Watch the Throne: Nigeria is Now leading Africa in GDP

Photo Courtesy of Zouzou Wizman: https://www.flickr.com/photos/zouzouwizman/
Photo Courtesy of Zouzou Wizman: https://www.flickr.com/photos/zouzouwizman/

Nigeria has catapulted ahead of South Africa for the title of largest economy on the African continent. On April 6, Nigerian government officials announced that they had revised their 2013 GDP calculation to the tune of $510 billion. But in 2012 the World Bank estimated Nigeria’s GDP at $262 billion. So what can account for this rapid change? The answer lies in how the Nigerian government did the math.

The process is called “rebasing.” To calculate any country’s GDP, economists must first set a base year on which to model the economic growth. Then economists try to paint a picture of the economy in that year by studying different industries like agriculture, energy, and manufacturing. In the years to come, economists look at how these industries have grown. All GDP calculations, sometimes many years later, are based on this initial point of reference. However, this system of measurement does not account for the informal economy. Nor does it account for rapidly developing sectors such as telecommunications and film—industries that have sprung up in Nigeria over the last 20 years.

Nigeria’s model year was 1990. The new base year is 2010. As we will see, much has changed in the Nigerian economy since 1990. New industries have emerged and historically strong industries have fallen. Thus far, the World Bank has supported Nigeria’s recalculation. It is recommended that a country rebase its GDP numbers every five years. Since Nigeria has held off for so long, the change was quite drastic. Nigeria saw the highest gains in the service industry. The agriculture, oil, and gas industries decreased in terms of percentage of GDP. Telecommunications shot up from less than one per cent to 8.7% of GDP. The Nigerian film industry, known as Nollywood, makes up about 1.2% of GDP.

Sadly, despite these good numbers, the average Nigerian citizen will not see improvements in their quality of life. South Africa, who Nigeria unseated from the throne, has a GDP per capita of $7,336, a long way from Nigeria’s $3,000 (and that is with the new rebased numbers). There is still corruption, terrorism, power outages, and vast inequality in Nigeria. Many have criticized the new calculations, saying that nothing will ultimately change for poor Nigerians. What the new numbers can do, however, is open the door to more Foreign Direct Investment. As Africa’s largest economy, Nigeria has put itself in an advantageous position in the world marketplace by calling positive attention to themselves. As Forbes recently reported, the country is full of potential. They have a growing educated class, energy reserves, and a spirit of entrepreneurship. But as of today it seems that there remains many political and institutional barriers to overcome.

Niger Delta Blues

The nickname “black gold” has always been apt when dealing with oil. But dreams of riches and development have been masked by the murky nature of money flows connected to it. Nigeria in particular has been blessed and cursed with its abundant oil supplies. With the second largest GDP in Africa, Nigeria still has 46% of its population below the poverty line. This is despite the oil and gas sector representing 35% of the Nigerian economy, according to OPEC. The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture has even asserted that the oil and gas sector has been distorting the Nigerian economy. Recent revelations have shown that corruption in the oil sector is still rampant. The question becomes what pressure can be brought on the industry.

Lamido Sanusi, former Nigerian central banker and whistle-blower

Recently, Lamido Sanusi, the Nigerian central bank president, was suspended and removed from his position by President Goodluck Jonathan. Sanusi’s suspension was prompted by the revelation that $20 billion in oil revenue was not accounted for by the Nigerian National Petroleum Corporation. The revelation created enough of an uproar that a forensic audit has been called for to try and account for the missing money. This is on top of the fact that a month earlier, the NNPC was selling kerosene to marketers at one-third of the international price, allowing them to mark up kerosene to Nigerian citizens 300-500%. The mark-up is the difference between 140-160 naira per liter ($.85-$.97) and 40 naira per liter ($.24).

In the past, Nigeria tried to tackle the issue of corruption and the lack of transparency in the oil sector by establishing the Nigeria Extractive Industries Transparency Initiative (NEITI) in 2007, which is the local adaptation of the Extractive Industries Transparency Initiative (EITI). NEITI is mandated to audit the extractive industries, and provide transparency and accountability. It is comprised of representatives from the government, oil industries, and civil society. While the cooperation of national governments and NGOs is a laudable achievement, the voluntary nature of the EITI has been criticized.

