5 th Oil Boom

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Transcript 5 th Oil Boom

A PRESENTATION TO THE NIGERIA CIVIL SOCIETY
SITUATION ROOM MEETING ON THE STATE OF THE
NATION.
A Quest for Accountability
Content
• Understanding the Context
• The Squandering of Opportunity: The Story of Another
Wasted Oil Boom
• It is all about Human Development: Using the “State of
Education” to tell our story of underperformance
• Conclusion: It is all about Citizens’ Demand for Good
Governance and accountability
• Key Demand: For our Centenary; Constitute a National
Dialogue: A Citizens-Led National Assembly Legitimized
Dialogue on the Future of Nigeria
Understanding the Context
• Weak Global Economy
• Vulnerable Emerging Economies
• Relative Macroeconomic Stability and Higher
than Global Average Economic Growth but
Higher Poverty Numbers (NBS)
• Heightened Insecurity and Violence
• Political Instability
• Deficit of Delivery of Basic Services to Citizens
Understanding The Context
Opportunity to University Education (2013)
37.5%
33.7%
28.2%
16.5%
4.3%
Chile
Nigeria
Singapore
Malaysia
“ Our lag in tertiary education
enrollment is quite revealing and
could be interpreted as the basis of
the competitiveness gap between the
same set of countries and Nigeria”
Brazil
GDP & Population
$2.48tn
$1.12tn
196m
170m
$318.7bn
$278.6bn
55m
28m
South Korea
Brazil
Malaysia
$235.9bn
5m
Singapore
Nigeria
“Economic growth rate and ultimate
development of nations are determined
by a number of factors that range
from sound policies , effective and
efficient public and private investments
and strong institutions “
Understanding The Context
Income per capita , 2011 ($)
50,000
“Our own paltry $1,500 income per
capita helps drive home the point that we
have been left behind many times over by
every one of those other countries…. How
did these nations steer and stir their
people
to achieve such economic
performance over the last five years? ”
22,000
13,000 14,000
10,000
1,500
Singapore
South
Korea
Malaysia
Brazil
Chile
Nigeria
“What happened to Nigeria? Why did we
get left behind? Why did we get left
behind? How did these nations become
productively wealth over the last fifty
years while Nigeria stagnated”
Nigeria Poverty Figures (m)
112.47
34.5
39.2
1985
1992
67.1
68.4
1996
2004
17.1
1980
2010
“ The Nigeria is a paradox of the kind of
wealth the breeds penury is widely
known as
the fact
that the world
considers us a poster nation for poor
governance
wealth
from natural
resources”.
Understanding The Context
Life expectancy (years )
80
80
78
73
72
51.4
Nigeria
“The
Singapore South Korea
80%
Percentage of our
National Budget
contributed by oil
18%
Percentage of
Manufacturing in
Nigeria’s GDP Matrix
Chile
Malaysia
95%
Percentage of
foreign exchange
contributed by oil
5
Cycles of boom in
the 70s, 80s , 90s,
2000s &2010s
Brazil
common wonderment of these poor
citizens – whether east, west, north and southis “why would more than half the population of
a country that earned nearly one trillion
dollars in oil revenue since the Oloibori
discovery of crude oil; continue to wallow in
poverty?”
“Well, economic evidence shows that the
answer which we must all ponder deeply is
that oil wealth entrenched corruption and
mismanagement of resources in government
and warped the incentive for value added
work, creativity and innovation in our public,
private sectors and wider society.”
Understanding The Context
5 Cycles of Boom
Source: http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rwtc&f=m
The 5th Oil Boom: The Case for
Squandering of Opportunity
“My observation in January was a PUBLIC CALL to
account for the 5th oil boom revenues because I am
grossly disappointed that we are failing once again to
learn anything from the failures of the previous booms”
The 5th Oil Boom
The 2007 significant sum of $45bn in foreign reserve account including $22bn
of Excess Crude Account
Foreign reserve account as May 2007
CBN Foreign Reserves
*Federation Reserves
FGN Reserves
: $31.5bn
: $9.43bn
: $2.18bn
*In August 2007, Nigeria’s foreign reserves rose to $45bn . Note that Federation Reserves also stands as Excess Crude
Account which belongs to all tiers of government.
