The Excess Crude Account (ECA) ought to get fatter as oil price goes up or stabilises, but despite oil price increase, which jumped to $109 yesterday, the account has kept dwindling. Many are asking what the problem is, write CHIKODI OKEREOCHA and EMEKA UGWUANYI
Oil price rose yesterday over severe winter, weak dollar and production disruptions in Libya and Angola. Brent crude oil rose five cents to 109.13 dollars a barrel. If the severe winter continues across North America, the rise in price will also continue and speculators and hedge funds have sharply increased bullish bets on crude oil to near their highest ever.
“The U.S. winter and weak dollar are both supporting the oil market,” said Carsten Fritsch, senior analyst at Commerzbank. But there is a chance of a sharp correction. The risk is limited as long as the U.S. weather stays cold. But when it gets warmer, prices could come down, Fritsch said.
Brent price in January was between $107 and $107.5 per barrel while the entry price into February was $105.4.
At the Organisation of Petroleum Exporting Countries (OPEC), of which Nigeria is a member, the average price between January and February 14 was $105 per barrel while the average price in last quarter of last year was $106.43.
For Nigeria, the oil price hike should be good news. It should mean more money for the Excess Crude Account (ECA), which is the saving made from the oil benchmark and the real oil price. The benchmark for the budget is N77.5. But despite the hike and the stability in the last few months, the ECA has continued to nosedive. Last week, it emerged that the ECA, which was created to provide succour in rainy days for the federation, now has only about $2.1 billion.
The depletion of the ECA from about $11 billion in December 2012 has been seriously disputed by analysts, who see the withdrawals as unwarranted.
The status of ECA emerged at the meeting of the Federation Account Allocation Committee (FAAC), where N629.128 billion was shared among the three-tiers of government for January. Gross revenue during the month increased to N540.870 billion compared to N479.950 billion recorded last December.
Also, revenue from Value Added Tax (VAT) increased to about N82.2 billion in January as against about N64.7 billion the previous month.
Speaking with reporters in Abuja, at the end of the monthly meeting of the committee, Accountant-General of the Federation (AGF), Mr. Jonah Otunla, said the revenue from mineral sources for the month was N439.562 billion. The non-oil component was N101.308 billion.
Not long ago, Central Bank of Nigeria (CBN) Governor Mallam Sanusi Lamido Sanusi shocked not a few Nigerians when he drew their attention to the dire consequences of the continuous depletion of the country’s fiscal buffers. Sanusi raised the alarm that both the ECA and the external reserves had been depleted, a development which, he said, undermines the ability of the apex bank to sustain exchange rate stability.
The CBN boss, who disclosed this at the end of the bi-monthly meeting of the Monetary Policy Committee of the apex bank, expressed concerns that the absence of such fiscal buffers increases the country’s reliance on portfolio flows, thus constituting the principal risk to exchange rate stability, especially with uncertainties around capital flows and oil price. Sanusi, who decried the continuous fall in revenue from oil despite the stable price of oil and production in 2013, acknowledged output losses due to theft and vandalism. But he was quick to point out that this could not wholly explain the magnitude of the shortfall in revenue.
His views tallied with those of Minister of Finance and Co-ordinating Minister for the Economy Mrs Ngozi Okonjo-Iweala, who, at the just concluded World Economic Forum in Davos, Switzerland, also raised the alarm that the economy was under threat on account of the continuous decline of the ECA.
The ECA, in which the country saves revenue above the benchmark oil price set in the budget, stood at $8.65 billion as at end of 2012. The Finance Minister, however, explained that as a cushion against the depletion, “we have tried to set the country’s main parameters in a very modest way”.
She added: “We have made our budget at a very reasonable benchmark price for oil. This is to shield us and to ensure we are not subjected to any volatility there may be in the oil market.”
However, Sanusi and Mrs Okonjo-Iweala’s explanations have failed to impress economic experts, finance analysts and stakeholders in various sectors, who argue that there may be more than meets the eye in the claims that revenue from oil is going down and consequently, the country’s economic buffers are drying up.
Economist and frontline industrialist Henry Boyo is one of those who are not swayed by such claims. He believes that the claims are designed to bamboozle Nigerians.
Boyo said: “Its grand deception. Whether advertently or inadvertently, to me as a layman, it is deception. We are being taken for a ride.”
He described it as red herring contrived to distract the attention of Nigerians from asking real and critical question on how the economy is being managed.
As Boyo argued, the stage for the alleged grand deception was set when, in the process of setting the budget, which is the country’s operating plan, its formulators allegedly deliberately contrived that the country would receive less revenue than it should actually receive.
