An X-ray of Obasanjo’s Economic Management

 

By

 

Tunji Braithwaite,
 

 

culled from THISDAY, December 21, 2005
 

The subject matter of this article is intended to upgrade and pack greater power and seriousness into the war against corruption in our country. Although it is not yet a war, nonetheless Obasanjo's laissez-faire and pretended shadow-boxing with corruption is indeed subjective, and certainly dubious with its rules of engagement known only to him. And this portends danger for the people whose resources and properties have and are being plundered with such a reckless abandon that actually reduces the Nigerian people to slaves, shorn of all rights whatsoever. In my keynote address to the Citizens Forum at their last September symposium, I declared: "There is another core issue to be taken up with the issue of the debauchment of the national currency. Many people do not realize that a substantial part of the sufferings of our people is traceable to the deliberate debasement of the national currency, apart from the wholesale corruption in high places. The excruciating and unending hardship experienced by our people is manifest in the high level of unemployment, dilapidated public infrastructure, collapse of the energy sector, crime and disease, non-payment of the salaries and entailments of workers and pensioners and the forced closure of industrial outfits due to adverse operating condition.


I discussed at some considerable length the corruption of the Nigerian monetary system by the military juntas which, not long ago, had imposed themselves in governments of Nigeria. In concluding the address, I gave my word to bring to the public domain the details of not only the criminal debauchment of the naira,  but especially the wholesale diversion of billions of dollars of oil earnings from the countryís account, that started from the Babangida's junta till date.


With the publication by THE NEWS magazine issue of 23rd May, 2005 of the Executive Summary of the 335-page report of the Okigbo Panel, we now know that the main finding of the Panel is on the Dedication Account operated by the Babangida junta: A quantity of crude oil was dedicated to the prosecution of certain ëpriorityí projects. The proceeds of the sale of the crude were not shown in the revenue side nor were the expenditures reflected in the expenditure side of the budget. The budget contains information on the quantity of crude dedicated, but not the revenue therefrom nor time expected disbursements from this account. The account was kept outside the consolidated revenue account so that apart from a few members of the Government, no else has any information on the size of the account or of the size and manner of the disbursements. It represented, in reality, a second but undisclosed budget operated only by the President and the Governor of the Central Bank.  


The emphasized portions of this finding are indications of how the budget system in Nigeria was (and is still) being criminally breached. One basic condition that must always be adhered to in the proper operation of budgets is, as Jesse Burkhead puts it in his book, Government Budgeting: that items of revenue should not be earmarked for special purposes, but that ALL revenue should be paid into and paid out of a consolidation fund.


Hence today, governments all over the world collect all their revenues and incur all expenditures only through their budgets.
The budget in Nigeria is denominated in the naira currency, but where revenue receipts accrue in the first instance in form of foreign currencies, certain steps must be taken to make such receipts conform with the requirement that all government revenue must be routed through the budget. The steps are that: all government foreign currency receipts must be entered in full as credits in the Balance of payments and in other relevant primary records such as the schedules of exports of crude oil and gas, of oil blocks sold, of GSM licences issued, of looted funds recovered; and  all such foreign currency receipts must  be paid in full into the Central Bank's overseas accounts and entered in such primary records as the CBN domestic Accounts and Balance of Payments statement; and the local currency equivalent of all such foreign currency receipts paid into the CBN's external accounts must be credited in full to the nationís main budget and entered in such primary records as the Federation Account or the Consolidated Revenue Fund.


However, what the Okigbo Panel found was that foreign currency earned from the sales of the dedicated crude, from the NNPC Sales of Mining Rights and Signature Bonus Accounts, as well as from crude oil sales during the Gulf War in excess of budgeted provisions, were not shown in the revenue side of the budget. Thus step 3 of the requirements listed above was not complied with in this instance and by such non-compliance, step 2, also could not have been complied with.


