Oil windfall provides longed for turning point: the Nigerian government's impressive management of its finances has continued in the manner in which the recent oil revenue windfalls have been disbursed. Is this the country's turning point towards a better future? Neil Ford discusses.

Author:Ford, Neil
Position:Nigeria
 
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While it was easy to be suspicious of upbeat speeches by Nigerian ministers until recently, there is now no doubt that the country's financial position is growing steadily stronger.

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The huge national debt is being cleared, the latest IMF proclamations point to improved governance on the part of the federal government and Nigeria is now recording a substantial balance of payments surplus.

Abuja has been lucky in that it has benefited massively from the boom in oil prices but it has shown good sense in trying to tackle the debt while it has the resources to do so.

According to Central Bank of Nigeria (CBN) figures, the federal government received oil revenues of $11.91bn for the six months up to the end of June 2005, a massive 39.6% rise on the same period during the previous year.

Barring a collapse in the oil price, the increase in oil and gas revenues is likely to continue for the foreseeable future. The new deepwater oilfields are only beginning to come on stream and so production capacity is likely to rise steeply for at least five years. A series of new piped gas and liquefied natural gas (LNG) export projects should become operational over the same period, boosting revenues from the established Nigerian LNG (NLNG) Bonny Island plant.

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Although there has been some growth in the non-oil sector, the country remains dangerously reliant on hydrocarbon revenues. As the table opposite shows, agriculture makes a larger contribution than oil to GDP, while the wholesale retail trade and the service sector also make up a large proportion of economic activity.

However, oil and gas income accounts for the lion's share of foreign currency earnings and much of the rest of the money circulating in the national economy ultimately comes from hydrocarbons.

The high oil price has driven the balance of payments surplus over the past two years. The surplus stood at N438bn ($3.2bn) for the first half of 2004 and this doubled to N870bn ($6.6bn) for the same period last year. Foreign currency earnings for the first half of 2005 reached N1,882bn ($14.21bn).

The most recent half yearly report from the CBN stated that the federal government was enjoying an increasingly strong fiscal position. In addition, the government's improved financial position prompted ratings agency Fitch to award Nigeria its first investment grade rating, a long-term foreign currency issuer default rating of BB- with an outlook of stable.

Windfall...

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