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PROJECT TOPIC- EFFECT OF CORRUPTION IN NIGERIA’S UPSTREAM OIL SECTOR TO THE NIGERIAN ECONOMY

PROJECT TOPIC- EFFECT OF CORRUPTION IN NIGERIA’S UPSTREAM OIL SECTOR TO THE NIGERIAN ECONOMY

ABSTRACT

The major campaign strategy employed by the current Nigerian President (General Mohammadu Buhari) in the just concluded March 28, 2015 election is “to fight corruption and change the system”. One of the sectors topping this corruption list is the Nigerian Oil Industry. Thus, the description of Nigerian Oil Industry especially its Upstream sector which is the life wire of Nigerian economy as the conduit pipe of corruption for the “sacred cow” who manage its affairs is apt. The cases of corruption in Nigeria have increased considerably since the oil boom in 1973. “The Petroleum Industry is very corrupt’, ‘the allocation of oil blocs is shrouded in extreme corruption’, and ‘the NNPC activities are webbed in secrecy and thus corruption”. These are common aphorisms on the lips of Nigerians. These assertions have been backed up by empirical analysis. The World Bank, for example, reported in 2007, that ‘corruption is endemic in Nigeria and the bane of the country’s socio-economic development’. The Transparency International (TI) Corruption Perception Index (CPI) also ranked Nigeria in 2010, as 134 out of 178 most corrupt countries in the World. Against this backdrop therefore, this research work sets out to examine the nature, determinants, manifestations and beneficiaries (collaborators/perpetrators) of Upstream Oil corruption, as well as evaluate its impact on the Nation’s economy. The researcher examines the concept of Corruption, Oil and Gas, and what constitutes the upstream sector. What makes the upstream sector susceptible to corruption? What are the incidences of corruption in the upstream oil sector? What are the effects? These questions among others are what this research work tends to answer. The research work serves as an exposé to the menace of corruption to the country’s economy, and why there should be pro-active public policies. In arriving at this work, the researcher adopts the doctrinal and secondary methodology of research. In conclusion, this research infers that unless Nigerian government deploy sincere political will to diversify the economy, have a total overhauling of the Nigerian National Petroleum Corporation (NNPC) in particular, and the overall oil sector in Nigeria, the corruption issue will remain a perennial consequence that will continuously lead to miserable failures and worsen the problem that already have adverse and socio-economic effects on the Nigerian economy.

CHAPTER ONE

   GENERAL INTRODUCTION

1.1   Background Of The Study

One of the greatest threats to economic, social and political development of any nation is corruption. This has accounted for why Nigeria despite been one of the world’s oil contender is still rated as a far-off third underdeveloped nation. We are still plagued by the very same characteristics of grave poverty, technology stillbirth, high mortality rate, inadequate military and security hard wares, unemployment, import spree and epileptic power supply that are a showoff of countries with little or no economic strong base.

In fact, Nigeria that has earned and retained the number one crude producer in Africa and has indeed moved up to become the world’s seventh largest exporter of crude oil and the 10th biggest holder of process gas reserves[1] has paradoxically not just ranked among the poorest countries in the world,[2]but also one of the most heavily indebted countries of the world until 2005 when Paris club of creditors ‘magnanimously’ cancelled part of its foreign debt, which has started heaping again. This is most laughable and scornful.

Corruption has been the death of the Nigerian economy and image. In contemporary Nigeria, the hint “you are in Nigeria” and such other metaphorical allusions like “long leg”, “bottom power”, “chop chop”, “kick back” are now the common watch-words that are euphemisms for corruption in the country. This monster called corruption has now been nick-named in most Nigerian languages especially in the three major languages! Ndokwu[3] says; the Igbos call it Igbuozu, the Yorubas call it Egunje, while the Hausas call it Chuachua.

Corruption has been identified as one major obstacle militating against rapid growth and development of the Nigerian economy.[4] The Nigerian state today is deeply knitted in corruption, that it has even been asrgued that corruption is now a culture, a normal way of life in Nigeria. Chuachua/Egunje or Igbuozu is now so acceptable that it is now possible to hear someone openly complaining that there is no Chuachua/Egunje or Igbuozu at his work place and as such a person might quickly resign if he or she finds another work where there is opportunity for Egunje.

