FG draws down $3bn from Excess Crude Account[/b]Cover Stories Aug 16, 2010


ABUJA — [b]THE appetite for more funds by the three tiers of government has forced the Federal Government to draw down a $3 billion in one fell swoop from the Excess Crude Account, leaving behind a mere $460 million.
Accountant-General of the Federation, Alhaji Ibrahim Dankwambo, disclosed at the monthly Federation Account Allocation Committee, FAAC, meeting, in Abuja, weekend, that $1 billion of the amount was set aside for the Sovereign Wealth Fund.

An unprecedented N704.273 billion was shared among the three tiers of government as representing revenue for July which would be used to meet August expenditures.

The decision to share $2 billion from the Excess Crude Account in addition to the monthly federally collected revenue was indication of the large spending portfolios across the three tiers of government.

Some fear this money would, in actual fact, go into political campaigns rather than development purposes.
Revenue mobilisation

Interestingly, it was agreed by the three tiers of government and the Revenue Mobilization Allocation and Fiscal Commission, RMAFC, in 2007 that at least N1 trillion should always be left in the excess crude account.

According to the document, N413.710 billion was realised into the federation account from mineral revenue accruals largely dominated by the contribution of the Nigerian National Petroleum Corporation, NNPC, and other mineral revenues. But the AGF told journalists that “the NNPC brought in excess of N500 billion to federation account, noting that the excess as stipulated by the law will be saved.”

For the month of July, N407.426 billion was approved for disbursement but N404.273 was shared among the units which represented about N3.153 less than what was shared in the previous month.

Earning from the Value Added Tax declined to N42.840 billion to create a short fall on what was expected to be shared for the month of July.

According to the AGF, “The increase (distributable statutory revenue) was attributable to the higher prices of crude oil in the international markets and improved tax drive (even when VAT did not met its target).

Dankwambo added that for the month of July, “there was no exchange gain (forex) and augmentation because the prevailing exchange rate of N147 per USD is lower than the N150 per USD set as bench mark; and the revenue inflow for the month is higher than the monthly approved figure.”

The Nigerian National Petroleum Corporation, NNPC, deducted N44 billion from 504 billion oil revenue.

The nine crude oil producing states were allocated N35.735 billion as 13 percent derivation. Eventually, the Federal Government went home with N171.579 billion; states N87.027 and local councils N67.094 billion.

The Federal Inland Revenue Service, FIRS, also got N2.556 billion as (four percent of its total collections for the month) as cost of collection and Nigeria Customs Service, NCS, was given N1.899 billion (seven percent of its collections) as cost od collections.

In her remarks, the new Minister of State for Finance, Hajiya Yabawa Wabi said the Federal Government would “reposition the nation’s economic performance as we get along with the global trend of events”.

She charged members of the FAAC to imbibe the spirit of togetherness and be seen to be guided by the need to look beyond the short time horizon, which the present economic reality seems to impose on them and take decisions that would transform policies into actions would in sustainable economic growth.

Elected politicians put Nigeria at risk as $20bn oil fund is squandered Monday, 16 August 2010 01:19 Onyinye Nwachukwu   

World Bank, analysts warn danger ahead


The culture of profligacy and expensive lifestyle among Nigeria’s elected politicians which focuses on the benefits of today without a commensurate transfer to Nigerians, is putting the country at serious economic risk, say the World Bank and analysts spoken to by BusinessDay at the weekend.

They warn that Nigeria is at risk of not having a fall back fund should it run into major financial difficulties following the fast depletion of its Excess Crude Account (ECA) from $20 billion in 2007 to a mere $450 million. Analysts who spoke with BusinessDay last night expressed fears that the money shared from the ECA would end up being spent on the 2011 elections instead of the purpose for which the funds were meant. The Bank specifically warned that the trend is not healthy for the nation's economy. The Account had, as at Friday, drastically reduced to $450 million from about $4.6 in May, and $3.5 billion last month[/color][color=#990000].


