Nigeria Lags Behind 16 African Countries in Oil Governance

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  • Nigeria Lags Behind 16 African Countries in Oil Governance

Although Nigeria is Africa’s top oil producer and exporter, the country falls short when it comes to the governance of its oil and gas industry, a new global report has shown.

The 2017 Resource Governance Index, which was unveiled on Wednesday by the Natural Resource Governance Institute, ranked Nigeria 55th among 89 assessments, lagging behind Ghana and 15 other African counterparts.

Ghana led the African countries in the report as it was ranked 13th, and was followed by Burkina Faso, which occupied the 20th position.

Others are South Africa, Côte d’Ivoire, Cameroon, Niger, Mali, Tanzania, Morocco, Zambia, Mozambique, Sierra Leone, Uganda, Liberia, Botswana and Tunisia.

Nigeria is one of the world’s most resource-dependent countries, with oil and gas exports contributing the largest share of government revenue.

According to the NRGI, the oil and gas sector’s governance issues in Nigeria impact the wellbeing of a large number of people because the country has the largest population on the African continent.

It said, “Governance challenges are present throughout the extractive decision chain. Value is lost particularly in licensing and in the Nigerian National Petroleum Corporation’s sales of government oil, as well as when revenues from oil and gas are shared and saved.

“Furthermore, a history of scandals involving top officials at the NNPC has plagued the sector and drawn public attention to corruption and asset recovery. Given the NNPC’s central role in all stages of the decision chain, improving governance of the state-owned enterprise is crucial.”

The report described licensing as the weakest link in Nigeria’s value realisation component, with a score of 17 of 100, placing it 77th among the 89 country-licensing assessments.

It said the score and ranking reflected high levels of opacity in key areas of decision-making, including qualification of companies, process rules and disclosure of terms.

The Nigeria Manager, NRGI, Sarah Muyonga, said, “A well-organised and transparent licensing round gives Nigeria a huge opportunity to send a message of its recent deliberate efforts of improving the oil sector. It will clearly communicate that it’s not business as usual.

She emphasised the importance of a bid round that would carefully avoid the mistakes of the past with a clearly articulated objective criteria, and ensuring fair competition and transparency.

The report said, “The Nigerian government does not regularly publicly disclose government officials’ financial interests in the extractive sector or the identities of beneficial owners of extractive companies, though it has made some early commitments to do so with the Extractive Industries Transparency Initiative and the Open Government Partnership.

“The government has committed to disclosing all oil, gas and mining contracts in its ‘seven big wins’ policy strategy and as part of its OGP action plan, but thus far, it has not disclosed contracts.”

The NRGI said despite some progress in transparency of revenue collection over the past five years, tracking payments from oil and gas companies remained challenging.

It said, “The public lacks access to audited information on revenue flows to lower levels of government, and this contributes to the gap between the quality of the legal framework and actual implementation.”

The report also revealed that the NNPC, the largest state-owned enterprise on the continent, achieved a poor governance score of 44 out of 100.

It said the corporation mainly scored well on indicators that measured elements of transparency required by the EITI reporting, such as transfers to government and production volume disclosure.

The NRGI noted that the NNPC had recently strengthened some of its reporting practices, particularly for high-level financial data.

It, however, said, “The corporation does not disclose detailed annual reports on its finances, despite top officials having made a commitment to do so. Little information is publicly available, particularly concerning some of the NNPC’s least efficient and most questionable activities, notably earnings by its subsidiaries, the costs of its operations and its significant spending on non-commercial activities.”

According to the report, Nigeria performs poorly in oversight of key revenue collection, sharing and savings practices.

The Excess Crude Account was described as the most poorly governed sovereign wealth fund assessed by the index, ranking last alongside the Qatari Investment Authority.

The NRGI said, “The government discloses almost none of the rules or practices governing deposits, withdrawals or investments of the ECA. Nigeria also has other natural resource funds, some of which are more transparent than the ECA.

“As the largest fund by asset balance, the ECA constitutes a vast governance concern at the end of the oil sector value chain.”

The index assessed 33 sovereign wealth funds that collectively manage at least $3.3tn in assets, with the Colombia’s Savings and Stabilisation Fund adjudged the best-governed fund and Ghana’s among the top six performing funds.

“Funds in Algeria, Angola, Chad, Equatorial Guinea, Gabon, Nigeria, Qatar, Saudi Arabia, Sudan and Venezuela are so opaque that there is no way to know how much may be lost to mismanagement – or who benefits from these funds’ investments,” the report said.

The policy institute noted that government agencies and external auditors had disputed the NNPC’s interpretation of rules set in the constitution and the NNPC Act governing monetary transfers between the NNPC and the government.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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