The Nigeria Extractive Industries Transparency Initiative (NEITI), has decried Nigeria’s penchant for spending all it makes from sale of crude oil without recourse to saving same against raining day.
Also, it frowns at the nations over dependence on oil and gas as the source of its revenue.
The body saddled with the responsibility of making the players in the industry accountable to the Federal Government, also said that Nigeria saved $3.9b only of the $1.09 trillion it made in 35 years (1980 – 2015).
Executive Secretary of NEITI, Waziri Adio, made this known in an, occasional paper entitled: “The case for a robust oil savings fund for Nigeria,” which he presented to journalists in Abuja.
NEITI warned that a huge economic crisis was staring at the country unless she realises and improves her oil revenue savings for tomorrow to overcome frequent commodity price volatilities and depletion of non-renewable resources like oil and gas.
Adio, in the paper stated the need for Nigeria to adopt a robust policy to save portions of her oil and gas revenue for the rainy days and for the next generation.
It noted that parts of the urgent measures to be taken by the country on this would be the immediate transfer of all revenue savings in two of her three oil revenue saving accounts – the 0.5 per cent stabilisation fund and Excess Crude Account (ECA), which were established in 1989 and 2004 respectively, into the Nigeria Sovereign Wealth Fund (SWF) set up in May 2011.
The ECA, it said, had a current balance of $2.3 billion; the stabilisation fund, N29.02 billion ($95 million); while the SWF had $1.5 billion, an aggregate of which it explained was the lowest national oil savings account in the world, and only able to fund 16 per cent of Nigeria’s 2017 federal budget of N7.44 trillion.
“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 occasional paper said.
It recommended that: “Different oil revenue saving funds should be consolidated and the legal framework harmonised. Specifically, the 0.5 per cent stabilisation fund and the Excess Crude Account (ECA) should be merged with the Sovereign Wealth Fund, (SWF) 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.”
It noted that some resource-rich countries like Norway, which has a population of 5.2 million people has a SWF worth $922 billion; Chile, $24.1 billion; Angola, $4.6 billion; and Botswana has $5.7 billion, adding that an amendment to Section 162 of the 1999 Constitution, as amended, was necessary 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,” it explained, while recommending that government should stop spending from oil revenues; to support policy initiatives that pursue prudent macro-economic policies; better economic and social environment for the next generation.
“This is in addition to ensuring that there are 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,” it added.
In his remarks at the presentation, Adio said NEITI had the mandate to ensure prudent management of extractive revenues in the country to reverse resource curse, hence, its decision to publish such policy papers.
He maintained that poor governance practices; structural defects and lack of trust and political will were some of the challenges obstructing robust saving of oil revenue in the country.
He 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 investment or for the future generation.
“We are also ill-prepared not only for the day we will run out of oil but also for the real possibility that crude oil might stop being a valuable energy resource.
“We need 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,” Adio warned.