Crime levels hit new highs in Nigeria
30 October 2007
Lloyd’s underwriters provide cover for some of the most treacherous corners of the world. In Africa, Nigeria is home to oil wells that are estimated to be worth billions of dollars. But with great wealth often comes enormous turmoil, and the oil is constantly under threat. Nigeria’s political powers are balanced on a knife-edge, and the country’s situation changes daily. For underwriters in Lime Street, staying aware of the latest developments is the key to disciplined underwriting.
International security and political risk management firm AKE Ltd provides Lloyd’s underwriters with up-to-date information on the latest risks worldwide, particularly concerning hotspots such as Nigeria. Senior Analyst Nadina Bernecker joined AKE after completing a masters degree in International Peace and Security at King’s College in London. She says demand for knowledge about Nigeria from London underwriters motivated her to specialise in the field.
Conflict in Nigeria centres on the ownership of the country’s oil wells and the revenue they produce. The Movement for the Emancipation of the Niger Delta (MEND) uses militia tactics to achieve its goals of localising control of Nigeria’s oil and securing reparations from the state for the pollution caused by the oil industry. Bernecker says relations between the state and MEND have deteriorated, after a brief ceasefire following the country’s general election in May: “MEND has recently released a statement declaring its discontent with peace negotiations [with the federal government] and threatened to launch new operations.”
Meanwhile, the country is contending with unprecedented levels of crime. According to Bernecker, in one week in August up to 35 people were killed during a street battle. “The oil pipelines are placed over ground and there is a major issue with local gangs siphoning oil,” she says. “There was an all-out battle between two gangs, and between 20 and 35 people were killed.”
Bernecker says criminal gangs pose a major threat to Nigeria’s oil production because methods are erratic and disorganised. “Although large-scale militia attacks and kidnappings are the most feared security incidents, break-ins and, increasingly, gang warfare have topped the list in recent weeks,” she says. “While kidnappings remain a high risk, especially for the expatriate community, they are more often of a criminal nature than politically motivated.”
The federal government does not object to paying ransoms, which has only served to encourage further kidnappings. Bernecker says the heightened activity of warring gangs has increased pressure on oil companies to halt production and withdraw from Nigeria.
In recent weeks the trade union for the industry, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), has accused the federal government of “failing to address the issues in the Delta with sufficient political will” and threatened a complete withdrawal of its staff members if “the restiveness and consequent harassment and violence on workers in the oil and gas industry persis.
Adding a further risk is the obligation for oil companies to hire people from local villages. Bernecker says this is often underestimated as a political risk, although it remains the source of much conflict. “Oil firms have to employ a proportionate amount of people from local villages,” explains Bernecker. “This has created strong rivalries between villages, and companies have to use very carefully handled community relations programmes in order to appease so-called host villages and avoid the occupation and potential shutdown of facilities by disgruntled villagers.”
The issues affecting oil production in Nigeria are vast and varied. Nevertheless, the country continues to attract investment. Multinational companies have made concessions and found a way to adapt to the situation over the years – a development that suggests circumstances are perhaps not as bad as they seem, and certainly not terminal for the business environment in Nigeria.
For London underwriters assessing these risks, Bernecker’s advice is invaluable, as the perception of risk is inevitably worse than the actual risk itself. She says government and media reports are often unreliable because they tend to be inflated and exaggerated, and accurate and reliable information relevant to the market is scarce. Writing risks in turmoil-ridden countries is the skill of London’s underwriters and reflects why Lloyd’s is the market of choice around the world.
Last updated on 30 Oct 2007
