Economic Costs And Benefits Of The Nigerian Oil Industry Essay

Nigerian economic system, at first was based chiefly on agribusiness ; it exported agricultural merchandises like chocolate, gum elastic, thenar merchandises, cotton, Indian potato, fells and tegument etcetera. But so oil was discovered in the south-south of Nigeria i.e. Rivers, Bayelsa, Edo and Niger Delta provinces, and agric production was abandoned. The essay inquiry is “ What are the economic cost and benefits of oil industry in Delta, Nigeria? ” The aim of this essay is to happen out what the economic system cost and benefits of the oil industry in Delta province, Nigeria, and besides I will analyze merely how the province has put up with the production of oil and besides the effects i.e. the cost and benefits.

1.1 State Background

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Delta State is named after the delta part of the River Niger. Its capital is Asaba[ 1 ]. It is found in the south-south countries of Nigeria. Delta province consists of different cultural groups like Urhobo, Igbo, Ezon, Isoko and Itsekiri but consist chiefly of the Igbo people.Nigeria has a population of 151, 870, 000 people of which Delta province has a population of 4, 098, 291 ; the males are up to 2, 674, 306 while the females are up to 2, 024, 085[ 2 ]. Delta province is the 2nd oil bring forthing province in Nigeria after Rivers State, of which this oil production tends to be the most unsafe concern in this economic system. The local authoritiess that produce oil in the Delta province are Warri North and South, Burutu, Isoko North and South, Ughelli North and South, Okpe, Ethiope East and West, Sapele and Ndokwa East and West[ 3 ]. The biggest oil refinery is found in Warri, which is a local authorities in Delta.

1.2 Map demoing the location of Delta province in Nigeria:

4Delta State.

1.3 Research Methodology

My procedure of research was divided into two methods ; primary research and secondary research.

1.3.1 Primary Research

My primary research involved

The usage of a questionnaire: The questionnaire was created turn toing specific inquiries like ; ‘what has the authorities put in topographic point to assist the economic system? ‘ and besides ‘what has the economic system benefited from the oil production?

A study was used to acquire more personal information like ; Government portion of income and income of Petroleum Company.

Interview was done ; I interviewed the people populating in the small towns, the leaders of the town/villages. Asking them what the costs and benefits has been for oil production. I besides interviewed employee ‘s from the Petroleum company ( SHELL )

I took images of the benefits from the oil production.

1.3.2 Secondary Research

Secondary information was gained from the assorted web sites, text editions and articles. The information includes: a survey of economic theory associating to outwardnesss.

Textbooks were used to acquire definitions.

The cyberspace was used to reexamine other information that is associating to this subject. The ground for this is to see how this province is pull offing with its outwardnesss.

Internet was used to acquire background information on the province

Internet was besides used to acquire the cost of oil production in the province

Images of the cost of oil production in the small towns were gotten signifier the cyberspace.

The usage of articles in the newspapers was used to acquire information on the current state of affairs


Proposed Solutions

Interviews and with the people in small towns and the leaders of small towns

Language barrier

Finding person to assist in translating.

Interview with the employee ‘s of SHELL

Release of private company information

Use of other beginnings to acquire information like the wireless, cyberspace, newspapers etcetera

Sharing of questionnaire and study on land

Riots in these countries were questionnaires were being distributed

Travel to countries where there is no public violence to administer questionnaires and make a survey.1.3.3 Possible troubles and proposed solutions.


The employees and few people populating in Delta were given questionnaires to happen out certain information, about what the oil industries and the authorities have done with the economic system from the benefit of oil production. The questionnaire was given to 20 employees at SHELL who were indiscriminately selected from assorted sections and 20 people populating in the economic system. This subdivision is demoing the sets of consequences gotten from these persons.

Table 1: Consequences refering duty by persons in the community


Number of people



Oil Industries

Who do you believe is responsible for the pollution in Delta?





90 % of the people populating in the community believe that the oil industries are the cause of the pollution which is right, and it is good to cognize that merely 20 % believe that the authorities is responsible which is non true.

Table 2: Consequences refering duty by SHELL employees


Number of people




Do you believe it is your duty to do it right?





In the above pie chart 50 % of the employees at Shell believe it is their responsibilty to do things right in the economic system that means they sould be able to halt the pollution the oil company is doing. This illustrates that half of the people in company are taking respnsibility for their actions.

Table 3: Consequences refering duty by the persons in the community


Number of people




Do you believe it is your duty to do it right?





40 % of the persons in the community are non certain whose duty it is to halt the pollution in Delta, 35 % of the persons do n’t believe it is their duty to command pollution in the economic system. This illustrates that most of the people in this community could be seen as nescient since it is a few that are ready to take some duty to do things right.

