There are limitations in the explanatory power of prevailing theories on the political economy of Africa’s growth without industrialization that emphasize the resource-curse, ethnicity, neopatrimonialism, and the devel- opmental state. This article uses a political settlements approach to explain the institutional underpinnings of Nigeria’s economic transition. It shows how external constraints on ruling elites interact with the distribution of power and institutions to stimulate episodic reforms in an ‘intermediate’ Nigerian state. Rather than a ‘developmental’ state presiding over indus- trial upgrading or a ‘predatory’ state operating solely on neopatrimonial basis, this intermediate state presides over selective reforms and bursts of economic growth and diversiﬁcation. Thus, speciﬁc constraints in Nigeria’s post-military political settlement from 1999 generated the initial impetus for successful telecoms liberalization, while inhibiting growth in the oil sector. This article contributes to advancing the political settlements framework in applying it to resource-rich countries, by outlining the four dimensions of the distribution of power and the constraints for institutional persistence or change, and their varying economic implications. It also reclaims the concept of ‘elite bargains’ as a deﬁning feature of the horizon- tal distribution of power and demonstrates its centrality to the durability or fragility of institutions, especially at critical junctures of resource booms and busts.
The contemporary understanding of the political economy of African states has largely been framed by resource-curse, ethnic pluralism, neopatrimo- nialism, and more recently developmental state theories. Despite providing important insights, the signiﬁcant limitations in their explanatory power were laid bare by the recent rapid growth without industrial transformation of many African economies. In Africa’s largest economy Nigeria, for instance, recent growth has been driven by non-oil sectors, especially ser- vices, and the oil sector has steadily declined as a share of Gross Domestic
Product (GDP) although without a concurrent diversiﬁcation of exports and government revenue. The policy arena is more dynamic with varying reform outcomes in service sectors, contrary to predictions of inertia, stagnation and policy failure predicted by resource-curse, neopatrimonial, and ethnic pluralism theories.
This article makes the case for using the political settlements approach as an alternative analytical framework on the political and institutional underpinnings of economic transitions in African countries. Using the period after military rule in Nigeria from 1999 as a case in point, the article shows how the interaction of external pressures with the domestic power conﬁguration enabled a growth-orientation in service sectors such as telecommunications but not in the oil sector. It argues that the distribution of power and constraints on ruling elites are the political foundations of an
‘intermediate’ Nigerian state. Rather than a ‘developmental’ state presiding over industrial upgrading from low- to high-value economic activity, or a
‘predatory’ state operating solely on a neopatrimonial basis, this intermedi- ate state presides over selective reforms, thereby driving bursts of economic growth and diversiﬁcation. This argument is pursued through the lens of political settlements, as the distribution of power in society between elites and other groups and within institutions. The political settlement is also an analytical framework for examining which institutions emerge in different contexts and how effective they are in achieving particular economic objectives.1
For decades, four sets of theories have dominated the scholarship on institutional foundations of the failure of economic transition in African countries. Firstly, the resource curse literature explains why resource- and especially oil-rich countries suffer from slow growth and political instability. Through the Dutch disease2 and rent-seeking, these resources undermine growth, ‘good governance,’3 political stability, and democracy.4 However, the rapid growth of resource-rich countries during the commodities super- cycle of the 2000s questions these deterministic assumptions about natural resource abundance. These resource-curse theories hardly considered how history, power relations, and political coalitions drive changes in policy
1. Mushtaq Khan, ‘Introduction: Political settlements and the analysis of institutions’,
African Affairs 117, 469 (2018), pp. 636–655.
2. The Economist, ‘The Dutch disease’, 26 November 1977, pp. 82–86; Jeffrey D. Sachs and
Andrew M. Warner, ‘Natural resource abundance and economic growth’ (NBER Working Paper
5398, 1995), http://www.nber.org/papers/w5398 (20 March 2015).
3. For a useful review of the resource-curse policy literature, see GIZ, ‘The political economy of extractive resources’, [Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Eschborn 2016].
4. Michael L. Ross, The oil curse: How petroleum wealth shapes the development of nations (Princeton University Press, Princeton, NJ, Oxford, 2012); Paul Collier, The bottom billion: Why the poorest countries are failing and what can be done about it (Oxford University Press, Oxford, 2008).
responses to resource booms.5 The vicious scramble for political power in many countries predates a resource windfall.6 Rents from a centralized state authority generate neither uniform scales of rent-seeking nor uniform developmental consequences.7
The second set of theories posits that plural societies are vulnerable to poor economic outcomes because ethnic fragmentation undermines consensus for growth-promoting public goods.8 These countries make sub- optimal policy choices, which are consumption orientated, foster rent- seeking, and engender conﬂict. However, some of these large-n cross- country studies identiﬁed correlations are characterized by endogeneity and inverse-causality, rather than causations between diversity and economic performance.9 Multi-ethnic and multi-racial countries such as Brazil and Malaysia have successfully transitioned to upper-middle income status.
Third, theories of neopatrimonialism point to the particularism in African societies, especially the prevalence of informal institutions, as the main obstacle to economic transformation.10 Neopatrimonialism characterizes the patron–client relations outside formal Weberian rational– legal authority as pathologies of Africa’s ‘retrogressive’ political culture. This clientelism undermines political stability and the administrative capacity to facilitate economic transformation. The ‘neopatrimonial logic’ operates through the application of public office to private ends, obstruction of a business class, expansionary monetary policy, and trade and indus-
5. For a critique of the resource curse, see: Samuel Hickey and Angelo Izama, ‘The politics of governing oil in Uganda: Going against the grain?’ African Affairs 116, 463 (2016), pp. 163–185. and Amy R. Poteete, ‘Is development path dependent or political? A reinter- pretation of mineral-dependent development in Botswana’, Journal of Development Studies 45,
4 (2009), pp. 455–456.
6. Terry-Lynn Karl, The paradox of plenty: Oil booms and petro states (University of California Press, Berkeley, CA, London, 1997); Riccardo Soares de Oliveira, Oil and politics in the Gulf of Guinea (Hurst and Company, London, 2007).
7. For detailed critique of both Dutch Disease and Rentier-State models of the resource curse thesis, see Jonathan Di John, From windfall to curse? Oil and industrialization in Venezuela,
1920 to the present (The Pennsylvania University Press, University Park, PA, 2009), p. 3,7.
8. Yusuf Bangura, ‘Ethnic inequalities in the public sector: A comparative analysis,’ Develop- ment and Change 37, 2 (2006), pp. 299–328; William Easterly and Ross Levine, ‘Africa’s growth tragedy: Policies and ethnic divisions’, The Quarterly Journal of Economics 112, 4 (1997), pp.
1203–1250, p. 300; Alberto Alesina and Eliana La Ferrara, ‘Ethnic diversity and economic performance’. (NBER Working Paper 10313, 2004) http://www.nber.org/papers/w10313 (20
9. For critique of ethnic fragmentation theories, see Christopher Cramer and Ha-Joon Chang, ‘Tigers or tiger prawns?: The African growth “Tragedy” and “Renaissance” in perspective’, in Célestin Monga and Justin Yifu Lin (eds), The Oxford handbook of Africa and economics: Volume 1: Context and concepts (Oxford University Press, Oxford, 2014), pp. 484–
10. Thomas M. Callaghy, ‘The state as lame leviathan: The patrimonial administrative state in Africa’, in Ergas Zaki (ed), The African state in transition, (Macmillan, London, 1987), pp.
423–442.; Patrick Chabal and Jean-Pascal Daloz, Africa works: Disorder as political instrument (James Currey, London, 1999); Nicholas Van de Walle, African economies and the politics of permanent crisis 1979–1999 (Cambridge University Press, New York, NY, 2001).
trial policies encouraging rent-seeking.11 However, neopatrimonialism’s explanatory power is limited because both Weberian rational–legal authority and clientelism are outcomes and distortions respectively, of capitalist development, rather than its preconditions.12 Consequently, neopatrimonialism is unable to correctly explain differences in political stability and economic outcomes among ‘neopatrimonial’ societies,13 and even among industries or regions within one economy.
Developmental state theories made headway in explaining differences in economic outcomes in developing countries in ostensibly clientelist political systems. Early works focused on the state’s role in economic transformation and its internal organization and relations to society in the industrialization of Northeast Asia.14 Later versions analysed how the state’s political character, including the nature of business-state relation- ships and the strategies for political survival employed by ruling elites, shape policy choices and determine economic outcomes.15 Peter Evans’ typology of state capacities includes the ‘developmental state,’ which presides over industrial transformation due to its corporate coherence, institutionalized ties to society and pursuit of collective goals; the ‘predatory state,’ which is extractive because it is characterized by lack of bureaucratic coherence and personal ties to society by incumbents; and the ‘intermediate state,’ which presides over variable economic outcomes in different sectors because it has some semblance of bureaucratic organization but not a high degree of coherence.16 In Nigeria, according to Atul Kohli, the state is ‘predatory’ and ‘neopatrimonial,’ with diffuse power that preoccupy it with corrupt
11. Summarized in Thandika Mkandawire, ‘Neopatrimonialism and the political economy of economic performance in Africa: Critical reﬂections’, World Politics 67, 03 (2015), pp.
12. Hazel Gray and Lindsay Whitﬁeld, ‘Reframing African political economy: Clien- telism, rents and accumulation as drivers of capitalist transformation’ (Working Paper Series, International Development, LSE, 159, London, 2014) http://www.lse.ac.uk/ internationalDevelopment/pdf/WP/WP159.pdf (25 March 2015).
13. Mushtaq Khan, ‘Political settlements and the governance of growth-enhancing institutions’ (School of Oriental and African Studies SOAS, London, 2010); Mkandawire, ‘Neopatrimo- nialism’.
14. Among others, see Alice H. Amsden, Asia’s next giant: South Korea and late industri- alization (Oxford University Press, New York, Oxford, 1989); Robert Wade, Governing the market: Economic theory and the role of government in East Asian industrialization (Princeton University Press, Princeton, NJ, 1990); Peter B. Evans, Embedded autonomy: States and industrial transformation (Princeton University Press, Princeton, NJ, 1995).
15. On political organization of the developmental state, see Adrian Leftwich, ‘Bringing politics back in: Towards a model of the developmental state’, The Journal of Development Studies 31, 3 (1995), pp. 400–427.; David Kang, Crony capitalism:Corruption and development in South Korea and the Philippines (Cambridge University Press, Cambridge, 2004). On business- state relations, see among others Sylvia Maxﬁeld and Ben Ross Schneider (eds), Business and the state in developing countries (Cornell University Press, London, Ithaca, NY, 1997). On political survival of ruling elites, see among others Richard F. Doner, Bryan K. Ritchie and Dan Slater, ‘Systemic vulnerability and the origins of developmental states: Northeast and Southeast Asia in comparative perspective’, International Organization 59, 02 (2005), pp.
16. Evans, ‘Embedded autonomy’, p. 12, 60.
personal enrichment and sectarian appeasement rather than a growth orientation.17
While developmental state explanations are a major theoretical advance- ment, they do not account for within country variations. In any one country, the development stages over time each require varying levels of state capacity to create incentive and regulatory structures, with implications for society’s politics.18 In Nigeria, some growth-orientated economic policies have been attempted with some successes and numerous failures across sectors. To use Evans’ terminology, Nigeria is more of an ‘intermediate’ state, than a ‘predatory’ state operating solely on a neopatrimonial and
‘prebendal’ basis as described in some established accounts.19 This inter-
mediate state has episodic coherence and capacity to facilitate economic growth through haphazard reforms, and does not thereby preside over industrial upgrading from low- to high-value economic activity. Using the lens of political settlements, I attribute this variation in the Nigerian state’s capacity to the conﬁguration of political power and speciﬁc political constraints on ruling elites, which inform their policy choices.
