Nigeria is endowed with abundant natural resources, especially crude oil and natural gas. However, ineffective management and a lack of transparency around oil earnings have impeded Nigeria’s development. With better governance strategies, Nigeria can manage its oil wealth more prudently than Saudi Arabia, for the benefit of all citizens.
Nigeria should not have dilapidated infrastructure like the one shown below in this era:
Saudi Arabia’s Robust Oil Revenue Management
Saudi Arabia is the world’s largest oil exporter, with the hydrocarbon sector accounting for 50% of its GDP and 70% of export earnings. Despite volatility in oil prices, Saudi Arabia has achieved economic stability by:
The image below is a section of Saudi Arabia showcasing development because prudent management of their oil wealth:
Institutional Oversight
- The Ministry of Energy manages the hydrocarbon industry and Saudi Aramco.
- The Supreme Council for Oil and Minerals formulates the energy policy.
- Technical committees conduct analysis and long-term strategic planning.
Accounting for Every Barrel Produced
- Saudi Aramco measures oil production precisely using advanced metering systems.
- Every barrel is accounted for, right from wellheads to refineries to export terminals.
- Audits ensure minimal leakage, theft, or unaccounted losses.
Transparent Revenue Management
- Oil income directly flows into the Saudi Treasury in a centralized manner.
- The state budget thoroughly documents the spending of oil revenues each year.
- Citizen-Friendly Budget Summaries explain high-level allocations.
As part of its commitment to transparency around oil revenue management, Saudi Arabia publishes simplified, easy-to-understand versions of the annual state budget for its citizens. These citizen-friendly budget summaries explain in clear, non-technical language how oil revenues contribute to the overall budget and what the high-level spending allocations are across the main sectors like education, healthcare, infrastructure, defence, etc. Graphics, charts, and visuals are used in these summaries to present budget numbers and spending categories in a format easily understandable by common citizens. The summaries also highlight the major new initiatives or projects that will be undertaken in the coming year using the oil income. For instance, the 2021 Citizen Budget summary clearly showed that 43% of budget revenues came from oil, while the rest were from non-oil sources like taxes and fees. It had charts depicting how 25% of expenditures were towards education and training, 9% for healthcare, and 7% for infrastructure and transportation. This use of citizen-friendly summaries enables the Saudi government to communicate to the people how oil earnings are utilized towards national development in a transparent and easily digestible way. The Nigerian government can similarly adopt such creative communication of budgeting to build public trust and showcase how oil money is translated into roads, hospitals, schools, and other infrastructure benefiting the common man.
Sovereign Wealth Fund
- The Saudi Public Investment Fund (PIF) manages budget surpluses when oil prices are high.
- PIF assets valued at over $600 billion are invested globally to generate returns.
- PIF investments aim to diversify the economy and create future sources of revenue.
How Saudi Citizens Benefit from Prudent Oil Revenue Management
Thanks to transparent oil revenue management, Saudi citizens enjoy high living standards.
No Personal Income Tax
- Individuals and companies pay no income or sales tax, enabled by oil profits.
- The low tax burden has boosted private enterprise and foreign investment.
Subsidies and Social Welfare
- Citizens enjoy subsidized utilities, fuels, food, and housing.
- free, high-quality healthcare and education for citizens.
- Monthly social welfare payments to lower-income families
Infrastructure and public services
- Oil revenue is spent on building world-class infrastructure—airports, ports, and roads.
- Excellent, affordable public services (water, power, transportation, etc.)
- Tourism and recreation projects create jobs and improve quality of life.
Employment and Entrepreneurship
- The government actively pushes Saudization to create private-sector jobs for citizens.
- Youth unemployment has decreased from 30% to 24% in recent years.
- Easy financing is provided for small businesses and startups.
Stable currency and low inflation
- Saudi Riyal pegged to the dollar has enabled low inflation.
- Interest rates under 2% make loans accessible for citizens.
- Low cost of living and spending power retained.
Challenges with Nigeria’s Management of Oil Revenues
Despite being Africa’s largest oil producer, ineffective management has prevented Nigerians from reaping the benefits.
Transparency Issues
- Opaque disclosure on how oil money is managed and spent
- Allegations of revenue leakages through corruption and mismanagement
- Non-payment of the agreed JV share to states, discrepancies in figures
Excessive oil dependency
- 90% of exports and 75% of budget funding come from oil. Volatile prices cause economic instability.
- Neglect of other sectors is leading to high unemployment.
Collapsing oil assets
- Theft, sabotage, and weak oversight cause huge losses from oil spills.
- Slow, inadequate investment in oil infrastructure is leading to reduced output.
Benefits Not Passed to Citizens
- High cost of living, poverty, and unemployment despite oil boom periods.
- Frequent fuel shortages and power outages point to squandered oil earnings.
- Subsidy mismanagement worsens economic woes during oil slumps.
