Excess Crude Account (ECA)

What Is the Excess Crude Account (ECA)?

The Excess Crude Account (ECA) is the name of a Nigerian government fiscal account that was created to save revenues — in excess of the budgetary benchmark price — that were generated from the sale of oil.

Understanding the Excess Crude Account

Established in 2004, the ECA’s primary objective was to protect Nigeria’s planned budgets against shortfalls caused by the volatility of crude oil prices. By detaching government expenditures from oil revenues, the Excess Crude Account aimed to insulate the Nigerian economy from external economic shocks. It sought to protect public expenditure from being patterned on the boom-and-bust cycle of the international oil market.

A Legacy of Controversy

The Excess Crude account is noted among sovereign wealth funds as particularly opaque and lacking in anti-corruption controls. The Account’s absence of rules governing deposits, withdrawals, and investments led to the Natural Resource Governance Institute ranking Nigeria as the second-most poorly governed fund among 34 resource-rich nations in a 2017 report. As currently constituted, the Excess Crude Account may always be regarded internally with suspicion given its lack of legal backing, proper structures, and exigent withdrawals. There exist no records of money-in-money-out — the normal tracking of a fund’s operations. Over the years, officials have expressed concern because the ECA’s balances seem to change at will without any corresponding evidence of withdrawals or approvals of such withdrawals.

With these underlying issues, the Account has seen wide swings in its value over time. The Excess Crude Account increased almost four-fold from $5.1 billion its inception in 2005 to more than $20 billion in November 2008  — which at the time, accounted for more than one-third of Nigeria's external reserves. By June 2010, the account had fallen to less than $4 billion based on budget deficits at all levels of the Nigerian government, a steep drop in oil prices, and the Great Recession of 2008–2009. By April 2018, the ECA's balance stood at $1.8 billion. As of 2020, the ECA's balance stands at just $72 million as the country continues to grapple with an unprecedented revenue crisis not seen since the early eighties.

No stranger to conflict, the Excess Crude Account has suffered deep mistrust since its inception because of a public accounting system that was perceived as rampantly corrupt, opaque, and subject to arbitrariness and abuse. Over the years, the ECA has consistently borne allegations of mismanagement, along with a barrage of lawsuits that have challenged its constitutionality and legality. Moreover, the Excess Crude Account has been accused of acting as a slush fund for high-rolling government executives to pilfer when they were broke, ill, or needed an indulgent vacation.

New Sovereign Wealth Fund to Replace ECA

In 2011, Nigeria's National Economic Council approved a plan to replace the Excess Crude Account with a national sovereign wealth fund (SWF), primarily to ameliorate the controversies surrounding the ECA’s legality. This SWF is comprised of three sub-funds with clearly stated objectives:

1. The Stabilization Fund: to support the budget in times of economic stress, including to hedge against volatile crude oil prices
2. The Future Generations Fund: to save for future generations of Nigerians
3. The Nigeria Infrastructure Fund: to invest in domestic infrastructure

Essentially, the SWF's objectives are the same as those of the original Excess Crude Account. The main difference is that the sovereign wealth fund is structured to ensure more productivity and transparency; and at least it was established by statute, so unlike the Excess Crude Account, it does not carry the burden of alleged illegality.

Prognosis for Excess Crude Account

To date, the sovereign wealth fund has yielded good results. And — as it seems redundant for Nigeria to manage both accounts concurrently — with the sovereign wealth fund’s legal backing, organized structure, and wider scope, the Excess Crude Account could be conveniently subsumed into the SWF. So why has this not happened? As with anything else surrounding the Excess Crude Account, there is no simple answer.

It comes down to an internal political struggle. Some government officials believe that the Excess Crude Account should be obliterated. Others believe that the ECA should be legalized. In trying to give the ECA legal backing; however, lawmakers first need to thrash out numerous other areas of conflict.

One, for example, is the right of states and local governments to decide whether they are comfortable with the federal government managing their share of the money at all. In any case, as of this writing, these two well-intended instruments of fiscal policy — the Excess Crude Account and the sovereign wealth fund — still co-exist in Nigeria.