Shell and the Niger Delta

International NGOs, such as Oxfam and Publish What You Pay (PWYP), feel that the standard adopted by extractive industries should also be backed by a legal enforcement framework. EITI has also been criticized for the role of civil society organizations (CSOs) in the EITI framework. EITI can be considered a top-down reform, and the governments and extractive industries still have more power than the CSOs, creating pressure for the CSOs to go along with the EITI process, according to Kees Visser at the Focus on the Global South. There is also the question of which CSOs are chosen to be represented. EITI has also not been shown to reduce the Corruption Perceptions Index. In Nigeria, the NEITI has published audits, which have had no effect on laws,  because dissemination is not simple in a country with low internet access. There have also been representatives of NGOs who were actually single person self-promoters.

With the doubt cast over the EITI, the question remains on what model civil society in Nigeria should use to ensure that all Nigerians benefit from their extractive industries. While there is a local chapter of Publish What You Pay, coalitions in Ghana and Uganda could serve as templates for counterbalances to the government and industries. The Civil Society Coalition on Oil and Gas (CSCO) in Uganda and the Ghana Civil Society Platform on Oil and Gas are both large coalitions of CSOs: 40 in CSCO and 120 in Ghana compared to 19 in PWYP. Both coalitions use the expertise from individual CSOs to issue media campaigns and community interaction to pressure governments to keep oil and gas taxes and concessions transparent. In Ghana, the Civil Society Platform on Oil and Gas issues “Readiness Report Cards” and actively contributes to the Public Interest and Accountability Committee and proposed laws through the committee. The Ghana platform is funded by various international donor agencies, such as USAID and the EU, and therefore have the backing of powerful partners. Both of these countries have only recently discovered oil, so it remains to be seen how successful these coalitions will be in exerting pressure. For the most part, there’s nowhere to go but up.

Double, Double Oil and Trouble

How will oil influence Ghana's development?
How will oil influence Ghana’s development?

In 2011, Ghanaian citizens viewed the discovery of offshore oil as a game changer for Ghana. The oil would provide an economic boost for the developing country and improve overall social welfare through increased revenues, jobs, and infrastructure projects. Yet, oil-led development is notorious for stagnating economic growth and harming overall development. This is known as the “Resource Curse”. Almost every African country attempting oil-led development falls under the curse. Take your pick of examples. There’s Angola, or Equatorial Guinea, or Nigeria. The World Bank even tried to break the curse in Chad and failed. Africa has yet to see a successful execution of oil-led development.

What factors contribute to successful use of oil as a means of development? Terry Karl attributes Norway’s success to strong governance and a diverse economy. Countries relying on oil for development need strong governance to avoid corruption and a misallocation of resources. You only have to look three countries over from Ghana to see an example of this. Nigeria is Africa’s largest exporter of oil, yet the general public sees almost none of the money. A diverse economy is necessary because of the fluctuating value of oil. If a country relies solely on oil its economy will directly fall and rise as the value of oil falls and rises. Look no further than Angola or Equatorial Guinea where oil and gas make up 98% and 95% of exports, respectively. Neither country has experienced economic stability or the developmental benefits of increased revenues.

Ghana has the politics tobreak the curse
Ghana has the politics to break the curse

The development community still remains optimistic with Ghana. Many look to Ghana as an example of effective democracy in Africa. Ghana ranked 63rd on the Corruption Perception Index, the 6th highest of all African countries. Elections run smoothly and, more often than not, citizens turn to the justice system instead of violence to resolve conflicts. Ghana extends its good governance to its use of oil revenues. It passed the Revenue Management Act in 2011 as a new approach to oil-led development. The Act promises government transparency in its use of the oil money, with 30% of revenues going to savings and 70% towards development projects. It establishes oversight, regulations, and benchmarks for revenue distribution that the government is accountable to present to the public.

Compared to its counterparts, however, Ghana is in a better economic position to benefit from oil-led development. At the time of discovery, Ghana had a relatively diverse economy. Its largest export was gold, at 46%, followed by cocoa products at more than 30%. Ghana also had trading partners throughout Asia, Africa, Europe and the Americas. Since oil production began Ghana’s exports have grown from $7.5 billion in 2008 to $13.5 billion in 2012, but only $500 million is from oil. Ghana’s economic diversity means oil is a form of extra revenue instead of the basis of the country’s economy.

Ghana's exports in 2008
Ghana’s exports in 2008

But Ghanaian citizens have yet to benefit from the oil revenues. The government made a promise to use the oil revenues for infrastructure improvements. But citizens have not seen the benefits of that investment. Is this another case of the resource curse? The government claims the reason citizens have not directly benefited is thanks to lower-than-expected revenues. Current oil production rates are half of what analysts expected but Ghana is working to improve its production capacity and could see $1 billion in revenues in the future. Perhaps this slow production rate is a blessing in disguise for Ghana. At full production Ghana’s oil will run dry in 20 years. At the current rate Ghana can instead find a way to refine its oil and use it towards other industries and create long-term economic benefits.

