Nigeria’s Excess Crude Account (ECA) has decreased by 72 percent from $2.2 billion in 2015 to an all-time low of $60 million, according to the latest figures by Nigeria’s minister of state for budget and national planning, Clem Agba. This signifies the latest crack in the country’s line of defence amid rising oil prices.
The ECA is the proceeds from oil sales in excess of budgeted benchmark price kept aside to supply funds for the country whenever oil price downturn leads to shortfall in government revenue.
For most experts, a declining ECA is shocking considering Africa’s biggest oil-producing country gained at least 80 percent more in expected oil revenue due to its 2021 budget benchmark of $40. Brent price has increased by 45 percent this year from an average of $54.77 as of January this year to $84.11 as of Monday, October 18.
With the ECA declining from $3.6 billion in February 2014 to $60 million, experts say Nigeria lives as though the demand for the black gold will be there forever as the country keeps borrowing to bridge a budget deficit while also prioritising recurrent expenditure over capital expenditure.
Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector, says rising crude oil price provides a good opportunity to build fiscal buffers or increase the excess crude account. However, leakages such as subsidies, extra budgetary spending and lower oil productions are still major challenges, he states.
“Nigeria complains a lot about unsteady oil prices but folds its arms and does nothing about attracting investments to its stagnant oil production, which will boost revenue and allow the government to save for a time of need,” Atafiri said.
Niyi Awodeyi, CEO at Subterra Energy Resources Limited, says various administrations have used funds from the ECA for fuel subsidy payments and distributed among the three tiers of government to augment revenue shortfalls.
Other stakeholders blame it on profound revenue challenges and lack of rules governing deposits and withdrawals from the special account.
“The main focus now would be on the foreign reserves, which has been improving for a while now,” notes Oluwatosin Ayanfalu, analyst at Lagos-based Zedcrest Capital.
On Monday, the total amount in Nigeria’s external reserves went up by 3.8 percent or about $1.4 billion in one week to $39.6 billion from $38.2 billion in the previous week.
With this development, the nation’s foreign exchange (FX) buffer is now about $379.7 million away from hitting the $40 billion threshold being projected to reach before the end of October 2021.
“This administration took the very difficult decision to invest for the long term. We avoided taking short cuts knowing very well that the full impact of most of the projects we started will only be felt long after we have left office,” President Muhammadu Buhari said during the inauguration of the Nigerian Sovereign Investment Authority (NSIA) board in September.
Combined with Nigeria’s Sovereign Wealth Fund, the country’s oil savings is not more than $4 billion. Meanwhile, oil-rich countries like the United Arab Emirates, Qatar, Kuwait, Iran and Libya have at least 20 times more.
Kuwait’s Future Generations Fund, a national savings pot designed to help the country prepare for life after oil, has risen to about $700 billion; Norway boasts of a $1.3 trillion sovereign wealth fund while the United Arab Emirates has nearly $1 trillion capital pool in two SWFs, Abu Dhabi Investment Authority (ADIA) and Mubadala, funded by excess oil and gas income.
The United States’ Alaska Permanent Fund has one of the savviest SWFs in the world. The $83 billion fund is financed by oil and gas revenue for the benefit of future generations of Alaskans.
Singapore has two accounts called Singapore Investment Corporation (GIC) and Temasek, splitting over $800 billion between them. Each has its own goals and ways of operation, but both invest in the future with an expectation of paying out in the near term.
Unfortunately, Nigeria has failed to transform decades of oil earnings into sustainable development, despite being the largest producer and exporter of petroleum in Africa and one of the 10 largest producers in the world.
Established in 2004, the ECA demonstrates how to normalise an aberration. Without constitutional backing, the ECA was created to protect Nigeria’s planned budgets against shortfalls caused by the volatility of crude oil prices. In this way, it would insulate the economy from external shocks.
In 2015, the former minister of finance, Ngozi Okonjo-Iweala, said the country earned $61.7 billion (about N12.3trn) as excess crude oil money between 2011 and 2015.
The minister said Nigeria earned about $18.14 billion in 2011; $18.16 billion in 2012; $15.19 billion in 2013; $8.01 billion in 2014, and $2.17 billion in 2015.
As of August 2015, after President Buhari assumed office, it stood at $2.2 billion but it gradually depleted. The Central Bank of Nigeria (CBN) in its 2018 report said the country’s excess crude account fell from $2.45 billion in 2017 to $480 million as of December 2018.
Statistics from the Ministry of Finance had also revealed that the President Buhari regime withdrew N1.5 trillion (about $4.92bn) between 2015 and 2019 from the account. $1 billion was withdrawn in 2017 on the basis that it will be used to procure arms and train personnel in the fight against Boko Haram insurgents in the North-East.
A 2020 analysis by BudgIT, a civic organisation, indicated that Nigeria’s excess crude oil under President Buhari stood at $631 million in December 2018, $324 million in October 2019, and fell to $70 million in February 2020.