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Three pieces of news coming from Nigeria shocked the world. The rst was the sacking of the Nigeria!s "entral #ank $o%ernor, &amido Sanusi. The second was the theft of the oil produced in Nigeria, the largest oil producer in 7frica.
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Originaltitel
Lesson From Nigeria Discovery of a Natural Resource by a Country Without Good Governance is a Curse
Three pieces of news coming from Nigeria shocked the world. The rst was the sacking of the Nigeria!s "entral #ank $o%ernor, &amido Sanusi. The second was the theft of the oil produced in Nigeria, the largest oil producer in 7frica.
Three pieces of news coming from Nigeria shocked the world. The rst was the sacking of the Nigeria!s "entral #ank $o%ernor, &amido Sanusi. The second was the theft of the oil produced in Nigeria, the largest oil producer in 7frica.
governance is a curse September 22, 2014 The Nigerian news that shocked the world During the last 12 month period, three pieces of news coming from Nigeria shocked the world. The rst was the sacking of the Nigeria!s "entral #ank $o%ernor, &amido Sanusi, b' Nigeria!s (resident $oodluck )onathan in *ebruar' 2014 +a%ailable at, http,--www.n'times.com-2014-02-21-world-africa-go%ernor.of. nigerias.central.bank.is.red.after.warning.of.missing.oil.re%enue.html/ 0r10 2. 3is crime, 4arning the go%ernment that billions of dollars in oil re%enue due to the Treasur' had been stolen at the Nigerian National (etroleum "orporation or NN(". Thus, his hint was that culprits who had committed this theft had been associates of the incumbent (resident. #ut the charge on which Sanusi was sacked b' (resident was something else, that is, Sanusi!s nancial recklessness and not those NN(" whilst being the $o%ernor of the Nigerian "entral #ank +a%ailable at, http,--www.cknnigeria.com-2014-02-poserdo.'ou.support.lamido.sanusis. sack.html2. The second was related to the rst from a di5erent side. The rst was the theft of the re%enue from the legall' e6ported oil. The second was the theft of the oil produced in Nigeria, the largest oil producer in 7frica, before it is being e6ported. 4hile this had been in the news for some time, no action had been taken b' the Nigerian go%ernment to pre%ent it. 7s earl' as 8ctober 2019, Nigeria!s (resident )onathan himself had admitted that the theft of oil had cost the countr' in the region of : 1 billion or ; 1.<= billion a month +a%ailable at, http,--www.theguardian.com-global. de%elopment-2019-oct-0<-oil.theft.costs.nigeria2. This is about 20> of the countr'!s annual earnings from petroleum e6ports and about 4> of its now rebased $D(. The third had been undertaken b' Nigeria disregarding the negati%e impact which the rst two had e6erted on Nigerian econom'. That it had done b' changing the base 'ear of calculating its $D( to 2019, a re%ision which it had done after 29 'ears. This rebasing of $D( has crowned the countr' as the biggest econom' in 7frica and the 2<th largest econom' in the world. "onse?uentl', it has pushed South 7frica @ the champion who had held the title of being the largest 7frican econom' so far @ to the second place. Thus, Nigeria!s $D( increased o%ernight from ; 2A0 billion in 2012 to ; =10 billion in 2019. 7 conse?uential change was that its per capita $D( too increased dramaticall' from ; 1=== in 2012 to ; 2<BB in 2019 +a%ailable at, http,--www.theguardian.com-global.de%elopment-2019-oct-0<-oil.theft. costs.nigeria2. Nigeria is at the bottom of good go%ernance practices in the world 7ll these three e%ents are related to good go%ernance and in the case of Nigeria, the' relate to the absence of good go%ernance. 7ccording to the 4orldwide $o%ernance Cndicators compiled b' the 4orld #ank, Nigeria is ranked within the worst 90> and in some cases within the worst 10> of the countries with respect to all the si6 indicators of go%ernance +a%ailable at, http,--info.worldbank.org-go%ernance-wgi-inde6.asp6Dreports 2. 7ccording to these indicators, a countr'!s go%ernance score ranges from minus 2.= +worst2 to plus 2.