Categorized | Africa

Nigeria’s Oil Economy Reeling From New Southern Insurgency

Image by United Nations Photo

Their name may owe something to the caped crusaders loved by comic fans everywhere. However, the activities of a new militant group, the Niger Delta Avengers, are making them anything but superheroes to most Nigerians given their impact on the country’s economy.

They have gained notoriety in the region after claiming responsibility for two attacks in May – bombing a Chevron facility off the coast of Escravos on May 4 and then, a little less than a week later, detonating another explosion at Chevron Nigeria Ltd.’s Marakaba line oil facility in Warri. And in the early hours of June 3, they also claimed responsibility for another devastating attack on an oil facility owned by Shell.

The group’s self-described mission is to destabilize the government of Muhammadu Buhari and establish a sovereign state in the oil-rich Niger Delta. They claim that northern Nigerians and foreign companies own 90% of all oil blocs and have purposefully humiliated and impoverished the southern region. An Africa analyst at political risk consultancy Verisk Maplecroft has suggested that the group’s membership is most likely made up of disaffected ex-militants angered in part by the loss of monthly subsidies provided by the old regime to reformed militants and security contracts. Indeed, after Buhari – a former military dictator from the northern state of Katsina – became President, he slashed the 2009 amnesty program, which was providing a monthly paycheck to tens of thousands of former militants from the south, by 70%.

With the group showing no signs of backing down, Nigerian oil production is in free-fall.  Shell and other operators swiftly withdrew personnel in the wake of the insurgency and oil production has lurched to levels not seen since the early 1990s. Production has waned from 2.2 million barrels per day in January 2016, to 1.7 million in April, around 1.4 million mid-May, and now stands at around 1.1 million barrels per day.

Oil production is perhaps the one trump card that the Nigerian economy has – and without it, things begin to look very bleak indeed. Like all oil-producing states, the country has already suffered from the effects of low oil energy prices, and has borrowed some $4.5 billion from foreign markets to plug the gap. Furthermore, the Nigerian National Petroleum Corporation (NNPC), a state controlled entity that handles the country’s oil production, is facing spiraling accusations of corruption. As one commentator stated, “the NNPC was run like a cult with most of its crude oil lifting contracts, crude SWAP arrangements, offshore processing agreements and other contracts involving the corporation shrouded in secrecy,” with even the former Governor of the Central Bank of Nigeria (CBN) seemingly spared the details on what precisely was happening in the massive corporation on his patch.

With his ascendancy to power, Buhari had the NNPC in his sights, and embarked on measures aimed at cleaning it up. A former head of the NNPC himself, Buhari’s crackdown seemed to be working initially. A report he commissioned from the auditor general found that the NNPC failed to remit $16 billion to the Treasury in 2014 alone – money that was most likely siphoned off. However, after the emergence of the Niger Delta Avengers, the Nigerian oil industry was dealt a second body blow that could very well prove fatal. Indeed, the attacks were the last thing the economy needed, not least because the oil industry isn’t the only sector where government policies seem to be failing spectacularly.

Another punching bag for critics is the mishandling of Nigeria’s diversification drive away from its current 70% dependence on oil exports. However, the ill-judged actions of the governor of Nigeria’s central bank – who has introduced restrictions on imports, careful control of the foreign exchange market as well as supported an artificial foreign exchange rate – have hit Nigeria’s manufacturing sector hard and greatly limited it. As Keith Richards, a stalwart of Nigeria’s consumer goods industry, and who used to run a subsidiary of Guinness, stated, it makes no sense: “Growing non-oil income is a key economic strategy of this government. Blocking manufacturers from manufacturing will have the opposite effect.”

When Buhari was elected in last year, he was riding the crest of a wave of almost Obama-esque optimism about how he could reform his country for the better. But after just a year in office, it is apparent that while he may well be full of good intentions, the resulting actions are either misguided or ineffective. Supermarkets are struggling to keep their shelves stocked, fuel and oil prices are soaring, and oil revenues are plummeting. Nigeria after just one year under Buhari is showing all the first signs of a failed state. The question is whether the President has what it takes to turn things around?

Image courtesy of United Nations Photo

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About Tom Wirth

Originally from Düsseldorf, Tom is a recent graduate in International Affairs from St.Gallen (with a focus on Africa), and is an aspiring foreign policy analyst in preparation for a PhD in Conflict Analysis.

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