The planned implementation of the Sovereign Wealth Fund (SWF) alongside the Excess Crude Account (ECA) by the Federal Executive Council, (FEC), portrays state governors in Nigeria as having a penchant for spending, at the expense of infrastructural development, analysts have said.
Some of the analysts, while commending the approval of the SWF by FEC, which includes the 36 state governors, fault the increment of the ECA to $10billion from the present $5.3 billion. They argue that expending such an amount in the interim as a buffer to the economy is at variance with the fiscal consolidation stance of the government.
“What the governors have done is to give with one hand and take the bigger chunk with the other hand, since they know the era of profligacy with ECA will soon be over, as soon as the SWF comes on full swing,” says an analyst.
Johnson Chukwu, managing director and chief executive officer, Cowry Asset Management Limited, said: “The challenge with the governors’ decisions is that they are mutually exclusive. The SWF and ECA cannot run concurrently. The SWF was in the first place, meant to address the legal and constitutional issues associated with the ECA, which is supposed to cease, upon commencement of operation of the SWF. It is therefore not feasible to increase the amount in the ECA when the governors have already approved the management process of the SWF,”.
Ken Iwelumo, former Senior Vice President – Investments, and a Senior Financial Advisor at the Global Wealth Management Division, Bank of America/ Merrill Lynch, also expressed concern over the two accounts running concurrently, stressing that Nigeria stands to gain from the SWF, if and when it is properly managed.
Razia Khan, analyst with Standard Chartered Bank, London said: “While some will be disappointed that this appears to be a ‘halfway’ solution – excess savings still go into the excess crude account – there is nothing to stop the Federal Government from saving its share of the ECA proceeds if it wishes to do so.”
The act setting up the SWF made provision for three classes of expenditure; Infrastructure fund, Stabilisation fund and Future generation. While the Infrastructure fund is to be invested in infrastructure projects/assets within Nigeria, the Stabilisation fund is to be used to augment the revenue due to the three tiers of government, during periods of low revenue earnings. The Future generation fund is to be invested for the benefits of future generations of Nigerians.
Speaking further, Chukwu said :“The decision of the state governors to approve the management process of the Sovereign Wealth Fund (SWF) and an increase in the Excess Crude Account (ECA) from $5.3billion to $10billion, must have been in realisation of the obvious risks which the country’s economy is exposed to, as a result of the unstable price of oil.
“The most important thing is the governors have accepted the need to save some of our crude oil earnings and to administer the savings in a structured format, under the SWF.
With this structure, the SWF will not only serve the current purpose of the ECA, but will also assist in funding infrastructure development in the country, in addition to saving for generations yet unborn.”
Similarly, Khan said “The key consideration was that Nigeria establishes some form of long term savings. To that extent, any establishment of a SWF, even with only USD 1bn of seed capital, is a step in the right direction. Also, by securing state governors agreement on this issue, the broader question of constitutionality of the establishment of a sovereign wealth fund is neatly side-stepped.