May 2015

On March 10, 2015, the Nigeria Natural Resource Charter (NNRC) partnered with the Lagos-based think tank Center for Public Policy Alternatives (CPPA) to organize a policy dialogue on the implications of falling oil prices in Nigeria. Participants ranged from industry representatives, government officials, civil society officials, leading academics to members of the NNRC multi-disciplinary expert panel. The policy dialogue also served as a dissemination platform for assessing the governance of Nigeria’s petroleum wealth based on findings from the recently completed 2014 NNRC Benchmarking exercise report.The discussions, framed around two panel sessions, considered background factors responsible for the drop in oil prices, the implications of the drop for Nigeria’s macroeconomic stability, and how Nigeria has performed with regards risk mitigation in the past. Some of the areas of immediate impact as highlighted by the panels include: reduced exploration and production activities for oil and gas, reduced investments by international oil companies, food inflation as well as delayed implementation of the gas master plan by the Federal Government.At the end of both sessions, participants at the policy dialogue were able to suggest a number of ways by which the current economic circumstances could be tackled within the policy perspectives of governance and accountability. Some of these include:

  1. That Government should seize the opportunity of falling oil prices to cut down on wasteful public spending including: executing wage freezes, scaling down on government services, and imposing strict fiscal measures. This is the most ideal and foremost option if government is to secure legitimacy in any of its other revenue management measures.
  2. Secondly, Government should seize the opportunity to reform tax administration in order to improve its fiscal position. This may be in the form of simply widening the tax net without nominal increases in the tax code. For example, the informal sector which contributes as much as 30% to the Internally Generated Revenue (IGR) of Lagos state, the most commercial city in Nigeria, requires inclusion into formal tax templates. The efficiency of the tax regime also needs to be improved considerably.
  3. It will be important to consider constitutional reformation and the actual practice of fiscal federalism, as most states are not economically viable. A unique state like Lagos that can show the example of economic viability is being constrained by the current federal system. This period can provide the turning point or tipping point required for such fundamental policy and political restructuring.
  4. There is the need to take advantage of the current drop in oil prices to diversify the economy. Nigeria currently relies on crude oil and gas to provide at least 80% of her revenues. The drop in oil prices has led to a 48.9% decline in revenues for the first quarter of 2015. Statistics show that by the end of the first quarter alone, government had borrowed N473bn (about US$2.3 billion) in order to close its expenditure gaps. This number represents 54% of the total allowed borrowing for the year, estimated at N882bn (US$ 4.4 billion).
  5. That, Nigeria deserves good leadership that can secure the trust of citizens through accountability. Transparency continues to be a required component in the oil and gas sector, particularly in the administration of the Excess Crude Account (ECA) and remittance of revenue to the Federation account by the National Oil Company, NNPC and other relevant bodies. The need for institutional transparency has been identified as one of the major challenges to natural resource governance as reported in the 2014 NNRC benchmarking exercise.

Following successful elections in April 2015 to the office of the President, in which an opposition candidate emerged winner, the new government will have an important task on its hand – to tackle reforms in the country’s most vital sector. President-elect, Muhammadu Buhari’s administration would require sufficient policy tools to enable it deal with many of the challenges highlighted above. The NNRC Benchmarking Exercise model already represents a platform for engaging policymakers, researchers and other key stakeholders in the design of practicable solutions to reform Nigeria’s oil and gas industry. Such strategic engagement begins with instruments like the policy dialogue series that provides the opportunity to build coalitions for change between researchers, practitioners and the civil society. The NNRC hopes to foster future engagements with collaborations from the CPPA and other partners so as to deepen public understanding and to provide useful policy advice to government agencies.                                                                                                                                                                                                                                                                   Josiah Aramide writes from CPPA in Lagos

cross-section of participants