The Financial Time of London reports that major investors are snubbing Nigeria’s Euro bond which debuted this week.
According to the report, investors are concerned at the way funds in the Excess Crude Account have been utilised. ‘’ Mounting concern about a huge outflow of money from Nigeria’s “rainy day” oil fund has prompted some big investors to shun the country’s debut international bond issue on Friday’’, says the paper.
Although Nigerian officials have said there is a lot of interest in the $500m bond issue, the Financial Times says ‘’ several major funds have told the Financial Times they are not interested in the deal because of Nigeria’s deteriorating fiscal situation and worries about how President Goodluck Jonathan’s government has run the excess crude account, designed to store up windfall oil revenues.’’
The excess crude account was set up during the tenure of the former President of Nigeria, Olusegun Obasanjo. According to the Financial Times report, ‘’ at that time there was $20bn in the fund. But as recently as last September there was less than $400m, according to public disclosures, which showed billions flowing out of the account last year.’’
According to Financial Times calculations, ‘’ more than $30bn of revenues – calculated on the difference between the budgeted and market price of oil – has flowed out of the account, according to donor and government officials. The funds went partly in regular payments to state governors over which there was little subsequent oversight, and partly in federal spending on infrastructure. ‘’
The Financial times quotes Antoon de Kler of South African based investec as saying“ the fact they have run down the excess crude account is very worrying,“ “it is unclear where the money is going”. “Why does a country that relies for 90 per cent of its income on oil, which has seen a big rise in price, needs to run down its foreign exchange reserves? For these reasons we are not buying the bond.”
And according to the Financial Times, he wasn’t the only one that expressed these concerns. ‘’ Other big international investment funds, which invest in Africa, also told the FT they would not participate in the sale. Some Nigerian politicians and officials have questioned why foreign reserves have not risen, and the excess crude account did not grow during the past year of rising oil prices.’’
$16 billion is what Nigeria is believed to have earned in ‘’ windfall revenues in 2010,’’ These figures according to the Financial Times were based on information from technocrats working within Nigeria’s administration and the calculations are ‘‘ based on production of 750m barrels of oil with average oil prices $21 higher than the $60 budgeted.’’
Nigeria’s finance Minister , Olusegun Aganga, told the FT that in addition to some of this money going to the country’s Joint venture partners, the country ‘‘ spent heavily on oil production last year and on clearing arrears to oil companies’’ adding that ‘‘ the government had also partly financed the budget deficit out of the excess crude account to reduce domestic borrowing.’’
NEXT’s efforts to get through to Mr. Aganga for his reaction to the Financial Times story have so far been unsuccessful although, we will keep trying.