ONSHORE AND OFFSHORE DICHOTOMY; IMPACT ON THE NIGERIAN ECONOMY

ONSHORE AND OFFSHORE DICHOTOMY; IMPACT ON THE NIGERIAN ECONOMY

CHAPTER ONE

INTRODUCTION

 1.1     BACKGROUND OF THE STUDY

Since the beginning of time, economic growth has been a topic of discussion in both academic and non-academic contexts. As a result, it was thought that identifying the dynamic sector might be done by tracking the expansion of important economic sectors to evaluate their contribution to the entire national economy (s). Nigeria’s oil history dates back to the early 1900s, when the British colonial authority, soon after establishing Nigeria as a distinct legal entity, began the nation’s initial geological study. Oil has been the foundation of Nigeria’s economy ever since 1956, when the first oil well was dug at Oloibiri, until mid-2013, when the price of the commodity fell by an unimaginable amount. The creation of policy in Nigeria appears to Always react to the oil scenario or try to profit from it. This typically manifests as “raising expenditure on petroleum earnings, maintaining the posture in the event of a decline in income, and seeking a desperate outcome in the event of a crisis” (Biodun 2014). The need to assess the impact of oil revenues on the Nigerian economy has become imperative. Alley, Asekomeh, Mobolaji, and Adeniran (2014), state that Nigeria earned US $ 390 billion in oil-related tax revenues over the period 1971-2005. Nigeria had a population of about 173.6 million in 2014 and is by far the most populous country in Africa. Nigeria also has the largest economy in Africa with a gross domestic product of $ 522.6 billion in 2013. Nigeria is also Africa’s biggest petroleum producer. However, Nigeria’s oil wealth has proven to be both a blessing and a curse at the same time. The Nigerian oil industry in Nigeria 2 has made unprecedented changes economy, particularly over the last five decades, when it replaced agriculture as a cornerstone of the Nigerian economy (Aigbedion and Iyayi, 2017).

On the other hand, the oil industry has reached the peak of the Nigerian economy, contributing a significant share of the gross domestic product and accounting for the bulk of federal government revenue and foreign exchange earnings since the beginning of 1970 strategic oil industry for national development and growth in Nigeria. Oil and gas account for about 90 percent of Nigeria’s foreign exchange earnings and 83 percent of its GDP (Ogbeifun, 2008). The oil and gas industry is strategic for national development and growth in Nigeria (Abu and Chidi, 2012). However, Adewumi and Adenugba (2010) estimate that Nigeria is one of the largest producers of crude oil in the world, the 10th largest producer, and the sixth largest exporter of members of the Organization of the Petroleum Exporting Countries (OPEC). Nigeria, Africa’s largest crude exporter, has continued to import refined petroleum products after more than 50 years of crude oil extraction (Nwanze, 2007). Nigeria joined (OPEC) in 1971 and established the Nigerian Petroleum Corporation (NNPC) in 1977; a state-owned and controlled enterprise that is a major player in the upstream and downstream sectors. The Nigerian oil industry is divided into two sectors, the upstream sector (which deals with exploration and production) and the downstream sector, which deals with the refining of crude oil for domestic consumption (Odeh, 2011).

To highlight some significant events and developments in response to a review of Nigeria’s experience as a nation-state, it is intellectual to present a brief overview of the game to understand the distinct phases by which the nation has crossed to reach its current political and economic state condition about the distribution of income. Some of these historical periods have experienced such a degree of economic stability that in terms of revenue allocation and economic stability, not only have large studies been conducted for the promotion of social and economic development, but also the overall good functioning of the governmental system. Both the regional and federal levels have shadowed the negative consequences of power struggles and in the late 1950s, the myth of Nigeria as a “stable democracy” enjoyed great international credibility (Ogbeifun, 2016). However, income allocation in Nigeria has been one of the most difficult and controversial issues. In particular, the “derivation principle” has been very controversial in the country’s fiscal federalism since the discovery of oil in 1958. The derivation principle aims to allocate income from natural resources (oil and gas for example) to the federation on the basis perceived as fair, with particular attention to resource-producing states and regions (Biodun, 2014). Since the introduction of the principle by the colonial administration of the time, the underlying formula has undergone many retrograde changes, following a pattern that concentrates revenues with the central (federal) government. The percentage of revenues accruing to the producing states increased from 50% to 1% in the 1990s, and then to 13%, which does not reflect fully extraterritorial income. This was deemed unfair and unacceptable by the producing states, in particular the Akwa-Ibom and Ondo states, whose oil is virtually 100% offshore, which technically limits their benefits from the diversion principle. This has resulted in the continual agitations of these states for a fair share of God’s natural gift for his effective development. The equity proposed by the derivation principle in its original sense is of great importance because it is an instrument that can promote the diversification of sources of income for the country, support economic development and reduce hostility. in the Niger Delta and any other rich resource region in the future. States and regions endowed with natural resources other than oil and gas will now be forced to develop these natural resources and will thus benefit from this principle. Unfortunately, the principle has been severely compromised by various political and ethnocentric factors, leaving the producer states (minority) with a very small percentage of diversion (Aigbedion and Iyayi, 2017).

