Tuesday, September 25, 2012

Cargo Cult Arithmetic and Anambra Oil

By Biko Agozino

“The primary association in cargo cults is between the divine nature of "cargo" (manufactured goods) and the advanced, non-native behavior, clothing and equipment of the recipients of the "cargo". Since the modern manufacturing process is unknown to them, members, leaders, and prophets of the cults maintain that the manufactured goods of the non-native culture have been created by spiritual means, such as through their deities and ancestors, and are intended for the local indigenous people, but that the foreigners have unfairly gained control of these objects through malice or mistake. Thus, a characteristic feature of cargo cults is the belief that spiritual agents will, at some future time, give much valuable cargo and desirable manufactured products to the cult members.” (Wikipedia, citing Harris, Marvin. Cows, Pigs, Wars, and Witches: The Riddles of Culture. New York: Random House, 1974, pg. 133-152)

In The Trouble With Nigeria, 1984, Chinua Achebe lambasted the leaders of developing countries who were always boasting that they were prepared to steal technology if those who possess the know-how refuse to transfer it to them. Achebe chided their cargo cult mentality and explained that technology is not like some material possession waiting to be stolen but a way of life and a worldview that can be learned through disciplined study. Rather than look for technology to steal, why not develop your own technology by funding research and development projects?

As oil and gas deposits are being discovered all over Nigeria and in some other parts of Africa, giving rise to claims and counter claims by communities who contest the ownership of the oil-rich land, we need to pause for some sober reflections. There is a gross overestimation of the potential income from oil and gas and as a result, there is an excessive expectation by even learned elites that oil wealth would be enough to banish poverty from the land whereas only a select few are likely to line their pockets from petrodollars. A Professor of Political Economy in Nigeria recently circulated this formula online to rather uncritically buttress the oil bounty hypothesis:

‘1. Crude Oil production/day - 2.5M barrels
2. Current Price = $113/barrel
3. Daily Sales = 2.5M x 113 = $282.5million
4. Monthly Sales = 282.5M x 30days = $8.475billion
5. Yearly Sales = $8.475billion x 12 = $101.7billion
6. Naira Equivalent = 101.7billion x #160 = 16.272trillion Naira per year.
7. Nigeria's budget for 2012 = 4.5trillion Naira.
Even if you take 90% of 16.272trillion naira as the Fed Govt's Share of the barrel, which comes to14.645 trillion naira we still expect over 10 trillion surplus!!! Now, the question is: Where is the surplus going?! -(Analysis by Femi Falana (Senior Advocate of Nigeria/Activist, on Channels Tv).’

I agree with some of the the cargo cult logic in Falana's arithmetic above: Even 10% of the profits from oil since 1960 should be enough to Chinarize Nigeria or out-Cuba Cuba and beat Japan, Singapore or Finland (all with less natural resources than Nigeria) in the improvement to our Human Development Index. However, the danger in overestimating the potential income from oil and gas is that other sectors of the economy end up being neglected even though they contribute more to the economy than oil and gas.

It is cargo cult arithmetic to simply multiply the oil barrels per day by current market price and project to national revenue. In my opinion, such calculations falsely raise the sense of relative and absolute deprivation among the people and potentially heat up communal violence in the struggle over scarce resources.

I recommend that readers should consult the chapter, ‘Revenue Allocation and the National Question’, by Professor Eskor Toyo in the book edited by Abubakar Momoh and Said Adejumobi, The National Question in Nigeria, which I published in the series that I edit for Ashgate Publishers.

According to Professor Toyo, the contribution of oil to the national revenue is less than 50% with the rest coming from taxes (paye taxes and sales taxes mostly) and other sources of revenue from sectors like agriculture, customs and excise, and culture. Surprised? Well do not be surprised. The explanation is that the Nigerian state, like most oil-producing states, is not an oil-producer but a rentier state that collects rents or royalties from the oil companies. The National Bureau of Statistics confirms this by reporting that the contribution of oil and gas to the GDP in the second quarter of 2012 is less than 14% while the contribution from agriculture is 40% http://www.nigerianstat.gov.ng/

This is why oil which contributes over 70% of internal revenues from taxes also contributes a small part of the GDP and the GNP compared to agriculture which employs 70% of the working population: An oil company receives the license to explore for oil in a field; the company invests billions of dollars and sometimes strikes it lucky or fails; when it fails it bears the loss, perhaps written off as tax deductions; when it succeeds, it pays royalties of 10% to the government on the profits (after deducting operating costs, research and development, etc.).

Surprisingly, 10% is considered a generous royalty considering that authors get 8% or less from book publishers as royalties (I think that they are so miserly that they should be called peasantries), with questions emanating about the accurate declaration of sales figures, wastage, theft, subsidy scams and fraud. The recent dispute in Ecuador over agreements with gas companies exposed the exploitative arrangements internationally. The new left-wing government insisted on getting more than 10% in royalties and the gas companies refused. 


