Nigeria Outlook – On The MEND?
Nigeria’s main militant group, the Movement for the Emancipation of the Niger Delta, has announced a 60-day ceasefire in a bid to kick start talks with the government. Albeit a fragile truce, the news should provide a boost for the government’s bolder stance on a host of political and economic policies, not least on the security front and banking sector reform. We ask BMI’s Nigeria Country Risk Analyst Matt Clancy about recent developments and what they mean for global investors.
July 17th, 2009 at 10:54 am
Nigeria could seek infrastructural solutions to overcoming the problem of banditry and insurgency (both of which are closely connected) in the Niger Delta, such as burying the pipelines as happened with the Baku-Tbilisi-Ceyhan pipeline in order to insulate it from the various separatist insurgencies in the Caucasus and Turkish Kurdistan. Could increased investment in offshore oil in the Gulf of Guinea help overcome the problem of dependency on oil produced in the politically unstable Niger Delta region? Or has the lower price of oil disincentivised extraction in deepwater and ultra-deepwater fields?
Of course, a more reliable supply of oil does not solve the structural, regulatory and governance problems that plague Nigeria. More oil money has arguably been a barrier to development rather than a motor for growth in the wider economy and has been used by a predominantly northern elite, backed by the military, to entrench their interests. It is interesting to note that the Fourth Republic came about when oil prices were low and the military was weak, prompting a transfer of power to civilian rule. Oil booms tend to create more corrupt and more despotic rule in Nigeria.
July 17th, 2009 at 12:28 pm
Underground pipes would certainly limit the ability of the militants to damage them (a pipeline running from Chad, where there is an active rebel movement, to Cameroon is underground), but the logistical difficulties and financial costs of rebuilding or moving the hundreds of miles of pipes under ground would be difficult. Julius Berger, Nigeria’s biggest construction firm, was contracted to build a major road across the region but pulled out of the Delta last year after militants kidnapped some of its staff. I imagine workers attempting to build underground pipes that cannot be tapped into easily by oil thieves would face even higher security concerns, given the implications to the thieves if the pipes were successfully built.
Offshore oil is safer and more difficult to attack, but it’s not immune. The government had pinned some of its hopes on the development of deepwater platforms, but in June of last year militants attacked the Bonga deepwater field, some 75 miles off the coast of Nigeria and they have attacked another offshore platform as well. So far though, oil exploration is going forward offshore, despite the drop in oil’s price, and that’s actually one reason we see Nigerian oil output beginning to rise in 2011.
Whether or not that oil will help the country’s development is a whole other question, and I would generally agree with you that more oil money is going to make the fight against corruption even harder, and not necessarily lead to better growth outside the oil sector.
July 21st, 2009 at 9:30 am
It appears that even when global oil supply was tight and prices were high, it was still cheaper to allow militants to continue to attack pipelines than it was to make them less vulnerable to attack! While there’s money to be made and while local populations have legitimate social, economic and political grievances, attacks on the oil industry will continue with or without MEND. And personally I’d be very reluctant to see more money being poured into the Nigerian military to protect the oil industry, given its atrocious track record.
There are no easy solutions to Nigeria’s problems. But I feel that more could be done by Western governments to monitor IOCs’ ethical responsibilities in the Delta – eg Shell and the Ogoni – in order to ensure they are not contributing to the problems in the region.