reinvest oil revenues into social and structural development, resulting in high unemployment and poverty rates (Uwakonye, 2011). Furthermore, the fraught relationship between the government and foreign oil companies, along with the financial restraints on domestic investment, has exacerbated the situation, leading to inefficiency and indebtedness (Khan, 1994).

The collapse of the Nigerian agriculture sector due to the “Dutch Disease”

Before the discovery of oil, agriculture was the mainstay of Nigeria’s economy, contributing significantly to GDP and employment. The agricultural sector contributed approximately 31% to its economy (Odetola & Etumnu, 2013). Agriculture was an important economic sector of Nigeria providing employment to approximately 30% of its population (Forbes, 2017). The major cash crops in the country are beans, cashew nuts, groundnuts, cocoa beans, Kolanut, rice, soybeans and so on.

The concept of “Dutch Disease” is critical to understanding the collapse of the agriculture sector. The “Dutch Disease” refers to the adverse effects on other sectors of the economy, such as agriculture and manufacturing, resulting from the sudden influx of foreign currency from natural resources like oil. Government policies and investments favoured oil extraction and exports, leading to the neglect of agricultural development. The oil boom attracted labour away from the agricultural sector to urban areas and the oil industry. This labour shift resulted in a reduction in agricultural productivity and output. The decline in agricultural productivity led to increased dependency on food imports to meet the domestic demand. This not only strained the country’s foreign exchange reserves but also made Nigeria vulnerable to global food price fluctuations​ (Ji Otaha, 2012).

China emerged as a significant player in Nigeria’s food import market, supplying a considerable portion of the country’s rice and other agricultural commodities. Nigeria primarily exports raw materials, especially crude oil, to China, while importing a wide range of manufactured goods. This created a trade imbalance that favoured China, leading to significant revenue outflow from Nigeria. China’s dominance in Nigeria’s food import market has been facilitated by its ability to offer competitively priced products, often at the expense of quality and long-term sustainability (Nuraeni & Rolake, 2020). This reliance on Chinese food exports has had significant implications for Nigeria’s economy, as it has led to the depletion of foreign exchange reserves and the diversion of resources away from domestic agricultural development (Merem et al., 2017).

Agricultural transformation is proposed as a key solution to reverse food import dependency and revitalize the sector that was once a major contributor to Nigeria’s foreign exchange earnings (Onwuka Ifeanyi Onuka, 2017). The agricultural sector has the potential to be a major driver of economic growth, employment, and development in Nigeria. Ethiopia has made substantial progress in transforming its agriculture sector through a combination of government policies, investments in infrastructure, and support for smallholder farmers, leading to increased productivity and food security. Such measures can reduce Nigeria’s vulnerability to oil price fluctuations and promote sustainable economic growth.

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