Realizing that the 1979 Constitution and the subsequent Revenue Distribution Act (Cap16) had not specifically addressed the thorny problem of the onshore-offshore dichotomy, President Babangida proceeded by Decree No. 106 of 1992 amending the law. The amendment says: “The sum of 1% of the mineral income account of the Federation shall be shared among the mineral generating countries according to the number of minerals produced in each state and, in the application of this provision, Onshore Dichotomy – Revenues from offshore oil, oil, and non-mineral oil production are eliminated. The two dichotomies: production on land and at sea; oil and non-oil resources have been repealed by this decree. Those who wanted to claim that this decree has never been signed or published in the Official Gazette may not have been, or are not yet, so they should not apply. This is the extent of our misdeeds and divisions. It is undeniable that all these schemes were given to militancy in the Niger Delta. Sani Abacha, General Sani Abacha, in 1994-1995. At this conference, the Revenue Allocation Committee presented a resolution that was hotly debated, amended, and then unanimously confirmed by the entire screen (Abu and Chidi, 2012). This resolution provides a formula for administering the derivation principle and contains three very important embodiments. The first is that the allocation to the derivation must be at least 13%. The second is that the dichotomy between onshore and offshore exploration should not be taken into account for income allocation purposes. Thirdly, the borders of coastal states were clearly defined as extending to the exclusive economic zone of Nigeria, which was then two hundred nautical miles. The 1999 constitution we are applying today has its roots in the conclusions of this conference. On the issue of public revenues, the constitution says: “The President, after receiving the opinion of the Revenue Mobilization and Budget Committee, will submit to the National Assembly proposals for the allocation of income from the account. of the Federation and by determining the formula, the National Assembly takes into account the principles of attribution, in particular, those of the population, the equality of the States, the generation of internal revenues, the land mass, the ground as well as the only population density; provided that the principles of derivation are consistently reflected in any formula approved as representing not less than thirteen percent of the revenues of the Federation’s account derived directly from natural resources (Ogbeifun, 2016)”

According to Odeh (2011), before the advent of the 1999 constitution, the derivation principle was subject to severe and fanciful gerrymandering by the various presidents and heads of state who had ruled Nigeria. This was because, although the principle was recognized and accepted, there was no guiding formula. Until 1970, the diversion was fifty percent. Decree No. 113 of 1970, presented by the wise Obafemi Awolowo and promulgated by General Yakubu Gowon (Rtd), reduced it to 45% while allocating to the federal government all offshore oil revenues. This was the sad start of the onshore-offshore dichotomy. But it was an emergency effort to get enough money for the federal government to continue the war and rebuild Nigeria. The minority members of the oil-producing states have been persuaded to make this sacrifice in the interest of the unity and development of this country. This arrangement was expected to end with Gowon’s reconstruction program. Instead, in 1977, General Olusegun Obasanjo (rtd), as head of state, invested 20% more in the center, reducing the amount allocated to the diversion to 25%. At the same time, it has retained all the revenues from offshore production, thus preserving the offshore dichotomy on the coast (Odeh, 2011). In 1981, even in an elected political regime supposed to be democratic, Alhaji Shehu Shagari suppressed another 20%, bringing the onshore oil diversion to 5%. In 1984, General Mohammed Buhari (rtd) further removed 3.5%, bringing it down to 1.5% while retaining offshore revenues. It was only General Ibrahim Babangida (retd), who was not called Maradonna for nothing, who had done something unique and interesting. While reducing the diversion to 1%, he created an improvement fund called OMPADEC at 3% for the development of the oil region. This effectively brought the total due to the derivation to 4%. The four percent of President Babangida applied to all oil revenues, both abroad and on land. This de facto abolition of the onshore-offshore dichotomy marked the beginning of the restoration of justice and fair play for distressed populations in the Niger Delta region (Adewumi and Adenugba, 2010).

