Further proof, if any was ever needed, of the excessive profligacy of successive Nigerian governments, was provided recently by the Nigerian Extractive Industries Transparency Initiative. Its audit of inflows from oil and gas revenues revealed how savings of $204.7 billion were squandered in a frenzied raiding of fiscal buffers that has left the economy reeling today in the face of depressed oil prices. The Muhammadu Buhari government must learn hard lessons from the wanton waste of the past and build up buffers despite the recession.
Though not surprising, NEITI’s summary of its audit of the Excess Crude Account and Sovereign Wealth Fund was shocking all the same. In the 10 years to 2015, a total of $201.2 billion accrued to the ECA, which would have given the country one of the world’s highest buffers and helped her stabilise when oil prices crashed late in 2014. But like spoilt children, the three tiers of government, instead of remaining faithful to the driving concept of the savings fund, resumed sharing of the money that was never captured in their annual budgets. Indeed, $204.7 billion, representing 102 per cent of the amount realised between 2005 and 2015, was withdrawn. According to Waziri Adio, the Executive Secretary of NEITI, N109.7 billion was transferred to the ECA from 2007 to 2011, but N152.4 billion was withdrawn.
Our situation is pathetic because, despite the depletion of this fiscal buffer, infrastructure remains decrepit, requiring substantial investment of up to $20 billion annually to enable it to achieve its dream of becoming one of the top 20 economies by 2030, according to the World Bank. Power supply hovers at the 3,700 to 4,000 megawatts mark, while the highways are in a bad shape, railways still stuck below 4,000 kilometres of tracks and airports and seaports disgraceful.
Yet, the ECA was fashioned by the Olusegun Obasanjo administration (1999-2007) to hold oil revenues in excess of the budget benchmark price of crude for a rainy day. Under the arrangement, funds were to be withdrawn only when oil prices fell consistently below the benchmark for three months. That administration insists that it left $22 billion in the ECA as it bowed out in mid-2007, apart from about $45 billion in external reserves. The two immediate successive governments virtually drained the fund with no signature project to show for it. The tragedy is that while Obasanjo started to save when oil prices crossed $30 per barrel and never rose beyond $67 per barrel before he left office, Umaru Yar’Adua and Goodluck Jonathan who succeeded him, enjoyed consistently high prices of crude of $90-$120 per barrel up till late August 2014 when the market crashed. By then, the ECA, along with other buffers, had been depleted.
The result of their fiscal irresponsibility is staring us in the face. The Jonathan government, especially, was so reckless that it even began to raid the newly-established Sovereign Wealth Fund as revealed by the former Finance Minister, Ngozi Okonjo-Iweala, who said $322 million was released to tackle “security.” Today, a paltry $2.2 billion is in the ECA and $1.55 billion in the SWF, one of the lowest in the world. But Norway, which started its SWF in 1996 with $310 million, has $922.11 billion from which it earned about $63 billion profit in the first six months of 2017 compared to $60 billion in 2016, the world’s best performer. One problem with the ECA is that it is not backed by legislation preventing access, leaving it open to clamour by states that the money be shared rather than leave it with a spendthrift Federal Government. This informed the SWF and NEITI recommendation that the ECA be collapsed altogether into the Nigerian SWF. We support this proposal, which should be backed by law that would foreclose clandestine withdrawals from it by a fiscally reckless president.
For all the major oil producers, save for tumultuous Venezuela, reserves and SWF have come in handy to steer them through the hard times brought on by crashing oil prices. The SWF assets of the United Arab Emirates are projected to reach $1.2 trillion soon; Kuwait’s $524 billion; Qatar’s $320 billion; Kazakhstan’s $127.6 billion; Iran’s and Libya’s $91 billion and $66 billion despite crippling sanctions on the one and raging civil war in the other respectively. According to the International Monetary Fund, SWFs offer a strong pillar for macroeconomic recovery for economies reeling from oil price shocks when taken along with other fiscal policies.
For Nigeria to avoid economic perdition, it should rebuild the SWF with vigour. It should ensure, as Norway has done, that its temporary oil wealth would benefit generations to come. Two decades ago, Norway paid its first tranche into its SWF, which has now gone up to about $900 billion as of February 2017. Since as many as 27 state governors are still unable to meet wages and pensions obligations regularly and have proved incapable of thinking outside the box to independently raise revenue, their desperation makes the ECA untenable without an enabling law. The Presidency, therefore, should henceforth save dollar earnings above budget benchmark in the SWF.
When confronted with financial adversity, governments come up with creative policies, stimulus plans and cost-cutting measures to reboot the economy. The Federal Government has failed to privatise commercial assets, liberalise railways and steel sectors or cut the humongous cost of governance. The states, save Lagos, are content to remain beggarly units, instead of transforming into autonomous productive centres. This template is no longer viable. Buhari should rise to the occasion, rebuild fiscal buffers, cut costs and deploy sensible economic policies targeted at creating jobs, boosting exports and stimulating the productive sectors.