It is that bad![5] It is this cankerworm that greatly influenced the political wind that just swept Nigeria in the just concluded general elections bringing General Buhari in as the president. All fingers today are been pointed at the Nigeria oil Industry as the epicenter of corruption. The attraction to the Nigeria oil industry especially its upstream sector is so, because petroleum production, its exploration and exportation takes place here, and as is a known fact that petroleum is a major source of energy worldwide and the foremost revenue earner for the Nigerian economy.[6]

The country is the highest producer of petroleum in the African continent. It is reputed among the largest in the world and has a proven reserve upwards of 30billion barrels. According to Odularu[7]outside of the energy sector, Nigeria’s economy is highly inefficient. Since the mid 1960s, petroleum has gradually but surely taken the place of pride as the main stay of Nigerian economy, taking over from agriculture which originally was the source of Nigeria’s wealth, little wonder Michael Watts, a Professor and researcher at university of California- Berkeley stated: To say that Nigeria as the largest producer of petroleum in Africa, is heavily dependent upon the oil sector is a massive understatement.

Post-colonial Nigeria is a mono-economy, much more an export dependence than it ever was in the colonial period. The Nigerian Oil and Gas industry is divided into three sectors – the upstream petroleum sector, the downstream petroleum sector and the midstream petroleum sector. The upstream sector deals with exploration, mining, extraction, production and exportation of crude oil, thus earning it the status of being the lifeblood, as well as, the single most important sector in the country’s economy.

The midstream sector deals with transportation of refined products, while the downstream sector deals with refining the extracted products from the upstream sector. This still points at the utmost pertinence of the upstream sector, which is the basis of every other oil sector. The upstream petroleum sector provides for over 90% of the country’s total exports. In fact it has been reported as the key to the continent of Africa.[9]

The Punch Editorial[10] explained that over 90% of Nigerian’s foreign exchange earnings came from oil. Eighty –two percent (N 4.2 Trillion) of the total revenue (N 5.3 Trillion) earned in 2007 also came from Oil and Gas. The editorial further captured that “all tiers of government in Nigeria rely exclusively on oil revenue to pay salaries and meet other recurrent expenses”. According to the 2012 Bp Statistical Energy Survey, Nigeria had proved oil reserves of 37.2 billion barrels at the end of 2011, in equivalent to 41.4 years of current production and 2.25% of the World’s reserves while the country produced an average of 2457.3 thousand barrels of crude oil per day in 2011, 2.93% of the world in 2010.

The Nigerian Upstream Petroleum sector has been a pot of gold to the Nation and the outside world since independence.[11] The upstream sector because of its activities has dictated the pace and structure of growth of Nigerian economy since 1970. The Nigerian economy has earned over $593.6 billion from its oil exports, representing 96.3% of total foreign exchange earned between 1970 and 2005.[12]

With this financial influx, it is thus very depressing to note that this massive income is unfelt by the citizenry. On the eve of Independence, Nigerian’s per capital income was higher than that of Indonesia, China, and India. For instance, Real GDP per capital in 1960 for Nigeria was $291.86; India $175.42; Indonesia $178.64; and China $97.89 respectively.[13] Over time these countries have leapt-frog over Nigeria. Joseph Stiglitz argued that;

Some 30years ago, Indonesia and Nigeria had comparable per capital incomes and both were heavily dependent on oil revenues. Today, Indonesia’s per capital income is four times that of Nigeria. Nigerian’s per capital income has actually fallen from $302.75 in 1973 to $254 in 2002. 80% of oil money is accrued by one percent of Nigerian’s population of about 140 million people which has been projected to hit 250 million people by 2025.[15]

The attendant issues that emanated from this widespread misuse of oil wealth by the successive Nigerian leaders and the illusion it created has left Nigeria a poor country.[16] Agwara[17] using Gini Index Measures in the study of resource curse on Nigeria argued that, among the 20 countries such as India (37.8), Jamaica (37.9), Mauritania (37.3) and Rwanda (28.9) Nigeria is grossly inflicted with the resource curse of plenty but nothing to show for it.

