Nigeria: Political instability undermines prospects for economic diversification

By David Whitehouse
Posted on Thursday, 18 August 2022 09:33

Nigeria has yet to recover from the death of President Umaru Yar'Adua in 2010. REUTERS/Afolabi Sotunde

Few targets have been pursued with such consistency as economic diversification in Nigeria, which has been an official policy aim since independence.

The fragile balance of power among the country’s elites and the policy instability it fosters is the main reason the goal has remained out of reach, Zainab Usman, author of Economic Diversification in Nigeria: The Politics of Building a Post-Oil Economy, tells The Africa Report.

Usman, director of the Africa program at the Carnegie Endowment for International Peace in Washington, challenges the idea that Nigeria suffers from a “resource curse”. The problem, she says, is not the existence of oil, but failure to achieve a modern diversified economy. Arab countries, Australia and Canada have used their resource endowments to achieve prosperity, she says.  Resources such as oil, she says, can exacerbate existing problems, but do not cause them. “The diagnosis itself is incorrect.”

When political stability is achieved, policy is implemented and economic growth results, Usman says, pointing to annual rates of 6% to 7% in the years before the start of the civil war in 1967. The 1970s saw stability and growth, driven by infrastructure investment, she says. The transition from military to civilian rule in 1999 led to a further period of growth, underpinned by a loose understanding on the rotation of presidential power between north and south.

That framework of stability, Usman says, came apart with the death of President Umaru Yar’Adua at the age of 58 in 2010. The power-sharing consensus was not robust or developed enough to withstand such an unexpected event, she argues. The result has been a “consistent disruption of economic policy” from which the country has yet to emerge. “We are still in a period of instability.”

Failure to reform the downstream energy sector is one symptom of that instability. Despite its oil resources, Nigeria suffers from a major shortfall of refined fuels and the country hasn’t moved as fast as it could on building gas-to-power plants, Usman argues. This serves political interests, she says.

  • The need to import refined fuels creates an opportunity for some politicians to make a legal profit inside the country, and also to smuggle some of the imports outside Nigeria for sale at higher prices.
  • That system is underpinned by the country’s system of fuel subsidies, which politicians since the 1990s have been promising to remove without following through.
  • “No Nigerian politician will ever reduce the subsidies until the supply gap is cut,” Usman says.

‘Byzantine’ distribution

The lack of economic logic in Nigeria’s use of energy is stressed by an executive with a major multinational in the energy sector, who declined to be named. He says that the country’s continued use of diesel rather than gas, even as diesel prices soar, is “not rational.” The executive, who lived in Nigeria for about a decade, points to “political reasons” behind the persistence of diesel use. “Look at who benefits from diesel prices.”

Nigeria imports more fuels than it needs because of its “byzantine” distribution system, Usman writes in her book. Economic Diversification in Nigeria: The Politics of Building a Post-Oil Economy was published by Bloomsbury earlier this year. The book is available to read on open access.

Southern perceptions that the British colonial system favoured northern Muslim elites are still a factor which inflames regional rivalries, Usman writes. The southern elites were alienated from the oil-based economy and blamed the north for “squandering” the windfall. She sees some grounds for optimism that the completion of the Dangote oil refinery will help to bridge the supply gap, adding that the refinery creates the risk of a new centre of “monopoly power.”

  • Elections in 2023, she says, could lead to a “slightly more stable” distribution of political power if the next president comes from the south.
  • But the identity of the country’s next leader, she concludes, won’t in itself be enough to create the stable political settlement the country needs.

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