The political settlement is the distribution of power in a society among the elite and other contending societal groups and within institutions. The conceptual foundations of political settlements emerged from a critique of New Institutional Economics on the primacy of formal institutions (i.e. property rights, regulatory, contractual, and democratic) for growth and prosperity.20 The absence or distortion of these institutions creates dysfunction. Mushtaq Khan argues that it is, rather, the organization of power that explains differences in the costs of creating and enforcing growth-enhancing institutions across developing countries.21 In this regard, if the distribution of net beneﬁts supported by an institution is consistent with the overall power conﬁguration, there will be minimal contestation from powerful groups, and enforcement costs are likely to be low; the
17. Kohli’s three archetypes of the political character of a state are cohesive-capitalist, fragmented multiclass and neopatrimonial. See Atul Kohli, State-directed development: Political power and industrialization in the global periphery (Cambridge University Press, Cambridge,
18. Di John, ‘From windfall to curse?’, pp. 9–10.
19. On prebendalism and neopatrimonialism, see respectively Richard Joseph, Democracy and the rise of prebendal politics in Nigeria: The rise and fall of the Second Republic (Cambridge University Press, Cambridge, 1987) and Peter Lewis, Growing apart: Oil, politics, and economic change in Indonesia and Nigeria (University of Michigan Press, Ann Arbor, MI, 2007).
20. Notable proponents include: Oliver E. Williamson, The economic institutions of capitalism (Free Press, New York, NY, 1985); Douglas C. North, Institutions, institutional change and economic performance (Cambridge University Press, Cambridge, 1990).
21. Khan, ‘Political Settlements’, pp. 12–13, Mushtaq Khan, ‘Rents, efficiency and growth’, in Mushtaq Khan and Kwame Sundaram Jomo (eds), Rents, rent-seeking and economic devel- opment (Cambridge University Press, Cambridge, 2000), pp. 21–60; Mushtaq Khan, ‘State failure in weak states: A critique of new institutionalist explanations’, in John Harris, Janet Hunter and Colin M. Lewis (eds), The New institutional economics and Third World development (Routledge, London, 1995), pp. 11–21.
costs are likely to be high if the reverse were the case. Thus, political settlements incorporate the missing link of power relations to explain the dynamic interaction between institutions and growth outcomes. Some aspects of New Institutional Economics superﬁcially overlap with political settlements such as formal and informal institutions and de jure and de facto power, employed in this paper.22 The point of departure however is the foundational assumption of New Institutional Economics about the characteristics of developing countries and an ideal end state of open economic and political systems.23
Accordingly, this article contributes to advancing the political settlements framework in applying it to resource-rich countries, where rents ﬂow from single commodity exports. It explains how external pressures interact with the distribution of power and institutions in resource-rich countries to stimulate episodic but not transformational reforms. This contribution is attempted in two ways. The ﬁrst is to outline the four dimensions of the distribution of power and the constraints for institutional persistence or change, and their varying economic implications. These four dimensions are elite bargains, coalitions with societal groups, economic agenda, and institutionalization. In doing so, the article draws on the ‘critical junctures’ and ‘systemic vulnerability’ literature to explain how new institutions and policies emerge at critical junctures as ruling elite respond to constraints of various types. These constraints can elicit growth-enhancing or growth- retarding policy responses based on the nature of threats they pose to the political survival of ruling elites, and the capabilities of elites to address them.
The second aspect of the contribution is reclaiming the concept of elite bargains as a deﬁning feature of the horizontal distribution of power and demonstrating its centrality to the durability or fragility of institutions, especially at critical junctures of resource booms and busts. In resource- rich countries such as Nigeria, a consensus by powerful actors over the allocation and use of oil rents is a deﬁning feature of the distribution of power. Rapid swings in the ﬂow of these externally-derived rents have a sig- niﬁcant impact on the political settlement either by reinforcing the existing power conﬁguration or by leading to a renegotiation and reconﬁguration. Powerful actors, usually elites, who capture and allocate resource rents play key decision-making roles at critical junctures of resource boom and busts.
22. For instance, concepts of defacto and dejure political power can be found in Daron. Acemoglu and James. A. Robinson, ‘Paths of economic and political development’, in Barry R. Weingast and Donald. A. Wittman (eds), The Oxford handbook of political economy (Oxford University Press, Oxford, 2008), pp. 673–693.
23. For an elaboration of this point, see Khan, ‘Political settlements and the analysis of institutions’.
This article draws from a larger project on ‘the political economy of economic diversiﬁcation in Nigeria’ for which 120 interviews were con- ducted, mostly in Nigeria between 2014 and 2015. It draws on some of the elite interviews, in addition to economic data, documentary evidence and insider knowledge of the country from personal networks. It uses a process-tracing method that relies on insider accounts and documentation of events and processes of the telecoms and oil-sector reforms. This enables the tracing of decision-making and an understanding of the power relations in Nigeria. Evidence is drawn from interviews with key players including politicians, bureaucrats in government agencies, business elites, oil com- pany representatives, journalists and civil society actors, supplemented by policy documents, news reports, memoirs, and other published material.
In Nigeria, the diversiﬁcation of GDP and yet concurrent continued dependence on oil for exports and ﬁscal revenue are outcomes of economic policy reforms by an intermediate state capable of episodic reform but incapable of driving industrial transformation. This article argues that the foundations of these policy reforms are external constraints of low oil prices operating through three causal mechanisms.
First, the external shocks which created ﬁscal pressures on the ruling elite from 1999 provided the impetus for reforms. This ruling elite had negotiated a power sharing consensus within the People’s Democratic Party (PDP) to manage horizontal competition between northern and southern elites, which ended military rule in May 1999. Second, this ruling elite and a domestic business class constituted a growth coalition with the capacity and resources to pursue reforms. However, the clientelistic deployment of rents within this coalition had varied outcomes depending on the nature of enforcement costs in the sector in question. New institutions and policies were sufficient to drive growth in service sectors such as telecommunications but not oil-sector growth. Third, the distribution of beneﬁts of this diversifying economy to a narrow elite deepened vertical- societal and horizontal-elite distributional pressures and increased the enforcement costs of new institutions and policies, which translated into revenue leakages and an anti-reform impulse in the oil sector. Rising poverty and welfare concerns pitched Nigeria’s trade unions against market reforms and armed insurgents against the state. The concentration of growth dividends as well as presidential power in the South undermined the reforms’ horizontal legitimacy among mostly northern politicians within the ruling PDP.
The article is structured as follows. The next section presents Nigeria’s recent economic performance as driven by non-oil sectors and charac- terized by both GDP diversiﬁcation and concurrent dependence on oil for exports and revenue. Then, I explain how the political settlements approach enables us to understand the institutional foundations of Africa’s economic transition. I outline the four dimensions of the distribution of
power in the political settlement as well as the horizontal, vertical, and external constraints on ruling elites at critical junctures. The article then analyses the distribution of power in Nigeria’s political settlement and the growth coalition that emerged at democratization in 1999. Finally, the article examines how external constraints on Nigeria’s ruling elite enabled the successful liberalization of telecoms, while countervailing horizontal and vertical constraints generated an anti-reform impulse in the oil sector.
Nigeria’s economic transition
Nigeria’s economic growth in the 21st century is one of the drivers of the
‘Africa Rising’ narrative.24 In the early 2000s, economic growth averaged 7 percent per annum, offsetting economic stagnation of less than 3 percent per annum in the 1990s. In April 2014, Nigeria became Africa’s largest economy, and the world’s 26th largest economy with a GDP of N113 trillion or US$376 billion in 2017. However, growth crashed to 2.8 percent in 2015 and −1.5 percent in 2016. Christopher Cramer and Ha-Joon Chang note that this growth spurt in parts of Africa was mainly due to one- off factors and not accompanied by an increase in productive capabilities.25
This article discusses how changing external conditions such as rising demand for resources interact with internal political transitions. This section shows how Nigeria’s recent economic performance in the 2000s was driven by non-oil sectors and characterized by both GDP diversiﬁcation and concurrent dependence on oil for exports and revenue. Nigeria’s growth is engendered by the balance of power and political constraints in its political settlement for two reasons. First, it is driven by non-oil sectors. Second, there is some structural transformation that is not accompanied by industrialization but is reinforcing the economic dependence on oil.
Nigeria’s recent economic growth has been driven by non-oil sectors. In the 10-year period from 1999 to 2009, the fastest growing sectors of at least
10 percent were non-oil. These include services (12.2 percent), especially telecommunications whose average was 122 percent, trade (11.3 percent) and agriculture (10.4 percent), as Figure 1 shows. Within this period, the oil and gas sector’s average growth rate was 1.3 percent.
These changes in the growth drivers continued after the base year for Nigeria’s GDP was upgraded in 2014 from 1990 to 2010.26 Between 2011 and 2017, the sectors with the highest growth rates were manufacturing
24. The Economist, ‘Africa rising’, 3 December 2011, http://www.economist.com/node/
25. Cramer and Chang, ‘Tigers or tiger prawns?’.
26. Data from the pre-revision ﬁgures are used for 1999 to 2009, while the revised ﬁgures cover 2010 to 2016. See: NBS, ‘Measuring better: Frequently asked questions on the rebasing/re-benchmarking of Nigeria’s gross domestic product (GDP)’ (Nigerian Bureau of Statistics NBS, 2014).
Figure 1 Average growth rate by sector (%) 1999–2009.
Source: Author’s calculations from Nigerian Bureau of Statistics Data
Figure 2 Average growth rate (%) by sector, 2011–2017.
Source: Author’s calculations from Central Bank of Nigeria Statistics
(8.8 percent), solid minerals (8.4 percent) and construction (7.4 percent), as Figure 2 shows. However, oil contracted by an average of 4.5 percent, despite high global oil prices of around $100 per barrel. There is, however, a strong indication that these non-oil sectors driving growth are linked to the oil sector. This is because since mid-2014, the collapse of global oil prices (from a peak of $111.63 in 2012 to $52.32 in 2015) and reduction in Nigeria’s oil output (from a peak of 2.44 million bbl/d in 2010 to 2.12 million bbl/d in 2015) slowed economic growth and led to shortfalls in non-oil revenue, a drop in international reserves and disruptions in private sector activity.27
27. IMF, ‘Staff report for the 2016 Article IV consultation’ (International Monetary Fund
IMF, Washington DC, 2016). NBS, ‘Nigerian gross domestic product report: Quarter one
2016’ (Nigerian Bureau of Statistics NBS, 2016).
Figure 3 Sectoral contribution (%) to 2000 & 2009 GDP (%) in current prices.
Source: Author’s calculations from National Bureau of Statistics Data
Figure 4 Sectoral contribution (%) to 2010 & 2017 GDP in current prices. Source:Author’s calculations from Central Bank of Nigeria (CBN) Statistics Database (2017).
