| Urhobo Historical Society |
LESSONS FROM
THE CHADIAN MODEL
FOR DISTRIBUTION OF OIL WEALTH
IN
By Emmanuel
Ojameruaye, Ph.D.
International
Foundation for Education and Self-Help (IFESH)
The economic performance of many
oil-exporting countries
has been very disappointing since the quadrupling of oil prices in 1973. Despite substantial inflow of oil revenues,
most of the oil-exporting countries have been suffering from the
so-called
Dutch Disease and Immiserising Growth syndrome. In particular, they
have failed
to use their “oil windfall” to reduce poverty in their countries. It is
against
this background that
the World Bank and other major stakeholders introduced an
innovative approach to ensure that the recently found oil wealth in
The Chadian Model
In July 2003,
The total cost of the project leading to
More than 100 non-governmental organizations
took part
in negotiations that established the
guidelines for the funding of the
project. The guidelines covered oil revenue management and
environmental
standards. The World Bank Group supported the development of a sound
revenue
management program, the application of environmental and social
policies and
ensured broad public consultations.
It is hoped
that the oil revenue
will be used effectively for important investments in health,
education,
environment, infrastructure and rural development to reduce poverty.
Other
expected benefits include employment generation, local project
procurement,
staff training,
further oil exploration and development, and private
investment. The regional development
program for the population in the Doba region in
Although it
is too early to
assess the effectiveness of the projects and to confirm if
Replication of the Chadian Model
Clearly,
the situation is
- Application of the principles of institutional transparency and accountability in the management of oil revenue.
- Use of a substantial portion of the oil revenue to improve the quality of life of the poor through investment in health, education, water and sanitation, rural development, local capacity-building, enterprise development, microfinance and environmental management.
- Setting up a fund for the use future generations.
- Giving special attention to the oil-producing region.
Before describing how these can be achieved in Nigeria, I will first review how Nigeria has attempted to use (or misuse) its oil wealth with regards to improving living conditions in oil producing areas since oil was discovered in the Niger Delta in 1956.
Oil Wealth and Poverty in the Niger
The
Nigerian economy depends
heavily on crude oil and gas, which account for over 70% of the revenue
of the
Federation and over 95% of export earnings. The bulk of country’s oil
and gas
is produced in the Niger Delta region and the adjoining offshore. After
over 46
years of exporting crude oil, it is not an overstatement to say that
“The number of poor remains high. With a national population estimate of 116million in 1996 there are at least 64.7million (56%) poor people in Nigeria compared to 38.5million (43%) in 1985…We have about 61percent of all individuals in the rural (up from 47% in 1985) and about 47 percent of the urban dwellers (down from 48% in 1985) in poverty…Living standards of the Nigerian population have been adversely affected since 1980 by two factors. Per capita income has fallen from a peak of about $1,100 in 1982 to current levels of about $350. The distribution of income has also worsened adversely affecting the poorest, throwing them deeper into poverty…The incidence, depth and severity of poverty increased between 1985 and 1996“.
Although the statement was made with reference to the whole country, it is also true for the oil producing areas of the Niger Delta. In fact, an examination of the poverty data by states shows that the incidence, depth and severity of poverty in the oil producing states are not significantly different from those of the other states of the country, despite the attempts by the three tiers of government and oil producing companies to improve quality of life in the Niger Delta region. What are these efforts and why have they failed to carry wealth to the poor, i.e. to reduce poverty?. What changes are required to ensure that the oil wealth reaches the poor and reduce the level of poverty in the area in a sustainable manner?
