~Yemi often rises to the occasion with his impressive economic analysis. Very valid thoughts contained herein~ Nigeria needs to check into oil rehab now ~By Yemi Soneye. In 2009, the great recession of the previous year was continuing to have a serious effect on global demand capacity with oil prices crashing from $140 to $38 per barrel. Nigeria however, was not flustered – unlike its fellow African oil producer, Angola. It simply withdrew funds from its Excess Crude Account (ECA) to finance its budget. Angola on the other hand took an IMF $1.4 billion loan to stabilise its economy. But now the oil market is crashing again. Since June, prices have gone from $115 to around $80 per barrel. How Nigeria will mitigate this remains to be seen is to be seen. Whilst Angola has established a sovereign wealth fund to invest the profits it makes on oil sales, Nigeria has carried on spending. The weakening of the Nigerian economy’s protection from the oil market began shortly before Umar Musa Yar’Adua succeeded Olusegun Obasanjo in 2007. He was politically weaker than his successor and realising this the State Governors, through the State Governors Forum, soon became politically powerful enough to set their sights on the ECA. They argued in court that the 1999 constitution recognises only the Federation Account, that the ECA is illegal, that all proceeds from oil sales should be put into the Federation Account from where they would be shared out among the three tiers of government: Federal, state and local. The ECA, which increased to $20 billion between 2004 and 2007, should be closed down. The account contained $3.6 billion in the middle of 2012, $11 billion at the end of 2012 and $2.1 billion at the beginning of this year. It contains $4.1 billion at the time of writing, an amount the World Bank at the end of its current meeting advised should be urgently increased as it is not sufficient to protect the economy from an oil shock. The issue is not the legality of the ECA. Politicians are just not interested in saving the oil wealth. If they were, it would have been going into the Sovereign Wealth Fund (SWF) – the National Assembly passed a bill that makes every Nigerian its collective owner (in comparison with the ECA, which only the Federal Government owns). The SWF was established in 2012 to replace the ECA. The latter’s funds were to be transferred into it for investment. The Federal Government however, went through the eye of a needle before governors agreed to the transfer of the first $1 billion. Hopes for the fund have remained unrealised and at the time of writing it contains $1.5 billion. The main opposition party, the All Progressive Congress, has promised to scrap it alongside the ECA when it gains power in 2015. Nigeria has general elections to finance early next year. It has to pay subsidy bills, salaries and to finance the reconstruction of areas that the terrorist group Boko Haram has, and continues to decimate. It also has to service the almost $60 billion in domestic debts politicians have collected. The country’s political economy must change. Nigeria must check into oil rehab. It should start by reducing the amount of oil proceeds that finance the budget or reducing the overall size of the budget. The budget benchmark, which is set based on a price the government projects oil would sell in a given year, must stop increasing annually. It is the addictive annual increase that has made the government unwisely put the benchmark for the 2015 budget at $78 per barrel – at a time of oil market uncertainties, when prices which have fallen to $80 per barrel may still fall further. The time for oil rehab check-in is now. Yemi Soneye is a poet and graduate student of Agricultural Economics at Obafemi Awolowo University, Ile-Ife. He has written on the Nigerian economy for London’s Think Africa Press. His poetry appear most recently in Maple Tree Literary Supplement. africanarguments.org/2014/11/04/nigeria-needs-to-check-into-oil-rehab-now-by-yemi-soneye/
Posted on: Fri, 28 Nov 2014 05:43:47 +0000
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