Oil Windfall: What Benefit for the Masses?
Over the years, Nigeria, the sixth largest oil producing country in the world, has continued to benefit immensely from the rise in the price of crude oil at the international market. This favourable development has, however, not positively affected the lives of an average Nigerian, Ayodele Aminu reports
In the 1980's, the nation mismanaged the surplus she realized from oil and had to suffer for it later. Also, in1999 and 2000, the crude oil windfall exceeded the $18 and $20 respectively per barrel benchmark on which the budgets were based.
About $198 billion dollars was said to have accumulated into the Excess Crude Oil Account in 2000. What did Nigerians get in return? An increase in the pump price of petroleum products, inflation rate, unemployment rate, cost of transportation, naira exchange rate and above all - a decrease in the living standard.
The usual practice is for the Federal Government to save such money for the rainy day. But owing to stiff pressures from both the State and Local Government, the Federal Government is usually compelled to share excess money realized from crude sales. Although, the calls by the States and Local Government that the money be shared among the tree tiers of governments is legitimate, but the macro-economic implications of the massive injection of these funds over and above the regular flows of revenue from the Federation is hardly considered.
This among other reasons necessitated the immediate past Governor of the Central Bank of Nigeria (CBN), Chief Joseph Sanusi to warn against the injection of the N198 billion excess crude reserves.
Speaking shortly after the Bankers' Committee meeting in February 20, 2001, Sanusi warned that except the N198 billion excess crude reserve account was adequately managed, the economy would be adversely affected.
Noting that the excess crude reserve account was specifically created for the lodgment of such funds, part of which had earlier been injected in the previous year, he had explained that the CBN was worried that the Federal Government might succumb to pressure being put on it to release the funds into the economy.
While he had maintained that the release of such funds could cause a wide distortion in the on-going economic restructuring policy, he stressed that the apex bank was favourably disposed to a phased and systematic release of the fund in a way that it would not severely impact on the economy.
He had also emphasized that the CBN was particularly concerned about the early and rapid disbursements from the Account because of the destabilizing effect on the macro-economy.
"As alluded to above, any withdrawal from the sterilized Account constitutes injection of liquidity that is additional to the regular flow to three tiers of government and for which the economy has limited capacity to absorb. Ideally, the principal objective of fiscal policy should be to smoothen the domestic absorption pattern over the time and to support a non-inflationary growth," Sanusi had added.
The banking watchdog had noted that the available inflation data from the Federal Office of Statistics had shown that at the end of the year (2001), the moving average inflation rate was about 7 per cent. This trend he had further explained, has worsened since the beginning of the year, particularly when account is taken of the continued structural impediments to productive activities, which have made inflation in the country to assume a structural character.
He had maintained that the likely impact of the anticipated drawdown of the excess crude reserve account shows that the growth rate in aggregate liquidity would more than double the programmed target for 2001, stressing that the naira would slide further, while inflation rate would accelerate to double digits.
Besides, the draw-down he had maintained, would impair the implementation of the current Stand By Agreement (SBA) programme with the International Monetary Fund (IMF), bringing to question the credibility of Nigeria's adjustment efforts expected to open door for debt relief.
Sanusi was emphatic that the injection of such massive liquidity into the banking system would intensify the problem of excess liquidity and render monetary management an onerous task for the Central Bank.
"Overall, the economy will be overheated and the attainment of non-inflationary growth and external viability would be elusive," he said.
As at the first half of this year, Nigeria had realized over N271 billion (approximately 2 billion) from crude oil sales following the global rise in oil price from $22 per barrel to $33. The Federal Government had calculated the year 2004 budget based on $25 per barrel. But crude oil prices have continued to inch up to $36 - $40 per barrel. That the FG in an attempt to safe guide against the time the price of oil will fall again as well as prevent the economy from being overheated decided to maintain savings is no doubt a good development.
As usual, governors of some states have expressed opposition to this decision of the FG to save excess money from the crude oil sales in a special account with the CBN. The governors had claimed that the 1999 Constitution and the Supreme court ruling on onshore/offshore suit filed by the Federal Government in 2001 have made it clear that all monies earned by all the tiers of government should be appropriated into the Federation Account and shared by all tiers of government as provided in the revenue allocation formula.
