Using Nigeria’s oil curse lessons to avoid a diamond curse in Zimbabwe

Jan 15, 2012

Nigeria is in turmoil as the country’s citizens react in outrage at the government’s lifting of an oil subsidy that kept petroleum products priced low. Almost all articles about the crisis mention how many Nigerians consider that the subsidy is one of the few ways they benefit from their country’s vast oil wealth. Are there lessons from this for Zimbabwe as it quickly becomes a global diamond powerhouse?

Nigeria, like most African countries, for a long time had its economy mainly powered by agricultural commodities. Then vast oil deposits were discovered in the 1950s, just before the country’s independence. Not only was the income from the new export huge, it was also relatively easy, sexy wealth compared to the long hard slog of agriculture. However, as the oil industry grew and dominated everything else in the ensuing years, the vast new wealth it created also created huge new problems that Nigeria has unsuccessfully grappled with ever since. Oil has simply not been the blessing to Nigeria that it could and should have been.

A small political and business elite enjoys vast oil-fueled power, privilege and wealth that would be the envy of most in many countries, but the overwhelming majority of the citizens of oil-rich Nigeria struggle in a day to day existence. That there is deep anguish and resentment at this is hardly surprising.

The newly elected government of president Goodluck Jonathan argues that the US$6-8 billion the country is said to spend per year on the fuel subsidy, representing about a quarter of the annual national budget, is simply unsustainable, cripples the country and would be better spent in other ways.

But the sudden withdrawal of the subsidy has doubled and tripled the prices of petroleum products, and therefore of many other goods, causing national outrage and strikes which threaten to grind the country to a halt. A president who recently took office with tremendous national and international goodwill after a relatively clean and uncontroversial election has gone from hero to zero in just a few months, so strong and widespread is the rage against the suspension of the subsidy and the immediate after-effects on the cost of living.

Gordon Bottomley, writing on a CNN blog, simply and clearly explains the dilemma:  

“Few issues have as much power to unite Nigerians, largely because many view cheap fuel as their sole benefit from the country’s oil wealth, the majority of which is spent on government salaries and patronage politics, instead of infrastructure development and social services. In a country with hundreds of distinct ethnic groups and little sense of national identity, citizens rarely rally around a common cause. The sudden inability to procure fuel for basic needs such as transportation, however, has inspired Nigerians of all stripes to take to the streets en masse.”

 “Protesters…are aggressively calling for reinstatement of the fuel subsidy. For the time being, Jonathan is unlikely to acquiesce. He still enjoys the full support of Nigeria’s 36 highly influential governors, all of whom back the subsidy removal. Moreover, reinstating the subsidy would discredit the president’s administration, which has pledged to return fiscal discipline to the country.”

“The government has pledged to put the money saved towards infrastructure projects and development programs. However, citizens worry that the subsidy removal will only line the pockets of Nigeria’s venal politicians, who have a history of using state funds for personal gain, rather than economic development.”

“The president’s announcement that he will cut the inflated pay of civil servants and create 370,000 jobs for Nigerian youths is a start - albeit a negligible one in a country with over 60 million unemployed young men and women (according to the country’s Youth Minister). Disillusioned Nigerians are rightly skeptical of the president’s promises. Additional tangible improvements are needed to ease the growing tensions and prevent sustained instability.”

There are few parallels between Nigeria’s oil circumstances and Zimbabwe’s important but far more modest new diamond discoveries. The relative effect of the two, adjusted for the many inter-country differences, may, however, be similar.

Zimbabwe’s economy has been mainly powered by agriculture, like Nigeria’s was before the discovery of oil. After poorly implemented land reform, Zimbabwe’s agriculture slumped precipitously. Just as it begins to show signs of picking up again, diamonds enter the picture. Compared to agriculture or most other forms of economic activity, scratching ‘alluvial’ diamonds out of the ground and selling them to eager traders from all over the world is easy. Not surprisingly, new classes of businesspeople, many of them with strong political connections, have found ways to tap into this wealth. Some also trickles into the national treasury, but as in Nigeria, many citizens suspect that most or at least a lot finds its way into the pockets of the well-connected corrupt.