Ghana is still in the early stages of oil-led development but it is facing a crossroads. Will Ghana take advantage of its good political and economic standing and break the resource curse? Or will it succumb to the draw of high short-term revenues and become another cautionary tale concerning the pitfalls of oil discovery? Ghana’s success could serve as a model for future oil-led development, especially considering the recent oil discovery in Kenya and Uganda.

Russian Actions against Greenpeace International Part of a Familiar Trend

Last week, the CGP blog commented on the state of the CSO sector in Russia amidst the oncoming 2014 Winter Olympic Games in the country. The highly controversial interactions between the environmental group Greenpeace International and the Russian government in the past weeks align with the past grievances we reported on:

A Russian coastguard official points a knife at a Greenpeace International activist who tried to scale an oil platform owned by state-owned energy giant Gazprom (Source: Denis Sinyakov/Greenpeace).

30 people from 18 countries detained on the Greenpeace International ship “Arctic Sunrise” are awaiting trial on piracy charges and face up to 15 years in prison if convicted related to a September 18th  incident in which some of the activists tried to scale an oil rig in the Pechora Sea owned by the national oil-giant Gazprom. The activists may spend up to two months in pre-trial detention in a Murmansk jail awaiting the decision of Russian prosecutors. Greenpeace International director Kumi Naidoo called the seizure of the vessel and the arrest of its crew the worst “assault” on the environmental activist organization since one of its ships was bombed in 1985. The detained activists are reportedly being kept in “solitary confinement for 23 hours a day,” while others are held in “extremely cold cells.” Russian officials have called the protest “pure provocation” and an “encroachment on the sovereignty” of Russia.

Continue reading

A Growing Gazpro(m)blem

Russian energy giant Gazprom has a growing problem.  One of the most profitable corporations in the world sits in the cross hairs of a burgeoning shale gas boom that threatens its monopoly over European gas markets and Russian preeminence in energy geopolitics.  The advance of technology, economic success of natural gas development in the US and estimates of untapped gas reserves in Europe and elsewhere, could revolutionize the politics, and power, of energy.  Traditional energy politics has been dominated by a few exporters in oil rich countries (Saudi Arabia, Russia) and a host of import-dependent consumer nations. Suddenly, most EU countries have some degree of domestic shale gas reserves, and if allowed for commercial development, will increase global oil and gas supplies, diversify national energy policies, decrease the value of energy as a commodity, and thus reduce the influence of energy geopolitics.

“Right now, the only thing keeping the shale gas revolution from hitting Europe as it has in the US is technology: the shale reserves in Europe are on land that is more inaccessible, there is a lack of necessary infrastructure and fracking equipment, and protests against the environmental impact of fracking are more serious. But the biggest problem is Gazprom.” 

Continue reading

Morocco’s bold play at renewing their energy blend

As the winds of change blow through the MENA region, Morocco is pushing to harvest the energy of the sun and the wind. At a time when Western attempts at making renewable energy a success are only producing negative headlines (example here & here) Morocco is playing the hand it was dealt.

As the only country in North Africa that does not have oil resources, Morocco must import 95% of its energy. In 2009, Morocco spent $7.3 billion on fuel and electricity imports, and the demand is set to quadruple by 2030. This has left Morocco with a strong set of incentives to aggressively expand its renewable energy capacity, and the government set an ambitious goal of 42% of energy to come from renewable sources by 2020. That’s more than double the commitment made by the more traditional climate-friendly European countries. Continue reading

Beating the Resource Curse with Oil to Cash Transfers, Part 2

A joint post by Michael French and Laura Esposito

Oil in Libya | Source: The Africa Report and Reuters

The resource curse plagues many nations, partially because it’s difficult to hold leaders accountable for the millions of dollars of oil revenue. However, some countries are making progress. For example, Libya’s new government wants more transparency around the oil sector, suggesting that government contracts will be published online. This, the new government hopes, will encourage Libyans to play a role in the process and potentially benefit from that nation’s large oil reserves. Another option is encouraging the government to use oil revenue for cash transfers to its people, increasing accountability and providing citizens with income to address their needs.

Using oil to cash transfers, championed by the Center for Global Development, the program would essentially take the revenue gained from the oil and put it in the hands of the people. The oil to cash transfer initiative divides a large portion of oil revenue and distributes it to the people evenly. These cash transfers are then treated as income and subsequently taxed by the government, with the taxes creating a stronger link between the people and government activity. Continue reading