A popular saying admonishes us not to eat with ten fingers. This axiom is not a homily about table manners. It is a metaphor about the virtue of living prudently. A more prosaic rendering will go like this: save a portion of your earnings for the possibility of emergencies in the here and now, and for the uncertainties of the future. Or put differently, always save for the proverbial rainy day. But both poetry and prose seem to elude us. Our country has made a habit of not only eating with its ten fingers, but also, in periods of plenty, throwing its ten toes into the mix.
From data harvested from the Central Bank of Nigeria (CBN), Nigeria earned in excess of N70 trillion from oil and gas alone between 1999 and 2014. By the time prices of crude oil started plunging in mid-2014, it was (and still is) difficult to point to what we had done with that sizeable windfall. Worse, we saved little during the long boom period to minimize the impact of what has turned into a not-so-short spell of not-so-high oil prices. Before long, Nigeria landed at a desperate pass, one where we do not have enough dollars from oil, our near-sole export, to feed our addiction to imports, one where most states struggle to pay salaries, and one where national productivity shrank and the economy contracted.
To be sure, many factors combined to produce the undesirable outcome that we are just slowly emerging from. But a few things could have turned out differently if we were not eating with ten fingers and ten toes at boom time. Imagine if we had saved between $50 billion and $150 billion in the Excess Crude Account (ECA) alone before oil prices started sliding south in mid-2014. Having that quantum of savings in ECA is not as far-fetched as it seems. Just remember that at some point in 2008, Nigeria had $20 billion in the ECA, and this was after $12 billion had been paid to the Paris Club to get $18 billion loan reprieve, and this was much before oil prices lingered in $100+/barrel territory for four years. We could have saved a lot, if we wanted, as later analysis will show. But we did not.
Countries that are dependent on natural resources are always advised to save a portion of their earnings. This is a common, almost elementary, prescription for prudent management of revenues from natural resources. And it makes good sense for many reasons. One, prices of natural resources are known to be very volatile, prone to fluctuation not only across fiscal years but even within the same budget period, exposing countries dependent on them to the potentially devastating boom-and-bust cycle. Two, natural resources are non-renewable: so it makes sense to save for the day they will be depleted. Nigeria’s oil reserve, for instance, is estimated to run out in 38 years.
On a related note, natural resources can quickly become less valuable, as alternative resources and technology can rapidly depreciate once-valuable resources. (In the 1840s, the economy of Peru prospered on the export of bird droppings—gueno—but that era ended when alternative sources of fertilizer came on stream. Just think of how electric cars and other technological advances can make oil a less valuable source of energy very soon.) Another reason for saving earnings from natural resources is the need to put something aside for the future generation, as the resources do not belong to only one generation. This is the inter-generational equity argument.
It also makes sense to invest earnings from natural resources to create other streams of income, to diversify and multiply the revenue base of a country, and to creatively transform these natural resources into gifts that keep giving beyond their natural lifespans. A good example of this is Norway. In 2016, the Scandinavian country earned three times more from the investment of its oil savings than it earned from the sale of oil that year. In addition, saving natural resource earnings helps in taming the negative impact of the sudden influx of foreign exchange on the local economy (Dutch Disease, crowding out of local manufacturing, mono-cultural economy, import-dependence) and assists in limiting the disposition to fritter away and pilfer resource rents. In sum, having a robust and prudently-managed resource savings is one of the means for ensuring that natural resources become real blessings, and not curses, to resource-rich countries.
From a policy paper released last week by the Nigeria Extractive Industries Transparency Initiative (NEITI), it is clear that Nigeria is aware of this simple but effective prescription. The problem, though, is that we have been more than half-hearted in our implementation. Titled “the Case for a Robust Oil Savings Fund for Nigeria,” the NEITI report shows that our country has three different oil savings funds: the 0.5% Stabilization Fund, started in 1989, with a current balance of $95 million; the ECA, started in 2004, with a current balance of $2.3 billion; and the Nigerian Sovereign Investment Authority (our sovereign wealth fund), started in 2011, with a current balance of $1.5 billion. The combined balance in the three accounts is $3.9 billion.
It is good news that we have been saving part of our oil earnings for the past 28 years. However, our present balance is too little and too inadequate to serve our purpose in the immediate and in the future. Between 1989, when we formally started saving part of our oil earnings and 2014 when oil prices started falling, Nigeria had sold $980 billion worth of oil. The $3.9 billion balance of our combined savings represents only 0.4% of the value of oil sold in 25 years of operating oil savings funds. We also have one of the lowest natural resource savings in the world in absolute and relative terms. The sovereign wealth funds of other countries covered in the NEITI study are as follow: Norway, $922 billion; Kuwait, $592 billion; Russia, $89.9 billion; Chile, $24.1 billion; Botswana, $5.7 billion; and Angola $4.6 billion.
