Impact of Oil Windfall on Structure and Evolution of Nigerian Economy

Impact of Oil Windfall on Structure and Evolution of Nigerian Economy

Many African nations have vast natural resources that attribute to their wealth, but there is nothing to show for the enormous resources on the continent. What are the economic milestones have they achieved by tapping these natural resources? Nigeria is one of the largest producers of crude oil in the world, but its economic state is devastating. Despite the oil windfall, the country’s economy is lagging behind as most of the developing countries in Africa (Salai-i-Martin & Subramanian 2003). The unexpected gain of wealth from oil in the 1970s has had many impacts on the Nigerian economic structure and evolution both negatively and positively.

The booming oil business in Nigeria since 1960 has seen the countries employment sector improve. Many employment opportunities were created when crude oil mining activities began in Nigeria. Although the country prior depended on the agricultural sector for livelihood, the windfall brought about by a shift in the4 employment sector whereby most of the people left the agricultural sector to join the oil producing business. Many people were involved in the building of roads, and buildings others were involved in the drilling sites while others were involved in the transportation services in the oil sector. Creation of employment in any country improves the living standards of the population since they have a source of income and can afford most of the basic needs among other necessities. Employment also means elevation of poverty, which attributes to poor health and lack of education. This was a great achievement by the oil industry as many of the citizens of Nigeria who prior did not have jobs had an opportunity to improve their living standards (Olusegun 2007).

Since 1960, there was a massive spending on the improvement of the infrastructure and the education sector. With the booming oil business, Nigeria’s infrastructure was improved whereby there was the construction of roads and other infrastructure to facilitate the transportation of the oil from the mining sites to the ports where it is to be exported. During this period, there was the construction of schools and other education institutions to cater for the education of the growing population of Nigeria. There was the establishment of the petroleum training institute whereby it offered to train on skills required in the oil industry. This not only helped in improving the education system in Nigeria but also increased the advantage of Nigerians at getting employment in the oil industry. In addition, the establishment of the petroleum technology and development fund had a lot of impact on the education sector. It helped in the opening of pathways to education and training of the Nigerian citizens, which contributed in the employment sector (Ajakaiye 2001).

The oil windfall has been the largest contributor to the government’s revenue and played a major role in foreign exchange. The high demand of oil and the large production has seen the Nigerian government generate a lot of revenue from the oil business. This has enabled the government to settle part of its national debts and pursues most of its visionary economic developments. The oil business has increased the purchasing power of Nigeria in the foreign market since they gain a lot of foreign exchange from the oil business. These helps the country import commodities that they do not produce, and they are able to import more machinery to help in the production of oil and other commodities.

The oil industry has improved the local expenditure on goods and services. Despite paying revenues to the government, the oil industry has offered employment whereby they pay salaries and wages, which has improved the purchasing power of the country. This has contributed a great deal to the Nigerian economy since money is always circulating and changing from one sector to another which ensures most sectors in the country’s economy are up and running perfectly without straining. The industry has also contributed a lot in the production of other commodities as it helps in the provision of cheap energy resources.

Despite the many benefits that have been accrued from the oil windfall, the Nigerian economy has suffered many setbacks due to it. The oil industry has brought about the economic imbalance in the country. Reforms that made a federal oil minister to control the issuing of mining rights contributed a greatly in the economic imbalance. This is because all the oil revenue was going directly to the federal government leaving the states that produced oil with very little revenue and benefits to develop themselves. It also led to increasing in poverty as the wealth accrued from the sector was being controlled by only 1% of the total Nigerian population. These attributed to the widening of the gap between the rich and the poor. Corruption levels were very high in the central government, which led to the crippling of many developments by both state governments and the central government.

With the years that have passed the quality of this is education system has greatly declined. This has majorly been contributed by the neglect of the government whereby they do not fulfill all the goals and development that are set aside for the improvement of the education sector. Although there are some of the private institutions that offer quality, education the public education sector has suffered greatly due to frustrations by the central government. With a crippled education system, it makes the realization of economic developments quite difficult.

The oil boom in 1970 led to Nigeria to neglect their leading sector, which was the agriculture. This saw Nigeria suffer from the Dutch Disease syndrome where they majorly promoted the oil sector and neglecting non-oil sector (Nina Budina 2007). Agriculture has been the backbone of many African countries and neglecting it does not really help as the poverty levels rise and this bring about hunger and disease. It also led to the neglect of light manufacturing sector and thus overdependence on imported commodities. Many people left these sectors to join the oil sector, which led to their collapse, and this did not reflect on the economy positively (Ibrahim, Agodele, Hakeem& Yinka 2014).

The widespread rural to urban migration due to the oil windfall contributed greatly to widespread of poverty in the rural areas. It also led to overcrowding in the urban area, which brought about poor housing, poor sanitation, and hygiene and increase in crime rates in the areas. Most people who moved into urban areas settled there and forgot about the people they left in agonizing poverty. They do not bring back anything to the rural areas this saw the poverty levels elevate here.

Another major negative impact of the oil windfall was the environmental degradation. Activities involved in mining and processing of crude oil has adverse effects on the environment. The oil industry has contributed greatly to soil erosion, water, and air pollution among other degradations to the environment. This pollution has seen other sectors in the countries suffer from the effects of pollution. The fish industry and the agricultural sector has suffered a greatly from oil spills and leaks as this affects fishing and crop production respectively. Also, pollution has led to the increase of chronic diseases such as cancers and respiratory diseases that use a lot of the government’s revenue to manage prevent and cure. With the poor health systems in Nigeria, increase in diseases caused by pollution increase the medical burden weighing heavily on the Nigerian government.

Political instability and communal conflicts have been on the rise. The oil business has brought about political instability, which has maimed the economy of Nigeria. Constant fighting between communities over controlling mining sites has seen the rise of mortality rates and disability rates attributed to these conflicts. Without peace, most of the activities in the county are a paralyzed. Despite booming oil, business the political instability constantly interrupts the oil production and transportation thus slowing down the business and dragging down the country’s economy.

Countries should consider on how to utilize their natural resources to achieve maximum profits from them. Majorly the governments of the countries should put more efforts in fighting corruption, as it is the root of all problems associated with a failing economy. Nigeria should streamline its oil sector so as all parts of the country benefit from the revenues of the oil business. In addition, the government should improve the education sector to ensure the citizens of the country are competent and ready to work toward improving the country’s economy.

 

Bibliography

Ajakaiye Olu, 2001, Economic development in Nigeria: A review of recent experience, proceedings of the first annual monetary policy conference (Central Bank of Nigeria; 2001), pp. 12-36.

Ibrahim, A, Agodele, A, Hakeem & Yinka, A 2014, ‘Oil price shocks and Nigerian economic growth’, European Scientific Journal, vol. 10, no. 19, pp. 375-391.

Nina Budina 2007, Nigeria’s growth record: Dutch disease or debt overhang, Available from: http://siteresources.worldbank.org/INTDEBTDEPT/Resources/468980-1207588563500/4864698-1207588597197/wps4256.pdf [4 January 2016].

Olusegun, GO 2007, Crude oil and the Nigerian economy performance, oil and gas business. Available from: http://www.ogbus.ru/eng/authors/odularo/odularo_1.pdf [4 January 2016].

Salai-i-Martin, X & Subramanian, A 2003, Addressing the natural resource curse: An illustration from Nigeria, International Monetary Fund.

 

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