Second, there is structural change, though not to the extent of industri- alizing Nigeria’s economy (Figures 3 and 4). Recent economic growth has diversiﬁed Nigeria’s GDP but not its exports and ﬁscal revenue. By 2017, the oil and gas sector declined to 9.1 percent of GDP from 48.9 percent in 2000, but contributed 92.3 percent of export earnings and only 56.2 percent of government revenue. Services, including trade, accounted for
59.5 percent of GDP. This indicates a diversiﬁcation, partly attributable to Nigeria’s revisions of the GDP base year, which now capture 46 economic sectors rather than 33 in the old series.28 However, the decline of Nigeria’s
28. NBS, ‘Measuring better’.
Figure 5 Resource rents as percentage of GDP in Africa’s top oil producers,
2000 & 2016.
Source:Author’s calculations from the WDI database and CBN (2017) data. Note:This ﬁgure includes only veteran oil-rich countries which were pro- ducing and exporting oil by the year 2000. It excludes Cameroon (due to the small scale of production) and DRC (due to the abundance of other minerals and metals).
∗Nigeria’s ﬁgures are from the CBN database for consistency. My calcu-
lation using the CBN data results in ﬁgures close to the WDI +/− a few percentage points. The difference can be explained by the use of different currencies, exchange rates, whether the absolute values are nominal or constant, and what base year is used (e.g. 1990 or 2010).
∧ Libya’s 2016 ﬁgures are from the year 2011, the last year for which data
are available at the time of writing in December 2018.
∗∗Equatorial Guinea’s 2000 ﬁgures are from the year 1999.
oil sector is indicative of a growing non-oil economy in a manner that is markedly different from other large African oil producers. Even though Nigeria is Africa’s largest oil producer, as Figure 5 shows, it is the only major oil exporter whose oil sector contributes less than 10 percent of GDP. Besides, manufacturing was Nigeria’s fastest growing sector between 2011 and 2017, as Figure 2 indicates.
In exports and revenue composition, there has been no structural change. In 2017, the oil sector constituted 92.3 percent of export earnings, barely declining from 98.7 percent in 2000, as Figure 6 shows. Concurrently, government revenue composition is changing. Oil revenue accounted for
83.5 percent in 2000, 79.9 percent in 2011 and is declining as Figure 7 shows. The share of non-oil revenue increased from less than 20 percent in 2000 to 43.8 percent (2017). Non-oil revenues grew both relative to the
Figure 6 Distribution of exports (%) 1999–2017.
Sources: Author’s calculations from CBN Statistics Database (2017)— Includes estimates for informal cross border trade.
Figure 7 Composition of government revenue (%) 1999–2017.
Sources: Author’s calculations from CBN Statistics Database (2017).
contribution from the oil sector and in absolute terms due to improvements in tax collection.29
The paradox is that while Nigeria is a rentier state grappling with resource dependence, as with many oil-exporters, it does not have a rentier economy. A rentier state derives more than 40 percent of its ﬁscal revenue from external rents, and in a rentier economy, resources constitute 60–
80 percent of GDP.30 The growth and diversiﬁcation of output without
29. CBN, ‘Annual economic report for 2013’ (Central Bank of Nigeria CBN, Abuja, 2013). http://cenbank.org/Out/2015/RSD/CBN%202013%20Annual%20Report.pdf (04 June 2015).
30. Hazem Beblawi, ‘The rentier state in the Arab world’, Arab Studies Quarterly 9, 4 (1987), pp. 383–398.
industrialization have not equally transformed the structure of exports and government revenue. This complex economic performance is inconsistent with the inertia and stagnation predicted by prevailing theoretical lenses applied to Nigeria and oil exporters.
The political settlement in Africa’s resource-rich countries
The political settlements framework presents a theoretical alternative to the resource curse, ethnic pluralism, neopatrimonialism, and developmental state theories in explaining the economic transition in Africa. It accounts for a range of outcomes by mapping the changing policy arena in terms of the power, interests, and interactions of key actors. There is an emerging literature on political settlements, but no consensus on all its precepts. At least two strands of literature are identiﬁable based on how they conceptualize the distribution of power and the role of key actors in shaping institutions.31
In the ﬁrst strand, Mushtaq Khan focuses on the distribution of holding power (capability to sustain oneself in contests seeking to inﬂuence insti- tutional outcomes) among organizational groups.32 His three dimensions of analyzing the distribution of power are horizontally within and outside a ruling coalition, vertically among non-elite groups, and within productive groups.33 Notable applications include Lindsay Whitﬁeld and colleagues’ conceptualization of the distribution of power between ruling elites, bureau- crats and capitalists as the politics underpinning the implementation of industrial policies.34 For Mariz Tadros and Jeremy Allouche, the political settlement demarcates a new ‘phase’ in a country brought about by a rupture in the status quo, such as regime change or an end to conﬂict.35
A second strand deﬁnes political settlements as outcomes of negotiations among contending elites on the distribution of power and resources in society.36 It emphasizes the event dimension of the political settlement,
31. For a review of different approaches to political settlements, see for instance Behuria et al., ‘Studying political settlements in Africa’ and Khan, ‘Political settlements and the analysis of institutions’.
32. Khan, ‘Political settlements and the analysis of institutions’, p. 20.
33. Behuria et al., ‘Studying political settlements in Africa’, p. 512.
34. Lindsay Whitﬁeld, Lars Buur, Ole Therkildsen, Anne M. Kjaer, The politics of African industrial policy: A comparative perspective (Cambridge University Press, New York, NY, 2015).
35. Mariz Tadros and Jeremy Allouche, ‘Political settlements as a violent process: Decon- structing the relationship between political settlements and intrinsic, instrumental and resul- tant forms of violence’, Conﬂict, Security & Development 17, 3 (2017), pp. 187–204, p. 187.
36. Edward Laws, ‘Political settlements, elite pacts and governments of national unity’ (Developmental Leadership Program, 2012); Thomas Parks and William Cole, ‘Political settlements: Implications for international development policy and practice’ (The Asia Foun- dation, 2010); Alina Rocha Menocal, ‘Political settlements and the politics of inclusion’ (State of the Art: Developmental Leadership Programme, no. 7, 2015); Jonathan Di John and James Putzel, ‘Political settlements: Issue paper’ (Government and Social Development Resource Centre, 2009).
emerging say in post-conﬂict or electoral transitions. Elites are central to the horizontal negotiations which result in pacts, although the vertical relations with their followers also matter. The desirable political settlement, one which provides stability, is resilient and drives prosperity, is underpinned by ‘open and … more inclusive institutions.’37 This approach is employed by international development agencies in state-building, especially in fragile and post-conﬂict contexts to broker more inclusive arrangements.38
However, Khan and followers critique this elite pact approach because it ignores the broader deﬁnition of the political settlement as a stable distri- bution of power across organizations.39 The suggestion that an ‘inclusive’ political settlement is more likely to be stable and allow greater development appears to be at odds with situations, where a narrow distribution of power has endured and in some cases driven growth. They also ﬁnd the focus on elites rather than powerful organizations to be ‘very misleading.’ 40 Those described as elites in developing countries, such as educated professionals, may have little organizational power while non-elite actors, such as rural activists, could mobilize and wield considerable holding power. These criticisms, while valid, misread elite pacts by equating them to a peace agreement to end conﬂicts.
As I will demonstrate in this article, the concept of elite pact can be reclaimed to capture an important aspect of the horizontal distribution of power. In many societies, the ongoing negotiations among powerful groups and the horizontal power conﬁguration within and outside the ruling coalition can be discrete pacts. As Tim Kelsall also notes, what makes political settlements distinct from other political economy analyses is the ‘identiﬁcation of a set of institutions and distribution of power on which powerful groups are agreed, and … heavily invested, not just because they furnish an acceptable level of beneﬁts, but because there is a mutual expectation that their alternative is … violent conﬂict.’41 Surely, the difficulty of identifying elite groups should not mean analysts discard the concept, but should call for more reﬁned analytical tools. For instance, according to Anthony Bebbington and colleagues, a natural resources lens to political settlements analysis introduces spatiality and time to explain
37. Menocal, ‘Political settlements and the politics of inclusion’, p.3.
38. DﬁD, ‘The politics of poverty: Elites, citizens and states: Findings from ten years of DFID-funded research on governance and fragile states 2001–2010. A synthesis paper’ (UK Department for International Development, 2010); World Bank, ‘World Development Report
2017 Governance and the Law’ (World Bank, Washington, D.C., 2017).
39. Khan, ‘Political settlements and the analysis of institutions’, pp. 652–653; Behuria et al.,
‘Studying political settlements in Africa’.
40. Khan, ‘Political settlements and the analysis of institutions’, p. 653.
41. Tim Kelsall, ‘Towards a universal political settlement concept: A response to Mushtaq
Khan’, African Affairs, 117, 469 (2018), pp. 656–669.
how new actors, say in resource-producing communities, emerge, accrue and lose holding power at sub-national, national, and transnational levels.42
This article contributes to applying the political settlements framework to resource-rich countries43 like Nigeria with two building blocks: the distribution of power and the constraints for institutional persistence or change. In this endeavour, I reclaim the concept of ‘elite bargains’ as a deﬁning feature of the horizontal distribution of power, and demonstrate its centrality to the durability or fragility of institutions especially at critical junctures of resource booms and busts. I argue that in resource-rich countries, a consensus over the allocation and use of oil rents is central to the distribution of power. Since oil rents are derived externally, rapid swings in their ﬂow disrupt the political settlement either by reinforcing the existing distribution of power or by leading to a renegotiation and reconﬁguration. The decisive actors at these historic junctures are usually elites who capture and allocate resource rents. By analysing the distribution of power and constraints on ruling elites at these junctures, we can better understand the political foundations of Nigeria’s ‘intermediate’ state which intermittently implements reforms, thereby driving bursts of economic growth and diversiﬁcation rather than innovative industrial upgrading.
In extending the political settlements approach to analysing Nigeria’s economic performance, the four dimensions of the distribution of power below are the ﬁrst building block for the analysis. These are elite bargains, coalitions with societal groups, economic agenda, and formal institutions. An elite bargain, or pact, is a discrete consensus over the horizontal distri- bution of power among elites in society. It captures the event dimension of a political settlement as a marker in ongoing political processes.44 It is neither the sum total of political settlements45 nor synonymous with peace agreements. This consensus is a credible commitment among elites that they will not ﬁght each other,46 underpins the political and economic systems and is about resource management. Where rents ﬂow largely from a central source, such as in oil-rich countries, the elite consensus constitutes the informal rules over their productive or predatory allocation. Formal
42. Anthony Bebbington, Abdul-Gafaru Abdulai, Denise Humphreys Bebbington, Marja Hinfelaar, and Cynthia Sanborn, ‘Resource extraction and inclusive development: Extending the bases of the political settlements approach’, in Anthony Bebbington, Abdul-Gafaru Abdulai, Denise Humphreys Bebbington, Marja Hinfelaar, and Cynthia Sanborn (eds), Governing extractive industries: Politics, histories, ideas (Oxford University Press, Oxford, 2018), pp. 1–23. For instance, Scott proposes a way of conceptualising ‘elites’: John Scott, ‘Modes of power and the re-conceptualization of elites’, Sociological Review 56, no. Issue Supplement s1 (2008), pp. 28–43.
43. Other works in this area include growth and decline in oil-rich Venezuela, Di John, ‘From windfall to curse?’; on oil sector negotiations in Uganda, see Hickey and Izama, ‘The Politics of governing oil in Uganda’.
