About two months ago the Federal Executive Council (FEC), which includes the 36 state governors, approved the establishment of a Sovereign Wealth Fund SWF), but to run concurrently with the Excess Crude Account (ECA) for the time being.
The Fund is expected to provide a firmer legal basis to ring-fence Nigeria’s savings. It has three main aims: saving money for future generations, providing financing for badly needed infrastructure, and starting a stabilisation fund to defend the economy against commodity price shocks.
Although some analysts had expressed misgivings over the two bodies running concurrently, they, however, commended the governors for sheathing their swords, adding that they must have finally come to terms with the obvious risks which the country’s economy will be exposed to as a result of the unstable price of oil.
The inaugurated board was supposed to swing into action immediately, but Nigerians are becoming worried over the delay in the operation of the Fund. The presumption of government officials is that Nigeria is oil rich and that oil reserves will outlast them. This is unfortunate. An overweight cost of governance, brazen abuse of fuel subsidies, oil theft, leakages and poor economic management mean that Nigeria’s foreign currency earnings (95 percent is from oil) are not having significant impact.
There is need for all the parties, both the Federal Government and the governors, to come to terms and avoid further delay if the objectives of the Fund are to be achieved.
A government official familiar with the matter gave reasons for the delay. The governors’ argument is that there is a law which says that whatever that is earned should be put into the federation account and shared (which is not amended yet), and that the law is superior to the Nigeria Sovereign Investment Authority (NSIA) Act 2011, which established the SWF.
Therefore, in the spirit of true federalism, the executive wants to carry them along. Besides, the Federal Government only has control over its own portion of the ECA. Yet it is ready to take from its portion to increase the $1 billion seed fund that is already there in the SWF. Getting governors to completely buy into this idea has stalled the take-off of NSIA. But conversations can’t go on forever.
For both parties, the priority should be a successful take-off, whether with the $1 billion seed fund or more. The inaugurated board and management team cannot just sit and wait.
Nigerians expect the people saddled with the responsibility of governance to not only demonstrate their commitment, but also be seen to be committed to the overall growth of the economy. Given the parlous state of our infrastructure, the Infrastructure Fund portion of the NSIA has to start making long overdue investments. Even with N150 billion, NSIA can structure a special investment vehicle (SIV) to pool resources with private investors and or concessionaires.
For inspiration, the management of NSIA can look to the Indonesia Infrastructure Guarantee Fund (IIGF) and the Korea Infrastructure Credit Guarantee Fund (KICGF), which have been used to finance power plants, roads, railways, etc.