The Niger Delta region covers an area of about 70,000 sq. km. In strict sense (as was in the past), the Niger Delta is limited to the geo-political area occupied by minorities of Southern Nigeria (South-South zone) currently comprising the six states of Akwa Ibom, Bayelsa, Cross River, Delta, Edo and Rivers. In recent years, however, especially since the establishment of the Niger Delta Development Commission (NDDC), the Niger Delta region seems to have been redefined and enlarged to include the contiguous oil producing states of Abia, Imo and Ondo. About 13 million people currently live in the “original” Niger Delta region in a few large cities and over 3,000 small and often remote communities/villages in the mangrove, swamp and lowland rain forests. However, not all the communities in the Niger Delta are oil producing or are sufficiently close to oil producing wells or facilities. Similarly, there are some oil producing communities that are geographically located outside the “original” Niger Delta region. While the upland areas of the Niger Delta are densely populated, the swamps have scattered settlements that take advantage of higher ground. Farming and fishing are the main economic activities in the communities while commerce and oil-industry related activities dominate the urban areas. The terrain is extremely difficult and a substantial portion of the region falls under the “world’s fragile ecosystem”. Many communities live along creeks and are accessible only by boats. The riverine communities are particularly vulnerable to climatic changes and man-made disasters (floods, sea encroachment, oil pollution, piracy, hostage taking, communal conflicts, etc). The region is faced with a lot of developmental and environmental challenges including high level of poverty, decline in agricultural production, low level of industrial activities, environmental degradation and social conflicts. With an average family size of about six, one can assume that there are about 2.1million families or households living in the region. About 1.5 million of these families are poor, of which about 1million are classified as “very poor “ (core poor).
The unique
characteristics of the
“original” Niger Delta region as described above make development
difficult and
expensive. This is why the Sir Henry Willink’s Commission (1958)
recommended
that the Niger Delta region deserves special developmental attention by
the
Federal Government of Nigeria. This was even before crude oil became a
critical
factor in
Between
1992 and 1999 when it was
scrapped, OMPADEC completed several projects but bequeathed very many
abandoned/unfinished projects and huge debt, most of which were
dubious.
OMPADEC suffered from lack of focus, inadequate and irregular funding,
official
profligacy, corruption, excessive political interference, lack of
transparency
and accountability, high overhead spending, etc. Most of its projects
had
little to do with poverty reduction and the vast majority of the poor
people
were not impacted in any significant way. There is no reliable
information on
the total amount it received from the Federation Account but critics
say that
the Federal Government did not disburse the full 3% of the Federation
Account
to the Commission throughout the period. More importantly, much of the
funds
disbursed also ended up in private accounts and the number of projects
completed cannot justify the amount received. Thus OMPADEC failed to
abate
discontent and restiveness in the region. If anything, the degree of
restiveness increased, reaching an alarming level by 1998.
Consequently, one of
the first actions of President Obasanjo soon after his inauguration in
May 1999
was to send a Bill to the National Assembly for the establishment of
the Niger
Delta Development Commission (NDDC) to replace OMPADEC. However, after
some
prevarication and procrastination, the NDDC was officially inaugurated
on
December 21, 2000 with
a vision “to offer a lasting solution to
the socio-economic difficulties of the Niger Delta Region” and a
mission “to facilitate the rapid, even and sustainable
development of the Niger Delta into a region that is economically
prosperous,
socially stable, ecologically regenerative and politically peaceful”.
Again, lofty words and very high expectations.
The NDDC Act
provided for generous funding sources, including:
- Federal Government contribution, which shall be equivalent to 15% of the monthly statutory allocation due to member States of the Commission from the Federation Account.
- Oil and gas processing companies’ contribution of 3% of their total budget.
- 50% of the Ecological Fund Allocations due to the member States.
- Proceeds from NDDC Assets and miscellaneous sources, including grants-in-aid, gifts, loans and donations.
The NDDC Act also provides for a Governing Board of twenty members. Ten of the members are to be appointed by the Federal Government (The Presidency) including the Chairman, the MD/CEO, the two Executive Directors, three Representatives of non-oil producing states, one representative each from the Federal Ministry of Finance and the Federal Ministry of Environment and two executive directors. Each of the nine oil producing states are to appoint one member each while the oil companies are to appoint one member to represent them. Like OMPADEC, the NDDC is essentially a department of the Presidency.