Anambra State Government under Peter Obi should be commended for having the foresight to form an oil company (perhaps the only state government with such an investment in Nigeria, nothing stops the other states from doing the same) to refine the oil from the area and thereby maximize the benefits to the state but the people should still be made aware that the expectation, even without corruption and the likely harm to the environment through oil spills, will not come close to the expected revenue and benefits from agriculture. Yet Anambra state continues to neglect the agricultural sector like the rest of Nigeria.

Peter Obi has invested billions of naira to develop Orient Oil Company for Anambra State, building on the foundation laid by his predecessors, starting with Mbadinuju. The question the people of Anambra should be asking is how many billions has Peter Obi invested in agriculture which employs approximately 70% of the people and provides food and wellness beyond anything that the oil industry could aspire to?

The answer is provided in the Anambra State contribution to Vision 2020 in which Governor Obi reports that Agriculture receives less than 1% in capital expenditures of the state compared to 77% for transportation while recurrent expenditure for agriculture is less than 2% compared to 37% for education (I commend this prioritization of education, if only the federal government would fund education as generously at the national level). The report proposed to increase livestock and fruit trees in the state but did not specify how.

Rather than invest heavily in agriculture to modernize it and maximize its contribution to the economy, environment and society, Kogi State and Enugu state communities are already lining up cargo cults to contest ownership of the Anambra oil deposits with an eye on the potential royalties. Yes, there is oil in Enugu state too, especially in Awgu Shale, according to the geological map of Nigeria. Kogi State probably has oil too as oil is being discovered all over the country. All I am saying is that the states with oil should be forewarned not to neglect the golden goose that laid the golden eggs - agriculture. As Nigerians will say, na oil we go chop?

If these states prioritize agriculture they would reduce unemployment much more than is possible through oil and gas and they will create massive wealth for the people and potentially reduce the threat of kidnapping and violent crime. Orient Oil is only a refinery and so it does not really matter where the oil comes from given that Kaduna with no oil had a huge refinery located there by military regimes that strategically refused to cite any such factories in Eastern Nigeria probably out of grudge over the Nigeria-Biafra war.

Peter Obi appears to have tapped into the can-do attitude of the Igbo by actualizing the dream of making Anambra an oil-producing state in spite of the federal government intentions. My warning is that the cargo cultists around an oil refinery should be reminded that oil is a finite resource (as the sunflower logo of Orient Oil symbolizes) and that existing oil refineries in Nigeria are sitting dormant in disrepair whereas agriculture is a renewable resource, a gift that will go on giving forever.

I conclude with my tireless call for the revenue allocation formula to be changed constitutionally to guarantee that 10% of the annual budgets at the federal, state and local governments will be allocated directly to Nigerians to invest as they see fit, similar to the farm subsidies and business or research grants that all industrialized countries disburse constantly to their privileged citizens. In ten years, we will count the miles after the race.

As E.F. Schumacher put it in his classic, Small Is Beautiful: ‘…in agriculture and horticulture, we can interest ourselves in the perfection of production methods which are biologically sound, build up soil fertility, and produce health, beauty and permanence. Productivity will then look after itself.’ He goes on to demonstrate that if we plant one tree for every citizen of Nigeria every year, within 10 years we will have billions of new trees in Nigeria that could help to check erosion and desertification, provide food and beauty and create wealth without requiring a lot of work since the trees will generally look after themselves and also look after us as our best friends.

Governor Kayode Fayemi got the memo and I am impressed to hear that he just distributed half a billion naira to 140 unemployed youth who were retrained and funded to start their own farms in Ekiti state. Governor Peter Obi did get the memo too and distributed 100 million naira to unemployed youth to start their own businesses in Anambra. Comrade President Yaradua surely got the memo when he allocated 200 billion naira to be distributed to unemployed youth for start-ups before he died (and I agree with Baba Soyinka that his death should be investigated thoroughly).

Obasanjo and Okonjo-Iweala snatched the idea up when I first aired it in 2006 and proposed 50 billion naira grants just for cassava farmers and reserved 30% for women but I advised that it is not just for one crop and that women should get 50% of the funds. In reviewing my proposals for poverty eradication in his column in The Guardian, the socialist mathematician, Dr. Edwin Madunagu, agreed with some reservations and suggested that 10% of the budget is too small for this purpose. He may be right, my proposal said that it should be at least 10%.

I commend these tentative steps and urge policy makers not to make them a one off but an annual commitment and not to regard them as loans but treat them as grants. If this is done consistently at the federal, state and local government levels, we will no longer be trying to calculate the square root of minus one or zero with cargo cult mentalities. Obviously, we cannot do this systematically without democratically contesting for power on a progressive platform at the global, continental, regional, national, state and local levels and thereby use our abundant resources to empower the tremendous talents of our people.

Biko Agozino is a Professor of Sociology and Africana Studies, Virginia Tech.

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