Course:GEOG352/Economic Perspectives: Lagos, Nigeria

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Overview

Infographic about Lagos, Nigeria

In an era of transglobal socio-economic interaction, understanding the fluctuations and growth in geographically-southern urban nodes from an economic perspective is of critical importance. Lagos Metropolis witnessed one of the highest levels of urbanization between the periods of 1980 to the present[1]. The mega-city located in West Africa is not only the most populated urban center in Nigeria but on the sub-continent, with an exponentiating population estimated at 21 million inhabitants[2]. As growth persists, Lagos is expected to continue to strain the city’s socio-economic and ecosystemic fabric[3].

Historically, migrants came to Lagos and settled there for agricultural purposes and to take advantage of the fertile land and waters around Lagos Lagoon and the Niger Delta. Today, people are settling in Lagos as a result of a post-colonial capitalist shift that has restructured the economy since its colonial independence from Britain in the 1960s. The traditional Nigerian economy has been modified from a hitherto reliance on agriculture and import-substitution industrialization to an economy overly dependent on crude oil since the 1970s[3] [4]. As the fossil fuel industry grew there was demand for diversification, which led to an increase in service sector opportunities, in both the formal and informal sectors. The formal sector is largely dominated by banking and telecommunications, whereas the informal sector is much more diverse and growing as people, from surrounding rural and urban areas on the African subcontinent, seek more viable economic opportunities.

Lagos’ sustainability has been compounded by regime instability within Nigeria’s governments which, on all levels from municipal to federal, has experienced a fluctuate mixture of military and civilian rule–where the former often mobilized to secure power rather than seek to undo the incompetencies of the former regime through sustainable socio-economic central management[3]. Nigeria went from being self-sufficient to being food insecure and a major importer because its fixed exchange rate policy, adopted following independence, led to an eventual overvaluation of the currency which facilitated the influx of cheaper import goods, from international economies of scale, ultimately to the detriment of the domestic agricultural and manufacturing sectors[1]. Thus, real economic activities have increased in non-agricultural sectors since the 1970s, thereby weakening Nigeria’s traditional informal-based economy[5].


Lagos and Fossil Fuels

The oil industry is at the center of Lagos’ and Nigeria’s economy and has been since the discovery of crude oil by Shell Group in 1956. The industry has been historically dominated by Multinational Corporations, until the 1990s when state-owned companies began to develop. Nigeria is largely an exporter of crude oil, which has a less profitable market value than refined oil, but measures are being taken by the Nigerian National Petroleum Corporation to develop refineries in Nigeria. As it stands refineries are working at 30% of the built capacity, however, a $12bn oil refinery is being constructed east of Lagos in Lekki[6]. The refinery project will be the biggest of its kind globally and will be able to refine a third of Lagos’ oil production providing Nigeria’s 180 million people with petrol and kerosene locally, rather than having to import refined petroleum products[6].

Nigeria, a member of Organization of Petroleum Exporting Countries (OPEC), has primary exported crude oil; of which it possesses 37.2 billion barrels of proven oil reserves, with 187 trillion cubic feet of proven natural gas[3]. At the national scale, Nigeria generates an average of 2.3 million barrels of crude oil per day, which further contributes economically through the production of fertilizer and liquefied gas derived from residual gas production[3]. At the onset of its exponential economic growth from its petroleum industry, from 1970-1980, Lubeck (1977, p. 6)[3] recorded that “oil [accounted] for nearly 93 % of Nigeria’s export earnings, 75 % of foreign exchange earnings, 87 % of total government revenues, and 45 % of the Gross Domestic Product.” Under such economic conditions, Nigeria began to emerge as the largest exporter of crude oil in Africa, now placing tenth largest in the world, while it progressively degenerated and undermined the agricultural and informal sector which previously employed the country’s majority[3] [1]. In other terms, the emergence of Oil into the Nigerian economy, whose network is centered in Lagos, displaced agriculture in terms of foreign exchange earnings such that as the economy grew from about 6 % annually in the 1960s to more than 8 % after 1973, agricultural production lagged behind both economic and population growth rates, highlighting the metabolic rift which now undermines the food security of Lagos and Nigeria[1] [7] [1]. Through this oil-driven systemic and economic shift, the role of agriculture and farmers were inadequately accounted for my government economic initiatives, so that the relative prices shifted against the interests of agrarian-based incomes in the greater rural-periphery. The effects of which caused income per capita in the rural areas to be comparatively lower than those obtained in the cities. Where “public sector investment in physical and social infrastructures continued to increase while agriculture was ignored”[3]