Today, the
NDDC is a very large
agency, some say too large, with offices in each of the nine oil
producing
states. Some people say it is more or
less a “supra state” government like the now defunct Petroleum Trust
Fund
(PTF). Like the OMPADEC, the NDDC seems to have started on a sound
footing. Its
initial task was to review and complete some of the
abandoned/unfinished
projects of the defunct OMPADEC and embark on some new ones whilst
preparing a
comprehensive Master Plan for the development of the Niger Delta
region. After
about 3 years, the Commission can now boast of many completed projects
and
recent reports indicate that the Master Plan is almost completed and
may be
launched in April, 2004. In an address delivered by the Chairman of
NDDC at the
annual general meeting of the Traditional Rulers of Oil Mineral
Producing
Communities of Nigeria (TROMPCON) on June 25, 2003, he reported that
during the
first two and half years of its existence (Jan. 2001 to June 2003), the
NDDC:
- Received N47 billion from all its funding sources.
- Awarded about 700 contracts of which 358 had been completed as at June 2003.
-
Undertook the construction of 40
roads projects, 90 water projects, 129
electrification projects, 47 shore protection/jetty projects, 50 health
centres, 205 new blocks of six classrooms
each, etc.
On the surface, this seems to be an impressive record, but it is not clear whether an independent audit has been carried out to determine whether the funds received had been used wisely and effectively. It is also not clear what impact these projects have had on reducing the incidence, depth and severity of poverty in the oil producing communities. What is clear however, is that poverty still remains pervasive. In the absence of relevant baseline and recent data on poverty in the area, one cannot say if the percentage of people living below the poverty line has dropped during the past 3 years or whether the area is on the path of achieving the millennium development goals (MDG). However, the fact that discontent and restiveness are still rampant in the region is an indication that the NDDC still has a very long way to go in achieving its mission. But NDDC, like its predecessors, is beginning to experience some stress and cracks. Firstly, the funding has become uncertain and irregular. There are reports that the Federal Government has consistently refused to meet its obligation to the Commission: rather than paying the 15% provided for in the Act, it is contributing only 10%. It has also been reported that some oil companies are not contributing the full 3% of their budget as provided for in the Act. Recently, a member of the National Assembly alleged that the Federal Government and some oil companies are owing the NDDC about N100 billion in unpaid contributions – an amount that is more than double what it received during its first two and half years and more than the 13% oil derivation fund (N89.2billion) that was shared by all nine oil producing state governments in 2002. In fact, the Federal Government has submitted a Bill to the National Assembly to reduce its contribution from 15% to 10% and that of oil companies from 3% to 2%. The Federal Government also wants the oil producing states to contribute 10% of their monthly statutory allocations to the Commission, but the States are opposed to this just as they are to contributing 50% of their Ecological Fund Allocation to the Commission. The States see no reason why they should contribute to a Commission that is an appendage of the Presidency and outside their sphere of influence. Thus the controversy over the funding of NDDC rages on three years after its establishment, creating an atmosphere of uncertainty. In addition, some critics have raised the issues of transparency, accountability, corruption, political interference, etc. They cite the replacement last year of the first MD/CEO as a case in point. Some critics also argue that the NDDC lacks focus, behaving as a “Jackie of all trades and master of none”. Although it may be too early to assess the performance of the NDDC, I think there is need for periodic review of its mission, strategies, programs, management and performance in order to adopt corrective measures that will put on the right path of reducing poverty in the region, i.e. carrying oil wealth to the poor.
In addition to federal agencies, State governments are also required to tackle the problem of poverty in the region using part of the oil revenue that accrues to them. All the oil producing states receive additional revenue on account of the oil produced in their state (derivation fund) and also from oil companies in the form of personal income (PAYE) taxes. It is reported that some state government get more than N1.5billion (over $10m) a year from PAYE taxes from oil companies operating in their state and over N10 billion a year as oil derivation fund from the Federation Account. How well have the state governments used part of these funds to improve the living conditions of the people in the oil producing communities in their state? Many people would answer “not much”. Again, it appears that some of the State governments do not have deliberate or special plans and programs aimed at reducing poverty in the oil producing communities. For instance, it appears that the States do not dedicate a given percentage of their oil revenues to programs that will have direct impact on the quality of life of the people and reduce the incidence and severity of poverty. There are reports of stealing and wastage of the oil revenue by state officials.
