“Déjà Vu” is a French phrase meaning “already seen.” More colloquially, it translates to “here we go again” or “we have seen this movie before.”
The current conflict involving the US, Israel and Iran has once again demonstrated how central oil remains to the global economy. The resulting spike in prices and the market volatility caused by these disruptions are clear proof of this dependency. Fortunately, Nigeria finds itself on the favourable side of this disruption. While we are feeling the inflationary pressures that have manifested over more than 50 days of conflict, the oil price surge is benefiting the national treasury. We are currently receiving dollar inflows well above our 2026 oil revenue budget.
What we do with this windfall is of critical importance.
The cycle of mismanagement:
Historically, Nigeria has failed to manage previous oil windfalls effectively. These windfalls often stem from unexpected global events; because they arrive suddenly, they can disappear just as quickly. Managing the after-effects is vital because a reversal in oil prices is inevitable. Historically, the subsequent dip in oil revenue has harmed the Nigerian economy more than the initial boom helped it.
Take Nigeria’s first oil windfall in 1979/80, triggered by the Iranian Revolution and the subsequent Iran-Iraq War. This oil shock caused prices to jump from $21 per barrel to $40 by 1981. At the time, Nigeria’s production stood at 2.3 million barrels a day. Revenues from oil surged to over $24 billion, representing 80 percent of government revenue and 96 percent of exports.
The civilian administration of President Shehu Shagari inherited these petrodollars but largely mismanaged them. The sudden wealth led to massive public spending that caused a structural shift in the economy from which we have never fully recovered. We embarked on “white elephant” projects, such as the construction of Abuja FCT and the Ajaokuta Steel Mill, which created avenues for the systemic contract corruption that plagues us to this day.
The ‘Dutch Disease’ and economic collapse
Our consumption patterns changed dramatically during this era. The influx of petrodollars overvalued the Naira, making imports artificially cheap. Consequently, we began importing everything, including food items like rice, that we had previously produced and exported. These cheap imports decimated our manufacturing sector. Although the middle class expanded, it did so with a taste for imported luxury and foreign travel. By 1982, the “oil glut” emerged and caused prices to crash. Nigeria’s revenues were halved to $12 billion, eventually dropping to $7 billion by the end of that year. To cover the resulting budget deficits, external debt jumped from $1.8 billion in 1979 to $12 billion. The austerity measures, import licensing, and foreign exchange rationing introduced to manage the crisis only complicated the economy further. The resulting economic crisis and dissatisfaction, eventually provided the military with an excuse to come back.
The Muhammadu Buhari coup ended the Second Republic in 1983. The Buhari administration struggled to manage the crisis, refusing to devalue the Naira or service inherited external debts. Claiming the politicians stole the money. Yes, they did. But not servicing the debt or repaying them did not make them go away.
Lessons from the 1990s
The subsequent Ibrahim Babangida administration attempted to liberalise the economy through the Structural Adjustment Programme (SAP), even as oil prices fell to $10 per barrel. Fortune turned again during the Gulf War of 1990/91, bringing another windfall. Oil prices jumped from $18 to $40, earning Nigeria an estimated $12 billion in extra revenue. This time, the government placed the windfall into a “Dedicated Account” at the Central Bank of Nigeria (CBN), to be managed by the CBN and the Presidency. However, this failed, due to a weak institutional framework that was in place; the funds were squandered on non-essential projects, leading to further inflation and deficit spending.
The 1994 Pius Okigbo Panel of Inquiry later revealed that, of the $12.4 billion earned, $12.2 billion was spent on “non- priority or regenerative” investments.
Imagine if those funds had been used to build rail infrastructure or to purchase refining capacity abroad, by buying up the failing refineries in Texas and other South Western states in the US, similar to how Saudi Arabia built the backbone of the publicly traded Saudi – Aramco, of today, when they bought Aramco Oil in the United States, with several retail petrol stations in the US earning dollars. Or if the extra earnings were simply put in our foreign reserves to strengthen the value of the Naira.
A path forward: Prioritising electricity
This new oil windfall must be managed differently. There are already calls to go back to subsidies as a way to lessen the burden of inflation on the poor. That will be a mistake, as there is no proper path to reach the intended target groups. Leakages will mean the subsidies will go to those undeserving of it. The only probable way to lower the burden immediately, will be to cut taxes on the affected commodities, at the point of purchase.
My position is that we should escrow the difference between our budgeted revenue and the actual inflows. All proceeds should be directed toward solving Nigeria’s electricity crisis. This is the single most significant problem facing Nigeria today. Fixing the power sector would positively impact every citizen and business. There should be no “ifs” or “buts”, every kobo of this windfall should be dedicated to accelerating our electricity development.
Fortunately, the current administration has recently established a credible group led by Mr. Fola Adeola to work on the petroleum sector reform, as a taskforce to address the way forward for our energy development. I recommend that their mandate should be expanded to include allocating this new oil windfall to solve our power problem.
Adeola has an enviable history as a force for good, from co-founding GTBank, one of our major financial institutions and leading the commission that created our Pension Fund industry of today. He possesses the credibility, knowledge, and integrity to get his group to help manage this oil windfall, without succumbing to negative influences.
Nigeria has been given a lifeline at a very difficult time. We must get it right. As I have always said, without electricity, everything else is on hold.
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Victor Ogiemwonyi, a retired investment banker, is a former Governing Council member of the Nigerian Stock Exchange (NSE), now Nigerian Exchange Group (NGX Group). He sent this contribution from Ikoyi, Lagos. He can be reached via comment@businessamlive.com and marketconversations.substack.com
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