What factors have driven Nigeria's long-term dependence on oil, and what governance reforms could reduce vulnerability?

• A. Oil revenue dependence, corruption, and weak diversification; reforms include transparency in resource management, diversification into non-oil sectors, and stronger institutions.
• B. Strong diversification into agriculture; reforms to reduce transparency.
• C. No governance issues; reforms unnecessary.
• D. Overemphasis on manufacturing; reforms deregulation.

Answer: (A)

The main idea is that Nigeria’s long-run pull toward oil comes from oil wealth and how governance handles it. When a country relies heavily on oil for government revenue, it tends to become a rentier state: budgets ride on fluctuating oil prices, and the incentive to develop other sectors declines. Corruption and weak institutions compound this, allowing resources to be captured, misallocated, or spent wastefully. That combination keeps the economy under-diversified and vulnerable to shocks in oil prices, making the country less resilient and more dependent on a single resource.

To reduce vulnerability, reforms should push for transparency in how oil is managed—for example, clear reporting of revenues, contracts, and actual beneficiary ownership, and adherence to international standards of resource governance. At the same time, policies should actively diversify the economy by supporting agriculture, manufacturing, and other sectors and by creating a conducive climate for investment and innovation. Strengthening institutions is also crucial: credible budgeting and public financial management, independent oversight, robust anti-corruption measures, transparent public procurement, and possibly a sovereign wealth fund to stabilize revenue and long-term savings. Together, these steps address both the exposure to oil shocks and the governance weaknesses that allow oil wealth to distort development.

Other options miss the mark because they either imply diversification is already strong or downplay governance issues, which contradict Nigeria’s experience.