= +best2. The most recent indicators relating to 2012, gi%es the following %alues in the minus range for Nigeria, *or Eoice and 7ccountabilit', minus 0.A9F *or (olitical Stabilit', 7bsence of Eiolence and Terrorism, minus 2.0=F *or $o%ernment G5ecti%eness, minus 1.00F *or Hegulator' Iualit', minus 0.A2F *or Hule of &aw, minus 1.1BF and for "ontrol of "orruption, minus 1.1B. 7ccording to a summar' tabulation of di5erent aspects of go%ernance, corruption and rule of law, Nigeria is ranked within the world!s 10 worst countries +a%ailable at, http,--ends.ng-nigeria.ranks. bottom.10.in.the.world.in.almost.e%er'thing.to.act.or.gi%e.up-2. Disco%er' of oil boosted hopes but it has killed Nigeria!s econom' o%er the 'ears Nigeria!s oil histor' is a pathetic stor' right from the beginning. Ct also shows how the disregard of good go%ernance could destro' a countr' e%en when it has disco%ered a %ast deposit of a natural resource. Normall', when such a resource is disco%ered, it is natural for e%er'one to feel that it would end all its economic and social woes and la' a rm foundation for a new beginning. Cn fact, Nigeria!s politicians, like those in Sri &anka and elsewhere, hea%il' capitalised on the disco%er' and marketed it to the people as Jdawning of a new era!. This was in earl' 1K<0s. *ift' 'ears since then, the stor' is di5erent with a brutal shattering of all those hopes. Cn *ebruar', 2019, Nigeria!s 7ssociation of "hambers of "ommerce, Cndustr', Lines and 7griculture, known as N7""CL7, came out with the charge that the oil sector was killing the whole Nigerian econom' silentl' +a%ailable at, http,--allafrica.com-stories-201902190K2K.html2. The reason was the prominent place ac?uired b' newl' earned (etro.dollars @ dollars earned b' e6porting petroleum resources @ in the countr'!s public polic' causing a decline in agricultural e6ports and industrial production since mid 1K<0s. Gconomists call this situation Dutch Disease, a term coined b' reference to the displacement of traditional economic acti%ities in the Netherland after that countr' had disco%ered a %ast natural gas resource in the North Sea in 1KA0s. The double haMards, Stealing oil re%enue and stealing oil Thus, what has happened in Nigeria is the replication of Dutch Disease after its petroleum resource disco%er'. (rior to this, Nigeria was a t'pical agriculture based de%eloping countr' which had depended mainl' on earnings from e6porting primar' agricultural commodities. 4ith oil, both commercial agriculture and industr' were neglected and as a result b' 2000, about KB> of Nigeria!s e6port earnings were deri%ed from e6porting oil products. Cnitiall', oil sector was controlled b' two giant international oil companies, namel', Shell and #ritish (etroleum, which had got concessions from the Nigerian go%ernment. 3owe%er, in 1KA1, the Nigerian *ederal $o%ernment nationalised the oil industr' b' creating JNigerian National 8il "orporation!. 4ith an authoritarian militar' go%ernment in power, the go%ernment!s, and hence those in the go%ernment, power o%er the oil sector was consolidated within the ne6t decade. Ct thus ga%e an opportunit' for politicall' powerful elite groups at both federal and state le%els to siphon o5 the oil re%enue for their personal benets. 7ccordingl', the prots from the oil sector were appropriated b' these groups lea%ing no benet to the Nigerians at large. 8n top of this, the %er' same group was engaged in stealing oil produced in oil wells thereb' den'ing a substantial amount of oil re%enue to the countr'. &amido Sanusi comes to the picture as the $o%ernor of the "entral #ank of Nigeria when the countr' had been hit b' these double haMards. &amido Sanusi, The so called non.con%entional practical central banker Sanusi was a career banker picked up for the Nob in 200K in the height of the nancial crisis. 3e took pleasure in calling himself a Jnon.con%entional practical man not infected b' non.working economic theories!. 4hat he meant was that he was a rebel and read' to tr' an' e6periment if it worked for the countr'. This non.con%entional wisdom was shown b' him when CL* ad%ised to depreciate the Nigerian currenc', Naira, in 200K. Sanusi refused the suggestion claiming that Nigeria!s balance of pa'ments depended on e6port of oil products and the change in the e6change rate has no bearing on such e6ports. *urther, he claimed that if Naira is depreciated it will push up the costs of imported products thereb' accelerating inOation in the countr' +a%ailable at, http,--www.africanre%iew.com-nancial-banking.a.nance-banking. reforms.embrace.best.practices2. 