Before the Okigbo Panel was set up, an article was published in the June 27, 1991 edition of the Financial Times of London which exposed Nigeria's increased earnings from crude sales during the Gulf War. The article, written by William Keeling and titled "Concern At Use of Lagos Oil Windfall", rattled the Babangida junta, that it ordered the unlawful deportation of William Keeling from Nigeria. Nevertheless, the article played a significant role in the events which led to the appointment of the Okigbo Panel of enquiry. The portion of the article which Babangida found offensive says: "Of the estimated $5 billion which Nigeria reaped from the increased sale of oil during the Gulf crisis, at least $3 billion of that amount could not be accounted for in the Central Bank figures for the July 1990 through May 1991."


Mr. Keeling was writing at and of a period which subsequently was covered by the terms of reference of the Okigbo Panel, and in saying that at least $3 billion was not accounted for in the books of the CBN, he was saying the same thing of this particular amount as the Okigbo Panel was subsequently to confirm in its findings of the global official foreign exchange receipts (including the $3 billion) which were not entered in the revenue side of the budget. While Mr. keeling made his point in terms of the CBN external account or in the language of step 2 of the requirements for dealing with foreign exchange revenue receipts, the Okigbo Panel made the same point in terms of the budget or in the language of step 3. As has been said, steps 2 and 3 are the two sides of the same transactions. And when Mr. Keeling talked of the amount of $5 billion which Nigeria reaped from increased sale of oil during the Gulf war, he was calling attention to the primary procedure of step 1.


 The Okigbo Panel was given a strict and restricted mandate, that is, "to examine the use of the dedication and other special accounts" and in this connection the Panel found that the funds on the accounts ëwere spent on what could neither be adjudged genuine high priority nor truly regenerative investments(made through) disbursements clandestinely undertaken. "The total amounts received into these accounts between 1988 and June 1994 was US$12.4 billion, based clearly on whatever records of the dedication and special accounts government officials chose to place before the Panel. Even though the Panel did make a most vital finding that "The proceeds of the sale of the crude were not shown in the revenue side nor were the expenditures reflected in the expenditure side of the budget."  The strict mandate given to it would not enable it to expatiate on this finding. But anyone interested enough to take a cue from this finding would be able to determine, with reasonable level of accuracy, the amounts diverted from crude sales proceeds, be it to the dedication or other special accounts or to other unknown criminal destinations.

 
The CBN publishes annually the country's balance of payments which shows the amount of  crude exports. It also publishes the country's fiscal operations which show amounts accruing to the Federation Account from crude oil export operations. The values of crude oil exports and the amounts accruing to the Federation Account from crude exports must necessarily be equal. The Okigbo Panel would have looked into these open records to talk of proceeds of the sale of crude not being shown in the revenue side of the budget.


The public records on which the Okigbo Panel relied to make its finding are still there, regularly updated as they have continued, even to the present day, to indicate that part of the proceeds of the sale of crude oil are not shown in the revenue side of the budget. And to shed more light on the situation, an exercise has been undertaken in the Table appearing in this Article comparing the amounts of crude exports as shown in the balance of payments with amounts shown in the Federation Account as proceeds of crude oil exports. The Table covers not only the years of Babangida's junta looked at by the Okigbo Panel, but also for some years before then and some years after, including all the years of Obasanjo's current tenure up to 2003. Column 2 of the Table shows the year's total federally collected revenue, including receipts from oil export activities shown in column 3. Foreign currency earnings from oil export activities as they appear in the Balance of Payments statements are shown in column 4. Normally, amounts appearing in columns 3 and 4 should be equal to each another as has been pointed out; they represent the two currency values of the same amounts. Since 1987, however, the amounts in column 4 exceed those in column 3, indicating that not all the oil export proceeds have been taken into the budget as revenue, as they should. The amounts of the difference are shown in column 6 and they represent, as the Okigbo Panel said of them, 'proceeds of the sale of crude not shown in the revenue side of the budget' or, as Keeling put it, oil sale proceeds 'not accounted for in the Central Bank figures'.


From column 6 of the Table, it can be seen that the total amounts by which the Federation Account was short-changed on account of earnings from oil export activities between 1988 and 1994 was in the neighbourhood of the naira equivalent of some whopping US$29 billion. In the records presented to the Okigbo Panel, however, only US$10.5 billion of this amount found their way into the dedication accounts.


During the current Obasanjo's presidency, between 1999 and 2003, there was a total shortfall in the amounts that should have been credited to the Federation Account of the budget as revenue from oil exports of the naira equivalent of over US$30 billion.