$43.13bn
$5.6bn
1999
Source: World Bank, CBN
2007
Nigeria had an external reserves position
of $5.6bn as at 1999. After paying $12
billion to write-off our external debt and
withdrawals for power infrastructure
investment, President Obasanjo still left
$43bn in the foreign reserves.
The 5th Oil Boom
51.3
53
42.38
42.3
28.3
2005
2006
2007
2008
2009
32.3
32.6
2010
2011
Source: CBN Annual Reports
•
When former CBN Governor, Professor Chukwuma Soludo left office in 2009, a total of
$45 billion was still left as foreign reserves despite having used more than $15 billion to
stabilize the economy/currency during the global crisis. The external reserves continued
on a downward spiral despite oil prices taking a lift in mid-2009.
•
Almost four years after his departure and in a season of unprecedented (sustained) boom
in our oil exports, we have neither savings in reserves, excess crude account, nor tangible
amount in Sovereign Wealth Fund or impact on ground.
5th Oil Boom :
Foreign Reserves of OPEC African Countries
155
170
2009
191
2010
2011
104
14
Algeria
20
Angola
26
46
36
Nigeria
106
111
36
Libya
Source: World Bank
•
Comparing our external reserves position with other African countries in OPEC after
recovery of oil prices in the 2009, clearly reveals that our foreign reserves dipped.
While others either stabilized or went to grow their external position, our fiscal
choices has declined our foreign reserves. What are those choices that increased our
domestic debt, declined our reserves and depleted our excess crude savings in a
swoop? This is my call for accountability.
•
Our sovereign credit rating is just where it was at the first rating in 2005. Economic
'growth' is less than what it was under until 2007 and certainly poverty has
worsened.
The 5th Oil Boom:
Annual Oil Basket Price
69.1
61.1
50.6
•
With oil prices steadily on the rise
and
above
Nigeria’s
budget
benchmark price since May 2009, it
is expected that our reserves should
have doubled by now.
•
If we maintained a 2.2m bpd oil
production over the years, we
should have doubled our reserves by
now. I mean if a hypothetical zero
reserves was left by the Obasanjo
Administration, we should be
stating $80bn to $100bn in reserves
not even $67bn. We neither have a
huge stock in reserve nor do we
have major human/infrastructure
accumulation to show for 5th boom
36.1
27.6
2000
23.1
24.4
2001
2002
28.1
2003
2004
2005
2006
2007
Source: OPEC
Annual Oil Basket Price
107.46
109.45
2011
2012
94.45
77.45
61.06
2008
2009
Source: OPEC
2010
The 5th Oil Boom: The Case for Squandering
Brent Crude Oil Price 2008 – 2012
Source: FT
Brent Crude Price
31/10/ 2008 : $63.17
1/5/2009 : $52.65
Budget Benchmark Oil Price
2008 : $62
2009 : $45
Oil Price was on a decline below our budget benchmark price from November 2008 to
February 2008. While we adjusted to the fall through a reduction in our benchmark
price to $45 in 2009 budget , oil price crawled from March 2009 and firmly rose beyond
our benchmark price from May 2009 till date.
The 5th Oil Boom: The Case for Squandering
CBN Acknowledgment
Similarly, the (Monetary Policy) Committee expressed concerns about
the genuineness of demand for petroleum imports. This year alone, oil
importers have bought over US$7.0 billion from wDAS, thereby,
depleting the Nation’s external reserves. This demand, in the
Committee’s view, might have been fuelled by rent-seeking and
subsidies. - CBN MPC Decisions, October 2011.