Ibrahim Dakwambo, Accountant General of the Federation, said $2 billion was taken out of the Account and shared among the three tiers of government. This is in addition to N404.273 billion shared in July.

Also, one billion dollars was taken from the Account and set aside for the proposed Sovereign Wealth Fund pending when the Fund would take off, bringing the balance in the Excess Crude Account to about $450 million. World Bank Country Director for Nigeria, Onno Ruhl, warned that the situation could pose a great threat to the economy particularly with the upcoming elections, advising strongly that government should ensure that the Account, which serves as a buffer, be built up once again.

He said : "First, I think that it's quite clear that in an election year, having last year depleted a significant amount of the Excess Crude Account to fight off the effect of the global financial crisis, that this year has some risk elements to it because the ECA is practically empty, and that's a risk to the economy. That mechanism, that buffer, has been the saving grace last year, but this year, there is no saving grace, thank God the oil prices are not low and production is quite high but it is a tricky situation. The situation shows that there is no buffer because the ECA is almost empty.

There is therefore the need to be careful to make sure that in a year like this, the buffer should be building up, it should not be going down, and I really hope that politically, collectively, the wisdom will be there to make a decision that will allow the build up of a buffer.

Because you know that there is still a lot of crisis going on in Europe. With their foreign debt issues, there are so many risks to the world economy; it would be very dangerous for Nigeria to leave itself exposed with only a couple of million dollars in the ECA and nothing to count on because the mechanism did work beautifully last year and Nigeria did well. So that's a concern".

Bismarck Rewane, chief executive officer of Financial Derivatives, said there is no problem with spending money, be it from the Excess Crude Account (ECA) or from any other source. The problem is what the money is used for, saying it is all about fiscal discipline.

Rewane says fiscal discipline can only come from true democratic representation. The renowned economist explained that if the present representatives were truly democratically elected, and were in their various positions, based on the people's mandate, then the people could ask them to give an account of their stewardship.

But as it is, Rewane said, the only way out of this quagmire in future is a political solution. According to him, only true democracy will usher in true representatives that will be able to give an account of their stewardship.

[b]As for Johnson Chukwu, managing director of Cowry Assets Management Limited, the clamour by the governors to share $2 billion out of the excess crude account (ECA) did not come as a surprise. "The challenge with most of our present day politicians is that they are not interested in strategic, long-term economic development of the country. They are rather interested in populist, immediate-term, cosmetic projects that create an illusion of political performance. The near total depletion of the excess crude account, principally to fund, at best, government overheads, and at worst, political campaigns, is a clear testimony of this", he said.

He explained that with the approaching elections, the three tiers of government would be in spending mode. According to him, a typical Nigeria politician will spend every resource at his disposal for election, in the hope that he will win the election and recoup his expenses. "It becomes worse if the resources at his disposal are public funds which he did not labour to get", he added. [/b]
"Until we start strict enforcement of the fiscal responsibility law, public finances, just like the ECA, will continue to be fretted away by our political rulers (not leaders) with little or no benefit to the generality of the citizenry. I don't think that Nigerians should expect any significant economic development policy (including any form of financial savings) between now and May 2011", he concluded.

oyb:

how dare that rag called a newspaper spread such dubious and unfounded allegations

desgiezd:

What allegations?

oyb:

waiting for the johnny johnny brigade to come and defend their illustrious son

how dare that rag called a newspaper spread such dubious and unfounded allegations

Also, one billion dollars was taken from the Account and set aside for the proposed Sovereign Wealth Fund pending when the Fund would take off

paddy_lo:

@Gbawe and others

Jonathan has proposed the set up of a Sovereign wealth fund. .$1billion of this money was withdrawn for that purpose

Now this $20billion u talk of is from 2007 till now. . well the blame rests on yaradua,and the world financial crises.

