Despite generating revenue from crude oil export from 2005 to 2015, Nigeria recorded less than 0.5 per cent savings in its Excess Crude Account (ECA), according to the Nigeria Extractive Industries Transparency Initiative (NEITI).
According to the agency in a document on its twitter on Monday, there was almost no net addition to the domestic ECA for eleven years.
It noted that in seven out of the eleven years (2005, 2006, 2007, 2009, 2010, 2013 and 2015) there were “unusual” withdrawals, which represented the entire outflow (100%) from the domestic ECA.
NEITI stated: “This was the state of affairs when oil prices suddenly plunged to less than half of their values in 2014/15. An economy that had swallowed up the entire $58 billion that the country earned from oil in 2013 was evidently not equipped to withstand the shock of significantly reduced revenue, with just $2 billion in the stabilization account. As a result, the economy contracted, the country accumulated more debt and used up most of its foreign exchange reserves.”
“To overcome commodity price volatility and depletion of non-renewable resources, countries dependent on revenues from natural resources are usually advised to save for the rainy day and for the future generation.
“Nigeria has about three decades of experience in implementing different oil revenue funds. However, attempts at oil revenue savings have been plagued by contested legal frameworks, governance issues and inadequate political will.”
NEITI noted that it is clear therefore that Nigeria has no prudent and robust oil revenue savings scheme that can tie it over expected volatility of oil prices and the eventual depletion of its oil reserves in 38 years; neither does it have a strong mechanism for promoting inter-generational equity.
In addition to price volatility, NEITI said that Nigeria also faces the prospect of depleting oil reserves. “Nigeria’s proven oil reserves as at 2015 was 37 billion barrels.3 At current level of production, the reserves are projected to last for 40 years, counting from two years ago.
“Meanwhile, in the last forty years of production at less than current levels, Nigeria extracted about 31 billion barrels of its oil reserves. From 1980 to 2015, Nigeria exported crude oil worth about $1.09 trillion. As at June 2017, there was less than $3.9 billion dollars in all of the country’s oil revenue funds. This is only enough to finance 16 per cent of the current (2017) budget of N7.44 trillion.
Given the importance of healthy savings as one of the tools for tackling resource curse, Executive Secretary of NEITI, Waziri Adio, emphasized the need to ensure constant savings whether oil prices are high or low; also provide for regular payouts from the investments proceeds to compensate beneficiaries for their sacrifice.
He urged the Federal Government the states to seek speedy resolution at the supreme court of the case on the constitutionality of remittances to the ECA and the Nigeria Sovereign Investment Authority (NSIA).
Adio stressed the need to initiate amendment of Section 162 of the 1999 Constitution (as amended), drawing on the political consensus that led to the creation of the ECA and the NSIA.
He also wants the separation of government expenditure from oil revenues and pursue prudent macro-economic policies.
Director-General, Lagos Chamber of Commerce and Industry, Muda Yusuf, stated that Nigeria needs to ensure sustainable fiscal management that is resilient to global oil price cycles.
According to him, mono-product economies are inherently exposed to fluctuations in the prices of underlying commodities.
“Often, the proceeds during periods of high prices are poorly managed, leaving insufficient resources to cover periods where revenues underperform,”, he added.