The 5th Oil Boom: The Case for Squandering
Excess Crude Account/Savings:
•
On several international media and also through government officials, it has been
reiterated by government officials that in 2007, Nigeria had excess crude savings account
of $20bn, adding the FGN savings of $2.18bn as at the time brought my figure up to
$22bn
“The only time we had some semblance of fiscal balance in our economy was from 2003 to 2007,
and that was when we developed excess crude and started saving up to about $20 billion worth
of savings …. In the excess crude account today there is left only about $3.6 billion. - Ngozi
Okonjo-Iweala
The excess crude account stood at over $20 billion when Yar’Adua, who remains too sick to govern,
took over in 2007 but his administration regularly dipped into the account, raising questions about
Nigeria’s commitment to fiscal discipline – AFP
‘Since 2008 Nigeria has spent $27.5 billion from the Excess Crude Account, and there is now $5 billion
in the account from a 2007 high of $20 billion, according to Segun Aganga, the Nigerian Minister of
Finance…. With oil prices up again, withdrawals are not justified to stabilize the economy” - Wall
Street Journal, 24 February 2011.
The 5th Oil Boom: The Case for Squandering
“ You would not normally for example expect foreign
reserves to be going down, and oil savings to be depleted,
while debt levels are rising too, all in a year when oil
production has recovered and prices are soaring”
William Wallis, Financial Times Africa Editor
“With oil production at its most favourable level since 2006,
and with oil prices back above $90 per barrel, the issue is
why reserves have not risen further, not why they have
'fallen‘”.- Razia Khan , Head Research Africa Region,
Standard Chartered Bank
The 5th Oil Boom: The Case for Squandering
Acknowledging the Depletion
“The only time we had some semblance of fiscal balance in our economy was from 2003 to 2007,
and that was when we developed excess crude and started saving up to about $20 billion worth
of savings …. In the excess crude account today there is left only about $3.6 billion. - Ngozi
Okonjo-Iweala
The depletion of the Excess Crude Account and continued gradual
fall in international reserves at a time of high oil prices and record
high oil production is a major concern- Fitch Report on cut of
Nigeria Credit rating outlook
At the inception of his government, President Jonathan Goodluck inherited about $7 billion in the
ECA Account. $3billion and later another $1billion was shared among the State and Federal
Government immediately Jonathan got into office as part of the agreement reached with the
governors for them to allow him become Acting President leaving a balance of $3billion.
And now, in preparation for the 2011 election, the balance has been squandered! - Daniel
Elombah, December 2010
The 5th Oil Boom: The Case for Squandering
Acknowledging the Depletion
‘Since
2008 Nigeria has spent $27.5 billion from the Excess Crude Account, and
there is now $5 billion in the account from a 2007 high of $20 billion, according
to Segun Aganga, the Nigerian Minister of Finance…. With oil prices up again,
withdrawals are not justified to stabilize the economy” - Wall Street Journal,
24 February 2011.
“Nigeria’s excess crude account had increased by 239.2 per cent, reaching $17.3 billion in 2007 from $5.1
billion recorded in 2004. The account peaked at about $32 billion before the spending binge set in.
No doubt, ECA became handy for the country to weather the stormy global financial crisis. But,
subsequently, the three levels of government have continued to abuse the savings by insisting on their
right to share the excess oil revenue at anytime.” Editorial, Nigeria Best Forum
The 5th Oil Boom: The Case for Squandering
Acknowledging the Depletion
“He (Scott Rogers, IMF Resident Representative) also cautioned against indiscriminate depletion of the
Excess Crude Account (ECA) given that revenue shortfalls do not occur on a regular basis to warrant
regular withdrawals from it.” – ThisDay Newspapers
‘"Political motivations provide a more compelling rationale for the drawdown on
the ECA, It demonstrates the grip of state governors on fiscal management in the
country and spending pressures to influence the outcomes of the upcoming
elections. The lack of transparency regarding the size of the withdrawals and the
allocation of the funds fuels corruption and the mismanagement of public
resources.“ Mr. Antoine Heuty, Revenue Watch Institute
The excess crude account stood at over $20 billion when Yar’Adua, who remains too sick to govern, took
over in 2007 but his administration regularly dipped into the account, raising questions about Nigeria’s
commitment to fiscal discipline – AFP
The 5th Oil Boom: The Case for Squandering
Lingering Posers on Use of Savings
Minister of State for Finance, Mr. Remi Babalola, had told newsmen in Abuja last Friday at
the end of the monthly meeting of the Federal Account Allocation Committee (FAAC), that
$5.375 billion would be deducted from the Excess Crude Account (jointly owned by the three
tiers of government), which stood at $18 billion as at May.
