Excess Crude Account saved Nigeria from global crisis – Okonjo-Iweala

By YEMI KOLAPO Friday, 15 Oct 2010    


Maintaining an excess crude account in Nigeria has been a subject of heated controversy. The Managing Director, World Bank, Dr. Ngozi Okonjo-Iweala, however, told journalists during the just concluded World Bank/International Monetary Fund meetings in Washington, DC, United States, that Nigeria must stick to the fiscal rule of setting some money aside for the rainy day. YEMI KOLAPO was there. Excerpts: The World Bank and the International Monetary Fund have scored Nigeria and other African countries high in terms of growth. However, many Africans say they can’t feel the impact.


We have to look at the quality of growth. Is it growth that is creating jobs; is it growth that is putting food on the table? These are the things we should be looking at. So, the World Bank is trying to work with countries to look at the quality of growth because countries may actually have what is called jobless growth. In Africa, we need job-creating growth. And that means looking at several sectors where jobs are being created like agriculture. If you invest in agriculture, you cut down on poverty and you enable people to be productive. We are now looking at a different type of agricultural investment, giving value to the chain. How do we market the goods that are produced? How do we increase productivity in Africa?


Nigeria relies mainly on revenue from a commodity whose price is not stable. Is this not harmful for the economy since no one has control on the price of oil?

You have picked on a very important issue, which is the volatility of commodity prices, and even the volatility of food prices. When the food crisis struck, that was quite severe for certain countries on the continent and there were even riots in some countries. So, managing that volatility for food security in agriculture is crucial and it is one of the areas where the World Bank is really focusing.We have increased our investment in agriculture from $400m to $800m in this past year and we are managing a fund, the Global Agricultural and Food Security Fund, for the G-8 and G-20 countries. It is designed to encourage long-term production, helping the countries to solve problems like storage, which can help.


If you can give farmers the means of proper storage and processing, then you can manage some of these ups and downs on the international level.How dangerous is Nigeria‘s over 80 per cent reliance on oil revenue even now that the Excess Crude Account seems to have been depleted?


As you know that in Nigeria, we had devised a scheme to deal with the volatility of oil prices. And you just pointed out that the Excess Crude Account, where money was being saved because we put in a fiscal rule, is depleted. Now, a Sovereign Wealth Fund is being created and it has different categories, including a stabilisation and investment part. If we are not going to have the Excess Crude Account because there is no legislation behind it, it is important that this SWF idea, with the various windows, is supported. This is because we need to be able to manage situations. Nigeria would not have been able to manage this global financial crisis had it not been for the Excess Crude Account.


Remember, when it was being created, there was a lot of objection. People asked why we were saving the money for the rainy day. They said ‘let‘s spend all of it, the rain is already falling‘. They did not know that proper katakata rain was going to fall. It came during this crisis and the government was able to access it (the Excess Crude Account) and use it. We must support sticking to the fiscal rule and putting money aside, be it in the SWF, the stabilisation part or the savings part, in the future. Other countries leverage on high commodity prices and save to cater for when the prices fall.


More African countries are turning to China for aid without minding the conditions. What is the World Bank doing to ensure that this is not harmful at the end of the day?


First of all, I want to make two statements. One is that when these discussions take place between China and African countries, they are usually between two sovereign governments. So, when you say what is the World Bank doing? I think we have two governments negotiating. All we can do is give advice on the principles. But I want to say we should not be afraid of Chinese money. The continent needs resources for investment. I think what we should be talking about is what we want to see when the Chinese come to invest. People say Chinese money, but it is important that they bring their investment for infrastructure. The continent needs it.


On the part of the World Bank, we are trying to work with them in partnership, along with some of the countries they are investing in. The most important thing is that any investment should be done in a transparent and open manner with all the calculations of what the investment is bringing to the country and what the Chinese are getting, so that everybody knows. If we have all the cards on the table, the public will not be asking questions and they will know the exact value of the exchange. At the end of the day, however, it is incumbent on the governments negotiating to make sure that they have all the information to be able to get good bargains.


There was a controversy, recently, over the Nigerian economy‘s growth rate. While the government said it was 7.4 per cent in the first half of the year, some other professionals came up with a lower figure, saying the 7.4 per cent estimate did not reflect the reality. Did you follow the trend?


No, I did not follow it and I don‘t enter into that kind of debate. All I can tell you now is that we need to support the finance minister to have a fiscally prudent approach to managing the resources of the country. We need to be fiscally prudent; the Excess Crude Account has been depleted; a lot of spending is going on; the budget has to be managed in a tighter fashion and we have to deal with our fiscal deficit, which according to what I‘ve read, is going to six per cent of the Gross Domestic Product. We need to bring it back to three per cent.We should support the budget people and the finance minister to do that. That‘s a very clear message.


Recently, the Debt Management Office said Nigeria was still paying back debt of the 1960s. But the country exited the Paris Club debt during your tenure. Can you explain the contradiction?


The media has to play a role to report things accurately because there is some misunderstanding going on. There is no problem about external debt for Nigeria. External debt for Nigeria is low enough and you can get exact numbers from the DMO, so let them be the ones supplying you. The problem we have is domestic debt. We have accumulated up to $22bn equivalent of domestic debt. That is debt that we are taking within the country. That is what we need to focus on. Anytime they talk about debt, people start shouting about external debt but the external debt is very low. Nigeria has to pay attention to domestic debt and stop accumulating that because they think that because it is domestic debt, it cannot come to harm the economy. That is not true. When you accumulate a lot of domestic debt, you are crowding out the private sector.


We must not accumulate more domestic debt because if we continue to do that, it is going to lead to some of the debt problems that we are avoiding. It is not only external debt that stunts economic growth.People are worried because if it was said that the country had exited the debt trap, then it is expected that it should no longer be paying back debts tied to that era…We have exited the debt trap. We were owing the Paris Club $30bn at that time, and that has been taken care of. So, we have exited. For those, who are saying external debt is the problem, it is not the case. Internal debt is Nigeria‘s problem.




Comments are closed.