Why Norwegians are wealthier than Nigerians
Last month, the Nigeria Sovereign Investment Authority (NSIA), Nigeria’s Sovereign Wealth Fund (SWF) announced that it made capital gains of N1.2 billion ($7.75 million) in the first quarter of 2014 – a return of 0.5 percent on a total capital of $1.55 billion.
If the entire $1.55 billion was shared among an estimated 174.5m Nigerians each of us would get $8.88, according to the Sovereign Wealth Fund Institute. For majority of Nigerians who live on $1.25 a day this is a pittance. In Norway, each of 5.06m Norwegians would get $173,518. Though the Norway Government Pension Plan was set up much earlier than the NSIA (it was established in 1990) it’s size and performance is testimony to how surplus oil wealth can be managed.
The rate we are saving for a rainy day is grossly inadequate to achieve the funds’ mandate to manage a Future Generations Fund, a Nigerian Infrastructure Fund and a Stabilization Fund. BusinessDay calculations show that it will take a generation (36 years) to double Nigeria’s fund to $3 billion at a 2 percent nominal rate of return without further transfers by government. Nigeria’s fund amounts to 0.3 percent of 2013 GDP of $510 billion that of Norway is 183 percent of its 2013 GDP.
In addition, rising US production and the consequent sharp reduction in imports is putting pressure on prices and affecting Nigeria. Rising oil and gas production in the US, from shale rock formations, has seen the once net importer of crude oil emerge as the biggest oil producer in the world. Production of crude oil along with liquids separated from natural gas surpassed all other countries this year. The US which hitherto relied heavily on Nigeria’s sweet crude now pumps 11 million barrels daily compared to the 2.15 million barrels Nigeria managed to produce last June.
Oil exports to the US from Nigeria fell to 1.l2 million in 2005 and by 66 percent to 400,000 barrels at the end of 2013, according to Energy Information Administration (EIA). Since 2010, US crude production has grown by 46 percent while Nigeria’s has remained flat over the period.
Where the US has succeeded Nigeria has failed, spectacularly. In the US markets are allowed to work, to unlock hidden and unprofitable oil from shale fields. Meanwhile in Nigeria, a cack-handed government’s stranglehold, cancerous corruption and its unwillingness to reform the sector is thwarting development. Nigeria may have lost at least $28 billion since 2010 in cancelled or deferred investments in the oil sector.
How does a country with the largest undiscovered oil and gas resources in sub-Saharan Africa sit and gawk while countries like Angola, Ghana, and Mozambique exploit their natural resources? Lack momentum to reform the oil and gas industry, whether by passing the Petroleum Industry Bill (PIB), totally or in parts, scrapping fuel subsidies as well as improving security and the rule of law are stalling the exploration and production of oil and gas. Leakages and political bickering are limiting the goals of the NSIA to put aside money for future generations. Oil leakages cost the government $7 billion in revenue in 2011.
Assuming the world will always need our oil, that other markets like India will make up for the shortfall is a grand delusional plan to fail. Failing to save on the assumption that the economy will always be robust and oil prices will remain high is short-sighted. Particularly for a country that depends on oil and gas for three-quarters its dollar revenue.
At the current rate we are saving our oil revenues we will neither be able to withstand a future oil crisis or a benefit immensely from a large increase in the price of oil.