The Nigeria Extractive Industries Transparency Initiative (NEITI) has said that the time is now for the country to embrace fully a robust policy to save portion of oil and gas revenue for the rainy day and for the next generation.
The urgent measures that need to be taken include the immediate transfer of all revenue savings in the stabilisation fund and the Excess Crude Account into the Nigeria Sovereign Wealth Fund.
In an Occasional Paper titled “The case for a robust oil savings fund for Nigeria”, NEITI alerted the nation that a national consensus on saving for tomorrow has become urgent to prepare the country to overcome frequent commodity price volatility and depletion of non-renewable resources.
NEITI in the paper highlighted that portions of mineral resource revenues that are excluded from the national budget and held as part of a country’s reserve can greatly enhance a country’s capital balances, attract greater investors’ confidence and significant flow of foreign capital into the economy. These funds also support the provision of critical infrastructure and social interventions during major national emergencies.
Presenting the occasional paper at a press conference in Abuja, Tuesday, the NEITI Executive Secretary, Waziri Adio, lamented that in spite of these benefits and the huge revenues that have accrued from oil and gas over the years, Nigeria has one of the lowest natural resource revenue savings in the world.
Nigeria currently has three oil savings funds. They are the Sovereign Wealth Fund with $1.5 billion, the Excess Crude Account with $2.3 billion and the stabilisation fund with N29.02 billion ($95 million). In the last 40 years of oil production, Nigeria has extracted about 31 billion barrels of its oil reserves. However, from 1980 to 2015, the country exported crude oil worth about $1.09 trillion, but has a current balance of $3.9 billion as at June 2017 in the three funds.
The NEITI Occasional Paper remarked that these “different oil revenue saving funds should be consolidated and the legal framework harmonised. Specifically, the 0.5% Stabilisation Funds and the Excess Crude Account (ECA) should be merged with the Sovereign Wealth Fund, as this multiplicity of savings funds with different rules has led to uncoordinated and widespread extra-budgetary spending. Apart from depleting the savings in each fund, such unrestricted spending defeats the purpose for which the funds were set up in the first place which is to shield the economy from revenue volatility”.
According to the Paper, Nigeria did not save enough oil revenues to sustain economic activities when oil prices began to “tank” in June 2014. “Also problematic is the level of consumption relative to non-oil exports. Nigeria typically responds to high oil prices with equally high, but manifestly unsustainable, level of consumption. The absence of sufficient savings left Nigeria severely exposed when the price of oil, Nigeria’s main source of government revenues and foreign exchange, started to plunge in 2014,” the NEITI Occasional Paper explained.
NEITI expressed regret that the $1.5 billion currently in the Sovereign Wealth Fund is one of the World’s worst ratio to annual budget (10%), and one of the lowest Sovereign Wealth Fund per capital ($8) globally.
From the Occasional Paper, NEITI provided some global comparisons among other resource rich countries. “Norway, a country of 5.2 million people has a sovereign wealth fund worth $922 billion, Chile $24.1 billion, Angola $4.6 billion and Botswana $5.7 billion. Others are Russia $89.9 billion and Kuwait $592 billion.
|Country||Name of the fund||Year est.||Current size of the fund (in billions)||Population of the country in millions|
|Norway||Stabilisation Savings fund||1990||922.1||5.2|
Sources: SWF Institute (fund size); countries’ ministries of finance (budget); UN Department for Economic and Social Affairs (population); extant legislation for respective funds (fiscal rules)
The NEITI Executive Secretary recalled that the National Economic Council conducted a study in 2015 which revealed that inflow to the Excess Crude Account (ECA) between 2005 and 2015, was $201.2 billion while outflow was $204.7 billion, indicating that the amount withdrawn from the account exceeded the amount that was transferred into the account for the period.
Adio said: “Our paltry oil savings defeat the rationale for having such savings in the first place. Nigeria does not have enough oil savings to finance even a fifth of a year’s budget at the federal level, not to talk of having enough for investments or for the future generation.”
NEITI called on the federal and state governments to seek speedy resolution of the pending case at the Supreme Court on oil revenue savings.
The Occasional Paper recommended that government should “Initiate amendment to Section 162 of the constitution to accommodate the welfare of future generations….the constitutional option is necessary to ensure that the ‘rules are not subject to political fluidity’. The negotiations need to be complemented with appropriate guarantees for transparent and accountable governance of the funds to reassure stakeholders especially at the sub-national level”.
The Paper also recommended the need to delink government expenditure from oil revenues to support policy initiatives that pursues prudent macro-economic policies, better economic and social environment for the next generation. This is in addition to ensuring that there is constant savings whether oil prices are high or low and provide regular payouts from the returns on investments of the funds to compensate beneficiaries (the three tiers of government) for their sacrifice.
These measures, NEITI posits, have to be implemented as soon as possible because, even though the country has lost 50 years’ worth of savings from its oil revenue, Nigeria does not have 50 years left to prepare for life after oil revenue.
Adio maintained that Nigeria needs to “move urgently from our present spend-it-all or even save – and- spend attitude to a real savings culture, otherwise we will continue to be vulnerable to the volatility of oil prices and the eventual depletion of our oil reserves.”
The NEITI Occasional Paper, the second in the series, is one of the new products recently introduced by NEITI in the exercise of its mandate. This value addition is to support the on-going economic reforms of the present administration through research, knowledge sharing and evidence based analysis of extractive revenue management issues.