The governors further argued that they needed money to execute development projects in their states instead of saving money. But the Federal Government maintained that releasing the money from excess crude will further heighten inflation rate in the system.
Although, some states and local governments have actually embarked on developmental programmes that could alleviate poverty and enhance the living standard of their indigenes, majority according to Minister of State for Finance, Mrs. Nenadi Usman, have been using the mnthly allocations they get from the Federation Account "buy up" foreign exchange.
Usman, who made this accusation two months ago during a familiarisation visit to the Debt Management Office (DMO) in Abuja, had pointed out that the way the governors squander their state allocations on foreign exchange has been a source of worry to the Federal Government.
"Four days to seven days after the FAC (Federal Account Allocation Committee) meeting, the exchange rate goes up," she said, adding, that "means that they (governors) are using the money to buy up dollars.
"Make telephone calls to any of the states, ask after the governor and you would be told he has gone abroad. Not only the governors, even the commissioners of finance," she added.
Usman had maintained that the governors' behaviour is the reason "there is hardly anything to show for the monies they are collecting."
The minister had explained that apart from what goes to the National Emergency and Niger Delta Development Commission (NDDC), the Federal Government gets roughly about 48 per cent.
"If you compare that with about 52 er cent or so, you will agree with me that whatever policies and measures we put in place as the Federal Government to make our way straight, pursue transparency and accountability, if the remaining 52per cent for states and local governments doesn't do that, we are as good as having failed," she concluded.
Although, some state governors and their commissioners of finance have come out to challenge Usman who later insisted that she was misquoted, there however appears to be some iota of truth in what the minister said. For instance, it is on record that one of the northern governors spent about 70 per cent of his time abroad.
This unwholesome development may have prompted the Federal Government to draft a bill that seeks to legalise automatic savings of excess income from the crude oil.
Finance Minister, Dr. (Mrs.) Ngozi Okonjo- Iweala dropped this hint two weeks ago in Lagos at a Oil and Gas seminar organized by the Institute of Director (IOD).
Tagged social responsibility, the bill if passed by the National Assembly, will contain punitive measures that include jail terms for the Finance Minister and finance commissioner of a state found to have misused revenue allocation from the Federation Account.
Noting that the government did not just come up with the decision to go strict with utilization of revenue from the Federation Account, she explained that it was part of the desire to address the issue of whether oil was a curse or not to the country.
She observed that when oil prices were high and revenue buoyant, the country's fiscal policy goes haywire.
"With an accommodating monetary policy, this had usually had the effect of increasing the rate of growth of money supply, contributing to acceleration of inflation rate and putting pressure on the exchange rates.
"When the bubble burst and the oil market collapse as witnessed in late 1990's, the government is forced to cut back sharply, with capital expenditure bearing the brunt of such adjustments," she added.
The Federal Government she had said, was however, encouraged by the fact that Nigerians have accepted the need for a paradigm shift from the policies of the past that have kept the economy stagnant. And as part of the economic reform the government is preaching, the hallmark of management of the oil revenue particularly windfall in oil revenues is transparency and accountability.
The Finance Minster maintained that while the Federal Government duly recognizes the fact that any excess crude oil revenues belong to all the tiers of government, the parties however, still needed to come to an agreement on the proportion of excess revenue to be saved and the criteria for accessing the surpluses that will be put away.
"We have assured our counterparts at the sub-national levels that should they so wish, their shares would be kept solely in their name," she said.
The Federal Government on the other hand, she said was keen to using the excess oil income to build "earmarked reserves" that will go towards cushioning the effects of volatility.
She had maintained the excess crude oil revenue bolstered Nigeria's foreign reserves to the current levels of $11.93 billion.
According to Okonjo-Iweala, since oil windfalls don't happen very often, the current high oil price environment provides the government a rare opportunity to demonstrate to Nigerians and the wider world that it is capable of managing excess oil revenue. Eventually when these funds are shared, what is the assurance that the life of an average Nigerian would be a bit better off?
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