ECONOMY - 04 MAR 2019

Excess Crude Account: the oil fund paying for Nigerian elections

Excess Crude Account: the oil fund paying for Nigerian elections
VP Yemi Osinbajo played a big role in promoting TraderMoni across the country, as a precursor to the national campaigns

On the 23rd of February, millions of Nigerians marched to their assigned polls to cast a vote in a  ₦234 billion election - the most expensive in Nigeria's history. 

Aside from what is budgeted for mostly INEC, there are "private" expenses as well. The numerous posters of political candidates plastered on practically every street in major cities cost money. And right before elections, vote-seeking politicians become extremely generous, handing out wads of cash and a range of basic household items to the masses as a subtle exchange for their votes. On election day it transforms into vote buying

On a larger scale and more legitimately, politicians tend to increase government spending roughly a year before elections. For example, in 2018, the Nigerian government announced the creation of two popular capital intensive projects; Nigeria Air and Trader Moni

While many Nigerians get carried away by the excitement of rallies and campaigns and the anxiety leading up to elections, they are yet to ask a crucial question; where is the free money coming from? Considering that oil is the engine of the Nigerian economy, it is no surprise to learn that it is also the primary source of syphoned funds.  

 

The Presidential Purse 

Nigeria has a stabilisation fund known as the Excess Crude Account (ECA). Its primary objective is to improve the stability of the economy by ensuring that oil rents are being saved and managed prudently against periods of economic downturn. Its a popular regime in resource-rich countries. However, in  2017, the ECA was ranked as the most poorly governed and least transparent funds in the world. 

Nigerian leaders have a track record of dipping into the fund. Elections usually trigger a series of unaccounted withdrawals from the account. And, the excessive concentration of power in the executive arm makes it difficult to hold anyone accountable. 

President Obasanjo was the pioneer of Nigeria's first stabilisation fund; the Excess Crude Account (ECA) in 2004. Oil sales at prices above the oil benchmark price were expected to go into the account.

It started well; in fact, it was used to pay off the Paris club debt and fund several ambitious projects - a notable achievement of that administration. However, over the years it evolved into a personal purse for political officials and a massive enabler of corruption in the country. 

Following Obasanjo's decent start to encouraging oil savings in Nigeria, late President Yar'Adua and Jonathan came into office, and the story quickly changed. Oby Ezekwesili revealed that they both exhausted around $45 billion in foreign reserves and $22 billion from the ECA after Obasanjo’s administration. 

Between 2007 and 2014, there was an upward trend in withdrawals from the ECA. This was particularly incessant right before national elections. Fast forward to 2018, and the stabilisation fund faced a similar fate. The Minister of Finance reported that the revenue accrued to the account had depleted to only $631 million from $2.31 billion in three weeks. Although, the withdrawal was justified as the repayment of the Paris club loan refund to states; there is more to the story. 

 

Using Security Votes to Secure Votes

The most popular reason to withdraw money from the fund is either for subsidies or most times for security. However, security money has a bad reputation. During the 2015 elections, President Jonathan’s political allies allegedly spent a significant amount of money seeking the support and political backing of incumbent state governors who could potentially sway the election outcome in their states. For instance, the former Minister of State for Defence, Musiliu Obanikoro, disclosed that he was instructed to pay Governor Fayose from the nation's security funds. Jonathan also used oil revenues to increase security budgets from $3.2 billion in 2009 to $4.8 billion in 2013 and 2014. Many believed that a considerable part of these budget allocations was diverted to fund election campaigns and purchase votes. 

President Buhari, the poster child for fighting corruption, has also dipped his hand into the stabilisation fund. Between 2016 and 2018, he dramatically increased the monthly security allowance allocated to the 36 states. In 2017, he withdrew $1 billion from the ECA without any formal consultation from the appropriate bodies. When confronted, he played the "Boko Haram" card like his predecessor; a reasonable explanation that many did not buy. Likewise, the controversial case of the former National Security Adviser (NSA), Sambo Dasuki who was investigated for allegedly supervising the pillaging of $2.1 billion from the nation's coffers attests to the smoke and mirrors approach surrounding the stabilisation fund.

 

Next Steps 

Like in most developing countries, money is closely associated with political success in Nigeria. In many cases, the candidate who spends the most has a greater chance of winning and this threatens the emergence of a free and fair electoral process. The main principle guiding a stabilisation fund is to smoothen expenditure within the budget limits. Yet, in reality, the ECA has been exploited to fund non-budget expenditure; particularly national elections - all under the name of security. 

In countries like Norway and Chile, the government insulated their rainy day funds from political pressure, and this has promoted fiscal prudence. Moving forward, responsible bodies need to "tie the hands" of politicians and demand accountability and transparency in regards to the management of oil funds. They also need to regulate and monitor expenditure patterns during election season and ensure that oil wealth does not hinder Nigeria's fragile democracy. 

 

Follow the author, @stephannie__a on Twitter. Subscribe to read more Stears articles here.

Stephannie Adinde

Stephannie Adinde

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