Fueling a Crisis in Nigeria

Under a package of International Monetary Fund-endorsed reforms, the Nigerian government hopes to eliminate domestic fuel subsidies. Yet low gas prices are currently the only economic benefit for cash-strapped Nigerians, who see price increases as another kickback to local elites and foreign oil companies. The proposed reforms have caused domestic turbulence; unions launched a series of paralyzing strikes, with more promised. As the world's seventh-largest oil producer teeters on the brink of complete shutdown, its president continues to treat union leaders with more contempt than he does armed warlords. Although economic reforms may benefit Nigeria's economy in the long run, writes Olly Owen, the government has undermined its case by ignoring domestic opposition. Indeed, civil society may be correct to question the IMF's presumption that privatization and deregulation alone necessarily lead to poverty reduction. – YaleGlobal

Fueling a Crisis in Nigeria

As the government and civil society battle over economic reforms, the oil giant's citizens may stand to lose the most
Olly Owen
Monday, October 25, 2004
The fuel for discontent: Rising gas prices in the world's major oil producing country brings anger to boil.

LONDON: Nigeria is approaching paralysis. The government is dead-set on implementing IMF-endorsed price reforms, which would raise gas prices by eliminating fuel subsidies. Yet the vast majority of Nigerians adamantly oppose the move, claiming it would impoverish them. A four-day general strike in Nigeria, Africa's oil giant, pushed world oil prices to a record level – a harsh reminder that threats to global economic stability can emerge from relatively neglected quarters. The strike also called into question the prevailing orthodoxy from international financial institutions that economic reform and poverty-reduction go hand-in-hand.

For four days in early October, the West African giant (which boasts a quarter of Africa's population and ranks as the world's seventh largest oil producer) was frozen in the grip of a general strike opposing the government plan to raise fuel prices. The reform, proposed by President Olusegun Obasanjo and backed by the IMF, would end the only dividend citizens have right now: cheap gas at the pump. A steadily climbing global price has necessitated repeated domestic oil price hikes, each time resulting in major opposition from the country's labor movement. With government digging in its heels and the Nigeria Labor Congress (NLC) umbrella union threatening to resume strike action, Nigeria may soon grind to a halt.

Trouble has been brewing in Nigeria for a while. Under the corrupt military dictatorships of the 1990s, the country's refineries gradually decreased operation, eventually necessitating the import of refined gas for domestic consumption. The windfall of receipts from record high oil prices was thus squandered on imported petrol. Today, the country's own refineries have gone to seed, thanks to the corrupt contractors who were charged with their repair. A recent report estimated that at least US$400 million has been pumped into rehabilitating the refineries in the last six years. That money vanished with no trace of enhanced capacity.

Government efforts to privatize the facilities out of trouble are progressing slowly. In order to encourage more international interest, Obasanjo considers it essential to raise fuel retail prices to a commercially attractive level, at which point the market will take over the supply problem. Supporters argue that this policy is already beginning to pay off, with a consortium of domestic banks last month announcing plans to build a new 12,000-barrel-per-day facility in eastern Cross River state.

Unions and civil society groups, however, smell a rat: If consortiums are already preparing to build new refineries, why was it necessary to announce a further 25-percent price increase? The deregulation policy, says the Nigeria Labor Congress, will benefit marketers and government coffers while devastating most other sectors in an already-inflationary economy. Ordinary citizens see the limousines driven by state officials cruise to the front of lengthy filling-station queues, and conclude that high prices will be another way in which they are forced to subsidize the lifestyles of the privileged.

The recent row has lurched from stalemate to stalemate in a series of general strikes. The conflicts have left numbers of citizens dead. Is there any hope for compromise?

"Every time we come to the government requesting dialogue on the issue," NLC President Adams Oshiomhole told YaleGlobal, "they ignore us, and the only time they will negotiate is when we threaten a strike." The union leader adds that the NLC's own economics team has developed plans for a partial deregulation, which would see both the public and government cushioned from the worst spikes, but that the administration refuses to discuss the alternative plan.

President Obasanjo's government has been notably combative on the issue from the outset. It squandered a valuable opportunity to persuade voters of the merits of its case by introducing the policy without warning or consultation.

Now, rather than dealing with the union, the government has introduced a new bill seeking to break up the NLC, limit the right to strike, and foster the creation of new alternative union bodies. (Legislators seem likely to water down the proposal, as they are conscious of the NLC's popularity.) For the moment, the government must make do with a controversial High Court ruling in September, making it illegal for unions to strike over anything other than pay and working conditions.

Donors and multilateral lenders have taken the government's intransigence as a sign that the administration is really prepared to push through the reforms, despite the political risk. A British government development official in the Nigerian capital notes approvingly that Obasanjo is "really serious about this economic agenda," in which the elimination of fuel subsidies is part of a wider plan to put the country's finances back on a sound footing for the future.

But critics see contradictions in the government's refusal to deal with its civil society opponents. After all, when self-appointed warlord Alhaji Dokubo Asari threatened "all-out war" against multinational oil companies operating in the Niger Delta, he was flown straight to the capital – on a Presidential jet – for talks. What message does this give a frustrated public, shown by surveys to be losing faith in Nigeria's democratic institutions, as to the relative merits of peaceful versus violent action?

Designers of reform packages normally assume stable social and political conditions. The World Bank and IMF have expended a huge amount of effort over the last decade to ensure that local people feel they have "ownership" of outside-imposed structural adjustment programs. But in Nigeria, the reform policy, crafted by the country's own government, has met wide public resistance. In this case, the policies themselves are causing instability, and the government has reacted by attempting to silence voices of opposition. By steamrolling reform measures through without working toward social consensus, without addressing the high-level corruption at the root of public distrust, and without trying to restore the public's confidence in their leaders, the government will find successful poverty-reducing reforms to be elusive.

As it stands, if reforms are pushed through over public opposition, the vast majority of Nigeria's low- and middle-income households will be forced into further difficulties. Likewise, small and medium enterprises will be squeezed still further, and will become even less able to compete with the flood of cheap imports. Yet if the subsidy problem is not eliminated, fuel importers will be the only ones to benefit from Nigeria's current oil wealth.

In a battle that pits the 120 million Nigerians living on less than US$2 a day against the national government and international financial institutions, who will win? Again, while the World Bank and IMF suggest that economic reform and privatization lead to poverty-reduction, current events in Nigeria seem to question that assumption. To make a lasting difference to the country's economy, reforms will inevitably entail, at least in the short-term, extreme hardships for ordinary people. Unfortunately, the government's failure to operate in an open and transparent way may sabotage the whole reform platform – preventing a guarantee of any benefits at all.

Olly Owen is an African politics and current affairs analyst for the World Markets Research Center in London and a research associate of the Lagos-based Center for Democracy and Development.

© 2004 Yale Center for the Study of Globalization