3owe%er, those who are con%ersant with economic polic' practices would know that both these reasons adduced b' Sanusi are not non.con%entional. The' simpl' reOect the con%entional wisdom of the man in the street who belie%es that the depreciation of a currenc' is a loss of national pride and a wa' to increase inOation. 3owe%er, his so called non.con%entional policies rewarded him well. 3e was awarded the #est "entral #ank of $o%ernor of 7frica and the "entral #ank $o%ernor of the Pear b' &ondon based #anker LagaMine in 2011. Sanusi re%eals that oil re%enue has been stolen at go%ernment 8il "orporation Sanusi of course raised the oil theft issue with good intentions. 3e e6plained this in an address he deli%ered at an in%estors! conference organised b' one of Nigeria!s largest banks, namel', The Standard #ank, in *ebruar' 2014 +a%ailable at, http,--allafrica.com-stories-2014020<00KK.html2. 7bout B0> of the re%enue of the Nigerian *ederal $o%ernment comes from the oil sector. Cf oil mone' is stolen midwa', it a5ects the go%ernment budget ad%ersel'. Sanusi claims that he was able to bring Nigeria!s inOation to a single digit le%el @ that is, below 10> per annum @ since earl' 2012. The tight monetar' polic' which the "entral #ank of Nigeria has taken had deli%ered this good result to the countr'. This will be compromised if the go%ernment budget goes ha'wire due to an insuQcienc' of re%enue. The theft of oil re%enue has been one of the reasons for the insuQcienc' of go%ernment re%enue. Cn this regard, Nigerian National (etroleum "orporation, NN(", has failed to remit ; 20 billion to the *ederal Treasur' and this has caused a serious concern about the go%ernance practices in public enterprises. The good.intentioned report to (resident b' Sanusi Sanusi, as a responsible central banker, brought to the notice of (resident )onathan the continuing theft of oil re%enue b' an apparent fraudulent acti%it' at NN(". This has amounted to ; 1 billion per month according to his estimates +a%ailable at, http,--www.ft.com-cms-s-0-<c4aeaA2.K9cd.11e9. a0e1.00144feabAde.htmlDa6MM9DmPo4BB*2. Nigeria had had the benet of high oil prices but its oil re%enue, and conse?uentl' the re%enue of the go%ernment, had continuousl' declined. 3is memo to the (resident had claimed that this anomal' cannot be e6plained b' the partial Ouctuations in the oil production. 7s a result of declining oil re%enue, go%ernment budget had not got the re?uired re%enueF it added pressure for Nigerian Naira to depreciate in the market. 3ence, his ad%ice to the (resident was to put a stop to the continuing theft of oil re%enue b' those in NN(". The implication was that if it is not done promptl', the countr' will ha%e to sacrice the hard.earned low inOation regime. The good report is badl' taken b' the go%ernment Cn an' countr' with good go%ernance practices, such a memo from the central bank go%ernor would ha%e been welcome and acted upon. #ut it was not the case with Nigeria. The Lanaging Director of NN(" immediatel' issued a counter.charge that Sanusi did not understand the technicalities of oil production and sales. 3e further charged that the "entral #ank of Nigeria has %entured into auditing go%ernment corporations which was not its dut'. 3owe%er, after Sanusi!s re%elations, se%eral pri%ate anal'sts who tried to reconcile the reported re%enue b' NN(" with the import of oil b' Nigeria!s trading partners found that NN(" re%enue was much lower than what had been paid b' foreign importers of Nigerian oil. The shortfalls are assumed to ha%e been retained outside the countr' b' an elite group belonging to (resident )onathan!s inner circles. (resident )onathan, instead of initiating an in%estigation into the charges made b' Sanusi, hit back b' asking Sanusi to resign from $o%ernor!s post. #ut Sanusi had refused to do so claiming that such a directi%e should come not from the (resident but from the Senate according to the constitution. 7uthoritarian rulers don!t respect constitutional pro%isions #ut such a constitutional nicet' would be obser%ed onl' in a countr' where there is good go%ernance in practice and the obser%ance of the rule of law b' the go%ernment. Nigeria was not such a countr'. 