…Says Nigeria’ oil revenue savings one of lowest in the world
19 July 2017, Sweetcrude, Abuja – The Nigerian Extractive Industries Transparency Initiative, NEITI, on Tuesday, advocated for the collapse of all oil revenue savings including the Excess Crude Account (ECA) and the Stabilization Funds into the Nigerian Sovereign Wealth Fund (NSWF) for effective coordination.
NEITI said such an arrangement would enable the country develop a coordinated policy to save a portion of the country’s oil and gas revenue for the rainy day and manage for the benefit of future generations of Nigerians.
The Executive Secretary of NEITI, Mr. Waziri Adio, who spoke in Abuja at the presentation of the agency’s Occasional Paper Series titled, “The case for a robust oil savings fund for Nigeria” in Abuja, lamented that in spite of the benefits and 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: the Stabilisation Fund, the Excess Crude Account, and the Sovereign Wealth Fund.
The Stabilization Fund covers the equivalent of 0.5 per cent of revenue in the federation account designated for augmentation of the shortfall in the federal budget to ensure stability in the economy.
The Excess Crude oil revenue account holds revenues realised from the sale of crude oil above the approved benchmark price contained in the Appropriation Act for the year.
The Sovereign Wealth Fund, on the other hand, is a special fund set aside by government with three components including Nigeria Infrastructure Fund (40 per cent), the Future Generations Fund (40 per cent) and the Stabilization Fund (20 per cent).
The NEITI Occasional Series Paper noted that, in the last forty years of oil production, Nigeria has extracted about 31 billion barrels of 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 breakdown of the savings in the three funds is as follows” Stabilization Fund (N29.02 billion), Sovereign Wealth Fund ($1.5billion) and Excess Crude Account ($2.3billion).
According to Adio, “The multiplicity of savings funds with different rules led to uncoordinated and widespread extra-budgetary spending.”
He added that, “Different oil revenue saving funds should be consolidated and the legal framework harmonised. Specifically, the 0.5% Stabilisation Funds and the Excess Crude Account 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 was to shield the economy from revenue volatility.”
Consequently, he said the three funds should be consolidated and the legal framework harmonised into one and transferred to the sovereign wealth fund administered by the Nigerian Sovereign Investment Authority, NSIA.
“Nigerian Sovereign Investment Authority is a very good model the country can entrust with the coordination and management of these funds. Unlike the other two Funds, NSWF is not only better governed and structured, the NSIA has more clarity of purpose and flexibility in its management of investments they have,” Adio said.
Besides, he said the Sovereign Wealth Institute’s transparency index rates the NSIA as one of the best in the world, with a score of 9/10, the best in Africa and the second joint best in the world.
In addition, Mr. Adio said NSIA was the only fund that has generated some returns from its investments, about N192 billion last year.
“Putting everything under one roof will make the NSIA more robust, transparent and more inclusive of other interest groups in the country. Under NSIA, withdrawals from the saving would have limits and the criteria would be clear on what to use the funds for and what not,” he stated.
Mr. Adio said NEITI would recommend that Nigeria copy the Norwegian sovereign wealth investment model, which allows government to transfer every revenue realized from mineral resources into its sovereign wealth fund.
Only a maximum of four per cent of the Fund could be withdrawn to fund budget deficits according to the model. He said Norway, in 2016, earned from its investments three times more than what it realized from oil.
Besides, he said, Nigeria could also adopt the Angolan model, that promotes the setting aside of the revenue realised from the sale of 100,000 barrels of crude oil, irrespective of whether the price is high or low.
Meanwhile, NEITI has 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 capita (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, Botswana $5.7 billion. Others are Russia $89.9 billion, and Kuwait $592 billion.”