Local Government Councils (LGCs), the unit of administration that is closest to the people/grassroots, are also expected to address the issue of poverty with the revenues they receive both from the Federation Account and the State Governments. Unfortunately, many of the LGCs in the oil producing areas (and elsewhere in the country) are lameducks when it comes to poverty reduction. They are grossly under-funded to do any meaningful development work and make any appreciable impact on poverty reduction. Besides, there are reports of massive abuse of the little funds they receive. Most of them do not have medium to long-term development plans to improve living conditions in their areas. The unstable and unpredictable tenure of the LGCs has also made development planning difficult and unattractive. It has also encouraged graft, lack of transparency and accountability. After meeting their recurrent expenditures, most LGCs have little or nothing left for capital expenditure and investment in poverty reduction programs.
Despite
some criticisms, the oil
companies operating in the region are responsible for many of the
visible
infrastructural projects and poverty reduction programs in many of the
oil
producing communities. Collectively, these companies spend over
$120million
(over N15.6 billion) annually on a wide range on community development
projects
covering agriculture, community health, education, youth skills
training, water
and sanitation, social and economic infrastructure, women development,
small
business development and micro-credit. For instance, the Shell
Petroleum
Development Company of Nigeria Limited (SPDC), the largest of all the
companies, spent about $66.9million (about N8.7billion) in 2002 on its
community development program, including:
- $23.3 million on community roads and bridges (about 116 km of community roads constructed).
- $12.6 million on education and schools (scholarship for about 13,000 secondary school students and about 2,350 university students, sponsorship of 374 professional teachers deployed 42 schools and 213 NYSC teachers deployed to 37 schools to teach science subjects, provision of 120,000 textbooks to 70 schools, construction of 16 blocks of six classroom each and renovation of 6 blocks, training of 850 youths to acquire skills in auto-mechanic, bakery, sewing, hairdressing, computer application, soap-making, welding, etc for self-employment, etc).
- $6.7million on electrification (21 rural electrification projects completed).
- $4.8 million on agriculture (support of thousands of farmers through improved farming techniques, post-harvest loss reduction, seed multiplication, distribution of high-yielding and disease resistant crop varieties, tractor hire services, etc).
- $4.0 million on small business development and micro-credit.
- $3.9 million on community health care (support to 5 general hospitals, 15 cottage hospitals and 12 health centres treating over 255,000 patients, support for National Immunization Day helping to immunize about 1.8 million children against poliomyelitis).
- $2.8 million on water and sanitation ( 32 water schemes rehabilitated).
The contribution of some oil companies is such that some of the remote communities jocularly claim that the “government” they see in their communities are the oil companies. Nevertheless, some critics argue that the number of projects on the ground and the persisting high level of poverty in the area raise questions regarding the effectiveness and efficiency of the community programs of the oil producing companies.
Given the
above scenario, it is
clear that much needs to be done to ensure that the poor people of the
oil
producing areas benefit directly from the oil wealth coming from their
backyards. In other words,
there is need for drastic changes in the way
Recommendations:
1.
There is need to review the macro-management of
2.
The Federal Government should ensure that the oil
producing areas get their fair share of federal projects (presence) in
the
allocation of projects by the various federal ministries and parastatals, notwithstanding
the
existence of the NDDC or the community development efforts of oil
companies. In
other words, the existence of NDDC or oil companies should be no excuse
to deny
the oil producing areas of federal projects, e.g. roads, electricity,
water,
telecommunication. The region should therefore get the fair share of
projects
they would have been allocated if oil were not produced in the area. In
fact,
this is what President Obasanjo promised during the inauguration of the
NDDC
when he remarked that “its activities do
not preclude other federal government development programs that are
normally
due to the states. Nor is the NDDC intended to inhibit local
initiatives that
are the normal responsibilities of state government, local governments
and
local communities…The Federal Ministries and Agencies will continue to
carry
out projects in the region, just as states, the local governments, the
oil
companies, etc”. However, a spatial
analysis of the distribution of federal projects clearly shows that the
oil
producing areas have been denied their fair share. The projects by NDDC
and oil
companies must be seen as add-ons (some form of “bonus”) to the normal
projects
the communities would have been allocated in the absence of oil
production in
the area.