I dont buy this arguement of waste,because to start with,the ECA has no basis in law
The states can rightfully demand that the money is theirs and they even took OBJ to court

Now this is why Jonathan has made the SWF a priority,to be backed by law
that way in the future,no-one can withdraw money anyhow

so tell me again what the problem is

It will be particularly difficult for them to defend Jonathan on this occasion. That Jonathan is amassing campaign funds, to the detriment of National coffers , is now obvious to all but the most die-hard fan of Mr.President.

This is a scam no one can defend . It is cynical looting by Jonathan and his camp/advisors. OBJ raided the PTDF (along with everything else that could be looted) , sacked Okonjo-Iweala and conducted himself in an entirely reckless manner just to gain funds for an unpopular third term Project . Jonathan is doing precisely the same and intelligent Nigerians are seeing through him.

The excess crude account is , more or less, a national "rainy day"account. Taking $1 billion out of it to go and deposit in , essentially,  another identical and newly created "rainy day account" that is only different to the excess crude account in name alone ( i.e "Sovereign weath fund" is the clearest sign that this is campaign funds for "do-or-die" Jonathan . What , at this moment , is the rush to establish savings (Sovereign Wealth Fund) that serves essentially the same purpose as the excess crude account?

It the Sovereign Wealth fund is yet to take off, why take out $1 billion from the excess crude account to be deposited in the Sovereign Wealth fund "later" ? The corrupt and desperate actions of Jonathan are becoming more obvious as Mr. President gets more agitated by the realisation , as many of us correctedly Predicted , that he can only buy , and not win, next Years general election.  

My Brother , I never "talked" of $20 billion . It is the report that mentions $20 billion and even then a minimally educated person reading the article can see the article does not try and blame Jonathan for the depletion of the entire $20 billions .

Nontheless , world financial experts are right to question how Jonathan has , more or less, profligately depleted the  rainy day funds that was especially useful in keeping Nigeria running recently at a time where economic  uncertainty still reigns and the Global financial crisis should , realistically , still be a powerful warning to sensible nations of the usefulness of reserve funds !!!!.

I am no lawyer but I believe that the same can be done with the Excess Crude Account to nullify the need for an entirely new fund that serves the same purpose. It is the same way Jonathan's purchase of new Planes appear reckless when Aviation experts posit that faults to any of the existing planes can be fixed especially as the Presidential fleet is essentially still new and adequate .

paddy_lo:

U are talking out of both sides of the mouth   .If OBJ looted all that can be looted. . how come we are talking of $20billion that he left behind for Yar adua?. . There is no scam here. .i have already told u that there is no law backing the ECA. . .u cannot take states money from them by force. .it is illegal. .If u want to do it u must do it the right way[/b][

The SWF is not the same thing as ECA.  .shows your level of reasoning,every oil producing/resource rich nation on earth has a SWF. .
The fund is invested mostly overseas but also in the host country
The are strict laws governing such a fund,about disbursements and the like

so for u to compare the ECA which is a political arrange ment that can be scrapped anytime,to a SWF is the height of mischief

na_so:

Gbawe, abeg hope say u know the difference between our foreign reserve and dis ECA fund sha? i just dey ask  o no vex 

If their is money in the Coffers is that Proof that OBJ did not loot profigately ?

It is not me alone doing the comparison . It is local and International economic experts. Their is no need for the setting up of the SWF ,in the opinion of many experts, if the correct 'tweaks' can be carried out to the ECA.

Is Sovereign Wealth Fund good for Nigeria? (2)

Monday, 19 July 2010 01:01 Ogho Okiti

Last week, I argued that the main difference between the current excess crude account (ECA) and the proposed Sovereign Wealth Fund (SWF), for all practical purposes, is a further postponement, and perhaps a bigger pie of the consumption of oil revenues because of the way government is currently structured.

My arguments had three dimensions. First, I argued that SWF is still about smoothening of oil revenues over periods of low and high oil prices. As good as that sounds, it simply means that it is not different from ECA in that essential principle. So, it is just a policy to smoothen oil revenue and not a policy to create another source of revenue. It fails to address two key fundamental economic problems that we have - reducing poverty and helping diversify the Nigerian economy from the dependence on oil. In this context, the SWF is at best a distraction.