Table 4: Consequences refering authorities action by the persons in the community


Number of people




Is the authorities making anything about the state of affairs?





From the pie chart it has been shown that authorities is non taking action from the negative outwardness taken topographic point in the province which is non good.

From the primary informations analysis it is seen that there are some jobs Delta such as pollution etc and this is due to market failure. From the economic theory it is seen that if the fringy societal benefits is & gt ; the fringy societal costs or frailty versa there would be market failure[ 5 ]. Market failure is due to the positive and negative outwardnesss in the economic system. The following subdivision in this essay is traveling to province those economic cost and benefits of the oil production in Delta State.


This subdivision will incorporate the analysis of the economic costs and benefits in Delta province. There are a batch of jobs in Delta province such as oil spills, waste dumping and gas flaring. The chief job in Delta is the oil spillage. The type of oil produced in the south-south is deep sea oil, which causes oil spillage and so leads to pollution ; air, land and H2O pollution, the cause of this pollution has led to the harm of dirt, H2O and air. The oil spills has caused husbandmans in the country non to angle and farm once more because the pollution has spread in their sea and lands, therefore 1000s of people have been affected particularly the hapless people and those who rely on traditional manner of life such as fishing and agribusiness. But there are non merely costs in the oil production there are besides benefits in the fact that the province is doing a batch of money in bring forthing oil since oil is needed in a batch of states.

Outwardness occurs when the production or ingestion of a good or service has an consequence upon a 3rd party[ 6 ]. If this consequence is unsafe it can hence be called a negative outwardness but if the consequence is advantageous it is said to be a positive outwardness. Negative outwardnesss bring about external costs and positive outwardnesss bring about external benefits. The production of oil in Delta province can convey about both external costs and external benefits.

3.1 External Costss from Oil Industries.

The people in the economic system have endured oil spillage for old ages now. Oil spills are caused by corrosion of oil pipes, hapless care of substructure, and leaks during processing at refineries.[ 7 ]This oil spillage normally happens on the land and in the sea. The cause of oil spills in H2O is that, the oil has contaminated the H2O, so the fishes in the sea would decease that means there would n’t be any fishing or it would go toxicant and if it is toxicant when it is eaten the people in the economic system would acquire badly. It could besides harm the workss ; workss could decease because of oil spills and besides animate beings that drink from the H2O. Besides some topographic points in Delta are non yet developed ; in those topographic points the people that live there normally have their bath in the sea so if they do that where the H2O has been affected the people could acquire skin disease. The oil spills on land would destruct harvests ; damage the dirt the husbandmans use in farming for their household. The production of oil is doing the rich to acquire richer and the hapless to remain hapless and dice of poorness.

Gas flaring is when gas is burned falteringly. Gas flaring occurs when oil is pumped from the land, this oil burnt so produces gas and the gas produced is burnt as waste in tremendous flairs. Thus the combustion of this gas consequences to the harm of the environment, particularly the countries which are nearest to the oil industries. The authorities and the industries have done nil to halt the people from firing the gases and besides they have n’t given any solution to the state of affairs. Peoples in that country are now holding wellness jobs ; there would be air pollution therefore taking to people inhaling chemicals that are non good for their wellness and sanitation jobs ; there would be H2O pollution, chemicals from the gas flair would do H2O dirty, that is the H2O the people in the country used to take their bath is traveling to impact their hygiene because the H2O would really soil. The people in this country do non hold money for medical measures and they do non hold wellness insurance. The farms of these people populating in this country have been destroyed so there is no other beginning of acquiring money to pay medical measures so this leads to the addition in decease rate in that country.

When oil is made from the industries, waste are besides produced these waste are so dumped on the land and in the sea, therefore destructing the environment and weakening the people ‘s right in their criterion of life. The authorities have non tried anything to halt people from disposing this waste on the land and the sea, they have non realised that the sea has been contaminated by the assorted mixture of the oil and if they had they would hold treated their H2O. These chemical substances in oil are really toxic and it can impact the people populating in the country.