A Case Study: An Oil Economy in Lagos, Nigeria

As the revenue-stream from oil exports continued to surge and overwhelm Nigerian policymakers, government enticed by the economic advancements of the African oil-bubble engaged in unsustainable public expenditures to stimulate the growth further[3]. As quoted by Essien[3]; Nigeria was “lured not only into the courts of the credit agencies of Europe but also into the net of the International Capital Market (ICM)” adding how by 1975, “the oil boom became less of a blessing.” In another excerpt, Falola[3] observed how Government was “not concentrating on other parts of the economy,” and “millionaires had arisen from illegal monetary sources”[3]. By the turn of the 1978 Oil Crisis earnings from oil were low and the country had contracted a series of loans such that by 1985, “over 33 percent of export earnings was meant for debt service.” [3]. In the past decade, the Lagos-centered economy has experienced increased growth, with an average rate of 6.68 % in GDP growth (2005 to 2010) and an estimated real growth rate for 2011 of 7.36 %. In the same year of 2011, agriculture (40.24 %), wholesale & retail trade (19.38 %), and crude oil and natural gas (14.71 %) made up over 70% of Nigeria’s GDP (National Bureau of Statistics)[3]. The recent rebasing of the country’s GDP has made Nigeria the 26th largest economy in the world and the biggest in Africa, with a GDP of US$510 billion[3]. In 2010 and 2011, for example, 87.1 and 89.1 % of Nigeria’s exports comprised of petroleum oils, gases, and other petrochemical materials, according to the Standard International Trade Classification (SITC)[3]. While some scholars claim the oil sector has contributed over 95 percent in export revenues since the 1990s, although Nigeria has remained underdeveloped[8]. Indeed, the country continued to depend on and develop its economy around petroleum exports, reflecting a very high level of mineral dependency, to the detriment of other sectors, even in the years to come [3].

Policy, Corruption and Fossil Fuels

A recent policy that effectively illustrates the institutional dynamic of business in Nigeria, which has undermined the poor-strata through increased the cost of transportation, goods, and services in the country and impacted citizens’ cost of living, is the fuel subsidy removal at the beginning of 2012 by the Federal Government[3]. Due to Nigeria’s accumulated debt from overvalued currency, Nigeria’s refineries were not functioning properly, and the country, though a producer of crude oil, began to import fuel as it relied too heavily on exports to remit national debt. Initially intended to last 6 months, the fuel subsidy, introduced in the 1980s to maintain the citizens’ standard of living, lasted for 24 years[3]. In preliminary discourse, the government argued for the removal of the fuel subsidy, claiming it “was necessary because only a few people benefited from it; it would help expose the corrupt agents and fight corruption; it would save the country N479 billion; this money could be redirected to building infrastructure; and the outcome of the lifting of the subsidy would be that it would attract foreign investments”[3]. On the grassroots level, the citizens of Nigeria headed by the informal enclaves of greater-Lagos, vehemently opposed it due to the dependence of institutional protectionism that arose such that “the masses who would bear the brunt of the pain”[3]. The civitas argued instead that, “social amenities and infrastructure should be put in place by the government before the subsidy was removed as the prior removal of subsidies on diesel and kerosene had not led to any identifiable positive outcomes; and petroleum was a product that the average Nigerian logistics and courier transportation services travelers, commercial drivers, unskilled and skilled workers, goods transporters, capitalized on as an input in their sources of living[3]. Despite public opposition, the subsidy was relinquished and with gusto; instead of the pre-agreed time of April 2012, it was implemented in January 2012 [3]. Consequently, prices of products and services which assume the form as fixed costs for households and individuals–school fees, clothing, rent, transportation, and medicine–increased, as well as intermediary and final products of businesses while incomes remained the same [3].

Economic Growth, Issues and Disparities

Where economic growth indicators have been positive in Lagos and greater Nigeria, human development indices have been bleakfully poor as the current levels of unemployment, poverty, and inequality are high[3]. For example, the national poverty level of Nigeria increases mirrored the growth and structural adjustments produced residually from the oil sector, with rural poverty (63.3 %) being higher than urban (43.2 %)[3]. from 1980 to 2010. Elaborating further, from 1980 to 2010 the poverty incidence went from 27.2 % to 69.0 %, with the estimated population living in poverty of 112.47 million[3]. Due to its linkages within the national socio-economy, Lagos is a key state for Government and for investors; however, it is also a state which manifests the contemporary social issues cultivated through neoliberal reconstructions of the Nigerian economy, characterized by income extremities and inequalities, an iconic exemplar of a country with high levels of poverty, unemployment, and inequality coexisting with astonishing private affluence generated from oil revenues[3] [7] [1]. Consequently, the extent of foreign interests in the control of the Nigerian economy became unprecedented, especially with visibility of multinational corporations (MNCs) in various sectors including oil industry, construction, manufacturing, telecommunication and conglomerates.

