Guyana, a tiny South American oil producer, has set a positive example for countries like Nigeria, highlighting the importance of saving oil income for the future. In 2021, Guyana established its Sovereign Wealth Fund, aimed at avoiding the mistakes made by Nigeria, which failed to save its oil earnings, leaving the nation with meager reserves. Currently, Guyana's fund has accumulated an impressive $1.4 billion, while Nigeria's, established in 2004, holds a mere $473 million.
As Nigeria anticipates improved oil earnings due to rising output and various policy changes, experts are urging the government, under President Bola Tinubu, to prioritize saving for the proverbial "rainy day." This advice also extends to state governors who, when flush with cash, often prioritize infrastructure projects like airports and flyovers over investing in essential sectors like education.
The establishment of the Sovereign Wealth Fund in Guyana came as international oil companies, led by ExxonMobil, began exploring the vast oil and gas reserves of approximately 10 billion barrels discovered in the country. The move was accompanied by the approval of local content rules for oil producers, aimed at ensuring responsible utilization of oil revenues and minimizing corruption. This approach contrasts with the mismanagement of oil income witnessed in countries like Nigeria and Angola, leading to widespread poverty despite their abundant natural resources.
The Nigerian Extractive Industries Transparency Initiative (NEITI) has repeatedly warned against the vulnerability of oil-dependent economies to economic crises caused by oil price fluctuations. To mitigate such risks, NEITI recommends the establishment of a robust minerals savings fund, proportionate to the revenue generated from mineral resources and the size of the national economy.
In Nigeria, former President Olusegun Obasanjo established the Excess Crude Account (ECA) in 2004 to save oil income exceeding budget benchmarks, despite opposition from state governors who preferred sharing the funds. However, the ECA, which once held over $20 billion, has dwindled significantly over the years, with previous governments withdrawing more than $200 billion from the account. The current balance stands at a meager $473 million, making it insufficient to serve its intended purpose.
NEITI's policy review document points out that the problem with Nigeria's ECA lies in inadequate ring-fencing of the funds and their relatively small size. As oil revenues diminish, the fund becomes increasingly inadequate, reinforcing the need for a more substantial and well-protected rainy day fund to secure Nigeria's economic future.