Role of oil in the alleviation of poverty

Lead City University, Ibadan

Bamanosi Praise Okunola

May 30th, 2020

Introduction

Poverty is a battling force that continues to retrogress development in most of the world's economies.
This has been the face of developmental economics. The United Nations had setup the millennium
development goals (MDGs) in 2000 and poverty was a priority. The agenda was obviously not successful
as it was to be achieved by the year 2015, unfortunately the world is still poor and it has led world
leaders back to the round table which has birthed the Sustainable Developmental Goals (SDGs) in 2015
to succeed the MDGs with a 17 point agenda and poverty as enemy number one. It is agreeable that the
United Nations understands that if the world is not relieved from the detrimental effects of poverty,
countries proclaiming to be developing would only continue to exist in a mirrage.

Nigeria is not exempted from poverty as it has multidimensional level of poverty with over 50% of the
people living in the poverty line which is less than $1 a day. Having less oil compared to the population,
oil has little effect in poverty aussagement in the Sub-Shaaran economy. Despite her oil wealth in the
19-19 amounting to over $ and the world oil boom between 2013-2015 that generated over $ .
According to the United Nations Development Programme report, it reveals that even though the
proportion of people who are multidimensionally poor has remained constant at just over 50% over the
past decade (upto 2017) the actual the number of people who are multidimensionally poor increased
from 86 million to 98 million over the same period.

Problem Statement

Issues of poverty have been prevalent in Africa. In Nigeria people suffer from a multidimensional level of
poverty. Despite being oil rich, policies have not been successful in alleviation of poverty. One might
argue that policies from developed countries can be adopted but it has been proven severally that no
policy is the better in terms of development as various input can birth outstanding output in some
economies and similar input in a different environ can worsen the economic situation.

Over 70% of revenue that comprise the budget is gotten from oil still, policies associated with oil
revenue to alleviate poverty has proved to be a unsuccessful.

Research Questions, Objectives and Hypotheses

The following main research question will guide the research process: What is the role of oil in the
alleviation of poverty?

Sub- research questions include:

• What has been the level of poverty in the last 20 years?

• Does a resource based policy lead to poverty alleviation?

• Does fluctuation in oil prices render policy on poverty alleviation ineffective?

• How does global oil prices impact in the alleviation of poverty?

The objective of this study is to examine the role of oil in the alleviation of poverty.

Hypotheses

Nigeria's oil will remain a means to alleviate people from poverty. Oil dependency would not
successfully alleviate the people from poverty, therefore Nigeria must diversify.

The research intends to argue that:

• Oil as at now remains the only source for poverty alleviation

• Nigeria's success in alleviating people from poverty is dependent on oil revenues and rents

• Oil dependency for poverty alleviation policies/programmes would remain a failure.

• Diversification and industrialization are necessary for successful assuagement of poverty in Nigeria

Literatures

Being oil rich, it is obvious that the Sub Saharan economy still suffers from the resource curse. The last
50 years show that the consequences of development, which is exclusively based on the export of
petroleum, have tended to be negative. Among the apparent adverse effects are: an economic growth
that is slower than expected, a weak economic diversification, bad indicators to the social well-being,
corruption, high levels poverty and inequality, appalling environmental impacts at the local level,
exceptionally poor governance and a rather high frequency of conflicts and wars. Countries exporting
mining or petroleum products sufferfrom a surprisingly high level of poverty, inadequate health care,
widespread malnutrition, a high infant mortality, low life expectancy and poor performance, especially
compared tocountries dependent on agricultural exports (Karl, 2007).Given the financial income of rich
countries from natural resources, the poor situation is very astonishing. Because of the extreme
volatility of oil markets, exporting countries are often the victims of brutal declines in per capita income
and huge growth collapses.

Mehlum et al. (2006) argues that the natural resource curse only applies to countries with weak
institutions. They use data from 87 resource abundant countries with more than 10% of their GDP from
resource exports and their average yearly growth from 1965 to 1990 (Mehlum et al 2006: 1).

The push for Nigeria’s fiscal policy in the past decades has varied. However in the late 2000s, the
National Economic Empowerment and Development Strategy (NEEDS) guided the fiscal strategies of the
period. NEEDS was intended to address the country’s infrastructure deficiencies, job and wealth creation
and the Millennium Development Goals (MDGs), therefore much of the government budget each year
was disbursed between health, roads, power, education, national security and water (CBN 2006).
As an oil exporter, Nigeria has pursued a resource based growth strategies since independence but has
been unable to achieve sustainable economic growth.The appropriate policies to address the issue of oil
dependence in Nigeria should focus on diversification and industrialization to promote economic
growth. Also, the transformation from oil exporter to manufacturing exporter will take time, therefore
in the short-run, focusing on the fiscal policy can lead to improved development.

