Lagos State has joined Nigeria’s League of Oil Producing States following the discovery of crude oil by Yinka Folawiyo Petroleum Company Limited. And that is official. According to the Federal Government’s Inter-Agency Technical Committee set up to verify crude oil and gas production from the Aje oil wells, “for the purpose of derivation as spelt out under Section 162 (2) of the constitution, as well as the Allocation of Revenue (Abolition of Dichotomy in the Application of Derivation) Act, Aje oil wells 1, 2, 4 and 5 fall within the 200-mile isobaths and, therefore, should be attributed to Lagos State”. This will fetch Lagos 13 per cent derivation on four of the five oil wells located in the state. The first batch of Lagos crude shipment is expected to reach the United Kingdom this month.
For good reasons, Governor Akinwunmi Ambode has been quite upbeat on the oil revenue. He said the commencement of crude oil production in the state would in no small measure enhance the economy of not just the state, but the nation in general. Also, the Lagos State House of Assembly is right in demanding a stakeholders’ meeting of government officials, oil investors and host communities to iron out issues relating to the protection of the host communities from environmental degradation. If the experiences of many states in the Niger Delta region that have made a mess of managing their oil revenues are anything to go by, the Lagos State Government definitely faces complex policy choices on how to utilise its new stream of income.
History shows that an abundance of natural resources does not necessarily improve a country’s human development. Worse still, it could be the beginning of environmental pollution with all its adverse consequences in the state. It is said that oil revenues, rather than offering a strong foundation for a viable economy, actually create long-term systemic problems that can stifle practical growth, feed nepotism, patronage and corruption, and transform governments into rentier states dissociated from the needs of the people. For Nigeria, specifically, it has been a classical case of a fool and his money are soon parted.
What then can Lagos do to turn its resource revenues into tangible benefits like roads, electricity and education systems without contaminating its environment and polluting its public finances?
Many oil producing communities in the Niger Delta region have experienced the downside of natural resource development with polluted waters and air, devastated hunting and fishing pursuits and negative health effects on the people. Crude oil, experts say, can be released by tankers on land. In water bodies, the spill occurs due to release from drilling rigs, offshore oil platforms and well. Oil spills and their effects can also be experienced with refined petroleum or even waste oil from large-scale industries. What is common in all of them is that the damage they cause is permanent and takes a long time to clean up.
But equally important is how Lagos can escape the legendary “resource curse,” which has been the bane of the Nigerian economy. The resource curse is the term usually used to express the fact that countries that are well-endowed with natural resources – particularly oil – have on the average recorded worse economic performance than resource-poor countries. Over the years, it has been proved that natural resource revenues are finite, volatile and can damage other industries.
Like most resource-rich economies, Nigeria’s hydrocarbon dependency has prevented the development of a broader, more dynamic private sector, which could have created the jobs needed to absorb the growing youth population. Nigeria benefitted remarkably from higher global oil prices, especially following the oil shocks of 1973 and 1979. And until prices started plummeting in July 2014, Nigeria again reaped bountifully from global oil prices that peaked at about $147 a barrel in 2008. But, with oil accounting for only 10 per cent of GDP, 70 per cent of government revenue and almost all of its foreign earnings, our national economy lies prostrate today because successive governments failed to adopt the right policy options in handling natural resource revenues.
Lagos can set a shining example on how to prudently manage oil revenues for inclusive growth. It needs the law and political will to do just that. Without the toxic oil revenue, Lagos has already driven its internally generated revenue from a monthly average of about N600 million in 1999 to an average of N23 billion in 2015 and is targeting N30 billion by 2017. This is a stellar performance when compared with awful annual postings of N2.2 billion and N2.7 billion by Yobe and Zamfara states respectively in 2015.
Working together, both the executive and legislative arms of government can do a few things with the oil revenue. While vigorously pursuing a policy of economic diversification, Lagos can take a cue from Norway that floated a sovereign wealth fund for its oil resource with fiscal rules allowing the government to draw down just up to four per cent each year to finance the budget.