I also argued that there is simply no evidence that the SWF could add up significantly over time. [b]The forces that depleted the ECA fund so quickly are still very much with us. These forces are those of waste, government inefficiency, corruption and big government. And thirdly, I am vehemently against any policy that centralizes the Nigerian economy further. The centralization of the federation account that has helped cripple the Nigerian economy, as the bedrock of big government and corruption is still the same apparatus for a SWF ]. The structure failed in the past, is failing and will continue to fail.[/b

Now, essentially, the question is, do we need SWF for economic progress? Let me use a story you may find ridiculous, though a true story, to buttress my point. I believe it fits the mindset of the current agitation for a SWF in Nigeria. I had an aunty when I resided in the United Kingdom. There used to be these funny arguments about what one could do with a free one million pounds. Her response was always that she will just put the same in a bank and live on the interest. As an economist, I always found it odd that she did not want to take risks by investing the money and make more money.

[b]The proposed SWF is similar. Instead of the government dreaming big about what it could do with oil resources and how it could use the same to diversify the economy and reduce our dependence on oil revenue, the government is thinking of a SWF. Though better than ECA, it essentially means using the capital we could use for expanding and diversifying our economy for some kind of returns by investing in bonds, equities and perhaps, properties abroad.

Those that disagree with my analysis could give the examples of Brazil and Korea, perhaps two of the biggest economies with a sovereign fund. But these two economies are more matured than Nigeria, and the level of accommodation of capital for these economies cannot be compared to that of Nigeria. And they make more revenue that can be used for capital more than us. In Nigeria, everywhere you look; there is a need for an increase in the deployment of capital. The economy is capable of accommodating more capital than we make from oil. The problem has always been waste. So, even though the SWF seeks to minimize the waste, it is still a policy of minimization of waste and not a policy of eradicating the sources of waste and corruption in government. [/b]

Now, the National Economic Council (NEC) met last week and felt work on the proposed SWF require some more work. It is expected that the government will continue to work on the framework and modalities until it is satisfied that it has something that will work. The details still expected include how the fund will be funded. As they think about that, it is interesting remembering the argument by many governors in 2007 and 2008 for the scrapping of the ECA fund on the basis that they had needs they wanted to meet. But they found the fund useful when oil prices fell. What am I saying? There will always be argument on how the fund should be funded, but never an argument whether it should be shared. It is usually a positive chorus. Until government, at all levels, are weaned of these oil resources, our governments will remain big governments in nature and characteristics.

Finally, in any economy, as in life, there is always the question whether it is the needful or the convenient that should be done. The Nigerian economy needs capital, less government, less waste and corruption and general improvement in productivity across all sectors. What the SWF provides is a mechanism for postponing the consumption that already takes place, and at best, increasing future consumption through the returns on investment. This same capital been exported will be used by serious economies to expand their economies further. I am not just convinced.

paddy_lo:

@Gbawe and others

Jonathan has proposed the set up of a Sovereign wealth fund. .$1billion of this money was withdrawn for that purpose

Now this $20billion u talk of is from 2007 till now. .

well the blame rests on yaradua,and the world financial crises.

However even if u look at it. . its about $6billion a yr shared btw the 36states and FCT in 3.5yrs

So go to the states and ask them what they did with it. .

Am sure states like Lagos,Akwa ibom and co have done well with the dough

other Governors might have done poorly. . . .

I dont buy this arguement of waste,because to start with,the ECA has no basis in law
The states can rightfully demand that the money is theirs and they even took OBJ to court

Now this is why Jonathan has made the SWF a priority,to be backed by law
that way in the future,no-one can withdraw money anyhow

so tell me again what the problem is?

Beaf:

IBB recently oiled the hands of some editors with a cool 10 million each to publish tripe such as this. . . And as usual, Gbawe falls head first for it.
Shame!

paddy_lo:

@Gbawe

That article u posted is basically calling for what u are railing against on here

It seems u dont know where u stand. . .

