I just recalled one of the arguments of the Atiku campaign organization. Something about the excess crude oil account which stood at about $15b in 2008 but has dropped to less than $400m now. Although there was a financial crisis sometime during this period, the feeling is that the excess crude account is being wasted by the current administration.
Firstly, exactly what is the ECA? Well Nigerian govt budgets still rely mostly on crude oil revenues. Unfortunately crude oil prices fluctuate pretty often and these fluctuations if left unchecked could leave the economy dangerously exposed. One way to counter this is to set a benchmark price that you are sure you can definitely get and then save the excess externally for situations when the real price falls below your benchmark. For example, if the price fluctuates randomly between $50 and $90, and the current price is $70, you then decide to set a benchmark of $60 and save the remaining $10. The idea is to guarantee that no matter what happens you receive the $60 by saving when the price is higher than $60 and using up your savings when the price is lower than $60. This is all about stability. For example, one of the reasons Nigeria “survived” the recent financial Crisis was our ability to readily access the savings in the ECA. However if there is another crisis now with no funds in the ECA then…
The ECA was setup during the Obj years and was run reasonably well. Things have changed since then. The benchmark price of oil In the 2010 budget was set at $65 however actual oil prices have averaged somewhere around $70 -$80 per barrel. What this means is the savings in the ECA should be rising. In reality however it is falling and falling fast. The obvious question is where is the excess going?
This is the question that was asked by the Atiku group but unfortunately the messenger was shot down without the question being answered. No one has really answered the question. All we know is that we read in the news every now and then about $1bn from the ECA being shared by the states.
So what exactly is the problem? The real problem is a failure of regimes to institutionalize changes. Plans and ideas are executed through government power as opposed to legal channels and the ECA is a good example of that. The idea although noble was executed by Obj’s will as opposed to a legal institutional setup. His tenure has come and gone and now the system which should ensure that future administrations abide by that policy doesn’t exist. The decision to abide or not to abide is left to the whims of the next administration and that is not playing out too well.
The current administration is trying to rectify that by creating a legal sovereign wealth fund which is not technically the same as the ECA but pretty similar. That still doesn’t explain what is happening to the expected oil savings now. For that you will need to ask GEJ. Maybe I should ask him on his facebook page. Regimes choose to either be fiscally responsible or not but the decision to be responsible shouldn’t be left to the regime itself but to the system. The system needs to ensure fiscal responsibility and that can only come through proper legislation and not just present-day presidential power. Hopefully the sovereign wealth fund should go some way to dealing with that although i must add that I have my own issues with that fund.
The second thing the Atiku campaign group talked about was the foreign reserves…. more on that later.