44. Laws ‘Political Settlements, Elite Pacts and Governments of National Unity’.
45. Di John and Putzel, ‘Political settlements: Issue paper’.
46. ibid (pp. 14).
institutions such as the civil service, the parliament, political parties, and intergovernmental transfers will either reinforce this informal consensus, or be distorted when there is no alignment with this underlying pact. The durability of the pact is based on the extent to which it both: includes powerful actors and is thereby resilient to contestation by excluded factions, and enforces actual agreements thereby preventing the exit of powerful members who can contest it. The organizational basis for fortifying this consensus could be a political party, the parliament, the military, or the bureaucracy.47 These pacts are negotiated by a range of political, bureau- cratic, economic, professional, and traditional elites, collectively referred to as a ‘ruling coalition.’ They also involve negotiations with other powerful actors including sub-national power brokers and international actors.48
Recognizing the importance of elite bargains allows us to identify the role of powerful actors and marks discrete points in the political settlement, coinciding with mineral boom and bust cycles.
A political settlement is also deﬁned by the vertical distribution of power within non-elite and societal groups. These groups could be youth move- ments, trade unions, traditional and religious associations, civil society, or even armed groups. The coalition could entail a vertical relationship between elites and a non-elite support base.49 This vertical distribution of power refers to ‘the relative power of higher compared to lower factions within the ruling coalition.’50 Societal groups could also wield autonomous power unrelated to elites. They can exert independent inﬂuence on elite pacts and challenge the power conﬁguration.51 Thus, the relationship between elites and other societal groups could be top-down, such that elite negotiations affect citizens, or bottom-up, such that citizens exercise agency through collective mass revolt or the withdrawal/endorsement of legitimacy of elites.52
An economic agenda is the economic policy regime, which sustains a ruling coalition and determines resource production, accumulation, allocation and exchange in society. We can envision at least two types of economic agendas based on the nature of the business-state relations,53 and
48. On powerful actors beyond the capital city, see Tadros and Allouche, ‘Political settle- ments as a violent process’, (p. 198). On transnational actors, see Bebbington et al., ‘Resource extraction and inclusive development’, and Hickey and Izama, ‘The Politics of governing oil in Uganda’.
49. Khan, ‘Rents, efficiency and growth’, pp. 21–60 and Laws ‘Political settlements, elite pacts and governments of national unity’, p. 20, 36.
50. Khan, ‘Political settlements’.
51. Tadros and Allouche ‘Political settlements as a violent process’, p. 196.
52. Ibid, p. 197.
53. The literature on business-state relations is vast and includes Maxﬁeld and Schneider,
‘Business and the state in developing countries’; Richard Doner and Ben Ross Schneider,
‘Business associations and economic development’, Business and Politics 2, 3 (2000), pp.
261–88.; Deborah Brautigam, Lise Rakner and Taylor Scott, ‘Business associations and
the property rights, investment, production, and trade regimes. One which enables basic production and exchange which may not grow the economy, but is reproducible, sustains society and prevents economic collapse.54
A second type involves deeper business-state interactions on economic privileges that can become a ‘growth-coalition’55 or retard growth. In devel- oping countries, the rents transfer system often privileges powerful groups (say armed movements or political entrepreneurs) with weak productive capabilities in order to maintain political stability and avert costly conﬂicts, while marginalizing the politically weak but productive entrepreneurs.56
This economic agenda thus captures the distribution of economic power and privileges in the political settlement.
The institutionalization in the political settlement is the acknowl- edgement and enforcement of the distribution of power and allocation of resources. The institutionalization can be informal, when these arrangements become part of society’s norms. It can also be formal, when enshrined in law, say the constitutional separation of governmental powers; intergovernmental ﬁscal transfers; on-budget food, higher-education and petroleum subsidies; or trade tariffs. More importantly, these rules have to be enforceable or self-reinforcing to ensure that powerful actors adhere to them. To be self-enforcing, these rules must reﬂect the distribution of power in society, otherwise they will be undermined by powerful actors.57
Once these rules become self-enforcing, an equilibrium is reached between the distribution of beneﬁts attributed to particular institutions and the distribution of power across groups.58
The constraints for persistence and change are the second building block in applying the political settlements approach to explain institutional changes and economic outcomes in resource-exporting countries. These constraints encompass conditions and decisions in which the political settlement emerges, evolves or collapses, and the policy implications. Changes to a society’s power conﬁguration can result from sudden shifts in institutions and the associated distribution of beneﬁts, as well as slow incremental processes.59
growth coalitions in sub-Saharan Africa’, Journal of Modern African Studies 40, 4 (2002), pp. 519–547.
54. Khan, ‘Political Settlements’, pp. 20–21.
55. For more on growth coalitions, see for instance Richard F. Doner, ‘Limits of state strength: toward an institutionalist view of economic development’, World Politics 44, 03 (1992), pp. 398–431; Peter Evans, ‘The state as problem and solution: Predation, embedded autonomy and structural change’, in Stephen Haggard and Richard Kaufman (eds), The politics of economic adjustment (Princeton University Press, Princeton, NJ, 1992), pp. 139–181.
56. Khan, ‘Political settlements and the analysis of institutions’, p. 651; Khan, ‘Political settlements’, p. 26; Whitﬁeld et al., ‘The politics of African industrial policy’.
57. Adam Przeworski, ‘Institutions matter?’ Government and Opposition 39, 4 (2004), pp.
527–540, p. 529.
58. Khan, ‘Political settlements and the analysis of institutions’.
A window of reform in seemingly ﬁxed institutions opens at critical junctures, accounting for swift policy ﬂuctuations. Critical junctures are periods when a constellation of economic, political and social ‘contingent’ conditions,60 build up slowly or erupt suddenly, loosening the existing institutional order. As deﬁned by Giovanni Capoccia and Daniel Kelemen, critical junctures are characterized by the relaxation, for a short period, of the structural (that is, economic, cultural, ideological, organizational) inﬂu- ences on political action.61 Consequently, the range of plausible choices for powerful political actors expands and, the implications of their decision- making are more momentous. These conditions can be endogenous (social unrest, economic crises, and conﬂict) or exogenous (technological advance- ments, global economic shocks and external aggression) to the political settlement. In resource-rich countries dependent on commodities exports, the boom and bust cycle is a major driver of these conditions. A sudden collapse in prices can reduce resources distributed through formal social expenditure or informal patronage leading to a fracture in political alliances, and mass action through a balance of payments crisis, foreign exchange shortages, and budget deﬁcits. These conditions can ‘shock’ and modify society’s balance of power, leading to major changes in political and economic institutions.62
The response of powerful actors, especially ruling elites to conditions at these historic junctures determines the maintenance of the institutional order (persistence),63 or its collapse and replacement (change). As Capoc- cia and Kelemen note, re-equilibration of an institution may be one of several outcomes of critical junctures,64 and many institutions may remain unaffected.65 During this time, powerful actors such as political leaders, bureaucrats, the military and social activists can shape outcomes toward a new equilibrium of institutional persistence or change, than normal circumstances permit.66 Ultimately, these decisions at critical junctures
60. On contingent conditions, see James Mahoney and Celso M. Villegas, ‘Historical enquiry and comparative politics’, in Carles Boix and Susan C. Stokes (eds), The Oxford handbook of comparative politics (Oxford University Press, Oxford, 2009), pp. 507–548.
61. Giovanni Capoccia and R. Daniel Kelemen, ‘The study of critical junctures: Theory, narrative, and counterfactuals in historical institutionalism’, World Politics 59 (2007), pp. 341–
69, p. 343.
62. Acemoglu and Robinson, ‘Paths of economic and political development’.
63. James Robinson, ‘Elites and institutional persistence’ (WIDER Working Paper 2010/85,
64. Capoccia and kelemen, ‘The study of critical junctures’, p. 352.
65. Wolfgang Streeck and Kathleen Thelen, ‘Introduction: Institutional change in advanced political economies’, in Wolfgang Streeck and Kathleen Thelen (eds), Beyond continuity (Oxford University Press, Oxford, 2005).
66. Capoccia and Kelemen, ‘The study of critical junctures’, p. 354; Peter A. Hall and
Rosemary C. R. Taylor, ‘Political science and the three new institutionalisms’, Political Studies
44 (1996), pp. 936–957. James Mahoney, ‘Path dependence in historical sociology’, Theory
and Society 29 (2000), pp. 507–548.
close off alternative options and lead to the establishment of institutions that generate self-reinforcing path-dependent processes.67
Thus, this article notes that the policy responses by powerful actors to crises and contingent conditions at critical junctures are determined by two factors. The ﬁrst is the nature of speciﬁc threats these crises pose to their resource base and political survival. The second is their political and technical capacity based on their degree of fragmentation or cohesion, the ﬁnancial and technological resources at their disposal, and how these are deployed.68 These are collectively the ‘constraints’ on a ruling coalition.
These constraints are illustrated in Figure 8. They operate at three levels, horizontal, vertical, and external, and at each level, certain policy choices are more probable. These policy choices could be executed through formal institutions or informally. Similarly, Richard Doner and colleagues argue that the interplay of three political constraints or ‘systemic vulnerability’ inspires rulers to forego their individual interests in maximizing patronage resources in favour of improved economic performance.69 They argue that it is only the combination of these three constraints—broad coalitional commitments, scarce resource endowments, and severe security threats— that can result in a developmental state capable of driving industrialization based on innovation from lower-value to higher-value economic activities. Whereas any of these three coalitional, resource, or geopolitical constraints individually may only lead to an intermediate state, which could drive growth without exports diversiﬁcation.70
What this article does differently from Doner and colleagues is to examine how these individual constraints and their policy responses can result in an intermediate state. This intermediate state can facilitate episodic reforms to generate economic growth and diversiﬁcation but not the sustained economic transformation to support industrialization and exports diversiﬁcation. Furthermore, I separate coalitional constraints into horizontal-level pressures within the ruling coalition and vertical-societal pressures.
The horizontal level within the ruling coalition is characterized by the extent of the cohesion or fragmentation of the ruling coalition. With a fragmented elite, the constraint comes from the threat of a ‘palace coup’ by a powerful rival faction. Reforms at times of such political crises are likely to focus on inclusion or paciﬁcation of excluded groups in the
67. Capoccia and Kelemen, ‘The study of critical junctures’.
68. Similarly, Whitﬁeld and Therkildsen examine how policies are inﬂuenced by the characteristics of ruling coalitions in terms of their vulnerability, fragmentation and ﬁnancing, pp. 17–26.
69. Doner, Ritchie and Slater, ‘Systemic vulnerability’.
ruling coalition.71 Within a cohesive ruling coalition facing no signiﬁcant threat from excluded groups, entrepreneurs can exert pressure for reforms targeting speciﬁc industries of interest, whose outcomes could be extractive or growth-enhancing. David Kang argues that the nature of balance of power between economic and political elites is a key variable, which spiraled into growth-retarding politics in the Philippines while reducing transaction costs and enabling sustained growth in South Korea.72
The vertical level of constraints in wider society is characterized by the extent to which non-elite groups accept or reject the distribution of resources. These groups can contest the status-quo by withdrawing support for the ruling coalition during elections, through mass action or violence. These actions can undermine the survival of the ruling coalition. To stem this tide of discontent, the ruling coalition is likely to opt for redistributive policies. Khan’s notion of politically organized transfers to sustain political stability rather than growth applies here.73 These transfers are provided across advanced and developing countries as a social compact with citizens, such as Europe’s welfare state from the 20th century.74
71. Khan also examines a range of possibilities when excluded factions are weak/strong relative to the ruling coalition. Khan, ‘Political settlements’, pp. 64–65.