First, I argued that SWF is still about smoothening of oil revenues over periods of low and high oil prices. As good as that sounds, it simply means that it is not different from ECA in that essential principle. So, it is just a policy to smoothen oil revenue and not a policy to create another source of revenue. It fails to address two key fundamental economic problems that we have - reducing poverty and helping diversify the Nigerian economy from the dependence on oil. [b]In this context, the SWF is at best a distraction.[/b]

The article calls for the money to be spent not saved. . .well the money is being spent now,so u should be happy

I also argued that there is simply no evidence that the SWF could add up significantly over time. The forces that depleted the ECA fund so quickly are still very much with us. These forces are those of waste, government inefficiency, corruption and big government. And thirdly, I am vehemently against any policy that centralizes the Nigerian economy further. The centralization of the federation account that has helped cripple the Nigerian economy, as the bedrock of big government and corruption is still the same apparatus for a SWF. The structure failed in the past, is failing and will continue to fail

The man in the articlee
says he doesnt want centralization of Nigerian economy.well that is why the money is shared among all 3 tiers of GOVT to spend as they please. . . .

He wants all oil money spent today,with no future savings/investment for the generations unborn


dude is asking for small GOVT on one hand,but at the same time asking GOVT to dream big and spend oil money. . probably on white elephant projects that will lead to nowhere

what a clueless person u choose to quote

Finally the article specifically states that a SWF is better than the ECA. . but u want to ditch the SWF and keep the ECA,so u quote an article that wants to ditch both and instead spend the whole money today,to support your false claim that Jonathan is spending the whole money today. . phew. . .quite convoluted logic by u

First, I argued that SWF is still about smoothening of oil revenues over periods of low and high oil prices. As good as that sounds, it simply means that it is not different from ECA in that essential principle. So, it is just a policy to smoothen oil revenue and not a policy to create another source of revenue.

Those that disagree with my analysis could give the examples of Brazil and Korea, perhaps two of the biggest economies with a sovereign fund. But these two economies are more matured than Nigeria, and the level of accommodation of capital for these economies cannot be compared to that of Nigeria. And they make more revenue that can be used for capital more than us. In Nigeria, everywhere you look; there is a need for an increase in the deployment of capital. The economy is capable of accommodating more capital than we make from oil. The problem has always been waste. So, even though the SWF seeks to minimize the waste, it is still a policy of minimization of waste and not a policy of eradicating the sources of waste and corruption in government.

na_so:

Do not write Gbawe off just yet o. The guy dey google seriously now to use anoda article support him stance, or na to open anoda thread on Jonathan.

Gbawe:

You are speaking about yourself. The article clearly negates everything you have said in stipulating that an SWF , given the current situation of Nigeria and the specific needs that should be addressed as per logical and heirarchical placement of priorities, is not what is currently required. I then don't see how you can write as if this article, at anytime , validate anything you have written.
. . .

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Gbawe:

Na-so , read the articule supplied by the economist and judge for youself. The article , if pro IBB, would be far more scathing of Jonathan . Instead it is balanced with a relevant and pertinent take on the creation of a Sovereign Wealth fund in direct relation to Nigeria in terms of our peculiar challenges and current situation. He did not state that an SWF , per se , is bad or undesirable.

For the purpose of this argument and the original intent of the thread, you seem to have called up an article that does not encourage SWF but encourages spending of ECA . You see wetin over sense dey do you? . Your best bet would have been to start another thread seperately to disparage SWF, but the rush to nail GEJ did not allow you see that.

Is the new mercantilism good for Nigeria?
MONDAY, 12 JULY 2010 01:01 OGHO OKITI

Nigeria is proposing to join the new wave of mercantilism by setting up a sovereign wealth fund (SWF). SWFs have been so described as the new mercantilism in the last decade as two core patterns have emerged among existing ones.