Peoples in this countries are deceasing of hungriness, because their farms have been destroyed so there is nowhere else to acquire nutrient from, husbandmans are now unemployed because their workss are deceasing so they have nil to works and sell to do money, huntsmans are besides unemployed because the animate beings are deceasing due to them imbibing H2O from the sea or feeding workss that were toxicant. The kids of these huntsmans and husbandmans can non travel to school once more because there is no money to pay their school fees. Poverty hits these guiltless people who depend on supports

Due to the negative impacts on the production of oil there have been a batch of ailments by the local communities, because of these ailments it has made some people from this community to go activists. Since the production of oil has caused poorness it has led some of these activists excessively undergo condemnable Acts of the Apostless like stealing the oil that has been produced ; activists steal this to do money out of it, and besides illegal bunkering of oil ; that is transporting oil illicitly to another state to do money without the consent of the authorities. Besides another cause of combativeness due to the production of oil is because the authorities, the industries and the politicians have refused to make something about the oil spillage, the authorities has non done anything to develop the province practically because they are deriving from the oil production and maintaining the money to themselves ; the people from the economic system have watched these politicians, authoritiess and the industries get richer so this now leads the activists among them in nobbling the rich people ‘s kids, there are besides armed robberies ; these activists rob the rich, and if people are being excessively aggressive when they are being robbed so the activists might kill them, so this could take to decease, they besides take on battles with the Nigerian security forces ; this makes the security force to contend back highly and non sing the people in that country.

Militants could travel into fraud besides known as ‘419 ‘ in Nigeria, they could make concern ‘ that could rip off people and by rip offing them, they could acquire money from them. All negative things are done because of the authorities, the industries and the politician ‘s ignorance to the state of affairs.

Picture below shows gas flair at Ughelli West, Delta State, Nigeria.

Picture below shows the activists with their guns

Picture below shows harm of harvests because of oil spills.

Figure 1: Diagram demoing external cost of oil production in Delta State.

Monetary value of oil Welfare loss MSC MPC Negative outwardness

P* a


Q* Q2

Measure of oil.

In figure 1, it shows that the fringy private cost of the industry is lower than the fringy societal costs because of the pollution that was brought approximately when oil was produced, this pollution might hold caused external respiration jobs for people and besides poisoned nutrient like fish. The industry would merely be concentrating on its ain private costs ; because of this the industry would bring forth at Q1. At Q* fringy societal cost is equal to the fringy societal benefit ensuing to a market failure. Excessively much oil is being produced at excessively low a monetary value ; this causes the misallocation of the society ‘s resources. There is welfare loss i.e. where fringy societal cost is greater than fringy societal benefits.

There are besides negative outwardnesss of ingestion i.e. the pollution that is caused and how it affects the consumers. Negative outwardnesss would do fringy societal benefits less than the fringy private benefits.

Figure 2: Diagram demoing negative outwardness of ingestion.

Monetary value of oil Welfare loss MSC


P* MPB Negative outwardness

Mutual savings bank

Q* Q1

Measure demanded.

In figure 2 it shows that the oil industry maintain on bring forthing oil, and there is still oil spillage, they pay no attending to the negative outwardness they are making, Marginal societal cost becomes peers to marginal private cost. There is over-use of oil from Q* to Q1, there is besides a public assistance loss because Marginal societal cost is greater than Marginal societal benefits.

It is hard to cut down this pollution. First of all the costs of pollution are external in the sense that the cost of pollution are non paid for by the agents doing it, so there is no economic inducement in the market system to do them to halt

Second of all the people profiting from the activities ; those are the people bring forthing the oil, they are doing pollution and enforcing some costs on others. So the pollution needs to be reduced although the victims are meant to be compensated.

3.2 External Benefits from Oil Industries.

The oil industries may hold destroyed the communities in Delta but they have besides made a batch of money for the province because of the production of their oil. As it is said above Delta province is the 2nd oil bring forthing province after Rivers province.

The economic system has benefited from the oil production. The money used from the oil production has been used for the betterments of infrastructural installations such as building of roads, Bridgess and proviso of pipe borne H2O which benefits the villagers, increased usage of electricity, better conveyance installations and utility of crude oil merchandises.

The biggest oil company in the Delta province, The Shell Petroleum Development Company ( Shell ) , a subordinate of Royal Dutch Shell, is the chief operator on land. Shell is located in Warri. Many Nigerians specifically those from Delta province are employees of Shell, working in an oil company means that those employees would be doing a batch of money this means that there would be an addition in income per capita therefore an addition in urbanisation that means Delta would be more developed in the criterion of life. Shell has provided a batch of benefits for the economic system and for the workers. Such benefits is the proviso of instruction for the kids of the employees at the shell company, proviso of houses, autos and besides they pay for all the measures of the employees.

Shell has contributed money to the building of new private and public schools, schools for people of low and high categories. There are besides schools for the occupants of the province that is for those who could non afford to travel to school. This is therefore increasing the literacy rate in the economic system. Educational competitions are organised and besides athleticss to advance academic and physical excellence which benefit the persons in the province.

