I’ve recently returned from a trip to Nigeria, which took in meetings with contacts and policymakers in Abuja, as well as my first trip to Port Harcourt since 2007. I’m happy to report that the situation in Port Harcourt, while not resolved, has improved considerably during the post-amnesty period. And in Abuja, the pre-election environment hasn’t dampened the perceptions that — following three years of ambiguity and gridlock under the presidency of ailing Umaru Yar’Adua — the government once again has a firmer direction under Goodluck Jonathan, who is well-placed to win a second (and he promises final) term in April. Despite the impending elections, his administration appears committed to pushing through some key reforms, including an overhaul of the oil sector, the partial privatization of the electricity generation and distribution system, and the creation of a sovereign wealth fund.
The last item, the subject of regular comment on this blog, is particularly interesting. Since the creation in 2004 of the Excess Crude Account, meant to function as a stabilization fund, Nigeria’s fiscal health should have improved markedly — in spite of the political problems affecting oil production in the Niger Delta. However, contestation of the ECA’s legal status undermined its functionality, and the ‘windfall’ savings fund became in effect a regular source of disbursements for energy projects, meeting the obligations of the Nigerian National Petroleum Corporation’s funding agreements with joint-venture partners, and as ‘stimulus’ spending at federal, state and local government levels. Once the ECA’s legal status was resolved, the ability for state, local and federal governments to make claims on the funds have seen them dwindle to — reportedly — a few hundred million dollars, down from some 20-30 billion dollars at the peak in 2007-08.
As noted here, then, if the new SWF is meant to overcome the structural deficiencies in the ECA, then its governance will have to be clearly defined. I have yet to see a copy of the draft legislation, but reports suggest that one of the fund’s three functions will be a stabilization fund. This raises the question — what will happen to the ECA, should the SWF be created? With lawmakers debating an oil price benchmark for the current budget of 65 dollars per barrel, there is a lot of potential revenue to be managed. The impression I am getting is that — probably as a result of the constitutional conundrum which undermined the ECA in the first place — the SWF will function alongside the ECA. And, unfortunately, the poorly governed ECA may be set to continue receiving the lion’s share of revenues.
If well designed and properly implemented, the SWF could go some way to meeting two key objectives of the Nigerian government. First, they are seeking to improve investor perceptions, and better finances would help in this effort. Second, and less tangibly, they are seeking to safeguard some of the benefits from the non-renewable oil resources being exploited today for future generations. If the question of the ECA is not resolved alongside the establishment of a SWF, then it will not take long for the familiar problems to undermine the benefits from the new institution.
Mr. Jason Mosley is the Senior Analyst for Africa at Oxford Analytica.
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