The comparison between Nigeria and Norway is inversely jarring. Norway has a population of 5.2 million people, which is 2.8% of Nigeria’s 186 million people. But its oil savings of $922 billion is 23, 641% of the total $3.9 billion in Nigeria’s three oil savings funds. Comparison of the two countries in per capita terms and savings as a proportion of budget further buttresses the sharp contrast: While Norway’s $922 billion comes to $185, 000 per citizen, Nigeria’s $1.5 billion sovereign wealth fund (NSIA) amounts to $8 per citizen; and while Norway’s $922 billion can fund 37 years of the country’s budget, Nigeria’s $3.9 billion in the three oil saving funds can pay for only 16% of the N7.44 trillion federal budget for this year (it should not be forgotten that the money does not belong to the federal government alone). The fact that our total savings cannot fund up to a fifth of a year’s budget at the federal level should serve as serious wake-up call. It shows how vulnerable we are as a country and how our half-hearted approach to savings makes a mockery of and undermines the need for oil savings in the first instance.
Some will say a comparison with Norway is unfair, and maybe it is. Excuse can be made for how Norway is a developed country that does not need its oil revenues and can afford to save all. It can also be said that Norway is a smaller country, where three in five of the citizens work and pay taxes and without the huge developmental challenges that we have. But there are serious lessons we can learn from not just Norway and other countries cited in the NEITI study, but also and especially from our own experience. Truth is we did not manage most of our oil savings in a transparent, accountable and prudent manner, especially in moments of significant high oil prices.
Two instances will suffice. One, 2010 was one of the few years when both the price and the volume benchmarks were lower than the actual price and the actual production figures. This was a year we did not need to draw down on the ECA at all because Section 35 of the Fiscal Responsibility Act of 2007 says that there should be withdrawals only when actual price falls below the benchmark price. But a report of the National Economic Management Council (NEC) cited by NEITI shows that while inflow to the ECA was $10.9 billion, outflow was $15.9 billion, resulting in a negative net balance of $5 billion. Also, the NEC report shows that while $201.2 billion accrued to the ECA between January 2005 and June 2015, $204.7 billion left the account during the same time, indicating that outflow was 102% of inflow. Imagine that instead of our save-and-spend attitude, a conscious decision was made to save between 25% and 75% of the ECA accruals. That would have left a balance of between $50.3 billion and $150.9 billion in ECA alone. More than a mere academic, counter-factual exercise, this shows the road not taken.
To be sure, there are binding constraints to having a robust oil savings fund in Nigeria, ranging from governance, developmental, conceptual to constitutional. The NEITI paper took account of all of these and made some recommendations, chief of which are the following: settling the cases between the states and the federal government at the Supreme Court, consolidating all the funds into the NSIA (which is better structured and governed as a resource savings fund), saving even oil prices are low (Angola saves 100,000 barrels of oil per day), delinking budget from oil, creating incentives for savings, implementing complementary macro-economic policies, and amending Section 162 of the 1999 Constitution.
Some of these might look daunting, but not necessarily so if the will is there, as President Olusegun Obasanjo and late President Umaru Yar’Adua clearly demonstrated in building up the ECA. It is even possible to save when oil prices are low: the present administration added $500 million to the $1 billion seed money to NSIA by the President Goodluck Jonathan administration—$250m in November 2015 and another $250 million in March 2017. Both the ECA and NSIA were products of elite political consensus. Same consensus can be built upon to amend the constitution using the inclusive platform of NEC. Though it should be clear by now that eating with ten fingers puts everyone at risk, having a consensus on that, whether at the elite level or at the national level, is not a naturally occurring phenomenon. It has to be consciously shaped and midwifed. That is one of the critical leadership tasks of these testy times.
*Adio is the Executive Secretary of NEITI
COVID-19 Update in Nigeria
On the 28th of October 2020, 147 new confirmed cases and 4 deaths were recorded in Nigeria
The spread of novel Corona Virus Disease (COVID-19) in Nigeria continues to record significant increases as the latest statistics provided by the Nigeria Centre for Disease Control reveal Nigeria now has 62,371 confirmed cases.
On the 28th of October 2020, 147 new confirmed cases and 4 deaths were recorded in Nigeria, having carried out a total daily test of 3,270 samples across the country.
To date, 62,371 cases have been confirmed, 58,095 cases have been discharged and 1,139 deaths have been recorded in 36 states and the Federal Capital Territory. A total of 617,750 tests have been carried out as of October 28th, 2020 compared to 614,480 tests a day earlier.
COVID-19 Case Updates- 28th October 2020,
- Total Number of Cases – 62,371
- Total Number Discharged – 58,095
- Total Deaths – 1,1139
- Total Tests Carried out – 617,750
According to the NCDC, the 147 new cases were reported from 12 states- Lagos (82), FCT (20), Rivers (9), Kaduna (8), Plateau (8), Benue (5), Edo (3), Kano (3), Nasarawa (3), Taraba (3), Ogun (2), Bauchi (1).