First, it is now a form of economic nationalism, very different from pure capitalism in the sense that the owner of capital is a sovereign nation and not private citizens or corporations. Second, the SWFs follow the core principle of mercantilism, heavily practiced in Europe between the 16th and 18th century, which is the dependence on the export of capital for economic progress and prosperity.

Last week, the Minister of Finance, Olusegun Aganga, intensified his argument for a Nigerian SWF. The motivation is very simple. From a largely agricultural based economy to now dominated oil economy, we have continued to fail to achieve two things on a consistent basis. One, we have failed to reduce poverty on a large scale; and second, we have failed to diversify the Nigerian economy from its dependence on oil. This failure is underlined by a failure of macroeconomic policies, especially fiscal. Indeed, both local and international policy makers working on Nigeria have often cited the inability of the economy to smooth its oil revenues over periods of low and high oil prices as responsible for our economic crisis.

This group of policy makers then succeeded in instituting the excess crude account (ECA) in 2003. Between 2003 and 2007, the ECA only managed a modest (yes, modest) US $20 billion. Between 2008 and now, the ECA has been depleted to just about US $3 billion and that is what annoys the minister. In the short period of its existence, ECA only managed to postpone consumption for a few years. If oil prices had continued to decline beyond a year, it would have made nonsense of it. In that context, ECA is not sufficient for our needs.

To the extent that the focus of SWF will not merely be a postponement of consumption but the investment of surplus oil revenues, it goes a step further. However, it makes the same erroneous assumption that a major problem has been how to smoothen the benefits of oil resources over a long period of time. I say so because whether the consumption of oil resources is postponed for five years of twenty, it is still eventually consumed. The SWF does not address the critical issue of using the platform that oil resources provide for us to diversify our economy using the same capital that we now want to export.

So, though the SWF will be a shift from largely liquidity and risk free positions that ECA and foreign reserves represent to a combination of buying foreign bonds and equities and thus riskier positions, those are not my criticisms. My criticisms are largely based on the fact that SWF will not solve our macroeconomic, nor fiscal problems. The worst is that SWF will turn out to be a disastrous policy, but I do not have that fear, but I do fear that it is now a distraction. The problem with oil revenues is not just how to smoothen it over time, but that we have failed to use oil resources to diversify the Nigerian economy. Exporting capital for future returns will not help diversify the economy. Essentially, SWF is a distraction from serious economic policies because no matter the returns on the investment of capital abroad, the SWF being proposed is still a centralized agency, controlled from the centre, and for the purposes of the federation account. This centralization has failed in the past, it is still failing and will always fail. Nigeria’s economic growth and development must be addressed from all dimensions and levels.

Essentially, the problem we have is that of waste, inefficiency and corruption. We have successfully put in place a structure called federal only in name that is all about waste and corruption. These underline issues must be tackled and addressed before policies such as SWF can make any sense. For instance, by the end of this fiscal year, the federal government alone would have expended about 10 trillion naira since 2008. Besides the indirect impact that such a sum would have made because some is spent within the country, I cannot possibly feel or touch any aspect of this staggering sum. This is the challenge, poor quality government expenditure, and there is nothing in the SWF proposed that addresses this, besides perhaps postponing the waste that is made from the returns from SWF investments.

There is also the likelihood that the sum that will be able to go into the fund will be minimal. Currently, the ECA is determined by the difference between the oil price benchmark and the level of oil prices. One is “arbitrary” and the other is exogenous. If the same model is to be adopted for the SWF, it does mean that, going by the last five years, all we will be able to put in the pot is about US $20 billion. I had argued that this sum is too modest and any return on top of it is still spent by a wasteful and corrupt government. Those in government know more than we outside of it know – they are wasteful and corrupt. Until these critical issues are thoroughly addressed, I am simply convinced SWF is a simplistic distraction.


source: http://www.businessdayonline.com/index.php?option=com_content&view=article&id=12600:is-the-new-mercantilism-good-for-nigeria

ferari90:

GEJ and Abacha have every thing in common just that Abacha is smarter