- Weak social welfare programs and safety nets for the poorest
Inadequate or no Savings During High Prices
- Not been able to achieve better results with our sovereign wealth fund and lack of stable investment vehicles
- Oil money is consumed rather than invested for the future.
The urgent need is for Nigeria to revamp the governance and management of oil revenues.
How Nigeria Can Emulate Saudi Arabia’s Prudent Practices
By learning from Saudi Arabia’s playbook, Nigeria can also transform its oil wealth into prosperity for all its citizens.
Increase Transparency in Oil Earnings Management
- Publish approved budgets showing spending on oil revenues.
- Disclose details of the allocation and utilization of oil money throughout the value chain.
- Publicly share audited accounts of government oil corporations like NNPC.
- Provide monthly, citizen-friendly summaries of oil revenue inflows and usage.
Account for Every Barrel Produced
- Clamp down on theft through improved pipeline security technology.
- Install metering mechanisms at wellheads, flowstations, and terminals for precise production data.
- Reconcile discrepancies between companies’ stated output and government receipts.
Eliminate revenue leakages.
- Enforce transparent tendering for exploration and production rights.
- Automate processes to block avenues for discretionary allocation of oil blocks.
- Punish the diversion of oil revenues through stringent financial controls and audits.
Ensure the Petroleum Industry Act is Producing Result
- The PIA will improve the governance of Nigeria’s oil and gas sector.
- It would clarify the share of oil revenues for the government, states, and local communities.
- The bill will reform NNPC into a commercially viable enterprise.
Boost Investment in Oil Assets
- Channel more oil revenue into upgrading dilapidated production assets.
- Execute JV-funded programs to revamp pipelines and modular refineries.
- Privatize idle refineries for optimal performance under profit motives.
Establish an independent sovereign fund.
- Create a truly independent wealth fund managed by professionals.
- Lock a portion of oil income into the fund during price booms.
- Invest the savings in long-term assets abroad to grow wealth for future generations.
Increase non-oil revenue
- Use oil money to develop non-oil sectors—agriculture, manufacturing, and services.
- Broaden Nigeria’s tax base by formalizing the large informal economy.
- Improve tax administration to significantly improve non-oil collections.
Invest in Citizens’ Welfare
- Channel oil profits into large-scale improvements in education and healthcare.
- Reform failing subsidies to provide well-targeted welfare to the poorest.
- Create youth employment schemes and skills programs to unlock human capital.
- Build low-income housing and sanitation infrastructure using oil revenue.
Adopt open governance.
- Publicly adopt EITI standards for transparency in oil earnings.
- Engage citizens and experts in policymaking to build trust.
- Publish contracts, licenses, and ownership details of oil assets.
- Protect press freedom and whistleblowers highlighting mismanagement of oil revenue.
Benefits to Nigeria from Better Oil Revenue Management
If oil money is managed prudently, as outlined above, Nigeria and its citizens stand to gain tremendously.
Reduced Conflict Over Resources
- Transparency in the distribution of oil revenues reduces perceptions of discrimination that drive conflict.
- Publishing budget spending allows citizens to assess whether they are adequately benefiting from resources.
Economic Growth and Stability
- Investing oil profits in infrastructure, health, and education improves productivity.
- Savings guard against oil price crashes, thus stabilizing growth.
- The exchange rate and inflation will be stable due to robust foreign reserves.
Revenue for Government Expenditure
- Plugging leakages and theft would make more money available for developmental spending.
- Taxes on a formalized economy will reduce dependency on oil revenue.
Development of Non-Oil Sectors
- Investments in agriculture, manufacturing, and services will diversify the economy away from just oil.
- Millions of quality jobs will be created in emerging fields.
Poverty Reduction
- Enhanced welfare policies and the growth of non-oil sectors will alleviate poverty.
- Oil-driven prosperity was reflected across all sections of society.
Better Public Services
- Citizens will enjoy world-class infrastructure—schools, hospitals, and utilities.
- Service delivery by government organizations will improve dramatically.
Confidence in Governance
- Transparent and accountable institutions will be created.
- Citizens can monitor public spending through open budgets and audits.
- Trust in democratic institutions will be strengthened over time.
Conclusion
Nigeria is well-positioned to mimic Saudi Arabia’s governance practices around oil wealth. This would entail increasing transparency in production volumes and earnings, eliminating revenue leakage through corruption, investing in oil infrastructure, establishing a sovereign investment fund, developing the non-oil economy, and adopting open governance. The payoffs for Nigeria would be immense: stable growth, poverty reduction, better infrastructure, and public services. Most importantly, prudent management of oil resources will lead to prosperity that is shared equitably by all citizens, not just elites. By learning from Saudi Arabia’s effective stewardship of hydrocarbon revenues, Nigeria can transform itself from just an oil-rich nation into an economically vibrant, more inclusive society. With visionary leadership committed to people-centric, prudent management of oil money, this future is very much within Nigeria’s reach.