Thinking strategic with the oil windfall
With the world crude oil prices rising above $70 per barrel, Nigeria, once again, is reaping wealth from oil sales. Coming after low oil prices persisted since 2014; the current oil price index is a welcome development to the oil producer nations, especially those battling economic downturn. Nigeria has been battling recession since 2016, a development compounded by the low oil prices. The situation appeared to improve at the end of 2017 as evidenced in the Q1 2018 GDP growth of 1.95 per cent being taunted by the authorities from 0.85 in 2017. The truth is that Nigeria is reaping huge petro dollar akin to the boom in 2012 when oil price peaked at over $110.
While the oil consumer nations may be paying billions daily to sustain their oil-dependent economic systems, the oil-producing nations and the oil companies are in turn reaping huge profit from the fallout. The non-oil producing countries are clearly bearing the brunt of the skyrocketing prices. Increased spending and reduced savings amid uncertainty in the world oil market has become the lot of the people in those countries. In the United States, for example, rising bills are blowing consumer savings and adding to inflation, among other issues.
Right now, the windfall calls for strategic thinking and economic repositioning on the part of Nigeria. Some of the benefiting oil-producing countries would take advantage of the windfall to boost their economies and enhance the quality of life of their citizenry. In the oil-rich state of Alaska, for instance, the authorities often raised the annual oil dividend paid to every man, woman and child living there for a year. In 2011, following the windfall, the dividend was raised to $1,654 from $547. Lucky citizens, one would say; they are paid cash allowances in relation to the prevailing price of oil produced in their state.
The largesse given to the Alaskan residents is somewhat exceptional; responsible governments in other oil-producing countries duly recognize their citizens in the oil equation and adequately provide for them whenever there is oil windfall.
Countries like Saudi Arabia, the world’s biggest oil exporter, usually takes full advantage of any sustained rising oil prices to build new cities, as she did in the 2011 regime. The projects are often designed to burnish the country’s image, develop non-oil economy and generate enough employment to maintain social stability. Saudi Arabia reportedly built an “Economic City” named after King Abdullah from past oil boom. It is a mega project that cost about $27 billion. The integrated city was designed to include a power plant, a desalinization plant and a port, industrial district, a university and residential area for two million people, among other facilities.
It is definitely an ultra-modern project, strategically taking advantage of oil windfall to boost that country’s economy. The catalogue of countries taking advantage of increased oil revenue to boost their economic potentials is noteworthy. Even the newly oil-exporting countries like Chad and Sudan are not left out. Reports say the Sudanese capital Khartoum is blooming with new skyscrapers and five-star hotels despite the crisis that plagued the country.
But in Nigeria, the story is different. Nothing is happening to show that the country has ever reaped or is reaping huge oil windfall. Nigeria is a major oil producer, the sixth in the world and obviously, getting her fair share of the skyrocketing oil prices. What strategic advantage is the country taking from the oil windfall? Is there a way the citizenry could be made to benefit from the oil wealth? The general economic landscape in Nigeria is still appalling despite all the unsubstantiated economic indices being churned out by some government agencies to prove the contrary. The general welfare of the masses remains pathetic and depressing. Nigerians are looking forward to the day when they would witness a turnaround in their fortunes arising from the deliberate action of their leaders at all levels.
The National Assembly recently passed N9.12 trillion projected pattern of government expenditures in the 2018 national budget. While the budget, in absolute terms appears huge, a large chunk of it totaling N2.2 trillion is billed for debt serving alone. The sum of N3.515 trillion and N2.869 trillion are for recurrent and capital expenditures respectively. The daily crude oil production was pegged at 2.3 billion barrels per day. The projected revenue is expected to come from this quantum of daily oil output and would vary depending on the prevailing oil price. The higher the price the bigger the expected revenue. As usual, oil revenue would provide 80 per cent of the projected revenue while non-oil revenue will make up the remaining 20 per cent.
The so-called oil benchmark price pegged at $51 is of no significance to the people and the economy. The excess above the benchmark, which is put in the so-called Excess Crude Account (ECA), is frittered into private pockets. The essence of the Excess Crude Account, which has been there since 1999, has not been defined. There is nothing to show for it in terms of strategic development. In other oil-producing nations, funds in this sort of account are invested directly into capital projects to lift their economy and benefit the people. Can this boom be used to boost the Sovereign Wealth Fund, for instance?
Clearly, the budget is not predicated on any critical economic or social development need – infrastructure, mass unemployment, healthcare, etc. The worsening poverty and social deprivation facing the people are not factored into the budget. Reports that the Federal Government and other oil firms plan to invest N1.7 trillion in the Niger Delta makes sense if there is commitment to that effect given that what we have is an election year budget. Winning the election is a more important issue to the ruling party that is supposed to implement the budget. The party won’t tolerate any distraction not even when it borders on critical social and economic needs. The Niger Delta is a critical problem facing the country. The budget did not specifically identify that. One problem of the Nigerian economy is over concentration on macro-economic issues while the micro-economic issues that directly affect the people are ignored.
It needs to be pointed out that the current oil windfall is not the first of its kind. To the best of my knowledge, Nigeria reaped huge oil windfall in the mid-70s shortly after the civil war. Thereafter, the country reaped another windfall in 1991 during the Gulf War. The most recent was the 2011-14 windfall and now the current one. The question is what did the country do with all the trillions she earned from the recurrent oil booms? That is why I am not excited with the price rise. Since experience shows that after a boom comes a decline, Nigeria should be more strategic in the way she manages the current windfall, which, certainly, may not last long before another decline sets in.