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Nigeria's Okonjo-Iweala seeks reform without the 'godfathers'

Western nations and international agencies admire the reform efforts of Nigeria's new finance minister. But Ngozi Okonjo-Iweala faces daunting challenges in cleaning up embedded corruption.

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Most financial leakage occurs before revenue even gets to the treasury, at the state oil firm or oil ministry level, areas over which Okonjo-Iweala has no oversight.

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Nigeria's federal system also means oil money is distributed between states and local councils before what's left over arrives at her ministry.

Other problems strangling Nigeria's prosperity, such as with the power supply and oil refineries, lie outside her remit.

"All these reforms can't just be left to the finance ministry. These are huge institutional changes that need commitment across ministries," said Bismarck Rewane, head of Lagos-based consultancy Financial Derivatives.

The biggest drain on Nigeria's budget, the fuel subsidy, is an explosive issue. Her support for an abortive attempt to remove it earlier this year damaged her credibility and she has since shelved it. "It's above my pay grade," she says.

Sovereign debt researchers like Standard Bank's Samir Gadio think efforts to tame government spending don't go far enough. Fiscal policy is "exceptionally loose. Nigeria should be running a massive fiscal surplus,", given high oil prices, said Gadio.

Neither has Okonjo-Iweala done much to reform the opaque way in which budgets are put together. Nigeria bases its budget on an oil price that is well below market levels and production assumptions that are well above actual output.

Next year's budget assumes oil at $75 a barrel, even though Bonny Light crude is trading now at about $115, and production is at 2.5 million barrels a day.

Oil income above the budget price is supposed to go into the ECA, which can then be used to finance the deficit or cushion against price shocks. The money can also be saved for the future or distributed to institutions, but there is little disclosure about how it is used, and it is often raided even when prices are high.

"Despite her efforts, there's no transparency in the assumptions on which the budget process is built," said Antony Goldman, head of Africa-focused PM Consulting. "Until that is cleared up, there's going to be little confidence that the budget is a real representation of what's earned and spent."

Perhaps her most lasting impact could be championing the sovereign wealth fund. If used properly, it could put oil funds out of the reach of even the most profligate of future rulers.

She overcame opposition from the state governors, who fear it means less money for them. After eight months of talks, they agreed to it in June. As a compromise, it starts with a modest $1 billion, but once it has enough momentum, it could achieve what has long eluded Nigeria: investment for future generations.

"She's playing the long game. The governors were blocking the SWF and without their support, it was never going to take off," said Kayode Akindele, partner at Nigeria-based consultancy 46 Parallels. "But once it's up and going, its going to be very hard for the governors to kill it."

If she can do that, she could take another international job knowing that at least one major reform can't be undone.

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