Controversy over Nigerian Sovereign Wealth Fund

Following the passage of the Nigerian Sovereign Investment Authority (NSIA) bill in the National Assembly (NASS) earlier in the year, the apparent controversy cum fears plaguing the establishment of the US$1billion Nigerian Sovereign Wealth Fund (SWF), particularly between the Federal Government of Nigeria and 36 state governors, under the auspices of Governors’ Forum, in particular and generality of Nigerians, indicates there’s yet no actual understanding of the propriety or otherwise of the concept in certain quarters.

But, what’s an SWF all about? According to Wikipedia, a free online encyclopedia, a sovereign wealth fund is described as “a state-owned investment fund composed of financial assets such as stocks, bonds, property, precious metals or other financial instruments. Sovereign wealth funds invest globally.”

Consequently, thus, some sovereign wealth funds, experts say, are held by a central bank, which accumulates the funds in the course of its management of a nation’s banking system; “this type of fund is usually of major economic and fiscal importance.” Other sovereign wealth funds are simply the state savings which are invested by various entities for the purposes of investment returns, and which may not have a significant role in fiscal management.

In terms of the source of accumulated funds, it is said that such funds may have their origin in, or may represent foreign currency deposits, gold, Special Drawing Rights (SDRs) and International Monetary Fund (IMF) reserve positions held by central banks and monetary authorities, along with other national assets such as pension investments, oil funds, or other industrial and financial holdings. In short, SWFs are “assets of the sovereign nations which are typically held in domestic and different reserve currencies such as the Dollar, Euro and Yen.”

For instance, as oil-rich nations with substantial excess crude earnings like ours, research has shown that the first ever sovereign wealth fund was the Kuwait Investment Authority (KIA), established in 1953. Interestingly today, the Kuwait Investment Authority is currently valued at about US$202.8billion, while the UAE (Abu Dhabi Investment Authority), established in 1976, impressively tops the chart with whopping US$627billion among a total of 50 SWFs, owned by different countries of the world, as of October 2011.

Perhaps in preparation for the $1billion Nigeria SWF launched lately, and expected to be managed by global auditor and consultancy KPMG, Malam Sanusi Lamido Sanusi, Governor, Central Bank of Nigeria (CBN), sometime July 2010, had reportedly informed Reuters that the country was planning to fast-track the creation of a sovereign wealth fund “after powerful state governors, who initially opposed the idea, softened their stance”, while disclosing that a committee would design the legal framework for a “quick take-off” of the fund, a moment after a meeting of the National Economic Council, in Abuja, Federal Capital Territory (FCT).

That is why the Nigerian SWF was created with the supposed aim of “saving money for future generations”, while providing financing for obvious infrastructure deficit, and providing a stabilisation fund to defend the economy against commodity price shocks, a disturbing situation which pathetically dazes Nigeria sometimes. “It is also clear given the current challenges facing our economy and the global financial crisis, we cannot afford to waste any time,” Dr. Ngozi Okonjo-Iweala, Finance Minister and Coordinator of Economy, has said in respect of the Nigerian Sovereign Wealth Fund.

The Fund is expected to replace the equally contentious Excess Crude Account (ECA) now about $5billion, according to Okonjo-Iweala, the proverbial juicy, “icing-on-the-national cake” of the state governors, many of whom regard it as “free money” and oftentimes, are ready to do anything to pester the Presidency to share the accruing oil windfall. Unfortunately, Nigeria, hitherto, was said to be one of only three OPEC member states not having a sovereign wealth fund, as their leaders cum economic managers purportedly, are predominantly interested in sharing and spending oil money with unwarranted profligacy.

Amid collapsed infrastructure, youth unemployment and festering poverty across the land, some of these state chief executives in particular, must further be educated on the need to efficiently manage this superfluous national wealth, by investing in potential assets that can appreciate and yield returns to meet other significant national commitments in addition to possible benefits for the future generation.

More so, SWFs are typically created when governments have budgetary surpluses and have little or no international debt. This excess liquidity, in the perception of another school of thought, is “not always possible or desirable to hold as money or to channel into immediate consumption” This is yet another logical reason why both external reserves and ECA cannot serve the prime purpose of a Sovereign Wealth Fund. A nation like Nigeria, which basically depends on raw material exports such as crude oil and resorts to unbridled sharing and spending of oil revenue cannot afford to fritter away its dwindling oil earnings any longer, especially in these austere economic times.

Thus, with oil as the mainstay of the country’s economy and relatively unstable crude oil prices in the international market, resulting in sharp drops in revenue profiles, the Federal Government through the National Economic Management Team (NEMT), must do more to explicate the fundamentals of an SWF to a broad spectrum of Nigerians by sensitising, enlightening and communicating more effectively with all stakeholders. This is essential because many yet can’t comprehend how the SWF model works. A clear explanation of core issues may douse the fears of those who are still opposed to the creation of an SWF and enable them to see reason as to why Nigeria needs it at this critical moment in its “petrodollar” economy.

Most of the “powerful” state governors who usually delight in mere collection of their state monthly allocations from the Federation Account and mindless sharing of excess crude earnings with little or no commensurate consequential socio-economic improvements in the lives of the citizenry should give NEMT the benefit of the doubt to prove their mettle with the SWF initiative.

If faithfully implemented as expected, one thinks the Nigerian Sovereign Wealth Fund can boost Nigeria’s economic competitiveness and credit worthiness; prudent financial resource management; reduction of wastage, poorly coordinated spending in public expenditure management; creation of multiple streams of income as well as capital growth for the enhancement of infrastructural development across the country.

Written by
Gbenga Kayode
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