Managing the crude oil windfall

LATELY, crude oil prices have rallied to $80 per barrel, hitting a four-year high on the wings of the threat by President Donald Trump of the United States of America to call off the 2015 deal that put a lid on Iran’s nuclear ambitions. If carried out, the threat would rob the crude oil market of about one million barrels of oil daily. The impact this would create in the market has been the driver of the recent rise in crude oil prices. With the decision of Russia to cooperate with members of the Organisation of Petroleum Exporting Countries (OPEC) not to increase their daily quotas, the likelihood of oil prices remaining high for long is high.

The rise in crude oil prices is good news to the Nigerian government. Since January when crude oil has been selling above $60 per barrel, the country has earned a minimum of $25 million extra daily from crude oil exportation given the fact that the benchmark on which the projection for the 2018 budget was premised is $47 per barrel. In January, Nigeria earned an average of $32 million from excess crude oil revenue daily. In February, it was an average of $26.9 million daily. In March, it was $26.145 million daily. In April, it was $36.9 million daily. The total excess fund earned by the country in the first four months of the year is $3,664,656,450.  Now that fortune has smiled on the country through oil windfall, what would it mean for the people? Would it mean improved infrastructure? Would it translate to better life for the people? Would it result in a reduction in the nation’s debt profile? Would it result in better schools, well-equipped medical facilities, and cleaner environment or would things remain the same?

Nigeria is not new to crude oil windfalls, but more often than not, revenue from such is frittered away. Hence, Nigeria has remained the same for many years in spite of the huge revenue earned from crude oil sales over the years. To reverse the trend, the government needs to invest the windfall in projects that will have maximum impact on the nation. One of such projects is electricity. Poverty in Nigeria is directly proportional to the country’s poor electricity supply. The poorer electricity supply gets, the poorer Nigerians become. Nigeria’s companies are not as competitive as their peers elsewhere because of the high cost of production. Small and medium-scale companies are dying in droves because of the high cost of production. Therefore, deploying the windfall to permanently solve the electricity problem will be a judicious utilisation of the excess fund.

Again, the government needs to devise a way of scaling down its high recurrent expenditure. The government spends a huge fortune on political office-holders and this affects the resources available for capital projects. Now that crude oil prices are on the rise, the government should channel its thoughts away from squandering the windfall on recurrent expenditure and think about investing in projects that would improve the lots of the citizens. Then, the government should cultivate the culture of saving for the rainy day. It smacks of crass insipidity for a country to spend all it earns. Countries must always save; that is what saves them from bad times. This same point was stressed by President Muhammadu Buhari as the presidential candidate of the All Progressives Congress (APC) ahead of the 2015 elections. He complained that the administration of former President Goodluck Jonathan failed to save when the prices of crude oil were high in the global market.

The current administration has said almost ad infinitum that it was the failure of the immediate past administration to save when crude oil prices were high that precipitated the economic recession from which the country recently exited. It is therefore important that the government resists the temptation of falling into the same ditch which it claimed the previous administration revelled in.