“Federal Government has released the sum of N138.64bn from the Excess Crude Account to
the Petroleum Products Pricing Regulatory Agency as subsidies for products that had been
imported into the country”
"The administration met over $20 billion in the excess crude proceeds account, which has
now declined to about $6.2 billion due to its utilisation by all three tiers of government as a
result of the impact of the economic recession," Babalola's office said in a statement.
The 5th Oil Boom: The Case for Squandering
2012 SWF of Oil Producing Countries, $bn
803
611
532
296
149
UAE
Norway
Saudi
Arabia
Kuwait
Russia
100
Qatar
65
Libya
58
57
Kazakhstan Algeria
23
1
Iran
Nigeria
Source: Sovereign Wealth Institute
•
With the Excess Crude Account not backed by a statutory legislation, it has been prone to
impulsive distribution especially in period when Nigeria’s oil prices were high between 2010 &
2011. Understanding the diminishing value of oil and its volatility, most oil producing
countries have combined it efficient use of revenue for infrastructure development or huge
savings tucked in sovereign wealth funds.
•
Nigeria after a protracted political struggle finally settled for a $1bn Sovereign Wealth Fund.
How do this compare to other countries with bigger oil reserves.
Threats to a Vanishing Resource
“Resource wealth has tragically reduced your nation- my nation- to a
mere parable of prodigality. Nothing undignifies nations and their
citizens like self-inflicted failure. Our abundance of oil, people and
geography should have worked favourably and placed us on the top
echelons of the global economic ladder by now.”
Threats to a Vanishing Resource
US Monthly Average Oil Import from Nigeria
( ‘000 barrels per day)
1022.73
818.44
458.66
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: US Energy Information Administration
Nigeria oil export to the US has recently dipped from a recent of 1.13m barrels per
day in 2010. The US is embarking on the path of energy independence and
sustainable technologies and it is expected to be a net oil exporter by 2020.
Threats to a Vanishing Resource
Proven Crude oil reserves, 2011 ( m barrels)
298
265
155
141
102
98
77
48
40
Venezuela Kazakhstan
Russia
Iran, I.R.
Iraq
Kuwait
Source: OPEC
World proven crude oil reserves ( ‘000 barrels)
0
1981
Source: OPEC
1991
2001
2011
Libya
Nigeria
With new discoveries globally, the world’s
proven oil reserves has consistently rose
with demand especially in developing
economies.
•
However, this advantage that has sustained
high oil prices is under threat with the rise
of shale gas, improved technologies & new
discoveries dotting the globe. Our reserves
stands low relative to production by other
top oil exporters.
1,200,000
400,000
United Arab
Emirates
•
1,600,000
800,000
Saudi
Arabia
37
Threats to a Vanishing Resource
Top 11 Shale Gas Reserves (cubic trillion feet)
1275
862
774
681
485
China
United
States
Argentina
Mexico
South
Africa
396
Australia
388
Canada
290
Libya
231
226
187
Algeria
Brazil
Poland
Source: US Energy Information Administration
•
•
•
According to data from the US Energy and Information Administration, the total
shale gas reserves is put at 6, 662 trillion cubic feet. This is even higher than the
global proven natural gas reserves (6,609).
It is worthy to note that none of the current top 10 oil producers in the top
countries to have discovered huge shale gas reserves. Hence throwing the space
for increased participation for countries with high consumption especially China.
Worsening incidents of Oil Theft deepen vulnerability: Is the State so
weak against Oil Thieves?
OUR ANSWER TO OUR VARNISHING ENDOWMENT
ADVANTAGE?
• AN URGENT POLICY OF DELIBERATION IN
RAPIDLY TRANSLATING OIL REVENUE TO
HUMAN AND PHYSICAL CAPITAL
• GOOD GOVERNANCE IS SINE QUA NON!
STRUCTURAL TRANSFORMATION IS THE
ANTIDOTE TO OUR OIL ECONOMY
ENTRAPMENT.
