Nigeria is the sixth largest exporter of oil and possesses the largest oil reserves in Africa. Given such a wealth of natural resources, on the surface, it can be difficult to comprehend how Nigeria’s resource curse exacerbates poverty an also has the largest population of extreme poor in Africa, with 70 million people living on less than $1.90 a day. Nigeria is a prime example of a natural resource-dependent economy having what is known as the “resource curse,” where orienting economies around plentiful natural resources can lead to more poverty, unemployment and corruption over time. The effects of the resource curse are apparent in Nigeria. However, the country can implement policies to end the resource curse and broaden opportunities to reduce poverty and encourage socioeconomic development.
The Resource Curse is a Gravely Inefficient System
A major impact is the lack of economic returns relative to the financial resources invested into the oil sector. In 2020, oil accounted for 90% of Nigeria’s export earnings and consisted of 1/3 of the country’s annual revenue, however, it only contributed to 9% of GDP growth.
Such economic inefficiency, along with the appeal of fast money, underscores how Nigeria’s resource curse leads the government to neglect other economic sectors such as infrastructure, industry, science/technology, services and agriculture. Such neglect of these sectors depresses opportunity and exacerbates poverty, seen in Nigeria’s unemployment rate of 9.8% and per capita income at $2,085 as of 2021.
Nigeria also ranks 150 out of 157 countries in the World Bank’s 2020 Human Capital index, indicating a lack of adequate living standards from poor opportunities in education and healthcare to ensure a productive labor force. These indicators of poverty relate to the neglect of other industries that come from the resource curse and the lack of economic diversification to provide adequate socioeconomic opportunities for Nigerians to escape poverty.
The vulnerability to global price fluctuations underscores how reliance on the oil sector alone can make economic growth from it particularly fragile. Also, how relatively small returns in economic growth from huge investments seen in export percentages can create an inefficient economic system.
The Atmosphere of Corruption Encouraged By Resource Curse
Nigeria’s resource curse also encourages rampant government corruption where oil revenues and ownership of reserves are used as a vehicle for patronage to win elections. This denies Nigerians access to oil revenues to develop the economy and create better socioeconomic opportunities, because revenue is not invested back into national development.
Nigeria’s tax revenue to GDP ratio is significantly less at 6% than the average African country at 17%. This lack of financial return from oil revenues is largely due to corruption. Oil revenues become used to entrench patronage and cronyism rather than investing in the development of other economic sectors to reduce poverty for Nigerians.
Other Important Economic Sectors Become Neglected Stifling Development
Another major impact is the lack of economic diversification essential for creating opportunity and reducing poverty. Nigeria ranks 45 out of 76 in the Observatory of Economic Complexity ranking in service exports, a trade data research firm measuring indicators of trade development for services such as financial, business and computer and technology services.
This ranking indicates that in measures of more advanced industries, Nigeria has fallen behind due to dependence on the oil industry. The agricultural industry is another field that Nigeria’s resource curse neglected.
Although 36% of Nigeria’s workforce is employed in agriculture, it accounted for less than 2% of exports in 2019. The neglect of the agricultural sector has had a major impact on poverty in Nigeria. The country, despite such high levels of employment in the industry, imported $689.7 billion more in food than it exported in 2019. This attributes to lack of modern agricultural techniques, poor infrastructure and recent violence from terror groups such as Boko Haram disrupting agricultural production.
The neglect of the agricultural industry and subsequent dependence on imports, place Nigerians at heightened risk of slipping deeper into poverty. This is because skyrocketing demand for food imports in Nigeria has contributed to a rise in food inflation, standing at 18.4% as of May 2022 as domestic agriculture has struggled to satisfy demand.
The neglect of infrastructure is another example of exacerbating poverty. Poor roads obstructing the transportation of crops from farm to market and dependence on imports have led to 21.4% of Nigerians experiencing food insecurity, while 45% of Nigerians lack access to electricity.
This lack of access to critical infrastructure is due to the vast majority of government resources going to the oil industry, placing Nigeria at a large infrastructure deficit as it accounts for 30% of GDP, well short of the 70% average goal set by the World Bank. This results in serious impediments to commercial activity within the country, stifling economic growth and depressing socioeconomic opportunities for Nigerians.
Such statistics show how Nigeria’s dependency on oil exports have led to overall less economic development in other important economic sectors, contributing to the extent of its poverty.
Nigeria’s resource curse as in other natural resource-dependent economies stems from the lack of economic diversification it causes. Focusing on developing the agricultural and infrastructure sectors could reduce dependence on oil and create more socioeconomic opportunities for Nigerians that could reduce poverty.
Investments in human capital could also go a long way to improving Nigeria’s Human Capital Index ranking and cultivating a workforce equipped with the tools to achieve higher living standards and more socioeconomic prosperity for the benefit of Nigerians and the country as a whole.