RECENTLY, the state of the Nigerian economy came into focus when the Finance Minister, who also bears a grandiose appellation of Coordinating Minister, Dr. (Mrs) Ngozi Okonjo-Iweala observed the dwindling reserves in the Excess Crude Oil Account and also, the lack of co-operation of state governors on the fortunes of the Sovereign Welfare Fund (SWF).
The Minister, who has just lost her bid for the Presidentship of the World Bank was not happy that Nigerians have not imbibed the saving culture for the rainy day. As expected, this view was shared by the Central Bank Governor.
While congratulating our Finance Minister for the loss of her bid to become President of the World Bank, which she could not have won because of lack of support from the US Government, which holds more than 50% of the World Bank shares, and also has its own candidate. It should be understood that the US Government has no respect for Nigeria‘s handling of its economy.
It was Hilary Clinton, the American Secretary of State, who berated the policy of a great oil producer, which has turned itself into an importer of refined oil products. The loss by our Finance Minister should be a gain to Nigeria, which would now expect the Finance Minister to exhibit her wizardry in the economic transformation of the country.
The Finance and Coordinating Minister is unhappy with those, who are clamouring for the operation of true federalism and the inability of state governors to be convinced about Federal Government’s sincerity in running the SWF to the satisfaction of all Nigerians.
Going by past records of the Federal Government on fiscal responsibility, the State Governors and the Nigerians at large might be weary to trust so huge amount to it. It must be admitted that the State Governors themselves could not be excused from gross irresponsibility in handling public funds. However, their case could be sympathetically viewed.
Sovereign Welfare Fund: In fact, the SWF could be a sort of saving device from total oil receipts. If properly utilized, such fund could be used to transform the fortunes of the country. Sadly enough, some of the governors are crusading against the fortunes of SWF in their own selfish interests to have more parts of the oil revenue to squander.
Some analysts believe, and sincerely too, that the concept of savings in an under developed economy is a contradiction in terms of modern economic thinking. The need for savings is to mobilize capital for infrastructural development, which would ensure economic development.
A dormant economy needs a higher rate of expenditure and less savings to increase the national income which by itself, would stimulate effective demand for goods and services and subsequently, impact on the level of employment.
Therefore, if the depletion of reserves of the Excess Crude Oil Account is attributable to expenditure on conspicuous consumption of non-essential goods and luxuries or maintaining higher expenditure or increasing expenditure on running of governments, the Minister could be aptly justified in her lamentations.
For argument sake, it may be logical to question the rationale of the Sovereign Welfare Fund and the distribution of oil revenue by the Revenue Allocation Committee. The distribution itself portrays poverty or dearth of positive thinking on the oil revenue.
At present, revenue from oil is distributed on agreed percentage among the Federal Government and the 36 states.
The agreed distribution formula has no relevance to the cost of producing oil itself, but on some crude factors, including population, land mass and needs.
As I have noted before, revenue on oil should be distributed according to contribution to production and distribution costs and not based on some nebulous factors, which are alien to economic reality. The free nature of oil revenue distribution has generated corruption in the country.
It should be recalled that the Minister also was not sure and happy about the operation of the Oil Subsidy project. To many observers, subsidy on petrol has been sadly manipulated to cover inefficiency and corruption in many quarters. Instead of asking individuals or companies to import a single product like petrol, it would have been preferable to allocate crude oil to be refined into many products.
Crude oil prices: Since a barrel of crude oil would provide a certain quantity of petrol (PMS), Gasoil (Diesel), Kerosene (DPK), Fuel oil, etc, it would be wasteful to single out a product out of the multitude, for importation. It is only in this country that a gigantic beaureaucracy would be set up to supervise the importation of refined products from crude oil of which Nigeria is one of the world‘s greatest producers.
If the government is sincere about its policy of deregulation of the downstream sector of the oil industry, the processes of dismantling government control should have started in earnest, and there should have been no need to continue the process of subsidy. It is a pity that the NNPC, which is constitutionally mandated to supply the domestic market with petroleum products, was in the past years involved in collecting subsidy on oil importation.
The expectation is that if the 450,000 barrels per day supplied to NNPC could not be refined at home, the balance could have been refined in neighboring countries (Ivory Coast) and enjoy the full compliments of all products derived from a barrel of crude oil.
The sale of complimentary products would certainly affect the cost of a single product like PMS.
Many intelligent observers believe that the problems of the Nigerian economy involved many factors other than the concept of true federalism or strict application of constitutional rights.
There are problems of inflation, high lending rates, and inadequate credit facilities to the private sector, high exchange rate to the detriment of importers of desirable capital goods, the rising cost of running governments and also, uneven distribution of the national income.
There is also that unresolved issue of the difference between apparent government expansionist intentions and the Central Bank‘s intransigency as represented by its Tightening Monetary Policy.
Perhaps, the solution to the current problems lies in effective leadership. In the depression of the 1930‘s, President Roosevelt of the USA injected public funds into the economy to construct docks, harbors, clearing of drains and public buildings (contrary to the capitalism concept of the time).
President Obama in 2010 also (when unemployment increased to about 10%) injected public funds into the economy to stimulate the demand for American goods and increase in the levels of unemployment. Cheap loans and generous credit facilities were made available to American companies which would encourage the employment of American citizens.