Why Oil-Rich Nigeria is Poor: the lack of a corporate approach to governance

These ideas are the subject for a longer piece of work however, I discuss my arguments briefly under the five points below.

1.?????The failure to run the country like a corporate entity

The company or corporation is perhaps the most sophisticated human legal creation; an abstract legal entity carved out of a desire to organise society for ease of management and crucially for exploiting profits. Not understanding this fact, that adherence to the corporate theory is essential to forming and successfully running a government in modern times is in my view a root cause of underdevelopment and the persistent backward trend of poorer economies, a matter I hope to return to in the future in a more comprehensive piece as stated earlier. First, to address a strange argument that continually crops up in political discourses on Nigeria. That argument is that Nigeria (and other African colonies of the West) did better politically and socio-economically when it was a British colony. Bets are placed on the dare that if the colonisers returned to run the country, they would run it better. This argument whether made by a Nigerian or a well-meaning Westerner is, in light of modern understanding of the wounds of colonialism, almost suggestive of mania. What both sides of this noxious suggestion miss or deliberately ignore, is the how of governance success under the colonizers. Why was governance successful under colonisers but pitiful post Nigerian independence? Chinua Achebe’s thesis on the Trouble with Nigeria (Achebe, 1984) strikes closely at the heart of this conundrum but more at the trouble – leadership, than at the root cause of the trouble – an unwillingness to govern Nigeria, a modern state, in line with the appropriate governance underpinnings and approaches of modern society – as a corporate entity.

Daniel Ciepley (2017) in his examination of the USA as a corporation ?notes?“the impact of the corporate form on the European and American state” as being “deep and enduring, and largely accounts for what is distinctive about state forms generated in the West.” Elsewhere he points out that “the modern concept of a sovereign people is a naturalised corporation.” Mathias Hein Jensen writing on the corporate state points out that “the state has become the?universal corporation, whose government seeks the general or common good of a given political community” (emphasis in original).

How does this matter to Nigeria’s poor economy? In simple terms and applying the corporate structure in its most basic form, the modern iteration of a Government is a body formed by citizens or founders (primary shareholders/stakeholders) who mandate government officials (fiduciaries/directors) to work for the common good by running the State/Government (the company), efficiently. There are of course other stakeholders but we can return to this matter elsewhere. Post-independence, Nigeria has not been run as a corporate entity, or sustainably as is the current modern concern, for the common good. Rather than investing and developing Nigeria’s most profitable raw materials, maximising Nigeria’s raw materials, constructing infrastructure to facilitate the supply chain for easier access to global markets, appointing skilled talents to fiduciary positions of government office and paying no mind to tribal or religious sentiments, its governance continues to manifest renegade ideologies of fiefdoms and tribal rotations of power with a narrow short-term focus on the control of oil resources. ?Even though Nigeria’s current governance structure has borrowed heavily from the scripts of American democracy including elections, there is no sign of these ideologies dissipating. Perhaps until the oil runs out. Which leads on to the next point.

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2.?????Sustaining an unsustainable economic model[1]

An enduring characteristic of the corporate legal entity is that it can and should outlive its founders. However, in order to do this, it must have an objective built on a sustainable economic model that yields profit so that regardless of changes in leadership, the corporate entity should persist - unless dissolved. Oil dependency since its discovery and trade in the 1950s remains Nigeria’s modern economic model. Previously it was cash crops – palm oil, cocoa, groundnut etc – all in raw form. Today, Nigeria’s states and local governments remain in an eternal scramble for the limited federal funds mainly from oil and gas revenue for which they are dependent upon for everything from paying salaries of public sector workers to infrastructure projects. There is limited interest and capacity for diversification or investment in upscaling the knowledge and skills or building the enabling environment that supports businesses and essential social infrastructure including transport, housing, health or education. There is very little appreciation of the need to develop a sustainable economic model of business and enterprise with local content, i.e., citizens and communities, as active players in the domestic and global market. The fluctuations in oil prices since 2014 and the stringent restrictions on movement caused by the Covid-19 pandemic, were reminders of the unsustainable nature of this economic model of oil dependency (Nnaemeka Ezeani (2020). The problem is further hampered by the fact that much of the oil and gas production is possible by reliance on technical knowledge and control of multinational companies (MNCs) in their varied joint venture agreements with the Nigerian government.

It is almost impossible without local technological and operational know-how for the local industry to rise to the challenge of a self-sustaining oil and gas economy without MNCs. This is the reality in Nigeria where governments military and civilian, court and rely almost exclusively on foreign corporations (and by extension, foreign governments and investors) for Nigeria’s energy production capacity. Legislation is weak, regulation is poor and accountability is almost non-existent, in the oil sector for this and other reasons. What if the MNCs leave, is a lurking question. It could be argued that this threat is checked by the MNC’s corporate purpose for profit i.e. that the MNCs are unlikely to leave so long as the Nigerian market is profitable. However reliance on this view is delusional. Not only does it ignore the realities of competition, it pays no heed to the market changes and global calls for renewables to meet climate change concerns, the restrictions and further changes occasioned by the Covid-19 pandemic and, corporate governance concerns about health and safety of people and the environment in the industry. Even if the MNCs do not leave, the tepid contribution of local content is nothing to be proud of in a country that boasts huge numbers of local and foreign graduates including oil and gas professionals many of whom today are exiting the country.