Meanwhile, the latest numbers bring Lagos state total confirmed cases to 21,017, followed by Abuja (6,028), Plateau (3,622), Oyo (3,433), Rivers (2,790), Edo (2,657), Kaduna (2,633), Ogun (2,016), Delta (1,813), Kano (1,746), Ondo (1,666), Enugu (1,314), Kwara (1,069), Ebonyi (1,049), Katsina (952), Osun (923), Abia (898), Gombe (883). Borno (745), and Bauchi (711).
Imo State has recorded 616 cases, Benue (491), Nasarawa (482), Bayelsa (403), Ekiti (332), Jigawa (325), Akwa Ibom (295), Anambra (277), Niger (274), Adamawa (257), Sokoto (165), Taraba (143), Kebbi (93), Cross River (87), Yobe (82), Zamfara (79), while Kogi state has recorded 5 cases only.
Lock Down and Curfew
In a move to combat the spread of the pandemic disease, President Muhammadu Buhari directed the cessation of all movements in Lagos and the FCT for an initial period of 14 days, which took effect from 11 pm on Monday, 30th March 2020.
The movement restriction, which was extended by another two-weeks period, has been partially put on hold with some businesses commencing operations from May 4. On April 27th, 2020, Nigeria’s President, Muhammadu Buhari declared an overnight curfew from 8 pm to 6 am across the country, as part of new measures to contain the spread of the COVID-19. This comes along with the phased and gradual easing of lockdown measures in FCT, Lagos, and Ogun States, which took effect from Saturday, 2nd May 2020, at 9 am.
On Monday, 29th June 2020 the federal government extended the second phase of the eased lockdown by 4 weeks and approved interstate movement outside curfew hours with effect from July 1, 2020. Also, on Monday 27th July 2020, the federal government extended the second phase of eased lockdown by an additional one week.
On Thursday, 6th August 2020 the federal government through the secretary to the Government of the Federation (SGF) and Chairman of the Presidential Task Force (PTF) on COVID-19 announced the extension of the second phase of eased lockdown by another four (4) weeks.
Nigeria’s treasury bills rate falls to 0.5% per annum
Nigeria’s treasury bills rate was oversubscribed despite falling to 0.5%.
The latest treasury bills auction by the Central Bank of Nigeria reveals a 91-day bill sold for an interest rate of 0.34% one of the lowest in the history of the auction.
Treasury bills rate has fallen sharply since the central bank switched monetary policy from fighting inflation and attracting foreign portfolio inflows to boosting domestic credit. The CBN has frequently deployed heterodox policies over the years adopting what Nairametrics research has come to characterize as Meffynomics.
In the last action two weeks ago treasury bills stop rates for a 91-day bill was 1%. The latest auction also reveals 182 and 364-day bills have fallen to 0.5 and 0.98% respectively. Despite the drops, subscription rates for the bills more than doubled the actual bills on offer. For example, N84.8 billion subscription as against N49.8 billion for a 91-day bill. Even more shocking was the one year bill with investors staking a whopping N694.9 billion in subscription against N93.9 billion on offer.
What this means: The current rates are the closest we have seen to 0% suggesting that investors are willing to earn next to nothing rather than take risks in a failing economy.
- Nigeria’s inflation rate is 13.71% and galloping towards stagflation. Nigeria is expected to announce it is formally in a recession in the coming weeks as the National Bureau of Statistics collates its data.
- Billions have poured into the stock market in recent weeks as investors search for investments with better yields.
- However, there are limited stocks out there that can guzzle up the hundreds of billions of naira available for investing.
Nigeria’s Ngozi Okonjo-Iweala close to being announced as new DG of WTO
Ngozi Okonjo-Iweala is expected to be announced as the new DG of the World Trade Organisation.
Nigeria’s former Finance Minister, Dr Ngozi Okonji-Iweala, is close to being appointed as the new Director-General of the World Trade Organisation (WTO).
According to Reuters, a group of ambassadors also known as “troika” has proposed Ngozi Okonjo-Iweala to lead the WTO giving her a clear path to becoming the first woman to head the WTO since it started 25 years ago. The three ambassadors are thought to wield significant powers in determining what is a very “intricate and opaque” process.
Most Nigerian Media houses have already announced NOI as the winner of the process even though this is yet to be made official by the WTO.
The winner for the role of DG of WTO is expected to be announced formally by the WTO later today.
However, there appears to be a new twist, in the expected announcement of her emergence as the new Director-General of the WTO.
The United States through its representative at the WTO has insisted that the South Korean candidate is still in contention and that Washington will not recognize Okonjo-Iweala as the consensus candidate for appointment as Director-General.
As a result, the General Counsel of WTO, postponed the announcement of a new Director-General until November 9, after the US presidential election, after further consultations would have been made.
The announcement of Okonjo-Iweala, who is reported to have gotten the support of a vast majority of members states, including the EU, Japan and China, as the new boss of the World Trade Organization, would have been a huge boost for Africa