If things continue at the direction it currently tows, Nigeria will become a mere graphical giant. The effect corruption has had on the country have left Nigeria a shadow of itself. It thus becomes not just imperative but absolutely needful to embark on this research work to identify these grievous acts of corruption in the upstream oil sector, and the perpetrators, to enable Nigerians to not just ask the needed questions but to start a strong movement to clamp down on it before nothing is left for the generations unborn. Strong proactive laws need to be made to ensure transparency in the oil industry. There should be strong institutions to help identify and wage productive wars, not lip service wars on the illicit affairs going on with impunity at the oil industry and consequently the upstream sector.

PROJECT TOPIC- EFFECT OF CORRUPTION IN NIGERIA’S UPSTREAM OIL SECTOR TO THE NIGERIAN ECONOMY

1.2 Statement of the Problem

In line with the background of the study, the state of corruption in Nigeria has been categorized as endemic. Despite the crusades of anti-corruption in Nigeria, corruption is still on a very high side. A quick glance at the structure of the Nigerian economy will reveal its precarious nature, notwithstanding its position as the third largest economy in the country after South Africa and Egypt with the Nigerian upstream petroleum sector accounting for 90%.[18]

Nigerian’s economy, despite this immense contribution is struggling to leverage the country’s vast wealth in fossil fuels in order to displace the crushing poverty that affects majority of its population. Why is this so? This is a resultant effect of the Corruption that has chewed deep into the system. Too often, revenues do not get published; payments made to government to exploit resources remain secret; the prequalification of award of licenses are fraught with corruption and secrecy under the guise of official secret legislations.

There is no transparency in accountability. It has even been asserted that “corruption has become the main export for Nigeria apart from oil”[19]. In fact the common refrain when people loot oil income is “is it not oil money?” In Nigeria, oil is thicker than blood, this has accounted for the overwhelming corruption concentration on the upstream sector which is the heart beat of petroleum activities.

Obviously, in the words of Adomako[20] “a historical symbiosis exists between oil and corruption”. He further gave a wide account of the Nigerian upstream petroleum situation that, “it is incontrovertible that Nigeria suffers from a resource curse as the country has little or nothing to show despite several years of oil exploration”. In fact, most of the proceeds from the Nigerian oil wealth ended in the pockets of their leaders’.

Obviously, Oil boom witnessed under General Gowon regime was unfortunately synonymous with corruption. In fact, while scholars are still grabbling to x-ray the 1970s infamous remark by the former head of state, General Yakubu Gowon that “Nigeria’s problem was not absence of money but how to spend it”[21].The former minister of Defence[22] under Obasanjo civilian administration, added another salvo.‘’

Danjuma told chief executives of non-governmental organization in Abuja how he made a handsome profit of $500 million (75 billion naira) from an oil deal, and was finding it difficult to decide how best to spend the money.[23] The former Group Managing Director (GMD) of the NNPC[24] was alarmed that “Nigeria looses at least 150,000 barrels of its explored crude oil worth N2.2 billion naira daily, as a result of illegal bunkering activities”[25].

In the same vein, the NNPC, alongside many oil and gas companies operational in the upstream petroleum sector protect the identities of their equity partners and subsidiaries. Inadequate financial statement make it easy to disguise corrupt deals and impossible for any interested stakeholder to monitor the royalties, taxes and fees being paid. Private companies with opaque ownership structures are awarded lucrative concessions with little information available as to who the beneficial owners of the company are.

Thus, the populace are left to suffer from the adverse effects of these economic swindling. Despite its massive earning from oil production and export, about 70% of its estimated 140 million people live below abject poverty line on less than $1 U.S per day. The proportion of total population subsisting on less than one dollar a day in Nigeria grew from 36% to more than 70%, from 19million to a staggering 90million.