72. His typology of state-business relations has combinations of a coherent/fractured state and a concentrated/dispersed business sector resulting in four scenarios. Kang, ‘Crony capitalism,’ pp. 7, 11–18.
73. Khan, ‘Rents, efficiency and growth’.
74. In Western Europe, a welfare state emerged in the early twentieth century, in response to mass political mobilizations and in-roads made by communism, to provide unemployment, housing and other social insurance beneﬁts to citizens. In the United States, redistribution schemes such as the Trade Adjustment Assistance supported workers who lose their jobs to import competition. In Japan and some parts of East Asia, this social insurance is provided
In developing countries with weaker administrative capacities to manage elaborate income transfers, these social security beneﬁts take the form of public works programmes, on-budget fuel and food subsidies, public sector employment as well as off-budget payments to political brokers and armed groups.
The external level of constraints in the external environment constrains ruling elites through the threat of external aggression, pressures from foreign donors or commodity price swings. A ruling coalition is likely to embark on extensive economic reforms to build economic resilience against geopolitical conﬂict,75 as conditions for donor ﬁnancial assistance or to diversify commodity exports. In oil-rich countries, where oil earnings make foreign aid relatively inconsequential and allow the state to acquire military capabilities, the impetus for economic restructuring has historically been global oil shocks. In Saudi Arabia, the collapse of oil prices between
2014 and 2017 led to a historic decision to aim for a public listing of Aramco, its national oil corporation, and to unveil an economic reform and diversiﬁcation plan.76 However, when commodity prices recover, an anti- reform impulse results from rising government spending and distributional demands on the state. This unsustainable consumption lays the foundation for vulnerability to future shocks and ensuing economic crises. Moreover, the sudden downward swing in oil prices, which reduces foreign exchange and government spending, can drive the fragmentation of the ruling coalition and mass discontent.
Nigeria’s post-military political settlement at the critical juncture of democratization
The power conﬁguration in Nigeria’s political settlement explains why and how Nigeria’s ruling elites, in a manner that is neither developmental nor fully predatory, preside over episodic growth and GDP diversiﬁcation, but not sustained industrialization and exports diversiﬁcation. On the ﬁrst dimension of the political settlement, the elite consensus in Nigeria has been characterized by the rotation of power to address horizontal elite competition. Power-sharing agreements moderate historic competi-
by large ﬁrms directly to their workers through life time employment, housing and healthcare beneﬁts. See Dani Rodrik, ‘Sense and nonsense in the globalization debate’, Foreign Policy,
75. In resource-poor North-East Asia, ruling elites in South Korea, Taiwan and Singapore faced regional insecurities from neighbours which impelled them to transform their economies to bolster their security. See: Doner, Ritchie and Slater, ‘Systemic vulnerability’. This also echoes the argument by Charles Tilly that strong states in Europe emerged in response to security threats (cited in Doner, Ritchie, and Slater).
76. Anjli Raval and Andrew Ward, ‘Saudi Aramco plans for a life after oil’, The Financial Times, 10 December 2017, https://www.ft.com/content/e46162ca-d9a6-11e7-a039- c64b1c09b482 (30 March 2018).
Figure 9 Colonial map of Nigeria showing the three regions and contem- porary map of Nigeria showing the 36 states and six geo-political regions.
tion among Nigeria’s regional elites in pursuit of national power. Even before political independence in 1960, tensions within Nigeria’s tripolar ethnic and bicommunal religious structure77 resulted in a perennial fear of political domination. This ‘fear’ was driven by the political and socio- economic inequalities among the regions. Upon independence, the ruling elites in the predominantly Hausa and Fulani northern region feared domination by the educationally advanced southerners in public service and educational institutions. The southern regions on the other hand feared the North’s political domination in parliament, the federal cabinet, and the army, which it secured using its landmass and higher population numbers as Figure 9 shows.78 The crises created by these tensions caused military coups and the 1967–1970 civil war. A post-war consensus from
1970 prioritized stability and national integration over democracy, through military rule led by officers who fought the civil war. Eventually, military rule ran its course as domestic and internal pressures for democratization intensiﬁed in the 1990s.
77. Out of over 400 ethnic groups, the Hausa and Fulani of the North, the Yoruba of the south-west and the Igbo of the south-east are the majority groups. Ethnic mobilization is tripolar reinforced by the tripodal regional administrative set-up of colonial rule and the tendency of many minority groups to cluster around these big three groups. There is also a bicommunal religious structure consisting of a predominantly Christian population in the South and a predominantly Muslim population in the North See Abdul Raufu Mustapha,
‘Ethnic structure, inequality and governance of the public sector in Nigeria’, (United Nations Research Institute for Social Development, no. 24, 2006); Ladipo Adamolekun and John Kincaid, ‘The federal solution: Assessment and prognosis for Nigeria and Africa’, Publius: The Journal of Federalism 21, 4 (1991), pp.173–188.
78. Billy J. Dudley, An introduction to Nigerian government and politics (Macmillan, London,
Democratization in 1999 was underpinned by an informal elite consen- sus on power rotation within the then ruling party, PDP, in 1998, called
‘zoning,’ to reconcile competing regional elites. This entailed a periodic rotation of elective offices, particularly the presidential seat between the North and the South every eight years, as a founding member of the PDP explained to me.79 Zoning complemented formal affirmative action policies such as the Federal Character principle for political stability.80 Although zoning emerged from the PDP and its predecessor, the National Party of Nigeria the ruling party of Nigeria’s Second Republic (1979–1983), it was a consensus accepted by other political parties and in society. In 1998, under General Abdulsalam Abubakar’s transition government, a southern president was preferred81 since the North had produced successive military heads of states from the end of the civil war in 1970. Olusegun Obasanjo, a Yoruba Christian and a former military head of state (1976–1979), emerged as the ﬁrst president under this arrangement. Although zoning was not stipulated in the Nigerian Constitution, the elite bargain ensured that the new 1999 constitution was an amended version of the 1979 constitution, rather than constitutions drafted in the 1990s from society- wide consultations by derided military regimes.82
However, this zoning consensus began to unravel at the presidential level for several reasons. Olusegun Obasanjo unsuccessfully attempted a third presidential term in 2006. His successor Umaru Yar’adua, a northerner, died in his third year in office in 2010 before he could complete the ‘North’s slot’ of two terms of eight years. Goodluck Jonathan, a southerner and formerly Yar’adua’s vice president, succeeded him in 2010 and deﬁed the power-rotation to the North by running for office in 2011. In 2015, the PDP was defeated in the presidential elections by Muhammadu Buhari, a northerner of the All Progressives Congress (APC).83 Although the incumbent PDP coalition was displaced in the 2015 presidential election by the APC, the zoning principle of power sharing remains a broadly acknowledged norm for stabilizing elite competition for presidential power. Muhammadu Buhari and another northern candidate, Atiku Abubakar of the PDP, were the main contenders in the 2019 presidential election, with
79. The initial terms of ‘zoning’ in 1998 was for power to alternate between the North and the South for a single term of four years for 30 years. However, after President Obasanjo completed his ﬁrst term in 2003, he was allowed to run for another term on the understanding that power would shift to the North after eight years. Interview, Abuja, 14 May 2014.
80. Abdul Raufu Mustapha, ‘Institutionalising ethnic representation: How effective is the Federal Character Commission in Nigeria?’ Journal of International Development 21, 4 (2009), pp. 561–576.
81. The three main political parties at the time, the All People’s Party (APP), the Alliance for Democracy (AD) and the PDP, produced southerners as presidential contenders.
82. Interview with founding PDP member (referred to in footnote 80), Abuja, 14 May 2014.
83. Olly Owen and Zainab Usman, ‘Why Goodluck Jonathan lost the Nigerian presidential election of 2015’, African Affairs 114, 456 (2015), pp. 1–17.
Figure 10 Timeline of Nigeria’s Presidents from 1999.
the expectation that from 2023, presidential power will shift to the South
The vertical distribution of power in Nigeria’s political settlement is characterized by distributional and welfare demands of non-elite groups as well as new platforms of power to inﬂuence the ruling coalition. Despite the economic boom of the 2000s, there is no strong social welfare system. Consequently, traditional trade union groups such as the Nigeria Labour Congress are heavily dependent on and defensive of government employ- ment and petroleum subsidies. New platforms for expressing discontent for young people and the poor are emerging. These range from social media inﬂuencers on Twitter and Facebook, to inﬂuential Pentecostal preachers and Islamic clerics, to armed movements like militants in the Niger Delta and the Islamist insurgents of Boko Haram in the northeast.84 These platforms can mobilize large numbers of people during elections or contest the state’s authority. Starting with SURE-P in 201285, a series of social protection programmes including cash transfers, school feeding, graduate
84. On the Niger-Delta violence, see Crisis Group, ‘Curbing violence in Nigeria (III): Revisiting the Niger Delta’ (International Crisis Group Report No. 231, Africa, Brussels, September, 2015). On the Boko Haram insurgency, see Crisis Group, ‘Curbing violence in Nigeria (II): The Boko Haram insurgency’ (International Crisis Group Report No. 216, April
85. In 2012, the Subsidy Reinvestment and Empowerment Programme (SURE-P) was set up to use the N32 per litre of petrol saved from the partial removal of subsidies to pilot social safety nets and mass transit schemes. Interview with SURE-P Chairman, Abuja, 18 June 2014.
training, and youth entrepreneurship schemes have been piloted in order to address the tide of discontent.86
Historically, a major driver of economic reforms has been external oil shocks. Nigerian governments typically proclaim an economic diversiﬁca- tion agenda but it is oil boom and bust cycles that prompt actual action. Since oil prices are central to Nigeria’s export earnings and ﬁscal revenue, a sudden oil price collapse may encourage a growth agenda to mitigate the ensuing crisis. During a time of low oil prices in 2001, a series of macroeconomic, private sector development, and public sector reforms culminated in the National Economic and Empowerment Development Strategy. This strategy was transformative in liberalizing the telecom and banking sectors and establishing an anti-corruption agency. It also set a longer-term policy framework under the Nigeria Vision 20:2020 to transform and diversify Nigeria’s economy.87
From 2014 to 2017, a downward trend in global oil prices created another economic crisis. Muhammadu Buhari’s Economic Recovery and Growth Plan in 2017 emphasized economic diversiﬁcation through agri- culture, infrastructure, social investments, and anti-corruption.88 Windfalls are accompanied by increased consumption and revenue leakages. The administrations of Umaru Yar’adua and Goodluck Jonathan (2007–2015) presided when oil was over $100 per barrel without sustained economic transformation resulting from their signature policies: the Seven-Point Agenda and the Transformation Agenda.89
What was the ruling coalition and who were its members? This ruling coalition negotiated the power sharing consensus, which formed the basis of democratization, the political system, and the country’s economic orien- tation. From 1999 to 2015, the platform for elite coordination was the PDP, comprised of senior military officers, bureaucrats, and politicians, including those from previous military regimes, business leaders and traditional leaders. The democratic transition allowed for a conversion of de facto state power by prominent military officers into de jure political and economic power. Many ex-military personnel ran for elective positions or were
86. In 2015, a new government replaced SURE-P with the Nigeria Social Investment Programme (NSIP) comprised of cash transfers, a school feeding programme, an enterprise scheme and an employment scheme, N-Power. NSIP. ‘Investing in our people: A brief on the national social investment programmes in Nigeria’. http://npower.gov.ng/nsip.pdf (13 March
87. NPC, ‘Nigeria Vision 20:2020: Abridged version’ (National Planning Commission
NPC, Abuja, 2010).
