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Nigeria and the Oil Curse

Justine Gros - Bsc Politics and International Relations


Intuition would suggest that the abundance of oil reserves would translate into rapid economic growth and high levels of development. Yet, in many resource-rich countries, something intervenes between the independent variable ‘presence of natural resource’ and the dependent variable ‘economic growth’, and throws the previous assumption out the window. Take Nigeria: largest oil producer of the African continent, yet over 40% of the population lives on less than 3USD per day (World Bank Group, 2022). In 2023, it ranked 164 out of 193 countries on the Human Development Index, with a score of 0.560 (UNDP, 2023).


While countries like Saudi Arabia or Norway appear to be blessed by the huge amount of oil, Nigeria seems to have rather fallen on the opposite side of what scholars call the natural resource curse. This theoretical idea posits that abundant natural resources tend to have a negative effect on political and economic outcomes: the wealthier a state is in natural resources, the more likely it is to experience slower economic growth, have weaker democratic institutions and poorer development indicators (Ross, 2016). Nigeria seems to be the perfect illustration of this concept : despite $583 billion generated from oil exports since independence (NEITI, 2023), its development level remains one of the lowest in the world (UNDP, 2023). The oil curse theory sets three main reasons for this phenomenon: oil revenues trapped the country in a vicious cycle of economic undiversification, inequality and corruption : all of these three ‘symptoms’ undermining its development.


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Historical Background

 

Nigeria engaged in oil extraction in the 1950s, initially via Western companies like Shell-BP, and started nationalizing extraction and exportation in the late 1960s after joining the Organization of the Petroleum Exporting Countries (OPEC, 2025). The impact of the petroleum industry intensified in the 1970s, when Nigeria became one of the world’s major oil producer and, at the same time, grew increasingly reliant on it to sustain its economy. By 2023, Nigeria’s total exports were worth $65 billion, 92.5% came from oil (Lambe, 2025).


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Figure 3


I.                   Undiversified Economy


The first symptom of the oil curse we observe in Nigeria is its undiversified economy. Overreliance on oil revenue has turned the country into a mono-economy, i.e. an economy that is heavily dependent on one unique sector – here oil – to be sustainable (Lambe, 2025). It presents two major downsides fot the Nigerian economy’s development. First, it suppresses the growth of other sectors, preventing them from producing their potential amount of wealth, contributing to the underdevelopment of the whole economy. Second, it exposes the entire economy to oil price volatility.

 

In the 2010s, the oil and gas sector contributed to nearly 25% of its GDP, while only 7% could be attributed to other sectors of the economy (African Development Bank Group, 2012). As a result, other production sectors remained siginificantly underdeveloped. Despite diversification policy attempts, such as the Economic Recovery and Growth Plan (ERGP), the targets for the agriculture sector and the manufacturing sector are far from being met: targeted at 6% for the year 2023 in the ERGP, the growth of agriculture did not reach higher than 2.3% that year; regarding the growth rate of the manufacturing sector, it was negative in 2023, reaching -0.3% (National Bureau of Statistics, 2023). These gaps reflect Nigeria’s failure to diversify its economy, which led it to be underdeveloped compared to what it could potentially be if more investments were made in other sectors that generate sustained long-term growth, such as agriculture, manufacturing and technology.

 

Beyond underdevelopment of critical sectors, Nigeria’s mono-economy exposes the country to another risk: global oil price fluctuations. The fact that the entire economy relies on oil rents to function means that on the day oil rents drop, everything in the economy is impacted. For instance, oil price shocks of 2014 and 2020 drowned the Nigerian ecocomy, which went into recession (World Bank Group, 2024). Such economic uncertainty undermines economic growth by discouraging investors, increasing unemployment and reducing consumption.

 

Annual GDP growth rate (%) - Nigeria

 

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Figure 4 

 

 

 

 

II.                  Inequality

The lack of investment in major sectors of the economy reduces the number of job opportunities, many people are therefore unemployed and live in poverty, exactly like the oil curse theory predicts : Nigeria’s oil-driven level of inequality harshly impact its development.

Over the last 5 years, an average of 1.8 million Nigerian per year entered the job market, which is not large enough to offer a job to each of them. The unemployment rate reached over 33% in 2020, with youth unemployment reaching exceeding 45% (Nigerian Bureau of Statistics, 2023). This underdeveloped job market therefore contributes to the very large proportion of the population living with less than 3 USD per day : 40% in 2022 (World Bank Group, 2022). With a GINI coefficient of 35.1, Nigeria ranks among the ten most unequal countries in the world (World Bank Group, 2022). Records show that approximately 50% of national wealth is actually controlled by 10% of the population (Oxfam, 2023). These high rates of poverty and inequality not only led people to find their last resort solution in armed robbery or drug trafficking, they also created resentment among the Nigerian population. Overtime, Nigeria became a catalyst for civil conflict and violence, further undermining its development.

