Where Does All the Oil Money Go? with Rising Production and High Prices, Billions of Dollars of Additional Income Are Being Made in Oil-Producing African Countries. but How Much Do African Governments Actually Benefit from Such a Boom and How Much of the Money Is Invested in Projects That Benefit Their Citizens?

By Ford, Neil | African Business, June 2006 | Go to article overview

Where Does All the Oil Money Go? with Rising Production and High Prices, Billions of Dollars of Additional Income Are Being Made in Oil-Producing African Countries. but How Much Do African Governments Actually Benefit from Such a Boom and How Much of the Money Is Invested in Projects That Benefit Their Citizens?


Ford, Neil, African Business


Oil production is set to rise rapidly in Nigeria and Angola, while Sudan and Equatorial Guinea are establishing themselves as oil exporters of global importance. Coupled with oil prices that stubbornly refuse to move below $60 a barrel, it is obvious that billions of dollars of additional income is being made within the African oil industry this year.

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Official government oil production figures are readily available and are published on a regular basis, but there is sometimes doubt over their accuracy. Production can be diverted for personal gain and oil theft is a major problem in the Niger Delta.

In addition, the exact terms of the contracts between governments and oil companies are rarely made public so it can be difficult to determine government revenues merely from production data.

Production sharing contracts (PSCs) and joint ventures (JVs) can be complicated, with government income varying during the lifetime of a concession.

Some governments have also been condemned for failing to keep accurate, up-to-date accounts on oil output and revenues. Congo-Brazzaville and Angola have both been criticised by the IMF for their opacity and poor record-keeping, although the former has made some progress on the issue over the past two years and now publishes data online.

All in all, this makes any analysis of oil revenues across the continent more of an art than a science, but some information is available that should provide an indication of the level of wealth being generated.

The Nigerian government's drive for financial transparency over the past few years has included a commitment that the Central Bank of Nigeria (CBN) should publish details of oil income.

The CBN figures for the first half of 2005 reveal that the federal government in Africa's biggest oil producer earned N1,575bn ($11.91bn) from the sale of crude oil over the period, a rise of almost 40% on the previous year's figure of N1,139bn ($8.53bn). Higher output was partly responsible for the increase but high oil prices were undoubtedly the key factor. Despite some talk of economic diversification, oil income remains central to government finances, as total foreign currency earnings over the six-month period stood at just $14.21bn.

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All this enabled Abuja to achieve a balance of payments surplus of N870bn ($7bn) for the first six months of the year. Despite rapid increases in government spending over the past three years, higher oil income more than compensates for increased outgoings. However, there is a great deal of dispute in Nigeria over how the state revenues should be spent.

The governments in the oil-producing states of the south insist that they are entitled to a large proportion of the income, claiming that it is their oil and that they must bear the negative effects of the oil industry alone. At a conference to decide the issue last year, the oil-producing states' demand for 25% of all oil revenues was defeated and their allocation restricted to 17%.

A large proportion of Nigeria's oil revenues must be reinvested in oil and gas sector projects. The budget of the Nigerian National Petroleum Corporation (NNPC) for 2006 stands at $5.57bn, enabling the company to finance its share of JV projects with the majors. Out of total JV investment of $9.29bn this year, the government and NNPC must provide $5.29bn, up from $8.28bn and $4bn last year respectively. Of the $5.57bn, $317.5m is dedicated to exploration capital expenditure and $2.6bn to oilfield development.

If Nigeria's oil income during the second half of 2005 mirrored that in the first, then annual income would stand at $23.82bn. Of this, the NNPC budget comprised $4bn and oil-producing states would have been entitled to $8.86bn under the 17% formula, leaving the federal government with the remainder.

However, it is too simplistic to subtract NNPC expenditure from total revenues to leave a figure of productive expenditure. …

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Where Does All the Oil Money Go? with Rising Production and High Prices, Billions of Dollars of Additional Income Are Being Made in Oil-Producing African Countries. but How Much Do African Governments Actually Benefit from Such a Boom and How Much of the Money Is Invested in Projects That Benefit Their Citizens?
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