Nigeria’s Economy: Agriculture or Crude Oil?

By Charles Asokun

It is a fact that an economy thrives in a stable political environment.  Ensuring a stable political setting has been an uphill task to leaders in Nigeria.  The prognosis is a lean and kwashiorkor-looking economy which we now have.

From the amalgamation of the southern and northern protectorates during the first republic in 1914 by Lord Fredrick Lugard, the time Nigeria got her independence in 1960, to the climax of the first decade after independence; Nigerian economy was agro-based.  Agriculture has been the main source of income for the economy.

During the colonial era, there was large scale exploitation on Nigeria’s agricultural products. The country was known for the production of some main agricultural products like groundnut and cotton (produced in the North), cocoa (produced in the West), and Palm oil (produced in the East, which included the Niger Delta region).

A typical groundnut pyramid.

About 70 percent of the entire population was engaged in one form of Agricultural production or the other, which culminated into making agriculture Nigeria’s mainstay.  

During the colonial era, rail tracks, roads and harbours were developed and market for consumer goods emerged as well as agricultural marketing board playing the role of NNPC today.

Exploration of oil in commercial quantity began in 1956 but did not play any major role until the early 1970s.   This goes to mean that Nigerian economy was formally not oil based, the majority of the country`s revenue during this period was from Agriculture, and more than 70 per cent of the people were employed in this sector.

However, after the Nigerian civil war in 1970, the yield of oil began to increase and the dominance of agriculture in the country`s economy began to decline. Agricultural sector brought more than 50 percent of Nigeria National Income (NI) before the discovery of oil but has now fallen to a dismal percentage which appears almost intractable to make public.

The UN Food and Agriculture Organization in 1987 estimated that there were 12.2 million cattle, 13.2 million sheep, 26.0 million goats, 1.3 million pigs, 700,000 donkeys, 250,000 horses, and 18,000 camels, mostly in northern Nigeria, and owned mostly by rural dwellers rather than by commercial companies. Fisheries output ranged from 600,000 to 700,000 tons annually in the 1970s.  Estimates indicate that the output had fallen to 120,000 tons of fish per year by 1990.

President Olusegun Obasanjo, from 1999 gave life back to the agricultural sector which now grows at a steady rate above 7.5 percent annually and contributed to 41 percent of Gross Domestic Product (GDP).

Palm fruits in Nigeria.

This push was as a result of new mechanized farming techniques alongside the relocation of some ex-Zimbabwean white farmers in Nigeria.

Hitherto, the sector has witnessed some level of growth particularly during the Goodluck Jonathan’s administration whereby mechanised farming was encouraged in the northern part of the country.  This followed the issuance of fertiliser and soft loans to active farmers.

The discovery of oil in Nigeria to a large extent altered the nation’s economic landscape with its concomitant political consequences.

Early in 1908, various oil explorations had started in Nigeria but it was not until 1958 that crude oil became an official source of foreign exchange earnings for Nigeria.  

Oloibiri in the present Bayelsa State of the Niger Delta region was where oil was explored first in commercial quantity.  Within this time, there was a daily output of 6000 barrel of crude oil.

Let us note that all the oil exploration was at this stage being carried out by foreign companies such as Shell Petroleum Development Company (SPDC), Mobil, Agip and other multinational companies and their subsidiaries.  

It is crucial also to emphasize that it was only crude oil extraction that was taking place within this period as the capacity of refining the crude oil was not in place.

The impact of the oil exploration as a source of government’s income at this time was not much, as agriculture retained the primary source of revenue generation.

We have noted earlier that prior to discovery of oil, agriculture was the main base of the nation’s economy as well as employing a large number of people in the labour market.

However, the prospect of large deposit of oil and its role in the economy became evident in the early 1970s.

The Nigeria Civil War coincided with the rise in the world oil price, and Nigeria was able to reap instant riches from its oil production.

Nigeria joined the Organization of Petroleum Exporting Countries (OPEC) in 1971 and established the Nigerian National Petroleum Company (NNPC) in 1977; a state-owned company which is a major player in both the upstream and downstream sectors.

Rubber cultivation in Nigeria.

From an insignificant 4.1% of the early 1960s, revenue from oil climbed to 98% within the first half of 1980 before dropping to 83.5% within the year 2000 and 85% in 2007.

Notwithstanding, the endemic problems of civil unrest, political instability, border disputes, corruption and poor governance, international oil companies have always seen Nigeria as an attractive area for upstream investment.  

A number of reasons account for this, among which are the quality of Nigerian Oil which is almost free of sulphur and the fact that Nigeria is well located in supplying oil markets in North America.

