Corruption In Nigeria’s Oil Sector: Fuel Subsidies Gone Missing

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By Crystal Nwaroh
Crystal Nwaroh is an Economics Intern at Global Financial Integrity.

Nigeria is an intriguing oxymoron. Though the country is blessed with abundant oil and other natural resources, its own mismanagement and corruption has prevented it from fully reaping the benefits of these resources. The country is one of the world’s largest producers of oil, yet this has not had a significant impact on the welfare and standard of living of its citizens, the majority of whom live below the national poverty line. Nigeria has struggled with managing its vast supply of oil, which has resulted in the loss of billions of dollars from its economy. More recently, massive corrupt activities have been discovered within the government fuel subsidy scheme and the story continues to unfold as more investigation and attention is being drawn to the issue.

In January, the Nigerian Government announced the removal of the subsidy on fuel, which sparked a nationwide strike with businesses, schools, and airports closed for several days. The removal of the fuel subsidy resulted in the increase of petrol pump prices from $0.40/liter to $0.86/liter. Protesters were not only upset about the increase in petrol prices but they were also unhappy with the abrupt way the change was implemented. In a country where the government is not trusted (based on past transgressions), the sudden removal of a fuel subsidy that has been in place for years raised a lot of eyebrows. According to the Nigerian Government, the removal of the subsidy was aimed at improving the economic development capacity of the country. However, the fuel subsidy cost Nigeria about US$8 billion in 2012 and the country has not been able to adequately account for how the money was spent.

For example, Farouk Lawan, the head of the parliamentary probe into the fuel subsidy scheme, was accused of collecting US$620,000 out of the alleged $3 million bribe to remove the name of Zenon Oil from the list of companies that received subsidy money without importing fuel. Audio recorded tapes of the conversation between Lawan and the head of Zenon Oil describe the details of the bribe:

 

Following the strike, the government reinstated some of the subsidy money, which led to a further investigation that uncovered US$6 billion defrauded from the fuel subsidy fund in the past two years. In other words, there was a huge discrepancy between the amount of fuel being subsidized and actual fuel consumption. It was found that a total of 15 fuel importers collected more than US$300 million in fuel subsidy money without importing any fuel. It was also discovered that the subsidy encouraged smuggling activities, whereby fuel importers shipped some of the fuel meant for local consumption to other countries and sold them at a higher price. Unfortunately, the perpetuators of these crimes, focused on short term personal benefits, do not realize the long term negative ramifications of their crimes on themselves and their fellow countrymen.

The fraud in the government subsidy scheme indicates the almost unimaginable scale of corruption in Nigeria, as fuel subsidies constitute 30 percent of government spending. As a Nigerian, I applaud the efforts of the government in trying to unravel the mystery of the fuel subsidy funds, but this shows that Nigeria has a long way to go in tackling corruption. In its December 2011 report, Global Financial Integrity estimates that US$18.2 billion is siphoned out of Nigeria each year. Instead of funding the development of other areas such as infrastructure, health and education, billions of dollars are siphoned out of the country for personal use or are sitting in the bank accounts of government officials across the Atlantic.

Though the inquiry into the use of the long-time fuel subsidy is a step in the right direction for Nigeria, the effectiveness of the movement is useless in the face of endemic corruption. In order to see economic development and prosperity in Nigeria, corruption must be dealt with severely, starting with government officials who have been found to be the major culprits in the past.

 

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