For instance, Nigeria’s maternal mortality rate remains one of the highest in the African continent standing at 100 for every 100,000 births. Life expectancy remains 52years as at 2008. Less than 67% of Nigerians have access to good health services. Only 19 medical doctors are available per 100,000 persons as against 16 nurses. Only 42% of Nigerians have access to safe water.[26]

One in five children die before the age of five, 3 million people are living with HIV/AIDS, and 7 million children are not attending school.[27] This has led to the heart rendering paradox of a rich country with desperately poor people. It is against this backdrop and in an attempt to examine, evaluate and resolve the above problems that births the following research questions and the objectives of this research work.

1.3 Research Questions

1) What are the factors that have made corruption endemic in Nigeria?

2) What acts constitute corruption?

3) What makes the upstream petroleum sector susceptible to corruption?

4) What are the incidences of corruption in the upstream petroleum sector?

5) What are the effects of the upstream sector perpetrated corruption on the economy?

1.4 Objectives of the Study

1) To examine factors that has made corruption endemic in Nigeria.

2) To clearly identify acts that constitutes corruption in Nigeria.

3) To know the attracting factors that makes the upstream sector susceptible to corruption.

4) To examine the incidences and perpetrators of upstream oil corruption.

5) To examine the effect of these acts of corruption on the Nation’s economy.                                  

6) To proffer recommendations on how the upstream sector can be reformed so that the proceeds of the so-called “dividends of democracy” derived from this sector can be felt by all citizens..

1.5 Scope of the Study

This research work is limited to the Nigerian oil industry particularly its upstream sector. However, in the course of the work reference would be drawn from other oil producing states.

1.6 Significance of the study

The relevance of this research work cannot be overemphasized. The significance of this work is submitted below as the following;

  • Firstly, oil and gas is the mainstay of the Nigerian economy in that it contributes over 90% of the countries revenue. Therefore investigating the corrupt acts in this sector (upstream) would be of particular interest to policy makers, legislators, and regulators to come up with effective and potent anti-corruption laws and sanctions.
  • Student: this work will serve to broaden their knowledge of the upstream sector and at the same time what constitutes corruption and its adverse effects on a Nation.
  • To the Oil and Gas industry: this work will greatly alert them on the need to be transparent as the attention of the populace has been drawn to the sector.’
  • To Practicing Lawyers and Law teachers: this work will be of germane assistance, as it will help them identify these acts of corruption, and ask the much needed questions as to the goings-on in the oil industry.
  • To other researchers, this research embodiment would be of immense assistance, as it would be a strong rock to step on for further researches on acts of corruption, its effects on a Nation, using the upstream petroleum sector as a case study and a starting point.
  • To the researcher, the task of writing this topic requires will, attention, desire, hard work and knowledge and will serve to improve the author’s knowledge and broaden the horizon of the author’s researching skills.
  • Since there are limited materials in this area of research, this work avails itself to fill this lacuna as being one of the materials for this area of research

1.7 Limitation of the study

The task of writing this work was besieged by certain impediments; these factors include the following;

  • Financial Constraint: the bulk of writing this research work is indeed expensive. It most times requires printing online materials, purchase of on-line textbooks and other texts, which is quite exorbitant. Just to mention a few.
  • Academic clash: the time of this research falls at exactly the period of academic session and the subsequent quizes, all sorts of assessment and the exams. Thus, student researcher had to merge the academic work, exams, and still accommodate the research work. This factor is an impediment to this research.
  • Limited Materials: corruption being an uncelebrated act is well concealed, and thus it is quite difficult to easily access materials to embolden and exhaustively encompass the research work.
  • Epileptic power supply: This has posed a huge problem to this research work. Hardly is there any power supply, when it eventually comes, it is best described as a candle source. Thus from the cover page of this research work to its bibliography was done by generator power supply, which really cost money and time.

However, even in the face of these threats and impediments, it is the earnest hope and expectation of the researcher that hard work will be expended at the end of the day, these impediments notwithstanding.

1.8 Research Methodology                                                                                                                          This research work is based on doctrinal methodology of research.[28] The researcher shall make use of such materials to-wit statutes, textbooks, internet materials, newspapers and magazines, journals, articles etc in the course of this long essay.

PROJECT TOPIC- EFFECT OF CORRUPTION IN NIGERIA’S UPSTREAM OIL SECTOR TO THE NIGERIAN ECONOMY

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