The Nigeria Extractive Industries Transparency Initiative (NEITI) has advised the Federal Government to boost its savings culture by channelling more funds to the Nigerian Sovereign Investment Authority (NSIA).In a policy brief titled ‘Insulating Nigeria from perennial oil price volatility’, the agency lamented that NSIA’s assets remains one of the smallest sovereign wealth funds in the world with just $2 billion.
While recommending ways to achieve better savings, NEITI said discontinuance of the excess crude account, the 0.5 percent stabilisation fund and transferring balances in the two accounts to the NSIA could be a game changer in government’s efforts to build its financial buffers to hedge against sudden global financial shocks.
Since its establishment in 2003, there have been questions about the legitimacy of the Excess Crude Account.
NEITI further advised that the oil price-based fiscal rule (OPFR) which allows for revenues in excess of the oil price benchmark be abolished and replaced with a mandatory saving of a percentage of daily oil production. All these, according to NEITI would help Nigeria build buffers against the volatility of crude oil prices.
The COVID-19 pandemic, which resulted in lockdowns across various countries of the world, had reduced demand for crude oil as supply glut made prices tank on the global market. But as countries began to emerge from lockdowns and a supply cut implemented by the Organisation of Petroleum Exporting Countries (OPEC) and its allies helped prices rise to above $41 per barrel from a period, the US West Texas Intermediate (WTI) was offered to buyers at negative prices.
NEITI advised that Nigeria should not be distracted by rising oil prices saying the “next oil price crash is a matter of when not if”. In all, three crude earnings savings account held by the country have a cumulative sum of $2.25 billion.
“By contrast, Norway (a country of 5.3 million people) has a sovereign wealth fund worth more than $1 trillion. The Scandinavian country is withdrawing $37 billion (382 Kroner) or less than 4% of its hefty savings to fund its 2020 budget,” NEITI said.
“Norway saves all its oil money while Angola saves proceeds from 10 percent of its daily production. “At this stage of its development and based on current needs, Nigeria cannot do like Norway but it can be like Angola and save proceeds of between 5 percent and 20 percent of its daily oil production.
“With this, Nigeria could easily save between $1 billion and $3 billion every year even in a period of low oil prices. Abolishing the OPFR also removes the constant political jostling about oil benchmark price and quantity.” It has therefore recommended the Stabilisation Fund be increased from 20 percent to 40 percent of NSIA’s holdings and dividends from NSIA earnings be shared among the three tiers of government every year.
“Increasing NSIA’s Stabilisation Fund (the portion available for budget supplementation) and sharing dividends from the investment will give comfort to states and LGs to support the constitutional amendment and the scrapping of ECA,” it said.
“Instead of just sitting in ECA, the fund will be invested to generate other streams of income for the federation.”
Other recommendations by NEITI include increasing tax revenue using a low rate-wide base technique the capturesthe informal sector, boosting non-oil exports, blocking leakages in the oil and gas sector, fast-tracking the passage of the petroleum industry bill and boosting gas production and utilisation