• HUMAN DEVELOPMENT
• PHYSICAL INFRASTRUCTURE
• RULES
• POLICIES
• INSTITUTIONS
• INVESTMENTS (The sad story of our public
budgets)
YET OUR EDUCATION IS PRESENTLY
OUR WEAKEST LINK
The result of the diagnostics that we produced on the state of our education
system and sector was so heart wrenching that I was filled with angst at how
low we had sunk educationally. Deciding to channel the angst positively, we
built a strong team that articulated some three hundred and sixty eight ‘root
and branch’ reforms measures across the six levels and aspects of education
THE AMARTYA SEN COUNSEL
• Why is China ahead of India? One answer is that
India has paid inadequate attention to the lessons of
Asian economic development, which gives a crucial
role to the rapid expansion of human capability as a
part of pursuing fast economic growth. A critical
part of that strategy has been the use of public
revenue, itself expanded by economic growth, to
remove huge deficiencies in social, educational and
health services, and to meet the growing demands of
social and physical infrastructure, while making
public services more accountable and efficiently
organized.
THE AMARTYA SEN COUNSEL
• You should not dig holes and fill them up, you
should build schools!
• You can't skip public health care & education to
focus on growth. That's main lesson for India to
learn! (Even more so a lesson for Nigeria to
learn!!)
AVERAGE GDP GROWTH RATE OF 7% OVER A DECADE-OVER 24%
UNEMPLOYMENT RATE AND ABOUT 40% UNEMPLOYMENT RATE AMONG
THE YOUTHFUL POPULATION
• THE HIGH ECONOMIC GROWTH-HIGH
JOBLESSNESS DICHOTOMY IS ALL ABOUT
INEQUALITY OF OPPORTUNITIES
RESULTING FROM A FAILED EDUCATION
SYSTEM.
AS EDUCATION GOES, A NATION’S
ECONOMY GOES.
The dysfunctional state of the education
sector over the last 2 decades is a major
cause of our socio-economic problems.
This is exemplified by what I call ‘funnel
syndrome’. But first, let us consider the following
statistics.
2006 Education Budget
Main Ministry Budget
N7.6bn
“
Other
Independent
Agencies and
Institutions
Budget
N159.07bn
2006 Education Budget: N166.67bn
The Education ministry during my tenure which started in June 2006 and ended in
April 2007 had over 70 agencies, parastatals and institutions. These institutions are
autonomous in terms of their operation , budgetary preparation and spending. Hence,
my only direct oversight is on the 2006 budget of the Ministry put at N7.6bn
not the famous N352bn that they said “I collected”. Yet the right question is
what does this budget and that of the 36 states plus Abuja “buy” citizens in
terms of improvement in human capability? RADICAL REFORM CANVASSED
THE STATE OF THE NATION (ECONOMY)
THROUGH THE LENSE OF EDUCATION
• ***Migrate to Education Slides.
Lies We Feed Ourselves
Land
Mass
“China and India are bigger, yet in the last thirty and
twenty years have grown double digit and continue
to out- grow the rest of the world at this time of
global economic crisis.”
Tropical
Geography
“Economic research shows it has not prevented
other countries with similar conditions from
breaking through”
Colonial
Masters
“China and India are bigger, yet in the last thirty and
twenty years have grown double digit and continue
to out- grow the rest of the world at this time of
global economic crisis.”
Multiethnic
Culture
“China and India are bigger, yet in the last thirty and
twenty years have grown double digit and continue
to out- grow the rest of the world at this time of
global economic crisis.”
The Right Choice
“The
appropriate
response to the revenue
extracted from our oil
over the period 1959 to
date would have been to
use it in accumulating
productive investment
in the form of globally
competitive
human
capital and physical
asset of all types of
infrastructure
and
institutions.”
Conclusion
“What you must seek to do is to create a new
political context in which citizens’ demand for
good governance and accountability,
begins to compel those who govern to persistently
make choices that will more likely improve the
outcomes of economic management for the larger
number of Nigerians”
WHAT CIVIL SOCIETY MUST DEMAND NOW!
• CENTENENARY CELEBRATION
SHOULD BE USED FOR DIALOGUE
ON THE FUTURE OF NIGERIA
•THANK YOU