Poverty is being sick and not being able to see a doctor. Poverty is not being able to go to school and not
knowing how to read and write. Poverty is not having a job; it is fear for the future, living one day at a
time. Poverty is losing a child to illness brought about by unclean water. Poverty is powerlessness, lack
of representation and freedom. Poverty has many faces, changing from place to place and across time,
and has been described in many w&ys. Most often, poverty is a situation people want to escape. So
poverty alleviation is a call to action.

Oil being a major source of revenue in Nigeria has a direct relationship in the alleviation of poverty.
Crisis in the oil producing state is basically caused by poverty of the citizens (Taiwo and Agwu, 2016). So
if oil revenue is used to alleviate people from poverty, crisis would be non-existent. Oil price volatility
has a negative impact on poverty reduction. A study examined the impact of oil on foreign direct
investment in the environment and welfare of the people in host communities its rusults were despite
her rich oil, there is environmental diseconomies and wide spread poverty in the area(oil producing
states in Nigeria). However, natural resources (oil) is needed to improve growth and alleviate income
inequality(Mohammad Ali). Oil births revenue which is used for infrastructural development and it long
run leads to poverty reduction (T.P Ogun). Using Sri Lanka as a case study, (Athula and Jayathileka)
suggest that in short run, oil prices would have an overall negative impact on the evonomic growth and
also exterminate poverty.

Nigeria oil revenue has not being able to cut the poverty gap due to corruption, mismanagement and
lack of transparency. Although, state governments have about 50% of oil revenue and are not required
to coordinate their fiscal policies in line with the central government, making a coordinated fiscal policy
(IMF 2003,54). If revenues generated from oil are effective used, the economy would be totally
diversified due to the multiplier effect. Oil has seemed to be more of a curse to the economy. Despite
efforts by the government to diversify, their continuous dependence on oil has made plans for true
diversification futile therefore it is true to say that oil has a positive and insignificant effect on poverty-
stricken reduction in Nigeria.

Persistent oil shocks and development of substitute products areas future signs that oil would not be
able to generate much revenue any longer. So while it is yet impactful, it is important for government to
develop a model that would ensure the diversification Nigeria as longed for.

Poverty in Nigeria is multidimensional and should not be faced from a particular angle but from ever
sector and levels to be able to successfully eradicate it. The sustainable development goals which is to
be attained by year 2030 (10 years from now) would remain impossible if not treated in a holistic
approach. If the right policies are not proposed and thoroughly worked on, there would be an increase
in poverty level and our rich oil would be of no help.

Methodology

In this thesis the evaluation would be applied on the basis of data availability and supervisor's advice.

Quantitative secondary data will be collected from international and national data sources including:

- World Bank

- Transparency International

- Nigeria National Bureau of Statistics

- Central Bank of Nigeria

- United Nations

- National Planning Commission

- Nigerian National Petroleum Corporation

- Organization of Petroleum Export Countries

- Specific agencies such as shipping and educational institutions.

References

Central Bank of Nigeria (2006) Central Bank of Nigeria Annual Report. Abuja, Nigeria: Central Bank of
Nigeria.

https://sustainabledevelopment.un.org/sdgs

Karl, T.L. (2007). “Oil-Led Development: Social, Political, and Economic Consequences”, CDDRL Working
Papers, N. 80.
Mehlum, H., K. Moene and R. Torvik (2006). Institutions and the Resource Curse. The Economic Journal,
vol. 116, no. 508.

Sonia Benghida. FACTORS AND CHALLENGES IN DEVELOPING COUNTRIES UNDER THE RESOURCE CURSE.
International Journal of Civil Engineering and Technology , IAEME Publication 2017, 8 (11), pp.902. ffhal-
01653339f

Taiwo J.N. and Agwu M. E., Problems and Prospects of Poverty Alleviation Programmes in Nigeria:
European Centre for Research and Development, 2016, 62-63.

Tracy Igberaese (2013). The Effect of Oil Dependency on Nigeria's Economic Growth. International
Institute of Social Science. pg. 8, 10 &37.

United Nations Development Programme report.

https://www.ng.undp.org/content/nigeria/en/home/presscenter/pressreleases/2019/new-data-
challenges-traditional-notions-of-rich-and-poor-.html