88. MoBP. ‘Nigeria economic recovery and growth plan: 2017–2020’, (Nigeria: Ministry of
Budget and National Planning, Abuja, 2017).
89. There were important initiatives such as the Niger Delta Amnesty scheme, reforming the agriculture fertilizer scheme, the youth entrepreneurship scheme YOU-WIN and putting together the Nigerian Industrial Revolution Plan (NIRP). These were however not sustained. NPC, ‘The transformation agenda 2011–2015: Summary of federal government’s key priority policies, programmes and projects’, (National Planning Commission NPC, Abuja, 2013).
appointed into Olusegun Obasanjo’s federal cabinet.90 The entrepreneurs included wealthy military officers, bureaucrats, industrialists, merchants, bankers and ﬁnanciers. Their proximity to the ruling party gave them inﬂuence over economic policies, which they reciprocated with donations to political parties under banners such as ‘Organized Private Sector’ or
‘Corporate Nigeria.’91 In the immediate transition years, several high-
level technocrats gained inﬂuence within the ruling coalition, conditional on the president’s support. Through the inﬂuential Vice President, Atiku Abubakar, Obasanjo’s government recruited a team of 12 technocrats to coordinate economic policy.92 According to former Finance Minister and head of the reform team, Dr Ngozi Okonjo-Iweala, ‘for much of the duration of the reform program, the president gave his backing … his support wavered as … presidential elections approached.’93
The zoning elite consensus, however, did not address wider developmen- tal and redistribution concerns in society. The political settlement centered on the elite bargain of sharing power and economic privileges by the ruling coalition in order to stabilize the competition that had led previously to a civil war. Thus, excluded young people, the middle class, and the poor made distributional demands on the state or found outlets in religious movements, armed groups or social media. When a growth orientation emerged at the critical juncture of democratization, it was merely a response to external constraints of oil shocks, neither developmental nor sustained. Immediately after military rule, external factors constrained Nigeria’s policy makers to be growth-oriented. The paradigm shift was driven by the low global oil prices at $17 per barrel in 1999, which reduced the resources available to service Nigeria’s debt of $3 billion per annum by 2004 (or
90. Among dozens were General T.Y. Danjuma (Defense Minister), Vice Admiral Murtala Nyako (who became governor of Adamawa state), Colonel David Mark (who became Senate President), Air Commodore Jonah Jang (who became governor of Plateau state), and Admiral Augustus Aikhomu.
91. ‘Corporate Nigeria’, loosely modeled after Corporate America in the USA, became a prominent donor to the PDP from 2003, when it donated N2 billion ($10 million) towards Obasanjo’s re-election in 2003. Pioneered by the then Director-General of the Nigerian Stock Exchange, Ndidi Okereke-Onyiuke, it was comprised of industrialists like Aliko Dangote, bank CEOs such as Pascal Dozie, Jim Ovia and other prominent private sector operators (Allafrica.com, 2003). In the run-up to the 2015 elections, they contributed 65 percent of the N21.2 billion ($106 million) of the PDP’s publicly declared donations. Olalekan Adetayo, ‘Governors, businessmen, others donate N21.27bn to Jonathan,’ The Punch,
21 December 2014. http://www.punchng.com/news/govs-businessmen-others-donate-n21-
92. The team included Charles Soludo the Central Bank governor, Nasir el-Rufai head of the Bureau for Public Enterprises and subsequently the minister of the Federal Capital Territory, Obiageli Ezekwesili, head of the Budget Monitoring and Price Implementation Unit. For more on the economic team, see Nasir El-Rufai, The accidental public servant (Safari Books, Ibadan, 2013).
93. Okonjo-Iweala, ‘Reforming the unreformable’, p. 132.
41 percent of the annual budget)94 and the donor precondition for debt relief of articulating a comprehensive economic reform blueprint. Under these constraints, Nigeria’s policy makers implemented policies to reform public contracting, privatize enterprises, pursue economic liberalization, and demonstrate commitment to anti-corruption. These reforms eventu- ally resulted in the National Economic and Empowerment Development Strategy95 in 2004. As one member of Obasanjo’s reform team explained to me, the government consciously adopted a growth orientation96 ‘to demonstrate to the world … that Nigeria had changed its past ways of proﬂigacy … that Nigeria would make judicious use of revenues … to ensure debt relief would not just be squandered.’
The alternative pathway was the status-quo, mired in debt and ﬁscal deﬁcits. Consequently, quick technical ﬁxes were made in sectors such as telecoms, banking, and ﬁnancial services. Sectors like agriculture, manufac- turing and oil which needed deeper institutional reforms, were objects of elite competition and redistribution demands and remained dysfunctional. This inconsistency characterizes the intermediate state described by Evans in which ‘joint projects (with business elites) may be possible in certain sectors or periods but degenerate into clientelism in others.’97 Furthermore, historical moments may constitute a critical juncture with respect to one institution but not to another.98
Successful liberalization of Nigeria’s telecommunications sector
Liberalization was pursued with relative success in telecommunications, a major growth driver in the ﬁrst decade of Nigeria’s democratization. The notorious inefficiency of NITEL prompted the government to pen- cil the utility alongside several state-owned enterprises for privatization during structural adjustment between 1988 and 1993.99 The Nigerian Communications Commission was set up as a regulator in 1992, while General Abdulsalam Abubakar’s military government promulgated the Public Enterprises Act of April 1999. Under Obasanjo’s administration, the
94. DMO, ‘Annual report and statement of accounts 2005’ (Debt Management Office, Abuja, 2005), p. 44.
95. NPC, ‘National Economic Empowerment and Development Strategy’ (National Plan- ning Commission NPC, Abuja, 2004).
96. Interview, 08 March 2015.
97. Evans, ‘Embedded autonomy’, p. 60.
98. Cappoccia and Kelemen, ‘The Study of critical junctures’.
99. Between 1985 and 2000, more than $5 billion was spent on digitalizing the telephone network that ended up with just 300,000 connected users. William Wallis, ‘The telecoms numbers that didn’t add up’, Financial Times, http://www.ft.com/cms/s/0/155b347c-87e6-
Figure 11 Growth rate (%) of the telecommunications sector, 1999–2009.
Source: Author’s calculations from NBS Data 2015.
Bureau for Public Enterprises (BPE) scheduled NITEL for privatization alongside 74 public enterprises.100
The liberalization, marked by the introduction of cellular networks, the Global System for Mobile (GSM), in August 2001, engendered the sector’s expansion. In 2000, there were just 400,000 phone lines; as at 2016, there were 235 million connected mobile and ﬁxed lines and 126 million active internet subscriptions,101 the largest mobile market in Africa. The telecommunications sector expanded from just 0.1 percent of GDP in
2001 to 7.5 percent in 2017, growing at an average of 122 percent from
1999 to 2009, as Figure 11 shows. Nigeria is the biggest market for the South African mobile ﬁrm Mobile Telecommunications Network (MTN), in terms of subscriber base, constituting 27.7 percent of its 231 million subscribers across 22 countries.102 Nigerian-owned Globacom, is a major player across Africa.
Using the political settlements framework, I argue that external con- straints on ruling elites enabled a pro-reform mindset to liberalize the sector. The business elites within the ruling coalition that stood to gain from liberalization also made the government more committed to the reforms,
100. Said Adejumobi, ‘Introduction: State, economy and society in a neo-liberal regime’, in Said Adejumobi (ed.), State, economy, and society in post-military Nigeria (Palgrave Macmillan, New York, NY, 2011), pp. 1–23, p. 9.
101. NCC, ‘Subscriber statistics,’ Nigerian Communications Commission (NCC), https://www.ncc.gov.ng/stakeholder/statistics-reports/subscriber-data#annual-subscriber- technology-data(9 October 2018).
102. Chris Spillane, ‘MTN’s proﬁt declines as sales fall in Nigeria, South Africa,’ Bloomberg, http://www.bloomberg.com/news/articles/2015-08-05/mtn-proﬁt-declines-11-as- sales-fall-in-nigeria-south-africa (21 October 2015).
with Nigerian rather than international capital as central players. Despite professing a nominal commitment to liberalizing the telecoms sector, presi- dent Obasanjo only became committed upon realizing the potential for gen- erating non-oil resources. His administration initially revoked the 27 mobile operation licenses provided to investors by the previous military regime of General Abacha, which had placed Obasanjo on death row.103 Therefore, the ﬁrst attempt at GSM licensing in 2000 failed due to the power tussle among Obasanjo, former military ruler General Ibrahim Babangida and other military elite. It was only when Obasanjo’s government realized the wealth-generation potential that a second bid round was conducted in the UK in 2001.104 Speciﬁcally, Obasanjo’s government was encouraged by the high bids for the three licenses, each auctioned at $285 million by Communication Investments, Econet Wireless Nigeria, and MTN. This amount far outstripped the $100 million quoted for each license—the most expensive issued in Africa at the time according to the Econet CEO Strive Masiyiwa.105 Thereafter, the administration became more committed to pursuing liberalization.
Furthermore, development partners and regional competition pressured ruling elites to liberalize the sector. Conditional assistance by the Bretton Woods institutions, OECD countries and the World Trade Organisation (WTO) facilitated liberalization. As a precondition for debt relief during low oil prices, Nigeria had to develop a reform strategy approved by the IMF. Consequently, in July 2000, the government pledged to minimize spending on restructuring NITEL as a pre-condition for a $1 billion standby agreement.106 There was also neighbourhood-rivalry within West Africa. The realization that earlier failures had left Nigeria’s telecoms network several years behind those of Ghana, Ivory Coast, and other regional rivals may have expedited the GSM auctions in 2001.107
Given these external pressures, business elites in the ruling coalition shaped the direction of liberalization to be driven largely by domestic rather than international capital. Officials and business partners of previ- ous military regimes owned shares in these ﬁrst wave of telecoms ﬁrms. For instance, Colonel Sani Bello (Rtd.), a former military governor and ambassador and an oil tycoon, owned a minority stake in MTN Nigeria,
103. BBC News, ‘Nigeria awards telecoms licences’, BBC News, http://news.bbc.co.uk/1/
104. Interview with an adviser for Obasanjo’s government, Abuja, 13 May 2014.
105. Strive Masiyiwa, ‘It’s time to play by a different (ethical) set of rules (Part 7) Nigeria 1.’ Econet, http://www.econetwireless.com/strive_masiyiwa_blog/index.php/its-time- to-play-by-a-different-ethical-set-of-rules-part-7-nigeria-1-of-5/ (20 October 2015).
106. Chukwudiebube Opata, ‘Transplantation and evolution of legal regulation of inter- connection arrangements in the Nigerian telecommunications sector’, International Journal of Communications Law & Policy 14 (2011), pp. 1–14.