Funds earned from oil export activities but diverted (that is, amounts appearing in column 6) are-not transferred from the Consolidation Fund or otherwise from earned budget revenue; rather they represent under-credits of revenue actually due to the budget. The funds are diverted from the country's official foreign currency earnings before they could be credited into the country's legitimate overseas accounts and, as such, there are no naira equivalents of them to get into the Federation Account. What has been happening is that a group of people among those running the Federal government sit down and decide what proportion of the oil export proceed should be credited to ëtheirí furtive accounts and what they would graciously leave to accrue to the nationís conventional accounts.


With the full amounts of the earnings from oil export as credits in the Balance of Payments statements, the next logical steps to take would be to also credit (in foreign currency) the CBNíS external account and credit (in naira) the Federal Account, with the full amounts of such oil export proceeds as recorded in the Balance of Payments. But these people want their 'share' of the foreign currency proceeds up-front, as attempts to pullout this share after the CBN's external accounts and the Federation account had first been credited with the full amounts of the proceeds would be too obvious and could raise objections from the other beneficiaries of the Federation Account. So, all the matters relating to the underhand transactions of diverting official foreign exchange funds have to be completed in the Balance of Payments statement, before the Federation Account comes into the picture. With the Balance of Payments statement having been credited with the full oil export proceeds, the debit side of the statement would thus need to be adjusted (that is, cooked or dressed up) to cover up for the funds illegally pulled out. And the accounts employed for this nefarious purpose include the Imports, the Services and the Capital Accounts of the Balance of Payments.


In the Balance of Payments statements, import payments are shown under two sub-headings - Oil imports and Non-oil imports. Oil imports are imports said to have been brought into the country for crude oil production and prospecting purposes and non-oil imports are those others brought in by the non-oil private sector and governments. In 1985, government introduced, in connection with non-oil imports, the measure of issuing import licences not valid for official foreign exchange cover with the objective that payments for imports covered by such licences would no longer be made with official foreign exchange. This objective was stated in many clear official statements including one made on page 5 of the 1986 CBN Report to the effect that:


"The issuance of import licences was streamlined to conform with the tight foreign exchange budget while import licences not valid for foreign exchange were issued to reduce disbursements through the official channel".


With the situation since 1967 being that payments for all imports were made with official funds, the new arrangement, under which payments for imports covered by licences not valid for official foreign exchange would be made with private funds, would therefore vastly improve the country's balance of payments and the official reserves levels.


However, despite that licences not valid for foreign exchange made up 62.4 per cent of total licences issued in 1985, the year's Balance of Payments statement totally ignored to record, or to otherwise reflect in any manner, the vast amounts of imports covered by such licences. The statement pointedly failed to take into consideration the very substantial savings of official foreign currency which should, and which other parts of the CBN Reports acknowledged would, accrue to the official foreign exchange accounts from that class of imports. Instead, all imports, including those covered by licences not valid for foreign exchange and for which no official foreign exchange were, in fact, provided, were treated in the balance of payments statement as if they were paid for with official foreign exchange. The official foreign exchange account was thus over -debited with the amounts of imports actually paid with private, and not official, foreign exchange.


From 1987, figures became available of the extent to which official foreign exchange had actually been provided to meet payments for non-oil imports: In that year, non-oil imports totaled US$3.67 billion of which the CBN provided US$2.30 billion. In the balance of payments statement, however, the whole amount of US$3.67 billion was treated as having been paid with official foreign exchange and there was thus an over-charge to official foreign exchange account of US$1.37 billion in that year. And this was the extent to which the nation's foreign exchange was diverted from the official account on account only of non-oil import payments.


Overcharging import payments to the official foreign exchange account thus became, from 1985, a primary and underlying method for diverting official foreign exchange funds into avenues over which the country has no formal control and from which it derives no benefits. The diverted amount are not credited to the CBN's external accounts and, thus, there are no naira equivalents of them to reach the Federation Account.


