Can oil revenue make every Nigerian a millionaire?

Nigeria is the most populous country on the African continent with an estimated 170 million people. It is also one of the largest producers of oil, on which the majority of its economy relies. Petroleum exports account for approximately 90 percent of its foreign revenue and 80 percent of government revenue.

Over the years, hundreds of billions of dollars’ worth of oil revenues have been stolen or squandered by the military, politicians and the wealthy elite since the first crude was pumped out of the then unpolluted, fish-stocked swamps of the Niger Delta more than half a century ago. It was all spend and no investment so that when — inevitably — the oil boom went bust in the 1980s, Nigeria was woefully in debt and had little to show for the bumper years. Hospitals are ill-equipped, public schools are moribund, power outages are common occurrences and dilapidated road infrastructures remain a permanent fixture. 

There are only four oil refineries in the country, and all are in various states of disrepair. The result is that for most Nigerians, the diesel that runs their generators, the kerosene that lights their lanterns, and the petrol that moves their cars are all imported.

At peak production, Nigeria produces about 2.5 million barrels of oil per day.  At the current crude oil price of $114 per barrel, this translates to around $285 million every day. The question is; can this make every Nigerian a millionaire?  

The Norwegian model 

Norway is Europe’s largest oil producer, the world’s second largest natural gas exporter, and is an important supplier of both oil and natural gas to other European countries; Norway is the largest oil producer and exporter in Western Europe; Norway is the second largest exporter of natural gas after Russia and ranks fourth in world natural gas production. 

Norway pumps about 1.9 million barrels of oil per day and is the world’s number 14 oil exporter. Export revenues from oil and gas have risen to almost 50 percent of Norway’s total exports and constitute more than 20 percent of the country’s GDP. 

Norway sought to avoid the boom and bust cycle by investing the oil revenue abroad, rather than at home. In 1990, the country set up the Oljefondet fund to channel its oil revenue and at present. The fund helps protect Norway from volatile fluctuations on the oil and gas market. 

The fund is now the world’s biggest sovereign wealth fund. Governments can spend 4 percent of the fund in Norway each year, slightly more than the annual return on investment.

The fund now owns around 1 percent of the world’s stocks, as well as bonds and real estate from London to Paris to San Francisco, where the Oljefondet spent roughly $500 million to purchase a 47.5 percent share in a 36-storey building in San Francisco’s financial district, along with picking up real estate in Washington DC

The Oljefondet is now equivalent to 183 percent of Norway’s 2013 gross domestic product and is expected to peak at 220 percent around 2030. 

On January 6, 2014, Oljefondet fund said that through careful investment, it has made every Norwegian a millionaire in the country’s currency, the kroner. 

While the rest of Europe remains mired in financial crisis, Norway has quietly been amassing a huge fortune which reached $828 billion according to figures from the country’s central bank – Norges Bank.  The new figure is over a million times Norway’s population which totaled 5,096,300 in the third quarter of 2013. The surplus revenue from Norway’s oil and gas investments around the world is collected in the Government Pension Fund Global. The fund ballooned in 2013, raking in a total of 288 billion crowns ($46 billion) from around the world. 

Countries such as Kazakhstan, Angola, Ghana and Mozambique, all on the edge of major oil revenue income, have been provided with a cautionary tale from Norway and the North Sea oil revenue.

Can Nigeria’s Sovereign Wealth Fund replicate Oljefondet? 

The Nigeria sovereign wealth fund is the fund into which the surplus income produced from Nigeria’s excess oil reserves is deposited. The sovereign wealth fund was founded for the purpose of managing and investing these funds on behalf of the Nigerian government. The wealth fund commenced operations in October 2012. It is intended to invest the savings gained on the difference between the budgeted and actual market prices for oil to earn returns that would benefit future generations of Nigerians. The fund was allocated an initial $1 billion USD in seed capital.

Nigeria’s Sovereign Wealth Fund is composed of three distinct funds or windows, each with specific investment and development objectives. The Stabilisation Fund is intended to safeguard against budgetary deficits. It would be a last resort from which government may withdraw annually to meet shortfalls in the budget brought about by falls in oil prices or other budgetary constraints. The Future Generation Fund is a savings fund that will seek investment in long-term investments and assets to provide savings for future generations of Nigerians. The Nigeria Infrastructure Fund is expected to secure investments in the infrasctrutural development of the country in areas such as agriculture and other government directed projects.

Of the initial $1billion, 85 percent of the funds will be distributed among the three windows with an initial 15 percent or $150 million remaining unallocated, to be assigned to any of the three funds as needed in the future. Another $500 million was later transferred to the fund.  At present the fund has made a return of 0.5 percent which translates to N1.2 billion which is reinvested. It is looking like light at the end of the tunnel.

FRANK UZUEGBUNAM