Nigeria: Oil Smuggling & Other Economic Troubles

PORT HARCOURT, NIGERIA Nigeria's new military government is moving forward with efforts to enforce strict economic discipline, as it vowed to do when it seized power in a New Year's Eve coup and ended four years of civilian rule.

Determined to make an example of the previous regime, new head of state Major General Mohammadu Buhari has embarked on a campaign to expose corruption and fraud in the deposed Shagari administration, which he says was responsible for many of the country's economic ills. The move has generally received approval from Nigerians, whose disaffection with Shagari and his supporters is expressed in their frequent calls for quick punishment of the former politicans.

In the most dramatic disclosure so far, Nigeria's Minister of Petroleum and Energy Tam David-West announced the discovery of a syndicate involved in massive smuggling and illicit trade in oil and oil products. The illegal oil deals, he claimed in a February 28 press conference, cost Nigeria more than $17 billion over the past four years. Nearly 350 Nigerian and foreign businessmen have been arrested in connection with the theft. The state-run Nigerian National Petroleum Corporation has initiated an investigation into the extent and methods of the smuggling.

A possible result of the oil swindles may have been the sale of oil to South Africa in violation of the embargo against that country imposed by Nigeria as well as OPEC (of which Nigeria is a member). Tam David-West admitted that the massive theft made it impossible to confirm the destination of many of Nigeria's oil exports. He insisted, however, that the Buhari government had made no direct oil sales to South Africa and reaffirmed the administration's commitment to continuing the embargo.

Smuggled Nigerian crude oil and petroleum products have reduced official oil income figures at a time when a worldwide oil glut has drastically reduced the country's exports, contributing to pressure on the government to seek loans and make purchases on short term credit. And with significant quantities available on the international market at lower than OPEC-determined prices, the smuggled oil has also helped depress world oil prices.

Nigeria's oil industry, the most important sector of the economy, is dominated by multinational interests-. Royal Dutch/ Shell accounts for 54 percent of production, followed by Gulf with 15 percent, and Mobil, Agip, Elf, and Texaco, each with 10 percent or less.

Nigeria relies on oil for 95 percent of its export earnings. With the fall in world demand, these earnings have dropped from $24.6 billion in 1980 to $11 billion in 1983. In recent years, Nigerian businessmen and politicians have stepped up their objections to OPEC prices and production quotas, arguing that Nigeria's need for cash is much greater than that of Arab countries. By late last year, member countries of OPEC became seriously alarmed at the anti-OPEC sentiments being expressed by many Nigerian leaders. During its 1983 session, the Nigerian House of Representatives voted to leave OPEC unless quotas were raised.

The Buhari coup sparked fears that Nigeria would start an oil price war that would upset a shaky world market. But Nigeria's new military administration has repeatedly affirmed its commitment to remain in OPEC and to respect pricing and production policies. However, Buhari has formally requested a substantial increase from Nigeria's current production quota and has received assurances from Saudi oil minister Yamani that he will support the request at the next OPEC meeting in July.

Larger incomes from oil production will affect Nigeria's ability to control its mounting debt problems, which had led deposed President Shagari to seek assistance from the IMF last fall. The occurrence of the coup just two days after Shagari announced a strict austerity plan led many to speculate that Nigeria would refuse to toe the IMF line.

But Buhari has stated that Nigeria will continue to negotiate with the IMF for a $2 billion loan and a strict austerity program. European and U.S. bankers continue to insist that their consent to reschedule the country's $14.7 billion debt rests on the success of these negotiations. Nevertheless, IMF demands for a 30 percent currency devaluation and for the removal of government subsidies on oil products-trouble spots in negotiations with the Shagari administration-continue to be sticking points under the new regime.

Though government policymakers and multinationals argue that an IMF plan is needed in order to attract foreign investment, critics charge that it will put an enormous strain on the country's economy. In 1980 Nigeria's foreign debt service amounted to only five percent of total foreign exchange earnings. By 1983, this had risen to 30 percent. If the IMF loan is agreed upon, debt service will swallow almost half of Nigeria's oil revenues for the rest of the decade.

Nigerian labor leaders have been particularly vocal in their opposition to the IMF plan. At a meeting of the Nigerian Labor Congress in late February, then president of the congress Alhaji Hassan Sunmonu argued that the consequences of the IMF program are "pauperization of the already impoverished masses of Nigerians, mass unemployment, mortgaging of national sovereignty, social unrest, and general instability." He urged that the government direct its efforts toward recouping the estimated $17 billion in stolen oil revenues rather than negotiate a $2 billion loan with the IMF.

But head of state Mohammadu Buhari, who delivered opening remarks at the gathering, upheld the need for IMF conditions and called for workers' compliance. He said that he expected the Labor Congress's "full cooperation to maintain industrial peace," and announced that the government intended to review labor laws, some of which he said were "obsolete in the present circumstances." "We will not tolerate frivolous industrial actions," he warned.

But the intentions of the new military regime to enforce a new order are being tested. The four months of military rule have been marked by food riots, a massive prison uprising, and a sustained armed rebellion by a Muslim sect which left 2,000 people dead. The 6,000-strong union of oilworkers has threatened to "bring the country to a halt in five days" if their demands for the removal of unpopular government oil administrators is not met. These rebellions raise questions about the military's ability to set Nigeria on a new economic course.

Terisa Turner is a Canadian energy economist currently at the University of Port Harcourt, Nigeria.