In 2007, the late President Umaru Musa Yar’Adua was desperate to solve a conundrum that was nearly as old as Nigeria’s independence. It was an especially recalcitrant problem. Ibrahim Babangida, former military president, also attempted to solve it in the late 80s but he failed. Upon return to democracy, Olusegun Obasanjo, then president, gave it a shot too, in the early 2000s; and although he made significant progress, there were constitutional loopholes that the hawks were always going to exploit. It seemed to defy logic that Nigeria had near-empty savings to show for decades of crude oil exportation, and it’s even more baffling that no president found a solution to this, however hard they tried.
The Irony: We Have Oil Yet the People Toil In Lack
Nigeria’s petroleum reserves are enormous, bettered only by those of nine countries, all outside Africa. We are the continent’s undisputed oil giant. The United States Energy Information Administration (EIA) rates our reserves at between 16 and 22 billion barrels (2.5×109 and 3.5×109 m3); other sources have quoted nearly double that figure.
In the past, we were blessed with a favourable mix of production output and market prices too. Sometime in 2016, we recorded an all-time-high crude oil production of 2.7 million bpd. Sometime eight years earlier, oil prices managed to rise to one of its highest ever in recent history: $147/barrel. There certainly have been many low moments for both production and pricing, but we have lived all our national existence in the knowledge of our endowment with a natural resource that we, at the very worst, simply need to sell in return for revenue.
Nigeria is a country surviving on luck. We’re living off a resource we’re simply lucky to possess; we didn’t earn it. Then we’re grinning and greying in mediocrity: all we do is export and sell, and it’s hard to imagine a cheaper survival strategy. The simplest help we could render ourselves is to be able to refine crude oil for our own use, but we’ve failed woefully in achieving that. Slightly better than that is to at least secure the means to process some percentage of that resource, so that we can export products rather than just the raw material; we’ve so far managed to bungle that too.
Having failed to make solid secondary commercial use of oil, it’s a no-brainer, then, that we should have been making good use of oil revenue. That chance we have squandered as well. We are impoverished; the people are poor. We haven’t instituted the structures to deliver first-class education to the youth; we haven’t built the roads smooth enough to encourage inter-state travel, trade and agriculture; in short, we haven’t used oil revenue to empower other sectors, particularly the ones that steadied the economy in the pre-oil era. And the worst of all: we have no savings; our crude oil savings are empty — just not starkly so. So we’ve failed in everything we could have done with oil: we can’t get the best deals out of the resource, we can’t use it to improve our lives, we can’t use it to secure our future.
Of these three failures, the last is the worst. We’re getting away with our failure to maximise crude oil simply because we manage to make some money nonetheless. Despite the economic recession, we’re still having a jolly good time, relatively, because oil is still there in our reserves even if the prices are low. But with our shortcoming with savings, we will never get away. Soon, when our oil reserves are drained, there will be nothing to fall back on, and life will be tough for those alive then.
What Is This We Have Done?
In the 0.5 percent Stabilisation Fund that became operational in 1989 during the Babangida regime, there is a paltry balance of $29 million. In the Excess Crude Account (ECA) instituted by Obasanjo in 2004 is a balance of $2.3 billion. Finally, in the Yar’Adua-initiated Sovereign Wealth Fund (SWF) is another paltry $1.5 billion. That is a total $3.9 billion, saved from approximately $1.09 trillion earned from 35 years of crude-oil exportation between 1980 and 2015. The mathematics of it all is that we’ve only ever saved 0.4 percent of all we earned from oil in 35 years. Tragic!
The absurdity of these figures was put into perspective last week by the Nigeria Extractive Industries Transparency Initiative (NEITI) at the launch of an occasional paper titled, “The Case for a Robust Oil Savings Fund for Nigeria”. Thanks to the good work of Waziri Adio’s NEITI, we now know that the $1.5 billion currently in the SWF is one of the world’s worst ratios to annual budget (10 percent), and one of the lowest SWF per capital ($8) globally.
