…we have already exhausted half of our national borrowing room, five months into the year, on only petroleum subsidy payments. Our foreign reserves had slumped to $29.9bn (N5.9 trillion) by end of March 2015 from a high of over $40bn in 2011. The pressures on the naira had been exacerbated by the fall in oil prices from the $100s to the mid-$50s in 2014, as well as the massive demand for dollars by politicians during the 2015 election cycle, as the dollar become the preferred currency for vote buying.
Recently Nigeria’s Central Bank’s Governor, completely unprompted, proffered a solution to Nigeria’s current fiscal crisis. Sell off part of Nigerian’s shares in our joint venture oil fields, he said. This would reap trillions for the government, and resolve our tight fiscal position. By the CBN Governor’s calculation, N14.9trillion would be earned if we sold only 50% of the 55% interest we have in such joint ventures with multinationals like Shell, Exxon Mobil, Pan Ocean and Total.
Considering the precarious nature of our fiscal accounts, this approach sounds eminently reasonably. Most state governments have suffered significant reductions in their revenue from the federation account and owe their employees a backlog of wages, which in some states stretch back as far as six months. Even the almighty Federal Government recently had to borrow money just to pay salaries. In fact, we have already exhausted half of our national borrowing room, five months into the year, on only petroleum subsidy payments. Our foreign reserves had slumped to $29.9bn (N5.9 trillion) by end of March 2015 from a high of over $40bn in 2011. The pressures on the naira had been exacerbated by the fall in oil prices from the $100s to the mid-$50s in 2014, as well as the massive demand for dollars by politicians during the 2015 election cycle, as the dollar become the preferred currency for vote buying. These two factors largely sent the naira over the psychological cliff of N200. No doubt we are in trouble fiscally, which strengthens a case for the idea floated by the governor.
Once we sell off our interest in the oil fields, we lose that income for ever and ever, and there is no replacement. Yes, we get N14.9trillion (about 3 times the annual Federal Budget in one scoop) but considering how we have continually squandered our revenue over the past 50 years there is nothing to suggest we will spend it in a constructive way.
However, I suspect that this idea is a Trojan horse floated to open Nigerians up to an internal attack. Why do I think this is a Trojan horse? Let’s examine the facts. The new CBN Governor was appointed in June 2014. The fiscal difficulties faced by Nigeria commenced around that time with the price of oil dropping. Also within that time-frame, the naira exchange rate crashed from about N164 to the dollar and has now ended up at about N220 at the black market and N198 at the official market. However, the governor did not unveil his brilliant idea to sell off our crown jewels until the current administration lost the elections and then he pushed forward a study on how we could raise the required funds. Why the wait?
The fundamental flaw in this selling off oil fields argument is simple. It is a one-off sale. Once we sell off our interest in the oil fields, we lose that income for ever and ever, and there is no replacement. Yes, we get N14.9trillion (about 3 times the annual Federal Budget in one scoop) but considering how we have continually squandered our revenue over the past 50 years there is nothing to suggest we will spend it in a constructive way. So what we might end up with is a bucket full of money with the very real possibility of wastage. The CBN Governor says we should use it for infrastructural spend but government could as easily use it for the same recurrent expenditure they have spent most of our income on for the last four years. In fact, you can bet that governors will use it to pay off salaries and security votes first.
Simply put, I hope we are not setting the stage to sell off our birthright to some fellow citizens who have access to credit and who want to swindle us?
The central bank governor’s motivation for the suggestion that we do the sale is one to be deeply contemplated. First, I would proffer that as the governor of the central bank with a remit to ensure the stability of the value of the naira as well as ensure that inflation is kept within a single digit band, such a sale pays the governor because it would assist to get the depleted foreign reserves back up to above the $60billion mark which gives the CBN a significant buffer to fight off further currency devaluation and any attendant inflationary swings. With a foreign reserve at the $29b mark, the CBN cannot intervene aggressively by selling dollars to ease off demand pressures. This is the most moral reason I can proffer for the suggestion.
However, the conspiracy theorist in me can easily highlight a more devious reason for the suggestion. Who will buy the JV interest? The CBN Governor suggests that private equity firms might be interested in acquiring the stakes but those firms would only acquire such investments in order to be able to sell them off at a handsome profit further down the line and this is where I see the hands of Esau situation. Who would then buy those stakes in the future? The Nigerian oligarchs would. Therefore you might end up with a situation where the commonwealth of the Nigerian people is transferred to bank owning barons and such in this roundabout manner. Simply put, I hope we are not setting the stage to sell off our birthright to some fellow citizens who have access to credit and who want to swindle us?
If we do decide to sell, the only way we should sell is to only oil majors in a transparent manner and the funds should then be divided into a raining day portion which is ring fenced and an infrastructure fund managed by the most above board Nigerian professional.
Oluwafemi Akinfolarin, a lawyer, writes from Lagos.