Column 7 of the Table shows the cif cost of all non-oil imports which, invariably, is treated in the Balance of Payments accounts as having been paid for in full with official foreign exchange. Official information is, however, also available in the same CBN Reports of the actual amounts of official foreign exchange sold by the CBN to meet payments for non-oil imports covered by licences valid for official foreign exchange cover. These CBN sales are shown in column 8. The amounts by which figures in column 7 exceed those in 8 are shown in column 9 and these represent non-oil import over-payments surreptitiously smuggled out of official coffers.


A total of over US$20 billion was over-charged to the non-oil import account and official foreign exchange to that extent, thus diverted, between 1988 and 1994.


In the period 1999 to 2003 of Obasanjoís presidency, a total of US$5.43 billion was similarly involved.
The Capital Accounts of the Balance of Payments are used to divert official foreign exchange by compromising, since 1987, a fundamental rule relating to balance of payments accounting. Entries in Balance of Payments statements are made up of official and private external transactions, with official transactions predominating. Official debits are met with official credits in the same statement, but where the total official credits are less than the yearís total official debits, the difference is drawn from the CBNís external reserves. If total official credits exceed total official debits, the difference goes to increase the CBNís external reserves for that year. On the other hand, all private credits in the statement are used up entirely by private debits in the same statement and the year's private credits are always equal to the year's private debits. Besides, private debits can only be charged to private credits and official debits cannot be charged private credits.
In 1987, the 'Other Capital (short-term)' account, a hitherto sleepy account which up to 1986 usually reflected only small credit balances, suddenly burst into life recording a staggering revised deficit of US$2, 117.4 million, and that transaction marked the commencement of the swindle of using the 'Private' and the 'Other Capital short-term' sub-heads of the Capital Account to divert official foreign exchange. The debit balance reflected on the account in 1987, as well as the debits it carried in 1988, 1989 and 1990, though cloaked as private debits, were, in fact, not reflections of any truly official or private transactions but of totally false and spurious ones. Nevertheless, having been smuggled into the Balance of Payments, the purported debits could not be ignored and they have had to be accommodated somehow, as the balance of payments must always balance. There were no corresponding private credits to match these debits and they had to be charged to the official foreign exchange account which had funds to accommodate them As they represented no tangible transactions, the debits, in effect, released foreign exchange for diversion from the official account, as was the intention of those who raised and posted the spurious debit transactions in the first place.
One other way the Capital account of the Balance of Payments is used to illegally drain official foreign exchange is to claim that some crude oil shipments were sold on credit and the proceeds not received. This method was first used in 1992 and repeated in 1993 and 1996 but used continuously from 1999 to 2003. The usual manner of reporting these purported credit sales of crude is to say in the CBN Reports that the amounts are "short-term claims on the rest of the world in respect of oil sector transactions". It is unusual for crude to be sold on credit, but even if the credit sales actually took place, it would be expected that the proceeds would have been recovered and credited to the official account within a short period thereafter. But not even one cent has been recorded as recovered in connection with any of the purported credit sales (the first of which was recorded as made in 1992) and the crude oil credit sales ploy has become a major method of siphoning official foreign exchange.


Up to 1999, amounts of the purported credit sales of crude were debited to the' Other Capital short - term' Account. In 2000 and 2001, the amounts were buried deep in the Balance of Payments figures and some figuring has to done to fish out the facts. In 2002 and 2003, amounts of crude said to have been sold on credit were shown under the 'Private' subhead of the Capital Account even though these amounts were effective debits to official funds.
Amounts of official foreign exchange diverted by manipulation accounts of the Balance of Payments are shown in column 10 of the Table 6. During the period 1994, these spurious debits to the Capital accounts totalled US$11.68 billion and these represented illegal diversions from the official foreign exchange accounts.


During the period 1999 to 2003 a total of US$23 .77 billion was debited to the Capital Accounts as credit sales of crude oil for which payments were not received. Included in this figure is the amount of US$5 .87 billion representing the value of the purported crude credit sales in 2003 as it appears in the 2003 CBN Report. In the revised 2003 statement as it appears in the 2004 CBN Report, however, the amount of the crude oil credit sales has been increased to US$10.10 billion. To accommodate the upward revision of the amount of the purported crude credit sales in 2003, the amounts of import payments for 2003 were substantially revised downwards in the 2004 Report. This indicates that over US$10 billion was actually diverted from the official funds in 2003 by way of purported credit sales of crude but only US$5.87 billion of this amount was shown as such in the 2003 Report while the rest was hidden in the imports figures. The revised 2003 statement as contained in the 2004 Report paints another picture of what is said to have taken place in 2003 with (regards to imports payments and purported credit sales of crude, but the new picture has come out at a time and in the manner that attract the least of attention.


