A clarion call for improved savings culture for Nigeria

Research has shown that many Nigerians have poor savings culture. Under the guise that we do not earn enough to meet our immediate needs, we always end up consuming all that we earn. We rarely leave anything for the proverbial rainy day when we will not be able to go out to work. It turns out that as it is for individual Nigerians, so it is for our country. For decades after independence, we have no savings and stabilisation fund. We have been a mono-cultural economy, depending largely on oil and gas revenue while failing signally to use the proceeds therefrom to develop other sectors of the economy. When the price of crude oil falls in international market, our economy is negatively affected as there are no savings from which to draw to cushion the effects.

On  Thursday, May 24, 2018, I was one of the participants at a roundtable on “The Savings and Stabilisation Mechanism for Nigeria”, organised by Shehu Musa Yar’Adua Foundation and the Nigerian Natural Resource Charter.  The meeting had in attendance dignitaries such as Mrs Obiageli Ezekwesili, a former Vice President (Africa Region) of the World Bank; Odein Ajumogobia (SAN), a  former Minister of State, Petroleum Resources and Chairman of the NNRC Expert Advisory Panel; Osten Oluyemisi Olorunsola, a former Executive Director of the Department for Petroleum Resources; and Prof Adeola Adenikinju, member of the Central Bank Monetary Policy Board. Also in attendance were other representatives from Ministries, Departments and Agencies, civil society, National Assembly and the media.

Findings of commissioned researches on Nigeria’s Savings and Stabilisation Fund Mechanisms made public at the event, included: “Improving Public Awareness and Advocacy on a Stabilisation Mechanism for Nigeria”; “Safeguarding and Smoothening Fiscal Adjustments in Nigeria – Policy Options”; “Nigerian Excess Crude Account Financial Analysis Report” and “Media Analysis of ECA and Emerging Issues”.

Did you know that Nigeria has three savings and stabilisation funds namely 0.5 per cent Stabilisation Fund set up   in 1989; the Excess Crude Account created in 2004, and the Nigeria Sovereign Investment Authority established in 2011? Did you know that Nigeria has gone through five cycles of oil booms and that during these periods, the country earned a conservative estimate of over $1tn in oil revenue but made no significant savings, nor have these earnings translated into lasting and productive capital through human development, physical infrastructure and institution building? Did you know that Nigeria’s Excess Crude Account was ranked the most poorly governed sovereign wealth fund among 33 resource-rich countries in a 2017 report by the Natural Resource Governance Institute?

There are four key indicators for a successful stabilization programme. They are the savings rule which this deals with determining how assets are transferred to the fund; the spending rule, dealing with how assets are withdrawn from the fund; the investment strategy which has to do with how assets should be invested; and the governance and implementation mechanisms which define roles and responsibilities for effective management. On these four counts, Nigeria ranks low when compared to many other countries.

A four-country comparative analysis of the level of compliance to the indicators of a successful stabilisation programme reveals that while Norway which established its Stabilisation Fund in 1990 has $1,032.69bn in savings, Saudi Arabia which set up its fund in 1971 has $514bn in savings and Algeria which created its stabilisation fund in 2000 has $7.6bn in savings, Nigeria which established hers in 2011 has a paltry $1.5bn in its Sovereign Wealth Fund.

Other observations made at the roundtable include the fact that the Excess Crude Account lacks transparency and has an unclear methodology for withdrawals and distributions. This has been manifested in unilateral withdrawals by successive governments. Stabilisation mechanisms have been ineffective in Nigeria due to mismanagement and the prevalence of corruption. Furthermore, lack of political will has prevented proper implementation of the stabilisation mechanisms over successive administrations.

The meeting was not just a finger-pointing, government-bashing exercise. It proffers some solutions to the country’s lack of proper savings culture. Remedies put forward include an urgent need for a  constitution amendment of Section 162 of the 1999 Constitution (as amended) with provisions that guarantee automatic savings of surplus revenues from oil, gas and minerals with the Nigerian Sovereign Investment Authority; a need to politically negotiate and agree on binding rules for ECA revenue inflows and outflows until such a time as the constitutional amendment is effected to either entrench or liquidate the account. There was also a demand for  transparency and accountability with disclosure and reporting requirements  on deposits and withdrawals from the ECA; and that the federal and state governments should seek speedy resolution of pending Supreme Court cases on the constitutionality of remittances to the Excess Crude Account and the Nigerian Sovereign Investment Authority.

It was further suggested that  the Excess Crude Account and 0.5 per cent  Stabilisation account should be collapsed into the Sovereign Wealth Fund since the latter is the best managed among the three; Need to strengthen Nigeria Sovereign Investment Authority with appropriate guarantees on transparent and accountable governance to re-assure stakeholders;  as well as the need for a critical mass of people to demand change in the institutional framework guiding Nigeria’s Savings and Stabilisation Funds.  It was also demanded that oil, gas and mineral revenues shouldbe effectively and efficiently utilised for capital investment rather than consumption.

Bouquet of other recommendations are that there is need to strictly monitor implementation of yearly budgets; need to diversify the economy through investment in non-oil sectors; need to  increase contributions of the oil industry to Gross Domestic Product; and the need for a civil society led  National Economic Governance Debates .  There was also call for the revision of and full implementation of the Niger Delta Master plan.

It is noteworthy that President Muhammadu Buhari has started to implement some of the aforementioned recommendations. For instance, under this administration, there is a conscious effort to diversify the economy. Also, during his 2018 Democracy Day speech last week, Buhari said “The Sovereign Wealth Fund project portfolio has been expanded with an injection of $650m so as to strengthen its investment in local infrastructure, power, health, re-construction of Abuja-Kano road, Lagos-Ibadan Expressway, East West Road (Section V) and the Mambilla Hydro-electric Power project as well as the construction of the 2nd Niger Bridge.”  This is commendable.

It was also widely reported that the Federation Accounts Allocation Committee had on Wednesday, May 23, 2018 informed the public that members had resolved to transfer about N24.5bn from the revenue for the month in the ECA, the first since the country’s economy went into recession two years ago. The Permanent Secretary, Federal Ministry of Finance, Mahmoud Isa-Dutse, said the decision to begin saving in the ECA again followed improved accruals from all revenue streams in recent time. This is another laudable step in the right direction.

Nevertheless, it is important for this administration to take some of the recommendations from the Lagos roundtable seriously. There is the need for constitution amendment, consolidation of the three savings accounts into one, improved savings culture and due process in the withdrawal from the stabilisation fund. More importantly, it will be heartwarming to see our money work for us in terms of bridging the country’s infrastructure gap.