The main challenge of my thesis is in trying to understand why Nigeria’s substantial oil income in recent years has not helped in reducing the incidence of poverty in the country.
The understanding of the concept of poverty implies that its existence is preceded by lack of sufficient income required to defray the cost of basic needs of life (World Bank, 2008). However, this simple and conventional definition appears incompatible with the reason why poverty is predominant in some developing economies of the world, particularly the category of Oil Rich Countries (ORCs). This is because insufficient resource that results in absolute poverty is not the major challenge facing these countries, given that they are characterised by huge oil and gas reserves. Strengthening this argument, the studies by Sachs and Warner (2001) and Sala-i- Martin and Subranmanian (2002) revealed that some natural resources – oil and minerals in particular – could exert a negative nonlinear impact on growth via their lethal impact on institutional quality.
According to Oil and Gas Journal (2011), Nigeria has an estimated 37.2 billion barrels of proven oil reserves as of the end of January 2011, making it the largest in Africa and the 7th world exporter (tying with Kuwait - sharing the same rank). Given this level of natural wealth, one would expect that the greater proportion Nigeria’s population should be living above the threshold of the internationally defined poverty line, $1.25 per person per day (Sachs, 2005). Unfortunately, the period coinciding with progressive growth in oil revenue in Nigeria is associated with increase in the population of the poor, from 27.2% in 1980 to 69.0% in 2010 - National Bureau of Statistics (2010).
The central argument therefore is that, Nigeria’s oil has not yielded the desired result with respect to addressing absolute poverty in the country. First, oil income has increased volatility in growth,
inflation and the exchange rate, and the poor are the least able to protect themselves against these fluctuations. Second, there is strong, albeit not conclusive, evidence of Dutch Disease in Nigeria: oil export earnings have created a chronic tendency towards exchange rate overvaluation, crowding out manufacturing and especially agriculture, the latter being the sector in which most of the poor work.