$1 billion military spending shrinks Excess Crude Account to $480 million

Nigeria’s Excess Crude Account has dropped to $480 million. This is as controversy continues to trail the $1 billion military spending which was withdrawn from Nigeria’s Excess Crude.

Nigeria’s Excess Crude Account has largely depleted in the last 5 years, and currently stands at $480 million.

According to the Central Bank of Nigeria’s annual report for 2018, Nigeria’s crude excess account fell from $2.45 billion in 2017 to $480 million as of December 2018.

• ECA stood at $3.32 billion in 2014 and has continued to drop.
• Specifically, between 2014 and 2018, crude excess account dropped by 85%, from $3.32 billion to $480 million respectively.
• This means that about $2.84 billion have been withdrawn by the government since that peak.
• Similarly, the CBN disclosed in its latest annual report that the drop-down in ECA between 2017 and 2018 is due to significant draw-down to bridge the financing gap of the three-tiers of government.

The Controversies: Recently, the federal government under President Muhammadu Buhari was accused of mismanaging the country’s Excess Crude Account especially the $1 billion reportedly spent on military equipment.

• The National Security Adviser (NSA) retired Major General Babagana Monguno Gen. Babagana was quoted to have disclosed that he was not aware of the whereabouts or disbursement of the $1billion drawn from the ECA by the Buhari presidency in 2017 for security purposes.

• While controversies trail the statement credited to the NSA, with many describing it as diversion of public funds, the Presidency provided some explanations.
• Responding to the allegations, Senior Special Assistant on Media and Publicity, Garba Shehu, disclosed that various procurements had been made for the purchase of critical equipment for the Nigerian Army, the Nigerian Navy and the Air Force, contrary to the allegations.

[READ: IMF ranks Nigeria’s sovereign wealth fund second-worst in the world]

How the $1 billion was spent

According to Garba Shehu;

“The record we have is that the Buhari’s administration paid $496 million for a dozen Super Tucano fighter aircraft for the Air Force in a direct, government-to-government (no contractors or commission agents) transaction with the government of the United States of America. They are due for delivery in 2020.

“Various other military procurements for critical equipment have been made. These are for the Nigerian Army and the Nigerian Navy, amounting to $380.5 million. These procurements include money for the purchase of Navy Lynx helicopters.

“The total amount spent so far is $876.8 million. The equipment paid for has due dates of delivery of between six months to two years. Balance of the money that is unspent as at today is $123.1 million.

“The entire expenditure involved in these exercises is on the basis of government-to-government procurement. In cases where the Nigerian government dealt with equipment manufacturers, their home governments have in all cases given guarantees to the Federal Government.

“Again, it is important to stress that no contractors or commission agents have been involved in the procurements under discussion.”

Nigeria’s ECA in retrospect: In Nigeria, there are two Sovereign Wealth Funds: the Excess Crude Account and the Nigeria Sovereign Investment Authority (NSIA). Note that these two are funded by the savings earned when oil prices are at peak.

• Hence, as a larger chunk of revenue is appropriated for ECA and NSIA, the country’s external reserves are likely to fall.
• Note that the sovereign wealth fund was established to address the controversies surrounding the Excess Crude Account.
• The fund is usually expected to generate revenue to meet budget shortfalls in the future, provide dedicated funding for the development of infrastructure and saves for future generations.

ECA depleted by 85% in 5 years: A closer look at the various annual reports of the Central Bank of Nigeria shows that Nigeria’s excess crude account has depleted significantly over the years.

Some key takeaways: Earlier in April, the International Monetary Fund (IMF) ranked Nigeria as the world’s second-worst country in the use of sovereign wealth funds. According to the report, Qatar is the only country worse than Nigeria on the index.