Nigeria can be bold at diplomacy, as its offer of asylum to President Charles Taylor of Liberia demonstrates. It will require similar audacity if it is to turn its moribund economy around.

Nigeria is a paradigm of failed development. Average incomes are amongst the lowest in the world. Poverty is endemic, with more than three-quarters of Nigerians living on less than US$2 per day and distribution of income more skewed in favor of the rich than anywhere else in the world. The top 2% of Nigerians earn the same as the bottom 55%.

With Nigeria on the verge of burying the ghosts of its past dictatorships the time is ripe for daring reforms. Its leaders should focus on one key issue: managing Nigeria's oil revenues.

Paradoxically, the boldest course would be for the government to stop managing these revenues and turn over a large fraction of these funds directly to the people, as is done in the US state of Alaska and the Canadian province of Alberta. At the earliest opportunity, Nigeria's government should convene a conference of all national and regional leaders and secure agreement on a constitutional provision whereby each household would be guaranteed a share of oil revenues, with the amount determined by prevailing prices and quotas.

What is the rationale of this proposal and how might it be implemented? Recent research I conducted with the IMF's Arvind Subramanian demonstrates that Nigeria's poor economic performance is primarily a story of the mismanagement of oil revenues.

Based on evidence from a cross-section of countries, natural resources such as oil and minerals do seem to be a ``curse'' rather than a blessing, as they impose a heavy drag on long-run economic growth. But the real curse of possessing oil is not so much that it incites the infamous ``Dutch disease''--the misallocation of resources away from tradable sectors--or that it generates uncertainty due to oil's price volatility.

Rather, the main problem with oil booms is that they give rise to a series of pathologies--rent seeking, patronage, corruption, plunder--that corrode vital domestic public institutions and undermine governance. Indeed, asked at a conference in London what would be the worst news his staff could bring him, Senegal's President Wade quipped: ``that oil has been discovered just off our coast.''

The surest way to avoid these debilities is to remove the conditions in which they thrive. Oil revenues should be taken out of public hands to the greatest degree possible and handed over to the private sector. This solution is rendered more urgent in Nigeria by the prospect of exploiting the country's vast reserves of natural gas, which may aggravate and prolong the resource ``curse.''

Our proposal has a number of advantages, most importantly creating the right incentives for effective and responsive governance. Currently, oil accounts for a substantial share of Nigeria's total government revenues. With no need to tax the public, Nigeria's government has little incentive to provide services efficiently: oil revenues are manna from heaven and keep flowing regardless of what the public sector delivers.

Moreover, while Nigeria is formally a democracy, the balance of power between citizens and public officials, including those at state and local government levels, is skewed in favor of the latter by virtue of their easy access to oil revenues. This perpetuates politics, even democratic politics, as patronage. Empowering citizens by giving them money could rectify this imbalance and so improve accountability and the functioning of democracy.

Finally, our proposal offers a way out of the ongoing and sterile debate between international donors and Nigeria on the issue of debt relief. Nigerian officials and the public wish to see the external debt burden lifted, especially because a big part of it is ``odious''-- contracted by dictators, with a large degree of creditor complicity.

But donors are wary. They justifiably fear that any savings from relief may well be misused, just as other public resources have been. Under our proposal, the savings from debt relief would be distributed directly to the private sector, alleviating donors' legitimate concerns while also responding to Nigerian grievances.

The details for implementing our proposal need to be worked out by Nigerian politicians. For example, a decision needs to be made as to whether the transfers go to each citizen or each household (a yearly check for each person in the family may have undesirable consequences on fertility as parents have children to collect checks). Also, Nigerians need to decide whether all beneficiaries receive equal shares, or whether those who face the environmental consequences of oil exploration and production -- for example, in the Nigerian delta -- should receive more.

Another question is how much of the revenues should be transferred, and how transfers can be effected in a country as large, complex, and financially backward as Nigeria. But even with all the difficulties of corruption and inefficiency that will no doubt plague its actual implementation, our proposal is superior to the status quo. After all, today's terrible conditions are the result of staggering corruption and waste over the last 40 years. At best, our proposal could fundamentally improve the quality of public institutions and thus transform economics and politics in Nigeria for decades to come. The time to act is now.

Copyright: Project Syndicate, July 2003.