Oil dependency has also meant a tight control by each government over the national oil company NNPC since its creation in 1977. Even with the changes to NNPC to an independent corporate entity in 2021 under the Petroleum Industry Act, it is still run unilaterally, albeit subtly, at the behest of the Executive if one examines the provisions of that Act. What is required is a restructuring for independence, transparency and fairness in line with globally recognised corporate governance standards. An independent regulator whose mandate is for the common good of the corporate entity Nigeria and her primary stakeholders (citizens) will see that the NNPC is left free to focus on its commercial business while the Regulator has oversight of all the companies - NNPC, local businesses, and MNCs, participating in the sector. With an independent Regulator, there is more room for new entrants; local entrepreneurs may also find the space to operate where they are not in constantly in direct competition with the market dominant NNPC or the wealthy MNCs.

That is not all. A legacy of executive control means that legislation governing oil extraction and production remains unduly complicated and full of loopholes to be exploited despite that new Petroleum Industry Act ( Debski & Ezeani 2022).??

3.?????The well-being of the primary stakeholders (Citizens) is not at the core of government’s corporate strategy

Government concern and action for the well-being of the citizen is of critical importance in socio-economic development. The profits from Nigeria’s oil sector have no corresponding impact on living standards in the country. In fact, an examination of these two values offers a damning account: the very poor health and social wellbeing indices that see Nigeria in the lowest categories of any global measurements on health, poverty, education etc, encapsulates government ambivalence on the health and well-being of Nigerians. Nigeria’s oil dependency and the devastating impact on the environment and health was captured in the 2011 independent assessment report on Ogoniland by the United Nation Environment Programme (UNEP) .?The Report details significant contamination and damage to the Ogoni communities affected by the dangerous and harmful practices of oil exploration activity. It also questioned the legality and enforceability of the EGASPIN (Environmental Guidelines And Standards For The Petroleum Industry In Nigeria) provisions on environmental management drafted by the Department of Petroleum Resources (DPR 1991; 2002) and, the inconsistency of those guidelines. The Report (p142) notes that:

Nigerian legislation is internally inconsistent with regard to one of the most important criteria for oil spill and contaminated site management; specifically, the criteria triggering or permitting remediation closure. This is enabling the oil industry to legally close down the remediation process well before contamination has been fully eliminated and soil quality has been restored to achieve full functionality for human, animal and plant life. This situation needs to be resolved for the whole of Nigeria.

The expected clean-up operations in the Report are still ‘expected’ neither can the affected Ogoni communities return to their erstwhile beneficial farming or fishing activities. As if that is not enough, black soot from gas flaring and oil bunkering frequently covers Port Harcourt skies leaving many sick. ??This government ambivalence to harmful industry practices creates more poverty, ill health and, a security risk situation evident in the conflicts and guerrilla warfare which continuously plagues the Niger Delta area. Kidnappings, sabotage, murder and threats to lives and property mean an ever-present danger to oil installations, to the workforce and to the people in affected communities. (Joshua Alabi in Dyer & Trombetta eds, (2013).

Agriculture, fishing and other sustainable practices in society suffer with poor regulation in a society where health care provision is both scarce and very expensive. For example, for 2023, the health budget is under 6%?for a country of 200 million citizens. Nothing brings this tragic conflation of political power and negligence home as much as the conviction of a Nigerian senator Ike Ekweremadu, his wife and an another accomplice in the UK on organ trafficking charges in March 2023. He had only sought desperately, to provide his ailing daughter with a new kidney. If Nigerian medical care had been up to par, the incident may not have happened at all.

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4.?????Disempowerment of the citizen and the absolute powers of leaders

A strong feature of good corporate governance is transparency in decision making and participation of the primary stakeholder with their right to vote and to partake of the profits of the company. For the modern state, this means that a citizen should expect that they are visible, are heard, and that the leadership is accountable to the citizen. It also means that there are courts who will protect the rights of the citizen and ensure that no one including the leadership is above the law. The centralised (unilateral although constitutionally federal,) control of the energy sector in Nigeria does not operate on this theoretical basis for corporate governance.

The exploration of oil made possible via the wide discretionary powers bestowed on the Minister for Petroleum Resources under the 1969 Petroleum Act is retained albeit with superficial adjustments in the Petroleum Industry Act 2021. Underscoring these powers is the absolute control of hydrocarbon resources and the inadequate compensation mechanism for expropriation in the hands of the Executive under Nigeria’s 1979 Land Use Act.