Some other underlying transactions are manipulated in the Balance of Payments to facilitate illegal diversions of official foreign exchange. One such transaction relates to payments for oil imports which are charged to the official foreign exchange account as shown in column 11 of the Table. Government contributes to the running costs of the oil joint ventures and the costs of oil imports should logically be charged to the contributed joint venture funds. But by recording these payments as charges to official foreign exchange the amounts involved are freed for diversion from official control.


Another expenditure sub-head in the Balance of Payments which appears to be an additional drainage pipe for official foreign exchange is the purported remittances of oil companies' profits from official foreign exchange account,   charged to the Services and Income Account. Oil producing companies pay taxes to, and buy crude oil from, government and it looks rather odd that profits arising from the oil transactions should need to be charged back to the sales proceeds paid to government. Amounts of such profit remittances are shown in column 12 of the Table. From 1999, the CBN ceased to publish details of the Services and Income Account from which details of oil companies ' profit remittances were being extracted. Hence no figures appear in column 12 from 1999.


The Okigbo Panel found that the Babangida junta maintained accounts with the Bank of International Settlement (BIS) Basle which, no doubt, provided external banking support for funds diverted from the mainstream government accounts. The balances on these were not under the control of the Central Bank and did not count as part of Nigeriaís external assets. The Panel recommended that the accounts should be closed taken into the external reserves of the CBN. This recommendation ignored and all governments subsequent to Babangida's continued to maintain similar accounts overseas.
The present Obasanjo regime keeps accounts with the BIS and, at a time, had a £100 million deposit account with HSBC, with which it may still have banking relations. The balances on these accounts are not under the CBN's control and do not count as official reserves. Funds accrue to the accounts from the illegal manipulation of the Balance of Payments as it relates to non-oil imports, purported crude oil credit sales, oil imports and oil companies profits. These types of diversions are covered by the Table. Other funds credited to the accounts would include diverted official foreign exchange receipts from oil blocks' sales, GSM licence fees, the so called Abacha loot recovery exercises, and the likes of them. These receipts are not entered in the Balance of Payments statements and are not credited to the regular CBN external accounts and their naira equivalent do not reach the Federation Account. These types of diversions cannot be included in the Table as details of them are not in the public domain.


The finding by the Okigbo Panel that some foreign exchange receipts were not shown in the revenue side of the budget highlights how the budget system was being breached. The budget developed as a system for ensuring that those entrusted with the management of national finance do so in the best interests of the citizens. In Britain, the 12th article of the Magna Charta of 1217 was the beginning of efforts to impose representative or popular control over the sovereignís hitherto whimsical management of public funds. One of the groups which agitated for the adoption of the budget system in the United States enunciated further what a proper budget system is expected to achieve. According to Frederick A. Cleveland in his book, Evolution of the Budget Idea in the United States, the group premised its agitation on.
"This growing hostility to doing business in the dark, to 'boss rule, to invisible government, became the soil in which the 'budget idea' finally took root and grew".


The criteria for operating the budget as a tool for the proper management of public funds gradually built up over centuries and one lasting condition that came to be associated with the system is, as has been noted, that all revenue should be paid into and paid out of a consolidation fund. Some countries back this crucial requirement with the force of law and in Nigeria, the Constitutions, invariably, have provided that "All revenues or other monies raised or received by the Federation shall be paid into and form one Consolidated Revenue Fund "


Today, governments are supposed to be manned by honourable people who seek only for the welfare of the people and the main focus of the budget has shifted from (but has not discarded) the need to guard against conducting government business in the dark, to an instrument for development geared towards the creation of full or high employment and the achievement of improving living standards for the people. Gladstone puts it thus.


