The governance of Nigeria's oil and gas sector is inextricably linked to the country's fiscal policy. Historically, different administrations have approached this relationship with varying degrees of success, significantly impacting Nigeria's economic stability and development. This article expands on the concept of "Development Oil" by examining the fiscal policy considerations and emphasizing the critical need for transparency and accountability in the sector's governance.
Historical Context: Fiscal Policy and Oil Revenue
The Obasanjo, Yar'Adua, and Jonathan Era
During the administrations of Presidents Olusegun Obasanjo, Umaru Musa Yar'Adua, and Goodluck Jonathan, Nigeria experienced a period of relative economic stability and growth. These administrations effectively leveraged crude oil proceeds to fund development initiatives while maintaining low levels of external borrowing. Key aspects of their approach included:
- Prudent management of oil revenues
- Establishment of the Excess Crude Account (ECA) to save surplus oil revenue
- Debt relief negotiations, significantly reducing Nigeria's external debt
- Investments in critical infrastructure and social programs
This approach was reflected in the country's economic indicators. Nigeria's oil production peaked at 2.45 million barrels per day (bpd) in 2010, contributing significantly to government revenue. During this period, oil revenue constituted an average of 75.8% of total government revenue between 2000 and 2010. The Excess Crude Account (ECA), established to save surplus oil revenue, reached a high of $20 billion in 2010, providing a fiscal buffer against oil price volatility.
Also read: Nigeria's Oil and Gas Paradox: Abundance Amidst Scarcity
The Buhari Administration and Policy Shifts
The administration of President Muhammadu Buhari saw a significant shift in fiscal policy related to oil and gas governance. Some key issues during this period included:
- Increased external borrowing despite oil revenues
- Depletion of the Excess Crude Account
- Controversial fuel subsidy policies
- Lack of transparency in NNPC operations
- Delayed implementation of the Petroleum Industry Act (PIA)
These policy shifts led to a weakening of the governance process in the oil and gas sector, which had previously kept the economy afloat. The result was oil production declined to 1.37 million bpd by Q2 2023, while external debt grew from $10.72 billion in 2015 to $41.59 billion by Q2 2023. The Excess Crude Account was depleted to just $376,655 as of June 2023.
Also read: Dr. Olisa Agbakoba SAN Calls for Overhaul of Nigeria's Oil and Gas Sector
Policy Recommendations for the Tinubu Administration
Enhancing Transparency and Accountability
To revitalize Nigeria's oil and gas sector and ensure it contributes effectively to national development, a renewed focus on transparency and accountability is crucial. This aligns with the "Development Oil" concept and can be achieved through the following measures:
- Restructuring NNPC Management: Replace the current management with experienced professionals selected through a transparent process. The goal should be to reverse the decline in production and boost oil production back to at least 2 million bpd to increase revenue.
- Regulatory Body Reform: Overhaul existing regulatory bodies to ensure independence and effectiveness. This could help improve Nigeria's ranking in the Resource Governance Index, where it currently scores 42/100, indicating "weak" governance of its oil and gas sector.
- Transparent Privatization: Implement a transparent process for the government to sell its shares in NNPC. This could include Initial Public Offerings (IPOs) and strategic sales to reputable international oil companies.
- Enhanced Reporting and Auditing: Mandate regular, publicly available audits of NNPC and other key entities. This could help improve the implementation rate of EITI recommendations, which dropped from 67% in 2011-2015 to 52% in 2016-2020.
- Digital Transparency Initiative: Implement a digital platform for real-time data on oil production, revenue, and allocation. This could help Nigeria improve its Open Budget Index score, which was 45/100 in 2021, indicating limited transparency.
- Strengthened Anti-Corruption Measures: Empower anti-corruption agencies to investigate and prosecute cases without political interference. The goal should be to improve Nigeria's Corruption Perceptions Index ranking to the top 50% of countries by 2030.
- Legislative Oversight: Enhance the role of the National Assembly in providing effective oversight of the oil and gas sector.
Fiscal Policy Considerations
To maximize the benefits of oil and gas resources for national development, fiscal policy must be aligned with the principles of "Development Oil." Key considerations include:
- Revenue Stabilization Fund: Establish a well-managed fund to smooth out fluctuations in oil revenue. The Nigerian Sovereign Investment Authority, established in 2011, needs significant expansion; its assets of $2.5 billion in 2021 represent less than 1% of GDP.
- Diversification of Revenue Sources: Use oil revenue to invest in developing other sectors. The goal should be to reduce oil revenue dependence from the current 41.5% (2021-2022 average) to less than 30% of total government revenue by 2030.
- Debt Management Strategy: Implement a prudent strategy that limits external debt. The target should be to reduce the debt-to-GDP ratio from the current 37.4% (2022) to below 30% by 2030.
- Subsidy Reform: Gradually phase out fuel subsidies while implementing targeted social protection measures. This could save over ₦4 trillion annually based on 2022 figures.
- Local Content Development: Increase local content in the oil and gas sector from the current 40% to 70% by 2030, creating jobs and retaining value within Nigeria.
- Infrastructure Investment: Prioritize investments in critical infrastructure. Nigeria's infrastructure stock is estimated at 30% of GDP, well below the 70% international benchmark for middle-income countries.
- Sovereign wealth fund: Strengthen and expand Nigeria's sovereign wealth fund, aiming to increase its assets to at least 10% of GDP by 2030.
Also read: Rethinking Nigeria's Oil and Gas Governance for National Development
Conclusion
Nigeria can revitalize its economy and drive sustainable development by implementing these measures to enhance transparency, accountability, and fiscal responsibility in the oil and gas sector. This approach aligns with the "Development Oil" concept by treating oil resources as a source of revenue and a strategic asset for comprehensive national development.
The success of this new governance model will depend on political will, public engagement, and a commitment to long-term thinking over short-term gains. With these elements in place, Nigeria can transform its oil and gas sector into a true engine of economic growth and social progress, benefiting all its citizens for future generations.
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