Global Policy Forum

By Briony Hale

It is ironic - and yet typical - that it is fuel prices that have caused a general strike in the Western African state of Nigeria.

Nigeria's entire economy revolves around oil - with large reserves meaning the country has, in theory, the potential to build a very prosperous economy. But despite Nigeria's rich natural resources, poverty is widespread and Nigeria's basic social indicators place it among the 20 poorest countries in the world.

The wealth from oil has not fed through to the wider population, but has often been squandered or lost through corruption. That is why rises in fuel prices cause such outrage amongst Nigerians.

Rising poverty

Poverty is still a growing problem in Nigeria - a country which is estimated to have earned about $280bn from oil during the past 30 years. According to the World Bank, about 66% of the population now falls below the poverty line of about a dollar a day, compared to 43% in 1985.

Nigeria's economy is forecast to grow by 3.5% in 2002 according to the Economist Intelligence Unit (EIU) - a rate of growth that would be the envy of many western nations. But the growth is primarily driven by the energy sectors, and is unlikely to feed through to the wider population.

Squandered

The state of the oil industry is a prototype of how industry has been mismanaged - and of the difficulty of reform.

While Nigeria has been pumping two million barrels of crude oil a day into the international oil markets, its own refineries are in a state of neglect and disrepair and the country has suffered a series of fuel shortages. Nigeria is forced to import about 70% of its own fuel requirements, which have then been heavily subsidised by the government.

This year's fuel hikes are a move towards the liberalisation of its tightly controlled domestic markets - a move which would win it the favour of the International Monetary Fund (IMF).

But any price rises - on top of rampant inflation of about 15% last year - is an affront for many Nigerians already on the brink of poverty, resulting in the protests. Similar protests in June 2000 - also over fuel prices - led the government to backtrack in order to keep the peace.

And with elections coming up in early 2003, the government will be under a great deal of pressure to do likewise this time.

Missed goals

Nigeria failed to meet most of its targeted reforms on spending, inflation and privatisation during the last 12 months. As a result, a stand-by credit agreement with the IMF lapsed at the end of October, although discussions for a new programme are now under way.

The EIU expects President Olusegun Obasanjo to continue with his attempts towards economic liberalisation, but it also expects the pace of reform to be slow. The lack of political consensus on the need for reform, together with the upcoming elections, has made attempts to privatise other key industries - including the national airline and the leading telecoms operator - a long and painful process.

Broadening out

In the longer term, Nigeria must reduce its dependence on oil. Oil accounts for almost half of Nigeria's gross domestic product (GDP) and about 85% of all foreign exchange earnings.

But the outlook for the international crude oil price over the next ten years is growing increasingly gloomy.

Nigeria also has reserves of bitumen, tin, bauxite, iron ore and gold, as well as the potential to develop a vibrant tourism business. But it needs a substantial inflow of foreign investment in order to develop these industries.

The country's record of corruption - and widespread unrest that has seen more than 10,000 people killed since 1999 - has seen foreign investment outside of the energy sector all but dry up. "Improving energy, transport and communications infrastructure and increasing private investment in the non-oil sector will remain the government's main economic challenges," says EIU in its assessment of Nigeria.

After 15 years of military rule, President Obasanjo, elected in May 1999, has repeatedly expressed his determination to stamp out corruption and build a platform for sustained economic growth. But the wider world still needs some convincing.

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