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Debasing Africa's Largest Economy

By Soji Apampa

There was outrage in Nigeria when the U.S. National Intelligence Council (NIC), at a conference in 2005, dared to consider the possibility of Nigeria collapsing into a failed state before 2020. The Nigerian government, which preferred to underscore the fact that Nigeria’s economy was on a growth trajectory, vehemently denounced this report as “glib talk arising from dubious or diabolical benchmarks.”

Whether or not NIC is correct, Nigeria today can be described as a middle-income country characterized by weak state capacity and weak state legitimacy. This state weakness makes citizens vulnerable to a range of shocks which, when coupled with Nigeria’s corrupt political economy, provides the preconditions for crisis. Such a crisis would likely be followed by a superficial recovery in which symptoms, not root causes, were addressed. As a result, key lessons would not be learned, leaving room for the crisis cycle to repeat. In order to fix this crisis cycle, Nigeria must move away from its current culture of corruption.

Crisis Triggers

What events or combination of events could drive Africa’s largest economy towards crisis? Four events could determine the direction in which Nigeria’s economy would travel between 2015 and 2020:

·      international oil price shocks,

·      the country’s unmitigated corruption,

·      political instability surrounding the 2015 elections and finally,

·      heightened, widespread, sustained violence (resulting from political processes for 2015 elections and/or resumed insurgency in the Niger Delta, and/or heightened piracy in the Gulf of Guinea, and/or sustained terrorist action in the style and manner of Boko Haram).

But will these precipitants cause Nigeria to disintegrate as predicted by the NIC, drifting toward a precipice? Or will it change course toward a better set of outcomes?  Understanding the likelihood of each scenario requires understanding the relationship between Nigeria’s oil wealth and its patronage politics.

By far the biggest shock to Nigeria’s economy in 2014, bigger than the effect of Ebola and U.S. quantitative easing, has been the oil price collapse. While Nigeria needs approximately $120 pb for the budget to break even from income and taxes, the price of oil since December 1 has fallen to just under $70 pb. Nigeria has squandered resources it saved in an Excess Crude Account, specifically to cushion the effect of oil price shocks. It has drawn down on its external reserves and cashed in large parts of its sovereign wealth fund, leaving it no choice but to devalue its currency and announce a range of austerity measures. Much of the sums have been drawn to maintain political support within Nigeria’s patronage politics.

While the U.S. has historically depended on a stable Nigerian government to ensure that Nigeria’s oil is available to the West, the recent American shale oil revolution has led to a decline in oil purchases from Nigeria and a resultant decline in Nigeria’s strategic importance to the U.S. Nigeria (holding current OPEC Presidency) and other OPEC countries, in a bid to injure U.S. shale oil, have voted to keep pumping oil with the effect that global oil prices remain depressed. But is Nigeria clutching at straws?

Corruption in Nigeria is endemic, pervasive, and systemic. It is also the primary precondition to national crisis and is inextricably linked with the oil economy. This relationship is best explained through a caricature of the Nigerian political economy where enormous wealth is today synonymous with enormous power, and vice-versa. To have either, one has to be connected to public funds one way or another.

To achieve that, the political aspirant enters into an unwritten pact with unofficial Kingmakers or “Godfathers.” The pact is a promise that the “Godfathers” would continue to have access to state funds while their rivals and competitors are kept out. In other words, a promise to “hold the cow of state steady whilst they milk it to death!” A successful politician in that scenario is one that delivers on the pact once in office, and therefore one that deserves reelection. Once re-elected enough times (stopped only by constitutional dictates and the “greed” of other groups who want to replace them), they elbow their way till they can join the ranks of the “Godfathers” or unofficial Kingmakers.

Nigeria’s oil lubricates this system, and corruption describes its mechanism. Violence, or the threat of it, is used to get a recalcitrant party to negotiate or make room at the table for the callous. Some have been honing their skills to test their art at February’s elections. In the crudest form possible, violence drives access to oil; oil drives corruption; corruption drives the game of patronage politics played by Nigeria’s elite; and patronage politics drives public choice.

Unless Nigeria finds an answer to its culture of corruption, the country may find itself, despite its best wishes, on a slippery slope to a national crisis. And with all of the four triggers eminently possible and oil prices continuing to drop, any response short of reducing corruption and patronage only postpones the doomsday.

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Soji Apampa is co-founder of the Integrity Organisation Ltd. (Gte.), a Nigerian organization established in 1995 to empower people, their transactions, systems, and institutions against corruption.

[Photo courtesy of Stakeholder Democracy]

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