Oil price is going up…it is now almost $80
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Oil price is going up…it is now almost $80
This is excellent news because
1..it reduces our budget deficit
2..it helps our current balance, boosting Naira reducing cost of production
3..boosting inflow to FAAC
However Nigeria is not designed for corporate sucess…..i explain
A. Cash will go to recurring expenses to fund consumption
All the money the FG of Nigeria makes from crude oil….goes go pay salaries of Federal Government workers……ALL OF IT. Nigeria then borrows new cash to pay old debt and build roads…..
B..More oil…..more wasteful State spending
the rise in oil prices means more inflow to the Consolidated Revenue Fund ie FAAC…in English, the increase will be spent by Governors.
Nigerian laws and constitution demands all revenues including oil be shared….not saved…shared.
so oil going up to $60 means Rochas Okorocha has more cash for cake
C. rise in oil means petrol imports cost more
Nigeria sells crude oil but imports petrol…petrol is made from crude oil. so its like supplying a buka rice from your rice farm, getting paid and then spending your sales income on cooked rice from the same buka.
D. CBN will spend the oil dollars “defending the Naira”
Nigeria has a cycle, oil prices goes up…imports go up…but when oil prices fall, imports do not fall as fast. Imports need dollars and CBN will spend dollars to have a strong Naira.
What Nigeria is missing is a coordinated Federal and State Government push to efficiently invest oil revenues.
In Brazil following widespread demonstrations on corruption the Brazilian Government announced it would spend 100% of oil royalties from her salt field on education for youth.
Nigeria has spent almost 3 years at below $80 oil prices…prices are now moving up.
Can the Federal and State government not Create an infrastructure fund, to which flows 10% gross of oil sales before cash is disbursed to FAAC?
Can these funds not be used to connect all State Capitals and Abuja with road and rail? ie extend the 10 lane Ikorodu road from Lagos to all State Capitals?
Such an infrastructure fund addresses the identified problems of wasteful recurrent expenditure and irresponsible State spending. it wont solve the massive infrastructure problems but will start a practice of dedicating a fixed percentage at the corporate level to Capital Expenditure.
Nigeria did the PTF and SUREP…which were dedicated funds to target taxes at projects. both however were only federal programs..States in Nigeria get $48 of every $100 of oil sold..we have to fund that infrastructure fund at the federation not federal level
Should Nigeria not take a serious look at how its ficsal structure is designed to negate growth this new “oil boom”.
I so post
(originally posted 2017.. all I did was edit oil price…my point? we learn nothing)