PIRATES, MILITANTS AND NIGERIA'S RESOURCE CURSE

Dec 27th 2013

PIRATES, MILITANTS AND NIGERIA'S RESOURCE CURSE

Despite extensive oil resources, nation's citizens struggle to make ends meet 

For nearly 15 years, armed Nigerians have sought to make a profit and political statement by pillaging ships and kidnapping crews in the Gulf of Guinea. The men that terrorize West Africa’s busiest shipping lanes are products of the state’s ongoing battle against militancy and criminal enterprise in the Niger Delta. The country furnishes two subversive conditions that provide fertile grounds for organizations like the Movement for the Emancipation of the Niger Delta (MEND) and other militant groups in the region: state dysfunction provides a permissive environment for nefarious groups while mismanaged natural resources fund an economy of corruption and violence.

By any objective standard, Nigeria meets the criteria of a weak state. Omnipresent corruption and the failure to provide adequate public services have eroded the legitimacy of Nigeria’s federal and state governments. Contemporaneously, security forces struggle to control and maintain a monopoly on the use of force in the oil-rich south and the Boko Haram-occupied territories of the north.

Though the indicators of state weakness are clear, worth investigating is the counter-intuitive link between the disorder and the country’s oil wealth. Despite Nigeria’s $50 billion in annual oil revenues and its status as Africa’s second-wealthiest country by GDP, 30 percent of its citizens are unemployed and 67 percent live in poverty. The country’s glaring income inequality and stagnant development suggest that natural resource wealth has had a negative impact on long-term economic growth. This phenomenon, known as the natural resource curse, is a common ailment of a developing country’s overreliance on a single, lucrative export commodity.

There are several plausible explanations as to how Nigeria fell victim to the curse:

  1. The “Dutch Disease”: a rise in resource exports causes an appreciation in the country’s real exchange rate, making it more difficult for Nigeria’s developing economy and semi-open trade regime to compete internationally.
  2. Natural resource dependency typically means a failure to invest in other productive assets. Resource rents are lost in corruption, bureaucratic inefficiency and policies aimed at appeasing rent-seeking interest groups. When losses in productivity occur and resource revenues fall, losses cannot be offset by other stable investments.
  3. Resource dependency has reduced the incentive to invest in human capital. The immediate gratification of petroleum wealth has caused Nigeria to underestimate and undervalue the need to develop the human capital required to generate long-term growth.
  4. Incentives to save and invest have been reduced, limiting the development of capital and economic growth. As owners of capital earn a higher share of output, the demand for capital falls. This lowers real estate rates and reduces investment.

There are various macroeconomic explanations for the strong export and weak growth paradox. But when the state fails at effective resource management it becomes more prone to civil conflict. The inequitable distribution of resource wealth undermines the legitimacy of a central authority when investment in infrastructure and civil services are absent. When the weak and delegitimized government is unable to prevent the looting of natural resources, organized crime emerges. Black markets and resource rents finance militant groups while socioeconomic grievances provide impetus for rebellion. State weakness then provides latitude for rebel groups to organize and operate with minimal interference. These very conditions have facilitated the rise of the Niger Delta’s insurgency.

Maritime piracy in the Gulf of Guinea is merely an extension of onshore dissent and lawlessness. Easy access to one of the world’s busiest energy corridors has provided Nigeria’s militants with a target-rich environment and an opportunity to expand criminal and insurgent activities offshore.

The graph above represents the ten-year relationship (2003-2012) between the number of pirate attacks; onshore violent incidents in Nigeria’s primary oil infrastructure states of Bayelsa, Delta and Rivers; and the country’s oil production in barrels per day. Visual confirmation appears to suggest that onshore violence (militia violence, clashes with security forces and vandalism) is inversely related to the ebb and flood of petroleum production. Pirate attacks appear to mirror onshore disorder and changes in maritime piracy trends suggest an inverse relationship to production rates.

If Nigerian piracy is a product of militancy in the Niger Delta, and onshore militancy is invariably linked to the accessibility of natural resources, then the relationship should be supported by a statistical correlation, represented by the correlation coefficient “r.” Though the statistical test for correlation does not imply causation, it does demonstrate a mutual relationship between two or more variables. The closer “r” is to 1, the stronger the positive relationship between the two variables. Likewise, the closer “r” is to -1, the stronger the inverse relationship between the variables. Using the annual totals of incidents and average annual production rates, the resulting correlations between pirate attacks and onshore violence and oil production are represented in Table 1 below.

Table 1

X

Y

“r” value

Pirate Attacks

Delta Violence

0.71

Pirate Attacks

Oil Production

-0.74

Delta Violence

Oil Production

-0.70

The correlation between pirate attacks and violence in the Bayelsa, Delta and Rivers states yields a positive relationship closer to 1. Conversely, the pirate attacks and Delta violence relationship and the oil production and Delta violence relationship yield negative correlations closer to -1.  These simple statistical calculations do not suggest that Delta violence causes pirate attacks or that pirate attacks are in anyway mitigated by a rise in oil production. However, the data does corroborate the notion that Nigeria’s piracy problem is related to onshore violence, and that volatility in Bayelsa, Delta and River states is linked to the Delta’s most valued resource.

Correlations between oil production, onshore militancy and pirate attacks complicate Nigeria’s maritime piracy troubles. The correlations are a testament to the depth and severity of Nigeria’s challenges; there is no silver bullet that will sink maritime piracy or put an end to the Delta’s insurgency. Piecemeal solutions like social welfare initiatives, environmental cleanups and amnesty agreements do little to improve state capacity or overall management of natural resources. Nigeria’s long-term solution to security and stability may be contingent on undoing the resource curse. Once state institutions are strengthened and Nigeria is better able to safeguard its principal commodity, macroeconomic reforms should seek to promote smarter resource management. In the interim, stability is paramount for creating conditions conducive to long-term investment and sustained growth. In the absence of immediate in-house solutions to the pirate, militant and oil trifecta, outsourcing security solutions may be the most practical and effective remedy to the Niger Delta’s security shortfalls.

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