Nigeria News: Investment Fund to Manage Excess Crude Proceeds - CBN

The Central Bank of Nigeria (CBN) has said it is working on the establishment of a National Investment Fund (NIF) that will manage the excess crude proceeds account for the future benefit of the economy, especially when oil prices drop.

Speaking yesterday in Kaduna at the ongoing CBN seminar for finance correspondents and business editors, the apex bank's Director of Foreign Operations, Alhaji Mohammed Nda, also disclosed that between January and July this year, a total of N465.982 billion ($3.675 billion) crude oil revenue, accrued to the Federation Account, was monetised and shared among the three tiers of government.

Nda who was represented by a deputy director in his department, Mr Olu Adaramewa, said a NIF was necessary to manage the account into which the windfall realised from the ever rising oil prices in the international market would be deposited so that the country would be prepared for future fluctuations.

He disclosed that "the establishment of such a fund in Nigeria can serve the twin objectives of stabilising the volatility of fiscal revenues and creating a pool of capital that can provide an alternative source of foreign exchange earnings."

He also explained that, "it is a known fact that the build up in the nation's external reserves was attributed mainly to the upsurge in oil prices which is not sustainable. Indeed, high oil prices are already driving research into the exploitation and utilisation of alternative energy sources.

"Consequently, there has recently been a call for the nation to establish a National Investment Fund in which to invest excess earnings from oil in order to shield the nation from the uncertainty and volatility of oil prices."

According to him, "many countries have successfully established such a fund including Botswana, Venezuela, Norway and Sao Tome and Principe, to mention a few. In fact, most of these countries sterilise the proceeds from oil and other minerals and finance their budgets through other sources."

Also speaking further, Nda disclosed that between January and July this year, a total of N465.982 billion ($3.675 billion) crude oil revenue, accrued to the Federation Account, was monetised and shared among the three tiers of government, namely Federal, State and Local Governments.

The figure, he added, represented 20.98 per cent increase over N385.156 billion ($2.920 billion) recorded in the corresponding period of 2005.

He disclosed that, the un-monetised and unshared portion of the nation's burgeoning foreign reserves, (that is, the excess crude proceeds) meant for the Federation, as at the July 31, this year stood at $8.18 billion.

The apex bank's Foreign Operations director put the total value of the foreign reserves in the month under review at $38.07 billion, which also included $2.71 billion of Federal Government's component and $27.18 billion, representing CBN component.

He said the figure of the monetised and shared crude oil revenue for 12 months (January to December) in 2005 stood at N694.042 billion ($3.675 billion) as against N860.123 billion (N6.503 billion) of the corresponding period of 2004.

A breakdown of the figures showed that, in 2006, the amount monetised and shared in January totaled N75.188 billion ($589.714 million); N101.007 billion ($788.476 million) monetized and shared in February; N54.286 billion ($430.162 million) in March; N68.739 billion ($544.820 million) in April; N44.888 billion ($355.719 million) in May; N60.793 billion ($482.103 million) in June; and N61.078 billion ($484.521 million) in July.

Nda explained that the Federation component consisted of Sterilised Funds (un-monetised) held in the excess crude and petroleum profit tax (PPT)/royalty account at the CBN belonging to the three tiers of government.

This portion, he added, has not yet been monetised for sharing by the federating units. Adding that it "is ignorantly referred to as the reserves of the country."

He also said the Federal Government component consist of funds belonging to some government agencies such as the Nigerian National Petroleum Corporation (NNPC), for financing of its Joint Venture expenses; Power Holding Company of Nigeria (PHCN) and Ministry of Defence, for Letters of Credits (LCs) opened on their behalf, amongst others.

Similarly, he explained that the CBN portion consists of funds that have been monetised and shared and constituted 71.4 per cent of the reserves. This, he said, arose as the bank received foreign exchange inflow from crude oil sales and other oil revenues on behalf of the government.

According to him, "such proceeds are purchased by the bank and the naira equivalent credited to the Federation account and shared each month, in accordance with the constitution and the existing revenue sharing formula. The monetised foreign exchange thus belongs to the CBN. It is from this portion of the reserves that the bank conducts its monetary policy and defends the value of the naira."

While pointing out that the much-talked about accumulated reserves was dominated by the foreign exchange equivalent of the amounts that have been shared monthly among the three tiers of government for their annual budgets, Nda charged the Nigerian public to find out "how the monthly allocations of the federations reserves have been utilised as on the foreign exchange counterpart with the CBN."

"As the saying goes, you can eat your cake and have it. The criticism that the CBN is accumulating foreign reserves in the midst of poverty and unemployment is therefore misplaced," he said.