Section 28 of the Land Use Act allows for the revocation of a statutory or customary right of occupancy on the basis of “overriding public interest” on three similar instances: alienation by the occupier; requirement for public purposes and the requirement of the land for mining purposes or oil pipelines or for any connected purposes.?A requirement of the land for the extraction of building materials is relevant only to statutory revocations by the Governor of a State.?Section 29 (4) provides for compensation on the basis of occupancy rents paid, buildings or installations, or the value of crops on land, while Section 29 (2) provides for compensation for land acquired for mining or oil related purposes to be decided in line with the Minerals Act or replacing legislation. Thus, the Executive controls and directs the payment of compensation to the community, the chief, or into a fund “specified” by the Governor.?Vesting such powers in the Executive may have accelerated the entry and start of oil activity by multinationals who did not have to be delayed by community complaints and disputes over access to identified oil fields. However, it has meant that compensation is often too little, not reflective of the profits recovered from oil exploration or the international sales therefrom and, may be paid not to the actual deprived land owners, but to chiefs and community leaders, out of the largesse of the Governor.?The impact of such arbitrary exercise of executive power is clear from the limited engagement by local communities in oil activity and the very limited socio-economic benefit seen in these communities since the first oil exploration activity in the 1950s. It makes it possible for potential abuse of executive power by officials who can allocate or withdraw licences at will or in their personal favour. It also makes it easier to enter into a private contractual relationship between the IOC and the executive official or agents, in the absence of public scrutiny and accountability with its repercussions to the country. ?

Individuals and communities who stood to make profit from the resources in their homes and farmlands have effectively been outwitted by political leaders in whom the power to manage these lands now reside. The transfer of such arbitrary powers as the Executive holds in the Land Use Act to an independent statutory body, is a preferred alternative to the present situation under the Land Use Act which allows the Executive, their ministerial appointees and comrades, to assign oil fields and divert oil income as they deem fit without check or censure. The revenue allocation approach worsens a bad case where the enabling infrastructure much needed at local and state levels cannot be met with the limited funds available at these levels of government albeit with corrupt management. The Federal Government takes over 52% of the allocation while 36 states, the Federal Capital Territory Abuja and 774 local governments, share the rest. Onuigbo & Eme (2015) . ?Think about it; if the Executive can do as they wish legally, where is the interest to incentivise local content participation in the economy when the Executive is a happy landlord collecting and re-distributing rent from national resources without accountability? ?

The courts who should guarantee accountability as the judicial arm of the Nigerian state have so far been unable to address both the imbalance between the citizen and the state and in the oil and gas sector, between the citizen and the oil companies. Cases brought by citizens and communities against oil companies in connection with infringements by the latter have not seen justice at the Nigerian courts; access to justices and any successes have had to be found in foreign courts. Ochei, Ezeani & Anderson (2023) . This limited powers of the judiciary to grant justice to its citizens is an existential threat to a modern state.?

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5.?????A lack of foresight in policy and planning: Wealth redistribution is not wealth creation

Without a strategic wealth creation policy approach for a sustainable enabling environment that supports opportunities for local content participation, laws such as the Nigerian Local Content Act 2010 despite its great expectations of local participation in Nigeria’s energy sector will achieve little. Foresight in drafting a corporate vision for example, requires a look at what can facilitate greater profits at less costs to the corporation. It calls for long-term financial investments into profit-creating sectors like education and entrepreneurship and research and development to upgrade existing capacities whether in goods or services, as provided by the corporate entity. Such a corporate vision should for example, see heavy investment in education and training from primary to tertiary level. On the contrary, Nigeria’s public universities remain either unwilling (given the intermittent strike actions in response to the government’s refusal to honour salary payments to staff) or unable (lacking infrastructure such as mobile and internet connectivity, essential for home working and learning (also absent in the Covid-19 pandemic) to produce highly skilled local content. How much can the Nigerian Local Content Act achieve where the training and education required for skilled work in the economy is unable to turn out skilled professionals in due course in a fast-moving world? Just as we saw with the low health investment,?Nigeria’s budget for education in 2023 is just over 8%; reports suggest that the UN is of the view that if Nigeria wishes to meets its SDG targets on education by 2030, education should receive 20% of the budget .

Wealth re-distribution is the self-invoked mandate of Nigerian elected officials and governments from local to federal level. ‘Doing something for the people’ by which is meant collecting the funds at the centre and re-distributing at the whim of the Executive and its preferred officials, only fosters the dependency which demotivates potential entrepreneurs. Some may argue that Nigeria is only replicating the socialist principles of wealth distribution. However, in a modern state and at Nigeria’s level of socio-economic development, without exploring the pitfalls of socialism here, one of which in my view is the focus on wealth distribution at the detriment of sustained profitable productivity, there is not even enough wealth to distribute amongst Nigeria’s 200 million citizens if the standard of public infrastructure and amenities is anything to go by. ?

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We will stop here for now. Understanding why and how to run the country as a profitable corporate enterprise for the benefit of its citizens holds more promise than the seductive hullabaloo of tribal and religious sentiments and the enduring mismanagement that has kept oil-rich Nigeria poor.

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[1] This and the next section take from earlier discussions in Elimma C Ezeani, “Energy Security and Global Trade: The View from Oil Dependent Countries” in Sairam Bhat (ed) Privatisation and Globalisation – Changing Legal Paradigm, Eastern Law House (2017) Chapter 23, 346-357.

Thank you for reading and please share.

With best wishes,

Elimma.