Despite numerous economic, political and regulatory challenges faced by investors, Private equity in South Africa appears to continue to deliver long term sustainable returns for its...22 February 2017
Nigeria: The fight in the Niger Delta
It’s not news that Nigeria is one of sub-Saharan Africa’s largest economies and oil producers. However, this fact is fast becoming history due to the decline in oil prices and recent attacks in the Niger Delta region, where many oil fields are located. Since the discovery of oil in the 1950s, Nigeria’s economy has been heavily dependent on oil.
Over the last decade, the Niger Delta has come to be known as a volatile region with armed groups seeking control of oil resources by using, in some cases, violent means. Most of the recent attacks on oil pipelines have been by a group called the Niger Delta Avengers. The group claims that its members are young, educated (most of them were educated in Eastern Europe) and well-travelled. While the focus of the group is to liberate the people of Niger Delta from continued marginalisation by the government, the government has a very different view. Some have even referred to this effort as "corruption fighting back". Let’s take a look at some of their grievances.
The main focus of the group is to take back control over local resources. The group wants the people of Niger Delta to own and have control of the oil under their soil, and they claim they are entitled to major revenue from the allocation of the oil blocs. In the last few months, the group has damaged oil pipelines in the region, causing some international oil companies (IOCs) to shut down operations.
Also, the group is aggrieved that the current president's administration wants to discontinue its amnesty programme. Under the amnesty programme, the government pays tuitions and a monthly stipend to ex-militants in the region.
Environmental degradation by the IOCs
Another grievance of the group is the environmental impact of oil extraction in the Niger Delta. There have been claims that some oil companies don’t do enough to reconcile the effects caused by the process of production of crude oil. In response to the recent outcry, the United Nations Environment Programme (UNEP) alongside the Nigerian government have launched a governing council, the Board of Trustees and Project Management team of the Hydrocarbon Pollution Restoration Project (HYPREP), to begin the cleaning up and restoration in badly affected areas. Although this shows goodwill from the government, the question still remains whether, considering the present economic conditions, the government can afford the capital to effectively resolve the environmental issues caused by oil exploration in the region.
In addition, some argue that the motives of the group are primarily political, designed to frustrate President Buhari’s administration. In 2015, a majority of the people in the region voted for former President Jonathan, who hails from that part of the country. These grievances could be the result of loyalists exercising their loyalty to former President Jonathan.
There is no doubt that the frequent attacks by the group have affected production of crude oil in the country. A recent report states that Nigeria’s oil production is now down to 1.65 million barrels per day, when it has a capacity of 2.5 million barrels, which makes it the lowest production volume in 22 years. This reduction in production, along with low oil prices, a weakened economy, stifling currency controls and an anxious market, make for a difficult time ahead for the largest economy in Africa. (Or perhaps the second largest – South Africa may have assumed the first position due to currency devaluation.)
A long-term, permanent approach is needed to address the recurring issues in the Niger Delta. The Nigerian government needs to find a way to encourage a peaceful dialogue, but this will only be realised if both sides are prepared to compromise. Secondly, there is a real need for a meeting of the key stakeholders in the region to engage in open dialogue between the residents on one hand and IOCs on the other, to discuss the way forward. The process might also benefit from the establishment of an enforcement agency for the region, where complaints can be made and escalated for action.
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