To simplify the latter, were all of the country’s crude oil savings (since the commencement of exportation in the 60s) be evenly distributed to Nigerians, each citizen would get $8. That, even if you went to the black market, would fetch you only N2,904. It couldn’t even take you to the airport, much less on the Hajj. Nigeria’s SWF record is only slightly better than Iraq’s and Venezuela’s — but the former is war-torn while the latter is crisis-hit.
Data from other resource-rich countries help us to analyse our abysmal savings record. Norway, a country of 5.2 million people, has a SWF worth $922 billion, Chile $24.1 billion, Angola $4.6 billion and Botswana $5.7 billion. Russia’s is $89.9 billion and Kuwait’s $592 billion. The best summation of our profligacy was captured in 2015 by the National Economic Council: Between 2005 and 2015, the federal government saved $201.2 billion in ECA but withdrew $204.7 billion; we withdrew $3.5 billion more than we had saved! Clearly, we were not saving for a rainy day; we were merely saving for a ‘cloudy day’. We were saving to spend.
Gluttonous Ruling Class
Nigeria’s ruling class, including the presidents who initiated savings funds, has always abhorred the concept of saving. Between 1989 and 19994, $13 billion accrued to the 0.5 percent Stabilisation Fund, according to IMF. A 2013 audit report by NEITI revealed that N109.7 billion was transferred to the account between 2007 and 2011, but N152.4 billion was withdrawn in the same period. By May 2017, only N29.02 billion was left in it. The crass mismanagement of the political class is as old as the idea of saving. As confirmed by a 2016 report by PREMIUM TIMES, three former presidents frittered away N247 billion oil savings.
Withdrawals from ECA peaked in 2011 during the presidency of Godluck Jonathan, but how does one explain that this was the same year when the country made its biggest excess crude earnings (in terms of oil price relative to budget benchmark)? For the following five years, only $500 million was deposited into the account — just half of the seed with which it was opened. This wasteful saving is one of at least two reasons state governors sued the federal government to challenge the constitutionality of ECA; the other is the share-it-all mentality of governors, many of whom cannot fund their states without federal handouts.
We’re Running Out of Oil and Buyers — and Saving Time!
Our delusion with our oil wealth is monumental; we often forget that oil is a finite resource, and that our buyers are either discovering oil themselves or finding alternatives to the resource. Until 2010, Nigeria provided roughly 10 percent of overall US oil imports, and was its fifth-largest source of oil imports. But the impact of shale production in the US ended Nigeria’s oil exports to the country, in 2014.
Our oil reserves have the shortest lifespan of any OPEC nation. In 2008, the Petroleum Products Pricing Regulatory Agency (PPRA) said Nigeria’s oil reserves would be depleted in 43 years. That’s 2051, just 34 years away. If majority of states can’t pay workers’ salaries in a period of low oil prices, then unimaginable doom awaits us in a little over three decades when we run out of oil.
Governors have no reason to oppose saving, even if past savings were mismanaged. Adams Oshiomhole, former Edo State Governor, was the most vociferous critic of suspicious withdrawals from ECA under the Jonathan government. But mismanagement of savings is no reason to antagonise ECA or transfer of funds from ECA to the SWF. Most governors steal public funds anyway, and long-suffering Nigerians aren’t pushing for political offices to be scrapped.
Section 162(1) of the 1999 Constitution (as amended, which states that “the Federation shall maintain a special account to be called ‘the Federation Account’ into which shall be paid all revenues collected by government of the federation” is due for amendment. Governors should be pointing this out to the legislators; they should be working to legalise a culture of saving, not antagonising it.
Ideally, this is the kind of constitutional work that should preoccupy our legislators. But we know better. If they’re not busy inventing bills to shield looters of public funds, the’re pressing for pilgrims to access FX at N200/$1, while genuine businessmen are forex-strapped, or trying the masses’ patience by attempting to install Bukola Saraki as acting president when Yemi Osinbajo is out of the country. Without the political and legislative will to save, we’re setting up doom for the unborn generation. We’re drinking our oil and eating our children’s future. Unfortunately, we will not be alive to partake of the suffering we would have foisted on them.
Credit: Fisayo Soyombo, PT