 

 

III.                 Corruption

 

Instead of fueling long-term development by being invested in public services and infrastructures, oil rents tend to be misused and profit to only a little share of the population. This third symptom of the oil curse, systemic corruption, explains why the economy and development of Nigeria do not grow as fast as we would expect.

 

Corruption in Nigeria is particularly evident in Nigeria’s infrastructure deficit. Only 2% of its GDP per year is allocated to infrastructure building and renovation; in comparison, the rest of Africa average around 5% of national GDP allocated to it (Economic metric, 2024). This is especially striking given Nigeria’s resource advantage compared with neigbouring states (cf figure 1). Between 1999 and 2023, whil oil remained a major source of income (66% of total revenue on average), infrastructure spending did not follow such a consistent pattern and received on average only 25% of the total government spending (Umar and Abdullahi, 2025). This gap between oil revenue and infrastructure spending suggest that oil rent did not systematically translate into distribution of public goods and therefore, that the funds were allocated to something else.

 

 

 

 

 

Trend of the share of oil revenue to total revenue and the share of infrastructure expenditure to total expenditure

                      

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Figure 5

 

In 2024, the Transparency International Corruption Perception Index (CPI) ranked Nigeria 140 out of 180 countries, with a total score of 26/100 (Transparency International, 2024). Records estimate that between 2010 and 2020, $15 billion were lost in fraudulent oil subsidy schemes, funds that could otherwise have been invested in critical infrastructure (Lambe, 2025). That data aligns with predictions of the oil curse theory: in resource-dependent states, oil rents do not incentivise public officials to invest in long-term development but rather incentivises them to prioritize private gain over public interests (Ake, 1996).

 

 

Conclusion

 

We do not know how Nigeria would have developed without its oil. What we do know, is that rather than fueling sustainable growth and development, Nigeria’s overdependence on oil revenues entrenched a cycle of underdevelopment, inequality and corruption, just like the oil curse theory predicts. The good news is, those challenges are not unique to Nigeria : they have been faced by other countries, some of which found solutions to overcome them. Malaysia found a solution to its economy’s underdevelopment in strong diversification strategies demonstrating that there is a possibility for oil rents to drive development in other sectors (Ambali, 2018). Regarding inequality and corruption, institutional reforms and governance transparency was the answer in Botswana (Statista, 2023). Although they are far from being a solution in themselves in addition to being delicate to implement effectively, those initiatives could lead to a more long-term vision for Nigeria’s development and eventually, make the country a counter-example of the oil curse theory.

 

Sources

 

  1. African Development Bank Group (2012). Nigéria – Perspectives économiques en Afrique. https://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Nigeria%20Note%20de%20pays%20PDF.pdf

  2. Ambali, M. A. (2018). Economic diversification and development in Malaysia: Lessons for Nigeria. Journal of Comparative Development, 6(2), 55–70.

  3. Ake, C. (1996). Democracy and development in Africa. Brookings Institution Press.

  4. Economic Metric (2024). Comparative development rankings in Africa 2024. https://www.economicmetric.org/

  5. Lambe, E. O. (2025). Nigeria’s political economy in the post-subsidy era: An assessment of structural constraints to national development. Journal of Governance and Development, 21(2), 29-47. https://doi.org/10.32890/jgd2025.21.2.3

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  7. Nigerian Bureau of Statistics (NBS) (2023). Labour Force Statistics: Unemployment and

    Underemployment Report Q1–Q4 2023. https://www.nigerianstat.gov.ng/

  8. Organization of the Petroleum Exporting Countries (OPEC) (2025). Brief History.

    https://www.opec.org/brief-history.html 

  9. Oxfam (2023). Inequality in Nigeria: Exploring the drivers. https://www.oxfam.org/

  10. Ross, M. L. (2016). The Politics of the Resource Curse: A Review. In C. Lancaster & N. Van De Walle (Eds.), The Oxford Handbook of the Politics of Development (1st ed., pp. 200–223). Oxford University Press.

  11. Statista. (2023). Botswana’s Human Development Index (HDI) and governance rankings. https://www.statista.com/

  12. Transparency International (2024). Corruption Perceptions Index 2024. https://www.transparency.org/en/cpi/2024

  13. Umar, U. A., and Abdullahi, S., (2025). Exploring the Nexus between Oil Revenue and Public Infrastructure Development in Nigeria. ISAR Journal of Economics and Business Management, 3(7), 9-20.

  14. United Nations Development Programme (UNDP) (2023). Human Development Index (HDI). https://hdr.undp.org/data-center/human-development-index#/indicies/HDI

  15. World Bank Group (2022). Gini index (World Bank estimate) – Nigeria. https://data.worldbank.org/indicator/SI.POV.GINI?locations=NG

  16. World Bank Group (2022). World Bank Open Data (Nigeria). https://data.worldbank.org/country/nigeria

  17. World Bank Group (2024). World Bank Open Data (Nigeria). https://data.worldbank.org/country/nigeria

 

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