Nigeria 's sovereign wealth fund: Transparency and sound Management

by Emeka Chiakwelu

Nigeria is making a bold but calculative move to establish a sovereign wealth fund (SWF). The Acting President of Nigeria Goodluck Jonathan has asked his economic team led by the newly appointed Minister of Finance Olusegun Aganga to make the requisite arrangements to establish a sovereign wealth fund (SWF) as soon as possible. This is a good thing coming from the presidency, although Nigeria has wasted substantial time in coming to this at a later period. But it’s better late than never.

This development is giving us a widow to the mind-functioning of our leader Goodluck Jonathan. This shows that he think seriously about the finance and wealth of the nation. He understood that excessive revenue generated from oil export must not be left dormant in the foreign reserve but can be prudently invested and be appreciated. SWF is designed for countries like Nigeria that do have little or no foreign debt with budget surplus, although Nigeria in her recent budget will borrow some money to finance her surge in spending. But all things being equal, Nigeria is among the extreme low debt nations-to- GDP ratios; therefore SWF is still good for the country to prudently manage her foreign reserve.

Even with global recession at this point in time establishing sovereign wealth fund (SWF) looks attractive and promising. Gradually the global recession is waning, with emerging lower inflation, Nigeria can invest and gain an appreciating returns. A while ago Nigeria was accumulating a formidable foreign reserve which became a war chest to stabilize the weaken naira. Nigeria foreign reserve was hovering around $50-$55 billion few years back but as result of continuous withdrawal and monetary hiccup it nosedived to $40 billion but with the recent increase of the price of oil the foreign reserve will be increasingly replenish.

On the Prudent management of Nigeria’s foreign reserve, Emeka Chiakwelu, principal policy strategist at Afripol offered strategic steps to be taken by Nigeria to realize her vision of making club of the world’s 20 biggest economies by the year 2020 by establishing an investment fund. Chiakwelu said years ago on the paper he delivered on United Nations Day in United Stated: “Nigeria’s foreign reserve is hovering between (50-54) billion dollars and such fund must not be allowed to lay dormant in the foreign holding. A reasonable portion of the reserve can be invested in a foreign market, to yield an appreciating return. Nigeria can learn from Dubai and other Persian Gulf oil countries that have invested in the western economies especially in the American Real estate and fiduciary bonds. Government should assemble a committee of experts to manage the reserve and invest some of the money in stable market overseas.”

Transparency SWF

Transparency is an important foundation on having and managing a corrupt free sovereign wealth fund. It is essential that transparency and probity will be the guiding light to our country as we invest our money with the returns to create more wealth. First and foremost, capable men and women of integrity will run and manage the SWF. Some people are so bearish and cynical on Nigeria that they think that Nigerians are devoid of honesty, uprightness and integrity. But the truth is that Nigeria has good men and women who are patriots and will do a good job for our beloved Nigeria. Transparency must be self evident in the sense that it will be open to the public and anybody can be able to access information on the investments and returns.

Nigeria therefore should join the association of the International Working Group of Sovereign Wealth Funds (IWG). This body IWG is abiding to the rules and regulations of the treaty they made with International Monetary Fund (IMF) named Santiago Principles that detailed the openness, transparency and probity in the management of sovereign wealth fund.

It was documented in Wikipedia clearly that the IMF’s “Santiago Principles are a set of 24 voluntary guidelines that assign “best practices” for the operations of Sovereign Wealth Funds (SWFs). The principles were proposed in 2008 through a joint effort between the International Monetary Fund (IMF) and the International Working Group of Sovereign Wealth Funds (IWG). So far 23 nations have signed onto the principles.

According to the IWG, the creation of the Santiago Principles was driven by the goal for SWFs

* To help maintain a stable global financial system and free flow of capital and investment;

* To comply with all applicable regulatory and disclosure requirements in the countries in which they invest;

* To invest on the basis of economic and financial risk and return-related considerations; and

* To have in place a transparent and sound governance structure that provides for adequate operational controls, risk management, and accountability.

The Santiago Principles contribute to the IWG’s objective for SWFs by monitoring three important areas – legal framework, institutional framework and governance framework, and investment policies and risk management.”

Managing sovereign wealth fund (SWF)
The presidency should set up a committee of experts to manage the wealth fund. The Minister of Finance or the Governor of Central Bank of Nigeria may head the committee. The presidency may decide to step outside the confines of the government and appoint non governmental bureaucrat to head a commission. But whatever the case might be, by the nature of their roles – minister of finance and governor of the central bank will play active roles in the management of the SWF. It is essential that the committee must comprise of Nigerians from all walks of life including the average Nigerian trader and market women to university professor and government bureaucrats. This is important in order to involve the Nigerian society as partakers and watchdogs. SWF can work for Nigeria when properly managed with transparency and probity.

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