107. BBC, ‘Nigeria Awards Telecoms Licenses’.
one of the three beneﬁciaries of the 2001 auction.108 Econet Wireless Nigeria (now Airtel Nigeria), the ﬁrst telecoms ﬁrm to operate in Nigeria, had a consortium of 22 all-Nigerian ﬁnanciers including Diamond Bank and other banks, the Lagos and Delta state governments, military generals who were founding members of the PDP, and industrialists such as Oba Otudeko, who made fortunes during military rule in the 1980s.109 Many multinational telecoms ﬁrms at that time were wary of investing in Nigeria given a widespread perception of fraud about the country. There were serious cases of bribery and underhand dealings in the license auctions. Econet Wireless Nigeria was asked to pay $9 million in bribes to senior politicians who mobilized ﬁnancial investments for the license. According to the ﬁrm’s CEO Strive Masiyiwa, his refusal to authorize the illegal payments led to the cancelation of their management contract by the Nigerian shareholders.110
This involvement of domestic private sector was a watershed for market reforms in Nigeria. Whereas in the past economic reforms were state-led and beholden to regional patron–client networks, the businessmen allied to ruling elites championed the telecoms liberalization. They demonstrated their capacity to generate new sources of rent and to ease budgetary restraints, which although one-off, allowed key elites to position themselves in emergent economic sectors and created a model for replication in other sectors.111 The counterfactual is that even without the involvement of local ﬁnanciers, GSM would eventually have spread to Nigeria, but would have been wholly led by multinational ﬁrms.
Through the political settlements lens, we are able to identify how external constraints can enable the emergence of a growth coalition in Nigeria. At the turn of the century, a ruling coalition was able to drive market reforms in the telecommunications sector, despite oil wealth, ethnic pluralism or the ‘neopatrimonial logic,’ which would otherwise obstruct growth.
108. On share ownership for the pioneering telecoms ﬁrms, see Masiyiwa, ‘It’s time to play by a different set of ethical rules’; Fola Akanbi, ‘Forbes: Nigerian new entrants to rich list grew wealth through investments in oil and gas’ Thisday, http://www.thisdaylive.com/articles/ forbes-nigerian-new-entrants-to-rich-list-grew-wealththrough-investments-in-oil-and-gas/
110. See Masiyiwa, ‘It’s time to play by a different set of ethical rules’. A large international operator was invited to replace Masiyiwa’s Econet as technical partner, the name was changed as new technical partners were involved, from Econet to V-Mobile, and then to Vodacom, Zain, Celtel and ﬁnally to Airtel.
111. Through the ‘Backward Integration Policy’, monopoly rents were allocated in the cement and fruit juice industries to select ﬁrms such as the Dangote conglomerate. Nigeria became a net exporter of cement by 2013, see Crusoe Osagie, ‘Nigeria: As Dangote transforms Nigeria into an export nation’ Allafrica.com, http://allafrica.com/stories/201504140084.html (04 July 2016).
Figure 12 Oil sector growth and share of GDP (%) 1999–2017.
Source: Author’s calculations from NBS Data, CBN (2017).
The decline of Nigeria’s oil sector
Within the same period, external constraints did not engender growth in the oil sector, which rather stagnated and declined. The sector grew at an average of 1.3 percent between 1999 and 2009, and −4.5 percent between
2010 and 2017 (Figure 12). On one hand, its decline as a share of GDP from a peak of 48.9 percent in 2000 to 9.1 percent in 2017 indicates diversiﬁcation of output. However, the sector’s absolute decline points to a deeper malaise. Since 2013, production averaged 1.9 million bbl/d below peak capacity of 2.4 million bbl/d, and the target of 4 million bbl/d.112
Nigeria’s proven reserves have not grown from 37.2 billion barrels despite targeting 40 billion barrels.113 Oil earnings routinely disappear through leakages across the industry value chain. Nigeria lost $217.7 billion from
1970 to 2008,114 and $20 billion between 2010 and 2012.115 The Petroleum
Industry Bill meant to harmonize the disparate legislations governing
Nigeria’s oil industry has stalled for almost two decades.
112. EIA, ‘Nigeria’ [United States Energy Information Administration (EIA), 2013]. http://
2013’ (Central Bank of Nigeria CBN, Abuja, 2013). http://cenbank.org/Out/2015/RSD/CBN
113. EIA, ‘Nigeria’.
114. AU and ECA, ‘Report of the high level panel on illicit ﬁnancial ﬂows from Africa’ AU/ECA (Conference of Ministers of Finance, Planning and Economic Development, 2014).
115. Sanusi L. Sanusi, ‘Memorandum submitted to the Senate committee on ﬁnance on the non-remittance of oil revenue to the federation account’ (Central Bank of Nigeria, Abuja,
Through a political settlements lens, this article argues that external ﬁscal pressures have not resulted in a growth agenda in the oil sector because of countervailing horizontal and vertical constraints on Nigeria’s ruling elites. Despite GDP diversiﬁcation, the oil sector is Nigeria’s foremost foreign exchange earner. Its centrality to economic accumulation drives tensions with international oil companies, vulnerabilities to external shocks, elite competition, and societal redistribution demands for petro-dollars accruing to the state (see Figure 13). These competitive and distributive pressures result in revenue losses, inertia for reform and stagnation of the oil sector. The tension between the Nigerian government and international oil companies on the country’s ﬁscal regime undermines the prospects for successful oil-sector reforms. The government seeks to increase its share of oil revenues to 91 percent on onshore joint ventures and 89 percent on offshore production sharing contracts. International oil companies push back arguing that the proposal would deter investment in the sector by rendering many new and existing projects uneconomic.116 By attaching these ﬁscal provisions to the Petroleum Industry Bill, the Nigerian gov- ernment was set on a collision course with the international oil companies. The revision of the production sharing contracts terms deﬁned during low
116. Wikileaks ‘Re: Analysis for comment—Nigeria—barriers to reform of Nigerian oil & gas—The Petroleum Industry Bill #1365386’ Wikileaks. 16 June 2013, https://wikileaks.org/ giﬁles/docs/13/1365386_re-analysis-for-comment-nigeria-barriers-to-reform-of.html (07
oil prices and military rule in the 1990s is a contentious focus area in the Petroleum Industry Bill117 and a major reason for the legislative stasis. The international oil companies also employ hedging strategies such as transfer pricing and deferred revenue from oil theft in order to proﬁt from a weak regulatory environment. Although international oil companies ostensibly support reforms, which improve the security situation, their overriding objective is their own proﬁt. According to conﬁdential documents from a multi-stakeholder initiative:
… the IOCs [international oil companies] will only support regulatory, contracting or restructuring processes that make operating in Nigeria eas- ier … for them. They seek to retain valuable acreage, minimize contact with the bureaucratic and patronage systems that slow operations, control the security situation … minimize regulation, and avoid any increase in ﬁscal terms. [ … ] the majors [fear] that the proposed reforms would strengthen rather than limit government’s control over the industry …
Thus, there have been no new investments in the sector for over a decade, while oil majors are moving offshore partly due to insecurity in the Niger Delta, where they are liable to less tax under the production sharing contracts. The government earns less oil revenue than it should, and could lose its global oil market share. The country has high volumes of illicit ﬁnancial ﬂows, losing almost $250 billion between 2000 and 2009 largely in the oil sector, and up to $5 billion in 2011 to transfer pricing.118 New oil producers in Africa, the US shale oil and gas revolution and China’s economic rebalancing and growth slow-down all affect the destination for Nigeria’s oil and the investment decisions of international oil companies. In 2012, only ﬁve of Africa’s 54 countries were not producing or looking for oil, and in 2013, 6 of the 10 global discoveries in the oil and gas sector were made in Africa.119 The USA reduced its imports of Nigerian crude by
95 percent from a peak of 1 million barrels per day in 2007 to 58,000 in
The horizontal constraints include formal inter-governmental distri- butional pressures on oil receipts between the federal and sub-national
117. EIA, ‘Nigeria’; John Heilbrunn, Oil, democracy, and development in Africa (Cambridge
University Press, New York, 2014), p. 98.
118. AfDB and GFI, ‘Illicit ﬁnancial ﬂows and the problem of net resource transfers from Africa: 1980–2009’, (African Development Bank [AfDB] and Global Financial Integrity [GFI], 2013), p. 26; PWC, ‘Transfer pricing perspectives: spotlight on Africa’s transfer pricing landscape’, Price Waterhouse Coopers, 2011), p. 5.
119. See BBC News, ‘Africa debate: will Africa ever beneﬁt from its natural resources?’,
15 October 2012, https://www.bbc.com/news/world-africa-19926886 (26 October 2015); EY
calculations of data from US Department of Energy/EIA database, (26 October 2015); Alex
Vines, ‘Africa’s oil and gas potential: Boom or hype?’ CNN, 18 September 2014 http://edition.
120. EIA, U.S. imports of Nigeria crude oil. (EIA Database, 30 September).
executives and informal distributional pressures from within the ruling coalition. State governors are distrustful of the opaquely run state-oil corporation, the NNPC, the Ministry of Petroleum Resources, the Ministry of Finance and other federal agencies.121 These sub-national executives challenge the ﬁscal buffer instruments, the Excess Crude Account and the Sovereign Wealth Fund as unconstitutional deductions of their share of oil earnings. While the Nigerian constitution stipulates the distribution of oil revenues among federal, state, and local governments in a 52:27:21 ratio,122 the Excess Crude Account in particular is enabled by an informal consensus between the federal and state executives. However, there is very little sub-national trust in federal executives’ supervision of the oil industry. For example, there is no accurate data on actual oil production across federal agencies. Despite recommendations by external auditors, President Obasanjo, who doubled as oil minister, refused to install a metering system to measure actual oil production.123 Buhari is also Nigeria’s defacto oil minister Nigeria’s oil production data are estimates derived at export terminals rather than from the well-end as is global best practice.124 This distrust of federal agencies in oil industry management exacerbates inter- governmental distributional pressures on oil receipts.
Within the ruling coalition, the deployment of oil-sector instruments to pacify factions undermines a growth agenda.125 In 2011, when Goodluck Jonathan deﬁed the PDP’s consensus for a power shift to the north, the oil sector was used, beyond historical norms, to buy political support in a fragmenting party. The fraud in the fuel subsidy regime illustrates the use of off-budget political transfers, as conceptualized by Khan, in the oil sector to powerful groups for political survival. In 2012, the federal government spent $14.6 billion on fuel subsidy, of which $6 billion was lost to false claims and inefficiencies. The number of oil marketers grew from 45 to
128 between 2009 and 2011.126 Expenditure on subsidies skyrocketed by
800 percent, from N295.5 billion in 2006–2008 to N1.7 trillion in 2011, when oil price was at a historic peak.127 The list of oil marketers investigated included the sons of two former PDP chairmen, Senator Ahmadu Ali and Bamanga Tukur.128 This came at a time when the PDP’s northern caucus
121. Interview, Ministry of Petroleum Resources, Abuja, 30 April 2014.
122. For a historical analysis of Nigeria’s revenue-sharing formulas, see Ehtisham Ahmad and Raju Singh, ‘Political economy of oil-revenue sharing in a developing country: Illustrations from Nigeria’ (IMF Working Paper WP/03/16, 2003).
123. Interviews with senior government officials, Abuja, April–May 2014.
125. These instruments include import licenses, oil blocks, and crude lifting contracts.
126. House of Representatives Nigeria, ‘Report of the Ad-Hoc Committee ‘To verify and determine the actual subsidy requirements and monitor the implementation of the subsidy regime in Nigeria’ (House of Representatives, Abuja, 2012).