The logistics and role of Multinational Companies in Lagos

The introduction of MNCs into the Nigerian economy has resulted in the oil sector contributing over 95 percent of export revenues since the 1990s[8]. Foreign investment in conjunction with low price conditions has resulted in the development of profitable crude oil exports for European companies and American firms. In particular, it has been American firms who have capitalized enormously in large part due to their technological expertise and logistical network around the globe[9].

Not much has been researched in logistic outsourcing in relation to the role that MNCs play in Africa[10]. European companies, like Shell, have been incorporating third-party logistics as a means to reduce overseas costs and remain profitable. Third-party logistics (3PL) represents the outsourcing of jobs within the organizational supply chain processes[11]. Logistical services are an integral part of the operations and supply processes within the oil & gas industry (O&G). The logistical services provided by O&G in Lagos are not a part of its exploitation, production, and refining operations. Instead, O&G firms and companies require external agents to provide a ‘human’ element to their business within Nigeria. External agents are responsible for leveraging assets for economies of scale and scope and to provide professionalism to the oil industry[12]. Outsourcing logistics is a viable means for companies and firms to “reduce costs and increase flexibility” in relation to their investments in a nation or city[12]. Capital will always seek out areas in where it can cut costs and maintain profits. In the case of Lagos, this illustrates direct foreign investment as a means to develop the economy of Lagos rather than investment into social or environmental apparati.

The Rise of the Service Sector in Lagos

The demand for a service sector in Lagos came from the change in the traditional Nigerian economy which focused heavily upon agricultural exports to an economy centered upon crude oil exports.[4] Following the industrialization of Lagos and increased crude oil exports, economic activities within Nigeria have become dependent upon the non-agricultural sector of industry. Consequently, the traditional Nigerian economy has become weakened as reflective by the rise of income inequalities, housing shortages, and the formation of an unregulated informal economy within Lagos.[5] Akinwale (2009: 276) depicts life within Nigeria prior to the industrialization of the nation as: Within the context of effective kinship structure, cases of poverty, unemployment and crime were relatively low. However, with the advent of Westernization, traditional structures that kept people together were weakened.[13] Additionally, during the 1970s demand for highly skilled petroleum workers exceeded the supply within Nigeria .[14] This resulted in the introduction of Ghanaians into the economy as a result of the oil boom within the nation of Nigeria. Consequently, the extent of foreign interests in the control of the Nigerian economy became unprecedented.[15] This is emphasized by multinational corporations (MNCs) in various sectors including the oil industry, construction, manufacturing, telecommunication and conglomerates.

Nigeria’s reliance on oil resulted in development and growth spillovers in Lagos’ transportation, Information and Communications Technologies (ICT), and banking services which has created a tacit network amongst the larger oil industry and subsidiary service industries to oil–such as accounting, law, or telecommunications and financial consulting [16] [1]. This was facilitated by agreements between MNCs and the state to utilize more local inputs in their operations as a means of economic inclusion [1] [16]. The Nigerian Content Act (2010), further supports the domestic supply of oil and promotes local formal business and job opportunities [16] [1]. These endogenic business networks are what scholars refer to as backward linkages– the linkages between oil firms and their input suppliers– which take a variety of forms [16]. Such, interdependent linkages takes the form of local sourcing, information exchange, joint training, joint order and/or purchase or sales, joint product development, machinery lending, cooperation for product or quality development and improvement and actions to improve service delivery.

Lessons Learned

In light of the socio-economic phenomena in Lagos, the city’s prospective future under such an oil-biased political-economy is bleak. Lagos and greater Nigeria currently lacks the capacity to be an agglomeration economy–a multifaceted industrial network made resilient through its regional socio-economic linkages–which is best equipped to placate the decentralizing nature globalization has on national- and economic- sovereignty [3] [1]. Under Nigeria’s present path dependence, with an economy centralized within industrial districts of Lagos, its lacks “the competitive technology and human resource base necessary for a robust role in a globalized world”[1]. As in many cities in rapidly developing regions, Lagos’ incapacity to develop "niche product" stems from the rigid politically-derived production structure which prevents appropriate organizational frameworks for technology and human resource[1]. This situates Lagos behind the industrial trajectory of the nations whose capital Nigeria’s oil-sector relies on, such that it is entrenching the country into an inter-state relationship illustrated by Dependency Theory–which highlights emerging, southern nation’s reliance on foreign aid to assuage the failures of undeveloped institutional frameworks while the North is reliant their resource exportation to sustain its industrial complexes. Through our research, the evident effects of globalisation within the Lagos cityscape, are the radical shift in the its land use pattern and the regional-economy’s high dependency on imported consumer goods, leading to a decade depletion of industrial enterprises and attendant erosion of job opportunities leading to a systemic reliance on the informal sector rather than state mechanisms. At this stage, any technical advice for the socio-economy, would be normative, however, Lagos-state needs to fundamentally reconfigure its socially-engineered distribution mechanisms, which now restricts its economic diversification and increases its reliance on oil-finance and informal sector assumptions of formal roles. It is also important to note that the use of oil and gas are environmentally unsustainable therefore diversification is crucial for the economic survival of Lagos. Throughout Lagos case study we also identified economically derived urban phenomena in the context of this African megacity that can be used to understand the uniqueness of this city and the extent to which its economic development can be applied to other cities that are oil dependent.

