A Nation's Cash Cow

A ‘cash cow’ is a product or a business unit that generates unusually high profit margins: so high that it is responsible for a large amount of a company's operating profit. This profit far exceeds the amount necessary to maintain the cash cow business, and the excess is used by the business for other purposes.

Risks of a ‘cash cow’ include complacency, with management ignoring the need for change as market forces erode value; and ongoing turf wars between the management in charge of the ‘cash cow’ and other managers trying to garner support for other products.

The above definitions succinctly describe the economic situation in Nigeria with particular regards to crude oil, which has become the nation’s ‘cash cow’ over the last few decades.
It is common knowledge that Nigeria has earned phenomenal revenue from crude oil sales, which culminated in the creation of the Excess Crude Account by the Obasanjo administration in 2004. Funds were drawn from the Excess Crude Account in the past to pay for special projects and debt servicing. During Obasanjo’s administration, about $12.4bn was withdrawn from the account to offset Nigeria’s debt to the Paris Club; $17milllion for two additional days for the 2006 National Population Census; and more than $2.3billion for Niger Delta Power Plants. Whilst it’s not the reason for my comments, it is worth noting that the so-called ‘Power Projects’ is still a dog’s breakfast!

It is not surprising that Nigeria has now become so complacent, even though market forces (ie the current global economic downturn) has eroded the value of crude oil from its peak of $147 to $40 per barrel. Whilst other countries (United Arab Emirates as an example) has looking at ways of generating revenue and reduce their dependence on crude oil, economic managers in Nigeria cannot see beyond their nose. Dubai is arguably the current largest construction site in the world, with the Monarch working extremely hard to turn the City into one of the world’s favourite tourist destination. The decision to diversify was based on the advice received on the depletion of its oil reserves and hence, the need to explore alternative ways of raising revenues. Dubai is now famous for its shopping malls and upmarket fashion label shops.

A report recently released on world commodities, did show that over the last decade, Cocoa has remained the most stable commodity. In fact, the price of Cocoa is trading at its highest for 37 years. I remember vividly been taught about ‘cash crops’ (Cocoa, Rubber etc) during my primary education. I don’t think at that point I knew the meaning of ‘crude oil’. The infrastructure built in the Old Western Region by the Late Obafemi Awolowo was mainly financed through Cocoa export. Instead of our leaders think outside the box, and use the current global economic crisis to retrace their steps, they are still busy speculating on future oil prices.
The 2009 budget is based on $45, which is higher than the current oil trading price. Which means the 2009 budget might be in deficit from the word ‘go’. Members of the Senate Committee on Budget Appropriation jumped for joy last week when oil price rose from $40 - $48 as a result of the Israeli-Palestinian crisis. The Senate Committee Chairman was quoted as saying the “benchmark for the 2009 budget should be been raised higher, and he went as far as speculating that oil will be trading at $50 and rise to $100 within the next two months”. When did honourable members of the Senate become ‘oil trading experts’?

Governance in the states of the federation (probably with the exception of Lagos) goes to sleep for 29 days everyone month, only for State executives to turn up in Abuja at the end of the month to collect their share of nation ‘booty’ from the Excess Crude Account.

It is my understanding that the Federal, State and Local Government shared N106billion in December alone from the account. The highest recipients were the oil-producing states, River (N15.5billion) Akwa Ibom (N4.5billion), Delta (N3billion), Bayelsa (N1.8billion). What has been the development in these states over the last eight years apart from allegation and counter allegation of corruption and fraud. It will be interesting to see how the states’ budget stacks up against the guaranteed monthly return from the Excess Crude Account. I’m sure their budget is 100% based on future oil revenue allocation. When a State receives N15.5billion monthly, why will the Governor be interested in ‘internal generated revenue’?

Anyway, as the Yoruba says ‘igba kan ko ni lo bi orere’ meaning ‘nothing last forever’, except for the Grace of the Almighty God. However in the meantime, it is business as usual – we keep milking the ‘cash cow’.