Monday, December 16, 2013

Oil Dependency - Mexico and Nigeria

Although both states have a supporting cast of additional problems from corruption to centralized government ownership of large portions of the oil industry and the ever present foreign exploitation of globalization, the oil-rich states of Mexico and Nigeria have made the mistake over the past five decades of falling into excessive dependency on oil.

Mexico is “rich in oil, silver, and other natural resources” (Kesselman, Krieger, and Joseph, 436) and like any state that is rich or deficient with natural resources, management or a lack of management, corruption and foreign investment/exploitation are usually closely related to the directions of the state. The Mexican state is categorized by the “World Bank as an upper-middle-income developing country” (Kesselman, Krieger, and Joseph, 445) and its “industrial and petroleum-based economy gives it a per capita income ($13,200) comparable to that of countries such as Brazil, Russia, and South Africa, and higher than those of most other developing nations” (Kesselman, Krieger, and Joseph, 445). In the oil rich state of Mexico “the government-owned petroleum industry is a ready source of revenue and foreign exchange, but this commodity also makes the economy extremely vulnerable to changes in international oil prices” (Kesselman, Krieger, and Joseph, 446). A prime example of how oil dependent states are dictated by the ebb and flow of international oil prices was when the Mexican “state-owned petroleum company, PEMEX, grew to enormous proportions in the 1970s and 1980s under the impact of the oil boom” (Kesselman, Krieger, and Joseph, 457) and later when “international petroleum prices plunged in the early 1980s, and Mexico plunged into a deep economic crisis” (Kesselman, Krieger, and Joseph, 442). The correlation between dependence on natural resources and migration becomes evident in the case of Mexico because “the inability of the Mexican economy to create enough jobs pushes additional Mexicans to seek work in the United States, and the cash remittances that migrants abroad send home to their families and communities are now almost as important a source of income for Mexico as PEMEX’s oil sales” (Kesselman, Krieger, and Joseph, 474).

Oil dependency has also had serious consequences on Nigeria as “authoritarian rule has given way to competitive oligarchy, in which an increasingly greedy, oil-rich political elite fight to expand their power, while more than 90 percent of Nigerians struggle to survive on less than two U.S. dollars per day” (Kesselman, Krieger, and Joseph, 525). The Nigerian economy has also been “subject to the fluctuations of the international oil market” (Kesselman, Krieger, and Joseph, 536) as the government has enjoyed “high oil prices and increasing U.S. consumption of Nigerian oil and gas” (Kesselman, Krieger, and Joseph, 536) over the past decades while today “suffering the consequences of not addressing its oil dependence, as its projected oil revenues have dropped more than half as oil prices fell in late 2008 under global recession pressures” (Kesselman, Krieger, and Joseph, 536). Similar to Mexico during the oil boom of the 1970s, “Nigeria greatly increased its expenditures on education, defense, and infrastructure” (Kesselman, Krieger, and Joseph, 538) which spurred “increasing corruption, as some officials set up joint ventures with foreign oil companies and others stole public funds” (Kesselman, Krieger, and Joseph, 538). The largest error Nigeria made was abandoning the Agricultural sector in the face of the booming “petroleum industry” (Kesselman, Krieger, and Joseph, 538) instead of attempting to reinvest into both sectors and expanding exportation. Instead, “Agricultural export production plummeted from 80 percent of exports in 1960 to just 2 percent by 1980” (Kesselman, Krieger, and Joseph, 538). Nigeria’s oil dependency since the 1970s has “relied on oil for more than 90 percent of its export earnings and about three-quarters of government revenues” (Kesselman, Krieger, and Joseph, 539). In the area of migration, interesting enough, Nigeria experienced an inward flow of immigration as “at the height of the 1970s oil boom, many West African laborers, most of them Ghanaians, migrated to Nigeria in search of employment” (Kesselman, Krieger, and Joseph, 546), but today “many Nigerians now flock to the hot Ghanaian economy for work and to countries across the continent, including far-off South Africa” (Kesselman, Krieger, and Joseph, 546).

The following news report link from May 2013 reports a warning from the Organisation for Economic Co-Operation and Development to Mexico on its oil dependency. The reports points out that Mexican president Enrique Pena Nieto’s dedication for overhauling the nation’s energy sector and the opening of the Gulf of Mexico for private sector oil exploration:

http://www.upi.com/Business_News/Energy-Resources/2013/05/17/OECD-warns-Mexico-on-oil-dependence/UPI-49691368786702/

The following news report link from January 2013 on Nigeria’s oil dependency, the exploitation of shale gas in Nigeria and the emergence of fracking in Nigeria:

http://www.businessdayonline.com/NG/index.php/analysis/editorial/50699-fracking-and-future-of-nigerias-oil-dependency



Resources:

Kesselman, Krieger, and Joseph. 2013. Introduction to Comparative Politics, 6th edition. Boston, MA: Wadsworth

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