Nigeria’s Excess Crude Account (ECA) has decreased by 72 percent from $2.2 billion in 2015 to an all-time low of $60 million, according to the latest figures by Nigeria’s minister of state for budget and national planning, Clem Agba. This signifies the latest crack in the country’s line of defence amid rising oil prices.
The ECA is the proceeds from oil sales in excess of budgeted benchmark price kept aside to supply funds for the country whenever oil price downturn leads to shortfall in government revenue.
For most experts, a declining ECA is shocking considering Africa’s biggest oil-producing country gained at least 80 percent more in expected oil revenue due to its 2021 budget benchmark of $40. Brent price has increased by 45 percent this year from an average of $54.77 as of January this year to $84.11 as of Monday, October 18.
With the ECA declining from $3.6 billion in February 2014 to $60 million, experts say Nigeria lives as though the demand for the black gold will be there forever as the country keeps borrowing to bridge a budget deficit while also prioritising recurrent expenditure over capital expenditure.
Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector, says rising crude oil price provides a good opportunity to build fiscal buffers or increase the excess crude account. However, leakages such as subsidies, extra budgetary spending and lower oil productions are still major challenges, he states. “Nigeria complains a lot about unsteady oil prices but folds its arms and does nothing about attracting investments to its stagnant oil production, which will boost revenue and allow the government to save for a time of need,” Atafiri said.
Niyi Awodeyi, CEO at Subterra Energy Resources Limited, says various administrations have used funds from the ECA for fuel subsidy payments and distributed among the three tiers of government to augment revenue shortfalls. Other stakeholders blame it on profound revenue challenges and lack of rules governing deposits and withdrawals from the special account.
“The main focus now would be on the foreign reserves, which has been improving for a while now,” notes Oluwatosin Ayanfalu, analyst at Lagos-based Zedcrest Capital. On Monday, the total amount in Nigeria’s external reserves went up by 3.8 percent or about $1.4 billion in one week to $39.6 billion from $38.2 billion in the previous week.
With this development, the nation’s foreign exchange (FX) buffer is now about $379.7 million away from hitting the $40 billion threshold being projected to reach before the end of October 2021.
“This administration took the very difficult decision to invest for the long term. We avoided taking short cuts knowing very well that the full impact of most of the projects we started will only be felt long after we have left office,” President Muhammadu Buhari said during the inauguration of the Nigerian Sovereign Investment Authority (NSIA) board in September.
Combined with Nigeria’s Sovereign Wealth Fund, the country’s oil savings is not more than $4 billion. Unfortunately, Nigeria has failed to transform decades of oil earnings into sustainable development, despite being the largest producer and exporter of petroleum in Africa and one of the 10 largest producers in the world.
Established in 2004, the ECA demonstrates how to normalise an aberration. Without constitutional backing, the ECA was created to protect Nigeria’s planned budgets against shortfalls caused by the volatility of crude oil prices. In this way, it would insulate the economy from external shocks.