Economists advise the Nigerian government not to abolish excess crude account
- By Anayo Ezugwu
NIGERIAN economists have flayed the idea of transferring funds in the Excess Crude Account, ECA, into the federation account as recommended by the Senate, stating that it does not make business sense. They are urging the federal government to transfer the ECA funds into the Sovereign Wealth Funds where it will be invested.
Austin Nweze, lecturer, Pan-Atlantic University, one of the economists who spoke to Realnews, said with the recommendation of the Senate on the ECA funds, the federal government will spend the money if it is paid into the federation account. According to him, if the government transfers the funds to the Sovereign Wealth Funds it will generate more revenue through investment.
He noted that whatever the allegations of the Senate were, the federal government should transfer the ECA funds to the sovereign wealth funds where the government would not have easy access to it. This will benefit the country more when the government runs out of cash.
“Any economy or government that doesn’t encourage savings, that government is doomed. You cannot save without investing and that is while we have Sovereign Wealth Funds to be able to save for the future generation. Nigeria has no savings for the future generation. So I feel sorry for the future generation. How can a government make progress without preparing for the future generation? Fifty years to come, what is going to be the future of this young generation. Our leaders are living as if they are not fathers as long as it favours them for now. It doesn’t matter what happens to their children.
“Again the excess crude account can be abolished if it is not properly used. But transferring it to the federation account is what I’m not in support of because if you transfer it, it will be consumed. So if excess crude account is no longer serving the purpose of which it was setup, it should be transferred into the Sovereign Wealth funds. Presently we have only $2 billion in sovereign wealth funds.
“The whole essence of the fund is that if you have it you can borrow at a cheaper rate because it makes more business sense to borrow at a cheaper interest rate and invest in a higher interest rate. For instance, if you have money to invest at a 25 percent interest rate that can give you profit income of 25 percent. And you want to borrow to buy a car and you are paying interest, the cost of fund is maybe 10 percent. When you knock-off 10 percent from 25 percent, then your net percentage gain is 15 percent. So it makes more sense,” he said.
Supporting, Pita Ochai, journalist and economist, said it would be disastrous for the nation to abolish excess crude account because the nation is struggling to save despite its existence, adding that the situation could worsen if the order of the Senate to abolish ECA is adhered to.
“The impact is that we are not going to save again. They want us to share the money so that the three arms of government will have more money to spend. In the short run it will be good but in the long run, when we don’t have, it will be bad for the economy because did not save for the rainy day.
Realnews recalls that the Senate had on Tuesday, November 7, ordered the federal government to abolish Excess Crude Account. It further requested the executive to act in conformity with Sections 80 (1-4) and 162(1-3) of the 1999 Constitution (Amended) in its revenue receipt and expenditure. Senator Rose Oko, who moved the motion, said the accruals to the ECA were expected to be the amount above the benchmark of crude oil sales.
She added that these breaches of the constitution in setting up and operating the ECA have created room for the pool of funds from revenue accruing to the federation being operated without legal backing. “By May 2017, government announced a resumption of payment into the ECA of 87 million dollars ostensibly since May 2015, arbitrarily. Furthermore, between May 2015 and August 2017, about $122.2 million had accrued and ought to have been paid to the ECA,” Senator Oko.
The Nigerian Excess Crude Account was set up in 2004 as a stabilisation fund against future economic instability. It is to contribute towards the development of the country’s infrastructure and as a savings mechanism for future generations, using the country’s excess oil revenues. It was also expected that managing these reserve funds will help to protect Nigeria’s economy from external shocks.
But in 2011, President Goodluck Jonathan introduced Nigeria’s Sovereign Wealth Funds through the Nigeria Sovereign Investment Authority Act. The act authorised the establishment of the Nigeria Sovereign Investment Authority, giving it jurisdiction over the country’s excess petroleum reserves.
– Nov 17, 2017 @ 17:59 GMT |