127. Sanusi, ‘Memorandum submitted to the Senate Committee on Finance’, pp. 9–10.
128. Ike Abonyi and Akinwale Akintunde, ‘Subsidy fraud: EFCC to prosecute 23 oil marketers’ Thisday, http://www.thisdaylive.com/articles/subsidy-fraud-efcc-to-prosecute-23- oil-marketers/120779/ (25 October 2015).
opposition to Jonathan’s candidacy was vociferous.129 Evidently, revenue leakages escalated in pacifying aggrieved members of the ruling party both for predatory purposes and to pacify aggrieved members of the PDP for political survival.
Vertical constraints on ruling elites inhibit a growth agenda in the oil sector. These constraints include distributional pressures from trade unions for the retention of petroleum subsidies.130 While this advocacy is driven by concerns about rising costs of living, it often translates into hostility to market-reforms. Every increase in petroleum prices is accompanied by nation-wide strikes by trade unions. The 800 percent rise in petroleum subsidies by 2011 led to their partial removal in January 2012 in order to tackle grand corruption, according to former Central Bank governor Lamido Sanusi.131 The wave of protests by labour unions, civil society, and the Nigerian public tagged ‘Occupy Nigeria’ in January 2012 was so severe that the subsidies were partially restored several days later.132
These vertical constraints also include the advocacy for increased allo- cation of oil rents and full sub-national resource control by oil-producing communities in the Niger-Delta, which leads to policy gridlock. NGOs and traditional councils advocate for direct payments and compensation for oil spillages.133 A UN report estimates that environmental restoration from oil spills and oil well ﬁres in Ogoniland in the region may take up to 30 years.134
The decline of livelihoods was a major driver of militancy in the region against international oil companies (and the government) from the mid-
1990s. This advocacy led to an inclusion of 13 percent derivation to the oil-producing states in 1999, a proposal for 10 percent of international oil companies monthly proﬁts to communities and other resource transfers to the Niger-Delta. The contention over these transfers to the Niger-Delta has delayed the Petroleum Industry Bill, according to government officials.135
Legislators of non-oil producing regions strongly oppose what they regard as one more payment to oil-producing regions already disproportionately
129. Interview with Goodluck Jonathan’s adviser, Abuja, 16 September 2014.
130. The key unions in the sector are the Petroleum and Natural Gas Senior Staff Association (PENGASSAN) and the Nigerian Union of Petroleum and Natural Gas Workers (NUPENG). They represent the white-collar and blue-collar workers, respectively.
131. Interview, Kano, 23 August 2014.
132. Stephanie Busari, ‘What is behind Nigeria’s fuel protests?’ CNN, 13 January 2012, https://www.cnn.com/2012/01/06/world/africa/nigeria-fuel-protest-explained/index.html (5
133. In 2014 alone, Royal Dutch Shell and ENI admitted to 550 oil spills. See: Amnesty International, ‘Nigeria: hundreds of oil spills continue to blight Niger Delta’ Amnesty International, https://www.amnesty.org/en/latest/news/2015/03/hundreds-of- oil-spills-continue-to-blight-niger-delta/ (03 May 2017).
134. See UNEP, Environmental Assessment of Ogoniland Report, (United Nations Envi- ronmental Program, Nairobi, 2013).
135. Interviews with senior staff at Open Society Initiative for West Africa (OSIWA), NEITI, and with senior executive at the NNPC, Abuja, February–June 2014.
beneﬁtting from oil rents, a major reason for the delay in the Bill.136
Armed groups also emerged from these historic advocacies against the Niger Delta’s economic marginalization. Eventually, many veered toward criminality,137 destroying oil facilities, abducting workers from international oil companies and engaging in oil theft,138 contributing to divestments of onshore assets according to an international oil company chief executive.139
The progressively violent nature of this militancy in the destruction of oil facilities cost Nigeria up to 10 percent of daily production, according to officials at the NNPC.140
Therefore, constraints of a competitive, distributive, and external nature in the political settlement obstruct the formation of a growth coalition in Nigeria’s oil sector during boom times or downturns. This political settlements analysis contrasts with the ‘resource-curse’ thesis that efficiency and growth in the resource sector will crowd out the non-oil economy. The counter factual is that during the period of low oil prices, successive Nigerian governments could have unbundled the NNPC to make it more transparent,141 replaced the expensive petroleum subsidies with extensive social protection programmes such as cash transfers,142 which would address vertical pressures from both trade unions and oil-producing com- munities, and updated petroleum industry legislation in installments.143
Despite the diversiﬁcation of its GDP, Nigeria remains dependent on oil for exports and government revenue. This article makes the case for
137. These groups include the Movement for the Emancipation of the Niger-Delta (MEND), the Niger-Delta People’s Volunteer Force (NDPVF) and the Niger-Delta Avengers (NDA).
138. While oil theft was started in the 1970s by military officers, democratization enabled participation by politicians and through an Amnesty programme from 2008 for ‘repentant militants’, many moved to crude oil theft, piracy and organized crime. See: Christina Katsouris and Aaron Sayne, ‘Nigeria’s criminal crude: International options to combat the export of stolen oil’ (Chatham House, London, 2013).
139. Interview, 03 February 2015, London.
140. Interviews in Abuja between April and May 2014; conﬁdential documents.
141. In September 2016, an attempt was made to restructure the NNPC after the crash in oil prices from 2014. The plan was to unbundle the corporation to allow for more accountability, transparency and ease of management. In 2017, a proposal in the Petroleum Industry Governance Bill (PIGB) aimed to create three entities out of the NNPC to deal with asset management, investments and regulation. The PIGB is yet to be passed into law. See: Rotimi Akinwumi, ‘NNPC unbundled, new tax regime, more jobs coming’ https:// independent.ng/nnpc-unbundled-new-tax-regime-jobs-coming/ (25 July 2017).
142. Recently, attempts have been made to pilot various social protection programs. These include SURE-P under Goodluck Jonathan, and the NSIP under Muhammadu Buhari, as discussed in footnotes 86 and 87.
143. The Nigerian government recently split the PIB into several pieces of legislation. These include the PIGB which deals with policy and regulation of the industry; the Petroleum Industry Fiscal Bill on the ﬁscal regime and IOCs, and the Host Community Bill for oil- producing communities. While the PIGB has been passed in Parliament and awaits assent by the President, there has been limited progress with the other two bills. KPMG, ‘The Petroleum Industry Governance Bill,’ (KPMG, 2017).
political settlements as an alternative framework to better explain the political and institutional underpinnings of the ‘Africa Rising’ economic growth without industrial transformation in Africa. In applying the political settlements approach to resource-rich countries like Nigeria, the article has shown how external pressures interact with the elite bargain and other dimensions of the distribution of power to stimulate reforms. Nigeria is thus an intermediate state that can drive bursts of economic growth and diversiﬁcation, rather than a developmental state presiding over sustained industrial transformation or a predatory state operating in a purely neopat- rimonial fashion. Immediately after military rule in 1999, the external constraints on the ruling elite generated the initial impetus for successful telecoms liberalization. These pressures were, however, insufficient to drive a growth agenda in the oil sector because of the horizontal-elite and vertical- societal distributive pressures on oil rents. The article identiﬁes three causal mechanisms between constraints in the political settlement and economic policies, and their economic outcomes.
First, the external nature of threats on the ruling coalition’s access to oil rents provided the impetus for reforms. Since the ﬁscal crisis brought by low oil prices and odious debt were severe in the early 2000s, Olusegun Obasanjo’s government was constrained to be reform-orientated. The relative ease of reforming telecoms sector globally was a ‘low-hanging fruit’ to meet donor preconditions for debt-relief and to grow its way out of debt and generate non-oil wealth.
Second, the relative success of the telecoms liberalization was largely due to the ruling elite’s capacity and resources. Obasanjo’s government sought to provide credible commitment signals to the private sector. This ‘growth coalition’ emerged partly due to a reluctance of global multinationals to invest in Nigeria. A capable business class comprised of former military officers, politicians, ﬁnanciers, and industrialists allied to the ruling elite responded to this stimulus of market reforms. These ﬁndings are a depar- ture from developmental state144 and neopatrimonial145 descriptions of an inability of Nigerian regimes to enable private investment due to social divisions and political incentives. However, this clientelistic deployment of advantages to domestic business allies largely perpetuated cronyism in the oil sector.
Third, inequities in the distribution of beneﬁts of a diversifying econ- omy deepened horizontal-elite and wider-societal distributional pressures. These translated into an anti-reform impulse in the oil sector and decline in two ways. One aspect was that the absence of a poverty-reducing component meant economic reforms did not address welfare concerns of
144. Kohli, ‘State-directed development’.
145. Lewis, ‘Growing apart’.
wider society. The National Economic Empowerment and Development Strategy was geared toward empowering the private sector.146 The ‘pro- poor social expenditures’ of the $1 billion per annum of savings from debt servicing147 did not directly target income generation and jobs creation. Although maternal mortality decreased, from 950 to 610 per 100,000 births between 2000 and 2010, poverty increased from 54.4 percent to 69 percent between 2004 and 2010, as did unemployment from 12 percent to 20 percent between 2006 and 2009.148 Unaddressed welfare concerns translated into vociferous distributional pressures for oil rents by unions against deregulation and armed groups in the Niger-Delta, which affected growth.
The other aspect was that the regional concentration of growth dividends in the South undermined the reforms’ horizontal legitimacy among elites. Due to historic socio-economic inequalities between the North and the South, the domestic private sector empowered by liberalization has been largely southern-based. From 1999, the North’s formal loss of presidential power—with the emergence of Obasanjo as President—laid bare its multi- dimensional economic weaknesses. Obasanjo’s market reforms further eroded the North’s ability relative to the South to capture economic resources. Jonathan’s breach of the PDP’s ‘zoning’ elite consensus threat- ened to permanently alter this precarious balance of power, and may have informed the unrelenting opposition to his presidency in the PDP until his electoral defeat in March 2015. Although economic liberalization opened up new economic sectors, the beneﬁts were unevenly concentrated such that the oil sector was magniﬁed both as an object of elite competition and as the primary means of dispensing patronage.
Therefore, African states do not easily ﬁt into binary descriptions of being ‘neopatrimonial’ and incapable of being ‘developmental,’ due to their inherent features such as natural resources and ethnic diversity. Using the political settlements framework, we can analyse retrospectively and potentially envision, the brief windows of opportunity that allow for bursts of policy reforms in seemingly static institutional settings even if their economic outcomes are neither entirely sustained nor fully transformative of society.
146. Okonjo-Iweala, ‘Reforming the unreformable’, pp. 122–123.
147. OSSAP-MDGs, ‘Monitoring and Evaluation for Accountability: The case of Nigeria’s virtual poverty fund’, (Office of the Senior Special Assistant to the President on MDGs OSSAP-MDGs, 2006); Bright Okogu and Philip Osafo-Kwaako, ‘Issues in ﬁscal policy man- agement under the economic reforms (2003–2007)’ in Paul Collier, Charles C. Soludo and Catherine Pattillo (eds) Economic policy options for a prosperous Nigeria (Palgrave Macmillan, London, 2008), pp. 187–219.
148. NBS, ‘Nigeria poverty proﬁle 2010’ (Nigeria Bureau of Statistics NBS, Abuja, 2012); World Bank, ‘World Development Indicators’ (2015).
About the Writer: Zainab Usman is completing her doctorate in international development at the University of Oxford. Her research assesses the oil economy, economic reform and political institutions in Nigeria since the transition to democracy in 1999. She is also the co-convener of the Oxford University China-Africa Network (OUCAN). She tweets at @msszeeusman.
Source: Oxford Academic