“If in addition to that,” he explained, “you now receive more revenue after you have nonetheless borrowed at between 10-15 per cent interest rate to cover the deficit that became necessary because you understated what your revenue would be; because if you have deliberately understated your revenue expectation to start with, and then you now have more income than expected but because you have borrowed to cover the deficit between expenditure and your projected spending, whether capital or recurrent, does that make sense? Can a surplus and a deficit exist side by side? The answer is no.”
While insisting that the whole set- up reeks of fraud, the renowned economist said: “You cannot have an ECA when you have a deficit. You cannot be saying you are building up an excess crude account when your budget is predicated on a deficit, especially when the so-called ECA is sitting idle, earning little or no interest. Besides, you now consume it in addition to the borrowing you borrowed to finance the contrived deficit.”
Boyo said the deficit is contrived because if the projected revenue expectation from crude oil is at the rate of $75 or whatever dollars per barrel and throughout the whole time the price of crude oil stood above 100 dollars per barrel. He added that even if production constraints and theft of crude, which of course, Sanusi acknowledged, takes away 20 per cent in terms of volume from the sales the country is expecting instead of 2.5 million barrels per day, the economy would still not be in a precarious fiscal position.
Boyo also wondered how the nation’s reserves could have dried up on account of shortfall in revenue from oil when only a few months back, Petroleum Minister Diezani Allison Madueke gave herself and the country thumbs up for exceeding her production quota.
“There might be production shortfalls in some days, but there were production surpluses in other days. In addition to that, if cumulatively we lost production by 20 per cent, for instance, the difference between the 77 or 75 dollars per barrel and 100 dollars is close to 33 per cent because your budget benchmark is $75, but instead of 75 you are earning more than $25 more per barrel.
“$25 expressed as a fraction of $75 that you used is about 33 per cent. So if you lost 20 per cent in volume and you gained 33 per cent in price how can you have such a huge deficit to start with that you are financing? If revenue from oil is going down how did they get the surplus? How can you have surplus and deficit at the same time? And how and why must you have borrowed to cover the deficit and similarly consume the surplus you said you gathered above $75 per barrel? Is that not fraud or deceit of some sort?”
Also curious to Boyo and other observers of the dynamics of the Nigerian economy is the fact that the supposed collapse of the fiscal buffers is coming at a time when various government revenue-generating agencies have strengthened their capacity, resulting in growing revenue inflow into government coffers. Overall, there has been appreciable increase revenue from the non-oil sector. For instance, in 2012 fiscal year alone, the Federal Inland Revenue Service (FIRS) realised as much as N5.007 trillion from taxes. The amount, the highest cumulative tax collected in the history of the FIRS, represented an increase of N379.4 billion or 8.20 per cent over the N4.628 trillion collected in 2011.
Before Mrs Ifueko Omoigui-Okauru, immediate past executive chairman of FIRS left office, she said in about 11 years, the cumulative revenue from the FIRS hit N21.7 trillion, with N7.53 trillion coming from non-oil sources, while over N13.036 trillion was realised oil revenue during the period. Other revenue-generating agencies such as the Nigeria Customs Service (NCS), NNPC, and the Nigerian Maritime Administration and Safety Agency (NIMASA) among others, have also shored up their revenue target.
Boyo said if the revenue target of the FIRS has come down since the exit of Mrs Omoigui-Okauru, as well as other agencies, the Federal Government should be asking questions rather than confusing Nigerians by painting a gloomy picture of an economy that ordinarily should be buoyant.
The industrialist is not alone in his worries over the direction of the economy. Alaba Olusemore, the Managing Consultant, Nesbet Consulting, a Lagos-based firm of finance and management consultancy, is also worried. While noting that the currency denomination the allocation is shared, whether dollar or naira, is not the issue provided it is channelled at production instead of consumption, he said: “The whole story of the depletion of our economic buffers has not been told,” adding that there must be something those managing the economy are not telling Nigerians especially since secrecy is now the name of the game, and people no longer want to be transparent.
Olusemore listed some factors that could be responsible for the depleting fiscal buffers. According to him, government may have been spending too much on security to contain the threat of Boko Haram insurgents. Besides, the CBN may have been taking money from the external reserves to stabilise the exchange rate of the naira. Also, a lot of money, he alleged, may have been expended on meeting some political exigencies ahead of the 2015 general election.
“2015 is around the corner, and politics in Nigeria means money; a lot of resources may have been expended on projects based on political exigencies rather than economic,” he told The Nation.
For now, the government has no convincing answer to why the buffers are going down. So, the people will continue to ask questions.
