Deepening knowledge about how oil money is spent

An audit delivers startling findings on the use of extractives revenues in Nigeria.

When Nigeria started implementing the EITI ten years ago the expectation of Nigerians was that the initiative would lead to rapid and visible impacts in their lives. Nigeria was the first of the EITI countries to enact a law specific to the EITI, providing us with the autonomy needed to channel and address critical concerns on resource governance from our citizens.

After four reporting cycles covering 13 years, several of these have arisen: What has changed? What are the results of the EITI implementation on resource governance? Has the abundant resources in oil and gas translated to improved quality of lives, and if not - why not?

Audit covers five years and nine states

To answer some of these questions, Nigeria’s EITI (NEITI) commissioned an audit into the allocation of spending of extractives resources (Fiscal Allocation and Statutory Disbursement (FASD) Audit). The objective of the audit was to track how the revenues from the extractive sector were allotted,  where they were transferred, and how they were utilized by the federal, state, and local governments.

The audit covered the period 2007-2011 and focused on nine  resource-rich states in Nigeria endowed with oil, gas and mining resources. It looked into the transfer and management of special development funds setup by the government to invest in and diversify its economy, clean the environment and strengthen its social and education services. The funds are, among others, the Niger Delta Development Commission, the Natural Resources Development Fund, the Tertiary Education Trust Fund and the Stabilization Fund. The audit also covered allocation and utilization of oil and gas revenue  in key sectors in the states.

How much money are we talking about?

The findings and recommendations of the audit and their connection to national economic development are quite revealing, incisive and engaging.

For instance, the audit disclosed  the total revenue disbursed to the federal, states and local governments, including the beneficiaries of the 13% derivation, (an exclusive preserve only for oil producing states). From 2007 to 2011, N22.35 trillion (US $125 billion) of oil, gas and mining revenues arrived in state coffers. That sum is equivalent to almost 15% of the GDP in that same period, or US $780 per person living in Nigeria.

The income decreased significantly from year to year: while N9.75 trillion (US $54.5 billion) was disbursed in 2007, the payments shrank to N5.42 trillion (US $30 billion) in 2008, to N4.28 trillion (US $24 billion) in 2009 and to N2.80 trillion (US $15.5 billion) 2010.

Further, now citizens know how much went to what level of government. From the sharing formula under the Nigerian fiscal federal principle, the Federal Government took 56% of the total revenue, states 24%, while the local governments collected 20%.

Regions depend heavily  on income from oil, gas and mining

One major revelation of the audit is the high degree of dependency on oil revenues in the  nine states sampled. The trend is unlikely to be different in all the 36 states of the Federation.

This has led to a worrisome situation where the States and local governments pay very little  attention to other sources of revenue including abundant human capital and other opportunities for internally generated revenues in their various states. From the reports, while States like  Akwa Ibom is 91% dependent, Bayelsa State is 96% dependent, Ondo 85%, Rivers 76%, Delta 75% dependent, Nassarawa 75% and   Kano 74% dependent on its share of the oil revenue.

The issue flagged by the audit is that the continued dependence on oil revenue is not only unsustainable but that the main reason for increasing rate of corruption, rent- seeking, lack of creativity, hard work and Nigeria’s cycle of poverty in the midst of plenty.  

Money is not spent on improving the quality of life

The audit also drew public attention to another negative trend in the use and allocation of revenue to major sectors. Most of the states covered by the audit failed to channel the funds to important areas that directly improve the living conditions of our citizens. These include social services like health and education, housing and job creation.

For instance, Imo State allocated only 2.3% of its total revenue during the period under review to  education and health, but 72% of revenues that accrued  went to recurrent expenditure covering government running costs, wages and overheads.

Only two states, Akwa Ibom and Rivers channeled over 70% of their revenues to the provision of capital projects. But here too, the allocation of these two states to social services was also less than 10%.

The issue here is that in a developing country like Nigeria where challenges of basic social infrastructure such as roads, electricity, hospitals, schools, food and housing are real, the ability to channel funds to the provision of these amenities through special priority on capital projects clearly differentiates a good government from the other.

US $41 million unaccounted for

The most striking feature of the audit perhaps is the disclosure that a whopping sum of N7.4 billion (US $41.4 million) allocated to the nine state offices of the Niger Delta Development Commission (NDDC) for the completion of projects cannot be accounted for. The NDDC was set up as a special intervention agency to develop the oil-rich Niger Delta and redeem the area from long years of neglect and environmental degradation.  From the audit report, most of the projects were either duplicated, or nonexistent. The report also brought up common cases of poor administration of funds allocated to the NDDC.

Funds used contrary to their purposes

The audit confirmed that the total transfers into the Natural Resources Development Fund amounted to N365 billion (US $2 billion) in the years covered. Prior to this audit report,  not many Nigerians were  aware that this fund existed. It was set up to develop alternative sources of revenue from natural resources.

However, contrary to the objectives for which the fund was set up, the Audit discovered that the Natural Resources Development Fund was anything but close to its original objectives. In fact, the Fund even had an outstanding debt of N339 billion (US $ 1.9 billion) as a result of withdrawals for reasons other than its objectives.

Similar findings trailed transfers of oil revenues into the Stabilization Fund to the tune of N110 billion (US $616 million) during the period covered by the audit. The use of the fund was also anything but towards attainment of its original objectives.

Let’s invest into the future

The audit also found that, at a time when Tertiary Education in Nigeria was in dire need of funds to develop its infrastructure, a whooping sum of over N200 billion (US $1.1 billion) was trapped in the coffers of the Tertiary Education Trust Fund (TETFUND), an agency set up primarily to support development of tertiary education.

While we  invest  in building capacity and knowledge through education, our strategies should not ignore that our extractive resources are not renewable – production will fall overtime and its contribution to national revenue will diminish.  Funds and institutions have been set up to support sustainable development initiatives – but our audit shows that the objectives of these initiatives are being ignored and funds allocated to these institutions are being misapplied.

With this audit, we provide a factual basis to have a serious conversation with our leaders. Now, we can hold them accountable for their action, or maybe better in-action.

For more on the highlights of NEITI Fiscal Allocation and Statutory Disbursement Audit, please visit our website www.neiti.org.ng or http://www.neiti.org.ng/index.php?q=pages/fiscal-allocation-and-statutory-disbursement.

You can find more information about Nigeria’s EITI implementation on our country page: www.eiti.org/Nigeria.

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"Deepening knowledge about how oil money is spent"  
was published by on eiti.org on 1 December 2014.