"Budgets are not merely matters of arithmetic, but in a thousand ways go to the root of prosperity of individuals, and the relation of classes, and the strength of kingdoms. "


Nigeria inherited the budget idea from the British, operated it conventionally, and it worked well for the country until Babangida came along, breached the system and substituted it with an arrangement which allows for the operation of 'second but undisclosed budget'.  The Okigbo Panel has found, and the government figures reproduced in the Table to this paper clearly confirm, that substantial amounts from the proceeds of the sale of crude oil and other official currency receipts were, are still being, in uncaring defiance of the Constitution and of all that is good, civilised and proper, collected and Spent outside the Consolidated Revenue Fund. And thus incapacitated, the budget does not positively influence the economic and social life of the Nigerian nation as unadulterated budgets do in other countries. What there are now to show for the budget are ever growing unemployment, reduced income and reduced life span of the people, decaying infrastructure and increasing poverty in a situation in which a few Nigerians capture the bulk of the nation's resources, leaving only massive poverty and distress for the vast majority of the people. All these, directly put in place by the criminal infractions of the budget system worked hand in hand with the illegal debasement of the currency and the manipulation of the exchange rate.


It is in light of these grim developments that there has been pressures from within and outside Nigeria that this present regime should bring the leadership of the Babangida's junta to book if only to serve as deterrent to others with Babangida' s frame of mind. They obviously still abound in the corridors of power as, despite the pretended crusade of this administration against corruption, things have not improved. The reality of the situation, however, is that if there is any one thing that the present regime just cannot do, it is bringing Babangida and his accomplices to book.
The pressure on the current regime to do something about Babangida has come in various forms. In publishing the Executive Summary of the Panel's Report, The NEWS magazine, reflecting the position of the enlightened segment of Nigerians, said:- "Okigbo's words (at the Report submission ceremony) were indicating enough of how Babangida unilaterally blew the huge funds that belonged to the state. And since then, there have been unceasing demands that he be brought to book. But his successors have played deaf to the demands and have even refused to release the entire report for the perusal of the general public. Obasanjo particularly feels irritant anytime the issue is broached. At one parley with media executives when he was accused of treating Babangida, who was the principal agent in his return to the seat of power and was his major financier in the 1999 election, as a sacred cow, Obasanjo said: "if you find IBB's (money?) anywhere, come and tell me and I give you my word, that within 24 hours, we would have all the accounts frozen, otherwise no be Obasanjo born me.


In the same vein, a recent issue of THE GUARDIAN on Sunday reported that an international fraud investigator and UN expert on assets recovery has said that Nigeria is not doing enough to recover the money that was tooted from its coffers by past government officials. According to the GUARDIAN, the expert: "had also pin-pointed a particular former military ruler as having snatched away from Nigeria's coffers about 25 billion dollars. But the unnamed military ruler, is being protected by the current government which had refused offers from experts to investigate the former military ruler."

Also, British lawmakers recently asked Obasanjo in London what measures he had taken concerning' allegations of financial impropriety and wrongdoings made against Babangida' s administration. Hear Obasanjo:-    "speculations and rumours on allegations of wrongdoings abound in coffee shops and market places, not ~ one of those allegations has been substantiated. No allegation has been proved or formally presented to either the EFCC or the ICPC, on the former ruler".

The main finding by Okigbo Panel is that "The proceeds of the sale of crude were not shown in the revenue side nor the expenditures reflected in the expenditure side of the budget." The Panel is not here expressing an opinion but stating hard fact based on governmentís own published records.


The main recommendation of the Okigbo Panel is that the special accounts' procedure should be discarded and that all government revenue and expenditure should pass through the Federation Account of the budget. However, this recommendation has been totally ignored by all the governments subsequent to Babangida's, including the current regime.
These subsequent governments, including the current one, did or do not use the term ' dedicated and special accounts' in their fiscal arrangements, but they have continued, nevertheless, to apply the same underlying processes used by Babangida to illegally expropriate massive foreign currency funds from the national revenue receipts. So, today, the situation has not changed from what the Okigbo Panel observed. The budget continues to be short changed, the nation's official foreign exchange funds continue to be diverted and disposed of in furtive accounts which are maintained outside, and not linked in any conventional manner with, the mainstream government accounting and in respect of which the questions of budgetary discipline,