 

1.2     STATEMENT OF THE PROBLEM

Now it is obvious that oil production was as important to Nigeria as oxygen. In actuality, oil still serves as the impetus for the government’s economic policy despite current attempts. Due to its over-dependence, Nigeria’s economy is vulnerable in all areas, particularly given the present overall challenges it is experiencing. There are problems with creating an equitable onshore-offshore dichotomy that is understood nationwide. Over the years, as many as thirteen different formulas have been tested, and each received some criticism and animosity from different regions of the nation-state.

 

1.3     PURPOSE OF STUDY

The work aims at examining the onshore-offshore dichotomy to fully appreciate its impact on the economic stability of the nation. This work also reviews some past revenue share principles to place this work on the proper historical perspectives.

The specific objectives of this study are:

 

1. To examine the impact of the revenue share formula on the economy.
2. To examine whether onshore-offshore dichotomy issues contribute to economic instability in Nigeria.
3. To examine whether the onshore-offshore dichotomy is to the development of the economy
4. To examine whether the increase in revenue sources increases revenue avoidable for economic development

 

1.4     RESEARCH QUESTIONS

1. Does the revenue share formula adversely affect the economy of the country?
2. Does an onshore-offshore dichotomy issue contribute to economic instability in Nigeria?
3. Is the onshore-offshore dichotomy to the development of the economy?
4. Does an increase in revenue sources increase revenue avoidable for economic development?

1.5     SIGNIFICANCE OF THE STUDY

This study will be beneficial to society after clearly identifying the issue of revenue sharing facing the nation-state of Nigeria and after making unceasing efforts to educate citizens on the problem and the flexibility with which it formulates the fundamental formula for the distribution of income among the various levels of government, the three levels of government, and onshore-offshore dichotomy states to promote national unity.

1.6     SCOPES OF STUDY

This study covers the effect of the onshore-offshore dichotomy on the economic stability in Nigeria with a focus on revenue share.

 

1.7 LIMITATIONS OF THE STUDY

This study may not be carried out without some constraints. Many factors may handicap and hinder the research from meeting up with the research among the factors are;

Cost: For the total accomplishment of the objective of the study to be achieved, the demand is much more costly than the researcher could afford.

Time: While carrying out a study of this magnitude, it will require more time than that which was given to the researcher and this will be a serious limitation on the researcher’s work.

The attitude of respondents: The attitude of the respondents toward the researcher may be discouraging. In the course of gathering data for this study, some respondents may show great apathy in releasing information thereby reducing the possibility of eliminating bias.

The academic program at the time of study

A student researcher aimed this study out; following this at the time of this study, there was a lot of disruption of academic work and as a result, the motivating factors and joy that follow researching weren’t there.

 

1.8     DEFINITION OF TERMS

Revenues: By revenue, it refers to the return field on the source of any land property or other important sources of income.

Principles of allocation: This refers to the rules applied to general law to be applied in the allocation of revenue. “Criteria” means the stand by which, to Judge the budget for the criteria to be applied, there need to know the purpose of the allocation, which shifts financial resources from one fiscal unit to the other.

National development: This can be described as the interaction to be formed by all independent societies, which performs the functions of interrogation, and adoption – both internally and vis-à-vis other societies using the employment of, or threat of employment more or less legitimate physical compulsions.

ONSHORE AND OFFSHORE DICHOTOMY; IMPACT ON THE NIGERIAN ECONOMY. GET MORE OIL AND GAS/PETROLEUM ENGINEERING PROJECT TOPICS AND MATERIALS

Sharing is caring!