Oil prices have increased in the last two days thanks to Saudi Arabia’s renewed commitment to output cuts. But such gains in prices often has the negative effect of making Nigeria’s economy managers lose a sense of urgency in steering Africa’s most populous nation towards economic prosperity.
Oil prices rose about 2 percent on Monday after Prince Abdulaziz bin Salman, the new Saudi energy minister confirmed expectations that he would stick with his country’s policy of limiting crude output to support prices.
Prince Abdulaziz, son of Saudi King Salman and a long-time member of the Saudi delegation to the Organisation of Petroleum Exporting Countries (OPEC) replaced Khalid al-Falih on Sunday.
“The weekend announcement of a change in leadership within the Saudi oil ministry was accompanied by strong suggestions that production restraint would continue until the market achieves a better balance,” Jim Ritterbusch, president of Ritterbusch and Associates said in a note.
Brent crude futures gained $1.05, or 1.7 percent, to settle at $62.59 a barrel, while US West Texas Intermediate (WTI) crude futures rose $1.33, or 2.4 percent, to settle at $57.85 a barrel. On Tuesday, Brent crude futures sustained gain at $62.92, and West Texas Intermediate, $58.21.
However, gains in oil prices may not save Africa’s biggest oil exporter that needs to grow by 5 percent per annum, in order to be able to create three million jobs per year for its teeming youthful population. Latest gross domestic product data, for the three months ending in June (Q2), showed economic growth slowed to 1.9 percent from a revised 2.1 percent in the first quarter. Experts say higher oil prices can only be good news for Nigeria if it is plowed into education, health, and infrastructure.
The country has an infrastructure deficit that requires $100 billion annually for the next 30 years, according to the African Development Bank.
The country’s education and health systems are collapsing. One of every five out-of-school children in the world is in Nigeria, according to the United Nations International Children’s Emergency Fund (UNICEF).
Nigeria does not have a track record for saving its oil windfalls. An oil windfall in this context is any amount in excess of the budget benchmark. This is $60.00 per barrel of oil in the 2019 federal budget. Brent crude futures sustained gain at $62.92 on Tuesday. This is $2.92 above the 2019 budget benchmark and would have gone to the Excess Crude Account, from where it is channeled into profitable investments.
“There is no legal backing for the excess crude account, the Constitution says revenue accruing to the Federation Account should be shared, there is no provision to save for future generations” said Obiageli Ezekwesili, who was part of the economic team under president Olusegun Obasanjo that proposed the establishment of ECA.
Nigeria’s 1999 Constitution as amended Section 162 deals with public revenue management. Sub-section of Section 162 (1) provides for “the Federation Account”; (3) provides that amounts standing to the credit of the Federation Account shall be distributed among the Federal and State Governments and the Local Government Councils in each State on such terms and in such manner as may be prescribed by the National Assembly.
Sub-section (4) provides that any amount standing to the credit of the States in the Federation Account shall be distributed among the States on such terms and in such manner as may be prescribed by the National Assembly.
The Constitution ab-initio provides that revenue accruing to the Federation Account should be distributed. This means that the Excess Crude Account, which is revenue accruing to the Federation Account, should be distributed according to the established revenue sharing formula. There is no Constitutional backing to save money from sales of crude oil above the budget benchmark, which is $60 dollars for the 2019 budget.
