June 28, 2012 / By Ade Ogidan and Wole Shadare / The Guardian
THE decision of the National Executive Council, yesterday, to approve the management process for the $1 billion Sovereign Wealth Fund (SWF) could not have come at a better time given the current global economic turmoil ravaging many developed and developing countries across the world.
The NEC meeting, which was presided over by Vice-President Namadi Sambo, at the Presidential Villa, Abuja, also approved the increase of the Excess Crude Account to $10 billion from the present $5.3 billion, as part of a deliberate attempt to provide at least a three-month buffer protection for the nation’s economy and insulate it from the vagaries and uncertainties of the global economy, which has been fuelled by the volatility of crude oil prices at the international market.
Also, NEC has fully thrown its weight behind plans by President Goodluck Jonathan’ to appoint members of the SWF Board of Directors, including the Managing Director/Chief Executive Officer, in line with the NSIA Act of 2011.
Historically, the first sovereign wealth fund was established in Kuwait in 1953, as a means of helping to stabilise the economy from fluctuating oil prices.
In 1956, the Gilbert Islands (now Kiribati), established the revenue equalisation reserve fund to manage profits from phosphate mining. However, after Kuwait and Kiribati, the next major SWFs were created in the 1970s, in the wake of the oil stock. But the most recent wave of SWFs’ establishment started in the 1990s with the Norwegian government’s pension fund-global in 1990, after which the trend has continued till today. And within the last five years, some countries such as China, Iran, Russia, Qatar, and United Arab Emirates, have established their own SWFs.
The Nigerian SWF, which is the brainchild of former Minister of Finance and current Minister of Trade and Investment, Olusegun Aganga, was signed into law via the Nigerian Sovereign Investment Authority Bill on Thursday, May 26, 2011, by President Jonathan. And based on the Santiago Principle, the SWF comprises three investment baskets – the Nigeria Infrastructure Fund; the Future Generations Fund and the Stabilisation Fund.
Specifically, the Infrastructure Fund is expected to be used in bridging the nation’s infrastructure gap by investing in the development of critical facilities across the country. Notably, 10 per cent of this fund will be devoted to agriculture and regional government-sponsored development projects that will promote economic development in under-served sectors or regions in Nigeria.
Whereas the Future Generations Fund will be used to build an inter-generational savings base by investing in longer term assets that generate returns to accumulate wealth for future generations of Nigerians, the Stabilisation Fund will be used to protect the country’s budget by providing a stable, last-resort source of finance during periods of fiscal deficit.
Also, the Stabilisation Fund will ensure the smooth functioning of government and delivery of key services during periods where revenues from petroleum sales are less than the level anticipated and approved by the National Assembly.
Explaining his reason for initiating the establishment of the SWF, Aganga had said that, as a fundamental component of Nigeria’s macro-economic management framework, the SWF, which will be managed by the NSIA, would help to reduce Nigeria’s susceptibility to the unintended consequences that might arise from the volatility of crude oil price at the international market.
“With the establishment of the SWF, Nigeria now joins the other OPEC states and more than 50 other natural-resource-rich countries, which together manage over $3trillion in sovereign assets, in having a national savings plan for managing natural resource wealth. Up until now, Nigeria was one of the few OPEC members without a Sovereign Wealth Fund. In fact, Ghana and Uganda have moved forward with establishing their own Sovereign Wealth Funds, even when their oil production was not yet fully on stream.
“Algeria established its Sovereign Wealth Fund in 2000, to save the difference between the actual and projected revenue generated from petroleum resources. In 2011, the Algerian fund was estimated to worth $57billion. Globally, Sovereign Wealth Funds now form a fundamental component of strategic management of fiscal surpluses,” Aganga said.
He added: “If you recall, over the past six years, the average price of oil was about $78 per barrel. However, in the last 10 to 15 years, this average price of oil was about $57 and $45 per barrel respectively. This kind of volatility can have deleterious economic consequences, particularly in an economy like ours whose revenue is so closely tied to the price of oil.”
