They posit that Nigeria should rather adapt the Chinese and Malaysian models which focus on technology transfer and job creation through investment in world class industries, rather than the Norwegian or Swiss models of portfolio investments.
The recommendations are coming on the heels of recent moves by the National Assembly to the effect that local banks be targeted as investment outlets for the fund, in which government has put in a paltry sum of $1 billion as take off seed.
Members of the House of Representatives had some weeks ago, in an effort at discouraging the funds from being managed by foreign banks, suggested that steps be taken to keep the planned funds with the Central Bank of Nigeria (CBN) and other investment and commercial banks.
While some lawmakers felt the Act setting up the fund must be amended to effect the change suggested, the committees on commerce, banking and finance, was mandated to conduct a public hearing to explore the possibility of keeping the funds in first class commercial banks in the country.
Besides, BusinessDay investigations have revealed that parts of the Act setting up the SWF favours it being managed by foreign banks, as well as having international advisers to recommend on investment options.
Ken Iwelumo, Former Senior Vice President – Investments, Bank of America/Merrill Lynch said “Nigeria needs a SWF that will use its offshore investments to drive critical Foreign Direct Investments (FDI) and infrastructural investments (power, petrochemicals, food processing, steel etc.) into Nigeria.
Nigeria does not need the Norwegian, Swiss, State of Wisconsin, State of California SWF models, which primarily focus on portfolio investments (actively managing a diversified portfolio of stocks, bonds, ETFs, mutual funds, options and futures). Nigeria needs to copy the Chinese, Singapore, Hong Kong, Malaysia and UAE models where the focus is on aggressively attracting and driving high tech, low tech, labour intensive industries into their countries.”
Iwelumo who is now the managing Partner at CKX Partners Ltd, a Private Equity/Financial Advisory and Services firm based in Lagos further said, “The goal of the Nigeria SWF should be technology transfer, intensive job creation, wealth creation and the rise in living standards. Large industries tend to bring along with them their own unique infrastructure (ie Shell, Chevron, Dangote Cement and Mobil), this then forms the nucleus (cornerstone) that will attract other industries to the area.”
Razia Khan, analyst with Standard Chartered Bank, London said, “ I’m not sure I see the benefit of merely redepositing those funds with the local banking sector. First of all, it would add to the cost of sterilising Nigeria’s oil windfalls. Second, it would discourage banks from having to do anything real to attract deposits – such as offering more attractive deposit rates to savers – as they would be guaranteed easy money.
The second idea, investing in strategic companies, and encouraging them to open Nigerian subsidiaries may be an idea. But with the amounts involved in the SWF extremely modest to begin with, it is not clear that Nigeria would own enough of a strategic stake to be able to influence investment decisions in those companies.
”Further investigations showed that oil producing nations currently have over $2.62 trillion held in SWFs. A ranking of SWFs assets, under management by the Sovereign Wealth Fund Institute, which tracks SWF activities around the world, shows that among African oil producing countries, Libya has been able to build up the biggest SWF under management on the continent.
The Libyan Investment Authority (LIA) set up in 2006, currently has about $70 billion in assets under management, the highest by any oil producing nation in Africa . Algeria ranks second in Africa with its Revenue Regulation Fund set up in 2000 which currently has $57 billion under management.
Nigeria ranks along with Angola and Ghana as countries that have not made any appreciable progress with their SWFs. While Angola and Ghana are relatively new comers in oil production and are in the process of establishing their own SWFs, Nigeria has been producing crude oil since 1958, longer than all the SWFs except that of Kuwait, which has saved $292 billion since 1953 from its oil earnings.
Nigeria is estimated to have earned over $400 billion from crude oil sales since the 1970s, but the only attempt to save part of its oil earnings only started in 2003 when the Obasanjo government set up the Excess Crude Account (ECA).
By 2007, the ECA had more than $20 billion in savings. However the oil price slump in 2008 and pressures from state governments to share the money have seen the total depletion of the ECA, expected to replace SWF.
Indeed, the decision of the state governors at the recent National Economic Council meeting to finally give their approval to the management process of the SWF was contingent on an increase in the Excess Crude Account (ECA) from $5.3billion to $10billion.