Reference List

  1. 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 Oduwaye, L. (2013) Urban Planning Implications of Changing Land Use Structure of Metropolitan Lagos, Nigeria. Retrieved April 06, 2018, from http://catalog.ihsn.org/index.php/citations/64971
  2. Leithead, A. (2017, August 21). The city that won't stop growing. Retrieved April 05, 2018, from http://www.bbc.co.uk/news/resources/idt-sh/lagos
  3. 3.00 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 3.09 3.10 3.11 3.12 3.13 3.14 3.15 3.16 3.17 3.18 3.19 3.20 3.21 3.22 3.23 3.24 3.25 3.26 3.27 3.28 Oyeyinka, O., & SpringerLink ebooks - Economics and Finance. (2017). Industrial clusters, institutions and poverty in nigeria: The otigba information and communications technology cluster. New York: Springer. doi:10.1007/978-3-319-41151-4
  4. 4.0 4.1 Chukuezi, C. O. (2010). Urban informal sector and unemployment in third world cities: The situation in Nigeria. Asian Social Science 6(8), 131-137.
  5. 5.0 5.1 Olaniyan, A. O. (2009). Standing history on its head: Deconstructing Africa’s encounter with the fourth epoch. In T. Babawale, A. Alao, F. A. Omidire and T. Onwumah (Eds.). Teaching and propagating African and Diaspora history and culture. (pp. 41-54) Lagos: Centre for Black and African Arts and Civilisation (CBAAC).
  6. 6.0 6.1 Pilling, D. (2018, March 24). Nigerian economy: Why Lagos works. Retrieved April 01, 2018, from https://www.ft.com/content/ff0595e4-26de-11e8-b27e-cc62a39d57a0
  7. 7.0 7.1 Ajibade, I., & McBean, G. (2014). Climate extremes and housing rights: A political ecology of impacts, early warning and adaptation constraints in lagos slum communities. Geoforum, 55, 76-86. doi:10.1016/j.geoforum.2014.05.005
  8. 8.0 8.1 Guseh, J. S. and Oritsejafor, E. (2007). Government size, political freedom and economic growth in Nigeria, 1960-2000. Journal of Third World Studies XXIV (1), 139-165.
  9. Nick Antill & Robert Arnott, Oil Company Crisis: Managing Structure, Profitability and Growth (Oxford Institute for Energy Studies, 2003), p. 43, available at http://www.fes.de/pdf-files/bueros/washington/ 00743.pdf
  10. Emah P. Etokudoh, Mehraz Boolaky, and Mridula Gungaphul, (2017). Third Party Logistics Outsourcing: An Exploratory Study of the Oil and Gas Industry in Nigeria, SAGE open. (1-19)
  11. Emah P. Etokudoh, Mehraz Boolaky, and Mridula Gungaphul, (2017). Third Party Logistics Outsourcing: An Exploratory Study of the Oil and Gas Industry in Nigeria, SAGE open. (1-19)
  12. 12.0 12.1 Zhu, W., Ng, S. C. H., Wang, Z., & Zhao, X. (2017). The role of outsourcing management process in improving the effectiveness of logistics outsourcing. International Journal of Production Economics, 188, 29-40.
  13. Akinwale, A. A. (2009). Reviving African values: A viable alternative to disarticulated de-velopment. In T. Babawale, A. Alao, F. A. Omidire and T. Onwumah (Eds.). Teaching and propagating African and Diaspora history and culture. (pp. 265-285) Lagos: Centre for Black and African Arts and Civilisation (CBAAC).
  14. Campbell, E. K. (2007). Reflections on illegal immigration in Botswana and South Africa. African Population Studies 21 (2), 23-44.
  15. Campbell, E. K. (2007). Reflections on illegal immigration in Botswana and South Africa. African Population Studies 21 (2), 23-44.
  16. 16.0 16.1 16.2 16.3 Adewuyi, A. O. & Oyejide, T. A. (2012) Determinants of backward linkages of oil and gas industry in the Nigerian economy Retrieved April 06, 2018, from https://www.sciencedirect.com/science/article/pii/S0301420712000438?_rdoc=1&_fmt=high&_origin=gateway&_docanchor=&md5=b8429449ccfc9c30159a5f9aeaa92ffb


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This urbanization resource was created by Course:GEOG352.