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Pass the books, hold the oil

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I recently read a piece by Thomas Friedman, in the New York Times with this exact same title. His piece was about Taiwan, and countries like it, and how they avoided the resource curse, simply by not having enough resources to live on. That apparent lack, made them think. Pretty difficult not to think of Nigeria when reading such a piece. But before going on, let us try to define what the resource curse, or the Dutch disease, is.

In 1959, three years after Shell struck oil in Oloibiri, they sank another well in Slochteren, near Groningen in the Netherlands. This new gas-field, done in partnership with Exxon, was the biggest in Europe by some distance, and started production in 1963, producing around 100 billion cubic metres of gas per year in its first decade. Gradually the annual production fell to around 35 billion cubic metres per year. As of 2009 the Groningen gas field has produced 1,700 billion cubic metres, or 60% of its total reserves. Since technology has become more efficient, the remaining 1,100 billion cubic metres are expected to last another five decades. The Groningen gas field accounts for 50% of Holland’s gas production in Holland, the other 50% being supplied by 300 smaller gas fields.

Not long after the Groningen field was discovered, the Dutch began to wonder whether the discovery had truly been a blessing. People outside the energy industry started losing their jobs, and other sectors of the economy slumped. Almost two decades after the discovery of the field, The Economist diagnosed what happened as “The Dutch Disease”.

The outbreak of the Dutch Disease in Holland wasn’t isolated, but a European country was better placed to withstand it, perhaps because for so long, Europeans lived in a hostile environment, and so had developed a culture of hard work, and using their brains to solve problems rather than waiting for nature to solve things for them. Similar to the Taiwanese example in the Thomas Friedman piece.

Quoting Friedman, Taiwan is essentially a barren rock in a typhoon-laden sea with no natural resources to live off of — it even has to import sand and gravel from China for construction — yet it has the fourth-largest financial reserves in the world. This is because rather than digging in the ground and mining whatever comes up, Taiwan has mined its 23 million people, their talent, energy and intelligence — men and women. The same can be found in Japan. Taiwan has neither oil, iron ore, forests, diamonds, nor gold, just a few small deposits of coal and natural gas — and because of that, and hostility from a large neighbour, China, they developed the habits and culture of honing their skills, the most valuable resource in the world.

Andreas Schleicher, who oversees the OECD’s Programme for International Student Assessment, gives another example – Israel. Like Taiwan, Israel does very well in PISA’s assessments. Schleicher notes, “Moses led the Jews for 40 years through the desert, just to bring them to the only country in the Middle East without oil. But Moses got it right. Today, Israel has one the most innovative economies, and a higher standard of living for majority of its population than any other Middle East country.”

Dutch Disease is a pandemic whose symptoms, in many cases, include poverty and oppression. The disease enters a country through its currency. The dollars that pay for oil push up the value of the local currency. Imports become cheaper relative to locally made products, undercutting home-grown enterprises. Arable land lies fallow as local farmers find that imported fare has displaced their produce. For countries that have industrialised, the process goes into reverse; those trying to industrialise are hindered. Dutch Disease is chronic and debilitating, the real value of extractive industries is in processing, not in extraction.

Essentially, the Dutch Disease prevents us from refining our own resource, and getting real value from them. Instead of diversified economies, countries with the Dutch Disease become enclaves of plenty for those who control them, while most of the people in these non-inclusive, highly extractive economies, rely on crumbs from the elite.

Since a peak of 54.21% in 1982, Nigeria’s total industrial output as a share of the economy has declined consistently. Between 2000 and now, it is only in 2001 (20.15%), 2009 (12.57%) and 2014 (9.64%), that it climbed from the previous year, according to World Bank data. Telecoms and financial services have boomed, but the path to industrialisation is blocked off. The sale of crude oil and natural gas generates more than 70% of government revenue. Taxes, customs revenues — the things on which industrialised nations rely to fund the state, which need the consent of the population — matter far less than keeping oil money flowing.

If we remove oil industry taxes, Nigeria’s government relies on the people for just 4 per cent of its income.The ability of our rulers to govern without recourse to popular consent goes to the heart of Nigeria’s problems. What should be a social contract between the rulers and the ruled is ruptured because in reality, they don’t need us.


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Andreas SchleicherShell
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