In Zimbabwe with diamonds as in Nigeria with oil, there is great opacity about how much is extracted by whom, how much is earned and where the money goes. In both countries there is deep distrust of the ruling authority by the citizens. In both countries, many people do not believe that the government and politicians do things in the best interests of the country, but of themselves. That is sullenly accepted most of the time, but potentially country-destroying rage erupts when the provocation is strong enough, as in the case of the lifting of the Nigerian oil subsidy.

The subsidy in Nigeria is on refined petroleum products that are expensively imported into the country, because somehow, over 50 years, the country has failed to develop a refining capacity to meet its own various fuel needs! Transportation is one obvious major consumer of fuel which affects everybody. Another significant usage of fuel for almost everyone is to power generators, because oil-rich Nigeria also has a dilapidated electricity generation infrastructure and chronic power cuts. So the effects of removing the fuel subsidy are immediate and deep for almost all Nigerians even before you factor downstream effects like the price of food and of everything else that needs fuel to make, move or sell it.

Zimbabwe has no local markets for processed diamonds in the way Nigeria obviously has a huge local need and market for processed oil products it should be self-sufficient in, which would obviate a lot of the need for a subsidy on imports in the first place. But Zimbabwe is similarly solely selling raw diamonds. For now this may be excused on the grounds that it is still early in the life of the industry on the big new scale that is developing, and that value-addition will come. Indeed, government officials have made noises about this.

But the importance of refining oil has been talked ‘at’ in Nigeria for 50 years as well, with little to show for it. Similarly in Zimbabwe, the diamond-controlling business and political elite may find the temptation for easy, quick money from selling rough diamonds much stronger than the harder, longer term work and controls required to set up an actual, proper ‘industry’ around diamonds, rather than just digging them out of the ground and selling them off as-is, for most of the value-addition to be done elsewhere.

As Bottomley points out in his blog post, the most severe Nigerian outrage is at the various forms of blatant corruption of a well-connected few. Zimbabwe too, even before but especially since the new discovery of diamonds, has a well-connected elite which has clearly gained great wealth in a short space of time that cannot be obviously attributed to any economic productivity. But in Nigeria as is beginning to be seen in Zimbabwe, the tiny number of government employees is also in a strong bargaining position to demand to be first in line to beneficiaries of resource wealth. In Zimbabwe for now this is understood in light of the still very low government salaries since emergence from economic crisis a few years ago. But it is very possible; perhaps even likely, that those government workers may in time become an especially privileged, well-salaried minority while the unemployed hordes have no way of benefiting from their country’s new resource. In both Nigeria and Zimbabwe, government salaries are the single biggest expenditure item, despite government services being sub-standard. There is a lot of talk in Zimbabwe about diamond-funded ‘development’ and capital investment, but as in Nigeria, this often has a way of not materializing or benefiting the person on the street.

Nigeria is now said to be one of the world’s fastest growing economies, but the IMF/World Bank-style sort of parameters that are used for these lofty measurements have a way of not making any practical difference to the vast majority of citizens. Zimbabwe’s 2012 diamond earnings, and it is still very early, rudimentary days in the country’s diamond progression, is estimated by the finance minister to be US$600 million, which will be close to 20% of the national budget. That’s nothing in Nigerian terms, but is a significant new and ‘easy’ injection into a struggling post-recession, Western-sanctioned Zimbabwean economy with no significant access to foreign credit.

Civil servants have already been awarded one over-due salary increase from diamond revenue, and six months later, are agitating for another one. As in Nigeria, the lavish, State-funded lifestyles of the ruling elite means they are in no position to urge anybody else to live with austerity; that the money go instead to vaguely defined ‘development’ which most people might never ‘feel.’ The unemployed and non-government workers, who have no direct way to ‘strike’ for direct benefits from resource wealth, are left on the margins, further feeding the kind of deep distrust and resentment towards government that is on display in Nigeria.

Nigeria, already grappling with a worrying religion-tinged violent insurgency, will hopefully find a way of stepping back from the brink over the fuel subsidy, whatever the nature of the compromise required. But the deep, long-term underlying causes of the public uprising against a haughty, distrusted and despised ruling authority will not be easily appeased. Nigerians simply refuse to believe that the same ruling authority they blame for their relative impoverishment amidst great, wasted oil wealth is now suddenly going to do things right and in their interest.

All the elements of a diamond curse similar to Nigeria’s oil curse already exist in Zimbabwe. And Zimbabwe does not have a good track record of avoiding the mistakes other countries have made.


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