For a country blessed with abundant natural resources – holding Africa’s largest crude reserves and the continent largest oil producer – aside from mineral deposits scattered across every state of the federation, the natural argument would be that Nigeria has no business being poor.
But in reality, Nigeria’s foreign debt has been put at $25.27 billion as at 31st December, 2018, by the National Bureau of Statistics (NBS). The bureau also disclosed that total domestic debt was N16.63 trillion as at the end of fourth quarter (Q4) 2018.
It would have been comforting to say that external borrowing is a global economic phenomenon engaged in even by countries considered to be among the world’s most stable economies and as such there is no cause for alarm, but for a country dependent almost entirely on a single foreign exchange earner – oil – a commodity with price fluctuations as unpredictable as the proverbial ‘British weather’, then we should be alarmed. Alarmed that the goose that lays the golden egg is in a dire state. Alarmed that the country have no savings for when the shocks come.
Funds in the Excess Crude account as announced by the Accountant General on March 27, 2019, is a meagre $183 million. The sovereign wealth fund stood at $2 billion as at September 2017, with government’s contribution of $1.5 billion, according to its Managing Director, Uche Orji. Meanwhile, the IMF in its Fiscal Monitor report released on Wednesday, listed Nigeria second from bottom in a global ranking of worst countries in the use of sovereign wealth funds.
The statistics of Nigeria’s economy and its dependence on the oil sector is no longer news; Nigeria depends on oil for 95percent of her foreign exchange earnings and 80percent for government budgetary revenue. But while the sector which is so largely at the heart of the country’s existence lacks the reforms and governance it needs to ensure the continued economic stability of the nation, remains a million-dollar question.
In disaggregating Nigeria’s foreign debt, the NBS data showed that $11.01 billion of the debt was multilateral, $34.63 million was bilateral from Agence Francaise de Development (AFD) and another $2.75 billion bilateral from the Chinese Exim Bank, Japanese International Cooperation Agency, KFW Development Bank and India.
The rising profile of Nigeria’s debt has severally caused global watchers such as the World Bank and IMF to offer cautious advice. On Wednesday, the International Monetary Fund (IMF) cautioned Nigeria and other developing countries about Chinese loans, saying they come with devastatingly unfavourable conditions.
Mr Tobias Adrian, Financial Counsellor and Director of the Monetary and Capital Markets Department of the International Monetary Fund, highlighted this caution during the launch of the Global Financial Stability Report for April, 2019 at the IMF/World Bank meetings in Washington D.C.
“Capital flows, which includes capital flows from China are of course important for development…On the other hand, what is very important in lending arrangements are the terms of the loans and we urge countries to make sure that when they borrow from abroad the terms are favourable,” he said.
“In particular, we recommend that loans to countries should conform with Paris Club arrangements and that is not always the case of loans from China,” Mr Adrian said, adding however, that “At the moment, funding conditions in economies such as Nigeria and other sub-Saharan African countries are favourable but that may change at some point.”
The terms and conditions of loans Nigeria has obtained from China and other sources for infrastructure development has been a source of worry to industry experts, with many arguing that if our oil industry was properly managed and all revenue streams from the sector harvested efficiently and accounted for, Nigeria would have no business borrowing, and or, negotiating loans from a point of weakness.
In its Policy Brief, ‘Improving the Management of Resource Revenues for Sustainable Development’, the Nigeria Natural Resource Charter (NNRC) noted that a comparative analysis of resource-rich countries indicated that development outcomes hinged not strongly on resource endowment per se, but crucially on effective management and governance of the resource. That was a major conclusion of the organisations most recent assessment the 2017 Benchmarking Exercise Report (BER) assessing Nigeria’s oil and gas resource management strategies.
While the 12 precepts of the Natural Resource Charter provide insights into the revenue management strategies adopted in Nigeria using oil and gas resource revenues from 2015 to 2017, precept 4, 7 and 8 particularly touched on the weak fiscal regime, the linkages between revenue and development, and concerns around stabilizing expenditure.
Precept 4 of the 2017 BER which deals adequately with improving resource revenues noted that Nigeria’s existing fiscal regime is archaic, complex and opaque, thereby limiting the revenues accrued to the government. “Low returns from investments minimize the level of interventions that the government can undertake to improve the lives of Nigerians,” the policy brief stated.
The document pointed out that Nigeria has lost an estimated $18 billion due to obsolete oil and gas laws, citing the Deep Offshore and Production Sharing Act 1993, as a key example. A major section of the Act gives incentives for deep off shore drilling to oil companies such that those drilling beyond 1000 meters paid 0% royalty until such as time as the price of crude went beyond $20. While the $20 benchmark has been crossed since 1993, the federal government has failed to activate this clause resulting in substantial loss of revenue.
The NNRC 2017 BER finds that the Nigerian government’s take from Production Sharing Contracts (PSCs) remains the lowest in the world and deep-water oil royalties remain at zero percent. Also, outdated contracts and expired Memorandums of Understanding (MOUs) are still in force resulting in under assessments, under-payment and invariably loss of revenues to the government the BER found, in addition to weak accountability and transparency with regard to licensing disclosures for oil facilities, which it noted, could fuel corruption and diversion of resources.
With the Nigerian government making less revenue from oil and gas sector due to unchecked leakages and prevailing ineffective fiscal regime, thereby predisposing it to external borrowing to fund revenue gaps, the NNRC Brief recommended a quick passage of the Petroleum Industry Fiscal Bill, a segment of the Petroleum Industry Bill (PIB) for the purpose of enhancing the effectiveness of oil and gas laws in responding to changing global and local dynamics.
The document also recommended the development the country’s statistical agency’s capacity in the collection of data on various value chain of oil and gas sector as well as the need to balance savings and consumption and financing growth in non-resource sectors of the economy.
As it stands, the choice is now for the Nigerian government, to take quick steps in reforming the oil sector, transit to a sustainable revenue source and eventually diversify away from oil, without which the oil sector will continue to see little improvement, the economy will be subject to economic shocks leading to poorer public, over-borrowing and debt crises.