The United States of America is currently the leading importing country of Nigerian oil. The Niger Delta, the Anambra Basin, the Benue Trough, the Chad Basin and the Benin Basin are where most of the oil explorations have taking place.

The Niger Delta, which includes the continental shelf and which makes up most of the proven and possible reserves retains the most prospective basin. Virtually all oil production from the earliest exploration time to current mining time has been concentrated in this basin.

Natural gas is another confirmed fossil fuel Nigeria has in abundance.  Unlike crude oil, its exploration has not reached its peak but it is estimated that Nigeria has more than 3.5 trillion meters of gas reserves both oil and non oil related.

Through the establishment of Nigeria Liquefied Natural Gas (NLNG), Nigeria has started an active exploration of natural gas as another major source of exchange earner. In fact it is being projected to be the major source of exchange earner for the nation above oil in few years.

As in the case of crude oil, over 60% of the confirmed reserve is within the east of the Niger Delta. It stands to be the world`s 7th largest confirmed gas reserve and largest in Africa.

The biggest challenge in the gas sector is the damage to the environment through gas flaring. In Niger Delta, flaring of gas is a constant phenomenon and occurs in all oil exploration locations in Nigeria.

Tomato in Nigeria.

Nigeria is equally endowed with other natural resources such as tin, iron ore, coal, limestone, bitumen, lead and zinc. They have been confirmed to be in commercial quantities and have the potential of making significant impact on the nation’s foreign exchange earnings.

Exploration of these resources earlier highlighted has not been maximally effective. A number of reasons account for either absolute neglect or under performance in commercially maximizing the potential of these resources.

The resultant low share of these solid minerals in the nation’s GDP which is within 1% can be attributed to over dependence on oil and the underdeveloped nature of the sector, resulting from inadequate and inefficient policies for mineral exploration development.

However, there is a renewed effort by the Nigerian government to reposition the mining industry. In that direction, Ministry of Solid Mineral Development was created to oversee and review the activities of mining and proffer a more profitable ways of harnessing the enormous wealth in the mining industry.

For a long time, mining has been on an informal level and illegally carried out. This denies the government the relevant rents and endangers the environment as mining activities need government’s regulation.

The immediate effect of oil on the nation’s economy was an increase in the national income. The rise in world demand of oil in early 1970s increased the nation’s oil revenue. With this increase in the national income, the government embarked on a number of projects and took some steps to direct and plan economic growth and development.

Crude oil devastation in the Niger Delta region of Nigeria.

There was equally massive investment in the construction industry. Construction of road networks to link up the cities and rural areas were possible through the revenue accruable from the oil.

In the major cities, there were big investments in construction of both residential housing and government offices as well as communication networks.

Hydroelectric dams were built for electricity generation and secondary industries such as automobile assembly plants were established to create more employment opportunities for the growing population.

In a bid to position the industrial future of the country, there was a huge investment in steel industry such as Ajaokuta Steel Company and Delta Steel Company, Ovwian-Aladja.

These were established with a view to providing the local industries with the necessary tools needed for industrialization.

The articulation was that for any economy to grow, steel industry is a condition that must be met. Hence, even against the advice of the World Bank, the Nigerian government proceeded with the help of the Russians in establishing the steel industry.

Nevertheless, the effects of oil discovery are not all pleasant.

One of the major tragedies of oil discovery in Nigeria is the collapse of the agricultural sector. There was, with the discovery of oil and a gradual dismantling of agricultural industry.  

Crude oil.

Exploration activities have been a major contributor in the environmental pollution and degradation since discovery of oil in Nigeria.

Most of the areas hosting oil extraction activities are generally polluted, hence making life difficult for both human and aquatic species.  

Gas flaring has been a source of concern to the environmentalists. For a long time until recently over 60% of gas production is flared. This obviously contributes in no small measure in the global warming.

There is the problem of social injustice in the sense that the Niger Delta region which hosts oil exploration activities is backward in terms of social and infrastructural developments. This has led to continuous civil conflict in a quest to address what is perceived to be an injustice.  

The Movement for the Emancipation of the Niger Delta (MEND) began a wave of attacks and kidnappings of foreign oil workers in early 2006, knocking out close to a quarter of Nigeria’s oil output in a matter of weeks.

The agitation due to long years of marginalisation cut down Nigeria’s crude oil output sharply culminating into a drop in her foreign exchange.

The amnesty of late former president, Umaru Musa Yar’Adua and sustained by his predecessor, Goodluck Jonathan went a long way in pacifying the creek boys.

When it appeared the dreaded boys in the cold creeks were pacified, Boko Haram emerged and it currently constitutes a bone in the oesophagus of the Buhari-led administration.

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