According to him, as a fundamental aspect of Nigeria’s macro-economic wealth management framework, the SWF will “help reduce Nigeria’s susceptibility to the unintended consequences, which the volatile oil prices can bring about such as high inflation and adverse impact on economic growth; real appreciation of the currency; weak export base; surge in import and the accompanied unsustainable balance of payments position.”
However, since the Presidential assent to the NSIA last year, its successful implementation had been stymied by opposition from the Nigerian Governors Forum (NGF), which had reasoned that all oil revenues accruing to the Federal Account must be shared by all the three tiers of government as provided for in the nation’s constitution.
The NGF had also alleged that it was not fully carried along during the conceptualisation stage and subsequent signing of the NSIA Act last year, hence its decision to head for the Supreme Court to stop the Federal Government from going ahead with the establishment of the SWF.
But while the opposition lasted, Aganga had maintained that all the stakeholders were fully consulted during the process of getting the NSIA Bill signed into law, saying the Fund was in the best interest of all Nigerians and generations yet unborn.
In an interview with a Nigerian newspaper (not The Gaurdian), in Australia in October, Aganga explained that in the previous year, “we actually took our time to make sure that we did everything that we needed to do. I actually made representations to the governors at the National Economic Council at least four times. Each time we discussed it, we looked at areas where we needed to be flexible; we looked at their concerns and we structured it in a way to accommodate all the concerns.
“The idea was to have three sub-structures: One, a future generation fund for our children, grandchildren and great grandchildren. Secondly, the Stabilisation Fund and thirdly, infrastructure Fund, which will help develop our infrastructure in the country; serve as a catalyst for bringing in other investors to invest in infrastructure, including Sovereign Wealth Fund globally.
“Therefore, Sovereign Wealth Fund is a tool for diversifying our economy. That is one of the biggest bottlenecks to productivity in our country. That is why companies cannot make enough profit and therefore cannot pay taxes. And if they are not paying taxes, there is no way you can generate other sources of revenue.”
Despite the delay in the take-off of Nigeria’s Sovereign Wealth Fund, experts have commended the vision and courage of Aganga, in pushing for the establishment of the fund. Their commendation came on the heels of the approval by NEC on Monday, that the Federal Government should go ahead with the implementation of the NSIA Act, which brought to an end, past bickering on the setting up of the SWF.
“The National Economic Council has agreed with the Federal Government to go ahead to implement the Nigeria Sovereign Investment Authority Act , with an initial fund of $1 billion,” the Chairman, Nigeria’s Governors’ Forum and Governor of Rivers State, Rotimi Ameachi, told journalists after the NEC meeting in Abuja, on Monday.
Some governors had, even before Monday’s pronouncement, thrown their weights behind the implementation of the SWF. For instance, the Chairman, Northern Governors Forum and Chief Servant of Niger State, Dr. Aliyu Babangida Muazu, had said in Minna, earlier this month, that the creation of the SWF was a brilliant idea that would aid sustainable growth and development in Nigeria.
“The Minister of Trade and Investment, Olusegun Aganga, is the founder and father of Sovereign Wealth Fund in Nigeria. He is one of those few patriotic and visionary Nigerians, who is very passionate about the economic transformation of this country.
“His appointment by President Jonathan, first as the Minister of Finance, and now as Minister of Trade and investment, has resulted in the introduction of policies and reforms that have helped to put Nigeria on a sound footing to attract local and Foreign Direct Investment across all sectors of the economy. Had it been that we established the Sovereign Wealth Fund 50 years ago, we would have gone very far.”
Similarly, Speaking during the Eminent Speakers Series III, organised by the Securities and Exchange Commission in Abuja, the Managing Director, Citigroup, David Cowan, noted that the initiative of the Sovereign Wealth Fund was commendable, adding that its implementation would help to strengthen the Nigerian economy and insulate it from the ongoing global economic crisis.
“The establishment of the Sovereign Wealth Fund is a good initiative. The pressing need is really to get it work. This gives Nigeria the greater ability to cushion shocks in case the price of oil declines in the global market. The managers of the Nigerian economy should be conscious of what is happening in the global market, particularly the Euro Zone debt crisis,” he said.
Now, stakeholders have advised that, to turn the birth of NSIA operations into fortune for Nigerians, its affairs must not be mired in politics and should be transparently handled.