• Monday, February 26, 2024
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Nigeria’s missing petrol billions


Corruption in Nigeria has fed for generations on state monopolies that encourage failure on a grand scale. Yet each time over the past two decades that government has found the political will to break up these power centres, the country’s potential as the leading driver of continental growth has become evident. The case for commercialising the Nigerian National Petroleum Corporation, the state oil company, has never been so clear. Because of its position as a source typically of 70 per cent of state revenues and more than 90 per cent of export earnings, oil and the way it is managed is central to Nigeria’s economic wellbeing. As things stand, the NNPC is at the centre of a rotten industry which is a barrier to growth.

According to Lamido Sanusi, the outspoken governor of the central bank, mismanagement at the NNPC and other state agencies in upstream and downstream energy is costing the treasury about $1bn every month. His detailed revelations to a senate committee and the unprecedented scrutiny that oil sector transactions now face as a result, should provide ammunition for reformers in and outside government to demand an urgent clean-up. The scale of losses is now so huge it is jeopardising macroeconomic fundamentals despite the soaring price of oil. It is stripping the treasury of rainy-day savings, placing the currency and foreign reserves under stress and forcing the central bank to raise interest rates.

The potential benefits of shaking up the oil industry are correspondingly great. Reforms to Nigeria’s banking system have led to the emergence of a new generation of banks with the scale to challenge South Africa’s financial powerhouses in a race for regional expansion. The case for liberalisation was made more strikingly still in telecommunications. During the 1980s and 1990s, Nigeria squandered untold billions digitalising its landline network in a quasi monopolistic relationship between the state company Nitel and Germany’s Siemens. Only one in 300 Nigerians ended up with access to a phone. The explosive growth of mobile phone use since the government auctioned off GSM licences in 2001 showed what is possible in Africa’s most populous nation when the dead hand of the state is lifted. There are now some 110m connected phones.

President Goodluck Jonathan’s administration has begun to tackle the next main impediment to growth: chronic power shortages. The privatisation programme he has launched, in the face of stiff resistance from interests vested in procurement fraud and the lucrative import of diesel to run generators, is the most ambitious in Africa. Eventually, this should eliminate another costly racket while delivering cheap electricity.

The government’s record on managing energy resources is another matter. The gradual elimination of rent-seeking opportunities in other sectors appears to be concentrating hands in the oil till. Mr Sanusi’s exposé suggests that, like power and telecoms before it, Nigeria’s oil industry is on a path of diminishing returns as a result.

The forensic audit that Ngozi Okonjo-Iweala, finance minister, has initiated in response could go some way towards identifying where money is going missing. But the value of such an audit will be limited if the government subsequently fails – as it has before – to plug the holes, prosecute the culprits and use the evidence to change the way Nigeria buys and sells its oil.

The case for untethering the NNPC from the political system and restructuring the body is clear. With commercially priced domestic gas and fuel supplies, functioning refineries and an oil export industry that pays its own way, there is every reason to believe Nigeria might finally take off. The status quo, on the other hand, will bleed the country dry.