3.
The NDDC should be reviewed. Firstly, the name needs to
be re-examined. Some people believe that individuals and organizations
tend to
behave and perform according to their names. The word “Niger Delta” in
the name
of the Commission invariably charges it to spread its activities over
the
length and breadth of the Niger Delta region, rather than focusing on
the oil
producing areas/communities – its main mandate. The result is that the
resources of the Commission are overstretched. In some cases, depending
on
political influences, non-oil producing communities benefit more at the
expense
of oil-producing communities. Furthermore the word “Niger Delta” has
given the
commission a “supra” state status and has tended to politicize it. I
wonder
what will happen if oil is eventually found in Bauchi or Borno states.
Will
they become member states of the NDDC like Abia, Imo and
4.
The State Governments should also embark on certain
changes to ensure that the oil wealth reaches the poor directly in oil
producing areas. In this regard, they should identify and keep a record
of all
oil producing communities, allocate a given percentage of the state’s
oil
revenue (e.g. 20%) for development projects in the oil producing
communities,
have a 10-year rolling plan for the communities and allocate a given
percent of
the states oil revenue (e.g. 10%) to oil producing LGCs on the basis on
oil
production quota to assist the LGCs in implementing their programs in
the oil
producing communities. The State Governments must also publish the
annual
audited report of their oil revenue accounts and status
of projects
not alter than the end of the second quarter of a new year.
5.
The Local Governments should also be made to be more
effective to live up to their responsibility of bringing development to
the
grassroots. They should also have a 10-year rolling plan for the
development of
their communities and allocate a given percentage of the oil revenue
they
receive (from the State Government and tenement rates paid by oil
companies) to implement programs that
will impact directly on the poor in the oil producing communities. They
should
also publish the annual audited report of their account and projects
executed
not alter than the end of the second quarter of a new year.
6.
The oil companies should continue with their community
development programs and seek ways of improving on them through greater
participation/partnering with beneficiaries and local civil society
organizations, partnering with attracting international development agencies and
donors to the Niger Delta region. A law should be passed mandating oil
companies
to spend a fixed percentage of their budget (say 3%) on community
development.
In view of this, the oil companies should not be required to make
compulsory
contribution to the NDDC, which is not only discriminatory but also
tantamount
to “double social contribution”. The oil companies should also be
required to
have a 10-year community development rolling plan, hold annual
stakeholder’s
workshops, carry out annual independent audit of accounts and projects
and
publish the reports for public scrutiny. They should also to focus on a
few
sectors and projects (e.g. agriculture, education, health,
micro-enterprise
development) and carry out periodic evaluations to assess the impact of
their
projects and programs on poverty reduction.
7. Finally, there is need for coordination of all the above actors in order to reap the benefits of synergy and avoid duplication of projects, “double counting” of projects and omission/neglect of certain sectors or developmental priorities. In particular, the 10-year rolling plans of the various actors should be harmonized. The NDDC “Master Plan” can provide the platform for the harmonization of the plans. All the actors should meet during the Annual Stakeholders Workshop of the NDDC to review their plans and status of project execution and then harmonize/update their plans. The actors within each state could also hold quarterly meetings to review the status of their projects, explore opportunities for jointly-funded projects, e.g. a major coastal highway or major electricity grid or major water supply project to provide water to a cluster of many communities through a network of pipelines. During Stakeholders Workshop and the quarterly meetings, the actors can agree on areas of focus by each actor, e.g. the Federal Government, State Government and NDDC can focus on providing basic infrastructure and social services (roads, electricity, water, bridges, jetties, sand-filling/land reclamation, shore protection, health, school construction, housing) while LGCs and oil companies can focus on agriculture, sanitation, environmental management, scholarships, skills training, micro-enterprise development and other income generating projects.
Undoubtedly,
some of the above
recommendations are quite radical. Some may even seem unrealistic at
first
glance or may be difficult to implement in the short-term. However, I
believe
that they can be introduced in a stepwise fashion, to avoid dislocation
and
ensure gradual adjustment. It is possible to use