3ence, )onathan acting on his powers suspended Sanusi from the post of the "entral #ank $o%ernor in *ebruar' 2014 and informed the Senate of his decision. The Senate did not come to rescue Sanusi as re?uired but silentl' appro%ed of the measure taken b' )onathan. Those are the powers e6ercised b' authoritarian rulers e%er'where in the world. G%en the elected representati%es o5er a 'ielding hand to such powerful authoritarian rules to %iolate the pro%isions of the laws of the countr'. 7nother e6ample for such authoritarian action was the remo%al of the $o%ernor of #ank Cndonesia, SudradNad DNiwandono, b' (resident Suharto in 1KKA when the good intentioned $o%ernor tried to close down 1< bankrupt banks in the countr'. The sin committed b' $o%ernor was that he tried to interfere in banks which had been owned either b' close famil' members of (resident Suharto or b' his close associates. This stor' was discussed b' this writer in a pre%ious article titled J#ank "apital is not a panacea, $ood go%ernance and regulator' wisdom more important! in this series +a%ailable at, http,--www.ft.lk-2014-0B-11-bank. capital.is.not.a.panacea-2. #oth Sanusi and DNiwandono would ha%e sur%i%ed had the' not %entured into challenging the powers of those who are close to the topmost powerful man in the countr'. Hebasing should not necessaril' increase the siMe of the econom' Cn the midst of allegations against the theft of oil re%enue and sacking of the "entral #ank $o%ernor, Nigeria has rebased its $D( calculations to 2019 increasing the siMe of the econom' also b' about BK> as mentioned abo%e. Hebasing of $D( calculations periodicall' is a normal acti%it' but in other countries it does not increase the siMe of the econom' dramaticall' as has been done in Nigeria. *or instance, when $D( numbers were calculated b' the "entral #ank of Sri &anka prior to 200A, on se%eral occasions, $D( calculations were rebased without increasing the siMe of the econom' dramaticall'. Cn 1KB2, the pre%ious $D( series which was based on the base 'ear 1KA0 was rebased after 12 'ears. The total siMe of the econom' was increased onl' from Hs. B= billion to Hs. KK billion or from ; 4.4 billion to ; 4.B billion. 7gain, the data series was rebased in 1KK< after another 14 'ears. This resulted in increasing $D( from Hs. <<B billion in 1KK= to Hs. A<B billion in 1KK< or from ; 19.0 billion to ; 19.K billion. The third re%ision was done b' the Department of "ensus and Statistics in 2002 after si6 'ears. The $D( increased from Hs. 1,40A billion in 2001 to Hs. 1,=B2 billion in 2002 or from ; 1=.B billion to ; 1<.= billion. Thus, there is no necessit' for a countr' to dramaticall' increase the siMe of the econom' simpl' because it has rebased its $D( calculations. Sri &anka!s dreams about disco%ering oil in Lannar #asin Sri &anka is set to prospecting its oil and gas resources in Lannar #asin b' 2020. This is e6pected to make Sri &anka energ' self suQcient and it is the hope of e%er' Sri &ankan citiMen. The top polic' makers of the go%ernment ha%e proNected that this disco%er' will eliminate the countr'!s gaping trade decit entirel' and generate a surplus in the current account of its balance of pa'ments. 4hen Sri &anka has a surplus in the current account, it means that the countr' is transformed from a borrower nation in the international markets to a lender nation. 3ence, these are high hopes entertained b' all and sundr'. The need, good go%ernance and a non.'ielding central bank #ut all these high hopes will e%aporate into thin air if the countr' will not ha%e good go%ernance practices in place and the countr'!s central bank does not perform its statutor' dut', respected b' those in power as was announced b' Dr. N.L. (erera, *inance Linister during 1KA0.A= at a meeting with "entral #ank oQcers in 1KA1 +a%ailable at, http,--www.ft.lk-2019-11-1B-central.bank.as.ad%isor.to.the.go%t.how.and. what.it.should.ad%ise-2. This is the lesson which Sri &anka has to learn from Nigeria. This writer has repeatedl' pointed this out in this series of articles. 8ne such article is the e6perience of EeneMuela which has become economicall' bankrupt despite its huge oil resources, like Nigeria +a%ailable at, http,--www.ft.lk-2014-01-2A-lessons.from.%eneMuela.rich.oil.income.is.not. an.insurance.against.bad.economic.policies-2. +4.7. 4iNewardena, a former Deput' $o%ernor of the "entral #ank of Sri &anka, can be reached at waw1K4KRgmail.com2 Posted by Thavam