Easily the most important and most controversial of all the assumptions for next year’ budget is its crude oil price benchmark. As we all know, for decades now King Crude has, far and away, become the biggest source of public revenue and has since become the central, some would even say virtually the only, pillar of our annual budgets.
Figures from a sampled history of its prices at the New York Mercantile Stock Exchange from December 31, 2005 to this month, shows that this year the prices opened on January 6 at $101.56/barrel, fell to $98.7 in the first week of February, rose to $103.77 third week of February, fell back again to $98.49 on May 4 and closed at $86.28 last week on October 26. This shows volatility in its price but with a trend towards decline.
This volatility and decline has become the source of a sharp dispute between the executive and legislative arms of our federal government; whereas the executive says the price should be benchmarked at $75.00 and the difference of a little over $11 from the current price put aside for the probable rainy day, the National Assembly wants it at $78.00 (Senate) and $80.00 (House of Representatives).
As usual the executive has been on a media blitz in an attempt to convince the public that the federal legislators are either demonstrating economic illiteracy or are being unreasonable – or both. Leading the media onslaught is the Finance and Coordinating minister herself, Dr. Ngozi Okonjo-Iweala, darling of the West as managing director of the World Bank on sabbatical to her country.
According to the super minister there are at least five reasons why the benchmark must remain at $75/barrel, actually six reasons if you consider her argument that this price was itself a concession to the hawkish legislators. The more prudent benchmark, using what she called “oil-price based fiscal rule,” which is “a standard technique commonly used by commodity-dependent countries to protect them against the volatilities of oil,” was $71.00. This, she said, was rounded up to $72.00. However it was, she said, eventually pushed up to $75.00 after consultations with governors and the National Assembly.
A benchmark of $80.00, the minister said at a recent press conference would, first of all, lead to excess liquidity which would, in turn, lead to inflation and exchange rate depreciation. Second, the current relatively high oil price on which the legislators are basing their benchmark is, she said, “overly optimistic” because the price is not predicated on any economic fundamentals but is rather based on the current crisis in the Middle East, the world’s biggest source of cheap oil.
Third, the current prices, she said, are not sustainable because of decline in demand occasioned by the recession in Europe, slow growth in America and economic slowdown in China and India, coupled with an increase in supply from new discoveries in Africa and elsewhere and the end of hostilities in Libya.
Fourth, a benchmark of $80.00, she said, would lead to lower savings which would in turn remove the cushion the country would need should the current price crash, as it did in 2008 when it eventually bottomed out at $37.71 on December 26, from a peak of $145.29 on July 4.
Finally the higher legislators’ benchmark would, she said, send the wrong signal to foreign investors that we are imprudent and lead to the two international credit agencies that are soon expected in the country – Fitch and Standard & Poor – to downgrade our credit rating which in turn would discourage foreign investors and at the same time make it difficult, if not impossible, for our own local investor to borrow from abroad.
The minister has since been echoed in her criticism of the legislators by, among others, my friend and onetime colleague at the New Nigerian, Abba Dabo, a senior special assistant to the vice-president, and by a non-governmental organisation with the impressive title of Economic Advancement Advocacy Initiative (EAAI), but which is possibly of dubious existence.
Abba not only criticised the legislators on their rejection of the executive’s benchmark. He went on, in a widely published article last week, to severely reprimand the Speaker of the House, Honourable Aminu Waziri Tambuwal, for seizing the occasion of his moving the National Assembly’s vote of thanks following President Goodluck Jonathan’s presentation of the 2013 budget to generally criticise the president for his style and substance of governance.
On its part the EAAI not only rehashed several of Okonjo-Iweala’s arguments in a full page advert in several newspapers including Thisday (October 25). It also purported to show that, at $72.00 per barrel last year, Nigeria had the highest oil price benchmark among most members of OPEC and it also had the lowest foreign reserve ($41.30 billion) among a number of disparate African, Middle-East and Asian countries, including Malaysia ($134.50 billion), Saudi Arabia ($592.30 billion) and China ($3,240.00 billion).
No doubt the executive arm seems to have all the right arguments on its side. In any case it’s difficult, if not impossible, to quarrel with the dictum that one should always save for rainy days. The problem is that with this country the rainy days have always been with us, what with its terrible infrastructure and services in every sector of the economy – security, transport, energy, education, health; name it.
Yet we earn enough revenue from oil alone to make a huge difference in the quality of our infrastructure and services, and still have a little to spare for savings and investment in days stormier than the merely rainy ones. The trouble is that since oil took over our political-economy as king, the public has never had value for the money their leaders have claimed to have spent on their behalf. This, and not the size of our savings either as Excess Crude Account or the new-fangled Sovereign Wealth Fund, is the central issue.
Given the volatility of the price of crude oil alone, it makes more eminent sense to have a benchmark of $75.00 per barrel than of $80.00 for next year’s budget. The trouble is that experience has shown there has been little or no transparency in the management of the difference between the benchmark and the subsisting prices. Instead it has become like a slush fund for the executive arm to spend as it likes, at times in cahoots with the leadership of the legislative arm, at other times in spite of it. As the House Speaker, Honourable Tambuwal, said in his vote of thanks which apparently did not go down well with the presidency, the public has, for example, never known whether the figures of our foreign reserve we are told include the interests accrued or not.
We are also told little or nothing about the foreign banks that manage those reserves, the criteria used in choosing them and how they manage the reserves and how much we pay them as management fees.
In any case what kind of economics is that which keeps huge sums of its revenues in relatively idle savings and at the same time makes a virtue of borrowing heavily at home and abroad less to invest in profitable ventures than to squander on, among other things, the creature comforts of its leaders – their lavish residences, their frequent and expensive foreign junkets, etc – as is so apparent from the size of our recurrent expenditures?
President Goodluck Jonathan and his super minister of finance and economic coordination are right to push for an oil price benchmark of $75.00 per barrel for next year’s budget. But they can only seize the moral high ground from the legislators in their campaign for prudence and transparency in our political-economy if they are seen to make as much, if not even more, sacrifices in how they conduct themselves in and out of office as they demand from the rest of us.
Last week’s piece on Chinua Achebe’s personal history of Biafra elicited well over 100 texts and several emails, as usual some of them sensible and profound, some downright silly and abusive. My original intention was to devote today’s column entirely to my selection of those responses. I changed my mind when I realized it was easier for me to write the piece above than edit the responses in time for my deadline. So I decided to publish only a couple of the texts today and the rest next week. Here they are:
“The Igbo man will spoil a good case with a useless lie”, Achebe wrote in The Arrow of God. The child’s lie of how Igbo politicians were wonderfully lucky on coup day is still boldly told. A grievously wounded North returned! It’s been 40 years of destabilizing response and ravage. We have all lost! Ironically, the North is the worst hit. The madness continues. Ebelegi kponam Newton-Unilag, +2348092856001