SHELL has besides benefited from its ain production of oil such as increased gross from gross revenues ; their addition in production brings about immense net incomes to the company. There is besides an addition in development in the SHELL Company ; there is now beforehand engineering like boring equipment in which they can utilize to forestall or halt the oil spills. There is besides an betterment in International dealingss such as an addition in production which has led to an understanding with oil devouring economic systems such as the United States and China.

The oil company shell has tried to make its best in developing the economic system but because of the corruptness jobs in Nigeria it affects the economic system. The money used for substructure development has been taking by the authorities or the politicians for their ain benefits. Pipe borne H2O that has been installed for the villagers has broken and the authorities take the money that has been giving to utilize it to repair it. Oil spills caused by the production of oil has spoilt the route, the money contributed by the economic system to repair the roads has been stolen by the authorities. The public schools where kids are meant to be traveling for free the authorities waste clip in paying instructors their wages, so these instructors go on work stoppage and garbage to teachers these kids, therefore doing the literacy rate unstable.

There are benefits from the production of oil, but because of corruptness by the authorities all the benefits are non taking topographic point.

If the benefits take topographic point, there would be positive outwardnesss because of the oil produced. Since there are positive outwardnesss it means that the there would be welfare addition i.e. the fringy societal benefit is greater than fringy societal cost. The diagram below illustrates where the public assistance addition is and that is between Q1 and Q* , it besides shows that oil is produced at Q1, if the production of oil is increased to Q* more public assistance would be gained.

Figure 3: Diagram demoing positive outwardness.

Price Welfare addition MPC



Mutual savings bank

Q1 Q* measure.

Picture below shows an over-head span in Delta.

Picture below shows house of a shell employee in Delta

Picture demoing a mill in Delta

Picture below shows one of the good roads in Delta.

4 THE Future

This subdivision is traveling to enforce ways the authorities can command the negative outwardnesss in the province. There are different ways the authorities can command these negative outwardnesss but first of all the authorities should halt being nescient and assist the economic system. If authorities Michigans being nescient they can implement Torahs to command and supervise pollution in the small towns ; present more national and Marine ; guarantee that forestry companies re-plant trees ; modulate usage of contaminated land.

Government can enforce revenue enhancement on oil companies to increase the private costs, if the authorities should make that the Marginal private would travel upwards, there might still be welfare loss but it would be less than earlier. There should besides be subsidies that is the sum of money paid by the authorities to a manufacturer, it lowers the houses cost, these subsidies could be inform of grants, reduced revenue enhancement etcetera.

With the money gotten from oil production authorities can utilize it to counterbalance victim of the negative outwardnesss of oil production so that victims would non action the offending houses. The authorities can pay amendss to victims through free wellness coverage.

Besides since oil has now taking over the agricultural production which has caused the husbandmans and fishermen their occupations cause of the pollution, the authorities should construct centres where they bring in professionals to learn them accomplishments like mechanics, welding, picture, etcetera. If authorities ca n’t happen professionals they can promote companies at that place to learn them the accomplishments. If the authorities does this there would be fewer crises because those people would no longer be unemployed and there would now be less kidnapping, armed robbery, fraud etcetera.

But if the oil industry continues with its act of fouling the environment the authorities should command their end product in some manner because it will non be possible to censor, if that does n’t work out the authorities could do new environmental Torahs and if the oil industry do n’t follow it so they would hold to pay some sum of money since they have disobeyed the jurisprudence, paying the money would increase their private costs. The diagram below shows the consequence if the oil industry has to pay revenue enhancement.

Figure 4: Diagram demoing negative outwardness. MSC

Price P* public assistance loss MPC + revenue enhancement



Q* Q2 Q1

Measure of oil.

Firms should besides be able to assist, at the minute in Delta province the oil industry that is truly assisting in the negative outwardnesss in the economic system is SHELL. Other houses should take portion in assisting and do things like altering its production of its techniques and operation like conserving on the sum of waste disposal from the oil production. Changing the stuffs used in boxing the oil, something that can be recycled should be used that it would be used once more therefore prevent combustion of waste disposal.

If authorities does this for the province there would a short term consequence of pollution but in long term there will be no pollution. Therefore there would be less cost on the production of oil and besides an addition in economic system growing. But if authorities takes no action at that place would be a long term consequence of oil production, and besides a lessening in economic system growing and an addition in the negative outwardnesss of the economic system.

In decision it is merely the authorities that has the power in halting the addition of negative outwardnesss in the economic system particularly if the industries do no take action, but if authorities takes no action and continues taking payoffs or being pervert the economic system would hence be enduring for the costs of oil production.


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